The Tax Publishers2020 TaxPub(DT) 3424 (Del-Trib)

INCOME TAX ACT, 1961

Section 4

Where assessee retained security deposit of certain property, which was sold, AO was not justified in making addition on account of notional income on security deposit because only incomes falling under deemed provisions, explicitly mentioned in Income Tax Act, 1961, can only be brought to tax under deeming provision but not any other notional or hypothetical income not envisaged by Act.

Income - Chargeability - Notional interest on security deposit retained by assessee -

Assessee owned a property in DLF against which he received a security deposit for leasing premises. During relevant year, no rent was offered to tax as property was sold. However, assessee continued to hold security deposit. AO held that since security deposit was an underlying asset and an interest amount deemed to have derived from such security deposit, same was to be taxed under head “Income from other sources”. Assessee contended that there is no concept of national interest to be taxed on security deposit received by assessee as per provisions of Income Tax Act, 1961. Held: AO did not bring anything about earning of interest by assessee, which was not offered to tax. Addition was on sole premise that assessee having security deposit must have earned interest. In order to tax any amount, revenue has to prove that amount is indeed earned by assessee. Only incomes falling under deemed provisions, which are explicitly mentioned in Income Tax Act, 1961, can only be brought to tax but not any other notional or hypothetical income not envisaged by Act. Thus, addition made by AO on account of notional income on security deposit was invalid.

REFERRED : Godhra Electricity Company Limited v. CIT (1997) 225 ITR 746 (SC) : 1997 TaxPub(DT) 1198 (SC) Highways Constructions Co. Pvt. Ltd. v. CIT (1993) 199 ITR 702 (Gau) : 1993 TaxPub(DT) 0878 (Gau-HC)

FAVOUR : In assessee's favour

A.Y. :



INCOME TAX ACT, 1961

Section 4

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