Case Law Details
Issue- Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 10,69,542 credited to molasses storage fund out of the sale proceeds of molasses was to be included in the income of the appellant ?
Amounts were collected as per the directions given by the Molasses Control (Amendment) Order, it goes to the molasses storage fund over which the assessed has no control and domain. Inasmuch as the assessed cannot utilise the same for its own business purpose, we have also here to hold that there is diversion by overriding title at the source itself. Even before the amount reached the hands of the assessed, the assessed was directed to transfer the same towards the molasses storage fund. Therefore, the collection made by the assessed belongs to the molasses storage fund. . In view of abpve, the answer is required to be given in favor of the assessee.
Delhi High Court
DCM Ltd.
vs
Commissioner Of Income Tax
Dated- 1 October, 2004
Equivalent citations: (2004) 192 CTR Del 408
Author: B Patel
Bench: B Patel, B D Ahmed
JUDGMENT B.C. Patel, C.J.
1. IT Appeal No. 588 of 2004 Admit.
On the identical issue, the appeals are pending before us for previous years. The following question of law is required to be determined by this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 10,69,542 credited to molasses storage fund out of the sale proceeds of molasses was to be included in the income of the appellant ?”
In the other two appeals, the question is identical except the amount.
IT Appeal No. 588 of 2004 and IT Appeal Nos. 4 & 99 of 2002 At the request of the learned counsel appearing for the assessed as well as the Revenue, we are disposing of all the three appeals, namely, IT Appeal Nos. 4 of 2002 and 99 of 2002 and the present appeal being IT Appeal No. 588 of 2004 for the asst. yrs. 1984-85, 1985-86 and 1986-87, respectively.
2. The assessed is a public limited company engaged in the manufacture of various articles including sugar. Under the provisions contained in the Molasses Control (Regulation of Fund for Erection of Storage Facilities) Order, 1976, which is required to be read with Molasses Control Order, 1961, issued in exercise of powers under Section 18G of the Industries (Development and Regulation) Act, 1951, the assessed was required to maintain a molasses storage fund and was required to maintain accounts as indicated under Clause 3 of the order and was obliged to utilise the amount as indicated in Clause 4 of the order. The assessed had no control over the fund when it was deposited in the bank as the amount was required to be deposited in accordance with the order and for the purpose and the manner indicated therein.
3. We have heard the learned counsel at length and in the opinion of the Court, the case is entirely covered by the decision of the Madras High Court in CIT v. Salem Co-operative Sugar Mills Ltd. (1998) 229 ITR 285 (Mad) and, as contended by the learned counsel for the assessed, by several other decisions of various High Courts which are referred to hereunder :
1. CIT v. Pandavapura Sahakara Sakkare Karkhane Ltd. (1992) 198 ITR 690 (Kar);
2. CTT v. Hiranyakeshi Sahakari Sakkare Kharkhane (1993) 200 ITR 130 (Kar);
3. Somaiya Organo-Chemicals Ltd. v. CIT ;
4. CIT v. New Horizon Sugar Mills (P) Ltd. (2000) 244 ITR 738 (Mad);
5. CIT v. Sakthi Sugars Ltd. (2001) 251 ITR 166 (Mad);
6. CIT v. Madurantakam Co-op. Sugar Mills Ltd. (2003) 263 ITR 388 (Mad);
7. CIT v. Nizam Sugar Factory Ltd. .
4. It is also indicated by the learned counsel that the SLP preferred by the Revenue in the case of CIT v. Pandavapura Sahakara Sakkare Karkhane Ltd. and CIT v. Hiranyakeshi Sahakari Sakkare Kharkhane were dismissed. Civil appeal preferred against the decision rendered by the Madras High Court in CIT v. New Horizon Sugar Mills (P) Ltd. has been dismissed [(2004) 269 ITR 397 (SC)]
5. The learned counsel has placed before us a copy of the order of the Supreme Court in Civil Appeal No. 2499 of 1998 in the case of CIT v. Ambur Co-op. Sugar Mills Ltd. and other matters decided on 28th Aug., 2001. The Supreme Court made an order which is as under:
“Order Delay condoned The civil appeals and special leave petition are not pressed by Mr. M.L. Verma, learned counsel for the Revenue, for the reason that the special leave petition against the judgment followed by the High Court in the order under appeal was dismissed as also special leave petitions against judgment of various High Courts taking a similar view.
The civil appeal and special leave petition are dismissed.
No order as to costs.”
6. We would like to quote the relevant portion from the case of CIT v. Salem Co-operative Sugar Mills Ltd. (supra) as the issue has been elaborately dealt in that case. The relevant portion of which reads as under :
“But according to the facts arising in the present case, the assessed was directed to collect a certain amount along with the price fixed for alcohol under the Molasses Control (Amendment) Order. Therefore, even before collection of the amount as directed by the Central Government under the Molasses Control (Amendment) Order, the assessed was directed to keep this amount under a separate account under the head “Molasses storage fund”. Though the assessed collects this amount under the statutory obligation, it does not belong to the assessed, but it belongs to the molasses storage fund. The assessed cannot utilise the amount in the said fund for any other purpose. The fund has got to be utilised for the purpose of constructing a storage tank as per the specifications given by the Central Government. If the assessed failed to collect such amount as directed by the Molasses Control (Amendment) Order, the Central Government will construct a molasses storage tank and recoup the construction charges from the assessed. Therefore, there is diversion of title even at the source of the income collected as per the directions given under the Molasses Control (Amendment) Order. But according to the facts arising in the decision of the Supreme Court cited supra, the amount will be standing to the credit of the contingency reserve. The reserve is only for the utilisation by the assessed at a later stage when such contingency arises. Therefore, the assessed is having control and domain over the contingency reserve created according to the statute. After the amount was realised, the assessed was asked to create a contingency reserve, as against the facts arising in the present case where the assessed was directed to collect separately the amount for molasses storage fund, over which the assessed has no control or domain. Further, since it is not a provision for known or existing liabilities, the amount appropriated to the contingency reserve is not deductible as business expenditure according to the Supreme Court. For the foregoing reasons, we are of the opinion that the judgment of the Supreme Court rendered in Associated Power Co. Ltd. v. CIT , will not be applicable to the facts arising in this case.
According to learned standing counsel, the Bombay High Court was not correct in stating in Somaiya Organo-Chemicals Ltd. v. CIT , that the question of ownership of the fund is not relevant. What the Bombay High Court said was that inasmuch as the assessed was not having any right over the amount in the molasses storage fund and the assessed has lost all the domain over such amount, it was held that the amount collected by way of molasses storage fund had gone out of the hands of the assessed, which is not available for its utilisation, unlike the contingencies reserve occurring in the decision of the Supreme Court in Associated Power Co. Ltd. v. CIT (supra). In the present case also, after the amounts were collected as per the directions given by the Molasses Control (Amendment) Order, it goes to the molasses storage fund over which the assessed has no control and domain. Inasmuch as the assessed cannot utilise the same for its own business purpose, we have also here to hold that there is diversion by overriding title at the source itself. Even before the amount reached the hands of the assessed, the assessed was directed to transfer the same towards the molasses storage fund. Therefore, the collection made by the assessed belongs to the molasses storage fund.”
7. In view of what is stated hereinabove, the answer is required to be given in favor of the assessee in all these appeals and against the Revenue.
