[Citation -1987-LL-0423]

Citation 1987-LL-0423
Court ITAT
Relevant Act Income-tax
Date of Order 23/04/1987
Assessment Year 1983-84
Judgment View Judgment
Keyword Tags 100 per cent depreciation • commencement of business • concept of real income • proprietary business • electrical equipment • erstwhile proprietor • statutory obligation • trading transaction • plant and machinery • proprietary concern • business connection • circulating capital • written down value • sale consideration • security deposit • forward contract • office equipment • overriding title • trading receipt • stock-in-trade • purchase price • revenue nature • special bench • extra amount • gas cylinder • cash balance • actual cost
Bot Summary: In a few instances, supplies to single parties were in excess of 500 cylinders, in many instances, it was in excess of 100 cylinders and there were also about 10 instances where single cylinder was supplied. Company shall give extra cylinders to each dealer for maintaining the stock for the supply of gas refills and to take care of return of defective cylinders, if any. 12th Feb., 1 9 86 wherein the assessee described what was an LPG cylinder, who was the owner of the cylinder, what were the responsibilities of the owner, what was the practice in the trade and industry in relation to the cylinder, what were the rights of the individual who took over the cylinder and what was the life of the cylinder. In the said case the Tribunal had considered the ratio of the decision of the Supreme Court in the case of CIT vs. Punjab Distilling Industries Ltd. 53 ITR 75 and had referred to the terms under which the gas cylinders were supplied against which deposits were given by the consumer, 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. Counsel then submitted that there was a specific agreement for the supply of cylinders and the cylinders remained the property of the assessee company and the assessee-company was responsible for the proper maintenance of the cylinders. There were provisions relating to filling of cylinders, marketing of cylinders, delivery and despatch of cylinders and examination and testing of cylinders, etc. The cylinders, which were smaller than the usual LPG cylinders could be utilised as stand-by cylinders.

GEORGE CHERIYAN, V.P. This appeal is by assessee and relates to asst. yr. 1 9 83-84. 2 . assessee is company in which public are not substantially interested. accounting period for relevant asst. yr. ended on 30th Sept., 1 9 82. assessee-company is dealer in liquefied low-pressure gas purchased by them from M/s Union Carbide. assessee supplies gas to consumers in small cylinders. Each consumer pays amount which company styles as deposit towards gas cylinder. According to company, this amount is security deposit which they are liable to refund to consumers on termination of contract for supply of gas and, therefore, will not form part of income. According to Revenue, amount so collected, which in this accounting year came to Rs. 16,74,000, was trading receipt. ITO had brought this amount to tax as trading receipt, and such order of ITO was also upheld by CIT(A). assessee appealed to Tribunal and placed reliance on decision of Indore Bench of Tribunal in case of Goyal Gases (P) Ltd. vs. ITO (IT Appeal No. 22 14 (Del) of 1 9 84) in support of plea that amount referred to could not constitute taxable receipt. revenue, on other hand, relied on order of Tribunal in case of Ideal Engineers, Hyderabad (P). Ltd. vs. ITO (IT Appeal No. 551 (Hyd) of 1 9 85) in support of plea that such amounts constituted trading receipt. In view of conflict between views taken by two Benches of Tribunal matter was referred to President of Tribunal on point "whether security deposit received by assessee from its customers on supply of cylinders is trading receipt and liable to be taxed" for considering whether Special Bench may be constituted. In pursuance of such reference, President constituted Special Bench and it is in such circumstances that case has come to be heard by this Bench. 3 . assessee-company was incorporated on 14th Aug., 1 9 81. company entered into agreement on 1st Jan., 1 9 82 with one G.K. Kabra who was Proprietor of M/s Detective Devices & Equipment Co. which carried on similar business (pp. 14A to 14C of paper book II). In terms of agreement, assessee-company agreed to take over plant and machinery of erstwhile proprietary concern at cost of Rs. 8,23,6 9 8. This did not include cost of any cylinders which proprietary concern had, because such cylinders were not taken over by assessee-company. assessee also agreed to meet liabilities of proprietary concern to extent of Rs. 9 ,27,156. Other assets of proprietary business were also taken over by assessee-company. After commencement of business on 1st Jan., 1 9 82, assessee- com pany started supplying of cylinders to customers by entering into agreements under which amount of Rs. 100 per cylinder, termed as "deposit for supplying gas" collected from various parties. This is one time deposit intended for safe keeping of cylinders. It is seen from summary statement of cylinders supplied and amounts collected that 16,740 cylinders were supplied in all to 9 3 parties from whom in aggregate Rs. 16,74,000 was realised. In few instances, supplies to single parties were in excess of 500 cylinders, in many instances, it was in excess of 100 cylinders and there were also about 10 instances where single cylinder was supplied. (Details at pp. 10 to 13 of paper book II.) agreement that assessee had drawn up contained terms and conditions governing loan of cylinders to customers and such terms and conditions are as under; "1. Detective Devices Private Limited (hereinafter called 'the Company') shall loan to customer and consumer shall take on loan Company Cylinder(s) (hereinafter called 'the equipment') required for supply of Company's product viz., Kabsons Gas. 2. consumer shall deposit with company amount in accordance with Company's tariff in force for time being whole or part of which shall be held by Company as security for due performance by consumer of his obligation under contract. 3. At all times consumer shall have no right or interest in property of equipment and shall remain responsible to Company for its safe custody and proper use until it is returned to Company or to its Distributors. consumer shall not sell, mortgage or otherwise dispose of equipment or create any interest therein or charge thereon in favour of any party. 4. If consumer removes equipment to any address other than shown on front thereof, he should immediately inform Distributor by whom equipment was supplied. 5. consumer shall not take equipment outside area serviced by Distributor from whom equipment was originally taken. In event of consumer's departure from area for reasons of transfer etc. consumer shall inform Distributor. company, however, does not guarantee about supply of gas in new area to which equipment is shifted. 6. consumer shall not undertake to repair equipment or cause same to be repaired by any one except Company or their Distributor nor shall consumer use cylinder for any purpose other than cylinder for gas supplied by Company. 7. Company shall be at liberty and Consumer shall permit Company or its Distributors or any other persons authorised by Company or by Distributors to enter at all reasonable hours consumers' premises and/or otherwise take back or remove from consumer any empty cylinder belonging to Company. 8. consumer shall be liable for loss of or damage to equipment or any part thereof except otherwise provided hereunder. In event of loss or irreparable damage, consumer reimburses Company for missing or damaged equipment in accordance with company's tariff in force for time being in event of repairable damage Company shall have equipment repaired at all expense of consumer. decision of Company as to whether equipment is damaged and in need of repair shall be conclusive and binding on consumer. 9 . Company shall replace free of charge, equipment or any part thereof found to be defective or unfit for use as result in their opinion of normal wear and tear. 10. All necessary installation work shall be carried at consumer's expense and on his own responsibility. material used for installation shall be such as have previously been approved by Company. company or Distributors shall have right to inspect installation at any time and if considered necessary for reason of safety to refuse to supply gas. fact of Company supplying gas shall not however be deemed to impose any liability on Company with regard to fitness or otherwise of installation work. 11. consumer shall use appliances only of type approved by Company. If consumer is found to have installed or to be using any other type of appliance Company reserves right to refuse to supply gas and withdraw connection. 12. Company shall not be liable for any loss or damage caused to any person or property as result of installation or use of gas by consumer. In case of any accident involving consumers installation, he will forthwith advise Company's Distributor from whom he received supply. 13. Company as well as consumer shall be at liberty to terminate contract by giving fifteen days' notice in writing. On termination of this contract consumer shall forthwith return equipment to Company or their Distributor and Company or their Distributor shall refund balance of deposit if any after deducting amount due to Company or Distributor." In addition, there were certain guidelines issued by company to their dealers for loaning and surrendering of cylinders, which are as under: "1. dealer shall give cylinder on deposit issuing Subscription Voucher as per prescribed proforma alongwith terms and conditions of loaning cylinder. 2. dealer shall collect security deposit strictly as per company schedule as applicable at time of delivery of cylinder, 3. dealer shall undertake to supply gas to all consumers who have obtained Company's cylinder from any authorised dealer of company in India. 4. company has loaned cylinder to dealer for use by consumer needing company's gas. 5. cylinder is property of company and no dealer/consumer has right over this company's property. 6. cylinder would be maintained by company for safe use of liquefied gas supplied by company. 7. dealer shall not carry out any change in cylinder figments and shall not undertake any repairs such as welding, brazing, etc. 8. dealer shall check leak of each cylinder from joints and also from valves by soap water, prior to delivery to consumer. 9 . dealer must return cylinders to Company when they notice leak from joints/valves and company undertakes to replace same without charging anything to dealer/consumer. 10. Company shall give extra cylinders to each dealer for maintaining stock for supply of gas refills and to take care of return of defective cylinders, if any. 11. dealer shall have option to obtain gas from various filling points installed/approved by company. 12. cylinder being portable, dealer would normally supply from his delivery points on cash and carry basis. 13. dealer, however, would fix appliances/regulators properly and ensure that fittings are leak-proof. He shall also undertake home delivery by charging extra service charges. 14. Dealer is under obligation to accept return of cylinder by consumer and refund full security amount as per company's schedule/as per Subscription Voucher issued by any authorised dealer of company, which would accompany cylinder at time of surrender. deposit should be refunded to consumer immediately. Dealer shall accept unconditionally return of cylinder by consumer if consumer surrenders. 15. dealer shall be at liberty to refuse refund if original Subscription Voucher does not accompany cylinder or dealer finds cylinder marking differs from company marking layout. In such cases, dealer on request of consumer, shall return cylinder with/without Subscription Voucher to company and company decision shall be final. He would also inform consumer accordingly. 16. While accepting cylinders dealer should ensure that returned cylinder has all marking on foot ring as per company layout of marking. 17. Dealer shall permit consumer to return cylinder directly to company if consumer so desires. company undetakes to refund full security deposit as per company schedule provided original Subscription Voucher accompanies such returns. 18. dealer shall be at liberty to reloan cylinder received back from consumer if he desires to do so. Alternatively company undertakes to refund security deposit against such cylinder when returned to company alongwith Subscription Voucher received from consumer. 1 9 . dealer shall undertake to return all those cylinders which fall due for testing as per Explosives Act. company shall circulate information in this regard from time to time. 20. company would replenish quantity of cylinders received from dealer for retesting. 21. company shall accept cylinders even if bung thread has been damaged, valve fittings damaged or foot ring is missed. However, company does not accept cylinders which have been mishandled resulting in deep denting, burning etc. resulting in making cylinder unserviceable. 22 . Dealer shall follow and explain all safety precautions to consumer." At time of taking amount styled as 'deposit', Subscription Voucher was issued showing quantity of cylinders supplied, amount deposited, and was signed by consumer. blank specimen thereof is at p. 8 of paper book I and filled in specimen is at p. 9 of paper book I. Page 10 of paper book I gives copy of Delivery Challan relating to Subscription Voucher. Page 11 gives bill in relation to supply of gas for 48 cylinders in respect of which Rs. 4,800 was collected as per Subscription Voucher at p. 9 . cost of gas per bill at p. 11 of paper book I was Rs. 432 for 86.4 units and packing charges of Rs. 200 were collected. Sales tax was levied only on this amount of Rs. 632 at 4 per cent. On amount of Rs. 48,000, no sales tax was collected. It will thus be seen that assessee is collecting price for gas supplied in each bill, and no reference to Security Deposit is being made. 4. At this stage, it may be mentioned that value of fixed assets of Rs. 8,23,6 9 8 mentioned in agreement of 1st Jan., 1 9 82 was more than written down value of such assets in hands of erstwhile proprietor. In hands of erstwhile proprietor, difference was offered for taxation under provisions of s. 41(2) as per details in p. 20 of paper book II and such amount was also duly subjected to tax in case of erstwhile proprietor for asst. yr. 1 9 83-84 by assessment order dt. 31st March, 1 9 86 in which ITO started with total income as returned. said assessment order ITO started with total income as returned. said assessment order also mentions clearly what we have stated earlier viz., that cylinders of erstwhile proprietor were not taken over by assessee. 5 . Before ITO, assessee had claimed that amount of Rs. 16,74,000 credited as deposit was not trading receipt and was not taxable. ITO has quoted letter from assessee dt. 12th Feb., 1 9 86 wherein assessee described what was LPG cylinder, who was owner of cylinder, what were responsibilities of owner, what was practice in trade and industry in relation to cylinder, what were rights of individual who took over cylinder and what was life of cylinder. There was also reference to practice of oil companies in loaning cylinders and to contention of assessee that practice adopted by it in taking deposits and in loaning cylinders was identical to that followed by oil companies. 6. Apparently, assessee relied on another case, Domestic Gas Co. Ltd. which was assessed in same Income-tax Circle, to support its plea that no portion of amount taken as deposit could be taxed, because amount only represented loan given by consumer to assessee-company. ITO proceeded to make comparative study of various clauses of agreement i n assessee's case and that in case of Domestic Gas Co. Ltd. For purposes of present appeal, it is sufficient to just broadly state that he tried to draw certain distinctions between clauses whereby he sought to establish that though in case of Domestic Gas Co. amount taken was not considered as taxable, case of assessee was different. For example, he stated that in one of clauses in case of Domestic Gas Co., consumer could not remove cylinder to any other address than that shown in application form without obtaining prior written permission of company's dealer, whereas in case of assessee, intimation was sufficient before cylinder was removed. He also sought to make point of fact that there was clause in agreement that assessee did not guarantee about supply of gas in new area to which cylinder may have been shifted. There was reference to clause which permitted assessee's personnel to enter at all reasonable hours consumer's premises to take back or remove from customer empty cylinder belonging to assessee. This ITO considered was arbitrary and he mentioned that there was no such clause in case of Domestic Gas Co. Ltd. For these and other differences and also for reason that in fact no refunds had been made by assessee in year of account, ITO came to conclusion that amount of Rs. 16,74,000 was taxable receipt. We are not dwelling in detail further on reasons which weighed with ITO, because, according to ld. counsel for assessee, none of reasons could lead to conclusion that amount of Rs. 16,74,000 was taxable receipt and when ld. Departmental Representative opened his case, h e submitted that he would address arguments independent of reasons which weighed with ITO to support stand of Revenue and he was not placing reliance on reasons enumerated in order of assessment but was only seeking to support conclusion of ITO viz. that Rs. 16,74,000 was taxable receipt. CIT(A) has not given any specific reasons except to mention that following decision of Hyderabad Bench of Tribunal in Ideal Engineers, Hyderabad (P) Ltd.'s case (supra) addition was being confirmed. Commissioner did not state in order reasons for differing from certain other decisions of Tribunal which were relied on by assessee, and again for this reason, perhaps, ld. Departmental Representative submitted that he would be addressing arguments independently to support upholding of addition. 7 . ld. counsel for assessee submitted that in case of Gopal Gases (P) Ltd. (supra) Tribunal had gone into question whether amount stated to have been received as deposit of about Rs. 18, 9 7,000 which was not brought to tax originally by ITO could be considered to constitute error prejudicial to Revenue so as to enable CIT to exercise his revisional powers. He submitted that Tribunal came to conclusion that there was no mistake prejudicial to Revenue in not subjecting amount to tax. In said case Tribunal had considered ratio of decision of Supreme Court in case of CIT vs. Punjab Distilling Industries Ltd. (1 9 64) 53 ITR 75 (SC) and had referred to terms under which gas cylinders were supplied against which deposits were given by consumer, and Tribunal had come to conclusion that purchaser had to return gas cylinder to assessee, cylinders were embossed with name of assessee, were distinctly numbered, and cylinders were not meant for sale, and under agreement entered into with consumer, cylinders remained property of assessee. Therefore, facts were materially different from facts in case of Punjab Distilling Industries Ltd. (supra) and no specific enquiry was necessary into nature of deposits to come to conclusion, that they were deposits and Commissioner was wrong in assuming that judgment of Supreme Court would apply to facts of case. 8. ld. counsel then submitted that there was specific agreement for supply of cylinders (which we have set out in full already) and cylinders remained property of assessee company and assessee-company was responsible for proper maintenance of cylinders. proper storage and maintenance of cylinders, he submitted, was also subject to provisions of Indian Explosives Act as well as Gas Cylinders Rules, 1 9 81, which was published in Gazette of India, Extraordinary, dt. 24th Feb., 1 9 81. There were provisions relating to filling of cylinders, marketing of cylinders, delivery and despatch of cylinders and examination and testing of cylinders, etc., in these rules. Further, r. 26 specifically provided that owner of each cylinder had to maintain record giving specified particulars. All these were maintained by assessee alone and question of ownership of cylinders passing to any other person did not arise (copy of Gazette containing rules is at pp. 13 to 33 of paper book I). He gave particulars of cylinders purchased by assessee of which details were maintained and such details are at pp. 7 to 9 of paper book II giving serial numbers etc. He also relied upon letter dt. 30th Dec., 1 9 86 from Chief Controller of Explosives addressed to Ideal Engineers, Hyderabad (P) Ltd., case (supra) stating that no cylinders meant for filling compressed gas including LPG can be sold as per Gas Cylinder Rules, 1 9 81, without obtaining specific permission or approval from said Department. Copy of said letter is at p. 6 of paper book II. On basis of such evidence submission of ld. counsel was that question of assessee taking amount classified as deposit as sale consideration for cylinder could never arise. cylinders in terms of contract were given only on loan, and deposit had to be returned when contract for supply of gas was terminated. reference was made to decision of Delhi High Court in CIT vs. National Air Product Ltd. (1 9 80) 18 CTR (Del) 300 : (1 9 80) 126 ITR 1 9 6 (Del) to state that High Court has held that gas cylinders were plant, and depreciation was allowable on gas cylinders. In assessee's case also it was submitted that cylinders were plant with which assessee carried on business and was not its stock-in-trade i.e. cylinders did not represent goods which were bought and sold. Delhi High Court's view that cylinders were plant, ld. counsel submitted, was supported by ratio of judgment of Supreme Court in Scientific Engg. House (P) Ltd. vs. CIT (1 9 85) 4 9 CTR (SC) 386 : (1 9 86) 157 ITR 86 (SC). 9 . deposit taken towards cylinder was about twice cost of cylinder. ld. counsel submitted that it was settled law after decision in Morley (Inspector of Taxes) vs. Tattersall (1 9 3 9 ) 7 ITR 316 (CA) which has been relied on by Court after Court, in different judgments, held that what had to be considered was nature of transaction at time it took place. He submitted in particular that this judgment had been referred to by Andhra Pradesh High Court in case of Badri Narayan Balakrishan vs. CIT (1 9 65) 57 ITR 752 (AP) and by Supreme Court in Punjab Distilling Industries Ltd. (supra). In case of Punjab Distilling Industries Ltd. (supra), he submitted that there was buy-back scheme for bottles in which liquor was sold and extra amount taken at time of sale, though classified as security deposit, was considered in circumstances by Court to be part of price of goods sold. ld. counsel went on to state that Supreme Court in aforesaid case had analysed judgment in case of K.M.S. Lakshmanier & Sons vs. CIT (1 9 53) 23 ITR 202 (SC) in coming to conclusion that it did. facts in present case he submitted were materially different and he reiterated that cylinders, which constituted plant of assessee, and for which deposit was taken form consumer at point of time anterior to contract for supply of gas to consumer, could not have become stock-in-trade of assessee. He stated that amount taken as deposit was nothing but loan of money by consumer to assessee and money taken as loan was debt due to consumer at stage anterior to entering into contract to supply gas. gas, he stated, was separately billed for, and sales tax was levied only on price of gas, and not on deposit amount taken. 10. ld. counsel went on to submit that in any view of matter amount taken as deposit did not constitute part of trading receipts, because, it had to be kept in trust, and had to be paid back to consumer and to this extent, it should be considered that amount was kept by assessee, to be disbursed later when contract for supply of gas was terminated to consumer and amount thus got diverted by overriding title back to consumer at relevant time. In support of this proposition reliance was placed on decision of Supreme Court in case of CIT vs. Tollygunge Club Ltd. 1 9 77 CTR (SC) 1 9 5:(1 9 77) 107 ITR 776 (SC) and decision of same Court in case of CIT (Central) vs. Bijli Cotton Mills (P) Ltd. (1 9 7 9 ) 8 CTR (SC) 1: (1 9 7 9 ) 116 ITR 60 (SC). 11. Even based on theory of real income inasmuch as amount was returnable under contractual compulsion he submitted that amount taken s deposit will never constitute taxable income of assessee. In this regard he stated that whether amount was returnable under statutory obligation or contractual compulsion would not make any difference as far as concept of real income was concerned and reference was made to ratio of judgment of Supreme Court in case of Poona Electric Supply Co. Ltd. vs. CIT (1 9 65) 57 ITR 521 (SC). reference was also made to certain other orders of Tribunal where Tribunal had held that when cops were sold together with yarn price taken for cops as security deposit did not constitute taxable income. For all aforesaid reasons ld. counsel submitted that amount of Rs. 16,74,000 would not have constituted trading receipt of assessee and was not, therefore, taxable. 12. ld. departmental representative at outset submitted that he was not relying on reasoning of ITO for holding that amount received as security deposit for cylinders constituted taxable receipt, But he was only relying on conclusion of ITO that 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 order of CIT(A). As far as order of CIT(A) was concerned, CIT(A) had followed decision of Tribunal in case of Ideal Engineers, Hyderabad (P) Ltd. (supra) and this order of Tribunal, it is stated, supported contention of Revenue that amount in question was taxable. ld. Departmental representative, however, stated that powers of Tribunal were not confined to considering and adjudicating only upon correctness or gemaneness of reasoning of authorities below, but it was open to him to canvass any argument which on facts, was relevant to support stand of respondent, namely, that amount in question was taxable. 13. ld. departmental representative placed reliance in this regard on ratio of decision of Punjab and Haryana High Court in case of CIT vs. Om Prakash Bidhi Chand(1 9 82) 27 CTR (P&H) 6: (1 9 83) 141 ITR 750 (P&H). 1 4 . ld. Department representative placed before us tabular statement which was as under: Assessment . years . 1 9 83-84 1 9 84-85 1 9 85-86 1 9 86-87 . Rs. Rs. Rs. Rs. `Authorised 5,00,000 5,00,000 5,00,000 5,00,000 capital Subscibed 200 200 200 1,00,000 capital Deposits 16,74,000 31,35,701 36,83,001 44,36,101 received Cylinders 8,52,383 8,40,738 3,67,81 9 5,23,516 purchased Cash 4,50 9 4,656 22 ,142 6,31 9 balance Current A/c 1,05,626 4,132 24,5 9 5 43,721 With reference to figures in aforesaid statement his submission was that though large amounts were collected under terminology of deposit cash balance with assessee was negligible. It was only in region of Rs. 4,000 to Rs. 6,000 in most of years. He stated that where deposit collected was Rs. 100 per cylinder and assessee was maintaining only negligible cash balance it was clear that assessee had no idea of returning any amount by way of deposit because cash balance would not have been sufficient for returning amounts, had customers so demanded. He stated, therefore, that inference was that assessee was sure that question of demanding refund of amount by any consumer would not arise. 15. next contention of ld. departmental representative was that concept of circulating capital was opposed to fixed capital and where amount received was circulating capital that would constitute income. case relied on in this regard was decision of Supreme Court in case of Karanpura Development Co. Ltd. vs. CIT (1 9 62) 44 ITR 362 (SC). According to ld. departmental representative, cylinders were circulating capital, in kind, and did not constitute plant at all and, therefore, represented clearly stock-in- trade of assessee. ld. departmental representative referring to decision of Supreme Court in case of State Bank of India vs. CIT (1 9 85) 4 9 CTR (SC) 37 9 : (1 9 86) 157 ITR 67 (SC) submitted that manner in which entries were made by assessee could not be conclusive of true nature of receipt. While he did not dispute proposition in Morely's case (supra) that nature of receipt had to be determined at time of inception. He submitted that in present case, transaction of taking amount as deposit towards cylinder and price charged for supply of gas was part of same trading transaction, and having regard to ratio of judgment of Andhra Pradesh High Court in Badri Narayan Balakishan's case (supra) amount in question was clearly taxable amount. 1 6 . With reference to terms of contract, ld. departmental representative submitted that there was no clause whereby consumer had to pay penalty if cylinder was not returned. This, according to him, showed that in reality assessee had divested itself of ownership of cylinder in favour of consumer. 17. Yet another argument made by ld. departmental representative was that contract was only contingent contract and possibility of refund being sought in any view of matter, was remote possibility and what assessee had acquired was nothing other than trading receipts. 18. ld. departmental representative further submitted that if dealer made single bill instead of making separate subscription voucher for so- called deposit, and separate bill for sale of gas, then entire amount would have been nothing but trading receipt and it would have reflected true nature of transaction. Referring to decision in case of Addl. CIT vs. Surat Art Silk Cloth Mfrs. Association (1 9 7 9 ) 13 CTR (SC) 378 : (1 9 80) 121 ITR 1 (SC) it was submitted that real object of transaction had to be seen, and if that was seen, there was no doubt that in substance so-called deposit was nothing but receiving of trading receipts. 19 . ld. departmental representative also sought assistance from decision of Supreme Court in case of Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. & Anr. (1 9 85) 48 CTR (SC) 555 : (1 9 86) 157 ITR 77 (SC) where Court had referred to its earlier decision in McDowell & Co. Ltd. vs. CTO (1 9 85) 47 CTR (SC) 126 : (1 9 85) 154 ITR 148 (SC) and submitted that Supreme Court pointed out that it was duty of Court in every case where ingenuity is expended to avoid taxing and welfare legislations to get behind smoke-screen and discover true state of affairs. In this regard ld. departmental representative stressed that assessee did not pay any interest on so-called deposits to consumers. Further, money was made use of by assessee as its own funds for buying assets and again reiterated that assessee did not retain sufficient cash balance which it would have retained had it any idea of making refunds. 20. main plank of argument of ld. departmental representative was ratio of decision of Supreme Court in case of Punjab Distilling Industries Ltd. vs. CIT (1 9 5 9 ) 35 ITR 51 9 (SC). He submitted that it was settled law that when Supreme Court rendered decision no argument should be advanced that one or other aspect of contention was not taken due note of. Going at length through judgment, ld. departmental representative submitted that Supreme Court had analysed case of K.M.S. Lakshmanier & Sons (supra) and had come to conclusion that so- called security deposit in that case (Punjab Distilling Industries) towards bottles was nothing but trading receipt. 21. Regarding contention of ld. counsel for assessee that in any event it should be considered that there was overriding title as far as amounts received were concerned, submission of ld. departmental representative was that if there was to be diversion of overriding title third parry should be involved, whereas in present case there were only two parties, namely assessee and consumer. 2 2 . alternative contention of ld. departmental representative was that even if cylinder was considered as plant there was "transfer" of such plant within extended meaning of term in s. 2(47) and amount received by way of deposit was nothing but short term capital gains. This is because, according to ld. departmental representative if cylinder represented plant, when cylinder was made over to consumer there was clearly extinguishment of some ownership rights which vested in assessee. He sought to clarify that ownership was bundle of rights and as long as some of rights were extinguished then there was clear receipt of short-term capital gains. 23. In reply, ld. counsel for assessee sought to clarify that right of respondent was something more restricted than right of appellant in appeal. According to ld. counsel for assessee inferential fact could not be imported by respondent for supporting his case though he very fairly stated that respondent could urge any legal issue in support of his stand with reference to facts on record. Therefore, ld. counsel submitted that when ld. departmental representative was giving up reasoning of authorities below and particularly that of ITO it was not open to him to canvass for proposition that transactions in question were anything other than those represented in books, namely that there were separate transactions in respect of receipts or deposits towards cylinders and in respect of sale of gas. Referring to decision in case of Punjab Distilling Industries Ltd. (supra) ld. counsel for assessee submitted that K.M.S. Lakshmanier & Sons' case (supra) was analysed by Supreme Court. He stated that assessee's case squarely fell within arrangement in 3rd part of accounting year in K.M.S. Lakshmanier & Sons' case (supra) where Court held that amounts received were deposits and not trading receipts. observations at pp. 528 and 52 9 of (1 9 5 9 ) 35 ITR 51 9 (SC) were relied on in this regard. 2 4 . As far as tabular statement relied on by ld. departmental representative to show cash balances etc. was concerned, submission of ld. counsel for assessee was that these figures were of no consequence. There was no instance cited to show that assessee did not honour commitment t o return deposit. mere fact that there were no instances in accounting period of termination of contract for sale of gas would not render amounts which originally were deposits, trading receipt. 25. On point that there was short-term capital gains, according to ld. counsel, there was no merit in that plea excepting one of novelty. He submitted that contract was not of sale and if contract was to be pronounced upon, it was clearly nothing but contract for loan of cylinder for particular period of time, namely, duration for period for which gas was to be supplied. He emphasised that no title passed in present case in relation to ownership of cylinders. 26. ld. counsel stressed that ratio in McDowell & Co. Ltd.'s case (supra) has no application because assessee by passing entries etc. in manner that he did, was not trying to camouflage true nature of transaction. In any event ld. counsel submitted that even if stand of Department that what was received was trading receipt must be accepted, then against same cost of cylinders would have to be allowed as deduction as he had originally contended for, and such amount exceeded Rs. 8 lakhs. According to him law did not warrant, even in view of Department, that receipts alone would be taxed and outgoings against such receipts which were of revenue nature were not to be allowed as deduction. 2 7 . We have considered rival submissions. Department in present case is respondent. In New India Life Assurance Co. Ltd. vs. CIT (1 9 57) 31 ITR 844 (Bom) Bombay High Court had occasion to deal with scope of s. 33(4) of Indian IT Act, 1 922 which is in pari materia with s. 254 of IT Act, 1 9 61. Dealing with this Chagla, CJ observed as under : "The position with regard to respondent is different. It is not open to him to urge before Court of appeal and get relief which would adversely affect appellant. If respondent wanted to challenge decision of trial Court, it was open to him to file cross-appeal or cross objection. But very fact that he had not done so shows that he is quite content with decision given by trial Court. Therefore, under these circumstances, his only right is to support decision of trial Court. It is true that he may support decision of trial Court, not only on grounds contained in judgment of trial Court but on any other ground. In appreciating question that arises before us, one must clearly bear in mind fundamental difference in positions of appellant and respondent. appellant is party who is dissatisfied with judgment ; respondent is party who is satisfied with judgment. Now what we have just said is nothing more than really summary of provisions with regard to appeals and cross objections contained in O. 41 of CPC ; and as we shall presently point out, position of Tribunal is same as Court of appeal under CPC and powers of Tribunal are identical with powers enjoyed by appellate Court under Code." (Emphasis italicized in print, supplied.) Allahabad High Court in case of Marolia & Sons vs. CIT (1 9 81) 12 9 ITR 475 (All) has expressly stated that they were in agreement with aforesaid view of Bombay High Court. only restraint is that respondent cannot seek for enhancement of tax payable by appellant when respondent has not appealed by putting forth arguments which would result in such enhancement. In present case, ld. departmental representative is only seeking to support addition and, therefore, it is open to him to support said addition on grounds other than that taken by assessing officer or first appellate authority. We, therefore, proceed to consider grounds of ld. departmental representative since no fresh facts are involved other than those already on record. 28. Taking tabular statement it is open to every prudent businessman to utilise amounts which come into his coffers to maximum advantage. Therefore, mere fact that large cash balance were not maintained does not support Department's stand that there was no idea of returning deposit. There is no instance brought to notice that any consumer had made claim for refund of deposit and assessee had baulked such payment. Nor can assessee be expected to keep large cash balances in books uninvested and for reasons of security. Both parties have agreed that nature of transaction has to be determined at time of transaction following 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 observations of Supreme Court in Punjab Distilling Industries Ltd's case (supra). In said case Supreme Court had analysed various receipts taken at different points of time in accounting period in K.M.S. Lakshmanier & Sons' case (supra). In accounting period yarn was sold to their constituents under three successive arrangements each of which covered part of accounting period. Under each arrangement assessee was paid certain sum by customers. Under first arrangement assessee had two accounts for each constituent, namely 'a contract deposit account' and 'a current yarn account' crediting moneys received from customers in former account and transferring them to yarn account in adjustment of price of bales supplied then and there, that is as and when deliveries were made under contract either in instalment or in full. Such amounts were held to be taxable as representing advance payments of price and it was held that such amounts could not be borrowed money. For second part of accounting period arrangement was that payments made by constituent at time of making o f contract was taken as "contracts advance fixed deposit". It was refunded when goods under contract had been supplied and price in respect thereof paid in full irrespective of earlier payment. Here again it was held that amount represented trading transaction because amounts were payments against supply of goods. Then there was arrangement in third period. To quote from decision of Supreme Court at pp. 528 and 52 9 of (1 9 5 9 ) 35 ITR 51 9 (SC) : "The payments during third period were made under following arrangements : "Instead of calling for amounts from you towards 'Security Deposit' due to bales for which we are entering into forward contracts with you and returning same to you from said deposit then and there, as we are doing now, and in order to make it feasible, we have decided to demand from you certain sum towards Security Deposit and keep same with us so long as our business connection under forward contracts will continue with you." Under this arrangement certain sum was kept in deposit once and for all and thereafter Lakshmanier & Sons commenced to enter into trading transactions, namely, forward contracts for sale of yarn with constituents who deposited money. sum so deposited was to be refunded with interest at three per cent per annum at end of business connection between parties, if necessary, after retaining there out any amount due on contracts made with constituent which, latter was at termination of business found not to have paid. Patanjali Sastri, CJ observed in regard to deposits made under this arrangement : "The amount deposited by customer was no longer to have any relation to price fixed for goods to be delivered under forward contract either in instalments or otherwise. Such price was to be paid by customer in full against delivery in respect of each contract without any adjustment out of deposit, which was to be held by appellants as security for due performance of his contracts by customer so long as his dealings with appellants by way of forward contracts continued, appellants paying interest at 3 per cent in meanwhile, and having, as appears from course of dealings between parties, use of money for their own business. It was only at end of "business connection" with appellants that adjustment was to be made towards any possible liability out of customer's default. Apart from such contingency arising, appellants undertook to repay equivalent amount at termination of dealings. transaction had thus all essential elements of contract of loan, and we accordingly hold that deposits received under final arrangement constitute borrowed money." Having observed that description of payment made by customer as deposit, made no difference for deposit included as loan, ld. Chief Justice further said : "The fact that one of conditions is that it is to be adjusted against claim arising out of possible default of depositor cannot alter character of transaction. Nor can fact that purpose for which deposit is made is to provide security for due performance of collateral contract invest deposit with different character. It remains loan of which repayment in full is conditioned by due fulfilment of obligations under collateral contract." In present case certain amounts were taken as deposit under contract, towards security of cylinders supplied. moment said deposits were paid, consumer became entitled to supply of gas. Gas was commodity which was being sold. amount deposited did not have any relation to price fixed for goods to be delivered which in present case was gas, nor is to be adjusted out of deposit as in K.M.S. Lakshmanier & Sons' c s e (supra). amount was held by assessee as security for consumer returning cylinder and also observing other conditions of contract. business connection in present case came to end only when consumers decided to terminate contract by surrendering gas connections or it would have come to end if notice had been given by either party. On such termination amount became repayable. Looking to observations of Supreme Court which we have set out regarding transaction in third period in K.M.S. Lakshmanier's case (supra), transaction of deposit in present case also has all essential elements of contract of loan and deposits constitute borrowed money. Supreme Court had clearly pointed out that mere fact that amount was to be adjusted against claim arising out of possible default would not alter character of transaction. According to Supreme Court such deposit remained loan of which repayment in full was conditioned by due fulfilment of obligations under collateral contract. 2 9 . We are of view that in present case, amounts received are clearly deposits in light of aforesaid observations of Supreme Court whereby they approved decision in K.M.S. Lakshmanier's case (supra) as far as third part of accounting period was concerned. 30. absence of penalty clause does not make any difference. As matter of fact in present case deposit collected is about twice cost of cylinder and in case cylinder is not returned forfeiture of amount equal to cost could be construed as sufficient penalty. Again mere fact that possibility of person giving up gas connection is remote does not alter nature of payment when made because at time of payment it was nothing but deposit. 31. Coming to decision of Andhra Pradesh High Court in Badri Narayan Balakishan's case (supra) it is clear that amount received, classified as deposit here has nothing to do with transaction in commodity dealt in as such and did not constitute part of price of commodity supplied, namely, gas, but was received only for due performance of obligations by consumer and service by assessee by ensuring that cylinders are properly maintained etc. assessee in present case was fully saddled with liabilities under Indian Explosive Act as well as rules relating to gas cylinders. Our conclusion that amounts received were deposits which did not partake nature of trading receipts is also in conformity with tests enunciated by Andhra Pradesh High Court in case of Badri Narayan Balakishan (supra). 32. As far as argument of departmental representative that there was transfer in present case even if cylinders were taken as plant is concerned, we have to state that contract clearly shows (cl. 1) that there was only loan and no sale of cylinders. It was clearly mentioned in contract in cl. 3 that consumer would not have any right or interest in property and further consumer was prohibited from mortgaging or otherwise disposing of property. Clause 13 also provided that on termination of contract, equipment was to be returned to company and company was to refund balance of deposit, if any, after deducting amount due to company. Therefore, in general law there was no sale. further point to be examined is whether there was any relinquishment of asset or any extinguishment of right within meaning of s. 2(47) of Act which gives extended definition of word 'transfer'. 33. It is clear from terms of contract that there was "no relinquishment of asset". No doubt, ownership is bundle of rights. point which survives is whether there was "extinguishment of any rights therein" within meaning of s. 2(47) of Act. In case of CIT vs. Vania Silk Mills (P) Ltd. 1 9 78 CTR (Guj) 141 : (1 9 77) 107 ITR 300 (Guj) Gujarat High Court observed : "The word extinguishment is kingpin of this expression. It is word of ordinary usage having widest import. Usually it connotes end of thing precluding existence of future life therein (see Black s Law Dictionary, fourth edn. p. 6 9 6). It has been variously defined as meaning complete wiping out, destruction, annihilation termination, cancellation or extinction and it is ordinarily used in relation to right, title, interest, charge, debt, power, contract or estate (see Corpus Juris Secundum, volume 35, p. 2 9 4). In Rawson s pocket law Lexicon meaning assigned to it is : destruction or cessation of right either by satisfaction or by acquisition of one which is greater . In Ramanlal Gulabchand Shah vs. State of Gujarat AIT 1 9 6 9 SC 168 at p. 175, word extinguishment which is employed in conjunction with expression of any such rights in art. 13A of Constitution was interpreted as meaning complete termination of rights ." In present case, there has been no wiping out, destruction, annihilation, termination, cancellation or extinction of any right. All that has happened is that for certain period consumer is permitted use of cylinder to exclusion of assessee, that is, during period cylinder is at residence or other premises of consumer. It was ascertained by us that gas supplied by assessee could be utilised for similar purposes as liquefied petroleum gas viz. for heating purposes as well for lighting purposes etc. and cylinders, which were smaller than usual LPG cylinders could be utilised as stand-by cylinders. There is thus no extinguishment of any ownership rights in cylinders and hence even under extended meaning, there is no transfer within terms of s. 2(47) of Act and question of bringing to tax any surplus as short-term capital gains does not arise. 34. In 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 description given by entries in books of account of assessee, but we have examined independently terms of contract under which amounts were received and terms under which they became repayable. We have gone to very inception of receipt of amounts and have determined true nature of such receipts at moment of inception as is required to be done according to ratio in Morley s case (supra) which stands approved of by all Courts in India. fact that no interest was charged from consumer or that assessee made use of money when it was available to assessee does not also alter nature of transactions. 3 5 . In present case, there is no attempt at any camouflage of nature of transactions and as such ratio in Mc Dowell & Co. Ltd. s case (supra) has no application. We have independently examined arguments of Revenue, and result of such examination is that we are unable to subscribe to conclusion of Division Bench of Tribunal in case of Ideal Engineers Hyderabad (P) Ltd. (supra). We would therefore, hold that amount of Rs. 16,74,000 has to be excluded from assessment in present case. 3 6 . next ground of appeal is that Commissioner erred in not allowing depreciation on cost of cylinders. stand of ld. departmental representative was that cylinders in present case did not constitute plant but stock-in-trade. In present case what was supplied by assessee and dealt in was gas. Gas was supplied in cylinders. cylinders clearly constituted plant having regard to definition of term plant in judgment of Delhi High Court in National Air Product Ltd s case (supra) and Supreme Court in Scientific Engg. House (P) Ltd. s case (supra). Therefore, assessee is entitled to depreciation. ld. counsel for assessee submitted that assessee was entitled to depreciation at 100 per cent because in terms of Item III(ii)F(4) gas cylinders including valves and regulators are entitled to 100 per cent depreciation. submission of ld. departmental representative was that such depreciation at 100 per cent was admissible only in respect of persons who manufactured gas themselves and stored it in cylinders and not for persons like assessee who bought and sold gas. Here, we are unable to agree with ld. departmental representative. Where depreciation rates are admissible only to plant in manufacturing concerns, such position is made expressly clear in entries in Appendix I to IT Rules. For example against Item III(ii)F(5), it is stated that 100 per cent depreciation is admissible in respect of "Glass manufacturing concerns Direct fire glass melting furnaces". Therefore, we hold that depreciation at 100 per cent is admissible on gas cylinders whether in hands of manufacturer or in hands of person who fills gas bought from others into cylinders. assessee is, therefore, entitled to depreciation at 100 per cent on cost of cylinders of Rs. 8,52,383. 37. Before parting with aforesaid point, we have to note and deal with argument of ld. departmental representative, viz. that where equipment is not wholly used by assessee, depreciation can be allowed only on proportionate part of cost of asset and further, if any part of asset is met by anyone else, then in determining actual cost, cost met directly or indirectly by such other person is to be reduced. In present case, cylinders are used by assessee for filling gas and filled in cylinders are supplied to consumers. user is exclusively by assessee. consumer does not use cylinder. Again, deposit does not go to reduce cost to assessee. cost remains same and deposit is refundable when cylinder is returned. These arguments of ld. departmental representative, therefore, cannot help Revenue in whittling down claim for depreciation. 38. In view we have taken, it is not necessary to go into question as to whether cost of cylinders would be admissible deduction against receipts of Rs. 16,74,000, because we have held that amount did not constitute trading receipts. 3 9 . ld. counsel for assessee did not press ground against finding of CIT (A) confirming disallowance of Rs. 4,471 made by ITO out of travelling expenses. 40. last ground taken in appeal is that depreciation should have been allowed on cost of assets as taken over from previous owner according to amounts stipulated in agreement. To clarify this position, we may state that value of assets on which depreciation was admissible in terms of agreement has been marked up from written down value in hands of previous owner. details of Rs. 8,23,6 9 8, on which depreciation was claimed and which was price fixed in terms of agreement, are as under : FIXED ASSETS . Rs. Office Equipment 2,000 Plant & Machinery 2,50,000 Furniture & Fittings 33,000 Electrical Equipment 5,000 Gas storage Tanker 82,000 Air Conditioner & Cooler 25,000 Vehicles 24,000 Omni Bus 70,000 L.P.G. Road Tanker 3,00,000 Land 16,1 9 8 Building under Construction 16,500 . Rs. 8,23,6 9 8 written down value of these assets was lower. For example, written down value of omnibus was only Rs. 34,300 while it was taken over at Rs. 70,000. written down value of L.P.G. Road tanker was only Rs. 2,13,347, whereas it was taken over at Rs. 3,00,000. Similar upward revision was there in case of other assets also. plea was that take over was at market price. As already mentioned, previous owner had taken value in terms of agreement, and written down value, and difference had been offered for taxation under s. 41(2) and was subjected to tax in hands of previous owner Sri G.K. Kabra for asst. yr. 1 9 83-84 in assessment order dt. 31st March 1 9 86. Under provisions of s. 41(2), surplus can be brought to tax only where it results from sale. Therefore, what was sale price to Sri Kabra from which surplus was assessed in his hands under s.41(2) becomes purchase price or actual cost to assessee. Therefore, there was no justification in not allowing depreciation on price at which assets were purchased by assessee from previous owner and, therefore, assessee is entitled to depreciation, where admissible, at actual cost paid by assessee in terms of agreement. 4 1 . Before parting with appeal, we must place on record our appreciation of very lucid and elaborate arguments put forth both on behalf of assessee by ld. counsel Sri G.C. Sharma and on behalf of Department by ld. departmental representative Sri. N. Santhanam. Such assistance has been of immense help to us in rendering our decision. 42. In result, appeal is allowed in part. *** DETECTIVE DEVICES(P)LTD. v. INCOME TAX OFFICER
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