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

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