9911796707
TMI Blog2018 (8) TMI 1644X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is in appeal against order of ld.CITA)-2, Ahmedabad dated 16.11.2016 passed for the Asstt.Year 2013-14. 2. In the grounds of appeal, Revenue has raised sole issue i.e. the ld.CIT(A) has erred in deleting disallowance on account of members security deposit amounting to ₹ 3,12,30,000/-, which according to the AO is membership fees collected from its members and is to be treated as income for the relevant year. 3. Brief facts in the regard are that assessee-company is engaged in business of club activities. It has filed its return of income on 28.9.2013 declaring total loss at Rs.(-)71,71,259/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. During the assessment proceedings, on verification of record it was noticed by the AO that the assessee has enrolled members on payment of security deposits as entrance fee, which according to the assessee was refundable to the members after 25 years on which no interest would be paid to them. This amount of deposits was not kept as security deposits separately in the accounts rather it was utilized for construction and other amenities to be prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore not liable to be taxed. This order of the Tribunal was further challenged by the Revenue before the Hon ble High Court, and the Hon ble Court by judgment dated 16.11.2016 upheld the order of the Tribunal and dismissed the appeal of the Revenue. He further submitted that in the assessment year 2010-11 also similar issue travelled to the Tribunal and the Tribunal in ITA No.2046/Ahd/2014 allowed the claim of the assessee. Therefore, this issue has become final and binding, and the same should be followed in the present case also. 6. We have considered rival submissions and gone through the record and also orders of the Tribunal passed in the earlier years also. We find that on this issue we do not require any extra efforts to examine the case of the assessee in order to come to the conclusion that money received from the members are in the nature of loan, which are to be refunded to the members back after 25 years, and not in the nature of income as observed by the AO. The Tribunal in the assessee s own case, for earlier years on similar issue has allowed claim of the assessee, which was affirmed by the Hon ble jurisdictional High Court in further appeal. Therefore, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther purpose, the same does not denude the amount of its character of deposit carrying with it the obligation to repay. In support of their above submissions learned Counsel appearing on behalf of the assessee has heavily relied upon the decision of the Hon'ble Supreme Court in the case of S.S. Sakhar Karkhana Ltd. (supra). 8.5 In the case of S.S. Sakhar Karkhana Ltd. (supra), the Hon'ble Supreme Court had an occasion to consider its earlier decision in the case of Bazpur Co-op Sugar Factory Ltd. (supra). After considering the decision of the Hon'ble Supreme Court in the case of Bazpur Co-op Sugar Factory Ltd. (supra), the Hon'ble Supreme Court has observed in paras 21, 22, 24, 28, 30, 31, 32 as under :-- 21. The Court reiterated the principle that it is the true nature and quality of the receipt and not the head under which it is entered in the account books as would prove decisive and that it makes no difference that the disputed amounts have been referred to as deposits and proceeded to consider the crucial issue in that light. 22. How far the ratio of the decision in Bazpur case could be applied to the case on hand is the first and foremos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to conclude that the receipts by way of deductions from the purchase price were not in the nature of deposits. In this context, the reasoning of the Bench may be noticed :-- The essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it is made on the fulfillment of certain conditions. Under the amended (sic unamended) bylaw, the amounts deducted from the price and credited to the said fund were first liable to be used in adjusting the losses of the respondent society in the working year; thereafter in the repayment of initial loan from the Industrial Finance Corporation of India and then for redeeming the Government share and only in the event of any balance being left, it was liable to be converted to share capital. The primary purpose for which the deposits were liable to be used were not to issue shares to the members from whose amounts the deductions were made but for the discharging of liabilities of the respondent society. In these circumstances, the receipts constituted by these deductions were really trading receipts of the assessee society ......... 30. Although the use of the expression 'deposit' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur view, the Board of Directors is bound to convert the deposit amount into shares. The discretion is always coupled with a duty; the discretion cannot be used to circumvent the obligation cast under the law or contract governing the parties. In our view, it would be appropriate to read the expression 'may' as 'shall'. On the occurrence of the specified event, namely, the repayment of the loans referred to in the byelaw and the Government share capital, the member/depositor can clutch at a legally enforceable right to demand repayment, may be, in the form of conversion into additional shares. 32. In our view, the retention of the deposited money with the Society in order to utilize the same for repayment of term loans etc., does not denude the amount of its character of 'deposit' carrying with it the obligation to repay. Nor is it necessary, as the High Court was inclined to think, that the separate identity of the deposited amounts should be kept up. The absence of the right to secure repayment on demand is again not inconsistent with the receipt being a deposit. Liability to return need not be immediate and unconditional, following a demand by the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government's share contribution. In the process of such adjustment, the entire amount collected from the members and credited to the fund may be dissipated or consumed, whereas in the instant case, the amount collected as deposit remains intact, though it could be utilized from time to time for meeting certain liabilities of capital nature. However, there is one qualification in this behalf. If the society has not incurred any loss and it remains a profit making concern, the situation will be very similar in both the cases. The amounts will then be utilized for repayment of long-term loans due to the financial institutions and the Government's share capital and after such process of repayment is complete, the disputed amounts could be made available to the grower members in the form of increased shares. Yet, in Bazpur case, at the time the sums were received from the grower member and remitted to the loss equalization fund, there was no knowing whether the 'deposit' would remain intact at all. The claim of the member to the deposited amount at that stage was too tenuous and slippery to earn the legal recognition of any proprietary interest over it. It cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
