2018 (11) TMI 778 - AT - Income Tax

Corporation holds land in fiduciary capacity for State Government, income from lease premiums not taxable under Sections 61 and 63.

ITAT Mumbai ruled that land acquired by State Government was only placed at disposal of assessee corporation for MIDC Act objectives, not absolutely ... Ownership of land - irrevocable transfer of lands from the state government to the assessee corporation - taxability of lease premium, interest income etc. in the hands of assessee - application of section 60, 61 and 62 of the act. Held that:- Land acquired by/vested with the State Government were only placed at the disposal of the assessee corporation for the furtherance of the objects of the MIDC Act - the claim of the revenue of there being an absolute transfer of the ownership of the land to the assessee corporation can safely be ruled out - income arising therefrom viz. lease premiums, rent, interest income on funds parked as deposits with the bank etc., cannot be taxed as the income of the assessee corporation - Decided against the Revenue. Even if the ownership of the lands was to be presumed as having been transferred to the assessee corporation, the same clearly being in the nature of a revocable transfer, hence the income arising therefrom viz. lease premiums, rent, interest income on bank deposits etc. would as per Sec. 61 r.w.s 63 of the Income- tax Act, 1961 be assessable in the hands of the transferor viz. the State Government of Maharashtra and could not be brought to tax in the hands of the assessee corporation. - Decided against the Revenue. Holding the land in fiduciary capacity - Held that:- as the assessee corporation is authorised to enter into lease agreements by virtue of Sec. 14, 15 and 37 of the MIDC Act, thus the contracts made thereof being of a statutory nature would thus not fall within the sweep of Article 299 of the Constitution of India. We thus, in terms of our aforesaid observations are unable to persuade ourselves to subscribe to the aforesaid claim of the revenue authorities, which thus fails and is rejected. Merely because the lease deeds executed by the assessee corporation under a statutory right vested with it would not lead to a presumption that the same had been disposed by the assessee corporation as an owner. We thus, are of the considered view that as the reliance placed by the revenue on the aforesaid principle viz. nemo dat quod habet is devoid of any force, hence the same is rejected. We are unable to comprehend that as to how the ld. D.R had construed the said facts for arriving at a self suiting, but a baseless observation that the same proved that the assessee corporation was the owner of the land under consideration. We have deliberated at length on the issue under consideration and find ourselves to be in agreement with the contention of the ld. A.R that the reimbursement of costs cannot be subjected to tax. However, as the requisite details which would justify the veracity of the claim of the assessee that the aforesaid amount received from the users of land was in the nature of cost to cost reimbursement involving no mark up are not available before us, hence we restore the matter to the file of the A.O. The A.O is directed to verify the claim of the assessee that the aforesaid amount received from the users of land was in the nature of reimbursement of cost and did not involve any element of income. The A.O is herein directed that in case the aforesaid amount received by the assessee corporation is proved to be towards reimbursement of costs involving no element of income, then no addition on the said count shall be made in the hands of the assessee. The Ground of appeal No. 10 is allowed for statistical purposes in terms of our aforesaid observations. Depreciation claimed by the assessee corporation u/s 32 while computing its income - Held that:- Depreciation computed under Sec. 32 of the Income-tax Act, 1961 should be deducted for the purpose of arriving at the income of the assessee. We find ourselves to be in agreement with the claim of the ld. A.R and are pained to observe that despite specific directions by the Tribunal to allow depreciation to the assessee while computing its income under the provisions of the Income-tax Act, the same had not been allowed by the lower authorities. We thus, herein restore the matter to the file of the A.O with a clear direction to allow the claim of depreciation of the assessee, as per law. The incomes arising from the lands under consideration viz. lease premiums, rent, interest income on bank deposits etc., were not the income of the assessee and had rightly been shown by it as accretion in the liabilities in the ‘balance sheets’, hence we refrain from adverting to and adjudicating upon the contentions advanced by the ld. A.R before us in respect of quantification of the additions on merits on the said count. The Ground of appeal No. 11 is disposed off in terms of our aforesaid observations. Decided in favor of assessee and against the Revenue. Issues Involved:1. Ownership of lands by the Government of Maharashtra.2. Applicability of Section 61 and Section 62 of the Income-tax Act, 1961.3. Applicability of Section 60 of the Income-tax Act, 1961.4. Nature of ownership/vesting in the assessee corporation.5. Diversion of income by overriding title.6. Applicability of Article 298 of the Constitution.7. Receipts' characterization as income or liability.8. Consistency in the income tax department's treatment of accretions.9. Treatment of recovery/recoupment of costs.10. Deduction of increase in asset side of balance sheet.11. Enhancement of income in remand proceedings.12. Allowance of depreciation as application of income.13. Taxation of interest on deposits.Detailed Analysis:1. Ownership of Lands by the Government of Maharashtra:The Tribunal examined whether the lands in question were owned by the Government of Maharashtra or the assessee corporation. The Tribunal concluded that the lands were vested with the State Government and only possession was handed over to the assessee for development purposes. The Tribunal found no evidence of transfer of ownership to the assessee corporation, thus rejecting the revenue's claim that the income arising from these lands should be taxed in the hands of the assessee corporation.2. Applicability of Section 61 and Section 62 of the Income-tax Act, 1961:The Tribunal observed that even if the ownership of the lands was presumed to be transferred to the assessee, the transfer was revocable under Section 61 r.w.s 63 of the Income-tax Act, 1961. Therefore, the income arising from these lands would be assessable in the hands of the transferor, i.e., the State Government of Maharashtra.3. Applicability of Section 60 of the Income-tax Act, 1961:The Tribunal held that under Section 60 of the Income-tax Act, 1961, in the absence of transfer of ownership, the income from the lands should be assessed in the hands of the Government of Maharashtra, not the assessee corporation.4. Nature of Ownership/Vesting in the Assessee Corporation:The Tribunal noted that the lands were held by the assessee corporation in a fiduciary capacity under trust on behalf of the State Government. The Tribunal found that the ownership of the lands remained with the State Government and only possession was transferred to the assessee corporation for development purposes.5. Diversion of Income by Overriding Title:The Tribunal agreed with the assessee's claim that the income from the lands was diverted at source to the State Government, and thus, should not be taxed in the hands of the assessee corporation.6. Applicability of Article 298 of the Constitution:The Tribunal did not find merit in the assessee's claim that Article 298 of the Constitution created a distinction between carrying on trade or business and the acquisition, holding, and disposal of property. The Tribunal upheld the applicability of the proviso to Section 2(15) of the Income-tax Act, 1961.7. Receipts' Characterization as Income or Liability:The Tribunal observed that the receipts from lease premiums, rent, and interest on bank deposits were shown as liabilities in the balance sheet and not as income. The Tribunal found that the revenue's inconsistent approach in treating these receipts as income was not justified.8. Consistency in the Income Tax Department's Treatment of Accretions:The Tribunal noted that the income tax department had consistently treated accretions to the deposits shown in the liability side of the balance sheet as non-taxable for decades. The Tribunal held that the revenue's departure from this consistent approach was not justified.9. Treatment of Recovery/Recoupment of Costs:The Tribunal directed the Assessing Officer (A.O) to verify the claim of the assessee that the recovery of costs was in the nature of reimbursement and did not involve any element of income. If verified, no addition should be made on this account.10. Deduction of Increase in Asset Side of Balance Sheet:The Tribunal did not specifically address this issue in detail but implied that the A.O should consider the correct quantification of income while giving effect to the Tribunal's order.11. Enhancement of Income in Remand Proceedings:The Tribunal held that the A.O had erred in enhancing the income while giving effect to the Tribunal's order in the remand proceedings. The Tribunal directed the A.O to adhere to the original assessed income and not make fresh additions.12. Allowance of Depreciation as Application of Income:The Tribunal directed the A.O to allow the claim of depreciation as per the Tribunal's earlier order dated 27.03.2015, which had allowed the depreciation computed under Section 32 of the Income-tax Act, 1961.13. Taxation of Interest on Deposits:The Tribunal held that the interest on deposits, being income arising from the lands held on behalf of the State Government, should not be taxed in the hands of the assessee corporation.Conclusion:The Tribunal allowed the appeal of the assessee corporation on multiple grounds, directing the A.O to reassess the income in light of the Tribunal's observations and findings. The Tribunal emphasized the importance of consistency in the treatment of income and the adherence to the statutory provisions and the scheme of the MIDC Act.