2022 (4) TMI 902 - AT - Income Tax

Nature of receipt - compensation money received - whether the said transaction was purely forfeited security deposit in the nature of revenue receipt and did not come under the extinguishment or relinquishment envisaged by Sec.2( 47) ? - HELD THAT - Clear and unequivocal terms of the proposal was respected by accepting the offer, and the amount of ₹. 15 crores was paid to the assessee, during assessment year 2011-12. However, even thereafter, the assessee claims that she continued to classify the same as 'refundable security deposit' and the company continue to claim the same as 'recoverable advance'. On perusal of the hard copies of the Returns of Income of the assessee for subsequent years i.e. assessment years 2012-13 to 2015-16, the ld. CIT(A) noticed that even upto assessment year 2015-16, the amount in question has not been offered to tax by the assessee. This also completely contradicts the stand taken by the assessee in this regard. As assessee has advanced 100% of the cost price of the property of construction of 35,000 sq.ft. IT park project, we find that the ld. CIT(A) has correctly held that the amount of ₹.7 crores (the receipt of ₹.15 crores Less ₹.8 crores paid by the assessee to the developer) was liable to tax as Long Term Capital Gains in the hands of the assessee, subject to indexation for the relevant years and rightly directed the Assessing Officer to bring to tax the Long Term Capital Gains computed by treating ₹.15 crores as 'Sale consideration' and ₹.8 crores as 'Cost of acquisition'. Thus, the ground raised by the assessee is dismissed. Alternative plea raised before the ld. CIT(A) that if at all it were to be assessed as an income, it could be done only in the year when the Developer squares up the transaction in its books - CIT(A) has clearly mentioned in the appellate order at page 49 that the ld. CIT(A) has called for and perused the hard copies of the returns of income of the assessee for subsequent years i.e., assessment years 2012-13 to 2015-16, the ld. CIT(A) noticed that even upto assessment year 2015-16, the amount in question has not been offered to tax by the assessee. In view of the above facts, we are of the opinion that the ld. CIT(A) has rightly rejected the alternative plea of the assessee and the thus, the ground raised by the assessee is dismissed. Income has to be taxed under the head income from other sources - CIT(A) has rightly directed the Assessing Officer to bring to tax the Long Term Capital Gains computed by treating ₹.15 crores as 'Sale consideration' and ₹.8 crores as 'Cost of acquisition' considering the fact that the assessee has advanced 100% of the cost price of the property of construction of 35,000 sq.ft. IT park project, the ground raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Classification of the ?7 crore received by the assessee: Whether it is a capital asset or income from other sources.
2. Taxability of the ?7 crore: Whether it should be taxed as long-term capital gains or under the head "Income from Other Sources."
3. Timing of the taxability: Whether the ?7 crore should be taxed in the assessment year 2011-12 or in a subsequent year when the developer squares up the transaction in its books.

Issue-Wise Detailed Analysis:

1. Classification of the ?7 Crore Received by the Assessee:
The primary issue was whether the ?7 crore received by the assessee from the developer should be classified as a capital asset or as income from other sources. The Assessing Officer (AO) argued that the ?7 crore was a revenue receipt and should be taxed under "Income from Other Sources." The AO noted that the assessee had initially treated the amount as compensation due to forfeiture, but later claimed it was a refundable deposit. The AO concluded that the payment was a mere deposit or advance, and hence, it could not be considered under "Income from Capital Gains."

2. Taxability of the ?7 Crore:
The AO treated the ?7 crore as revenue receipt and assessed it under "Income from Other Sources." However, the Commissioner of Income Tax (Appeals) [CIT(A)] directed the AO to treat the ?7 crore as long-term capital gains. CIT(A) held that the amount should be computed by treating ?15 crore as the sale consideration and ?8 crore as the cost of acquisition. The CIT(A) noted that the assessee had advanced 100% of the cost price of the property for the construction of a 35,000 sq.ft. IT park project, and thus, the ?7 crore was liable to tax as long-term capital gains.

3. Timing of the Taxability:
The assessee contended that if the ?7 crore were to be assessed as income, it should be done in the year when the developer squares up the transaction in its books. The CIT(A) rejected this alternative plea, noting that the assessee had not offered the amount to tax in subsequent years up to the assessment year 2015-16. The Tribunal upheld the CIT(A)'s decision, agreeing that the amount should be taxed in the assessment year 2011-12.

Conclusion:
The Tribunal dismissed both the appeals filed by the Revenue and the assessee. It upheld the CIT(A)'s decision to treat the ?7 crore as long-term capital gains, computed by treating ?15 crore as the sale consideration and ?8 crore as the cost of acquisition. The Tribunal also agreed with the CIT(A) in rejecting the alternative plea of the assessee regarding the timing of taxability. The ?7 crore was thus confirmed to be taxable in the assessment year 2011-12 as long-term capital gains.

Order Pronounced:
The judgment was pronounced on 12th April 2022 at Chennai.