Taxability of deposits from consumers. - Income Tax - 971/CBDT

INSTRUCTION NO. 971/CBDT Dated : July 8, 1976 It has been brought to the notice of the Board that certain public utility organisations are receiving deposits from the consumers as a security to be refunded on demand but these deposits are appropriated towards their own profits by transferring the same to the general reserve. 2. The question of taxability of these deposits have been examined by the Board. Board are of the view that if the deposits received by a concern in substance partakes of the nature of a trading receipt than of a security deposit, such deposits would be taxable as revenue income in the year of receipt. In this context, reference is invited to the decision of the Supreme Court in the case of Punjab Distilling Industries Ltd. Vs. C.I.T. (1959) 35 ITR 519. Even where the deposit is not a trading receipt at the time of its receipt, its appropriation by transferring it to general reserve would make it taxable as revenue receipt in the year of such transfer. 3. The Board desires that a review of all the completed assessments for assessment year 1972-73 and onwards may be undertaken in this regard and immediate action taken to retrieve the loss of revenue. The result of the review may be sent by 30th September, 1976 indicating the number of cases reviewed and the number in which such mistakes have been noticed with the approximate tax effect involved.