Deposits cannot be treated as Income of assessee engaged in running financial schemes

CA Sandeep Kanoi

Recently In the case of CIT Vs. Sahara India (Firm) Hon’ble Allahabad High Court has held that amount received from deposits from the public under different finance schemes cannot be treated as Income of the Assessee as Assessee is a mere custodian of the deposit. The income arises from the deposits i.e. dividend, interest etc.

Brief Facts :- Assessee is a partnership firm. During the assessment year under consideration, the assessee was engaged in running some financial schemes in which deposits were collected from the Public. In his order, the A.O. has treated the amount of Rs.14,82,727/- as the revenue receipt in nature. Being aggrieved, the assessee has filed an appeal before the CIT (A) and claimed that the said amount is a part of the deposit received as per the schemes run by the assessee and is capital in nature and no amount, therefore, was liable to be taxed. The CIT (A) has allowed the claim of the assessee by observing that the deposits are capital receipts. The same was confirmed by the Tribunal vide its impugned order. Still not being satisfied, the department has filed the present appeal.

Held by High Court

On Appeal HC has relied on the judgment of his court in the case of  Commissioner of Income Tax vs. Sahara Investment India Limited; 266 ITR 641 where it was observed that –

“when a person deposits some money in a bank that amount does not become the income of the Bank but is rather the capital of the bank in the form of borrowed capital. Income is ordinarily that which flows out of capital. The court has to see the true nature of the receipts and not go only by the entry in the books of account.”

In the instant case, the assessee – company was engaged in the business of collecting deposits from the public under different finance schemes. The A.O. rejected the assessee’s claim and treated the amount in question as the income of the assessee. But fact remains that no part of the deposit is the income of the assessee. The assessee is merely a custodian of the deposit. The income arises from the deposits i.e. dividend, interest etc. The facts and circumstances of the ratio laid down in the case of Sahara Investment  India Limited (supra) are identical. So, the present appeal has no merit and the same is liable to be dismissed.

Needless to mention  that although any amount which was earned by the assessee on these deposits made with it, minus any legitimate expenses incurred in  he business, would amount to income of the assessee the deposits themselves could not amount to income. The department did not  controvert the statement that during the year in question there was no forfeiture of any deposit and did not discharge the onus which  was cast on it to prove that the deposits were revenue receipts and therefore, liable to tax. Therefore, there was no question of law that arose out of the order of the Tribunal.