Law: Income Tax Act, 1922

Section: 10(1)

Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment years 1946-47, 1949-50 to 1951-52 - Assessee distiller and seller of bottled country liquor, collected from its Customers besides price of liquor and bottles a further charge called empty bottles return security deposit - Whether collections by assessee described in its accounts as 'empty bottles return security deposits' were income assessable under section 10 of 1922 Act - Held, yes FACTS The assessee, who was a distiller and seller of bottled country liquor, started collecting from its customers 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 by it. In respect of the year under consideration the ITO taxed said charges. On appeal, the AAC confirmed the ITO's view. On further appeal, however, the Tribunal reversed the decisions of the authorities below and held that these charges were loans and not trading receipts. On reference, the High Court thought that the earlier judgement of the Supreme Court in Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 had been passed on three considerations, namely, (1) that the charge concerned had been made without Government's 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. The High Court accordingly, held that as a result of the amendment of the rule 40(14)(f) made under the Punjab Excise Act, 1914 which came into effect from 1-4-1948, none of these considerations was available and, therefore, the charges could not be…

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