TMI Blog2008 (1) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made by the Assessing Officer on account of life membership subscriptions received by the assessee treating the same as income and whether the finding of the learned Tribunal is perverse? (2) Assuming that the subscription received by the assessee was a capital receipt by way of deposit and the subscription of the subscriber was to be adjusted against the income arise out of the said deposit, whether the Tribunal was right in law in holding that interest which the assessee has shown accrued on the said deposits also does not form part of the income to the assessee merely on the ground that the assessee has not chosen to charge interest from the members of the partnership to whom the money had been advanced ?" 3. While the other appeals have been admitted by framing only one substantial question of law, however, it is pointed out by learned counsel for the Revenue, that in the remaining appeals, applications have been filed by the Revenue, for framing additional question, in line of question No. 2, framed in Appeal No. 53/2004. In such circumstances, instead of standing to ceremony, we have heard learned counsel for either side, on both the questions. 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, accumulated till March 31, 1992, and no part of it, has been shown by the assessee as receipts, in lieu of services, being rendered by the assessee, by providing the monthly journals to the subscribers, year after year. It was also considered that in a business of any trader or any publisher there always existed the contingencies of refunding the money to the purchasers, if they were not satisfied with the material they purchased and in such cases, the trader or a publisher is free to claim deductions on account of these refunds as sales returns and, thus, the assessee was found entitled to claim refund of Rs. 3,000, but it was found, that the amount received, was the income of the assessee. Then, it was also considered that the amounts received were advanced to the three partners of the firm, interest-free, and on being asked, it was given out by the assessee, that since the advances were interest-free, and, therefore, the assessee-firm was not under any obligation to charge interest from them and, therefore, no interest can be added on this ground. However, the assessing authority found that the partners have further advanced these funds to the family members, interest-fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a colourable device, to have been involved in the matter under consideration. The Tribunal further found that the mere fact that only one or two subscribers alone have withdrawn the amount, does not change the nature of receipts of the amounts, and the same remains with the assessee as a refundable deposit, as the condition, regarding its being refundable, does subsist. Thus, it was found, that the deposit cannot become the money of the assessee, nor can it be said to be the income of the assessee. Thus, the deletion ordered by the Commissioner of Income-tax (Appeals) was found to be justified. 8. Then, regarding the contention about treating the income of interest earned by the partners and family members to be treated as income of the firm, requiring to be added, it was considered that the partners can withdraw funds authorisedly/legally from the funds of the firm and the partnership deed does not provide for charging of interest from the partners on their debit balances, and that no interest is being paid on their credit balances. In such circumstances, it was found that non-charging of interest by the assessee from the partners on the amounts withdrawn by the partners f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir withdrawal from the business. In our view, it will suffice to say, that this case has no bearing on the case in hand. 13. Then UOI v. Gosalia Shipping P. Ltd . reported in [1978] 113 ITR 307 (SC), is again a different case, inasmuch the ship was hired and certain monthly rent was agreed to be paid on the basis of the dead weight carrying capacity of the ship, at $. 4.5 per ton, while the ship was called at an Indian port, and was loaded with the company's goods, the question arose about the income, being on account of the carriage of goods. Obviously, the question involved was as to whether the amount paid was hire charges paid on the carriage of goods or not which obviously, has nothing to do with the controversy involved in the present case. 14. Then, National Cement Mines Industries Ltd. v. CIT reported in [1961] 42 ITR 69 (SC), is again a case off the mark, where the amount was relatable to the production and consumption of raw material, and the purchaser company was to pay the amount on that basis to other company. This judgment obviously, has nothing to do with the controversy involved in the present case. 15. The judgment of the hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it was not related to any business done or to loss of profits and it was not recompense for services, past or future, the payment did not bear the character of income taxable under the Income- tax Act, 1922. (v) That the payment not being income, profits or gains, section 4(3)(vii) of the Act had no application. (vi) That the payment did not fall within section 10(5A) (d) of the Act and was not liable to tax under that section." 17. It was further held that (headnote) : "In determining whether a payment amounts to a return for loss of a capital asset or is income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment. If the payment was not received to compensate for a loss of profits of business the receipt in the hands of the recipient cannot properly be described as income, profits or gains as commonly understood. To constitute income, profits or gains, there must be a source from which the particular receipt has arisen, and a connection must exist between the quality of the receipt and the source. If the payment is by another person, it must be found out why that payment has been made. It is not the motive of the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm loans taken for capital expenditure. Interest was payable on the deposits. The amounts, so deducted, were credited to the individual accounts of the members. The assessee was also entitled to collect, by deduction from the cane price payable to the members, term deposits for a period not exceeding five years on which interest not exceeding 12 per cent. was payable. Pursuant to instructions issued by the Director of Sugar, certain amounts, at prescribed rates, were also deducted by the assessee from the cane price, and credited to certain funds, viz., the Chief Minister's Relief Fund, Late Shri Y. B. Chavan Memorial Fund, Hutment Fund, Area Development Fund, and Cane Development Fund. The Appellate Tribunal held that the amounts collected by the assessee towards the non-refundable deposits and the refundable deposits (term deposits) could not be treated as the income of the assessee and the amounts deducted for being credited to the funds were not trading receipts of the assessee. The High Court held that the amounts collected towards the non-refundable and refundable deposits were trading receipts of the assessee, but the amounts deducted towards the funds, were diverted by over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g no unfettered dominion over the said funds, then, it is difficult to characterize them as the income of the assessee. Though the manner in which the sums are treated by the assessee in its accounts is neither conclusive nor a sure indication of the nature and character of the receipt, yet it is not an irrelevant factor." 20. Then, we take up the judgment in U. P. Bhumi Sudhar Nigam v. CIT reported in [2006] 280 ITR 197 (All). In this case, the Government had given grant-in-aid to the assessee for implementation of various specific projects. According to the assessee, the grants were with the stipulation that the sum so provided by the State Government should be placed in the personal ledger account with the treasury and in case the funds were placed with commercial banks in any form, then the interest earned on such funds shall belong to the Government. The State had been issuing instructions/notifications from time to time, in order to regulate the said stipulations. The assessee had invested the amount of grant received by it in fixed deposits with commercial banks, on which interest had accrued. On those facts, it was contended before the Assessing Officer, on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee from subscribers other than such life members, can also be reasonably taken to be accrued usufruct, in the hands of the assessee. In this regard, it is also significant to note that as found by the authorities below that the assessee had been claiming deduction under the head of business expenses, with respect to the journals, sent to such life members. Meaning thereby, that on the one hand, the assessee is enjoying the principal amount, and is not paying tax on the usufruct thereof, and on the other hand, is also claiming deduction, under the head of business expenditure for the publication sent to such life members. This cannot be permitted on any parameters. 25. Accordingly, question No. 2 is answered as above. 26. The net result is that the appeals are partly allowed. It is held that the subscription amount received by the assessee from life members claimed by the assessee as security/dharohar, is not found to be revenue receipt, liable to tax, as held by the learned Commissioner and the Tribunal. However, the matter is remanded back to the Assessing Officer to decide the other part of the matter afresh in accordance with the observations made ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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