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2020 (3) TMI 110 - AT - Income TaxNature of advance received - transfer of capital assets is in dispute regarding the validity of lease rent agreement as well as development right agreement . - Taxability as income from other sources - Addition on account of alleged 12% share of the sale realization of flats - Business income or capital gains - HELD THAT - Once the tribunal has held that the amounts collected by Ferani during the pendency of the suit and kept in FD's are amounts kept in custody of the court and not accessible to the Administrator till disposal of the suit and to be governed by the final order of the high court, then the amounts so collected cannot be considered to be income of the assessee. Further, AO has brought to tax advances which the assessee had received during the period 1996-97 to 2008-09 totally ₹ 269,48,90,856/- under the head other source. We are surprised to note that the AO had made additions contrary to the provision of section 56 of the Income Tax Act which govern the assessment of income under the residuary head. Further, said provisions nowhere permit the A.O. to assess receipts of prior years in one lump sum in later year on the ground that in prior years the receipt was not taxed. It is further observed that section 41(1) has no application, because the liability contemplated by that section relates to trading liability for which deduction was allowed to the assessee the computation of income of any earlier year. In this case, the amount assessed was never allowed as a deduction in any earlier year. AO was incorrect in taxing advances received by the assessee up to the A.Y. 2011-12 as income chargeable to tax under the head income from other sources. Taxability of lease rental - Held that - Merely because grant of lease was provided in the Agreement dated 02.01.1995 but when in fact the lease deed was never executed in favour of the parties, then said Ferani Ivory could not presume that lease rights were in fact awarded in their favour by the Administrator. In absence of any formal registered lease agreement, Ivory Ferani could not legally infer that the lease of land was granted by the Administrator in respect of the lands. Enforceable lease was not in operation was not disputed by the revenue. The Ivory had accepted contractual tenancy when it had executed conveyance in FY 2001-02 and 2002-03. The assessee had filed copy of lease deed dated 25- 10-2001. We find that clause (iv)(b) of the deed of conveyance dated 25.10.2001 executed between the assessee and Ivory properties and hotels Pvt. ltd and Toyota Lakozy Auto Pvt. Ltd., which clearly talks about contractual monthly tenancy on the expiry of the lease. It is evident that even if one accepts the claim of the developers that lease for the period of five years was granted the same came to conclusion in January 2000 on expiry of five year period. Relationship between the parties was that of landlord and contractual monthly tenant. Before the lower authorities, the assessee had filed requisite documentary evidence to prove that in 2008 the assessee had taken necessary legal steps to terminate the contractual tenancy of each developer. Once the assessee had taken legal steps to terminate the contractual monthly tenancy, the developers could not unilaterally claimed themselves to be having leasehold rights in the land in terms of covenants contained in the agreement dated 02.01.1995. AO before concluding that income by way of lease rent had accrued, failed to bring on record sufficient, adequate and cogent documentary evidence which proved that a legally valid binding agreement subsisted between the Administrator and Ferani Ivory in terms of which the assessee had vested right of claiming monthly rent from them. The assessee had taken sufficient legal steps for termination of tenancies which could be inferred only from the conduct of the parties and consequent to the termination of tenancies, the assessee had stopped accepting the monthly payments tendered by Ivory Ferani. When the assessee stopped accepting the monthly payments, Ferani Ivory unilaterally opened accounts with the Banks in their own names and continued depositing the monthly sums of ₹ 55,000/- . But, fact remains that these accounts were opened by Ferani Ivory entirely on their own volition and in their own names and the Administrator had never granted his consent either for opening of the Accounts or depositing the monthly sums of ₹ 55,000/-. It is also material that there existed no privity of contract either written or implied in terms of which Ferani or Ivory had legal obligation to pay and the Administrator had vested right to demand payment of monthly lease rent. These accounts were opened by these companies by providing details information about themselves. The Administrator of Estate of EFD had never authorized or permitted either of the companies to open the account nor had it provided any information enabling either of the companies to open these accounts. On account of unilateral acts of the project coordinators, no income in law could be inferred particularly when no part of the income assessed was either legally due to the assessee or when the amounts were not actually received by the Administrator. CIT(A) after considering relevant facts has rightly held that the AO was incorrect in taxing lease rent as income chargeable to tax under the head income from other sources. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue.
Issues Involved:
1. Taxability of advances received by the assessee. 2. Head of income under which the advances are assessable. 3. Taxability of lease rental income. Detailed Analysis: 1. Taxability of Advances Received by the Assessee: The Revenue raised concerns regarding the deletion of advances amounting to ?269.48 crores received by the assessee on the transfer of assets. The primary issue was whether these advances could be considered as income in light of disputes between the developer and the assessee regarding the validity of lease rent and development right agreements. The facts revealed that the assessee, acting as the administrator of an estate, entered into development agreements with developers in 1995. Disputes arose, leading to the termination of these agreements and subsequent legal proceedings. The AO concluded that the advances received should be recognized as income, arguing that the assessee had an absolute right over the money received. However, the CIT(A) found that the advances were not taxable in the assessment year 2011-12, as the income from these transactions was chargeable under the head "capital gains" and not "income from other sources". The CIT(A) emphasized that the amounts received were shown as liabilities and were contingent upon the final court decision. The Tribunal upheld the CIT(A)'s findings, noting that the amounts were under court custody and not accessible to the assessee. 2. Head of Income Under Which the Advances are Assessable: The Revenue contended that the income from the development agreement should be taxable as business income, arguing that the land was converted into stock in trade upon entering the development agreement. The AO initially assessed the income under the head "income from other sources". The CIT(A) and the Tribunal disagreed with the AO's assessment, holding that the income from the sale of flats was assessable under the head "capital gains". This conclusion was based on previous judicial decisions, including the Hon’ble Bombay High Court's ruling in the assessee's case for earlier periods, which determined that the land was held as a capital asset and not stock in trade. The Tribunal noted that the AO's action of taxing the advances as "income from other sources" was incorrect and unjustified. 3. Taxability of Lease Rental Income: The AO added lease rental income of ?39.60 lakhs to the assessee's income under the head "income from other sources". The assessee argued that the lease rent was not legally chargeable as income since there was no privity of contract during the relevant period. The CIT(A) found that the lease agreements provided for a lease period of five years, which had expired, and no formal lease deeds were executed thereafter. The Tribunal upheld the CIT(A)'s decision, noting that the lease rent deposited in separate accounts by the developers was not accessible to the assessee and there was no enforceable lease agreement in place. Conclusion: The Tribunal dismissed the Revenue's appeals for the assessment years 2011-12 and 2012-13, upholding the CIT(A)'s findings that the advances received were not taxable under the head "income from other sources" and that the lease rental income was not chargeable to tax. The Tribunal emphasized the importance of judicial consistency and the need for substantial evidence to alter previously accepted positions.
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