Alpha Services, New Delhi V. DCIT, New Delhi

ITA 1063/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61658 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 25-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UC DUBEY
• Assessee Lawyers: VIDUR PURI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 37

Judgement Text

ITA NO. 1063/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1063/DEL/2011 A.Y. : 2007-08 ALPHA SERVICES, 23, BARAKHAMBA ROAD, NEW DELHI 110 001 (PAN : AAKFA7883R) VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 31(1), CR BUILDING, IP ESTATE, NEW DELHI -110002 (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. VIDUR PURI, CA DEPARTMENT BY : SH. U.C. DUBEY, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM PER SHAMIM PER SHAMIM PER SHAMIM YAHYA: AM YAHYA: AM YAHYA: AM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXVI, NEW D ELHI DATED 16.12.2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED IN THE ASSESSEES APPEAL RE AD AS UNDER:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERR ED IN LAW AND ON FACTS IN ENHANCING THE INCOME BY ` 35,49,091/- RECEIVED AS SINKING FUND FOR SPECIFIC PURPOSE OF REPLACEMENT OF CAPITAL GOODS AND TREATIN G IT AS REVENUE RECEIPTS. ITA NO. 1063/DEL/2011 2 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN LAW IN TREATING ` 35,49,091/- AS REVENUE RECEI PT BEING THE AMOUNT RECEIVED FROM THE FLAT OWNERS AND / OR TENANTS FOR REPLACEMENT OF CAPITAL ASSETS AND SH OWN AS SINKING FUND IN ACCOUNTS WHICH WAS CONSIDERED AN D TREATED AS CAPITAL RECEIPT BY THE APPELLANT SINCE ITS INCEPTION AND THE SAME WAS DULY ACCEPTED BY THE ASSESSING OFFICER IN THE EARLIER ASSESSMENTS. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN LAW AND ON FACTS IN NOT ALLOWING THE EXPENDITURE OF ` 40,88,455/- INCURRED ON REPLACEMENT OF AIR CONDITIONING PLANT OF THE BUILDING OWNERS BY TREAT ING ITS AS A CAPITAL EXPENDITURE OF THE APPELLANT AND ALLOWING THE DEPRECIATION ON THE SAME. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN LAW AND ON FACTS BY OBSERVING THAT I) SINKING FUND AMOUNTS HAVE NO BY ACTUALLY PUT TO USE FOR THE PURPOSE FOR WHICH THE FUND WAS CREATED (PARA 7.2). ITA NO. 1063/DEL/2011 3 II) THE RECEIPTS OF SINKING FUND @ ` 2/- ARE BEING UTILIZED FOR DAY TO DAY ACTIVITIES / EXPENDITURE (PARA 8.2). THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, DELETE AND OR CHANGE ALL OR ANY OF THE GROUND ON OR BEFORE THE DATE OF HEARING. 3. IN THIS CASE ASSESSEE IS A PARTNERSHIP FIRM ENGAG ED IN THE BUSINESS OF PROVIDING MANAGEMENT, MAINTENANCE AND RE PAIR SERVICES OF COMMERCIAL COMPLEXES KNOWN AS NARAIN MANZIL SITU ATED AT 23, BARAKHAMBA ROAD, NEW DELHI. ASSESSEE FILED ITS INCOME TAX RETURN ON 31.10.2007 AND DECLARED NIL INCOME AFTER SET OFF THE UNABSORBED BUSINESS LOSS OF ` 31,25,260/- AND CLAIMED CARRIED FORWARD OF UNABSORBED BUSINESS LOSS OF ` 1,18,32,320/-. THE A SSESSMENT WAS COMPLETED U/S. 143(3) OF THE IT ACT ON BUSINESS IN COME OF ` 34,04,790/- AFTER MAKING THE ADDITION OF NOTIONAL IN TEREST OF ` 2,79,532/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION, HOWEVER, ENHANCED T HE INCOME BY ` 35,49,091/- BY TREATING THE RECEIPT AS REVENUE R ECEIPT. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS HELD AS UND ER:- ITA NO. 1063/DEL/2011 4 8.1 IN THE ABOVE BACKGROUND FOR DECIDING THIS GROUND, IT IS ESSENTIAL TO DISCUSS THE NATURE OF RE CEIPTS IN THE SINKING FUND, THE RESPONSIBILITY OF THE APPE LLANT TO REPLACE THE CAPITAL ASSETS INCLUDING PLANT & MACHINERY SUCH AS CHILLER PLANT AND WHETHER THE SINKING FUND RECEIPTS ARE CAPITAL RECEIPTS OR REVEN UE RECEIPTS IN THE HANDS OF THE APPELLANT AND THE RELA TED ADMISSIBILITY OF THE INTEREST EXPENDITURE. 8.2 AS PER THE APPELLANT, THE SINKING FUND RECEIPT S ARE CAPITAL RECEIPTS - BECAUSE THE FLAT OWNERS/ OCCUPANTS ARE MAKING PAYMENT OF RS. 2 PER SQ. FT. FO R CAPITAL EXPENDITURE. THIS PAYMENT OF RS. 2 PER SQ. F T. IS BEING MADE ALONG WITH PAYMENT OF RS. 14 PER SQ. FT. AS MAINTENANCE CHARGES. APPELLANT IS TREATING THESE RECEIPTS AS CAPITAL RECEIPTS AND IS ACCOUNTING FOR THEM UNDER THE HEAD 'SINKING FUND'. HOWEVER, THE AMOUNTS PLACED IN THE SINKING FUND A/C ARE PLACED IN THE COMMON POOL OF FUNDS AVAILABLE WITH THE APPELLANT. SINKING FUND AMOUNTS HAVE NOT BEEN SEGREGATED OR KEPT OUT OF CIRCULATION FOR EXCLUSIVE USE. THE RECE IPTS @ RS. 2 PER SQ. FT. ARE BEING UTILIZED FOR DAY TO D AY ITA NO. 1063/DEL/2011 5 ACTIVITIES/EXPENDITURE OF THE APPELLANT. THOUGH ACCOUNTING OF THESE RECEIPTS IS DONE UNDER A SEPARA TE HEAD, BUT IN REALITY THE APPELLANT TREATS THE RECEI PTS AS ITS REGULAR BUSINESS RECEIPTS/FUNDS. 8.3 A COPY OF THE MAINTENANCE AGREEMENT ENTERED INTO BY THE APPELLANT (MAINTENANCE AGENCY) AND M/S PRUDENTIAL LCLCI ASSET MANAGEMENT COMPANY LTD. (USER OF THE PREMISE) DATED 16.2.06 HAS BEEN FILED B Y THE APPELLANT. AS PER THE AGREEMENT IT IS ENTIRELY THE RESPONSIBILITY OF THE MAINTENANCE AGENCY I.E. THE APPELLANT FIRM TO REPLACE THE CAPITAL GOODS. FOR REPLACEMENT OF THE CAPITAL GOODS THE APPELLANT FIRM IS CHARGING RS. 2 PER SQ. FT. AND THE AMOUNT IS INCLUSI VE IN RS. 16 PER SQ. FT THAT IS BEING CHARGED FROM ALL USERS. THE RELEVANT PORTION OF THE AGREEMENT IS REPRODUCED BELOW: 'IN PURSUANCE OF THE SAID AGREEMENT AND IN CONSIDERATION OF THE MAINTENANCE AGENCY HAVING AGREED TO MANAGE, ADMINISTER, MAINTAIN, UPKEEP AND PRESERVE THE SAID COMMERCIAL BUILDING, NAMED AS 'NARAIN MANZIL' OPERATION OF COMMON ITA NO. 1063/DEL/2011 6 SERVICES THEREIN, SUPPLY OF WATER AND ALSO MAINTENANCE, REPAIR AND REPLACEMENT OF EQUIPMENT/MACHINERY FOR PROVIDING COMMON SERVICES AND FACILITIES AND REPLACEMENT OF CAPITAL GOODS SUCH AS LIFTS, PUMP SETS, WATER MAINS, ELECTRIC CABLES INSTALLED, EMERGENCY ELECTRICITY STANDBY GENERATORS, FIRE FIGHTING/PROTECTION/ DETECTION EQUIPMENTS, AIR-CONDITIONING PLANT ETC., THE USER HEREBY AGREES AND BINDS HIMSELF TO PAY TO THE MAINTENANCE AGENCY MAINTENANCE AND SERVICE CHARGES AT THE RATE OF RS. 16 (SIXTEEN) PER SQ. FT. OF THE SUPER AREA OF THE SAID PREMISES AS MENTIONED IN THE SAID LEASE AGREEMENT PER MONTH TO BE UTILIZED BY THE MAINTENANCE COMPANY FOR THE PURPOSES MENTIONED ABOVE AND TO COVER THE COSTS, EXPENSES AND OUTGOINGS IN RESPECT INTER . ALIA OF THE MATTERS SPECIFIED IN TH E SCHEDULE ATTACHED TO THIS AGREEMENT. THE RATES OF MAINTENANCE CHARGES WHICH ALSO INCLUDE CHARGES FOR PROVIDING AIR- CONDITIONING, 100% POWER BACK-UP FOR CENTRAL ITA NO. 1063/DEL/2011 7 AIR-CONDITIONING AND SUPPLY OF POWER FOR CENTRAL AIR-CONDITIONING AND SINKING FUND OF RS. 2/- PER SQ. FT. PER MONTH OF THE SUPER AREA FOR REPLACEMENT OF CAPITAL GOODS FOR THE SAID PREMISES. THE MAINTENANCE CHARGES OF RS. 16 PER SQ. FT. OF SUPER AREA HAS BEEN FIXED IN THE CONTEXT OF THE CURRENT PRICES OF THE COMMODITIES AND SERVICES, OFFICIAL LEVIES, FEES AND TAXES ETC. INCLUDING WATER AND ELECTRICITY CHARGES CONSUMED ON RUNNING OF LIFTS, AIR-CONDITIONING PLANT, WATER BOOSTING PUMPS, FIRE PUMPS OR THE RUNNING OF MACHINERY EQUIPMENTS INSTALLED IN THE BUILDING AND ALSO ELECTRIC POINTS INSTALLED IN COMMON PASSAGES, LOBBIES, ENTRANCE, STAIR- CASES, LIFTS ETC. AND SERVICE CHARGES OF THE MAINTENANCE AGENCY.' THE AGREEMENT CLEARLY LAYS DOWN THE SCOPE AND MEANING OF MAINTENANCE OF MULTI STOREY COMMERCIAL BUILDING BY WAY OF XVI ITEMS OF DUTIES AND RESPONSIBILITIES OF THE MAINTAINING AGENCY AS ENUMERATED IN THE SCHEDULE TO THE AGREEMENT. ITA NO. 1063/DEL/2011 8 ITEM NO. XII & XIV STATE AS UNDER: 'XII: REPLACEMENT OF CAPITAL GOODS/FIXED ASSETS LIK E LIFTS, GENERATORS, PUMPS, AIR CONDITIONING PLANTS, ELECTRIC CABLES ETC. XIV: OPERATION AND MAINTENANCE OF CENTRAL AIR CONDITIONING/HEATING PLANT AND OTHER EQUIPMENT 8.3.2 THUS, AS PER THE AGREEMENT, IT IS ENTIRELY TH E RESPONSIBILITY OF THE APPELLANT FIRM TO REPLACE THE CAPITAL ASSETS INCLUDING AIR CONDITIONING PLANTS. A S IT IS THE APPELLANT'S DUTY TO REPLACE THE AIR CONDITIONIN G PLANT, IT HAS DURING THE P. YR. RELEVANT TO A.Y. 20 07-08 INCURRED AN EXPENDITURE OF RS. 40,88,455/- ON PURCHASE OF THE CHILLER PLANT. WHILE COST OF THE PLA NT CANNOT BE DEBITED TO THE PROFIT & LOSS ACCOUNT, THE INTEREST PAID BY WAY OF FINANCE CHARGES IN THE HIRE PURCHASE AGREEMENT RELATING TO PREVIOUS YEAR 2006-07 HAS BEEN CLAIMED AS AN EXPENDITURE. AS THE APPELLAN T WAS REQUIRED TO REPLACE THE CHILLER PLANT, SINCE THE APPELLANT DID NOT HAVE ADEQUATE FUNDS AVAILABLE IN THE SINKING FUND AS ON 31.5.06, IT WENT IN FOR THE HIRE ITA NO. 1063/DEL/2011 9 PURCHASE AGREEMENT. ON ACCOUNT OF THE LIABILITY OF THE APPELLANT TO REPLACE THE CAPITAL ASSETS FOR WHICH I T IS BEING PAID MAINTENANCE CHARGES, IN MY VIEW THE CLAIM OF DEDUCTION OF INTEREST OF RS. 2,20,578 AS A LEGIT IMATE BUSINESS EXPENDITURE BY THE APPELLANT, IS ADMISSIBLE . HOWEVER, THIS ADMISSIBILITY OF THE CLAIM AS REVENUE EXPENDITURE IS INTER-LINKED WITH THE FACT THAT THE RECEIPT OF RS. 2 PER SQ. FT. IS A REVENUE RECE.IPT AND NOT A CAPITAL RECEIPT. 8.4 THE USER IS MAKING A PAYMENT OF RS. 16 PER SQ. FT. AS MAINTENANCE AND SERVICE CHARGES. OUT OF THIS, RS. 2 IS BEING GIVEN AS SINKING FUND CONTRIBUTION O R REPLACEMENT OF CAPITAL GOODS. IT IS NOT EXPECTED TH AT PAYMENT OF RS. 2 PER SQ. FT. BY EACH 'USER' WILL BE SUFFICIENT TO MEET THE CAPITAL GOODS REPLACEMENT AS AND WHEN IT ARISES - BUT IT IS BEING RAISED FROM TH E USER WITH THE INTENTION THAT AS AND WHEN THE CAPITAL GOO DS ARE TO BE REPLACED SOME FUNDS ARE AVAILABLE FOR UTILIZATION FOR THIS PURPOSE, AND THAT THE APPELLAN T FIRM CHARGES FROM THE 'USER' AS PART OF ITS MAINTENANCE RECEIPTS A COST FOR REPLACEMENT OF THE CAPITAL GOODS . ITA NO. 1063/DEL/2011 10 THUS, IN MY VIEW AS THE REPLACEMENT OF THE CAPITAL. GOODS IS SOLELY AND EXCLUSIVELY THE RESPONSIBILITY OF THE APPELLANT FIRM FOR WHICH IT IS ALREADY LEVYING CHARG ES ON THE USER, THE RECEIPT OF RS. 2 PER SQ. FT. IS AL SO A REVENUE RECEIPT AS IT IS A PART OF THE TOTAL MAINTEN ANCE RECEIPTS. THE BIFURCATION OF THE RECEIPTS BY THE APPELLANT DOES NOT CHANGE THE INHERENT CHARACTERIST IC NATURE OF THE RECEIPTS I.E. PAYMENT BY THE FLAT OWNERS/USERS FOR PROVISION OF FACILITIES AND SERVIC ES BY THE APPELLANT. THE MAINTENANCE CHARGES RECEIPTS (INCLUDING THOSE BIFURCATED AS SINKING FUND RECEIPT S) THUS AN INTEGRAL ARE PART OF THE TOTAL BUSINESS REC EIPTS OF THE APPELLANT. 8.5 EVEN THE APPELLANT BY ITS CONDUCT SHOWS THAT T HE RECEIPT IS A REVENUE RECEIPT. IT HAS TOTALLY MERGED THE RECEIPTS WITH ITS OTHER MAINTENANCE RECEIPTS. THE RECEIPTS HAVE BEEN INCLUDED IN THE COMMON POOL OF FUNDS TO MEET DAY TO DAY BUSINESS NEEDS. IT HAS NOT EXCLUSIVITY OR OVER-RIDING TITLE. 8.6 IT IS FURTHER SEEN THAT THE COST OF THE PLANT PURCHASED AS ON 1.6.06 IS RS. 40,88,455. THE APPELLANT HAS RA ISED ITA NO. 1063/DEL/2011 11 FINANCE OF RS. 29,84,960. THEREBY SHOWING THAT ONLY RS. 11,03,495 OF OWN FUNDS WERE USED. THUS AS ON 31.5.06 DESPITE FUNDS OF RS. 16,87,149 BEING AVAILA BLE IN SINKING FUND, ONLY RS. 11,03,495 WERE USED, REST WERE RAISED THROUGH FINANCIAL ARRANGEMENT. WITH EAC H MONTH, THE APPELLANT RECEIVED MONEY IN SINKING FUND AND THE FUND CONTINUED TO INCREASE BUT APPELLANT DID NOT USE THIS AMOUNT TO REDUCE ITS, LOAN-CUM INTEREST LIABILITY AS DISCUSSED IN PARA 7.2 (SUPRA). THIS SH OWS THAT DESPITE THE BIFURCATION, THE SINKING FUND RECE IPTS WERE NOT ENTIRELY PUT TO USE FOR THE PURPOSE THAT T HEY ARE ALLEGEDLY MEANT. THEREFORE, AS THE RECEIPT IS CLEARLY A REVENUE RECE IPT, THE APPELLANT WAS ISSUED NOTICE OF ENHANCEMENT DATE D 8.11.10 REQUIRING IT TO SHOW CAUSE WHY THE SINKING FUND RECEIPT SHOULD NOT BE TREATED AS A REVENUE RECEIPT. 8.6.2 IN RESPONSE THERETO THE VERY SAME TERMS OF TH E AGREEMENT REFERRED TO IN PARA 8.3 HAVE BEEN RELIED UPON FOR STATING THAT THE APPELLANT IS MERELY A CUSTODIA N OF THE SINKING FUND AND THAT IT WAS OBLIGED TO INCUR EXPEND ITURE ITA NO. 1063/DEL/2011 12 FOR THE REPLACEMENT OF THE CAPITAL GOODS. IT WAS SUB MITTED THAT WITHOUT PREJUDICE TO THE CLAIM OF SINKING FUND RECEIPT BEING CAPITAL RECEIPTS, IF THE SINKING FUND RECEIPT OF RS.35.49 LACS IN A.Y. 2007-08 IS TREATED AS REVENUE RECEIPT, THEN THE EXPENDITURE OF RS 40.88 LACS SHOULD ALSO B E ALLOWED AS AN ADMISSIBLE EXPENDITURE, THEREBY ALLOWI NG A NET LOSS OF RS. 5.30 LACS. 8.7 FOR THE REASONS DISCUSSED IN PARAS 8 TO 8.6 (SU PRA) THE RECEIPTS SHOWN UNDER THE HEAD SINKING FUND IS TREAT ED AS A 'REVENUE RECEIPT', LIABLE TO BE INCLUDED IN APPELLA NT'S BUSINESS INCOME FOR THE A.Y. 2007-08. THE APPELLANT' S ALTERNATIVE PLEA THAT IT BE ALLOWED THE ENTIRE EXPE NDITURE OF RS. 4O.88 LACS IS NEITHER FACTUALLY NOR LEGALLY ADMI SSIBLE. AS DISCUSSED, FACTUALLY ONLY RS. 15,12,000 (INCLUDING EXCISE DUTY CREDIT) AND INSTALLMENT OF RS. 15,15,151 (11 INSTALLMENTS) I.E. RS.30,27,151 IS THE EXPENDITURE I NCURRED DURING THE YEAR INCLUDING COST OF FINANCE AT RS.2,2 0,578 LEGALLY. WHILE THE INTEREST COST IS OTHERWISE ALLOW ABLE AS REVENUE EXPENDITURE FOR THIS YEAR AS DISCUSSED IN P ARA 8.3.2 (SUPRA), BUT IN VIEW OF THE OVERRIDING PROVISIONS O F SECTION 40(A){IA}- IT IS TO BE DISALLOWED. THE COST OF THE ASSET BEING ITA NO. 1063/DEL/2011 13 CAPITAL EXPENDITURE CANNOT BE ALLOWED U/S 37 OF THE IT ACT, 1961. THE BALANCE CLAIM NORMALLY WOULD BE EITHER ADMISSIBLE DEPRECIATION OR HIRING CHARGES AS THE ASS ET HAS BEEN PUT TO BUSINESS USE DURING THE YEAR. THE APPEL LANT STATES THAT IT IS NOT THE OWNER OF THE ASSET, HOWEV ER AS PER THE HIRE PURCHASE AGREEMENT THE OWNERSHIP IS TO DEVO LVE TO THE APPELLANT. THEREFORE, APPELLANT IS ENTITLED TO DEPRECIATION @ 15% BEING THE ADMISSIBLE RATE FOR PLA NT AND MACHINERY. THE DEPRECIATION @ 15% AT RS. 6,13,267 IS HELD ALLOWABLE. THUS THE NET EFFECT OF THIS ENHANCEMENT WILL BE RS.35,49,091-RS.6,13,267 I.E. RS. 29,35,824. THE SU M OF RS.293582/- IS THUS ADDED TO THE APPELLANT'S INCOM E FOR A.Y. 2007-08. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. IT HAS BEEN CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED I N TREATING ` 35,49,091/- AS REVENUE RECEIPT BEING THE AMOUNT RE CEIVED FROM THE FLAT OWNERS AND / OR TENANTS FOR REPLACEMENT OF CAPI TAL ASSETS AND SHOWN AS SINKING FUND IN ACCOUNTS WHICH WAS CONSIDE RED AND TREATED AS CAPITAL RECEIPT BY THE ASSESSEE SINCE ITS INCE PTION AND THE SAME WAS DULY ACCEPTED BY THE ASSESSING OFFICER IN THE EARLIER ASSESSMENTS. ITA NO. 1063/DEL/2011 14 LD. COUNSEL OF THE ASSESSEE FURTHER CONTENDED THAT AS PER CONTRACT WITH THE OWNERS/ TENANTS OF NARAIN MANZIL ASSESSEE IS RESPONSIBLE FOR REPLACEMENT FOR REGULAR MAINTENANCE OF THE BUILDING BESIDES THE REPLACEMENT OF THE EQUIPMENT, PLANT AND MACHINERY A ND ACCESSORIES AND FOR STRUCTURAL REPAIRS OF BUILDING. DUE TO NATURAL WEAR AND TEAR OVER A PERIOD OF TIME, EQUIPMENT, MACHINERY AND PLAN T HAVING LIMITED LIFE, THE ASSETS INSTALLED AT BUILDING REQUIRE NOT ONLY REGULAR REPAIRS BUT ALSO MAJOR REPAIRS AND IN CERTAIN CASES REPLACEMENTS ALSO. THE REPLACEMENT OF ASSETS REQUIRE LARGE OUTLAYS OF FUND S THE OWNERS / TENANTS ARE NOT WILLING TO BEAR THE LARGE COST AT ONE GO. THUS AS PER CONTRACT THE ASSESSEE IS COLLECTING ` 2 PER SQ.FT. PAYMENT FROM THE OWNERS FOR REPLACEMENT OF ASSETS BESIDE ` 14 PER SQ . FT. AREA CHARGED TO THE OWNERS OF FLATS IN RESPECT OF REGULAR MAINTE NANCE. THE AMOUNT RECOVERED FOR REPLACEMENT OF ASSETS IS KEPT AS SIN KING FUND AND COST OF REPLACEMENT OF ASSETS IS BEING UTILIZED OUT OF THIS FUND. IN OUR CONSIDERED OPINION, THE SYSTEM BEING FOLLOWED BY T HE ASSESSEE IS COGENT ONE. ` 2/- SQ.FT. BEING COLLECTED BY TH E ASSESSEE IS PUT IN A SINKING FUND UTILIZED FOR REPLACEMENT OF ASSETS. TH IS SYSTEM IS BEING FOLLOWED SINCE A LARGE NUMBER OF YEARS. REVENUE HAS ACCEPTED IT IN THOSE YEARS. THERE IS NO CHANGE IN FACTS OR LAW DU RING THE CURRENT ASSESSMENT YEAR. THERE IS NO DOUBT THAT THE RESPON SIBILITY IS OF THE ITA NO. 1063/DEL/2011 15 ASSESSEE TO REPLACE THE CAPITAL ASSET. BUT FOR THA T A MECHANISM IS IN OPERATION, WHEREBY ` 2/- IS BEING COLLECTED AND HEL D IN A SINKING FUND. CAPITAL REPAIRS AND REPLACEMENTS ARE TO BE MET OUT O F THIS FUND. IN THE AGREEMENT IT IS SPECIFICALLY MENTIONED THAT ` 2/- IS BEING COLLECTED FOR THE SINKING FUND IN THIS REGARD. IT IS SETTLED LA W THAT REVENUE CANNOT INTER INTO THE SHOES OF A BUSINESSMAN AND DECIDE HOW HE SHOULD CONDUCT THE BUSINESS. WE HAVE FOUND NO INFIRMITY IN THE ACCOUNTING AND CONDUCT OF THE ASSESSEE, WHICH WILL WARRANT AN INFERENCE THAT ` 2/- BEING COLLECTED FOR THE SINKING FUND FOR REPLACEMENT OF ASSET IS A REVENUE RECEIPT. 6.1 THUS, WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT ` 2 SQ.FT. RECEIVED BY THE AS SESSEE IS ALSO A REVENUE RECEIPT AND IS A PART OF TOTAL MAINTENANCE RECEIPT. ACCORDINGLY, WE HOLD THAT ` 3549091/- COLLECTED DUR ING THE YEAR BEING SINKING FUND CONTRIBUTION IS A CAPITAL RECEIPT AN D NOT LIABLE TO BE TAXED AS REVENUE RECEIPT. THE EXPENDITURE OF ` 40, 88,455/- INCURRED FOR REPLACEMENT OF AIR CONDITIONERS OF THE BUILDIN G OWNERS HAS TO BE ADJUSTED FROM THE SINKING FUND AND THE SAME CANNOT B E ALLOWED AS REVENUE EXPENDITURE. THUS, WE HOLD THAT AN AMOU NT OF ` 35,49091/- RECEIVED TOWARDS SINKING FUND FOR REPLACEMENT OF A SSETS IS A CAPITAL RECEIPT AND NOT LIABLE TO BE TAXED. ITA NO. 1063/DEL/2011 16 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/5/2012. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 04/5/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES