Taxability of disputed development receipts depends on enforceable right to receive and effective control in the relevant year.

Receipts from a disputed development arrangement are not taxable as income from other sources unless the assessee has an enforceable right to receive them and effective control over them in the relevant year. Advances and 12% sale proceeds retained as liabilities in the books, and kept pending under ongoing court directions, could not be taxed on the basis of accrual or cessation of liability. Likewise, lease rent could not accrue where no registered lease was executed, the contractual period had expired, and the arrangement had been terminated, leaving no subsisting obligation to pay or corresponding right to receive. The additions were therefore deleted.

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Issues: (i) Whether advances and 12% sale proceeds received or deposited in relation to the development agreements could be taxed in the assessment year 2011-12 as income from other sources on the theory of cessation of liability or accrual of income. (ii) Whether lease rent allegedly receivable under the development arrangement could be assessed in assessment year 2011-12 as income from other sources.

Issue (i): Whether advances and 12% sale proceeds received or deposited in relation to the development agreements could be taxed in the assessment year 2011-12 as income from other sources on the theory of cessation of liability or accrual of income.

Analysis: The amounts in question had been received over earlier years pursuant to a disputed development arrangement and were consistently reflected as advances or liabilities in the books. The dispute between the parties remained sub judice, the development agreement had been terminated, and the High Court orders did not finally determine the parties' rights or confer unfettered control over the money upon the assessee. The later judicial directions only required maintenance of accounts and deposit of amounts in a designated account to abide by further orders, which meant the sums remained outside the assessee's effective domain and could not be treated as income merely because they were earlier received or parked in a separate account. The residuary head could not be used to tax receipts of earlier years in one lump sum in the year under appeal, and the conditions for invoking cessation of liability were not established.

Conclusion: The additions towards advances and 12% sale proceeds were not taxable as income from other sources in assessment year 2011-12 and were rightly deleted.

Issue (ii): Whether lease rent allegedly receivable under the development arrangement could be assessed in assessment year 2011-12 as income from other sources.

Analysis: The lease contemplated in the agreement was never formally executed by a registered lease deed, the initial five-year period had expired long before the relevant year, and the assessee had terminated the arrangement through legal notices. After termination, the developers' unilateral deposits in their own bank accounts could not create an enforceable right in favour of the assessee or an accrual of income in the relevant year. In the absence of a subsisting legal obligation to pay and a corresponding enforceable right to receive, the amounts could not be taxed as lease income under the residuary head.

Conclusion: The lease rent addition was not sustainable and was rightly deleted.

Final Conclusion: The Tribunal upheld the deletion of all impugned additions and rejected the Revenue's appeals.

Ratio Decidendi: A receipt cannot be taxed as income from other sources unless the assessee has an enforceable right to receive it and effective control over it in the relevant year; disputed amounts kept pending under sub judice arrangements or deposits made unilaterally by another party do not, by themselves, constitute taxable income or cessation of liability.

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