Cash receipts and income accrual principles: forfeited deposits not taxable, and reimbursement claim did not accrue without enforceable right.

Forfeited earnest money and security deposits received to secure contractual performance were treated as capital receipts at receipt, and section 28(iv) was held inapplicable because it covers non-monetary business benefits or perquisites, not cash receipts; the amounts were therefore not taxable. A claimed reimbursement for loss on imported PVC did not accrue as income because the correspondence and meeting minutes created no enforceable right to receive the full amount, the subsidy arrangement was only conditional and limited, and a unilateral book entry could not create income. The assessee was granted full relief on both issues.

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Issues: (i) Whether forfeited earnest money and security deposits constituted taxable income under section 28(iv) of the Income-tax Act, 1961. (ii) Whether the amount claimed as reimbursement of loss on imported PVC had accrued as income to the assessee during the relevant previous year.

Issue (i): Whether forfeited earnest money and security deposits constituted taxable income under section 28(iv) of the Income-tax Act, 1961.

Analysis: The receipts were found to be deposits received to secure performance of the contract and were capital in nature at the time of receipt. Section 28(iv) was held to apply to the value of any benefit or perquisite arising from business, but on its language it covered benefits in kind and not cash receipts. The decision under section 2(6C)(iii) of the Indian Income-tax Act, 1922 was distinguished because it dealt with a different statutory context. The earlier Tribunal view in the assessee's own case was followed.

Conclusion: The forfeited earnest money and security deposits did not constitute taxable income and the issue was decided in favour of the assessee.

Issue (ii): Whether the amount claimed as reimbursement of loss on imported PVC had accrued as income to the assessee during the relevant previous year.

Analysis: The correspondence and meeting minutes did not create an enforceable right in favour of the assessee to receive the full reimbursement claimed. The Government had only indicated a conditional and limited subsidy arrangement, and the assessee's unilateral credit in its books could not by itself bring income into existence. Mere accounting entries do not create accrual of income unless a legal right to receive the amount has arisen.

Conclusion: No accrued right to receive the claimed reimbursement arose during the year, and the deletion of the addition was upheld in favour of the assessee.

Final Conclusion: The common order resulted in full relief to the assessee: the forfeited deposits were held not taxable, and the claimed reimbursement was held not to have accrued as income.

Ratio Decidendi: Section 28(iv) applies to non-monetary business benefits or perquisites and does not bring cash receipts to tax, while income accrues only when a legally enforceable right to receive it has arisen and not by mere book adjustment.

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