2023 (6) TMI 1216 - AT - Income Tax

Nature of receipts - non-refundable security deposits received by appellant - nature of security deposits - revenue or capital receipt - As per AO security deposits are not shown as advance receivables at the asset side nor shown as liability towards customers in the balance-sheet of M/s Silver Line Holdings Pvt. Ltd. and that without passing the amount through its account M/s Silver Line Holdings Pvt. Ltd. transferred the same to the assessee, thus has to be considered to be non-refundable - HELD THAT - In the light of various clauses of Tripartite agreement and the agreement between the assessee and SHL discussed above it is established that both the companies were operating in different fields of the project. The rights in the land vested with SHL along with other subsidiaries and they were transferred in favour of any buyer of Villa/ Units and qua service or amenities of Gold Course, SHL was separately charging non-refundable deposits. It was responsibility of SHL to account for the same in books for which assessee cannot be faulted. Ld. tax authorities below have completely ignored the corrigendum agreement dated 29.09.2009, considering the same to be self serving ignoring that other clauses of tripartite Buyer s agreement and agreement between assessee and SHL dated 24.12.2008 were themselves clear of the fact that what assessee was getting was something in the form of refundable deposit . CIT(Appeals) has rightly concluded non-refundable security deposits received by appellant has nexus with O M services provided to the clients. However, he failed to appreciate that in the hands of assessee the same were refundable and merely as means to finance O M services. Thus, the same were not of revenue nature receipts. Apart from above, there is also force in the contention of learned AR that the Coordinate Bench in assessee s own case, 2019 (7) TMI 1434 - ITAT DELHI , has considered the nature of deposits in the hands of assessee as refundable security deposits, as one of the possible view as decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of interest-free security deposits.
2. Nature of security deposits as refundable or non-refundable.
3. Applicability of the principle of consistency.

Summary:

Issue 1: Taxability of Interest-Free Security Deposits
The appellant contested the taxability of Rs. 39,00,000/- received as refundable maintenance security deposit from M/s. Silver Line Holdings Pvt. Ltd. (SHL) under an agreement dated 24.12.2008. The Assessing Officer (AO) treated these deposits as taxable income, arguing that the deposits were non-refundable and SHL acted as a conduit between villa buyers and the assessee. The AO also noted that the deposits were not shown as advances or liabilities in SHL's balance sheet, implying non-refundability.

Issue 2: Nature of Security Deposits as Refundable or Non-Refundable
The assessee argued that the deposits were refundable and used exclusively for the maintenance and operation of the Golf Course, as per agreements with SHL. The Tribunal examined the agreements and found that the deposits were indeed shown as liabilities in the assessee's financials and that the interest earned was accounted for as 'other incomes'. The Tribunal noted that the agreements indicated the deposits were meant for operational costs and were refundable, contradicting the AO's conclusion.

Issue 3: Applicability of the Principle of Consistency
The assessee cited previous assessments where similar deposits were not treated as taxable income, invoking the principle of consistency. The Tribunal acknowledged that in prior years, the taxability of these deposits was examined and accepted, and thus, a contrary view in the current year was not justified. The Tribunal referenced judgments from the Supreme Court supporting the principle of consistency.

Tribunal's Findings
The Tribunal found that:
- The security deposits were shown as liabilities and the interest earned was treated as income from other sources.
- The agreements clearly indicated the deposits were refundable and used for maintenance purposes.
- The AO's conclusion that SHL acted as a conduit was incorrect, as the deposits were non-refundable in SHL's hands but refundable in the assessee's hands for operational purposes.
- The AO's reliance on the absence of entries in SHL's balance sheet was misplaced, as the responsibility for accounting these deposits lay with SHL, not the assessee.

The Tribunal concluded that the deposits were not of a revenue nature and thus not taxable in the hands of the assessee. The appeals were allowed, and the impugned addition was deleted.

Order pronounced in the open court on 26.06.2023