Commissioner of Income Tax vs South India Sugars Ltd.

R. Jayasimha Babu, J.—During the assessment year 1981-82, the assessee who is a manufacturer of sugar had collected a sum of Rs.

40,50,570 from the buyers in excess of the price fixed for sale of levy sugar after it had obtained interim order from the court permitting it to do so

subject to certain conditions.

The amount so collected was kept in suspense account and was liable to be refunded in the event of the assessee failing in securing the relief that

it had sought in the writ petition before the High Court.

The Tribunal considering all these facts held that the amount cannot be treated as the assessee''s income for the year as it cannot be

characterised as a trading receipt, the amount being subject to the orders of the court and subject to the possibility of the same being refunded to

the buyers.

We do not find any error in that order of the Tribunal.

The Supreme Court in the case of The K.C.P. Limited Vs. Commissioner of Income Tax, Bangalore, , has held that it is the true nature and

quality of the receipt and not the head under which it is entered in the account books which is decisive as to whether that receipt is a trading receipt

or not. The court distinguished the case before it from those decided by the High Courts of Karnataka, Bombay and Andhra Pradesh,

respectively, in the case of Commissioner of Income Tax Vs. Mysore Sugar Co. Ltd., ; Commissioner of Income Tax Vs. Seksaria Biswan Sugar

Factory Pvt. Ltd., and Commissioner of Income Tax, Andhra Pradesh Vs. Chodavaram Co-operative Sugars Ltd., . The court noted that in those

cases the receipt of the amount by the assessee was clearly associated with liability to refund the amount which liability was ascertainable and

quantified. In the case before the Supreme Court that was not the situation.

The case of the assessee before us falls under the same category as in the aforementioned cases decided by the High Courts to which the apex

court made a reference in its judgment. The receipt of the amount by the assessee herein was associated with the liability to refund and the amount

of the liability was ascertainable and quantified.

We, therefore, answer the question referred to us in favour of the assessee and against the Revenue.