1991 (4) TMI 193 - AT - Income Tax

Summary

Issues:
1. Whether the amounts standing in the accounts of the assessee as deposit for bottles could be treated as the income of the assessee.
2. Whether the deposit received during a trading transaction should be considered as a trading receipt.

Analysis:

The appeal before the tribunal was against the CIT(Appeals) order sustaining an addition of Rs. 53,457 to the total income of the assessee. The assessee, a registered firm engaged in the manufacture and sale of soft drinks, allowed distributors to take bottles on payment of a deposit. The question was whether the amounts in the accounts as bottle deposits could be treated as income. The ITO added a sum of Rs. 1,00,000 as income, but the CIT(Appeals) limited the addition to Rs. 53,457, following a precedent. The further appeal contended that the deposit should not be treated as income, citing a different case. The revenue argued that the deposit was part of the trading transaction.

The tribunal analyzed the case law of Punjab Distilling Industries Ltd., where the Supreme Court held that amounts deposited under a trading contract constituted trading receipts. However, in the present case, the tribunal found that there was no sale of bottles but a bailment arrangement. The bottles belonged to the assessee, and the deposit was taken to secure their return. The tribunal referred to the case law of CIT v. Bazpur Co-op. Sugar Factory Ltd., emphasizing that a deposit implies a liability to return it. Since the distributor had an obligation to return the bottles, the tribunal concluded that the amounts collected were deposits, not income camouflaged as deposits. The tribunal highlighted that the liability to repay the deposit remained unextinguished as the agency agreement was ongoing, thus deleting the addition of Rs. 53,457.

In conclusion, the tribunal ruled in favor of the assessee, stating that the amounts collected as deposits, burdened with a liability to be repaid, could not be treated as income as long as the obligation to repay remained. The tribunal directed the ITO to recompute the total income and amend the assessments of the partners accordingly. The appeal was allowed.