R. Balia, J. - (1.) THESE two income-tax references arise out of a common order passed by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, in I. T. A. No. 708/709 (JP) of 1984 for successive assessment years 1979-80 and 1980-81 and common questions arise in these two reference applications except difference in the amount in question in each assessment year. The facts in the context of which these questions have been raised remain the same, therefore, they are being heard and decided together.
(2.) THE assessee-company was manufacturing and selling soft drinks under a licence issued by Coca-Cola Export Corporation, USA. For the manufacture of the soft drinks, the concentrate was provided by the Coco-Cola Export Corporation. THE arrangement of providing concentrate by the company was disrupted for reasons, which are not germane. As a result of which the bottles with marking of "Coca-Cola" and "Fanta" the two products, in which soft drink was marketed earlier remained with the assessee. As a result of disruption of this arrangement, a letter was issued by Coca-Cola Export Corporation through its office in India dealing with the stocks of Coca-Cola and Fanta bottles remaining with the assessee. As the entire contention is based on the contents of this letter, which is marked as annexure C, along with the statement of the case, we deem it proper to reproduce the same in its entirety : "Reference No. 402 JUDGEMENT_645_ITR258_2002Html1.htm Messrs. Jai Drinks Pvt. Ltd., Jawaharlal Nehru Marg, Jaipur-302004. Dear Sir, 1. The Coca-Cola Export Corporation does not accept any legal obligation to purchase stocks of Coca-Cola and Fanta bottles in your possession. 2. However, in response to appeals from several of the bottlers who find themselves in dire financial straits as a result of the non-availability of Coca-cola, the Corporation is prepared to make an ex gratia offer of compensation to assist the bottlers through this difficult period treating all bottlers on an equal basis. 3. As your Coca-Cola and Fanta bottles are not usable and now have no commercial value in India, and in order to prohibit their misuse (which will be resisted, in any event, by vigorous action through the courts), it is proposed that after being counted in your plant, the bottles will be destroyed by your staff under the supervision of our personnel or appointed agents. The Corporation will not accept responsibility for the resultant cullet which the bottlers will be free to dispose of as they wish. The compensation to be paid to each bottler on depreciation as mentioned above, would be on a basis pro-rata to sales reported throughout 1976, the last full year of operation in India. In respect of your plant in--Jaipur, the maximum quantity of 'Coca-Cola'/'Fanta' bottles to which this offer of compensation will apply is--27,500 cases. For each case of 24 'Coca-Cola/'Fanta' bottles thus destroyed in the presence of our appointee, and up to the maximum quantity calculated under the pro-rata plan (as amended in para. 4 above) the Corporation will pay to the bottler the sum of ten rupees less any tax or other levy which may be applicable to the transaction in law. As it is in our mutual interest to complete this exercise with the minimum of delay, this offer is open for acceptance until February 15, 1978, and if no response is received by the Corporation by 5 p.m. on that date it will be assumed that the offer is not acceptable to you. In token of your acceptance please sign the duplicate copy of this letter enclosed herewith and return the same by registered post or hand delivery so as to reach this office before 5 p.m. on February 15, 1978. Yours faithfully, (Sd.) Bipin Mathur, Resident Manager." In pursuance of this letter stocks of Coca-Cola and Fanta bottles which had remained with the assessee-company were destroyed. As a result of this, the assessee-company received Rs. 2,75,000 in the previous year relating to the assessment year 1979-80 and Rs. 38,500 was received in the previous year relating to the assessment year 1980-81. 4. Income-tax Reference No. 24 of 1989 relates to the assessment year 1979-80 and Income-tax Reference No. 23 of 1989 relates to the assessment year 1980-81. 5. In the two assessment years, the assessee has claimed that the aforesaid amount received from Coca-Cola Export Corporation was an ex gratia payment and was in the nature of capital receipt, which was not includible in the taxable income of the assessee. However, the Assessing Officer considered the amount received by the assessee on destruction of the bottles as revenue receipts chargeable to tax, on the ground that the cost of bottles, which were plant of the assessee had earlier been subjected to deductions under the provisions of the Income-tax Act while computing taxable income of such earlier years. 6. According to the Assessing Officer, the aforesaid amount received by the assessee was the amount paid to him in respect of the plant, which was destroyed and such receipt was liable to be taxed under Section 41(2) as it was prevalent in the assessment year in question.
(3.) THE assessee was unsuccessful before the Commissioner of Income-tax (Appeals) and in second appeal the learned Judicial Member and the Accountant Member had a difference of opinion on this issue. While the Judicial Member agreed with the conclusion reached by the Income-tax Officer and affirmed by the Commissioner of Income-tax (Appeals), the Accountant Member held it to be a capital receipt in the hands of the assessee and the question was referred to the President of the Tribunal, The President agreed with the Judicial Member by holding that the amounts of Rs. 2,75,000 and Rs. 38,500 received by the assessee from Coca-Cola Export Corporation were liable to be included in the taxable income of the assessee for the two assessment years in question under Section 41(2) of the Income-tax Act, 1961. On an application made in this behalf by the assessee under Section 256(1) of the Income-tax Act, 1961, the following question has been referred in each case ; I. T. Reference No. 24 of 1989 : "Whether the learned Tribunal was right in law in holding that the amount of Rs. 2,75,000 received by the assessee-company from Coca-Cola Export Corporation was liable to be taxed as income within the meaning of Section 41(2) of the Income-tax Act, 1961 ?" I. T. Reference No, 23 of 1989 : "Whether the learned Tribunal was right in law in holding that the amount of Rs. 38,500 received by the assessee-company from Coca-Cola Export Corporation was liable to be taxed as income within the meaning of Section 41(2) of the Income-tax Act, 1961 ?" We have heard learned counsel for the parties. ;