1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following questions of law to this court for its opinion ;

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reference under Section 144B of the Income-tax Act, 1961, did not affect the jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the pendency of an appeal against the assessment order did not oust the jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961 ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the mere reopening of an assessment under Section 147 of the Income-tax Act, 1961, did not affect the jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961 ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 62,000 received by the assessee and credited to the Molasses Storage Fund constituted a trading receipt and was taxable as its income ?"

2. The material facts giving rise to this reference, briefly, are as follows :

The assessee runs a sugar factory. The assessment year in question is 1977-78. The Commissioner of Income-tax, exercising powers under Section 263 of the Act, set aside the order of assessment passed by the Income-tax Officer and directed the Income-tax Officer to include in the income of the assessee the sum of Rs. 62,200 received by the assessee from the sale of molasses. Aggrieved by the order passed by the Commissioner, the assessee preferred an appeal before the Tribunal. The Tribunal upheld the order passed by the Commissioner directing the Income-tax Officer to tax the sum of Rs. 62,200. Aggrieved by the order passed by the Tribunal, the assessee sought reference and it is at the instance of the assesse that the aforesaid questions of law have been referred to this court for its opinion.

3. As regards question No. (1), learned counsel for the assessee was unable to point out any cogent reason for holding that a reference to the Inspecting Assistant Commissioner under Section 144B of the Act would oust the jurisdiction of the Commissioner under Section 263 of the Act to revise the order of assessment passed by the Income-tax Officer. The Tribunal was, therefore, right in holding that the reference under Section 144B of the Act did not affect the jurisdiction of the Commissioner under Section 263 of the Act.

4. As regards question No. (2), learned counsel for the assessee was unable to point out any provision of law ousting the jurisdiction of the Commissioner under Section 263 of the Act if an appeal was preferred by the assessee under the Act from the order of assessment passed by the Income tax Officer. As held by the Tribunal, none of the issues dealt with by the Commissioner was the subject-matter of appeal. The Tribunal, therefore, was right in holding that pendency of an appeal against an order of assessment did not oust the jurisdiction of the Commissioner under Section 263 of the Act.

5. As regards question No. (3), learned counsel for the assessee was unable to satisfy us that mere reopening of an assessment under Section 147 of the Act would affect the jurisdiction of the Commissioner under Section 263 of the Act. Under the circumstances, the Tribunal was right in holding that mere reopening of an assessment under Section 147 of the Act did not affect the jurisdiction of the Commissioner under Section 263 of the Act.

6. Now, as regards question No. (4) the contention advanced on behalf of the assessee was that the sum of Rs. 62,200 from out of the price of molasses received by the assessee was credited by the assessee to a specific account called "Molasses Storage Fund". This was done by the assessee in pursuance of the provisions of the Molasses Control Order, 1961, as amended by the Molasses Control (Amendment) Order, 1975. The relevant provision of the order is as follows :

"From the price fixed under the above Schedule, 33-1/3% thereof shall be accounted for and funded separately by the producers, and shall be utilised for erection of adequate storage facilities in accordance with the orders that may be issued by the Central Government for the regulation of such funds."

7. The contention of the assessee was that the amount credited to the separate account as aforesaid, in compliance with the provisions of the Molasses Control Order, was not the income of the assessee and hence, was not taxable.

8. The real question for consideration is when the owner of a sugar factory sells molasses in accordance with the provisions of the Molasses Control Order, 1961, and credits a portion of the price received by him to a separate fund for erection of adequate storage facilities, is it a case of diversion of income or of application of income ? The test to decide this question, as held by the Supreme Court in CIT v. Sitaldas Tirathdas, [1961 ] 41 ITR 367, is as follows (at page 374) :

"In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge, the assessee became only a collector of another's income."

9. Following the principle laid down in CIT v. Sitaldas Tirathdas, [1961] 41 ITR 367, the Supreme Court held in CIT v. Imperial Chemical Industries (India) (P.) Ltd., [1969] 74 ITR 17, that an obligation to apply income accrued, arisen or received, amounts merely to the apportionment of income and the income so applied is not deductible.

10. The decisions in Poona Electric Supply Co. Ltd. v. CIT, [1965] 57 ITR 521 and Amalgamated Electricity Co. Ltd. v. CIT, [1974] 97 ITR 334, relied on by the assessee, are distinguishable on facts. In [1965] 57 ITR 521, the Supreme Court dealt with the question of appropriation made by an electrical undertaking by crediting the amounts to the Consumers' Benefit Reserve account. The Supreme Court held that they were a part of the excess amount paid to the assessee and reserved to be returned to the consumer and hence the said amount would have to be deducted from the total income of the assessee. In Cochin State Power and Light Corporation Ltd. v. CIT, [1974] 93 ITR 582 (Ker), on which reliance was placed by the Bombay High Court in Amalgamated Electricity Co. Ltd. v. CIT, [1974] 97 ITR 334, the Kerala High Court dealt with the question of amounts transferred by an assessee which was an electricity undertaking, to the contingency reserve, as required by the provisions of the Electricity (Supply) Act, 1948. Apart from other features of that fund, one of the aspects of the contingency reserve was that the assessee was not entitled to any compensation on account of that reserve as and when the undertaking was purchased. In the instant case, we asked learned counsel for the assessee to point out whether there was any material to indicate that if the assessee ceased to carry on its business, the assessee would not be entitled to the outstanding amount credited in the Molasses Storage Fund. Learned counsel for the assessee was unable to point out any such provision. Transfer of a certain percentage of the price of molasses received by the assessee is intended with a view that the assessee is able to provide better storage facilities which is normally the duty of a seller to prevent deterioration in the quality of goods sold by the seller. There is absolutely no material on record and no provision of law was brought to our notice to show that title to the Molasses Storage. Fund separately kept by the assessee, as enjoined upon it by the Molasses Control Order, 1961, does not vest in the assessee. It is true that the assessee is not free to utilise that fund in any manner the assessee likes so long as the business of selling molasses is carried on by the assessee and so long as the relevant provisions of the Molasses Control Order are in force. But the assessee's title to the fund is not lost. A part of the price of molasses received by the assessee is credited by the assessee to a separate fund to discharge an obligation imposed upon the assessee by the Molasses Control Order, 1961. This is not a case of diversion of income but of application of income and hence the Tribunal was right in holding that the sum of Rs. 62,200 received by the assessee and credited to the Molasses Storage Fund constituted a trading receipt and was taxable as its income.

11. For all these reasons, our answers to all the four questions referred by the Tribunal are in the affirmative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.