Case: Hindustan Foods Limited Dempo House, Goa Vs. The Deputy Commissioner of Income-Tax

Oral Judgment:P.B. MajmudarThis tax appeal is directed against the Judgment and Order passed by the Income Tax Appellate Tribunal, Panaji Bench in ITA No.244/PNJ/2005 dated 2nd February, 2006. The Tribunal by the impugned Order partly allowed the appeal filed by the present respondent.2. While admitting this appeal, this Court formulated the following substantial questions of law :1. Whether on the facts and circumstances of the case, the Tribunal was justified in law in holding that sum of Rs.49.06 lakhs which has remained unpaid without being claimed by the Debenture holders till the assessment year 1999-2000, was income of the Appellant for the assessment year 1999-2000 solely based on the entry in the books of the Appellant made in the year 1998 2. Whether the Tribunal was justified in law in holding that redemption of redeemable debentures, issued in 1988 was due in 1995 and thereafter it became income of the Appellant, despite the proviso to sub-Section 205C of the companies Act, according to which the liability of the assessee has not ceased 3. The appellant-assessee borrowed money from the public by way of secured loan through the instruments 14% redeemable debentures and as per the terms of the issue, the redemption was due in the year 1995. The relevant assessment year in the present proceedings is 1999-2000. On due date, the appellant-Company redeemed the debentures for which it received the redemption notice from the public. However, certain repayments were not claimed by the public by way of redemption and an amount of Rs.49.06 lakhs remained to be paid and was lying with the Assessee as unclaimed debentures. The Assessee-Company, as per Board Resolution, transferred unilaterally this amount to the General Reserve Account and utilized the amount for the purpose of its business. The Assessing Officer (AO) found that this money became the assessees own money.4. The Assessee is a company manufacturing food products. The Assessee filed their returns in connection with the Assessment Year 1999-2000 declaring Nil income. The case was processed under Section 143(3) of the Income Tax Act, 1961 and refund order of Rs. 4,06,415/- was issued to the Assessee. Ultimately, on verification of details, the AO found that the Assessee has credited an amount of Rs.47,06,000/- into General Reserve Account on account of time-barred unclaimed debentures. The case was reopened under Section 148 of the Income Tax Act and a notice to that effect was also served on the Assessee on 31.1.2003. The AO came to the conclusion that the amount, in question, should be treated as an income of the Assessee and accordingly, the AO treated the said amount as Trade Receipts and brought the same to tax. The appellant challenged the said order by way of an appeal before the Commissioner of Income Tax (Appeals), (CIT(A)) Panaji, Goa. CIT(A) allowed the said appeal. The CIT(A) found that the amount of unclaimed matured debentures cannot be treated as an income of the Assessee in view of Section 205C of the Companies Act and as per the said provision, the said matured debentures shall not form part of the fund unless such amount has remained unclaimed and unpaid for a period of 7 years from the date they became due for payment. The Revenue being dissatisfied with the said decision of the CIT(A), preferred an appeal before the Income Tax Appellate Tribunal, Panaji Bench, Panaji. The Tribunal came to the conclusion that since 1995 the money was lying with the Assessee and the said amount was an unclaimed amount. The Tribunal found that the Assessee has failed to deposit the same into Investor Education and Protection Fund. That money was utilized by the Assessee for its business. The Tribunal also found that the Assessee not only failed to trace the debenture holders to pay back the money, but also did not transfer the said money to the Investor Education and Protection Fund. The Tribunal, accordingly, found that the AO has rightly treated the amount as an income of the Assessee and has rightly treated it as Trade Receipt and brought to tax. The aforesaid order of the Tribunal has been impugned in this tax appeal at the instance of the appellant-Assessee.5. The learned Senior Counsel Shri Usgaonkar appearing for the appellant has submitted that the unclaimed amount could not have been treated to be time-barred debt. It is submitted by him that mere unilateral entry in the Books of Account of the debtors, itself is not relevant for the purpose of coming to the conclusion that the liability has come to an end. It is submitted that the said entry itself will not confer any benefit on the debtor. Shri Uasgaonkar further submitted that even if the debt has become time-barred, the liability has not ceased and as per Section 205C of the Companies Act, 1956, the Assessee was required to transfer the funds to the account of the Investor Education and Protection Fund. In order to substantiate his arguments, Shri Usgaonkar has relied upon a decision of the Honourable Supreme Court in the case of Commissioner of Income-Tax vs. Sugauli Sugar Works (P.) Ltd., reported 236 ITR 518 . In the aforesaid Judgment, it has been held by the Supreme Court that mere unilateral transfer entry in account, without obtaining any benefit, cannot attract Section 41(1). It has also been held that the principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt, but it would only prevent the creditor from enforcing the debt and in view of that, a mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Relying upon the aforesaid decision, it is submitted by Shri Usgaonkar that mere unilateral entry in the Books of Account of the Assessee cannot be treated as a ground for coming to the conclusion that the unclaimed amount which has become time-barred be treated as an income of the Assessee.6. Shri Rivonkar, learned Counsel appearing for the Revenue, on the other hand, submitted that the amount of Rs.49.06 lakhs was remained to be paid and was laying with the Assessee as unclaimed debentures and the Assessee, as per Resolution of the Board, transferred the said amount to the General Reserve Account and the said amount was utilized for the purpose of Assessees business. Under these circumstances, Shri Rivonkar submitted that the amount, in question, should be treated as Trade Receipt and, therefore, the Tribunal has justified in holding that the said amount is required to be brought to tax. In order to substantiate his say, he has relied upon a decision of the Three Judge Bench of the Supreme Court in the case of Commissioner of Income-Tax vs. T.V. Sundaram Iyengar and Sons Ltd., reported in 222 ITR 344 .7. We have heard both the learned Advocates at length and we have also gone through the Orders passed by the AO, CIT(A) as well as the ITAT. The principal question which requires consideration is whether the unclaimed amount which remained unpaid as the same was not claimed by the debenture-holders till the Assessment Year 1999-2000 can be treated as an income of the Assessee for the relevant Assessment Year In this connection, certain factual aspects which are not disputed as such, are required to be taken into account. They are :(i) that the unclaimed amount was transferred to the Reserve Fund Account;(ii)the aforesaid amount was utilized by the Assessee-Company for its business purpose, treating the same as its own money for its trading activity;(iii)the money was all through out used by the Assessee;(iv)the Assessee has not tried to trace out the debenture holders to pay back the said amount and had not transferred the money to the Investor Education and Protection Fund.8. The learned Counsel Shri Usgaonkar has fairly conceded that the amount, in question, was utilized for the purpose of Assessees business. But, he has confined his argument only on the ground that the claim is not barred by limitation and in this respect, he has relied upon Section 205C of the Companies. Act. Section 205C reads as under :[205C. Establishment of Investor Education and Protection Fund. - (1) The Central Government shall establish a fund to be called the Investor Education and Protection Fund (hereafter in this section referred to as the Fund)(2) There shall be credited to the Fund the following amounts, namely :-(a) amounts in the unpaid dividend accounts of companies;(b) the application moneys received by companies for allotment of any securities and due for refund;(c) matured deposits with companies;(d) matured debentures with companies;(e) the interest accrued on the amounts referred to in clauses (a) to (d);(f) grants and donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund;and(g) the interest or other income received out of the investments made from the Fund:Provided that no such amounts referred to in clauses (a) to (d) shall form part of the Fund unless such amounts have remained unclaimed and unpaid for a period of seven years from the date they became due for payment.Explanation. - For the removal of doubts, it is hereby declared that no claims shall lie against the Fund or the company in respect of individual amounts which were unclaimed and unpaid for period of seven years from the dates, that they first became due for payment and no payment shall be made in respect of any such claims.(3) The Fund shall be utilised for promotion of investors awareness and protection of the interests of investors in accordance with such rules as may be prescribed.(4) The Central Government shall, by notification in the Official Gazette, specify an authority or committee, with such members as the Central Government may appoint, to administer the Fund, and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed in consultation with the Comptroller and Auditor-General of India.(5) It shall be competent for the authority or committee appointed under sub-section (4) to spend moneys out of the Fund for carrying out the objects for which the Fund has been established.]9. Section 205C of the Companies Act came into force with effect from 31.10.1998. The Tribunal has given finding of fact by holding that the amount, in question, all through out continued to remain with the Assessee-Company and it failed to deposit the same into the Investor Education and Protection Fund. In para 10, the Tribunal has observed as under : In the facts and circumstances of the case, it appears that after 1995 the money was lying with the assessee as unclaimed. The assessee has failed to deposit the same into the Investor Education & Protection Fund as per the Companies Act. The assessee has utilized this money as its own money in its trading activity. Till date this money was utilized by the assessee. Thus the assessee not only failed to trace the debenture-holders to pay back the money but also not transferred the money to the Investor Education & Protection Fund as required under the law. This money was not, of course, the assessees own money which the assessee company has treated wrongly as its own money. When it is so, then we find no hesitation to uphold the order of the A.O. who has rightly treated this amount as Trade Receipt and brought to tax.It has also been found by the Tribunal in para 9 of its order that the Assessee has not paid any interest after 1995. It is not in dispute that the repayment of the redeemable debenture which was issued in the year 1988 was due in 1995 and after 1995, the money was lying with the Assessee as unclaimed, which was not even subsequently transferred to the Investor Education and Protection Fund. Considering the aforesaid aspect of the matter, in our view, the Tribunal was justified in holding that the amount, in question has rightly been treated as Trade Receipt by the AO. In the case of Commissioner of Income-Tax vs. T.V. Sundaram Iyengar and Sons Ltd. (supra), the Supreme Court while considering the question about unclaim balances in the matter of business income has held that if an amount is received in the 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 assessees own money because of limitation or by any other statutory or contractual right and when such a thing happens, common sense demands that the amount should be treated as income of the assessee. The relevant observation which is at page 353 of the said Judgment, reads as under : The principle laid down by Atkinson J., applies in full force to the facts of this case. If a commonsense view of the matter is taken, the assessee, because of the trading operation, had become richer by the amount which is 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 Tattersalls case [1939] 7 ITR 316 (CA) no trading asset was created. Mere change of method of book-keeping had taken place. But, where a new asset came into being automatically by operation of law, commonsense 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 the 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 assessees own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee.In the present case, the money was received by the assessee in the 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 assessees own money. What remains after adjustment of the deposit 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 elses money. In fact, as Atkinson J. pointed out that what the assessee did was the commonsense way of dealing with the amounts.In the instant case, since it is not in dispute that the amount, in question, has already been utilized by the Assessee for the purpose of its business from time to time and by Board Resolution the Assessee has transferred the amount to the Reserve Fund Account, and considering the Judgment of the Supreme Court in the case of Commissioner of Income-Tax vs. T.V. Sundaram Iyengar and Sons Ltd. (supra), the amount utilized for the purpose of business of the Assessee was required to be treated as business income.10. Considering the aforesaid aspect of the matter and considering the fact that the Assessee has already utilized the money from time to time for its business purpose and having been taken benefit of utilizing the money for its business, now cannot say that the debt, in question, has not become time barred and, therefore, the said unclaimed amount should not have been treated as income of the assessee by way of trade receipt. The Tribunal has given in paras 9 and 10 of its order, cogent reasons for coming to the conclusion that the amount, in question, is required to be considered as income of the assessee. The Tribunal has also rightly held that in the subsequent assessment years, if some amount is paid to the debenture holders, the AO should deduct such amount in the relevant assessment years. The Tribunal has, accordingly, while setting aside the orders of the AO, as well as the Appellate Authority, given such benefit to the Assessee in the relevant assessment years.11. We, accordingly, do not find that any substantial question of law arises, as framed, for determination of this Court and considering the facts of the case, it cannot be said that the Tribunal has erred in coming to the conclusion that the amount, in question, is to be treated as income of the Assessee for the relevant assessment year and by treating the same as Trade Receipt as, admittedly, the amount in question was utilized by the Assessee for its business purpose and, in fact, was transferred to the Reserve Fund Account, treating it as not income of the Assessee and even Shri Usgaonkar, learned Counsel for the appellant-company has admitted that the Assessee-company has treated the amount as its income and utilized it for its business. We, therefore, do not see any infirmity in the decision of the Tribunal in partly allowing the appeal filed by the Revenue and directing the AO to give benefit of the amount repaid to the debenture-holders in the relevant assessment years.

Decision reasoning: 0[ds]Considering the aforesaid aspect of the matter, in our view, the Tribunal was justified in holding that the amount, in question has rightly been treated as Trade Receipt by the AO. In the case of Commissioner ofvs. T.V. Sundaram Iyengar and Sons Ltd. (supra), the Supreme Court while considering the question about unclaim balances in the matter of business income has held that if an amount is received in the 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 assessees own money because of limitation or by any other statutory or contractual right and when such a thing happens, common sense demands that the amount should be treated as income of the assessee.Considering the aforesaid aspect of the matter and considering the fact that the Assessee has already utilized the money from time to time for its business purpose and having been taken benefit of utilizing the money for its business, now cannot say that the debt, in question, has not become time barred and, therefore, the said unclaimed amount should not have been treated as income of the assessee by way of trade receipt. The Tribunal has given in paras 9 and 10 of its order, cogent reasons for coming to the conclusion that the amount, in question, is required to be considered as income of the assessee. The Tribunal has also rightly held that in the subsequent assessment years, if some amount is paid to the debenture holders, the AO should deduct such amount in the relevant assessment years. The Tribunal has, accordingly, while setting aside the orders of the AO, as well as the Appellate Authority, given such benefit to the Assessee in the relevant assessment years.11. We, accordingly, do not find that any substantial question of law arises, as framed, for determination of this Court and considering the facts of the case, it cannot be said that the Tribunal has erred in coming to the conclusion that the amount, in question, is to be treated as income of the Assessee for the relevant assessment year and by treating the same as Trade Receipt as, admittedly, the amount in question was utilized by the Assessee for its business purpose and, in fact, was transferred to the Reserve Fund Account, treating it as not income of the Assessee and even Shri Usgaonkar, learned Counsel for thehas admitted that thehas treated the amount as its income and utilized it for its business. We, therefore, do not see any infirmity in the decision of the Tribunal in partly allowing the appeal filed by the Revenue and directing the AO to give benefit of the amount repaid to thein the relevant assessment years.