2021 (3) TMI 849 - HC - Income Tax

Addition of security deposit - tribunal has gone on to hold that the security deposits being refundable, it continues to be shown as liability in the books of the assessee club up-until it is paid - ITAT deleted the addition - HELD THAT - Having regard to the provisions of Articles 2 and 3, which we have extracted hereinabove, it is clear that the security deposit is both interest free and refundable, which is required to be paid to the member, if she/he opts for its refund or ceases to be a member of the assessee club. Given this finding of fact, to our minds, since the security deposit continues as a liability in the books of the assessee club, the assessing officer could not have added the same to the income of the assessee club. The tribunal has correctly, in our opinion, deleted the addition. These are the findings of fact, which we are not inclined to interfere with, as we find that there is no perversity in the view taken by the tribunal on the given facts. - Decided against revenue.

Summary

Issues:
1. Whether the deletion of the addition made by the assessing officer regarding the security deposit amounting to ?31,14,60,578/- is justified for the assessment year 2005-2006.

Analysis:
The High Court considered an appeal against the order of the Income Tax Appellate Tribunal (ITAT) related to the taxability of a security deposit amount in a golf club membership fee. The ITAT had ruled in favor of the assessee, stating that the security deposit was refundable and, therefore, not taxable as income. The appellant-revenue argued that the security deposit should be treated as a "tradeable asset" and challenged the ITAT's decision. However, the High Court found that the security deposit was indeed refundable to club members based on the club's membership plan, making it a liability for the club until refunded.

The High Court referred to specific articles in the club's membership plan, highlighting that the security deposit was interest-free and refundable upon a member's request for a refund or cessation of membership. Based on these provisions, the Court concluded that the security deposit remained a liability for the club until refunded to the members. Therefore, the assessing officer's decision to add the security deposit amount to the club's income was deemed incorrect, and the ITAT's deletion of the addition was upheld by the High Court.

In dismissing the appeal, the High Court emphasized that the ITAT's findings were based on facts and not perverse. The Court concluded that since the security deposit was refundable and continued to be a liability for the club, there was no justification to interfere with the ITAT's decision. Consequently, the appeal was dismissed, and no further orders were deemed necessary regarding the application for condonation of delay.