1991 (3) TMI 204 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of Rs. 4,70,964 as business income.
2. Disallowance of 25% of car expenses, depreciation on car, and telephone expenses.
3. Disallowance of deduction for minimum power charges amounting to Rs. 27,828.
4. Non-adjudication of the assessee's ground of appeal against the disallowance of depreciation on building.
5. Allowance of Rs. 17,900 on account of rent.

Detailed Analysis:

1. Assessability of Rs. 4,70,964 as Business Income:
The primary issue in the assessee's appeal was the assessability of Rs. 4,70,964, which represented the excess security deposits over the cost of bottles and shells. The assessee, a private limited company, had collected security deposits from retailers against returnable bottles and shells as per an agreement with Coca Cola Export Corporation, USA. The cost of bottles and shells as of 1-1-1981 was Rs. 16,17,812, whereas the security deposits collected amounted to Rs. 20,88,776, resulting in an excess of Rs. 4,70,964. This excess was written back in the Profit & Loss A/c and added to the loss declared by the assessee, claiming it was not taxable. The assessing officer, however, considered it a trading receipt, arguing that the deposits no longer represented a liability as the bottles and shells were not returned, and the manufacturing activity had ceased. The CIT (Appeals) upheld this view, treating the amount as business income under section 28(iv) read with section 2(24)(va) of the IT Act, 1961. The Tribunal, after considering various case laws, concluded that the excess deposits, initially capital in nature, became trading receipts when forfeited by the assessee and credited to the P & L A/c on 31-12-1981. The Tribunal emphasized that the forfeiture represented a benefit arising from the business, thus taxable under sections 2(24)(va) and 28(iv). Consequently, the ground raised by the assessee was rejected.

2. Disallowance of 25% of Car Expenses, Depreciation on Car, and Telephone Expenses:
The assessing officer disallowed car expenses amounting to Rs. 41,874, telephone expenses amounting to Rs. 18,264, and depreciation on the car, citing the absence of manufacturing activities. The CIT (Appeals) estimated non-business use of car and telephone at 25% of the expenses. The Tribunal found this estimation justified, considering that some business activities, such as leasing out the factory premises and plant and machinery, were still carried on. Hence, the disallowance of 1/4th of car expenses, telephone expenses, and depreciation on the car was upheld, and the grounds raised by both the assessee and the revenue were rejected.

3. Disallowance of Deduction for Minimum Power Charges Amounting to Rs. 27,828:
The disallowance was made because no manufacturing activity was done by the assessee in the relevant year. However, the Tribunal noted that for the previous assessment year, the assessee had derived lease income of Rs. 3,00,000, indicating the possibility of leasing the factory again. Therefore, retaining the electric connection and incurring minimum power charges was deemed necessary. The Tribunal allowed this claim, and the ground succeeded.

4. Non-Adjudication of the Assessee's Ground of Appeal Against the Disallowance of Depreciation on Building:
The assessee contended that depreciation on other stores and godowns should be allowed, even though no claim was made for factory building depreciation due to non-use. Since the CIT (Appeals) had not adjudicated on this issue, the Tribunal remitted the matter back to the CIT (Appeals) for adjudication.

5. Allowance of Rs. 17,900 on Account of Rent:
The CIT (Appeals) allowed the rent, stating that the business continued despite the cessation of manufacturing activities. The rent was paid for the Kanpur Office, and similar claims were allowed by the assessing officer in subsequent years. The Tribunal found no error in the CIT (Appeals)'s order and upheld the allowance. Consequently, this ground in the revenue's appeal was dismissed.

Conclusion:
The assessee's appeal was partly allowed, and the departmental appeal was dismissed. The Tribunal upheld the assessability of Rs. 4,70,964 as business income, justified the disallowance of 25% of car expenses, depreciation on car, and telephone expenses, allowed the deduction for minimum power charges, remitted the issue of depreciation on the building back to the CIT (Appeals), and upheld the allowance of rent.