Trading receipt treatment of contingency deposits collected for statutory tax liability upheld as taxable income

Contingency deposits collected to meet a statutory sales tax liability were held to retain their character as trading receipts and formed part of taxable income. The court treated the label of "deposit" as immaterial because the amounts were received and retained in the course of business for a statutory liability; the fact that the levy was under challenge did not change their tax character. Any later refund would be dealt with by deduction in the year of refund. The Tribunal's contrary view was set aside and the receipts were held assessable in the assessee's hands.

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Issues: Whether contingency deposits collected by the assessee towards possible sales tax liability formed part of its taxable income as trading receipts.

Analysis: The collection was made to meet a statutory tax liability and was retained by the assessee in the course of business. The mere description of part of the collection as a contingency deposit did not alter its true character. The fact that the underlying levy was under challenge did not change the nature of the receipt, and later refund, if any, would give rise to a deduction in the year of refund. The earlier decisions relied on for the assessee were distinguished on their facts.

Conclusion: The contingency deposits were taxable as part of the assessee's income and were not excluded from the trading receipt.

Final Conclusion: The appeals succeeded and the Tribunal's view was set aside, with the receipts held assessable in the hands of the assessee.

Ratio Decidendi: A receipt collected to meet a statutory liability retains its character as a trading receipt notwithstanding that it is labelled as a deposit or is refundable if the liability does not ultimately arise.

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