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Issues involved:
The judgment pertains to the taxability of excess deposits not refunded to customers by a machinery dealer for the assessment year 1969-70. Assessment of Taxability: The assessee, a machinery dealer, had a practice of taking deposits from customers, later adjusted towards purchase price, with surplus deposits refunded. However, for the relevant year, unrefunded excess deposits of Rs. 17,691 were written off in the profit and loss account. The Income Tax Officer considered these as trading receipts, but the Appellate Authority held them as trust money not taxable. The Tribunal upheld the latter view, leading to the question of taxability before the High Court. Precedents and Interpretation: The High Court referred to various precedents to determine the nature of such deposits. Notably, in the case of K. M. S. Lakshmanier and Sons v. CIT, the Supreme Court held advance payments as taxable, not borrowed money. Similarly, in Pioneer Consolidated Company of India Ltd. v. CIT, unclaimed amounts were treated as income. The Court also cited CIT v. Motor and General Finance Ltd., where receipts for goods or services were considered revenue receipts. Decision and Rationale: The High Court opined that the deposits adjusted towards purchase price are more akin to trading receipts rather than borrowed money or for a third party's benefit. It distinguished the case from Bijli Cotton Mills (P.) Ltd. v. CIT, emphasizing the close connection of the deposit with the sale transaction. Consequently, the unrefunded surplus deposit was deemed taxable as a trade receipt, ruling in favor of the Department and against the assessee. Conclusion: The High Court held that the unrefunded excess deposits of Rs. 17,691 were taxable as trade receipts, based on the close connection with the sale transaction. The decision was in favor of the Department, and costs were awarded to them.
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