2007 (1) TMI 126 - HC - Income Tax

High Court Decision: Taxable income includes contingent deposits. Deductible expenses for premises improvements. Safe deposit lockers qualify for depreciation.

The High Court ruled that amounts collected as contingent deposits towards sales tax were part of the assessee's income. Expenditure on partitions, false ... - Issues Involved:1. Whether the amounts collected by the assessee from the lessees towards sales tax represented only contingent deposits.2. Whether the assessee is entitled to revenue deduction under section 37(1) for the expenditure incurred in partitions, false ceilings, etc., in the assessee's own premises used for housing lockers.3. Whether the assessee is entitled to depreciation at the rate applicable to a plant at 33-1/3% on its buildings housing the safe deposit lockers.4. Whether the expenditure incurred on false ceiling, partition, etc., in the assessee's leasehold premises were revenue in nature.Issue-wise Detailed Analysis:1. Contingent Deposits:Assessment Years 1987-88, 1988-89, 1989-90, 1990-91, 1991-92, 1992-93, and 1993-94:The Tribunal referred the question of whether the amounts collected by the assessee from the lessees towards sales tax represented only contingent deposits. The Assessing Officer added these contingent deposits to the assessee's business income, invoking section 43B of the Income-tax Act, 1961. The Revenue contended that these deposits should be assessed as income until paid to the government, while the assessee argued that they were not revenue receipts but were meant for sales tax payment.The Commissioner upheld the disallowance, stating that statutory liability does not cease to exist even if disputed. However, the Tribunal, recording the assessee's undertaking to refund the amount if the sales tax levy was struck down, held that the contingent deposits could not be treated as business receipts and directed deletion of the addition.The High Court, referencing CIT v. Southern Explosives Co. [2000] 242 ITR 107 and K. C. P. Ltd. v. CIT [2000] 245 ITR 421, ruled that the amounts collected as contingent deposits were part of the assessee's income as they were meant to meet statutory liabilities. The reference was answered in the negative, in favor of the Revenue.2. Revenue Deduction under Section 37(1):Assessment Years 1988-89, 1990-91, and 1991-92:The Tribunal held that the expenditure incurred by the assessee in partitions, false ceilings, etc., in its own premises used for housing lockers was revenue in nature and deductible under section 37(1). The High Court, citing CIT v. Ooty Dasaprakash [1999] 237 ITR 902, agreed that such expenditures were for repairs and modernization and not of an enduring nature. The reference was answered in the affirmative, in favor of the assessee.3. Depreciation at the Rate Applicable to a Plant:Assessment Years 1988-89, 1989-90, 1990-91, 1991-92, and 1992-93:The Tribunal allowed depreciation at 33-1/3% for buildings housing safe deposit lockers, treating them as 'plant.' The High Court, referencing CIT v. Punjab and Sind Bank Ltd. [2000] 244 ITR 393, held that lockers were essential for the bank's trade and fell within the definition of 'plant.' The reference was answered in the affirmative, in favor of the assessee.4. Expenditure on False Ceiling, Partition, etc., in Leasehold Premises:Assessment Year 1990-91:The Tribunal treated the expenditure on false ceiling, partition, etc., in the assessee's leasehold premises as revenue in nature. The High Court, citing CIT v. Dasaprakash [1978] 114 ITR 210, held that such expenses were incurred to beautify and maintain the premises, making them deductible under section 37 of the Act. The reference was answered in the affirmative, in favor of the assessee.Conclusion:The High Court delivered a comprehensive judgment addressing multiple assessment years and issues. The key findings were:- Contingent deposits towards sales tax were part of the assessee's income.- Expenditure on partitions, false ceilings, etc., in the assessee's own premises was revenue in nature and deductible.- Buildings housing safe deposit lockers qualified as 'plant' for depreciation purposes.- Expenditure on false ceilings and partitions in leasehold premises was also revenue in nature and deductible.The references were answered accordingly, favoring the Revenue on the contingent deposits issue and favoring the assessee on the other issues.