B.R. Associates vs Commissioner of Income Tax

Motilal B. Naik, J.—At the instance of the assessee, the Income Tax Appellate Tribunal stated the case and referred the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the salami amounts of Rs. 9,000 received from Apsara Footwear and Rs. 8,500 received from D. S. Reddy Cloth Stores by the assessee revenue receipts assessable to tax in the hands of the assessee for the assessment year 1968-69 ?"

The assessee is an unregistered firm. The assessment initially was completed on November 1, 1971. On appeal before the Assistant Commissioner of Income Tax (Appeals), the Assistant Commissioner of Income Tax (Appeals) directed the Income Tax Officer to redo the assessment after going into all the facts regarding assessment of salami after giving the assessee an opportunity to produce the necessary evidence in support of payment of salami. While redoing the assessment as per the direction of the Assistant Commissioner of Income Tax (Appeals), the Income Tax Officer found that the assessee received Rs. 8,500 from D.S. Reddy Cloth Stores and Rs. 9,000 from Apsara Footwear as salami in instalments. During the course of reassessment, on behalf of D.S. Reddy Cloth Stores, the partners of the said firm and others were examined and cross-examined. However, the said D.S. Reddy and other partners of D.S. Reddy Cloth Stores denied payment of salami or pagadi to the assessee. The Income Tax Officer treated this income as from other sources and assessed the same to tax.

In so far as the salami received from Apsara Foot Wear is concerned, it was admitted by the assessee having received an amount of Rs. 9,000 during the assessment year as salami from Apsara Foot Wear. The assessee, however, contended that the said salami should be considered as capital receipt and cannot be assessed as a revenue receipt. It was further contended that the salami was actually received in lieu of rent. However, the Income Tax Officer held that from the facts of the case it was clear that the salami amounts were received from Apsara Foot Wear at the time of building construction, the persons from whom these moneys were received were accommodated in the building as tenants and they were paying lesser rents. The pagadi, therefore, according to the Income Tax Officer should be regarded as advance payment and hence it was held as taxable income. He, therefore, added another sum of Rs. 9,000 received from Apsara Footwear and taxed the said income.

However, the matter was again carried before the Assistant Commissioner of Income Tax (Appeals) and then finally landed before the Income Tax Appellate Tribunal. It was argued before the Tribunal as well as before the appellate authority that the income received from Apsara Foot Wear, though pagadi, cannot be treated as revenue receipt but that has to be treated as only capital receipt. This contention of the assessee was rejected by the departmental appellate authority as well as the Tribunal holding that in the facts and circumstances, these receipts are advances and they are to be treated as revenue receipts. The assessee made an effort before the Tribunal requiring it to state the case and refer the question of law as formulated by it, as indicated above, to this court for opinion and thus the matter has been referred to this court for the opinion of this court.

We have heard Sri Rajeev Reddy, learned counsel appearing on behalf of the assessee, elaborately on the question whether the salami received by the assessee from Apsara Foot Wear is a revenue receipt or capital receipt. In support of his contention, Mr. Rajeev Reddy has taken us to the decisions reported in Maharaja Chintamani Saran Nath Sah Deo Vs. Commissioner of Income Tax, Bihar and Orissa, ; MEMBER FOR THE BOARD OF AGRICULTURAL Income Tax, ASSAM Vs. SINDHURANI CHAUDHURANI AND OTHERS (AND OTHER CASES)., and Durga Das Khanna Vs. The Commissioner of Income Tax, Calcutta, , and contended that the salami receipt can never be treated as revenue receipt but only to be treated as capital receipt. On the contrary, learned standing counsel appearing on behalf of the Revenue stated that in the facts and circumstances of the case, the assessing authority as well as the lower appellate authority have found that the pagadi or salami received by the assessee is in the nature of advance and, therefore, it has rightly been treated as revenue receipt and added in the taxable income.

In the wake of the above submissions, we have given our anxious consideration in the light of the three decisions referred to by learned counsel appearing on behalf of the assessee. Regarding the principle laid down by the apex court in the three decisions there cannot be any dispute but what we found is that the facts of those three cases are totally different from the set of circumstances which emanates from the facts of this case. In this case the finding of the two forums, i.e., assessing authority as well as the lower appellate authority, is that the assessee was collecting lesser rents from the tenants though the rents at that point of time from the neighbouring areas were higher. The finding further goes to show that the amount so collected was in the nature of advance and, therefore, the assessing authority as well as the lower appellate authority found that the salami amount received by the assessee from Apsara Footwear is only an advance and has to be treated as revenue receipt. As indicated above, on a careful consideration, we have no doubt in our mind to reach such conclusion and hold that the amount received by the assessee from Apsara Foot Wear in the nature of salami or pagadi is only an advance and has to be treated as revenue receipt and cannot be treated as capital receipt.

Though learned counsel for the assessee contended that in the absence of any evidence, the Department cannot assume and presume that the pagadi or salami received by the assessee is a revenue receipt. We are afraid we cannot accede to this submission. As seen from the orders passed by the assessing authority as well as the lower Appellate Commissioner, the assessee was given sufficient time to produce evidence and further on behalf of D.S. Reddy Cloth Stores three witnesses have been examined. On the basis of the material placed by the assessee, both on behalf of Apsara Foot Wear as well as D.S. Reddy Cloth Stores, the assessing authority as well as the lower appellate authority have reached the conclusion that the pagadi or salami received from Apsara Foot Wear is a revenue receipt and not a capital receipt. This finding of fact, in our view, is based on substantial material placed before the authorities and therefore we are unable to appreciate the submission made on behalf of the assessee that there was no material before the Revenue to reach such a conclusion.

We, therefore, hold that the view taken by the assessing authority as well as the lower appellate authority and the Tribunal is just and proper in the facts and circumstances of the case.

We answer the reference accordingly in favour of the Revenue and against the assessee. No costs.