The Income Tax Appellate Tribunal (ITAT), Cochin bench, in a recent ruling held that the amount deposited by the assessee as a security deposit is not taxable on the year of termination of the dealership agreement.
The assessee-Company, a manufacturer and dealer of ice cream and frozen foods, was giving freezers to its dealers/distributors for storing the ice cream. Forgiving the freezers, the assessee was collecting deposits, which were refundable on termination of the dealership. As per the terms of the agreement between the assessee and dealer/distributor, the assessee could recover 25% of the deposit each year towards wear and tear, when agreements were terminated. According to the assessee, such recoveries were offered as income in the year in which the dealership was terminated and such recovery was made.
The Assessing Officer held that 25% of the deposit should be treated as income each year irrespective of whether the dealership was terminated or not.
The Tribunal recalled its earlier order in the assessees’ own case, wherein the ITAT had dismissed the department appeal against the original assessment following its own orders for the earlier years on the ground that the said amount is taxable only in the year of termination and the assessee had already offered such amount to tax in the return of income filed by it.
“The above order of the Tribunal has not been reversed by the Hon’ble High Court. It was submitted by the learned AR, the appeals filed by the Revenue against the Tribunal’s orders in assessee’s own cases for earlier years were withdrawn for the reasons that tax effect in those cases was below the monetary limit. Therefore, following the Tribunal order, in assessee’s own case (supra), we hold that the freezer security deposit is taxable only on the year of termination of an agreement between the assessee and the dealer/distributor,” the Tribunal said.
Subscribe Taxscan Premium to view the Judgment
