TMI Blog1981 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... eted. The deposit is thus a returnable or refundable deposit. Bat, it might so happen, in the exigencies of business, that the deposit would be sometimes retained by the assessee. It would get depleted or even wholly disappear as and when the film distributor does not send the collections, but instructs the assessee to set off or adjust his security deposit as against the overdue collections, or, both the parties may agree at the time of entering into their deal, or some time afterwards to keep the deposit for the purpose of adjustment either wholly or in part as against the dues of the exhibitor towards payment of collections. It, however, may happen that even after adjustment in this manner, there might be some balance still left in deposit with the assessee. Such was the case here. Several film exhibitors who had taken films for exhibition in their theatres had made security deposits with the assessee, in as many as 181 cases. However, even after the final settlement of their accounts with the assessee, they did not happen to take back their deposits or what was left of them. This might be either because of oversight on the part of the exhibitors concerned, or because they had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the theatres, when sent by the film exhibitor, are trading receipts of the assessee and even advances towards collections must also be treated as trading receipts, a deposit, although it is a kind of receipt of money, cannot be regarded as a trading receipt. Some accountants may show deposit in suspense account. But the assessee here showed it as a debit in the deposit account and gave credit to the particular exhibitor concerned who made the deposit. This entry in the accounts showed that the assessee was a debtor to the film exhibitor concerned. In other words, it was a liability. The collections obtained from the exhibitor were receipts of the assessee's trade which the assessee was entitled to receive and to appropriate deposit money, while it was a receipt in connection with the business, could not be dealt with by the assessee as a receipt of its trade, but must be shown and continued to be shown as its liability because it is ultimately to be refunded to the person who deposited it. In other words, although the deposit itself comes to be made only because of a business relationship between the assessee and the depositor concerned, the liability itself cannot be regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n would have made little or no difference since what was a liability under the sundry creditor's account had the effect of swelling the credit balance in the profit and loss account and thereby increase that particular item on the liabilities side of the balance-sheet. The result did not in any way make any difference to the overall liabilities of the assessee. What was a liability to the sundry creditors merely shifted from that position and became a liability towards the credit balance of the profit and loss account. This method did not entail any alteration on the assets side. They remain the same. The ITO regarded these book entry transactions as involving the accural of a profit to the assessee which the ITO regarded as a trading profit. The assessee, however, contended that no profit at all was involved in the process when it decided not (sic) to the liability for the reason that the depositors were not traceable or not available. The assessee's contention in effect was that when it received a money as a deposit, the amount did not become at any subsequent point of time its trading receipt or income, merely because it determined not to refund the amount, which it was under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s urged, the deposits, when they were subsequently appropriated by the assessee without being refunded, could only be regarded as part of the trading profits of the assessee particularly because the assessee itself bad treated them as part of the profits in the profit and loss account. The Tribunal, however, did not accept these contentions. The. Tribunal approached the question by first deciding what precisely was the nature of the obligation created by the deposits of money by the film exhibitors. According to the Tribunal, the deposits, when received by the assessee, created a liability on the assessee's part. This liability, according to the Tribunal, did not cease at any subsequent point of time. Strictly, from the point of view of the relationship brought about by the deposit, the film exhibitors were creditors and the assessee was a debtor in respect of the deposits and this was how the books of account of the assessee exhibited the relative positions of these two parties in all the earlier years. This being so, according to the Tribunal, a trading liability can by no means be converted into an income in the circumstances which happened in the present case. The fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le deposits. If so much is granted, then the argument addressed by the Department's learned counsel that the amount must be regarded as being on a par with a mere advance towards collection must fall to the ground. There is a world of difference between an advance towards a trading receipt and a mere refundable deposit. Both are, no doubt, receipts; but in one case the advance is merely a pre-payment of the obligation to hand over the collections; in the other case, the money paid into the hands of the assessee is to be kept separate and dealt with only in accordance with any subsequent agreement between the parties. Mr. Jayaraman then submitted that even as a deposit, the receipt of deposit must be held to be in the course of the assessee's business of distribution of films. We agree that the deposits were not obtained by the assessee in any activity other than the assessee's trade as a film distributor. But, the question is not whether the transaction as such is in the course of trade or not. The question, rather, is whether the deposit constitutes a trading receipt of the business taxable as a trading receipt. It is in this context that the deposit has a significant difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that it is intended to apply only in, cases where an allowance or reduction had already been made in a former assessment towards any trading liability or expenditure actually incurred by the assessee. Apparently, the entire discussion having been started on its course on the basis of s. 41(1) of the I.T. Act, the Tribunal pursued the discussion by the observation that the amount which once figured as a liability in the assessee's books cannot thereafter get itself converted into a trading receipt. The Tribunal itself had referred to some cases, chief of which was Morley (Inspector of Taxes) v. Tattersal [1939] 7 ITR 316 (CA). It is, however, unnecessary for us to refer to this case or the other authorities which the learned standing counsel for the Department referred to before us, in the view we take that the deposits did not shed their character as deposits, despite the fact that the assessee regarded itself as no longer bound by an obligation to refund the deposits. It may be that the approach made by the Tribunal from the liability side of the question is only the other side of the coin to the approach made by us from the receipt side of the question. In any case, we entir ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
