By TIOL News Service

AHMEDABAD, APR 18, 2016: THE issue is - Whether refundable security deposit is aking to income and the same cannot be taxed. YES is the answer.

Facts of the case

The assessee is a Company having resorts and Hotels. It filed return for relevant AY. During assessment process, AO noted that assessee had received some refundable security deposit, which were to be repaid to its members after 25 years without interest. The AO while completing the assessment, held that 60% of the total security deposit be treated as income and added to the returned income of the assessee for the year under consideration. Aggrieved assessee filed an appeal before the CIT(A), who partly allowed the appeal holding that only 1/25th of the security deposit collected during the year would alone be liable for taxation during the relevant FY. Aggrieved assessee filed further appeal before the Tribunal. The Revenue filed cross appeal before Tribunal stating that whether the CIT(A) was right in holding that only 1/25th of the security deposit collected alone need to be treated as income for the relevant assessment year.

After hearing parties, Tribunal held that,

++ the Tribunal, 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. The relevant finding of the Tribunal contained in para-5 in assessee's own case passed for AY 2008-09 reads as follows:-

".......The Supreme Court in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. has held that these deposits are akin to transaction of loan. They are clearly liable to be excluded from taxable income. Therefore, respectfully following the judgement of the Hon'ble Apex Court in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd., we are of the considered view that the security deposits as received by the assessee-club cannot be subjected to tax. Accordingly, we find no merit in this ground of the Revenue's appeal, same is rejected."

++ in view of the aforesaid decision of the Coordinate Bench, I hold that the refundable security deposit collected is not liable to be taxed income of the assessee. It is ordered accordingly. As a result, ground Nos.1 to 3 raised in the assessee's appeal are allowed;

++ this issue is also covered by the decision of the Coordinate Bench passed in ITA No.2337/Ahd/2011 (Revenue's appeal) and ITA No.2054/Ahd/2011 for AY 2008-09 (Assessee's own appeal), dated 30/11/2015, wherein the Tribunal has held that the refundable security deposit collected does not tantamount to income and the same cannot be taxed. In view of the finding of the Tribunal, I hold that the ground raised in Departmental appeal is to be dismissed.

(See 2016-TIOL-555-ITAT-AHM)