Law: Income Tax Act, 1961

Section: 256(1)

Income-tax-----Income---Sugar industry---Amount credited to create reserve fund unde Government order ---Assessee had no control over amount---Amount not includible in its income. The assessee-company derived income from the manufacture and sale of sugar. In the accounting year relevant to the assessment year 1978-79, the assessee had created a reserve of Rs.1,07,933 in all from out of its sales each month during the year, in pursuance of the Molasses Control Order, 1961, of the Government of India read with its Standing Order, dated December 3, 1976. The Income-tax Officer held that the amount was deductible. The Commissi6ner of Income-tax felt that as the reserve was created out of the sales, the sales to that extent got reduced resulting in lower income being taxed. He enhanced the income of the assessee by a sum of Rs.1,07,933. The order of the Commissioner of Income-tax was set aside by the Tribunal, On a reference: Held, that the assessee was under a statutory obligation to create a reserve fund of 33 per cent. of its sales every month and such reserve had to be invested in deposits with the nationalised banks and could be withdrawn for use only at the instance of the Molasses Controller. Therefore, the assessee had no control over the reserve fund. The sum of Rs.1,07,933 was not includible in the income of the assessee. Keshkal Cooperative Marketing Society Ltd. v. CIT (1987) 165 ITR 437 (MP) ref. JUDGMENT This is a reference at the instance of the Revenue under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") and the following question of law has been referred by the Tribunal for answer of this Court, which reads as under: "Whether, on the facts and in the circumstances of the case, the reserve of Rs.1,07,933 created by the transfer from sales and not from profit and loss appropriation account for the construction of molasses tank in accordance with the provisions of the Molasses Control Order, 1961, and the Standing Order, dated 3rd December. 1976, has been rightly treated by the Tribunal as not includible in the income of the assessee?" The brief facts giving rise to this reference are thus: This reference relates to…

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