Agency Deposit write off

Hi Ms Alpa,

I think you can claim the loss of security deposit as a business loss. Normally, advances against capital assets aren't allowed as revenue expenditure when the contract does not materialize and those advances get forfeited. But when a trader deposits a sum of money in order to obtain authorized dealership of a manufacturer, it does not constitute a capital layout. The manufacturers insist on security deposits with a view to make sure that people seeking dealership of the company's products have a sound financial background, infrastructure, sincerity, etc. Without the security deposit, the business of the dealer wouldn't get underway.There's a Supreme Court decision on the taxability of such deposits in the hands of the company when it forfeits them for some reason e.g. the deposits becoming time-barred. In CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429, it was held that agency deposits forfeited were taxable as revenue receipts because they constituted trade surplus. Such deposits were accepted in the ordinary course of a trading transaction, and as such, if not upon their receipt, upon their forfeiture at least, they ought to be treated as trading receipts and brought to tax.This reasoning will apply mutatis mutandis to the one who's incurred a loss owing to her security deposit being appropriated by the company. The deposit was given in the ordinary course of business; its forfeiture ought to be allowed as a revenue expenditure u/s 37.And Ma'm, to incur a capital loss you have to have a capital asset. A security deposit is not a Capital Asset u/s 2(14). Either this amount will be allowed as a revenue expenditure or won't be allowed at all.Praise the Lord,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, alpa christie wrote:>> one of my clients had paid refundable agency deposit to another company. somehow the business did not run much. now the company is not repaying the deposit amount. cheques have returned disbonoured. considerable time has also elapsed.> > i am thinking of cliaming it as a loss but as the principal amount was never routed through p & l account i am sceptic about the claim. on the contrary if i claim this as a capital loss how would i ever be able to set it off as capital gain would not be a routine matter. > > can anyone add some light?> > regards,> > alpa>