Statutory earmarked fund and accrued levy interest: restricted receipts were not income, and crystallised liability was deductible.

Amounts compulsorily set apart under a statutory molasses storage maintenance fund were not taxable income because the assessee had no unrestricted dominion over the money and could use it only for the controlled statutory purpose. The court also treated interest on excess levy sugar price as an accrued, crystallised liability under the levy sugar price equalisation scheme, not a contingent provision, and held it deductible as revenue expenditure. Both referred questions were answered in favour of the assessee and against the Revenue.

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Issues: (i) Whether the sum credited to the molasses storage maintenance fund was income of the assessee; (ii) Whether deduction of interest on excess levy sugar price was allowable.

Issue (i): Whether the sum credited to the molasses storage maintenance fund was income of the assessee.

Analysis: The fund was created under statutory provisions governing sugar factories, and the assessee was under a statutory obligation to set apart the amount. The amount could be withdrawn and spent only with the permission and control of the competent authority, and was earmarked exclusively for provision and maintenance of adequate storage facilities. Such a receipt retained the character of a statutory earmarked fund and was not available for the assessee's unrestricted use as income.

Conclusion: The question was answered in the negative and in favour of the assessee.

Issue (ii): Whether deduction of interest on excess levy sugar price was allowable.

Analysis: The liability to pay interest on excess levy sugar price was treated as an accrued liability under the governing levy sugar price equalization scheme. It was not a mere contingent provision, and the liability had crystallised in the relevant assessment year. Accordingly, the amount was deductible as revenue expenditure.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Final Conclusion: Both referred questions were decided against the Revenue, and the reference was disposed of on the footing that the assessee succeeded on each issue.

Ratio Decidendi: Amounts compulsorily set apart under a statutory scheme for a restricted and controlled purpose do not constitute taxable income where the assessee lacks unrestricted dominion over them, and an accrued statutory liability is deductible when it has crystallised and is not merely contingent.

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