Commissioner Of Income Tax-I, Madurai v. M/S. Pioneer Press (P) Ltd., Sivakasi, Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVANANDTHE HONOURABLE MR. JUSTICE K.K. SASIDHARAN Tax Case (Appeal) Nos.127 and 128 of 2004 Commissioner of Income Tax-I,Madurai... Appellant in both the appealsversusM/s. Pioneer Press (P) Ltd.,Sivakasi,Chennai... Respondent in both the appeals Prayer : Appeals under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal,Madras 'B' Bench dated 7.7.2003 passed in I.T.A. Nos.622 and623/Mds/99 for the Assessment Years 1992-93 & 1993-94 againstthe order of Commissioner of Income Tax (Appeals) Madurai forthe Assessment Years in 1992-93 1993-94 in PA.NC.No.356 dated21.12.1998 and against the order of Assistant Commissioner ofIncome Tax, Virudhunagar in PAN (GIR).47054-CN0356/AC (VNR)dated 18.03.1994. For Appellant :: Mrs. Pushya Sitaraman, Senior Standing CounselFor Respondent :: Mr. V.J. Balachander for M/s. S. Sridhar Prabha Sridevan, J. The question raised in these appeals is whether in the facts andcircumstances of the case, the Income Tax Appellate Tribunal was rightin holding that the contingency deposit collected towards tax liabilitywould not form part of the income. The assessment years relate to 1992-93 and 1993-94 respectively. https://hcservices.ecourts.gov.in/hcservices/ 2. The assessee is a company engaged in offset printing. For theassessment years 1992-93 and 1993-94, the assessee filed its return. Theassessee had collected an amount of Rs.3,38,586/- (Assessment Year 1992-93) and Rs.4,42,448/- (Assessment Year 1993-94) as contingency depositsfor payment of possible tax liability. The assessee’s case is that thecontingency deposit collected during the year is not a trading receipt,but only a deposit. In the assessment order, the Assistant Commissionerrejected the assessee's contention holding that whether it is shown ascontingency deposit account or suspense account, it made no differenceand the collections formed part of the trading receipt only. On appeal,the Commissioner of Income Tax (Appeals) held that since the levy of taxis uncertain, this contingency deposit is collected only subject torefund and therefore, the additions were deleted. Against that, theDepartment filed an appeal. The Tribunal held that the amount indispute is a contingency deposit and there is an associated liability torefund the same. It also held that when the liability to refund exists,it should not be taken as an income and therefore, it is not a tradingreceipt. As against that, the Department has filed these appeals. 3. The learned senior standing counsel appearing for the Revenuesubmitted that this issue is covered by (2000) 242 I.T.R. 107 [C.I.T.vs. Southern Explosives Co. (Mds)] and there can be no dispute regardingthe fact that the receipt was a trading receipt. In (2008) 303 I.T.R.364 [Sundaram Finance Ltd. vs. Dy. C.I.T./Jt. C.I.T.], it was held thatthe contingency deposit was assessable. Learned senior standing counselrelied on (2008) 303 I.T.R. 364 [Sundaram Finance Ltd. vs. Dy.C.I.T./Jt. C.I.T.] and (1954) 5 I.T.R. 382 [Tata Iron & Steel Co. Ltd.vs. State of Madras]. 3. The learned senior standing counsel appearing for the Revenuesubmitted that this issue is covered by (2000) 242 I.T.R. 107 [C.I.T.vs. Southern Explosives Co. (Mds)] and there can be no dispute regardingthe fact that the receipt was a trading receipt. In (2008) 303 I.T.R.364 [Sundaram Finance Ltd. vs. Dy. C.I.T./Jt. C.I.T.], it was held thatthe contingency deposit was assessable. Learned senior standing counselrelied on (2008) 303 I.T.R. 364 [Sundaram Finance Ltd. vs. Dy.C.I.T./Jt. C.I.T.] and (1954) 5 I.T.R. 382 [Tata Iron & Steel Co. Ltd.vs. State of Madras]. 4. Learned counsel appearing for the assessee submitted thatpursuant to the 42[nd] Amendment, Section 3-B was introduced in the TamilNadu General Sales Tax Act. Rules 6A and 6B prescribed the method todetermine the taxable turnover since the assesse was advised to collect5.4% on 70% of the value of the works contract. Writ petitions werefiled. The challenge to the constitutionality of the Act was acceptedand the act was amended. If the tax becomes payable, then it would bepaid out of the contingency deposit, if not, the amount would berefunded. This was the understanding on which it was collected. Therewas no unjust enrichment. In fact, in the subsequent years, it wasrefunded. The learned counsel also submitted that in the proceedingsunder the TNGST Act also it was accepted that what was collected by theassessee was in the nature of contingency deposit. The assessee hasalso produced proof to show that in the subsequent years, the amountsreceived were refunded. Learned counsel relied on the followingdecisions : (1954) 5 I.T.R. 382 [Tata Iron & Steel Co. Ltd. vs. State of Madras] (1960) 11 S.T.C. 734 [State of Mysore vs. Mysore S. & M. Co. Ltd.](1977) 40 I.T.R. 497 [Joshi, Sales Tax Officer vs. Ajit Mills Ltd.](1999) 112 S.T.C. 307 [C.S.T. vs. R.M.D.S. Press Pvt. Ltd.](1999) 115 S.T.C. 645 [Karnataka State Financial Corporation vs. DeputyCommissioner of Commercial Taxes] (1986) 161 I.T.R. 524 [C.I.T. vs. Hindustan Housing and LandDevelopment Trust] (2000) 241 I.T.R. 229 [C.I.T. vs. Kirit Wood Works] (2005) 276 I.T.R. 402 [C.I.T. vs. Doongaji & Co. Distillery] (2001) 248 I.T.R. 92 [C.I.T. vs. South India Sugars Ltd.] 5. In (1960) 11 S.T.C. 734 [State of Mysore vs. Mysore S. & M. Co.Ltd.], the question was whether the amounts received would be”collection by way of tax” under the provisions of Mysore Sales tax Act. (1977) 40 I.T.R. 497 [Joshi, Sales Tax Officer vs. Ajit Mills Ltd.] wasregarding the vires of Bombay Sales Tax Act too. In (1999) 112 S.T.C.307 [C.S.T. vs. R.M.D.S. Press Pvt. Ltd.], the question was thetaxability of ink, which is used in the job of printing. This decisionmay also not be applicable here because in that case, the question waswhether there is transfer of property in the ink in execution of jobwork of printing, whether it is taxable and whether tax had to be paidon the ink so used. Since here the question whether the contingencydeposit is to be treated as income for the relevant year or as tradingreceipt is to be decided, we are not dealing with those decisions citedby the learned counsel for the assessee which turn on the questionswhether the amounts received as contingency deposit would be"collections by way of tax" under the relevant State Sales Tax Acts. 6. In (1986) 161 I.T.R. 524 (C.I.T. vs. Hindustan Housing and LandDevelopment Trust, the assessee’s lands were acquired. The LandAcquisition Officer awarded compensation. The assessee, dissatisfiedwith the quantum, preferred an appeal to the Arbitrator. The 6. In (1986) 161 I.T.R. 524 (C.I.T. vs. Hindustan Housing and LandDevelopment Trust, the assessee’s lands were acquired. The LandAcquisition Officer awarded compensation. The assessee, dissatisfiedwith the quantum, preferred an appeal to the Arbitrator. The compensation was enhanced. This amount was allowed to be withdrawn onthe assessee furnishing security. The enhanced income was assessed totax as business income. The High court answered the question against theRevenue. The Supreme Court held that this case was one where the rightto receive the amount is in dispute and that the High Court was right. (2000) 241 I.T.R. 229, C.I.T. vs. Kirit Wood Works dealt with thequestion whether the deposits received by the assessee, a manufacturerof soft drinks, from its customers for the bottles, constituted income.This Court held that the deposits were not meant to be consideration forthe sale, but as deposits only and therefore not taxable. In (2001) 248I.T.R. 92, C.I.T. vs. South India Sugars Ltd., the assesses, engaged inthe manufacture of sugar, collected excess amount from buyers on sale oflevy sugar. The amounts were held in suspense account by virtue ofinterim orders which permitted the assessee to do so subject to certainconditions. This court held that it could not be characterized astrading receipt. The issue whether the collection of sales tax which iskept in a contingency deposit has been decided in (2000) 242 I.T.R. 107[C.I.T. vs. Southern Explosives Co. (Mds)]. This decision is directlyon the point since only in this case, the issue as to the collection ofsales tax kept in a contingency deposit has been dealt with. Almost allthe decisions that are on the point have been considered in the abovecase and that is why in (2008) 303 I.T.R. 364 [Sundaram Finance Ltd. vs.Dy. C.I.T./Jt. C.I.T.], it has been been held that this is not longer adebatable issue. "There was no question of the deposits being paid overforthwith to the Government. The money had been collected byway of deposit to meet a contingency where the transactionsbetween the petitioners and the buyers were held to be liableto tax. The petitioners were answerable for the deposits onlyto the customers." Therefore, neither withdrawal of enhanced compensation which is kept ina deposit subject to conditions ordered by the court, or deposits keptby soft drinks manufacturer for return of bottles are cases similar tocollection of contingency deposit of what might be tax liability. Thenature of the deposit is clearly different. In the soft drinkmanufacturer's case, it is clearly only a case of deposit and notintended to be anything else. In the case of the owner of the acquiredlands, he did not get any right to what he withdrew since he gavesecurity for withdrawal of the amount. Similarly, in the sale of levysugar at an enhanced price hedged by conditions imposed by Court, cannotalso be treated as taxable receipt. Therefore, they stand on adifferent footing from cases where amounts representing sales taxliability are retained as contingency deposit regardless of whether they are refunded subsequently. The amount was collected towards meetingwhat the assessee thought at that time, was a statutory liability. Itwas shown as amounts due from sundry creditors. It was not collectedpursuant to any order of court. In (2001) 248 I.T.R. 92 (supra), theassessee was permitted by orders of Court to collect the excess amount,but this permission was hedged by conditions. Similarly in (1986) 161I.T.R. 524 (supra), the amount was deposited in Court and the assesseewas permitted to withdraw it on furnishing a bank guarantee. The case onhand is totally different. The orders of the Court referred to by thelearned counsel are orders of stay of assessment order. In the case onhand, it is stay of the penalty. The retention of the amounts by theassessee was not by virtue of orders of court. 8. Since the facts are not in dispute, it is enough if we deal withthe question of law alone. The amounts collected by the assessee wereamounts which were meant to be utilised for meeting its tax liability.The fact that at that time, the relevant provision was under challengedoes not make a difference insofar as the assessee is concerned, sincethe assessee had collected the amounts only to meet the tax liability.In the above case (2000) 242 I.T.R. 107 (supra), this Court had heldthat the devise adopted by the assessee to label a part of the amountscollected as deposit would not make a difference. It was held asfollows : "The purchasers from the assessee did not derive anybenefit from the device adopted as the purchasers were made topay the amounts and the amounts were merely retained by theassessee and in the meanwhile, used by it in the normal courseof its business. The receipt which was in its true charactera trading receipt, cannot be rendered otherwise by theassessee labelling the receipt as a deposit." "The true character of the receipt must be judged withreference to the reasons for the collection and the liabilityfor meeting which the collection was made. When the liabilityis a statutory liability, which the assessee was required tomeet and for meeting which it was by the statutes orauthorities permitted to collect the amount required from itscustomers, the true character of the collection is a tradingreceipt. By calling a portion of the amount as deposit, itcannot be said that the assessee had constituted itself as atrustee, and therefore, the amounts received were not requiredto be regarded as part of its trading receipt. Had theassessee been unsuccessful in its claim that his goods werenot to be treated as chemicals there is no doubt that theamounts though collected as deposit, would have been paid over to the State Government as the amounts had been collected forpayment to the State Government as sales tax in the event ofthe goods being treated as chemicals." In (2001) 248 I.T.R. 92 (supra) also, the same question was raised andthis Court, relying on (2000) 242 I.T.R. 107 (supra), had observed asfollows : "... the amounts collected by the assessee were amountswhich were meant to be utilised by the assessee for meetingits tax liability. Even if the assessee had paid over theentire amount received by it as deposit towards sales tax tothe State Government, it would still have been open to theassessee to seek refund if the assessee wished to claim suchrefund on the ground that the tax had been levied at a higherrate than the rate permissible. The fact that the assesseehad chosen to adopt the device of labelling a part of theamounts collected towards its sales tax liability as depositcould not make a difference. The amount formed part of theassessee's income." 9. The decision in (2000) 242 I.T.R. 107 [C.I.T. vs. SouthernExplosives Co. (Mds)] is, therefore, just on the point. That is why(2008) 303 I.T.R. 364 was also decided in favour of the Revenue. It isneedless to say, if and when the amounts collected are refunded to thepersons from whom the collection had been made, the assesee can claimdeduction in the year in which such refund is effected. 10. For all these reasons, the order of the Income Tax AppellateTribunal, Madras 'B' Bench dated 7.7.2003 passed in I.T.A. Nos.622 and623/Mds/99 are set aside and the tax case appeals are allowed. Sd/Asst.Registrar/true copy/ abTo Sub Asst.Registrar 1. The Commissioner of Income Tax-I,Madurai. 2.The Income Tax Appellate Tribunal, Madras 'B' Bench, Chennai.Madras 'B' Bench, Chennai. 3.The Secretary,Direct Tax Appellate,New Delhi.Direct Tax Appellate,New Delhi. 4.The Assistant Commissioner of Income Tax,Virudhunagar.Virudhunagar. 2 cc To Mr.S.Sridhar, Advocate, SR.65734. 1 cc To Mr.Pushya Sitaraman, Standing Counsel for I.T.Cases, SR.65486. T.C. (Appeal) Nos.127 & 128 of 2004 NSM(CO) RVL 27.11.2008