2016 (3) TMI 1065 - AT - Income Tax

Security deposit collected from its members refundable - whether receipts does not partake the character of income? - Held that - The Tribunal in assessee s own case passed for AY 2008-09, under the identical facts and circumstances of the case, has held that the security deposit collected from its members which is refundable and does not partake the character of income. Disallowance u/s 14A - Held that - Looking to totality of the facts and circumstances of the case and in view of the submission made by the ld.counsel for the assessee, hold that the disallowance by applying the provisions of section 14A of the I.T.Act, 1961 is justified and in accordance with law.

Summary

Issues involved:
1. Treatment of refundable security deposit as Revenue Receipt or Capital Receipt.
2. Disallowance under section 14A of the Income Tax Act, 1961.

Issue 1: Treatment of refundable security deposit:
The appeal addressed whether the refundable security deposit collected by the assessee should be considered as Revenue Receipt or Capital Receipt. The Assessing Officer (AO) treated 60% of the total security deposit as income, adding it to the assessee's returned income. The First Appellate Authority allowed only 1/25th of the security deposit collected during the year to be liable for taxation. The Tribunal referred to a previous decision where it was held that refundable security deposits, being non-interest bearing and refundable, do not constitute taxable income. Citing relevant case law, the Tribunal concluded that the security deposits are akin to a transaction of loan and should be excluded from taxable income. Consequently, the Tribunal ruled in favor of the assessee, allowing the appeal on this issue.

Issue 2: Disallowance under section 14A:
The second issue pertained to the disallowance of a specific amount by the AO under section 14A of the Income Tax Act, 1961. The assessee conceded that this issue was covered against them based on a previous Tribunal order. Both the assessee's counsel and the Senior Departmental Representative supported the disallowance. The Tribunal, considering the facts and submissions, upheld the disallowance under section 14A, finding it justified and in accordance with the law. Consequently, the Tribunal rejected the appeal on this issue.

Separate Judgment:
The Tribunal dismissed the Revenue's appeal, holding that the decision regarding the treatment of the refundable security deposit for the relevant assessment year had already been settled in a previous decision. The Tribunal found that the security deposit collected did not amount to taxable income and, therefore, dismissed the Revenue's appeal.

Summary of Result:
1. The assessee's appeal for AY 2011-12 was partly allowed.
2. The Revenue's appeal for AY 2011-12 was dismissed.
3. The assessee's appeal for AY 2012-13 was partly allowed.
4. The Revenue's appeal for AY 2012-13 was dismissed.

In conclusion, the Tribunal's decision favored the assessee regarding the treatment of the refundable security deposit and upheld the disallowance under section 14A, resulting in a mixed outcome for the parties involved.