2017 (2) TMI 1551 - AT - Income Tax

Accrual of income - year of assessment - taxable in the year under consideration as accrued receipt - HELD THAT - As assessee did not get the right to receive Rs. 20 crores in the year under consideration and therefore it cannot be considered as income for the year. Further it is assessee s submission that the amount of Rs. 20 crores has been offered to tax in subsequent years. The aforesaid factual submission of the assessee has not been controverted by the Revenue. If that be the case, then the taxation of Rs. 20 crore in the year under consideration and in subsequent years would amount to double taxation of the same amount. Before us Revenue has also not placed any material on record to demonstrate that the M.O.U that has been entered into by the assessee is an afterthought for the purpose of avoidance / deferment of tax. The amount of Rs. 20 crores which has not been received by or accrued to the assessee cannot be brought to tax in the year under consideration.

Summary

Issues Involved:
1. Taxability of Rs. 20 crores as income for the assessment year 2012-13.
2. Accrual of income based on the completion of conditions stipulated in the MOU and sale deed.
3. Classification of the land sold as stock-in-trade versus capital asset.
4. Double taxation of income in subsequent years.

Issue-wise Detailed Analysis:

1. Taxability of Rs. 20 crores as income for the assessment year 2012-13:
The primary issue revolves around whether the Rs. 20 crores should be taxed in the assessment year 2012-13. The assessee argued that the amount did not accrue as income during this year because the conditions stipulated in the MOU were not fulfilled. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the entire sale consideration of Rs. 120 crores, which includes the Rs. 20 crores, accrued to the assessee upon the execution of the sale deed on 02.02.2012, thereby making it taxable in the assessment year 2012-13.

2. Accrual of income based on the completion of conditions stipulated in the MOU and sale deed:
The assessee contended that the Rs. 20 crores was contingent upon obtaining certain approvals and fulfilling specific conditions, which were not met by the end of the assessment year 2012-13. The MOU specified that the amount was payable after the inclusion of the purchaser's name in the 7/12 extract and the deletion of the concerned entries in the records. The AO and CIT(A) dismissed this argument, asserting that the sale deed indicated the entire consideration of Rs. 120 crores was for the transfer of land, making the amount due in the year of the sale deed's execution.

3. Classification of the land sold as stock-in-trade versus capital asset:
The assessee classified the land as stock-in-trade, arguing that the provisions of Section 2(47) of the Income Tax Act, which pertain to the transfer of capital assets, were not applicable. The CIT(A) acknowledged this classification but maintained that the sale consideration accrued upon the registration of the sale deed, making the entire amount taxable in the assessment year 2012-13. The Tribunal agreed with the assessee's classification but emphasized that the income accrual depended on the completion of the conditions stipulated in the MOU.

4. Double taxation of income in subsequent years:
The assessee argued that taxing the Rs. 20 crores in the assessment year 2012-13 would result in double taxation, as the amount was offered as income in subsequent years when the conditions were fulfilled. The Tribunal found this argument valid, noting that the Revenue did not provide evidence to refute the assessee's claim that the amount was offered in subsequent years. The Tribunal emphasized that income tax cannot be levied on hypothetical income and must be based on actual accrual, accompanied by a corresponding liability of the other party to pay the amount.

Conclusion:
The Tribunal concluded that the Rs. 20 crores did not accrue to the assessee in the assessment year 2012-13 because the stipulated conditions in the MOU were not fulfilled by the end of that year. Consequently, the amount could not be considered as income for that year. The Tribunal set aside the addition made by the AO, thereby allowing the assessee's appeal. The decision underscores the principle that income accrues when it becomes due and must be accompanied by a corresponding liability, avoiding hypothetical income taxation and double taxation of the same amount in subsequent years.