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TMI Blog2012 (12) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... 318/Hyd/2002 and 330/Hyd/2002 is with regard to treatment of the receipts of security deposits on leasing of Gas cylinder as sales receipt and consequently treating the difference between security deposit and purchase cost of cylinders as business income of the assessee. Since these grounds are interrelated, we will adjudicate these grounds in assessee as well as in Revenue appeals collectively. 3. For clarity, we take facts in ITA No. 154/Hyd/2000 for the assessment year 1995-96. Brief facts of the case are that for the assessment year 1995-96, the assessee had shown purchase of 96200 cylinders of capacity of 2.3 kg. LPG from Ideal Engineers Hyderabad Limited for Rs. 2,08,82,545. It had also shown to have received 800 cylinders on return from PKL Limited out of cylinders loaned out to PKL Limited in earlier years. The entire 97000 cylinders were given to PKL Limited on loan basis. The cylinders were loaned out by taking security deposit @ Rs. 240/- per cylinder. The assessee had shown to have received total security deposit of Rs. 2,32,80,000 for loaning out 97000 cylinders. The assessee had claimed that purchase and sale of Liquified Petroleum Gas is one of its business and sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kabra happens to be the father of the Managing Director of the assessee company. Shri Kabra was described as advisor to all the three companies viz., assessee, Ideal Engineers Hyderabad Limited and PKL Limited and was authorised by all the three companies to represent them before the assessing officer in respect of cylinder and gas business. On the basis of enquiries made by her and the details filed from the assessee's side, the assessing officer came to the conclusion that no real sale of 1/2 Kg LPG had taken place through the cylinders which were loaned out to PKL Limited and the entire transaction was a colourable device solely aimed at reducing the incidence of taxation. She observed that when the capacity of the cylinders was 2.3 Kg there was absolutely no valid basis to fill them up with 1/2 Kg LPG. She further held that what is being shown as loan transaction of cylinders is actually sale of the cylinders to PKL Limited and the security deposit is nothing but sale proceeds of the cylinders. In support of her finding that the transaction of sale of gas and loaning of cylinders was a colourable device, the assessing officer had relied upon various case-laws including that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to assessee-company were never returned to it. j) Because the statistics mentioned in earlier paras show that the assessee was using this device of claiming depreciation on cylinders over the years in connivance with its sister concerns. k) Because the assessee has not obtained any licence/permission for possessing/storing gas and without this, it cannot possess and store gas implying thereby that the assessee cannot sell the gas in cylinders for its alleged claim of 'putting to use. l) Because of the detailed discussion of statistics in the first few paras proving that the value of alleged sale of gas in cylinders was a device adopted by the assessee-company over the years which had nothing to do with the commercial or business viability. m) Because the conditions mentioned on back of the Subscription Vouchers are done to suit the convenience of the assessee and its sister concerns and cannot be relied upon proving to be only a paper transaction as in reality 800 cylinders were proved to be never returned back by M/s. P.K.L. Limited to assessee-company during the asst. year 1995-96. n) Because of all other factors discussed in earlier paragraphs, in details, it is proved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has purchased cylinders and treated as it as plant and claimed depreciation at 100% as admissible under the Act. Since the cylinders were put to use in the assessee own business and the cylinders are the property of the assessee the depreciation was claimed in accordance with the provisions of section 32(i)(ii) of the Income Tax Act, 1961. The AR has placed reliance on the order of the Special Bench in the case of Detective Devises Pvt Ltd. (cited supra). 8. The DR on the other hand relied on the CIT (A) order and submitted that, the assessee was actually sold the cylinders to its customers and collected twice the amount of cost what it has paid for cylinders. He was of the view that there were hardly few instances of refund of deposits, according to him, actually there was sale of cylinders to customers and hence the deposits were in fact sale proceeds for cylinders. Therefore, it has to be treated as sale proceeds and consequently the difference between the cost price and sale price to be treated as business profit of the assessee. It was further submitted that the assessee is not used the cylinders for its own business as envisaged in the Act, so as to claim depreciation. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not have any right or interest over the cylinders. The security deposit collected by the assessee from the customers cannot be treated as received by the assessee towards sales consideration by any stretch of imagination. The learned Representatives appearing for both the parties stated that the order of the Tribunal in the case of G.K. Kabra vs. ACIT (87 ITD 249) was suspended by the Hon'ble High Court in CMP No. 19922 of 2002 in ITTA No. 86 of 2002 dated 3.4.2003. It is also brought on record by the parties that similar issue was considered by this Tribunal in the case of M/s. Prakun Equipments Pvt. Ltd. in ITA No. 264/Hyd/02 for the assessment year 1997-98, the Tribunal vide order dated 5.9.2007 decided the issue in favour of the assessee. It is also on record that this Tribunal in the case of Ideal Engineers (Hyderabad) Pvt. Ltd., Hyderabad & Ors. in ITA No. 1759/Hyd/1996 & Ors., vide order dated 20.12.2007 considered similar facts and held in paras 6 to 8 as follows: '6. We have duly considered the rival contentions and the material on record. To our dismay, we find that the CIT(A) has distinguished the decision in the case of Detective Devices (supra) on flimsy grounds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unction under the jurisdiction of the tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the Department in itself an objectionable phrase- and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws." Thus, respectfully we follow the decision of the Special Bench to hold that the receipts of Rs. 52,06,650 are security deposits and not the income of the assessee. The judgment relied upon by the learned Departmental Representative in 251 ITR 743 does not help the revenue in any manner. Undoubtedly, the judgment is in the assessee's own case for assessment year 1980- 81 but the issue before the High Court was entirely different. For assessment year 1980-81, the Tribunal had upheld the action of the revenue authorities to treat the deposits as the income of the assessee. Two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had bulked such payment. Nor can the assessee be expected to keep large cash balances in books uninvited and for reasons of security. (ii) In the present case, certain amounts were taken as deposit under a contract, towards security of the cylinders supplied. The moment the said deposits were paid, the consumer became entitled to the supply of gas. Gas was the commodity which was being sold. The amount deposited did not have any relation to the price fixed for the goods to be delivered which in the present case was gas nor is it to be adjusted out of deposit. The amount was held by the assessee as security for the consumer returning the cylinder and also observing other conditions of the contract. The business connection in the present case came to an end only when the consumers decided to terminate the contract by surrendering the gas connections or it would have come to an end if notice had been given by either party. On such termination, the amount became repayable. The transaction of deposit in the present case also has all the essential elements of a contract of loan and the deposits constitute borrowed money. The mere fact that the amount was to be adjusted aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Income Tax Act. As the cylinders are property of the assessee and also plants used in the course of its own business. Further the cylinders were used by the assessee in the course of its business by leasing it to its customers. The user of the cylinders were customers of the assessee company and leasing of the cylinders is the business of the assessee and usage of cylinders by the assessee's customers is to be considered as usage by the assessee itself. Therefore, it could not be said that the cylinders were not used by the assessee in its business and the depreciation cannot be disallowed. For this proposition, we are supported by the judgement of Supreme Court in the case of CIT vs. Shaan Finance (P) Ltd., (231 ITR 308) (SC) wherein the Apex Court held that assessee engaged in the business of leasing out machinery is entitled to investment allowances; machines so leased out are being used for the purpose of assessee's business and there is no express requirement in section 32A that the assessee must itself use the machinery. 13. In view of the above discussion and also relying on the decision of Special Bench in the case of Detective Devises Limited vs. Income tax Offic ..... 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