2017 (7) TMI 142 - HC - Income Tax

Unclaimed amounts out of the Guarantee Reserve Account received in earlier years - accessibility to tax - deposit had changed its character into income - Held that - Tribunal has considered the contract between the parties i.e. after lapse of two months, the right of students to claim the amount coming to an end. The second circular was disbelieved by the Tribunal. The said finding is a findings of fact, which cannot be gone into in the reference. The contract between the parties was clear that the refund must be claimed by the candidate within two months of the declaration of the result of the concerned written test. Refund claimed thereof will not be granted. In view of the clear finding of fact, the parties would be governed by the contract. Considering the facts of the case of the Petitioner, the observations of the Apex Court in case of Commissioner of Income Tax vs. T.V. Sundaram Iyengar and Sons Ltd (1997 (11) TMI 50 - MADRAS High Court) would be relevant. In case of Commissioner of Income Tax vs. Sugauli Sugar Works (P.) Ltd.(1999 (2) TMI 5 - SUPREME Court) before the Apex Court, the facts were different. If the Petitioner would have proved the second circular, then the Assessee would have been on a better footing. - Decided against the Assessee.

Summary

Issues:
Interpretation of tax liability on unclaimed amounts from Guarantee Reserve Account in Assessment Year 1989-90.

Analysis:
The case involved the interpretation of whether unclaimed amounts from the Guarantee Reserve Account, received in earlier years, should be assessed as income in the current year. The Assessee, running an educational institution, had a scheme where unclaimed refundable fees were credited to the Guarantee Liability Account. The Assessee argued that the unclaimed amounts should not be added to income as they were still refundable. The Commissioner (Appeals) allowed refunds granted beyond the stipulated period, but the balance was taxed. The Assessee relied on a Supreme Court judgment stating that unless the creditor waived the claim, the liability could not be considered extinguished under section 41(1) of the Income Tax Act.

The Respondent argued that as per the scheme, unclaimed refunds had a time limit, and subsequent circulars were not valid. Citing another Supreme Court case, the Respondent contended that unclaimed amounts could be assessed as income when the claims became barred by limitation. The High Court analyzed the facts, emphasizing that when an amount becomes the Assessee's own money due to limitation or other rights, it should be treated as income. The Court noted that the Tribunal rejected the Assessee's claim of relaxed refund terms, as the circular was not adequately proven. The Tribunal's finding on the contract terms, where refunds had to be claimed within a specific period, was considered a factual determination not subject to review.

The High Court concluded that the issue should be decided based on the facts of the case. It upheld the Tribunal's decision against the Assessee, stating that subsequent refunds were addressed by the Tribunal. The Court emphasized the importance of contractual terms and factual findings in determining tax liability. Ultimately, the reference was answered against the Assessee, leading to the disposal of the case.