TaxTMI 
TaxTMI 
1961 (2) TMI 59
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....ls. The assessee was also required to sell the scrap iron only to permit holders. The practice of selling scrap iron adopted by the assessee was to obtain from the permit holder the approximate quantity of scrap iron required by him and, after knowing the weight, to calculate the price of the quantity in round figures and the constituent used to be asked to deposit the amount so calculated by the assessee. The scrap iron which the assessee actually supplied to the constituent was sometimes more or sometimes less than the quantity for which the price was calculated and for which the deposit was obtained from the constituent. After the delivery of the scrap iron it many times happened that there remained a short surplus of the deposit over the actual purchase price. In cases where the purchase price was slightly more than the amount deposited the necessary recovery was made by the assessee but in cases where the deposit was slightly more than the purchase price of the total goods supplied, the constituents did not take away the amount from the assessee and the amount used to remain to the credit of the constituent in the assessee's books. On November 23, 1953, the board. of direc....
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.... consider the unclaimed balances in the assessment years 1954-55 and 1955-56. The assessment orders for these two years are part of the case and are annexures "B" and "C" respectively. When the assessment for the year 1956-57 was made the Income-tax Officer treated the unclaimed balance of Rs. 1,993 as something which was realised by the company on account of its trading activity. In his opinion, the amount represented the revenue receipt of the assessee. He accordingly rejected the assessee's claim for a deduction of Rs. 1,993 in the profit and loss account and added back this amount. The assessment order for the year 1956-57 is part of the case and is annexure "D". 5. The assessments for the years 1954-55 and 1955-56 were revised by the Commissioner of Income-tax under section 33B of the Indian Income-tax Act. The Commissioner of Income-tax after issuing the notices and hearing the parties as required by law held that the unclaimed balances of Rs. 2,080 la the assessment year 1954-55 and Rs. 10,692 in the assessment year 1955-56 represented the revenue income of the assessee. He accordingly enhanced the assessments for the two years by including these two amounts in the to....
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....e assessee's income from other sources. The mere fact that the assessee appropriated a receipt does not necessarily mean that the receipt represents income. The two terms are by no means synonymous." The judicial Member, Shri Kali Sharan, held that the unclaimed balances did represent the surplus income of the assessee. In his order he observed: "Since the commodities were scarce and the exact price had to be calculated afterwards, payments were made in advance by the customers on an ad hoc basis taking into account a margin for certain sundry overhead charges and in the calculation of the exact price subsequently. But the initial character of the payment was towards price as such rather than towards a bailment or deposit. " Since there was difference of opinion, the case was referred to the President under section 5A(7) of the Indian Income-tax Act on the point of difference between the Members. The point of difference set out by the two Members was as under: "Whether the unclaimed residual balance....
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....lls. That iron could be sold by the assessee only to permit holders. The practice followed by the assessee of selling scrap iron was to obtain from the permit holder the approximate quantity of scrap iron required by him and after finding out the weight, the calculation of the price of the quantity in round figures was made and the constituent was asked to deposit the amount so calculated by the assessee. The actual quantity of scrap iron which would, in fact, be supplied to the constitutent would be sometimes more or sometimes less than that for which the price had been calculated and for which the deposit had been obtained from the constituent. After the delivery of the scrap iron, it often happened that there remained a small surplus out of the money deposited. In cases where the deposits were slightly more than the amount deposited, the necessary recovery was made by the assessee but in the cases where the deposits were slightly more than the purchase price of the total goods supplied, the constituents did not sometimes take away the amount from the assessee and that amount used to remain to the credit of the constituent in the assessee's books. The board of directors of th....
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.... in the assessment year 1954-55, Rs. 10,692 in the assessment year 1955-56 and Rs. 1,993 in the assessment year 1956-57 present the revenue income of the assessee liable to tax under the Indian Income-tax Act, 1922 ?" The President of the Tribunal relied on the following facts for coming to the conclusion that the payments which were made to the assessee were by way of payment of price : (1) The payment is subject to a stipulation that if there is a shortage or excess, it has to be adjusted. (2) The assessee has not shown the amount as a liability in his own balance-sheet. (3) Any excess payment or short recovery is always liable to be adjusted in every business when a mistake has to be rectified. (4) According to the method of accounting employed by the assessee, the amounts in question were never the liability of the business but were revenue receipts. The learned counsel for the assessee has mainly relied on a decision of the Court of Appeal in Morley v. Tattersall [1939] 7I. T. R. 316 (C. A.) The Accountant Member of the Tribunal, Shri A. L. Seghal, who decided in favour of the assessee, also based his decision largely on that case. As will be presently see....
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....tion of delivery under the contract, the transaction is one providing in substance and effect for the adjustment of the mutual obligations on the completion of the contract. We hold accordingly that the sums received during this period cannot be regarded as borrowed money...." The principle which has been enunciated by the learned Chief Justice is fully applicable to the facts of the present case. The deposits which were made by the various constituents were towards the payment of price and the transactions were those essentially involving adjustment of mutual obligations on the completion of the contract. If any shortfall existed, the constituent was bound to make the deficiency good and if any excess amount was left, the assessee was under an obligation to refund it but that would not change the real nature of the transaction and could not give the character of a loan to the amounts which had been deposited by the constituents initially as has been contended by the learned counsel for the assessee. An attempt was also made to bring it within the arrangement that prevailed in the third part of the accounting period in Lakshmanier & Sons' case*, the initial payments made dur....
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....g observations of Sarkar J. [1959] 35 I.T.R. 519, 527 (S.C.) are important : " It seems to us that the amounts involved in the present case were exactly of the nature of the deposits made in the second period in Lakshmanier & Sons' case**. There, as here, as soon as a transaction of sale was made the seller received certain moneys in respect of it. It is true that in Lakshmanier & Sons' case** the transaction was a contract to sell goods in future whereas in the present case the transaction was a sale completed by delivery of the goods and receipts of the consideration. But that cannot change the nature of the payment. In Lakshmanier & Sons' case** the payment initially made was refundable after the price had been paid; in the present case the contract is to refund the amount on the return of the bottles already sold. In each case therefore the payment was made as part of a trading transaction and in each case it was refundable on certain events happening. In each case again the payment was described as a deposit. As in that case, so in the present case, the payment cannot be taken to have been made by way of security deposit. We must therefore on theauthority of Lakshm....