A.M Sapre, J.:— This is an Income Tax reference made under section 256(1) of the Income Tax Act by the Tribunal at the instance of Revenue (Commissioner of Income Tax) in R.A No. 148 to 151.Ind/92 arising out of an order dated 6-8-1996, passed by ITAT in ITA No. 730 and 731.Ind/87 and 316/7.Ind/88 to answer the following question of law said to arise out of the appellate order, referred supra
“1. Whether on the facts and in the circumstances of the case, Tribunal was justified in allowing the claim of retrenchment compensation though there was no retrenchment of workers or closure of business?
2. Whether on the facts and in the circumstances of the case, Tribunal was justified in treating the bottles used in liquor business as plant?
3. Whether on the facts and in the circumstances of the case, Tribunal was justified in treating the assessee as owner of the bottles used in its business though the ultimate ownership of bottles rest with the Govt. of M.P?
4. Whether on the facts and in the circumstances of the case, Tribunal was justified in treating surplus in bottle deposit account as belonging to the customers and is not taxable income of the assessee?”
2. The assessee (respondent herein) is the liquor contractor. They are registered partnership firm engaged in the business of manufacture and sale of liquor. The assessee was granted license for sale of country liquor under the provisions of M.P Excise Act for the period 1-4-1975 to 31-3-1978. This license though claimed to have come an end on 31-3-1978, the same was renewed for a further period upto 31-3-1981 from 31-3-1978 by the State in favour of assessee.
3. For the A.Y in question i.e 1978-1979 to 1981-1982 the assessee claimed a deduction of Rs. 48,941/- on the ground that the sum Rs. 48,941/- represents retrenchment compensation payable to the workers working in their Unit. According to assessee, since their license was coming to an end on 31-3-1978 and they felt that the same may be renewed or may not and hence, keeping this uncertainty in mind, the assessee served a notice as contemplated under section 25(FF) of the Industrial Disputes Act to workers seeking to retrench their services w.e.f 31-3-1978. It is on this ground the assessee claimed a deduction of the said sum (Rs. 48,941/-) as being one of the admissible deduction under the Act from their total computation of income as retrenchment compensation. The A.O as also the CIT (Appeals) (Annexures A/B) disallowed the claim of the assessee. However, in a further appeal to Tribunal, filed by the assessee, the Tribunal allowed the claim and granted deduction as claimed by the assessee. It is against this claim allowed by the Tribunal, the Commissioner of Income Tax prayed for the reference to this Court under section 256(1) of the Act which as stated supra was accepted by the Tribunal. Accordingly, the question No. 1 quoted supra has been referred to this Court for answer on merits along with other three questions, referred supra.
4. Heard Shri R.L Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the Revenue and Shri K. Bhargav, learned counsel for the assessee.
5. Having heard learned counsel for the parties and having examined the question in the context of the record of the case, we are inclined to answer the question No. 1 in favour of Commissioner of Income Tax (Revenue) and against the assessee.
6. It is in the case of I.T Commissioner Kerala v. G.C Sales Corporation, AIR 1967 SC 1559, 65 ITR 643, this question or we may say somewhat similar question came to be considered by their Lordships of Supreme Court. In that case, the question arose consequent upon the transfer of business of assessee as to whether, assessee could claim the deduction as payment of retrenchment compensation. Their Lordships then in detail examined the scheme of retrenchment compensation in the light of section 25FF of Industrial Disputes Act and then in the context of the Income Tax Act for allowing as allowable deduction. In para 7, their Lordships held as under:—
“Para 7 — Liability to pay retrenchment compensation arises under section 25-FF when there is a transfer of the ownership or management of an undertaking: it arises on the transfer of the undertaking and not before. Transfer of ownership or management of an undertaking in law operates, except in the conditions set out in the proviso, as retrenchment of the workmen. But until there is a transfer of the undertaking resulting in determination of employment, the workmen do not become entitled to retrenchment compensation. So long as the ownership of the business continues with the employer, the right of the workmen to claim compensation remains contingent. A workman may, before the transfer of ownership of the business, himself terminate the employment: he may die or he may become superannuated: in none of these cases the owner of the business is under any obligation to pay retrenchment compensation to the workman. The obligation to pay compensation becomes definite only when there is retrenchment by the employer, or when the ownership or management of the undertaking is, except in the cases contemplated by the proviso, transferred to a new employer, and not till then. The right therefore arises from determination of employment, or from transfer of the undertaking: it has no existence before these events take place.”
Their Lordships then in para 10 held as under:—
“Para 10 — The question which arises in the present case is not about the admissibility of a provision made by a trader by the adoption of a reasonably satisfactory method estimating the present value of an obligation which may arise in future to pay a sum of money to his employees. The question that falls to be determined is whether the liability which arises on transfer of the business is to be regarded as a permissible outgoing in the account of the business which is transferred. Broadly stated, the present value on commercial valuation of money to become due in future, under a definite obligation, will be a permissible outgoing or deduction in computing the taxable profits of a trader, even if in certain conditions the obligation may cease to exist because of forfeiture of the right. Where, however, the obligation of the trader is purely contingent, no question of estimating its present value may arise, for to be a permissible outgoing or allowance, there must in the year of account be a present obligation capable of commercial valuation.”
Further in Para 12, their Lordship had this to say:—
“Para 12 — Under section 10(2)(xv) of the Indian Income-tax Act in the computation of taxable profits (omitting parts of the clause not material) “any expenditure laid out or expended wholly and exclusively for the purpose of such business, profession of vocation” i.e business, profession or vocation carried on by the assessee, is a permissible allowance. But to be a permissible allowance the expenditure must be for the purpose of carrying on the business. Where accounts are maintained on the mercantile system, if liability to make the payment has arisen during the time the business is carried on, it may appropriately be regarded as expenditure. But where the liability is, during the whole of the period that the business is carried on, wholly contingent and does not raise any definite obligation during the time that the business is carried on, it cannot fall within the expression “expenditure laid out or expended wholly and exclusively” for the purpose of the business.”
And in last their Lordships answered the question against the assessee and held as under:—
“Para 14 — The amount of Rs. 1,41,506 claimed as a permissible allowance by the assessee in its profit and loss account cannot, in our judgment, be regarded as properly admissible either under section 10(1) or section 10(2)(xv) of the Income-tax Act. The answer to the question must, therefore, be in the negative.”
7. When we examine the facts of this case in the light of what is quoted supra in paras 7 and 12, it becomes clear that in the present case neither it was a case of determination of employment nor it was a case of transfer of the undertaking. In other words, mere serving of the notice as contemplated under section 25(F) of the Act was not sufficient. What was necessary in the facts of this case was determination of employment as a fact of the employees and actual payment to each of the worker under the head retrenchment compensation. No such factual finding was recorded on these issues and the discussion centered around to only issuance of so-called notice. It is not in dispute that license though expired on paper on 31-3-1978 but again it was continued to operate and enjoyed by the assessee upto 31-3-1981 uninterruptedly. It is not the case of assessee that all the workers were, therefore, though terminated were re-employed or in their place, new employees were taken in the service. It was in our opinion, a clear case where neither the business of an assessee came to an end, nor license came to an end and nor any of the employee was retrenched. But it was to our mind a case where all the employees services continued uninterruptedly, without any break and without there being any case of retrenchment having taken place as alleged thereby not making the assessee entitled to claim the benefit of any deduction under the Act.
8. In our opinion, the Tribunal committed an error in distinguishing the law laid down by Supreme Court in the case of GC Sales Corporation supra and placing reliance on law laid down by P and H High Court in the case of Ambala Cantt. Electric Supply v. CIT, 133 ITR 343. It should have been in our opinion the other way round. In other words, the Tribunal should have placed reliance on the law laid down by Supreme Court for deciding the issue rather than on the law laid down by P and H High Court which was distinguishable on facts.
9. In the case, before the P and H High Court, the undertaking was actually transferred by operation of law as a fact in accordance with the provision of Electricity Act. It is due to vesting of an undertaking with the Electricity Board, the case of retrenchment was made out as a fact on a certain date i.e the date of vesting. Once, an event of determination of employment occurs due to transfer of undertaking by operation of law as a fact then in terms of section 25FF of Industrial Disputes Act, a case of payment of retrenchment compensation is made out under the Industrial Disputes Act. Such was neither the case before the Supreme Court nor in the present case. In this view of the matter, the assessee was not entitled to claim the benefit of deduction of Rs. 48,941/- under the head “retrenchment compensation”, as a permissible deduction under the Income Tax Act.
10. In view of aforesaid discussion, we answer the question No. 1 in favour of Commissioner of Income Tax i.e Revenue and against the assessee. In other words, we answer the question No. 1 by saying that Tribunal was not justified in allowing the claim of retrenchment compensation in favour of assessee.
11. This takes us to another question Nos. 2 and 3, as in our opinion both these questions are interlinked with each other for convenience, we reproduce these questions No. 2 and 3 infra:—
2. Whether on the facts and in the circumstances of the case, Tribunal was justified in treating the bottles used in liquor business as plant?
3. Whether, on the facts and in the circumstances of the case, Tribunal was justified in treating the assessee as owner of the bottles used in its business though the ultimate ownership of bottles rest with the Govt, of M.P?
12. In our opinion, so far as question No. 2 is concerned, it remains no longer res intergra and stands answered by several decisions. In substance, the question that falls for consideration is, whether bottles are a plant for the purpose of claiming depreciation under the Act?
13. This question was examined by Delhi High Court in the case of Joint Commissioner Of Income-Tax v. Anatronics General Co. (P.) Ltd., 247 ITR 25, Rajasthan High Court in the case of CIT v. Jai Drinks, 173 ITR 100, Andhra Pradesh High Court in the case of CIT v. Sri Krishna Bottles Pvt. Ltd., 175 ITR 154, Madras High Court in the case of First Leasing Company v. CIT, 244 ITR 238 and Gujarat High Court in the case of CIT v. Saurashtra Bottling Pvt. Ltd., 232 ITR 270. All the High Courts have consistently taken the view on the basis of law laid down by Supreme Court in the case of CIT v. Taj Mahal Hotel, 82 ITR 44 and in the case of Scientific Engineering House (Pvt.) Ltd. v. Commissioner Of Income-Tax., 157 ITR 86 that bottle is a plant for the purpose of claiming depreciation under the Income Tax Act. The facts of all the cases decided by these High Courts and the one involved in this case are not different so as to hold otherwise. In this case also the assessee being engaged in the business of manufacture and sale of liquor in bottle had every right to claim depreciation on the bottles used in sale of liquor. These bottles were essential tools of the trade for it was through them only the liquor was passed on from assessee to the customer. Without the bottles, the liquor could not be effectively transported or sold. Indeed, bottles and their contents were so interdependent with each other that no business can be carried on without it. They could not be, therefore, regarded as stock in trade but they (bottles) satisfied the test of being regarded as plant within the meaning of section 43(1) of the Act.
14. Submission of learned counsel for the Revenue was that since the assessee was not the owner of the bottle and hence, they had no right to claim any depreciation is not acceptable to us. Firstly, in view of the nature of license and the arrangement with the State, the assessee was in a position to claim ownership for the purpose of claiming depreciation under the Act. Secondly, one need not be an absolute owner of the goods for claiming depreciation under the Act.
15. In view of aforesaid discussion, we answer the question Nos. 2 and 3 quoted supra against the Commissioner of Income Tax i.e Revenue and in favour of assessee. In other words, we answer the aforesaid two questions i.e questions No. 2 and 3 by holding that Tribunal was justified in holding that bottle is a plant and hence, entitled the assessee to claim depreciation on the bottles under the Income Tax Act.
16. This takes us to the last question No. 4 which for convenience reads as under:—
“4. Whether on the facts and in the circumstances of the case, Tribunal was justified in treating surplus in bottle deposit account as belonging to the customers and is not taxable income of the assessee?”
17. It is not in dispute that though assessee used to collect the money from each customer against each bottle sold to him but it was in the nature of deposit with the assessee and on fulfilment of conditions stipulated in that behalf, the assessee had to refund the money to customer. So there was definite obligation on the part of assessee to return the money to customer which they had collected by way of deposit or one may say by way of security against the sale of bottle. The money in such cases was not in the nature of Income as such because it had to-be returned to the customer from whom it was received on fulfilment of certain condition on behalf of customer. In this view of the matter the amount of Rs. 72,900/- could not be held as an income of assessee for the year in question. Accordingly, Tribunal was right in answering this question against the Commissioner of Income Tax and in favour of assessee. We on our part also answer the question No. 4 against the Commissioner of Income Tax and in favour of assessee.
18. Accordingly and in view of aforesaid discussion, we answer:—
a. Question No. 1 in favour of Commissioner of Income Tax and against the assessee.
b. Question Nos. 2, 3 and 4 against the Commissioner of Income Tax and in favour of assessee.
No costs.
Reference answered accordingly.