2023 (5) TMI 66 - AT - Income Tax

Tribunal allows appeal, excludes Rs. 95,28,666 from income tax, dismisses refund claim. Ground No.5 rejected.

Zavareh S. Poonawalla Versus The Dy. CIT, Central Circle-1 (1), Pune

The Tribunal partially allowed the assessee's appeal, directing the deletion of Rs. 95,28,666/- from being taxed as 'income from other sources' under ... Income from house property or income from other sources - correct head of income - receipt of compensation for non-occupancy - HELD THAT:- The facts of the present case and facts in the case of Datar & Co., [1999 (6) TMI 66 - ITAT PUNE] and Rama Leasing Company [2007 (10) TMI 440 - ITAT MUMBAI] are identical. In all these cases assessee had received compensation for pre-mature termination of the lease. ITAT has held that the compensation received by the assessee assumes the nature of income from House Property; however, it is not chargeable to tax as only Annual value of the property can be assessed under the head Income from House property. In the case under consideration the “Compensation and security deposit forfeiture” have roots in the Leave and License Agreement pertaining to the impugned property. The “Compensation and security deposit forfeiture” are emanating from the Leave & License Agreement and they are specifically mentioned in the said Leave &License Agreement. As observed by the ITAT in the case of Datar & Co [1999 (6) TMI 66 - ITAT PUNE] the compensation partakes the character of Income from House Property. Therefore, when any receipt falls under a specific Head, but the same cannot be computed under that head, then it cannot be assessed as income of the assessee under any other head - we hold that the amount is not taxable as income from other sources. Accordingly, the AO is directed to delete the said amount. Decided in favour of assessee. Issues Involved:1. Taxability of compensation received for non-occupancy under Section 56 of the Income Tax Act, 1961.2. Taxability of refund of Municipal Tax under Section 56 of the Income Tax Act, 1961.Summary:Issue 1: Taxability of Compensation for Non-OccupancyThe primary issue was whether the compensation received by the assessee for non-occupancy amounting to Rs. 95,25,666/- should be taxed under Section 56 of the Income Tax Act, 1961. The Assessing Officer (AO) had taxed this amount as 'income from other sources,' relying on the Supreme Court's decision in Emil Webber Vs. CIT [1993] 200 ITR 483 (SC). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, stating that the compensation was for the perceived loss of rental income due to the premature termination of the lease agreement and should be considered as revenue receipts.However, the Tribunal referred to the decisions in Datar & Co. Vs. ITO [2000] 67 TTJ 546 (Pune) and ITAT Mumbai's decision in Addl.CIT Vs. Rama Leasing Co. P. Ltd., 20 SoT 505, where it was held that such compensation assumes the nature of income from house property. The Tribunal concluded that since the compensation and security deposit forfeiture have roots in the Leave and License Agreement, they partake the character of income from house property. Therefore, the amount of Rs. 95,28,666/- is not taxable as income from other sources. The AO was directed to delete the said amount, allowing Ground No.1 and 1.1 of the assessee.Issue 2: Taxability of Refund of Municipal TaxThe assessee initially raised grounds regarding the refund of Municipal Tax amounting to Rs. 76,55,841/-, which the AO had taxed as income from other sources. The CIT(A) upheld this view, stating that the refund constitutes income of the appellant. However, during the proceedings, the assessee chose not to press these grounds (Ground No.2, 3, and 4), leading to their dismissal as not pressed.ConclusionThe appeal of the assessee was partly allowed, with the Tribunal directing the deletion of Rs. 95,28,666/- from being taxed under the head 'income from other sources.' The grounds related to the refund of Municipal Tax were dismissed as not pressed. Ground No.5 was dismissed as general in nature, requiring no adjudication. The order was pronounced on 27th April 2023.