Karnataka High Court
Commissioner of Income-Tax
Pandavapura Sahakara Sakkare Kharkane Ltd.
Dated- 11 September, 1991
Equivalent citations: 1992 198 ITR 690 a KAR
Author: K S Bhat
Bench: K S Bhat, N Venkatachala
JUDGMENT K. Shivashankar Bhat, J.
1. The question referred to us under the provisions of the Income-tax Act, 1961 (“the Act” for short), reads thus :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the orders of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 1,08,644 made in the assessment for the assessment year 1980-81, being the amount transferred to the ‘molasses storage fund’ from the sale proceeds of the molasses ?”
2. There is no dispute that the selling price of molasses was fixed by the Government of India as per the Molasses Control Order and, while determining the price to be charged by the assessee, the Government had stipulated that one-third of the price charged should be transferred to a fund called “Molasses Storage Fund”. This amount could be utilised only according to the instructions issued by the Government from time to time. The amount thus transferred has to be kept separately from other business funds in a separate bank account and it was not possible to withdraw the same without the prior approval of the Excise Department. By virtue of this statutory mandate, the assessee had set apart the amounts as “molasses storage fund” and claimed that this amount was not part of the income of the assessee.
3. The assessee contended before the Income-tax Officer that there was diversion of the aforesaid amount by overriding title created by the statutory order; though the Assessing Officer did not accept this contention, the first appellate authority accepted the same by allowing the appeals filed by the assessee. This order was affirmed by the Appellate Tribunal. Hence, this reference at the instance of the Revenue.
4. There can be no doubt that the amount in question could not be claimed by the assessee as belonging to it. The utilisation of the amount in question could be only as per the directions that may be issued by the Government from time to time. The right to the fund got diverted from the hands of the assessee by virtue of the Molasses Control Order. Under almost similar circumstances, in a matter of contribution to the education fund created under section 57 of the Co-operative Societies Act, 1957, this court held in CIT v. Pandavapura Sahakara Karkhane Ltd.  174 ITR 475, that the amount contributed to the said education fund cannot be included in the income of the assessee. It was held that the amount in question got diverted at the source itself by virtue of the statutory obligation. We are in respectful agreement with the said view, Consequently, the question, referred to us is answered in the affirmative and against the Revenue.