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TMI Blog2016 (3) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... to legality and validity of the said premium both as statutory and contractual liability were under challenge and legal dispute being sub-judice with the Hon’ble Bombay High Court, when the assessee filed his return of income in October 2007 with the Revenue claiming the said expenditure of ₹ 12,00,000/- as deduction u/s 37(1) of the Act in the computation of income filed along with return of income with the Revenue. Thus, in our considered view, the said expenses of ₹ 12,00,000/- claimed by the assessee as an expenditure in the return of income filed with Revenue is not deductible as revenue expenditure u/s 37(1) of the Act, while computing income of the assessee being disputed , un-ascertained liability and contingent liability which was subject to challenge and dispute before the Hon’ble Bombay High Court both with respect and regard to being classified as statutory as well as contractual liability at the time of filing of return of income with the Revenue by the assessee in October 2007 . Thus, based on our above discussion and reasoning, the grounds of the appeal raised by the assessee are rejected and are dismissed TDS u/s 194C - Labour charges paid by invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 The learned Commissioner of Income - tax (Appeals) - 19, Mumbai { the Id. CIT (A) } erred in confirming the action of the assessing officer ( A.O. ) of making disallowance of ₹ 12,00,000/- under section 43B of the Income tax Act, 1961 ( the Act ). 1.2 While doing so, the CIT (A) failed to appreciate that the amount payable to Brahanmumbai Municipal Corporation ( BMC ) was not covered by the provisions of section 43 B of the Act so as to call for the disallowance. 1.3 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. 2.1 The Id. CIT (A) erred in confirming the action of the A.O. in disallowing the claim of deduction amounting to ₹ 3,02,575/- on account of labour charges paid, by invoking the provisions of section 40 (a) (ia) of the Act. 2.2 While doing so, the Id. CIT (A) failed to appreciate that the provisions of section 40 (a) (ia) were not at all applicable in the facts of the Appellant's case. 3. The brief facts of the case are that the assessee is engaged in the business of development and construction of buildings. During the course of assessment proceedings u/s 143(3) read wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst BMC's demand of increased transfer fee @ 50%. However, the same is also not paid yet as BMC has not agreed upon. The A.O. held that firstly, the transfer fees due to BMC is covered by section 43B of the Act being a Government due. As per the provisions of section 43B of the Act , this transfer fee payable to BMC can be allowable only when it is actually paid. As per the submissions of the assessee, the same is still payable. Hence, the said fee cannot be allowed in the relevant assessment year due to provisions of Section 43B of the Act. Secondly, it is very much clear that in the previous year relating to this assessment year, the liability has not been crystallized being a disputed contractual liability. In mercantile system of accounting, the income expenditure accrues when there is a right to receipt and right to payment is established and once the right is withheld by way of a dispute, then the accrual of income expenditure is postponed till the final settlement of the dispute. It is a settled law that the disputed liability accrues only in the year of final settlement, therefore, the claim made by the assessee is not deductible. The A.O. observed that the case l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 6. Aggrieved by the orders dated 20.02.2012 of the CIT(A), the assessee is in appeal before the Tribunal. 7. The ld. Counsel for the assessee submitted that the assessee has to pay transfer fee to BMC and accordingly the assessee has made provision of ₹ 12 lacs with respect to the plot of land which was purchased by the assessee which was a leasehold land for 999 years. The original lessor is BMC and Mr. Sylvestor Others are original lessee. The assessee has to pay transfer charges to the BMC @ 7% of agreement value and the BMC has suddenly increased the transfer charges from 7% of agreement value to 50% of value of land as per ready reckoner rate, however , the assessee has made provision of ₹ 12,00,000/- @10% of agreement value as against 50% of value of land as per ready reckoner rate to be payable in due course and the assessee has claimed expenses in the year under consideration. The ld. Counsel submitted that in view of this dispute with respect to payment of transfer fee/premium to BMC on transfer of lease-hold rights, Writ Petitions vide No. 166 of 1997, 2370 of 2006, writ petition no 1262 of 2010 and 718 of 2010 were filed by various aggrieved petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the afore-stated judgment dated 15-02-2011 delivered by the Hon ble Bombay High Court, copy of the SLP is placed vide page No. 31 to 33 of the paper book filed by the assessee with the Tribunal. The ld. Counsel contended that these demands were raised by BMC without any authority of law and nor these are contractual liabilities as per the terms of lease deed entered by and between the lessor and the lessee. The ld. Counsel also relied on the decision of the Hon ble Supreme Court in the case of Bharat Earth Movers Limited, (2000) 245 ITR 428 (SC) and Taparia Tools Private Limited , (2015)372 ITR 605(SC). 8. The ld. D.R., on the other hand, relied on the orders of authorities below and submitted that the demand has not been paid by the assessee to the BMC and there is thus non compliance of provisions of Section 43B(a) of the Act and the authorities below has rightly made the disallowance. 9. We have heard the rival contentions and also perused the material available on record including the case laws relied upon by both the sides. We have observed that the assessee has purchased a plot of land of which the original lessor is Brihanmumbai Muncipal Corporation (in short BMC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to seek prior permission of the Corporation before assigning his lease hold rights. As prior permission itself is not contemplated, there is no question of the Corporation levying any penalty for assigning the lease hold rights without prior permission of the Corporation. The demand made by the Corporation in that regard, therefore, is without authority of law. 13. In these circumstances, therefore in our opinion, all these Petitions will have to be allowed. They are accordingly allowed. It is held that in the absence of any stipulation in the Lease Deed permitting the Corporation to charge any premium or any provision in law authorizing the Corporation to claim such a premium on transfer of lease hold rights, the Corporation cannot claim any premium like it has been done in this case from the assignee. Similarly in the absence of any stipulation in the Lease Deed for not obtaining prior permission of the Corporation for assignment of lease hold rights the Corporation cannot demand any transfer fees from the assignee. The amount that might have been collected by the Corporation pursuant to the demand notice which has been made in these Petitions are directed to be refunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ater Mumbai(BMC) to charge and collect premium on transfer of lease-hold rights from the purchaser/assignees in the plots of land of which BMC is the owner and the BMC cannot claim any premium from the purchaser s/ assignee s. We have observed that the Hon ble Bombay High court vide its judgment dated 15th February, 2011 held that the amount that might have been collected by the Corporation pursuant to the demand notice which has been made in these Writ Petitions filed with the Hon ble Bombay High Court are directed to be refunded by the BMC after adjusting any legal demands that may be due to the BMC from the Petitioners within a period of eight weeks from the date of judgment. Against this judgment of the Hon ble Bombay High Court, the Municipal Corporation of the Greater Mumbai also known as BMC has filed Special Leave Petition (SLP) under Article 136 of The Constitution of India before the Hon ble Supreme Court vide SLP(C)No. 16197/2011 challenging the afore-stated judgment dated 15- 02-2011 of the Hon ble Bombay High Court. Thus, in nut-shell it has been held by the Hon ble Bombay High Court vide its judgment dated 15-02-2011 that these premium on transfer of lease hold rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the land owned by BMC was with the Hon ble Bombay High Court since 1994. Thus, the assessee was well aware of the on-going legal dispute with respect to challenge to legality and validity of the charging of the premium by BMC on transfer of lease-hold rights in the land owned by BMC in favour of the purchaser/assignee s, both as a statutory liability as well as contractual liability. The issue is to be decided on the undisputed and admitted fact that the assessee was fully aware of the on-going legal dispute prevailing with respect to challenge of legality and validity of the premium on transfer of lease-hold rights claimed and collected by BMC being subject of challenge on legal grounds that the said premium on transfer of lease-hold rights is collected without any authority of law in force in India and hence not a statutory liability nor the said premium charged is a contractual liability in the absence of provisions/clause in the lease deed executed by and between the lessor and the lessee authorizing charging of said premium on transfer of lease-hold rights in the land owned by BMC in favour of purchasers/assignees. The assessee was aware of the legal dispute pending at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court has clearly laid down that the said premium on transfer of lease-hold right is not collected under any provisions of any law in force in India, we hold that said premium on transfer of lease-hold rights of land owned by BMC is not a fee as defined u/s 43B(a) of the Act and is not hit by Section 43B(a) of the Act and the same cannot be disallowed for non- compliance of provisions of Section 43B of the Act. The second contention of the Revenue is that the liability has not crystallized during the assessment year being a disputed and contingent liability as the same being un-ascertained liability and the said liability will crystallize in the year of final settlement once the legal disputes are resolved by judgments of the Courts. It is stated in the judgment of the Hon ble Bombay High Court dated 15-02-2011 that the Writ petition bearing number 2370 of 2006 was filed by Maharashtra Chamber of Housing Industry in representative capacity and the assessee has also produced letter dated 20-09-2011 in the paper book placed at page 9 whereby the said Maharashtra Chamber of Housing Industry has updated to all their members about the recent legal development on this issue vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity has arisen or accrued against the assessee being an ascertained liability rather it is a contingent liability being an un-ascertained liability , of which ascertainment and quantification is dependent and contingent on the pronouncement and decisions of the Courts on legal challenge raised by the Petitioners with respect to said chargeability of premium both as a statutory liability as well as contractual liability . The cue for this is to be found in the CBDT Notification No. SO 69(E) dated 25th January 1996 issued under Section 145(2) of the Act, which states that provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. Accounting Standard AS-29 issued by The Institute of Chartered Accountants of India (ICAI) deals with Provisions, Contingent Liabilities and Contingent Assets'. The purpose of the accounting standards is to ensure that the balance sheet and P L Account of an enterprise should present a true and fair view of its business affairs. Under AS 29 a 'provision' is defined to mean a liability which could be measur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n land owned by BMC in favour of purchaser/ assignees was also subject to challenge before the Hon ble Bombay High Court that it is neither a statutory liability as being levied without any provisions in any statute in force in India be it a Central Act or State Act or any other law in force in India and also subject to challenge that it is also not a contractual liability as there is no provision / clause in the lease deed entered into by and between lessor and lessee which enforces and crystallizes the said charge . Thus, we hold that the liability to pay the premium to BMC on transfer of lease-hold rights of the land owned by the BMC in favour of purchaser/assignees was an un-ascertained liability being a contingent liability during the impugned assessment year as the said premium per-se both as a statutory and as well as being a contractual liability were subject matter of legal dispute and challenge before the Hon ble Bombay High Court of which the assessee was fully aware . The assessee was also not making payment to BMC knowingly fully well that it is an unascertained and contingent liability as the matter as to legality and validity of the said premium both as statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2007-08 , individuals have not been specified and the assessee being individual is not liable to deduct tax at source u/s 194C(1) of the Act . The assessee submitted that Section 194C(2) of the Act is not applicable to the assessee as the said sub-section is applicable if the payment is made by contractor to sub-contractor and this being not the case here , the provisions of Section 194C(2) of the Act cannot be made applicable to the assessee. The A.O held that the assessee has deducted tax at source on labour payments except with respect to above-mentioned parties and hence the assessee plea cannot be accepted. Secondly, in view of the provisions of section 40(a)(ia) read with section 194C (2) of the Act , the AO disallowed the expenditure. While doing so, the A.O. observed that the assessee is engaged in the business of developing and construction wherein he executes contract which is entered between the buyer and himself, hence, the provisions of section 194C(2) of the Act would be applicable instead of section 194C(1) of the Act. As per the above said section 194C(2) of the Act which is applicable in the assessee's case, it is very clear that for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT(A), the assessee is in appeal before the Tribunal. 12. The ld. Counsel for the assessee submitted that assessee is a builder and developer and payment to certain contractors were made during the assessment year, but no tax was deducted at source. The ld. Counsel submitted that there was no provision in the Act which obliges the assessee for such deduction of tax at source as per the then applicable laws if the payments were made by an individual who is a builder and developer to the contractor. The ld counsel for the assessee drew our attention to the then prevailing Section 194C of the Act which was later amended w.e.f. 01-06- 2007. The assessment year under consideration is 2007-08 and the law has been amended w.e.f. Ist June, 2007 whereby section 194C of the Act was amended and individual were also being made liable for deducting tax at source for payment being made to contractors as stipulated in amended Section 194C(1) of the Act. The assessee submitted that the said plea being legal plea was taken before the CIT(A) for the first time but was not adjudicated by the CIT(A) nor any remand report was called by the CIT(A). The ld counsel for the assessee relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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