The Commissioner Of Income Tax, Madurai. … Applicant v. M/S. Sri Murugan Offset Printers, Sivakasi. … Respondent

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated:25.04.2005 Coram: The Honourable Mr.MARKANDEY KATJU, THE CHIEF JUSTICE The Honourable Mr.Justice F.M.IBRAHIM KALIFULLA Tax Case No. 64 of 2002----------- The Commissioner of Income Tax,Madurai.… Applicant vs. M/s. Sri Murugan Offset Printers,Sivakasi.… Respondent Standing Counsel for Income Tax For Respondent … Mr.P.P.S.Janardhana Raja for M/s. Subbaraya Iyer Reference under section 256(1) of the Income-Tax Act, 1961, theRevenue seeks reference of the following questions said to bequestions of law and claimed to have arisen out of the order of theIncome Tax Appellate Tribunal, Madras Bench "B" dt.22.4.1997 in ITANo.1706/Mds/90 (Assessement year 87-88) against the order of theCommissioner of Income Tax (Appeals), Madurai dt. 23.2.1990 in ITANo.471/89-90 against the order dt. 10.3.1989 of the Income TaxOfficer, Ward I(2) in Px-039/87-88/VNR (2) , PA No.47-018-Fx-0389. "1. Whether on the facts and in the circumstances of the case, theAppellate Tribunal erred in law in not holding that the amounts ofsalestax on printing receipts collected by the assessee formed partof the assessee's trading receipts in view of the ratio of theSupreme Court's decisions in the case of chowringhee Sales BureauP.Ltd. (87 ITR 542), Jonnalla Narashimarao and Co. and Others (200ITR 588) and Sinchlair Murray Co.P.Ltd. (97 ITR 615) 2. Whether on the facts and in the circumstances of thecase, the Appellate Tribunal was right in holding that theessentials of the deposits are present in this case,overlooking that the liability of the assessee to returnthe amount to the parties arises only if and when the HighCourt allows the petition filed by the assessee in thisregard ". THE HONOURABLE THE CHIEF JUSTICE This is a reference under Section 256(1) of the IncomeTax Act, 1961 at the instance of the Department in whichthe following question has been referred to us for ouropinion: - “ Whether on the facts and in thecircumstances of the case, theAppellate Tribunal erred in law in notholding that the amounts of sales taxon printing receipts collected by theassessee formed part of the assessee’strading receipts in view of the ratioof the Supreme Court’s decisions in thecase of Chowringhee Sales Bureau P. Ltd(87 ITR 542), Jonnalla Narashimarao andCo. and others (200 ITR 588) andSinchlair Murray Co. P. Ltd (97 ITR615)” 2. Heard the learned counsel for the parties. 3. The assessee is a partnership firm. For theassessment year 1987-88, the Assessing Officer had made anaddition of Rs.1,49,620/- on the ground that the assesseewas found to have collected sales-tax contingency depositof Rs.1,49,620/- which had not been remitted to theGovernment account. The assessee contended that the TamilNadu Government had brought in an amendment to the Sales-Tax Act to the effect that all contract receipts are liablefor levy of sales tax. As the assessee had received chargeson printing and processing on job work basis, the Sales TaxDepartment had interpreted that the receipts are in thenature of contract receipts and proposed to levy sales tax.The assessee had objected to this levy of sales tax in awrit petition filed in this Court and obtained a stay orderwhich was subsequently vacated. It is submitted that thesaid petition is still pending. 4. On appeal by the assessee, the Commissioner ofIncome-Tax (Appeals) by order dated 23.3.1990 decided theissue in favour of the assessee. On further appeal by therevenue, the Appellate Tribunal by order dated 22.4.97following the decisions in the case of M/s.SundaravelIndustries in I.T.A.No.2406/Mds/89 and M/s.Sakthi FinanceLimited in I.T.A.No.3206/Mds/90 held that the receiptshould be treated as a deposit in certain contingencies andsuch receipts could not assume the character of income. TheAppellate Tribunal upheld the order of Commissioner(Appeals). 4. On appeal by the assessee, the Commissioner ofIncome-Tax (Appeals) by order dated 23.3.1990 decided theissue in favour of the assessee. On further appeal by therevenue, the Appellate Tribunal by order dated 22.4.97following the decisions in the case of M/s.SundaravelIndustries in I.T.A.No.2406/Mds/89 and M/s.Sakthi FinanceLimited in I.T.A.No.3206/Mds/90 held that the receiptshould be treated as a deposit in certain contingencies andsuch receipts could not assume the character of income. TheAppellate Tribunal upheld the order of Commissioner(Appeals). 5. The question involved in this case is coveredagainst the assessee in an unreported decision of thisCourt in The Commissioner of Income Tax, Madurai v.M/.s.Sri Murugan Offset Printers, Sivakasi, T.C. (Appeal)No.42 of 2000 dated 24.3.2003, wherein this Court observed:- “ This Court has considered anidentical issue in the case of C.I.T v.Southern Explosives Co. (2000 (Vol.242)I.T.R. 107) and held that the truecharacter of the receipt must be judgedwith reference to the reasons for thecollection and the liability formeeting which the collection was made.When the liability is a statutoryliability, which the assessee wasrequired to meet and for meeting whichit was by the statute or authoritiespermitted to collect the amountrequired from its customers, the truecharacter of the collection is atrading receipt. By calling a portionof the amount as deposit, it cannot besaid that the assessee had constituteditself a trustee and therefore, theamounts received were not required tobe regarded as a part of tradingreceipt. The abovesaid decision of thisCourt will squarely cover the facts ofthe present case. Hence the appeal, atthe instance of the Revenue, has to beallowed. The appeal is allowed, settingaside the order of the Tribunal.” 6. Following the above said decision, and also thedecision of this Court in C.I.T v. Southern Explosives Co.(supra), the question referred to us is answered in theaffirmative i.e., in favour of the department and againstthe assessee. Sd/Asst.Registrar /true copy/ Sub Asst.Registrar pv/Copy to:1.The Assistant RegistrarIncome Tax Appellate Tribunal,Rajaji Bhavan, Besant Nagar,Chennai 90 (5 copies)2.The Secretary,Central Board of Direct Taxes,New Delhi (3 Copies)3.The Commissioner of I.T. Madurai.4.The Commissioner of Income Tax,(Appeals)Madurai.5.The Income Tax Officer, Ward I (2)Virudhunagar.+1cc to Ms.Pushya Sitaraman, Advocate Sr 19760KC (CO)km/2.5. T.C.No.64 of 2002