2019 (4) TMI 372 - HC - Income Tax

Addition u/s 41(1) - remission or cessation - credits in the books of the Assessee in the nature of rents collected by the Assessee from its customers and payable to the Chennai Port Trust - HELD THAT - The amounts have been received by the Assessee in the course of carrying on their business. By efflux of time, it had become the Assessee's own money. There has been no claim laid against the said money. Consequently, we hold that the amount in question could be treated as Assessee's income under Section 41(1) for Assessment Year 2003-2004 by the Assessing Authority. In Kesaria Tea Company 2002 (3) TMI 1 - SUPREME COURT determined that the dispute between the Assessee and the Sales Tax Department was still going on.The dispute was whether the sales tax was at all payable. The facts of the present case are distinguishable. TAMP which is the Tarriff Authority for Major Ports had finally fixed the storage charges payable. The Assessee had taken shelter on the ground that the storage charges had not been finally quantified, but the liability to pay the same to Chennai Port Trust was not disputed and therefore the liability of Assessee to pay back to customers had ceased and had infact become the income in the hands of the Assessee and consequently, the reasoning given by the Tribunal that the Assessee is not liable since there was a dispute pending, no longer survived. The disputes have concluded. The Assessee had enjoyed the said amounts as its income collected but without paying it to the Chennai Port Trust. They were under obligation to be taxed on the said amount, as per Section 41(1) - Decided in favour of the Revenue

Summary

Issues Involved:
1. Taxability of credits under Section 41(1) of the Income Tax Act.
2. Disputed rent payable to Chennai Port Trust.
3. Interest on inter-corporate deposit as income.

Detailed Analysis:

1. Taxability of Credits under Section 41(1) of the Income Tax Act:
The core issue revolves around whether the amounts collected by the Assessee from its customers towards ground rent payable to Chennai Port Trust, which were shown as liabilities in the books, can be taxed as income under Section 41(1) of the Income Tax Act. The Assessee argued that these amounts were disputed liabilities and thus could not be taxed until the dispute was resolved. The Assessing Officer, however, treated these amounts as income since they were collected but not paid to the Port Trust.

The Tribunal upheld the CIT (Appeals) decision that these amounts could not be taxed as income because the liability was still under judicial dispute. However, the High Court noted that the liability had been finally determined by the Tariff Authority for Major Ports (TAMP) on 15.01.2016, thus making the amounts taxable under Section 41(1) as the liability had ceased to exist.

2. Disputed Rent Payable to Chennai Port Trust:
The Assessee collected amounts from customers for ground rent payable to Chennai Port Trust but did not pay these amounts, citing a dispute over the increased charges by the Port Trust. The CIT (Appeals) and the Tribunal initially sided with the Assessee, stating that the liability could not be considered income until the dispute was resolved. However, the High Court found that the dispute had been resolved by TAMP, making the amounts taxable as income. The Court emphasized that once the liability is settled, the amounts collected should be treated as the Assessee's income.

3. Interest on Inter-Corporate Deposit as Income:
The Tribunal had also ruled on whether the interest on inter-corporate deposits, which was neither received nor recoverable during the relevant accounting year, could be treated as income. The Tribunal held that it could not be treated as income based on the unilateral act of the Assessee not to bring it into its accounts. The High Court did not delve deeply into this issue, as the primary focus was on the taxability of the credits related to the disputed rent.

Conclusion:
The High Court concluded that the amounts collected by the Assessee from its customers towards ground rent payable to Chennai Port Trust, which were shown as liabilities, should be treated as income under Section 41(1) of the Income Tax Act since the liability had been finally determined by TAMP. The Court allowed the Revenue's appeal, answering the substantial questions of law in favor of the Revenue and against the Assessee. The amounts in question were deemed to have ceased as liabilities and thus became taxable income for the Assessment Year 2003-2004.