1990 (3) TMI 122 - AT - Income Tax

Issues Involved:
1. Whether the amount of Rs. 89,60,696 forms part of the income of the assessee.
2. The nature and treatment of the credit guarantee commission collected by the assessee.
3. The applicability of the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd.'s case.
4. The fiduciary capacity of the assessee regarding the collected credit guarantee commission.
5. The treatment of the collected amount in previous years and its impact on the current assessment.
6. The concept of overriding title and trustee relationship in the context of the collected amount.
7. The burden of proof regarding the nature of the receipt as income.

Detailed Analysis:

1. Whether the amount of Rs. 89,60,696 forms part of the income of the assessee:
The main question in this appeal is whether the amount of Rs. 89,60,696 collected by the assessee, Andhra Pradesh State Financial Corporation (APSFC), towards credit guarantee commission should be considered as part of its income for the assessment year 1985-86. The APSFC had shown this amount under 'liabilities' in its balance sheet, whereas similar amounts were accounted for as income in previous years.

2. The nature and treatment of the credit guarantee commission collected by the assessee:
The credit guarantee commission was introduced by the Government of India to encourage lending to small scale industries by covering risks associated with such loans. The APSFC collected this commission from loanee concerns but did not join the modified scheme introduced from 1-4-1981 due to certain reservations. The APSFC argued that the collected amount should either be paid to the Deposit Insurance and Credit Guarantee Corporation (DICGC) if the scheme was mandatory or refunded to the loanee institutions if the scheme was optional.

3. The applicability of the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd.'s case:
The Commissioner (Appeals) relied on the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd.'s case to sustain the addition made by the Inspecting Assistant Commissioner. However, the Tribunal distinguished this case, noting that in Chowringhee, the assessee did not act in a fiduciary capacity, whereas APSFC collected the guarantee commission as a trustee for DICGC or the loanee institutions.

4. The fiduciary capacity of the assessee regarding the collected credit guarantee commission:
The Tribunal held that APSFC acted as a trustee for the collected guarantee commission, which was to be either paid to DICGC or refunded to the loanee institutions. This fiduciary relationship meant that the collected amount did not form part of APSFC's trading receipts or income.

5. The treatment of the collected amount in previous years and its impact on the current assessment:
Although APSFC had treated similar amounts as income in previous years, the Tribunal held that this did not change the nature of the receipt. The amounts collected were always intended to be passed on to DICGC or refunded to the loanee institutions, and thus did not constitute income for APSFC.

6. The concept of overriding title and trustee relationship in the context of the collected amount:
The Tribunal emphasized that the collected guarantee commission was subject to an overriding title, meaning APSFC held it in a fiduciary capacity. This concept was supported by various judicial decisions, including those from the Andhra Pradesh High Court and the Supreme Court, which established that amounts collected in a fiduciary capacity do not constitute trading receipts or income.

7. The burden of proof regarding the nature of the receipt as income:
The Tribunal noted that the burden of proving that a receipt is income lies with the Revenue. In this case, the Revenue failed to demonstrate that the collected guarantee commission was part of APSFC's income. The Tribunal concluded that the amount collected did not bear the character of income and should not be taxed as such.

Conclusion:
The Tribunal allowed the appeal filed by APSFC, holding that the amount of Rs. 89,60,696 collected as credit guarantee commission did not form part of its income for the assessment year 1985-86. The Tribunal emphasized the fiduciary capacity in which APSFC held the collected amount and distinguished the case from the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd.'s case. Consequently, the amount was deleted from the computed income of APSFC.

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