COMMISSIONER OF INCOME TAX V. A.P.STATE FINANCIAL CORPORATION

RC/200/1996

AI Insights

The case involves the A.P. State Financial Corporation, which collected amounts as credit guarantee commission (CGC) from loanee concerns. The primary legal issue was whether these amounts constituted taxable trading receipts. Initially, the assessing officer treated these amounts as taxable, but the Tribunal later deleted this addition, leading to the revenue's appeal. The High Court was asked to determine the nature of these receipts and the fiduciary responsibilities of the assessee under the relevant agreements and the Deposit Insurance & Credit Guarantee Corporation Act, 1961. The Court found insufficient material on the methods of collection and distribution of these amounts and thus remitted the matter back to the Tribunal.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 728072 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 29-09-2010
• Assessment Year: misc
• Other Referred Cases: R.C. No.139 of 1992
• Laws Referred To: Deposit Insurance & Credit Guarantee Corporation Act, 1961, Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Keywords: Credit Guarantee Commission; Fiduciary capacity; Taxable income; Trading receipts
• Section: 256(2)

Judgement Text

"THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN R.C.Nos.Nos.200, 206 and 218 of 1996 ORDER: (per Per Hon’ble Sri Justice V.V.S.Rao) These references, at the instance of the revenue, are in respect of the assessment years 1985-86, 1988-89 and 1987-88 respectively. The questions referred in all the three cases are identical and hence this common order. The A.P. State Financial Corporation – assessee collected amounts towards credit guarantee commission (CGC). In their returns they claimed that it is not income for the reason that the CGC is payable to the Deposit Insurance & Credit Guarantee Corporation (DICGC); and that, in a fiduciary capacity, the amounts have to be paid back to the loanees, if the amounts are not credited to the said Corporation. The assessing officer treated the amount as trading receipts and brought it to tax. In appeals, the assessee was successful and the commission amount was deleted. The revenue appeals were dismissed by the Learned Income Tax Appellate Tribunal. The revenue then moved an application before this Court seeking a direction to the Tribunal to refer three questions. This Court passed orders directing the reference. Pursuant thereto, the Learned Tribunal referred the following questions to the High Court under Section 256(2) of the Income Tax Act. The questions in all the three cases are identical and the questions in R.C.No.218 of 1996 read as under: “1. Whether, on the facts and in the circumstances of the case, the amounts received by the assessee from the loanee concerns towards credit guarantee commission are trade receipts incidental to the business carried on by the assessee? 2. Whether, on the facts and in the circumstances of the case, the A.P. State Financial Corporation is acting in a fiduciary capacity in collecting the credit guarantee commission on amounts from loanee concerns having regard to the agreements entered into, if any, by the loanee concerns with the assessee – company? 3. Whether, on the facts and in the circumstances of the case, the receipts of credit guarantee commission collected from the loanee institutions are at all returnable by the assessee-company to the said concerns, in case the assessee-company opts out of the credit guarantee scheme? 4. Whether, on the facts and in the circumstances of the case, the ITAT was correct in law in deleting the addition made by the Assessing Officer of Rs.1,20,80,309/- which represented the credit guarantee commission collections collected by the assessee from the loanee concerns?” This Court by an elaborate order, in R.C. No.139 of 1992 dated 13.8.1998, came to the conclusion that there is no material as to the method and manner adopted by the assessee for collecting the amounts from the SSI units or deducting the amounts on the loans advanced to the SSI units and, therefore, in the absence of such material a finding cannot be arrived at. Accordingly, declining to answer the questions referred to it, this Court remitted the matter to the Learned Tribunal for consideration in the light of the scheme framed under Deposit Insurance & Credit Guarantee Corporation Act, 1961 in which the assessee joined with effect from 1.4.1981. Following the above order dated 13.8.1998, we also pass a similar order declining to answer the questions. We remit the matters to the Learned Tribunal for the purpose of examining the issue that arise for consideration in the light of the Scheme and also modalities, methods and manner adopted by the assessee in deducting the amount from the SSI units and the method adopted for paying the amounts to the DICGC. The references accordingly stand disposed of. ______________ V.V.S.RAO, J ____________________________ RAMESH RANGANATHAN,J Date: 29.09.2010 asp "