Delhi High Court
Motor General Finance Ltd. vs Commissioner Of Income Tax. on 18 February, 2011
Author: A.K.Sikri
REPORTABLE
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+
% Judgment Reserved on: 27.01.2011
Judgment Delivered on:18.02.2011
(1) ITR 458/1984
MOTOR GENERAL FINANCE LTD. ...APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
VERSUS
COMMISSIONER OF INCOME TAX. ...RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
(2) ITA 15/1999
MOTOR GENERAL FINANCE LTD. . . . APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
VERSUS
DY. COMMISSIONER OF INCOME TAX. ....RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
(3) ITA 16/1999
MOTOR GENERAL FINANCE LTD. ...APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
VERSUS
DY. COMMISSIONER OF INCOME TAX. ...RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
ITA 458 of 1984 & other connected matters Page 1 of 24
(4) ITA 124/2007
MOTOR GENERAL FINANCE LTD. ...APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
VERSUS
COMMISSIONER OF INCOME TAX. ...RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
(5) ITA 73/2002
COMMISSIONER OF INCOME TAX. ....APPELLANT
Through: Ms. Rashmi Chopra, Advocate
VERSUS
MOTOR GENERAL FINANCE LTD. ....RESPONDENT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
(6) ITA 117/2007
MOTOR GENERAL FINANCE LTD. . . . APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
VERSUS
COMMISSIONER OF INCOME TAX. .RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
(7) ITA 123/2007
MOTOR GENERAL FINANCE LTD. . . . APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
VERSUS
ITA 458 of 1984 & other connected matters Page 2 of 24
COMMISSIONER OF INCOME TAX. ....RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
(8) ITA 130/2007
COMMISSIONER OF INCOME TAX. ....APPELLANT
Through: Ms. Rashmi Chopra, Advocate
VERSUS
MOTOR GENERAL FINANCE LTD. ....RESPONDENT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
(9) ITA 209/2007
COMMISSIONER OF INCOME TAX. ....APPELLANT
Through: Ms. Rashmi Chopra, Advocate
VERSUS
MOTOR GENERAL FINANCE LTD. ....RESPONDENT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
(10) ITA 231/2007
COMMISSIONER OF INCOME TAX. ....APPELLANT
Through: Ms. Rashmi Chopra, Advocate
VERSUS
MOTOR GENERAL FINANCE LTD. ....RESPONDENT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
(11) ITA 331/2007
COMMISSIONER OF INCOME TAX. ....APPELLANT
Through: Ms. Rashmi Chopra, Advocate
VERSUS
ITA 458 of 1984 & other connected matters Page 3 of 24
MOTOR GENERAL FINANCE LTD. ....RESPONDENT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
(12) ITA 1233/2008
MOTOR GENERAL FINANCE LTD. . . . APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha, Advocate
VERSUS
COMMISSIONER OF INCOME TAX. ....RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
(13) ITA 1234/2008
MOTOR GENERAL FINANCE LTD. . . . APPELLANT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
VERSUS
COMMISSIONER OF INCOME TAX. ....RESPONDENT
Through: Ms. Rashmi Chopra, Advocate
(14) ITR 211/1990
COMMISSIONER OF INCOME TAX. ....APPELLANT
Through: Ms. Rashmi Chopra, Advocate
VERSUS
MOTOR GENERAL FINANCE LTD. ....RESPONDENT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
(15) ITR 248/1991
COMMISSIONER OF INCOME TAX. ....APPELLANT
Through: Ms. Rashmi Chopra, Advocate
VERSUS
ITA 458 of 1984 & other connected matters Page 4 of 24
MOTOR GENERAL FINANCE LTD. ....RESPONDENT
Through : Mr. O.S. Bajpai, Sr. Advocate with
Mr. V.N.Jha & Mr. B.K. Singh
Advocates.
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. There is one question which is common in all these appeals.
However, in ITR 458/1984 there are some additional questions
which are referred for opinion. We would like to deal with these
questions first and then approach the common question of law
centre to all these cases. This ITR pertains to assessment year
1978-79 wherein the assessee had claimed certain medical
expenses which were reimbursed to its employees. The Tribunal
accepted the claim of the assessee that such reimbursement could
not be regarded as perks. Following question has been referred by
the Tribunal for our opinion in this behalf:-
"Whether on the facts and in the circumstances
of the case, the Tribunal was right in holding
that reimbursement of medical expenses by the
assessee company to its employees could not
be treated as perquisites within the meaning of
Section 40C/40A (5) of the Income-Tax Act,
1961?"
2. This question stands answered in favour of the assessee and
against the Revenue in the case of Commissioner of Income
Tax Vs. Mafatlal Gangabhai and Co. (P) Ltd., 219 ITR 644.
3. Another question which is referred by the Tribunal on the
application of the assessee relates to assessee‟s claim that its sur-
tax liability of ` 42,850/- for this year should be deducted in the
computation of its total income. The Tribunal did not accept the
contention of the assessee in the impugned order but on the
application of the assessee, has referred the following question for
opinion:-
"Whether, on the facts and in the circumstances
of the case, the sur-tax liability claim of ` 42,850/-
was allowable as deduction in computing the total
income of the assessee company for the assttt.
Year 1978-79?"
4. It is also decided in favour of the assessee in 219 ITR 589. We
thus answer the question in the affirmative i.e. in favour of the
assessee and against the Revenue.
5. Coming to the pivotal issue which is common in all these years,
which has arisen for the first time in the assessment year 1997-98
and concerns the treatment which is to be given to the surplus
amount at the hands of the assessee which the assessee collected
from its customers on account of insurance premium and remained
unclaimed because the persons who had paid the excess amount did
not come forward to receive the same.
6. We may record that the assessee is a Limited Company
carrying on business of financing for the purpose of purchase of
commercial vehicles. There is a prescribed agreement under which
finances are provided by the assessee to the purchaser of a vehicle.
There are various terms and conditions mentioned in the agreement.
According to clause (ix) the purchaser who is described as hirer has
to get the vehicle insured for a comprehensive policy with an
insurance company approved by the assessee with an endorsement
assigning the policy in favour of the assessee. There is also
transaction sheet in the name of the hirer indicating description of
the vehicle purchased, cost of the same, initial payment to be made,
hire purchase charges etc. etc. The initial insurance amount is also
paid by the hirer. Insurance of the second year, third year and
fourth year are also mentioned in the transaction sheets. Though
the primary responsibility to insure the vehicle lies with the hirer,
frequently the assessee collects the insurance amount in round
figures and this is also added to the total amount financed by the
assessee for the purchase of the vehicle and the installments are
also determined accordingly. However, the amounts collected by
way of insurance are kept in separate account as deposits. Out of
these deposits, the insurance premium is paid by the assessee on
behalf of the hirer. Since the amount is collected in round sum
which may be a little more than what is required to be paid towards
insurance premium, there is small balance left in the account of each
of the hirers. The amount so remaining in each of the hirers towards
the excess insurance premium is returned to the hirer at the time of
final adjustment of the account. At the same time, it is also a
matter of record that many such hirers do not come at all to claim
the balance amount. This balance remained with the assessee and
over years, such amounts are accumulated. Since the amount
remains as unclaimed balance, in the accounts relating to insurance
premium after certain years, the assessee writes off this amount and
the same is credited to the profit and loss account in that year in
which it is written off. The insurance premium standing in the
accounts was treated as liability in the balance sheets of the
assessee company but after it is written off the amount was taken
to the profit and loss account and it is no longer in the balance
sheet. It is in this backdrop when in the successive assessment
years a particular amount on account of unclaimed insurance
premium was written off and credited to the profit and loss account,
the question of treatment which is to be given to this amount came
up before the Assessing Officer. As mentioned above, for the first
time, this issue arose in the assessment year 1997-98 when a sum of
` 47,0461/- was written off in that year. The Assessing Officer
treated this as assessee‟s income and the order of the Assessing
Officer was confirmed by the CIT (A) in appeal. However, the
Tribunal reversed the orders of these two authorities below holding
that it would not be treated as income of the assessee as the
amounts were not the revenue receipts liable to tax. On application
filed by the Revenue, reference was made to this Court which was
registered as ITR 396/1983. Thereafter this issue kept cropping up
in each successive year and went through the same legal moral with
the orders of the Tribunal allowing the appeals of the assessee
giving it tax relief on this amount. Interestingly, however, the
Tribunal in respect of assessment year 1986-87 took somersault
holding that this unclaimed amount taken to profit and loss amount
would be the income of the assessee exigible to tax. This trend in
the approach of the Tribunal continued for some years but again the
Tribunal took „U‟ turn and started holding in favour of the assessee.
It is for this reason that some of these appeals are filed by the
Revenue and some others are filed by the assessee.
7. Thus, even when appeals are preferred by the Revenue or the
assessee, they unveiled same question of law. The question which
was referred to by the Tribunal in ITA 458/1984 can be stated here
which would give a flavour of the controversy:-
"Whether on the facts and in the circumstances of
the case, the Tribunal was right in holding that the
sum of ` 1,79,140/- being the balance of the
amount collected by the assessee from the hirers
towards insurance premium written book and
credited to the Profit & Loss Account of the previous
year ended on 30-6-1977 as unclaimed balance,
was not a trading receipt of the assessee and hence
it could not be brought to tax for assessment year
1978-79?"
8. We would like to point out here that the dispute which arose
for the first in the year 1977-78 has been the subject matter of the
agitation in all successive assessment years till 2003-04 which are
before us. However, at the same time, in respect of five assessment
years, where reference was made by the Tribunal, those references
were returned unanswered for non-filing of the paper book by the
Revenue.
9. We may also point out at this stage itself that in the
assessment years 1986-87 when the Tribunal had taken the contrary
view and against that order of the Tribunal, ITA 15/1999 is filed, one
of the submissions of Mr. Bajpai, learned Sr. Counsel appearing for
the assessee was that it was not permissible for the Tribunal to
disregard the decision of the Coordinate Bench on the same issue in
respect of the same assessee. He submitted that even if the Bench
which took the contrary view was of the opinion that decision of
earlier Benches were not correct, the only course of action open for
this Bench was to refer the matter to Larger Bench. No doubt, this
grievance of Mr. Bajpai, learned Sr. Counsel is perfectly justified.
Ordinarily, Bench of the Tribunal is bound by the orders passed by
the Coordinate Bench and even if it is of the opinion that the view of
the earlier Bench is not correct, it has no power to disregard that.
The only course open in such a situation is to refer the matter to a
Larger Bench and it is the prerogative of the Larger Bench to over-
rule the judgment of the earlier Bench if it takes contrary view.
However, at the same time, it would serve no purpose to set aside
these orders of the Tribunal on this ground and refer the matter back
to the Tribunal for constituting Special Bench. Reason is simple and
more than obvious. The Revenue is before us against the earlier
orders of the Coordinate Bench and in those References and appeals
filed by the Revenue some question of law has to be necessarily
decided by us. Once we are called upon to answer the
reference/question of law and our answer on that issue would be
binding on the Tribunal, the exercise of referring the matter for
constituting Special Bench would clearly be unnecessary. Persuaded
by these considerations, we are proceeding to decide the questions
of law.
10. Facts of the matter have already been taken note of.
Submission of Mr. Bajpai, learned Sr. Counsel appearing for the
assessee is that on these facts hardly any question of law arises. He
emphasized that these facts would clearly demonstrate that the
amount collected from the hirer by the assessee represented the
money of the hirers and it was handed over to the assessee in trust
which remained that of the hirers. The assessee was under fiduciary
to refund this amount back as and when any such hirer claimed the
unspent amount namely the excess insurance premium. In fact,
positive finding of fact was recorded by the Tribunal that the amount
of the hirers towards the excess insurance premium was returned to
them at the time of final adjustment of the accounts. Therefore,
argued, the learned Senior Counsel even if certain hires did not
claim the amount, the same remained trust money in the hands of
the assessee and was never treated as its income. His argument,
premised on the aforesaid facts was that once the money received
from the hirer was treated as trust money and deposited as such
with the assessee at the initial stage, subsequent events would not
change the original character of this receipt. Further, for this reason
even if the amount was written off and taken to the profit and loss
account, in the year (s) in question it could not be treated as income
of that year. He also relied upon the reasoning of the Tribunal
wherein it was held that the insurance amount collected by the
assessee was not part of the purchase price. It was only on account
of insurance of vehicle. Though the primary duty to get the vehicle
insured was of the hirer, the assessee had taken up this job for the
purpose of safety and security of hirer and to secure its interest in
case vehicle is damaged or destroyed as the same was handed over
to the hirer on hire purchase basis and during the currency of the
agreement assessee remains the owner of the vehicle. Further, it
was also an admitted case that assessee was not doing any
insurance business and collecting of insurance premium was not the
part of the assessee‟s business. This amount was in the nature of
deposit with the assessee which had to be accounted for by the
assessee ultimately. It is for this reason, insurance amount was
taken to separate account from where the amounts were to be paid
after due dates. It is for the same reason that the assessee was
under obligation to return the excess amount to the hirer and with
this understanding the amount was deposited by the hirer with the
assessee. On these facts, claimed the learned counsel, the assessee
was in a position of „Trustee‟ and could not appropriate the said
amount. He thus argued that this initial character at the time of
receipt of this amount was the decisive and subsequent event could
not alter the same. To support this submission, aide of judgment of
English Court in Morley (Inspector of taxes) Vs. Tattershall
[1939] 7 ITR 317 (CA) at page 329:-
"The learned Judge took a different view, as I have
said; he took the view that the balances when
distributed to the partners were trading receipts.
The distribution to which I imagine he is referring is
the allocation of sums to the partner‟s account in
the balance shset: but what was distributed to the
partners was not an asset item, but a liability item.
As I have pointed out, this liability was cut down by
a certain sum. That sum was then used to feed
the partner‟s account, but it was a liability not an
asset; it is on the left-hand side of the balance-
sheet, not on the right, and there was no dealing
with any balance in the sense of an asset at all. It
seems to me quite impossible, with the greatest
deference to the learned Judge‟s view, to treat that
accountancy transaction inter socies, by which
they effected the rearrangement of the liabilities
side of their balance-sheet as a distribution of
trading profits. It was not."
11. On the other hand, as was expected and naturally so, Ms.
Rashmi Chopra, learned counsel appearing for the Revenue sought
to draw great sustenance from the reasoning adopted by the ITAT
in its order which is the subject matter of ITA 15/1999. She
emphasized the modus operandi of the assessee in dealing with
such transactions by arguing that the insurance amount payable to
the assessee by the hirer is not a statutory but a contractual
obligation. Surplus insurance claimed by the assessee is kept in
suspense amount and treated as a liability in the balance sheet
which is written off after the period of 3-5 years and credited to the
profit and loss account and debiting the insurance premium
payable account. She, thus, argued that once this amount was
unclaimed and treated as such on the basis of which it was credited
to the profit and loss account, it had certainly become income of
the assessee in that year as the assessee got enriched itself by this
amount. She also argued that pertinently, it is an admitted position
as recorded by the ITAT that the assessee has led no evidence to
show that the assessee has held the said money in trust for the
hirers. Her further submission was that even when insurance
amount at the time of receipt was not on account of trading
activities but after a lapse of time owing to the transfer to the profit
and loss account, it became a part of circulating capital of the
assessee and thus income taxable. According to her, there was no
such principle of law laid down by the Courts in India that the
character of initial receipt would remain fixed and would be
determinative of the issue. On the contrary, Courts in India had
opined that even if a particular receipt is not income on the date
when the amount is received by turn and subsequent years it can
become an income in the hands of the assessee. She relied upon
the judgment of the Apex Court in the case of CIT Vs. T.V.
Sundram Iyengar & Sons Ltd.[ (1996) 222 ITR 344 ] wherein it
has been specifically held:-
"Although the amount received originally was not
of income nature, the amounts remained with the
assessee for a long period unclaimed by the trade
parties. By lapse of time, the claim of the deposit
became time barred and the amount attained a
totally different quality. It became a definite trade
surplus. ...............In other words, the principle
appears to be that if an amount is received in
course of trading transaction, even though it is not
taxable in the year of receipt as being of revenue
character, the amount changes its character when
the amount becomes the assessee's own money
because of limitation or by any other statutory or
contractual right. When such a thing happens,
common sense demands that the amount should
be treated as income of the assessee."
12. She argued that the amount in question by efflux of time
could become the assessee‟s own money and the transfer is not an
unilateral entry, as held by the Supreme Court in the case of
Iyengar (supra) in the following words:-
"The true accountancy view would, I think,
demand that these sums should be treated as
paid into a suspense account, and should so
appear in the balance sheet. The surpluses should
not be brought into the annual trading account as
a receipt at the time they are received. Only time
will show what their ultimate fate and character
will be. After three years that fate is such, as to
one class of surplus, that in so far as the suspense
account has not been reduced by payments to
clients, that part of it which is remaining becomes
by operation of law a receipt of the Company, and
ought to be transferred from the suspense
account and appear in the profit and loss account
for that year as a receipt and profit. That is what it
in fact is. In that year Jays become the richer by
the amount which automatically becomes theirs,
and that asset arises out of an ordinary trade
transaction. It seems to me to be the common-
sense way of dealing with these matters...."
13. She further submitted that the Apex Court in CIT Vs. Karam
Chand Thapar [222 ITR 112] has held that the conduct of the
assessee to take the amount as miscellaneous receipt to the profit
& loss account belies the case of the assessee to hold the money in
trust. It is further submitted that this Court in the case of Jay
Engineering Vs. CIT [2009] 311 ITR 200 (Delhi)] by relying on the
decision of T.V. Sundaram (supra) has held that the amounts
received during the ordinary trading transaction even though not in
the nature of income would change the character and become
assessee‟s income if they remained unclaimed with the assessee
for a longtime and the claim of such money becomes barred by
limitation. The Court has held that the ratio of CIT Vs. Kesaria
Tea Co. Ltd. [(2002) 254 ITR 434 ] and of the decision in CIT Vs.
Sugali Sugar Works (P) Ltd. [ 236 ITR 518] related to statutory
liabilities. Further, in the following cases, the amounts transferred
to the profit and loss account were held to be chargeable receipts
of the assessee from trade:-
(a) CIT Vs. AVM, 146 ITR 355.
(b) Punjab Steel Scrap Merchants Ass. Vs. CIT, 43 ITR 164.
(c) CIT Vs. Batlibol, 149 ITR 664.
(d) Punjab Distilling Industries Vs. CIT, 35 ITR 519.
14. Ms. Chopra, thus concluded her arguments by submitting that
since the amount collected by the assessee remained unclaimed,
and was never given back to any of the hirer after its transfer to the
profit and loss account, as a part of the circulating capital income it
assumed the character of income chargeable to tax.
15. We may first distill the principle of law laid down in various
judgments cited by the learned counsel for the parties. We may
mention here that in another judgment pronounced today i.e. ITA
1623/2010 & ITA 503/2010 titled Logitronics Pvt. Ltd. Vs.
Commissioner of Income Tax and Commissioner of Income
Tax Vs. Jubilant Securities Pvt. Ltd. respectively, these very
judgments are analysed in detail and, therefore, for the sake of
brevity we are not repeating the said discussion. Suffice it to
point out that this issue cropped up again in the Supreme Court in the
case of The Travencore Rubber & Tea Co. Ltd. v. C.I.T.,
Trivandrum [243 ITR 158]. Analyzing these judgments, the Court
reiterated that in Morley (supra), it had been held that the quality
and nature of a receipt for income tax purposes were fixed once and
for all when receipt was received and that no subsequent operation
could change the nature of the receipt. However, in CIT Vs. Karam
Chand Thapar [1996] 222 ITR 112, the Supreme Court held that the
proposition enunciated in Morley (supra) was not absolute and that
in given cases, amounts which were not received initially as trading
receipts could eventually be regarded as business income by reason of
subsequent events.
16. The principal of law which is clearly discernable and is distilled
from the aforesaid judgment is that though normally initial
character of the receipt would govern the treatment which is to be
meted out to a particular sum received by the assessee. If the
amount is received in the course of trade transaction even though it
is not taxable in the year of receipt, the amount changes its
character when it becomes the assessee‟s own money because of
limitation or by statutory or contractual right. One has to adopt
common sense approach in this behalf, as emphasized by the
Supreme Court in the case of Sundaram Iyenger (supra) namely
if it becomes the money of the assessee received in the course of
trade transaction, it would be treated as income of the assessee.
17. Let us apply this principle to the cases at hand. It is not in
dispute that the money was initially received by the assessee from
the hirer as deposit to take care of the insurance premium payable
on the vehicles given to the higher on hire charge basis. Of course,
the prime obligation was that the hirer to get the vehicle insured but
the assessee took up this job upto itself, wherever hirer agreed, to
sub-serve its own interest as the assessee wanted the vehicle to
remain insured. It is also correct that the money was received in
lump sum in round figure to take care of the entire period during
which hire agreement was to operate and after expending the
capital amount balance was to be refunded to the hirer. It is also
true that many such hirers came forward to claim this refund which
was duly handed over by the assessee to those persons.
18. Facts up to this stage give an indication that the money
collected by the assessee on account of insurance did not belong to
the assessee. The assessee was incurring the expenditure towards
insurance premium on hirers account and was also supposed to
refund the balance. The poser, however, is as to whether this
amount would be treated as income and converted into the income
of the assessees.
19. Before answering this question, we may recapitulate that
though the primary responsibility of in securing the vehicle lies with
the higher. It is the assessee who frequently collected insurance
amount in round figures for obtaining this insurance on the vehicles.
The assessee does so for its own benefit as it wants to assure that
the vehicle remains insured for the hire purchase duration as the
assessee remains the owner of the vehicle in question during that
period. But the matter does not rest here. What is important is that
the insurance amount collected by the assessee from the hirer in
round figures is also added to the total amount financed by the
assessee for the purchase of the vehicle. Further, the installments
which are fixed and are to be paid by the hirer are determined after
inclusion of this amount. This would show that the receipt of the
said amount becomes inseparable part of trading activity of the
assessee as it becomes integral part and parcel of the transactions
entered into between the assessee and the hirer. Again no doubt,
at the time of final adjustment of the account, the hirer is entitled to
seek refund of the excess insurance premium. Those hirers who
come forward and seek the refund are paid. We are not concerned
with that amount refunded by the assessee to those hirers. Here we
are concerned with the balance amount which remains with the
assessee and hirers do not come forward to claim their refunds.
Over the years, this amount gets accumulated. With the passage
of time when the amount remains unclaimed, the assessee
becomes confident that there would not be any claimant, it writes
off these amounts from those accounts in a particular year and the
same is credited to the profit and loss account in that year. It is
here the amount changes its character. Initial amount which was
paid by the hirer on account of insurance premium and left over
there from which remained with the assessee as unclaimed
becomes the money of the assessee. In this year, therefore, it
becomes the income of the assessee as the assessee is enriched by
this amount and has itself taken the step of crediting the same to
the profit and loss account. The facts similar to Sundaram
Iyenger (supra) would accrue here also.
20. Even in Karamchand Thapar, (supra) the Supreme Court had
emphasized that the conduct of the assessee to take the amount as
miscellaneous receipt to the profit & loss account belies the case of
the assessee to hold the money in trust. Thus, the movement it
was taken to the profit and loss account, it no longer remained
money in trust with the assessee. It is very significant that the
assessee has not been able to give even a single instance as to
whether any hirer came forward to claim the refund after it was
written off and still it was refunded. It would result only in two
possibilities namely either no person came forward to claim the
amount after such a long delay or even if somebody wanted to
refund, it was not given. Furthermore, another material aspect
which needs to be emphasized is that the assessee has not come
forward with any explanation as to why surplus money was taken to
its profits and loss account even if it was someone‟s else money. In
such circumstances, we are of the view that in the year in question
in which the assessee had written off the aforesaid amount and
credited to the profit and loss account, the character of this money
changed and became income of the assessee in that year. For
coming to this conclusion, we are supported by the judgment of this
Court in the case of Jay Engineering Works Ltd. (supra).
21. Mr. Bajpai, learned Senior Counsel for the assessee had
argued that even if the limitation had expired, that would not
extinguish the liability but only the remedy. However, what is
forgotten in relying this principle is that as per this argument itself
the remedy of the hirers to claim the unexpired insurance amount
has been taken away and the hirers would not be in a position to
claim the amount from the assessee. It is not the case of the
assessee that the assessee still wanted to give the refund to these
hirers suo moto without even hirers approaching the assessee. It is
stated at the cost of repetition that the assessee itself treated the
money as unclaimed by writing off the said amount and taking it to
the profit and loss account. This action of the assessee would
demonstrate that the assessee also form an opinion that these
people would not come forward to claim the amount. Additionally,
as pointed out above, the assessee could not cite even a single case
that any of the hirer comes forward to claim the unclaimed amount
and the amount was refunded by the assessee. Therefore, this
argument would be of no avail to the assessee.
22. In view of the aforesaid analysis, we conclude:-
(a) Question of law framed is answered in favour of
the Revenue and against the assessee;
(b) ITR 458/1984 is answered accordingly;
(c) Appeals filed by the Revenue are allowed;
(d) Appeals filed by the assessee are dismissed.
(A.K. SIKRI)
JUDGE
(M.L. MEHTA)
JUDGE
FEBRUARY 18, 2011
skb
