2019 (11) TMI 747 - AT - Income Tax

Undisclosed interest income - ownership of deposits in the hands of Developer of society - Co-operative society had not come into existence - Deduction u/s 80 IB(10) in respect of its residential project - AO disallowed assessee s entire claim of deduction u/s 80 IB(10) on account of certain violations and further made additions on account of undisclosed interest income - AO while disallowing assessee s claim of deduction u/s 80 IB (10) observed that the assessee is not eligible for claiming deduction in respect of sale of car parking and also on resale of flat - HELD THAT - From the reading of meaning of fiduciary relationship as defined in legal dictionaries referred above, it can be safely construed that it is a relationship between the two parties . Thus, existence of two parties whether real or juristic is a pre-condition to have fiduciary relationship. In the absence of second party, there cannot be any fiduciary relationship. In the instant case it is an undisputed position that Co-operative society had not come into existence till the end of relevant previous year. Therefore, the assessee cannot hold the amount in fiduciary capacity of a non-existent entity. The argument of assessee, holding funds of society in fiduciary capacity, thus fails. If arguments forwarded by assessee are accepted, then the interest income on fixed deposits would escape taxnet. If it is held that the interest is not income of the assessee, the same would obviously not be taxable in the hands of the assessee. Since, residents Co-operative society has not come into existence during the previous year when the interest income had accrued, the interest income cannot be taxed in the hands of non-existent entity. Hence, interest income would neither be taxable in the hands of the assessee nor in the hands of Co-operative society. The proposition put-forth by the ld.Authorized Representative of the assessee is hence, unacceptable. Income could not be earned in vacuum and it should accrue to certain beneficiary. In the present case, it is not the collection of corpus fund but the interest on alleged corpus fund , which is subject matter of dispute. Corpus fund and interest on corpus fund are on different footing. Corpus fund is capital in nature, whereas, interest earned on corpus fund is revenue receipt. We concur with the findings of the CIT(A) in confirming the addition on account of undisclosed interest income in the hands of assessee. The grounds raised by the assessee in appeal are de-void of any merit and, hence, the same are dismissed. Deduction u/s 80 IB(10) in respect of sale of car parking - HELD THAT - We find that this issue is squarely covered in favour of the assessee by various decisions of the Tribunal. The Hon ble Jurisdictional High Court in the case of Puravankara Projects Ltd. ( 2011 (7) TMI 1352 - BOMBAY HIGH COURT ) has affirmed the findings of Tribunal in holding that car parking space forms part parcel of housing project and the assessee is entitled to deduction under section 80 IB(10) in respect of sale of parking area. The CIT(A) granted relief to the assessee by following the decisions of the Tribunal and the Hon ble High Court. We find no reason to interfere with the well reasoned finding of CIT(A). Thus, ground No.1 of the appeal of Revenue is dismissed. Deduction u/s 80 IB(10) in respect of flat which has been allegedly resol d - HELD THAT - A perusal of records reveal that Flat No.K/1204 on which Revenue is disputing the claim of deduction under section 80 IB(10) was initially sold to Shri Jailesh Oebroi Smt. Vimla Oberoi. They had paid initial token amount of ₹ 2,50,000/- at the time of booking flat. Thereafter, they defaulted the terms of payment and the assessee had to cancel the booking. After cancellation of the initial sale agreement, the flat was resold to other party. The assessee claimed deduction under section 80 IB(10) of the Act in respect of profits arising from resale of said flat. It is not a case where the assessee has indulged in any trading/broking of the same flat twice. It was under peculiar facts that the first agreement was cancelled and the flat was resold. We do not find any error in the findings of CIT(A) in allowing deduction under section 80 IB(10) of the Act on the profits arising from sale of said flat. No infirmity in the findings of CIT(A) in allowing proportionate deduction on the eligible flats of the housing project. The concept of allowing proportionate deduction on eligible flats have been approved by Hon ble Jurisdictional High Court in the case of Vandana Properties ( 2012 (4) TMI 54 - BOMBAY HIGH COURT ) . The ground No.3 of the appeal is dismissed being devoid of any merit. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Addition on account of undisclosed interest income.
2. Disallowance of deduction under section 80 IB(10) on sale of car parking.
3. Disallowance of deduction under section 80 IB(10) on resale of flat.
4. Allowability of pro-rata deduction under section 80 IB(10).

Detailed Analysis:

1. Addition on account of undisclosed interest income:
The assessee challenged the addition of ?18,82,023/- on account of undisclosed interest income, arguing that the interest was earned on fixed deposits from the corpus fund of the residents' Co-operative society, which the assessee held in a fiduciary capacity. The Tribunal, however, found that the Co-operative society had not come into existence by the end of the relevant previous year, and the fixed deposits were in the name of the assessee with TDS credited to the assessee's PAN. The Tribunal held that a fiduciary relationship requires the existence of two parties, which was not the case here, as the society was non-existent. Consequently, the interest income could not escape taxation and was rightly added to the assessee's income. The Tribunal distinguished this case from the precedent set in ACIT vs. Evershine Builders Pvt. Ltd., noting that the issue here was the interest on the corpus fund, not the corpus fund itself. Thus, the addition was upheld.

2. Disallowance of deduction under section 80 IB(10) on sale of car parking:
The Revenue contested the CIT(A)'s decision to allow a deduction under section 80 IB(10) for the sale of car parking spaces. The Tribunal referenced the Hon'ble Bombay High Court's decision in Puravankara Projects Ltd., which held that car parking spaces are part and parcel of a housing project and eligible for deduction under section 80 IB(10). The Tribunal found no reason to interfere with the CIT(A)'s findings and dismissed this ground of the Revenue's appeal.

3. Disallowance of deduction under section 80 IB(10) on resale of flat:
The Revenue also challenged the CIT(A)'s decision to allow a deduction under section 80 IB(10) for a flat that was resold. The Tribunal reviewed the facts and found that the initial sale agreement for Flat No. K/1204 was canceled due to non-payment by the initial buyers, and the flat was subsequently resold. The Tribunal concluded that this was not a case of trading the same flat twice but a resale due to specific circumstances. Therefore, the CIT(A)'s decision to allow the deduction was upheld.

4. Allowability of pro-rata deduction under section 80 IB(10):
The Tribunal addressed the issue of allowing pro-rata deductions under section 80 IB(10) for eligible flats within the housing project. The Tribunal cited the Hon'ble Bombay High Court's decision in Vandana Properties and the Hon'ble Madras High Court's decision in Viswas Promoters, which supported the concept of pro-rata deductions. Consequently, the Tribunal found no error in the CIT(A)'s decision to allow proportionate deductions and dismissed this ground of the Revenue's appeal.

Conclusion:
Both the assessee's and the Revenue's appeals were dismissed. The Tribunal upheld the addition of undisclosed interest income and the CIT(A)'s decisions to allow deductions under section 80 IB(10) for the sale of car parking spaces, the resale of the flat, and on a pro-rata basis.