2016 (6) TMI 246 - AT - Income Tax

Revision u/s 263 - treatment to sinking fund from the parties as capital or revenue receipt - Held that - As in the assessment order there was no discussion whatsoever by the Assessing Officer on the issue relating to sinking fund. There is no application of mind or any enquiry by the Assessing Officer on this issue. Being so, in our opinion, the assumption of jurisdiction under section 263 of the Act is justified. Regarding the pleas of the assessee is that the sinking fund is a part of sale consideration of the property, in our opinion, this plea of the assessee is having no merit since it is an admitted fact the office space sold during the year was not actually owned by the assessee. The transaction has actually taken place between M/s. SCM Microsystems (India) P. Ltd. and M/s. Data Telesis Pvt. Ltd. Though the assessee is not involved in the sale of office space, still the sinking fund is collected by the assessee from the buyer. This does not a part of the sale consideration received by the assessee so as to be treated as capital receipt and to grant deduction under section 80-IA of the Act. Thus the transaction is in the nature of charging fees from owners for providing various types of services in the form of maintenance of various routine services and maintenance of the building, consequently, all within the ambit of trading activities, nothing to do with the consideration received by the assessee, if any. Further, there is a binding decision of the Bombay High Court (M. Visvesvaraya, Industrial Research and Development Centre v. CIT (2012 (11) TMI 235 - BOMBAY HIGH COURT) in which the Commissioner of Income-tax placed reliance so as to treat the impugned receipt as a revenue receipt, as such we do not find any infirmity in the order of the Commissioner of Income- tax. - Decided against assessee.

Summary

Issues:
- Jurisdiction under section 263 of the Act regarding sinking fund deposits as revenue receipt
- Nature of sinking fund deposits: capital or revenue receipt
- Claim for deduction under section 80-IA of the Act

Analysis:
1. Jurisdiction under section 263 of the Act regarding sinking fund deposits as revenue receipt:
The issue in this case revolves around the invocation of the jurisdiction under section 263 of the Act by the Commissioner of Income-tax to direct the Assessing Officer to consider sinking fund deposits received by the assessee as revenue receipts. The Commissioner relied on a judgment of the Bombay High Court to support this view. The assessee argued that the sinking fund deposits were capital in nature as they were collected for future capital expenditures and had not claimed depreciation on the assets. The authorized representative emphasized that the sinking fund was collected to meet future liabilities and should not be treated as income. However, the Commissioner held that even if the sinking fund was to be used for capital expenses, the amount received would still be considered as the assessee's income.

2. Nature of sinking fund deposits: capital or revenue receipt:
The Tribunal considered the arguments presented by both parties regarding the nature of sinking fund deposits. The assessee contended that the sinking fund collections were part of the sale consideration of the property and, therefore, should be eligible for deduction under section 80-IA of the Act. However, the Tribunal found that the sinking fund was collected from buyers even though the office space sold was not owned by the assessee. The Tribunal concluded that the sinking fund was not part of the sale consideration received by the assessee and was more in the nature of charging fees for maintenance services, falling within trading activities. The Tribunal upheld the Commissioner's decision to treat the sinking fund receipts as revenue receipts.

3. Claim for deduction under section 80-IA of the Act:
The assessee argued that even if the sinking fund collections were considered revenue receipts, they should still be eligible for deduction under section 80-IA of the Act as part of the sale consideration. However, the Tribunal rejected this argument, stating that the sinking fund was not related to the consideration received by the assessee from the sale of office space. The Tribunal upheld the Commissioner's orders for the assessment years 2010-11 and 2011-12, confirming that the sinking fund receipts were to be treated as revenue receipts.

In conclusion, the Appellate Tribunal dismissed both appeals of the assessee, upholding the Commissioner's decision to treat sinking fund deposits as revenue receipts and denying the claim for deduction under section 80-IA of the Act.