2015 (10) TMI 64 - AT - Income Tax

Disallowance on account of non refundable deposit received - whether the amount of deduction is liable to be taxed as income of the assessee as per provision of section 41? - Held that - As decided in CIT vs. Ramala Sahkari Chini Mills Ltd. 2005 (3) TMI 82 - ALLAHABAD High Court the word may in the bye-laws had to be construed as shall and the board was bound to allot shares to the members in relation to the deposits, after full repayment to the Government and the financial institutions. The existence of the other features such as transferability of the deposit to another member and the provision for refund of the deposited amount to the member in case of cessation of membership or to his legal heirs in case of death indicated that the deposited amount could not be treated as money belonging to the assessee-society. The payment of interest at a specified rate from year to year was consistent only with the fact that the deposited amount still belonged to the members. And the fact that the deposited amounts were credited to the individual accounts of the members corroborated the circumstance that the deposits belonged to the members. The amounts deducted from the cane price towards the non-refundable deposits were not trading receipts of the assessee. Thus in the present case non-refundable deposit received by the assessee is not revenue receipts, therefore, not exigible to tax. Accordingly, the addition confirmed by the ld. CIT(A) is deleted - Decided in favour of the assessee.

Summary

Issues:
Disallowance of non-refundable deposit as appellant income, correct appreciation of legal case, alternative approach on deduction liability.

Analysis:
1. The appeals were filed against the CIT(A)'s order confirming the disallowance of a non-refundable deposit received as appellant income. The appellant argued that the issue was favorably decided in a Tribunal case and supported by judgments from the Supreme Court and High Court. The appellant requested a decision in their favor based on these precedents.

2. The Tribunal considered the rival submissions and reviewed the judgments cited by the appellant. The Apex Court and the jurisdictional High Court had examined similar issues in previous cases. In the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. vs. CIT, the Apex Court held that non-refundable deposits were not trading receipts of the assessee. The High Court in CIT vs. Ramala Sahkari Chini Mills Ltd. also ruled that amounts collected towards deposits for future shares were not trading receipts.

3. The Tribunal found the facts of the current case similar to the precedents. Therefore, it concluded that the non-refundable deposit received should not be considered revenue receipts and hence not taxable. Consequently, the addition confirmed by the CIT(A) was deleted, and the appeals of the assessee were allowed.

4. The Tribunal's decision was based on the interpretation of legal precedents and the specific nature of the non-refundable deposits received by the assessee. By aligning with the findings of the higher courts in similar cases, the Tribunal ruled in favor of the assessee, emphasizing that such deposits were not to be treated as trading receipts for taxation purposes.

5. Ultimately, the Tribunal's thorough analysis of the legal aspects and the consistency with previous judgments led to the allowance of the appeals, providing clarity on the treatment of non-refundable deposits in the context of revenue receipts and tax liability.