2000 (8) TMI 3 - SC - Income Tax

Excess proceeds from sale of sugar treated as taxable trading receipt; separate account or transfer doesn't change its nature

SC dismissed the appeal with costs, holding the excess amount realised on sale of sugar was a trading receipt and taxable as the price of goods. ... Treatment of excess realisation over and above the authorised price on sale of sugar - Company's trading receipt Or not - HELD THAT:- In the case at hand, the excess amount was realised by the appellant-company in the ordinary manner of its business activities and as the price of sugar sold by it. The amount was retained by the assessee as price of the sugar sold by it though the right of the appellant-company to realise the amount was the subject of dispute. The interim order of the High Court, looking to the phraseology employed therein, would not make any difference in the nature of receipts by the assessee. Though learned senior counsel for the appellant submitted that the excess amount was retained in a separate account, that would also not make any difference in our opinion. Firstly, the consistent view of this court, as noticed hereinabove, is that merely maintaining a separate account under a heading given by the assessee would not alter the nature of the receipt if it actually be a trading receipt. Secondly, nothing is available on record to find out how and in what manner the separate account was maintained by the assessee. It was lastly submitted by learned senior counsel for the appellant that in the year 1997, the appellant has transferred the amount to the Sugar Equalisation Fund of the Government. Suffice it to say that such transfer in the year 1997 does not have any bearing on the taxability of the amount which was a trading receipt in the assessment year 1972-73. It is clear from the facts stated by the High Courts that in each of the cases the assessee's right to realise the excess price was the subject-matter of dispute pending in the High Court and the High Courts had passed different interim orders pursuant to which the respective assessees were collecting the excess price. Though the interim orders of the High Courts are differently worded in the three cases, one common feature of all the orders is that the realisation of the excess price by the respective assessees was hedged by several conditions one of which was that the assessee shall refund the amount received in excess of the price fixed in the event of the pending dispute being decided adversely to the assessee by the court. Thus the receipt of the amount by the assessee was clearly associated with a liability to refund the amount, which liability was ascertainable and quantified. Such is not the case at hand. Thus, we find ourselves in agreement with the view taken by the High Court. The appeal is devoid of any merit. It is dismissed with costs. Issues:1. Interpretation of excess realisation over authorised price on sale of sugar.2. Treatment of excess amount collected by appellant-company.3. Applicability of Levy Sugar Price Equalisation Fund Act, 1976.4. Comparison with relevant legal precedents.5. Dismissal of the appeal by the Supreme Court.Issue 1: Interpretation of excess realisation over authorised price on sale of sugarThe case involved a dispute over the excess amount of Rs. 14,96,130 collected by the appellant-company in the assessment year 1972-73 in the sale of sugar at a rate exceeding the authorised price set by the Government. The Income-tax Officer treated this amount as part of the company's trading receipt, while the Commissioner of Income-tax held otherwise. The High Court, on reference from the Appellate Tribunal, ruled in favor of the Revenue. The appellant argued that the excess amount was collected under court interim orders and was liable to be refunded to purchasers if the writ petition was dismissed. The key contention was whether the excess amount constituted a trading receipt of the company.Issue 2: Treatment of excess amount collected by appellant-companyThe appellant maintained that the excess amount was not rightfully its own and should have been refunded to purchasers if the writ petition was unsuccessful. The Revenue argued that the excess amount was a trading receipt as it was collected during the company's business activities. Legal precedents were cited to support the view that the true nature of a receipt determines its tax treatment, irrespective of how it is recorded in account books. The Supreme Court emphasized that the excess amount was retained by the appellant as part of the sugar sale price, regardless of the court orders or separate accounting.Issue 3: Applicability of Levy Sugar Price Equalisation Fund Act, 1976The Act mandated that all excess realisations made by producers, regardless of timing, be credited to a fund. The appellant challenged the Act's validity through a writ petition, which was dismissed. The Supreme Court noted that the appellant's subsequent transfer of the amount to the Sugar Equalisation Fund in 1997 did not impact the taxability of the amount as a trading receipt in the assessment year 1972-73.Issue 4: Comparison with relevant legal precedentsThe Court analyzed various legal precedents where excess amounts collected were deemed trading receipts, emphasizing that the nature of the receipt determines its tax treatment. Cases like Chowringhee Sales Bureau, Punjab Distilling Industries, and Jonnalla Narasimharao were cited to support the principle that the manner of recording in account books does not alter the true nature of a receipt.Issue 5: Dismissal of the appeal by the Supreme CourtAfter a thorough analysis of the arguments presented, the Court found no merit in the appeal and upheld the High Court's decision. The appellant's reliance on decisions from different High Courts was deemed irrelevant as the specific circumstances and liabilities associated with excess amounts collected differed significantly from the case at hand. The appeal was dismissed with costs, affirming the High Court's ruling in favor of the Revenue.