respondent, Omega Bright Steel (P.) Ltd., of New Delhi ('OBS'), carries on business of processing and sale of bright steel bars. On 29-5-1976, it entered into agreement with International Trade Associates of Bombay ('ITA') for supply of stainless steel bright drawn bars conforming to certain grades and specifications as per terms and conditions of agreement reproduced below: " Whereas first party [Omegh Bright Steel (P.) Ltd.] is carrying on business as manufacturers of bright drawn steel bars of various specifications including those of stainless steel at their factory and works situated at Faridabad (Haryana); And whereas second party (International Trade Associates) has approached first party for supply of stainless steel bright drawn bars and coils processed/manufactured out of imported base raw materials conforming to grades and specifications to be provided by second party, and for import of raw materials whereof, first party holds requisite licences; And whereas first party has agreed to supply goods and m erchandise referred to hereabove to second party, to be processed/manufactured by first party, as per grades and specifications to be provided by second party; And, therefore, first party and second party are desirous of entering into agreement for supply of stainless steel bright drawn bars and coils by first party to second party, manufactured/processed from/out of imported base raw materials and on basis of grades and specifications to be provided by second party; Now this deed witnesseth as under: 1. That second party shall purchase, either directly or through its nominees, entire stock valued approximately at Rs. fifty lakhs of finished bright drawn stainless steel bars/coils to be processed/manufactured by first party from/out of imported base raw materials, as detailed in annexure. 2. That first party shall try to ensure that supplies of finished goods to second party and/or its nominees, as case may be, are made b y scheduled dates to be-mutually agreed, provided, however, that supply of finished goods will only commence after full amount of security deposit provided hereinafter has been paid by second party to first party. Further, first party shall in no way be held responsible or made liable for any delay in supplies due to reasons beyond their control. 3. That first party shall take all expeditious steps for import of stainless steel base raw materials (wire rods), which shall be required for processing/manufacturing of finished bright drawn stainless steel bars/coils as per specifications and grades mentioned in annexure to this agreement. 4. That first party shall inform second party and/or its nominee/s, as case may be, as and when finished goods are ready for despatch. 5. That second party and/or its nominee/s, as case may be, shall, within fifteen days of date of receipt of such intimation as mentioned in para 4 above, take delivery of goods against full payment of price agreed to and given in annexure to this agreement. 6. That second party shall deposit with first party sum of Rs. 10,00,000 (Rs. ten lakhs) only by way of security deposit, hereinafter referred to as 'the said security deposit', in following manner: Rs. 2,50,000 by 31-7-1976 2,50,000 by 31-12-1976 2,50,000 by 30-6-1977 and balance 2,50,000 by 30-9-1977. -------------------- Total 10,00,000 -------------------- -------------------- 7. That said security deposit shall be refundable by first party to second party within fifteen days of receipt of sale price in respect of final supply of goods under this contract. 8. That said security deposit shall carry interest at rate of 12 per cent per annum and said interest shall accrue and be payable to second party only at time of refund of said security deposit. 9. That in event of second party either neglecting or refusing to take delivery of finished goods, as stated in para 5 hereinabove, within period of fifteen days stipulated in that para or failing to deposit said sum of Rs. ten lakhs as security deposit in manner provided in para 6 above, first party shall have option to terminate this agreement. 10. That in event of first party failing or refusing to supply to second party and/or its nominee/s, as case may be, stocks of bright drawn stainless steel bars/coils, as stated in para 1 hereinabove, second party shall have option to terminate this agreement. 11. That in event of this agreement being determined in manner stated in para 9 above, entire amount lying on date of such termination, with first party as security deposit in terms of para 6 hereinabove, shall stand forfeited and second party shall have no right whatsoever to claim said amount or any part thereof from first party. 12. That in event of aforesaid forfeiture of said security deposit by first party, no interest as provided in para 8 above shall, for any period of time, either accrue or be payable by first party to second party. 13. That in event of this agreement being determined in manner stated in para 10 above, amount of said security deposit as on date of termination shall be refunded forthwith by first party to second party together with interest at rate of 18 per cent per annum calculated from time said security deposit was paid till time of its refund. 14. That subject to paras 9 and 10 hereinabove, this agreement shall remain in force for period of two years from date of signing hereof. 15. That all matters or disputes arising between parties during continuance of this agreement shall be referred to arbitration and provisions of Indian Arbitration Act, 1949, shall, accordingly, apply. In witness whereof parties hereto have set their hands on these presents in presence of witnesses on day, month and year first abovewritten. " In annexures to agreement, specifications and grades of bright drawn stainless steel bars/coils of 175 tons had been indicated. It was also mentioned in annexure that price of goods to be supplied by OBS to ITA was Rs. 50.05 lakhs as per selling rates mentioned in annexure. 2. security deposit of Rs. 10 lakhs which was to be made in four equal instalments of Rs. 2,50,000 each by 31-7-1976, 31-12-1976, 30-6-1977 and 30- 9-1977 as per clause 6 of agreement had not been made in time by ITA. As against sum of Rs. 2,50,000 each payable on 31-7-1976 and 31-12-1976, it had been able to deposit only Rs. 2,05,000 till end of calendar year 1976. Since ITA was not able to conform to payment of security deposit as per terms of agreement, letter was sent by OBS dated 4-2-1977 asking ITA to adhere to time limit prescribed for making security deposit which was 30- 9-1977. Thereafter ITA deposited further sum of Rs. 4 lakhs by cheques drawn on Bank of Baroda dated 9-7-1977, 11-7-1977, 20-7-1977, 10-9-1977 and 5-9- 1977. In other words, it was able to pay in all only aggregate sum of Rs. 6,05,000 by 30-9-1977 as against Rs. 10 lakhs, which had to be paid by it by way of security deposit as per terms contained in clause 6 of agreement. Since ITA had failed to make security deposit of Rs. 10 lakhs by 30-9-1977, letter had been sent by them to OBS on 20-10-1977. It reads as follows: " We are very much pained to inform that as yet, despite our best efforts, we have not been able to make necessary security deposit as agreed upon by us owing to our financial difficulties and it is our request to keep imported raw materials with you, as we will be arranging to make said payment to you shortly. We will fulfil condition of making payment and after that you can process materials to our requirements. " respondent OBS wrote back to ITA on 27-10-1972 as follows: " We refer to your letter dated 20-10-1977 and are not satisfied with contents of same. As you are aware of present trend of market and in absence of any sound security as well as your continued failure to make payment uptill now, we are neither in position to hold base raw materials at our end nor undertake processing of same to your requirements. In circumstances, we have no other alternative but to terminate agreement and apply condition of forfeiting amount paid to us as security deposit, which please note. " Finding that termination of agreement was impending, ITA once again requested OBS as follows: " We are in receipt of your letter of 17th ultimo and noted contents. We once again request you not to please force upon condition of forfeiting our security amount and be kind enough to allow us some more time f o r making payments of balance instalments in view of difficult financial position. However, we assure you that we shall make payments and meanwhile, please keep raw materials till our further advice in matter. " Ultimately, on 4/5-12-1977, OBS wrote letter to ITA terminating agreement as follows: " We acknowledge your letter dated 13-11-1977 vide which you have asked us to keep materials with us till further advice from you; and asked us to allow you some more time for payment of balance amount against instalments. As you are aware, we have imported considerable quantities of stainless steel wire rods as per your instructions and you are asking us at such belated stage not to process goods since you are not in position to make payment of outstanding security deposit at present. Your previous actions have not been satisfactory and we cannot wait any longer and as such, we are compelled to invoke clause 9 of agreement which empowers us to terminate said agreement since you have failed to make payment of security deposit of Rs. 10 lakhs, which you were to pay latest by 30-9-1977 as per agreement of 29-5-1976. Therefore, agreement dated 29-5-1976 stands terminated and amount of Rs. 6.05 lakhs lying with us as security deposit is hereby forfeited as per clause 11 of agreement. You shall have no right whatsoever to claim said amount or any part thereof, which please note. " This sum of Rs. 6,05,000 representing security deposit forfeited was shown by assessee by credit to capital reserve account in its books relating to assessment year 1978-79 for which relevant accounting year was calendar year 1977. 3. In return of income filed for assessment year 1978-79, forfeited security deposit of Rs. 6,05,000 had not been shown as income and, therefore, ITO called upon it to explain as to why same be not included in its total income. It was submitted on behalf of respondent on basis of facts which have been stated above that it was capital receipt and that it was not liable to assessment in accordance with decision of Hon'ble Delhi High Court in CIT v. Motor & General Finance Ltd. [1974] 94 ITR 582. ITO did not accept representation made. According to him, since t h e facts in assessee's own case were wholly different from facts obtaining in case or Motor & General Finance Ltd., decision of Hon'ble Delhi High Court relied upon did not help assessee's case. ITO held that above-mentioned agreement dated 29-5-1976 was agreement in normal course of assessee's business and since deposit by way of security was to be made in order to cover up any possible losses on failure of ITA to lift stocks, forfeiture of security deposit was revenue receipt. ITO also referred to statement dated 9-9-1981 of one Shri B.H. Gandhi, partner of ITA, and held that sum of Rs. 6,05,000 was not security deposit but was merely advance receipt by OBS from ITA against goods to be supplied by former to latter. In last paragraph preceding computation of income, ITO also referred to certain enquiries which had been made through Deputy Director of Investigation, Bombay, that sum in question of Rs. 6,05,000 was alternatively liable to be assessed under section 68 of Income-tax Act, 1961 ('the Act'), as income from undisclosed sources. 4. Dissatisfied with order of assessment made by ITO, respondent OBS had taken matter in appeal before Commissioner (Appeals). latter held that ITO had given no material whatsoever in support of its finding that Rs. 6,05,000 was assessable as income under section 68. According to him, identity of ITA, Bombay, was not in dispute and similarly, fact could not be denied that sum in question of Rs. 6,05,000 had been given to assessee by ITA, Bombay. After rejecting alternative ground of assessment taken by ITO, Commissioner (Appeals) proceeded to consider nature of receipt of Rs. 6,05,000. He took into account terms of agreement entered into between OBS and ITA and then held that forfeiture of Rs. 6,05,000 was capital receipt in hands of assessee. According to Commissioner (Appeals), facts in case of assessee were absolutely similar to facts as prevailed in case of Motor & General Finance Ltd., and, therefore, according to him, decision of Hon'ble Delhi High Court in Motor & General Finance Ltd.'s case would squarely apply in favour of assessee. assessment of Rs. 6,05,000 was, therefore, deleted. 5. It is in background of above-mentioned facts that revenue is in appeal contending as follows: " On facts and in circumstances of case, learned Commissioner (Appeals) erred in holding that amount of Rs. 6,05,000 received as security deposit and, subsequently, forfeited by assessee- company is capital receipt and is not taxable and thereby deleting same from computation of taxable income for assessment year 1978-79. " 6. Mr. M.K. Chakraborty, learned senior authorised representative of t h e department, has vehemently assailed order of Commissioner (Appeals). He has taken us through each and every clause of agreement dated 29-5-1976 and annexures thereto entered into between respondent, OBS, on one hand, and ITA on other. After so taking us through agreement, learned departmental representative has submitted that agreement was merely for sale and purchase of bright drawn stainless steel bars and had been entered into with sole object of having insured customer, who was to pay insured price for goods to be supplied by OBS. security of Rs. 10 lakhs, which was to be deposited by ITA in pursuance of clause 6 of agreement, was, according to learned departmental representative, merely for ensuring realisation of price of goods to be supplied by OBS to ITA. This agreement, according to departmental representative, was one which was entered into as normal incident of carrying on of business and that its breach merely resulted in business profit of Rs. 6,05,000. According to departmental representative, agreement whereby Rs. 10 lakhs had to be deposited as per clause 6, was not agreement for any loan or borrowing to be made by OBS from ITA and, therefore, question of applying ratio of decision in case of Motor & General Finance Ltd. did not arise. After referring to correspondence that passed between OBS and ITA, which stands reproduced in earlier portion of this order, learned departmental representative says real nature of receipt was 'advance' received by OBS from ITA in respect of purchase of raw material by former out of which goods had to be processed and supplied to ITA. According to him, amount of Rs. 6,05,000 was not security deposit and if at all it was any security, it was merely insurance or cushion for realisation of price of goods to be supplied by OBS to ITA. After so interpreting agreement and correspondence between OBS and ITA, learned departmental representative stated that Commissioner (Appeals) had erred in holding that case stood covered by decision of Hon'ble Delhi High Court in Motor & General Finance Ltd.'s case. In support of his contention that forfeiture of security deposit by OBS was revenue receipt, departmental representative has relied on decision of Hon'ble Supreme Court in case of Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 and on decision of Hon'ble Punjab and Haryana High Court in case of Atlas Cycle Industries Ltd. v. CIT [1981] 128 ITR 60. Mr. Chakraborty has taken us through these two decisions and then contended that in present case, security deposit which was forfeited, resulted in revenue receipt on account of fact that agreement entered into between OBS and ITA was integral part of overall business activity of assessee. It is contended by him that just as forfeiture of amounts shown in account styled 'Empty Bottles Return Security Deposit Account' in case of Punjab Distilling Industries Ltd. had been held to be taxable income by Hon'ble Supreme Court in present case also forfeited security deposit was nothing but income. Referring to decisions of various Hon'ble High Courts in Narandas Mathuradas & Co. v. CIT [1959] 35 ITR 461 (Bom.), CIT v. Inden Biselers [1973] 91 ITR 427 (Mad.), CIT v. Sugar Dealers [1975] 100 ITR 424 (All.) and Thackers H.P. & Co. v. CIT [1982] 134 ITR 21 (MP), learned departmental representative contends that since loss on account of forfeiture of security deposit has been invariably held to be revenue loss in hands of payer, it follows correspondingly that amount should be assessable as revenue income in hands of payee. In any case, departmental representative says that even if loss suffered by ITA was to be treated as capital loss in their hands, so far as receipt by way of forfeiture is concerned, it was nothing but revenue receipt in hands of assessee. After so contending, learned departmental representative has submitted that merely because receipt of Rs. 6,05,000 had been shown by assessee in capital reserve account, real nature of receipt could not be said to have been changed. According to him, entries made in books of account are not determinative of question as to whether particular receipt is of capital or of revenue nature and that true nature of receipt should be found out by looking into facts of each case. For so contending, reliance has been placed by him on decisions of Hon'ble Supreme Court in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 and CIT v. Panipat Woollen & General Mills Co. Ltd. [1976] 103 ITR 66. In end, Mr. Chakraborty also laid emphasis on statement of B.H. Gandhi, partner of ITA, which had been recorded at Bombay on 9-9-1981. According to departmental representative, this statement of partner of ITA clearly shows that sum of Rs. 6,05,000 was not security deposit but was advance made to OBS for goods to be supplied by them under agreement. Even though this statement of B.H. Gandhi had been recorded at back of OBS, it was, according to departmental representative, very valuable testimony and that merely because t h e opportunity of cross-examination had not been granted to assessee- respondent, testimony made by B.H. Gandhi could not be ignored by ITO. Mr. Chakraborty maintains that technical rules of evidence do not apply to income-tax proceedings and, therefore, deposition made by B.H. Gandhi was evidence on which reliance could be placed by ITO. For so contending, reliance has been placed on decision of Hon'ble Supreme Court in case of C. Vasantlal & Co. v. CIT [1962] 45 ITR 206. 7. On other hand, Mr. G.C. Sharma, senior advocate, learned counsel of respondent, has refuted each and every contention taken by Mr. Chakraborty. Like Mr. Chakraborty, Mr. Sharma has also taken us through agreement dated 29-5-1976 entered into between OBS and ITA and then contended that amount of security deposit had no connection or nexus with sale price which was realisable under agreement and that security deposit was clearly of character of loan, which was liable to be repaid with interest if business commenced as stipulated in agreement and which was liable to be appropriated or forfeited by OBS if there was breach of agreement on part of ITA or if full amount of security deposit, as contemplated in clause 6 of agreement, had not been paid within stipulated period by ITA. According to Mr. Sharma, terms of agreement, which were clear and not capable of more than one interpretation, clearly show that sum of Rs. 10 lakhs was to be deposited by way of security by ITA before any business could commence and that since that security deposit was never made by ITA in accordance with clause 6, agreement was still- born and that forfeiture of security actually resulted into appropriation of deposit or loan which had been made by ITA with OBS. In order to emphasise point that sum of Rs. 6,05,000 was nothing but payment towards security deposit, Mr. Sharma has emphasised on terms of agreement and letters that had passed between OBS and ITA, which stand reproduced in earlier portion of this order. According to him, managing partner of ITA, namely, Elias H. Khapra, had all along admitted that sum of Rs. 6,05,000 was security deposit. Referring to clause 7 of agreement, Mr. Sharma says that security deposit was never to be adjusted against sale of bright steel bars stipulated to be made by OBS to ITA and that whole of security deposited was to be refunded to depositor ITA within 15 days of receipt of sale price in respect of final supply of goods by OBS to ITA. Further, referring to clause 8 of agreement, Mr. Sharma says that interest of 12 per cent per annum which was payable by OBS to ITA at time of refund of security deposit clearly indicated that security deposit was of nature n d character of loan. According to learned authorised counsel of assessee, character of receipt is determined at time it is received and that subsequent happenings did not change its character and do not convert receipt into income if it was initially loan at time of receipt. For so contending, reliance has been placed by him on famous decision in case of Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (CA) and on decision of Hon'ble Delhi High Court in case of Motor & General Finance Ltd.. According to Mr. Sharma, every gain is not income and everything that goes to augment coffers of assessee cannot be unexceptionally described as trading receipt. According to him, assessee was not carrying on business of taking any security deposits and that in present case, security deposit which was stipulated under clause 6 of agreement was for due performance of contract. Such security deposit, when forfeited, did not result in any gain of income nature and that, therefore, according to Mr. Sharma, Commissioner (Appeals) was justified in holding that sum of Rs. 6,05,000 was on capital account. According to Mr. Sharma, security deposit had no connection with business carried on by assessee because as per agreement, business was to commence only after security deposit had been made and since security deposit was not made as stipulated, relationship between deposit and activity of business could not come into existence. Refuting argument of learned departmental representative, Mr. Sharma says that just because loss suffered by payer of security deposit is adjudged as revenue loss in its hands, it does not follow that nature of receipt in hands of payee was also of revenue nature. After thus contending that security deposit was of nature of loan and that it had no nexus with sale price which was to be realised in event of commencement of business, Mr. Sharma has contended that agreement dated 29-5-1976 was profit-making apparatus and that since it was destroyed on account of non-fulfilment of conditions by ITA, forfeiture of Rs. 6,05,000 by OBS was nothing but capital receipt. Elaborating point, Mr. Sharma says that agreement was source of income to assessee and since it was breached and brought to end, consequential loss suffered was capital loss in hands of payer and similarly, compensation which OBS was able to obtain by forfeiting security deposit was capital receipt in hands of OBS. In support of his earlier contention that deposit of Rs. 6,05,000 was nothing but loan, Mr. Sharma has taken us through authority of Hon'ble Supreme Court in case of K.M.S. Lakshmanier & Sons v. CIT [1953] 23 ITR 202. According to Mr. Sharma, facts in present case were absolutely similar to those which prevailed in case of Lakshmanier & Sons after latter had issued circular dated 14-2- 1945. According to him just as deposits in case of Lakshmanier & Sons received after 14-2-1945 had been adjudged as loans or borrowed money by Hon'ble Supreme Court in present case also security deposited was nothing but loan. According to Mr. Sharma, decision of Hon'ble Delhi High Court in Motor & General Finance Ltd.'s case was based on authority of decision of Hon'ble Supreme Court in case of K.M.S. Lakshmanier & Sons and that since facts in case of above-mentioned two decisions of Hon'ble Supreme Court and Hon'ble Delhi High Court were akin to facts in present case, Commissioner (Appeals) had every justification in upholding contention of assessee that receipt of Rs. 6,05,000 was on capital account. Referring to evidence of B.H. Gandhi, partner of ITA, which had been recorded at back of assessee, learned authorised counsel of assessee submits that it was wholly worthless testimony which could not have been utilised by Income-tax Department as it had never been put to assessee. In any case, according to Mr. Sharma, evidence of B.H. Gandhi should have been disregarded altogether as it was evidence of disgruntled partner of ITA who had absolutely no knowledge about working of that firm. Referring to statement, copy of which has been supplied and placed at page 58 of assessee's paper book, Mr. Sharma says that partner who did not even know whether firm was assessed to tax or not and who was completely ignorant about other affairs of firm, could not have been considered as reliable witness by department. In any case, according to him, testimony of B.H. Gandhi ought to have been put to assessee and opportunity should have been allowed to assessee to cross-examine B.H. Gandhi before evidence could be utilised by ITO and since, according to him, this was never done, ITO had no justification in coming to conclusion that sum of Rs. 6,05,000 was not security deposit but was merely advance towards sale price to be realised by OBS. Referring to decisions of Hon'ble Supreme Court and Hon'ble Punjab and Haryana High Court, respectively, in Punjab Distilling Industries Ltd.'s case and Atlas Cycle Industries Ltd.'s case, on which reliance has been placed by learned departmental representative, Mr. Sharma says that facts in those cases were entirely different and, therefore, ratio and decision in those cases were inapplicable to facts of present case. As far as other decisions relied upon by learned departmental representative are concerned, learned senior advocate says that even though in those cases losses suffered by those assessees on forfeiture of security deposit had been held to be revenue losses, it did not follow that in present case forfeiture of security deposit had resulted in revenue receipt on part of assessee. According to Mr. Sharma, analogy or support drawn by departmental representative from decisions in Narandas Mathuradas & Co.'s case, Inden Biselers' case, Sugar Dealers' case and Thacker H.P. & Co.'s case was too far-fetched. Shri Sharma has also taken us through his written propositions submitted under signature of his junior, Mr. R.K. Raghwan, and also paper book submitted on behalf of assessee consisting of as many as 83 pages. 8. We have given our very anxious consideration to controversy as to whether forfeiture of deposit of Rs. 6,05,000 by respondent OBS was capital or revenue receipt. We have carefully gone through decisions of ITO and Commissioner (Appeals) and we have equally carefully considered t h e arguments, for and against, very ably canvassed by learned representatives of two sides. We have also gone through each and every decision of Hon'ble. Courts, on which reliance has been placed either by learned departmental representative, Mr. Chakraborty, or by learned senior advocate, Mr. G.C. Sharma, appearing for assessee. We have in particular gone through agreement and (sic) ITA before deciding as to whether receipt was revenue receipt or receipt on capital account. After so doing, we would hold as follows. 9. perusal of agreement shows that it had been entered into between OBS and ITA in order that former could supply to latter bright drawn stainless steel bars and coils of given specifications of value of approximately Rs. 50 lakhs. agreement was for period of two years and manufacturer-respondent, i.e., OBS, had bound itself under agreement to ensure supplies of finished goods to ITA by scheduled dates provided security deposit of Rs. 10 lakhs, as stipulated in clause 6 of agreement, had been made with OBS by ITA. agreement further shows that security deposit so made in terms of clause 6 of agreement was not to be adjusted by OBS against price of goods which it had to supply to ITA under agreement. Clause 7 of agreement makes it explicit that after supplies had been finally made by OBS to ITA and price thereof had been received, security deposit had to be refunded by OBS to ITA within 15 days of final supply of goods. This clause shows to us that security deposit was for purposes of ensuring due performance of contract on part of ITA. Clause 8 of agreement shows to us that security deposit was sum in nature of refundable loan which was to bear interest at 12 per cent per annum payable by OBS to ITA at time of refund of said security deposit. After having noticed these and other relevant clauses of agreement, we have carefully perused correspondence that passed between OBS, on one hand, and ITA, on other. It becomes quite clear from correspondence that ITA had to deposit Rs. 10 lakhs by way of security deposit with OBS before any business under agreement could commence and that since ITA had failed to deposit Rs. 10 lakhs by stipulated date, i.e., 30-7-1977, and that since it had been able to pay only Rs. 6,05,000, OBS, i.e., assessee-respondent, was entitled to terminate agreement in accordance with clause 9 of agreement. Option to terminate agreement was exercised by OBS as per its letter dated 4-12-1977/5-12-1977 addressed to ITA. In other words, what, in fact, happened in present case was that business which was supposed to commence as per terms of agreement did not commence at all as prerequisite condition of making security deposit of Rs. 10 lakhs with OBS by ITA was not fulfilled. Applying principles of law as laid down by Hon'ble Supreme Court in case of K.M.S. Lakshmanier & Sons and by Hon'ble Delhi High Court in case of Motor & General Finance Ltd., it appears to us that in present case what assessee- respondent had demanded from ITA was certain sum of money by way of security deposit which was to be so held for due and faithful performance of contract so long as it remained in force. This security deposit, which was refundable with interest after contract had been faithfully executed, fell within meaning of loan or borrowed fund as per decision of Hon'ble Supreme Court in case of K.M.S. Lakshmanier & Sons. We have gone through facts of that case very carefully and we find that deposit received b y assessee-respondent vide clause 6 of agreement dated 29-5-1976, was akin in character to deposit or deposits that had been received by Lakshmanier & Sons after 14-2-1945. circular had been issued by Lakshmanier & Sons, who were sole selling agents of yarn manufactured at Madura Mills Co. Ltd., to its various constituents that with effect from 14-2-1945 it was to receive 'certain sums towards security deposit and to keep same with us so long as our business connection under contract will continue with you'. Their Lordships of Hon'ble Supreme Court considered impact of aforesaid circular and held that amounts deposited by constituents of Lakshmanier & Sons did not have any relation to price realisable in respect of goods to be delivered to various constituents. price in respect of goods to be supplied by Lakshmanier & Sons had to be paid by customers in full against delivery of goods and security deposit was not to be adjusted against price realisable. Having had regard to these facts and also having taken into account fact that security depositors had to be paid interest of 3 per cent per annum by Lakshmanier & Sons, their Lordships came to conclusion that such deposits were of nature of loans or borrowed funds. We find that there is striking similarity between facts as prevailed in case of K.M.S. Lakshmanier & Sons and facts that prevail in appeal under consideration. facts in present case have also great similarity with facts which prevailed in case of Davies (H.M. Inspector of Taxes) v. Shell Co. of China Ltd. [1952] 22 ITR (Suppl.) 1 (CA). Their Lordships of Hon'ble Supreme Court had taken into account abovementioned English decision and then came to conclusion that deposits received by Lakshmanier & Sons from its constituents after 14-2-1945 were nothing but in nature of loan or borrowed money. above decision of Hon'ble Supreme Court had been taken due note of by Hon'ble Delhi High Court in case of Motor & General Finance Ltd.. Their Lordships of Delhi High Court had also taken into account other relevant decisions and in particular decision of Punjab Distilling Industries Ltd.'s case and then observed as follows: " principles that emerge from aforesaid authorities can now be conveniently summarised. It is clear that quality and nature of receipt for income-tax purposes is fixed once and for all, when it is received. Receipts of money or deposits for adjustment in price of goods to be supplied or services to be rendered, may be mere advance payments and, therefore, revenue receipts and not borrowed money. They are integral part of commercial transaction of sale or service and are related to price of goods or to charges for services rendered. They are trade receipts and money of assessee, and hence his revenue or income. Receipts in nature of deposits for making good defaults, if any, of person making deposit, on other hand, are simply loans owed by assessee to such person, and they form part of assessee's trading structure and not trade receipts ...." We are of considered view that above guidelines laid down by Hon'ble Delhi High Court which were in turn based on guidelines laid down by Hon'ble Supreme Court in K.M.S. Lakshmanier & Sons' case, had been properly applied by Commissioner (Appeals) to facts of present case. As we have stated earlier, facts in case of Motor & General Finance Ltd. were akin to facts of present case and just as there had been forfeiture of deposit by Motor & General Finance Ltd. on account of non-performance of contract, in this case also, forfeiture of security deposit had been made for non-performance of clause 6 of agreement. security deposit in case of Motor & General Finance Ltd., as in present case, had been obtained in order to ensure due performance of contract by parties. receipt of Rs. 6,05,000 was, thus, rightly considered to be loan at initial stage when it was deposited by way of refundable security deposit by ITA with OBS. character of this loan or deposit did not change into receipt of income nature when it was subsequently forfeited by assessee on account of failure of ITA to make deposit by 30-9-1977. Respectfully account of failure of ITA to make deposit by 30-9-1977. Respectfully abiding by law as laid down by Hon'ble Supreme Court in case of K.M.S. Lakshmanier & Sons and Hon'ble Delhi High Court in case of Motor & General Finance Ltd., we would hold that deposit of Rs. 6,05,000 was of nature of loan on which interest was payable by assessee at 12 per cent per annum if contract had been fulfilled by ITA. Further, abiding by law as laid down by Hon'ble Delhi High Court in above-mentioned case, we would hold that character of receipt is determined at time when it is received, and since in present case when refundable deposit was made, it was of nature of loan it did not change its character when forfeiture had been made by assessee-respondent. 10. Apart from what we have held above, we also find that in fact security deposit had no nexus with actual business which was to be carried on between OBS and ITA in respect of supply of bright steel bars by former to latter. security deposit was not at all to be adjusted against sale price realisable by OBS from ITA. If at all there was connection between security deposit and business to be commenced, it was only to effect that deposit had been obtained for due performance of contract only. learned departmental representative was, therefore, according to us, not correct when he said that deposit was integral part of business carried on by assessee. other arguments of learned departmental representative are also not acceptable to us. mere fact that forfeiture is held to be business loss in hands of payer, it does not mean that correspondingly receipt in hands of payee should always be revenue receipt. It is now well settled law that in order to find out as to whether receipt is capital receipt or revenue receipt, one has to see merely as to what is its nature in hands of receiver and one has not to bother about its nature in hands of payer. According to us, this is trite law but in case any authority was to be needed, we would refer to decision of Hon'ble Supreme Court in case of CIT v. Kamal Behari Lal Singha [1971] 82 ITR 460. learned departmental representative is, therefore, according to us, not entitled to take any support from decisions in Narandas Mathuradas & Co.'s case, Inden Biselers' case, Sugar Dealers' case and Thackers H.P. & Co.'s case. 11. So far as reliance placed by learned departmental representative on Supreme Court decision in case of Punjab Distilling Industries Ltd. and decision of Hon'ble Punjab and Haryana High Court in case of Atlas Cycle Industries Ltd. is concerned, we find that facts and circumstances in those cases were entirely distinguishable. In case of Punjab Distilling Industries Ltd., assessee was carrying on business of distilling and selling country liquor to licensed wholesalers. In order to relieve scarcity of bottles, assessee-distiller was, in accordance with scheme devised by Government, entitled to charge wholesalers price for bottles which was refundable as and when bottles were returned. receipts on account of price of bottles had been entered in books of that assessee under heading 'Empty Bottles Return Security Deposit Account'. question that arose for consideration of Hon'ble Supreme Court in that case was as to whether assessee was liable to be assessed on balance of amounts remaining in above-mentioned security deposit account after refund had been made therefrom. Their Lordships of Supreme Court held that as wholesalers were under no obligation to return bottles, amounts charged by assessee in respect of prices of bottles were not security deposits and fact that these amounts had been described as such was not sufficient to create obligation to return bottles. Their Lordships further held that amounts entered in by that assessee in Empty Bottles Return Security Deposit Account were integral part of commercial transaction of sale of country liquor in bottles and that, therefore, amounts remaining as balance in aforesaid account were rightly assessable t o tax. While so deciding case, their Lordships had taken into account earlier decision of Supreme Court in K.M.S. Lakshmanier & Sons' case and English decision in case of Davies (H.M. Inspector of Taxes). Their Lordships had also taken into account other English decision in case of Tattersall. Their Lordships held that deposits received by Punjab Distilling Industries Ltd. fall into category of deposits which had been received in case of K.M.S. Lakshmanier & Sons before 14-2-1945. In other words, if deposits which had been received by Punjab Distilling Industries Ltd. had fallen into category of deposits which had been received in case of K.M.S. Lakshmanier & Sons after 14-2-1945, decision of Hon'ble Supreme Court in case of Punjab Distilling Industries Ltd. would have been different. So far as other two English decisions are concerned, their Lordships of Supreme Court had not disagreed with ratio decidendi of those cases but had merely observed that facts in those cases were distinguishable so far as facts in case of Punjab Distilling Industries Ltd. were concerned. According to us, decision of Hon'ble Supreme Court in case of Punjab Distilling Industries Ltd., in fact, supports view that we have taken in accordance with earlier decision of Hon'ble Supreme Court in case of K.M.S. Lakshmanier & Sons. facts in case of Atlas Cycle Industries Ltd. had no similarity whatsoever with facts prevailing in present case. In case of Atlas Cycle Industries Ltd., three new employees of that company had entered into agreement for serving company for agreed period of time and deposited Rs. 3,348 by way of security. As employees had left service of company before stipulated period, security deposits had been forfeited by assessee-company in that case. Their Lordships of Punjab and Haryana High Court upheld assessment of forfeited security deposit on ground that assessee had by forfeiting security recompensed itself in respect of expenditure which had been incurred by it on training of employees and which had been allowed as business expenditure by income-tax authorities. decision of Hon'ble Punjab and Haryana High Court does not, in any way, help case sought to be made by learned departmental representative. 12. Insofar as testimony of B.H. Gandhi, partner of ITA, is concerned, we would agree with representation made by learned senior advocate, Mr. Sharma, that it was unreliable testimony and that in any case, it could not have been used against assessee unless latter had been confronted with it. On going through statement of B.H. Gandhi, we find that he did not know anything about accounts of ITA and he did not even know as to whether ITA had been assessed to tax. testimony of such ignorant partner could not be given preference over documentary evidence which is available in form of correspondence between OBS and ITA, in which it has been clearly admitted that sum of Rs. 6,05,000 was nothing but part of security deposit which was to be paid by ITA to extent of Rs. 10 lakhs in accordance with clause 6 of agreement dated 29-5-1976. ITO is certainly not bound by any technical rules of evidence and it is undoubtedly open to him to collect materials and evidence which would facilitate assessment. But in case he desires to use that material against assessee, latter must be informed of evidence gathered against it and must be given adequate opportunity of explaining it. That was ratio of decision of Hon'ble Supreme Court in case of C. Vasantlal & Co.. This decision, on which learned departmental representative has placed reliance, in fact supports contention taken by learned advocate of opposite side. 13. While we have held as above that forfeiture of security deposit of Rs. 6,05,000 did not result in any income on revenue account, we must make it clear that we do not agree with representation made on behalf of assessee-respondent that as result of breach of agreement dated 29-5- 1976, profit-making apparatus had been destroyed, and, therefore, for that reason, receipt of Rs. 6,05,000 was capital receipt. According to us, impact of termination of contract was not such as could amount to destruction of profit-earning apparatus. It did not amount to loss of enduring asset. It also did not amount to any unabsorbed shock dislocating business structure. 14. In result, we agree with finding of Commissioner (Appeals), which was in accordance with law laid down by Hon'ble Supreme Court in K.M.S. Lakshmanier & Sons' case and by Hon'ble Delhi High Court in case of Motor & General Finance Ltd.. We, accordingly, uphold order of Commissioner (Appeals) and dismiss departmental appeal. *** INCOME TAX OFFICER v. OMEGA BRIGHT STEEL (P) LTD.