Law:

Section:

Section 28(i) of the income-tax act, 1961-Business income-Assessee-company used to receive deposits from its intending purchasers and adjust such deposits against purchase price on execution of order, and refund excess, if any-Whenever refunds could not be made, it credited excess deposits to profit and loss account-Whether amounts so credited are assessable to tax as its trading receipt-Held, yes Facts The assessee-company, a dealer in machinery, used to take deposits from its intending purchasers, and to subsequently adjust the deposits against the purchase price on execution of the order. It also used to refund the excess, if any, to the depositors but whenever it could not make the refunds due to reasons like non-availability of customer's address, etc., it credited the excess deposits to profit and loss account. The ITO treated the amount so credited as a trading receipt, but the IAC and the Tribunal accepted the assessee's contention that the 'amount was of the character of trust money and held that the amount was not taxable as trading receipts. On reference : Held Looking to the nature of the transaction in the instant case, the receipt in question could not be considered as an amount held by the assessee for the benefit of anybody else. Looking to the fact that the deposits were in respect of a specific transaction of sale and were adjusted towards the purchase price of the machinery that was sold, it had a close connection with the transaction of sate. It was more in the nature of a trade receipt, especially when the assessee had [brought such surplus deposit remaining in its hand to its profit and loss account. Applying the principles laid down by the Supreme Court in K.M.S. Lakshmanier & Sons v. CIT/CEPT [1953] 23 ITR 202 (SC), such receipts would be more in the nature of trading receipts rather than borrowed moneys or moneys held for the benefit of a third party. The Tribunal was, therefore, not justified. Case review K.M.S. Lakshmanier & sons v. CIT/CEPT, [1953] 23 ITR 202 (SC) applied. Bijli Cotton Mill (P.) Ltd. v. CIT [1971] 81 ITR 400 (All.) distinguished. IT REFERENCE NO.18 OF 1975. Cases referred to CIT v. Motor and General Finance…

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