2002 (12) TMI 45 - HC - Income Tax

The assessee is a registered firm carrying on business as a dealer of Hindustan Motors Limited. - Whether, Tribunal is correct in law in holding that the amount of excise duty collected by the assessee formed part of the excise duty deposit and it cannot be included in the assessee s total income? - Though counsel for the assessee submitted that to insulate against the possible liability, in the event the purchaser of the car had failed to produce the necessary certificate within the prescribed period and also failed to pay the balance amount, the deposit was collected, we are of the view that the amount was collected as part of the sale price of the vehicle. The fact that it was collected at the time of sale with an undertaking to return the amount subject to fulfilment of certain conditions would not change the nature of the receipt. We, therefore, hold that the Tribunal was not correct in holding that the differential excise duty collected by the assessee cannot be included as part of the assessee s income. Accordingly, we answer the question of law referred to us in the negative, against the assessee and in favour of the Revenue.

Issues Involved:
1. Treatment of excise duty deposits collected by the assessee as part of trading receipts or deposits.
2. Whether the amount of excise duty collected by the assessee formed part of the excise duty deposit and could be included in the assessee's total income.

Detailed Analysis:

1. Treatment of Excise Duty Deposits:
The primary issue revolves around whether the excise duty deposits collected by the assessee could be considered as part of its trading receipts or merely as refundable deposits. The Assessing Officer observed that the assessee, a dealer of Hindustan Motors Limited, collected excise duty deposits from buyers but did not record these amounts in the relevant books of account. The total collection amounted to Rs. 12,62,438.08, out of which Rs. 9,83,500 was remitted to Hindustan Motors Limited, and Rs. 2,78,938 was retained by the assessee. The Assessing Officer treated the retained amount as taxable income.

However, the Commissioner of Income-tax (Appeals) took a different stance, holding that the amounts collected were deposits, not income. The Commissioner noted that the assessee provided customer names and reasons for not refunding the amounts, concluding that the retained sums were either refundable to the customer or payable to the manufacturer, thus not forming part of the trading receipts.

The Income-tax Appellate Tribunal upheld this view, referencing its earlier decision for the assessment year 1984-85, and ruled that the differential excise duty deposit did not constitute the assessee's income. The Tribunal's decision was challenged by the Revenue, leading to the referral of the legal question to the High Court.

2. Inclusion of Excise Duty in Total Income:
The High Court examined whether the amount of excise duty collected by the assessee should be included in its total income. The Revenue argued that the collected amount represented excise duty payable by customers and formed part of the trading receipts, citing precedents from CIT v. Southern Explosives Co. and K.C.P. Ltd. v. CIT. The assessee contended that the amounts were deposits with an obligation to refund upon production of necessary evidence, thus not constituting income.

The High Court scrutinized the dealer's agreement and relevant notifications, noting that the assessee collected the excise duty as part of the motor vehicle's price. It was determined that the collected amount was intended to meet the manufacturer's statutory duty liability. Despite the potential refund to customers upon producing necessary certificates, the court found that at the time of collection, the amount was part of the trading receipts.

The court referred to principles from CIT v. Southern Explosives Co., emphasizing that the true character of the receipt must be judged by the reason for collection and the associated liability. The court concluded that the amount collected was a trading receipt, not a deposit, as it was meant to cover the statutory liability of excise duty.

The court distinguished the case from CIT v. Madurai Soft Drinks (P.) Ltd., where the collected amount was a refundable deposit unrelated to the sale consideration. Here, the excise duty was part of the sale price, collected to safeguard against potential liabilities.

Conclusion:
The High Court ruled that the differential excise duty collected by the assessee should be included as part of its income. The court answered the referred question in the negative, against the assessee and in favor of the Revenue, stating that the collected amount was part of the trading receipts. Consequently, the addition made by the Assessing Officer was deemed correct, and the appeal by the Revenue was upheld.

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