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TMI Blog2015 (4) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... rights from GIDC. The said lease amount was to be recovered from the members joining the scheme by sub leasing the land to them. Upto this extent, we hereby hold that the Assessee was required to demonstrate by a separate account in its books to “earmark” the amount received against the sub lease from the members of the scheme. This fact still can be verified by perusing the sub lease agreements. Otherwise also the admitted factual position is that the Assessee was receiving ₹ 8 lac from each member on granting sub lease to them. Therefore there should not be any defect in ascertaining the year-wise sub lease amount received by this Assessee. Whether the “principle of mutuality” shall apply on the present set of facts - Held that:- We are not in agreement with the contentions of learned A.R. because of the simple reason that the principle of mutuality is based upon the concept of sharing the expenditure as well as sharing the profits. In the present case, nowhere it was demonstrated that the surplus, if any generated from the running of the scheme, shall be distributed amongst the members of the scheme. In the absence of such evidence we hereby hold that the principle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, which are as under. 1) Core infrastructure like Roads, Water Distribution, Electric Distribution, Drainage, Strom Water, Site Development, Compound Wall etc. 2) Common Facilities like Research Training Center, Canteen, Workers' Hostel, Parking Facility, Fire Fighting etc. 3) Factory Buildings. The major drawback Indian textile industry is delay in supply and quality issues. The units in park can get together and serve the large export orders so that international buyer can get quality fabric within required time. Machineries installed in the units must be TUF approved machines which are better machines and can produced good quality of fabric. Units get power in time and good quality of infrastructure and common facilities as mentioned above so that units can be competitive in international market. The detailed scheme of SITP is also provided for your reference. The SPV is formed by promoters of the park and members who are interested in putting up textile industry are invited to be a member in the SPV. The right of sub lease of Land is given to them against their contribution towards land. No amount of subsidy can be utilized for purchase or sub lease of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, whereas no receipt was issued in respect of the cash payment received. The agreements were executed for ₹ 8 lac only. An another marketing personal namely Ashok B. Sheth has also been interrogate, who has stated as under: 4.3 Shri. Ashok B. Sheth working as marketing personnel of the company while answering to Q.No.3 on 28-1-2010 stated that there are 499 plots and each plot of 227 sq.yard. Around 45% to 50% plots have been sold till the dated of survey. The total land of Sayan Textile Park is 2,25,000 sq.mtr. He has also admitted that the total cost of each plot is ₹ 12 lac. While answering Q.No.8 he confirmed that receipts are given for the cheque payments and for the cash payments separate diaries are prepared in which the amounts are written in code and which are in the custody of customers. While replying to Q.No.9, he stated that as per Annexure BF-2, this diary pertains to plots J-19 to J-23 booked by Shri Ashok Kabrawala and amount of 6005 is actually ₹ 60,05,000/-. On page no.3 the cash payments made by Shri Ashok Kabrawala of ₹ 5 lacs till date have been mentioned against total ₹ 20 lacs (Rs. 4 lacs X ₹ 5 lacs ) the total val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the record made available to the AO. The AO has also reproduced the clauses of a Sub Lease Deed. The AO had perused the contents of the Sub Lease and made an observation that for the purpose of business of textile the land was given on sub-lease for construction on the plot which was to be done by the allottee but with the consent of the Assessee. The Sub Lease Deed had clarified that the plot holder had paid a sum of ₹ 8 lacs as a one time value for the allotment rights over the plot in favour of the plot holders. The said amount of ₹ 8 lac was stated to be inclusive of members contribution as per SITP guidelines. The plot holder was not entitled to transfer the plot as a gift or mortgaged etc. before the prior sanction from the Assessee company. The plot holder was required to obtain no objection certificate from the Assessee company before such transfer. A plot holder was also required to make regular payment pertaining to common maintenance charges fixed by the Assessee. A construction could be carried out after obtaining permission from the Assessee company and the expenditure were to be borne by the plot holder. After narrating those facts, the AO has iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income. Since you are not offering any business income and the income is only receipt by way of sub-leasing of plot of land, maintenance income and interest income, please explain as to why the income received by you should not be treated as income from other sources and accordingly since you have not received any income this year why the entire expenses claimed by you should not be disallowed u/s. 37(1) of the I.T. Act, because the expenditure has not been incurred wholly and exclusively for the purpose of business activity. In view of the above please showcause as to why the entire on-money income of ₹ 19,96,00,000/- should not be taxed as income from other sources . 2.5 The Assessee s reply was that there was no evidence that the Assessee had received any amount more than 7 crore as additional receipt. There was no such incriminating document recovered at the time of survey. It was further explained that during the year under consideration no deed of sub lease was executed; hence there was no taxable income for the year under consideration. It has also been vehemently contested that the amount in question was a premium on sub-lease of the plot in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taxable on receipt basis as against the assessee's contention of treating the amount as Business income on accrual basis. Therefore, the amount of ₹ 11,27,06,000/- is added to the total income of the assessee. 2.7 Against the addition, the Assessee has preferred an Appeal. 3. Before learned CIT(A), the Assessee has informed that the Ministry of Textile, GOI had decided to develop a Textile Park. The Government had granted ₹ 40 crore, i.e., upto 40% of the total cost of the project. It was a Scheme for Integrated Textile Park (SITP) on cost sharing basis hence the members were to be the promoters of the Park. The Promoters were required to provide the balance fund for the project. Further, it was informed that the Assessee company had obtained the land on lease basis from GIDC. It was also informed that a document, i.e., Special Purpose Vehicle (SPV) was executed on cost sharing basis and the government was required to contribute 40% of the total project cost. It was also mentioned that generally the government keeps the control for 15 years and thereafter nominate the Directors of the Board of Company to supervise the operation. Thereafter, in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion of learned CIT(A) for ready reference is reproduced below: Therefore, in my considered view, the ₹ 11.27 crores has to be treated as money received for 94 plots (out of 504 plots). Therefore, the expenses are to be capitalized proportionately. The appellant has shown an expenditure of ₹ 23,93,17,249/- in respect of total plots. Therefore, the proportionate expenses in respect of 94 plots are worked out as under:- 94 X 23,93,17,249 divided by 504 = ₹ 4,46,34,566. Therefore, against the receipt of ₹ 11,27,06,000 the expenses to the tune of ₹ 4,46,34,566 shall be allowed as expenses incurred in respect of 94 plots in respect of which, the money has been received during the year. Thus, the amount to be capitalized as WIP in the balance sheet will be only ₹ 19,46,82,683/-and not ₹ 23,93,17,249/-. Accordingly the net amount of ₹ 6,80,71,433 will be liable to be taxed during the year. This amount is almost in tune with net amount of ₹ 7 Crore offered by Shri Chokhawala the Director of the appellant company for A.Y. in question during the course of survey. This is also in conformity with the percentage method of taxing the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,20,85,215 2011-12 32,16,57,015 2012-13 42,18,32,023 2013-14 47,48,86,905 4.1 Likewise the plots were also allotted in different financial years and the scheme was in progress when the assessment was finalized. Since, the Assessee is not the owner of the land, therefore, the amount which was received as sub lease amount from the members should not be taxed as business receipt in the hands of the Assessee. He has placed reliance on the decision as already noted above, namely, Panbari Tea Company, 57 ITR 422, Asha Land Corporation, 133 ITR 55 and few decisions of the Tribunal. 5. From the side of the Revenue-Department, learned Sr.D.R., Mr. Subhash Bains, CIT-DR appeared and supported the order of the AO, however he has pleaded that there was no basis to proportionately tax the amount in dispute as held by learned CIT(A). He has placed reliance on certain statements, copies of the same placed in the compilation filed by the Revenue Department. Learned Sr.D.R., has pleaded that the Assessee has not denied the fact that there was cash component in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that upto the year under consideration the Assessee has shown total receipts of ₹ 11,27,06,000/- which was inclusive of onmoney of ₹ 7 crore, which was offered at the time of survey. The AO was of the view that the said amount of ₹ 11.27 crore was received on account of granting sub lease of plots hence the nature of income was income from other sources . As against that when the matter was carried before the First Appellate Authority he was of the view that the Assessee was running a project for development of the plots therefore it was a business adventure due to which only the amount received upto the year under consideration was required to be matched with the expenditure incurred on the plots. Hence, a view was taken that the amount of ₹ 11.27 cr. was received against the lease of 94 plots out of 504 plots; therefore, a proportionate expenditure was to be adjusted against the amount received. In the light of the above discussion, we have to decide the questions raised before us by learned A.R. 6.2 The IT Act broadly recognise only two types of receipts one is Revenue receipt and the other is capital receipt. The receipts are in general fall un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generated from the running of the scheme, shall be distributed amongst the members of the scheme. In the absence of such evidence we hereby hold that the principle of mutuality shall not apply on this Assessee. 6.4 Alternatively, in our opinion, this is a case where this company was running a business of development of a scheme which was sponsored by the Government of India. While developing such project the Assessee on one hand has been allotted a piece of land on lease basis. However, on the other hand the plots were demarcated and leased out by charging a premium on each plot. The premium so charged was required to be utilized for the purpose of the development of the area. The amount so received from the allottees had two components, one component is towards the consideration towards lease granted for 30 years and the other component is towards the expenditure of development in infrastructure. It was an obligation of the Assessee company to provide infrastructure to the members of the scheme. That was the expenditure towards development of the scheme hence in the nature of work in progress WIP. The profit on such type of activity can be calculated by two methods one is proj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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