2007 (10) TMI 440 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of compensation received for early termination of lease.
2. Charging of interest u/s 234B.
3. Capitalization of bill discounting charges and traveling expenses.

Summary:

1. Taxability of Compensation Received for Early Termination of Lease:
The primary issue was whether the compensation of Rs. 96,45,810 received by the assessee from M/s. Microsoft Corporation for early termination of a lease was taxable. The CIT(A) held that this compensation was a non-taxable receipt, directing the Assessing Officer to delete the addition assessed under the head "Income from other sources" u/s 56(1). The CIT(A) relied on the Supreme Court's judgment in Nalinikant Ambalal Mody v. S.A.L Narayan Row, CIT [1966] 61 ITR 428 and CIT v. Smt. T.P. Sidhwa [1982] 133 ITR 840 (Bom.), concluding that the compensation retained the character of rent income from house property and could not be taxed under any other head. The Tribunal upheld this view, stating that the compensation was not includible under the head "Income from house property" due to the definition of annual value u/s 23 and could not be taxed under "Income from other sources" either.

2. Charging of Interest u/s 234B:
The CIT(A) directed the Assessing Officer to charge interest u/s 234B based on the income declared in the return, not on the assessed income. The Tribunal did not provide specific details on this issue in the summary but upheld the CIT(A)'s order.

3. Capitalization of Bill Discounting Charges and Traveling Expenses:
The assessee raised cross objections regarding the capitalization of bill discounting charges amounting to Rs. 53,04,643 and traveling expenses of Rs. 2,73,368. The Tribunal agreed with the assessee's concession that these expenditures should be capitalized to work-in-progress and allowed as an expenditure in the succeeding year when the income is taxed upon project completion. The cross objections were allowed for statistical purposes.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross objections for statistical purposes, confirming that the compensation received for early termination of the lease was a non-taxable receipt and directing the appropriate treatment of capitalized expenditures.