2020 (9) TMI 204 - HC - Income Tax

Income from other sources - accrual of income - ITAT held that sum received by the assessee pursuant to a Development Agreement had not accrued as income and was there fore not taxable till the Joint Development Agreement took off and sale proceeds were received by the developer? - assessee continued to show the same as a liability - HELD THAT - There is no finding rendered by the Assessing Officer that the sum of 9 Crores does not fall under the heads A to E to be brought under head F which deals with Income from other sources . Therefore the finding of the Assessing Officer is perverse. What weighed in the mind of the Assessing Officer to hold that the amount of 9 Crores lies in the hands of the assessee was a windfall gain is by referring to an event which took place during the assessment year 2015-16. Obviously this could not have been done by the Assessing Officer because the assessment which was the subject matter of consideration was of the year 2007-08. The Joint Development Agreement Power of Attorney the mortgage were all in force at the relevant time. In fact even on the date when the Assessing Officer completed the assessment under Section 147 of the Act by order dated 25.03.2015 the Joint Development Agreement was not rescinded and the Power of Attorney was not cancelled. Therefore on facts the Assessing Officer could not have held that this is on account of a windfall gain to be brought to tax under the head income from other sources . Thus we hold that the order passed by the Tribunal does not call for any interference and consequently the Substantial Question of law is required to be answered against the revenue.

Summary

Issues:
1. Whether the amount received by the assessee pursuant to a Development Agreement is taxable as income.
2. Whether the sum of ?9 Crores received by the assessee can be considered a windfall gain and taxed as income from other sources.

Analysis:
1. The appeal raised the issue of whether the sum of ?9 Crores received by the assessee under a Development Agreement should be considered as income. The assessee filed the return for the assessment year 2007-08, admitting a loss. However, the Assessing Officer reopened the assessment, contending that the amount received should be treated as a windfall gain and taxed as income. The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision in favor of the assessee. The revenue argued that the amount should be considered income as it remained with the assessee until 2015. The court examined the terms of the agreements and found that the amount was an advance under the MOU, not a windfall gain, as it was subject to adjustment against the revenue share of the assessee. The court concluded that the Assessing Officer's decision to tax the amount as income was incorrect.

2. The second issue pertained to whether the sum of ?9 Crores could be classified as a windfall gain and taxed as income from other sources. The court analyzed Section 56(1) of the Income Tax Act, which defines income from other sources. The Assessing Officer had categorized the amount as a windfall gain based on events from a later assessment year, which the court deemed inappropriate. The court also distinguished previous case law cited by the revenue, stating that those decisions were not applicable to the current case. Ultimately, the court held that the Tribunal's decision did not warrant interference, and the substantial question of law was answered against the revenue, leading to the dismissal of the tax case appeal.