Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S Rajasthan Co-Operative Dairy Federation Ltd., Saras Sankul,J.l.n. Marg, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 357/2018 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/s Rajasthan Co-Operative Dairy Federation Ltd., Saras Sankul,J.L.N. Marg, Jaipur ----Respondent For Appellant(s) : Mr. R.B.Mathur, Adv. with Mr. Prateek Kasliwal, Adv. &Mr. Ankit Popli, Adv. HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA 23/07/2019 Judgment 1. The Revenue is aggrieved by an order of the Income TaxAppellate Tribunal (ITAT) and urges that the impugned order, tothe extent it holds that the amount of Rs.4,74,77,000/- could nothave been brought to tax as revenue income, is erroneous. 2.The Assessing Officer (AO) had, for the relevant Assessment Year (AY 2004-05) brought to tax ₹4,74,77,000/- treating it asincome under Section 41(1)(a) of the Income Tax Act. Theassessee, a Cooperative Society (involved in milk and milk productprocessing) had secured a loan from the National DairyDevelopment Board (NDDB) for which the Government ofRajasthan stood guarantor subject to payment of commission of₹25 Lacs per annum. This was claimed as an expenditure forseveral years upto the assessment year in question. The amountremained outstanding and was shown as payable to theGovernment of Rajasthan. The State of Rajasthan wrote off thatliability of ₹4,74,77,000/- allowing it to be treated as a capital grant to be used only for capital and rehabilitation purposes. TheAO felt that the transaction i.e. cessation of liability, involved theutilization of receipts which had been treated as revenue all alongand therefore, needed to be treated as income for the concernedyear (AY 2004-05). He thus disallowed it. 3.The CIT(A) in First Appeal held as follows:- “I have considered the facts of the case and thesubmission made. I find that the Dy. Secretary to theGovernment vide its letter dated 26-4-2004 as reproducedat page 8 of the assessment order has communicated tothe assessee that the Guarantee commission ofRs.4,74,77,000/- payable to the Government be treated ascapital grant to be used for rehabilitation/capitalrequirement of the assessee and can’t used for any furtherdistribution of dividend or revenue expenditure. From thisletter it is evident that Government has not waived theamount of commission payable to it by the assessee buthas permitted the assessee that the same amount be usedby it for its capital requirement. Thus, it is not a case ofremission/cessation of the liability as envisaged u/s 41(1)of the Act. In fact these are two transaction. One isdischarge of the liability of the payment of commission bythe assessee to the Government and second is the receiptof capital grant by the assessee from the Government.Therefore, the AO was not correct in holding that there is aremission/cessation of the payment of guaranteecommission to the Government. Hence the addition madeby the AO is deleted. The appellant succeeds on thisground.” 4.The Revenue’s appeal was rejected by the ITAT, whichendorsed a view of the CIT(A). 5.Arguing on behalf of the Revenue, Mr. Mathur relied upon ajudgment of the Supreme Court in Commissioner of Income Tax,Madurai Vs. T.V. Sundaram Iyengar & Sons Ltd.: (1996)222 ITR344(SC) and submitted that once amounts are treated as revenueor capital and later the assessee alleges or prefers to treat suchsum as its money, it has to be treated as its income. The relevantpart of the discussion in Commissioner of Income Tax, MaduraiVs. T.V. Sundaram Iyengar & Sons Ltd.(supra) reads as under:- “22.The principle laid down by Atkinson, J. applies infull force to the facts of this case. If a common senseview of the matter is taken, the assessee, because ofthe trading operation, had become richer by theamount which it transferred to its profit and loss 5.Arguing on behalf of the Revenue, Mr. Mathur relied upon ajudgment of the Supreme Court in Commissioner of Income Tax,Madurai Vs. T.V. Sundaram Iyengar & Sons Ltd.: (1996)222 ITR344(SC) and submitted that once amounts are treated as revenueor capital and later the assessee alleges or prefers to treat suchsum as its money, it has to be treated as its income. The relevantpart of the discussion in Commissioner of Income Tax, MaduraiVs. T.V. Sundaram Iyengar & Sons Ltd.(supra) reads as under:- “22.The principle laid down by Atkinson, J. applies infull force to the facts of this case. If a common senseview of the matter is taken, the assessee, because ofthe trading operation, had become richer by theamount which it transferred to its profit and loss account. The moneys had arisen out of ordinarytrading transactions. Although the amounts receivedoriginally was not of income nature, the amountsremained with the assessee for a long periodunclaimed by the trade parties. By lapse of time, theclaim of the deposit became time barred and theamount attained a totally different quality. It becamea definite trade surplus. Atkinson, J. pointed out thatin Tattersall's case no trading asset was created. Merechange of method of book-keeping had taken place.But, where a new asset came into bring automaticallyby operation of law, common sense demanded thatthe amount should be entered in the profit and lossaccount for the year and be treated as taxable income.In other words, the principle appears to be that if anamount is received in course of trading transaction,even though it is not taxable in the year of receipt asbeing of revenue character, the amount changes itscharacter when the amount becomes the assessee'sown money because of limitation or by any otherstatutory or contractual right. When such a thinghappens, common sense demands that the amountshould be treated as income of the assessee. 23. In the present case, the money was received bythe assessee in course of carrying on his business.Although it was treated as deposit and was of capitalnature at the point of time it was received, by efflux oftime the money has become the assessee's ownmoney. What remains after adjustment of the depositshas not been claimed by the customers. The claims ofthe customers have become barred by limitation. Theassessee itself has treated the money as its ownmoney and taken the amount to its profit and lossaccount. There is no explanation from the assesseewhy the surplus money was taken to its profit and lossaccount even if it was somebody else's money. In fact,as Atkinson, J. pointed out that what the assessee didwas the common-sense way of dealing with theamounts.” 6.At the outset, this Court notices that both CIT (A) and ITATrendered concurrent findings on the fact. The only substantialquestion is whether the treatment given to the amounts i.e. thepayments payable to the State for standing guarantee and shownas fee, were revenue receipts. Undoubtedly, the assessee claimedthem to be revenue receipts. At the same time, the record alsosupports the findings of the CIT(A) and ITAT, in that the loanutilized by the assessee was for the capital purposes; the loan wasin-fact given by the NDDB. The assessee continues to remain liable to repay those amounts. In these circumstances, the Stateinstead of fully writing off the amounts, (repayable by theassessee) imposed an important condition that they would beutilized only for capital/rehabilitation purposes. This was thereforea significant factor i.e. the writing off was conditional upon use ofthe amount in the hands of the assessee which was for thepurpose of capital. 7.In these circumstances, the ruling of T.V. Sundaram Iyengar& Sons Ltd. (supra), in the opinion of this Court, would not apply.8.For the above reasons, no question of law arises. The appealis dismissed. All pending applications are disposed of. (SANJEEV PRAKASH SHARMA),J (S. RAVINDRA BHAT),CJ Raghu/Anu/22