2013 (5) TMI 235 - HC - Income Tax

Security for gas cylinders received - whether be treated as trading receipt and assessable as income in the hands of assessee? - Held that - The security deposit did not belong to the assessee, as the money remained as that of consumer and the same was refundable and thus not a trading receipt. The money in such cases was not in the nature of income as such because it had to be returned to the customer from whom it was received on fulfillment of certain conditions on behalf of the customer. Thus the security for gas cylinders received by the assessee could not be treated as trading receipt. See Commissioner of Income Tax Vs. Madurai Soft Drinks (P) Ltd. 1998 (8) TMI 33 - MADRAS High Court , Commissioner of Income Tax Vs. Goyal Gases P. Ltd. (1990 (5) TMI 13 - DELHI High Court), CIT Vs. Doongaji & Co. Distillery (2005 (2) TMI 62 - MADHYA PRADESH High Court) . In favour of assessee.

Summary

Issues:
1. Whether the amount received by the assessee as security for gas cylinders should be treated as trading receipt and assessable as income for the assessment year 1983-84?

Analysis:
The case involved a reference under Section 256(1) of the Income Tax Act, 1961, where the Tribunal referred a substantial question of law to the High Court. The primary issue was whether the amount of Rs.45,950 and Rs.10,000 received by the assessee as security for gas cylinders constituted trading receipts or security deposits for the assessment year 1983-84. The assessee, a gas manufacturer, received security deposits from customers for the supply of cylinders, claiming depreciation on the cylinders. The Assessing Officer considered the amount as part of trading receipts, while the Commissioner of Income Tax (Appeals) held it to be a security deposit since the cylinders remained the property of the assessee.

Further, the Tribunal, in an appeal, determined that the assessee only sold gas and not cylinders, charging a price for gas and treating the security money as refundable to customers. The Tribunal relied on its prior orders for the assessment years 1981-82 and 1982-83. The Revenue argued based on the Supreme Court judgment in CIT Vs. Punjab Distilling Industries Ltd., asserting that similar security amounts were considered trading receipts. However, various High Courts, including Delhi, Madras, Madhya Pradesh, and Karnataka, held that security deposits did not belong to the assessee, remaining refundable to customers and not constituting trading receipts.

The Madras High Court emphasized that the intention behind the deposit was not as consideration for the sale, but as a refundable deposit necessary for the return of bottles. Similarly, the Madhya Pradesh High Court and the later Madras High Court judgment distinguished the Supreme Court decision, emphasizing the refundable nature of such deposits. The High Court concluded that the security for gas cylinders received by the assessee should not be treated as a trading receipt, aligning with previous judgments and ruling the substantial question of law against the Revenue in favor of the assessee.

Therefore, based on the legal analysis and precedents cited, the High Court answered the substantial question of law against the Revenue, affirming that the security for gas cylinders received by the assessee should not be considered a trading receipt for the assessment year 1983-84.