Solid Containers Ltd. Vs. the Deputy Commissioner of Income Tax, Spl. Range I and the Commissioner of Incometax I - Court Judgment

Excerpt:
direct taxation - capital gain - appeal directed against order passed by income tax appellate tribunal - tribunal has rejected contention of assessee that loan was capital receipt and has not been claimed as deduction from taxable income as expenses - hence, present petition - held, money was received by assessee in course business - however by efflux of time money has become assessee's own money - assessee itself has treated money as its own money and taken amount to its profit and loss account - hence, in absence of explanation from assessee why surplus money was taken to its profit and loss account even if it was somebody else's money petition is dismissed - section 10: [swatanter kumar, c.j., a.p. deshpande & smt. nishita mhatre, jj] admission to professional colleges - technical courses - publication of brochure on basis of which candidates seek admission to various institution keeping in mind their merit and preference of colleges held, for ensuring adherence to proper appreciation of an academic course, it is essential that the method of admission is just, fair and transparent. the first step in this direction would be publication of a brochure on the basis of which the applicants are supposed to aspire for admission to various institution keeping in mind their merit and preference of college. brochure, firstly has to be in conformity with law and the statutory scheme notified by the competent authority. it is a complete and composite document as it deals with the scheme for conducting their entrance examinations, declaration of results, general instructions and method of admission, etc. this brochure is binding on the applicants as well as the authorities. this brochure or admission notification issued by the state or other competent authority cannot be altered at a subsequent stage particularly once the process of admission has begun. there is hardly any exception to this accepted rule of law. section 10: [swatanter kumar, c.j., a.p. deshpande & smt. nishita mhatre,jj] admission to professional colleges - technical courses - approval to additional seats or to start new course - cut off dates held, the settled principle of law is that merit of the applicant is the primary criteria which would determine his rank as well as the college where he would be entitled to admission. this rule should not be frustrated as it will tantamount to entirely upsetting the object of admissions based on merit oriented method and would cast cloud on the fairness and transparency of the method of admission. one of the ways in which merit can be defeated is allowing increase in the intake strength or commencement if new colleges beyond cut-off date and admissions beyond the last date specified in the notification/calendar issued by the concerned authorities. this can be illustrated by giving an example. college a which is running a professional course like engineering or mba etc. has an intake capacity of 60 seats which has duly been notified in the information brochure. however, after the cut-off date, approval is granted by the aicte and thereafter, the process is taken up by the state and the intake capacity of the college is increased by 30 more seats. these seats would obviously, not be notified in the information brochure and the candidate who are meritorious and for whom college a; be the college of reference could not get seats or give preference as the seats were limited. none had the proper knowledge about the increase in intake of seats though at a much subsequent stage and may be even after the last date of admission is over either by themselves or under the order of the court even it is put on the internet or given in the newspaper, the candidates of higher rank or meritorious candidates would not be able to avail of that benefit because they have already submitted the testimonial, have paid their fees and the courses have commenced. in that situation, for variety of reasons, they may not be able to take admission in the institution of their higher preference while the candidates of much lower merit will be admitted to that course. besides defeating the merit, it has been commonly noticed that the late admissions made by the colleges directly effect notified candidates who have questioned it more than often as their admission process is not so just, fair and transparent which has given rise to the litigation. it is also a kind of back door entry method. another serious consequence that result from such admissions is shortening of the academic courses in an undesirable manner. it is expected of other candidate selected to a professional course that he or she would complete the course in its entirety and not by missing more than a month or so in joining the said course. this results in lowering the excellence of education as well as harms the academic standard of professional education. admission to professional colleges: [swatanter kumar, c.j., a.p. deshpande & smt. nishita mhatre, jj] technical courses - held, in process of admission to professional colleges relating to technical courses, primarily three institutional bodies are involved. (i) all india technical council for technical education, (ii) state of maharashtra through director of technical education and (iii) university to which such institution is affiliated the role of all these institutions in distinct and different but for a common object. primary of the rule of all india council for technical education (aicte) is now well settled but that certainly does not mean that role of the state government and for that matter the university is without any purpose or of no importance. the council is the authority constituted under the central act with the responsibility of maintaining education standards and judging upon the infra-structure and facilities available for imparting such professional education. its opinion is of utmost importance and shall take precedence over views of the state as well as that of the university. the concerned department of the state and the affiliating university has a role to pay but it is limited in its application. they cannot lay down any guidelines or policies which would be in conflict with the central statute or the students laid down a by the central body. state can frame its policy for admission to such professional courses but such policy again has to be in conformity with the directives issued by the central body. while the state grants its approval and university its affiliation for increased intake of seats or commencement for a new course/college, its directions should not offend and be repugnant to what has been laid down in the condition of approval granted by the central authority or council. what is most important is that all these authorities have to work ad idem as they all have a common object to achieve i.e. of proper imparting of education an ensuring maintenance of proper standards of education, examination and ensuring proper infrastructure for betterment of educational system. only if all these authorities work in a co-ordinated manner and with co-operation they would be able to achieve the very object for which all these entities exist admission to professional courses: [swatanter kumar, c.j.,a.p. deshpande & smt. nishita mhatre, jj] admission schedule - interference by courts held, all the expert bodies viz. aicte as well as directorate of education in consultation with the departments of the state regulating the process of admission and maintenance of standards of education had notified a legal binding document specifying dates and schedule for various matters in relation to admission of students and commencement of courses. there has to be so compelling circumstances and grounds before the court to interfere with the prescribed schedule. it is neither so arbitrary nor so perverse, keeping in view the essential features relating to imparting education to professional courses that it should invite judicial chastisement to the extent of laying down entirely new schedule. merely because there has been some delay on the part of either of these authorities to timely grant of either of these authorities to timely grant or decline approval and permission to commence a course per se would not be sufficient ground for disturbing the notified schedule and timely commencement of courses. - the learned counsel appearing for the appellant argued that the impugned order suffers from error of law as well as of appreciation of facts. in this connection, we would like to refer to the decision of the honourable supreme court in the case of cit v.swatanter kumar, c.j.1. this appeal is directed against the order passed by the income tax appellate tribunal, mumbai bench dated 31st december, 2001 wherein the tribunal has rejected the contention raised by the assessee that the loan was a capital receipt and has not been claimed as deduction from the taxable income as expenses and, therefore, did not represent income under section 41(1) and, thus, sustained the addition of rs. 6,86,071. the assessing officer had made the addition on the ground that the credit balance returned back is the income of the assessee in view of the fact that it is again directly arising out of the business activity and the same was liable to be taxed under section 28 of the act. the learned counsel appearing for the appellant argued that the impugned order suffers from error of law as well as of appreciation of facts. while relying upon the judgment of this court in the case of mahindra & mahindra v. commissioner of income tax : [2003]261itr501(bom) , it was contended that in relation to the transaction in question, section 28(iv) was not attracted and even provisions of section 41(1) of the act could not be applied to treat the same as business income of the assessee liable to tax.2. in order to examine whether any substantial question of law arises in the present appeal or not, reference to basic facts may be necessary. the assessee appellant had taken a loan of rs. 6,86,071/during the previous year for business purposes which was returned back, as a result of consent terms arrived at between m/s. p.s. jain motors on the one hand and the assessee on the other. the assessee claimed that the said loan was the capital receipt and has not been claimed as deduction from the taxable income as expenses and therefore, did not come under section 41(1). as already noticed, this contention was rejected by the assessing officer on the ground that credit balance returned back is the income of the assessee in view of the fact that it is again directly arising out of the business activity of the assess and was liable to tax under section 28 of the act. the order was appealed against. commissioner partially allowed the appeal. aggrieved from the order of the income tax commissioner (appeals), further appeal was preferred before the income tax appellate tribunal which again allowed the appeal on other counts but on the above issue and while relying upon the judgment of the supreme court in the case of commissioner of income tax, madurai v. t.v. sundaram iyengar and sons ltd. : [1996]222itr344(sc) , sustained the view taken by the commissioner. the tribunal held as under:8. we have carefully considered the submissions made by the rival parties. the assessee company had taken certain loan from m/s. p.s. jain motors. this amount was payable to them with interest of rs. 2,83,819/. the party filed a suit for recovery and thereafter the assessee company filed counterclaims and the matter was settled out of the court whereby the assessee company was not to pay any amount. the assessee company credited to the profit and loss account the interest amount and offered the same for taxation. with regard to the addition of rs. 6,86,071/, the assessee company directly credited the amount to the reserves account considering the same as capital receipt. it was claimed by the learned counsel that the amount was not a deemed profit under section 41(1) of the act. according to the learned counsel, this amount cannot be charged even under the provisions of section 28 of the act as the amount earned is neither a revenue receipt nor intended for revenue account. in this connection, we would like to refer to the decision of the honourable supreme court in the case of cit v. t.v. sundaram iyengar and sons ltd. : [1996]222itr344(sc) wherein the honourable supreme court has laid down that 'if the amount is received in the course of trading transactions, even though it is not taxable in the year of receipt as being of capital 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. where the assessee received deposits in the course of trading transactions, the amount of such credit balances which were barred by limitations and which were written back by the assessee to the profit and loss account were to be assessed as the assessee's income'. in view of the above decisions of the apex court and also keeping in view the provisions of section 28(iv) of the act, we find full justification for making the addition of rs. 6,86,071/. accordingly, the findings of the learned cit (a) are upheld.it is worthwhile to refer to observation of apex court in t.v. sundaram (supra).22. the principle laid down by atkinson, j. applies in full force to the facts of this case. if a common sense view of the matter is taken the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. the moneys had arisen out of ordinary trading transactions. although the amounts received originally were not of income nature, the amounts remained with the assessee 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. it became a definite trade surplus. atkinson, j. pointed out that in tatters all case no trading asset was created. mere change of method of bookkeeping had taken place. but, where a new asset came into being automatically by operation of law, common sense demanded that the amount should be entered in the profit and loss account for the year and be treated as taxable income. in other words, the principle appears to be that if an amount is received in course of a 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.23. in the present case, the money was received by the assessee in course of carrying on his business. although it was treated as deposit and was of capital nature, at the point of time it was received, by efflux of time the money has become the assessee's own money. what remains after adjustment of the deposits has not been claimed by the customers. the claims of the customers have become barred by limitation. the assessee itself has treated the money as its own money and taken the amount to its profit and loss account. there is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. in fact, as atkinson, j. pointed out that what the assessee did was the common sense way of dealing with the amounts.3. the present appellant can hardly drive any advantage from the case of mahindra & mahindra ltd. (supra). as in that case, a clear finding was recorded that the assessee continued to pay interest at the rate of 6% for a period of 10 years and the agreement for purchase of toolings was entered into much prior to the approval of loan arrangement given by the reserve bank of india. therefore, the loan agreement, in its entirety, was not obliterated by such waiver. secondly, the purchase consideration related to capital assets. the toolings were in the nature of dies and the assessee was a manufacturer of heavy vehicles. the import was that of plant and machinery and the waiver could not constitute business. the facts of the present case are entirely different in as much as it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in business by the assessee. thus, the principle stated by the supreme court in the case of t.v. sundaram ayengar & sons ltd. (supra) would be squarely applicable to the facts of the present case. the amount which initially did not fall within the scope of the provisions rendering it liable to tax subsequently have become the assessee's income being part of the trading of the assessee. similar view was also taken by a bench of madras high court in the case of commissioner of income tax v. aries advertising pvt. ltd. : [2002]255itr510(mad) . the court took the view that the assessee because of trading operation became richer by the amount which had been transferred and/or retained in the profit and loss account of the assessee.4. in view of the above settled position of law and the facts of the present case, we are of the considered view that no question of law much less substantial question of law arises for consideration in the present appeal. appeal dismissed in limine.