Case: Commissioner of Income Tax, Punjab Jammu &amp; Kashmir, Himachal Vs. Punjab Distilling Industries Limited

2. A full statement of the facts will be found in the judgment in the earlier case and it is unnecessary to state them at length over again. The assessee who was a distiller and seller of bottled country liquor, started collecting from its customers from the year 1945 besides the price of the liquor and the bottles in which the liquor was sold, a further charge called "empty bottles return security deposit". This charge was made at a certain rate per bottle delivered depending on its size on the term that it would be refunded as and when the bottles were returned to the assessee and that the entire sum collected on this account in respect of any one transaction would be refunded in full on return of 90 per cent of the bottles covered byquestion is whether this charge is a trading receipt assessable to tax. In the earlier case this Court held it to be assessable. This Court then said (p. 686 of (Supp) SCR) : (at p. 347 of AIR) "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."3. In respect of the years now under consideration theOfficer taxed these charges and on appeal the Appellate Assistant Commissioner confirmed theOfficers view. On further appeal, however, theTribunal reversed the decisions of the authorities below and held that these charges were loans and not trading receipts. It may be stated that all this had happened before the aforesaid earlier judgment was delivered. After the Tribunals decision, the Commissioner ofobtained a reference of the following question to the Punjab Highon 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 S. 10 of the

Court's reasoning:
is of interest to note that the earlier case also concerned an identical question and had been answered both by the High Court and this Court in thelicensee referred to in the earlier of the rules quoted is the wholesaler to whom the distiller sold his liquor. It is not very clear what is meant by the words "upto 10% of the bottles issued" or the words "falling short of the 90 per cent limit". It is not necessary, however, to pursue this matter for we shall not be concerned with the precise meaning of these words. It is not in dispute that some charge described as a deposit was realised on the term that it would be refunded in certain eventualities and that is enough for our purpose for the only question is whether this charge was a trading receipt.5.The High Court thought that the earlier judgment of this Court had been based on three considerations, namely, (1) that the charge concerned had been made without Governments sanction and entirely as a condition imposed by the assessee itself for the sale of its liquor; (2) that it could not be security deposit for the return of the bottles for there was no right to their return and (3) that it was refundable under the contract of sale itself.In the High Courts view if these circumstances were not there, our decision would have been different. The High Court held that since the amended rules came into force, none of these considerations was available and, therefore, the charges could not be held to be tradingis not in dispute that if the High Court was in error in this reasoning, the present case will be governed by the earlier decision.6. With respect to the learned Judges of the High Court, we think that the earlier judgment of this Court has been misunderstood by them. That judgment had not been based on the three points mentioned by the High Court and this we now proceed to show. The first point of distinction between the two cases is based on the observation in the earlier case that the additional amounts had been taken without Governments sanction and entirely as a condition imposed by the appellant itself for the sale of its liquor. The High Court apparently thought that by this observation it was suggested that if the amounts had been taken under Governments sanction, then they would not have been taxable. We are wholly unable to agree that this is a correct reading of that judgment. That observation contained only a recital of fact and was made for the purpose a distinguishing these amounts from the other amounts charged by the assessee as price of bottles to which we have earlier referred. The other amount was charged under a scheme framed by the Government and called the "buy back scheme." We find nothing in the earlier judgment to show that the conclusion there arrived at was based on the fact that the charge had not been made with the sanction of the Government. That nothing turned on whether a charge was made under a Government scheme or purely as a matter of contract would indeed appear to have always been the common case. Thus even before the amended rules had come into force, the assessee had been collecting under the aforesaid "buy back scheme" which had the sanction of the Government, from its customers as price of the bottles, a charge which was refundable on the return of the bottles. The charge now under consideration is a charge additional to that collected under the buy back scheme and this we have earlier said. It has never been in dispute, either in the earlier case or now, that the charge under the buy back scheme which was collected under Governments sanction constituted a taxable income. This Court had never said, nor was it ever contended by the assessee that a collection would not be taxable if it had been made with the sanction of the Government. The first point of distinction sought to be made by the High Court is, therefore, unfounded.7. The second point made by the High Court was that the observation in the earlier judgment that the charge could not be a security for the return of the bottles as there was no right to such return, was no longer applicable as under the amended rules there was a right to the return of the bottles. We do not agree for reasons to be stated later, that under the amended rules there was such a right but we will assume for the present that there was. Now, the argument in connection with which that observation was made was that if the charges were deposits for securing the return of the bottles, they were not trading receipts. By the aforesaid observation this Court dealt with the first part of this argument and said that the assumption that the charges were for securing the return of the bottles was unfounded for there was no right to such return. If the charges were not by way of security deposit the argument must, of course, fail. So that was one answer that was given to the argument. But this Court did not stop there and proceed to consider the argument as a whole, namely, whether if the charges were security deposits, they were not trading receipts.None of these cases, therefore, was concerned with the question whether a security deposit was by its very nature such that it could not be a trading receipt. The first case dealt with an actual security deposit but it was held that that deposit was not a trading receipt not for the reason that it was a security deposit but for the reason that it formed the structure under which trading transactions producing trading receipts were conducted and was not itself connected with any trading transaction. In the second case, the receipt was held to be a loan; that it might be also a security deposit was not even mentioned. It was held not to be a trading receipt because it had no connection with the trading transactions but related to a stage anterior to the trading transaction.12. It is, therefore, clear that the contention that the charges formed a security deposit had been advanced only for the purpose of showing that they were not a part of the trading transactions. The question was not really whether the charges were security deposits but whether they were part of the trading transactions or had been made at anterior stages. This Court decided that they were part of the trading transactions and were not relatable to an anterior stage. That is all that it was called upon to decide and did decide.13. That on the earlier occasion this Court was not concerned with the question whether the charges made were security deposits or not would appear from the following observations occurring at p. 690 of (Supp 1 SCR) : (at p. 349 of AIR) "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 consider it necessary to pronounce upon this contention," This Court, therefore, did not decide that if the deposits had been made to secure the return of the bottles, they could not be a trading receipt. The High Court was in error in distinguishing the present case from the earlier one on the basis that this Court had then sothink there was not and in this respect the two cases are identical; in none was the charge in fact a security deposit. The reason for that view is this. The liquor passed through three sales before it reached the consumer; first the distiller sold it to a wholesaler, then the wholesaler to a retailer and Lastly, the retailer to the consumer. If the rules created an obligation on the wholesaler to return the bottles to the distiller, then the rules would provide for a return of the bottles to the wholesaler by the retailer and to the retailer by the consumer; without such rules it would be idle to require the wholesaler to return the bottles to the distiller. We have not been shown anything creating a right in the wholesaler or the retailer to a return of bottles. Clearly, the consumers were under no obligation to return the bottles in which they bought liquor.(v) of the rule on which the High Court based itself, referred to the return of the bottles in which liquor was sold. In the absence of a right in the wholesaler to a return of the bottles from the retailer it would be insensible to read that provision as creating as obligation on the wholesaler to return the bottles. He had no means under the rules to perform, that obligation. That rule, therefore, must be read as intending only to lay down that if the wholesaler could not return the bottles, his deposit was liable to be confiscated under(vi). Again, the rules do not lay down any procedure by which the distiller might enforce the return of the bottles to him, which they would have undoubtedly done if it was intended to give him a right to the return of the bottles. Indeed there is nothing to show that he can obtain such a return. Whether the wholesaler would be liable to punishment under the Act for breach of his obligation to return the bottles or not is to no purpose, for we are now concerned with the right of the distiller to obtain a return of the bottles. It seems to us that the only reason why the rules required a wholesaler to return the bottles to the distiller was to authorize the imposition of a term of the sale upon the breach of which, the charges made for the bottles would cease to be refundable.15. We now come to the last point of distinction made by the High Court. On the earlier occasion this Court had said that the amount deposited was refundable under the terms of the contract constituting the trading transaction and was, therefore, a trading receipt. The learned Judges of the High Court seem to have been of the opinion that since the rule was amended, the deposits had to be made under it and, therefore, were not thereafter received under the contract or as part of the trading transaction constituted by it. With great respect to the learned Judges, there appears to be some confusion here. The rule by its own force does not compel a deposit to be made. The terms of the rule made this perfectly clear. All that it does is to empower a distiller to take a deposit. But the deposit must be taken under a contract made in regard to it; it is not taken under the rule itself. In other words, all that the rule does is to authorise the making of a contract concerning the deposit on the terms mentioned in it, the object apparently being to avoid any question as to its validity arising later. We may here point out that the trade in liquor is largely controlled by Government regulations. It must, therefore, be held that the deposit was actually taken under a contract; it was none the less so though the contract was authorised by the statutory rules. The third point of distinction on which the High Court relied was, therefore, also without foundation. Whether if the deposits had been made without a contract and directly under the rules and in respect of a trading transaction made by a contract they would have been trading receipts or not, is not a question that arises in the present appeals and on that question we express no opinion now.