Conditional retention of enhanced sale proceeds can be taxed as trading receipt when separate-account deposit is not made.

Where an assessee is permitted to collect an enhanced sale price only on condition that the excess be placed in a separate account, failure to comply with that condition allows the retained amount to be treated as a taxable trading receipt in the year of receipt, even if entitlement to the amount is disputed. The proper course is to include the sum in income for that year and leave any later adjustment to deduction if the claim is finally negatived. On that basis, the retained amount was held taxable in the relevant assessment year, in favour of the Revenue.

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Issues: Whether the sum of Rs. 15,057 retained by the assessee from the enhanced fertilizer sale price, without depositing it in the specified separate account, constituted taxable income for the assessment year 1975-76.

Analysis: The enhanced price was permitted to be collected subject to deposit in a separate account, and the assessee complied only partially. The balance amount was retained by the assessee even though its entitlement was disputed. In such circumstances, the amount could be treated as a trading receipt because the assessee failed to satisfy the condition attached to the collection of the excess amount. The proper course was to include the amount in income for the relevant year, leaving the assessee to claim deduction later if its right to the amount was finally negatived.

Conclusion: The amount of Rs. 15,057 was taxable in the assessee's income for the year in question, and the answer to the reference was in the negative, in favour of the Revenue and against the assessee.

Ratio Decidendi: Where an assessee is allowed to collect an enhanced price only on condition that the excess be deposited in a separate account, failure to comply with that condition permits the retained amount to be treated as taxable trading receipt in the year of receipt, notwithstanding a disputed claim to entitlement.

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