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TMI Blog2019 (4) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 - Tax Case Appeal No. 1788 of 2008 - - - Dated:- 26-3-2019 - Dr. Justice Vineet Kothari And Mr. Justice C.V. Karthikeyan For the Appellant : Mr.T.Ravikumar Senior Standing Counsel For the Respondent : Mr. V.S.Jayakumar for Mr.K.Vasudevan JUDGMENT C.V.KARTHIKEYAN, J. The Revenue has filed this Appeal, calling in question the order of the Income Tax Appellate Tribunal dated 10.04.2008 with respect to the Assessment Year 2003-2004 whereby in respect of credits in the books of the Assessee in the nature of rents collected by the Assessee in the years 1994-1999 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been stated by the learned counsel for the Assessee that only the second question quoted above remains to be adjudicated. It was also mentioned that the amount mentioned, ₹ 16,69,991/- was not correct, and that the correct amount was ₹ 2,90,400,115/-. We are not examining that aspect, as it is an issue of fact and of computation. The legal issue alone is taken up for consideration. 4. The Assessee is a shipping agent. The Assessee had shown an amount of ₹ 2,89,85,226/- in its books of account as receipts against the names of over 900 customers for the past six to seven years. These amounts have been collected by the Assessee from its customers during the period 1994-1999 towards ground rent payable to the Chennai Port Trust as storage charges for the containers of the customers of the Assessee. Even though the amounts were collected from the customers, they were not paid by the Assessee to the Chennai Port Trust. The explanation given by the Assessee was that the Chennai Port Trust had arbitrarily raised the ground rent charges, and challenging such increase, the Steamer Agents Association of which the Assessee is a member, had filed a Writ Petition before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the retrospective enhancement of ground rent as well as the quantum of ground rent has been disputed and the matter is still pending before the High Court. On these facts, I am of the considered view, that the AO was not justified in making the impugned addition in the hands of the appellant company for the current year. I also agree with the contentions of the learned AR that the nature of entries made by the clients in their books of accounts does not remit the liability existing in the books of accounts of the appellant company. On these facts, the decision of Hon'ble Madras High Court in the case of Southern Roadways Ltd (supra) relied by the AR is applicable in favour of the appellant company because the appellant had neither made the entries of remission of liability in the books of accounts nor it has obtained and the benefit from cessation of any liability. In view of these facts and circumstances, the issue is decided in favour of the appellant. The AO is directed to delete the addition of ₹ 289,85,226/-. 6. The Revenue then filed a further Appeal before the Income Tax Appellate Tribunal. The Tribunal concurred with the findings of the CIT (Appeals). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited., reported in (2002) 254 ITR 434 (SC) . In the said Judgement , the Hon'ble Supreme Court had distinguished on facts an earlier Judgement of the Hon'ble Supreme Court in the case of CIT vs. T.V.Sundaram Iyengar sons Ltd., reported in (1996) 222 ITR 334 (SC) and had held that a liability would not cease in law if disputes were pending judicial determination. 10. Section 41 of the Act brings to tax certain 'Profits chargeable to tax'. The relevant extract of the said provision is quoted below for ready reference. Section 41(1) (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof , the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossibility of receiving it. The facts as stated are as follows:- 2. Assessee who was engaged in the business of tea, spices etc. During the assessment year 1985-86 (previous year ending on 31.3.1985) the assessee ' wroteback' in its accounts a sum of ₹ 14,65,997/- representing the provision made during earlier years (1978-1981) towards its purchase tax liability . It appears that the liability to pay purchase tax on certain goods was in dispute and, therefore, the provision was made. Further, it appears that the assessee, in support of its claim for purchase tax relief, inter alia, relied on the decision of the Kerala High Court in Neroth Oil Mills' case . The SLP filed by the Kerala State against the decision of the High Court in the said case was rejected by this Court in November, 1984 . Apparently, for that reason, the assessee thought it fit to reverse the provision made earlier towards purchase tax and therefore made the entries in the books of account during the year ending on 31.3.1985. The assessing officer added the sum of ₹ 14,65,997/- which represents the provision made towards purchase tax during the assessment years 1978-79, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal by revenue by Special leave. 13. In the light of the above facts, the Hon'ble Supreme Court held as follows:- 4. It may be noted that the provision was made in the books of account towards purchase tax which was under dispute and the benefit of deduction from business income was availed of in the past years in relation thereto. The same was sought to be reversed by the assessee during the year ending on 31.3.1985 for whatever reason it be. The question is whether the circumstances contemplated by Section 41(1) exists so as to enable the Revenue to take back what has been allowed earlier as business expenditure and to include such amount in the income of the relevant assessment year i.e. 1985-86. In order to apply Section 41(1) in the context of the facts obtaining in the present case, the following points are to be kept in view : (1) In the course of assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) Subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; (3) in that si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this decision to the determination of the question involved in the present case. The factual matrix and the provision of law considered therein is entirely different. 14. It is seen from the facts of the case in Kesaria Tea Company that the issue of payment of 'purchase tax' itself, was in dispute and not the rate or quantum of 'purchase tax' payable. The Assessee in the said case had questioned the very liability to pay 'purchase tax' and the dispute in that regard with the Sales Tax department was still going on and had not been finally concluded. 15. In Commissioner of Income Tax v. T.V.Sundaram Iyengar Sons Ltd. [(1996) 222 ITR 344 (SC)] , the facts are that the Assessee had received certain deposits from customers in the course of carrying on its business. These were originally treated as capital receipts. Since those credit balances were not claimed by the customers or creditors, the Assessee transferred it to its profit and loss accounts. However, it did not offer the same for taxation as its total income. The Assessing Officer held that the Assessee got the said surplus as a result of trade transaction and the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by influx of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. In fact, as Atkinson, J. pointed out that what the assessee did was the common sense way of dealing with the amounts. (emphasis supplied) 16. In the case of Commissioner of Income Tax v. Rajasthan Golden Transport Company [(2001) 249 ITR 723 (Del.)] , a Division Bench of Delhi High Court held that mere fact that some party had unilaterally written back the said amount to profit and loss account did not amount to remission or cessation of liability and therefore, such income could not be treated as assessable under Section 41(1) of the Act, but where an amount is received in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause . The expression include is significant; Parliament did not use the expression means . Necessarily, even omission to pay, over a period of time, and the resultant benefit derived by the employer/assesse would therefore qualify as a cessation of liability, albeit by operation of law. 10. The submission of the assesse that no period of limitation is provided for under the Industrial Disputes Act, as a result of which it is exposed to liability at any time, is insubstantial and unpersuasive. This is because in The Nedungadi Bank Ltd. v. K.P. Madhavankutty AIR 2000 SC 839 the Supreme Court held that even though under the Act no period of limitation has been prescribed, a stale dispute one where the employee approaches the forum under the Act after an inordinate delay cannot be entertained and adjudicated. 11. In view of the foregoing reasons, the question of law is answered in the affirmative, in favour of the revenue, and against the assessee; consequently the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers within such period of 12 months in order to get the benefit of earning a free TV set. Over a span of couple of years, the assessee collected a huge sum of ₹ 7.87 crores by enrollment membership fee of ₹ 500/- each. 10. As is bound to happen, in such a scheme requiring continuous chain reactions, the chain would break at some stage. The amount of ₹ 7.87 crores represents the money deposited by those members. This amount remained with the company over the years without any change whatsoever . The Revenue authorities have found that there was no activity at the hands of the assessee company in connection with the scheme for past several years. Not a single customer had demanded the money back nor the assessee had made any attempt to repay the same. It was only when the Assessing Officer in the present assessment proceedings raised the issue, the assessee made correspondence with the customers. This, the Commissioner (Appeals) correctly categorised as an afterthought. More importantly in all invoices, the signatures of the member customers were missing. Their addresses were not sufficient. Over the years, the company had also invested such amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ports (TAMP) had passed final orders on 15.01.2016 revising the container storage charges at Chennai Port Trust for the period from 06.07.1994 to August 2001. The Authority had passed detailed and elaborate orders finally fixing the storage charges receivable. Consequently, as on date the reason given by the Assessee relating to pendency of the Writ Appeal or that TAMP had not finally determined the storage charges no longer survive. The obligation by the Assessee to pay back the amounts to Chennai Port Trust had arisen immediately when TAMP had passed final orders fixing the storage charges on 15.1.2016 and since they have not paid the same, the amount in their hands has to be treated as 'income' taxable under Section 41(1) of the Act. 21. In Kesaria Tea Company referred above, the Hon'ble Supreme Court as is evident from the passage quoted, dealt with a case wherein, the liability of the Assessee could not be said to have ceased finally. However, even in the said Judgement, the Hon'ble Supreme Court had held that resort to Section 41(1) could arise only if the liability of the Assessee can be said to have ceased finally without the possibility of reviving ..... X X X X Extracts X X X X X X X X Extracts X X X X
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