2016 (8) TMI 1087 - AT - Income Tax

Nature of receipt in the hands of the assessee - corpus fund received - Held that - Consideration for which the amount has been paid by the developer are, therefore, not relevant in determining the nature of receipt in the hands of the assessee. In view of these discussion, assessee could not be said to be of revenue nature, and, accordingly, the same is outside the ambit of income under section 2(24) of the Act. The impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account as such, as and when occasion arises for computing capital gains in respect of the said asset. Subject to these observations, the appeal of assessee is allowed. Compensation received by assessee for paying rent - Held that - This amount was given by Developer for paying rent while development of the project was taking place. In fact, assessee submitted before me that he has made expenditure of ₹ 6,80,000/- towards rent while development activity of the project was taken place. So, Assessing officer is directed to allow the claim of assessee to same extent because it is nothing but compensation received by assessee for paying rent. This cannot be said to be income of assessee. Assessing Officer is directed accordingly.

Summary

Issues Involved:
1. Reopening of assessment under section 147
2. Addition to total income as income from other sources amounting to ?22,00,000
3. Addition to total income as income from other sources amounting to ?8,55,800

Analysis:

Issue 1: Reopening of assessment under section 147
The appeal was filed against the order of the Commissioner of Income-Tax (Appeals) for the assessment year 2007-08. The assessing officer had erred in reopening the assessment under section 147. However, during the hearing, the authorized representative did not press this ground, leading to its dismissal as not pressed.

Issue 2: Addition to total income as income from other sources amounting to ?22,00,000
The primary issue revolved around the addition of ?22,00,000 to the total income as income from other sources. The assessing officer had made this addition based on a corpus fund received by the assessee and rental credited to the bank account. The assessee failed to provide reasons for the non-disclosure in the income tax return. The ITAT Mumbai 'A' Bench decision in a similar case highlighted that capital receipts cannot be considered income unless specifically taxable under the Income Tax Act. The tribunal held that the amount received as a corpus fund was in the nature of a capital receipt and not taxable. The receipt was considered to reduce the cost of acquisition of the asset and would be accounted for in computing capital gains in the future. Following the same reasoning, the appeal of the assessee was allowed.

Issue 3: Addition to total income as income from other sources amounting to ?8,55,800
The second addition to the total income was ?8,55,800, representing the rent paid by the developer during the project development. The assessee claimed to have spent ?6,80,000 on rent during the project development. The assessing officer was directed to allow this claim as it was considered compensation received by the assessee for paying rent and not income. Therefore, this amount was not treated as part of the assessee's income. Consequently, the appeal was partly allowed.

In conclusion, the ITAT Mumbai ruled in favor of the assessee, allowing the appeal on both issues related to additions made to the total income as income from other sources. The judgment highlighted the distinction between capital and revenue receipts and emphasized that capital receipts are not taxable unless specifically provided for in the Income Tax Act.