VS, 2000 PTD-PUNJAB-AND-HARYANA-HIGH-COURT-INDIA 1225 (1997)

Income-tax ---

----Income---Assessee deriving income froth manufacture and sale of sugar-- Government fixing price of levy sugar per quintal at a certain amount -- Assessee challenging price fixed by Government by filing writ petition in High Court---High Court passing interim order permitting assessee to sell levy sugar at a higher price than fixed by Government---Difference in sale price of levy sugar credited by assessee as trust money in its suspense account and deposited in Bank as per directions of Court ---Assessee did not acquire absolute right over the amount and liable to refund the same in the event of dismissal of writ petition---Difference in price of levy sugar not income accruing for relevant assessment year.

The assessee derived income from manufacture and sale of sugar. ' The Government fixed the price of levy sugar at Rs.151.36 per quintal by issuing the Sugar Control Order in November 1972. The assessee challenged the price fixed by the Government by filing a writ petition in the High Court, contending that the cost of manufacture of sugar worked out to Rs.202.23 per quintal, and, therefore, the Government was not justified in fixing the price of levy sugar at Rs.151.36 per quintal. The High Court while admitting the writ petition passed an interim order permitting the assessee to sell levy sugar at Rs.202.23 per quintal as against Rs.151.36 fixed by the Government on the condition that the assessee should deposit the difference of Rs.50.87 per quintal pending disposal of the writ petition. The assessee was required to furnish a bank guarantee to the satisfaction of the Court for return of the amount of difference in price of Rs.50.87 per quintal in case the writ petition was ultimately dismissed. In accordance with the orders of the High Court the assessee furnished a bank guarantee from a bank by getting an equal amount deposited with the bank. The sum of Rs.6,27,944 being the difference in the sale price of levy sugar was credited by the assessee in its suspense account. For the assessment year 1975-76, the assessee contended before the Income-tax Officer that the sum of Rs.6,27,944 put in the suspense account did not represent the income of the assessee for the relevant assessment year as the assessee did not have any absolute right to that amount. The Income-tax Officer took. the view that the difference in price of Rs.50.87 -per quintal represented the amount realised by the assessee from the purchasers and as such it formed part and parcel of the sale price and therefore, it was a trading receipt representing income of the assessee for the assessment year 1975-76. The Commissioner of Income tax (Appeals) held that the amount did not form part and parcel of the sale proceeds of the assessee, that it was trust money credited by the assessee to the suspense account and deposited in the bank as per directions of the Court, that the assessee did not have any absolute claim over the amount and hence deleted the addition made by the Income-tax Officer. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) on the ground that the disputed sales proceeds did not accrue to the assessee as its income liable to tax. On a reference:

Held, that the difference of price in levy sugar realised by the assessee under the orders of the High Court was hedged by certain conditions. The assessee did not acquire an absolute right to the amount realised and it was liable to refund the same in the event of the writ petition being dismissed. The writ petition was still pending for final adjudication.

Under the circumstances, the difference in price of the levy sugar realised by the assessee could not be treated as its income arising or accruing to it for the relevant assessment year.

CIT v. Chodavaram Cooperative Sugar Ltd. (1987) 163 ITR.420 (AP); CIT v. Mysore Sugar Co. Ltd. (1990) 183 ITR 113 (Kar.) and CIT v. Seksaria Biswan Sugar Factory (Pvt.) Ltd. (1992) 195 ITR 778 (Bom.) fol.

Chowringhee Sales Bureau (Pvt.) Ltd. v. CIT (1973) 87 ITR 542 (SC); (1973) 31 STC 254; CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC); CIT v. Jeyapore Sugars Co. Ltd. (1989) 175 ITR 627 (AP); CIT v. Kedar Nath Finishing Works (1991) 188 ITR 158 (All.); CIT v. Malaprabha Cooperative Sugar Factory (1993) 200 ITR 417 (Kar.) and U.P. State Agro Industrial Corporation v. Addl. CIT (1993) 201 ITR 707 (SC) ref.

B. S. Gupta with Sanjay Bansal for the Commissioner.

M. R. Sharma for the Assessee.

JUDGMENT

ASHOK BRAN, J.---At the instance of the Commissioner of Income-tax, Jalandhar; the Income-tax Appellate Tribunal, Amritsar, (hereinafter referred to as the "Tribunal"), has referred the following question of law to this Court for its opinion:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the amount of Rs.6,27,944 being the difference in price of levy sugar at Rs.50.87 per quintal allowed to be charged by the assessee by the High Court under an interim order had not accrued to the assessee as its income and hence not liable to tax?"

Briefly stated the facts are:

The assessee is a cooperative society -deriving income from manufacture and sale of sugar. The accounting year relevant to the assessment year 1975-76 ended on March 31, 1975. The Government of India fixed the price of levy sugar at Rs.151.36 per quintal by issuing Sugar Control Order in November 1972. The assessee challenged the price fixed by the Government by filing a writ petition in this Court. It was, inter alia, contended that the cost of manufacture of sugar worked out to Rs.202.23 per quintal, and therefore, the Government was not justified in fixing the price of levy sugar at Rs.151.36 per quintal. The High Court while admitting the writ petition passed an interim order permitting the assessee to sell levy sugar at Rs.202.23 per quintal as against Rs.151.36 fixed by the Government on the condition that the assessee shall deposit the difference of Rs.50.87 per quintal pending disposal of the writ petition. The, assessee was required to furnish a ban guarantee to the satisfaction of this Court for return of the amount of difference in price of Rs.50.87 per quintal in case the writ petition is ultimately dismissed. The assessee acted in accordance with the orders of the High Court and furnished a bank guarantee from Jalandhar Central Co operative Bank Ltd. Jalandhar, by getting an equal amount deposited with the bank. The sum of Rs.6,27,944 being the difference in the sale price of levy sugar was credited by the assessee in its suspense account. A copy of the interim order passed by the High Court was not made available before the Tribunal. The same has not been made available to us either. A copy of the letter, dated April 7, 1980, written by the Government of India, Ministry of Agriculture Department of Food, enquiring about the furnishing of a bank. guarantee and the assessee's reply thereto, dated April 17, 1980, were included in the paper book of the Tribunal. Counsel appearing for the Department as well as are assessee did not know about the serial number of the writ petition filed by the assessee in this Court. On our enquiry from the office, it has been reported that the assessee had filed C.W.P. No. 782 of 1973 (Janta Cooperative Sugar Mills Ltd. v. Union of India), which is still pending alongwith other writ petitions on the same point.

On behalf of the assessee, it was argued before the Income-tax Officer that .the amount of Rs.6,27,944 put in the suspense account, that is the difference in the price of levy sugar did not represent the income of the assessee for that year as the assessee did not have any absolute right to that amount. The Income-tax Officer did not accept this contention. He was of the view that the price difference of Rs.50.87 per quintal represented the amount realised by the assessee from the purchasers and as such it forms part and parcel of the sale, price. That being so, it was a trading receipt representing income of the assessee for the assessment year 1975-76. The Income-tax Officer was of the view that the amount realised by the assessee from the purchasers to whom the levy sugar had been sold was retained by the assessee and deposited in its own accounts. The, assessee had not accepted the price of levy sugar fixed by the Government. The bank guarantee furnished by the assessee did not mean that the difference in sale price of levy sugar credited by it to its suspense account did not represent its income for the year in question. The sum of Rs.6,27,944 put by the assessee in its suspense account was treated as income of the assessee for that year and was subjected to tax.

The assessee filed an appeal before the Commissioner of Income-tax (Appeals) challenging the inclusion of the amount of Rs.6,27,944 in its income. The Commissioner of Income-tax (Appeals), after considering the submissions made by counsel for the parties, held that the amount did not form part and parcel of the 'sale proceeds of the assessee. The, sum of Rs.6,27,944 was treated as trust money credited by the assessee to the suspense account and deposited in the bank as directions of the Colin. It was observed that the assessee did not have any absolute claim over the amount and deleted the addition.

Aggrieved against the decision of the Commissioner of Income-tax (Appeals) the Revenue went up in appeal before the Tribunal. The order of the Commissioner of Income-tax (Appeals) was upheld by the Tribunal. It was held that the difference in price did not become- the property of the assessee and, therefore, it could not be said that the disputed sale proceeds had accrued to the assessee as its income liable to tax.

At the instance of the Revenue, the aforesaid question of law has been referred by the Tribunal to this Court for its opinion.

The assessee's system of accounting is mercantile. In view of this position,. the relevant question will be whether the difference in price of Rs.50.87 per quintal allowed to be charged by the assessee by the High Court under an interim order has accrued to the assessee as its income. While considering a similar question, the Supreme Court of India in CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524, though on slightly different facts, held that the right to receive the amount by the assessee was not absolute and, therefore, it was not income arising or accruing to the assessee during the previous year relevant to the assessment year in question. In that case, certain lands belonging to the assessee which carried on the business of dealing in land and maintained its accounts on the mercantile system were first requisitioned and then compulsorily acquired by the State Government. The Land Acquisition Officer awarded a sum of Rs.24,97,249 as compensation. On an. appeal preferred by the assessee, the arbitrator made an award, dated July 29, 1955, fixing the compensation at Rs.30,10,873 and directing interest at the rate of 5 percent. from the date of acquisition. The arbitrator also awarded an annual sum for the period of requisition. The State Government preferred an appeal to the High Court. Pending the appeal, the State Government deposited in the Court Rs.7,36,691 being the additional amount payable under the award, dated April 25, 1956. The assessee was permitted to withdraw the amount in May, 9, 1956 only on furnishing a security bond for refunding the amount in the event of the appeal being allowed. On receiving the amount, the assessee credited it in its suspense account on the same date. The question was whether a sum of Rs.7,24,914 could be taxed as the income of the assessee for the assessment year 1956-57 on the ground that it become payable pursuant to the arbitrator's award. The Tribunal held that the amount did not accrue to the assessee as its income during the relevant previous year and, therefore, was not taxable in the assessment year in question. The order of the Tribunal was affirmed by the High Court in reference. The Supreme Court of India affirming the, decision of the High Court held that the amount credited to the suspense account by the assessee was in dispute in appeal before the High Court. The High Court had regarded the dispute to be real and substantial because the assessee was not permitted to withdraw the amount deposited by the State Government, without furnishing a security bond in the event of the appeal being allowed. There being no absolute right to receive the amount at that stage, the extra amount of compensation of Rs.7,24,914 was, therefore, not the income accrued to the assessee during the previous year relevant to the assessment year. After referring to a number of judgments, the judgment of the High Court was upheld by observing as

"It is unnecessary to refer to all the cases cited before us. It is sufficient to point out that there is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. We are of the opinion that the High Court is right in the view taken by it and, therefore, this appeal must be dismissed. "

The Andhra Pradesh High Court in CIT v. Chodavaram Co operative Sugars Ltd. (1987) 163 ITR 420, while considering the following question of law (page 422):

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the amount of Rs.8,75,277 did not belong to the assessee and that it was not a trading receipt for the assessment. years 1973-74 and 1974-75?"

which is similar to the one posed in the present case on the following facts answered the question in favour of the assessee and against the Revenue.

The assessee, a sugar mill, filed a writ petition before the Supreme Court questioning the validity of fixation of price in respect of levy sugar on the ground that the Government had no power to fix the price of levy sugar and they should be permitted to sell the sugar at the rates existing prior to the introduction of the Control Order which was in excess of the price fixed by the Control Order. The Supreme Court of India passed a conditional order permitting the assessee to collect the price of sugar at the rates existing prior to the introduction of the Control Order but directed the assessee to deposit in a separate account the difference in price collected and furnish a bank guarantee of an equal amount to the Registrar of the Supreme Court. The assessee collected the difference and also furnished the bank guarantee to the Registrar pending the final disposal of the writ petition in the Supreme Court. Eventually, the Supreme Court of India dismissed the writ petition and upheld the validity of the Control Order with the result that the assessee had refunded to the constituents from whom the collections were made. On these facts, it was held (page 424):

"We consider that the Tribunal was justified in its conclusion that the amount of Rs.8,76,277 did not partake of the nature of a trading receipt and on that ground itself the amount fell to be excluded from the total income of the assessee. It may be pointed out that the right to collect the amount in excess of the price fixed by the Control. Order was saddled with the obligation to deposit the amount in a separate account and the assessee is always held accountable for the excess collection, pending decision of the Supreme Court. The provisions of the Levy Sugar Price Equalisation Fund Act, 1976, ' clearly imposed an obligation on the assessee to repay the money to the constituents whether the excess price was collected before or after the commencement of the Act. Thus, the assessee did not collect the excess sale, price as part of its trading receipt."

This judgment was later on followed by the same High Court in CIT v. Jeyapore Sugars Co. Ltd. (1989) 175 ITR 627. The High Court had not noticed the judgment of the Supreme Court in Hindustan Housing and Land Development Trust Ltd.'s case (1986) 161 ITR 524.

Thereafter, the matter was considered by the Karnataka High Court on almost the same facts in CIT v. Mysore Sugar Co. Ltd. (1990) 183 ITR 113. The only difference being that the writ petition had been filed in the High Court and the excess amount was credited under the interim direction of the High Court under the head "Current Liabilities". The question was as to whether the difference in price of the levy sugar realised by the assessee under the interim directions of the High Court was its, income liable to tax for the year in question. In that case also, the assessee had challenged the fixing of the price of levy sugar by the Government of India under the Sugar Control Order. Relying upon- the judgment of the Supreme Court in Hindustan Housing and Land Development Trust Ltd.'s case (1986) 161 ITR 524 and of the Andhra Pradesh High Court in Chodavaram Cooperative Sugars Ltd.'s case (1987) 163 ITR 420, it was held (page 118):

"But in the present case, what has happened is that the assessee was permitted to collect the amount in question only pursuant to the interim order made by the Court which was subject to several conditions to make the right absolute and, therefore, the collection trade by the assessee at an enhanced rate is an inchoate one as this extra amount did not accrue to the assessee until the finalisation of the dispute pending before one Court or the other. It is only on the final determination of the amount that the right to such income in the nature of levy price would arise or accrue and till then there' is no liability in present in respect of the additional amount of price claimed by the assessee. Therefore, these cases fall within the scope of the first class of cases noticed by the Supreme Court in Hindustan Housing and Land Development Trust Ltd.'s case (1986) 161 ITR 524 (SC), where it was held that where the right to receive payment is in dispute and it is not merely a question of quantifying the amount to be received, no income would arise or accrue till the levy price is finally fixed. We are, therefore, of the opinion that the Tribunal is right in its view, and, therefore, we have got to answer the question referred to us in the affirmative and against the Revenue."

This-decision was later on followed by the same High Court in CIT v. Malaprabha Cooperative Sugar Factory (1993) 200 ITR 417.

The Bombay High Court in CIT v. Seksaria Biswan Sugar Factory .(Pvt.) Ltd. (1992) 195 ITR 778, again considered the same' question and decided the same in favour of the assessee following the judgment rendered by the Supreme Court in Hindustan Housing and Land Development Trust Ltd.'s case (1986) 161 ITR 524 and in Mysore Sugar. Co. Ltd.'s case (1990) 183 ITR 113 (Kar). It was held (page 781):

"Having heard the parties and after going through the decisions relied upon, we are 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."

Special Leave Petitions Nos. (Civil) 5111-5115 of 1992 against the judgment of the Karnataka High Court in Malaprahha Cooperative Sugar Factory's case (1993) 200 ITR 417 have been dismissed by the Supreme Court (see (1992) 197 ITR (St.) 149.

Special Leave Petition (Civil) No. 886 of 1984 (CIT v. Nawabganj Sugar Mills Ltd.) against the judgment of the High Court of Delhi was dismissed by the apex Court declining to call for the statement of the case on the question whether the excess over the price of levy sugar realised by the assessee and held in the bank pending disposal of the writ petition filed by it against the fixation of levy sugar price (which was eventually dismissed) was income in the hands of the assessee (see (1991) 187 ITR (St:) 74).

Advocate appearing for the Revenue, cited two judgments of the supreme Court in Chowriilghee Sale Bureau (P ) Ltd. V. CIT (1973) 87 1TR 542 (SC) and U.P. State Agre Industrial Corporation v. CIT (Addl.) (1993) 201 ITR 707 (SC) and a judgment of the Allahabad High Court in CIT v. Kedar Nath Finishing Works (1991) 188 ITR 158, to contend that the money received by the assessee under the interim orders of the High Court which had been put in the suspense account was income of the assessee for the relevant year and liable to be, taxed. These judgments have been given on different facts, are, therefore, not applicable to the point in issue in this case.

In Chowringhee Sales Bureau (P.) Ltd.'s case (1993) 87 ITR 542 (SC), the assessee, a private company while dealing in furniture, also acted as an auctioneer. In respect of sales effected by it as auctioneer, the assessee realised during the relevant period, in addition to the commission, a sum of Rs. 32,986 as sales tax. This amount was credited separately in its account books under the head "sales tax collection account". The amount was neither paid to the actual owner of the goods nor was it deposited with the State exchequer by the assessee. The position taken by the assessee was that the statutory provisions creating that liability upon it were not valid. In the cash metros issued by the assessee to the purchasers in the auction sales the assessee was shown as the seller. On these facts was held by, their Lordships that the sum of Rs.32,986 was the trading receipt in the hands of the assessee.

We find ourselves in agreement with the view taken by the Andhra Pradesh High Court in Chodavaram Cooperative Sugar Ltd.'s case (1987) 163 ITR 240, the Karnataka High Court in Mysore Sugar Co. Ltd.'s case (1990) 183 ITR 113 and the Bombay High Court in Seksaria Biswan Sugar Factory (Pvt.) Ltd.'s case (1992) 195 ITR 778. The difference of price in levy sugar realised by the assessee under the orders of the High Court was hedged by. certain conditions. The assessee did not acquire an absolute right to the amount realised by it and it was liable to refund the same in the event of the writ petition being dismissed. The writ petition is still pending for final adjudication. Under the circumstances, the difference in price of the levy sugar realised by the assessee could not be treated as its income arising or accruing to it for the relevant assessment year 1975-76.

For the reasons stated above, we answer, the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue.

M.B.A./3370/FCReference answered.