1991 (4) TMI 91 - HC - Income Tax

Summary

Issues Involved:
1. Characterization of non-refundable deposits.
2. Nature of the assessee's rights post-agreement.
3. Classification of construction activity as a business venture.
4. Timing of profit accrual.
5. Addition of undisclosed income.

Issue 1: Characterization of Non-Refundable Deposits
The Tribunal held that the deposits received by the assessee were trading receipts. Despite being termed "non-refundable deposits," they were essentially consideration for the sale of occupancy rights. The Tribunal and the Appellate Assistant Commissioner agreed that these deposits partook of the character of trading receipts and should be treated as revenue receipts.

Issue 2: Nature of the Assessee's Rights Post-Agreement
The Tribunal found that the rights remaining with the assessee after allotting floor space were of negligible or dubious value. The assessee had transferred the occupancy rights of the entire floor area, and what remained were more obligations than rights. Consequently, the cost of construction should be deducted from the trading receipts to determine profits.

Issue 3: Classification of Construction Activity as a Business Venture
The Tribunal upheld that the construction of the building "Nirmal" was a business venture. The non-refundable deposits received were trading receipts, and the activity constituted a business transaction. The Tribunal dismissed the Revenue's contention that the deposits were capital receipts.

Issue 4: Timing of Profit Accrual
The Tribunal accepted that the profits from the trading receipts accrued in the assessment year 1969-70 when the floor area was actually allotted. Therefore, the additions for the assessment years 1967-68 and 1968-69 were deleted.

Issue 5: Addition of Undisclosed Income
The Tribunal upheld the deletion of Rs. 50,000 added by the Income-tax Officer as income from undisclosed sources. The amount was treated similarly to the non-refundable deposits and was considered a payment towards occupancy rights.

Income-tax Reference No. 216 of 1977:
The Tribunal held that the compensation received from shareholders was business income, not income from property. The actual compensation receivable by the assessee, not the higher compensation received by shareholders, should be taxed. The Tribunal rejected the Revenue's contention that the compensation should be taxed as income from property u/s 22 of the Income-tax Act, 1961.

Conclusion:
- Question No. 1 (108 of 1977): Affirmative (against Revenue)
- Question No. 2 (108 of 1977): Affirmative (against Revenue)
- Question No. 3 (108 of 1977): Negative (against Assessee)
- Question No. 4 (108 of 1977): Affirmative (against Revenue)
- Question No. 5 (108 of 1977): Affirmative (against Revenue)
- Question No. 1 (216 of 1977): Affirmative (against Revenue)
- Question No. 2 (216 of 1977): Affirmative (against Assessee)

No order as to costs.