INCOME TAX ACT, 1961

Section 56

Income from other sources - Chargeability - Amount allegedly received as advance - On transfer of capital asset/leased assets--Whether non-existing liability

AO observed that if one go through the contents of agreement between the parties coupled with power of attorney given to developers, it was very clear that the assessee had voluntarily entered into lease agreement in the year 1995 and also entered into a development agreement for development of a property for agreed revenue sharing. Further, the assessee had received his share of 12% revenue from sale proceeds of developed building upto financial year 2008 and shown under the head advances from customers. He opined that entire advances received upto 31-3-2010 of Rs. 269,48,90,886 was treated as non existing liability and assessed under the head income from other sources. Similarly, the amount of advance received for the assessment year 2011-12 had been treated as non existing liability and assessed under the head income from other sources. Further, the AO had also assessed lease rental receivable from M/s. Ivory and and rent received from M/s. Ferani under the head income from other sources. According to CIT(A) since, the matter was subjudiced before the court, unless the court decides the issue finally the disputed amount cannot be considered as income accrued to the assessee. Accordingly CIT(A) deleted all additions.Held:Once the tribunal had held that the amounts collected by Ferani during the pendency of the suit and kept in FD's were amounts kept in custody of the court and not accessible to the Administrator till disposal of the suit and to be governed by the final order of the high court. For the assessment year 2011-12. The 'asset in question was inherited land which was acquired in 1923 by FED and inherited in 1936 by E.F.D. The Bombay High Court in its judgment considered the circumstances in which the entire land was inherited by the children of F.E.D. and held that the Administrator was holding this land as capital asset and therefore income on its transfer can only be taxed under the head 'capital gains'. In the circumstances, once the AO had admitted that Rs. 269.48 crores was received as Advance against transfer of asset, then he could not under the provisions of section 56 assess the same as income because none of the taxable events contemplated under section 56 took effect in financial year 2010-11. Moreover as held by the High Court, the land in question was capital asset of the assessee, and hence, income embedded in advances against the transfer can only be assessed under the head capital gains and that too in the year in which 'transfer' of the capital asset legally takes effect and not in any year. Amounts which the assessee received during the period 1995-96 to 2010-11 could not be charge to tax as income in assessment eyar 2011-12, under the head income from other source or any other head of income. On the facts of the case, it could not be established that there was cessation of liability. It was further observed that section 41(1) had no application.

Followed:G. Venkatswomi Naidu and Co v. CIT (1959) 35 ITR 594 (SC) : 1959 TaxPub(DT) 121 (SC). Relied:Dy. CIT v. Everyday Industries India Ltd. ITA No. 94/Kol/2004, dated 3-2-2016 and CIT v. L. Sambasiva Reddy (2015) 62 Taxmann.com 174 and the decision of ITAT, Mumbai in the case of Bombay Gowrakshak Mandali v. ITO ITA No. 5508/M/2014.

REFERRED : CIT v. United Provinces Electric Supply Co (2000) 244 ITR 764 (SC) : 2000 TaxPub(DT) 1340 (SC) and CIT v. K.C.P. Ltd. (2000) 245 ITR 421 (SC): 2000 TaxPub(DT) 1506 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2011-12 & 2012-13

INCOME TAX ACT, 1961

Section 4 Section 5

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