Amounts paid to the appellant and described as "Empty Bottles Return Security Deposit" were trading receipts and therefore income of the appellant assessable to tax.

Headnote:
INCOME TAX - Trading receipts - Amounts paid to the appellant and described as "Empty Bottles Return Security Deposit" were trading receipts and therefore income of the appellant assessable to tax.
Fact of the Case:

The appellant, a distiller of country liquor, insisted on the wholesalers paying to it in addition to the price of the bottles fixed under the buy-back scheme, certain amounts described as security deposits and calculated at varying rates per bottle according to sizes for the bottles in which the liquor was supplied to them promising to pay back for each bottle returned at the rate applicable to it and further promising to pay back the entire amount paid on a transaction when 90 per cent of the bottles covered by it had been returned.
Finding of the Court:

The amounts paid to the appellant and described as "Empty Bottles Return Security Deposit" were trading receipts and therefore income of the appellant assessable to tax.
Issues: Whether on 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 section 10 at the Income-tax Act ?
Ratio Decidendi: The amounts were paid as part of a trading transaction, namely, the sale of liquor in bottles by the appellant to a wholesaler. They were refundable on certain events happening. In each case therefore the payment was made as part of a trading transaction and in each case it was refundable on certain events happening. In each case again the payment was described as a deposit. As in that case, so in the present case, the payment cannot be taken to have been made by way of a security deposit.
Final Decision: Appeal dismissed.

Judgement

A. K. SARKAR, J. : The appellant is a company carrying on business as a distiller of country liquor. It was incorporated in May 1945 and was in fact a previously existing company called the Amritsar Distillery Co. Ltd. reconstructed under the provisions of the Companies Act. The appellant carried on the same business as its predecessor, namely, sale of the produce of its distillery to licensed wholesalers. The wholesalers in their turn sold the liquor to licensed retailers from whom the actual consumers made their purchases. The entire trade was largely controlled by Government regulations.

2. After the war started the demand for country liquor increased but difficulty was felt in finding bottles in which the liquor was to be sold in order to relieve the scarcity of bottles the Government devised in 1940 a scheme called the buy-back scheme. The scheme in substance was that a distiller on a sale of liquor became entitled to charge a wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Government which he was bound to repay to the wholesaler on the latter returning the bottles. The same arrangement, but with prices calculated at different rates was made for the liquor sold in bottles by a wholesaler to a retailer and by a retailer to the consumers. Apparently it was conceived that the price fixed under the scheme would be found to be higher than the price which the bottles would fetch in the open market and the arrangement for the refund of the price would therefore encourage the return of the bottles from the consumers through the intermediaries ultimately to the distiller. The price refundable was later increased perhaps because the previous price did not fully achieve the desired result of the bottles finding their way back to the distillers.

3. Sometime in 1944, the Amritsar Distillery Co. Ltd. which then was in existence, insisted on the wholesalers paying to it in addition to the price of the bottles fixed under the buy-back scheme, certain amounts described as security deposits and calculated at varying rates per bottle according to sizes for the bottles in which the liquor was supplied to them promising to pay back for each bottle returned at the rate applicable to it and further promising to pay back the entire amount paid on a transaction when 90 per cent of the bottles covered by it had been returned. The company while it was in existence realised these additional sums and so did the appellant after it took over the business. The object of demanding and taking these additional sums was obviously to provide additional inducement for the return of the bottles to the distiller so that its trade in selling the produce of its distillery might not be hampered for want of bottles. No time limit had been fixed within which the bottles had to be returned in order to entitle a wholesaler to the refund, nor does it appear that a refund had ever been refused. The price of the bottles received by the appellant under the buy-back scheme was entered by it in its general trading account while the additional sum received for them was entered in the general ledger under the heading "Empty Bottles Return Security Deposit Account". It is not disputed that for the accounting periods with which this case is concerned, the additional amounts had been taken without Government s sanction and entirely as a condition imposed by the appellant itself for the sale of its liquor.

4. The appellant was assessed to income-tax on the balance of the amounts of these additional sums left after the refunds made thereout. It had also been assessed to business profits tax and excess profits tax on the same balance. Its appeals against the orders of assessment to these taxes to the Appellate Assistant Commissioner and thereafter to the Tribunal failed. It then obtained an order referring a certain question arising out of the assessments for decision by the High Court of Punjab. The question originally suggested was

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