L To. To v. Dy. Commissioner Of Income Tax

* IN THE HIGH COURT OF DELHI AT NEW DELHI % judgment Reserved on: 27.01.2011 judgment delivered on: 18.02.2011 ilJ ITA 15/1999 MOTOR GENERAL FINANCE L TO. TO. L TO. TO. . .. APPELLANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates. VERSUS DY. COMMISSIONER OF INCOME TAX. . ... RESPONDENT Through: Ms. Rashmi Chopra, Advocate (2) ITA 16/1999 MOTOR GENERAL FINANCE L TO. TO. L TO. TO. . .. APPELLANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates. VERSUS DY. COMMISSIONER OF INCOME TAX. . .. RESPONDENT Through: Ms. Rashmi Chopra, Advocate (3) ITA 124/2007 MOTOR GENERAL FINANCE LTD. LTD. . .. APPELLANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates. VERSUS COMMISSIONER OF INCOME TAX. . .. RESPONDENT Through: Ms. Rashmi Chopra, Advocate ITA 15/99 & other connected matters r-- ./- {4) ITA 73/2002 COMMISSIONER OF INCOME TAX. . ... APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINANCE LTD.. LTD.. • ••• RESPONDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. (5) ITA 117/2007 MOTOR GENERAL FINANCE L TO. TO. L TO. TO. . .. APPELLANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates. VERSUS COMMISSIONER OF INCOME TAX. .RESPONDENT Through: Ms. Rashmi Chopra, Advocate {6) ITA 123/2007 MOTOR GENERAL FINANCE L TO. TO. L TO. TO. • ..• APPELLANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. VERSUS COMMISSIONER OF INCOME TAX. . ... RESPONDENT Through: Ms. Rashmi Chopra, Advocate (7) ITA 130/2007 COMMISSIONER OF INCOME TAX. . ... APPELLANT Through: Ms. Rashmi Chopra, Advocate· VERSUS ...• RESPONDENT MOTOR GENERAL FINANCE L TO. Page 2 of 5 ITA 15/99 & other connected matters (8) ITA 209/2007 Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. COMMISSIONER OF INCOME TAX. • ••. APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINANCE L TO. TO. L TO. TO. . ... RESPONDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates.· (9) ITA 231/2007 COMMISSIONER OF INCOME TAX. . ... APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINANCE LTD. LTD. . •.• RESPONDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. (10) ITA 331/2007 COMMISSIONER OF INCOME TAX. . ... APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINANCE L TO. TO. L TO. TO. • ... RESPONDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates. (11) ITA 1233/2008 MOTOR GENERAL FINANCE L TO. ..• APPELLANT ITA 15/99 & other connected matters Page 3 of 5 Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha, Advocate VERSUS COMMISSIONER OF INCOME TAX. . ... RESPONDENT Through: Ms. Rashmi Chopra, Advocate (12) ITA 1234/2008 MOTOR GENERAL FINANCE L TO. TO. L TO. TO. . .. APPELLANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates. VERSUS COMMISSIONER OF INCOME TAX. . ... RESPONDENT Through: Ms. Rashmi Chopra, Advocate (13} ITR 211/1990 COMMISSIONER OF INCOME TAX. . .... APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINANCE LTD. LTD. . ... RESPONDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. (14) ITR 248/1991 COMMISSIONER OF INCOME TAX. . ... APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS .... RESPONDENT MOTOR GENERAL FINANCE LTD. Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. CORAM:- HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE M.L. MEHTA · VERSUS COMMISSIONER OF INCOME TAX. . ... RESPONDENT Through: Ms. Rashmi Chopra, Advocate (13} ITR 211/1990 COMMISSIONER OF INCOME TAX. . .... APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINANCE LTD. LTD. . ... RESPONDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. (14) ITR 248/1991 COMMISSIONER OF INCOME TAX. . ... APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS .... RESPONDENT MOTOR GENERAL FINANCE LTD. Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. CORAM:- HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE M.L. MEHTA · 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? · to see the Judgment? · 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? 3. Whether the Judgment should be reported in the Digest? A.K. SIKRI, J. 1. For orders, see ITR 458 of 1984. J-1 cqy l ((_ JUDGE FEBRUARY 18, 2011 skb (M.L. MEHTA) JUDGE ' . ^/,- (y * nfv T!-tE I,ilGt-X COiJR,T [@F ][DE!-l-01 ] [[uEW ][DELI{I] {-i % Judgment [Reserved on: ][27'07'2077]J [udg ][ment Delivered ][on ][: ][7 ][8.02,207 ][7] (1) ITR 458/X984 MOTOR GEI\XERAI. FINANCE !-TD. ...APPELLANT' Through : Mr. O.S. Bajpai, Sr' [Advocate ][with]Mr. V.N.Jha & Mr. B.K. [Singh]Advocates. VERSUS COMMISSIOhIER, OF INCOME TAX. '.'R.ESPOIUDENT Through: Ms. Rashmi Chopra, [Advocate] (2) ITA Xs/L999 MOTOR, GE[UER.A[- FII{ANCE [.TD. . . . APPELLAhIT Through : Mr. O.S. Bajpai, [Sr. Advocate with]Mr. V.N.Jha & Mr. B'K. [Singh]Advocates. VERSUS DY. COMMISSIONIER OF ...R.ESPOIUDENT Through: Ms. Rashmi [Chopra, Advocate] rrA 16/n999(3) MOTOR, GERIERAI- FINANXCE I.TD. .."APPE!-LAI\[Ttin'i%:ff:"til.;.[ili: "il i'*o'k "il i'*o'k i'*o'k Advocates. .rhroush ' ili: "il i'*o'k "il i'*o'k i'*o'k VERSUS DY. COMMISSIONIER, [IhNCOME ][TAX. ] ..RESPONDEIVT Through: Ms. Rashmi Chopra, [Advocate] ITA 458 of 1984 & other connected [matters] (41 trN L24|2AO7 MOTOR GEhIER,AI- FIIVANCE !-TD". !-TD". '".APPELLANThroush tillo"u:ll'"til'Jl' Mi: "ift i'go'l Advocates. VERSUS COMMISSXONNER, OF TAX. ".RESPONDENT Through: Ms. Rashmi [Chopra, Advocate] (5) lTA 73l2po2 COMMISSIOT{ER. OF IRJCOME TAX. Through: Ms. Rashmi Chopra, [Advocate] ....APPE[.N.ANT' VERSUS MOTOR GENNER,AL FINNARXCE LTD. ....RESPONDENT Through : Mr. O.S. Bajpai, [Sr. Advocate with]Mr. V.N.Jha & Mr. B.K. [Singh]Advocates. (6) ITA L3.7/2007 MOTOR GENIER,AI- FITUANCE LTD, LTD, . . . APPEI.LANTFITUANCE LTD, LTD, rhroush til,:1:'::'"ril$' #l-: ?t^i ,??ot Advocates.VERSUS t *t c o M M ! s s I o [r\x ]E R o F' rytt :il?''H'* u, h m i c [h o ]o [,.u ]I Tf,":3#3 (71 trA L2312007 MOTOR GENERAI- FIIVANNCE !.TD. ' [. ][. ][APPE!-[-ANT] Through : Mr: O.S. Bajpai, Sr. [Advocate ][with]". Mr. V.N.Jha & Mr. B.l<. SinghAdvocates.VERSUS COMMISSIONER OF INNCOME TAX ...R,ESPONDEhIT ITA 458 of 1984 & other [connected ][matters ] Page2 of 24 /_ a{ Through: Ms. Rashmi Chopra, Advocate rrA 3.30 t2ao7 COMMISSIONNER TSSIONNER TSSIONNER OFINCOME TAX .".APPELI.ANT COMMISSIONNER TSSIONNER TSSIONNER OF Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINAIVCE [.TD. ."..RESPOINDENT Through : Mr. O.S. Bajpai, Sr. Advocate withMr, V.N.Jha & Mr. B,l<. SinghAdvocates. (9) rrA 209/2007 COMMNSSIONNER, OF IT{COME TAX. ....APPE!.I.ANIT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR, GENER.AL FINAIVCE LTD. ....R,ESPOhIIDENT Through : Mr. O.S. Bajpai, Sr. Advocate withMr. V.N.Jha & Mr. B.K. Si.nghAdvocates. (L0) rrA 23r./2007 COMMISSIONER OF XI\XCOME TAX. ....APPELLANT Through: Ms. Rashmi Chopra, Advocate . VERSUS GENERA'- t'!fill:E^tlt;r o s Bajpai,;;\TJfitStJ;Mr. V.N.Jha & Mr. B.K. SinghAdvocates. .Moro*' { 1L) 33L/2007 coMMnssroNIER u#fr:,[i "" "^fJ Rashmi .".APPELI.ANT COMMISSIONNER TSSIONNER TSSIONNER OF Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINAIVCE [.TD. ."..RESPOINDENT Through : Mr. O.S. Bajpai, Sr. Advocate withMr, V.N.Jha & Mr. B,l<. SinghAdvocates. (9) rrA 209/2007 COMMNSSIONNER, OF IT{COME TAX. ....APPE!.I.ANIT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR, GENER.AL FINAIVCE LTD. ....R,ESPOhIIDENT Through : Mr. O.S. Bajpai, Sr. Advocate withMr. V.N.Jha & Mr. B.K. Si.nghAdvocates. (L0) rrA 23r./2007 COMMISSIONER OF XI\XCOME TAX. ....APPELLANT Through: Ms. Rashmi Chopra, Advocate . VERSUS GENERA'- t'!fill:E^tlt;r o s Bajpai,;;\TJfitStJ;Mr. V.N.Jha & Mr. B.K. SinghAdvocates. .Moro*' { 1L) 33L/2007 coMMnssroNIER u#fr:,[i "" "^fJ Rashmi ....APPE!.LANT Chopra, Advocate VERSUS MOTOR, GENERAI. FNNilANCE !-TD. .... R.E5P@NDE]\IT ITA 458 of 1984 & other connected matters Through : Mr. O.S. Bajpai, [Sr, ][Advocate with]Mr. V.N.Jha & Mr. B,K. [Singh]Advocates, @ . . . APPEI.LANT MOTOR. GENERAL FINIANCE I.TD. Through : Mr. O.S. Bajpai, Sr. [Advocate with]Mr. V.N.Jha, Advocate VERSUS COMMISSIONIER OF INCOME TAX. .".RESPONDENT Through: Ms. Rashmi Chopra, [Advocate] ( ITA r.234l2OO8x3) MOTOR GEI{ERAL FINJAhICE !.TD. !.TD. x3) MOTOR GEI{ERAL FINJAhICE !.TD. !.TD. FINJAhICE !.TD. !.TD. . . ' APPE[-[.ANT'Through : Mr, O.S. Bajpai, Sr. Advocate [with]Mr. V.N.Jha & Mr. B.K. SinghAdvocates. . COMMISSIONIER, OF II{COME TAX. ....R,ESPOIUDENT Through: Ms. Rashmi Chopra, Advocate (14) lrR 2LL/L990 COMMISSIOT\NER OF ITVCOME TAX. ....APPEL[-ANT' Through: Ms. Rashmi Chopra, Advocate VE RSUS MOTOR GEIVER,AL FINAIUCE LTD. ....RESPONIDENT Through : Mr. O,S. Bajpai, Sr. Advocate [with]Mr. V.N.Jha & Mr. B.K. SinghAdvocates. 1 ( ls) lrR, 2481L99 r. COTqNiISSIONER OF INCOME TAX. ...'APPEL[-ANT Through: Ms. Rashmi Chopra, Advocate VERSUS .... RESPONDEN; MOTOR GENXER.AL FINAIUCE [LTD.] ITA 458 of 1984 & other connected matters Page 4 of 24 Through : Mr. O.S. Bajpai, Sr. Advocate with.Mr. V.N.Jha & Mr. B.K. SinghAdvocates. €ORAM :- FtoN'BLE MR. J.USlrlCE A.K. SIKRIhtoht'BI-E MR" Jl,rsT'[cE M.l-. MEFITA 1. Whether Reporters of Local newspapers may be allowedto see the Judgment?3. 2. To be referred Whether the Judgment should be reportedto the Reporter or not?in the Digest? v| A.K. StrKRl, L 1. There is one question which is common in all these appeals.Hovyever, in ITR 4581L984 there are some additional [questions]whigh are referred for opinion. We would like to deal with thesequ.eptions first and then approach the common question of lawcentre to all these cases. This ITR pertains to assessment [year]Ig78-7g wherein the assessee had claimed certain medicalexpenses which were reimbursed to its employees. The Tribunalaccepted the claim of the assessee that such reimbursement couldnot be regarded as perks. Following question has been referred bythe Tribunal for our opinion in this behalf:- "Whether on the facts and in the circumstancesof the case, the Tribunal was right in holding. that reimbursement of medical expenses by the' assessee company to its employees could nothe treated as [perquisites ]within the meaning ofSection 40Cl40A (5) of the lncome-Tax Act,196r?" 2. This question stands answered infavour of the assessee andagaihst.the Revenue in the case ofComrnissioner of fncomeTax Vs. Mafattral GanEabhai and Co,{P) [r-td., ][2L9 ][tTR ][644.] 3. Another questioh which is referred by the Tribunal on theapplication of the assessee relates to assessee's claim that its sur-tax liability of T 42,850/- for this year should be deducted in thecomputation of its total income. The Tribunal did not accept thecontention of the assessee in the impugned order but on theapplication of the assessee, has referred the following question foropinion:- 2. This question stands answered infavour of the assessee andagaihst.the Revenue in the case ofComrnissioner of fncomeTax Vs. Mafattral GanEabhai and Co,{P) [r-td., ][2L9 ][tTR ][644.] 3. Another questioh which is referred by the Tribunal on theapplication of the assessee relates to assessee's claim that its sur-tax liability of T 42,850/- for this year should be deducted in thecomputation of its total income. The Tribunal did not accept thecontention of the assessee in the impugned order but on theapplication of the assessee, has referred the following question foropinion:- "Whether, on the facts and in the circumstancesof the case, the sur-tax liability claim of < 42,850/-was allowable as deduction in computing the totalincome of the assessee company for the assttt.Year L97B-79?" 4. lt is also decided in favour of the assessee in 219 tTR 589.Wethus answer the question in the affirmative i.e.in favour oftheassessee and against the Revenue. 5. Coming to the pivotal issue which is common in all these years,which has arisen for the first time in the assessment year 1997-98and concerns the treatment which is to be given to the surplusamount at the hands of the assessee which the assessee collected i.rror its customers on account, of insurance premium and remained. [unclaimed ][because ][the ][persons ][who had paid ][the ][excess ][amount ][did]not come forward to receive the same. 6. We may record that tle assesiee is a Limited [Company]carrying on business of financing for the [purpose ]of [purchase ][of]commercial vehicles. There is a [prescribed ]agreement undbr whichfinances are provided by the Assessee to the [purchaser ]of a [vehicle.]There are various terms and conditions mehtioned in the agreement.According to clause [(ix) ]the [purchaser ]who is described as hirer [has]to get the vehicle insured for a comprehensive [policy ]with aninsurance company approved by the assessee with an endorsementassigning the policy in favour of the assessee. There is alsotransaction sheet in the name of the hirer indicating description ofthe vehicle purchased, cost of the same, initial [payment ]to be made,hire purchase charges etc. etc. The initial insurance amount is alsopaid by the hirer. Insurance of the second year, third year andfourth year are also mentioned in the transaction sheets. Thoughthe primary responsibility to insure the vehicle lies with the hirer,tlu assessee collects the insurance amount in [round]frequently figures and this is also added to the total amount financed by theassessee for the purchase of the vehicle and the installments [are]also determined accordingly, However, the amounts collected [by] ITA 458 of 1984 & other connected matters PageT of24 ITA 458 of 1984 & other connected matters PageT of24 way of insurance are kept in separate account as [deposits. Out ][of]these deposits, the insurance premium is paid by the assessee onbehalf of the'hirer. Since the amount is collected in round [sum]which may be a little more than what is required to bq [paid ]towardsinsurance premium, there is small balance left in the account of eachof the hirers. The amount so iemaining in each of the hirers towardsthe excess insurance premium is returned to the hirer at the time offinal adjustment of the account. At the same time, it is also [a']matter of record that many such hirers do not come at all to claimthe balance amount. This balance remained with the assessee andover years, such amounts are accumulated. Since the amountremains as unclaimed balance, in the accounts relating to insurancepremium after certain years, the assessee writes off this amount andthe same is credited to the profit and loss account in that year inwhich it is written off. The insurance premium standing in theaccounts was treated as liability in the balance sheets of theassessee company but after it is written off the amount was takento the profit and loss account and it is no longer in the balancesheet. lt is in this backdrop when in the successive assessmentyears a particular amount on account of unclaimed insurancepremium was written off and credited to the profit and loss account,,,the question of treatment which is to be given to this amount cameup before the Assessing Officer. As mentioned above, for the first ITA 458 of 1984 & other connected matters Page 8 of 24 time, this issue arose in the assessment [year ][I99l-98 ][when ][a ][sum ][of]T 47,04611- was written off in that [year. ][The ][Assessing Officer]treated this as assessee's income and the [order ][of the ][Assessing]Officer was confirmed by the CIT [(A) ]in appeal. [However, ][the]Tribunal reversed the orders of these two authorities [beJow ][holding]that it would not be treated aS income of the [assessee ][as ][the]amounts were not the revenue receipts liable to tax. [On ][application]filed by the Revehue, reference was made to [this ][Court which ][was]registered as ITR 396/1983. Thereafter this [issue ][kept ][cropping ][up]in each successive year and went through the [same ][legal ][moral with]the orders of the Tribunal allowing the appeals of [the ][assessee]giving it tax relief on this amount. Interestingly, however, theTribunal in respect of assessment year 1986-87 [tool< somersault]holding that this unclaimed amount taken to [profit ]and [loss amount]would be the income of the assessee exigible to tax. [This ][trend ][in]the approach of the Tribunal continued for [some ][years but ][again the]Tribunal took 'U' turn a'nd started holding in favour [of ][the ][assessee.]It is for this reason that some of these appeals [are ][filed ][by ][the]Revenue and some others are filed by the [assessee.] 7. Thus, even when appeals are [preferred ][by ][the ][Revenue ][or the]aSSeSSee,tth".y unveiled same [question ]of law. [The ][question ][which] ITA 458 of 1984 & other connected matters was referred to by the Tribunal in ITA 458/1984 [can be ][stated ][here]which would give a flavour of the controversy:- ' "Whether on the facts and in the circumstances ofthe'case, the Tribunal was right in holding [that ][the]sum of T I,79',I401- being the balance df [the]amount collected by the assessee from the [hirers]towards insurance premium written book andcredited to the Profit & Loss Account of the [previous']year ended on 30-6-L977 as unclaimed balance,was not a trading receipt of the assessee [and ][hence]it could not be brought to tax for assessment [year]r978-79?" 7. Thus, even when appeals are [preferred ][by ][the ][Revenue ][or the]aSSeSSee,tth".y unveiled same [question ]of law. [The ][question ][which] ITA 458 of 1984 & other connected matters was referred to by the Tribunal in ITA 458/1984 [can be ][stated ][here]which would give a flavour of the controversy:- ' "Whether on the facts and in the circumstances ofthe'case, the Tribunal was right in holding [that ][the]sum of T I,79',I401- being the balance df [the]amount collected by the assessee from the [hirers]towards insurance premium written book andcredited to the Profit & Loss Account of the [previous']year ended on 30-6-L977 as unclaimed balance,was not a trading receipt of the assessee [and ][hence]it could not be brought to tax for assessment [year]r978-79?" B. We would like to point out here that the dispute [which ][arose]for the first in the year 1977-78 has been the subject matter [of ][the]agitation in all successive assessment [years ]till [2003-04 which ][are]before us. However, at the same time, in respect [of ]five [assessment]years, where reference was made by the Tribunal, those referenceswere returned unanswered for non-filing of the [paper ][bool< ][by ][the]Revenue. tly also point out at this stage itself that in out at this stage itself that in at this stage itself that in this stage itself that in stage itself that in that in in [[the]] 9. tly also point out at this stage itself that in out at this stage itself that in at this stage itself that in this stage itself that in stage itself that in that in in [[the]]assessment years 1986-87 when the Tribunal [had ][taken ][the ][contrary]view and against that order of the Tribunal, ITA [15/1999 ][is ][filed, ][one]of the submissions of Mr. Bajpai, learned Sr. Counsel appearing forthe assessee was that it was not [permissible ]for [the ][Tribunal ][to]disregard the decision of the Coordinate Bench on the [same ][issue ][in]respect of the same assessee. He submitted that [even ][if ][the ][Bench] ITA 458 of 1984 & other connected matters Page 10 of 24 which took the contrary view was of the opinion that decision ofearlier Benches were not correct, the only course of action open forthis Bench was to refer the matter to Larger Bench. No doubt, thisgrievance of Mr. Bajpai, learned Sr. Counsel is perfectly [justified.]Ordinarily, Bench of the Tribunal is bound by the orders passed bythe Coordinate Bench and even if it is of the opinion that the view ofthe earlier Bench is not correct, it has no power to disregard that.The only course open in such a situation is to refer the matter to aLarger Bench and it is the prerogative of the Larger Bench to over-rule the [judgment ]of the earlier Bench if it takes contrary view.However, at the same time, it would serve no [purpose ]to set asidethese orders of the Tribunal on this ground and refer the matter backto the Tribunal for constituting Special Bench. Reason.is simple andmore than obvious. The Revenue is before us against the earlierorders of the Coordinate Bench and in those References and appealsfiled by the Reven.ue some question of law has to be necessarilydecided by us. Once we are called upon to answer thereference/question of law and our answer on that issue would bebinding on the Tribunal, the exercise of referring the matter forconstituting Special Bench'would clearly be unnecessary, Persuadedby these considerations, we aie [proceeding ]to decide the [questions]of law. ITA 458 of 1984 & other connected matters ITA 458 of 1984 & other connected matters 10. Facts of the matter have already been taken note [of.]Submission' of Mr. Bajpai, learned Sr. Counsel appearing for"theassessee is that on these facts hardly any [question ]of law arises. [He]emphasized that these facts would clearly demonstrate that theamount collected from the hirer by the assessee represented theof the hirers and it was handed over to the assessee in trustmoney which remained that of the hirers. The assessee was under fiduciaryto refund this amount back as and when any such hirer claimed theunspent amount namely the excess insurance premium. ln fact,positive finding of fact was recorded by the Tribunal that the amountof the hirers towards the excess insurance premium was returned to1them at the time of final adjustment of the accounts. Therefore,argued, the learned Senior Counsel even if certain hires did notclaim the amount, the same remained trust money in the hands ofthe assessee and Was never treated as its income. His argument,premised on the aforesaid facts was that once the money receivedfrom the hirer was treated as trust money and deposited as suchwith the assessee at the initial stage, subsequent events would notchange the original character of this receipt. Further, for this reasoneven if the amount was written off and taken to the [profit ]and lossaccount, in the year (s) in question it could not be treated as incomeof that year. He also relied upon the reasoning of the Tribunalwherein it was held that the insurance amount collected by the ITA 458 of 1984 & other connected matters assessee was not part of the [purchase ][price. ]lt was only on [account]of insurance of vehicle. Though the [primary duty ][to ][get ][the ][vehicle]insured was of the hirer, the assesdee had taken up this [job ]for [the]purpose of safety and security of hirer and to secure its interest [in]case vehicle is damaged or destroyed as the same [was handed ][over]to the hirer on hire purchaSe basis and during the currency of [the]agreement assessee remains the owner of [the ][vehicle. ][Further, ][it]was also an admitted case that assessee was not doing anyinsurance business and collecting of insurance [premium ][was not the]part of the assessee'S business. This amount was in the nature ofdeposit with the assessee which had to O" accounted for by [the]assessee ultimately. lt is for this reason, insurance [amount ][was]taken to separate account from where the amounts were to be [paid]after due dates. lt is for the same reason that the [assessee ][was]under obligation to return the excess amount to the hirer and withthis understanding the amount was deposited by the hirer with theassessee. On these facts, claimed the learned counsel, the [assessee]was in a position of 'Trustee' and could not appropriate the saidamount. He thus argued that this initial character [at ][the ][time ][of]receipt of this amount was the decisive and su.bsequent event couldnot alter the same. To support this submission, aide of [judgment ]ofEnglish Court in Marley [(lnspector ]of taxes) Vs. Tattershaltr[1939] [7 ] [317 ][(CA) ][at ][page ][329:-'] "The learned took a different view, as I haveJudge said; he took the view that the [balances ][when]distributed to the [partners ]were [trading ][receipts.]The distribution to which I imagine [he ][is ][referring ][is]the allocation of sums to the [partner's ][account ][in]the balance shset: but what [was ][distributed ][to ][the]partners was not an asset item, but a liability [item.]As I have pointed out, this liability [was cut ][down ][by]a certain sum. That sum was then used [to ][feed]the partner's account, but it was a liability [not ][an]asset; it is on the left-hand side [of ]the [balance-]sheet, not on the right, and there [was no ][dealing]with any balance in the sense [of an asset ][at ][all' ][lt]seems to me quite impossible, with [the ][greatest]deference to the learned Judge's [view, ][to treat that]accountancy transaction inter [socies, ][by ][which]they effected the rearrangement of the [liabilities]side of their balance-sheet as a distribution [of]trading profits. lt was not."Judge said; he took the view that the [balances ][when]distributed to the [partners ]were [trading ][receipts.]The distribution to which I imagine [he ][is ][referring ][is]the allocation of sums to the [partner's ][account ][in]the balance shset: but what [was ][distributed ][to ][the]partners was not an asset item, but a liability [item.]As I have pointed out, this liability [was cut ][down ][by]a certain sum. That sum was then used [to ][feed]the partner's account, but it was a liability [not ][an]asset; it is on the left-hand side [of ]the [balance-]sheet, not on the right, and there [was no ][dealing]with any balance in the sense [of an asset ][at ][all' ][lt]seems to me quite impossible, with [the ][greatest]deference to the learned Judge's [view, ][to treat that]accountancy transaction inter [socies, ][by ][which]they effected the rearrangement of the [liabilities]side of their balance-sheet as a distribution [of]trading profits. lt was not." 11. On the other hand, aS was expected [and naturally ][so, ][Ms.]Rashmi Chopra, learneid counsel appearing [for ][the ][Revenue sought]to draw great sustenance from the [reasoning ][adopted ][by ][the ] in its order which is the subject matter. of I51L999. [She]emphasized the modus operandi of the [assessee ][in ][dealing ][with]such transactions by arguing that the [insurance ][amount ][payable to]the assessee by the hirer is not a statutory but [a ][contractual]obligation. Surplus insurance claimed by the [assessee ][is ][kept ][in]suspense amount and treated as a liability in the'balance [sheet]which is.written off after the [period ]of 3-5 [years ][and credited ][to ][the]profit and loss account and debiting the insurance [premium]payable account. She, thus, argued that once this amount wasunclaimed and treated as such on the basis [of ][which ][it ][was credited]ITA 458 of 1984 & other connected mattersPage L4 of 24 ,i ,i to the profit and loss account, it had certainly becom" [incorn" ][of]the assessee in that year as the assessee [got ]enriched itself by [this]amount. She also argued that pertinently, it is an admitted [position]as recorded by the ITAT that the assessee has led no evidence [to]show that the assessee has held the said money in trust for [the]hirers. Her further submission waS that even when [insurance]amount at the time of receipt was not on account of tradingactivities but after a lapse of time owing to the transfer to the [profit]and loss account, it became a part of circulating capital of theassessee and thus income taxable. According to her, there was nosuch principle of law laid down by the Courts in lndia that [the]character of initial receipt would remain fixed and would bedeterminative of the issue. On the contrary, Courts in India hadopined that even'if a particular receipt is not income on the datewhen the amount is received by turn and subsequent [years ]it canbecome an income in the hands of the assessee. She relied [upon]the [judgment ]of the Apex Court in the case of CIT Vs. T'V'Sundram nyenEar 6r Sons Ltd.[ [(1996) ]222 ITR 344 ] wherein it has been specifically held:- "Although the amount received originally was notof income nature, the amounts remained with theassesse'e for a long [period ]unclaimed by the tradeparties. By lapSe of time, the claim of the depositbecame time barred and the amount attained atotally different quality. lt became a definite tradesurplus. .,......1n other words, the [principle]appears to be that if an amount is received in ITA 458 of 1984 & other connected matters e course of trading transaction, even though it is nottaxable in the year of receipt as being of revenuecharacter, the amount changes its character whenthe amount becomes the assessee's own moneybecause of limitation or by any other statutory orcontractual right. When such a thing happens,common sense demands that the amount shouldbe treated as income of the assessee." 12. She argued that the amount in question by efflux of timecould become the assessee'S own money and the transfer [is ][not ][an]unilateral entry, as held by the Supreme Court in the case ofIyengar (supra) in the following words:- "The true accountancy view would, I thinl<,demand that these sums should be treated aspaid into a suspense account, and should soappear in the balance sheet. The surpluses shouldnot be brought into the annual trading account asa receipt at the time they are received. Only timewiil show what their ultimate fate and characterwill be. After three years that fate is such, as toone'class of surplus, that in so far as the suspenseaccount has not been reduced by [payments ]toc'lients, that part of it which is remaining becomesby oBeration of law a receipt of the Company, andought to be transferred from the suspenseaccount and appear in the profit and loss accountfor that year as a receipt and profit. That is what itin fatt is. In that year Jays become the richer bythe ainount which automatically becomes theirs,and that asset arises out of an ordinary tradetransaction. lt seems"to me to be the common-sense way of dealing with these matters...." 13. She further submitted that the Apex Court in CtrT Vs. KaranrChand Thapar 1222 ITR II21 has held that the conduct of theassessee to take the.amount as miscellaneous receipt to the [profit]& loss account belies the case of the assessee to hold the money intrust. lt is further submitted that this Court in the case of layEngineering Vs. CIT [2009] 311 ITR 200 [(Delhi)l ]by relying on thedecision of T,V, Sundararn (supra) has held that the amountsreceived during the ordinary trading transaction even though not inthe nature of income would change the character and becomeassessee's income if they remained unclaimed with the assesseefor a longtime and the claim of such money becomes barred bylimitation. The Court has held that the ratio of CIT Vs. KesariaTea Co. Ltd. \QOO2) 254 ITR 434 I and of the decision in Cffl Vs.Sugali Swgar Warks (P) I-td, | 236 ITR 5181 related to statutoryliabilities. Further, in the following cases, the amounts transferred. to the profit and loss account were held to be chargeable receiptsof the assessee from trade:- (a)CIT Vs, AVM , 146 ITR 355. (b)Punjab Steel Scrap Merchants Ass. Vs. ClT, 43 ITR 164.(c)CIT Vs. Batlibol, 149 ITR 664.(c)CIT Vs. Batlibol, 149 ITR 664. (d)Punjab Distilling lndustries Vs. ClT, 35 ITR 519. L4. Ms. Chopra, thus concluded her arguments by submitting thatsince the amount collected by the assessee remained unclaimed,ITA 458 of L9B4 & other connected mattersPage 11 of 24 and was never [given ][back ][to ][any of ][the ][hirer ][after ][its ][transfer to the]profit and loss account, as a [part ][of ]the [circulating capital ][income it]assumed the character [of income chargeable ][to ][tax.] 15. We may first distill the [principle ][of ][law laid ][down ][in ][various]judgments cited by the learned counsel for the [parties. ][We ][may]mention here that in [another ][judgment ][pronounced ][today ][i'e. ] L623:2OLO & ITA 503/2010 [titteo ][l-oEitronics ][Fvt. ][Ltd. ][Vs.]Commissioner.of lt"tco.rne Tax [and Comrrnlssioner ][of, ][Income]Iax Vs. Jwbitrant Securities Pvt, [I-td. ][respectively, ][these ][very]judgments are analysed in detail and, therefore, for [the ][sake ][of]brevity we are not repeating [the ][said ][discussion. ][Suffice ][it ][to]point out that this issue cropped up again [in ][the ][Supreme Court ][in ][the] case of The Trave.ncare Rubher [& ][Tea ][Co. ][Ltd' \t' ][C,l'T',]Trivandrurn L24g ITR L58I. [Analyzing ][these judgments, ][the ][Court]reiterated that in Morley [(swpra), ][it ][had ][been held ][that the ][quality]'and nature of a receipt for income tax purposes were fixed once andfor all when receipt was [received and ][that ][no ][subsequent ][operation]could change the nature [of ][the receipt. ][However, ][in ][CtrT ][Vs" ][Karam]Chand Thapartl996l 222 [ITR^ ][l"Lz,the ][Supreme Court ][held ][that ][the]proposition enunciated in Marley [(swpra) ][was ][not ][absolute ][arid ][that]in given cases, amounts which [were ][not ][received ][initially ][as ][trading]receipts could eventually [be regarded ][as ][business income ][by ][reason ][of]subsequent events. ITA 458 of 1984 & other connected [matters]Page 18 of 24 ,/- | | t)Yl>r I 16. The principal of law which is clearly [discernable and ][is ][distilled]from the aforesaid [judgment ]is that though normally [initial]character of the receipt would [govern ]the treatment [which ][is ][to ][be]meted out to a particular SUm received by the assessee. [lf ][the]amount is received in the course of trade transaction [even ][though ][it]is not taxable in the year of receipt, the amount changes [its]character when it.becomes the aSSeSSee'S own money because [of]limitation or by statutory or contractual right. One [has ]to [adopt]common sense approach in this behalf, as emphasized by [the]Supreme Court in the case of Sundaraln lyenEer [(supra) ][namely]if it becomes the money of the assessee received in the course [of]trade transaction, it would be treated as income of the assessee. I 16. The principal of law which is clearly [discernable and ][is ][distilled]from the aforesaid [judgment ]is that though normally [initial]character of the receipt would [govern ]the treatment [which ][is ][to ][be]meted out to a particular SUm received by the assessee. [lf ][the]amount is received in the course of trade transaction [even ][though ][it]is not taxable in the year of receipt, the amount changes [its]character when it.becomes the aSSeSSee'S own money because [of]limitation or by statutory or contractual right. One [has ]to [adopt]common sense approach in this behalf, as emphasized by [the]Supreme Court in the case of Sundaraln lyenEer [(supra) ][namely]if it becomes the money of the assessee received in the course [of]trade transaction, it would be treated as income of the assessee. 17. Let us apply this principle to the cases at hand. lt is not indispute that the m.oney was initially received by the assessee [from]the hirer as deposit to take care of the insurance [premium ][payable]on the vehicles given to the higher on hire charge basis. Of course,the prime obligation was that the hirer to [get ]the vehicle insured butthe assessee took.up this [job ]upto itself, wherever hirer agreed, tosub-serve its own interest as the assessee wanted the vehicle toremain insured. lt is also correct that the money was received inlump sum in round figure to take care of the entire [period ]during ITA 458 of 1984 & other connected matters ) e' which hire agreement [w"as ]to [operate ][and after ][expending ][the]capital amount balance [was ][to ][be ][refunded ][to the ][hirer. ][lt ][is ][also]true that many such hirers came forward [to ][claim ][this ][refund ][which]was duly handed over by the [assessee ][to those ][persons.] 18. Facts up to this stage [give ]an [indication ][that ][the ][money]collected by the assessee [on account ][of ][insurance ][did ][not ][belong ][to]the assessee. The assessee was incurring [the ][expenditure ][towards]insurance premium on hirers [account ][and was also ][supposed to]refund the balance. The [poser, however, ][is ][as ][to ][whether ][this]amount would be treated as [income ][and converted into ][the ][income]of the assessees. 19. Before answering this [question, ][we ][may ][recapitulate ][that]though the primary responsibility [of in ][securing ][the ][vehicle ][lies with]the higher. lt is the assessee who [frequently ][collected ][insurance]amount in round figures for obtaining [this ][insurance ][on ][the ][vehicles.]The assessee does so for its own benefit [as ][it ][wants ][to ][assure ][that]the vehicle remains insured for [the ][hire ][purchase ][duration ][as the]assessee remains the owner of [the ][vehicle ][in ][question during ][that]period. But the matter does not rest here. What [is ][important ][is ][that]the insurance amount collected by the [assessee ][from ][the ][hirer ][in]round figures is also added to [the ][total ][amount financed ][by ][the] Page20 of24 ITA 458 of 1984 & other connected [matters] 19. Before answering this [question, ][we ][may ][recapitulate ][that]though the primary responsibility [of in ][securing ][the ][vehicle ][lies with]the higher. lt is the assessee who [frequently ][collected ][insurance]amount in round figures for obtaining [this ][insurance ][on ][the ][vehicles.]The assessee does so for its own benefit [as ][it ][wants ][to ][assure ][that]the vehicle remains insured for [the ][hire ][purchase ][duration ][as the]assessee remains the owner of [the ][vehicle ][in ][question during ][that]period. But the matter does not rest here. What [is ][important ][is ][that]the insurance amount collected by the [assessee ][from ][the ][hirer ][in]round figures is also added to [the ][total ][amount financed ][by ][the] Page20 of24 ITA 458 of 1984 & other connected [matters] assessee for the [purchase ]of the vehicle. [Further, ][the ][installments]which are fixed and are to be [paid ][by ][the ][hirer are determined after]inclusion of this amount. This would show that the receipt [of ][the]said amount becomes inseparable [part ][of ][trading activity ][of ][the]assessee as it becomes integral [part ]and [parcel of ][the ][transactions]entered into between the assessee and [the ]hirer. [Again no ][doubt,]at the time of final adjustment of the [account, ][the ][hirer ][is ][entitled ][to]seek refund of the eXCeSS insurance [premium. ]Those hirers [who]come forward and seek the refund [are ][paid. ][We ][are not ][concerned]with that amount refunded by the assessee [to ][those ][hirers. ][Here we]are concerned with the balance amount [which ][remains ][with ][the]assessee and hirers do not come forward [to ][claim ][their ][refunds.]Over the years, this amount [gets ]accumulated. [With ][the ][passage]of time when the amount remains [unclaimed, ][t,he ][assessee]becomes confident that there would not be [any claimant, ][it ][writes]off these amounts from those accounts [in a particular year ][and ][the]same is credited to the [profit ]and [loss ][account ][in ][that ][year. ][lt ][is]here the amount changes its character. Initial [amount ][which ][was]paid by the hirer on account of insura'nce [premium ]and left [over]there from which rem.ained with the assessee [as ][unclaimed]becomes the money of the assessee. ln this [year, ][therefore, ][it]becomes the income of the assessee as the [assessee is ][enriched ][by]this amount and has itself taken the step of crediting [the ][same ][to] the profit and loss account. [The ][facts ][similar ][to ][Swndaram]lyenger [(supra) ]would accrue here also. 20. Even in Karatnchand Thapar, [(supra) ]the Supreme [Court ][had]emphasized that the conduct [of ][the ][assessee ][to ][take ][the ][amount ][as]miscellaneous. receipt to the [profit ]& [loss ][account ][belies ][the ][case of]the assessee to hold the money in trust. [Thus, ][the ][movernent ][it]was taken to the profit and loss account, it [no.longer ][remained]money in trust with the assessee. lt is very significant [that ][the],aSSeSSee [has ][not ][been able ][to ][give ][even ][a ][single ][instance as ][to]whether any hirer came forward to claim the [refund ][after ][it ][was]written off and still it was refunded. lt [would result ][only in ][two]possibilities namely either no person came forward to [claim ][the]amount after such a long delay or even if somebody [wanted ][to]refund, it WaS not given. Furthermore, [another material ][aspect]which [needs ]to [be ][emphasized ][is ][that the ][assessee ][has ][not ][come]forward with any explanation [as ][to ][why surplus money ][was ][taken to]its [profits ][and ][loss ][account even ][if ][it ][was Someone'S ][else ][money. ][In], such circumstances, we are of the view that in the [yeaf ][in ][question]in which the assessee had written the [aforesaid amount ][and].off credited to the profit.and loss account, the character [of ][this ][money]changed and became income of the [assessee ][in ][that ][year. ][For] ITA 458 of 1984 & other connected [matters] ITA 458 of 1984 & other connected [matters] coming to this conclusion, [we are ][supported ][by ][the judgment ][of this]Court in the case of iay EnEineerinE [Warks l-td, ][(supra).] 2I. Mr. Bajpai, learned Senior [Counsel ][for the ][assessee ][had]argued that even if the limitation [had ][expired, ][that ][would ][not]extinguish the liability but [only ][the remedy. ][However, ][what ][is]forgotten in relying this [principle ][is ][that ][as per ][this ][argument ][itself]the remedy of the hirers to [claim. ][the ][unexpired ][insurance amount]has been taken away and the [hirers ][would ][not ][be ][in a ][position ][to]claim the amount from the assessee. lt is [not ][the ][case ][of ][the]assessee that the assessee still [wanted ][to ][give ][the ][refund ][to ][these]hirers suo moto without even [hirers approaching ][the ][assessee. ][lt ][is]stated at the cost of repetition [that the ][assessee ][itself treated ][the]money as unclaimed by writing [off ][the ][said amount ][and ][tal<ing ][it ][to]the profit and loss account. This [action ][of ][the ][assessee ][would]demonstrate that the [assessee ][also.form ][an ][opinion ][that ][these]people would not come forward to claim the amount. [Additionally,]as pointed out above, the assessee [could ][not cite ][even ][a ][single ][case]that any of the hirer comes forward [to ][claim ][the ][unclaimed amount]and the amount was refunded by the [assessee. ][Therefore, ][this]argument would be of [no ][avail to ][the ][assessee.] 22. In view of the aforesaid [analysis, ][we conclude:-] 6' C e (a)Question [of ][law ][framed ][is ][answered ][in ][favour ][of]the Revenue and against [the ][assessee;]the Revenue and against [the ][assessee;] ITR 458/1984 is answered [accordingly;] (b) (c)Appeals filed by the Revenue [are ][allowed;] (d)Appeals fiied by the assessee [are dismissed'] A.K. SIKRI)jUDGE :6^-r-C2'9,,(M.r-. MEFi-il'A)JIJDGE FEBRUARY 3.8, 2OT.N. skb _peu,iu/"h,h,P,,-/(u/l-haevtVtlv/a^/n'l/t.L/8.2.1/, Page24 of 24 ITA 458 of 1984 & other connected [matters]