Income Tax Appellate Tribunal - Madras
Sriram Transport Finance Co. Ltd. vs Assistant Commissioner Of Income-Tax on 29 April, 1997
Equivalent citations: [1997]63ITD336(MAD)
ORDER
Kalsian, A.M.
1. This appeal by the assessee relates to the assessment year 1992-93 and arises out of the order of the CIT(Appeals) -II, Madras dated 25-1-1996. The assessee-company is engaged in the business of hire purchase and leasing.
2. The first ground of appeal is that the order of the CIT(Appeals) is contrary to law, facts and circumstances of the case and the materials available in record. This ground is general in nature and does not require any specific decision.
3. The second ground is that the CIT (Appeals) erred in disallowing the assessee's claim for depreciation on higher written down value of depreciating assets consequent on the assessment for earlier years having been made in accordance with the provisions of section 115J, of the Act. It is argued by the ld. counsel for the assessee that when the assessment is completed under section 115J with a view to determine total income in an ad hoc and artificial manner, the other provisions of the Act like sections 32, 71 and 72 stand suspended. Under section 115J, 30 per cent of the book profit had been subjected to tax for assessment years 1988-89, 1989-90 and 1990-91 even though there was no taxable income as per the provisions of the Income-tax Act. That notwithstanding there being no taxable income-tax was levied, giving the go by to the normal provisions of the Act. That depreciation had not been factually allowed for the above three earlier years since what had been taxed is notional income. That, since, depreciation had not been actually allowed or considered while levying tax on book profit under section 115J, the assessee has to be allowed depreciation in 1991-92 on the WDV of assets as on 1-10-1986 as increased by all subsequent additions during the next three years, and the claim of the assessee, according to the ld. counsel is supported by the Supreme Court's decision in the case of Madeva Upendra Sinai v. Union of India [1975] 98 ITR 209 at page 209. The ld. counsel argued that the CIT(Appeals) should have appreciated that the definition of the terms 'written down value' under section 43(6)(a) & (b) and 'block of assets' under section 43(6)(c) clearly support the assessee's contention that WDV can be arrived at only after factually allowing depreciation and reducing it from the assets costs and not by mere notional quantification of depreciation, not supported by adjustments with the profit and loss account. According to the ld. counsel, no provision of the Act authorises the assumption that depreciation not allowed shall be deemed to have been actually allowed, especially when the omission is significant in the light of legislative practice as evidenced by sections 10A(4)(iv) and 10B(4)(iv) of the Act. The ld. counsel strongly emphasised that depreciation should be calculated on the WDV of assets as on 1-10-1986 and on additions of the subsequent three years for the assessment year 1991-92 and that such WDV arrived at for assessment year 1991-92 be the opening WDV for the assessment year 1992-93 under consideration. The ld. counsel referred to the decision of the Tribunal. A Bench, Madras in the case of Shriram Investments Ltd. v. Asstt. CIT[1996] 59 ITD 570.
3.1 The ld. Departmental Representative, on the other supported the orders of the authorities below and invited our attention to the arguments advanced on behalf of the Department by the Standing-counsel before the Tribunal in the case of Shriram Investments Ltd., (supra). It is argued by the ld. D.R. that the effect of section 115J(1) is to create a fiction but that fiction is only for the limited purpose of levying tax and for not any other purpose. Its effect is only limited to the extent of increasing the total income as computed in accordance with the regular provisions of the Income-tax Act by an amount, which is equal to the difference between the computed figure and 30 per cent of the book profit. The provisions of sub-section (1) of section 115J are independent of the provisions of sub-section (2) of the said section and the effect of section 115J(1) should not fall on the provisions of sub-section (2) of section 115J. The ld. D.R., therefore, referred to the arguments of the Standing-counsel of the Department in the case of Shriram Investments Ltd. (supra).
4. We have considered the facts of the case, the rival submissions, material on record including the paper book filed by the assessee, and also thoroughly perused the earlier decision of the Tribunal in the case of Shriram Investments Ltd., (supra), relied on by the assessee's counsel. In this case the Tribunal came to the conclusion that the amount of total income, computed under the normal provisions, yields to an amount equal to 30 per cent of the book profits, if such 30 per cent of the book profits is higher than the amount of total income initially computed. In other words, the Tribunal considered that the first limb of section 115J(1) yields to its second limb in the specified circumstances and, therefore, the total income computed under the normal provisions can no longer survive once deemed total income is ascertained for purpose of tax.
5. In the case of Pennar Steels Ltd. v. Dy. CIT [1997] 60 ITD 1, A Bench of the Tribunal, Hyderabad considered the same issue held as under :
"Under section 115J, if the income computed under the normal provisions is found to be less than 30 per cent of the profit disclosed in assessee's profit and loss account, then alone the latter is to be deemed as its total income. There is no provision to go back to compute the total income and reduce the said 30 per cent of book profit from any income before depreciation and then consider the allowability of depreciation. On the contrary, from sub-section (2) of section 115J it would be obvious that right of assessee to carry forward unabsorbed depreciation, loss, etc., is not to be affected by provisions of section 115J(1). This means that right to carry forward and the amount to be carried forward is to be de hors the provisions of section 115J and is to be determined before the applicability of the provisions of section 115J is seen. The assessee's contention that his right to carry forward was affected in the sense that when a part of income was assessed to tax by virtue of provisions of section 115J(1) and that part was set off against depreciation, it reduced the assessee's right to depreciation to that extent and that it amounted to double taxation, could not be accepted. What section 115J(2) means is that the provisions should not come in assessee's way to get the right to carry forward and set off. In other words, the assessment under section 115J on 30 per cent of book profits by treating the same as assessee's income should not debar the assessee from carry forward and set off, there being an assessment of positive income. One might say that there was chargeable income and, therefore, the assessee had lost the right to carry forward losses. To overcome this situation section 115J(2) provides that the provisions of this section would not affect assessee's right to carry forward under sections 32(2), 72, etc. There was also no force in the contention of assessee that 30 per cent of book profit was part of assessee's income computed and when it was assessed separately, the loss to that extent could not be set off and should be allowed to be carried forward, because firstly, 30 per cent of book profit is a deemed income and can exist even in cases where total income under other provisions is a loss, and secondly, it only comes into existence when the total income of an assessee is less than that figure.
Another contention of the assessee, namely, that 'income chargeable to tax' as appearing in section 32(2) does not include income actually charged, also could not be accepted. An income is charged to tax only when it is chargeable to tax. Whenever an income is assessed or charged to tax it is a prerequisite that it is included in the term 'income chargeable. The 30 per cent of book profit is charged and assessed to tax as total income. Thus, the term 'chargeable' is a larger concept than 'charged to tax' and includes the latter in its ambit.
Therefore, there was no merit in assessee's appeal and, accordingly, it was to be dismissed."
6. In the case of Suryalatha Spg. Mills Ltd. v. Union of India [1997] 223 ITR 713/93 Taxman 310 (AP) the provisions of section 115J were thoroughly considered by the Andhra Pradesh High Court. Their Lordships held as under :-
"The object of insertion of section 115J of the Income-tax Act, 1961, was to ensure levy of minimum tax on what are known as "prosperous zero tax companies". Under the scheme of the section, which is a self-contained provision, where the total income of companies as computed under the provisions of the Income-tax Act, in respect of the previous year relevant to the assessment year after April 1, 1988, is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J(1). Sub-section (2) provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions in sub-section (1) of section 115J. This provision involves two processes. First the assessing authority has to determine the income of the company under the provisions of the Income-tax Act, and, secondly the book profit has to be worked out in accordance with the Explanation below section 115J(1A), then it will have to be seen whether the total income determined under the first process is less than 30 per cent of the book profit; if so, sub-section (1) would be invoked and the total income of such a company Chargeable to income-tax for the relevant previous year shall be equal to 30 per cent of such book profit.
Sub-section (2) of section 115J cannot be interpreted to permit the assessee-company, where its notional income has been taxed under section 115J(1), to carry forward unabsorbed loss or unadjusted allowance of an amount equal to the taxed income because :-
(a) for the purpose of arriving at the total taxable income under the provisions of Income-tax Act, carried forward losses are already adjusted.
(b) since sub-section (2) of section 115J of the Act is a saving provision and does not confer any further right, the amount of income arrived at for the purpose of eligibility of income-tax under sub-section (1) of section 115J, cannot be taken note of, while considering the question of carrying forward of unadjusted loss.
(c) the very object of the provision of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J, and if any loss equal to the income thus determined is allowed to be adjusted, that would frustrate and nullify the very object of enacting the provision.
From a plain reading of sub-section (2) of section 115J, it is clear that the quantum of unabsorbed losses, unadjusted depreciation, etc., for the purpose of carrying forward has to be under the provisions of the Act, irrespective of the quantum of income determined under the provisions of sub-section (1) of section 115J. There would be no scope for the revenue to contend that in view of the provision of sub-section (1), the unabsorbed depreciation allowance, unadjusted loss or deficiency, etc., as the case may be, can no longer be carried forward to the subsequent year or years. On the determination of the taxable income, under the relevant provisions of the Act, whatever amounts remain to be carried forward under the regular computation, either by way of unabsorbed losses or unadjusted allowances have to be carried forward to the next year ignoring the fact that a notional income is made taxable under sub-section (1) of section 115J.
Section 115J of the Income-tax Act, 1961, is not violative of articles 14 and 19(1) of the Constitution.
National Thermal Power Corporation Ltd. v. Union of India [1991] 192 ITR 187 (Delhi) followed.
Section 115J does not result in double taxation. What is being taxed is income determined on the basis prescribed under the said provision and there is no provision to re-tax the same income. The right to carry forward losses and unadjusted allowances is kept intact by sub-section (2) of section 115J; merely, because a sum equal to the income determined as taxable under sub-section (1) is not treated as unabsorbed loss, etc. which under no provision of the Act can be so treated, it cannot be said that there is double taxation. Even if there is double taxation that would not per se render the provision invalid."
7. In the above case, their Lordships of the Andhra Pradesh High Court held that sub-section (2) of section 115J provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions of sub-section (1) of section 115J. The object of section 115J was to ensure levy of minimum tax on what are known as 'prosperous zero tax companies'. Where the total income of companies as computed under the provisions of the Income-tax Act, in respect of the previous year relevant to the assessment year after April 1, 1988, is less than 30 per cent of their book profits, the total income of such companies chargeable to income-tax for the relevant previous year is treated as income equal to 30 per cent of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amount and granting deduction for computing chargeable income under section 115J(1). Sub-section (2) provides that determination of the amount in relation to the relevant previous year to be carried forward to the subsequent year or years will have to be made unaffected by the provisions of sub-section (1) of section 115J. It is clear from the provisions of section 115J that the unabsorbed loss, unabsorbed depreciation, etc. for the purpose of carrying forward have to be determined irrespective of the quantum determined under the provisions of sub-section (i) of section 115J. Whatever amounts remains to be carried forward under the regular computation either by way of unabsorbed loss or unabsorbed depreciation, have to be carried forward to the next year ignoring the fact that a notional income is made taxable under section 115J(1).
8. Similarly, in the case of Pennar Steels Ltd. (supra), the Hyderabad Bench of the Tribunal also held that the right to carry forward and the amount to be carried forward is to be de hors the provisions of section 115J and is to be determined before the applicability of the provisions of section 115J is seen. There is no provision to go back to compute the total income and reduce the said 30 per cent of book profit from any income before depreciation and then consider the allowability of depreciation.
9. It is clear from the decision of the Hon'ble Andhra Pradesh High Court in the case of Suryalatha Spg. Mills Ltd. (supra) and the decision of the Hyderabad Bench A of the Tribunal in the case of Pennar Steel Ltd. (supra), that the provisions of section 115J creates a legal fiction. Where in the case of a company total income computed under the Income-tax Act is less than 30 per cent of the book profit, the total income of such assessee chargeable to tax shall be deemed to be an amount equal to 30 percent of such book profit. This legal fiction has been created only for the purpose of charging income-tax on the 30 per cent of the book profit. The legal fiction should be limited to the purpose for which it is created. It should not be extended beyond the purpose for which it was created. It, therefore, cannot be presumed that income computed under the normal provisions of the Act under section 143(3) will yield to 30 per cent of the book profit for all the purposes. It cannot be presumed that by application of provisions of section 115J(1) of the act all other provisions of the Income-tax Act had been suspended as argued by the learned counsel. There is no room for such an intendment and presumption. There is no provision in section 115J which shows that depreciation shall not be deemed to have been allowed when 30 per cent of the book profit is charged to tax under section 115J(1). Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used in the statute. Karnataka State Financial Corpn. v. CIT [1988] 174 ITR 206/39 Taxman 117 (Kar.), CIT v. Bharani Pictures [1981] 129 ITR 244/[1980] 3 Taxman 478 (Mad.) and Smt. Radhadevi Mohatta v. CWT [1981] 129 ITR 229/5 Taxman 137 (Bom.). If the argument of the learned counsel for the assessee is accepted, then it would amount to adding no extra words to the provisions of section 115J(1). Addition of words to the statutory provisions is not permissible while interpreting a particular provision of the Act.
10. The learned counsel also referred to the decision of the Supreme Court in the case of Madeva Upendra Sinai (supra). The facts of that case were that prior to the erstwhile Portuguese territories of Goa, Daman and Diu becoming part of India on 19-12-1961, tax was levied under the Portuguese law not on the net income but on the gross turnover of a business. Between 19-12-1961 and 31-3-1963, there was no law, either portuguese or Indian, under which any income-tax was leviable. With effect from 1-4-1963, the Income-tax Act, 1961 was extended by the Taxation Laws (Extension to Union Territories) Regulation, 1963, to the Union Territories of Goa, Daman and Diu subject to certain modifications. Clause 7 of the Regulations provided that, if any, difficulty arises in giving effect in any Union territory to the provisions of any Act, or of any rule, notification or order made or issued thereunder, the Central Government may, by general or special order published in the Official Gazette, make such provisions, or give such directions as appear to it to be expedient or necessary for the removal of the difficulty. On 8-11-1970, the Central Government, in exercise of its powers under clause 7 of the Regulation, promulgated the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order No. 2 of 1970, clause 2 of which provided in the main part that in making any assessment under the Income-tax Act, 1961, all depreciation actually allowed under the local laws shall be taken into account in computing the written down value. The second proviso to that clause provided that where in respect of any period, no depreciation was actually allowed under the law or the depreciation actually allowed cannot be ascertained, depreciation in respect of that period shall be calculated at the rate for the time being in force under the Income-tax Act, 1961, and depreciation so calculated shall be deemed to be the depreciation actually allowed under the local law. The assessee filed writ petition challenging the validity of the second proviso to clause 3 of the Taxation Laws (Extension to Union Territories) (Removal of Difficulties) Order No. 2 of 1970 on certain grounds. The Hon'ble Supreme Court by majority decision allowed the petition of the assessee and declared that the second proviso to clause 2 of the 1970 order is ultra vires the Central Government under clause 7 of the 1963 Regulation. At page 235, 98 ITR their Lordships held as under :
"The situation before us is materially different. Here, no depreciation was ever computed or actually allowed to the assessee under the Portuguese law. Indeed, under that law the tax was levied not on net income but on gross turnover of the business. There was, strictly speaking, no assessment of tax on real 'profits and gains' of a business, the tax being levied on gross receipts on ad hoc basis. Allowing or taking into account depreciation of assets was out of question in that process of assessment. In the case in hand, the impugned proviso seeks to introduce a new concept of calculating depreciation. By replacing 'depreciation actually allowed' with 'depreciation deemed to have been allowed' by a fiction of law, even where no depreciation was at all allowed under any law outside the taxable territories, it, in effect, attempts to change the fundamental scheme of the Act."
Their Lordships of the Supreme Court further held as under :
"As has been said already, and it needs to be said again, the words 'depreciation actually allowed' in section 43(6)(b) connote depreciation that has actually been taken into account and given effect to by the Income-tax authorities in the computation of the profits and gains of the business in assessing income-tax for earlier years".
The above decision of the Supreme Court does not in any way support the assessee's case before us. It is seen that the Assessing Officer had computed the income under section 143(3) for the assessment year 1992-93 which is under consideration. While computing the income under section 143(3), the Assessing Officer has allowed deduction for brought forward depreciation loss as under :
1989-90 .. Rs. 66,38,463 1990-91 .. Rs. 7,40,200 1991-92 .. Rs. 48,66,892 Total Rs, 1,22,45,555
While computing the total income under section 143(3) for assessment year 1991-92, the Assessing Officer allowed deduction for depreciation loss of Rs. 1,22,45,555 which means that in earlier assessment years the Assessing Officer had determined the depreciation loss as mentioned above and carried forward any set off the same against the assessee's income for the assessment year 1942-93. Therefore, the claim of the assessee that it has not been allowed depreciation in earlier years is not true. Since, income has been computed under section 143(3) and while computing the profits and gains of the business the Assessing Officer had allowed depreciation to the assessee in accordance with the provisions of the Act, the ratio of the Supreme Court decision in the case of Madeva Upendra Sinai (supra) does not held the assessee in any manner.
11.1 According to the assessee's counsel total income has been charged to tax in the assessment years 1989-90 to 1991-92 under section 115J of the Act and to that extent depreciation has not been allowed.
11.2 This argument has no force. Section 115J(1) creates the legal fiction by treating 30 per cent of its book profits as total income of the assessee chargeable to tax and it does not provide that depreciation to that extent shall not be deemed to have been allowed to the assessee. Therefore, there is no merit in the claim of the assessee that depreciation has not been allowed to the extent to which 30 per cent of the book profit has been treated as total income chargeable to tax because, depreciation is allowable while computing income under section 143(3) or under section 143(1) of the Act, and the same has been allowed to the assessee in earlier assessment years as well as assessment year 1992-93.
12.1 The learned counsel for the assessee has referred to the definition of the words 'total income' in section 2(45) of the Act and argued that the said definition is applicable to the deemed total income under section 115J(1) and depreciation to the extent of the difference between the amount of depreciation computed in accordance with the rules and the amount of depreciation actually debited in the books of account, has not been allowed.
12.2 This argument of the learned counsel also has no merit. Section 2(45) defines total income as under :
"'total income' means the total amount of income referred to in section 5, computed in the manner laid down in the Act".
Definition of 'total income' given in section 2(45) is not applicable to the deemed total income chargeable to tax under section 115J. Under section 2(45), 'total income' is the total amount of income referred to in section 5 of the Income-tax Act. Section 5 provides for the inclusion of all income in the total income in case of resident as well as non-resident persons. In the case of resident, total income includes all income from whatever source derived, which is received or is deemed to be received in India in such year by or on behalf of such person, or accrues or arises or is deemed to accrue or arise to him in India during such year; or accrues or arises to him outside India during such year. In the case of non-resident person the total income does not include income which accrues or arises to him outside India. Therefore, the scope of total income for resident as well as non-resident person is different. But, for the purpose of section 115J the deemed total income is 30 per cent of book profit which is the same for all the companies whether resident or non-resident. Moreover, it is not necessary that book profits may include all the incomes includible in total income which is computed in accordance with normal provisions under section 143(3) or under section 143(1). The total income under section 115J will be 30 per cent of the book profits only. Therefore, the concept of total income as defined in section 2(45) and concept of deemed total income equal to 30 per cent of book profits in section 115J(1) are totally different and the total income defined in section 2(45) cannot be compared to the deemed total income chargeable to tax under section 115J of the Act. Therefore, the argument of the learned counsel that depreciation to the extent of difference between the amount of depreciation computed in accordance with the Income-tax Rules and the amount of depreciation actually debited in the books of account, should be considered as not allowed to the assessee, has no merit.
13.1 It is argued by the learned counsel that no provisions of the Act authorises the assumption that depreciation not allowed shall be deemed to have been actually allowed especially when the omission is significant in the light of the legislative practice as evidence by sections 10A(4)(iv) and 10B(4)(iv) of the Act. It is argued by the learned counsel that the Legislature has specifically and consciously made a provision under sections 10A(4) and 10B(4) to the effect that in respect of the income which did not form part of the total income, the provisions of section 32 etc. shall apply as if every allowance or deduction referred to therein had been allowed. According to the learned counsel the legislative had consciously made a provision under these two sections to create a fiction that in respect of tax holiday profits depreciation is deemed to have been allowed. But in section 115J, which was enacted by the Finance Act, 1987, w.e.f. 1-4-1988 the Legislature has not chosen to create a fiction in the nature of section 10A(4) or section 10B(7) when it enacted section 115J. According to the learned counsel the Legislature non-interference in respect of section 115J will lead only to the inference that it did not want to interfere with the claim of depreciation to the extent to which it was not allowed in computing deemed total income chargeable to tax.
13.2 Provisions of sections 10A and 10B of the Income-tax Act, apply to the newly established undertaking in free-trade zones (section 10A) and newly established export oriented undertaking (section 10B). The profits and gains derived by an assessee from an industrial undertaking in free trade zones and export orient undertaking are not includible in the total income and, therefore, the Legislature has made specific provision in sub-clause (4) that in computing the depreciation allowance under section 32 the WDV of any assets used for the purpose of business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. There was no need for such a provision in section 115J because the income of the assessee is not exempt under section 10 or other provisions of the Act. The total income of the assessee is computable under section 143(1) or section 143(3) and while so computing the income under these sections depreciation is allowable. The provisions of sections 10A and 10B cited by the assessee are totally in a different context and, hence are not relevant and does not support its case in any manner.
14.1 It is seen that the Assessing Officer has assessed the total taxable income at Rs. 49 89,730 for the assessment year 1992-93 and has allowed deduction for depreciation loss brought forward from earlier assessment years 1989-90 to 1991-92. The assessee did not file appeals against the assessment orders for those years insofar as determination of depreciation loss is concerned, which shows that it has accepted the assessment orders determining the depreciation for the assessment years 1988-90 to 1991-92 which was admissible to it. Depreciation which was not allowed deduction out of total income for assessment years 1989-90 to 1991-92 was allowed or be carried forward. The assessee did not file appeals against the orders of the Assessing Officer for those years determining the admissible depreciation and depreciation which has to be carried forward and allowed in subsequent years.
14.2 In the case of CIT v. Dalmia Cement (Bharat) Ltd. [1995] 216 ITR 79/82 Taxman 229 (SC), the facts were that the assessee filed the returns of income for the assessment years 1952-53 to 1954-55 in April, 1956. The Assessing Officer refused to make assessment on the ground that returns were filed beyond time and informed the assessee that no congnizance could be taken of said returns. The Hon'ble Supreme Court held that the assessee could not claim in the assessment proceedings relating to subsequent years that the loss in the said earlier years (1952-53 to 1954-55) be determined, carried forward and set off against the profits of the subsequent year or years, as the case may be.
14.3 In the case of the assessee before us, since, the assessee has not contested the admissibility of depreciation and determination of the WDV by the Assessing Officer for those earlier years (assessment years 1989-90 to 1991-92) by filing appeals on those issues, the determination of depreciation and WDV by the Assessing Officer while passing the orders under section 143(3) has become final and now in assessment year 1992-93 the assessee cannot challenge the determination of the WDV of assets by the Assessing Officer while passing order under section 143(3)/ 143(1) in earlier years, because appeals for those years (1989-90 to 1991-92) are not pending before the Tribunal. During the assessment year 1991-92 also the Assessing Officer had allowed depreciation to the assessee on the WDV of the assets as on 31-3-1991 determined in the assessment order passed under section 143(3) for each block of assets. Since the Assessing Officer has already allowed depreciation on the WDV of the block of assets in the assessment years 1989-90 to 1991-92, the claim of the assessee that it has not been allowed depreciation in earlier years is totally baseless.
15. After taking into account the decision of the Andhra Pradesh High Court in the case of Suryalatha Spg. Mills Ltd. (supra), the assessee's claim that WDV of the assets for the purpose of allowing depreciation in the assessment year 1991-92 should be taken as on 1-10-1986 as increased by all subsequent additions during the next three years is totally untenable. The decision of the A Bench of the Madras Tribunal in the case of Shriram Investments Ltd. (supra), relied upon by the assessee's counsel holding that total income computed under the normal provisions of the Act can no longer survive once deemed income is ascertained for the purpose of tax under section 115J(1), has been virtually overruled by the ratio of the Andhra Pradesh High Court in the case of Suryalatha Spg. Mills Ltd. (Supra), referred to earlier, in which it was clearly held that quantum of unabsorbed loss, unabsorbed depreciation, etc. for the purpose of carry forward has to be under the provisions of the Act irrespective of the quantum of income determined under the provisions of sub-section (1) of section 115J. Therefore, in view of the aforesaid decision of the Andhra Pradesh High Court and the decision of the Tribunal, Hyderabad Bench 'A' in the case of Pennar Steels Ltd. (supra), the decision of this Tribunal in the case of Shriram Investments Ltd. (supra), relied upon by the learned counsel for the assessee is not followed. This ground of appeal is dismissed.
16.1 The third ground is to the effect that the CIT(Appeals) erred in confirming the Assessing Officer's order declining to allow depreciation at 40 per cent on the leased out vehicles used in the business of running them on hire. It is argued by the learned counsel for the assessee that the CIT(Appeals) erred in holding that the assessee is not entitled to higher rate of depreciation at 40 per cent in respect of lorries, etc., on the ground that the vehicles were not directly used by it in its own business of running the same on hire. According to the learned counsel in Part III(2)(ii) of Appendix-I of the Income-tax Rules, the words employed are "motor buses, motor lorries and motor taxis used in a business of running them on hire" and not "motor buses, motor lorries and motor taxi used by the assessee engaged in a business of running them on hire". The learned counsel relied on the decision of the Tribunal, A Bench, Madras in the case of Shriram Investments Ltd. (supra), in support of his contention. Reliance was also placed on the decision of the Madras High Court in the case of CIT v. First Leasing Co. of India Ltd. [1995] 216 ITR 455/82 Taxman 536.
16.2 The learned Departmental Representative, on the other hand, supported the orders of the authorities below and argued that the assessee is entitled to depreciation on motor trucks at the normal rate of 30 per cent and not at 40 per cent as claimed by it, because the assessee is carrying on business of leasing of the vehicles and not hiring of vehicles. According to the learned D.R. in order to claim depreciation at higher rate of 40 per cent the assessee should prove that it is carrying on business of hiring of vehicles. She referred to following decisions, in support of her contentions :
1. Dalmia Biscuits Ltd. v. CIT [1992] 194 ITR 749 (Punj. & Har.);
2. CIT v. Manjeet Stone Co. [1991] 190 ITR 183/55 Taxman 365 (Raj.);
3. Veeneer Mills v. CIT [1993] 201 ITR 764 (Kar.);
4. CIT v. Sivananda Colour Works [1997] 223 ITR 180 (Mad.);
5. ITO v. E.V. Ajjappa [1994] 48 ITD 457 (Bang.).
17. We have considered the rival submissions. The assessee's claim for depreciation at 40 per cent is supported by the following decisions of the Tribunal :
1. GGV Krishnan v. Asstt. CIT [IT Appeal No. 2743 (Mad.) of 1993 dated 7-4-1995].
2. Shriram Investments Ltd.'s case (supra).
The decisions relied upon by the learned D.R. have been considered, but those decisions do not support the case of the revenue. We, therefore, direct the Assessing Officer to allow depreciation @ 40 per cent after verifying that the vehicles leased out by the assessee are need for the purpose of its business of running them on hire. Subject to these observations this ground of appeal is treated as allowed.
18. The last ground is that the CIT(Appeals) erred in treating the caution deposits collected by the assessee as trading receipts. The assessee has collected a sum of Rs. 25,000 by way of caution deposit during the assessment year 1992-93 from the lessees towards sales tax. It was submitted before the Assessing Officer that the deposits collected have to be refunded to the lessees in case it is ultimately held that the lease transactions are not subject to sales tax. The Assessing Officer considered that the amount of Rs. 25,000 collected by the assessee on account of sales tax was in the nature of trading receipts. The assessee also could not prove that the amount of Rs. 25,000 was collected from the lessees only on account of deposit. The Assessing Officer therefore, made an addition of Rs. 25,000 to the total income of the assessee.
19. In first appeal it was argued before the CIT(Appeals) that the collection of the amount of Rs. 25,000 was on account of refundable deposits and not by way of sales tax. It was argued that the assessee was duty bound to repay the amounts to the lessees in the event of winning before the High Court. It was also argued that deposits did nor the amounts could be treated as trading receipts. The CIT(Appeals) considered that the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances. The name which the parties may give to the transaction which is the source of the receipt by them is of little importance. The CIT(Appeals) pointed out, by relying on the decision of the Supreme Court in the case of CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422, that there may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology and that the nomenclature used may not be decisive or conclusive though it helps the Court, having regard to the other circumstances, to ascertain the intention of the parties. The CIT(Appeals) also considered that the receipt of amount of Rs. 25,000 considered by the assessee as caution deposit is actually in the nature of trading receipt because the amount has been collected on account of sales-tax payable by the assessee on leasing of vehicles, though levy of sales-tax has been contested in the Court. The CIT(Appeals), therefore, confirmed the action of the Assessing Officer in this regard.
20. It is argued by the learned counsel for the assessee that the assessee is carrying on business of leasing of vehicles, which may not amount to sale and sales tax may not be leviable. The assessee has therefore, contested the levy of sales tax on leasing of vehicles before the High Court, but caution money is collected from the lessees to whom vehicles have been leased as the dispute is pending in the Court. The ld. counsel relied on the decision of the Calcutta High Court in the case of CIT v. Ellenbarrie Industrial Gases Ltd. [1994] 208 ITR 67 in support of his argument. The learned D.R. on the other hand, argued that what has to be seen is whether the collection of the amount is trading receipt. It is pointed by the learned D.R. that collection of caution deposit on account of sales tax by the assessee is in the nature of trading receipt. Whether the trading receipt is considered as contingent deposit by the assessee is not material. It is also stated by the learned D.R. that when the assessee refunded the amount to lessees he will be allowed deduction under section 37 of the Act. She relied on the decision of the Supreme Court in the case of Jonnalla Narashimharao & Co. v. CIT [1993] 200 ITR 588/68 Taxman 340 and the decision of the Rajasthan High Court in the case of CIT v. Assam Roller & Flour Mills [1994] 209 ITR 835/74 Taxman 119.
21. We have considered the rival submissions. In the case of Ellenbarrie Industrial Gases Ltd. (supra), relied on by the assessee's counsel, the assessee collected certain amounts as sales tax from purchasers. It also collected extra amount from registered dealers treating them as unregistered dealers for not producing the declaration forms. In respect of certain sales, the purchasers were registered dealers but could not immediately produce the declaration forms which alone entitled them to the lower sales tax rate prescribed for a registered dealer. The assessee, therefore, at the time of sale, collected the higher sales tax which was payable by an unregistered dealer, from such parties who, though registered dealers, could not produce the declaration forms immediately on sale, but promised to produce the same later. This additional collection made for the time being was, however, to be refunded to such purchasers as and when they furnished the requisite declaration forms. It was submitted by the assessee that this amount was not assessable as its income. The Tribunal came to the conclusion that, having regard to the special circumstances of the case and the legislative scheme of the levy and collection of sales tax, this extra collection from the registered dealer treating him as an unregistered dealer in the absence of declaration forms yet to come, represented a deposit by the said registered dealer as caution money refundable against the declaration form eventually furnished, and that it could not be said that such collection would form part of trading receipts and that section 43B, therefore, did not operate. This decision of the Tribunal was confirmed by the Hon'ble Calcutta High Court. The Calcutta High Court considered the amounts collected from registered dealers by treating them as unregistered dealers as a deposit of security not partaking of the character of a trading receipt. But in the present assessee's case before us, the facts are different. The levy of sales tax has been contested by the assessee in the High Court and the assessee has collected the amount of Rs. 25,000 on account of sales-tax payable by it on leasing transactions under the relevant sales-tax laws. The assessee has contested the levy of sales tax in the Courts. In the case considered by the Calcutta High Court (supra) there was a contractual obligation of the assessee to refund the extra amount collected from registered dealers treating them as unregistered dealers on production of the declaration form. There is no liability of the assessee in this case to refund the amount collected by it from the lessees on account of sales-tax payable by it on leasing transaction by treating the amount as caution money. The assessee has not produced any evidence before the authorities below to show that the caution money collected by it from the lessees was treated by them as deposits. The deposit is always made only for a specific period, after which the depositor could ask for the refund of the deposit amount. The collection of caution money by the assessee on account of sales tax payable is not in the nature of deposits, because there is no liability of the assessee to refund the amount after a specified period. There is no evidence to show that the lessees have also treated the same as deposits and not as expenditure. The fact remains that the assessee had collected the amount from the lessees as sales lax payable by the assessee on leasing transaction and sales tax has not been paid to the Government. The nature of entries in the account books does not determine the real legal character of the transaction. As pointed out by the CIT(Appeals) in the assessee's case for the assessment year 1990-91, the true nature and character of the transaction have to be ascertained in the light of the surrounding circumstances. The parties may camouflage the real nature of the transaction by using clever phraseology and that the nomenclature used may not be decisive or conclusive though it helps the Court, having regard to the other circumstances, to ascertain the intention of the parties.
In the case of Jonnalla Narashimharao & Co. (supra), the assessee was carrying on the business as commission agents and collected during the accounting period relevant to the assessment year 1968-69 certain amounts by way of sales tax under the name 'rusum' inasmuch as its liability to sales tax was disputed by it and was questioned in various proceedings. The assessee maintained its accounts on the mercantile system. There was a retrospective amendment of the sales tax law as a result of which the assessee's liability was upheld by the Courts. Though the assessee had not remitted the tax during the assessment year 1968-69, the assessee paid the tax later. The questions were whether the amounts collected by the assessee in the name of 'rusum' were the assessee's income, and whether the sales tax paid later was allowable as a deduction in the assessment year 1968-69. The Hon'ble Supreme Court, affirming the decision of the High Court, held that the amounts collected in the name of 'rusum' constituted business receipts of the assessee.
Similarly in the case of Addl. CIT v. T. Naggi Reddy [1993] 202 ITR 253 (SC) the Supreme Court followed its earlier decision in the case of Jonnalla Narashimharao & Co. (supra) and held that in the case of an assessee who maintains his accounts on the mercantile system, sales tax collected but not paid to the Sales-tax Department pending adjudication of dispute over his liability to pay sales-tax, is a revenue receipt of the year in which it is collected.
In the case of Assam Roller & Flour Mills (supra) the assessee collected a sum of Rs. 1,95,877 on account of sales tax from customers, which was credited to the account styled as 'Deposits against Rajasthan Sales-tax Account'. The Assessing Officer came to the conclusion that the amount was collected against the sales tax liability and as such it is a part of the trading receipt and since the same has not been paid to the Government or refunded to the customers from whom it was collected, the amount could be included in the income and deduction could be claimed in the year in which the sales tax is actually paid to the Government or refunded to the customers. The Rajasthan High Court held that the amount which has been collected by the assessee was on account of the business which was carried on and was a trading/business receipt and hence was the income of the assessee. Simply because the amount had been credited in a separate account, it would not change the character of the initial collection. It was further held that it is the true nature and quality of the receipt and not the head under which it is entered in the account books which would prove decisive. It is an established principle of law that a collection by way of sales tax is a trading receipt in the hands of a trader and, hence, is to be included in the total income of the assessee.
22. Applying the proposition of law laid down in the aforesaid cases to the assessee's case before us, it is clear that the caution money collected by the assessee from the lessees is only on account of sales-tax which forms part of the trading/business receipts of the assessee and includible in its total income. The assessee's treatment of the amount of Rs. 25,000 as caution money does not change the legal character of the receipt as trading receipt. There is no liability of the assessee to refund the amount to the customers and liability, if any, would arise only after the decision of the Courts if it is ultimately held that the assessee is not liable to pay sales-tax. Therefore, the liability of the assessee, if any, is contingent liability at the most, depending on the decision of the Courts. The provisions of section 43B are clearly applicable to the assessee's case because it has not paid the sales tax to the credit of the Government and, therefore, the amount cannot be allowed deduction. The amount is also not payable to the lessees because the dispute is pending in the Courts, regarding levy of sales-tax. Therefore, this ground of appeal is dismissed.
23. In the result, the appeal is partly allowed.