Commissioner of Income Tax vs Sir Shadi Lal Enterprises Ltd.

R.K. Agrawal, J.—The Income Tax Appellate Tribunal, New Delhi has referred the following question of law u/s 256(1) of the Income Tax Act, 1961, hereinafter referred to as "the Act" for opinion to this Court:

Whether on the facts and in the circumstances of the case, the Tribunal was legally correct to hold that the excess price realised on levy of sugar does not become part of trading receipt and was not taxable?

The present Reference relates to the assessment year 1984-85.

Briefly stated the facts giving rise to the present Reference are as follows:

The assessee is a public limited company engaged in the manufacture of sugar and liquor. For this year the assessment was completed by the assessing officer on 20-3-1987. The Commissioner, Meerut on a review of the assessment found that in the balance sheet of the assessee a sum of Rs. 37,43,172 was shown as a liability on account of collection of enhanced levy sugar price. This amount was shown under the head ''Current liabilities''. Out of this an amount of Rs. 30,21,873 was realised by the assessee during the year from the customers as excess price on the levy sugar. This amount was not brought to tax by the assessing officer in the original assessment made on 20-3-1987. Considering that this was a mistake on the part of the assessing officer, which resulted in causing prejudice to the interests of the revenue, the Commissioner gave a notice on 15-12-1988 to the assessee requiring him to explain as to why the assessment made by the assessing officer should not be modified by adding the above sum. There were also two other items which were mentioned in the notice but we are not concerned with those sums in this reference. The assessee replied that this sum was not taxable because this amount was realised by it as per an order passed by the Allahabad High Court by furnishing bank guarantee and the amount was not to be regarded as assessee''s income in the sense that it came to the assessee not as a final amount. The Commissioner did not accept this contention for the reasons given by him in his order and directed to include this amount as income of the assessee.

The brief facts about the realisation of the sum are that the Allahabad High Court granted by its order dated 25-3-1983 and supplementary order dated 6-4-1983 an excess price of Rs. 21.40 per quintal to the assessee in respect of the levy sugar by enhancing the price fixed by the Government at Rs. 277.41 per quintal to Rs. 298.81 quintal with effect from 25-3-1983. This was subjected to the furnishing of an advance bank guarantee in respect of differential price, which is to bear interest at the rate of 12 - per cent. This bank guarantee is to be encashed in the event the assessee fails in the writ petition. It was on this basis that the assessee collected the enhanced price. The writ petition was subsequently transferred to the Hon''ble Supreme Court and it has still pending there at the time of making the reference. On these facts the assessee claimed that the collection of the enhanced price did not become a part of its trading receipt and the matter was contingent. It was this contention that the Commissioner rejected. It was also pointed out before the Commissioner that for the earlier years, the matter has been decided by the Tribunal in favour of the assessee. Somehow this argument also did not find favour with the Commissioner of Income Tax.

Then the assessee filed an appeal before the Tribunal. The Tribunal following its earlier order held that the sum in question was not liable to be taxed as income of the assessee.

We have heard Sri R.K. Upadhyay, learned counsel appearing for the revenue.

We find that the similar question came up for consideration before this Court in the case of Commissioner of Income Tax Vs. Dhampur Sugar Mills Ltd., and this court after considering the various decisions on the issue has held that as the right to receive the payment had been in dispute, it, therefore, did not form part of the trading receipt and the question has been answered in the affirmative, i.e., in favour of the assessee and against the revenue.

Respectfully following the aforesaid decision, we answer the question referred to us in the affirmative i.e. in favour of the assessee and against the revenue. There shall be no order as to costs.