Sum Received As Interest-free Refundable Security Deposit Lying in Hands of Co. Can’t Be Taxed As Income | HC
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Case Details: Coastal Ceramics and Clay Works (P.) Ltd. v. Union of India - [2024] 158 taxmann.com 323 (Andhra Pradesh)
Judiciary and Counsel Details
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- U. Durga Prasad Rao & Venkata Jyothirmai Pratapa, JJ.
Facts of the Case
Assessee entered into a development agreement with a developer to construct a commercial complex. As per the said agreement, the developer paid an interest-free refundable security deposit of Rs. 50 lakhs to assessee.
Assessing Officer (AO) took the view that since said assessee did not show the amount in its accounts as a liability, it was to be treated as the assessee’s income under section 56(2)(x).
The matter reached before the High Court.
High Court Held
The Tribunal held that it was discernable from the Development Agreement that the disputed amount of Rs. 50.00 lakhs was only an interest-free security deposit lying in the hands of the petitioner. AO proposed to treat it as a revenue receipt because the assessee did not show the said amount in its accounts as a liability. However, AO didn’t appear to challenge the genuineness of the Development Agreement. Considering all these aspects, it is viewed that it is not apposite on the part of the Department to treat Rs. 50 lakhs as receipt to impose tax.
Accordingly, the writ petition was allowed with a direction that the assessee shall hereafter show the amount of Rs.50 lakhs as an interest-free security deposit in its books of accounts till the same was refunded to the builder and AO was directed to drop the proceedings against the assessee to collect tax in respect of the said amount.
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