Statutory diversion at source excludes earmarked collections from taxable income where the assessee has no control over the fund.

A statutory collection earmarked at source for a separate molasses storage fund was held not to form part of the assessee's taxable income. Because the fund was created under a statutory order and the assessee was required to keep the amount in a separate account and use it only for the prescribed purpose, the assessee had no free control or beneficial domain over the money. The amount was therefore diverted by overriding title before it could accrue as income, and the collection credited to the fund was excluded from taxation.

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Issues: Whether the amount credited to the molasses storage fund out of the sale proceeds of molasses was includible in the assessee's income.

Analysis: The fund was created under a statutory order made in exercise of powers under Section 18G of the Industries (Development and Regulation) Act, 1951, and the assessee was bound to keep the amount in a separate account and utilise it only for the prescribed purpose. The assessee had no control or domain over the amount once collected, and the money was earmarked at source for the statutory fund. In such circumstances, the amount never became part of the assessee's free income and stood diverted before it could accrue as taxable income.

Conclusion: The amount credited to the molasses storage fund was not includible in the assessee's income and the issue was answered in favour of the assessee.

Final Conclusion: The appeals were disposed of by holding that the statutory diversion of the collection at source excluded the amount from taxable income.

Ratio Decidendi: Where a collection is statutorily earmarked at source for a specific fund over which the assessee has no control or beneficial domain, the amount is diverted by overriding title and does not constitute taxable income.

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