Case Law Details
Coastal Ceramics and Clay Works Private Ltd Vs Union of India (Andhra Pradesh High Court)
Introduction: The case of Coastal Ceramics and Clay Works Pvt Ltd vs Union of India, adjudicated by the Andhra Pradesh High Court, revolves around the taxation implications of a Rs.50.00 lakhs refundable security deposit received by Coastal Ceramics from M/s. Royal Mindz Infra Ltd. under a Development Agreement. The central argument is whether this interest-free deposit is subject to income tax under the head “Income from other sources” for the Assessment Year 2019-20.
Detailed Analysis: The petitioner contends that the Rs.50.00 lakhs deposit is solely an interest-free refundable security amount received for the due completion of a commercial complex project in Rajahmundry. In contrast, the Standing Counsel for Income Tax argues that the amount, received and retained by the Managing Director, is to be treated as revenue receipt and subjected to taxation for AY 2019-20. The dispute arises from the fact that the petitioner did not disclose the deposit in their books of accounts as a liability.
Upon examining the Development Agreement-cum-GPA No.7592/2011, the court finds that the amount in question is explicitly mentioned as an interest-free refundable security deposit. The document outlines that this deposit is repayable to the builder within two months after the completion of the commercial units. The court observes that the Department does not challenge the genuineness of the Development Agreement.
The judgment concludes that, considering the terms of the agreement and the nature of the amount, it is inappropriate for the Department to treat the Rs.50.00 lakhs as revenue receipt for AY 2019-20. The petitioner is directed to account for the amount as an interest-free security deposit in their books until refunded to M/s. Royal Mindz Infra Ltd. The Department is instructed to cease tax proceedings against the petitioner regarding this amount.
Conclusion: The Andhra Pradesh High Court, in its ruling, allows the writ petition, asserting that the disputed amount is genuinely an interest-free security deposit and should not be treated as income for taxation purposes. The court directs the petitioner to reflect the amount in their books as a security deposit until it is returned to the builder, and the Income Tax Department is instructed to drop proceedings related to tax collection on this amount. The decision sets a precedent for cases involving similar financial transactions and underscores the importance of honoring the terms specified in legal agreements.
FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT
Heard learned counsel for petitioner Sri N. Vijay and Smt. M. Kiranmayee, Standing Counsel for Income Tax.
2. The bone of contention appears to be is Rs.50.00 lakhs, which according to the petitioner, was received as refundable security deposit from M/s. Royal Mindz Infra Ltd. (Developer) vide Development Agreement-cum-GPA No.7592/2011 dated 16.11.2011 for construction of commercial complex at Rajahmundry and as the said amount is an interest free refundable security deposit for due completion of the project by the developer, said amount in the hands of petitioner cannot be treated as revenue for levying tax under the head “Income from other sources” for the Assessment Year 2019-20. On the other hand, the argument of the Standing Counsel is that the said amount of Rs.50.00 lakhs was received by the Managing Director on behalf of the petitioner and retained by him though it was stated to be the sum held as security deposit against the construction of commercial complex and which work has not yet started. Therefore, the sum of Rs.50.00 lakhs received by the petitioner was held to be revenue receipt and brought to tax as income for AY 2019-20 under the head “Income from other sources”. The said amount is to be treated as income of the petitioner having been received and consumed as undisclosed receipt. The petitioner did not disclose the same in the books of accounts as a liability and it was on account of search that the said deposit was unearthed by the Department. Hence, the said receipt is an undisclosed receipt in the hands of the petitioner and liable for tax.
3. The point for consideration is whether there are merits in the writ petition to allow?
4. Point: In the light of the above respective contentions, a perusal of the Development Agreement-cum-GPA bearing 7592/2011, a copy of which is filed along with material papers discloses that the petitioner being owner entered into a Development Agreement with the builder viz., M/s. Royal Mindz Infra Pvt. Ltd. The document inter alia showed at clause 38 that the second party (builder) has agreed to pay sum of Rs.50.00 lakhs towards interest free refundable security deposit to first party (owner) and accordingly, paid the said amount. Then clause 40 reads that it was agreed between the parties that the aforesaid interest free refundable security deposit of Rs.50.00 lakhs paid by the developer shall be repayable to him by the owner within two months after handing over of commercial units completed in all respects.
5. Thus, it is discernable from the aforesaid Development Agreement that the disputed amount of Rs.50.00 lakhs is only an interest free security deposit lying in the hands of the petitioner. The Department, it appears, proposes to treat it as a revenue receipt on the main ground that the said amount was not shown by the petitioner in its accounts as a liability. However, the Department does not appear to challenge the genuinity of the Development Agreement. Considering all these aspects, we are of the view that it is not apposite on the part of the Department to treat the aforesaid amount of Rs.50.00 lakhs as receipt for the AY 2019-20 to impose tax.
6. Accordingly, this Writ Petition is allowed with a direction that the petitioner shall hereafter show the amount of Rs.50.00 lakhs as interest free security deposit in its books of accounts till the same is refunded to the builder viz., M/s. Royal Mindz Infra Ltd. and respondent Department is directed to drop the proceedings against the petitioner to collect tax in respect of the said amount. No costs.
As a sequel, interlocutory applications pending if any, shall stand closed.
Author Bio
many muncipal corporation , tax , property ,taking into acount of intrest on refundable deposit . is it right .