Tamilnadu Industrial Development Corporation Limited, CHENNAI V. ACIT, CHENNAI

ITA 745/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6348 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMATHI VENKATRAMAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Opportunity of being heard; Cost of acquisition
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , , $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 745/MDS/2017 / ASSESSMENT YEAR : 2009-10 M/S. TAMILNADU INDUSTRIAL DEVELOPMENT CORPORATION LIMITED, NO 19-A, RUKMINILAKSHMIPATHY ROAD, EGMORE, CHENNAI 600 008. [PAN: AAACT 3409P] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -3(1), CHENNAI 600 034. ( / APPELLANT) ( / RESPONDENT) &' / APPELLANT BY : SHRI R.VIJAYARAGHAVAN, ADVOCATE *+&' / RESPONDENT BY : SHRI SUMATHIVENKATRAMAN, JCIT ' /DATE OF HEARING : 17.05.2017 ' /DATE OF PRONOUNCEMENT : 14.08.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-13, CHENNAI IN ITA NO. 144/CIT(A)- 13/2009-10 DATED 28.02.2017. :-2-: I.T.A. N0. 745/MDS/2017 2. M/S. TAMILNADU INDUSTRIAL DEVELOPMENT CORPORATION LIMITED, THE ASSESSEE, IS A PROMOTER OF INDUSTRIES IN TAMILNADU. IN ITS REGULAR ASSESSMENT MADE FOR ASSESSMENT YEAR 200 9-10, THE AO HAD GIVEN A FINDING THAT THE ASSESSEE HAS ENTERED I NTO LEASE AGREEMENT WITH M/S. TRIL INFO PARK LTD (TRIL) AND T RIL HAS PAID RS. 1412.79 CRORES AS UPFRONT LEAST RENT. OUT OF TH AT, THE ASSESSEE HAS OFFERED ONLY RS. 5.5 CRORES IN THE P & L A/C AN D CLAIMED THE BALANCE AS BEING PAID TO THE GOVERNMENT AS SALE CON SIDERATION. SUBSEQUENTLY, IT WAS FOUND THAT THE ASSESSEE HAS NO T SOLD THE LAND AND CONTINUED TO BE THE OWNER. THOUGH, THE LAND HA S BEEN RECEIVED FROM GOVERNMENT OF TAMILNADU ON 24.08.2007, THE ISS UES WHETHER THE PROCEEDS CAN BE GIVEN TO GOVERNMENT AND MORE SO , WHETHER THE PROCEEDS CAN BE TREATED AS SALE CONSIDERATIONWAS NO T CONSIDERED BY THE AO IN THE REGULAR ASSESSMENT PROCEEDINGS AND TH EREFORE, THE CIT INITIATED PROCEEDINGS U/S. 263 AND AFTER CONSID ERING THE MATERIALS FURNISHED BY THE ASSESSE AND ITS REPLY ET C, THE CIT IN THE ORDER U/S 263 IN C.NO. 3033(21)/CIT(A)-III/263/2013 -14 DATED 09.12.2013, DIRECTED THE AO TO MAKE A FRESH ASSESSM ENT AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. THEREAFTER, IN THE ASSESSMENT MADE U/S. 143(3) R.W.S. 263, THE AO OBSERVED THAT THE ASSESSEE HAS RECEIVED RS. 1412 CRORES FROM TRIL INFO PARK LTD AND OFFERED RS. 5.5 CRORES IN THE P&L A/C AS COMMI SSION RECEIVED. :-3-: I.T.A. N0. 745/MDS/2017 BUT, IT DID NOT SHOW SUCH LAND IN ITS BOOKS OF ACCOU NT NOR MENTIONED IN THE BALANCE SHEET FOR ASSESSMENT YEAR 2008-09. I N THE FACTS AND CIRCUMSTANCES, THE AO AFTER ANALYSING THE TRANSACTI ONS UNDER THE SCHEDULE OF SYSTEM OF TAXATION, HAS CONCLUDED THAT THE RECEIPTS ARE TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SO URCES. THE AO FOUND THAT THE TOTAL LEASE AMOUNT OBTAINED FOR 9 9 YEARS WAS AT RS. 1412.8 CRORES AND HENCE THE LEASE AMOUNT FOR ON E YEAR WOULD BE 14.27 CRORES. SINCE THE AGREEMENT WAS SIGNED ON 13.08.2008, THE PROPORTIONATE LEASE AMOUNT FOR THE ASSESSMENT Y EAR 2009 WOULD BE 9.05 CRORES. HOWEVER, THE ASSESSEE HAS ADMITTED RS. 5.5 CRORES ONLY. SO, THE AO HELD THAT REMAINING 3.5 CRORES SH OULD BE BROUGHT TO TAX. BUT, THE ASSESSEE HAS INCURRED RS. 206,75, 84,158/- AS AN EXPENDITURE FOR THE LEASE OF 99 YEARSAND HENCE THE AO APPORTIONED THIS SUM FOR 99 YEARS . OUT OF WHICH , HE ARRIVED T HE PROPORTIONATE EXPENDITURE FOR ONE YEAR AT RS. 208,84,688/-. SIN CE, THE ASSESSEE HAS ACCOUNTED INCOME FROM 13.08.2008 ONWARDS, THE A O FOUND OUT THE CORRESPONDENCE EXPENDITURE FOR THAT PERIOD AT R S. 132,74,651/-, DEDUCTING IT FROM RS. 3.55 CRORES, HE ARRIVED THE I NCOME FROM OTHER SOURCES AT RS. 2,22,25,349/- AND ADDED TO THE INCOM E. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). TH E CIT(A) UPHELD THIS ADDITION. :-4-: I.T.A. N0. 745/MDS/2017 3. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL, INTER ALIA, WITH THE FOLLOWING GROUNDS OF APPEAL: 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THAT ENTIRE RECEIPTS FROM LEASING OF LAN D SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT PROPORTIONATE LEASE AMOUNT FOR THE PER IOD FROM 13.08.2008 TO 31.03.2009 WOULD BE RS. 9.5 CRORES AND THE BALAN CE AMOUNT OF RS. 3.55 CRORES AFTER ADJUSTING RS. 5.5 CRORES ADMITTED AS SERVICE CHARGE SHOULD BE BROUGHT TO TAX AS INCOME FROM OTHER SOURC E AND THE CORRESPONDING PROPORTIONATE EXPENDITURE RS. 1,32,74 ,651/- AND UPHELD THE DIFFERENCE OF RS. 2,22,25,349/- TO TAX IN THE H AND OF THE APPELLANT. 2.2 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE LAND UNDER CONSIDERATION WERE GIVEN BY THE GOVERNMENT OF TAMIL NADU VIDE G.O. NO. 103 DATED 24 .04.2007 TO THE ASSESSEE IN ORDER TO DEVELOP A SPECIAL ECONOMIC ZON E FOR INFORMATION TECHNOLOGY ENABLED SERVICES ALONG WITH INTEGRATED I NTERNATIONAL CONVENTION CENTRE THROUGH JOINT VENTURE. THE G.O. ALSO SPECIFIES THE AMOUNT TO BE GIVEN TO TAMIL NADU GOVERNMENT FOR THE LAND ALIENATED TO TIDCO. 2.3 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT PARA 5 OF PROCRC. NO. 12417/ABA/20 10 DATED 31.03.2010 MAKES IT CLEAR THAT TIDCO WAS TO RETAIN ONLY RS. 5.50 CRORES FROM OUT OF THE TRANSACTION AND THE BALANCE OF RS. 1407.30 WAS TO BE TRANSFERRED TO GOVERNMENT OF TAMIL NADU. 2.4 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT ASSESSEE IN TURN LEASED THE LAND T O M/S. TRIL INFORPARK LTD FOR A LEASE RENT OF RS. 1412.79 CRORES OUT OF W HICH ASSESSEE HAD PAID RS. 1320.95 CRORES TO THE GOVERNMENT OF TAMIL NADU. OUT OF THE BALANCE OF RS. 91.84 CRORES, RS. 86.34 CRORES WAS T REATED AS TERM LOAN FROM GOVERNMENT OF TAMIL NADU. :-5-: I.T.A. N0. 745/MDS/2017 2.5 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT IN THE HANDS OF THE TRIL INFO PARK , THE DEPARTMENT TRIED TO DEMAND THE TAX TO BE DEDUCTED AT SOURCE. THE JU RISDICTIONAL HIGH COURT (285 ITR 465(MAD) HAS HELD THAT THIS PAYMENT WOULD CONSTITUTE CAPITAL PAYMENT AND HENCE CANNOT BE CONSIDERED AS L EASE RENT TO TAX U/S. 194I. 2.6 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT AS THE AMOUNT OF RS. 1412.80 IS NO T LEASE RENT THE DECISION OF THE CIT(A) HOLDING IT SO CONTRARY TO TH E DECISION OF THE JURISDICTIONAL HIGH COURT AS WELL AS THE CIRCULAR I SSUED BY THE CBDT IN THIS REGARD. 2.7 THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE AMOUNT OF RS. 1412.80 CRORES SHOULD BE SET OFF AGAI NST THE COST OF ACQUISITION OF THE LAND OF RS. 1407.30 CRORES PAYAB LE TO THE TN GOVERNMENT AND ONLY THE BALANCE OF RS. 5.5 CRORES I S TAXABLE IN THE HANDS OF THE APPELLANT AS THEIR INCOME. IN THE CIR CUMSTANCES THERE IS NO BASIS FOR ADDING ANY FURTHER AMOUNT AS INCOME ARISI NG FROM A SUM OF RS. 1412.80 RECEIVED FROM TRIL INFO PARK LTD. 4. THE AR SUBMITTED THAT DURING THIS ASSESSMENT YEA R, ON THE DIRECTION OF THE GOVERNMENT OF TAMILNADU, THE ASSESSEE HAD ACQUI RED 25.27 ACRES OF LAND FROM GOVERNMENT AND HAD ENTERED INTO THE LEASE AGRE EMENT FOR 99 YEARS WITH M/S. TRIL INFO PARK LIMITED. BY THIS AGREEMENT, IT HAD COLLECTED RS. 1412.80 CRORES, A LUMPSUM UPFRONT PAYMENT,WHICH IS NOW SOU GHT TO BE ASSESSED IN THE HANDS OF THE ASSESSE AS LEASE RENTALS SPREAD O VER THE PERIOD OF THE LEASE. 4.1 THE TAMILNADU GOVT WANTED TO DEVELOP SEZ IN CHE NNAI. TIDCO, THE ASSESSEE, WAS SELECTED TO ACT AS NODAL AGENCY IN FO RMATION OF SPV FOR DEVELOPMENT OF SEZ. SO, THE ASSESSEE FLOATED A TEND ER FOR PARTICIPANTS IN THE :-6-: I.T.A. N0. 745/MDS/2017 JV FOR DEVELOPING THE SEZ. TRIL WAS THE SUCCESSFUL BIDDER. ORIGINALLY, GOVT HAD ACQUIRED LAND FOR THE SPV AND INTENDED TO TRANS FER IT DIRECTLY TO THE SPV. SUBSEQUENTLY, IT WAS ROUTED THROUGH TIDCO. THE LEA SE WAS FOR A PERIOD OF 99 YEARS, BUT A LUMPSUM AMOUNT CALCULATED ON THE BASIS OF THE MARKET VALUE, WAS TO BE PAID UPFRONT. AS PER THE GOVERNMENT ORDE R, THROUGH VARIOUS GOS , THE ASSESSEE WAS REQUIRED TO PAY RS.1320.95 CRORES , WHICH WAS ARRIVED AT BY THE GOVERNMENT ON THE UNDERSTANDING THAT THE ASSESS EE WOULD BE COLLECTING THE SUM FROM TRIL AND SHOULD BE PASSED ON TO IT. T HE INTENTION OF THE TAMILNADU GOVERNMENT WAS VERY CLEAR THAT THE ENTIRE AMOUNT COLLECTED FROM TRIL INFO PARK LTD SHOULD BE PASSED ON TO IT . 4.2 SUBSEQUENTLY, THE ASSESSEE COLLECTED AN ADDITI ONAL SUM RS.86.34 CRORES MORE FROM TRIL . THE GOVERNMENT REQUIRED THE ASSESS EE TO PAY THAT ADDITIONAL SUM ALSO TO THE GOVERNMENT. THE ASSESSEE EXPLAINED TO GOVERNMENT THAT IT HAD EXPENDED THIS AMOUNT ON VARI OUS PROJECTS AND HENCE THE GOVERNMENT TREATED THIS AMOUNT AS A TERM LOAN G IVEN TO THE ASSESSEE FOR INTEREST @10.5% PER ANNUM. THUS, THE ASSESSEE COLLE CTED RS.1412.89CRORES, IN TOTAL, FROM M/S. TRIL INFO PARK LTD AND HAS PASS ED ON A SUM OF RS.1407.30 CRORES TO THE STATE GOVERNMENT. THE AMOUNT RETAINED BY IT AT RS.5.5. CRORES, IN CONNECTION WITH THE SERVICE RENDERED BY IT, HAS BEEN OFFERED AS INCOME IN ITS RETURN OF INCOME FOR THE AY 2009-10. THIS WAS ACCEPTED BY THE AO IN THE REGULAR ASSESSMENT MADE UNDER SECTION 143(3)EXCEPT TO THE EXTENT OF RS.5.5 :-7-: I.T.A. N0. 745/MDS/2017 CRORES WHICH IS TO BE RETAINED BY THE ASSESSE. IN THIS REGARD, THE AR INVITED OUR ATTENTION TO THE COPIES OF THE MS.NO25 DT 27.2 .2008 ISSUED BY THE SECRETARY TO GOVERNMENT, INDUSTRIES (IT) DEPARTMEN T TO THE CHAIRMAN AND MD OF THE ASSESSEE, G.O. (MS) NO 479 DT 24.8.2007 A ND GO (MS) NO 28 DT 11.3.2010 ENCLOSED WITH HIS NOTE AND RELIED ON IT. HOWEVER, THE CIT IN THE ORDER UNDER SECTION 263 HAS REQUIRED THE A O TO CON SIDER WHETHER RS.1412.80 CRORES CAN BE TREATED AS LEASE RENTAL. THE AO HAS A CCORDINGLY TREATED THE RECEIPT OF RS.1412.89CRORES FROM TRIL AS LEASE RENT AND ARRIVED THE TOTAL INCOME. 4.3 THE AR FURTHER SUBMITTED THAT THE AMOUNT COLLEC TED FROM TRIL INFO PARK WAS UPFRONT PREMIUM PAYMENT WHICH IS NOT TO BE ADJU STED AGAINST THE LEASE RENT THAT MAY BE PAYABLE FOR THE USE OF THE LAND. I NFACT, THE ANNUAL LEASE RENT HAS BEEN FIXED AT RS.1000 PER ACRE PER YEAR. THEREF ORE, THE LUMPSUM AMOUNT PAID OF RS.1412.80 CRORES REPRESENTS THE PREMIUM FO R ACQUIRING RIGHT OVER THE LAND GIVEN TO TRIL INFO PARK LTD FOR DEVELOPMENT. I N THE HANDS OF TRIL INFO PARK, THE DEPARTMENT TRIED TO DEMAND THE TAX TO BE DEDUCTED AT SOURCE UNDER SECTION 194-I TREATING THE PAYMENT AS LEASE RENT. T HE MATTER WENT TO THE HIGH COURT WHEREIN THE HIGH COURT HAS HELD THAT THIS PAY MENTWOULD CONSTITUTE CAPITAL PAYMENT AND HENCE CANNOT BE SUBJECTED TO TA X U/S. 194I. ACCEPTING THIS DECISION, THE CBDT HAS ISSUED A CIRCULAR 35 O F 2016 DATED 13.10.2016, STATING THAT THE LUMP SUM UPFRONT PAYMENTS FOR TRAN SFER OF LAND, WHICH IS NOT :-8-: I.T.A. N0. 745/MDS/2017 TO BE ADJUSTED AGAINST THE LEASE RENT OVER THE PERI OD OF LEASE, WOULD CONSTITUTE CAPITAL PAYMENT NOT TO BE SUBJECTED TO SECTION 194-I. IN THE FOLLOWING CASES, IT HAS BEEN HELD THAT UPFRONT LUMP SUM PAYMENT IS NOT TAXABLE IN THE HANDS OF THE RECIPIENT. ITO VS NAVI MUMBAI SEZ P LTD - 147 ITD 0261 (MUM) ITO VS WADHWA& ASSOCIATES REALTORS - 36 TAXMANN.COM 526 (MUM) ITO VS DHIRENDRARAMJIVORARANJILAKHANSHI - ITA 3179 /MUM/20 12 DT 09.04.2014 ITO VS EARNEST TOWERS P LTD - ITA NO 265/KOL/2012 . 4.4 THIS BEING SO, THE AR SUBMITTED THAT RS.1412.8 0 CANNOT BE ASSESSED AS LEASE RENT AND THE DECISION OF THE ASSESSING OFFICE R IS CONTRARY TO THE DECISION OF THE JURISDICTIONAL HIGH COURT AS WELL AS THE INS TRUCTION ISSUED BY THE CBDT. RS.1412.80 CRORES SHOULD BE SET OFF AGAINST THE COS T OF ACQUISITION OF THE LAND OF RS. 1407.30 CRORES PAYABLE TO THE TN GOVERNMENT AS PER THE GO (MS) NO 28 DT 11.3.2010 AND THE BALANCE OF RS. 5.5 CRORES ONLY IS TAXABLE IN THE HANDS OF THE ASSESSEE AS ITS INCOME WHICH HAS ALREADY HA S BEEN OFFERED AS ITS INCOME AND TAXED SO IN THE REGULAR ASSESSMENT. TH E AR SUBMITTED THAT THE AO HAS COMMITTED AN ERROR BY ASSUMING THE COST OF L AND PAYABLE TO GOVT WAS AT RS. 206.75 CRORES BY PLACING RELIANCE ON THE GO( MS).NO. 479 DATED 24.08.2007 WHICH WAS SUBSEQUENTLY MODIFIED IN THE G O(MS) NO. 28 DATED 11.03.2010. HE FURNISHED THE CORRECT WORKINGS AS U NDER: :-9-: I.T.A. N0. 745/MDS/2017 CORRECT WORKING TOTAL AMOUNT RECEIVED FROM TRIL 1412.80 CRORES AMOUNT ALREADY OFFERED AS INCOME 5.50 CRORES BALANCE AMOUNT 1407.30 CRORES PRORATA RECEIPT PER YEAR 14.21 CRORES COST OF LAND: PAYMENT TO GOVT 1407.30 CRORES PRO RATA COST PER YEAR 14.21 CRORES ADDITIONAL INCOME NIL.S 4.5 THUS, THE AR SUBMITTED THAT IN THE ABOVE FACTS AND CIRCUMSTANCES, THERE IS NO BASIS FOR ADDING ANY FURTHER AMOUNT AS INCOME FROM RS.1412.80 CRORES RECEIVED FROM TRIL INFO PARK LTD AND PLEADED FOR DELETING THE ADDITION. 5. PER CONTRA, THE DR RELIED ON THE ORDER OF THE CI T(A). 6. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT ORDERS/COPIES OF GO AND CBDT CIRCULAR NO. 35/2016 D ATED 13.10.2016 INSTRUCTIONS. FROM THEN, IT IS SEEN THAT THE TAMIL NADU GOVT. ACQUIRED THE LAND , SELECTED THE ASSESSEE, ROUTED THE LEASE THROUGH THE ASSESSE FOR A PERIOD OF 99 YEARS TO TRIL INFO PARK LTD FOR A LUMPSUM OF R S.1412.80 . OUT OF WHICH, THE ASSESSE HAS PAID RS 1320.95 TO GOVERNMENT OF TA MILNADU. LATER THE GOVERNMENT HAS ALSO TREATED A SUM RS.86.34 CRORES R ECEIVED FROM TRIL AS A TERM LOAN GIVEN TO THE ASSESSEE FOR INTEREST @10.5% PER ANNUM. IN THE :-10-: I.T.A. N0. 745/MDS/2017 FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT TH IS ISSUE SHOULD GO BACK TO THE AO FOR AFRESH RE-EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE ISSUE TO THE AO. THE AO, AFTE R AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE, SHALL PASS A SPEAKING ORDER. 7. IN THE RESULT, THE ASSESSEES APPEAL IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 14 TH DAY OF AUGUST, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 14 TH AUGUST, 2017 JPV '*2343 /COPY TO: 1. &/ APPELLANT 2. *+& /RESPONDENT 3. 5 ( )/CIT(A) 4. 5 /CIT 5. 3* /DR 6. 7 /GF