Statutory diversion at source and retrospective depreciation limits shape tax treatment of molasses reserve and plant relief

Amounts statutorily diverted at source to the Molasses Storage Reserve Fund were treated as not belonging beneficially to the assessee, so the sum was outside taxable trading receipts. The article also notes that enhanced depreciation on plant and machinery was not available from 2 April 1983 because the relevant amendment did not clearly extend the higher rate retrospectively to the year in question; the benefit applied only from assessment year 1984-85 onwards. The stated ratio is that a statutory diversion at source prevents taxation as trading income, and a delegated rule granting depreciation relief cannot be read beyond its clear retrospective scope.

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Issues: (i) Whether the amount set apart from the sale price of molasses for the Molasses Storage Reserve Fund was assessable as a trading receipt; (ii) Whether the assessee was entitled to higher depreciation at the enhanced rate from 2 April 1983 on plant and machinery.

Issue (i): Whether the amount set apart from the sale price of molasses for the Molasses Storage Reserve Fund was assessable as a trading receipt.

Analysis: The question was governed by an earlier decision on identical facts, which held that the amount collected under statutory directions for the reserve fund did not belong to the assessee and was diverted at source to the fund. Since the assessee had no beneficial title or right to use the amount for its own purposes, the sum could not form part of its taxable trading receipts.

Conclusion: The amount was not assessable as a trading receipt and the issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether the assessee was entitled to higher depreciation at the enhanced rate from 2 April 1983 on plant and machinery.

Analysis: The question was controlled by an earlier decision holding that although the Central Board of Direct Taxes could frame rules with retrospective effect, the relevant amendment did not expressly grant the enhanced depreciation rate retrospectively from 2 April 1983 for all pending matters. The benefit was held to be available only from assessment year 1984-85 onwards and not for the year in question.

Conclusion: The assessee was not entitled to the higher rate of depreciation and the issue was decided in favour of the Revenue and against the assessee.

Final Conclusion: The reference was answered by holding that the molasses reserve contribution was outside taxable income, but the enhanced depreciation claim failed, so the overall result was mixed.

Ratio Decidendi: Amounts statutorily diverted at source to a fund in which the assessee has no beneficial title are not taxable trading receipts, and a delegated rule enhancing depreciation cannot be applied retrospectively beyond the clear scope of the amendment.

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