Appeal No 119 of 1955
Appeal from the judgment and order dated June 16 1953 of the Punjab High Court in Civil Reference No 1 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
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 incorporated in May 1945 and was in fact a previously existing company called the Amritsar Distillery Co Ltd reconstructed under the provisions of the Company s Act
The appellant carried on the same business 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
After the war started the demand for country 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 became 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 685 same arrangement but with prices calculated at different rates was made for the liquor sold in bottles by a wholesaler to a retailer and by a retailer to the consumers
Apparently it was conceived that the price fixed under the scheme would be found to be higher than the price which the bottles would fetch in the open market and the arrangement for the refund of the price would therefore encourage the return of the 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 wholesalers 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 promising 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 returned
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 demanding 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 entitle 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 the 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 without Government s sanction and entirely as a condition imposed by the appellant itself for the sale of its liquor
The appellant was assessed to income tax on the balance of the amounts of these additional sums left after the refunds made there out
It had also been assessed to business profits tax and excess profits tax on the same balance
Its appeals against the orders 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 deposits were income assessable under section 10 of the Income tax Act The High Court answered the question in the affirmative
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 additional 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 appellant s trade consisted in selling 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 bottles were returned with only this difference that in this case the entire sum taken in one 687 transaction was refunded when 90 per cent
of the bottles covered by it had been returned though the remaining 10 per cent
had not been returned
Such being the nature of the appellant s trade and the manner in which it was conducted these additional sums appear to us to be its trading receipts
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 connection 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 substantially 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 called security deposit was actually a part of the consideration 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 entered 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 consideration because it had been agreed that they would be 688 refunded in different manners
It is not contended that the fact that the additional sums might have to be refunded showed that they were not part of the price
It could not be so contended because what was expressly said to be the price of bottles and admitted to be price was also refundable
If so then a slightly different method providing for their refund cannot by itself prevent these additional sums from being Price
Now if these additional sums were not part 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 are 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 care
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 de posit 
We are unable to hold that these words alone are sufficient to create an obligation 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 obtain the refund also indicates that there was no obligation to return the bottles
The substance of the bargain clearly was that the appellant 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 vs The Shell Company of China Ltd 1 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 1 689 and had taken from each agent a deposit to secure itself against the risk of default by the agent duly to PI account for the sale proceeds
The deposits were made in Chinese dollars and later converted into sterling
When the Company closed its business in China it reconverted the deposits into Chinese dollars and refunded to the agents the deposits made by them
Owing to a favourable exchange for the conversion of sterling into dollars the Company made a profit and it 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  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 made a deposit as a trade creditor of the Company he is a creditor of the Company 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 agent of the Company with a view to him trading on its behalf and as a condition of his appointment has deposited with or in other words lent to the company the amount of his stipulated deposit
 lie also said at p 156 it If the agent s deposit had in truth been a payment in advance to be applied by the Company in discharging the sums from time to time due from the agent in respect of petroleum products transferred to the agent and sold by him the case might well be different and might well fall within the ratio deciding of Landes Bros vs Simpson 1 and Imperial Tobacco Co vs Kelly 2
But that is not the character of the deposits here in question
The intention manifested by the terms of the agreement is that the deposit should be 1 2 87 690 retained by the Company carrying interest for the benefit of the depositor throughout the terms of the agency
It is to be available during the period of the agency for making good the agent s defaults in the event of any default by him  but otherwise it remains as I see it simply as a loan owing by the Company to the agent and repayable on the termination of the agency 
It would therefore appear that the deposits in that case were held not to be trading receipts because they had not been made as part of a trading transaction
It was held that they had been received anterior to the commencement of the trading transactions and really formed the trading structure of the Company
The character of the amounts with which we are Concerned is entirely different
They were parts of the trading transactions themselves and very essential parts the appellant would not sell liquor unless these amounts were paid and the trade of the appellant was to make profit out of these sales
The fact that in certain circumstances these amounts had to be repaid did not alter their nature as trading receipts
We have already said that it is not disputed that what was expressly termed as price of bottles was a trading receipt though these had to be repaid in almost similar circumstances
We may point out that it had not been said in Shell Company case1 that the deposits were not trading receipts for the reason that they might have to be refunded the reason for the decision was otherwise as we have earlier pointed out namely that they were no part of the trading transactions
We therefore think that the deposits dealt with in the Shell Company case were entirely of a different nature and that case does not help
Mr Sanyal was prepared to argue that even if the amounts were securities deposited for the return of the bottles they would still be trading receipts for they were part of the trading transactions and the return of the bottles was necessary to enable the appellant to carry on its trade namely to sell liquor in them
As we have held that the amounts had not been paid as security for the return of the bottles we do not 1 691 consider it necessary to pronounce upon thiscontention
We might also refer to the observationsmade in Imperial Tobacco Co vs Kelly1 mentioned in the Shell Company case 2 and set out below
There the Company in the course of its trading activity used to purchase tobacco in America and for that purpose had to acquire American dollars
It so happened that after it had acquired a certain amount of dollars for making the purchases it was prevented from buying tobacco in America by Government orders passed due to outbreak of war
While the dollars lay with the Company they appreciated in value and later the Treasury acquired the dollars and paid the Company for them in sterling at the then current rate of exchange as a result of which payment the Company made a profit
It was hold that the profit was a trading receipt of the Company
Lord Greene said at p 300  The purchase of the dollars was the first step in carrying out an intended commercial transaction namely the purchase of tobacco leaf
The dollars were bought in contemplation of that and nothing else 
He also observed that the dollars  were an essential part of a contemplated commercial operation 
It seems to us that the amounts with which this case is concerned were paid and were refundable as an integral part of a commercial transaction namely the sale of liquor in bottles by the appellant to a wholesaler
The case nearest to the present one is in our view that decided by this Court in K M section Lakshmanier  Sons vs Commissioner of Income tax and Excess Profits Tax Madras 3
There the appellants who were the assessees were merchants carrying on business as the sole selling agents for yarn manufactured by the Madura Mills Co Ltd They sold the yarn to their constituents and in the relevant accounting period the sales were made under three successive arrangements each of which covered a part of it
Under each arrangement the assessees were paid a certain initial 1 2 3  692 sum by their customers
The question was as to the nature of these initial payments
Under the first arrangement  the appellants had two accounts for each constituent namely  a contract deposit account  and  a current yarn account  crediting the moneys received from the customers in the former account and transferring them to the yarn account in adjustment of the price of the bales supplied then and there that is as and when deliveries were made under a contract either in instalment or in full 
It was held that the amounts received from the customers under this arrangement were taxable as they were merely advance payments of the price and could riot therefore be regarded as borrowed money
This was clearly so because under this arrangement cash was deposited by a purchaser in respect of a contract of purchase at the time it was made and was to be applied when the goods had been delivered by the appellant under that contract towards the price payable in respect of them such price not being payable in any other manner
The arrangement for the second part of the accounting period was that the payment made by a constituent at the time of the making of a contract was taken as  Contracts advance fixed deposit  and it was refunded when the goods under the contract had been supplied and the price in respect thereof paid in full irrespective of the earlier payment
With respect to the payment initially made under this arrangement Patanjali Sastri C J said at p 1067   we are of opinion that having regard to the terms of the arrangement then in force they partake more of the nature of trading receipts than of security deposits
It will be seen that the amounts received were treated as advance payments in relation to each  contract number  and though the agreement provided for the payment of the price in full by the customer and for the deposit being returned to him on the completion of delivery under the contract the transaction is one providing in substance and effect for the adjustment of the mutual obligations on the completion of the contract
We hold accordingly that 693 the sums received during this period cannot be regarded as borrowed money 
It seems to us that the amounts involved in the present case were exactly of the nature of the deposits made in the second period in Lakshmanier  Sons  case 1
There as here as soon as a transaction of sale was made the seller received certain moneys in respect of it
It is true that in Lakshmanier  Sons  case the transaction was a contract to sell goods in future whereas in the present case the transaction was a sale completed by delivery of the goods and receipt of the consideration
But that cannot change the nature of the payment
In Lakshmanier  Sons  case the payment initially made was refundable after the price had been paid in the present case the contract is to refund the amount on the return of the bottles already sold
In each case therefore the payment was made as part of a trading transaction and in each case it was refundable on certain events happening
In each case again the payment was described as a deposit
As in that case so in the present case the payment cannot be taken to have been made by way of a security deposit
We must therefore on the authority of Laskhmanier  Sons  case hold the amounts in the present case to have been trading receipts
It was Mr Sastri s effort to bring the case within the arrangement that prevailed in the third part of the accounting period in Laskhmanier  Sons  case the initial payments made during which were held to be loans
But we think that he has not succeeded in this
The payments during the third period were made under the following arrangements  Instead of calling for amounts from you towards Security Deposit  due to bales for which we are entering into forward contracts with you and returning the same to you from the said deposit then and there as we are doing now and in order to make it feasible we have decided to demand from you a certain sum towards Security Deposit and keep the same with us so long as our business connections under forward contracts will continue with you Under this arrangement a certain 11953 SCR 1057
694 sum was kept in deposit once and for all and there
after Lakshmanier  Sons commenced to enter into the trading transactions namely forward contracts for sale of yarn with the constituents who deposited the money
The sum so deposited was to be refunded with interest at three per cent
per annum at the end of the business connection between the parties if necessary after retaining there out any amount due on the contracts made with the constituent which the latter was at the termination of the business found not to have paid
Patanjali Sastri C J observed at p 1063 in regard to the deposits made under this arrangement The amount deposited by a customer was no longer to have any relation to the price fixed for the goods to be delivered under a forward contract either in instalments or otherwise
Such price was to be paid by the customer in full against delivery in respect of each contract without any adjustment out of the deposit which was to be held by the appellants as security for the due performance of his contracts by the customer so long as his dealings with the appellants by way of forward contract continued the appel lants paying interest at 3 per cent
in the meanwhile and having as appears from the course of dealings between the parties  the use of the money for their own business
It was only at the end of the  business connection  with the appellants that an adjustment was to be made towards any possible liability arising out of the customer s default
Apart from such a contingency arising the appellants undertook to repay an equivalent amount at the termination of the dealings
The transaction had thus all the essential elements of a contract of loan and we accordingly hold that the deposits received under the final arrangement constitute borrowed money 
Having observed that the description of the payment made by the customer as a deposit made no difference for a deposit included as a loan the learned Chief Justice further said at p 1064  The fact that one of the conditions is that it is to be adjusted against a claim arising out of a possible 695 default of the depositor cannot alter the character of the transaction
Nor can the fact that the purpose for which the deposit is made is to provide a security for the due performance of a collateral contract invest the deposit with a different character
It remains a loan of which the repayment in full is conditioned by the due fulfilment of
the obligations under the collateral contract 
In coming to the view that he did with regard to the arrangement prevailing in the third period the learned Chief Justice referred  with approval to the case of Davies vs Shell Company of China1 which we have earlier mentioned
Now it seems to us that the reasons on which the learned Chief Justice based his conclusion that the deposits during the third period were loans do not apply to the present case
In the present case unlike in Lakshmanier  Sons  case the amount paid has a relation to the price of the goods sold  it is part of that price as we have earlier said
It was a condition of each transaction of sale by the appellant
It was refundable to the wholesaler as soon as he returned the bottles in which the liquor had been supplied to him in the transaction in respect of which the deposit had been made
The deposit in the present case was really not a security at all  it did not secure to the appellant anything
Unlike Lakshmanier  Sons  case in the present case a deposit was made every time a transaction took place and it was refundable under the terms of that transaction independently of other deposits under other transactions
In Lakshmanier  Sons  case the deposit was in the nature of the assee s trading structure and anterior to the trading operations as were the deposits considered in Shell Company case1
In the case in hand the deposit was part of each trading transaction
It was re
fundable under the terms of the contract relating to a trading transaction under which it had been made it was not made under an independent contract nor was its refund conditioned by a collateral contract as happened in Lakshmanier  Sons  case
1 696 We therefore think that the present case is governed by the arrangement covering the second period and not the third period mentioned in Lakshmanier  Sons case 1 and come to the conclusion that the amounts with which we are concerned were trading receipts
Mr Sastri also referred us to Morley vs Pattersall and contended that the amounts with which we are concerned were of the same kind as those consideredin that case and were not income
It seems to us that there is no similarity between the two cases at all
Tattersall was a firm who sold horses of its constituents on their behalf and received the price which it was liable to pay them
It so happened that in the course of years various customers did not come and demand the amounts due to them
Initially Tattersall showed those amounts in its accounts as liabilities which they really were
Later it thought that it would never have to pay back these amounts and thereupon transferred them to the credit of its partners
The Revenue sought to tax the amounts so transferred as Tattersall s income
The question was whether the amounts upon transfer became Tattersall s income
It was never contended that the amounts when received as price of the constituent s horses sold were Tattersall s income and the only contention was that they became income upon being transferred to the credit of the partners
It was held that the amounts had not by being entered on the credit side become income of the firm
Sir Wilfrid Greene said at p 65   Mr Hill s argument was to the effect that although they were not trading receipts at the moment of receipt they had at that moment the potentiality of becoming trading receipts
That proposition involves a view of Income Tax Law in which I can discover no merit except that of novelty
 Then again he said  It seems to me that the quality and nature of a receipt for Income Tax purposes is fixed once and for all when it is received
What the partners did in 1  2 697 this case as I have said was to decide among themselves that what they had previously regarded as a liability of the firm they would not for practical reasons regard as a liability but that does not mean that at that moment they received something nor does it mean that at that moment they imprinted upon some existing asset a quality different from what it had possessed before
There was no existing asset at all at that time
 All that this case decided was that moneys which were not when received income and as to this there was no question could never later become income
With such a case we are not concerned
The case turned on the fact that the moneys received by Tattersall were never its moneys they had been received on behalf of others and that receipt only created a liability towards them
Now it seems to us quite impossible to say that the amounts with which we are concerned were not the appellant s moneys in the sense that the constituent s moneys in the hands of Tattersall were not its
The amounts in this case were not received on account of any one but the appellant
No doubt these moneys might have to be refunded if certain things happened which however might never happen but that did not make them the moneys of those who might become entitled to the refund
Mr Sastri referred us to the observations of Sir Wilfrid Greene M R in Morley vs Tattersall 1 at p 65 to the effect that  The money which was received was money which had not got any profit making quality about it it was money which in a business sense was a client s money and nobody else s and contended that the amounts involved in the presentcase were of the same nature
We are unable to agree
If we are right in our view that the amounts were trading receipts it follows that they must have a profit making quality about them
Their payment was insisted upon as a condition upon which alone the liquor would be supplied with an agreement that they would
be repaid oil the return of the bottles
They 11938 88 698 were part of the transactions of sale of liquor which produced the profit and therefore they had a profit making quality
Again a wholesaler was quite free to return the bottles or not as he liked and if he did not return them the appellant had no liability to refund
It would then keep the moneys as its own and they would then certainly be profit
The moneys when paid were the moneys of the appellant and were thereafter in no sense the moneys of the persons who paid them
Having given the matter our anxious consideration which the difficulties involved in it require we think that the correct view to take is that the amounts paid to the appellant and described as  Empty Bottles Return Security Deposit  were trading receipts and therefore income of the appellant assessable to tax
We agree with the High Court that the question framed for decision in this case should be answered in the affirmative
In the result the appeal fails and is dismissed
The appellant will pay the costs in this Court
Appeal dismissed


Summary:
Respondent 1 is the son of Respondent No 2
Including Respondent No 1 Respondent No 2 had 4 sons
Respondent No 2 owned a sugarcane field adjoining the wheat field of one P One of the sons of Respondent 2 had burnt sugarcane patties causing damage to the wheat crop of P against which P protested before the respondents
The protest was turned down
Shortly thereafter the respondent and the family members reached the house of P They were all armed
Re spondents attacked P and he fell down
On the way to hospi tal P died
Most of the accused as well as the family mem bers of P sustained injuries
On a complaint FIR was registered
After investigation Prosecution filed a case before the Additional Sessions Judge
Two eye witnesses were produced by the prosecution
They were relatives of the deceased and there was no independent witness
The Additional District Judge convicted the respondent for offences under sections 302 IPC and 323 325 read with 149 IPC
Both were sentenced to imprisonment for life and a fine Rs500 each under section 302 IPC
They were also sentenced to rigorous imprisonment ranging from six months to one year for the other offences
The other accused were convicted for minor offences and released on probation
The respondent appealed against the conviction and sentence
The High Court acquitted the respondents of the major charge under section 302 IPC and recorded the conviction under section 304 Part I reducing the sentence of life imprison ment to the term already undergone and enhanced the sen tence of fine
No appeal was preferred by the State
Howev er the complaint filed an appeal by special leave
663 Disposing the appeal this Court HELD 1
There is the evidence of only the interested witnesses who have the tendency to exaggerate and involve even innocent persons
Most of the accused have sustained injuries and in explaining the same the prosecution wit nesses have not come forward with a truthful account
In the melee that ensued on account of the aggressive attitude of the respondents and other members of the family who partici pated and used force against P and his associates
in all probabilities in the exercise of right of private defence
However the circumstances did not warrant the causing of death and the respondents must be deemed to have exceeded their right
The nature of the injuries indicate that they were sufficient in the ordinary course of nature to cause death and had been inflicted intentionally
In such circum stances the act of the respondents squarely fails under section 304 Part I IPC
The High Court has not given any cogent or clear reasons for its conclusion and whatever reason has been stated is erroneous
It is on the basis of the statement given in the course of investigation by a person who was not examined in the case that the High Court has drawn its conclusion
However
the conviction under section 304 Part I IPC is maintained
The High CoUrt has reduced the sentence to the term of imprisonment already undergone and enhanced the fine
The respondents have undergone imprisonment only for a short period of less than six months and in a grave crime like this the sentence awarded is rather inadequate
No particu lar reason has been given by the High Court for awarding such sentence
The Court in fixing the punishment for any particular crime should take into consideration the nature of the offence the circumstances in which it was committed and the degree of deliberation shown by the offender
The measure of punishment should be proportionate to the gravity of the offence
The sentence imposed by the High Court appears to be so grossly and entirely inadequate as to involve a failure of justice
The sentence is enhanced to one of rigorous imprisonment for a period of five years