Madurai v. M/S.madurai Soft Drinks Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06/10/2004 CORAM THE HONOURABLE MR.JUSTICE P.D.DINAKARANAND THE HONOURABLE MR.JUSTICE S.R.SINGHARAVELU T.C.No.841 of 2004 Commissioner of Income Tax .. Appellant Madurai. -Vs- M/s.Madurai Soft Drinks Pvt. Ltd. .. RespondentMadurai. PRAYER: Against the order of the Income Tax Appellate Tribunal Madras'B' Bench, dated 30.1.2003 in I.T.A.No.1432/Mds/97 pertaining to theassessment year 1990-91. !For Appellant : Mr.J.NarayanasamyJunior Standing Counsel for Income Tax Cases ^For Respondents: --- :JUDGMENT (Judgment of this Court was delivered by P.D.DINAKARAN,J.) The appellant is the revenue. This appeal is with reference to theassessment year 1990-91. According to the appellant/revenue, therespondent/assessee filed a return for the assessment year 1990-91 and theassessing officer, by assessment order dated 29.3.1993, disallowed the claimof the respondent/assessee in respect of 100% depreciation on purchase ofbottles and crates; and also taxed the deposits received by therespondent/assessee from the agents and retailers. 2. Aggrieved by the assessment order dated 29.3.1993, the respondent/assessee preferred an appeal before the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax (Appeals), by order dated 25.9.2000, allowed the issue with respect to the deposits received from theagents and retailers, while confirming the assessment order with respect torejection of 100% depreciation on purchase of bottles and crates. 3. On an appeal and counter appeal, by both sides, against the respective aggrieved portion of the order of the Commissioner of Income Tax (Appeals) dated 25.9.2000, the Tribunal, by order dated 30.1.2003 made inI.T.A.No.1432/Mds/97, decided both the issues in favour of the assessee, viz., (i) allowed 100% depreciation on the purchase of bottles and crates; and(ii) held that deposits received by the respondent/assessee from the agentsand retailers are not revenue receipts and are therefore, not taxable.Hence, the above appeals. 4. The appellant/revenue formulated the following substantialquestions of law for our consideration: (i) whether in the facts and circumstances of the case, the Tribunal was rightin holding that crates and bottles are entitled for depreciation at the rateof 100%? (ii) Whether in the facts and circumstances of the case, the Tribunal wasright in holding that the security deposits received from the agents and theretailers are not taxable in the hands of the assessee? 5.1. Question (i) - Whether in the facts and circumstances of the case, the Tribunal was right in holding that crates and bottles are entitledfor depreciation at the rate of 100%? 5.2. Even though the appellant/revenue treated the bottles in question as a whole and considered the same as a unit and calculated the valueabove Rs.5000/- and contended that the respondent/assessee is not entitled for100% depreciation, the law is now well settled as per the decision of thisCourt in FIRST LEASING CO. OF INDIA LTD. v. COMMISSIONER OF INCOME-TAX,[2000] 244 ITR 238. Under similar facts and circumstances of the case, theDivision Bench of this Court, in the FIRST LEASING CO. OF INDIA LTD. v.COMMISSIONER OF INCOME-TAX case, referred supra, held that each bottle was anindependent unit and was not dependent for its user on the availability ofother bottles whether empty or filled. The use of one bottle was notinterconnected with the use of other bottles. Since each bottle was anindividual unit and all bottles together did not constitute a singleintegrated unit depreciation under the proviso to Section 32(1)(ii) of theIncome Tax (for brevity "the Act"), is allowable. 5.2. As per the rules of interpretation, it is not the policy of the 5.2. As per the rules of interpretation, it is not the policy of the law to introduce complexity even when matters can be dealt with in a simpleand straightforward manner by giving full effect to the words used in thestatutory provision, unless there are compelling reasons evident from thecontext in which the provision occurs. Therefore, each of the bottle has tobe considered as an independent unit. 5.3. Similar view is also taken by a Division Bench of the Allahabad High Court in COMMISSIONER OF INCOME TAX v. AQUEOUS VICTUALS P. LTD, [2004]266 ITR 573, where also the bottles and crates used by the soft drink bottlerswere held entitled to depreciation. In the said decision, the Allahabad HighCourt, following a decision of the Andhra Pradesh High Court in COMMISSIONEROF INCOME TAX v. SRI KRISHNA BOTTLERS PVT. LTD., [1989] 175 ITR 154 heldthat bottles were essential tools of the trade. Without the bottles andshells, the soft drink could not be effectively transported. The bottles and their contents were totally interdependent. So were the shells. The bottlesand shells also satisfied the durability test because it was nobody's casethat their life was so transitory or negligible to warrant an inference thatthey had no function to play in the assessee's trade. They were, therefore,"plant" for purposes of the Act and the assessee is entitled to depreciationin respect of them under Section 32(1)(ii) of the Act. 5.4. The said decision of the Andhra Pradesh High Court in COMMISSIONER OF INCOME TAX v. SRI KRISHNA BOTTLERS PVT. LTD., referredsupra, was confirmed by the Apex Court by a decision reported in [1994] 20 9ITR (St.) 85. 5.5. The view taken by the Allahabad High Court in COMMISSIONER OF INCOME TAX v. AQUEOUS VICTUALS P. LTD, referred supra, was also confirmed bythe Apex Court by a decision reported in [2004] 266 ITR (St.) 2. 5.6. Applying the ratio enunciated from the aforesaid decisions to the facts of the case on hand, we are of the considered opinion, that theTribunal was right in holding that crates and bottles are entitled fordepreciation at the rate of 100%. 6.1. Question (ii) - Whether in the facts and circumstances of the case, the Tribunal was right in holding that the security deposits receivedfrom the agents and the retailers are not taxable in the hands of theassessee? 6.2. Concededly, in assessee's own case, viz., C.I.T. v. MADURAI SOFT DRINKS (P) LTD., [2000] 240 ITR 229, the Division Bench of this Courtheld that the deposits received from the agents and retailers for the bottlesused as containers of soft drinks did not constitute income of the assessee. 6.3. A similar view was also taken by the Division Bench of the Delhi High Court in COMMISSIONER OF INCOME TAX v. GOYAL GASES P. LTD., [1 991] 188ITR 216, wherein the assessee carried on the business of filling gas bought byit in cylinders and supplying them to customers. The customers were requiredto furnish security for the cylinders supplied to them. The AppellateTribunal found that depreciation was allowable on the cylinders and that theexpenses incurred by the assessee towards repairs were allowable as revenuededuction. The Tribunal further found that the security deposit did notbelong to the assessee and the money remained as that of the consumers since,on the return of the cylinders, their security deposit was refundable andhence, the security deposit was not a revenue receipt, and the said view ofthe Tribunal was upheld by the Division Bench of the Delhi High Court. 6.4.1. Mr.J.Narayanasamy, learned standing counsel for the 6.4.1. Mr.J.Narayanasamy, learned standing counsel for the appellant/revenue inviting our attention to the decision of the Apex Court inCOMMISSIONER OF INCOME TAX v. PUNJAB DISTILLING INDUSTRIES LTD., [196 4] 53ITR 75 (SC) contends that the amount deposited by the agents and retailers areto be treated as trading receipts constituting income of the assessee, whichis taxable. A deep consideration is, therefore, required to deal as to theapplicability of the ratio laid down by Apex Court in COMMISSIONER OF INCOME TAX v. PUNJAB DISTILLING INDUSTRIES LTD., referred supra, to the facts of theinstant case. 6.4.2. In fact, the ratio laid down in COMMISSIONER OF INCOME TAX v. PUNJAB DISTILLING INDUSTRIES LTD., [1964] 53 ITR 75 is a reiteration of theratio decedendi of the judgment of the Apex Court in an earlier case of thesame assessee before the Apex Court in the year 1959, viz., Punjab DistillingIndustries Ltd. v. Commissioner of Incometax, [1959] 35 I.T.R. 519 (S.C.),and the facts of both the cases are identical. The assessee, viz., PunjabDistilling Industries Ltd., was a distiller of bottled country liquor and wascarrying on the business of selling bottled country liquor to licensedwholesalers. Due to shortage of bottles during war time, a "buy-back scheme"was evolved by the Government, whereunder the distiller company charged thewholesaler a price for the bottle in which liquor was supplied at a rate fixedby the Government, which the company was bound to repay to the wholesaler onhis returning the bottles. In addition to this, the distiller took a furthersum from the wholesaler describing it as " Empty Bottles Return SecurityDeposit". Like the price of the bottles, these monies were also repaid as andwhen bottles were returned. That entire sum was refunded when 90% of thebottles covered by it had been returned, though the remaining 10% of thebottles had not been returned. Thus, the object of demanding and takingadditional sums as security deposits was obviously to provide additionalinducement for the return of the bottles to the distiller so that its trade inselling the produce of its distillery might not be hampered for want ofbottles. It is also interesting to observe that the Government had not fixedany time limit within which the bottles had to be returned in order to entitlethe wholesaler to the refund, nor had a refund ever been refused. The said"buy-back scheme" of the Government to ensure the return of bottles isintended to relieve the scarcity of bottles. 6.4.3. The distiller was assessed to income tax on the balance of amounts, viz., the additional sums left after the refunds were made. Then thequestion arose whether the balance of amounts of these additional sums leftafter the refunds were made is assessable? The Apex Court in PunjabDistilling Industries Ltd. v. Commissioner of Incometax [1959] 35 I.T.R.519 (S.C.), while dealing with assessments for the assessment years 1947-48and 1948-49, held the balance of amounts of additional sums left after therefunds is assessable, because the trade consisted of sale of bottled liquorand the consideration for the sale was constituted by several amountsrespectively, (i) the price of the liquor; (ii) the price of the bottle; and(iii) the security deposit. Unless all these sums were paid, the assesseewould not have sold the liquor. So, the amount which was called the securitydeposit was actually a part of consideration for the sale and therefore, apart of the price of what was sold. 6.4.4. When the question whether the charge viz., "empty bottlesreturn security deposit" is a trading receipt assessable to tax, withreference to the assessment years 1946-47, 1949-50, 1950-51 and 1951-52, camefor the consideration of the Income Tax Officer, the Income Tax Officer taxedthese charges and on appeal , the same was confirmed by the Appellate 6.4.4. When the question whether the charge viz., "empty bottlesreturn security deposit" is a trading receipt assessable to tax, withreference to the assessment years 1946-47, 1949-50, 1950-51 and 1951-52, camefor the consideration of the Income Tax Officer, the Income Tax Officer taxedthese charges and on appeal , the same was confirmed by the Appellate Assistant Commissioner. On further appeal, the Tribunal reversed thedecisions of the authorities below and held that these charges were loans andnot trading receipts, and the same happened even before rendering the decisionreported in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax[1959] 35 I.T.R. 519 (S.C.), with respect of the assessment years 1947-48 and1948-49. 6.4.5. Under such circumstances, the Commissioner of Income-Tax obtained a reference of the following question to the Punjab High Court, viz.,whether the collections by the assessee company described in its accounts are'empty bottles return security deposits' were income assessable under Section10 of the Income Tax Act. The Punjab High Court took the view that as aresult of the amendment to the Punjab Excise Rules made under the PunjabExcise Act, which came into effect from 1.4.1948, the charges collected afterthat date were not covered by that judgment, and held that the amended rulemade the ratio decidendi of the earlier judgment in the same assessee casereported in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax[1959] 3 5 I.T.R. 519 (S.C.), inapplicable to the charges collected afterthat date. 6.4.6. The Apex Court, on appeal preferred by the revenue, in COMMISSIONER OF INCOME TAX v. PUNJAB DISTILLING INDUSTRIES LTD., [1964] 53ITR 75 (SC), held that it has never been in dispute, either before theamendment or later, that the charge under the "buy-back scheme" which wascollected under the Government's sanction constituted a taxable income. Themere fact that the charges were collected as security deposit for the purposeof showing that they were not a part of trading transaction would not, byitself, render the said charges as security deposit as the same is a part oftrading transaction and the return of bottles was necessary to enable theassessee to carry on its trade to sell liquor in them. 6.4.7. In the instant case, as in the case of COMMISSIONER OF INCOME TAX v. GOYAL GASES P. LTD., referred supra, the security deposit collectedby the assessee from the agents and retailers did not form part of the saletransaction, unlike in the case of COMMISSIONER OF INCOME TAX v. PUNJABDISTILLING INDUSTRIES LTD., [1964] 53 ITR 75 (SC), where "empty bottles returnsecurity deposit" forms a part of the sale transaction, as per the "buy-backscheme" formulated by the Government under the Punjab Excise Rules. 6.5. For the aforesaid reasons, we are of the firm opinion that the contention made on behalf of the appellant/revenue that the "empty bottlesreturn security deposits" received from the agents and retailers are tradereceipts, is liable to be rejected and the said amount is not taxable in thehands of the assessee. The Tribunal was, therefore, right in holding that thesecurity deposits received from the agents and the retailers are not taxablein the hands of the assessee. Finding, therefore, no substantial question of law for ourconsideration, this appeal is dismissed. sasi To: 1. The Income Tax Appellate Tribunal Chennai 'B' Bench,Chennai. 2. The Commissioner of Income Tax (Appeals-IX) Chennai. 3. The Deputy Commissioner of Income Tax, Special Range-I,Madurai-I. 4. The Commissioner of Income Tax, Madurai.