Trading receipts from customer price deposits retain revenue character even when unclaimed balances are later appropriated

Amounts received from customers as price deposits in a trading arrangement for scrap iron were treated as advance payments towards the sale price, not as genuine security deposits or third-party liabilities. Their character depended on the nature of the transaction and the mutual obligations created by the sale arrangement. The later retention of unclaimed balances and transfer to profit and loss account did not change their original commercial character. On that basis, the unclaimed balances were held to be trading receipts and part of revenue income under the Indian Income-tax Act, 1922.

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Issues: Whether unclaimed balances retained by the assessee out of price deposits received from customers constituted revenue income liable to tax under the Indian Income-tax Act, 1922.

Analysis: The amounts were received in the course of trading transactions as price deposits for scrap iron to be supplied under the control orders. The true nature of the receipts was that they were advance payments towards price and were adjusted against the final price when the goods were delivered. The fact that some balances remained unclaimed and were later transferred to profit and loss account did not alter their original character. The distinction drawn between a genuine security deposit and a trading receipt was applied by reference to the nature of the transaction and the mutual obligations created by the sale arrangement. The amounts were not received on behalf of any third party and were not loans or liabilities in the commercial sense.

Conclusion: The unclaimed balances were trading receipts and formed part of the assessee's revenue income; the question was answered in the affirmative, against the assessee and in favour of the Revenue.

Ratio Decidendi: Amounts received as part of the price in a trading transaction retain the character of revenue receipts even if some balances remain unclaimed and are later appropriated by the seller.

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