# PUNJAB DISTILLING INDUS'fRIES LTD v. THE COMMISSIONER 0]' INCOME-TAX, SIMLA

- **Citation:** [1959] Supp. 1 S.C.R. 683
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Case number:** Civil Appeal No. 119 of 1955
- **Bench:** Venkatarama Aiyar, Gajendragadkar, A. K. Sarkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/punjab-distilling-indus-fries-ltd-v-the-commissioner-0-income-tax-simla-1590
- **Pages:** 16

## Headnote

Income-tax-Distiller tahing deposit refundable on return of
bottles-Balance of deposits after refund, if trading receipt--Indian
Income-tax Act (XI of z922), s. IO.
The appellant, a distiller of country liquor, carried on the
business of selling liquor to licensed wholesalers. Due to
shortage of bottles during the war a scheme was evolved, whereunder the distiller could charge a wholesaler a price for the
bottles in which liquor was supplied at rates fixed by the
Government, which he was bound to repay to the wholesaler on
his returning the bottles. In addition to this the appellant took
a further sum from the wholesalers described as 'security deposit'
for the return of the bottles. Like the price of the bottles these
moneys were also repaid as and when the bottles were returned
with this difference that the entire sum was refunded only when
90% of the bottles covered by it had been returned. The appellant was assessed to income-tax on the balance of the amounts
of these additional sums left after the refunds made thereout.
Held, that the amounts paid to the appellant and described
as 'security deposit' were trading receipts and therefore income
of the appellant assessable to tax. These amounts were paid as
an integral part of the commercial transaction of the sale of
liquor in bottles and represented an extra price charged for the
bottles. They were not security deposits as there was nothing
to secure, there being no right to the return of the bottles.
G. Ven/1alaswami
Naidu & Co.
v.
The Commissioner
of Income-ta:.
Gajendragadka' ].
684
SUl'REME COURT REPORTS [1959] Supp.
1958
l(. M. S. Lakshmanicr & Sons v. Commissioner of Income-tax
and Excess Profits Tax, M_adras, [1953] S.C.R. ro57, followed.
Punjab Disliliing
.
.
1 d 1 .
Ltd
Davies v. The Shell Company of China Ltd., (1951) Tax Cas.
• "' ""
· 133; and Morley v. Tattersall, (1938) 22 Tax Cas. 5r, distinguiTh C v.. .
shed.
e
ommissionef'
of Income-lax,
Imperial Tobacco Co. v. Kelly, (1943) 25 Tax Cas. 292, refcrrS·imla
cd to.

## Text

(1) S.C.R. SUPREME COURT REPORTS
683
the said presumption.
We must, therefore, hold 'that
the High Court was right in ta.king the view that, on
the facts and circumstances proved in t.his ca:::e, the
transaction in question is an adventure in the nature
of trade.
The result is the appeal fails and must be dismissed
with costs.
'
Appeal dismissed.
PUNJAB DISTILLING INDUS'fRIES LTD.
v.
THE COMMISSIONER 0]' INCOME-TAX, SIMLA
(VENKATARAMA AIYAR, GAJENDRAGADKAR and
A. K. SARKAR, JJ.)
Income-tax-Distiller tahing deposit refundable on return of
bottles-Balance of deposits after refund, if trading receipt--Indian
Income-tax Act (XI of z922), s. IO.
The appellant, a distiller of country liquor, carried on the
business of selling liquor to licensed wholesalers. Due to
shortage of bottles during the war a scheme was evolved, whereunder the distiller could charge a wholesaler a price for the
bottles in which liquor was supplied at rates fixed by the
Government, which he was bound to repay to the wholesaler on
his returning the bottles. In addition to this the appellant took
a further sum from the wholesalers described as 'security deposit'
for the return of the bottles. Like the price of the bottles these
moneys were also repaid as and when the bottles were returned
with this difference that the entire sum was refunded only when
90% of the bottles covered by it had been returned. The appellant was assessed to income-tax on the balance of the amounts
of these additional sums left after the refunds made thereout.
Held, that the amounts paid to the appellant and described
as 'security deposit' were trading receipts and therefore income
of the appellant assessable to tax. These amounts were paid as
an integral part of the commercial transaction of the sale of
liquor in bottles and represented an extra price charged for the
bottles. They were not security deposits as there was nothing
to secure, there being no right to the return of the bottles.
G. Ven/1alaswami
Naidu & Co.
v.
The Commissioner
of Income-ta:.
Gajendragadka' ].
684
SUl'REME COURT REPORTS [1959] Supp.
1958
l(. M. S. Lakshmanicr & Sons v. Commissioner of Income-tax
and Excess Profits Tax, M_adras, [1953] S.C.R. ro57, followed.
Punjab Disliliing
.
.
1 d 1 .
Ltd
Davies v. The Shell Company of China Ltd., (1951) Tax Cas.
• "' ""
· 133; and Morley v. Tattersall, (1938) 22 Tax Cas. 5r, distinguiTh C v.. .
shed.
e
ommissionef'
of Income-lax,
Imperial Tobacco Co. v. Kelly, (1943) 25 Tax Cas. 292, refcrrS·imla
cd to.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No.
119 of 1955.
Appeal from the judgment and order dated June 16,
1953, of the Punjab High Court in Civil Reference
No. l of 1953.
A. V. Viswanatha Sastri and Naunit Lal, for the
appellant.
H. N. Sanyal, Additional Solicitor-General of India,
R. Gopalakrishnan, R. H. Dhebar and D. Gupta, for the
·respondent.
1958. November 24. The Judgment of the Court
was delivered by
Sarkar].
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 Company's 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.
After the war started the demand for com,itry 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
(I) S.C.R.
SUPREME COURT REPORTS
685
same arrangement, but with prices calculated at differz95S
ent rates was made !or the liquor sol~ in bottles by a Punjab Distilling
wholesaler to a retailer and by a retailer to the consuIndustries Ltd.
mers.
Apparently it was conceived that the price
v.
fixed under the scheme would be found to be higher The Commissioner
than the price which the bottles would fetch in the
of Income-tax,
open market and the arrangement for the refund of
Simla
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.
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 entit.le
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 th_e 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
Sarkar ].
686
SUPREME COURT REPORTS
[1959] Supp.
•9JB
without Government's sanction and entirely as a con-
--
dition imposed by the appellant itself for the sale of
Punjab Di5lilling •t 1.
·
lnduslries Ltd.
1 8 iquor.
.
v.
The appellant was assessed to mcome-tax on the
The commissioner balance of the amounts of these additional sums left
of Income-la>. after the refunds made thereout. It had also been
Simla
assessed to business profits tax and excess profits tax
Sarha'Y ].
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 reframed and in its final form reads thus :
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 of the
Income-tax Act ?
The High Court answered the question in the affirmative. The present appeal is against that decision
which related to all the three varieties of taxes for
which the appellant had been made liable.
We are concerned in this appeal only with the additional sums demanded and received by the appellant
and described as security deposit and not with the
price of bottles which also it took under government
sanction. The question is whether these amounts
called security deposits were trading receipts.
Now,
as already stated, the appeIJant's trade consisted in
•seIJing in bottles liquor produced in its distillery to
wholesalers.
The sale was made on these terms: In
each transaction of sale the appellant took from the
wholesaler the price of the liquor, a certain sum fixed
by the government, as price of the bottles in which
the liquor was supplied and a further sum described
as security deposit for the return of the bottles. The
moneys taken as price of the bottles were returned as
and when the bottles were returned.
The moneys
described as security deposit were also returned as and
when the bott.les were returned with only this difference that in this case the entire sum taken in one
(1) S.C.R. SUPREME COURT REPORTS
687
transaction was refunded when 90 per cent. of the
bottles covered by it had been returned, though the Punjab Distilling
remaining 10 per cent. had not been returned. Such
Industries Ud.
being the nature of the appellant's trade and the
v ....
·
I · } ·
d
d
J
dd · ·
l The Commissioner
manner m w uc i it was con note , t iesc a
itrnna
1 1
•b .
d"
,
0
llCOJJlC-faX,
sums appear to us to e its tra mg receipts.
Simla
Mr. Vishwanatha Sastri appearing on behalf of the
appellant first contended that on these facts the
amounts could not be regarded as price and that
therefore they were not trading receipts.
He said
that the price of the bottles was separately fixed and
the amount taken as deposit was different from and
exclusive of, it. This contention is founded on the use
of the word price in the buy-back scheme in connection with the rates which the distiller was entitled to
charge a wholesaler for the bottles. It seems to us
that this contention lays undue emphasis on that
word.
We think that the High Court took substantially a correct view of the matter when it said that in
realising these amounts " the company was really
charging an extra price for the bottles". It is clear
to us that the trade consisted of sale of bottled liquor
and the consideration for the sale was constituted by
several amounts respectively called, the price of the
liquor, the price of the bottles and the security deposit.
Unless all these sums were paid the appellant would
not have sold the liquor. So the amount which was
caUed security deposit was actually a part of the consideration for the sale and therefore part of the price
of what was sold. Nor does it make any difference
that the price of the bottles was entered in the general
trading account while the so called deposit was entered in a separate ledger termed "empty bottles return
deposit account'', for, what was a consideration for
the sale cannot cease to be so by being written up in
the books in a particular manner.
Again the fact
that the money paid as price of the bottles was repaid
as and when the bottles were returned while the other
moneys were repaid in full when 90 per cent. of the
bottles were returned does not affect the question for
none of these sums ceased to be parts of the consideration because it had been agreed that they would be
SMl!ar j.
688
SUPREME COURT REPORTS [1959] Supp.
r95B
refunded in different manners. It is not contended
-
that the fact that the additional sums might have to
Punjab Distilling be refunded showed that they were not pa.rt of the
Industries Ltd.
.
v.
price. It could not be so contended because what was
The commissioner expressly said to be the price of bottles and admitted
of focome-tax. to be price was also refundable. ·If so, then a slightly
Simla
different method providing for their refund cannot by
itself prevent these additional sums from being price. ·
Sarl~ar ].
Now, if these additional sums were not pa.rt of the
price, what were they ? Mr. Sastri said that they
were deposits securing the return of the bottles.
According to him if they were such security deposits,
they were not trading receipts.
Again we a1·e unable
to agree. There could be no security given for the
return of the bottles unless there was a .right to their
return for if there was no such right, there would be
nothing to secure. Now we find no trace of such a.
right in the statement of the case. The wholesalers
were clearly under no obligation to return the bottles.
The only thing that Mr. Sastri could point out for
establishing such an obligation was the use of the
words" security deposit". We are unable to hold that
these words alone are sufficient to create an obligation in the wholesalers to return the bottles which
they ,had bought. If it had been intended to impose
an obligation on the wholesalers to return the bottles,
these would not have been sold to them at all and a.
bargain would have been expressly made for the return
of the bottles and the security deposit would then
have been sensible and secured their return. The
fact that there was no time limit fixed for the return
of the bottles to obt.ain the refund also indicates that
there was no obligation to.return the bottles. The
substance of the bargain clearly was that the appellant having sold the bottles agreed to take them back
and repay all the amounts paid in respect of them.
For this part of the case Mr. Sastri relied on Davies
v. The Shell Company of China Ltd.('), but we do not
think that case assists at all.
What had happened
there was that the Shell Company had appointed a
large number of agents in China to sell its products
(1) (1951) 32 Tax Cas. 133.
(1) S.C.R. SUPREME COURT REPORTS
689
and had taken from each agent a deposit to secure
1958
itself against the risk of default by the agent duly to
-
account for the sale proceeds. The deposits were P;nJab1
l}ist~:~"g
made in Chinese dollars and later converted into ster-
" us ms
·
ling.
When the Company closed its business in China The c0:;.,issioner
it reconverted the deposits into Chinese dollars, and
of Income-tax,
refunded to the agents the deposits made by them.
Simla
Owing to a favourable exchange for the conversion of
sterling into dollars, the Co~pany made a profit and it
Sarkar J.
was sought to assess this profit to income-tax. It was
held that the profit could not be taxed, for the
deposits out of which it was made were really not
trading receipts at all. Jenkins, L. J., observed at
p. 157:
" Mr. Grant described the agents' deposits as part
of the Company's trading structure, not trade receipts
but anterior to the stage of trade receipts, and I think
that is a fair description of them. It seems to me that
it would be an abuse of language to describe one of
these agents, after he. had ma.de a deposit, as a trade
creditor of the Company; he is a creditor of the Uompany in respect of the deposit, not on account of any
goods supplied or services rendered by him in the
course of its trade, but simply by virtue of the fact
that he has been appointed an a.gent of the Company
with a view to him trading on its behalf, and as a condition of his appointment has deposited with or, in
other words, lent to the company the amount of his
stipulated deposit."
He also said at p. 156 :
"If the agent's deposit had in truth been a payment
in advance to be applied by the Company in discharging the sums from time to time due from the agent in
respect of petroleum products transferred to the agent
and sold by him the case might well be different and
might well fall within the ratio decidendi of Landes
Bros. v. Simpson (1)
and Imperial Tobacco Co. v.
Kelly (2). But that is not the character of the deposits
here in question. The intention manifested by the
terms of the agreement is that the deposit should be
(1) (1934) 19 Tax.Cas. 6z.
(2) (1943) 25 Tax Cas. 292.
87
690
SUPREME COURT REPORTS [1959] Supp.
z95B
retained by the Company, carrying interest for the
-
benefit of the depositor throughout the terms of the
Punjab Distilling
It • t b
'l bl d
·
th
· d f h
Indusfries Ltd. agency.
18 o. e ava1 a e urmg
e per10 o t e
v.
agency for makmg good the agent's defaults in the
The commissioner event of any default by him ; but otherwise it remains,
of In~ome-tax, as I see it, simply as a loan owing by the Company to
Simla
the agent and repayable on the termination of the
Sarkar].
agency".
It would therefore appear that the deposits in that
case were held not to be trading receipts because they
had not been made as part of a trading transaction.
It was held that they had been received anterior to the
commencement of the trading transactions and really
formed the trading structure of the Company. The
character of the amounts with which we are concerned
is entir~ly different. They were parts of the trading
transactions themselves and very essential parts: the
appellant would not sell liquor unless these amounts
were paid and the trade of the appellant was to make
profit out of these sales.
The fact that in certain
circumstances these amounts had to be repaid did not
alter their nature as trading receipts. \Ve have already
said that it is not disputed that what was expressly
termed as price of bottles was a trading receipt though
these had to be repaid in almost similar circumstances.
We may point out that it had not been said in Shell
Company case (1) that the deposits were not trading
receipts for the reason that they might have to be
refunded; the reason for the decision was otherwise as
we have earlier pointed out, namely, that they were no
part of the trading transactions. We therefore think
that the deposits dealt with in the Shell Company case
were entirely of a different nature and that case does
not help. Mr. Sanyal was prepared to argue that even
if the amounts were securities deposited for the return
of the bottles, they would. still be trading receipts, for
they were part of the trading transactions and the
return of the bottles was necess&ry to enable the appellant to carry on its trade, namely, to sell liquor in
them. As we have held that the amounts had not been
paid as security for the return of the bottles, we do not
(1) (1951) 32 Tax Cas. 133.
(1) S.C.R.
SUPREME COUH,T REPORTS
691
consider it necessary to pronounce upon this contenz95B
tion.
. b D .
. ,,.
W
· h
1
c
h
b
·
d .
PttnJD
1sll ing
e m1g t a so re1er to t e o servat10ns ma e in
Jndttstries Ltd.
Imperial Tobacco Co. v. Kelly (1) mentioned in the
v.
Shell Company case (2) and set out below. There the The Commissioner
Company in the course of its trading activity used to of Income-tax,
purchase tobacco in America and for that purpose had
Simla
to acqufre American dollars. It so happened that after
Sarkar ].
it had acquired a certain amount of dollars for making
the purchases, it was prevented from buying tobacco
in America by Government orders passed due to outbreak of war. While the dollars lay with the Company, they appreciated in value and later the Treasury
acquired the dollars and paid the Company for them in
sterling at the then current rate of exchange, as a
result of which payment the Company made a profit.
It was held that the profit was a trading receipt of the
Company. Lord Greene said at p. 300:
" The purchase of the dollars was the first step in
carrying out an intended commercial transaction,
namely, the purchase of tobacco leaf.
The dollars
were bought in contemplation of that and nothing else".
He also observed that the dollars "were an essential
part of a contemplated commercial operation". It
seems to us that the amounts with which this case is
concerned, were paid and were refundable as an
integral part of a commercial transaction, namely, the
sale of liquor in bottles by the appellant to a wholesaler.
'l'he case nearest to the present one is, in our view,
that decided by this Court in K. M. S. L~kshmanier &;
Sons v. Commissioner of Income-tax and Excess Profits
Tax, Madras (3).
There the appellants, who were the
assessees, were merchants carrying on business as the
sole selling agents for yarn manufactured by the
Madura Mills Co. Ltd. They sold the yarn to their
constituents and in the relevant accounting period the
sales were made under three successive arrangements
each of which covered a part of it.
Under each
arrangement, the assessees were paid a certain initial
(1) (194)) 25 Tax Cas. 29z.
(2) (1951) 32 Tax Cas. 133.
(3) [1953] S.C.R. 1057.
692
SUPREME COURT REPORTS [1959] Supp.
' 958
sum by their customers. The question was as to the
• Pu,.jab Distilling nature of these initial payments. Under the first
Jndushfrs Ltd. arrangement "the appellants had two accounts for
v.
each constituent, namely, 'a contract deposit account'
The Commissioue. and 'a current yarn account', crediting the moneys
of 1"come-tax, received from the customers in the former account and
Si111la
transferring them to the yarn account in adjustment
Sa<kar J.
of the price of the bales supplied then and there, that
is, as and when deliveries were made under a contract
either in instalment or in foll". It was held that the
amounts received from the customers under th is
arrangement were taxable as they were merely advance
payments of the price and could not therefore be regarded as borrowed money.
This was clearly so because
under this arrangement cash was deposited by a purchaser in. respect of a contract of purchase at the time
it was made and was to be applied when the goods had
been delivered by the appellant under that contract
towards the price payable in respect of them, such
price not being payable in any other manner.
The arrangement for the second part of the accounting period was that the payment made by a constituent at the time of the making of a contract was taken
as "Contracts advance fixed deposit" and it was
refunded when the goods under the contraut had been
supplied and the price in respect thereof paid in full
irrespective of the earlier payment. With respect to
the payment initially made under this arrangement
Patanjali Sastri, C. J., said at p. 1067 :
" ... we are of opinion that, having regard to the
terms of the arrangement then in force, they partake
more of the nature of trading receipts than of security
deposits. It will be seen that the amounts received
were treated as advance payments in relation to each
"contract number" and though the agreement provided for the payment of the price in full by the
customer and for the deposit being returned to him on
the completion of delivery under the contract, the
transaction is one providing in substance and effect
for the adjustment of the mutual obligations on the
completion of the contract.
We hold accordingly that
(1) S.C.R. SUPREME coun:r H,EPOH,TS
693
the sums received during this period cannot be regard1958
ed as borrowed money .......... "
Pu11jab Disti//ing
It seems to us that the amounts involved in the Industries Ltd.
present case were exactly of the nature of the deposits
v.
ma.de in the second period in Lakshmanier & Sons' Ths Commissio11er
case (1). There, as here, as soon as a transaction of sale of Income-tax,
was made the seller received certain moneys in respect
of it. It is true that in lAkshmanier &; Sons' case the
transaction was a contra.ct to sell goods in future
whereas in the present case the transaction was a sale
completed by delivery of the goods and receipt Of the
consideration. But that cannot change the nature of
the payment. In Lalcshmanier &; Sons' case, the payment initially made was refunda.ble after the price ha.d
been paid; in the present case the contract is to refund the amount on the return of the bottles already
sold. In each case therefore the payment was made
as part of a trading transaction and in each case it
wa.s refundable on certain events happening. In each
case a.gain 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. We must therefore on the authority of
Laskhmanier &: Sons' case, hold the a.mounts in the present case to have been trading receipts.
It was Mr. Sastri'& effort to bring the case within
the arrangement that prevailed in the third part of
the accounting period in Laskhmanier &: Sons' case,
the initial payments made during which were held to
be loans. But we think that he has not succeeded in
this. The payments during the third period were
made under the following arrangements : " Instead of
calling for amounts from you towards 'Security
Deposit' due to bales for which we a.re entering into
forward contracts with you and returning the same to
you from the said deposit then and there, as we a.re
doing now, and in order to make it feasible, we have
decided to demand from you a certain sum towards
Security Deposit and keep the same with us so long as
our business connections under forward contracts will
continue with you." Under this a.rra.ngement a. certain
(1) [1953] S.C.R. 1057.
.'-,'int/a
Sarkar ].
694
SUPREME COURT REPORTS [1959] Supp.
'958
sum was kept in deposit once and for all and therep
. b v· 1.11 .
after Lakshma.nier & Sons commenced to enter into
un;a
is t 1ng
.
,
l
Industdu Ltd. the tra.dmg transactions, name y, forward contracts
v.
for sale of yarn with the constituents who deposited
TJ.e Commissione. the money. The sum so deposited was to be refunded
01 In~ome-tax, with interest at three per cent. per annum at the end
Simla
of the business connection between the parties, if
Sarkar J.
necessai:y, after retaining thereout any amount due on
the contracts made with the constituent which, the
latter was at the termination of the business found not
to have paid. Pa.tanjali Sastri, C. 'J., observed at
p. 1063 in regard to the deposits ma.de under this
arrangement:
"The amount deposited by a customer was no
longer to have any relation to the price fixed for the
goods to be delivered under a forward contract-either
in instalments or otherwise. Such price was to be paid
by the customer in full against delivery in respect of
each contract without any adjustment out of the
deposit, which· was to be held by the appellants as
security for the due performance of his contracts by
the customer so long as his dealings with the appellants by way of forward contract continued, the appellants paying interest at 3 per cent. in the meanwhile,
and having, as appears from the course of dealings between the parties, the use of the money for their own
business. It was only at the end of the " business
connection" ·with the appellants that an adjustment
was to be made towards any possible liability arising
out of the customer's default.
Apart from such a
contingency arising, the appellants undertook to repay
an equivalent amount at the termination of the dealings. The transaction had thus all the essential
elements of a contract of loan, and we accordingly
hold that the deposits received under the final arrangement constitute borrowed money".
Having observed that the description of the payment
made by the customer as a deposit made no difference
for a deposit included as a loi.n, the learned Chief
Justice further said at p. 1064 ~
" The fact that one of the conditions is that it is
to be adjusted against a claim arising out of a possible
(1) S.C.R.
SUPREMB COURT REPORTS
695
default of the depositor cannot alter the character of
z95B
the transaction. Nor can the fa.ct that the purpose for
. -. . .
which the deposit is made is to provide a security for P1un4Jab ~·s
1L
111
4
"'C
~
l
.
n uslrtes
I .
the due per1ormance of a collatera contract mvest the
v.
deposit with a different character. It remains a loan The Commissioner
of wh.ich the repayment in full is conditioned by the
of Income-la:t,
due fulfilment of the obligations under the collateral
Simla
contract ".
In coming to the view that he did with regard to the
arrangement prevailing in the third period, the learned
Chief Justice referred with approval to the case of
Davies v. Shell Company of China(1) which we have
earlier mentioned.
Now it seems to us that the reasons oil which the
learned Chief Justice based his conclusion that the
deposits during the third period were loans do not
apply to the present case. In the present case, unlike
in Lakshmanier & Sons' case, the amount paid has
a relation to the price of the goods sold ; it is pa.rt of
that price as we have earlier said. It was a condition
of each transaction of sale by the appellant. It was
refundable to the wholesaler as soon as he. returned
the bottles in which the liquor had been supplied to
him in the transaction in respect of which the deposit
had been made. The deposit in the present case was
really not a security at all ; it did not secure to the
appellant anything.
Unlike Lakshmanier & Sons'
case, in the present case a deposit was made every
time a transaction took place and it was refundable
under the terms of that transaction independently of
other deposits under other transactions. In Lakshmanier & Sons' case, the deposit was in the nature
of the assessee's trading structure and anterie,,r to the
trading operations, as were the deposits considered in
Shell Company case (1 ). In the case in hand the deposit
was part of each trading transaction. It was refundable under the terms of the contra.ct relating to a
trading transaction under which it had been ma.de; it
was not ma.de under an independent contract nor was
its refund conditioned by a coltateral contract, as
happened in Lakshmanier & Sons' case.
(1) (1951) 32 Tax Cas. x33.
Sarliar J.
696
SUPREME COURT REPORTS [1959] Supp.
z958
We therefore think that the present case is governed
-
by the arrangement covering the second period and
Punjab Di,lilling not the third period mentioned in Lakshmanier & Sons
Indu"ri.s Ltd. case('), and come to the conclusion that the amounts
Th• comv;,,i,,ioner with which we are concerned were trading receipts.
of Income-tax,
Mr. Sastri also referred us to Morley v. Tattersall(')
Simla
and contended that the amounts with which we are
Sarkar ].
concerned, were of the same kind as those considered
in that case and were not income. It seems to us that
there is no similarity between the two cases at all.
Tattersall was a firm who sold horses of its constituents on their behalf and received the price which
it was liable to pay them. It so happened that in the
course of years various customers did not come and
demand the amounts due to them. Initially Tattersall
showed these amounts in its accounts as liabilities
which they really were. Later it thought that it
would never have to pay back these amounts and
thereupon transferred them to the credit of its partners. The Revenue sought to tax the amounts 80
transferred as 'fattersall's income. The question was
whether the amounts upon transfer became Tattersall's
income. It was never contended that the amounts
wheri received as price of the constituent's horses sold
were Tattersall's income and the only contention was
that they became income upon being transferred to
the credit of the partners. It was held that the
amounts had not by being entered on the credit side,
become income of the firm.
Sir Wilfrid Greene said
at p. 65 :
"Mr. Hill's argument was to the effect that,
although they were not trading receipts at the moment
of receipt, they had at that moment the potentiality of
becoming trading receipts. That proposition involves
a view of Income Tax Law in which I can discover no
merit except that of novelty."
Then again he said :
"It seems to me that the quality and nature of a
receipt for Income Tax purposes is fixed once and for
all when it is received. What the partners did in
(1) [1953] S.C.R. 1057.
(2) (1938) 22 Tax Cas. 51.
(1) S.C.R. SUPREME COURT REPORTS
697
this case, as.I have said, was to decide among them·
1958
selves that what they had previously regarded as a Punjab Distilling
liability of the firm they would not, for practical reIndustries Ltll.
a.sons, regard as a liability; .but that does not mean
v.
that at that moment they received something, nor The Commissioner
d
·
h t
th t
t th
·
· t d
of Income-lax
oes it mean t a at
a
momen
ey imprm e
s· 1
•
upon some existing asset a quality different from
•m "
what lt had possessed ~efore.
'!'here was no existing
Sarkar J.
asset at all at that time."
All that this case decided was that moneys which
were not when received, income-and as to this there
was no question-could never later become income.
With such a case we are not concerned. The case
turned on the fact that the moneys received by Tattersall were never its moneys ; they had been received on
behalf of others and that receipt only created a
liability towards them. Now it seems to us quite
impossible to say ·that the amounts with which we are
concerned were not the appellant's moneys in the
sense that the constituent's moneys in the hands of
-Tattersall were not its. The amounts in this case were
not received on account of any one but the appellant.
No doubt these moneys might have to be refunded if
certain things happened which however might never
happen, but that did not make them the moneys of
those who might become entitled to the refund.
Mr. Sastri referred us to the observations of. Sir
Wilfrid Greene, M. R., in Morley v. Tattersall (1) at p. 65
to the effect that, "The money which was received
was money which had not got any profit making
quality about it; it was money which, in a business
sense, was a client's money and nobody else's" and
contended that the amounts involved in the present
case were of the same nature. We are unable to agree.
If we are right in our view that the amounts were
trading receipts, it follows that they must have a
profit making quality about them. Their payment
was insisted upon as a condition upon which alone the
liquor would be supplied with an agreement that they
would be repaid on the return of the bottles. They
(1) (1938) 22 Tax Cas. 51.
88
698
SUPREME COURT REPORTS [1959] Supp.
r958
were part of the transactions of sale of liquor which
. -. . .
produced the profit and therE1fore they had a profit
Pu•J.•b D15tilhng making quality. Again, a wholesaler was quite free
Industms Ltd. to return the bottles or not as he liked and if he did
The c0,;;;.issioner not return them, the appellant had no liability to reo/ In<ome-1••· fund. It would then keep the moneys as its own and
Simla
they would then certainly be profit.
The moneys
when paid were the moneys of the appellant and were
Sarhar J.
thereafter in no sense the moneys of the persons who
paid them.
Having given the matter our anxious consideration
which the difficulties involved in it require, we think
that the correct view to take is that 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.
We agree with the High Court that the question
framed for decision in this case, should be answered in
the affirmative ..
In the result the appeal fails and is dismissed. The
appellant will pay the costs in this Court.
Appeal dismiaatd.
SHRI KISHORI LAL
v.
MST. CHALTIBAI .
(JAFER IMAM, s. K. DAS and J. L. KAPUR, JJ.)
'
Hindu Law-Adoption, proof of-Evidence not proving adoption-Estoppel-Both parties knowing true facts. if doctrine applicable-Admissions and conduct of parties, if can prove adoption.
The respondent filed a suit for declaration and possession of
certaiμ properties left by her deceased husband L .. The appellant contested the suit on the grounds that L had adopted him
as his son six months before his death. In addition to the.oral
evidence of adoption the appellant alleged that he performed
the obsequies of L as such adopted son, that on the thirteenth
day after the death of L he was taken by the respondent in her
lap, that he entered into possession of the estate of L, that the