TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Income Tax Income Tax + SC Income Tax - 1996 (9) TMI SC This

  • Login
  • Cases Cited
  • Referred In
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

1996 (9) TMI 1 - SC - Income Tax


  1. 2002 (3) TMI 1 - SC
  2. 1997 (3) TMI 601 - SC
  3. 2024 (2) TMI 891 - HC
  4. 2024 (2) TMI 1114 - HC
  5. 2023 (9) TMI 1322 - HC
  6. 2022 (11) TMI 1215 - HC
  7. 2022 (1) TMI 899 - HC
  8. 2021 (8) TMI 824 - HC
  9. 2021 (4) TMI 1214 - HC
  10. 2021 (4) TMI 32 - HC
  11. 2020 (12) TMI 568 - HC
  12. 2020 (10) TMI 1391 - HC
  13. 2020 (9) TMI 204 - HC
  14. 2020 (6) TMI 587 - HC
  15. 2020 (3) TMI 475 - HC
  16. 2020 (2) TMI 162 - HC
  17. 2020 (4) TMI 32 - HC
  18. 2019 (12) TMI 377 - HC
  19. 2019 (9) TMI 1149 - HC
  20. 2019 (7) TMI 1649 - HC
  21. 2019 (4) TMI 372 - HC
  22. 2019 (3) TMI 901 - HC
  23. 2019 (3) TMI 914 - HC
  24. 2019 (3) TMI 226 - HC
  25. 2019 (1) TMI 1345 - HC
  26. 2019 (1) TMI 887 - HC
  27. 2018 (9) TMI 1250 - HC
  28. 2018 (5) TMI 1909 - HC
  29. 2018 (3) TMI 1626 - HC
  30. 2018 (2) TMI 55 - HC
  31. 2017 (8) TMI 1442 - HC
  32. 2017 (8) TMI 620 - HC
  33. 2018 (1) TMI 1298 - HC
  34. 2017 (8) TMI 618 - HC
  35. 2017 (7) TMI 574 - HC
  36. 2017 (6) TMI 1236 - HC
  37. 2017 (4) TMI 1287 - HC
  38. 2017 (4) TMI 1107 - HC
  39. 2017 (2) TMI 734 - HC
  40. 2016 (4) TMI 954 - HC
  41. 2016 (4) TMI 131 - HC
  42. 2015 (12) TMI 1420 - HC
  43. 2015 (8) TMI 850 - HC
  44. 2015 (5) TMI 552 - HC
  45. 2015 (1) TMI 390 - HC
  46. 2014 (12) TMI 267 - HC
  47. 2014 (11) TMI 693 - HC
  48. 2014 (10) TMI 706 - HC
  49. 2014 (7) TMI 46 - HC
  50. 2014 (2) TMI 1080 - HC
  51. 2013 (11) TMI 1707 - HC
  52. 2013 (7) TMI 701 - HC
  53. 2013 (6) TMI 776 - HC
  54. 2013 (6) TMI 130 - HC
  55. 2012 (12) TMI 133 - HC
  56. 2012 (9) TMI 449 - HC
  57. 2012 (7) TMI 696 - HC
  58. 2012 (2) TMI 81 - HC
  59. 2013 (2) TMI 426 - HC
  60. 2012 (12) TMI 57 - HC
  61. 2011 (12) TMI 77 - HC
  62. 2011 (10) TMI 269 - HC
  63. 2011 (8) TMI 447 - HC
  64. 2011 (8) TMI 21 - HC
  65. 2011 (5) TMI 127 - HC
  66. 2011 (2) TMI 210 - HC
  67. 2011 (2) TMI 12 - HC
  68. 2010 (11) TMI 43 - HC
  69. 2010 (3) TMI 299 - HC
  70. 2010 (1) TMI 8 - HC
  71. 2009 (12) TMI 649 - HC
  72. 2009 (2) TMI 483 - HC
  73. 2009 (2) TMI 37 - HC
  74. 2008 (8) TMI 156 - HC
  75. 2007 (9) TMI 263 - HC
  76. 2006 (12) TMI 114 - HC
  77. 2006 (10) TMI 142 - HC
  78. 2006 (10) TMI 143 - HC
  79. 2006 (5) TMI 455 - HC
  80. 2006 (4) TMI 70 - HC
  81. 2006 (3) TMI 90 - HC
  82. 2002 (2) TMI 84 - HC
  83. 2001 (4) TMI 29 - HC
  84. 2001 (2) TMI 124 - HC
  85. 2000 (10) TMI 47 - HC
  86. 2025 (6) TMI 1198 - AT
  87. 2025 (2) TMI 572 - AT
  88. 2024 (11) TMI 229 - AT
  89. 2024 (10) TMI 423 - AT
  90. 2024 (9) TMI 862 - AT
  91. 2024 (7) TMI 902 - AT
  92. 2024 (3) TMI 1203 - AT
  93. 2024 (3) TMI 613 - AT
  94. 2024 (6) TMI 64 - AT
  95. 2024 (1) TMI 495 - AT
  96. 2024 (7) TMI 829 - AT
  97. 2023 (12) TMI 1225 - AT
  98. 2023 (12) TMI 458 - AT
  99. 2023 (11) TMI 991 - AT
  100. 2023 (12) TMI 862 - AT
  101. 2023 (12) TMI 135 - AT
  102. 2023 (8) TMI 1067 - AT
  103. 2023 (10) TMI 254 - AT
  104. 2023 (7) TMI 130 - AT
  105. 2023 (6) TMI 1209 - AT
  106. 2023 (5) TMI 1366 - AT
  107. 2023 (5) TMI 703 - AT
  108. 2023 (9) TMI 1016 - AT
  109. 2023 (1) TMI 525 - AT
  110. 2022 (10) TMI 1225 - AT
  111. 2022 (11) TMI 963 - AT
  112. 2022 (9) TMI 1514 - AT
  113. 2022 (12) TMI 204 - AT
  114. 2022 (8) TMI 1471 - AT
  115. 2022 (7) TMI 999 - AT
  116. 2022 (7) TMI 890 - AT
  117. 2022 (6) TMI 945 - AT
  118. 2022 (6) TMI 1028 - AT
  119. 2022 (5) TMI 104 - AT
  120. 2022 (4) TMI 583 - AT
  121. 2022 (1) TMI 1399 - AT
  122. 2021 (12) TMI 648 - AT
  123. 2022 (1) TMI 920 - AT
  124. 2022 (6) TMI 1266 - AT
  125. 2021 (11) TMI 317 - AT
  126. 2021 (11) TMI 143 - AT
  127. 2021 (10) TMI 736 - AT
  128. 2021 (10) TMI 453 - AT
  129. 2021 (9) TMI 887 - AT
  130. 2021 (9) TMI 1400 - AT
  131. 2021 (8) TMI 35 - AT
  132. 2021 (6) TMI 609 - AT
  133. 2021 (5) TMI 629 - AT
  134. 2021 (4) TMI 461 - AT
  135. 2021 (3) TMI 1067 - AT
  136. 2021 (3) TMI 590 - AT
  137. 2020 (12) TMI 598 - AT
  138. 2020 (12) TMI 1190 - AT
  139. 2020 (10) TMI 1324 - AT
  140. 2020 (10) TMI 135 - AT
  141. 2020 (10) TMI 601 - AT
  142. 2020 (6) TMI 401 - AT
  143. 2020 (6) TMI 366 - AT
  144. 2020 (2) TMI 1045 - AT
  145. 2020 (3) TMI 213 - AT
  146. 2020 (2) TMI 416 - AT
  147. 2020 (3) TMI 713 - AT
  148. 2020 (1) TMI 217 - AT
  149. 2019 (11) TMI 866 - AT
  150. 2019 (12) TMI 1179 - AT
  151. 2019 (11) TMI 331 - AT
  152. 2019 (9) TMI 1637 - AT
  153. 2019 (10) TMI 981 - AT
  154. 2019 (8) TMI 297 - AT
  155. 2019 (9) TMI 1225 - AT
  156. 2019 (9) TMI 400 - AT
  157. 2019 (6) TMI 915 - AT
  158. 2019 (7) TMI 167 - AT
  159. 2019 (4) TMI 1848 - AT
  160. 2019 (7) TMI 788 - AT
  161. 2019 (8) TMI 287 - AT
  162. 2019 (3) TMI 1002 - AT
  163. 2019 (3) TMI 270 - AT
  164. 2019 (1) TMI 689 - AT
  165. 2018 (12) TMI 1592 - AT
  166. 2019 (2) TMI 1461 - AT
  167. 2018 (12) TMI 570 - AT
  168. 2018 (11) TMI 544 - AT
  169. 2018 (8) TMI 124 - AT
  170. 2018 (7) TMI 1610 - AT
  171. 2018 (6) TMI 897 - AT
  172. 2018 (5) TMI 1590 - AT
  173. 2018 (5) TMI 627 - AT
  174. 2018 (5) TMI 1627 - AT
  175. 2018 (3) TMI 1895 - AT
  176. 2017 (11) TMI 1826 - AT
  177. 2017 (11) TMI 1068 - AT
  178. 2017 (11) TMI 796 - AT
  179. 2017 (11) TMI 368 - AT
  180. 2017 (5) TMI 726 - AT
  181. 2017 (5) TMI 902 - AT
  182. 2017 (4) TMI 566 - AT
  183. 2017 (3) TMI 1382 - AT
  184. 2017 (3) TMI 820 - AT
  185. 2017 (3) TMI 385 - AT
  186. 2017 (3) TMI 1046 - AT
  187. 2017 (2) TMI 1440 - AT
  188. 2017 (1) TMI 1096 - AT
  189. 2017 (4) TMI 47 - AT
  190. 2017 (4) TMI 169 - AT
  191. 2016 (12) TMI 1789 - AT
  192. 2016 (12) TMI 1812 - AT
  193. 2016 (11) TMI 1389 - AT
  194. 2016 (11) TMI 1584 - AT
  195. 2016 (9) TMI 1437 - AT
  196. 2016 (10) TMI 530 - AT
  197. 2016 (9) TMI 946 - AT
  198. 2016 (9) TMI 848 - AT
  199. 2016 (9) TMI 653 - AT
  200. 2016 (6) TMI 1161 - AT
  201. 2016 (6) TMI 1438 - AT
  202. 2016 (7) TMI 252 - AT
  203. 2016 (6) TMI 170 - AT
  204. 2016 (5) TMI 265 - AT
  205. 2016 (3) TMI 679 - AT
  206. 2016 (2) TMI 1269 - AT
  207. 2016 (3) TMI 582 - AT
  208. 2016 (4) TMI 572 - AT
  209. 2016 (2) TMI 750 - AT
  210. 2016 (4) TMI 1100 - AT
  211. 2016 (1) TMI 1266 - AT
  212. 2015 (12) TMI 1517 - AT
  213. 2015 (11) TMI 998 - AT
  214. 2015 (12) TMI 765 - AT
  215. 2015 (10) TMI 2468 - AT
  216. 2015 (10) TMI 2052 - AT
  217. 2015 (10) TMI 2418 - AT
  218. 2015 (9) TMI 70 - AT
  219. 2015 (7) TMI 517 - AT
  220. 2015 (5) TMI 1056 - AT
  221. 2015 (5) TMI 1029 - AT
  222. 2015 (5) TMI 865 - AT
  223. 2015 (4) TMI 1088 - AT
  224. 2015 (6) TMI 312 - AT
  225. 2015 (9) TMI 486 - AT
  226. 2015 (4) TMI 786 - AT
  227. 2015 (8) TMI 924 - AT
  228. 2015 (1) TMI 609 - AT
  229. 2014 (12) TMI 470 - AT
  230. 2014 (12) TMI 100 - AT
  231. 2015 (2) TMI 169 - AT
  232. 2014 (12) TMI 139 - AT
  233. 2014 (9) TMI 1179 - AT
  234. 2014 (11) TMI 715 - AT
  235. 2014 (9) TMI 622 - AT
  236. 2014 (6) TMI 1052 - AT
  237. 2014 (5) TMI 1168 - AT
  238. 2014 (6) TMI 139 - AT
  239. 2014 (4) TMI 1227 - AT
  240. 2014 (9) TMI 350 - AT
  241. 2014 (4) TMI 286 - AT
  242. 2014 (3) TMI 1101 - AT
  243. 2014 (1) TMI 1939 - AT
  244. 2014 (1) TMI 1840 - AT
  245. 2013 (12) TMI 1609 - AT
  246. 2013 (11) TMI 727 - AT
  247. 2013 (11) TMI 834 - AT
  248. 2013 (9) TMI 1083 - AT
  249. 2013 (9) TMI 1302 - AT
  250. 2013 (7) TMI 987 - AT
  251. 2013 (7) TMI 934 - AT
  252. 2013 (7) TMI 613 - AT
  253. 2013 (7) TMI 612 - AT
  254. 2013 (9) TMI 445 - AT
  255. 2013 (6) TMI 427 - AT
  256. 2013 (4) TMI 578 - AT
  257. 2013 (5) TMI 14 - AT
  258. 2013 (11) TMI 906 - AT
  259. 2013 (3) TMI 674 - AT
  260. 2013 (2) TMI 723 - AT
  261. 2013 (4) TMI 313 - AT
  262. 2013 (9) TMI 403 - AT
  263. 2013 (10) TMI 762 - AT
  264. 2013 (11) TMI 923 - AT
  265. 2013 (1) TMI 1001 - AT
  266. 2015 (5) TMI 72 - AT
  267. 2012 (12) TMI 733 - AT
  268. 2013 (1) TMI 289 - AT
  269. 2012 (10) TMI 1132 - AT
  270. 2012 (8) TMI 1138 - AT
  271. 2012 (11) TMI 906 - AT
  272. 2012 (11) TMI 281 - AT
  273. 2012 (9) TMI 228 - AT
  274. 2013 (1) TMI 135 - AT
  275. 2012 (10) TMI 46 - AT
  276. 2012 (9) TMI 545 - AT
  277. 2013 (1) TMI 129 - AT
  278. 2012 (9) TMI 509 - AT
  279. 2012 (6) TMI 772 - AT
  280. 2012 (8) TMI 150 - AT
  281. 2012 (8) TMI 59 - AT
  282. 2012 (5) TMI 798 - AT
  283. 2012 (5) TMI 853 - AT
  284. 2012 (4) TMI 626 - AT
  285. 2012 (5) TMI 54 - AT
  286. 2012 (6) TMI 384 - AT
  287. 2012 (3) TMI 515 - AT
  288. 2012 (3) TMI 540 - AT
  289. 2013 (3) TMI 119 - AT
  290. 2011 (12) TMI 553 - AT
  291. 2012 (5) TMI 437 - AT
  292. 2011 (10) TMI 642 - AT
  293. 2011 (9) TMI 635 - AT
  294. 2011 (7) TMI 1211 - AT
  295. 2011 (6) TMI 791 - AT
  296. 2011 (5) TMI 988 - AT
  297. 2011 (3) TMI 1646 - AT
  298. 2011 (2) TMI 697 - AT
  299. 2011 (2) TMI 1117 - AT
  300. 2011 (2) TMI 1303 - AT
  301. 2011 (2) TMI 1460 - AT
  302. 2011 (1) TMI 14 - AT
  303. 2010 (12) TMI 872 - AT
  304. 2010 (12) TMI 876 - AT
  305. 2010 (12) TMI 1249 - AT
  306. 2010 (11) TMI 728 - AT
  307. 2010 (10) TMI 695 - AT
  308. 2010 (9) TMI 1202 - AT
  309. 2010 (8) TMI 992 - AT
  310. 2010 (8) TMI 979 - AT
  311. 2010 (7) TMI 1048 - AT
  312. 2010 (7) TMI 1056 - AT
  313. 2010 (6) TMI 592 - AT
  314. 2010 (6) TMI 784 - AT
  315. 2010 (6) TMI 762 - AT
  316. 2010 (4) TMI 1125 - AT
  317. 2010 (1) TMI 652 - AT
  318. 2009 (11) TMI 619 - AT
  319. 2009 (8) TMI 1166 - AT
  320. 2009 (7) TMI 876 - AT
  321. 2009 (5) TMI 622 - AT
  322. 2009 (3) TMI 646 - AT
  323. 2008 (12) TMI 307 - AT
  324. 2008 (8) TMI 402 - AT
  325. 2008 (7) TMI 606 - AT
  326. 2008 (7) TMI 1025 - AT
  327. 2008 (7) TMI 617 - AT
  328. 2008 (3) TMI 620 - AT
  329. 2008 (2) TMI 516 - AT
  330. 2008 (2) TMI 451 - AT
  331. 2008 (1) TMI 889 - AT
  332. 2007 (9) TMI 290 - AT
  333. 2007 (5) TMI 257 - AT
  334. 2007 (5) TMI 359 - AT
  335. 2007 (2) TMI 348 - AT
  336. 2007 (2) TMI 579 - AT
  337. 2006 (9) TMI 455 - AT
  338. 2006 (3) TMI 204 - AT
  339. 2006 (2) TMI 205 - AT
  340. 2006 (1) TMI 176 - AT
  341. 2005 (7) TMI 308 - AT
  342. 2005 (2) TMI 448 - AT
  343. 2004 (10) TMI 261 - AT
  344. 2003 (12) TMI 265 - AT
  345. 2003 (6) TMI 195 - AT
  346. 2003 (2) TMI 511 - AT
  347. 2002 (12) TMI 644 - AT
  348. 2002 (5) TMI 221 - AT
  349. 2002 (2) TMI 1313 - AT
  350. 2001 (1) TMI 246 - AT
  351. 1998 (3) TMI 173 - AT
  352. 1998 (3) TMI 162 - AT
  353. 1998 (1) TMI 514 - AT
1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

  • Whether unclaimed sundry credit balances arising from trade transactions, which were originally treated as capital receipts (deposits) by the assessee but subsequently written back to the profit and loss account, constitute taxable income under the Income-tax Act.
  • Whether the character of such deposits received in the course of business can change from capital to revenue by efflux of time, especially when the claims of the depositors become time-barred or unclaimed.
  • Whether the principle laid down in Morley v. Tattersall-that the taxability of a receipt is fixed at the time of receipt and does not change by subsequent accounting treatment-applies to such deposits.
  • Whether the Tribunal was correct in deleting the additions made by the Income-tax Officer on the basis that the amounts were capital receipts and not income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Characterization of unclaimed deposits as income or capital receipts

Relevant legal framework and precedents: The Income-tax Act provisions relevant to income characterization and sections 28 and 41(1) were considered. The principle from Morley v. Tattersall [1939] 7 ITR 316 (CA) was central, which held that the character of a receipt is fixed at the time it is received and does not change by subsequent accounting entries.

Several High Court decisions were examined, including:

  • Punjab Steel Scrap Merchants' Association Ltd. v. CIT: Held that unclaimed deposits from trade transactions, when transferred to profit and loss account, are trading receipts and taxable income.
  • Punjab Distilling Industries Ltd. v. CIT: Held that security deposits taken as part of trade transactions, when retained after refunds, constitute trading receipts and are taxable.
  • CIT v. A. V. M. Ltd.: The Madras High Court held that unclaimed security deposits retained and appropriated by the assessee after a lapse of time are chargeable receipts from trade.
  • CIT v. Batliboi and Co. Pvt. Ltd.: Bombay High Court held that deposits taken in course of sale transactions, when written off to profit and loss account, are taxable as trade receipts.
  • Jay's-The Jewellers Ltd. v. IRC: Distinguished Morley v. Tattersall by holding that surplus amounts from pawnbroking business become assessable profits after lapse of statutory periods.

Court's interpretation and reasoning: The Court distinguished the facts of Morley v. Tattersall, where the amounts were held in fiduciary capacity and never became the recipient's money, from the present case where the deposits were part of trade transactions and were adjusted over time. The Court emphasized that although the deposits were capital receipts at the time of receipt, by lapse of time and non-claim by customers, the amounts became the assessee's own money and thus acquired the character of trading receipts.

Key evidence and findings: The assessee had received deposits in the course of business, adjusted them against dues, and retained unclaimed balances for a long period. The assessee itself treated these amounts as income by crediting them to the profit and loss account. There was no explanation why these amounts were treated as income if they were not the assessee's own money.

Application of law to facts: Applying the principle from Jay's-The Jewellers Ltd. and Punjab Distilling Industries Ltd., the Court held that the unclaimed deposits, by operation of law and lapse of limitation, became the assessee's income. The mere fact that the amounts were capital receipts initially did not prevent their character from changing when they became the assessee's own money.

Treatment of competing arguments: The Tribunal and Commissioner of Income-tax (Appeals) had held that the amounts were capital receipts and not income, relying on Morley v. Tattersall. The Court rejected this view, finding that the facts did not fit the fiduciary nature of Morley v. Tattersall and that the principle must be applied in light of the commercial reality and statutory limitations.

Conclusions: The Court concluded that the unclaimed deposits written back to the profit and loss account are taxable income of the assessee.

Issue 2: Whether the Tribunal erred in not referring the question of law to the High Court

Relevant legal framework: Section 256(2) of the Income-tax Act allows the Tribunal to refer questions of law to the High Court.

Court's reasoning: The Court noted that the Tribunal dismissed the application for reference on the ground that no question of law arose. However, given the conflicting High Court decisions on this issue, the Court found it appropriate to decide the question itself rather than refer it.

Conclusion: The Court treated the question as referred under section 256(2) and answered it in favor of the Revenue.

3. SIGNIFICANT HOLDINGS

"The taxability of a receipt was fixed with reference to its character at the moment it was received and that merely because the recipient treated it subsequently in his income account as his own that did not alter that character." (Morley v. Tattersall)

"The amounts were not in the nature of security deposits held by the assessee for performance of contract by its constituents ... The unclaimed surplus retained by the assessee will be its trade receipt." (Para 19)

"If an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right." (Para 22)

"The assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account ... commonsense demands that the amount should be treated as income of the assessee." (Para 22)

"The question is answered in the negative and in favour of the Revenue." (Para 25)

Core principles established:

  • The character of a receipt for tax purposes is generally fixed at the time of receipt, but this principle is subject to exceptions where by operation of law or lapse of limitation, the receipt becomes the recipient's own money.
  • Unclaimed deposits or credit balances arising from trade transactions, which remain unclaimed beyond limitation periods and are appropriated by the assessee, become taxable income.
  • Accounting treatment alone does not determine taxability; the substance and commercial reality of the transaction must be considered.
  • The principle in Morley v. Tattersall applies only where the amounts are held in fiduciary capacity and never become the taxpayer's own money.

Final determinations:

  • The amounts representing unclaimed sundry credit balances written back to the profit and loss account are taxable as income of the assessee.
  • The Tribunal erred in deleting the additions and in refusing to refer the question of law.
  • The appeal is disposed of in favor of the Revenue with no order as to costs.

 

 

 

 

Quick Updates:Latest Updates