Notional interest on security deposit cannot be taxed without proof of actual accrual or a deeming provision.

Notional interest on a security deposit cannot be taxed as income from other sources merely because interest might hypothetically have been earned. The addition failed because it was based only on assumption, with no material showing actual receipt, accrual, or any applicable deeming provision under the Income-tax Act, 1961. Income tax cannot be levied on a mere possibility of earning or an imagined benefit. On that basis, the notional interest was held not taxable and the proposed addition was unsustainable.

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Issues: Whether notional interest could be brought to tax as income from other sources on the security deposit received by the assessee.

Analysis: The addition was founded only on the assumption that the assessee must have earned interest on the security deposit. No material was brought on record to show actual earning or accrual of interest. Taxation requires income to have been earned or to fall within a specific deeming provision under the Income-tax Act, 1961. A mere possibility of earning or a hypothetical benefit cannot be taxed as income.

Conclusion: The notional interest on the security deposit was not taxable and the addition was unsustainable.

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