TaxTMI 
TaxTMI 
1985 (9) TMI 126
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....y Service Scheme' instead of taking over to the balance-sheet, could have been subjected to tax during the year under consideration. In the Revenue's appeal, however, there is another dispute regarding addition on account of premium which, according to the ITO, the assessee receive din respect of tractors sold by it as it was well-known, according the Revenue, that on the said make of tractors, i.e., Massey Ferguson, in which the assessee was dealing, there was a premium. 3. For the sake of convenience, we first take up the issue pertaining to the amounts received by the assessee under the 'Post Warranty Service Scheme' and for the sake of better and clearer understanding, we give here below the brief background of the issue. The assessee had been dealer in Massey Ferguson tractors for the district of Bhatinda. It received its quota from the manufacturers M/s. Tractors and Farm Equipment, Madras, directly. The said quota varied from year to year and it was since 1969 that the assessee's business was established. During the accounting year 1974-75 for the first time, as per universal practice, adopted by other dealers of tractors of various makes, the assessee had formulated an '....
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....posit, on request. 3. Any job requiring dismantling of engine and overhauling, jobs will be done in our workshop only. 4. Material, spare parts etc., as required, will be charge extra or may be provided by the owner. 5. any work done other tan shown in the above scheme will be charged extra. 6. Should the tractor not released for servicing to our mechanic even though prior information of this arrival is sent, you will be debited with he actual travelling expenses of our mechanic. 7. Tractors driven by our employee are entirely at owner's risk and responsibility." The assessee, therefore, maintained the deposits received from the customers in separate accounts. The Post Warranty Services could be claimed by the members of the scheme and the assessee was obliged to render the same during the stipulated period. It will not be out of place to mention that the stipulated period of services started only from the first requisition i.e. making for first service by the member. In case, no requisition of service was made at the end of one or two years' period, as the case may be, the member could opt for the refund of his deposit. However, in case the member opted to get th....
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....hat the said amount could not be lying for father expenses to be incurred for services of the tractors already sold in earlier yeaRs. He even observed that subsequently no tractor was ever serviced. According to ITO, money received for a specific purpose should have been offered for tax, if that specific purpose was not fulfilled. The ITO held that it was trading receipt and since it was not refunded, the same was, therefore, taxable and he even not bothering that in the said account, opening balance itself amounted to Rs. 3,35,721 taxed the net balance, as above stated, in a sum of Rs. 4,19,661. 6. When the matter came before the CIT (A), he sustained the addition in a sum of Rs. 91,260 i.e. receipt of the year under consideration. For still clearer understanding of the finding of the CIT (A), we may place the 'Post Warranty Service Scheme' account as under:— . Credit side Debit Side . By opening balance 3,35,721 To refund 7.320 By receipt during the year . To balance 4,19,661 . 91,260 . . . 4,26,981 . 4,26,981 The ld. counsel for the assessee had relied on an Amritsar Bench decision of the Tribunal in the case of....
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....,320=Rs. 3,28,401. The assessee, therefore, gets a reduction or Rs. 4,19,661 minus Rs. 91,260=Rs. 3,28,401 on this score." It is this action of the CIT (A) which left both the assessee and the Revenue aggrieved. The assessee in its appeal has challenged the sustenance of Rs. 91,260 whereas the Revenue has disputed the deletion of Rs. 3,28,401. 7. The ld. counsel for the assessee Mr. D. K. Gupta before us in respect of the assessee's and the Revenue's appeal not only stated the facts in detail but submitted that the issue in covered in favour of the assessee not only by the Amritsar Bench Tribunal decision, referred to above, but by this very Bench in another case of M/s. Singhal & Co. ITA No. 567/Chd/1980 dt. 29th Dec. 1981. He placed on the assessee's compilation proforma agreement of 'Post Warranty Service Scheme' and also a consolidated chart right from 1974-75 to 1982-83 giving details of tractors sold, amounts received under PWS with amount of refunds made yearly, expenses on account of services rendered, number of customers to whom services were rendered and number of customers to whom refunds were made etc. 8. The ld. senior Departmental Representative Mr. R. K. Bal....
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.... was universally followed till the scheme itself was abandoned by the assessee. It is now well-settled that the receipt is not the sole test of taxability. Though the assessee had received the amounts in question during the assessment year under appeal, yet they were not free of encumbrances so as to constitute income of the assessee. When the assessee entered in its books of a/c the sale of a tractor, the sale proceeds consisted of two constituents-the main amount representing the price of the tractor and a nominal amount fixed by the assessee and charged for Post Warranty Services. From the very beginning, the assessee took the latter amount as an amount received with certain conditions to be fulfilled in respect of each tractor after the first period was over. To this, the assessee has given a particular treatment and, in our opinion, this treatment was not given with a purpose to rob the Revenue of "its rightful due. The assessee provided for the contingency when it would be required to meet the Post Warranty Services charges, which had been received from the customeRs. An actual expenditre on Post Warranty Services could vary depending upon when the period was over and whether....
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....ayment of some advance and the are supplied as and when they are manufactured and the advance paid is adjusted towards the cost at that point of time. The question would arise whether the advance paid should be treated as the income at the time when it is received as advance or when the goods are manufactured and actually sold and the advances are adjusted towards the sale price. In our view, it can be taken as the income when the goods are supplied and the advance is adjusted towards the same. Similarly, in the present case, the services which are to be rendered under the scheme do not start for full one year after the amount is collected and it is only after that the service being to be carried out according to the agreement. Servicing of tractors under the scheme would naturally be called upon to incur expenses for that purpose. For proper ascertainment of income, it would be reasonable to adjust the income from Post Warranty Service charges would be ascertained. In our view, therefore, the CIT was not correct in holding that the amount had necessarily to be taken as assessee's income at the time of receipt itself. It is true that the servicing charges are paid in advance accord....