IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 06/10/2004
CORAM
THE HONOURABLE MR.JUSTICE P.D.DINAKARAN
AND
THE HONOURABLE MR.JUSTICE S.R.SINGHARAVELU
T.C.No.841 of 2004
Commissioner of Income Tax .. Appellant
Madurai.
-Vs-
M/s.Madurai Soft Drinks Pvt. Ltd. .. Respondent
Madurai.
PRAYER: Against the order of the Income Tax Appellate Tribunal Madras
'B' Bench, dated 30.1.2003 in I.T.A.No.1432/Mds/97 pertaining to the
assessment year 1990-91.
!For Appellant : Mr.J.Narayanasamy
Junior Standing Counsel
for Income Tax Cases
^For Respondents: ---
:JUDGMENT
(Judgment of this Court was delivered by P.D.DINAKARAN,J.)
The appellant is the revenue. This appeal is with reference to the
assessment year 1990-91. According to the appellant/revenue, the
respondent/assessee filed a return for the assessment year 1990-91 and the
assessing officer, by assessment order dated 29.3.1993, disallowed the claim
of the respondent/assessee in respect of 100% depreciation on purchase of
bottles and crates; and also taxed the deposits received by the
respondent/assessee from the agents and retailers.
2. Aggrieved by the assessment order dated 29.3.1993, the
respondent/assessee preferred an appeal before the Commissioner of Income Tax
(Appeals). The Commissioner of Income Tax (Appeals), by order dated 2
5.9.2000, allowed the issue with respect to the deposits received from the
agents and retailers, while confirming the assessment order with respect to
rejection of 100% depreciation on purchase of bottles and crates.
3. On an appeal and counter appeal, by both sides, against the
respective aggrieved portion of the order of the Commissioner of Income Tax
(Appeals) dated 25.9.2000, the Tribunal, by order dated 30.1.2003 made in
I.T.A.No.1432/Mds/97, decided both the issues in favour of the assessee, viz.,
(i) allowed 100% depreciation on the purchase of bottles and crates; and
(ii) held that deposits received by the respondent/assessee from the agents
and retailers are not revenue receipts and are therefore, not taxable.
Hence, the above appeals.
4. The appellant/revenue formulated the following substantial
questions of law for our consideration:
(i) whether in the facts and circumstances of the case, the Tribunal was right
in holding that crates and bottles are entitled for depreciation at the rate
of 100%?
(ii) Whether in the facts and circumstances of the case, the Tribunal was
right in holding that the security deposits received from the agents and the
retailers are not taxable in the hands of the assessee?
5.1. Question (i) – Whether in the facts and circumstances of the
case, the Tribunal was right in holding that crates and bottles are entitled
for depreciation at the rate of 100%?
5.2. Even though the appellant/revenue treated the bottles in
question as a whole and considered the same as a unit and calculated the value
above Rs.5000/- and contended that the respondent/assessee is not entitled for
100% depreciation, the law is now well settled as per the decision of this
Court in FIRST LEASING CO. OF INDIA LTD. v. COMMISSIONER OF INCOME-TAX,
[2000] 244 ITR 238. Under similar facts and circumstances of the case, the
Division Bench of this Court, in the FIRST LEASING CO. OF INDIA LTD. v.
COMMISSIONER OF INCOME-TAX case, referred supra, held that each bottle was an
independent unit and was not dependent for its user on the availability of
other bottles whether empty or filled. The use of one bottle was not
interconnected with the use of other bottles. Since each bottle was an
individual unit and all bottles together did not constitute a single
integrated unit depreciation under the proviso to Section 32(1)(ii) of the
Income Tax (for brevity “the Act”), is allowable.
5.2. As per the rules of interpretation, it is not the policy of the
law to introduce complexity even when matters can be dealt with in a simple
and straightforward manner by giving full effect to the words used in the
statutory provision, unless there are compelling reasons evident from the
context in which the provision occurs. Therefore, each of the bottle has to
be considered as an independent unit.
5.3. Similar view is also taken by a Division Bench of the Allahabad
High Court in COMMISSIONER OF INCOME TAX v. AQUEOUS VICTUALS P. LTD, [2004]
266 ITR 573, where also the bottles and crates used by the soft drink bottlers
were held entitled to depreciation. In the said decision, the Allahabad High
Court, following a decision of the Andhra Pradesh High Court in COMMISSIONER
OF INCOME TAX v. SRI KRISHNA BOTTLERS PVT. LTD., [1989] 175 ITR 154 held
that bottles were essential tools of the trade. Without the bottles and
shells, the soft drink could not be effectively transported. The bottles and
their contents were totally interdependent. So were the shells. The bottles
and shells also satisfied the durability test because it was nobody’s case
that their life was so transitory or negligible to warrant an inference that
they had no function to play in the assessee’s trade. They were, therefore,
“plant” for purposes of the Act and the assessee is entitled to depreciation
in respect of them under Section 32(1)(ii) of the Act.
5.4. The said decision of the Andhra Pradesh High Court in
COMMISSIONER OF INCOME TAX v. SRI KRISHNA BOTTLERS PVT. LTD., referred
supra, was confirmed by the Apex Court by a decision reported in [1994] 20 9
ITR (St.) 85.
5.5. The view taken by the Allahabad High Court in COMMISSIONER OF
INCOME TAX v. AQUEOUS VICTUALS P. LTD, referred supra, was also confirmed by
the Apex Court by a decision reported in [2004] 266 ITR (St.) 2.
5.6. Applying the ratio enunciated from the aforesaid decisions to
the facts of the case on hand, we are of the considered opinion, that the
Tribunal was right in holding that crates and bottles are entitled for
depreciation at the rate of 100%.
6.1. Question (ii) – Whether in the facts and circumstances of the
case, the Tribunal was right in holding that the security deposits received
from the agents and the retailers are not taxable in the hands of the
assessee?
6.2. Concededly, in assessee’s own case, viz., C.I.T. v. MADURAI
SOFT DRINKS (P) LTD., [2000] 240 ITR 229, the Division Bench of this Court
held that the deposits received from the agents and retailers for the bottles
used as containers of soft drinks did not constitute income of the assessee.
6.3. A similar view was also taken by the Division Bench of the Delhi
High Court in COMMISSIONER OF INCOME TAX v. GOYAL GASES P. LTD., [1 991] 188
ITR 216, wherein the assessee carried on the business of filling gas bought by
it in cylinders and supplying them to customers. The customers were required
to furnish security for the cylinders supplied to them. The Appellate
Tribunal found that depreciation was allowable on the cylinders and that the
expenses incurred by the assessee towards repairs were allowable as revenue
deduction. The Tribunal further found that the security deposit did not
belong to the assessee and the money remained as that of the consumers since,
on the return of the cylinders, their security deposit was refundable and
hence, the security deposit was not a revenue receipt, and the said view of
the Tribunal was upheld by the Division Bench of the Delhi High Court.
6.4.1. Mr.J.Narayanasamy, learned standing counsel for the
appellant/revenue inviting our attention to the decision of the Apex Court in
COMMISSIONER OF INCOME TAX v. PUNJAB DISTILLING INDUSTRIES LTD., [196 4] 53
ITR 75 (SC) contends that the amount deposited by the agents and retailers are
to be treated as trading receipts constituting income of the assessee, which
is taxable. A deep consideration is, therefore, required to deal as to the
applicability of the ratio laid down by Apex Court in COMMISSIONER OF INCOME
TAX v. PUNJAB DISTILLING INDUSTRIES LTD., referred supra, to the facts of the
instant case.
6.4.2. In fact, the ratio laid down in COMMISSIONER OF INCOME TAX v.
PUNJAB DISTILLING INDUSTRIES LTD., [1964] 53 ITR 75 is a reiteration of the
ratio decedendi of the judgment of the Apex Court in an earlier case of the
same assessee before the Apex Court in the year 1959, viz., Punjab Distilling
Industries Ltd. v. Commissioner of Incometax, [1959] 35 I.T.R. 519 (S.C.),
and the facts of both the cases are identical. The assessee, viz., Punjab
Distilling Industries Ltd., was a distiller of bottled country liquor and was
carrying on the business of selling bottled country liquor to licensed
wholesalers. Due to shortage of bottles during war time, a “buy-back scheme”
was evolved by the Government, whereunder the distiller company charged the
wholesaler a price for the bottle in which liquor was supplied at a rate fixed
by the Government, which the company was bound to repay to the wholesaler on
his returning the bottles. In addition to this, the distiller took a further
sum from the wholesaler describing it as ” Empty Bottles Return Security
Deposit”. Like the price of the bottles, these monies were also repaid as and
when bottles were returned. That entire sum was refunded when 90% of the
bottles covered by it had been returned, though the remaining 10% of the
bottles had not been returned. Thus, the object of demanding and taking
additional sums as security deposits was obviously to provide additional
inducement for the return of the bottles to the distiller so that its trade in
selling the produce of its distillery might not be hampered for want of
bottles. It is also interesting to observe that the Government had not fixed
any time limit within which the bottles had to be returned in order to entitle
the wholesaler to the refund, nor had a refund ever been refused. The said
“buy-back scheme” of the Government to ensure the return of bottles is
intended to relieve the scarcity of bottles.
6.4.3. The distiller was assessed to income tax on the balance of
amounts, viz., the additional sums left after the refunds were made. Then the
question arose whether the balance of amounts of these additional sums left
after the refunds were made is assessable? The Apex Court in Punjab
Distilling Industries Ltd. v. Commissioner of Incometax [1959] 35 I.T.R.
519 (S.C.), while dealing with assessments for the assessment years 1947-48
and 1948-49, held the balance of amounts of additional sums left after the
refunds is assessable, because the trade consisted of sale of bottled liquor
and the consideration for the sale was constituted by several amounts
respectively, (i) the price of the liquor; (ii) the price of the bottle; and
(iii) the security deposit. Unless all these sums were paid, the assessee
would not have sold the liquor. So, the amount which was called the security
deposit was actually a part of consideration for the sale and therefore, a
part of the price of what was sold.
6.4.4. When the question whether the charge viz., “empty bottles
return security deposit” is a trading receipt assessable to tax, with
reference to the assessment years 1946-47, 1949-50, 1950-51 and 1951-52, came
for the consideration of the Income Tax Officer, the Income Tax Officer taxed
these charges and on appeal , the same was confirmed by the Appellate
Assistant Commissioner. On further appeal, the Tribunal reversed the
decisions of the authorities below and held that these charges were loans and
not trading receipts, and the same happened even before rendering the decision
reported in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax
[1959] 35 I.T.R. 519 (S.C.), with respect of the assessment years 1947-48 and
1948-49.
6.4.5. Under such circumstances, the Commissioner of Income-Tax
obtained a reference of the following question to the Punjab High Court, viz.,
whether the collections by the assessee company described in its accounts are
’empty bottles return security deposits’ were income assessable under Section
10 of the Income Tax Act. The Punjab High Court took the view that as a
result of the amendment to the Punjab Excise Rules made under the Punjab
Excise Act, which came into effect from 1.4.1948, the charges collected after
that date were not covered by that judgment, and held that the amended rule
made the ratio decidendi of the earlier judgment in the same assessee case
reported in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax
[1959] 3 5 I.T.R. 519 (S.C.), inapplicable to the charges collected after
that date.
6.4.6. The Apex Court, on appeal preferred by the revenue, in
COMMISSIONER OF INCOME TAX v. PUNJAB DISTILLING INDUSTRIES LTD., [1964] 53
ITR 75 (SC), held that it has never been in dispute, either before the
amendment or later, that the charge under the “buy-back scheme” which was
collected under the Government’s sanction constituted a taxable income. The
mere fact that the charges were collected as security deposit for the purpose
of showing that they were not a part of trading transaction would not, by
itself, render the said charges as security deposit as the same is a part of
trading transaction and the return of bottles was necessary to enable the
assessee to carry on its trade to sell liquor in them.
6.4.7. In the instant case, as in the case of COMMISSIONER OF INCOME
TAX v. GOYAL GASES P. LTD., referred supra, the security deposit collected
by the assessee from the agents and retailers did not form part of the sale
transaction, unlike in the case of COMMISSIONER OF INCOME TAX v. PUNJAB
DISTILLING INDUSTRIES LTD., [1964] 53 ITR 75 (SC), where “empty bottles return
security deposit” forms a part of the sale transaction, as per the “buy-back
scheme” formulated by the Government under the Punjab Excise Rules.
6.5. For the aforesaid reasons, we are of the firm opinion that the
contention made on behalf of the appellant/revenue that the “empty bottles
return security deposits” received from the agents and retailers are trade
receipts, is liable to be rejected and the said amount is not taxable in the
hands of the assessee. The Tribunal was, therefore, right in holding that the
security deposits received from the agents and the retailers are not taxable
in the hands of the assessee.
Finding, therefore, no substantial question of law for our
consideration, this appeal is dismissed.
Index : Yes Internet : Yes sasi To:
1. The Income Tax Appellate Tribunal Chennai ‘B’ Bench,
Chennai.
2. The Commissioner of Income Tax (Appeals-IX)
Chennai.
3. The Deputy Commissioner of Income Tax, Special Range-I,
Madurai-I.
4. The Commissioner of Income Tax, Madurai.