Case: Punjab Distilling Industries Ltd Vs. The Commissioner Of Income-Tax, Simla

Sons case, 1953 S C R 1057 : (A I R 1953 S C 145), the deposit was in the nature of the assessees trading structure and anterior to the trading operations, as were the deposits considered in Shell Company case, 1951-32 Tax Cas 133. In the case in hand the deposit was part of each trading transaction. It was refundable 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 and Sons case 1953 SC R 1057 : (A I R 1953 S C 145)16. We therefore think that the present case is governed by the arrangement covering the second period and not the third period mentioned in Lakshmanier and Suns case 1953 S C R 1057: (A I R 1953 S C 145), and come to the conclusion that the amounts with which we are concerned were trading receipts.17. Mr. Sastri also referred us to Morley v. Tattersall, (1938) 22 Tax Cas 51 and contended that the amounts with which we are concerned, were of the same kind as those considered in 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 these 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 Tattersalls income. The question was whether the amounts upon transfer became Tattersalls income. It was never contended that the amounts when received as price of the constituents horses sold were Tattersalls 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. Hills 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 pro-position 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 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."18. 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 appellants moneys in the sense that the constituents 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 it 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.19. Mr. Sastri referred us to the observations of Sir Wilfrid Greene M. R. in 1938-22 Tax Cas 51 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 clients money and nobody elses"and contended that the amounts involved in the present case 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 on the return of the buttles. They 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 be 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.20. 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.2

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]We think that the High Court took substantially a correct view of the matter when it said thatin 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 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 beingwe 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 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 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.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 case 1951-32 Tax Cas 133 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 1951-32 Tax Cas 133 were entirely of a different nature and that case does not help.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 and Sons case, 1953 S C R 1057 : (A I R 1953 S C 145). 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 and Sons case, 1953 S C R 1057 : (A I R 1953 S C 145), 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 and Sons case, 1953 S C R 1057 : (A I R 1953 S C 145) 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 Lakshmanier and Sons case, 1953 S C R 1057 : (A I R 1953 S C 145), hold the amounts in the present case to have been trading receipts.We therefore think that the present case is governed by the arrangement covering the second period and not the third period mentioned in Lakshmanier and Suns case 1953 S C R 1057: (A I R 1953 S C 145), and come to the conclusion that the amounts with which we are concerned were tradingare 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 on the return of the buttles. They 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 be 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.20. 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.