1998 (4) TMI 41 - HC - Income Tax

High Court excludes molasses storage reserve fund from total income as revenue expenditure.

The High Court ruled in favor of the assessee, holding that the amount set apart for the molasses storage reserve fund should be excluded from total ... Income, Diversion By Overriding Title, Sugar Industry Issues involved: The judgment involves the issue of whether the amount set apart towards molasses storage reserve fund should be excluded from the total income as revenue expenditure for the assessment years 1978-79 to 1981-82.Summary:The assessee, a private limited company engaged in the manufacture and sale of sugar, claimed the amount set apart for the construction of a molasses storage tank as a deduction in computing total income for the relevant years. The Inspecting Assistant Commissioner contended that the amount set apart was part of the sale price of molasses and constituted the property of the assessee, thus adding it back as income.On appeal, the Commissioner of Income-tax (Appeals) allowed the claim, following a previous Tribunal order in the assessee's case for the assessment year 1977-78. The Tribunal upheld this decision, leading to a reference of the common question of law under section 256(1) of the Income-tax Act, 1961, to the High Court.The High Court considered a similar case involving a co-operative society in the matter of CIT v. Salem Co-operative Sugar Mills Ltd. The Division Bench held that the amount collected under statutory obligation for a storage fund did not belong to the assessee and should be excluded from total income. The fund was to be used for constructing a storage tank as directed by the Central Government.In light of the Salem Co-operative Sugar Mills case, the High Court ruled in favor of the assessee, stating that the amount set apart for the molasses storage reserve fund should be excluded from total income as revenue expenditure. The Tribunal's decision was upheld, and the tax cases were disposed of without costs.