2006 (7) TMI 192 - HC - Income Tax

Assessee, builder sell some flats to purchasers & collect the house tax from them and pay it to the municipal corporation - house tax due from the purchasers shown as liability in the balance-sheet was taken as the income of the assessee by AO - There is no debit in the profit and loss account in respect of house tax liability of the purchasers amount was actually a liability on behalf of the purchasers and was not the liability of assessee - additions rightly deleted by CIT & ITAT

Summary

Issues:
Interpretation of house tax liability in the context of a builder selling flats and collecting taxes on behalf of purchasers.

Analysis:
The case involved a dispute regarding the house tax liability of a builder who had sold flats to various purchasers and collected taxes on their behalf. The primary issue was whether the house tax collected by the builder from the purchasers should be considered as income of the builder or as a liability on behalf of the purchasers. The Commissioner of Income-tax (Appeals) initially treated the house tax liability as income of the builder, leading to an appeal by the builder.

Upon further review, the Commissioner of Income-tax (Appeals) found that the house tax collected was actually a liability on behalf of the purchasers and not of the builder's business. Consequently, the addition made by the Assessing Officer was deleted, and the appeal of the builder was allowed. This decision was challenged by the Revenue before the Tribunal, which dismissed the appeal.

The High Court, after considering the facts and arguments presented, observed that the builder had only collected a specific amount from the house owners, which was to be paid to the municipal corporation. The balance of the house tax amount was not collected by the builder, indicating that it should not be considered as the builder's income or liability. The High Court noted that the excess amount collected was debited in the profit and loss account, but there was no debit related to the house tax liability of the purchasers.

Ultimately, the High Court found no substantial question of law requiring consideration and upheld the decisions of both the Commissioner of Income-tax (Appeals) and the Tribunal. The appeal was dismissed based on the grounds that the house tax liability was correctly determined to be the responsibility of the purchasers and not the builder, thereby affirming that the builder had not derived income from the house tax collection.

In conclusion, the judgment clarified the treatment of house tax liability in the context of builders selling flats and collecting taxes on behalf of purchasers, emphasizing that such collections should not be considered as income of the builder but as a liability of the purchasers.