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TMI Blog1996 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sons Ltd., for the assessment years 1982-83 and 1983-84 were completed on August 1, 1984. The Income-tax Officer found that the assessee had transferred an amount of ₹ 17,381 to the profit and loss account of the company during the accounting period ended on March 31, 1982 (assessment year 1982-83), and an amount of ₹ 38,975 during the accounting period ended on March 31, 1983 (assessment year 1983-84). But these amounts were not included in the total income of the assessee. The sums were stated to be credit balances standing in favour of the customers of the company. Since these balances were not claimed by the customers, the amounts were transferred by the assessee to the profit and loss account. There is no dispute that the amount was received by the assessee in the course of trade transactions. The Income-tax Officer was of the view that because the surplus had arisen as a result of trade transactions, the amounts had a character of income and had to be added as income of the assessee for the purpose of income-tax assessment. The Commissioner of Income-tax (Appeals) held in his order that since the parties were not claiming these amounts for a long time, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is not income. It has been urged that on a review of the conflicting decisions of the Tribunals, the following question of law raised by the Department should have been referred to the High Court for its decision : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in deleting the addition made by the Income-tax Officer representing unclaimed sundry credit balances written back to the profit and loss account by the assessee during the previous year relevant for the assessment year under consideration ? It may be mentioned that three other questions of law on some other points decided by the Tribunal were directed to be referred to the High Court under section 256(2) of the Income-tax Act. Since the case relates to assessments for the assessment years 1982-83 and 1983-84, we have decided to deal with and answer the question instead of directing a reference to the High Court for its opinion. The assessee had received deposits in the course of its business which were originally treated as capital receipts. Some of the deposits were neither claimed by nor returned to the depositors. There is no dispute that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquor and sold the produce of its distillery to licensed wholesalers. Under a scheme devised by the Government, the distiller used to charge the wholesalers a price for the bottles in which the liquor was supplied at rates fixed by the Government, which the distiller was bound to repay when the bottles were returned. Additionally, the assessee took from the wholesalers certain further amounts described as security deposits with out the Government's sanction and entirely as a condition imposed by the assessee itself for the sale of its liquor. The moneys described as security deposits were also returned as and when the bottles were returned. The price of the bottles received by the assessee was entered by it in its general trading account while the additional sum was entered in the general ledger under the heading empty bottles return security deposit account . After the bottles were returned, the assessee was left with a surplus in the security deposit account. The question was whether this amount left with the assessee even after the refunds were made could be treated as business income of the assessee. It was held by a Bench of three judges of this court that the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unclaimed balance as its income and showed it in its account as such, it could not be said that the income-tax authorities committed an error in accepting the statement of the assessee. In the case of CIT v. A. V. M. Ltd. [1984] 146 ITR 355 (Mad), the assessee was a distributor of films. It took security deposits from the exhibitors before handing over the films for exhibition. Sometimes the exhibitors did not send the collections but instructed the assessee to set off or adjust its security deposits against overdue collections. Sometimes, the deposits were kept for the purpose of adjustment either wholly or in part against the dues of the exhibitor towards payment of collections. It happened that even after adjustment some balance was still left in deposits with the assessee. No one came forward to claim these deposits and the assessee after waiting for five years decided to appropriate the amounts for its own use by making suitable book entries. It was held the amount could be treated as chargeable receipts of the assessee from trade. In the case of CIT v. Batliboi and Co. Pvt. Ltd. [1984] 149 ITR 604, the Bombay High Court dealt with a case where the assessee was a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipts but were of capital nature. The provisions of section 41(1) were not attracted in the facts of this case because the assessee's liability to pay back the amounts to its customers had not ceased. The Tribunal agreed with this view : We fail to see how these deposits were in any way different from the deposits which came for consideration in the case of Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 (SC). The amounts were not given and retained as security to be retained till the fulfilment of the contract. There is no finding to that effect. The deposits were taken in the course of the trade and adjustments were made against these deposits in the course of trade. The unclaimed surplus retained by the assessee will be its trade receipt. The assessee itself treated the amount as its trade receipt by bringing it to its profit and loss account. The basic fact in Morley v. Tattersall [1939] 7 ITR 316 (CA) was that Tattersall was an auctioneer. He sold horses on behalf of his clients. The sale proceeds were not his money but were his clients' money. Tattersall was entitled to receive only commission out of the sale proceeds. The agreement between Tatte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the assessee's contention that these surpluses were debts owed to the customers and that for three years or six years as the case may be, the company could be called upon to pay the amount to the customers. The whole amount was a legal liability. The court also agreed with the assessee's contention that the surpluses were not trading receipts in the year in which they were received. However, the court went on to hold : The true accountancy view would, I think, demand that these sums should be treated as paid into a suspense account, and should so appear in the balance-sheet. The surpluses should not be brought into the annual trading account as a receipt at the time they are received. Only time will show what their ultimate fate and character will be. After three years that fate is such, as to one class of surplus, that in so far as the suspense account has not been reduced by payments to clients, that part of it which is remaining becomes, by operation of law, a receipt of the company, and ought to be transferred from the suspense account and appear in the profit and loss account for that year as a receipt and profit. That is what it in fact is. In that year Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X
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