Assistant Commissioner Of Income Tax, Circle - 1, Kalaburagi V. M/s. Sahakari Sakkare Kharkhane Niyamith, Aland

ITA 530/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4196 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-01-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 06-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: B S BALACHANDRAN
• Keywords: TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.530/BANG/2017 (ASSESSMENT YEAR : 2010 11) THE ACIT, CIRCLE 1, APPELLANT KALABURAGI. VS M/S. SAHAKARI SAKKARE KARKHANE NIYAMITH, ALAND, #2 841, NEAR J. K. FURNITURE, RAMADEVI MUDGE, JAGAT CIRCLE, GULBARGA - 535105 PAN. AAFAS0073H RESPONDENT ASSESSEE BY : SHRI B. S. BALACHANDRAN, ADVOCATE REVENUE BY : SHRI C. H. SUNDAR RAO, CIT (DR) DATE OF HEARING : 10 01 20 19 DATE OF PRONOUNCEMENT : 08 02 2019 O R D E R PER A. K. GARODIA, A.M.: THIS APPEAL IS FILED BY THE REVENUE WHICH IS DIRECT ED AGAINST THE ORDER OF CIT (A) KALABURAGI DATED 29.12.2016 FOR A. Y. 2010 11. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS OPPOSED TO LAW AND FACT OF THE CASE. 2. IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN ALLOWING RELIE F TO THE ASSESSEE BY CONSIDERING RS. 50 LAKHS AS TAXABLE LEASE RENT FOR YEAR UNDER CONSIDERATION AS AGAINST RS.15 CRORE RECEIVED BY AS SESSEE. 3. IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONSIDERING RS .15 CRORE AS ADVANCE LEASE RENT EVEN THOUGH NOWHERE IN THE LEASE AGREEMENT IT IS WRITTEN THAT RS. 15 CRORE IS PAID TOWARDS ADVANCE L EASE RENT. ITA NO. 530/BANG/2017 2 4. IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT ADJUDICATI NG THE NATURE OF RECEIPT OF RS.15 CRORE WHETHER THE SAME FALLS UNDER THE HEAD 'INCOME FROM BUSINESS & PROFESSION' OR 'INCOME FROM HOUSE P ROPERTY' WITHOUT APPRECIATING THE FACT THAT M/S NSL SUGARS LTD. ISSU ED TDS CERTIFICATE (FORM-16A) DATED 20.01.2011 UNDER SECTION 1941 OF T HE IT ACT. 5. IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONSIDERING RS . 15 CRORE AS ADVANCE LEASE RENT WHICH WAS RECEIVED IN ONE GO INS TEAD OF RS. 45.0471 CRORE WITHOUT GOING INTO THE FACT WHETHER RS.15 CRO RE RECEIVED BY THE ASSESSEE IS 'INCOME FROM BUSINESS & PROFESSION' OR 'INCOME FROM HOUSE PROPERTY' WITHOUT EXERCISING HIS POWERS U/S 251 OF IT ACT AS MENTIONED BY THE HON'BLE HIGH COURT OF DELHI IN CASE OF GURIN DER MOHAN SINGH NINDRAJOG VS. CIT [2012] 348 ITR 170 (DELHI) THAT I N APPELLATE PROCEEDINGS, COMMISSIONER (APPEALS) HAS JURISDICTIO N TO CORRECT ORDER OF ASSESSING OFFICER NOT ONLY WITH REGARD TO MATTER RAISED BY ASSESSEE IN APPEAL BUT ALSO WITH REGARD TO ANY OTHER MATTER WHICH HAS BEEN CONSIDERED BY ASSESSING OFFICER AND DETERMINED IN C OURSE OF ASSESSMENT. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING? 3. BRIEF FACTS AS NOTED BY THE A. O. ON PAGE 3 OF T HE ASSESSMENT ORDER ARE THAT AS PER LEASE DEED DATED 06.03.2010, THE LESSEE AGREED TO PAY A TOTAL LEASE RENT OF RS. 7500 LACS EXCLUDING SECURITY DEPOSIT OF RS. 500 LACS FOR THE ENTIRE LEASE PERIOD OF 30 YEARS FROM 2010 11 TO 2039 40 SUGA R CRUSHING SEASON UP TO 30.09.2040. IT IS FURTHER NOTED THAT CONSIDERING TH E IMMEDIATE REQUIREMENT OF FUNDS OF THE LESSOR I.E. THE PRESENT ASSESSEE AND U PON THE PERMISSION OF THE GOVT. VIDE LETTER DATED 25.01.2010, THE LESSEE HAS AGREED TO PAY TO THE LESSOR RS. 1500 LACS IN ONE LUMP SUM AT THE TIME OF EXECUT ION OF THE LEASE AGREEMENT WHICH IS EQUIVALENT TO RS. 4504.71 LACS AFTER DISCO UNTING TOTAL LEASE RENT PAYABLE FOR 30 YEARS AT THE RATE OF 10 PERCENT. IT IS FURTHER NOTED THAT THE BALANCE LEASE RENT I.E. RS. 2995.29 LACS IS PAYABLE BY THE LESSEE TO THE LESSOR AS PER VARIOUS DATES AND AMOUNTS NOTED IN THE LEAS E DEED AND REPRODUCED IN THE ASSESSMENT ORDER AS PER WHICH RS. 89.86 LACS IS PAYABLE IN CRUSHING SEASON 210 11. THE LESSEE HAS ACCORDINGLY PAID RS . 1500 LACS IN F. Y. 2009 10 AND DEDUCTED TDS RS. 104,14,474/-. THE ASSESSE E CLAIMED REFUND OF TDS AMOUNT OF RS. 104,14,474/- BUT AS PER THE ASSESSEE, THIS AMOUNT OF RS. 1500 LACS IS NOT TAXABLE IN THE PRESENT YEAR. BUT THE AO WAS NOT SATISFIED IN VIEW OF THESE FACTS AND THE AO CAME TO THE CONCLUSION THAT THIS AMOUNT OF RS. 1500 ITA NO. 530/BANG/2017 3 LACS RECEIVED IN THE PRESENT YEAR IS TAXABLE IN FUL L IN THE PRESENT YEAR. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE CIT (A). HE HELD THAT THE AMOUNT OF RS. 1500 LACS IS RECEIPT OF ADVA NCE RENTAL AND SINCE, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, ADVANCE RENTAL CANNOT BE BROUGHT TO TAX IN THE PRESENT YEAR. HE ALSO HELD THAT THIS AMOUNT OF RS. 1500 LACS SHOULD BE TAXED IN THESE 30 YEARS @ RS. 50 LAC S IN EACH YEAR PLUS THE ANNUAL RENT RECEIVABLE AS PER LEASE DEED. HE ALSO H ELD THAT CREDIT OF TDS SHOULD BE RESTRICTED TO PROPORTIONATE AMOUNT OF INC OME. NOW, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LEARNED DR OF THE REVENUE SUPPORTED THE ASSESSME NT ORDER. AS AN ALTERNATIVE ARGUMENT, HE SUBMITTED THAT EVEN IF IT IS HELD THAT THE FULL AMOUNT OF RS. 1500 LACS IS NOT TAXABLE IN THE PRESENT YEAR AND IT SHOU LD BE TAXED OVER THE FULL PERIOD OF LEASE OF 30 YEARS, IT CANNOT BE DISTRIBUTED EQUA LLY IN THESE 30 YEARS BECAUSE THE DISCOUNTED VALUE OF THE FIRST YEAR I.E. THE PRE SENT YEAR WILL BE FULL BUT THAT OF THE LAST I.E. 30 TH YEAR WILL BE VERY SMALL AND HENCE THE DISCOUNTED V ALUE OF EACH YEAR SHOULD BE WORKED OUT AND THAT DISCOUNTED VALUE SHOULD BE TAXED IN EACH OF THESE 30 YEARS. LEARNED AR OF THE ASSESSEE SUPPO RTED THE ORDER OF CIT (A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT THE LEARNED CIT (A) HAS DECIDED THE ISSUE IN DISPUTE AS PER PARA 3.3 OF HIS ORDER, WHICH IS REPRODUCED AS UNDER FOR READY REFERENCE:- 3.3 THE IMPORTANT POINTS FOR CONSIDERATION ARE THE LANGUAGE OF THE LEASE DEED, ACCRUAL OF INCOME AND RELEVANT PROVISIO NS OF THE ACT. THE LEASE DEED IS CLEAR THAT THE LEASE PERIOD IS FOR 30 YEARS COMMENCING FROM CRUSHING SEASON 2010 TO 2039-40 AND THAT THE L EASE RENTAL PAYABLE FOR THE SAID PERIOD IS RS.75 CRORES. HOWEVE R, THE LESSOR HAS DECIDED TO RECEIVE OUT OF RS.75 CRORES, A CERTAIN P ORTION OF AMOUNT(RS.45 CRORES APPROX) IN LUMP SUM TO MEET ITS URGENT LIABILITIES AT A DISCOUNTED VALUE OF RS.15 CRORES. THE RELEVANT LINES FROM THE LEASE AGREEMENT ARE: 'THE LESSEE HEREBY HAS AGREED TO PAY A TOTAL LEASE RENT OF RS. 7500 LAKHS FOR THE PERIOD FROM 2010-11 TO 2039-40 SUGAR CANE CRUSHING SEASON. FURTHER, CONSIDERING THE IMMEDIATE REQUIREM ENTS OF FUNDS FOR SETTLEMENT OF PREFERENTIAL LIABILITIES OF THE LESSO R.THE LESSEE HAS AGREED TO PAY THE LESSOR A SUM OF RS. 1500 LAKHS IN ONE LUMP SUM WHICH IS EQUIVALENT TO RS.4504.71 LAKHS AFTER DISCO UNTING TOTAL LEASE RENTAL PAYABLE FOR 30 YEARS AT RATE OF TEN PERCENT. THE BALANCE OF LEASE RENT IS PAYABLE BY THE LESSEE TO THE LESSOR ANNUALL Y AS FOLLOWS...' ITA NO. 530/BANG/2017 4 SO IT IS CLEAR THAT THE LEASE RENT OF RS.75 CRORES ACCRUES OVER THE LEASE PERIOD OF 30 YEARS. THE FACT THAT AN AMOUNT OF RS. 15 CRORES WAS RECEIVED IN ONE GO INSTEAD OF RS.45.0471 CRORES AND IT IS AN ARRANGEMENT BETWEEN THE LESSOR AND LESSEE. TAKING A DVANCE RENT AFTER DISCOUNT IS THE ARRANGEMENT BETWEEN PARTIES REGARDI NG THE PAYMENT WHICH CANNOT FORM THE BASIS FOR TAXATION. THE APPEL LANT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND AS SU CH, ADVANCES CANNOT BE TREATED AS INCOME. FURTHER, THE CONTENTIO N OF THE AO THAT SINCE THE ASSESSEE HAS TAKEN WHOLE SUM OF TDS CREDI T, AND SO THE INCOME ALSO SHOULD BE TAXED IN THE SINGLE YEAR IS N OT JUSTIFIABLE. THE PROVISIONS RELATING TO TDS ARE DIFFERENT FROM PROVI SIONS OF TAXATION OF INCOME. THE STAND TAKEN WITH RESPECT TO TDS CREDIT CANNOT FORM BASIS FOR SCOPE OF INCOME. THE PROVISIONS OF TDS IN RESPE CT OF RENT (SEC. 1941) REQUIRE THAT TDS BE MADE EITHER AT THE TIME O F CREDIT OR PAYMENT, WHICHEVER IS EARLIER. AT MOST, IN THIS CAS E, THE TDS CREDIT SHOULD HAVE BEEN RESTRICTED TO PROPORTIONATE AMOUNT OF INCOME. THE LEASE RENT TO BE OFFERED TO TAX EACH YEAR FOR THE 3 0 YEARS PERIOD IN THIS CASE IS RS.15 CRORES OVER 30 YEARS AT RS.50 LAKHS E ACH YEAR PLUS THE ANNUAL RENTAL RECEIVABLE AS PER THE LEASE DEED. HOW EVER, THE TDS CREDIT FOR THE AY 2010-11 SHALL BE RESTRICTED TO TH E AMOUNT OF INCOME FOR AY 2010-11 AND BALANCE SHALL BE ALLOWED TO BE C ARRIED FORWARD. THE APPELLANT DURING THE APPELLATE PROCEEDINGS HAS AGREED FOR THE SAME. 6. FROM THE ABOVE PARA OF CIT (A), IT COMES OUT THA T AS PER CIT (A), OUT OF THIS AMOUNT OF RS. 1500 LACS RECEIVED IN THE PRESENT YEA R BEING THE DISCOUNTED VALUE OF THE LEASE RENT OF THESE 30 YEARS RS. 4504. 71 LACS, AN AMOUNT OF RS. 50 LACS SHOULD BE BROUGHT TO TAX IN EACH OF THESE 3 0 YEARS. IN OUR CONSIDERED OPINION, IN PRINCIPLE, WE ARE IN AGREEMENT WITH CIT (A) THAT ONLY PROPORTIONATE AMOUNT OF THIS RS. 1500 LACS SHOULD BE BROUGHT TO T AX IN EACH OF THESE 30 YEARS BUT REGARDING THE WORKING OF CIT (A) THAT RS. 50 LACS SHOULD BE TAXED IN EACH OF THESE 30 YEARS, WE ARE NOT IN AGREEMENT WIT H CIT (A). IN OUR CONSIDERED OPINION, SINCE, THE TOTAL AGREED LEASE R ENT FOR 30 YEARS IS RS. 7500 LACS, THE AMOUNT OF LEASE RENT FOR EACH YEAR IS RS. 250 LACS. FROM THIS AMOUNT OF LEASE RENT FOR EACH YEAR, PART AMOUNT IS RECEIVA BLE IN THE RESPECTIVE YEAR AND THE BALANCE AMOUNT IS RECEIVED IN ADVANCE AFTER DIS COUNTING THE SAME @ 10%. HENCE IN EACH YEAR, THE AMOUNT TO BE BROUGHT TO TAX SHOULD BE THE ACTUAL AMOUNT RECEIVABLE IN THAT YEAR AND THE DISCOUNTED V ALUE OF THE BALANCE AMOUNT. IN THE FIRST YEAR, THE ACTUAL AMOUNT RECEIVABLE IS RS. 89.86 LACS IN ADDITION TO THE DISCOUNTED VALUE RECEIVED IN ONE LUMP SUM. HENCE TH E DISCOUNTED VALUE OF THE BALANCE AMOUNT I.E. RS. 160.14 LACS (RS. 250 LACS L ESS RS. 89.86 LACS) IN THE ITA NO. 530/BANG/2017 5 FIRST YEAR WILL BE THE SAME AMOUNT RS. 160.14 LACS BECAUSE, THE DISCOUNTED VALUE OF THE AMOUNT RECEIVABLE IN THE PRESENT YEAR HAS TO BE EQUAL. IN THIS MANNER, THE AMOUNT TO BE BROUGHT TO TAX IN THE PRES ENT YEAR BEING THE FIRST YEAR IS RS. 250 LACS. IN THE REMAINING 29 YEARS, ACTUAL AMOUNT RECEIVABLE IN EACH YEAR IS NOTED IN THE LEASE DEED. THE SAME SHOULD BE BROUGHT TO TAX IN THE RESPECTIVE YEAR AND IN ADDITION TO THAT, THE BALANC E AMOUNT SHOULD BE WORKED OUT AND THEREAFTER, THE DISCOUNTED VALUE THEREOF SH OULD BE COMPUTED @ 10% AND THE TOTAL OF THESE TWO AMOUNTS I.E. ACTUAL AMOU NT RECEIVABLE IN THAT YEAR PLUS THE DISCOUNTED VALUE OF THE BALANCE AMOUNT SHO ULD BE BROUGHT TO TAX IN EACH YEAR. WE HAVE WORKED OUT THE SAME AS UNDER:- FULL DISCOUNTED GROSS AMOUNT OF AMOUNT OF INCOME BALANCE RENT DISCOUNTED DISCOUNT FACTOR DISCOUNTED TO BE YEAR NO. FULL RENT TO BE RECEIVED RENT 10% RENT TAXED 1 2,50,00,000 89,86,000 1,60,14,000 1 1,60,14,000 2,50,00,000 2 2,50,00,000 92,1 1,000 1,57,89,000 1.1 1,43,53,636 2,35,64,636 3 2,50,00,000 94,41,000 1,55,59,000 1.21 1,28,58,678 2,22,99,678 4 2,50,00,000 96,78,000 1,53,22,000 1.331 1,15,11,645 2,11 ,89,645 5 2,50,00,000 99,20,000 1,50,80,000 1.4641 1,02,99,843 2,02,19,843 6 2,50,00,000 1,01,69,000 1,48,31,000 1.61051 92,08,884 1,93,77,884 7 2,50,00,000 1,04,24,000 1 ,45,76,000 1.771561 82,27,772 1,86,51,772 8 2,50,00,000 1,06,84,000 1,43,16,000 1.9487171 73,46,372 1,80,30,372 9 2,50,00,000 1,09,51,000 1,40,49,000 2.14358881 65,53,96 2 1,75,04,962 10 2,50,00,000 1,12,23,000 1,37,77,000 2.357947691 58,42,793 1,70,65,793 11 2,50,00,000 1,15,05,000 1,34,95,000 2.59374246 52,02,907 1,67,07,907 12 2,50,00,000 1,17,92,000 1,32,08,000 2.853116706 46,29,323 1,64,21,323 13 2,50,00,000 1,20,86,000 1,29,14,000 3.138428377 41,14,798 1,62,00,798 14 2,50,00,000 1,23,89,000 1,26,11,000 3.452271214 36,52,957 1,60,41,957 15 2,50,00,000 1,26,97,000 1,23,03,000 3.797498336 32,39,764 1,59,36,764 16 2,50,00,000 1,30,15,000 1,19,85,000 4.177248169 28,69,114 1,58,84,11 4 17 2,50,00,000 1,33,41,000 1,16,59,000 4.594972986 25,37,338 1,58,78,338 18 2,50,00,000 1,36,73,000 1,13,27,000 5.054470285 22,40,987 1,59,13,987 19 2,50,00,000 1,40,15,000 1,09,85,000 5.559917313 19,75,749 1,59,90,749 20 2,50,00,000 1,43,65,000 1,06,35,000 6.115909045 17,38,907 1,61,03,907 21 2,50,00,000 1,47,25,000 1,02,75,000 6.727499949 15,27,313 1,62,52,313 22 2,50,00,000 1,50,93,000 99,07,000 7.400249944 13,38,739 1,64,31,739 23 2,50,00,000 1,54,71,000 95,29,000 8.140274939 11,70,599 1,66,41,599 24 2,50,00,000 96,51,000 1,53,49,000 8.954302433 17,14,148 1,13,65,148 25 2,50,00,000 60,21,000 1,89,79,000 9.849732676 19,26,854 79,47,854 26 2,50,00,000 37,56,000 2,12,44,000 10.83470594 19,60,736 57,16,736 27 2,50,00,000 23,42,000 2,26,58,000 11.91817654 19,01,130 42,43,130 28 2,50,00,000 14,62,000 2,35,38,000 13.10999419 1 7,95,424 32,57,424 ITA NO. 530/BANG/2017 6 29 2,50,00,000 9,11,000 2,40,89,000 14.42099361 16,70,412 25,81,412 30 2,50,00,000 5,32,000 2,44,68,000 15.86309297 15,42,448 20,74,4 48 TOTAL 75,00,00,000 29,95,29,000 45,04,71,000 15,09,67,234 45,04,96,234 ROUNDED OFF TO 15 CRORES 29,95,29,000 TO BE RECEIVED ROUNDING OFF DIFFERENCE 15,00,00,000 RECEIVED IN ADVANCE TO BE REDUCED IN LAST YEAR 9,6 7,234 44,95,29,000 TOTAL RECEIVABLE TOTAL AMOUNT TO BE TAXED 44,95,29,000 7. THE AMOUNT TO BE TAXED IN EACH OF THESE 30 YEARS SHOULD BE AS PER THIS CHART. YEAR NO. 1 IS THE PRESENT YEAR. CREDIT OF TDS SHOUL D BE ALLOWED ON PROPORTIONATE BASIS OF INCOME TAXED IN EACH YEAR OU T OF DISCOUNTED AMOUNT OF DISCOUNTED RENT. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTA NT MEMBER BANGALORE, DATED, THE 08 TH FEBRUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.