Trading receipts from refundable sale-linked deposits are taxable income when they form part of commercial consideration.

Amounts collected as "empty bottle return security deposits" were treated as trading receipts because they were taken as a condition of each liquor sale and formed part of the commercial consideration. Their label as deposits and the fact that they were refundable on return of bottles did not alter their character for tax purposes, since they arose directly from trading operations rather than from a collateral loan or pre-trading arrangement. The Supreme Court held that such receipts are income assessable under section 10 of the Income-tax Act, 1922, in favour of Revenue.

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Issues: Whether the amounts collected by the assessee as "empty bottle return security deposits" formed trading receipts and were assessable as income under section 10 of the Income-tax Act, 1922.

Analysis: The amounts were received every time liquor was sold in bottles and were a condition of the sale. They had a direct relation to the commercial transaction and formed part of the consideration paid by the wholesaler, even though they were described as deposits and were refundable on return of bottles. Their treatment in the accounts did not alter their character, and the possibility of refund did not prevent them from being receipts made in the course of trading. The arrangement was distinguishable from deposits held anterior to trading operations or received as mere loan or security in a collateral relationship.

Conclusion: The amounts were trading receipts and therefore income assessable to tax, in favour of Revenue.

Ratio Decidendi: Amounts received as a condition of a sale, which form part of the consideration for a commercial transaction, are trading receipts and taxable income notwithstanding that they are described as deposits and may be refundable on future contingencies.

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