TMI Blog1958 (11) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... d was in fact a previously existing company called the Amritsar Distillery Co. Ltd. reconstructed under the provisions of the Companies Act. The appellant carried on the same business as its predecessor, namely, sale of the produce of its distillery to licensed wholesalers. The wholesalers in their turn sold the liquor to licensed retailers from whom the actual consumers made their purchases. The entire trade was largely controlled by Government regulations. After the war started the demand for country liquor increased but difficulty was felt in finding bottles in which the liquor was to be sold. In order to relieve the scarcity of bottles the Government devised in 1940 a scheme called the buy-back scheme. The scheme in substance was that a distiller on a sale of liquor became entitled to charge a wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Government which he was bound to repay to the wholesaler on the latter returning the bottles. The same arrangement, but with prices calculated at different rates, was made for the liquor sold in bottles by a wholesaler to a retailer and by a retailer to the consumers. Apparently it was conceived t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to these taxes to the Appellate Assistant Commissioner and thereafter to the Tribunal failed. It then obtained an order referring a certain question arising out of the assessments for decision by the High Court of Punjab. The question originally suggested was reframed and in its final form reads thus : Whether on the facts and circumstances of the case the collections by the assessee company described in its accounts as " empty bottle return security deposits " were income assessable under section 10 of the Income-tax Act ? The High Court answered the question in the affirmative. The present appeal is against that decision which related to all the three varieties of taxes for which the appellant had been made liable. We are concerned in this appeal only with the additional sums demanded and received by the appellant and described as security deposit and not with the price of bottles which also it took under Government sanction. The question is whether these amounts called security deposits were trading receipts. Now, as already stated, the appellant's trade consisted in selling in bottles liquor produced in its distillery to wholesalers. The sale was made on these terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Again the fact that the money paid as price of the bottles was repaid as and when the bottles were returned while the other moneys were repaid in full when 90 per cent. of the bottles were returned does not affect the question for none of these sums ceased to be parts of the consideration because it had been agreed that they would be refunded in different manners. It is not contended that the fact that the additional sums might have to be refunded showed that they were not part of the price. It could not be so contended because what was expressly said to be the price of bottles and admitted to be price was also refundable. If so, then a slightly different method providing for their refund cannot by itself prevent these additional sums from being price. Now, if these additional sums were not part of the price, what were they ? Mr. Sastri said that they were deposits securing the return of the bottles. According to him if they were such security deposits, they were not trading receipts. Again we are unable to agree. There could be no security given for the return of the bottles unless there was a right to their return for if there was no such right, there would be nothing to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of any goods supplied or services rendered by him in the course of its trade, but simply by virtue of the fact that he has been appointed an agent of the company with a view to him trading on its behalf, and as a condition of his appointment has deposited with or, in other words, lent to the company the amount of his stipulated deposit." He also said at page 56 : " If the agent's deposit had in truth been a payment in advance to be applied by the company in discharging the sums from time to time due from the agent in respect of petroleum products transferred to the agent and sold by him the case might well be different and might well fall within the ratio decidendi of Landes Bros. v. Simpson and Imperial Tobacco Co. v. Kelly. But that is not the character of the deposits here in question. The intention manifested by the terms of the agreement is that the deposit should be retained by the company, carrying interest for the benefit of the depositor throughout the terms of the agency. It is to be available during the period of the agency for making good the agent's defaults in the event of any default by him ; but otherwise it remains, as I see it, simply as a loan owing by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dollars lay with the company, they appreciated in value and later the treasury acquired the dollars and paid the company for them in sterling at the then current rate of exchange, as a result of which payment the company made a profit. It was held that the profit was a trading receipt of the company. Lord Greene said at page 300 : " The purchase of the dollars was the first step in carrying out an intended commercial transaction, namely, the purchase of tobacco leaf. The dollars were bought in contemplation of that and nothing else." He also observed that the dollars " were an essential part of a contemplated commercial operation." It seems to us that the amounts with which this case is concerned, were paid and were refundable as an integral part of a commercial transaction, namely, the sale of liquor in bottles by the appellant to a wholesaler. The case nearest to the present one is, in our view, that decided by this court in K. M. S. Lakshmanier Sons v. Commissioner of Income-tax and Excess Profits Tax, Madras. There the appellants, who were the assessees, were merchants carrying on business as the sole selling agents for yarn manufactured by the Madura Mills Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod cannot be regarded as borrowed money ........ " It seems to us that the amounts involved in the present case were exactly of the nature of the deposits made in the second period in Lakshmanier Sons case. There, as here, as soon as a transaction of sale was made the seller received certain moneys in respect of it. It is true that in Lakshmanier Sons case, the transaction was a contract to sell goods in future whereas in the present case the transaction was a sale completed by delivery of the goods and receipt of the consideration. But that cannot change the nature of the payment. In Lakshmanier Sons case, the payment initially made was refundable after the price had been paid ; in the present case the contract is to refund the amount on the return of the bottles already sold. In each case therefore the payment was made as part of a trading transaction and in each case it was refundable on certain events happening. In each case again the payment was described as a deposit. As in that case, so in the present case, the payment cannot be taken to have been made by way of security deposit. We must therefore on the authority of Lakshmanier Sons case, hold the amounts in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contingency arising, the appellants undertook to repay an equivalent amount at the termination of the dealings. The transaction had thus all the essential elements of a contract of loan, and we accordingly hold that the deposits received under the final arrangement constitute borrowed money." Having observed that the description of the payment made by the customer as a deposit made no difference for a deposit included as a loan, the learned Chief Justice further said at page 208 : " The fact that one of the conditions is that it is to be adjusted against a claim arising out of a possible default of the depositor cannot alter the character of the transaction. Nor can the fact that the purpose for which the deposit is made is to provide a security for the due performance of a collateral contract invest the deposit with a different character. It remains a loan of which the repayment in full is conditioned by the due fulfilment of the obligations under the collateral contract." In coming to the view that he did with regard to the arrangement prevailing in the third period, the learned Chief Justice referred with approval to the case of Davies v. Shell Company of China, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese amounts and thereupon transferred them to the credit of its partners. The Revenue sought to tax the amounts so transferred as Tattersall's income. The question was whether the amounts upon transfer became Tattersall's income. It was never contended that the amounts when received as price of the constituent's horses sold were Tattersall's income and the only contention was that they became income upon being transferred to the credit of the partners. It was held that the amounts had not by being entered on the credit side, become income of the firm. Sir Wilfrid Greene said at page 65 : " Mr. Hills' argument was to the effect that, although they were not trading receipts at the moment of receipt, they had at that moment the potentiality of becoming trading receipts. That proposition involves a view of income-tax law in which I can discover no merit except that of novelty." Then again he said : " It seems to me that the quality and nature of a receipt for income-tax purposes is fixed once and for all when it is received. What the partners did in this case, as I have said, was to decide among themselves that what they had previously regarded as a liability of the firm they ..... X X X X Extracts X X X X X X X X Extracts X X X X
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