9911796707
TMI Blog1986 (2) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... ual user of chemical and Pharmaceuticals about their requirements together with the earnest money calculated at a certain percentage of sale value and the quality so registered. No application for registration of raw-material was entertained if it was not accompanied by the proper amount of earnest money in the form of bank draft or bank guarantee. The earnest money given was liable to be forfeited in case of any default or failure on the part of the actual user in complying with all or any of the terms and conditions prescribed by the CPC. During the previous year under appeal a total sum of ₹ 24,87,847 received by way of earnest money was forfeited as the parties failed to comply with the terms and conditions or failed to lift the material in respect of which such deposits were made. The claim made on behalf of the assessee before the ITO was this amount was not liable to be taxed as the income of the assessee company. In support of its view reliance was placed upon to order of the ITAT for the asst. yr. 1972-73 whereby the Tribunal considering identical circumstances held that such forfeiture of earnest money deposits would not constitute the income of the assessee. Distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as benefit under the statute by the definition there was no escape from applying those principles and treating the deposits as income of the assessee. According to him the Delhi High Court decided in Nar Hari Dalmia's case that what was received in cash would also amount to benefit and in order that a benefit to be regarded as income need not necessarily be in kind. 4. For the assessee, on the other hand, strong reliance was placed upon the decision of the Gujarat High Court, reported in CIT vs. Alchemic Pvt. Ltd. (1981) 20 CTR (Guj) 83: (1981) 130 ITR 168(Guj) where the Gujarat High Court held that under the provisions of s. 28(iv) the benefit must be other than cash. That decision categorically pointed out that the provisions of s. 28(iv) would not be available when the amount received is cash or is considered in terms of money. By laying great stress upon this decision, and urging that this was the direct decision on the point, the ld. Advocate for the assessee submitted that the view taken by the Commissioner(A) that under the provisions of s. 28(iv) this amount would be taxable as deemed income is erroneous in law and should not be supported. He also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase price and liable to be forfeited in case of failure on the part of the actual user when they fail to comply with the terms of the contract or even to lift goods for any reason whatsoever. This was held to be the nature of those receipts. The nature of receipts this year continued to be so as in those years, and there is no departure from that view nor any dispute about it. What is more about the nature of receipts not about the articles dealt in. The only dispute is whether having regard to the nature of those receipts could they be brought to tax by applying the provisions of s. 28(iv) of the Act and the decision of the Delhi High Court reported in CIT vs. Nar Hari Dalmia (1971) 80 ITR 454(Del). Before we quote the s. 28(iv) it is necessary to refer to the Delhi High Court decision in the case of Nar Hari Dalmia, (supra) which was prime plank of the Department's case. In this case the assessee was a part-time director of a private company, undertook a foreign tour accompanied by his wife. The cost of the tour amounted to ₹ 29,793 and the company paid the amount to the assessee. That amount was not allowed as an expenditure incurred by the company in the company&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial thing of life (underlined, italicized in print, supplied). It is the value of the material thing of life received by the assessee, a director of a company, that is sought to be converted in terms of cash so that the value could be included as income. It was from that point of view the High Court pointed out that the assessee director received cash benefit and that is the value of the benefit must be held to have received when he undertook the foreign tour. The High Court pointed out that it could not be a perquisite as the term perquisite generally connotes something which an employee receives from an employer in addition to salary. That decision is, therefore, an authority for the proposition that for the purpose of income-tax the benefit received by a director to undertake a foreign tour could be considered to be the benefit even if it is received in cash because the purpose of s. 2(6C)(iii) of the Act was to bring to tax the value of the benefit received by a director having a substantial interest in a company. Now s. 28(iv) which was inserted by the Finance Act, 1964 w.e.f. 1st April, 1964 is to repeat in the following terms : the value of any benefit or perquisite, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of considering the value of such monetary benefit or perquisite under cl. (Iv) of s.28 and including the value of such benefit or perquisite under the head ' profits and gains of business or perquisite is not in cash on money that s.28 (iv) would apply and the question of including the value of such benefit or perquisite as income from business would ever arise. The Gujarat High Court particularly pointed out that s. 28 excluded cash receipts from specific consideration. This is therefore a direct decision on the issue in favour of the view that s. 28 (iv) does not cover cash receipts and it would extend only to receipt in kind whether convertible into money or not. In the Delhi High Court decision, as we have pointed out above, what was received by the director was cash. In those circumstances even receipt by way of cash could be regarded as income under s.2(6c)(iii) of the Indian IT Act, 1922 Sec 2 (6c)(iii) deals with dividend and perquisite unlike s. 28(iv)of the Act, 1961. Since the context in which s. 2(6c)(iii) of the Act was interpreted was different, that decision cannot in our option be applied to the facts of this case and the decision of the Gujarat High Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons we are of the view that the view taken by the commissioner(A) is insupportable. We therefore, reverse his view and hold that the receipts of security deposit and earnest money formulated by the assessee did not constitute his income following with respect the orders of the tribunal for earlier years. This disposes of the assessee's appeal. 6. I.T.A. No. 2311 (Del) of 1984 : In the Departmental appeal the ground raised was as under: On the facts and in the circumstances of the case, the ld. CIT(A)erred in deleting a sum of ₹ 1,59,49,245 from the income of the appellant on the ground that the right to receive the reimbursement of the loos of an equivalent amount did not accrue to the appellant in the previous year. Despite of the fact that it arose out of the Minutes of the inter ministerial Meeting held on 4th July, 1978 and the letter dt. 30-6/2nd July, 1979 issued by the Finance secretary and became an accrued liability in the appellant's favour, when the sale of the imported items was effected by it, i.e. before the end of the previous year and this fact was acknowledged by the appellant itself by crediting the said amount to its profit and loss acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assesses replied on 5th July, 1979 as under : please refer to your letter No. 20011/14/79-PC II dt 26th June, 1979 stating the following: (a) CPC will sell the imported resins at uniform price of ₹ 9,690 per tonne. (b) Any losses to CPC in the transaction of imported PVC Resins will be subsidised by the Government within the limits and the parametars agreed upon. 2. We are not aware of any limits and the parameters referred to in (b) above. In any case, we would like to state that as far as the CPC is concerned, the sale prices are determined by us as per CCT S formula applicable to chemicals and on that basis the sale price provisionally works out to about ₹ 12,100 per MT. Ex-godown (sales) tax and other local levies extra) as already intimated earlier vide our letter dated 5th June, 1979. Thus the difference between the price arrived at as above and the price of ₹ 9,690 per MT at which the Ministry of PC F have instructed us to sell the imported material would come to about ₹ 2,410 per MT on a total of about ₹ 3.76 crores on the import and the decisions contained in your letter No. 28011/14/79 II dt. 25th June, 1979, the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjusted this amount in its accounts by taking credit in the profit and loss account. The IAC(Asst.) who made the assessment considered that this was the income of the assessee for four reasons, the assessee maintained its account on mercantile basis, (2) the minutes of the inter-ministerial meeting held on 4th July, 1978 giving the assessee the right to claim the loss (3) letter dt. 30th June, 1979 from the Finance Secretary confirming this, and (4) there was actual receipt of ₹ 1 crore by the assessee during the relevant accounting period as subsidy in partial reimbursement of its loss. Though for these reasons the IAC included the sum as income, the Commissioner (A) on appeal deleted it. He took the view that the correspondence referred to above did not in her in the assessee a right to receive the same from the Govt. And there was no unequivocal acceptance on the part of the Govt., the claim of the assessee to reimburse the assessee the amount of loss that it claimed. Even though the assessee was adopting mercantile system of accounting, it could charge the ambit of taxable income or the range of taxability. The method of accounting only determines the time of accrual of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim for reimbursement and calculate it in its own way and take it as income in his accounts for its own purpose and perhaps to pressurise the Government to make good the reimbursement passed entries in its books. The Commissioner (A), in our opinion, is right to say that on these facts no right to receive the sum accrued to the assessee and consequently this sum could not be included is income of the assessee. The fact that a sum of ₹ 1 crore was received by the assessee and was included as income does not prove that what was claimed by the assessee by way of reimbursement was the amount due to the assessee from the Government as if there was a bilateral agreement. No such contractual liability had arisen merely on the strength of the claim made by the assessee. There was only a promise held out by the Government to make good the loss subject to certain restriction. That does not mean that whatever claim the assessee made on the Government, because an amount receivable by the assessee and in turn it became the income of the assessee. The minutes of the inter-ministerial meeting held on 4th July, 1978 or the letter dt. 30th June, 1979 issued by the Finance Secretary did not v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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