SKYLINE BUILDERS, RAJAJI ROAD, ERNAKULAM vs. THE COMMISSIONER OF INCOME TAX, CENTRAL

It was noticed by the Assessing Officer, on verification of the seized records as against the returns filed, that the assessee was receiving deposit from its clients for the purpose of meeting the expenditure towards electricity connection, water - 2 - connection and so on and so forth. Rejecting the contention of the assessee that the deposits were never treated as assessee’s income and are not taken into profit and loss account of the assessee, the Assessing Officer added back the total unutilized balance available in such customer deposit account to the total income of the assessee, treating the same as coming under the head business income. The reasoning was that the receipts coming into the customer deposit account is made on the specific agreement that such payments would be routed through the assessee only and assessee having made provisions for such services, there are still amounts remaining in credit in the said accounts. These amounts have not been utilized for the purpose of providing various services to the customers and having not been refunded to such customers; the same was held to be business income and hence the assessee was found liable to tax on such income under the provisions of the Act. The Tribunal having assessed each of the heads under which amounts were received and appropriated, remanded the matter back to the Assessing Officer for consideration of the accounts with respect to 'Transfer and Cable', 'Village tax and tax assessment expenditure' and 'KCWWB', but confirmed the addition on other heads.

The learned Senior counsel Sri.A.K.Jayasankar Nambiar, on our direction, produced the agreements entered into with the clients of the assessee being purchasers of independent apartments as also documents showing the details of the deposit for the projects completed in each year as also the balance sheet disclosing how the amounts were treated as liability in the books of accounts. Our intention was not to examine the facts of the issue, but to arrive at a clear picture of the respective claims of the department and the assessee. The sale agreement produced by the assessee shows that these amounts are not the part of the total sales consideration. As noticed above, the customer deposit accounts are with respect to various services in the apartments, like power connection, water connection, Cable TV connection etc. These necessarily are to be taken out by the individual owners of the apartment after the respective apartments are certified fit for occupation by the local authority. The assessee being a builder for the convenience of its customers; as also taking into account the competition in the market posed by other builders; undertakes to make arrangements for the provision of the same, since no consumer would enjoy the hassle of being entangled in red-tape. It is also more convenient for the builder to embark upon such a - 4 - venture collectively, since such provision has to be made for each apartment in each of its projects. Hence the assessee undertakes such arrangements, however, with a condition that the statutory fees and expenses thereon are to be met by the individual customer.

Learned Senior Counsel would also urge before us that the authorities have not looked into the various bills available with the assessee which would reveal that the assessee is not levying any service charges on such arrangement being made and it is the actual expense that is being reimbursed. However, as any prudent business-man would do, the assessee insists on advance from the customers, since the apartments are handed over making them completely fit for occupation with the provision of power, water, etc. and after handing over, collection of such expenses would be difficult. We see that the Tribunal has reversed the findings of the first appellate authority. The 1st appellate authority had allowed the claim, thus resulting in divergent findings on facts.

Looking at the documents relied on by the assessee, as also the order of the lower authorities, we are of the opinion that the aspects relevant for examination are: i. the purpose for which the amounts are received by the assessee from the customer; ii. the utilization of such amounts and the evidences regarding the same and; and iii. the factum of refund.

The assessment order lists out the projects in which amounts were received and the balance lying outstanding in such accounts. The learned Senior Counsel would show at least four instances where there are no outstandings, pointing to the fact that after utilization what remains is refunded completely to the customers. We are also told that at this point more refunds have been effected and evidently, that was the case of the assessee before the Assessing Officer, since the amounts outstanding have been shown as liability in the books of accounts. On the totality of the facts and circumstances, we are of the opinion that the issue requires a second look at the hands of the Assessing Officer.

In the result, the appeals are allowed, the order of the lower authorities are set aside and the issue is remanded to the Assessing Officer for fresh consideration. The appellant/assessee shall produce a certified copy of this judgment before the Assessing Officer within two weeks from the date of receipt of the same. The Assessing Officer shall thereupon afford an opportunity to the assessee to produce all the relevant materials and also an - 6 - opportunity for personal hearing. The de novo consideration shall be completed as expeditiously as possible. In the result, the appeals are allowed, setting aside the orders of the Tribunal in so far as the orders of the Assessing Officer making additions with respect to consumer deposit accounts was restored and these issues are also remanded for de novo consideration of the Assessing authority. Thottathil B.Radhakrishnan Judge K.Vinod Chandran vku/ Judge. --