Coastal Ceramics and Clay Works Private Ltd. V. Union of India, Ministry of Finance, Department of Revenue and Interim Board For Settlement -II and The Principal Commissioner of Income Tax (Central), Visakhapatnam

WP/15833/2023

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The case involves M/s Coastal Ceramics and Clay Works Private Ltd., which challenged the inclusion of a Rs. 50,00,000 refundable security deposit as taxable income for the Assessment Year 2019-20. The deposit was received from M/s. Royal Mindz Infra Pvt. Ltd. under a Development Agreement for a commercial complex in Rajahmundry. The Income Tax Department argued that the deposit was an undisclosed receipt and should be taxed as income. The petitioner contended that the amount was a refundable security deposit and not income. The court examined the Development Agreement and found that the deposit was indeed a security deposit, not a revenue receipt, and thus not taxable as income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 699959 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 28-12-2023
• Assessment Year: misc
• Laws Referred To: Article 226 of the Constitution of India, Article 14 of the Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JUPUDI V K YAGNA DUTT; M KIRANMAYEE
• Assessee Lawyers: N VIJAY
• Keywords: Arbitrary; Development agreement; Illegal; Income Tax; Refundable security deposit; Violative; Writ of Mandamus; Consent Fee
• Section: 151 CPC

Judgement Text

"IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI (Special Original Jurisdiction) THURSDAY, THE TWENTY EIGHTH DAY OF DECEMBER/ TWO THOUSAND AND TWENTY THREE PRESENT THE HON’BLE SRI JUSTICE U.DURGA PRASAD RAO AND THE HON’BLE SMT JUSTICE VENKATA JYOTHIRMAI PRATAPA WRIT PETITION NO: 15833 OF 2023 Between: M/s Coastal Ceramics and Clay Works Private Ltd., 11-58, Morampudi, Rajahmundry Rural, Rajahmundry-533103 rep. by Managing Director. Barlapudi Raveendra Kumar S/o. Hanumaiah. ...PETITIONER AND 1. Union of India Ministry of Finance Department of Revenue, 3^'^ Floor, Jeevan Deep Building, Sansad Marg, New Delhi- 110001 Rep. by the Finance Secretary. 2. Interim Board For Settlement -II New Delhi, 9*'’ Floor, Loknayak Bhavan, Khan market. New Delhi-110003, Rep. by its Registrar. 3. The Principal Commissioner of Income Tax (Central) Visakhapatnam. ...RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ, order or direction, especially one in the nature of Writ of Mandamus declaring the Lr. No. 783/KNL/PCB-RO/KNL/CTO/2022, Dt. 15.04.2023 issued by Respondent No.3 to the extent of consent fee for the period 26.02.2021 to 13.03.2023 under G.O. Ms. No. 13 as illegal, arbitrary and violative of Article 14of Constitution of India and consequently direct the Respondents to issue CTO on payment of fee as per G.O Ms. No. 10 dt. 14.02.2023. lA NO: 1 OF 2023 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the writ petition, the High Court may be pleased to f stay the operation of the Order of Respondent No.2 Dt.09.06.2023 vide Settlement Application No.APA/Z-1/2021- 22/17/IT to the extent of inclusion of Rs 50,00,000/- given Refundable Security Deposit vide Development Agreement- cum Gen.Power of Attorney dt.16.12.2011 vide Doc.No.7592 of 2011 as income of the Petitioner for the AY 2019-2020, pending disposal of this writ petition. Counsel for the Petitioner : SRI N. VIJAY Counsel for the Respondent No.1 : SRI JUPUDI V.K. YAGNA DUTT, CENTRAL GOVT. COUNSEL Counsel for the Respondent Nos.2 & 3 : SMT. M. KIRANMAYEE, SC FOR INCOME TAX The Court made the following: ORDER 1 [3417] IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI (Special Original Jurisdiction) THURSDAY, THE TWENTY EIGHTH DAY OF DECEMBER TWO THOUSAND AND TWENTY THREE . PRESENT THE HONOURABLE SRI JUSTICE U.DURGA PRASAD RAO THE HONOURABLE SMT JUSTICE VENKATA JYOTHIRMAI PRATAPA WRIT PETITION NO: 15833 OF 2023 Between: 1. M/s Coastal Ceramics and Clay Works Private Ltd.,, 11-58, Morampudi, Rajahmundry Rural, Rajahmundry-533103 rep. by Managing Director. Barlapudi Raveendra Kumar S/o Hanumaiah ...PETITIONER(S) AND 1. Union of India, Ministry of Finance Department of Revenue,3rd Floor, Jeevan Deep Building, Sansad Marg, New Delhi- 110001 Rep. by the Finance Secretary Interim Board For Settlement -II, New Delhi, 9th Floor, Loknayak Bhavan, Khan market. New Delhi-110003, Rep. by its Registrar The Principal Commissioner of Income Tax (Central), Visakhapatnam. 2. 3. ...RESPONDENTS The Court made the following order: (Per Hon 'tie Sri Justice U. Durga Prasad Rao) Heard learned counsel for petitioner Sri N.Vijay and Smt. M.Kiranmayee, Standing Counsel for Income Tax. 2 2. The bone of contention appears to be is Rs.50.00 lakhs, which according to the petitioner, was received as refundable security deposit from M/s. Royal Mindz Ltd. (Developer) vide Development Agreement-cum-GPA No.7592/2011 dated 16.11.2011 for construction of commercial complex Rajahmundry and as the said amount is an interest free refundable security deposit for due completion of the project by the developer, said amount in the hands of petitioner cannot be treated as revenue for levying tax under the head “Income from other sources” for the Assessment Year 2019-20. On the other hand, the argument of the Standing Counsel is that the said amount of Rs.50.00 lakhs received by the Managing Director on behalf of the petitioner and retained by him though it was stated to be the sum held as security deposit against the construction of commercial complex and which work has not yet started. Therefore, the sum of Rs.50.00 lakhs received by the petitioner was held to be revenue receipt and brought to tax as income for AY 2019-20 under the head “Income from other . The said amount is to be treated as income of the petitioner having been received and consumed as undisclosed receipt. The petitioner did not disclose the same in the books of accounts as a liability and it was on account of search that the said deposit was unearthed by the Department. Hence, the said receipt is an undisclosed receipt in the hands of the petitioner and liable for tax. Infra Pvt. at was sources 3. The point for consideration is whether there are merits in the writ petition to allow? 4. Point: In the light of the above respective contentions, a perusal of the * Development Agreement-cum-GPA bearing No.7592/2011, a copy of which is filed along with material papers discloses that the petitioner being owner entered into a Development Agreement with the builder viz.. M/s. Royal Mindz Infra Pvt. Ltd. The document inter alia showed at clause 38 that the second party (builder) has agreed to pay sum of Rs.50.00 lakhs towards interest free refundable security deposit to first party (owner) and accordingly, paid the said amount. Then clause 40 reads that it was agreed between the parties that the aforesaid interest free refundable security deposit of Rs.50.00 lakhs paid by the developer shall be repayable to him by the owner within two months after handing over of commercial units completed in all respects. j 5 5. Thus, it is discemable from the aforesaid Development Agreement that the disputed amount of Rs.50.00 lakhs is only an interest free security deposit lying in the hands of the petitioner. The Department, it appears, proposes to treat it as a revenue receipt on the main ground that the said amount was not shown by the petitioner in its accounts as a liability. However, the Department does not appear to challenge the genuinity of the Development Agreement. Considering all these aspects, we are of the view that it is not apposite on the part of the Department to » 4 treat the aforesaid amount of Rs.50.00 lakhs as receipt for the AY 2019-20 to impose tax. Accordingly, this Writ Petition is allowed with a direction that the petitioner shall hereafter show the amount of Rs.50.00 lakhs as interest free security deposit in its books of accounts till the same is refunded to the builder viz., M/s. Royal Mindz Infra Pvt. Ltd. and respondent Department is directed to drop the proceedings against the petitioner to collect tax in respect of the said amount. No 6. costs. As a sequel, interlocutory applications pending if any, shall stand closed. Sd/- K. KASI RAO ACHARI ASSISTANT REGISTRAR SECTI^N^OFFICER I 1. The Finance Secretary, Union of India Ministry of Finance Department of Revenue, 3'*^ Floor, Jeevan Deep Building, Sansad Marg, New Delhi- 110001. 2. The Registrar, Interim Board For Settlement -II New Delhi, 9*^ Floor, Loknayak Bhavan, Khan market. New Delhi-110003. 3. The Principal Commissioner of Income Tax (Central) Visakhapatnam. 4. One CC to Sri N. Vijay, Advocate [OPUC] 5. One CC to Sri Jupudi V.K. Yagna Dutt, Central Govt. Counsel (OPUC) 6. One CC to Smt. M.Kiranmayee, SC for Income Tax [OPUC] 7. Three C.D. Copies. //TRUE COPY// To, Cnr gl :/) [> tW f HIGH COURT DATED:28/12/2023 ORDER WP.No.15833 of 2023 V ov- AlVr, y^O // V.> Hi 2 •’ Jl'.j 2;-'' C'} m i O:^ .5^ ^Copi(^ ^D? Si h :iii ALLOWING THE W.P. WITHOUT COSTS "