ACIT 11(1), MUMBAI V. GOODWILL THEATERS P. LTD, MUMBAI

ITA 8185/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3500 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINHA
• Keywords: Capital receipt
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH, MUMBAI , BEFORE SHRI R.K.GUPTA, JM & SHRI N.K.BILLAIYA , AM ITA NO. 8185 / MUM/ 20 1 1 ( ASSESSMENT YEAR : 200 8 - 0 9 ) ACIT 11(1), MUMBAI VS. M/S GOODWILL THEATRES PVT. LTD., NOVELTY CINEMA BLDG., GRANT ROAD, MUMBAI - 400 007 . PAN/GIR NO. : A ABCG 3802 A ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. D.K.SINHA /ASSESSEE BY : MR. VIJAY MEHTA DATE OF HEARING : 10 TH JUNE, 201 3 DATE OF PRONOUNCEMENT : 19 TH JUNE, 2013 O R D E R PER SHRI R .K.GUPTA, JM : TH IS APPEAL HA S BEEN PREFERRED BY THE DEPARTMENT AGAINST THE ORDER DATED 30 - 9 - 2011 OF LEANED CIT (A) - 3 , MUMBAI RELA TING TO THE ASSESSMENT YEAR 200 8 - 0 9 . 2 . THE DEPARTMENT IN GROUNDS NO.1 & 2, HAS RAISED OBJECTION IN REGARD TO HOLDING THAT THE MESNE PROFITS OF RS. 1,47,18,280/ - RECEIVED BY THE ASSESSEE CONSTITUTED CAPITAL RECEIPT NOT CHARGEABLE TO TAX, IN SPITE OF THE DIRECT DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. P. MARIAPPA GOUNDER, 147 ITR 676 , HOLDING THE SAME TO BE R EVENUE IN NATURE. 3 . THE FACTS IN BRIEF ARE THAT D URING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY RECEIVED MENSE PROFIT FOR UNAUTHORISED OCCUPATION ITA NO . 8185 / 201 1 2 OF THE PREMISES (NOVELTY CHAMBERS) FROM CENTRAL BANK OF INDIA WHO WAS IN POSSESSION OF THE RENTED PREMISE IN THE NOVELTY CHAMBERS. THE TENANCY OF CENTRA L BANK OF INDIA ENDED ON 1.6.2000. AS PER THE ORDER OF THE SUPREME COURT VIDE SLP 19635 OF 2002 IN WHICH THE COURT DIRECTED THE BANK TO HAND OVER THE POSSESSION TO THE ASSESSEE COMPANY BY 30/06/2003 DUE TO WHICH THE BANK GAVE POSSESSION TO THE ASSESSEE COMPANY OF NOVELTY CHAMBERS ON 30/09/2003. HENCE A SUIT WAS FILED BY THE ASSESSEE COMPANY FOR MESNE PROFIT FOR THE AFORESAID PERIOD. THE SMALL CAUSES COURT AT MUMBAI PASSED AN ORDER DATED 28/03/2007 WHOSE COPY WAS RECEIVED BY THE ASSESSEE COMPANY ON 13TH JUNE 2007 FOR THE T.E. AND R. SUIT NO. 59/81 OF 2000 OF MISCELLANEOUS NOTICE NUMBER 275 OF 2002 FILED BY THE ASSESSEE COMPANY WHEREIN THE MESNE PROFIT WAS FIXED AT RS. 8,33,474/ - PER MONTH FOR THE PERIOD BETW EEN 1/06/2000 TO 30/09/2003 PLUS INTEREST THEREON. THE PERIOD WAS DECIDED ON THE BASIS OF THE FACT THAT THE TENANCY OF CENTRAL BANK OF INDIA WAS TERMINATED ON 1/06/2000 AND IT VACATED THE PREMISES A GIVE PEACEFUL POSSESSION TO THE ASSESSEE COMPANY ON 30/09 /2003. THE TOTAL COMPENSATION WAS THUS FIXED AT RS. 3,33,38,960/ - PLUS INTEREST THEREON AT THE RATE OF 6%. THEREAFTER, CENTRAL BANK OF INDIA FILED AN APPLICATION TO THE SMALL CAUSES COURT AGAINST THE T.E. AND R SUIT NO. 59/81 OF 2000 OF MISCELLANEOUS NOTICE NUMBER 275 OF 2002 VIDE ITS APPEAL NUMBER 1744 OF 2007 FOR STAYING EXECUTION AND OPERATION OF THE ORDER DATED 28/03/2007 WHICH WA S DISPOSED BY DIRECTING THE APPELLANT TO PAY RS.1,47,28,280/ - . MOREOVER, ITA NO . 8185 / 201 1 3 CENTRAL BA NK OF INDI A HAVE ALSO PREFERRED AN APPEAL A GAINST THE SAID DETERMINATION OF MESNE PROFIT WHICH HAS BEEN ADMITTED AND IS PENDING. THUS, IN THE MEAN TIME DURING AY 08 - 09, CENTRAL BANK OF INDIA PAID RS.1 ,47,18,280/ - TO THE ASSESSEE COMPANY WHICH THE ASSESSEE COMPANY H A S DIRECTLY TAKEN TO THE CAPITAL R ESERVE WITHOUT CREDITING THE PROFIT AND LOSS ACCOUNT HOLDING IT TO BE A CAPITOL RECEIPT EXEMPT FROM INCOME - TAX. THE APPEAL OF THE CENTRAL B A NK OF INDIA VIDE ITS APPEAL NUMBER 1 744 OF 2007 IS STILL PENDING FOR ADJUDICATION. 4 . ASSESSEE PREFERRED APPEAL BE FORE THE CIT(A) . DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE HIM. IT WAS SUBMITTED THAT MESNE PROFIT RECEIVED FOR UNAUTHORIZED OCCUPATION OF THE PREMISES IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX I N THE LIGHT OF THE DECISION OF SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF NARANG OVERSEAS PVT. LTD. VS. ACIT, REPORTED IN 100 ITD (MUM)(SB) . FURTHER RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF CIT VS. MRS. ANNAMMA ALEXANDER, 191 ITR 551 (KER.) . REGARDING THE DECISION OF THE HON BLE MADRAS HIGH COURT R ELIED UPON BY THE LEARNED AO , IT WAS SUBMITTED THAT THE FACTS IN THAT CASE ARE DIFFERENT . THE FINDING OF THE LEARNED AO WERE EXPLAINED BEFORE THE CIT(A) THROUGH WRITTEN SUBMISSION AND IT WAS SUBMITTED THAT FINDINGS OF THE LEARNED CIT(A) ARE NOT CORRECT. IT WAS FURTHER SUBMI TTED THAT THE DECISION OF THE HONBLE MADRAS HIGH COURT, WHICH IS MERGED IN THE DECISION OF THE HON BLE SUPREME COURT, HAS BEEN CONSIDERED BY THE SPECIAL BENCH AND FOUND THAT THE FACTS ARE DIFFERENT. LEARNED CIT(A) AFTER CONSIDERING THE O RDER OF THE AO, DETAILED WRITTEN ITA NO . 8185 / 201 1 4 SUBMISSI ON FILED ON BEHALF OF THE ASSESSEE, WHICH ARE PART OF THE ORDER OF LEARNED CIT(A) ALSO, FOUND THAT THE AO WAS NOT JUSTIFIED IN TREATING THE RECEIPTS AS REVENUE IN NATURE. LEARNED CIT(A) FOUND THAT THE DECISION OF TH E HON BLE MADRAS HIGH COURT HAS B EEN CONSIDERED BY THE SPECIAL BENCH IS SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE AS THE FACTS OF THE PRESENT CASE ARE ALSO SIMILAR TO THE FACTS BEFORE SPECIAL BENCH. ACCORDINGLY, HE HELD THAT THE MESNE PROFIT REC EIVED BY THE ASSESSEE IS CAPITAL IN NATURE AND NOT CHARGEABLE TO TAX. AGAINST THE FINDING OF THE LEARNED CIT(A) , THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL 5. LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. PART OF THE ORDER OF THE AO WAS READ AL SO. ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSEE PLACED STRONG RELIANCE ON THE ORDER OF LEARNED CIT(A). THE FINDINGS OF THE LEARNED CIT(A) HAVE BEEN RECORDED IN PARA 1.3 AT PAGES 17 & 18 OF HIS ORDER, ARE AS UNDER : - I HAVE CONSIDERED THE FACTS. IT IS SEEN THAT THE AO HAS RELIED IN THE CASE OF P. MARIAPPA GOUNDER 147 ITD 676 (MAD) WHICH HAS BEEN AFFIRMED BY THE SUPREME COURT IN 232 ITR 2 (SC) WHEREIN THE ISSUE WAS THE YEAR OF TAXABILITY OF THE MSENE PROFIT. WHEREIN AS PER THE ORDER OF SUPREME COURT, THE TRIAL COURT HAS DETERMINE THE AMOUNT OF MESNE PORTIT PAYABLE TO THE APPELLANT AND THE TRIAL COURT HAS DETERMINED THE LIABILITY AND PASSED AN ORDER ON DECEMBER 22, 1962. THEREFORE, IT WAS HELD THAT THE AMOUNT WAS ASCERTAINED ON 22.12.1962. HENCE, IT WAS LIABLE TO BE CHARGE ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING IN THE AY. 1963 - 64. IT IS FURTHER SEEN THAT THE APPELLANT HAS CONTESTED THAT THE ISSUE WHETHER THE MESNE PROFIT WAS CAPITAL OR REVENUE WAS NOT THE QUESTION AGITATED IN THE CASE OF P. MARI APPA GOUNDER. THE AR RELIED IN THE CASE OF NARANG OVERSEAS P. LT D. 111 ITD 1 MUM, (SB) WHEREIN THE HON'BLE 5 MEMBER SPECIAL BENCH HAS CONSIDERED THE DECISION IN THE CASE OF P. MARIAPPA GOUNDER (SUPRA) AND OBSERVED THAT THE ABOVE DECISION WAS ONLY CONCERN WI TH ONE ISSUE RELATING TO YEAR OF APPLICABILITY OF MESNE PROFIT I.E. WHETHER IT WAS TAXABLE IN THE AY. 63 - 64 OR A.Y. 64 - 65. THE ISSUE ITA NO . 8185 / 201 1 5 WHETHER MESNE PROFIT CONSTITUTE REVENUE RECEIPT OR CAPITAL RECEIPT WAS NOT BEFORE THE SUPREME COURT AS WAS APPARENT FROM TH E QUESTION POSED BEFORE IT FOR ADJUDICATION. AFTER CONSIDERING THESE FACTS, THE HON'BLE SPECIAL BENCH HAS HELD THAT MESNE PROFIT RECEIVED FROM THE DEPREVIATION OF USE OF OCCUPATION OF PROPERTY WOULD BE CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THIS DECISION O F SPECIAL BENCH IS ALSO TAKEN BEFORE THE JURISDICTIONAL HIGH COURT. HOWEVER, THE APPEAL AGAINST THIS DECISION WAS DISMISSED VIDE ORDER DATED 25.6.2009 IN ITA NO. 1797 OF 2008 BY THE HON'BLE BOMBAY HIGH COURT. IN THE LIGHT OF THESE FACTS, THE MESNE PROFIT R ECEIVED BY THE APPELLANT ON ACCOUNT OF DECREE AND DEPREVIATION OF USE OF OCCUPATION OF PROPERTY AND THEREFORE, THE SUM SO RECEIVED WAS CAPITAL IN NATURE NOT CHARGEABLE TO TAX. SINCE THE DECISION OF SPECIAL BENCH IS BINDING ON THE APPELLATE AUTHORITIES WORK ING UNDER ITS JURISDICTION. THEREFORE RESPECTFULLY FOLLOWING THE SAME, THE MESNE PROFIT IS RECEIVED BY THE APPELLANT IS TREATED AS CAPITAL RECEIPT AND NOT CHARGEABLE TO TAX. 6 . AFTER GOING THROUGH THE ORDER OF AO AND THE ABOVE FINDINGS OF THE LEARNED CI T(A) , WE NOTED THAT THE AO DECIDED THE ISSUE AGAINST THE ASSESSEE FOLLOWING THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF P. MARIAPPA GOUNDER (SUPRA) . T HIS DECISION OF THE HON BLE MADRAS HIGH COURT AN D THE DECISION OF THE HON BLE SUPREME COU RT CONFIRMING THE ORDER OF HON BLE MADRAS HIGH COURT HAS BEEN CONSIDERED BY THE SPECIAL BENCH AND FOUND THAT THE FACTS ARE DIFFERENT. IT IS FURTHER SEEN THAT THE DECISION OF THE SPECIAL BENCH HAS BEEN CONFIRMED BY THE HON BLE BOMBAY HIGH COURT VIDE ORDER D ATED 25 - 6 - 2009. ALL THESE FACTS HAVE BEEN CONSIDERED BY THE LEARNED CIT(A), WHICH REMAINED UNCONTROVERTED. THEREFORE, WITHOUT GOING INTO DETAILS FURTHER, WE SEE NO REASON TO INTERFERE IN THE FINDINGS OF THE LEARNED CIT(A) AS THE ORDER OF THE LEARNED CIT(A) IS IN CONSONANCE WITH THE ORDER OF THE SPECIAL BENCH, WHICH HAS BEEN CONFIRMED BY THE HONBLE ITA NO . 8185 / 201 1 6 BOMBAY HIGH COURT. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) ON THE ISSUE INVOLVED. 7 . GROUND NO.3 IS AGAINST HOLDING THAT THE MESNE PROFITS THOU GH FORMING PART OF BOOK PROFITS UNDER SECTION 115JB WERE DEDUCTIBLE BEING CAPITAL RECEIPTS, IN SPITE OF THE CLEAR PROVISIONS OF THE EXPLANATION TO SECTION 115JB WHICH DO NOT PERMIT SUCH A DEDUCTION. 8 . THE NOTED THAT THE ASSESSEE HAS TREATED THE INCOME OF RS. 1,47,18,280/ - AS CAPITAL RECEIPT WHICH WAS TAKEN DIRECTLY TO THE CAPITAL RESERVE ACCOUNT WITHOUT CREDITING THE PROFIT AND LOSS ACCOUNT. THE AO HELD THAT SINCE THIS RECEIPT HAS BEEN TREATED AS REVENUE RECEIPT AND IN VIEW OF THE PROVISION OF SECTION 115J B, NEEDS TO BE ADDED BACK TO THE BOOK PROFIT AS THE SAME HAS BEEN CARRIED TO RESERVES OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC OF THE ACT. ACCORDINGLY, THE SAME WAS BROUGHT TO TAX WHILE COMPUTING THE INCOME UNDER SECTION 115JB OF THE ACT. 9 . LEAR NED CIT(A) DELETED THE ADDITION BY OBSERVING THAT SINCE THIS RECEIPT IS NOT REVENUE IN NATURE AS THE SAME IS CAPITAL IN NATURE , NOT CHARGEABLE TO TAX. THOUGH THE LEARNED CIT(A) HAS DELETED THE ADDITION, HOWEVER, WHILE DELETING THE ADDITION, LEARNED CIT(A) HAS OBSERVED THAT SINCE THE MESNE PROFIT IS REFLECTED IN THE PROFIT AND LOSS ACCOUNT, HENCE, IT IS RIGHTLY TAXABLE FOR COMPUTING BOOK PROFIT, HENCE, ON PRINCIPLE, THE FINDINGS OF THE AO WERE UPHELD. HOWEVER, SINCE THE MESNE PROFIT IS HELD TO BE CAPITAL IN NATURE, HENCE, NOT CHARGEABLE TO TAX, THEN IT ITA NO . 8185 / 201 1 7 BECOMES CONSEQUENTIAL IN NATURE. THEREFORE, THE INCOME COMPUTED UNDER SECTION 115JB WAS ALSO DELETED BY THE LEARNED CIT(A) . 10 . LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. ON THE OTHER HAND, LEARNED COUNSE L OF THE ASSESSEE STATED THAT THE FINDINGS OF THE LEARNED CIT(A) RECORDED IN PARA 5.1 ARE PARTLY INCORRECT. IT WAS STATED THAT IT IS INCORRECT TO NOTE AT THE END OF THE LEARNED CIT(A) THAT SINCE THE MESNE PROFIT IS REFLECTED IN PROFIT AND LOSS ACCOUNT, HEN CE, IT IS RIGHTLY TAXABLE FOR COMPUTING BOOKS PROFIT. IN THIS RESPECT, IT WAS SUBMITTED BY THE LEARNED AR THAT MESNE PROFIT WAS NOT REFLECTED IN THE PROFIT AND LOSS ACCOUNT AND THIS FACT HAS BEEN RECORDED BY THE AO ALSO. THEREFORE, TO THIS EXTENT, THE FIND INGS OF THE LEARNED CIT(A) ARE NOT CORRECT, WHICH NEEDS TO BE RECTIFIED. FURTHER RELIANCE WAS PLACED ON THE ORDER OF CIT(A) TO THE REMAINING PART OF HIS ORDER, WHERE THE ADDITION MADE BY THE AO WAS DELETED. 11 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, WE FOUND THAT THE COUNSEL OF THE ASSESSEE IS CORRECT IN OBJECTING THE FINDINGS OF THE LEARNED CIT(A) THAT THE MESNE PROFIT IS REFLECTED IN THE PROFIT AND LOSS ACCOUNT BUT WAS DIRECTLY C REDITED TO THE CAPITAL ACCOUNT IN THE BALANCE SHEET. LEARNED CIT(A) HAS HELD THAT THE MESNE PROFIT IS NOT REVENUE RECEIPT BUT CAPITAL IN NATURE BECAUSE WHILE DECIDING THE GROUND ON MERIT, THE RECEIPT HAS BEEN FOUND AS CAPITAL IN NATURE IN VIEW OF THE DECIS ION OF THE SPECIA L BENCH. SINCE THE MESNE PROFIT IS IN CAPITAL IN NATURE IN VIEW OF THE DECISION OF THE SPECIAL BENCH , ITA NO . 8185 / 201 1 8 THEREFORE, THEY CANNOT BE BROUGHT TO TAX UNDER SECTION 115JB OF THE ACT. EVEN THE EXPLANATION 2 TO SECTION 115JB SUPPORTS THE CASE OF TH E ASSESSEE. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE REASONING GIVEN BY THE LEARNED CIT(A) , WE HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION COMPUTED BY THE AO UNDER SECTION 115JB. ACCORDI NGLY, IN THIS REGARD, THE ORDER OF THE LEARNED CIT(A) IS CONFIRMED. 12 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19TH DAY OF JUN . 2013 . SD/ - ( ) ( N.K.BILLAIYA ) SD/ - ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 19/06/ 2013 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI