TaxTMI 
TaxTMI 
2018 (10) TMI 62
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....13 Dt. 21.3.2018 4 ITA No.63/18 A.Y.2009-10 ITA No.760/IND/14 Dt. 21.3.2018 5 ITA No.64/18 A.Y.2007-08 ITA No.350/IND/13 Dt. 21.3.2018 6 ITA No.65/18 A.Y.2010-11 ITA No.761/IND/14 Dt. 21.3.2018 7 ITA No.66/18 A.Y.2008-09 ITA No.361/IND/13 Dt. 21.3.2018 8 ITA No.67/18 A.Y.2010-11 ITA No.206/IND/16 Dt. 21.3.2018 9 ITA No.68/18 A.Y.2009-10 ITA No.205/IND/16 Dt. 21.3.2018 3. Since the common question of law is involved in these appeals therefore, they are heard together and are being disposed of by this common order. For the sake of convenience the facts are borrowed from ITA.No.60/2018. 4. The appellant - assessee (Madhya Pradesh Audyogik Kendra Vikas Nigam, Indore Ltd and Special Economic Zone (Indore Ltd.) (hereinafter referred as 'MPAKVN' and 'SEZ') have preferred these appeals which relate to assessment years (2003-04, 2004-05, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11). Being aggrieved by the order dated 21.3.2018, passed by the Income Tax Appellate Tribunal Indore Bench, Indore by which the learned tribunal partly allowed the appeals except the addition related....
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....eceipt in the hands of the assessee, which has been agitated by the assessee on the following grounds: (i) the assessee is not the owner of the land and has acted merely as a nodal agency and instrumentality of the Government hence not liable to tax. (ii) the amount of land premium (Salami) is capital receipt, hence not taxable under any circumstances. 8. The State Government had acquired the land under the provisions of the Land Acquisition Act, 1894 for the purpose of development of industrial area in the backward areas or no industry district as per the policy of Government of India to attract industrialization in the State. After acquisition of the land and payment of compensation to the landowners / farmers in terms of the award passed by the land acquisition officer and as may be modified by the competent authority or the Courts as the case may be, the land so acquired has been entered into the revenue record in the name of Industries Department, Government of Madhya Pradesh. The State Government through Industry Department became owner of the entire land acquired to develop an industrial area SEZ. 9. The State Government instead of undertaking the ind....
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....and is not stock in trade in the books of assessee nor revenue has ever claimed that the land is stock in trade of the assessee. In case of renting or lease business only rental income and other recurring charges are revenue receipt but not lease premium which is received for parting away the rights in capital assets. 13. The assessee has no right of ownership on the land and has acted merely as an agent or nodel agency for and on behalf of the State Government to achieve the object of industrialization in the State. The assessee collected the land premium on and behalf of the State Government hence not taxable in the hands of the assessee. During the relevant year the assessee has not filed their return as their income is exempted from the levy of tax by reasons of the provisions of Section 10(20A) of the Income Tax Act, 1961 as well as by the judgment of the Gujarat Industrial Development V/s. CIT, 1997 (142) CTR 181. 14. In Finance Act, 2002, Section 10(20A) of the Act was deleted w.e.f. 1.4.2003 and the income of the appellant from the development of industrial infrastructures comes under the net of income tax. Due to the non-filing of the returns for the assessment year ....
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....ted and collected by the assessee company on behalf of the State Government and thirdly, even if it is assumed that the premium receipt is of the assessee company, even in that event it is not taxable being capital in nature. The plea of the appellant assessee that the assessee being a Government company cannot be taxed under Article 289 of the Constitution, has been rejected by giving the following finding which reads as under :- Article 289(1) says,- "The property and income of a State shall be exempt from Union taxation" "Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith" Nothing in clause ( 2 ) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of Government.....
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.... the same has to be held as capital expenditure. Both the above cases are distinguishable on facts. In the present case, the assessee is also empowered to acquire land deal with the same in the manner it likes. Another distinguishing facts in the present case is that the assessee itself has treated as taxable in earlier years and in the present case, there was special audit, wherein the auditors have given a finding on facts by observing as under:- "As stated above company is engaged in the business of industrial and infrastructure development, thus, land premium and other lease charges so received is a part and parcel of its business receipt. Therefore, land premium and lease rent so received is not a liability in the hand of the company. As in the estate business a builder debit all expenses incurred on construction and credit sale proceeds to profit and loss account considering them as revenue in nature. The company also debit all expenses incurred on development of plot in profit and loss account. Therefore, the land premium being the consideration of leasing out of plot needs to be given the same treatment i.e. treated as revenue in nature. ....
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....Deed : "2. The lessee having, paid to the lessor for said land the advance rent and premium of Rs........ as security amount before the execution of this deed." Moreover, it is contended by the assessee that matching principle is to be applied to give set off of the expenditure incurred in respect of the lease premium. It demonstrates that the assessee is not clear whether this receipt is revenue or capital in nature. From the above, it is clear that one time premium received by the assessee would be income of the year of the receipt. It can be safely inferred that the land premium is nothing but a kind of rent, which is certainly taxable. Under the identical facts, Coordinate Bench of this Tribunal in I.T.A. No. 1299/Bang/2013, in the case of M/s New Mangalore Port Trust, Mangalore vs. ACIT, has held as under:- "9.5 Thus it is clear that the Special bench has analyzed the respective obligations of the parties and found that in the said case, the assessee contributed to the accruing or arising of the income by rendering services or otherwise. It was also noted that in case of failure of the assessee to provide the allotted accommodation or the al....
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...., since the same was also relates to the land leased out by the assessee company to different industries. Similarly, the amount of interest as credited in the books of the assessee on the amount of State Government as received in the form of land premium, Lease rent, Transfer fee and development funds which actually pertained to the State Government and as per order of the State Government dated 31.03.2017 also it was clarified that the amount of lease rent, Interest on State Government, Transfer fee and development funds as received by the assessee actually pertained to the State Government. The assessee before the assessing officer himself vide his letter dated 17.12.2009 has submitted its detailed reply which was also considered in Para 7.6 of the assessment order the same is reproduced as under:- "Further to our earlier submissions on the subject, we may submit that the land premium is being received by the assessee Company for and behalf of the government of M.P. according to the policies as decided by the M.P. Government in this respect. We may invite your honors kind attention on the instructions letter dated 14.12.1981, copy of which is enclosed herewith. On perusa....
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....erial and claims was before the assessing officer himself at the time of passing of the assessment order. 27. The Ld. Counsel for the assessee during the course of hearing relied on various decisions and claimed that merely the amount of lease rent, land premium and interest on State Government Funds inadvertently offered for tax does not deprive the assessee company to lodge its claim before the Hon'ble Bench. 28. The Hon'ble Bombay High Court in the case of Balmukund Acharya Vs. DCIT as reported in 310 ITR 310 has held that: "31. Having said so, we must observe that the apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected [see S.R. Koshti vs. CIT (2005) 193 CTR (Guj) 518 : (2005) 276 ITR 165 (Guj), C.P.A. Yoosuf vs. ITO (1970) 77 ITR 237 (Ker), CIT vs. Bharat General Reinsurance Co. Ltd. (1971) 81 ITR 303....
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....tive Marketing Federation Ltd. (1992) 193 ITR 624 (Ker) 6 Balmukund Acharya Ltd. 310 ITR 310 (Bombay) 7 Mayank Poddar [HUF] vs. Wealth Tax Officer 262 ITR 0633 (Calcutta) 31. The Ld. Departmental Representative vehemently argued supporting the order of both the lower authorities and further added that the assessee has itself offered the income for tax on account of lease premium in the return of income. 31.1 We have heard the rival contentions and perused the records placed before us and gone through the judgments referred and relied by both the parties. We observe that in the preceding para no.22, we have given a categorical finding that the lease premium income offered by the assessee was a conscious decision and further Article 289(1) of Constitution of India is not applicable on the facts of the present case. Therefore, the grounds raised relating to this issue regarding exclusion of lease rent, land premium and interest income are devoid of merits and therefore, they are rejected. Issue regarding Under estimation of profit : 32 In the appeal as filed for the Asst Year 2003-04 [ Appeal No 347/Ind/2013 ], the assessee had cha....
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.... under:- "2.7 After careful perusal of the submissions of the assessee, the main contentions are summarized as under:- (i) The AO has simply relied on the comments of the Auditor whereas the assessee has accounted for the same as per guidelines of Chartered Accountant. (ii) The AO has mechanically relied upon the Audiotrs comments without taking into account the notes on accounts from which it emanates that the assessee was considering employee remuneration, administrative and general overheads as capital expenditure only when such expenditures were specifically attributable to the construction of a project. This means such expenditure were capitalized only till such time, the capital work was in progress and once the capital work has been completed these expenditure have not been capitalized and treated as revenue expenditure, Surprisingly, the facts in the case do not support the statement of the assessee. The assessee's contention that the projects were complete, therefore, the expenses were taken to profit and loss account is absolutely a contradictory statement because records for the year under consideration and subsequent year indicate evidentl....
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....y owned government company with the main object to develop industrial area for industrial growth in the State of Madhya Pradesh. The State Government had acquired the land from the private landowners and contributed its own land for development of industrial area. The raw land were handed over to the assessee for development and further management and maintenance of the same. The land remained in the ownership of the State and the assessee was allowed to act as a nodal agency. The development of industrial area which was commenced in the year 1981 came to at halt around 2000 when most of the land available have been utilized for development. It is further submitted that in the year 2005 the State Government decided to develop first Special Economic Zone and therefore established a new entity in the name of SEZ Indore Limited and diverted the development work in that company. Therefore, no major projects remained with the assessee and all the resources and land available with it had been transferred to M/s. SEZ Indore Limited which has developed the first SEZ of the country in India. In the above background, there were need for the assessee to revisit its accounting policy ....
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....en under notes to account in Schedule 17 under the head Fixed Asset which reads: "Previously Expenditure incurred on employees remuneration and benefits and the administrative and general overheads which are specifically attributable to the construction of a project fixed assets are treated as part of the cost of capital works in progress. Now this year management has changed their policy and it has been decided that major expenditure has been incurred on maintenance activities instead of infrastructure activities hence there is no need to allocate 75% of expenditure to work in progress" 36 Thus, it is clear that the assessee was considering employees' remuneration, administrative & general overheads as capital expenditure only when such expenditures were specifically attributable to the construction of a project. This means such expenditures were capitalized only till such time, the capital work was in progress and once the capital work has been completed these expenditures have not been capitalized and treated as revenue expenditure. 37. Regarding the Accounting Standards-AS 10, the AO stated as under :- "Para 93 of the Accounting Standards....
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....ubmitted that during the year under consideration, the major project was under progress and the industrial area was fully developed, therefore only routine maintenance expenses were incurred, which have been correctly charged to profit and loss account. The Ld. CIT(A) in his appellate order has accepted the contentions of the Ld. AO without going in to the merit and submissions made by the assessee. The Ld. CIT(A) failed to appreciate the notes to the accounts , which categorically mentioned that the assessee was capitalising the revenue expenses only in case these expenses have been specifically attributable to any project or fixed assets, which is as per the accounting standard and GAAP. The Ld. CIT(A) has also erred in considering the above treatment of revenue expenses by the assessee as change in accounting method/policy where there was no change in the accounting method/policies and the assessee continued to follow the same accounting methods and policies which were regularly employed by the assessee. When the aforesaid expenses are not directly related to any project nor specifically attributable to construction of a project/fixed assets, the Ld. AO can not....
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.... Accounts. Secondly, the assessee should not suffer due to any comment of the Auditor, which is inconsistent to the Accounting Standard and GAAP. The Auditor's comment on change of accounting policy was unwarranted as in fact, there was no change in accounting policy. The assessee still maintains its accounting policy regarding capitalization of revenue expenditure when the same are specifically attributable and when these revenue expenses are not specifically attributable, the assessee is treating the same as revenue expenditure following accounting standards & GAAP. The assessee rely upon following Judgment in support of his argument: (i) CIT Vs. Punjab State Industrial Development Corporation Limited (2002) 255 ITR 351 (P&H) it is undoubtedly correct that the statue stipulates that the income shall be computed on the system of accounting "regularly" followed by the assessee. It should mean during the period under consideration. However, the provision cannot be interpreted to mean that once a system of accounting is adopted, it can never be changed. "Regular" cannot in the present context mean permanent. It has not been pointed out with reference to....
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....fixed assets have already been capitalized to the cost of assets. On perusal of the Profit & Loss account it seems that against the credit of receipt of Rs. 7,02,82,708/- expenses of Rs. 5,52,86,310/- only was incurred by the assessee. The expenses as claimed in the Profit & Loss account also having direct nexus of receipt/ income as shown in the Profit & Loss account. Since the expenses as incurred was not for the purpose of addition to the fixed assets, hence, there was no justification for making the addition merely on the basis of remarks in the clause 11[c] of the Tax audit report. The remarks of the Tax auditor which is important piece of evidence but the same is not considered as conclusive piece of evidence. Considering the written synopsis of the assessee and on perusal of the Profit & Loss account, we are of the view that expenses as claimed by the assessee were incurred for day to day maintenance and also incurred for day to day administrative work which was not in the capital nature. We hereby direct the assessing officer to delete the addition of Rs. 2,18,75,469/- as made on account of understatement of profit. 19. It is submitted by Shri P. Kaurav, learned....
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....f TRIL Inforpark Ltd V/s. Income Tax Officer (TDS), word -1 (1), Chennai , (2016) 288 CTR 173 (Madras) and Foxconn India Developers (P.) Ltd. V/s. Income Tax Officer, TDS Ward-II (3), Chennai , (2016) 288 CTR 173 (Madras) wherein, it has been held that one-time non-refundable upfront charges paid by the assessee for the acquisition of legal hold rights over an immovable property for 99 years could not be taken to constitute rental income in the hands of lessor, obliging to lessee to deduct tax at source under Section 194-I of the Act and that in such a situation the lease assumes the character of "deemed sale" and held that TDS was not deductable on payment of lump sum lease premium for company for acquiring long term lease for 99 years. He has also drawn our attention to the decisions of Apex Court, High court of M.P., High court of Calcutta and High court of Karnataka in the case of Commissioner of Income Tax V/s. Panbari Tea Co. Ltd., (1965) 57 ITR 422 (SC), A.R. Krishnamurty V/s. Commissioner of Income Tax , (1989) 43 Taxman 30 SC, Maharaja Chintamani Saran Nath Sah Deo V/s. Commissioner of Income Tax , (1971) 82 ITR 464 (SC), Durga Prasad Khanna V/s. CIT, (1969) 72 ITR 796 (SC....
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....for industrial and infrastructural development which is the main object of the company. The main business of the assessee company is industrial and infrastructural development. Thus, the land premium and other lease charges so received are part and parcel of its business receipt. 24. It is also pointed out that the assessee companies are collecting heavy sums on land premium and is incurring expenditures to develop the land and maintaining industrial infrastructure. The issue has been examined by all the Authorities and thus does not give rise to a question of law much less the substantial question of law. The land premium was the income of the assessee and these amount have never been transferred to the State Governmental by the assessee companies and prayed for dismissal of the an appeals. 25. The assessee has been acting independent / equivalent to the owner of the land which is clear from the Clause 22 of the Memorandum where it is clearly brought out that the object of the MPAKVN and SEZ shall be to sell, improve, manage, develop, exchange, lease, mortgage, dispose off, deal with all or any part of property and rights of the company. Moreover, there is no denial on the p....
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....lied upon by the assessee in the case of Gujarat Industrial Development Corporation & Ors. V/s. Commissioner of Income-Tax, 1997 Vol.227 ITR Pg.414 is not applicable to the facts of the case as the above case law is related to exemption claimed by the assessee under Section 10(20A) of the Act, however the same is not applicable for the assessment year of the assessee under consideration. 30. A careful perusal of the Memorandum and Article of Association makes it crystal clear that the assessee's main object is to develop, promote, encourage, assist in growth and establishment of industries etc. with ancillary/incidental objects of carrying out of business. A reference to objects as specified under B9 to B12 makes it clear that the assessee is in the business with a motive to earning the profit. The relevant paras of such objects are reproduced as under :- Ancillary/incidental objects of the company shall be: "B(9) To carry on any other trade or business whatsoever which can, in the opinion of the company, be advantageously or conveniently carried on by the company by way of extension of or in connection with any such business as aforesaid or is calculated directl....