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TMI Blog2018 (8) TMI 1644X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, 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 provided to the club members. To the specific query by the AO, the assessee interalia replied that as per the bye-laws of the club, it was refundable amounts received from the members as security deposits after 25 years from the date of enrolment of membership with the club. Such security deposits were shown as long term liability in the balance sheet, and therefore it cannot be treated as income of the club. The ld.AO, however, was not satisfied with the reply of the assessee, denied the claim of the assessee, but restricted the disallowance to the extent of 60% of the security deposits received by the assessee during the year under consideration, and accordingly treated the a sum of Rs. 3,12,30,000/- as revenue income. The assessee was not satisfied with the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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, this issue is almost settled. However, for the sake of brevity, we reproduce below the discussion and finding of the Tribunal in the case of assessee in ITA No.2046 and 2619/Ahd/2016 dated 2.8.2017: "5. With the assistance of the ld.representatives, we have gone through the record carefully. We find that the issue in dispute is squarely covered by the decision of the Hon'ble High Court. The following observations of the Hon'ble High Court in this regard are worth to note. It reads as under: "8.3 Considering the Articles of Association and the relevant Rules, Regulations and Bye Laws of the assessee, the security deposit collected by the assessee at the time of enrollment of the club members is refundable after a period of 25 years and/or on happening of the eventuality in Rule/Bye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 foremost controversy. In the present case, the purchase and payment of price of sugarcane is undoubtedly part of trading operations of the assessee. It is in the course of such trading operations that the assessee realized the amounts (treated as deposits) with regularity and utilized the money so received in its business. To the extent the full payment is not made to the farmers, the assessee saved the raw material cost as well. 24. However, it needs to be clarified that the line of inquiry, in order to determine the true nature and character of the receipts, does not stop at ascertaining the mere fact whether the realization was in the course of trading operations. The moment it is found that certain amounts were deducted by the assessee out of the price payable to its members who supplied the raw materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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' does not conclude the issue, there are intrinsic indications in the byelaws that the expression has been used to mean just what it says. These are: (a) conversion of the deposit into additional shares, (b) transferability/heritability, (c) refundability, and (d) payment of interest on the deposit. The first three features are no doubt dependent upon occurrence of certain contingencies or hedged in by certain limitations. But the deposited amount is not denuded of its character of 'deposit' for that reason alone. 31. First, discussion needs to be focused on the first feature, namely, conversion of deposit into shares. The Tribunal rightly pointed out and it is not disputed before us that such conversion is as good as refund. Such conversion into additional shares is, however, postponed till the events ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 depositor. Even if such liability gets crystallized on the happening of a specified contingency, it is still a liability which can be legally enforced by the depositor. The existence of such liability is an antithesis to the idea of ownership of the money by the Society." In the aforesaid decision the Hon'ble Supreme Court has further observed that the existence of other features such as transferability of the deposit to another member and the provision for refund of the deposited amount to the member in case of cessation of membership or to his legal heirs in case of death, are important indicators against the treatment of the deposited amount as the money belonging to the Society. In the case before the Hon'ble Supreme Court it was also found that the deposited amount is not kept aside and even the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that the member had the right to get back the amount when it was recovered and credited to the Fund. The ultimate conclusion reached in Bazpur case can be explained on this basis. There is yet another angle from which the problem can be viewed. As between the member and the society, who is having substantial dominion over the 'deposits'? In Bazpur case the answer could only be that it is the assessee-society which had such dominion. The position is different in the present case, as explained hereafter." 8.6 Applying the above test to the present case and considering the fact that the security deposit is refundable after a period of 25 years or on occurrence of the contingencies mentioned in the byelaws and it cannot be said that the assessee club had absolute dominion over the impugned deposits, the case on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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