Sri. Koramangala Muniswamy Lakshmaiah Reddy, Bangalore V. Deputy Commissioner Of Income Tax, Circle- 7(2)(1), Bangalore

ITA 6/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3112 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-11-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 06-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Capital asset; Additional evidence; Capital receipt
• Section: 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B, BANGALORE BEFORE SHRI GEORGE GEORGE K, JM & SHRI B.R.BASKARAN, AM ITA NO.6/BANG/2020 : ASST.YEAR 2015-2016 SRI.KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY #103/9 TH CROSS, 2 ND MAIN WILSON GARDEN BANGALORE - 560 027. PAN : ACYPR1465Q. V. THE DY.COMMISSIONER OF INCOME-TAX, CIRCLE 7(2)(1) BENGALURU. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI.V.SRINIVASAN, ADVOCATE RESPONDENT BY : SRI.PRIYADARSHI MISHRA, JCIT-DR DATE OF HEARING : 09.11.2020 DATE OF PRONOUNCEMENT : 09.11.2020 O R D E R PER GEORGE GEORGE K, JM : THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE CIT(A)S ORDER DATED 18.11.2019. THE RELEVANT ASSESSMENT YEAR IS 2015-2016. 2. THE SOLITARY ISSUE RAISED IS WHETHER THE CIT(A) IS JUSTIFIED IN UPHOLDING THE ADDITION OF RS.80,69,750 MADE BY THE ASSESSING OFFICER UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOW: THE ASSESSEE IS AN INDIVIDUAL, DERIVING INCOME FROM HOUSE PROPERTY, BUSINESS AND OTHER SOURCES. FOR THE ASSESSMENT YEAR 2015-2016, THE RETURN OF INCOME WAS FILED ON 17.03.2016 DECLARING TOTAL INCOME OF RS.63,29,590. THE ASSESSMENT WAS SELECTED FOR SCRUTINY BY ISSUANCE OF NOTICE U/S 143(2) OF THE I.T.ACT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. ITA NO.6/BANG/2020 SRI KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY. 2 NOTICED THAT THE ASSESSEE HAD RECEIVED A SUM OF RS.80,69,750 FROM ITS TENANT M/S.INFOSYS LIMITED AND CALLED FOR THE DETAILS WITH REGARD TO THE SAME. THE ASSESSEE SUBMITTED THAT THE SAME WAS A CAPITAL RECEIPT INASMUCH AS HIS TENANT HAD PAID THIS AMOUNT TO RECTIFY THE STRUCTURAL CHANGES MADE BY HIS TENANT IN THE BUILDING AND ALSO ON ACCOUNT OF DAMAGES CAUSED TO THE BUILDING BY HIS TENANT. THE ASSESSEE ALSO FURNISHED DETAILS OF ESTIMATES FROM RJB ASSOCIATES AMOUNTING TO RS.1.16 CRORE, WHICH WAS LATER REVISED TO RS.80,69,750. BASED ON THE REVISED ESTIMATE AND NEGOTIATIONS BY THE ASSESSEE, IT WAS SUBMITTED THAT M/S.INFOSYS LIMITED HAD FINALLY PAID THE AMOUNT OF RS.80,69,750. 4. THE ASSESSING OFFICER, HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE AND HELD RS.80,69,750 IS A REVENUE RECEIPT. ACCORDING TO THE A.O., THE ASSESSEE DID NOT PRODUCE ANY DOCUMENTARY EVIDENCE IN RESPECT OF THE RECEIPTS TO SUBSTANTIATE THAT THE EXPENDITURE WAS INCURRED TOWARDS REPAIRING AND STRUCTURAL CHANGES / DAMAGES MADE IN THE BUILDING BY THE FORMER TENANT OF THE ASSESSEE. THE RELEVANT FINDING OF THE ASSESSING OFFICER READS AS FOLLOW:- THE ASSESSEES CONTENTION CANNOT BE ACCEPTED AS NO DOCUMENTARY EVIDENCE HAS BEEN FURNISHED REGARDING THE SAID EXPENDITURE. FURTHER, THERE IS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND M/S.INFOSYS REGARDING THE SAID EXPENDITURE. THE ASSESSEE HAS FURNISHED ONLY A COPY OF THE ESTIMATE FROM ARCHITECT DATED 22.07.2014. HENCE, IN VIEW OF THE FACTS ON RECORD, THE ASSESSEES CONTENTION CANNOT BE ACCEPTED AND THE SAID AMOUNT OF RS.80,69,750/- WHICH THE ASSESSEE HAS TREATED AS CAPITAL RECEIPT IS BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO.6/BANG/2020 SRI KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY. 3 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER IN TREATING THE SUM OF RS.80,69,750 AS REVENUE RECEIPT, THE ASSESSEE FILED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS SUBMITTED THAT THE AMOUNT RECEIVED FROM M/S.INFOSYS LIMITED IS A CAPITAL RECEIPT INASMUCH AS THIS AMOUNT WAS PAID BY THEM TOWARDS DAMAGES, RESTORATION CHARGES REQUIRED TO BE INCURRED BY THE ASSESSEE IN RESPECT OF BUILDING OCCUPIED BY THEM. AS AN ADDITIONAL EVIDENCE, THE ASSESSEE HAD PRODUCED A CONFIRMATION LETTER DATED 10.08.2018 FROM M/S.INFOSYS LIMITED, WHEREIN IT IS STATED THAT THEY HAD PAID A SUM OF RS.80,69,750 PLUS SERVICE TAX TOWARDS DAMAGES / RESTORATION CHARGES. FURTHER, THE ASSESSEE HAD ALSO PRODUCED THE INVOICES FOR WHICH HE HAD INCURRED EXPENSES TOWARDS RESTORATION OF THE BUILDING. ON RECEIPT OF THE ADDITIONAL EVIDENCE, THE CIT(A) CALLED FOR A REMAND REPORT. ON RECEIPT OF THE REMAND REPORT FROM THE A.O., A COPY WAS SUBMITTED TO THE ASSESSEE AND REJOINDER WAS FILED BY THE ASSESSEE. 6. THE CIT(A), HOWEVER, REJECTED THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE VIEW OF THE ASSESSING OFFICER. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOW:- 6.5 HAVING CONSIDERED ALL THE ASPECTS OF THE TRANSACTION, IT IS UNDISPUTED THAT THE AMOUNT OF RS.80,69,750/- HAS BEEN RECEIVED FROM THE TENANT INFOSYS LTD DURING THE LAST MONTH OF THE LEASE PERIOD I.E SEPTEMBER 2014. MERELY BECAUSE THE LETTER FROM INFOSYS MENTIONS THAT THE PAYMENT IS IN RESPECT OF DAMAGES / RESTORATION CHARGES FOR THE BUILDING VACATED BY THEM, THE AMOUNT DOES NOT BECOME A CAPITAL RECEIPT IN THE HANDS OF THE APPELLANT. THE AMOUNT IS EVIDENTLY RECEIVED BY THE APPELLANT IN CONNECTION WITH THE PROPERTY LET OUT BY HIM TO INFOSYS. THE AMOUNT IS RECEIVED ON 18 TH SEPTEMBER 2014 DURING THE PERIOD OF SUBSISTENCE OF LEASE AND BEFORE THE PREMISES WAS VACATED BY INFOSYS ON TERMINATION OF LEASE PERIOD ON ITA NO.6/BANG/2020 SRI KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY. 4 30.09.2014. THE APPELLANT HAS BEEN SHOWING THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND CLAIMING DEDUCTIONS AGAINST THIS RECEIPT AS PROVIDED U/S 24 OF THE ACT. THE LAW DOES NOT ALLOW ANY OTHER DEDUCTION AGAINST THIS INCOME OTHER THAN THAT AS PROVIDED U/S 24. THEREFORE, THE EXPENDITURE INCURRED BY THE APPELLANT TO RENOVATE HIS COMMERCIAL BUILDING WITH INSTALLATIONS AND FITTINGS OF MODERN EQUIPMENT AND FACILITIES CANNOT BE ALLOWED AS A DEDUCTION AGAINST THE AMOUNT RECEIVED IN CONNECTION WITH THE ATTRIBUTABLE TO THE LEASE OF THE PREMISES. 6.6 FURTHER, IT IS THE JUDICIAL POSITION THAT THE AMOUNT RECEIVED BY A LANDLORD FROM A TENANT FROM CANCELLING A LEASE CONSTITUTES INCOME IN THE YEAR IN WHICH IT IS RECEIVED SINCE IT IS ESSENTIALLY A SUBSTITUTE FOR RENTAL PAYMENTS. IF THE TENANT PAYS ANY EXPENSES THAT ARE THE LANDLORDS OBLIGATION, THE PAYMENTS ARE RENTAL INCOME FOR THE LANDLORD AND MUST BE INCLUDED IN INCOME FROM THE PROPERTY. THEREFORE, IN THIS CASE EVEN IF THE PAYMENT OF RS.80,69,750/- MADE BY INFOSYS FOR THE PURPOSE OF REPAIRS AND DAMAGES AS CLAIMED BY THE LANDLORD, THE SAME IS APPARENTLY TO FACILITATE THE COMPANY TO BRING TO CLOSURE ITS LEASE AGREEMENT TERMINATING MORE THAN 25 YEARS OF OCCUPANCY OF THE BUILDING BY IT. THE HONBLE DELHI HC IN THE CASE OF UBEROI SONS (MACHINES) LTD 26 TAXMANN.COM 310 HAS HELD THAT ARREARS OF RENT RECEIVED BY THE ASSESSEE AS MESNE PROFITS ARE TAXABLE IN THE YEAR OF RECEIPT. THE SPECIAL BENCH OF HONBLE ITAT JAIPUR IN THE CASE OF PURUSHOTTAM LAL ROONGATA FAMILY WELFARE TRUST 58 ITD 19 HAS HELD THAT AMOUNT FOR DAMAGES CANNOT BE ALLOWED AS DEDUCTION AGAINST HOUSE PROPERTY INCOME. THE RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE ITAT DELHI IN THE CASE OF AK MAHINDRA 44 ITD 430 WHICH IS IN SIMILAR LINE. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. A PAPER BOOK HAS BEEN FILED ON BEHALF OF THE ASSESSEE COMPRISING OF 45 PAGES ENCLOSING THEREIN THE ESTIMATES OF THE WORK THAT WAS TO BE UNDERTAKEN BY THE ASSESSEE, COPY OF THE INVOICES OF THE WORK DONE BY THE ASSESSEE, CONFIRMATION LETTER FROM M/S.INFOSYS LIMITED, COPY OF THE REMAND REPORT, THE REJOINDER FILED BY THE ASSESSEE, THE LAST LEASE AGREEMENT EXECUTED ON 21.07.2014, ETC. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V. SAURASHTRA CEMENT LTD. 325 ITR 422 ITA NO.6/BANG/2020 SRI KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY. 5 FOR THE PROPOSITION THAT DAMAGES RECEIVED WHICH ARE DIRECTLY AND INTIMATELY LINKED WITH THE CAPITAL ASSET WOULD TAKE THE CHARACTER OF A CAPITAL RECEIPT. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE INCOME TAX AUTHORITIES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLITARY ISSUE FOR OUR CONSIDERATION IS WHETHER THE AMOUNT OF RS.80,69,750 RECEIVED FROM M/S.INFOSYS LIMITED DURING THE YEAR IS A CAPITAL RECEIPT OR A REVENUE RECEIPT. THE ASSESSEE HAD GIVEN HIS PROPERTY / BUILDING AT KORAMANGALA, BANGALORE FOR LEASE TO M/S.INFOSYS LIMITED IN THE YEAR 1988. IN THE IMPUGNED ORDER OF THE CIT(A) IT IS MENTIONED THAT THE ASSESSEE ALONG WITH HIS WIFE AND SON ARE CO-OWNERS OF THE SAID BUILDING. HOWEVER, THE LEASE DEED SHOWS THE ASSESSEE AS THE SOLE LESSOR. THE ORIGINAL LEASE AGREEMENT WHICH WAS EXECUTED ON 1988 WAS RENEWED FROM TIME TO TIME. THE INCOME EARNED BY WAY OF RENTALS FROM M/S.INFOSYS LIMITED WAS ALREADY DISCLOSED IN THE RETURN FILED BY THE ASSESSEE. WHEN M/S.INFOSYS LIMITED HAD VACATED THE PREMISES, LOT OF DAMAGES WERE NOTICED, WHICH HAD EXTENDED BEYOND NORMAL WEAR AND TEAR. THE ASSESSEE CLAIMED DAMAGES FROM M/S.INFOSYS LIMITED. IN SUPPORT OF ASSESSEES CLAIM FOR DAMAGES, ESTIMATE OF RJB ASSOCIATES FOR A TOTAL SUM OF RS.1.16 CRORE, WHICH LATER REVISED TO RS.80,69,000 WAS FURNISHED TO M/S.INFOSYS LIMITED. AFTER NEGOTIATIONS, M/S.INFOSYS LIMITED PAID A SUM OF RS.80,69,750 TOWARDS DAMAGES CAUSED TO THE BUILDING FOR WHICH THE ASSESSEE WOULD BE REQUIRED TO INCUR EXPENDITURE FOR RESTORING THE ITA NO.6/BANG/2020 SRI KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY. 6 BUILDING TO ITS ORIGINAL POSITION. THE PAYMENT OF THE AMOUNT OF RS.80,69,750 WAS CONFIRMED BY M/S.INFOSYS LIMITED VIDE ITS LETTER DATED 10.08.2018. IN THE SAID LETTER, IT IS CLEARLY MENTIONED THAT THE PAYMENTS ARE TOWARDS DAMAGES / RESTORATION CHARGES REQUIRED TO BE INCURRED BY THE ASSESSEE IN RESPECT OF THE PREMISES LEASED OUT AND OCCUPIED BY M/S.INFOSYS LIMITED UNTIL 30.09.2014. THE ASSESSEE HAS ALSO PRODUCED INVOICES INCURRED FOR THE EXPENSES FROM OCTOBER 2014 ONWARDS AND DETAILS ARE ON RECORD FROM PAGES 9 TO 16 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE TOTAL EXPENDITURE INCURRED AS PER THE INVOICE WAS A SUM OF RS.85,45,491. AS AGAINST THIS, THE ASSESSEE HAD RECEIVED FROM M/S.INFOSYS LIMITED RS.80,69,750. 9.1 ADMITTEDLY, THE AMOUNT OF RS.80,69,750 IS NOT PART OF LEASE RENTALS RECEIVED BY THE ASSESSEE. ON THE CONTRARY, THE A.O. ADMITS IN THE REMAND REPORT THAT THE PAYMENT MADE BY M/S.INFOSYS LIMITED WAS TOWARDS DAMAGES AND RESTORATION. AS REGARDS INCURRING OF EXPENSES OF RS.85,45,491 BY THE ASSESSEE, THE ASSESSING OFFICER DOES NOT DOUBT THE SAME. THIS IS EVIDENT BY THE OBSERVATIONS OF THE A.O. IN THE REMAND REPORT SUBMITTED TO THE CIT(A). THE A.O. WAS OF THE VIEW THAT THESE EXPENDITURES ARE ROUTINE MAINTENANCE EXPENDITURE. HOWEVER, A PERUSAL OF THE DETAILS OF THE EXPENDITURE, IT IS CLEAR IT HAS BEEN INCURRED FOR RESTORING THE BUILDING TO ITS FORMER POSITION SO THAT ASSESSEE FINDS A NEW TENANT BECAUSE M/S.INFOSYS LIMITED HAD VACATED THE PREMISES. THE BUILDING WHICH WAS LET OUT TO M/S.INFOSYS LIMITED FROM THE YEAR 1988 IS A CAPITAL ASSET OF THE ASSESSEE. ANY PAYMENT RECEIVED AS DAMAGES IN ORDER TO RESTORE THE SAID BUILDING TO ITS FORMER POSITION WOULD BE INTIMATELY LINKED WITH ITA NO.6/BANG/2020 SRI KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY. 7 THE CAPITAL ASSET OF THE ASSESSEE AND CANNOT BE TERMED AS ANYTHING OTHER THAN A CAPITAL RECEIPT. IN THIS CONTEXT, WE RELY ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V. SAURASHTRA CEMENT LTD. (SUPRA) , WHEREIN IT HAS BEEN HELD BY THE HONBLE COURT THAT ANY DAMAGES THAT IS INTIMATELY AND DIRECTLY LINKED WITH THE PROCUREMENT OF A CAPITAL ASSET CAN BE A CAPITAL RECEIPT BECAUSE THERE WAS A DELAY IN COMING INTO EXISTENCE OF PROFIT MAKING APPARATUS AND WAS NOT A RECEIPT IN THE COURSE OF PROFIT EARNING PROCESS. THE RELEVANT FINDING OF THE HONBLE APEX COURT READS AS FOLLOW:- WE HAVE CONSIDERED THE MATTER IN THE LIGHT OF THE AFORENOTED BROAD PRINCIPLE. IT IS CLEAR FROM CLAUSE NO.6 OF THE AGREEMENT DT.1 ST SEPT., 1967, EXTRACTED ABOVE, THAT THE LIQUIDATED DAMAGES WERE TO BE CALCULATED AT 0.5 PER CENT OF THE PRICE OF THE RESPECTIVE MACHINERY AND EQUIPMENT TO WHICH THE ITEMS WERE DELIVERED LATE, FOR EACH MONTH OF DELAY IN DELIVERY COMPLETION, WITHOUT PROOF OF THE ACTUAL DAMAGES THE ASSESSEE WOULD HAVE SUFFERED ON ACCOUNT OF THE DELAY. THE DELAY IN SUPPLY COULD BE OF THE WHOLE PLANT OR A PART THEREOF BUT THE DETERMINATION OF DAMAGES WAS NOT BASED UPON THE CALCULATION MADE IN RESPECT OF LOSS OF PROFIT ON ACCOUNT OF SUPPLY OF A PARTICULAR PART OF THE PLANT. IT IS EVIDENT THAT THE DAMAGES TO THE ASSESSEE WAS DIRECTLY AND INTIMATELY LINKED WITH THE PROCUREMENT OF A CAPITAL ASSET I.E. THE CEMENT PLANT, WHICH WOULD OBVIOUSLY LEAD TO DELAY IN COMING INTO EXISTENCE OF THE PROFIT MAKING APPARATUS, RATHER THAN A RECEIPT IN THE COURSE OF PROFIT EARNING PROCESS. COMPENSATION PAID FOR THE DELAY IN PROCUREMENT OF CAPITAL ASSET AMOUNTED TO STERILIZATION OF THE CAPITAL ASSET OF THE ASSESSEE AS SUPPLIER HAD FAILED TO SUPPLY THE PLANT WITHIN TIME AS STIPULATED IN THE AGREEMENT AND CLAUSE NO.6 THEREOF CAME INTO PLAY. THE AFORE-STATED AMOUNT RECEIVED BY THE ASSESSEE TOWARDS COMPENSATION FOR STERILIZATION OF THE PROFIT EARNING SOURCE, NOT IN THE ORDINARY COURSE OF THEIR BUSINESS, IN OUR OPINION, WAS A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. WE ARE, THEREFORE, IN AGREEMENT WITH THE OPINION RECORDED BY THE HIGH COURT ON QUESTION NOS. (I) AND (II) EXTRACTED IN PARA 1 (SUPRA) AND HOLD THAT THE AMOUNT OF RS.8,50,000 RECEIVED BY THE ASSESSEE FROM THE SUPPLIERS OF THE PLANT WAS IN THE NATURE OF A CAPITAL RECEIPT. ITA NO.6/BANG/2020 SRI KORAMANGALA MUNISWAMY LAKSHMAIAH REDDY. 8 9.3 AS MENTIONED EARLIER, THE DAMAGES RECEIVED FROM M/S.INFOSYS LIMITED IS DIRECTLY AND INTIMATELY LINKED WITH THE CAPITAL ASSET OF THE ASSESSEE, VIZ., THE BUILDING AND THE SAME HAS BEEN INCURRED FOR RESTORING THE CAPITAL ASSET TO ITS FORMER POSITION SO THAT THE ASSESSEE CAN FIND A NEW TENANT BECAUSE M/S.INFOSYS LIMITED HAD ALREADY VACATED THE PREMISES BY SEPTEMBER 2014. FOR THE AFORESAID REASONING AND THE JUDICIAL PRONOUNCEMENT, CITED SUPRA, WE HOLD THAT THE SUM OF RS.80,69,750 RECEIVED BY THE ASSESSEE IS A CAPITAL RECEIPT. IT IS ORDERED ACCORDINGLY. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 09 TH DAY OF NOVEMBER, 2020 . SD/- SD/- (B.R.BASKARAN) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE; DATED : 09 TH NOVEMBER, 2020. DEVADAS G* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A)-7, BENGALURU. 4. THE PR.CIT-7, BENGALURU. 5. THE DR, ITAT, BENGALURU. 6. GUARD FILE. ASST.REGISTRAR/ITAT, BANGALORE