Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Diversion of at source by overriding title or application of income - Assessment year 1980-81 - Government while fixing selling price of molasses directed to transfer one third of price charged to a fund called 'Molasses Storage Fund' - Said fund was to be utilised as per instructions issued by Government - Assessee set apart an amount in separate account by virtue of said statutory mandate - Whether on facts, right to fund got diverted from hands of assessee by virtue of molasses control order and, therefore, said amount was not part of income of assessee - Held, yes FACTS The selling price of molasses was fixed by the Central Government as per the Molasses Control Order and, while determining the price to be charged by the assessee, the Government had stipulated that one-third of the price charged should be transferred to a fund called Molasses Storage Fund. That amount could be utilised only according to the instructions issued by the Government from time to time. The amount, thus, transferred has to be kept separately from other business funds in a separate bank account and it was not possible to withdraw the same without the prior approval of the Excise department. By virtue of this statutory mandate, the assessee had set apart the amounts 'as molasses storage fund' and claimed that there was diversion of the aforesaid amount by overriding title created by the statutory order and that the amount was not part of the income of the assessee. The ITO disallowed the assessee's claim and made addition of the said amounts. But on appeal, the appellate authority deleted the addition. The order of the appellate authority was confirmed by the Tribunal. On reference : HELD There could be no doubt that the amount in question could not be claimed by the assessee as belonging to it. The utilisation of the amount in question could be only as per the directions that might be issued by the Government from time to time. The right to the fund got diverted from the hands of the assessee by virtue of the Molasses Control Order. Consequently, it was to be held in the instant case that the Tribunal was justified in deleting the…

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