TMI Blog1987 (4) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... company is a dealer in liquefied low-pressure gas purchased by them from M/s Union Carbide. The assessee supplies gas to consumers in small cylinders. Each consumer pays an amount which the company styles as a deposit towards the gas cylinder. According to the company, this amount is a security deposit which they are liable to refund to the consumers on termination of the contract for supply of gas and, therefore, will not form part of the income. According to the revenue, the amount so collected, which in this accounting year came to Rs. 16,74,000, was a trading receipt. The Income-tax Officer had brought this amount to tax as a trading receipt, and such order of the Income-tax Officer was also upheld by the Commissioner of Income-tax (Appeals). The assessee appealed to the Tribunal and placed reliance on a decision of the Indore Bench of the Tribunal in the case of Goyal Gases ( P.) Ltd. v. ITO [IT Appeal No. 2214 (Delhi) of 1984] in support of the plea that the amount referred to could not constitute taxable receipt. The revenue, on the other hand, relied on an order of the Tribunal in the case of Ideal Engineers Hyderabad (P.) Ltd. v. ITO [IT Appeal No. 551 (Hyd.) of 1985] in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take on loan the Company Cylinder(s) (hereinafter called the equipment) required for the supply of Company s product viz. KABSONS GAS. 2. The consumer shall deposit with the company an amount in accordance with the company s tariff in force for the time being the whole or part of which shall be held by the Company as security for the due performance by the consumer of his obligation under the contract. 3. At all times the consumer shall have no right or interest in the property of the equipment and shall remain responsible to the Company for its safe custody and proper use until it is returned to the Company or to its Distributors. The consumer shall not sell, mortgage or otherwise dispose of the equipment or create any interest therein or charge thereon in favour of any party. 4. If the consumer removes the equipment to any address other than shown on the front thereof, he should immediately inform the Distributor by whom the equipment was supplied. 5. The Consumer shall not take the equipment outside the area serviced by the Distributor from whom the equipment was originally taken in the event of consumer s departure from the area for reasons of transfer etc. the consume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation or use of the gas by the consumer. In case of any accident involving consumer s installation, he will forthwith advise the Company s Distributor from whom he received supply. 13. The Company as well as the consumer shall be at liberty to terminate the contract by giving fifteen days notice in writing. On the termination of this contract the consumer shall forthwith return the equipment to the Company or their Distributor and the Company or their Distributor shall refund the balance of the deposit if any after deducting the amount due to the Company or Distributor." In addition, there were certain guidelines issued by the company to their dealers for loaning and surrendering of cylinders, which are as under: "1. The dealer shall give the cylinder on deposit issuing the Sub- scription Voucher as per prescribed proforma along with terms and conditions of loaning the cylinder. 2. The dealer shall collect security deposit strictly as per the company schedule as applicable at the time of delivery of the cylinder. 3. The dealer shall undertake to supply gas to all the consumers who have obtained the Company s cylinder from any authorised dealer of the company in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of marking. 17. Dealer shall permit the consumer to return the cylinder directly to the company if the consumer so desires. The company undertakes to refund the full security deposit as per the company schedule provided original Subscription Voucher accompanies such returns. 18. The dealer shall be at liberty to re-loan the cylinder received back from the consumer if he desires to do so. Alternatively company undertakes to refund security deposit against such cylinder when returned to the company along with Subscription Voucher received from consumer. 19. The dealer shall undertake to return all those cylinders which fall due for testing as per Explosives Act. The company stall circulate information In this regard from time to time. 20. The company would replenish the quantity of cylinders received from the dealer for retesting. 21. The company shall accept the cylinders even if the bung thread has been damaged, valve fittings damaged or the foot ring is missed. However, company does not accept the cylinders which have been mishandled resulting in deep denting, burning etc. resulting in making the cylinder unserviceable. 22. Dealer shall follow and explain all safety p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention of the assessee that the practice adopted by it in taking deposits and in loaning cylinders was identical to that followed by the oil companies. 6. Apparently, the assessee relied on another case, Domestic Gas Co. Ltd., which was assessed in the same Income-tax Circle, to support its plea that no portion of the amount taken as deposit could be taxed, because the amount only represented a loan given by the consumer to the assessee- company. The Income-tax Officer proceeded to make a comparative study of the various clauses of the agreement in the assessee s case and that in the case of Domestic Gas Co. Ltd. For the purposes of the present appeal, it is sufficient to just broadly state that he tried to draw certain distinctions between the clauses whereby he sought to establish that though in the case of Domestic Gas Co. the amount taken was not considered as taxable, the case of the assessee was different. For example, he stated that in one of the clauses in the case of Domestic Gas Co., the consumer could not remove the cylinder to any other address other than that shown in the application form without obtaining prior written permission of the company s dealer, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... originally by the Income-tax Officer could be considered to constitute an error prejudicial to the revenue so as to enable the Commissioner of Income-tax to exercise his revisional powers. He submitted that the Tribunal came to the conclusion that there was no mistake prejudicial to the revenue in not subjecting the amount to tax. In the said case the Tribunal had considered the ratio of the decision of the Supreme Court in the case of CIT v. Punjab Distilling Industries Ltd. [1964] 53 ITR 75 and had referred to the terms under which the gas cylinders were supplied against which deposits were given by consumers and the Tribunal had come to the conclusion that the purchaser had to return the gas cylinder to the assessee, the cylinders were embossed with the name of the assessee, were distinctly numbered, and cylinders were not meant for sale. and under the agreement entered into with the consumer, the cylinders remained the property of the assessee. Therefore the facts were materially different from the facts in the case of Punjab Distilling Industries Ltd. (supra) and no specific inquiry was necessary into the nature of the deposits to come to the conclusion, that they were deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that the cylinders were plant with which the assessee carried on the business and was not its stock- in-trade i.e. cylinders did not represent goods which were bought and sold. The Delhi High Court s view that cylinders were plant, the learned counsel submitted, was supported by the ratio of the judgment of the Supreme Court in Scientific Engg. House (P.) Ltd. v. CIT [1986] 157 ITR 86. 9. The deposit taken towards the cylinder was about twice the cost of the cylinder. The learned counsel submitted that it was settled law after the decision in Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (CA) which has been relied on by Court after Court, in different judgments, that what had to be considered was the nature of the transaction at the time it took place. He submitted in particular that this judgment had been referred to by the Andhra Pradesh High Court in the case of Badri Narayan Balakishan v. CIT [1965] 57 ITR 752 and by the Supreme Court in Punjab Distilling Industries Ltd. s case (supra ). In the case of Punjab Distilling Industries Ltd. (supra) he submitted that there was a buy- back scheme for bottles in which liquor was sold and the extra amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference was also made to certain other orders of the Tribunal where the Tribunal had held that when cops were sold together with yarn the price taken for cops as security deposit did not constitute taxable income. For all the aforesaid reasons the learned counsel submitted that the amount of Rs. 16.74.000 would not have constituted a trading receipt of the assessee and was not therefore taxable. 12. The learned departmental representative at the outset submitted that he was not relying on the reasoning of the Income-tax Officer for holding that the amount received as security deposit for cylinders constituted a taxable receipt. But he was only relying on the conclusion of the Income-tax Officer that the amount of Rs. 16,74,000 was income which was taxable. So also he submitted that he was not seeking to derive support from any independent reasoning in the order of the Commissioner of Income- tax (Appeals). As far as the order of the Commissioner of Income- tax (Appeals) was concerned, the Commissioner of Income-tax (Appeals) had followed the decision of the Tribunal in the case of Ideal Engineers Hyderabad (P.) Ltd. (supra) and this order of the Tribunal, it is stated, support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing capital that would constitute income. A case relied on in this regard was the decision of the Supreme Court in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362. According to the learned departmental representative the cylinders were circulating capital, in kind, and did not constitute plant at all and therefore represented clearly the stock-in-trade of the assessee. The learned departmental representative referring to the decision of the Supreme Court in the case of State Bank of India v. CIT [1986] 157 ITR 67 submitted that the manner in which entries were made by the assessee could not be conclusive of the true nature of the receipt. While he did not dispute the proposition in Morley s case (supra ) that the nature of the receipt had to be determined at the time of inception, he submitted that in the present case the transaction of taking an amount as deposit towards cylinder, and price charged for supply of gas was part of the same trading transaction, and having regard to the ratio of the judgment of the Andhra Pradesh High Court in Badri Narayan Balakishan s case (supra) the amount in question was clearly a taxable amount. 16. With reference to the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 519 . He submitted that it was settled law that when the Supreme Court rendered a decision no argument should be advanced that one or other aspect of a contention was not taken due note of. Going at length through the judgment, the learned departmental representative submitted that the Supreme Court had analysed the case of K.M.S. Lakshmanier Sons (supra) and had come to the conclusion that the so-called security deposit in that case (Punjab Distilling Industries) towards bottles was nothing but a trading receipt. 21. Regarding the contention of the learned counsel for the assessee that in any event it should be considered that there was an overriding title as far as the amounts received were concerned, the submission of the learned departmental representative was that if there was to be diversion of overriding title a third party should be involved whereas in the present case there were only two parties, namely, the assessee and the consumer. 22. An alternative contention of the learned departmental representative was that even if the cylinder was considered as plant there was a "transfer" of such plant within the extended meaning of the term in section 2(47) and the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the amounts which originally were deposits, a trading receipt. 25. On the point that there was short-term capital gains, according to the learned counsel, there was no merit in that plea excepting one of novelty. He submitted that the contract was not of sale and if the contract was to be pronounced upon it was clearly nothing but a contract for loan of the cylinder for a particular period of time, namely, the duration for the period for which gas was to be supplied. He emphasised that no title passed in the present case in relation to the ownership of the cylinders. 26. The learned counsel stressed that the ratio in McDowell Co. Ltd. s case (supra) has no application because the assessee by passing entries etc. in the manner that he did was not trying to camouflage the true nature of the transaction. In any event the learned counsel submitted that even if the stand of the department that what was received was trading receipt must be accepted, then against the same the cost of the cylinders would have to be allowed as deduction, as he had originally contended for, and such amount exceeded Rs. 8 lakhs. According to him the law did not warrant, even in the view of the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal representative is only seeking to support the addition and therefore it is open to him to support the said addition on grounds other than that taken by the assessing officer or the first appellate authority. We, therefore, proceed to consider the grounds of the learned departmental representative since no fresh facts are involved other than those already on record. 28. Taking the tabular statement it is open to every prudent businessman to utilise amounts which come into his coffers to the maximum advantage. Therefore, the mere fact that large cash balances were not maintained does not support the department s stand that there was no idea of returning the deposit. There is no instance brought to notice that any consumer had made a claim for refund of deposit and the assessee had baulked such payment. Nor can the assessee be expected to keep large cash balances in books uninvested and for reasons of security. Both parties have agreed that the nature of the transaction has to be determined at the time of the transaction following the ratio in Morley s case (supra) which has been accepted by various Courts in India. Both parties have canvassed their respective stands placing r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the constituents who deposited the money. The sum so deposited was to be refunded with interest at three per cent per annum at the end of the business connection between the parties, if necessary, after retaining thereout any amount due on the contracts made with the constituent which, the latter was at the termination of the business found not to have paid. Patanjali Sastri CJ. observed at page 207 in regard to the deposits made under this arrangement : "The amount deposited by a customer was no longer to have any relation to the price fixed for the goods to be delivered under a forward contract either in instalments or otherwise. Such price was to be paid by the customer in full against delivery in respect of each contract without any adjustment out of the deposit, which was to be held by the appellants as security for the due performance of his contracts by the customer so long as his dealings with the appellants by way of forward contracts continued, the appellants paying interest at 3 per cent, in the meanwhile, and having, as appears from the course of dealings between the parties, the use of the money for their own business. It was only at the end of the "business conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be adjusted against claim arising out of possible default would not alter the character of the transaction. According to the Supreme Court such a deposit remained a loan of which the repayment in full was conditioned by the due fulfilment of the obligations under the collateral contract. 29. We are of the view that in the present case, the amounts received are clearly deposits in the light of the aforesaid observations of the Supreme Court whereby they approved the decision In K.M.S. Lakshmanier s case (supra) as far as the third part of the accounting period was concerned. 30. The absence of a penalty clause does not make any difference. As a matter of fact in the present case the deposit collected is about twice the cost of the cylinder and in case the cylinder is not returned forfeiture of an amount equal to the cost could be construed as sufficient penalty. Again the mere fact that the possibility of person giving up the gas connection is remote does not alter the nature of the payment when made because at the time of payment it was nothing but deposit. 31. Coming to the decision of the Andhra Pradesh High Court in Badri Narayan Balakishan s case (supra) it is clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been variously defined as meaning a complete wiping out, destruction, annihilation, termination, cancellation or extinction and it is ordinarily used in relation to right, title, interest, charge, debt, power, contract or estate (see Corpus Juris Secundum, volume 35, page 294). In Rawson s Pocket Law Lexicon, the meaning assigned to it is : the destruction or cessation of a right either by satisfaction or by the acquisition of one which is greater . In Ramanlal Gulabchand Shah v. State of Gujarat AIR 1969 SC 168 at page 175, the word extinguishment which is employed in conjunction with the expression of any such rights In article 31-A of the Constitution, was interpreted as meaning complete termination of the rights ." In the present case, there has been no wiping out, destruction, annihilation, termination, cancellation or extinction of any right. All that has happened is that for a certain period the consumer is permitted the use of the cylinder to the exclusion of the assessee, that is, during the period the cylinder is at the residence or other premises of the consumer. It was ascertained by us that the gas supplied by the assessee could be utilised for similar purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court in National Air Products Ltd. s case (supra). Therefore, the assessee is entitled to depreciation. The learned counsel for the assessee submitted that the assessee was entitled to depreciation at 100%, because in terms of Item III(ii)F(4) Gas cylinders including valves and regulators are entitled to 100% depreciation. The submission of the learned departmental representative was that such depreciation at 100% was admissible only in respect of persons who manufactured gas themselves and stored it in cylinders and not for persons like the assessee who bought and sold gas. Here, we are unable to agree with the learned departmental representative. Where the depreciation rates are admissible only to plant in manufacturing concerns, such position is made expressly clear in the entries in Appendix I to Income-tax Rules. For example, against Item III(ii)F(5), it is stated that 100% depreciation is admissible in respect of "Glass manufacturing concerns-Direct fire glass melting furnaces". Therefore, we hold that depreciation. at 100 % is admissible on gas cylinders whether in the hands of the manufacturer or in the hands of a person who fills gas bought from others into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Air Conditioner Cooler 25,000.00 Vehicles 24,000.00 Omni Bus 70,000.00 L.P.G. Road Tanker 3,00,000.00 Land 16,198.00 Building under Construction 16,500.00 8,23,698.00 The written down value of these assets was lower. For example, the written down value of the omnibus was only Rs. 34,300 while it was taken over at Rs. 70,000. The written down value of the L.P.G. Road tanker was only Rs. 2,13,347, whereas it was taken over at Rs. 3,00,000. Similar upward revision was there in the case of other assets also. The plea was that the takeover was at the market price. As already mentioned, the previous owner f had taken the value in terms of the agreement, and the written down value, and the difference had been offered for taxation under s. 41(2) and was subjected to tax in the hands of the previous owner Sri G.K. Kabra for the assessment year 1983-84 in the assessment order dated 31-3-1986. Under the provisions of s. 41(2), a surplus can be brought to tax only where it results from sale. Therefore, what was sale price to Sri Kabra from which the surplus was asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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