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2020 (2) TMI 785 - AT - Income TaxMesne profit - receipt of compensation - Correct head of income - CIT-A treated it as revenue receipt and assessing the same under the head income from house property‟ - HELD THAT - It is not in dispute that the assessee had received the sum of ₹ 2 Crores as compensation for wrongful possession of the erstwhile tenant in the property belonging to the assessee, though the same had been characterized by the revenue as arrears of rent taxable u/s.25B r.w.s. 25AA of the Act. We find that the other decisions relied upon by the ld. DR and the ld. AR need not be gone into in view of the fact that the aforesaid decision of this Tribunal in the case of Goodwill Theaters 2013 (6) TMI 781 - ITAT MUMBAI has already been decided in favour of the assessee and the matter is pending at present before the Hon‟ble Jurisdictional High Court pursuant to the restoration of the appeal by the Hon‟ble Supreme Court to the Hon‟ble Bombay High Court. Hence, as on date, there is a decision of this Tribunal on the impugned issue which is in favour of the assessee and any reliance placed on any other decision would be premature at this stage in the aforesaid circumstances. Hence, we proceed to follow the decision of the Co-ordinate Bench of this Tribunal in the case of Goodwill Theaters referred to supra by holding receipt of compensation (i.e. mesne profit) of ₹ 2 Crores as capital receipt. Disallowance of professional fees u/s.40(a)(ia) - HELD THAT - We find that the ld. AR fairly stated that let this issue be factually valued by the ld. AO as to whether the recipient had already disclosed the subject mentioned receipt in its returns and had paid due taxes thereon. We find lot of force in the said argument as it is a statutory claim made by the assessee in terms of second proviso to Section 40(a)(ia) of the Act which says that once the recipient has already paid the taxes on a particular payment made by the assessee to the said recipient, then the disallowance u/s.40(a)(ia) of the Act cannot be invoked in the hands of the payer i.e. assessee herein. The ld AO is directed accordingly. Hence the ground No.2 raised by the assessee is allowed for statistical purposes. Addition with respect to interest on fixed deposit with banks on account of difference of amount reflected in form 26AS and amount disclosed by the assessee in the return - HELD THAT - Assessee had offered the interest income of ₹ 61,41,915/- towards interest on fixed deposits with banks based on the certificate issued by The National Co-operative Bank Ltd., which is enclosed. Merely because the extra amount is reflected in form 26AS, the assessee cannot be asked to explain the difference. The assessee herein had placed reliance on the external evidence i.e., the certificate given by the bank for offering interest income on deposits to tax. If the said bank had disclosed some other figure while filing its TDS returns by mentioning the PAN of the assessee, then assessee cannot be called upon to reconcile the difference. There is no dispute that it is the very same bank which had also given the certificate to the assessee certifying that only a sum of ₹ 61,41,915/- has been paid as interest to the assessee during the year under consideration. Hence, the addition made by the AO and sustained by the ld. CIT(A) does not survive. Accordingly, the ground raised by the assessee is allowed. Correct head of income - treatment of interest income on fixed deposits - income from other sources or profits and gains of business or profession - HELD THAT - As relying on M/S. DALMIA PROMOTERS DEVELS. (P) LTD. 2015 (9) TMI 1247 - SUPREME COURT we hold that the interest income on fixed deposits in the peculiar facts of the instant case should be assessed only under the head business income‟. Accordingly, ground raised by the assessee is allowed.
Issues Involved:
1. Taxability of mesne profits received as compensation. 2. Disallowance of professional fees under Section 40(a)(ia) of the Income Tax Act. 3. Addition due to discrepancy in interest income reported and reflected in Form 26AS. 4. Classification of interest income on fixed deposits. Detailed Analysis: 1. Taxability of Mesne Profits Received as Compensation: The primary issue was whether the mesne profit of ?2 Crores received by the assessee should be treated as a revenue receipt and taxed under the head "income from house property." The assessee argued that the amount was a capital receipt as it was compensation for wrongful possession of the property by MMTC. The Small Causes Court had awarded mesne profits based on the market rent rate of ?161 per sq. ft. for the period from 01.07.2000 to 31.03.2002. The assessee relied on several judicial precedents, including the Special Bench decision in Narang Overseas Pvt. Ltd. vs. CIT and the case of Goodwill Theaters Pvt. Ltd., which supported the view that mesne profits are capital receipts. The AO, however, treated the compensation as arrears of rent taxable under Sections 25B and 25AA. The CIT(A) upheld the AO's decision, relying on the Madras High Court's decision in P. Mariappa Gounder vs. CIT. The Tribunal, however, followed the precedent set by the Special Bench and other cases, concluding that the mesne profit received by the assessee was a capital receipt and not taxable. 2. Disallowance of Professional Fees under Section 40(a)(ia): The assessee had made a payment of ?48,376 as professional fees to M/s. Sharex Dynamic India Pvt. Ltd. without deducting tax at source. The AO disallowed this expenditure under Section 40(a)(ia). The assessee contended that the recipient had already included this amount in its income and paid taxes. The Tribunal directed the AO to verify this claim. If the recipient had indeed paid taxes on the amount, the disallowance under Section 40(a)(ia) should not apply. 3. Addition Due to Discrepancy in Interest Income: The AO added ?16,245 to the assessee's income due to a discrepancy between the interest income reported and the amount reflected in Form 26AS. The assessee argued that it had reported the interest income based on the certificate issued by The National Co-operative Bank Ltd., which showed an interest income of ?61,41,915. The Tribunal found that the assessee had relied on external evidence and that any discrepancy in Form 26AS should not lead to an addition. The Tribunal directed the deletion of this addition. 4. Classification of Interest Income on Fixed Deposits: The issue was whether the interest income of ?1,64,10,938 from fixed deposits should be classified as "income from other sources" or "business income." The assessee had consistently reported such income as business income in earlier years, and the department had accepted this classification. The Tribunal, following the principle of consistency as upheld by the Supreme Court in CIT vs. Dalmia Promoters and Developers Pvt. Ltd., ruled that the interest income should be treated as business income. Conclusion: The Tribunal allowed the appeal of the assessee, treating the mesne profit as a capital receipt, directing verification for the disallowance of professional fees, deleting the addition for the discrepancy in interest income, and classifying the interest income on fixed deposits as business income. The appeal was allowed for statistical purposes.
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