COMMISSIONER OF INCOME-TAX VS SEKSARIA BISWAN SUGAR FACTORY PVT. LTD., 1992 PTD-BOMBAY-HIGH-COURT-INDIA 1572 (1991)

Income-tax ---

----Income---Accrual---Assessee engaged in manufacture of sugar-- Government fixing price of levy sugar---Assessee challenging fixation of levy price by Government in High Court contending price fixed by Government un-remunerative---High Court passing interim order allowing assessee to sell sugar at a higher rate than the rate fixed by Government ---Assessee to furnish bank guarantee for difference in amount realised till final order on writ petition ---Assessee permitted to collect enhanced amount only pursuant to interim order made by High Court which was subject to several conditions to make the right absolute---Collection made by assessee at enhanced rate at that stage was an inchoate one---Extra amount did not accrue to assessee until finalisation of dispute before High Court.

The assessee-company carried on business in the manufacture of sugar. The Central Government had fixed the price of levy sugar at Rs.i36.87 per quintal under the Essential Commodities Ad, 1955. The assessee had challenged the fixation of levy price by the Central Government before the Allahabad High Court, inter alia, contending that the price fixed was not remunerative and that it be allowed to sell sugar at the rate of Rs.209.60 per quintal. The High Court passed an interim order allowing the assessee to sell 11,884 bags of sugar at the rate of Rs.209.60 per quintal and to furnish a bank guarantee for the difference in the amount so realised till final orders on the writ petition. The difference between the sale price realised as per the levy price fixed by the Central Government and the price at which the assessee was allowed to sell under the orders of the High Court amounted to Rs.8,64,323. In the first instance, the assessee credited this amount also to its sales account. At the end of the year, however, this was transferred to an account styled "season 71-72 sugar price difference account". The aforesaid differential amount included within it payment of excise duty to the extent of Rs.2,59,296. Rejecting the assessee's contention that the differential amount so realised did not represent the assessee's income, the Income-tax Officer made an addition of RS.6,05,027 to the assessee's income. The Appellate Assistant Commissioner accepted the assessee's claim that the assessee's interest in the extra sale proceeds was only contingent and the said amount, therefore, did not constitute the assessee's income. The Tribunal affirmed the order of the Appellate Assistant Commissioner and dismissed the Department's appeal. On a reference:

Held, that the assessee was permitted to collect the enhanced amount only pursuant to an interim order made by the High Court which was subject to several conditions to make the right absolute. Therefore, the collection made by the assessee at an enhanced rate at that stage was an inchoate one as this extra amount did not accrue to the assessee until the finalisation of the dispute pending before the Court.

CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC) applied. '

Chowringhee Sales Bureau Pvt. Ltd. v. CIT (1973) 87 ITR 542 (SC); CIT v. Chodavaram Co-operative Sugars Ltd. (1987) 163 ITR 420 (AP); CIT v. Mysore Sugar Co. Ltd. (1990) 183 ITR 113 (Kar.) and CIT v. Nadiad Electric Supply Co. Ltd. (1971) 80 ITR 650 (Bom.) ref.

G.S. Jetley, Senior Advocate (P.S. Jetley and K.C. Sidhwa, with him) for the Commissioner.

Y.P. Trivedi with Miss Vasanti Patel for the Assessee.

JUDGMENT

T.D. SUGLA, J: --In this Departmental reference relating to the assessee's assessment for the assessment year 1973-74, the Tribunal has referred to this Court the following questions of law for opinion under section 256(1) of the Income-tax Act, 1961:

"(1) Whether, on the facts and the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs.8,64,323 which was the difference between the proceeds of sale of 11,884 bags of sugar sold by the assessee-company at the rate of Rs.209.60 a quintal, which was the selling price fixed by the Allahabad High Court, and the proceeds of sale at the rate of Rs.136.87 a quintal fixed by the Central Government, which amount was actually realised by it, did not constitute its income and hence was not liable to be included in its total income?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the Appellate Assistant Commissioner should have enhanced the assessee's total income by an amount of Rs.2,59,296, on the ground that though the difference referred to in the first question amounted to Rs.8,64,323, the Income -tax Officer erroneously brought to tax only Rs.6,05,027 out of it instead of the entire sum of Rs.8,64,323?"

Briefly stated, the relevant facts are that the Central Government had fixed the price of levy sugar, D-30 grade, at Rs.136.87 per quintal under the Essential Commodities Act, 1955. The assessee had challenged the fixation of levy price by the Central Government before the Allahabad High Court, inter alia, contending that the price fixed was not remunerative and that it be allowed to sell sugar at the rate of Rs.209.60 per quintal. The High Court passed an interim order on July 26, 1972, allowing the assessee to sell 11,884 bags of sugar at the rate of Rs.209.60 per quintal and to furnish a bank guarantee for the difference in the amount so realised till final orders on the writ petition. The difference between the sale price realised as per the levy price fixed by the Central Government and the price at which the assessee was allowed to sell under the orders of the High Court amounted to Rs.8,64,323. In the first instance, the assessee credited this amount also to its sales account. At the end of the year, however, this was transferred to an account styled "Season 71-72 sugar price difference account". It appears that-the aforesaid differential amount included within it payment of excise duty to the extent of Rs.2,59,296. Rejecting the assessee's contention that the differential amount so realised did not represent the assessee's income, the Income-tax Officer made an addition of Rs.6,05,027 (Rs.8,64,323 minus Rs. 2,59,296) to the assessee's income. The Appellate Assistant Commissioner accepted the assessee's claim that the assessee's interest in the extra sale proceeds was only contingent and the said amount, therefore, did not constitute the assessee's income. This he did by placing reliance on our High Court decision in the case of CIT v. Nadiad Electric Supply Co. Ltd. (1971) 80 ITR 650. The dispute was carried to the Tribunal by the Department. Placing reliance on the Supreme Court decision in the case of Chowringhee Sales Bureau P. Ltd. v. CIT (1973) 87 ITR 542, it was argued that the reliance by the Appellate Assistant Commissioner on the decision of our Court in Nadiad Electric Supply Co. Ltd.'s case (1971) 80 ITR 650, was misplaced and that, in view of the Supreme Court decision, the extra amount recovered as sale proceeds ought to have been taxed as the assessee's income for the year. However, following its order in favour of the assessee for the assessment year 1972-73, the Tribunal confirmed the order of the Appellate Assistant Commissioner and dismissed the Department's appeal.

It is submitted before us by Shri Jetley, learned counsel for the Revenue, that the Tribunal had failed to appreciate that the amount by way of extra sale proceeds was received during the previous year so much so that it was required to be taxed as the assessee's income in the year of receipt. If, in any subsequent year, it was found that the assessee had to refund that amount, the amount so refunded could be, so allowed as deduction as liability of that year.

In response to a query from the Bench, Shri Trivedi, learned counsel for the assessee, stated that, after prolonged litigation, the Central Government came down with a fresh legislation known as Levy Sugar Price Equalisation Fund Act, 1976, and that the assessee had eventually to make over this amount to the Government under that Act. Placing then reliance on the Andhra Pradesh High Court decision in the case of CIT v. Chodavaram Co- operative Sugars Lt. (1987) 163 ITR 420, and the Karnataka High Court decision in the case of CIT v. Mysore Sugar Co. Ltd. (1990) 183 ITR 113, Shri Trivedi reiterated that the extra amount received by the assessee was subject to several conditions. The amount was made available to the assessee on a bank guarantee and was to be refunded if the assessee lost in the writ petition. It was stated that both the Andhra Pradesh and the Karnataka High Court in identical circumstances, took the view that the amounts so received did not accrue to the assessee as its income until the finalisation of the dispute. Shri Trivedi also invited our attention to the fact that, by its order dated December 17, 1990 (CIT v. Nawabganj Sugar Mills Ltd. (1991) 187 ITR.(St.) 74), the Supreme Court dismissed a special leave petition by the Department against a similar order dated August 18, 1983, of the Delhi High Court in I:T.C. No. 184 of 1983.

Having heard the parties and after going through the decisions relied upon, we arc in agreement with the view of the Karnataka High Court. What has happened in this case is that the assessee was permitted to collect the amount in question only pursuant to an interim order made by the Court which was subject to several conditions to make the right absolute. Therefore, the collection made by the assessee at an enhanced rate at that stage was an inchoate one as this extra amount did not accrue to the assessee until the finalisation of the dispute pending before the Court. In fact, this is also the view taken by the Supreme Court in CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524. Accordingly, we are in agreement with the Tribunal and answer the first question in the affirmative and in favour of the assessee.

As regards the second question, it appears to us that the Income-tax Officer had himself made an addition of Rs.6,05,027 and not Rs.8,64,323. It was never the case of the Department either before the Appellate Assistant Commissioner or the Tribunal that the addition should have been Rs. 8,64,323. In the circumstances, we do not understand how such a question arises out of the order of the Tribunal. In the premises, we do not consider it necessary to answer the second question. Hence, the question is not answered.

There will be no order as to costs.

M.B.A./1657/T Questions answered.