IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO. 158 OF 2000 E. K. Thakur (Deceased) ] Through, legal heir ] Gautam E. Thakur, ] National School of Banking, ] Indian Education Society Campus, ] Babrekar Marg, ] Off Gokhale Road (North), ] Dadar, Mumbai 400 028 ] Applicant V/s. Commissioner of Income Tax, ] Mumbai City IX, Mumbai ] Respondent Mr.H.G. Dharmadhikari a/w. Mr.D.A. Bhalerao for Applicant. Mr.Ashok Kotangle a/w. Mr.A.K. Saxena and Mr.Arun Nagarjun for Respondent. CORAM : S.V. GANGAPURWALA AND G.S. KULKARNI, JJ. RESERVED ON : 22nd JUNE, 2017 PRONOUNCED ON : 01st JULY, 2017 ORDER (PER S.V. GANGAPURWALA, J.): 1] matter pertains to Assessment Year 1989 90. 1/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt 2] Reference is made to this Court on following issue; Whether on facts and in circumstances of case Tribunal was right in law to hold that unclaimed amounts out of Guarantee Reserve Account received in earlier years was assessable to tax as deposit had changed its character into income? 3] learned counsel for Assessee submits that Assessee was running educational institution known as National School of Banking . institution was imparting training and preparing students for competitive exams conducted by banks for recruitment. In this venture Assessee had scheme that students who could not pass banking recruitment exam, 50% of fees will be refunded to them within two months from declaration of result of examination. amount which was refundable under scheme was credited to Guarantee Liability Account in Balance sheet in year 1989 90. Such liability from Assessment Year 1982 onwards got accumulated to Rs.23,50,530/ . Out of said amount, some amount was refunded by Applicant upto 31/03/1989 and balance amount of Rs.21,21,900/ was credited to Guarantee Liability Account in Balance sheet. said amount was assessed as income under 2/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt section 41 of Income Tax Act,1961, in Assessment Order. Commissioner (Appeals) allowed refund granted by Assessee beyond period of two months and balance amount was held to be taxed in year concerned. Applicant further preferred appeal before Tribunal, Tribunal in its order also directed Assessing Officer to allow further deduction as detailed in said judgment. 4] learned counsel submits that guarantee liability amount unclaimed by students could not have been added to income of Assessee as amount was still refundable to students and conduct of Applicant would show that though limitation period has lapsed, Applicant was refunding said amount. 5] learned counsel relies on judgment of Apex Court in case of Commissioner of Income Tax vs. Sugauli Sugar Works (P.) Ltd., reported in (1999) ITR 236 page 518 and submits that unless creditor has waived claim, debtor unilaterally is not entitled to say that liability has been extinguished and as such section 41(1) is not attracted. learned counsel submits that in 3/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt view of that reference be answered in favour of Assessee. 6] learned counsel for Respondent submits that under scheme itself Assessee had made it clear that 50% refund ought to be claimed within two months, failing which right shall be forfeited. subsequent circular as alleged by Assessee was never advertised nor published nor there is any date on circular. Tribunal has purportedly considered said aspect. learned counsel relying on judgment of Apex Court in case of Commissioner of Income Tax vs. T.V. Sundaram Iyengar and Sons Ltd, reported in (1999) ITR 236 page 524, submits that deposit receipts from customers which were not claimed by them, claim of customers having become barred by limitation, amount is assessable as income. In present case also amount is received in year 1981 82 and same is taxed as income in year 1989 90. 7] We have considered submissions canvassed by learned counsel for respective parties. 8] matter will have to be decided considering facts of present case. No straight jacket formula had been laid down in 4/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt this regard. In case of Commissioner of Income Tax vs. T.V. Sundaram Iyengar and Sons Ltd (supra), Apex Court has observed that principle appears to be that if amount is received in course of trading transaction, even though it is not taxable in year of receipt as being of revenue character, amount changes its character when amount becomes assessee's own money because of limitation or by any other statutory or contractual right. When such thing happens, common sense demands that amount should be treated as income of assessee. What remains after adjustment of deposits had not been claimed by customers. claims of customers have become barred by limitation. 9] In Commissioner of Income Tax vs. Sugauli Sugar Works (P.) Ltd.(Supra) Apex Court held that expiry of period of limitation prescribed under Limitation Act could not extinguish debt but it would only prevent creditor from enforcing debt is well settled. It is further observed that mere entry in books of account of debtor made unilaterally without any act on part of creditor will not enable debtor to say that liability has come to end. It was further observed by Apex 5/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt Court that cessation of liability may occur either by reason of operation of law, i.e., on liability becoming unenforceable at law by creditor and debtor declaring unequivocally his intention not to honour his liability when payment is demanded by creditor, or contract between parties or by discharge of debt debtor making payment thereof to his creditor. Mere transfer of entry is neither agreement between parties nor payment of liability. Apex Court accepted finding of Tribunal that unilateral entry in accounts transferring amount to capital reserve account would not bring matter within scope of Section 41(1) of Income Tax Act. 10] In present case, deposits were of year 1981 82. From 1981 82 to 1988 89, meager amount was refunded. first circular states that if refund is to be claimed by student, sum should be claimed within two months. After lapse of two months, claim, shall not be entertained. subsequent circular did not find favour with Tribunal as it did not inspire confidence. 11] Tribunal held that contention on behalf of Assessee that terms and conditions for grant of refund had been 6/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt relaxed is not acceptable. Paragraph 13 of order of Tribunal reads as under; 13. contention on behalf of assessee that terms and conditions for grant of refund had been relaxed for giving student chance to appear 5 to 8 attempts at examination, has not been established by any evidence. circular purported to have been issued by assessee is not sufficient to accept claim of assessee. Firstly, there is no evidence to establish that such circular was issued. Secondly, it is admitted by assessee that circular was not published in any newspapers or sent to students. It was claimed that circular was placed on Notice Board of Institute. assessee has failed to establish claim that scheme had been changed. As per contract, money had become that of assessee when refund was not claimed within stipulated time and if any amount was decided to be refunded to students that would not alter character of receipt. admissibility of deduction in respect of refund granted by assessee, out of money which had become that of assessee by operation of contract, is totally different area, with which we are not concerned at this stage. This claim of assessee is accordingly rejected. 7/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt 12] Perusing aforesaid finding, Tribunal has considered contract between parties i.e. after lapse of two months, right of students to claim amount coming to end. second circular was disbelieved by Tribunal. said finding is findings of fact, which cannot be gone into in reference. contract between parties was clear that refund must be claimed by candidate within two months of declaration of result of concerned written test. Refund claimed thereof will not be granted. In view of clear finding of fact, parties would be governed by contract. Considering facts of case of Petitioner, observations of Apex Court in case of Commissioner of Income Tax vs. T.V. Sundaram Iyengar and Sons Ltd (supra) would be relevant. In case of Commissioner of Income Tax vs. Sugauli Sugar Works (P.) Ltd.(Supra) before Apex Court, facts were different. If Petitioner would have proved second circular, then Assessee would have been on better footing. 13] Moreover as far as subsequent refunds are concerned, Tribunal has taken care of same and has directed Assessing Officer to adjust against demand under appeal. 8/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: osk itr 158 2000.odt 14] In light of above, issue referred to is answered against Assessee. Reference, accordingly, stands disposed of. (G.S. KULKARNI, J.) (S.V. GANGAPURWALA, J.) 9/9 ::: Uploaded on - 01/07/2017 ::: Downloaded on - 04/07/2017 09:43:25 ::: E.K.Thakur v. CommissionerofIncome-tax-IX,Mumbai