1964 (3) TMI 10 - SC - Income Tax

Supreme Court: Empty bottles return security deposit is taxable trading receipt

Commissioner Of Income-Tax, Punjab, Jammu And Kashmir And Himachal Pradesh, Patiala Versus Punjab Distilling Industries Limited

The Supreme Court held that the present appeals are governed by its earlier judgment, Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, and ... Whether, on the facts and circumstances of the case, the collections by the assessee-company described in its accounts as 'empty bottles return security deposits' were income assessable under section 10 of the Income-tax Act ? Held that:- The charge now under consideration is a charge additional to that collected under the ' buy-back scheme ' and this we have earlier said. It has never been in dispute, either in the earlier case or now, that the charge under the ' buy-back scheme ' which was collected under Government's sanction constituted a taxable income. This court had never said, nor was it ever contended by the assessee, that a collection would not be taxable if it had been made with the sanction of the Government. The first point of distinction sought to be made by the High Court is, therefore, unfounded. It seems to us that the only reason why the rules required a wholesaler to return the bottles to the distiller was to authorise the imposition of a term of the sale upon the breach of which, the charges made for the bottles would cease to be refundable. all that the rule does is to authorise the making of a contract concerning the deposit on the terms mentioned in it the object apparently being to avoid any question as to its validity arising later. We may here point out that the trade in liquor is largely controlled by Government regulations. It must, therefore, be held that the deposit was actually taken under a contract; it was none the less so though the contract was authorised by the statutory rules. The third point of distinction on which the High Court relied was, therefore, also without foundation. Appeal allowed. Issues Involved:1. Applicability of the earlier Supreme Court judgment to the present appeals.2. Nature of the 'empty bottles return security deposit' and its classification as a trading receipt.3. Impact of the amended rules under the Punjab Excise Act, 1914, on the assessment of the security deposits.4. The High Court's interpretation of the earlier Supreme Court judgment.Issue-wise Detailed Analysis:1. Applicability of the Earlier Supreme Court Judgment:The Supreme Court held that these appeals are covered by its earlier judgment in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax. The High Court erred in its view that the ratio decidendi of that judgment was not applicable to the present appeals. The earlier case involved the same assessee but different assessment years (1947-48 and 1948-49), while the present appeals concern the years 1946-47, 1949-50, 1950-51, and 1951-52. The point for consideration in respect of all these taxes was the same.2. Nature of the 'Empty Bottles Return Security Deposit':The Supreme Court reiterated its earlier position that the 'empty bottles return security deposit' is a trading receipt assessable to tax. The court stated: 'the trade consisted of sale of bottled liquor and the consideration for the sale was constituted by several amounts respectively called, the price of the liquor, the price of the bottles and the security deposit. Unless all these sums were paid the appellant would not have sold the liquor. So the amount which was called security deposit was actually a part of the consideration for the sale and, therefore, part of the price of what was sold.'3. Impact of the Amended Rules under the Punjab Excise Act, 1914:The High Court held that the amended rule 40(14)(f), effective from April 1, 1948, made the ratio decidendi of the earlier judgment inapplicable to the charges collected after that date. However, the Supreme Court disagreed, stating that the High Court misunderstood the earlier judgment. The court clarified that the earlier judgment was not based on the three considerations identified by the High Court. The amended rules did not change the fundamental nature of the deposit as a trading receipt.4. The High Court's Interpretation of the Earlier Supreme Court Judgment:The Supreme Court found that the High Court misinterpreted its earlier judgment. The High Court thought that the earlier judgment was based on three considerations: (1) the charge was made without Government's sanction, (2) it could not be a security deposit for the return of the bottles, and (3) it was refundable under the contract of sale itself. The Supreme Court clarified that these points were not the basis of its earlier decision. The court emphasized that the nature of the deposit as a trading receipt was the central issue, irrespective of whether the charge was made with or without Government's sanction or under amended rules.Conclusion:The Supreme Court concluded that the present appeals are governed by its earlier judgment, and the 'empty bottles return security deposit' is a trading receipt assessable to tax. The High Court's reasoning was found to be erroneous. The appeals were allowed, and the respondent was ordered to pay the costs.Appeals allowed.