Seth, J. - (1.) At the instance of the Commissioner of Income-tax, Lucknow, this court called for and the Income-tax Appellate Tribunal, Allahabad, has stated the case and has referred the following question of law for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the sums of Rs. 12,80,428 and Rs. 2,23,480 were not rightly included in the total income of the assessee ?"
(2.) Briefly stated, facts giving rise to the present reference are" that the assessee, M/s. U.P. State Agro Industrial Corporation, Lucknow (hereinafter referred to as the " Agro Corporation "), was set up in March, 1967, as a body registered under the Indian Companies Act. The authorised capital of the Agro Corporation had been subscribed by the Govt of India and the Govt. of Uttar Pradesh. On September 10, 1970, the Agro Corporation entered into a contract with the State Trading Corporation of India (hereinafter referred to as the " trading corporation ") for the sale of tractors imported by the trading corporation. In that contract, the Agro Corporation was described as a business associate. The business associate was required to dispose of the goods imported through the trading corpa-ration only to the bona fide agriculturists having sufficient land in accordance with the instructions given by the Ministry of Food and Agriculture, C.D. and Co-operative Dept., Govt. of India and/or STC (State Trading Corporation). The business associates were required to deliver the goods to the registered purchasers on the basis of first-come-first served subject to any priority that the Ministry of Food and Agriculture and/or STC may assign and they were not to charge from the customers/purchasers of the goods price more than ceiling price as may be approved by the trading corporation. During the accounting year ending on March 31, 1972, relevant for the assessment year 1972-73, the Agro Corporation sold a number of Zetor Tractors imported through the trading corporation to various customers. The sale price realized by the Agro Corporation from the sale of such tractors exceeded the total amount which it was entitled to realize from its customers in accordance with the ceiling price of the tractors determined by the trading corporation, by a sum of Rs. 15,45,504, The excess realization made by the Agro Corporation, inter alia, represented a sum of Rs. 12,80,428 (finance charges) and Rs. 2,23,480 (assembling charges). On 5th of August, 1971, the deputy marketing manager of the trad- ing corporation wrote to the managing director of the Agro Corporation that an inspection of its record showed that it had, in respect of sale of Zetor Traders, over-charged its customers and that it should refund the excess realisation made by it to its customers within one month from the issue of the letter and to confirm having done so to the trading corporation as also to the Ministry of Food and Agriculture. The Agro Corporation did not, on receipt of the aforesaid letter, immediately refund the excess amount realized by it to its customers. It represented to the Govt. of India, Ministry of Food and Agriculture, justifying its action in realizing from its customers the finance and assembling charges over and above the maximum price determined by the trading corporation. However, at the end of the relevant accounting year, the Agro Corporation debited its sales by a sum of Rs. 15,45,504 showing it as an amount which it had been required to refund to its customers. Consequent to the representations made by the Agro Corporation, the Projects and Equipment Corporation of India, vide its letter dated March 25, 1972, informed the Agro Corporation that under the contract it was not entitled to realize any finance charges from its customers and that it was entitled to realize only a sum of Rs. 507 per tractor as assembling charges instead of Rs. 1,014 per tractor realized by it. Ultimately, after referring to certain correspondence, the Govt. of India in the Ministry of Food and Agriculture, informed the Agro Corporation that it was not possible to accept its request to allow it to realize the finance charges in respect of Zetor Tractors sold by it, and the excess amount realized by it from its customers should be refunded to them immediately under advice to the Ministry.
(3.) For the assessment year 1972-73, the assessee returned its total income at Rs. 23,31,066. A scrutiny of the accounts showed that this figure had been arrived at after taking into account amongst other items the debit in respect of the sums of Rs. 12,80,428 and Rs. 2,23,480 made by the assessee in respect of finance charges and assembling charges mentioned above. In this connection, the ITO observed thus : "The STC on 31-10-1973 (correct date appears to be 5-8-1971) has written to the assessee that these finance charges cannot be allowed to be realized by the assessee from its customers. Similar orders existed even before the charging of this amount. Thus, the liability of refunding of this amount is contingent and was determined only by this letter dated October 31, 1973. It has nothing to do with the relevant previous year when the assessee in fact realized this amount from various farmers and purchasers as sale price. Merely because that a letter was received in 1971, the contents of which the assessee has not accepted and it cannot be presumed at this time also that even the contents of this letter dated October 31, 1973, he would accept, he cannot debit the sales in 1972. Not only this when he had such intention of obeying Government orders why he charged this amount at all. The assessee wants to have the best of both the worlds. If he has realized them as finance charges then he should have credited this amount to the interest account. He did not do this also. Considering all these facts this amount clearly represents a portion of the sale, and hence will be added, because as it is not even sure that the assessee has accepted this time the order of the Government and will even refund the amount to the hundreds of farmers or would not protest against it further. If the question of allowability is to be considered, it can only be considered in the year October 31, 1973, or afterwards.";