Commissioner of Income Tax vs Tarlok Chand Desraj Singh and Co.

Gokal Chand Mital, J.—Tarlok Chand Desraj Singh & Co., the assesses, has a wholesale and retail vend license. The assessee had deposited an amount of Rs. 1,20,300 as security with the State Government for lifting the stipulated quantity of liquor for sale. The State Government in the excise department forfeited the aforesaid security amount. During the assessment proceedings for the assessment year 1969-70, the assessee claimed the aforesaid amount as permissible expenditure in computing its income. The ITO took notice of the Judgment of the High Court dated 23-6-1969 in a writ petition filed by the assessee whereby the order of the State Government forfeiting the security was quashed, and held that the deposit of security could not be considered as permissible expenditure and rejected the assessee''s claim. The order was upheld in appeal by the AAC, and on further appeal, the Tribunal allowed the appeal and held the security amount as expenditure incurred during the year of account. The only reasoning on which the expenditure was allowed is as follows : Still, the said security amount remained unrefunded to the assessee at the end of financial year 1968-69 and as per the excise authority''s letter dated 16-7-1974, the full amount of security stands already adjusted against the annual license fee arrears as aforesaid.

On the direction of this Court, the Tribunal has referred the following question for our opinion:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the sum of Rs. 1,20,300 (deposited by the assessee as security money) as permissible expenditure in computing its income for the year under consideration?

The deduction of an amount equal to security deposited was claimed by the assessee as the permissible expenditure solely on the ground that the security deposited had been forfeited by the State Government but it was shown before the ITO that the order of forfeiture of security was set aside by the High Court in a writ petition filed by the assessee. The argument by the assessee that the Government had gone up in appeal to the Supreme Court and the matter was pending did not cut any ice with the ITO and rightly so because in case the State''s appeal is allowed and the amount stands forfeited, the accounting year in which the order would be passed, in that year the assessee would be entitled to claim deduction but until there is an order of forfeiture of security, the assessee cannot claim deductions of the same as a permissible expenditure.

Once the High Court deleted the adjustment of security amount against arrears of license fee, the assessee was entitled to refund of the same but if there is delay in refund that will not give cause to the assessee to claim it as a permissible expenditure in computing his income. Similarly, if the security amount is refundable at the end of the financial year under terms and conditions of the license, and the refund is not made, it would not take the shape of permissible expenditure in computing the income.

In case the assessee succeed finally up to the Supreme Court, the State Government will have to pay him the amount equal to the security deposits, may be along with the interest, as per order passed by the Supreme Court, and in that case he would not be entitled to claim it as a permissible expenditure. However, in case'' the State Government succeeds before the Supreme Court and it 4s ordered that the amount is adjustable against other dues, the year in which such an order would be passed, in the assessment relating to that year, the assessee would be justified in claiming the amount as a permissible expenditure. Accordingly, we are of the opinion that the Tribunal erred in allowing the security amount of Rs. 1,20,300 as permissible expenditure in computing the assessee''s income for the assessment year in Question and we answer the question in the negative, that is, in favour of the revenue and against the assessee leaving the parties to bear their own costs.