Pondicherry Industrial Promotion Development and Investment Corporation Limited, Pondicherry V. DCIT, Pondicherry

ITA 52/CHNY/2015

• Counselvise Citation: 5221714 RSA 2015
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 23-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 09-01-2015
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Keywords: Capital asset; Audit objection; Cost of acquisition; Capital receipt; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO. 52/MDS/2015 / ASSESSMENT YEAR : 2006-07 M/S PONDICHERRY INDUSTRIAL PROMOTION DEVELOPMENT & INVESTMENT CORPORATION LTD # 60, ROMAIN ROLLAND STREET PONDICHERRY 605 001 VS. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE I PONDICHERRY [PAN AADCP 0446 M ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI PHILIP GEORGE, ADVOCATE /RESPONDENT BY : SHRI P RADHAKRISHNAN, JCIT / DATE OF HEARING : 23 - 1 1 - 2015 ! / DATE OF PRONOUNCEMENT : 18 - 1 2 - 2015 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, CHENN AI, DATED 31.10.2014 AND PERTAINS TO ASSESSMENT YEAR 2006-07 . 2. SHRI PHILIP GEORGE, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEE IS A FINANCIAL CORPORATION OWNED BY THE GOVERNMENT OF PONDICHERRY. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE IS ENGAGED ITA NO. 52/15 :- 2 -: IN THE BUSINESS OF INDUSTRIAL PROMOTION BY WAY OF P ROVIDING FINANCIAL ASSISTANCE FOR INDUSTRIAL DEVELOPMENT. IN THE COUR SE OF ITS ACTIVITY, ACCORDING TO THE LD. COUNSEL, THE ASSESSEE DEVELOP ED CERTAIN ASSETS BY CREATING INFRASTRUCTURE FACILITIES LIKE ROADS, DRAI NAGE AND SEWERAGE SYSTEMS, WATER DISTRIBUTION NETWORK ETC AND LEASED THEM TO THE ENTREPRENEURS FOR SETTING UP INDUSTRIAL UNDERTAKING S. THE LD. COUNSEL FURTHER POINTED OUT THAT UNDER THE SCHEME KNOWN AS PREMIUM LEASE SCHEME, THE CORPORATION DEVELOPED PLOTS AND LEASED TO VARIOUS ENTREPRENEURS FOR A PERIOD OF 99 YEARS. THE ASSES SEE COLLECTED THE COST OF DEVELOPMENT OF INDUSTRIAL ESTATE BY WAY OF LUMPSUM NON- REFUNDABLE LEASE PREMIUM FROM THE RESPECTIVE LESSEE S. THE ASSESSEE HAS ALSO COLLECTED ANNUAL RENTAL OF ` 1/- WHICH IS RENEWABLE AFTER THE END OF THE LEASE TERM. THE ASSESSEE CAPITALIZED T HE COST OF THE EXPENDITURE IN THE BOOKS OF ACCOUNT AND CLAIMED DEP RECIATION ALSO. THE LEASE PREMIUM WAS RECOGNIZED AS INCOME ON PRO R ATA BASIS OVER A TENURE OF 99 YEARS. 3. THE COMPTROLLER AND AUDITOR GENERAL OF INDIA (CAG), WHILE REVIEWING THE ACCOUNTS OF THE ASSESSEE-CORPORATIO N FOR THE FINANCIAL YEARS 2002-03 AND 2003-04, OPINED THAT THE ACCOUNTI NG TREATMENT GIVEN BY THE ASSESSEE WAS NOT IN ORDER AND ACCORDI NGLY, RAISED AUDIT OBJECTION. THE AUDITORS OF THE GOVERNMENT BY PLACI NG RELIANCE ON THE OPINION ISSUED BY THE EXPERT ADVISORY COMMITTEE OF THE INSTITUTE OF ITA NO. 52/15 :- 3 -: CHARTERED ACCOUNTANTS OF INDIA, TREATED THE COST OF ACQUISITION OF THE LAND AND THE DEVELOPMENT EXPENDITURE AS CURRENT ASS ET TILL THE PLOTS ARE LEASED OUT AND AFTER LEASING THE PLOTS, THE LE ASE PREMIUM RECEIVED SHOULD BE RECOGNIZED AS INCOME IN THE PROFIT & LOSS ACCOUNT IN THE YEAR IN WHICH THE REVENUE RECOGNITION CONDITIONS LA ID DOWN IN ACCOUNTING STANDARD 9. THE ASSESSING OFFICER FOUND THAT THE CHANGE OF METHOD ADOPTED BY THE ASSESSEE DUE TO THE OBJEC TION RAISED BY THE CAG IS NOT THE CORRECT METHOD OF ACCOUNTING THE INV ESTMENT MADE IN THE CAPITAL ASSET VIZ. COST OF ACQUISITION OF THE L AND AND THE DEVELPMENT EXPENDITURE CREATES AN ENDURING BENEFIT TO THE ASS ESSEE, THEREFORE, IT CANNOT BE ALLOWED AS EXPENDITURE. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED A SUM OF ` 1,88,75,879/- BEING THE ASSETS WRITTEN OFF. HOWEVER, THE ASSESSING OFFICER HAS TAKEN THE LEASE PREMIUM AS INCOME FOR THE YEAR UNDER CONSIDERATION TO THE EXTE NT OF ` 5,70,71,180/-. THE LD. COUNSEL SUBMITTED THAT THE LEASE PREMIUM RECEIVED BY THE ASSESSEE IS FOR TRANSFER OF INTERE ST IN THE LANDED PROPERTY, THEREFORE, IT IS A CAPITAL RECEIPT , HENC E, THE ENTIRE AMOUNT OF ` 5,70,71,180/- CANNOT BE SUBJECTED TO TAXATION. IF THE ASSESSING OFFICER INTENDS TO TAKE ` 5,70,71,180/- BEING THE LEASE PREMIUM AS REVENUE RECEIPT, THEN THE EXPENDITURE INCURRED BY T HE ASSESSEE FOR DEVELOPING THE INFRASTRUCTURE IN THE SAID LAND HAS TO BE ALLOWED DURING THE YEAR UNDER CONSIDERATION. ITA NO. 52/15 :- 4 -: 4. ON THE CONTRARY, SHRI P RADHAKRISHNAN, LD. DEPARTME NTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CLAIMED A SUM OF ` 1,88,75,879/- AS REVENUE EXPENDITURE. THE ASSESSIN G OFFICER FOUND THAT THE ASSESSEE INCURRED THE EXPENDITURE OF ` 1,88,75,879/- FOR DEVELOPING INFRASTRUCTURE IN THE LANDED PROPERTY, T HEREFORE, IT IS IN THE NATURE OF CAPITAL EXPENDITURE HENCE, IT CANNOT BE A LLOWED WHILE COMPUTING THE TOTAL INCOME. ACCORDING TO THE LD. D R, THE EXPENDITURE IS ADMITTEDLY INCURRED FOR DEVELOPING THE LAND ACQU IRED BY THE ASSESSEE BY CREATING INFRASTRUCTURE FACILITIES SUCH AS ROADS, DRAINAGE, SEWERAGE SYSTEMS ETC, THEREFORE, THE EXPENDITURE H AS TO BE TREATED AS CAPITAL EXPENDITURE. HENCE, THE CIT(A) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E ASSESSEE HAS DISCLOSED THE RECEIPT OF ` 5,61,79,079/- TOWARDS LEASE PREMIUM FROM THE RESPECTIVE LESSEES. THE LEASE IS FOR A PERIOD 99 YEARS. UPTO ASSESSMENT YEAR 2005-06, THE ASSESSEE RECOGNIZED T HE INCOME ON PRO RATA BASIS. FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION, THE ASSESSEE RECOGNIZED THE LEASE PREMIUM AS INCOME IN THE YEAR IN WHICH IT WAS RECEIVED. ACCORDING TO THE LD. COUNSEL, THE LEASE PREMIUM IS RECEIVED FOR TRANSFER OF INTEREST IN THE IMMOVABLE PROPERTY, THEREFORE, IT IS IN THE NATURE OF CAPITAL RECEIPT. THIS TRIB UNAL IS OF THE CONSIDERED ITA NO. 52/15 :- 5 -: OPINION THAT WHEN THE ASSESSEE HAS RECEIVED A LUMP SUM AMOUNT AS LEASE PREMIUM, THE SAME HAS TO BE TREATED AS CAPITA L RECEIPT, THEREFORE, IT IS NOT SUBJECTED TO TAXATION. THE EX PENDITURE CLAIMED BY THE ASSESSEE FOR DEVELOPING THE INFRASTRUCTURE FAC ILITIES TO THE EXTENT OF ` 1,88,75,879/- IS FOR CREATING INFRASTRUCTURE FACIL ITIES IN THE LAND WHICH WAS LEASED OUT, THEREFORE, IT IS ALSO IN THE NATURE OF CAPITAL EXPENDITURE, HENCE THE SAME CANNOT BE ALLOWED AS RE VENUE EXPENDITURE. THE NATURE OF RECEIPT OF ` 5,61,79,079/- WAS NOT CONSIDERED BY THE AUTHORITIES BELOW. IN FACT, THE ASSESSEE ITSELF RETURNED THE SAME AS INCOME FOR THE YEAR UNDER CONS IDERATION EVEN THOUGH UPTO ASSESSMENT YEAR 2005-06 THE SAME WAS RE TURNED ON PRO RATA BASIS. THEREFORE, THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT THE ASSESSING OFFICER HAS TO CONSIDER THE NATURE OF RECEIPT OF LEASE PREMIUM OF ` 5,61,79,079/- AND FIND OUT WHETHER IT IS A CAPITAL RECEIPT OR REVENUE RECEIPT. IF THE SAID AMOUNT IS RECEIVED FOR LEASING OUT THE LANDED PROPERTY THEN THERE IS DEFINITELY A TRANSFER OF INTEREST ON THE IMMOVABLE PROPERTY WHICH HAS TO BE CONSIDERED AS CA PITAL RECEIPT. IF THE ASSESSING OFFICER FINDS THAT ` 5,61,79,079/- IS ONLY RENTAL RECEIPT, NATURALLY IT HAS TO BE TREATED AS REVENUE RECEIPT. SINCE THE DETAILS OF THE RECEIPTS ARE NOT AVAILABLE ON RECORD, THIS TRI BUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECO NSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE ITA NO. 52/15 :- 6 -: SET ASIDE AND THE ENTIRE ISSUE OF RECEIPT OF LEASE PREMIUM AND EXPENDITURE INCURRED BY THE ASSESSEE FOR CREATING THE INFRASTRUCTURE FACILITIES IS REMANDED BACK TO THE FILE OF THE ASSE SSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPOR TUNITY TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2015, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 18 TH DECEMBER, 2015 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF