News Update

e-Way Bill for Intra-State movement of goods - State tally goes up to 27India generates 940 tonnes of plastic waste every day: Dr Harsh VardhanAnti-dumping duty imposed on ‘Saturated Fatty Alcohols' imported from Indonesia, Malaysia and ThailandGovt stipulates 8.5% interest rate on PFRule 11UA - Word 'or an accountant' omitted + Clause (viib) of Section 56(2) not to apply to consideration received by a Company for issue of shares that exceeds face value of such shares if received from an investorI-T - Taxable event arises as soon as interest income on bank deposits accrues & becomes due; Deferred receipts on instruction of depositor will not make it hypothetical income: HCFM is out of ICU; recovering fast after kidney transplantAnti-dumping duty on on'Ammonium Nitrate' - Notification 44/2017-Cus(ADD) amended to substitute name of exporter at sr. no.1 as 'Euro Chem Trading GMBH Through Rawfert Offshore Sal, Lebanon'Finance Commission team to visit Kerala on coming MondayWTO Chief calls for reducing trade tensionsNIC cloud-based data centre to go live in OrissaCBIC clarifies on application of IGST on goods supplied while deposited in Customs bonded warehousePublic comments sought on Draft NDCP till June 1, 2018PM lays foundation stone for Patratu Super Power ProjectI-T - It is not open for AO to make additions while framing assessment u/s 143(3) merely on basis of seized documents beyond period of limitation u/s 153A: ITATIndia to rope in international labs for food testingISC Panel finalises recommendations of Punchhi CommissionCBIC introduces monetary limits of Rs.2.50 lakhs for filing Revenue appeals before Commissioner(A); applicable to CX & ST legacy cases and those currently pending.Govt sanctions out of turn coal to PSUs; Private plants find themselves at receiving endACC appoints JS, TRU, Alok Shukla as Minister (Customs) in PMI to WTO at GenevaACC grants one more year extension to CBDT Chairman Sushil ChandraThere is no provision in the CGSTAct which allows exemption on an Input Service if the Output service provided by taxable service is exempt: AARServices provided to M/s Karnataka Power Transmission Corporation Ltd. – since it is company registered under the Companies Act, 1956, and not a State Government authority, benefit of concessional rate @12% not available: AARServices provided of diagnosis, pre and post counseling therapy qualify to be health care services and attract Nil rate of Tax: AARTransaction of transfer of one of the units of the applicant as a going concern amounts to supply of service – Nil rate under 12/2017-CT(R): AAR
 
I-T - Extinguishment of customer's right over refund due to expiry of limitation, would render cessation of debtor's liability & hence can be assessed as income: HC

By TIOL News Service

MUMBAI, JULY 17, 2017: THE issue before the Bench is - Whether extinguishment of customer's right over the refund receivable due to expiry of limitation, would render cessation of debtor's liability and hence can be assessed as income u/s 41 of Income Tax Act. YES is the verdict.

Facts of the case:

The assessee was running the educational institution known as 'National School of Banking'. The institution was imparting training and preparing the students for competitive exams conducted by banks for recruitment. In this venture, the Assessee had a scheme that the students who could not pass the banking recruitment exam, 50% of the fees will be refunded to them within two months from the declaration of the result of the examination. The amount which was refundable under the scheme was credited to the Guarantee Liability Account in the Balance sheet in the year 1989-90. Such liability from the Assessment Year 1982 onwards got accumulated to Rs.23,50,530/-. Out of said amount, some amount was refunded by the Applicant upto 31/03/1989 and the balance amount of Rs.21,21,900/- was credited to the Guarantee Liability Account in the Balance sheet. The said amount was assessed as income u/s 41 of Income Tax Act by the AO. On appeal, the CIT(A) allowed the refund granted by the Assessee beyond the period of two months and the balance amount was held to be taxed in the year concerned.

On appeal, the HC held that,

++ it is seen that in case of Commissioner of Income Tax vs. T.V. Sundaram Iyengar and Sons Ltd, the Apex Court has observed that the principle appears to be that if an amount is received in 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. What remains after adjustment of the deposits had not been claimed by the customers. The claims of the customers have become barred by limitation. In Commissioner of Income Tax vs. Sugauli Sugar Works (P.) Ltd., the Apex Court held that the expiry of period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt is well settled. It is further observed that mere entry in the books of account of the debtor made unilaterally without any act on the part of creditor will not enable the debtor to say that liability has come to an end;

++ in the present case, the deposits were of the year 1981-82. From 1981-82 to 1988-89, meager amount was refunded. The first circular states that if the refund is to be claimed by the student, the sum should be claimed within two months. After lapse of two months, the claim, shall not be entertained. The subsequent circular did not find favour with the Tribunal as it did not inspire confidence. The Tribunal held that the contention on behalf of the Assessee that the terms and conditions for grant of refund had been relaxed is not acceptable. The Tribunal has considered the contract between the parties i.e. after lapse of two months, the right of students to claim the amount coming to an end. The second circular was disbelieved by the Tribunal. The said finding is a findings of fact, which cannot be gone into in the reference. The contract between the parties was clear that the refund must be claimed by the candidate within two months of the declaration of the result of the concerned written test. Refund claimed thereof will not be granted. In view of the clear finding of fact, the parties would be governed by the contract. Moreover as far as subsequent refunds are concerned, the Tribunal has taken care of the same and has directed the Assessing Officer to adjust against the demand under appeal.

(See 2017-TIOL-1299-HC-MUM-IT )


POST YOUR COMMENTS