TaxTMI 
TaxTMI 
TaxTMI 
2007 (10) TMI 440
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....nting to Rs. 96,45,810 received by assessee from M/s. Microsoft Corporation on account of early termination of lease of the house property given on rent by the assessee, would be a non taxable receipt in the hands of assessee and accordingly directing the Assessing Officer to delete the addition which was assessed by the Assessing Officer under the head 'Income from other sources' under section 56(1) as the same was not part of annual value of the property and cannot be taxed under section 22 or under any other heads of income specified in section 14. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the Assessing Officer to charge interest under section 234B on the basis of income declared in the return of income and not on the basis of assessed income on this issue of additional ground without giving opportunity to the Assessing Officer and ignore the amendment to section 234B in the recent Finance Bill." 3. The brief facts of the case are that the assessee was engaged in the business of Finance & investment. During the year under consideration the assessee had also started the business of developing property. The assesse....
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....s a revenue receipt and the character of receipt received is not in the nature of income from house property and is chargeable under section 56 of the Income-tax Act as income from other sources. The arrears of rent received by the assessee were treated as income from house property but the compensation received by assessee from the lessee for premature termination of lease agreement was charged to tax under the head of income from other source as according to the Assessing Officer the nature of receipts is not by way of rent of the premises nor is it a sum for which the property might be expected to be let out from year to year. This receipt does not flow out of the lease agreement or from the house property of which the assessee was the owner as a result of which lease rent was being received by the assessee, but has accrued to the assessee after negotiation by a deed of surrender dated 29-10-1996 by which the lessee agreed to pay the lessor a lump sum compensation for premature surrender of this lease." 6. The CIT(A) relying on the ratio laid down by Hon'ble Supreme Court in Nalinikant Ambalal Mody's case (supra), held 'what can be taxed under one head can never be brought to t....
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....ceived by the assessee are not exempt under any of the sections of Income-tax Act and as such the same are to be included as 'income from other sources'. The Ld AR in reply submitted that if charge fails then the same cannot be included in the hands of the assessee. Reliance was placed on Nalinikant Ambalal Mody's case (supra), and CIT v. B.C. Srinivasa Setty [1987] 128 ITR 2941 (SC). The Ld AR further submitted that though the receipt arises from my licence, it cannot be brought to tax under section 22 of the Income-tax Act. As such it becomes capital receipt and after becoming capital receipt, the charge of tax fails. Reliance was placed on Smt. T.P. Sidhwa's case (supra), for the proposition that if any income cannot fall under one head of income, the same cannot go under another head of account. The Ld AR also submitted that the facts of the case are similar to T.P. Sidhwa's case (supra). The Ld AR further clarified that charging section for any receipts received from property is section 22, under which what is charged is annual value of the property. The annual value of property is defined in section 23 of the Income-tax Act. Further reliance was placed on Datar & Co. v. ITO [....
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.... rent for the unexpired period up to 1-9-1996. 10. The arrears of rent have been offered for taxation and the only dispute is with regard to the lumpsum compensation received on surrender of loans. The assessee claims that the said compensation is arising from the property and is includible in the hands of the assessee only under the head 'income from house property', but because of the definition of annual value under section 23 of the Income-tax Act, the same is not includible in the hands of the assessee under the head 'income from house property'. It is also not includible under the residuary head of income i.e., income from other sources as it falls within the scope of income from property. But the receipts are not exigible to tax as the receipt of compensation is a capital receipt not includible in the hands of the assessee as annual value of the property. On the other hand, the claim of the revenue is that the definition of income is an inclusive definition and all receipts are taxable in the hands of the assessee. unless the same are excluded by any specific provisions of the Act. 11. Section 22 provides as under:- "22. Income from house property.-The annual value of pro....
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.... let during the whole or any part of the previous year; or (b )any other benefit there from is derived by the owner. (4) Where the property referred to in sub-section (2) consists of more than one house- (a )the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf; (b )the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let." 13. While assessing the income under the head House property what is includible in the hands of the assessee is the annual value of property which in turn means the sum for which a property might be expected to be let out or the actual rent received or receivable by the owner, where the property or any part thereof is let. The receipts relatable to rent of the property are includible in the hands of the owner of the property under the head income from house property. 14. The question for our determination is whether the compensation received by the assessee on pre-determination of a lease agreement is inc....
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....h head, that is, professional income, can be brought to tax only if it can be so done under the rules of computation laid down in section 10. If it cannot be so brought to tax, it will escape taxation even if it be included in the total income under section 4. The expression 'total income' in section 3 has to be understood as it is defined in section 2(15). Under that definition, total income means "total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in the Act", that is compute." 17. It was further held as under:- "The correct approach on the setting of the relevant provisions would be first to classify the item under consideration under the appropriate head of income as mentioned in section 6. For this purpose, the character or the nature of the income has to be determined. Further, the nature of the income must be decided according to common notions of practical men because the Act does not provide the guidelines." 18. In the facts of the case before Hon'ble Bombay High Court Smt. T.P. Sidhwa's case (supra) the assessee therein had entered into an agreement to purchase 1/4th share in property in April 1959, wh....
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....nt subject to the condition of payment of compensation in lieu thereof. The assessee herein had received the rent upto 1st day of September, 1996 and thereafter received rent from the new tenant with effect from 6-9-1996. The annual value of the property which is includible as income under the head income from property was the rent received by the assessee from ICICI-SF up to 1-9-1996 and from M/s. Microsoft Corporation thereafter with effect from 6-9-1996. The compensation received by the assessee though related to the property was not exigible to tax in view of the definition of annual value of the property under section 23 of the Income-tax Act. Such receipts were also not includible as income from other source in view of the fact that it fell within another head of income i.e. income from property. Once a receipt falls under a specific head of income the same cannot be included under Residuary Head. 22. The Pune Bench of Tribunal in Datar & Co.'s case (supra) had on similar fact held as under:- "It is well settled legal position that income of the assessee has to be computed under various heads specified in Chapter IV. If any receipt does not fall under any specific head, the....