The Commissioner Of Income Tax Tamil Nadu V, Chennai v. M/S.nazir Basheer & Co., Tanerry, P.b

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.2.2006 THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA The Commissioner of Income TaxTamil Nadu V,Chennai.. AppellantVs. M/s.Nazir Basheer & Co.,Tanerry,P.B.No.17,Ambur-635 802 .. Respondent Appeal under Section 260A of the Income Tax Act, 1961against the common order of the Income Tax Appellate Tribunal,Madras 'C' Bench dated 29.4.1999 in ITA No.2971/Mds/1992 for theassessment years 1989-90 against [the order of thecommissioner of Income Tax (Appeals), Madras-34 dated 7.10.92and made in ITA.No.550/Mds/1991-92] against [the order of theIncome Tax Officer, Ward I (4) Vellore, N.A.A.District dated21.1.1992 made in PAN.47015-Fx 7039/GI.No.3311 N/I(4) VLR forthe Assessment Year 1989-90]. For Appellant:Mrs.Pushya Sitaraman, Senior Standing counsel J U D G M E N T (Delivered by P.D.DINAKARAN,J.) The above tax case appeal is directed against the order ofthe Income-tax Appellate Tribunal dated 29.4.1999 made in ITANo.1 2971/Mds/1992, raising the following substantial questionof law. (a) Whether in the facts and circumstances of thecase, the Appellate Tribunal was right in law indeleting the addition of Rs.1,57,133/- being theamounts collected towards sales tax liability anddescribed as 'contingency deposit' from the businessincome of the assessee?." https://hcservices.ecourts.gov.in/hcservices/ 2.1. The brief facts leading to the filing of the aboveappeal are as under. The assessee is running a tannery and is mainly doing jobwork, like getting raw skins from its customers and processingthem in its tannery on behalf of the customers. During theassessment year, the assessee had collected a sum ofRs.1,57,133/- as contingency deposits from parties towardspossible sales tax liability. The assessing officer added thecontingency deposit collected by treating the same as income andnot allowing as expenses under Section 43B. 2.2. The appellate Commissioner of Income Tax- on appealby the assessee, upheld the order of the assessing officerfollowing the Supreme Court decision in the case of ChoweringheeSales Bureau P.Ltd.(87 ITR 542) on the ground that the assesseecollected sales tax on job work, that it did not keep the moneyas a separate deposit but used it as its own assets for thepurposes of its own business. The crediting of sales taxcollected under a separate head called 'contingency deposit'will not alter the character or nature of collection. 2.3. On further appeal by the assessee, the AppellateTribunal, deleted the additions made in respect of collectionsof contingency deposits and allowed the appeal. Hence, theRevenue preferred the above appeal. 3. Heard the learned Senior Standing counsel appearing forthe appellant, who states that the issue involved in this appealis answered in favour of the Revenue by this Court inCOMMISSIONER OF INCOME TAX vs. SOUTHERN EXPLOSIVES CO., (242 ITR107). 4. It is settled law that if a receipt is a trading receiptthe fact that it is not so shown in the account books of theassessee would not prevent the assessing authority from treatingit as a trading receipt. It is the true nature and quality ofthe receipt and not the head under which it is entered in theaccount books which is decisive. Eventually if the amount socollected is passed on to the State Government or refunded tothe purchasers, the assessee would be entitled to claimdeduction of the sum when so paid or refunded-vide K.C.P.LIMITEDVS. COMMISSIONER OF INCOME TAX (245 ITR 421). 4. It is settled law that if a receipt is a trading receiptthe fact that it is not so shown in the account books of theassessee would not prevent the assessing authority from treatingit as a trading receipt. It is the true nature and quality ofthe receipt and not the head under which it is entered in theaccount books which is decisive. Eventually if the amount socollected is passed on to the State Government or refunded tothe purchasers, the assessee would be entitled to claimdeduction of the sum when so paid or refunded-vide K.C.P.LIMITEDVS. COMMISSIONER OF INCOME TAX (245 ITR 421). 5. In the decision relied on by the learned Senior counsel,viz., COMMISSIONER OF INCOME TAX vs. SOUTHERN EXPLOSIVES CO.,(242 ITR 107), the true character of a receipt was vividlydiscussed, as to when it would amount to trading receipt orotherwise. It was held therein that the true character of areceipt must be judged with reference to the reasons for thecollection, and the liability for meeting which the collectionwas made. When the liability is a statutory one, the true character of the collection was a trading receipt. By callinga portion of the amount deposit, it cannot be said that theassessee had constituted itself as a trustee, and therefore, theamounts received were not required to be regarded as part ofit's trading receipt. 6. In the instant case, the amounts collected by theassessee were amounts which were meant to be utilised by theassessee for meeting its tax liability. Even if the assesseepaid over the entire amount received by it as deposit towardssales tax to the State Government, it would still have been opento the assessee to seek refund if the assessee wished to claimsuch refund on the ground that the tax had been levied at ahigher rate than the rate permissible. The fact that theassessee had chosen to adopt the device of labelling a part ofthe amounts collected towards its sales tax liability as'contingency deposit', could not make a difference. The amountformed part of the assessee's income. 7. In view of the forgoing conclusion, we hold that theTribunal was not justified in deleting the addition made inrespect of collections of contingency deposit. Therefore, theorder of the Tribunal is set aside and the question of law isanswered in favour of the Revenue and the appeal is allowed.mskSd/Asst.Registrar /true copy/Sub Asst.Registrar To 1.The Assistant Registrar, The Income Tax Appellate Tribunal,Madras 'c' Bench, Rajaji Bhavan, Besant Nagar, Chennai. 2.The Commissioner of Income Tax, Tamilnadu V,Chennai. 3.The Commissioner of Income Tax (Appeals), Madras-34. 4.The Income Tax Officer, Ward No.I (4), Vellore, N.A.A.District + one cc to Mr.Pushya Sitaraman, Sr.Standing Counsel Sr.No.8354.VC (CO)RSM/21.3.2006TC.(A).No.243 of 2000.