The DCIT, Circle-2(1)(1), Ahmedabad V. M/s. Gulmohar Greens Golf & Country Club Ltd., Ahmedabad

ITA 51/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3166 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 06-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: JYOTISH M SHAH
• Keywords: Rule of consistency; Capital receipt; Capital expenditure

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.51/AHD/2017 / ASSTT. YEAR: 2013-2014 DCIT, CIR.2(1)(1) AHMEDABAD. VS. M/S.GULMOHAR GREEN GOLF & COUNTRY CLUB LTD. B-204, SHAPATH-4 OPP: KARNAVATI CLUB S.G. HIGHWAY ROAD, THALTEJ, AHMEDABAD. / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI S.K. DEV, SR.DR ASSESSEE BY : SHRI JYOTISH M. SHAH, AR ! / DATE OF HEARING : 08/08/2018 '#$ ! / DATE OF PRONOUNCEMENT: 27/08/2018 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL AGAINST ORDER OF LD.CITA)-2, A HMEDABAD DATED 16.11.2016 PASSED FOR THE ASSTT.YEAR 2013-14. 2. IN THE GROUNDS OF APPEAL, REVENUE HAS RAISED SOL E ISSUE I.E. THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCE ON AC COUNT OF MEMBERS SECURITY DEPOSIT AMOUNTING TO RS.3,12,30,000/-, WHI CH ACCORDING TO THE AO IS MEMBERSHIP FEES COLLECTED FROM ITS MEMBERS AN D IS TO BE TREATED AS INCOME FOR THE RELEVANT YEAR. ITA NO.51/AHD/2017 2 3. BRIEF FACTS IN THE REGARD ARE THAT ASSESSEE-COMP ANY IS ENGAGED IN BUSINESS OF CLUB ACTIVITIES. IT HAS FILED ITS RETU RN OF INCOME ON 28.9.2013 DECLARING TOTAL LOSS AT RS.(-)71,71,259/- . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. DU RING THE ASSESSMENT PROCEEDINGS, ON VERIFICATION OF RECORD I T WAS NOTICED BY THE AO THAT THE ASSESSEE HAS ENROLLED MEMBERS ON PAYMEN T OF SECURITY DEPOSITS AS ENTRANCE FEE, WHICH ACCORDING TO THE AS SESSEE WAS REFUNDABLE TO THE MEMBERS AFTER 25 YEARS ON WHICH N O INTEREST WOULD BE PAID TO THEM. THIS AMOUNT OF DEPOSITS WAS NOT K EPT AS SECURITY DEPOSITS SEPARATELY IN THE ACCOUNTS RATHER IT WAS U TILIZED 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 AMO UNTS RECEIVED FROM THE MEMBERS AS SECURITY DEPOSITS AFTER 25 YEARS FRO M THE DATE OF ENROLMENT OF MEMBERSHIP WITH THE CLUB. SUCH SECURI TY 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 TH E CLAIM OF THE ASSESSEE, BUT RESTRICTED THE DISALLOWANCE TO THE EX TENT OF 60% OF THE SECURITY DEPOSITS RECEIVED BY THE ASSESSEE DURING T HE YEAR UNDER CONSIDERATION, AND ACCORDINGLY TREATED THE A SUM OF RS.3,12,30,000/- AS REVENUE INCOME. THE ASSESSEE WAS NOT SATISFIED WIT H THE ASSESSMENT ORDER, AND WENT IN APPEAL BEFORE THE FIRST APPELLAT E AUTHORITY, WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOL LOWING THE DECISION OF ITAT, AHMEDABAD BENCH IN ASSESSEES OWN CASE ON IDENTICAL ISSUE FOR THE ASSESSMENT YEARS 2008-09, 2011-12 AND 2012-13, THE ADDITION MADE BY THE AO WAS DELETED AND THE APPEAL OF THE AS SESSEE WAS ALLOWED. AGGRIEVED BY IMPUGNED ORDER OF THE LD.CIT (A), THE REVENUE IS NOW BEFORE THE TRIBUNAL CHALLENGING DELETION OF ADD ITION OF RS.3,12,30,000/- ITA NO.51/AHD/2017 3 4. BEFORE US, THE LD.DR SUPPORTED ORDER OF THE AO. HE FURTHER SUBMITTED THAT SECURITY DEPOSIT RECEIVED BY THE ASS ESSEE IS NOTHING BUT MEMBERSHIP FEES WITH AN INTENTION TO MINIMIZE INCOM E AND AVOID PAYMENT OF TAX. THOUGH, THE ASSESSEE HAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT, THE SO-CALLED SECURITY DEPOSITS HAS NOT BEEN SHOWN AS LIABILITY IN THE BALANCE SHEET, AND WHATEVER AMOUNT S RECEIVED FROM THE NEW MEMBERS HAVE BEEN UTILIZED FOR CONSTRUCTION WOR K. THE LD.AO CONSIDERED ALL ASPECTS OF THE ISSUE AND RIGHTLY CON CLUDED THAT MONEY RECEIVED FROM THE NEW MEMBERS IS TO BE TREATED AS M EMBERSHIP FEES AND TREATED ACCORDINGLY AS INCOME OF THE ASSESSEE. 5. THE LD.COUNSEL FOR THE ASSESSEE, ON THE OTHER HA ND, THE LD.CIT(A) HAS DISCUSSED THE ISSUE IN DETAIL AND ALLOWED THE C LAIM OF THE ASSESSEE. THE LD.CIT(A) WHILE ALLOWING THE CLAIM OF THE ASSES SEE ALSO RELIED UPON ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE F OR THE ASSESSMENT YEARS 2008-09, 2011-12 AND 2012-13 VIDE WHICH ON SI MILAR ISSUE THE TRIBUNAL HAS HELD THAT DEPOSITS COLLECTED FROM ITS MEMBERS ARE REFUNDABLE AND DOES NOT BEAR CHARACTER OF INCOME, A ND THEREFORE NOT LIABLE TO BE TAXED. THIS ORDER OF THE TRIBUNAL WAS FURTHER CHALLENGED BY THE REVENUE BEFORE THE HONBLE HIGH COURT, AND THE HONBLE COURT BY JUDGMENT DATED 16.11.2016 UPHELD THE ORDER OF THE T RIBUNAL AND DISMISSED THE APPEAL OF THE REVENUE. HE FURTHER SU BMITTED THAT IN THE ASSESSMENT YEAR 2010-11 ALSO SIMILAR ISSUE TRAVELLE D TO THE TRIBUNAL AND THE TRIBUNAL IN ITA NO.2046/AHD/2014 ALLOWED TH E CLAIM OF THE ASSESSEE. THEREFORE, THIS ISSUE HAS BECOME FINAL A ND BINDING, AND THE SAME SHOULD BE FOLLOWED IN THE PRESENT CASE ALSO. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD AND ALSO ORDERS OF THE TRIBUNAL PASSED IN TH E EARLIER YEARS ALSO. WE FIND THAT ON THIS ISSUE WE DO NOT REQUIRE ANY EX TRA EFFORTS TO EXAMINE THE CASE OF THE ASSESSEE IN ORDER TO COME T O THE CONCLUSION THAT MONEY RECEIVED FROM THE MEMBERS ARE IN THE NAT URE OF LOAN, WHICH ITA NO.51/AHD/2017 4 ARE TO BE REFUNDED TO THE MEMBERS BACK AFTER 25 YEA RS, AND NOT IN THE NATURE OF INCOME AS OBSERVED BY THE AO. THE TRIBUN AL IN THE ASSESSEES OWN CASE, FOR EARLIER YEARS ON SIMILAR ISSUE HAS AL LOWED CLAIM OF THE ASSESSEE, WHICH WAS AFFIRMED BY THE HONBLE JURISDI CTIONAL HIGH COURT IN FURTHER APPEAL. THEREFORE, THIS ISSUE IS ALMOST SE TTLED. HOWEVER, FOR THE SAKE OF BREVITY, WE REPRODUCE BELOW THE DISCUSS ION 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 ISS UE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE HIG H COURT. THE FOLLOWING OBSERVATIONS OF THE HONBLE HIGH COURT IN THIS REGARD ARE WORTH TO NOTE. IT READS AS UNDER: 8.3 CONSIDERING THE ARTICLES OF ASSOCIATION AND THE RELE VANT RULES, REGULATIONS AND BYE LAWS OF THE ASSESSEE, THE SECURIT Y DEPOSIT COLLECTED BY THE ASSESSEE AT THE TIME OF ENROLLMENT OF THE CLUB MEMBERS IS REFUNDABLE AFTER A PERIOD OF 25 YEARS AN D/OR ON HAPPENING OF THE EVENTUALITY IN RULE/BYE LAW NO. 2 I .E. IF A CLUB MEMBER DIES OR INSTITUTIONAL MEMBER IS DISSOLVED OR WIND UP AS THE CASE MAY BE. IN OTHER CASES THE SECURITY DEPOSIT SH ALL BE REFUNDED TO THE MEMBER ON EXPIRY OF 25 YEARS AND THE SAID PE RIOD MAY BE EXTENDED BY MAXIMUM PERIOD OF 15 YEARS AT THE DISCR ETION OF THE CLUB MEMBER TO AVAIL CLUB FACILITIES FOR THE EXTEND ED PERIOD. IT IS ALSO TRUE THAT THE SAID SECURITY DEPOSIT SHALL BE N ON-INTEREST BEARING REFUNDABLE SECURITY DEPOSIT. IN LIGHT OF THE ABOVE THE QUESTION POSED FOR CONSIDERATION OF THIS COURT IS REQUIRED TO BE C ONSIDERED I.E. WHETHER SUCH REFUNDABLE SECURITY DEPOSIT SHALL BE C ONSIDERED AS REVENUE/INCOME AS SOUGHT TO BE CONTENDED ON BEHALF OF THE REVENUE OR CAPITAL RECEIPT AS CONTENDED ON BEHALF OF THE ASS ESSEE. 8.4 IT IS THE CASE ON BEHALF OF THE REVENUE THAT AS SECU RITY DEPOSIT IS NONREFUNDABLE INTEREST DEPOSIT AND THAT THE SAME IS UTILIZED/USED BY THE ASSESSEE FOR CONSTRUCTION AND PROVIDING OTHER F ACILITIES AT THE CLUB AND THAT THE SAID SECURITY DEPOSIT HAS NOT BEE N KEPT APART THE SAME CANNOT BE TREATED AS CAPITAL RECEIPT, BUT THE S AME IS REQUIRED TO BE CONSIDERED AS REVENUE/INCOME IN THE HANDS OF THE ASSESSEE. IN SUPPORT OF THEIR ABOVE SUBMISSIONS, THE REVENUE HAS HEAVILY RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF BAZPUR CO-OP. SUGAR FACTORY LTD. (SUPRA). ITA NO.51/AHD/2017 5 ON THE OTHER HAND IT IS THE CASE ON BEHALF OF THE A SSESSEE THAT MERELY BECAUSE THE SECURITY DEPOSIT IS NONREFUNDABL E INTEREST SECURITY DEPOSIT AND MERELY BECAUSE THE SAME IS NOT KEPT APART AND MERELY BECAUSE THE SAME IS USED BY THE ASSESSEE FOR SOME OTHER PURPOSE, THE SAME DOES NOT DENUDE THE AMOUNT OF ITS CHARACTER OF 'DEPOSIT' CARRYING WITH IT THE OBLIGATION TO REPAY. IN SUPPORT OF THEIR ABOVE SUBMISSIONS LEARNED COUNSEL APPEARING O N BEHALF OF THE ASSESSEE HAS HEAVILY RELIED UPON THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF S.S. SAKHAR KARKHANA L TD. (SUPRA). 8.5 IN THE CASE OF S.S. SAKHAR KARKHANA LTD. (SUPRA), THE HON'BLE SUPREME COURT HAD AN OCCASION TO CONSIDER ITS EARLI ER DECISION IN THE CASE OF BAZPUR CO-OP SUGAR FACTORY LTD. (SUPRA). AFTER CONSIDERING THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF BAZPUR CO-OP SUGAR FACTORY LTD. (SUPRA), THE HON' BLE SUPREME COURT HAS OBSERVED IN PARAS 21, 22, 24, 28, 30, 31, 32 AS UNDER :-- '21. THE COURT REITERATED THE PRINCIPLE THAT 'IT IS THE TRUE NATURE AND QUALITY OF THE RECEIPT AND NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT BOOKS AS WOULD P ROVE DECISIVE' AND THAT IT MAKES NO DIFFERENCE THAT THE DISPUTED AMOUNTS HAVE BEEN REFERRED TO AS DEPOSITS AND PROCE EDED TO CONSIDER THE CRUCIAL ISSUE IN THAT LIGHT. 22. HOW FAR THE RATIO OF THE DECISION IN BAZPUR CAS E COULD BE APPLIED TO THE CASE ON HAND IS THE FIRST AND FOREMO ST CONTROVERSY. IN THE PRESENT CASE, THE PURCHASE AND PAYMENT OF PRICE OF SUGARCANE IS UNDOUBTEDLY PART OF TRADIN G 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 CO ST 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 FA CT WHETHER THE REALIZATION WAS IN THE COURSE OF TRADING OPERAT IONS. THE MOMENT IT IS FOUND THAT CERTAIN AMOUNTS WERE DEDUCT ED BY THE ASSESSEE OUT OF THE PRICE PAYABLE TO ITS MEMBER S WHO SUPPLIED THE RAW MATERIAL, THE CONCLUSION DOES NOT NECESSARILY FOLLOW THAT ALL SUCH REALIZATIONS GET I MPRESSED WITH THE CHARACTER OF REVENUE RECEIPTS, GIVING RISE TO TAXABLE INCOME IN THE HANDS OF THE ASSESSEE. IT IS NOT ANY AND EVERY ITA NO.51/AHD/2017 6 RECEIPT LINKED TO THE TRADING ACTIVITY THAT ACQUIRE S THE QUALITY OF REVENUE RECEIPT. THE TRIBUNAL OR THE COURT SHOUL D GO FURTHER AND DELVE INTO THE TRUE NATURE, CHARACTER A ND PURPOSE OF THE REALIZATIONS. IF THE AMOUNTS ARE MEANT TO BE HELD AS DEPOSITS LIABLE TO BE RETURNED TO THE DEPOSITOR AT A SPECIFIED POINT OF TIME OR ON THE HAPPENING OF SPECIFIED CONT INGENCIES WHICH ARE BY NO MEANS UNCERTAIN OR IS OTHERWISE TRE ATED AS MEMBERS' MONEY THE DEPOSITORY HAVING NO UNFETTERED DOMINION OVER THE SAID FUNDS, THEN, IT IS DIFFICULT TO CHARACTERIZE THEM AS THE INCOME OF THE ASSESSEE. TH E REALIZATION OF MONIES FROM THE GROWER MEMBERS IN TH E COURSE OF TRADING OPERATIONS COULD AS WELL BE CONSTRUED TO BE AN OCCASION, MODE OR CONVENIENT POINT OF TIME AT WHICH THE 'DEPOSIT' COULD BE COLLECTED. PERHAPS KEEPING THIS L EGAL POSITION IN VIEW, NOTWITHSTANDING WHAT HAS BEEN STA TED IN THE EARLIER PORTION OF THE JUDGMENT, THE LEARNED JUDGES PROCEEDED TO ADDRESS THE NEXT QUESTION, I.E. WHETHE R THE RECEIPTS BY WAY OF DEDUCTIONS COULD BE REGARDED AS DEPOSITS AS DESCRIBED IN THE BYELAWS. WHILE ANSWERING THAT Q UESTION IN THE NEGATIVE, THE COURT POINTED OUT THAT IT IS T HE TRUE NATURE AND QUALITY OF THE RECEIPT THAT IS MATERIAL BUT NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT BOOKS A PRINCIPLE WHICH IS REITERATED IN A CATENA OF DECISI ONS. THE COURT THEN WENT ON TO CONCLUDE THAT THE RECEIPTS BY WAY OF DEDUCTIONS FROM THE PURCHASE PRICE WERE NOT IN THE NATURE OF DEPOSITS. IN THIS CONTEXT, THE REASONING OF THE BENC H MAY BE NOTICED :-- 'THE ESSENCE OF A DEPOSIT IS THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM OR ON W HOSE BEHALF IT IS MADE ON THE FULFILLMENT OF CERTAIN CONDITIONS. UNDER THE AMENDED (SIC UNAMENDED) BYLAW, THE AMOUNTS DEDUCTED FROM THE PRICE AND CREDITED TO THE SAID FUND WERE FIRST LIABLE TO BE U SED IN ADJUSTING THE LOSSES OF THE RESPONDENT SOCIETY IN T HE WORKING YEAR; THEREAFTER IN THE REPAYMENT OF INITIA L LOAN FROM THE INDUSTRIAL FINANCE CORPORATION OF INDI A AND THEN FOR REDEEMING THE GOVERNMENT SHARE AND ONLY IN THE EVENT OF ANY BALANCE BEING LEFT, IT WAS LIABLE TO BE CONVERTED TO SHARE CAPITAL. THE PRIMAR Y PURPOSE FOR WHICH THE DEPOSITS WERE LIABLE TO BE US ED WERE NOT TO ISSUE SHARES TO THE MEMBERS FROM WHOSE AMOUNTS THE DEDUCTIONS WERE MADE BUT FOR THE DISCHARGING OF LIABILITIES OF THE RESPONDENT SOCIET Y. IN THESE CIRCUMSTANCES, THE RECEIPTS CONSTITUTED BY TH ESE ITA NO.51/AHD/2017 7 DEDUCTIONS WERE REALLY TRADING RECEIPTS OF THE ASSE SSEE SOCIETY .........' 30. ALTHOUGH THE USE OF THE EXPRESSION 'DEPOSIT' DOE S NOT CONCLUDE THE ISSUE, THERE ARE INTRINSIC INDICATIONS IN THE BYELAWS THAT THE EXPRESSION HAS BEEN USED TO MEAN J UST WHAT IT SAYS. THESE ARE: (A) CONVERSION OF THE DEPOSIT I NTO ADDITIONAL SHARES, (B) TRANSFERABILITY/HERITABILITY , (C) REFUNDABILITY, AND (D) PAYMENT OF INTEREST ON THE D EPOSIT. THE FIRST THREE FEATURES ARE NO DOUBT DEPENDENT UPON OC CURRENCE OF CERTAIN CONTINGENCIES OR HEDGED IN BY CERTAIN LI MITATIONS. BUT THE DEPOSITED AMOUNT IS NOT DENUDED OF ITS CHARA CTER OF 'DEPOSIT' FOR THAT REASON ALONE. 31. FIRST, DISCUSSION NEEDS TO BE FOCUSED ON THE FIR ST FEATURE, NAMELY, CONVERSION OF DEPOSIT INTO SHARES. THE TRIB UNAL RIGHTLY POINTED OUT AND IT IS NOT DISPUTED BEFORE U S THAT SUCH CONVERSION IS AS GOOD AS REFUND. SUCH CONVERSION IN TO ADDITIONAL SHARES IS, HOWEVER, POSTPONED TILL THE E VENTS OF REPAYMENT OF LOANS TOWARDS CAPITAL EXPENDITURE AND THE REPAYMENT OF GOVERNMENT SHARE CAPITAL HAPPEN. IN OT HER WORDS, TILL SUCH TIME, THE MEMBER/DEPOSITOR HAS NO IMMEDIATE RIGHT TO DEMAND THE PAYMENT. NEVERTHELESS , THE OBLIGATION TO REPAY STOOD ANNEXED TO THE DEPOSITED AMOUNT AT THE TIME IT WAS RECEIVED BY THE ASSESSEE SUBJECT OF COURSE TO THE OCCURRENCE OF THE CONTINGENCY SPECIFIED IN THE BYELAW ITSELF. IT CANNOT BE SAID, AS HAS BEEN SAID BY THE HIGH COURT, THAT 'UNDER THE BYELAWS, NO EVENT OR CONTINGENCY HA S BEEN CONTEMPLATED' UNDER WHICH THE MEMBERS COULD DEMAND THE REPAYMENT OF THE DEPOSIT. NOR CAN IT BE SAID THAT E VEN AFTER THE HAPPENING OF THE EVENT SPECIFIED IN THE BYELAWS , THE RIGHT TO DEMAND REPAYMENT BECOMES ILLUSORY IN VIEW OF THE DISCRETION RESERVED TO THE BOARD OF DIRECTORS OF TH E SOCIETY. IN THIS CONTEXT, MUCH OF THE ARGUMENT HAS BEEN BUIL T UP ON THE USE OF THE EXPRESSION 'MAY' FOLLOWED BY THE WOR DS 'CONVERT SUCH DEPOSITS INTO SHARES AFTER PAYMENT OF LOANS ETC.' IT IS CONTENDED BY THE LEARNED COUNSEL APPEAR ING FOR THE REVENUE THAT THE BOARD OF DIRECTORS MAY VERY WELL REF USE TO CONVERT THE DEPOSITS INTO SHARES IN EXERCISE OF ITS DISCRETION ON THE OSTENSIBLE GROUND THAT THE FINANCIAL POSITIO N OF THE SOCIETY DOES NOT PERMIT SUCH CONVERSION. THE VERY E XISTENCE OF DISCRETION, IT IS POINTED OUT, NEGATES THE EXIST ENCE OF LIABILITY TO CONVERT THE DEPOSIT INTO SHARES. WE CA NNOT ACCEDE TO THIS CONTENTION. ONCE THE LOANS OF THE DESCRIPTI ON MENTIONED IN THE BYELAWS WHICH WERE OUTSTANDING ON THE ITA NO.51/AHD/2017 8 DATE THE DEPOSIT WAS MADE ARE REPAID, IN OUR VIEW, THE BOARD OF DIRECTORS IS BOUND TO CONVERT THE DEPOSIT AMOUNT INTO SHARES. THE DISCRETION IS ALWAYS COUPLED WITH A DUT Y; THE DISCRETION CANNOT BE USED TO CIRCUMVENT THE OBLIGAT ION CAST UNDER THE LAW OR CONTRACT GOVERNING THE PARTIES. IN OUR VIEW, IT WOULD BE APPROPRIATE TO READ THE EXPRESSION 'MAY ' AS 'SHALL'. ON THE OCCURRENCE OF THE SPECIFIED EVENT, NAMELY, THE REPAYMENT OF THE LOANS REFERRED TO IN THE BYELAW AN D THE GOVERNMENT SHARE CAPITAL, THE MEMBER/DEPOSITOR CAN CLUTCH AT A LEGALLY ENFORCEABLE RIGHT TO DEMAND REPAYMENT, MAY BE, IN THE FORM OF CONVERSION INTO ADDITIONAL SHARES. 32. IN OUR VIEW, THE RETENTION OF THE DEPOSITED MON EY WITH THE SOCIETY IN ORDER TO UTILIZE THE SAME FOR REPAYMENT OF TERM LOANS ETC., DOES NOT DENUDE THE AMOUNT OF ITS CHARA CTER OF 'DEPOSIT' CARRYING 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 B E KEPT UP. THE ABSENCE OF THE RIGHT TO SECURE REPAYMENT ON DEM AND IS AGAIN NOT INCONSISTENT WITH THE RECEIPT BEING A DEP OSIT. LIABILITY TO RETURN NEED NOT BE IMMEDIATE AND UNCON DITIONAL, FOLLOWING A DEMAND BY THE DEPOSITOR. EVEN IF SUCH LI ABILITY GETS CRYSTALLIZED ON THE HAPPENING OF A SPECIFIED CONTINGENCY, IT IS STILL A LIABILITY WHICH CAN BE L EGALLY ENFORCED BY THE DEPOSITOR. THE EXISTENCE OF SUCH LI ABILITY 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 CESSA TION OF MEMBERSHIP OR TO HIS LEGAL HEIRS IN CASE OF DEATH, ARE IMPORTANT INDICATORS AGAINST THE TREATMENT OF THE DEPOSITED A MOUNT 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 A ND EVEN THE SAME IS USED BY THE SOCIETY FOR REPAYMENT OF THE LO AN AND IT WAS FOUND THAT TIME OF REPAYMENT IS INDEFINITE, HOWEVER IT WAS REFUNDABLE ON THE OCCURRENCE OF THE CONTINGENCIES S PECIFIED IN THE BYELAWS. TO THE AFORESAID THE HON'BLE SUPREME COURT HAS HELD THAT SAME DOSE NOT DENUDE THE AMOUNT OF ITS 'CHARACTER O F DEPOSIT' CARRYING WITH IT THE OBLIGATION TO REPAY AND THEREF ORE, THE HON'BLE SUPREME COURT DID NOT ACCEPT THE CASE OF THE REVENUE THAT IT MAY ITA NO.51/AHD/2017 9 BE TREATED AS REVENUE INCOME. IN THE AFORESAID DECI SION THE HON'BLE SUPREME COURT DISTINGUISHED THE DECISION OF THE HON 'BLE SUPREME COURT IN THE CASE OF BAZPUR CO-OP SUGAR FACTORY LTD. (SUPRA). IN PARA 26, THE HON'BLE SUPREME COURT DISTINGUISHED TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BAZPUR CO-O P SUGAR FACTORY LTD. (SUPRA) BY OBSERVING IN PARA 26 AS UNDE R :-- '26. TO WHAT EXTENT THE PRINCIPLE LAID DOWN OR THE TEST APPLIED IN THE BAZPUR CASE CAN BE PRESSED INTO SERV ICE IN THE PRESENT CASE IS THE QUESTION WHICH NEEDS OUR CLOSE ATTENTION. THERE ARE TWO DISTINGUISHING FEATURES WHICH BECOME APPARENT ON A READING OF THE BYELAWS. THE FIRST IS THE ABSENCE OF PROVISION FOR PAYMENT OF INTEREST UNDER THE BYELAWS OF BAZPUR CO-OPERATIVE SUGARS LTD. SECONDLY, IN BAZPUR CASE THE DEDUCTED AMOUNTS CREDITED TO 'LOSS EQUALIZATION AND CAPITAL REDEMPTION RESERVE FUND' A RE LIABLE TO BE ADJUSTED AGAINST THE LOSSES OF ANY WORKING YE AR. IT IS ONLY AFTER ADJUSTING SUCH LOSSES, THE DEPOSITS ARE ALLOWED TO ACCUMULATE AND BE UTILIZED FOR REPAYMENT OF IFCI LOA N AND FOR REDEEMING THE GOVERNMENT'S SHARE CONTRIBUTION. IN THE PROCESS OF SUCH ADJUSTMENT, THE ENTIRE AMOUNT COLLE CTED FROM THE MEMBERS AND CREDITED TO THE FUND MAY BE DISSIPA TED OR CONSUMED, WHEREAS IN THE INSTANT CASE, THE AMOUNT C OLLECTED AS DEPOSIT REMAINS INTACT, THOUGH IT COULD BE UTILI ZED FROM TIME TO TIME FOR MEETING CERTAIN LIABILITIES OF CAP ITAL NATURE. HOWEVER, THERE IS ONE QUALIFICATION IN THIS BEHALF. IF THE SOCIETY HAS NOT INCURRED ANY LOSS AND IT REMAINS A PROFIT MAKING CONCERN, THE SITUATION WILL BE VERY SIMILAR IN BOTH THE CASES. THE AMOUNTS WILL THEN BE UTILIZED FOR REPAYM ENT OF LONG-TERM LOANS DUE TO THE FINANCIAL INSTITUTIONS A ND THE GOVERNMENT'S SHARE CAPITAL AND AFTER SUCH PROCESS O F REPAYMENT IS COMPLETE, THE DISPUTED AMOUNTS COULD B E MADE AVAILABLE TO THE GROWER MEMBERS IN THE FORM OF INCR EASED SHARES. YET, IN BAZPUR CASE, AT THE TIME THE SUMS WE RE 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 TENUO US AND SLIPPERY TO EARN THE LEGAL RECOGNITION OF ANY PROPR IETARY 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 REACH ED 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 ITA NO.51/AHD/2017 10 SUBSTANTIAL DOMINION OVER THE 'DEPOSITS'? IN BAZPUR CASE THE ANSWER COULD ONLY BE THAT IT IS THE ASSESSEE-SOCIET Y 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 CONS IDERING THE FACT THAT THE SECURITY DEPOSIT IS REFUNDABLE AFTER A PERIOD OF 25 YEARS OR ON OCCURRENCE OF THE CONTINGENCIES MENTION ED IN THE BYELAWS AND IT CANNOT BE SAID THAT THE ASSESSEE CLU B HAD ABSOLUTE DOMINION OVER THE IMPUGNED DEPOSITS, THE CASE ON BE HALF OF THE REVENUE THAT THE SAME BE TREATED AS REVENUE INCOME C ANNOT BE ACCEPTED. MERELY BECAUSE THE SECURITY DEPOSIT IS NO T KEPT APART AND/OR SUBSEQUENTLY THE AMOUNT OF SECURITY DEPOSIT IS UTILIZED BY THE CLUB FOR OTHER PURPOSES SUCH AS CONSTRUCTION AND PR OVIDING OTHER AMENITIES AT THE CLUB, THE SAME SHALL NOT LOOSE THE 'CHARACTER OF DEPOSIT', WHICH AS OBSERVED HEREINABOVE IS REFUNDAB LE ON OCCURRENCE OF THE CONTINGENCIES AS MENTIONED IN THE BYELAWS. NO ERROR HAS BEEN COMMITTED BY THE LEARNED TRIBUNAL IN HOLDING THE SAME AS CAPITAL RECEIPT IN VIEW OF THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF S.S. SAKHAR KARKHANA L TD. (SUPRA). 8.7 NOW, SO FAR AS THE DECISION OF THIS COURT IN THE CA SE OF UNIQUE MERCANTILE SERVICES PVT. LTD. (SUPRA) IS CONCERNED, IT IS REQUIRED TO BE NOTED THAT INFACT BEFORE THE DIVISION BENCH IT WA S THE CASE OF FEES AND THE QUESTION WAS WHETHER THE FEES COLLECTE D AND RECOVERED IS REQUIRED TO BE SPREAD OVER IN THE SPAN OF 15 YEA RS AND/OR THE SAME IS REQUIRED TO BE CONSIDERED IN THE FIRST YEAR . IN THE CASE BEFORE THE HIGH COURT AS SUCH THERE WAS NO QUESTION AS TO WHETHER SUCH REFUNDABLE SECURITY DEPOSIT SHALL BE TREATED A S AN INCOME OR NOT. 9. IN VIEW OF THE ABOVE AND FOR THE REASONS STATED ABO VE AND CONSIDERING THE FACT THAT THE SECURITY DEPOSIT RECO VERED FROM THE MEMBERS AT THE TIME OF THEIR ENROLLMENT AS A CLUB M EMBER IS REFUNDABLE ON OCCURRENCE OF THE CONTINGENCIES MENTI ONED IN THE RULES, REGULATIONS AND BYE LAWS, SAME IS REQUIRED TO B E TREATED AS A DEPOSIT AND THEREFORE, THE SAME IS REQUIRED TO BE CONSIDERED AS CAPITAL RECEIPTS. WE CONFIRM THE IMPUGNED JUDGMENT AND ORDER PASSED BY THE LEARNED TRIBUNAL. THE SUBSTANTIAL QUE STION OF LAW RAISED IN THE PRESENT APPEALS IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. PRESENT TAX APPEALS STAND DI SPOSED OF ACCORDINGLY. NO COSTS. 6. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONB LE HIGH COURT, THE ADDITION RESTRICTED BY THE LD.CIT(A) IS NOT SUSTAINABLE, ITA NO.51/AHD/2017 11 CONSEQUENTLY, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF REVENUE IS DISMISSED. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, FOLLOWI NG RULE OF CONSISTENCY, WE CONFIRM ORDER OF THE LD.CIT(A) AND REJECTS THE G ROUNDS OF APPEAL OF THE REVENUE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 27 TH AUGUST, 2018. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 27/08/2018