THE COMMISSIONER OF INCOME TAX vs. THE MOTOR & GENERAL FINANCE LT

t-) l) .r.lrh * % IN THE FIIGI{ COURT OF DE[.F{I AT NEW DE!-I.NI Judgment Reserved on: 27.07.2077 Judgment delivered on: 78.02.2077 (1) lrA Ls/x999 MOTOR. GET{ERAL FINIANCE LTD. . . . APPELLANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N,Jha & Mr, B.K. Singh Advocates. VERSUS DV. COMMISSIOT{ER OF INCOME TAX. ..,.R,ESPONDEIVT Thror;gh: Ms. Rashmi Chopra, Advocate (2) ITA 16/L999 MOTOR. GENER.AI. ...APPEL!.ANI-d' Sr. Advocate with Mr. B.K. Singh VERSUS DV. COMMISSIOT{ER OF INCOME TAX. .."RESPONDENT Throurgh: Ms. Rashmi Chopra, Advocate \l ( FINANCE !.TD. Through : Mr. O.S. Bajpai, Mr. V.N.Jha & Advocates. (3) rTA X.24I2OO7 MO-f'OR GENIERA!. FXNIANICE LTD. Thror;gh : Mr. O.S. Bajpai, Mr. V.N.Jha & Advocates. ...APPELLANT Sr. Advocate with Mr. B,K. Singh VERSUS COMM[5SIOi\IER, OF !IVCOME TAX. .,.RESPONIDEt{T Through: Ms. Rashmi Chopra, Advocate ITA 15/99 & other connected matters Page I of 5 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified

': \, @) (41 trA 73l2OO2 COMMISSIOT{ER. OF INCOME TAX. ....APPE[.LAhIT Throurgh: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERA!- FIhIANCE LTD. ....RESPONIDENIT Through : Mr, O.S. Bajpai, Sr' Advocate with Mr. V.N.Jha & Mr, B.K. Singh Advocates. (il tr/. LL7 /2AA7 MOTOR GEhIERAL FINANCE LTD. . . . APPEI-LANT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. VERSUS COMMISSI@NIER, OF IIVCOME TAX. .R.ESPONDENT ' Through: Ms. Rashmi Chopra, Advocate (61 trA L23|2OO7 MOTOR GENERAL FIT{AT{CE LTD. ' . . APPELLANIT Through : Mr. O.S. Bajpai, Sr' Advocate with Mr. V.N.Jha & Mr. B.K. Singh r. Advocates' VERSUS COMMISSIONER OF INICOME TAX. "..R,ESPONDENT Through: Ms. Rashmi Chopra, Advocate (7) lTA L30/2007 COMMISSIONER, OF IilICOME TAX. ....APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR, GETVERAL FINANCE LTD' "''R'ESPOTVDENIT ITA 15/99 & other connected matters Page 2 of 5

Through : Mr. O.S. Bajpai, Mr. V.N.Jha & Advocates. (8) ITA 209/2007 COMMISSIONIER OF INICOIVIE TAX. ....APPELLANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FIIVANCE LTD. ....RESPOI\IDETVT { Thror-rgh : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.jha & Mr. B.K. Singh Advocates. (9) lrA 23L/2007 COMMISSIONIER, OF INICOME TAX. ....APPEI-LANT Throrlgh: Ms. Rashmi Chopra, Advocate Sr. Advocate with Mr. B.K. Singh MOTOR GEhIERAL VERSUS FINANCE LTD. "..RESPONDEI'IT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr, V.N.Jha & Mr. B.K. Singh 'Advocates, [1O) lrA 33L/2007 *. COMMISSIOT{ER, OF IhICOME TAX ...APPELI-ANT Thror-rgh: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GETVERAI- FINIANCE LTD. '...RESPONIDEI\IT Through : Mr. O.S. Bajpai, Sr' Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. (L1) ITA L233/2008 MOTOR GETUER.AL F!hIANICE !-TD' . . . APPEI-LANT ITA 15/99 & other connected matters Page 3 of 5

Thror-rgh : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha, Advocate VERSUS COMMISSIONER, OF IIVCOME TAX. ....R.EsPO!VDENIT Throurgh: Ms. Rashmi Chopra, Advocate (Lzl trA L234|2OA8 MOTOR, GEiVERAL FINANCE LTD. . . . APPE!-LANT r j Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates, COMMISSIONIER OF (13) [T'R 2r.1/Xe90 COMM!sSIONER, OF INCOME TAX. Through: Ms. Rashmi VERSUS MOTOR GEhIER,AL FINANCE LTD. VERSUS INICOME TAX. ....RESPOI{DEIVT Through: Ms. Rashmi Chopra, Advocate ....APPEL!-ANT Chopra, Advocate Through : Mr. O.S. BajPai, Mr. V.N.Jha & Advocates. ... " R,ES PONDEI\IT Sr. Advocate with Mr. B.K. Singh (1"41 rTR 248/L99L COMMISSIONER OF MOTOR GENIERAL IilICOME TAX. Through: Ms. Rashmi ,APPEI.LANT Chopra, Advocate .... R,ES PONI DENT VERSUS F!hIANCE LTD. ITA 15/99 & other connected matters Page 4 of 5

I Throurgh : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. CORAM ;- HON!'ELE MR,. iLISTICE A.K. SIKRI Ftoht'BLE MR,. JUSTIC:E M.l-. MEI-lrA 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" SlKRl, j. 1. For orders, see ITR 458 of 1984. fury\a rd.F. smnu JUDGE e'---c-(/'l''' (M.L. MEI-ITA) JTiDGE FEERUARY L8, 201 L skb Paqe 5 of 5 ITA 15/99 & other connected matters

l-)\ (y * nfv T!-tE I,ilGt-X COiJR,T @F DE!-l-01 AT [uEW DELI{I {-i ' % Judgment Reserved on: 27'07'2077 J udg ment Delivered on : 7 8.02,207 7 (1) ITR 458/X984 MOTOR GEI\XERAI. FINANCE !-TD. ...APPELLANT' Through : Mr. O.S. Bajpai, Sr' Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. VERSUS COMMISSIOhIER, OF INCOME TAX. '.'R.ESPOIUDENT . Through: Ms. Rashmi Chopra, Advocate ^/,- (2) ITA Xs/L999 MOTOR, GE[UER.A[- FII{ANCE [.TD. . . . APPELLAhIT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B'K. Singh Advocates. VERSUS DY. COMMISSIONIER OF INXCOME TAX ...R.ESPOIUDENT Through: Ms. Rashmi Chopra, Advocate (3) rrA 16/n999 MOTOR, GERIERAI- FINANXCE I.TD. .."APPE!-LAI\[T .rhroush ' ili: "il i'*o'k tin'i%:ff:"til.;.[ Advocates. VERSUS DY. COMMISSIONIER, OF IhNCOME TAX. ..RESPONDEIVT Through: Ms. Rashmi Chopra, Advocate ITA 458 of 1984 & other connected matters Page I of 24

(41 trN L24|2AO7 MOTOR GEhIER,AI- FIIVANCE !-TD". '".APPELLANT hroush ' Mi: "ift i'go'l tillo"u:ll'"til'Jl Advocates. VERSUS COMMISSXONNER, OF INNCOME TAX. ".RESPONDENT Through: Ms. Rashmi Chopra, Advocate (5) lTA 73l2po2 COMMISSIOT{ER. OF IRJCOME TAX. ....APPE[.N.ANT' Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENNER,AL FINNARXCE LTD. ....RESPONDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. (6) ITA L3.7/2007 MOTOR GENIER,AI- FITUANCE LTD, . . . APPEI.LANT rhroush ' #l-: ?t^i ,??ot til,:1:'::'"ril$ Advocates. VERSUS c o M M ! s s I o r\x E R o F' rytt :il?''H'* u, h m i c h o o ,.u I Tf,":3#3 t *t (71 trA L2312007 MOTOR GENERAI- FIIVANNCE !.TD. ' . . APPE!-[-ANT Through : Mr: O.S. Bajpai, Sr. Advocate with ". Mr. V.N.Jha & Mr. B.l<. Singh Advocates. VERSUS COMMISSIONER OF INNCOME TAX ...R,ESPONDEhIT ITA 458 of 1984 & other connected matters Page2 of 24

rrA 3.30 t2ao7 COMMISSIONNER OF /_ a{ Through: Ms. Rashmi Chopra, Advocate COMMTSSIONNER OF INCOME TAX .".APPELI.ANT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR GENERAL FINAIVCE [.TD. ."..RESPOINDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr, V.N.Jha & Mr. B,l<. Singh Advocates. (9) rrA 209/2007 COMMNSSIONNER, OF IT{COME TAX. ....APPE!.I.ANIT Through: Ms. Rashmi Chopra, Advocate VERSUS MOTOR, GENER.AL FINAIVCE LTD. ....R,ESPOhIIDENT Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Si.ngh Advocates. (L0) rrA 23r./2007 COMMISSIONER OF XI\XCOME TAX. ....APPELLANT Through: Ms. Rashmi Chopra, Advocate . VERSUS .Moro*' GENERA'- t'!fill:E^tlt;r o s Bajpai,;;\TJfitStJ; Mr. V.N.Jha & Mr. B.K. Singh Advocates. { 1L) XTA 33L/2007 coMMnssroNIER "" u#fr:,[i "^fJ Rashmi VERSUS MOTOR, GENERAI. FNNilANCE !-TD. ....APPE!.LANT Chopra, Advocate .... R.E5P@NDE]\IT ITA 458 of 1984 & other connected matters Page 3 of 24

Through : Mr. O.S. Bajpai, Sr, Advocate with Mr. V.N.Jha & Mr. B,K. Singh Advocates, Through : Mr. O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha, Advocate VERSUS COMMISSIONIER OF INCOME TAX. .".RESPONDENT Through: Ms. Rashmi Chopra, Advocate ( x3) ITA r.234l2OO8 MOTOR GEI{ERAL FINJAhICE !.TD. . . ' APPE[-[.ANT' Through : Mr, O.S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. . VERSUS COMMISSIONIER, OF II{COME TAX. ....R,ESPOIUDENT Through: Ms. Rashmi Chopra, Advocate (14) lrR 2LL/L990 COMMISSIOT\NER OF ITVCOME TAX. ....APPEL[-ANT' Through: Ms. Rashmi Chopra, Advocate VE RSUS MOTOR GEIVER,AL FINAIUCE LTD. ....RESPONIDENT Through : Mr. O,S. Bajpai, Sr. Advocate with Mr. V.N.Jha & Mr. B.K. Singh Advocates. 1 ( ls) lrR, 2481L99 r. COTqNiISSIONER OF INCOME TAX. ...'APPEL[-ANT Through: Ms. Rashmi Chopra, Advocate @ MOTOR. GENERAL FINIANCE I.TD. VERSUS MOTOR GENXER.AL FINAIUCE LTD. ITA 458 of 1984 & other connected matters . . . APPEI.LANT .... RESPONDEN; Page 4 of 24

Through : Mr. O.S. Bajpai, Sr. Advocate with .Mr. V.N.Jha & Mr. B.K. Singh Advocates. €ORAM :- 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported A.K. StrKRl, L FtoN'BLE MR. J.USlrlCE A.K. SIKRI htoht'BI-E MR" Jl,rsT'[cE M.l-. MEFITA 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? :1" v in the Digest? | 1. There is one question which is common in all these appeals. Hovyever, in ITR 4581L984 there are some additional questions whigh are referred for opinion. We would like to deal with these qu.eptions first and then approach the common question of law centre to all these cases. This ITR pertains to assessment year Ig78-7g 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 he treated as perquisites within the meaning of Section 40Cl40A (5) of the lncome-Tax Act, 196r?" ITA 458 of 1984 & other connected matters Page 5 of 24

I i.rror 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 tle assesiee is a Limited Company carrying on business of financing for the purpose of purchase of commercial vehicles. There is a prescribed agreement undbr which finances are provided by the Assessee to the purchaser of a vehicle. There are various terms and conditions mehtioned 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 tlu 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 ITA 458 of 1984 & other connected matters PageT of24

6e 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 bq paid towards insurance premium, there is small balance left in the account of each of the hirers. The amount so iemaining 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. lt 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 ITA 458 of 1984 & other connected matters Page 8 of 24

69 time, this issue arose in the assessment year I99l-98 when a sum of T 47,04611- 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 beJow 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 Revehue, 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 tool< 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 a'nd 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,tth".y unveiled same question of law. The question which ITA 458 of 1984 & other connected matters Page 9 of 24

@ 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 T I,79',I401- being the balance df 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-L977 as unclaimed balance, was not a trading receipt of the assessee and hence it could not be brought to tax for assessment year r978-79?" B. 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 bool< by the Revenue. 9. tly 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 ITA 458 of 1984 & other connected matters Page 10 of 24

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 Reven.ue 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 aie proceeding to decide the questions of law. ITA 458 of 1984 & other connected matters Page 11 of 24

@ assessee was not part of the purchase price. lt was only on account of insurance of vehicle. Though the primary duty to get the vehicle insured was of the hirer, the assesdee 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 O" accounted for by the assessee ultimately. lt is for this reason, insurance amount was taken to separate account from where the amounts were to be paid after due dates. lt 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 su.bsequent event could not alter the same. To support this submission, aide of judgment of English Court in Marley (lnspector of taxes) Vs. Tattershaltr [1939] 7 ITR 317 (CA) at page 329:-' ITA 458 of 1984 & other connected matters Page 13 of 24

3 "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' lt 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. lt was not." 11. On the other hand, aS was expected and naturally so, Ms. Rashmi Chopra, learneid 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 I51L999. 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 ITA 458 of 1984 & other connected matters Page L4 of 24

,i to the profit and loss account, it had certainly becom" incorn" 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 lndia 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 nyenEar 6r 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 assesse'e 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. lt became a definite trade surplus. .,......1n other words, the principle appears to be that if an amount is received in ITA 458 of 1984 & other connected matters Page 15 of 24

e 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 thinl<, 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 wiil 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 c'lients, that part of it which is remaining becomes by oBeration 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 fatt is. In that year Jays become the richer by the ainount which automatically becomes theirs, and that asset arises out of an ordinary trade transaction. lt seems"to me to be the common- sense way of dealing with these matters...." ITA 458 of 1984 & other connected matters Page 16 of 24

-- 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 L623:2OLO & ITA 503/2010 titteo l-oEitronics Fvt. Ltd. Vs. Commissioner.of lt"tco.rne Tax and Comrrnlssioner of, Income Iax Vs. Jwbitrant Securities Pvt, I-td. 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 Trave.ncare Rubher & Tea Co. Ltd' \t' C,l'T', Trivandrurn L24g ITR L58I. Analyzing these judgments, the Court reiterated that in Morley (swpra), 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 CtrT Vs" Karam Chand Thapartl996l 222 ITR^ l"Lz,the Supreme Court held that the proposition enunciated in Marley (swpra) was not absolute arid 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. ITA 458 of 1984 & other connected matters Page 18 of 24

,/- ) | | t)Y l>r I 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. lf 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 Sundaraln lyenEer (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. lt is not in dispute that the m.oney 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. lt is also correct that the money was received in lump sum in round figure to take care of the entire period during ITA 458 of 1984 & other connected matters Page 1.9 of 24

e' 09 which hire agreement w"as to operate and after expending the capital amount balance was to be refunded to the hirer. lt 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. lt 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 ITA 458 of 1984 & other connected matters Page20 of24

@ 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, t,he 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. lt is here the amount changes its character. Initial amount which was paid by the hirer on account of insura'nce premium and left over there from which rem.ained with the assessee as unclaimed becomes the money of the assessee. ln 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 ITA 458 of 1984 & other connected matters Page2I of 24

I the profit and loss account. The facts similar to Swndaram lyenger (supra) would accrue here also. 20. Even in Karatnchand 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 movernent it was taken to the profit and loss account, it no.longer remained money in trust with the assessee. lt 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. lt 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 yeaf 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 ITA 458 of 1984 & other connected matters Page 22 of 24

coming to this conclusion, we are supported by the judgment of this Court in the case of iay EnEineerinE Warks l-td, (supra). 2I. 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. lt 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. lt is stated at the cost of repetition that the assessee itself treated the money as unclaimed by writing off the said amount and tal<ing 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:- ITA 458 of 1984 & other connected mbtters Page23 of 24

e (a) Question of law framed is answered in favour of the Revenue and against the assessee; ITR 458/1984 is answered accordingly; Appeals filed by the Revenue are allowed; Appeals fiied by the assessee are dismissed' (b) (c) (d) :6^-r-C2'9,, (M.r-. MEFi-il'A) JIJDGE _peu,iu/"h,h,P,,-/(u/l-haevtVtlv/a^/n'l/t.L/8.2.1/, 6' FEBRUARY 3.8, 2OT.N. skb C ITA 458 of 1984 & other connected matters Page24 of 24 A.K. SIKRI) jUDGE