M/s. Bhikaji Maintenance combine, New Delhi V. ITO, New Delhi

ITA 2173/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73956 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 01-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH KUMAR VERMA
• Keywords: Capital asset; Capital receipt

Judgement Text

ITA NO. 2173/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2173 /DEL/201 2 A.Y. : 2007-08 M/S BHIKAJI MAINTENANCE COMBINE, 5, BHIKAJI CAMA PLACE, NEW DELHI 110 066 (PAN: - AADFB9584B) VS. ITO, WARD - 24(1), NEW DELHI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. RAJESH JAIN, CA DEPARTMENT BY : SH. YOGESH KUMAR VERMA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XI, NEW DE LHI DATED 01.3.2012 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN S USTAINING THE ADDITION OF RS. 3,18,492/- REPRESENTING THE AMOUNT OF SINKING FUND. 3. IN THIS CASE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF MAINTENANCE OF COMME RCIAL COMPLEX. THE ASSESSEE FIRM WAS LEVYING FROM EACH FL AT OWNERS @ RS. 0.10/- PER SQFT. PER MONTH ON QUARTERLY BASIS TOWAR DS SINKING FUND ITA NO. 2173/DEL/2012 2 AND THUS COLLECTED RS. 3,18,492/-. ASSESSEE WAS AS KED WHY THIS SINKING FUND IS NOT TAXABLE. ASSESSEE RESPONDED AS UNDER:- THE FIRM IS ALSO RESPONSIBLE FOR THE PLACEMENT OF EQUIPMENT, P&M AND ACCESSORIES (HEREINAFTER REFERRE D CAPITAL ASSETS) AND FOR STRUCTURAL REPAIRS OF BUILD ING. DUE TO NATURAL WEAR AND TEAR OVER THE PERIOD OF TIME AN D EQUIPMENTS AND MACHINERY AND PLANT HAVING A LIMITED LIFE, THE CAPITAL ASSETS INSTALLED AT BUILDING REQU IRES NOT ONLY REGULAR REPAIRS BUT REPLACEMENTS ALSO. SINCE T HE REPLACEMENT OF CAPITAL ASSETS REQUIRES LARGE OUTLAY OF FUNDS, THE OWNERS OF BUILDING ARE NOT WILLING TO BE AR THE LARGE COST AT ONE GO. THEREFORE, THE ASSESSEE IS CH ARGING RS. 0.10 PER SQ.FT. PER MONTH FROM FLAT OWNERS, BEI NG COLLECTED FOR THE REPLACEMENT OF CAPITAL ASSETS. 3.1 HOWEVER, ASSESSING OFFICER WAS NOT SATISFIED FR OM THE ABOVE. HE HELD THAT A SUM OF RS. 3,18,492/- COLLECTED AS S INKING FUND WAS A PART OF MAINTENANCE CHARGES LEVIED FROM FLAT OWNER S AND WAS A PART OF ASSESSEES INCOME. 4. UPON ASSESSEES APPEAL LD. CIT(A) HELD THAT SINK ING FUND WAS IN THE NATURE OF RESERVE AND WAS AN APPROPRIATION O F PROFIT AND NOT A CHARGE OF PROFIT. HE HELD THAT IT WAS AN UNCERTAIN LIABILITY AND HENCE, HE AFFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. LD. COUNSEL OF THE ASSESSEE AT THE OUTSET SUBMITTED THA T THE ISSUE INVOLVED IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE TRIBUNAL IN I.T.A. NO. 1063/DEL/201 1 (A.Y. 2007-08) IN THE CASE OF ALPHA SERVICES VS. DCIT VIDE ORDER DATE D 04.5.2012 ITA NO. 2173/DEL/2012 3 WHEREIN SIMILAR AMOUNT RECEIVED AS SINKING FUND WAS HELD TO BE CAPITAL RECEIPT. LD. DEPARTMENTAL REPRESENTATIVE C OULD NOT CONTROVERT THE ABOVE SUBMISSIONS OF THE ASSESSEES COUNSEL. 6.1 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT THE TRIBUNAL IN THE AFORESAID ORDER HAS HELD AS UND ER:- 6. IT HAS BEEN CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN TREATING ` 35,49,091/- AS REVENUE RECEIPT BEING THE AMOUNT RECEIVED FROM THE FLAT OWNERS AND / OR TENANTS FOR REPLACEMENT OF CAPITAL ASSETS AND SHOWN AS SINKING FUND IN ACCOUNTS WHICH WAS CONSIDERED AND TREATED AS CAP ITAL RECEIPT BY THE ASSESSEE SINCE ITS INCEPTION AND T HE SAME WAS DULY ACCEPTED BY THE ASSESSING OFFICER IN THE EARLIER ASSESSMENTS. LD. COUNSEL OF THE ASSESSEE FURTHER CONTENDED THAT AS PER CONTRACT WITH THE OWNERS/ TEN ANTS OF NARAIN MANZIL ASSESSEE IS RESPONSIBLE FOR REPLACEMENT FOR REGULAR MAINTENANCE OF THE BUILDIN G BESIDES THE REPLACEMENT OF THE EQUIPMENT, PLANT AN D MACHINERY AND ACCESSORIES AND FOR STRUCTURAL REPAIR S OF BUILDING. DUE TO NATURAL WEAR AND TEAR OVER A P ERIOD OF TIME, EQUIPMENT, MACHINERY AND PLANT HAVING LIMITED LIFE, THE ASSETS INSTALLED AT BUILDING REQUIRE NOT ONLY R EGULAR REPAIRS BUT ALSO MAJOR REPAIRS AND IN CERTAIN CASE S REPLACEMENTS ALSO. THE REPLACEMENT OF ASSETS REQUI RE LARGE OUTLAYS OF FUNDS THE OWNERS / TENANTS ARE NOT WILLING TO BEAR THE LARGE COST AT ONE GO. THUS AS PER CO NTRACT THE ASSESSEE IS COLLECTING ` 2 PER SQ.FT. PAYMENT F ROM THE OWNERS FOR REPLACEMENT OF ASSETS BESIDE ` 14 PER S Q. FT. AREA CHARGED TO THE OWNERS OF FLATS IN RESPECT OF R EGULAR ITA NO. 2173/DEL/2012 4 MAINTENANCE. THE AMOUNT RECOVERED FOR REPLACEMENT OF ASSETS IS KEPT AS SINKING FUND AND COST OF REPLACEM ENT OF ASSETS IS BEING UTILIZED OUT OF THIS FUND. IN O UR CONSIDERED OPINION, THE SYSTEM BEING FOLLOWED BY T HE ASSESSEE IS COGENT ONE. ` 2/- SQ.FT. BEING COL LECTED BY THE ASSESSEE IS PUT IN A SINKING FUND UTILIZED FOR REPLACEMENT OF ASSETS. THIS SYSTEM IS BEING FOLLOW ED SINCE A LARGE NUMBER OF YEARS. REVENUE HAS ACCEPTE D IT IN THOSE YEARS. THERE IS NO CHANGE IN FACTS OR LAW DURING THE CURRENT ASSESSMENT YEAR. THERE IS NO DOUBT THA T THE RESPONSIBILITY IS OF THE ASSESSEE TO REPLACE THE CA PITAL ASSET. BUT FOR THAT A MECHANISM IS IN OPERATION, W HEREBY ` 2/- IS BEING COLLECTED AND HELD IN A SINKING FUND . CAPITAL REPAIRS AND REPLACEMENTS ARE TO BE MET OUT OF THIS FUND. IN THE AGREEMENT IT IS SPECIFICALLY MENTIONED THAT ` 2/- IS BEING COLLECTED FOR THE SINKING FUND IN THIS REGAR D. IT IS SETTLED LAW THAT REVENUE CANNOT INTER INTO THE SHO ES OF A BUSINESSMAN AND DECIDE HOW HE SHOULD CONDUCT THE BUSINESS. WE HAVE FOUND NO INFIRMITY IN THE ACCOUN TING AND CONDUCT OF THE ASSESSEE, WHICH WILL WARRANT AN INFERENCE THAT ` 2/- BEING COLLECTED FOR THE SINK ING FUND FOR REPLACEMENT OF ASSET IS A REVENUE RECEIPT. 6.1 THUS, WE FIND THAT LD. COMMISSIONER OF INCOME T AX (APPEALS) HAS ERRED IN HOLDING THAT ` 2 SQ.FT. REC EIVED BY THE ASSESSEE IS ALSO A REVENUE RECEIPT AND IS A PA RT OF TOTAL MAINTENANCE RECEIPT. ACCORDINGLY, WE HOLD T HAT ` 3549091/- COLLECTED DURING THE YEAR BEING SINKING F UND CONTRIBUTION IS A CAPITAL RECEIPT AND NOT LIABLE TO BE TAXED AS REVENUE RECEIPT. THE EXPENDITURE OF ` 40,88,455/- INCURRED FOR REPLACEMENT OF AIR CONDIT IONERS ITA NO. 2173/DEL/2012 5 OF THE BUILDING OWNERS HAS TO BE ADJUSTED FROM THE SINKING FUND AND THE SAME CANNOT BE ALLOWED AS REV ENUE EXPENDITURE. THUS, WE HOLD THAT AN AMOUNT OF ` 35,49091/- RECEIVED TOWARDS SINKING FUND FOR REPLACEMENT OF ASSETS IS A CAPITAL RECEIPT AND NO T LIABLE TO BE TAXED. 7. WE FIND THAT FACTS IN THE PRESENT CASE ARE SIMIL AR TO THE ONE DEALT BY THE TRIBUNAL AS ABOVE. AFTER ELABORATE DI SCUSSION, THE TRIBUNAL HAS HELD THAT THE AMOUNT COLLECTED AS SINK ING FUND CONTRIBUTION WAS A CAPITAL RECEIPT AND NOT LIABLE TO TAX AS REVENUE RECEIPT. ACCORDINGLY, WE SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/1/2014. 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 09/1/2014 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 ITA NO. 2173/DEL/2012 6