THE K.C.P. LTD. versus COMMISSIONER OF INCOME TAX, BANGALORE

Citation: [2000] SUPP. 2 S.C.R. 302 · Decided: 09-08-2000 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

Judgment (excerpt)

A 
THE K.C.P. LTD. 
v. 
COMMISSIONER OF INCOME TAX, BANGALORE 
AUGUST 9, 2000 
B 
[S.P. BHARUCHA, R.C. LAHOTI AND N. SANTOSH HEGDE, JJ.] 
c 
D 
E 
F 
G 
Income Tax Act, 1961-Ss.2(24), IO and 37-Trading Receipts-Price 
of sugar realised in excess o.flevy price-In the ordinary manner of assessee 's 
business activities-Plea that the excess amount was retained in a separate 
account and liable to be paid to the purchaser, hence cannot be treated as 
trading receipt-Held, merely maintaining a separate account under a head-
ing given by the assessee would not alter the nature o.f the receipt if it actually 
be a trading receipt-Transfer of the amount to Sugar Equalisation Fund of 
Govemmellt in 1997 does not have any bearing on the taxability o.f the amount 
which was a trading receipt in the assessment year 1972-7 3. 
For the assessment year 1972-73, vide a notification order appoint-
ing ceiling on levy price of sugar was passed. The appellant-assessi:e manu-
facturer of sugar, challenged the order by filing a writ petition in the High 
Court. By the interim order of the writ petition, the appellant was permit-
ted to sell the sugar at the rate prior to the notification, till further orders. 
Protected by the interim order appellant continued to sell at the old 
price and thus during that assessment year collected an amount of Rs. 
14,96,130 in excess of levy price of sugar fixed. Income tax officer treated 
that amount as part of the trading receipts of the company for that year. 
Appellant preferred appeal before the Commissioner of Income Tax, 
who held that the amount could not be brought to tax. The appeal to 
appellate tribunal was dismissed, but the tribunal referred the question of 
law to High Court under Section 256(1) of Income Tax Act, at the instance 
of the Revenue. High Court answered the question in the negative against 
the appellant-assessee. 
The writ petition filed by the appellant was subsequently dismissed. 
No liability was cast on the appellant to refund the excess amount to the 
purchasers either in the interim order or in the final order. 
H 
Thereafter, The Levy Sugar Price Equalisation Fund Act, 1976 came 
302 
K.C.P. LTD. v. C.l.T. 
303 
into force which provided that the amounts representing all excess realisa-
tions which were made before or after the commencement of the Act, 
shall be credited to a fund known as Sugar Price Equalisation Fund. Appel-
lant filed writ petition before High Court challenging the vires of the 
Act, which was dismissed. The appeal against the same filed before this 
Court is pending. 
In appeal to this Court, against the order of the High Court in Refer-
ence under Article 256(1) oflncome Tax Act, 1961, appellant contended that 
it had collected the excess amount under interim orders of the Court; 
that the amount though received by the appellant, could not have been 
appropriate by it as its own; that the excess realisation did not accrue to the 
assessee and the same was liable to be refunded to the purchasers of the 
sugar in the event of the writ petition filed by the appellant company being 
dismissed by the High Court and thus it was a liability of the appellant 
company; and that the excess amount has been erroneously treated as trad-
ing receipt of the company. The appellant also contended that the appellant 
has transferred the amount to Sugar Equalisation Fund in 1974. Revenue 
contended that since the excess amount was realised by the appellant as 
price of the sugar sold by it during the course of its trading activities, there-
fore it has been rightly held to be a trading receipt of the appellant. 
Dismissing the appeal, this Court 
A 
B 
c 
D 
E 
HELD : 1. The excess amount of Rs. 14,96,130 was realised by the 
appellant-assessee in the ordinary manner of its business activities and as 
the price of sugar sold by it. The amount was retained by the assessee as 
price of the sugar sold by it though its right to realise the amount was subject 
of dispute. The interim order of the High Court, looking to the phraseology 
employed therein would not make any difference in the nature of receipts by 
F 
the assessee. Though the excess amount was retained in a separate account, 
that would also not make any difference. Firstly, merely maintaining a sepa-
rate account under a heading given by the assessee would not alter the na-
ture of the receipt if it actually be a trading receipt. Secondly, nothing is 
available on record to find out how and in what manne

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