2016 (12) TMI 412 - HC - Income Tax

High Court decision: Sinking Fund appropriation as revenue receipt, deductible for total income computation

The High Court ruled in favor of the Revenue and against the applicant assessee regarding the appropriation towards the Sinking Funds. The Court ... Amount appropriated towards the Sinking Funds - whether was a part of the rent received by it and was in the nature of a revenue receipt ? - Held that:- Considering the order of this Court in M/s. M. Visvesvaraya Industrial Research and Development Centre Vs. Commissioner of Income Tax (2012 (11) TMI 235 - BOMBAY HIGH COURT), the above Reference related to Assessment Years 1989-90 and 1990-91 in respect of the applicant assessee itself wherein held The mere use of the term 'sinking fund' and the manner in which the assessee treats the same in its accounts is not decisive of the matter. The assessee is not a co-operative society in which case the question may well be answered entirely differently depending upon the facts of the case. The fact that depreciation has been claimed by the assessee in respect of the plant and machinery and other equipment required for extending the facilities indicates that the sinking fund was utilized for acquiring and maintaining the same for the benefit of the assessee. The income was, therefore, used by the assessee and for the assessee and the assessee retained the benefit arising therefrom An identical question raised therein as here was answered in favour of the Revenue and against the applicant assessee. Issues:1. Whether the amount appropriated towards the Sinking Funds is considered as part of the rent received and a revenue receiptRs.2. Whether the amount received by the assessee as a contribution to the Sinking Fund is a capital receiptRs.3. Whether the amount appropriated to the Sinking Fund is deductible in computing the assessee's total income for Assessment Year 1983-84Rs.Analysis:1. The High Court was tasked with addressing the substantial questions of law referred by the Income Tax Appellate Tribunal regarding the nature of the amount appropriated towards the Sinking Funds. The first issue revolved around determining if the said amount should be considered part of the rent received and classified as a revenue receipt. The Court referred to a previous judgment related to a similar question and ruled in favor of the Revenue and against the applicant assessee, based on the precedent set in the earlier case.2. The second issue concerning whether the amount received by the assessee as a contribution to the Sinking Fund should be classified as a capital receipt was not pursued by the applicant. As a result, the Court noted that there was no need to address this question since it was not pressed by the applicant, and thus, remained unanswered.3. Lastly, the Court focused on the third issue, which questioned whether the amount appropriated to the Sinking Fund is deductible in computing the assessee's total income. The applicant's counsel acknowledged that questions two and three were not being pressed, leaving only the first issue for consideration. The Court's decision on the first question was in favor of the Revenue, aligning with the outcome of the earlier judgment referenced during the proceedings. Consequently, the Court resolved the Reference in favor of the Revenue and against the applicant assessee, based on the affirmative answer given to the first question.In conclusion, the High Court's judgment clarified the nature of the amount appropriated towards the Sinking Funds, emphasizing its classification as part of the rent received and a revenue receipt. The decision was based on legal precedents and the specific circumstances of the case, ultimately leading to a ruling in favor of the Revenue for the Assessment Year 1983-84.