TaxTMI 
TaxTMI 
1987 (4) TMI 447
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....llected, which in this accounting year came to Rs. 16,74,000, was a trading receipt. The Income-tax Officer had brought this amount to tax as a trading receipt, and such order of the Income-tax Officer was also upheld by the Commissioner of Income-tax (Appeals). The assessee appealed to the Tribunal and placed reliance on a decision of the Indore Bench of the Tribunal in the case of Goyal Gases ( P.) Ltd. v. ITO [IT Appeal No. 2214 (Delhi) of 1984] in support of the plea that the amount referred to could not constitute taxable receipt. The revenue, on the other hand, relied on an order of the Tribunal in the case of Ideal Engineers Hyderabad (P.) Ltd. v. ITO [IT Appeal No. 551 (Hyd.) of 1985] in support of the plea that such amounts constituted a trading receipt. In view of the conflict between the views taken by the two Benches of the Tribunal, the matter was referred to the President of the Tribunal on the point "whether the security deposit received by the assessee from its customers on supply of the cylinders is a trading receipt and liable to be taxed" for considering whether a Special Bench may be constituted. In pursuance of such reference, the President constituted a Speci....
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....pment and shall remain responsible to the Company for its safe custody and proper use until it is returned to the Company or to its Distributors. The consumer shall not sell, mortgage or otherwise dispose of the equipment or create any interest therein or charge thereon in favour of any party. 4. If the consumer removes the equipment to any address other than shown on the front thereof, he should immediately inform the Distributor by whom the equipment was supplied. 5. The Consumer shall not take the equipment outside the area serviced by the Distributor from whom the equipment was originally taken in the event of consumer's departure from the area for reasons of transfer etc. the consumer shall inform the Distributor. The company however does not guarantee about the supply of gas in the new area to which the equipment is shifted. 6. The consumer shall not undertake to repair the equipment or cause the same to be repaired by anyone except the Company or their Distributor nor shall the consumer use the cylinder for any purpose other than as a cylinder for the gas supplied by the Company. 7. The Company shall be at liberty and the Consumer shall permit the Company or its Distribu....
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....e deposit if any after deducting the amount due to the Company or Distributor." In addition, there were certain guidelines issued by the company to their dealers for loaning and surrendering of cylinders, which are as under: "1. The dealer shall give the cylinder on deposit issuing the Sub- scription Voucher as per prescribed proforma along with terms and conditions of loaning the cylinder. 2. The dealer shall collect security deposit strictly as per the company schedule as applicable at the time of delivery of the cylinder. 3. The dealer shall undertake to supply gas to all the consumers who have obtained the Company's cylinder from any authorised dealer of the company in India. 4. The company has loaned the cylinder to the dealer for use by consumer needing company's gas. 5. The cylinder is the property of the company and no dealer/ consumer has the right over this company's property. 6. The cylinder would be maintained by company for safe use of liquefied gas supplied by the company. 7. The dealer shall not carry out any change in the cylinder fitments and shall not undertake any repairs such as welding, brazing, etc. 8. The dealer shall check the leak of each cylinder ....
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....on Voucher received from consumer. 19. The dealer shall undertake to return all those cylinders which fall due for testing as per Explosives Act. The company stall circulate information In this regard from time to time. 20. The company would replenish the quantity of cylinders received from the dealer for retesting. 21. The company shall accept the cylinders even if the bung thread has been damaged, valve fittings damaged or the foot ring is missed. However, company does not accept the cylinders which have been mishandled resulting in deep denting, burning etc. resulting in making the cylinder unserviceable. 22. Dealer shall follow and explain all safety precautions to the consumer." At the time of taking the amount styled as 'deposit', a Subscription Voucher was issued showing the quantity of cylinders supplied, the amount deposited, and was signed by the consumer. A blank specimen thereof is at page 8 of paper book I and a filled in specimen is at page 9 of paper book I. Page 10 of paper book I gives copy of the Delivery Challan relating to the Subscription Voucher. Page 11 gives the bill in relation to the supply of gas for the 48 cylinders in respect of which Rs. 4,800 was....
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....clauses of the agreement in the assessee's case and that in the case of Domestic Gas Co. Ltd. For the purposes of the present appeal, it is sufficient to just broadly state that he tried to draw certain distinctions between the clauses whereby he sought to establish that though in the case of Domestic Gas Co. the amount taken was not considered as taxable, the case of the assessee was different. For example, he stated that in one of the clauses in the case of Domestic Gas Co., the consumer could not remove the cylinder to any other address other than that shown in the application form without obtaining prior written permission of the company's dealer, whereas in the case of the assessee, intimation was sufficient before the cylinder was removed. He also sought to make a point of the fact that there was a clause in the agreement that the assessee did not guarantee about the supply of gas in the new area to which the cylinder may have been shifted. There was a reference to a clause which permitted the assessee's personnel to enter at all reasonable hours the consumer's premises to take back or remove from the customer empty cylinder belonging to the assessee. This the Income-tax Offi....
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....ich the gas cylinders were supplied against which deposits were given by consumers and the Tribunal had come to the conclusion that the purchaser had to return the gas cylinder to the assessee, the cylinders were embossed with the name of the assessee, were distinctly numbered, and cylinders were not meant for sale. and under the agreement entered into with the consumer, the cylinders remained the property of the assessee. Therefore the facts were materially different from the facts in the case of Punjab Distilling Industries Ltd. (supra) and no specific inquiry was necessary into the nature of the deposits to come to the conclusion, that they were deposits and the Commissioner was wrong in assuming that the judgment of the Supreme Court would apply to the facts of the case. 8. The learned counsel then submitted that there was a specific agreement for the supply of cylinders (which we have set out in full already) and the cylinders remained the property of the assessee company and the assessee-company was responsible for the proper maintenance of the cylinders. The proper storage and maintenance of cylinders he submitted was also subject to the provisions of the Indian Explosives ....
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....ed law after the decision in Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (CA) which has been relied on by Court after Court, in different judgments, that what had to be considered was the nature of the transaction at the time it took place. He submitted in particular that this judgment had been referred to by the Andhra Pradesh High Court in the case of Badri Narayan Balakishan v. CIT [1965] 57 ITR 752 and by the Supreme Court in Punjab Distilling Industries Ltd.' s case (supra ). In the case of Punjab Distilling Industries Ltd. (supra) he submitted that there was a buy- back scheme for bottles in which liquor was sold and the extra amount taken at the time of sale, though classified as security deposit, was considered in the circumstances by the Court to be part of the price of the goods sold. The learned counsel went on to state that the Supreme Court in the aforesaid case had analysed the Judgment in the case of K.M.S. Lakshmanier & Sons v. CIT [1953] 23 ITR 202 in coming to the conclusion that it did. The facts in the present case he submitted were materially different and he reiterated that the cylinders, which constituted the plant of the assessee, and for whic....
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.... holding that the amount received as security deposit for cylinders constituted a taxable receipt. But he was only relying on the conclusion of the Income-tax Officer that the amount of Rs. 16,74,000 was income which was taxable. So also he submitted that he was not seeking to derive support from any independent reasoning in the order of the Commissioner of Income- tax (Appeals). As far as the order of the Commissioner of Income- tax (Appeals) was concerned, the Commissioner of Income-tax (Appeals) had followed the decision of the Tribunal in the case of Ideal Engineers Hyderabad (P.) Ltd. (supra) and this order of the Tribunal, it is stated, supported the contention of the revenue that the amount in question was taxable. The learned departmental representative, however, stated that the powers of the Income-tax Appellate Tribunal were not confined to considering and adjudicating only upon the correctness or germaneness of the reasoning of the authorities below, but it was open to him to canvas any argument which, on the facts, was relevant to support the stand of the respondent, namely, that the amount in question was taxable. 13. The learned departmental representative placed rel....
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....ined at the time of inception, he submitted that in the present case the transaction of taking an amount as deposit towards cylinder, and price charged for supply of gas was part of the same trading transaction, and having regard to the ratio of the judgment of the Andhra Pradesh High Court in Badri Narayan Balakishan's case (supra) the amount in question was clearly a taxable amount. 16. With reference to the terms of the contract, the learned departmental representative submitted that there was no clause whereby the consumer had to pay penalty if the cylinder was not returned. This, according to him, showed that in reality the assessee had divested itself of ownership of the cylinder in favour of the consumer. 17. Yet another argument made by the learned departmental representative was that the contract was only a contingent contract and the possibility of a refund being sought, in any view of the matter, was a remote possibility and what the assessee had acquired was nothing other than trading receipts. 18. The learned departmental representative further submitted that if the dealer made a single bill instead of making separate subscription voucher for the so-called deposit, ....
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....if there was to be diversion of overriding title a third party should be involved whereas in the present case there were only two parties, namely, the assessee and the consumer. 22. An alternative contention of the learned departmental representative was that even if the cylinder was considered as plant there was a "transfer" of such plant within the extended meaning of the term in section 2(47) and the amount received by way of deposit was nothing but short-term capital gains. This is because, according to the learned departmental representative, if the cylinder represented plant, when the cylinder was made over to the consumer there was clearly extinguishment of some ownership rights which vested in the assessee. He sought to clarify that ownership was a bundle of rights and as long as some of the rights were extinguished then there was clear receipt of short-term capital gains. 23. In reply, the learned counsel for the assessee sought to clarify that the right of a respondent was something more restricted than the right of an appellant in an appeal. According to the learned counsel for the assessee an inferential fact could not be imported by- the respondent for supporting hi....
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.... nature of the transaction. In any event the learned counsel submitted that even if the stand of the department that what was received was trading receipt must 'be accepted, then against the same the cost of the cylinders would have to be allowed as deduction, as he had originally contended for, and such amount exceeded Rs. 8 lakhs. According to him the law did not warrant, even in the view of the department, that receipts alone would be taxed and outgoings against such receipts which were of revenue nature were not to be allowed as deduction. 27. We have considered the rival submissions. The department in the present case is the respondent. In New India Life Assurance Co. Ltd. v. CIT [1957] 31 ITR 844 , the Bombay High Court had occasion to deal with the scope of section 33(4) of the Indian IT Act, 1922 which is in pari materia with section 254 of the IT Act, 1961. Dealing with this Chagla C.J. observed at page 855 as under: "The position with regard to the respondent is different. It is not open to him to urge before the court of appeal and get a relief which would adversely affect the appellant. If the respondent wanted to challenge the decision of the trial court, it was open....
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....aulked such payment. Nor can the assessee be expected to keep large cash balances in books uninvested and for reasons of security. Both parties have agreed that the nature of the transaction has to be determined at the time of the transaction following the ratio in Morley' s case (supra) which has been accepted by various Courts in India. Both parties have canvassed their respective stands placing reliance, on the observations of the Supreme Court in Punjab Distilling Industries Ltd.'s case (supra). In the said case the Supreme Court had analysed the various receipts taken at different points of time in the accounting period in K.M.S. Lakshmanier & Sons' case (supra). In the accounting period yarn was sold to their constituents under three successive arrangements each of which covered a part of the accounting period. Under each arrangement the assessee was paid a certain initial sum by the customers. Under the first arrangement the assessee had two accounts for each constituent, namely, 'a contract deposit account' and 'a current yarn account' crediting the moneys received from the customers in the former account and transferring them to the yarn account in adjustment of the price ....
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....held by the appellants as security for the due performance of his contracts by the customer so long as his dealings with the appellants by way of forward contracts continued, the appellants paying interest at 3 per cent, in the meanwhile, and having, as appears from the course of dealings between the parties, the use of the money for their own business. It was only at the end of the "business connection" with the appellants that an adjustment was to be made towards any possible liability arising out of the customer's default. Apart from such a contingency arising, the appellants undertook to repay an equivalent amount at the termination of the dealings. The transaction had thus all the essential elements of a contract of loan, and we accordingly hold that the deposits received under the final arrangement constitute borrowed money." Having observed that the description of the payment made by the customer as a deposit made no difference for a deposit included as a loan, the learned Chief Justice further said at page 208: "The fact that one of the conditions is that it is to be adjusted against a claim arising out of a possible default of the depositor cannot alter the character of ....
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....re of an amount equal to the cost could be construed as sufficient penalty. Again the mere fact that the possibility of person giving up the gas connection is remote does not alter the nature of the payment when made because at the time of payment it was nothing but deposit. 31. Coming to the decision of the Andhra Pradesh High Court in Badri Narayan Balakishan's case (supra) it is clear that the amount received, classified as deposit here has nothing to do with the transactions in the commodity dealt in as such and did not constitute part of the price of the commodity supplied, namely, gas, but was received only for the due performance of obligations by the consumer and service by the assessee by ensuring that the cylinders are properly maintained etc. The assessee in the present case was fully saddled with the liabilities under the Indian Explosive Act as well as rules relating to gas cylinders. Our conclusion that the amounts received were deposits which did not partake the nature of trading receipts is also in conformity with the tests enunciated by the Andhra Pradesh High Court in the case of Badri Narayan Balakishan (supra). 32. As far as the argument of the learned departm....
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....ation, termination, cancellation or extinction of any right. All that has happened is that for a certain period the consumer is permitted the use of the cylinder to the exclusion of the assessee, that is, during the period the cylinder is at the residence or other premises of the consumer. It was ascertained by us that the gas supplied by the assessee could be utilised for similar purposes as liquefied petroleum gas viz. for heating purposes as well as for lighting purposes etc. and the cylinders, which were smaller than the usual LPG cylinders could be utilised as stand by cylinders. There is thus no extinguishment of any ownership rights in the cylinders and hence even under the extended meaning, there is no transfer within the terms of section 2(47) and the question of bringing to tax any surplus as short-term capital gains does not arise. 34. In the view that we have taken, it is not necessary to examine whether there is any diversion by overriding title. We have not confined ourselves to the description given by the entries in the books of account of the assessee, but we have examined independently the terms of the contract under which the amounts were received and the terms ....
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....pendix I to Income-tax Rules. For example, against Item III(ii)F(5), it is stated that 100% depreciation is admissible in respect of "Glass manufacturing concerns-Direct fire glass melting furnaces". Therefore, we hold that depreciation. at 100 % is admissible on gas cylinders whether in the hands of the manufacturer or in the hands of a person who fills gas bought from others into the cylinders. The assessee is, therefore, entitled to depreciation at 100% on the cost of cylinders of Rs. 8,52,383. 37. Before parting with the aforesaid point, we have to note and deal with an argument of the learned departmental representative, viz. that where the equipment is not wholly used by the assessee, depreciation can be allowed only on a proportionate part of the cost of the asset and further, if any part of the cost of the asset is met by anyone else, then in determining the actual cost, the cost met directly or indirectly by such other person is to be reduced. In the present case, the cylinders are used by the assessee for filling gas and the filled in cylinders are supplied to the consumers. The user is exclusively by the assessee. The consumer does not use the cylinder. Again, the depos....