2019 (3) TMI 737 - AT - Income Tax

House property income - accrual of income - compensation amount payable to the assessee till the Rent commencement date - assessee had entered into a lease agreement - DR argued that the compensation shall take the character of rental income - rent commencement date , which is determined as the next date to the day when the approval from Ministry of Environment & Forests (MOEF) and Occupancy Certificate (OC) from Municipal Corporation of Greater Mumbai (MCGM) are received - HELD THAT - The compensation amount so paid shall be kept as advance towards the compensation until the procurement of the said OC by the Lessor. These aspects were made clear further in clause 5.6 of the Supplementary Agreement, wherein it is stated that the payments made towards compensation as advance shall be treated and appropriated by the lessor as compensation from lessee for occupation of the property only upon procurement of the OC from MCGM. The assessee has not received approval from MOEF and OC from MCGM during the year under consideration. Further, during the year under consideration, the assessee has also not received any payment towards the compensation also. Hence we are of the view that the compensation amount or lease amount has not accrued to the assessee during the year under consideration, since the accrual of the same would depend upon the receipt of approvals referred above. Hence the ratio of the order passed by the Co-ordinate Bench in AY. 2013-14 in the assessee s own case 2019 (1) TMI 197 - ITAT MUMBAI shall continue to apply during the year under consideration also. Accordingly, we are of the view that the order passed by the Ld. CIT(A) does not call for any interference. - Decided against revenue.

Summary

Issues:
Challenge to deletion of house property income assessed by AO for AY 2014-15.

Analysis:
The Revenue appealed against the decision of the Ld. CIT(A) deleting the house property income of ?11.76 Crores assessed by the AO for AY 2014-15. The AO noted that the assessee, engaged in real estate business, had entered into a lease agreement and supplementary agreement for a property in Mumbai. The assessee did not offer any rental income, claiming it accrues only after approvals from MOEF and MCGM. The AO treated compensation amount of ?16.80 Crores as rent receivable, assessing ?11.76 Crores as income under 'income from house property'. The Ld. CIT(A) deleted a similar addition made in AY 2013-14, directing deletion for the current year too.

The Ld. DR argued that the compensation of ?4.20 Crores per quarter, as per the supplementary agreement, should be assessed as 'income from house property'. The Ld. AR contended that as approvals were pending, no rent accrued, and no compensation was received during the relevant year. The Ld. AR highlighted that the compensation was an advance to be adjusted post 'Rent Commencement date'. Referring to a previous tribunal order, the Ld. AR defended the Ld. CIT(A)'s decision.

The Tribunal observed that rent accrues only post approvals, which the assessee had not obtained by the relevant financial year. The Ld. CIT(A)'s decision for AY 2013-14 was upheld by the Tribunal, indicating consistency. The AO assessed compensation as 'income from house property' based on its payment obligation till 'Rent Commencement date'. However, the supplementary agreement clarified that compensation was due only post 'Rent Commencement period' and treated as advance till OC procurement. As approvals were pending and no compensation received, the Tribunal upheld the Ld. CIT(A)'s decision, dismissing the Revenue's appeal.