2003 (12) TMI 14 - HC - Income Tax

Addition with respect to optional service charges collected by the assessee - assessee is a private limited company carrying on business in television sets - whether the Appellate Tribunal was right in law in deleting the addition made by the Assessing Officer with respect to optional service charges collected by the assessee covering a period of two years - In the instant case the amount that was received was only as charges for the services to be rendered in future. The services may be rendered or may not be rendered depending upon withdrawal of the money as and when the customer required. So, it is highly uncertain as to whether it would at all remain as income of the assessee. Only when the service is done the assessee has a right over the amount that was deposited. Till then, he has no right over the same. It is in that sense till then, it cannot be considered as an income of the assessee and is not exigible to tax. Therefore the issue is answered in favour of the assessee and against the Revenue.

Summary

Issues:
- Whether the Appellate Tribunal was right in law in deleting the addition made by the Assessing Officer with respect to optional service charges collected by the assessee covering a period of two years.

Analysis:
The judgment delivered by the High Court of Madras pertained to the assessment years 1983-84 and 1988-89, focusing on the taxation of optional service charges collected by a private limited company engaged in the television set business. The Assessing Officer treated the collected service charges as income and subjected them to tax. However, the Tribunal ruled in favor of the assessee, stating that the service charges were not taxable income. The Revenue's counsel cited precedents where amounts received for work executed were considered income and taxed. On the contrary, the assessee's counsel relied on cases emphasizing the true nature of receipts and when they constitute trading receipts. The court highlighted that the true character of a receipt must be assessed based on the reasons for collection and the associated liabilities. It was noted that in this case, the amount received was for services to be provided in the future, making it uncertain whether it would indeed be considered income. The court concluded that until the services were rendered, the assessee did not have a right over the deposited amount, hence it could not be deemed as income and was not taxable. Therefore, the judgment favored the assessee and went against the Revenue's stance.