'Forfeiture of deposit of the licensee may not be taxable'

My premises were given on leave-and-licence basis under a refundable security deposit for a lock-in period of five years. However, at the end of three years, the licensee terminated the agreement and as a consequence I forfeited the security deposit. Whether it would attract income tax?
Forfeiture of security deposit received from the licensee on premature termination of the leave-and-license agreement may not be taxable as income as the deposit is generally in the nature of loan and consequently in the capital field. If perusal of the terms of the agreement as a whole clearly shows that the security deposit is a capital receipt and that it is not a compensation for loss of rent, then forfeiture would be in capital field. That such deposit would have appeared in your previous balance-sheets as loans and advances would also be a relevant factor. Nature of the deposit would have to be inferred on the basis of relevant documents and conduct of the parties to the transaction.

We are running a temple in which we have put up various boxes for donations by the devotees. One of such boxes is for building construction fund. Whether such donations would be our income?
Under the provisions as contained u/s 12(1) of the Income Tax Act, 1961, voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution are not to be treated as income. Manner in which the specific direction is to be made has not been provided in the Act or in the Rules.

Therefore, such manner needs to be deduced from the facts and circumstances of each case. In respect of corpus donations, it is desirable to obtain specific letters from the donors. However, you should be able to contend before the tax authorities that in your case collection of such letters may not be possible since donations are collected from the devotees at large and they have consciously exercised option to donate for building construction fund.

We had purchased machinery from abroad by making part payment as the balance would be paid in foreign currency in future. To safeguard against forex fluctuations, I entered into forward foreign exchange contract. How will the amount received by me on cancellation of such contract on due date be taxed?
Sum received by you upon cancellation of forward foreign exchange contract entered into for discharging liability of payment for purchase of machinery may be treated as a capital receipt. Mere cancellation of a foreign exchange contract does not result in transfer of any asset within the provisions of the Income Tax Act, 1961.

The writer is a chartered accountant and can be reached at ghiatarun@rediffmail.com