Travancore Sugars and Chemicals Ltd. vs Deputy Commissioner of Income Tax

K.S. Radhakrishnan, J.—This appeal is preferred by the assessee u/s 260A of the IT Act. Following are the questions of law referred for consideration:

(i) Whether, on the facts and circumstances of the case, was the Tribunal justified in holding that the balance of Rs. 21,33,069 remaining in the suspense account is part of sale price and not to be treated as amounts repayable to the parties as and when demanded by them?

(ii) Whether, on the facts and circumstances of the case, should not the Tribunal have held that the balance in the suspense account collected as deposited from the purchasers belongs to purchasers and not to the assessee especially when the amounts were systematically refunded to the parties as and when demanded in subsequent years?

(iii) Whether, on the facts and circumstances of the case, was the Tribunal justified in holding that assessee is entitled to deduction of the amounts as and when refunded to the parties after treating the balance amount in the suspense account as income of the year?

The assessee is a company owned by the Government of Kerala engaged in the manufacture, purchase and sale of rectified spirit and arrack. During the asst. yr. 1986-87 assessee was engaged in sale of arrack made from jaggery and imported spirit. While scrutinising the accounts for the year ending 30th April, 1985 the AO noticed that the assessee had shown a sum of Rs. 21,33,070 under the head "Other liabilities". The said amount was credited in the suspense account. Assessee was selling jaggery arrack and imported spirit at the rate of Rs. 3.20 per B.L. at the price fixed by the State Government. On account of the increase in the cost of production the assessee made a request before the Government for enhancement of the selling rate. While the matter was under discussion, pending finalisation of the enhanced selling price, the company started collecting a higher price of Rs. 7 per B.L. for jaggery arrack and Rs. 4.50 per B.L. for imported spirit from 25th Oct., 1984 onwards. The price realised in excess of Rs. 3.20 per B.L. was being credited in a separate suspense account from 25th Oct., 1984 to 30th April, 1985 and the assessee collected a total sum of Rs. 69,04,941 as excess sale price and credited in the suspense account. Government of Kerala later refixed the selling rate at Rs. 6 per B.L. for jaggery arrack and at Rs. 4 per B.L. for imported spirit by the order dt. 13th June, 1985. After receipt of the Government order, assessee transferred from the suspense account a total sum of Rs. 47,71,872 by way of sale price and sales-tax due to the price revision.

Assessee raised a claim before the AO that though the amount had been collected from the customers at the time of sale of arrack, collection was made on the clear understanding with the customers, that the excess amount would be refunded after the price revision by the Government. AO however has taken the view that as the amount had been realised as price for the sale of arrack, it was a trading receipt to be included in the total income of the previous year. Taking the view that the assessee would be entitled to claim deduction as and when refunds were made to the customers, the AO added the amount in the total income.

Assessee, aggrieved by the said order of the assessing authority, took up the matter in appeal before the CIT(A). CIT(A) deleted the addition for the reason that the assessee had been collecting the amount from the customers only in anticipation of the increase in the price and the right to income would arise only when the order enhancing the price was issued by the Government. CIT(A) placed reliance on the decision of the Karnataka High Court in Commissioner of Income Tax Vs. Mysore Sugar Co. Ltd., . Aggrieved by the order of the CIT(A), Revenue took up the matter in appeal before the Tribunal. Tribunal did not agree with the reasoning of the CIT(A) and held that the amount collected by the assessee was part of the consideration for the sale of arrack and was part of the price of what was sold. Tribunal held that it cannot be viewed as anything other than a trading receipt in the hands of the assessee. Tribunal therefore allowed the appeal and restored the order of the AO. Aggrieved by the same this appeal has been preferred by the assessee.

Counsel appearing for the assessee Sri Anil D. Nair contended that Tribunal has committed an error in holding that the balance amount kept in the suspense account as on 30th April, 1985 constituted sale price received by the assessee. Counsel submitted Tribunal has omitted to take note of the fact that the amounts were collected separately as deposit from the purchasers and it was credited in the suspense account for return to the parties from whom it was collected. It is also contended that from the repayments made in the subsequent years the money really did not belong to the assessee. Counsel submitted assessee is not entitled to treat the same as sale price and there is no question of claiming deduction as and when amounts are returned to the parties from whom it was collected. Counsel placed reliance on the decision of the Bombay High Court in Commissioner of Income Tax Vs. Seksaria Biswan Sugar Factory Pvt. Ltd., and contended that the collection made by the assessee at the enhanced rate was an inchoate one and that extra amount did not accrue to the assessee until the finalisation of the dispute. Counsel also made reference to the decision of the Andhra Pradesh High Court in Commissioner of Income Tax, Andhra Pradesh Vs. Chodavaram Co-operative Sugars Ltd., and submitted that the assessee did not collect excess sale price as part of the trading business. Counsel also made reference to the decision of apex Court in Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd., and submitted that the principle laid down therein would apply to the facts of this case. Reference was also made to the decision of the Gujarat High Court in Commissioner of Income Tax Vs. Bavla Gopalak Vividh Karyakarisahakari Mandli Ltd., .

Counsel for the Revenue Sri P.K. Ravindranatha Menon placed considerable reliance on the decision of the aax Court in Chowringhee Sales Bureau (P) Ltd. Vs. Commissioner of Income Tax , West Bengal, and Punjab Distilling Industries Ltd. Vs. The Commissioner of Income Tax, Simla, . Counsel also placed reliance on the decision of the apex Court in COMMISSIONER OF INCOME TAX Vs. UNITED PROVINCES ELECTRIC SUPPLY COMPANY, and also the decision in Hindustan Housing & Land Development Trust''s case (supra), and contended that what is to be noticed is the real character of the receipts as sale proceeds of arrack. Counsel submitted that the entire amount realised from the customers at the time of sales were in the nature of trade receipts and the mere fact that the assessee had credited a portion of the amount in suspense account is of no consequence since it partakes the character of a trading account. Counsel further submitted even though amount was credited in the separate account assessee was making use of the same for the purpose of business and utilising it as own funds. In any view the counsel submitted the receipt could be considered as expenditure for the relevant year and hence no prejudice would be caused to the assessee.

The question to be considered is whether the excess amount collected by the assessee from the purchaser of arrack at a fixed rate per B.L. is a trading receipt. We are of the view, what is important to be noticed is with regard to the character of receipts as sale proceeds of arrack and the mere fact that the assessee has kept separate account for the amount realised from the customers is of no consequence. The mere fact that assessee had given separate receipts to the customers and kept suspense account for the money received in excess of the price originally fixed does not change the character of the transaction. The nature and quality of the receipt that matters and not the head under which it is entered in the account book. If the receipt is a trading receipt, the fact that it was not so shown in the account book of the assessee, would not prevent the assessing authority from treating it as a trading receipt. Above is the principle laid down by the apex Court in Chowringhee Sales Bureau''s case (supra). The principle laid down by the apex Court in Punjab Distilling Industries'' case (supra) would also support the case of the Revenue. Facts would clearly show that what was collected by the assessee is part of the price of what was sold which can be treated only as a trading receipt in the hands of the assessee. The amount collected by the assessee was part of the consideration for the sale of arrack and was part of the price of what was sold. The contention of the assessee that the amount received was later authorised by the Government and the assessee could not utilise the same is of no consequence. In any view, when the assessee refunds the collection in subsequent years the assessee could claim deduction in those years from the sales turnover.

For the above mentioned reasons we fully endorse the view of the Tribunal and answer the questions in favour of the Revenue and against the assessee.