High Court Of Madras
CIT vs. Coral Electronics (P) Ltd.
Section 5
Asst. Year 1983-84, 1988-89
R. Jayasimha Babu & S.R. Singharavelu, JJ.
Tax Case Nos. 298 & 354 of 2000
1st December, 2003
Counsel Appeared
J. Narayanasamy, for the Applicant : V. Ramachandran for Ms. Anitha Sumanth, for the Respondent
JUDGMENT
S.R. Singharavelu, J. :
The assessment years in these cases are 1983-84 and 1988-89. The question referred is whether the Tribunal was right in law in deleting the addition made by the AO with respect to optional service charges collected by the assessee covering a period of two years.
The assessee is a private limited company carrying on business in television sets. In the previous year ending 31st March, 1983, and 31st March, 1988, corresponding to the asst. yrs. 1983-84 and 1988-89, respectively, the assessee had collected service charges, which were bifurcated into two items, one as pertaining to year and another pertaining to the subsequent assessment year and, therefore, excluded from consideration in determining the total income of year.
The AO treated it as income and taxed the same. The Tribunal has held that it is not taxable income. Counsel for the Revenue relied upon the decision in the case of CIT vs. Shaik Mohamed Rowther Shipping Agencies (P) Ltd. (2000) 160 CTR (Mad) 203 : (2000) 246 ITR 161 (Mad), wherein the amounts received for execution of work shown as advance were considered as income (amounted) to tax. What happened in that case was the assessee- company received the amount as remuneration for the work done and the income received by the assessee accrued as income for that year. The assessee received 90 per cent of the bill amount and it certainly amounted to income and, therefore, it was subjected to tax.
Counsel for the assessee relied on the decision in the case of CIT vs. Southern Explosives Co. (2000) 242 ITR 107 (Mad), wherein the true character of a receipt was vividly discussed, as to when it would amount to trading receipt or otherwise. It was held therein that the true character of a receipt must be judged with reference to the reasons for the collection and the liability for meeting which the collection was made. When the liability is a statutory one, the true character of the collection was a trading receipt. By calling a portion of the amount deposit, it cannot be said that the assessee had constituted itself as a trustee and, therefore, the amounts received were not required to be regarded as part of its trading receipt.
Again, it was held in the case of CIT vs. Punjab Tractors Co-op. Multipurpose Society Ltd. (1997) 142 CTR (P&H) 20 : (1998) 234 ITR 105 (P&H) that the deposits or advances received by the assessee became a trading receipt when the assessee became entitled to appropriate the same to its income at the time of rendering the service.
The counsel for the Revenue also relied upon the decision in the case of CIT vs. Shankaranayaran Construction Co. (1992) 197 ITR 688 (Kar), wherein it was held that the fact that the assessee had maintained its accounts on cash basis will not convert every kind of receipt as income unless the receipt could be held to have accrued as income because the assessee acquired a right to receive the said sum as income.
In the instant case the amount that was received was only as charges for the services to be rendered in future. The services may be rendered or may not be rendered depending upon withdrawal of the money as and when the customer required. So, it is highly uncertain as to whether it would at all remain as income of the assessee. Only when the service is done the assessee has a right over the amount that was deposited. Till then, he has no right over the same. It is in that sense till then, it cannot be considered as an income of the assessee and is not exigible to tax. Therefore, the issue is answered in favour of the assessee and against the Revenue.
[Citation : 274 ITR 336]
