Commissioner of Income Tax vs Kedar Nath Finishing Works

B.P. Jeevan Reddy, C.J.—We have heard counsel for Revenue. The assessee is not represented.

The question referred u/s 256(1) of the Income Tax Act, 1901, reads thus :

"Whether, on the facts and in the circumstances of the ease, the Appellate Tribunal was legally correct in deleting the addition of Rs. 15,057 being part of the sale price of fertilizer kept by the assessee with itself ?"

The assessee is a registered firm and the assessment year concerned is 1975-76. During the relevant previous year, sale price of fertilizers was increased by the Central Government. However, the U. P. Government issued a clarification that the enhanced price does not apply to existing stock. The district authorities, accordingly, called upon the assessee to deposit the excess amount realised in a post office in the name of the District Magistrate. However, out of the total excess amount of Rs. 22,057, the assessee deposited only a sum of Rs. 7,000 in the account and kept the remaining amount of Rs. 15,057 with itself. The Income Tax Officer assessed the total amount of Rs. 22,057 as the income of the assessee of the previous year which was challenged by the assessee by way of appeal. The Appellate Assistant Commissioner allowed the assessee''s appeal in part. He excluded the amount of Rs. 7,000 which was deposited in the savings bank account in the name of the District Magistrate, but directed that the amount of Rs. 15,057 should be included in the assessee''s income,

On further appeal by the assessee, the Tribunal deleted the amount of Rs. 15,057 relying on its own order in I. T. A. No. 2126 of 1975-76 (Govind Prasad Prabhu Nath, Sultanpur). Thereupon, the Department obtained this reference pointing out the factual distinction between both the cases.

From a perusal of the judgment of the Tribunal, it is clear that, in the case of Govind Prasad Prabhu Nath, the entire excess amount was credited in the specified account. But, in this case, admittedly, a sum of Rs. 15,057 was not so credited. The question is whether it constitutes the income of the assessee on that account.

Two courses are open in such a situation. One is to say that the said amount, even though not credited into a separate account, does not constitute its income since his right to the said amount is disputed, with a direction that as and when his right is established, it will be included in the income for that year. The second course is to say that since the assessee has failed to deposit that amount in a separate account, it does constitute his income and to direct further that if and when the assessee''s right to the said amount is negative finally, he may claim deduction in that behalf in that year, Having regard to the facts of this case and particularly in view of the fact that the petitioner failed to comply with the condition subject to which he was allowed to collect the excess amount (namely, its deposit in a separate account) we would be justified in adopting the second course. It is evident that the petitioner chose to treat the said amount as his trading receipt, notwithstanding his claim to the contrary.

Accordingly, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee, with the observation that, in case the assessee''s right is finally negative, he shall be entitled to claim deduction of the said amount in that year.

The reference is answered accordingly.