Whether, where deposit made by an assessee for obtaining new telephone connection under ‘Tatkal Telephone Deposit Scheme’ could be allowed as revenue expenditure under section 37(1)
1. References have been received as to whether the amount paid by an assessee for obtaining a new telephone connection under the “Tatkal Telephone Deposit Scheme” can be allowed as a revenue expenditure under section 37(1) of the Income-tax Act, 1961, while computing the income under the head “Profits and gains from business or profession”.
2. Under the above scheme, a subscriber is required to pay Rs. 30,000 as a non-interest-bearing deposit. The amount so deposited is not refundable in full but a sum of Rs. 12,000 or Rs. 15,000 is refunded if the telephone obtained under the scheme, is surrendered in the first or second year respectively and Rs. 18,000 is refunded if the telephone is surrendered at any time after the second year.
3. The Board are of the view that since the subject deposit does not earn any interest and is also not refundable in full, the entire amount may be treated as a revenue expenditure allowable as a deduction in the year of payment if the assessee makes such a claim. However, as and when any part of the amount is refunded to the assessee on surrender of the telephone or otherwise, the refunded amount shall be treated as income of the assessee of the year in which the amount is so refunded and brought to tax by invoking the provisions of section 41(1) of the Income-tax Act, 1961.
Circular : No. 671, dated 27-10-1993.