COMMISSIONER OF INCOME TAX,LUD vs. OM PARKASH MUNJAL

ITR/30/1994HC Punjab & HaryanaPHHC01024698199407 January 2013Author: MR. JUSTICE HEMANT GUPTA,MS. JUSTICE RITU BAHRI5 pages
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What were the facts?

The assessee, Munjal Gases, a manufacturer and supplier of gas, received security deposits from customers for gas cylinders. The Assessing Officer treated these deposits, amounting to Rs.45,950 and Rs.10,000 for units I and II respectively, as trading receipts. The Commissioner of Income Tax (Appeals) reversed this, holding them to be security deposits. The Income Tax Appellate Tribunal upheld the CIT(A)'s decision, finding that the assessee only sold gas, not cylinders, and that the security money was refundable and not part of the sale price. The Tribunal relied on its prior orders for assessment years 1981-82 and 1982-83. The Revenue has referred a substantial question of law to the High Court concerning the assessment year 1983-84.

What did the High Court hold?

The High Court held that the security for gas cylinders received by the assessee could not be treated as trading receipts. The reasoning was based on the principle that such security deposits do not belong to the assessee, remain the property of the consumer, and are refundable. The Court noted that various High Courts, including the Delhi, Madras, Madhya Pradesh, and Karnataka High Courts, have examined similar issues and held that refundable security deposits are not trading receipts. The Madras High Court in CIT Vs. Madurai Soft Drinks (P) Ltd. (2000) 241 ITR 229 held that the deposit was meant to be a deposit only and not consideration for sale, and was refundable upon return of bottles. The Madhya Pradesh High Court in CIT Vs. Doongaji & Co. Distillery (2005) 276 ITR 402 observed that there was a definite obligation to return the money, hence it was not income. The Court distinguished the present case from CIT Vs. Punjab Distilling Industries Ltd. by noting that in the present case, the security amount is not part of the sale consideration and is required to be refunded. The substantial question of law was answered against the Revenue and in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the amounts of Rs.45,950/- and Rs.10,000/-, representing security for gas cylinders in units Nos.I and II received by the assessee, could not be treated as trading receipts and assessable as income for the assessment year 1983-84? (Question of law) Assessee's Contention: The judgment does not explicitly record the assessee's arguments. However, it implies the assessee contended that the amounts were security deposits, refundable to customers, and not part of the sale price, as supported by the Tribunal's findings. Revenue's Contention: The Revenue contended that the security amounts were trading receipts, relying on the Supreme Court judgment in CIT Vs. Punjab Distilling Industries Ltd. AIR 1964 SC 1709, arguing that the security amount in similar circumstances was held to be a trading receipt. The Revenue argued that the High Court's earlier order in the assessee's own case was not sustainable.

Which sections of the Income-tax Act were involved?

Section 256(1)

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IN THE PUNJAB & HARYANA HIGH COURT AT CHANDIGARH

ITR No.30 of 1994

Date of Decision: 29.04.2013

The Commissioner of Income Tax (Central), Ludhiana …Appellant Versus Munjal Gases, Hero Nagar, Ludhiana

…Respondent

CORAM: HON’BLE MR. JUSTICE HEMANT GUPTA

HON’BLE MS. JUSTICE RITU BAHRI

Present: Ms. Savita Saxena, Advocate, for the appellant.

M/s Akshay Bhan & Aalok Mittal, Advocates, for the respondent.

HEMANT GUPTA, J.

By way of present reference under Section 256(1) of the Income Tax Act, 1961 (for short ‘the Act’), the Learned Income Tax Appellate Tribunal (for short ‘the Tribunal’) vide its order dated 15.03.1994 has referred the following substantial question of law for the opinion of this Court: “Whether on the facts and in the circumstances of the case the I.T.A.T. was right in law in holding that the amount of Rs.45,950/- and Rs.10,000/- representing security for gas cylinders in units Nos.I and II received by the assessee could not be treated as trading receipt and assessable as income for the assessment year 1983-84?”

The said question arises out of the facts that the assessee is a manufacturer of gas and

The order continues below.

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