Punjab Distilling Industries Ltd v. The Commissioner Of Income-Tax, Simla

(1) S.C.R. SUPREME COURT REPORTS the said presumption. We must, therefore, hold 'that the High Court was right in ta.king the view that, on the facts and circumstances proved in t.his ca:::e, the transaction in question is an adventure in the nature of trade. G. Ven/1alaswami Naidu & Co. v. The Commissioner of Income-ta:. The result is the appeal fails and must be dismissed with costs. Gajendragadka' ]. Appeal dismissed. PUNJAB DISTILLING INDUS'fRIES LTD. THE COMMISSIONER 0]' INCOME-TAX, SIMLA (VENKATARAMA AIYAR, GAJENDRAGADKAR and A. K. SARKAR, JJ.) Income-tax-Distiller tahing deposit refundable on return of bottles-Balance of deposits after refund, if trading receipt--Indian Income-tax Act (XI of z922), s. IO. The appellant, a distiller of country liquor, carried on the business of selling liquor to licensed wholesalers. Due to shortage of bottles during the war a scheme was evolved, where-under the distiller could charge a wholesaler a price for the bottles in which liquor was supplied at rates fixed by the Government, which he was bound to repay to the wholesaler on his returning the bottles. In addition to this the appellant took a further sum from the wholesalers described as 'security deposit' for the return of the bottles. Like the price of the bottles these moneys were also repaid as and when the bottles were returned with this difference that the entire sum was refunded only when 90% of the bottles covered by it had been returned. The appel-lant was assessed to income-tax on the balance of the amounts of these additional sums left after the refunds made thereout. Held, that the amounts paid to the appellant and described as 'security deposit' were trading receipts and therefore income of the appellant assessable to tax. These amounts were paid as an integral part of the commercial transaction of the sale of liquor in bottles and represented an extra price charged for the bottles. They were not security deposits as there was nothing to secure, there being no right to the return of the bottles. 684 SUl'REME COURT REPORTS [1959] Supp. l(. M. S. Lakshmanicr & Sons v. Commissioner of Income-tax and Excess Profits Tax, M_adras, [1953] S.C.R. ro57, followed. Davies . v. The Shell Company of China Ltd., . (1951) Tax Cas. · 133; and Morley v. Tattersall, (1938) 22 Tax Cas. 5r, distingui-shed. 1958 Punjab Disliliing Ltd 1 [d ]1 [[. ]] ommissionef' [[. ]] Imperial Tobacco Co. v. Kelly, (1943) 25 Tax Cas. 292, refcrr- of Income-lax, S·imla cd to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 119 of 1955. Appeal from the judgment and order dated June 16, 1953, of the Punjab High Court in Civil Reference No. l of 1953. A. V. Viswanatha Sastri and Naunit Lal, for the appellant. H. N. Sanyal, Additional Solicitor-General of India, R. Gopalakrishnan, R. H. Dhebar and D. Gupta, for the ·respondent. 1958. November 24. The Judgment of the Court was delivered by SARKAR, J.-The appellant is a company carrying on business as a distiller of country liquor. It was in-corporated in May 1945 and was in fact a previously existing company called the Amritsar Distillery Co. Ltd. reconstructed under the provisions of the Com-pany's Act. The appellant carried on the same busi-ness as its predecessor, namely, sale of the produce of its distillery to licensed wholesalers. The wholesalers in their turn sold the liquor to licensed retailers from whom the actual consumers made their purchases. The entire trade was largely controlled by Government regulations. Sarkar]. After the war started the demand for com,itry liquor increased but difficulty was felt in finding bottles in which the liquor was to be sold. In order to relieve the scarcity of bottles the Government devised .in 1940 a scheme called the buy-back scheme. The scheme in substance was that a distiller on a sale of liquor be-came entitled to charge a wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Government which he was bound to repay to the wholesaler on the latter returning the bottles. The same arrangement, but with prices calculated at differ- z95S ent rates was made !or the liquor sol~ in bottles by a Punjab Distilling wholesaler to a retailer and by a retailer to the consu-Industries Ltd. mers. Apparently it was conceived that the price v. fixed under the scheme would be found to be higher The Commissioner than the price which the bottles would fetch in the of Income-tax, open market and the arrangement for the refund of Simla the price would therefore encourage the return of the Sarkar ]. bottles from the consumers through the intermediaries ultimately to the distiller. The price refundable was later increased perhaps because the previous price did not fully achieve the desired result of the bottles finding their way back to the distillers. Sometime in 1944, the Amritsar Distillery Co. Ltd. which then was in existence, insisted on the whole-salers paying to it in addition to the price of the bottles fixed under the buy-back scheme, certain amounts described as security deposits and calculated at varying rates per bottle according to sizes for the bottles in which the liquor was supplied to them pro-mising to pay back for each bottle returned at the rate applicable to it and further promising to pay back the entire amount paid on a transaction when 90 per cent. of the bottles covered by it had been re-turned. The company ·while it was in existence realised these additional sums and so did the appellant after it took over the business. The object of demand-ing and taking these additional sums was obviously to provide additional inducement for the return of the bottles to the distiller so that its trade in selling the produce of its distillery might not be hampered for• want of bottles. No time· limit had been fixed within which the bottles had to be returned in order to entit.le a wholesaler to the refund, nor does it appear that a refund had ever been refused. The. price of the bottles received by the appellant under the buy-back scheme was entered by it in its general trading account while the additional sum received for them was entered in the general ledger under th_e heading " Empty Bottles Return Security Deposit Account". It is not disputed that for the accounting periods with which this case is concerned, the additional amounts had been taken 686 SUPREME COURT REPORTS [1959] Supp. •9JB without Government's sanction and entirely as a con---dition imposed by the appellant itself for the sale of Punjab Di5lilling •t · lnduslries Ltd. 1 8 1. iquor. . lnduslries Ltd. v. . v. The appellant was assessed to mcome-tax on the The commissioner balance of the amounts of these additional sums left of Income-la>. after the refunds made thereout. It had also been Simla assessed to business profits tax and excess profits tax on the same balance. Its appeals against the orders Sarha'Y ]. of assessment to these taxes to the Appellate Assistant Commissioner and thereafter to the Tribunal failed. It then obtained an order referring a certain question arising out of the assessments for decision by the High Court of Punjab. The question originally suggested was reframed and in its final form reads thus : Whether on the facts and circumstances of the case the collections by the assessee company described in its accounts as " empty bottle return security depo-sits" were income assessable under section 10 of the Income-tax Act ? The High Court answered the question in the affirma-tive. The present appeal is against that decision which related to all the three varieties of taxes for which the appellant had been made liable. We are concerned in this appeal only with the addi- tional sums demanded and received by the appellant and described as security deposit and not with the price of bottles which also it took under government sanction. The question is whether these amounts called security deposits were trading receipts. Now, as already stated, the appeIJant's trade consisted in •seIJing in bottles liquor produced in its distillery to wholesalers. The sale was made on these terms: In each transaction of sale the appellant took from the wholesaler the price of the liquor, a certain sum fixed by the government, as price of the bottles in which the liquor was supplied and a further sum described as security deposit for the return of the bottles. The moneys taken as price of the bottles were returned as and when the bottles were returned. The moneys described as security deposit were also returned as and when the bott.les were returned with only this differ-ence that in this case the entire sum taken in one transaction was refunded when 90 per cent. of the bottles covered by it had been returned, though the Punjab Distilling remaining 10 per cent. had not been returned. Such Industries Ud. being the nature of the appellant's trade and the v .... manner m · w I · } · uc i it was con note , t iesc a d d J dd itrnna · · l The Commissioner sums appear to us to e its •b . tra d" mg receipts. , 0 1 [1 ]Simla llCOJJlC-faX, Mr. Vishwanatha Sastri appearing on behalf of the appellant first contended that on these facts the amounts could not be regarded as price and that therefore they were not trading receipts. He said that the price of the bottles was separately fixed and the amount taken as deposit was different from and exclusive of, it. This contention is founded on the use of the word price in the buy-back scheme in connec-tion with the rates which the distiller was entitled to charge a wholesaler for the bottles. It seems to us that this contention lays undue emphasis on that word. We think that the High Court took substanti-ally a correct view of the matter when it said that in realising these amounts " the company was really charging an extra price for the bottles". It is clear to us that 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 caUed security deposit was actually a part of the con-sideration for the sale and therefore part of the price of what was sold. Nor does it make any difference that the price of the bottles was entered in the general trading account while the so called deposit was enter-ed in a separate ledger termed "empty bottles return deposit account'', for, what was a consideration for the sale cannot cease to be so by being written up in the books in a particular manner. Again the fact that the money paid as price of the bottles was repaid as and when the bottles were returned while the other moneys were repaid in full when 90 per cent. of the bottles were returned does not affect the question for none of these sums ceased to be parts of the considera-tion because it had been agreed that they would be SMl!ar j. 688 SUPREME COURT REPORTS [1959] Supp. r95B refunded in different manners. It is not contended -that the fact that the additional sums might have to Punjab Distilling be refunded showed that they were not pa.rt of the Industries Ltd. . v. price. It could not be so contended because what was The commissioner expressly said to be the price of bottles and admitted of focome-tax. to be price was also refundable. ·If so, then a slightly Simla different method providing for their refund cannot by Sarl~ar ]. itself prevent these additional sums from being price. · Now, if these additional sums were not pa.rt of the price, what were they ? Mr. Sastri said that they were deposits securing the return of the bottles. According to him if they were such security deposits, they were not trading receipts. Again we a1·e unable to agree. There could be no security given for the return of the bottles unless there was a .right to their return for if there was no such right, there would be nothing to secure. Now we find no trace of such a. right in the statement of the case. The wholesalers were clearly under no obligation to return the bottles. The only thing that Mr. Sastri could point out for establishing such an obligation was the use of the words" security deposit". We are unable to hold that these words alone are sufficient to create an obliga-tion in the wholesalers to return the bottles which they ,had bought. If it had been intended to impose an obligation on the wholesalers to return the bottles, these would not have been sold to them at all and a. bargain would have been expressly made for the return of the bottles and the security deposit would then have been sensible and secured their return. The fact that there was no time limit fixed for the return of the bottles to obt.ain the refund also indicates that there was no obligation to.return the bottles. The substance of the bargain clearly was that the appel-lant having sold the bottles agreed to take them back and repay all the amounts paid in respect of them. For this part of the case Mr. Sastri relied on Davies v. The Shell Company of China Ltd.('), but we do not think that case assists at all. What had happened there was that the Shell Company had appointed a large number of agents in China to sell its products (1) (1951) 32 Tax Cas. 133. and had taken from each agent a deposit to secure 1958 itself against the risk of default by the agent duly to -account for the sale proceeds. The deposits were P;nJab1 l}ist~:~"g made in Chinese dollars and later converted into ster-" us ms · ling. When the Company closed its business in China The c0:;.,issioner it reconverted the deposits into Chinese dollars, and of Income-tax, refunded to the agents the deposits made by them. Simla Owing to a favourable exchange for the conversion of sterling into dollars, the Co~pany made a profit and it Sarkar J. was sought to assess this profit to income-tax. It was held that the profit could not be taxed, for the deposits out of which it was made were really not trading receipts at all. Jenkins, L. J., observed at p. 157: l}ist~:~"g " Mr. Grant described the agents' deposits as part of the Company's trading structure, not trade receipts but anterior to the stage of trade receipts, and I think that is a fair description of them. It seems to me that it would be an abuse of language to describe one of these agents, after he. had ma.de a deposit, as a trade creditor of the Company; he is a creditor of the Uom-pany in respect of the deposit, not on account of any goods supplied or services rendered by him in the course of its trade, but simply by virtue of the fact that he has been appointed an a.gent of the Company with a view to him trading on its behalf, and as a con-dition of his appointment has deposited with or, in other words, lent to the company the amount of his stipulated deposit." He also said at p. 156 : "If the agent's deposit had in truth been a payment