COMMISSIONER OF INCOME-TAX, PUNJAB JAMMU & KASHMIR, HIMACHAL PRADESH AND PATIALA vs. PUNJAB DISTILLING INDUSTRIES LTD.

CIVIL APPEAL No. 107/1963Supreme Court[1964] 7 S.C.R. 44724 March 1964Bench: 3 JudgesAuthor: A.K. SARKAR, M. HIDAYATULLAH, J.C. SHAH SUPREME COURT REPORTS9 pages
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What did the Supreme Court hold?

The Supreme Court held that the amounts collected as 'empty bottles return security deposit' were trading receipts and assessable to income tax. The Court found that the High Court erred in distinguishing the present appeals from the earlier judgment. The reasoning was that the amended rules under the Punjab Excise Act, 1914, did not alter the fundamental nature of the transaction. The Court found no right in the distiller to enforce the return of bottles under the amended rules, and therefore, the deposits were not true security deposits. Furthermore, the deposits were taken under a contract, even if authorized by rules, and were an integral part of the commercial transaction of selling liquor. The Court distinguished Davies v. Shell Company of China Ltd. and K.M.S. Lakshmanier & Sons v. Commissioner of Income-tax and Excess Profits Tax, Madras. The question referred to the High Court was answered in the affirmative. The appeals were allowed, and the respondent was directed to pay costs.

What were the facts?

The assessee, Punjab Distilling Industries Ltd., a distiller of country liquor, collected "empty bottles return security deposit" from its customers starting in 1945. This deposit was refundable in full upon the return of 90% of the bottles. The Commissioner of Income-tax challenged the Income-tax Tribunal's decision that these deposits were loans and not trading receipts. The appeals before the Supreme Court concerned assessment years 1946-47, 1949-50, 1950-51, and 1951-52. The High Court had referred a question to the Punjab High Court regarding the assessability of these deposits under Section 10 of the Indian Income-tax Act, 1922. The High Court distinguished the present case from a previous Supreme Court judgment concerning the same assessee for earlier assessment years.

What were the issues?

1. Whether the collections described as 'empty bottle return security deposits' were income assessable under Section 10 of the Indian Income-tax Act, 1922, for the assessment years 1946-47, 1949-50, 1950-51, and 1951-52. Assessee's Contention: The judgment does not explicitly record the assessee's arguments before the Supreme Court, but it notes that the Income-tax Tribunal had previously held these charges to be loans and not trading receipts. Revenue's Contention: The Revenue argued that these deposits were trading receipts and therefore assessable to income tax. They relied on the Supreme Court's earlier judgment in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax, which dealt with the same issue for different assessment years.

Which sections of the Income-tax Act were involved?

Section 10

AI-generated summary — verify with the full judgment below

7S.C.R. SUPREME COURT REPORTS 447 COMMISSIONER OF INCOME-TAX, PUNJAB JAMMU & KASHMIR, HIMACHAL PRADESH AND PATIALA v. PUNJAB DISTILLING INDUSTRIES LTD. [A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH, JJ.] Income Tax-Distiller taking deposit refundable on return of bottles-Balance of deposits after refund, if trading re- ceipt-Indian Income-tax Act, 1922 (11 of 1922), s.

10.

The assessee, a distiller of country liquor, carried on the business of selling liquor to licensed whole salers. The assessee '5tarted 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 depo- sit." 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 by it. The question for consideration before this Court was whether t~ charge "security deposit" amounted to a trading receipt assessable to Income Tax. Held: The amounts paid to the assessee and described as 'security deposit' were trading receipts and therefore income of the assessee assessable to tax. These amounts were pai

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