LexCOMMISSIONER OF INCOME TAX, MADURAI versus M/S. T.V. SUNDARAM IYENGAR AND SONS LTD.
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COMMISSIONER OF INCOME TAX, MADURAI
v.
MIS. T.V. SUNDARAM IYENGAR AND SONS LTD.
SEPTEMBER 11, 1996
(A.M. AHMADI, CJ., B.P. JEEVAN REDDY AND
SUHAS C. SEN. JJ.]
Income Tax Act 1961-Sections 28(1), 41(1)--Business Income-Capi-
A
B
tal Receipts-From trading transactions-Deposits received-{fnclaimed and C
time barred retained by the assessee-Treated as income of the asses-
see-Held, the money was received by the assessee in course of carrying on
its business-Although it was treated as deposit and was of capital nature at
the point of time it was received, by efflux of time the money had become the
assessee's own money-Assessee itself has treated the money as its own money
and taken the amount to its profit and loss account-Hence such amounts D
rightly taken as income for the purposes of Income tax.
The respondent assessee received deposits in the course of the
carrying on its business. The deposits were of capital nature at the point
of time of receipt by the assesseto and were treated as capital receipts. Some
of the deposits were neither claimed by nor returned to the depositor.
During the assessment, the appellants found that the assessee had trans-
ferred certain amount to the profit and loss account of the company. It
was found that these amounts were not included in the total Income of the
assessee. The sums were stated to be credit balance standing in favour of
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the customers of the ·company.· Since these balances were not claimed by F
the customers, the amounts were transferred by the assessee to the profit
and loss account. The Income Tax officer held that the surplus had arisen
as a result of trade transactions; the amounts had a character of income
and had to be added as income of the assessee for the purpose of income
tax assessment;
On appeal, the Commissioner of Income tax· deleted the additions
on the ground that the amounts were excess trading advances given by the
customer to the assessee, therefore they were not revenue receipts but
capital receipts; and when the assessee wrote back such a credit balance,
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it did not constitute part ofits taxable income. The Tribunal dismissed the H
785
786
SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.
A appeal preferred by the Revenue and also refused to make a Reference to
the High Court, as according to it no question of law arose in this case.
The High Court disposed of the application made to it under
+.
S.256(2) and held that the matter stood concluded in the light of the
!-"'
decision of the Madras High court in the case of Commissioner of Income
B Tax, Tamil Nadu-1 v, A. V.M. Ltd., (1984) 146, ITR 355. Aggrieved by the
High Court's order, the Revenue preferred the present appeal.
Allowing the appeal, this Court
c
HELD : 1.1. The amounts in question were not in the nature or
security deposits held by the assessee for performance or contract by Its
constituents. The amounts were depleted by adjustments made from time
to time. The amounts were not given and retained as security to be retained
tlll the lulntment or the contract. The deposits were taken in course or the
trade and adjustments were made against these deposits In course or
D trade. Tlie unclaimed surplus retained by . the assessee was Its trade
receipt. The assessee itself had treated the amount as its trade receipt by
•
bringing It to Its pront and loss account. (793-E; H; 794·A1
~
Morley (H.M. Inspector of Taxes) v. Messrs. Tattersall, (1939) 7 ITR
E
316 CA, re.rerred to.
1.2. The assessee, because or the trading operation had become
richer by the amount which it transferred to its proftt and loss account.
The moneys had arisen out ol ordinary trading transactions. Although the
amounts received originally was not income but the amounts having
F
remained with the assessee for a long period, by lapse or time, the claim
of the deposit became time barred and the amount attained a totally
different quality. It became a deftnite trade surplus. [796-8)
Punjab Steel Scrap Merchants Association Ltd. v. Commissioner of
Income Tax, Punjab, (1961) 43 ITR 164, referred to.
,
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1.3., An amount received in course of trading transaction, even
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though it is not taxable in the year of receipt as being of revenue character,
changes its character when th.e amounts becomes the assessee's own money
because oflimitation or by any other statutory or contractual right. When
such a thing happens, common sense demands that the amount should be
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