TaxTMI 
TaxTMI 
2018 (3) TMI 1646
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by Ld. CIT(A)-I, Indore, dated 26.02.2013 and Appeals in I.T.A.Nos. 760 & 761/Ind/2014 are also filed by MPAKVN, relating to assessment years 2009-10 & 2010-11 are directed against the order of Ld. CIT(A)-I dated 22.08.2014. Appeals in the case of SEZ Indore Limited, Indore, are filed in I.T.A.Nos. 571/Ind/2014, 205 & 206/Ind/2016 are directed against the orders of Ld. CIT dated 28.03.2014 for assessment year 2006- 07 and Ld. CIT(A)-II, Indore, dated 30.11.2015 for assessment years 2009 & 2010-11. Revenue has also filed appeals in I.T.A.Nos. 530 to 534/Ind/2016 relating to assessment years 2003-04, 2004-05 and 2006-07 to 2008-09. The Ld. Representatives of the parties stated that I.T.A.No. 347/Ind/2013 may be taken as a lead case, the decision of which shall cover all appeals. We, therefore, reproduce grounds in I.T.A.No. 347/Ind/2013 :- I.T.A.No. 347/Ind/2013 : A.Y. 2003-04 : 1. The assessee has taken following grounds :- 1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 2,18,75,469/- in respect of alleged reduction of profit on account of debiting the expenditure in respect of expenses incurred by the appellant with respect to employees remu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the appellant merely acts for an on behalf of the State of MP, the receipts in respect of land premium etc. constitute income of the State of M.P. and as such same cannot be brought to tax in the hand of appellant. 6. Without prejudice to above grounds regarding non taxability of land premium in the hands of the appellant, the receipts in respect of land premium being capital receipts, cannot be brought to tax in the hands of the appellant. The Ld. CIT(A) has also erred in not appreciating the fact, that the treatment of particular receipt in the books of account of the appellant is not decisive and conclusive of the nature of receipt and if the receipt in question is a capital receipt, the same cannot be brought to tax only on the basis of the treatment by appellant in its accounts. 7. That the Ld. CIT(A) also failed to appreciate that since the grant of lease for a period 99 years is a transfer of property under the provisions of the Transfer of Properties Act, 1882, the consideration for such transfer in the shape of premium in addition to the yearly rent reserved clearly constitutes capital receipt and cannot be brought to tax as a revenue receipt or income. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the appeal of M/s SEZ Indore Limited, were more or less similar in all the appeals except one or two other grounds, we dispose of all these appeals by this common order for the sake of convenience. 4. In all these appeals additional grounds of appeal were taken. The Ld. Counsel for the assessee filed application in each appeal for admission of the additional grounds of appeal. The Ld. Counsel stated that no fresh material was required for deciding the same. All the materials were available before the AO. The Ld. Counsel for the assessee placed reliance on the various decisions of the Hon'ble High Court and also Hon'ble Supreme Court. 5. The Ld. Counsel for the assessee has submitted the identical written submissions dated 20.03.2017 in all the appeals. 6. Additional grounds of appeal taken in I.T.A.No. 347/Ind/2013 for the A.Y. 2003-04, read as under :- "1] That on the facts and in the circumstances of the case the amount of lease rent of Rs. 1,01,63,368/- as included in the figure of total income be treated as capital receipt and requires to be excluded from the total income of the assessee being not liable to tax. 2] That on the facts and in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1/99 of the land premium amount was inadvertently offered for tax 2 Lease Rent Lease rent received in connection with the land of State government as allotted by the assessee requires to be credited as liability in the books of the assessee but inadvertently credited in the Profit & Loss account 3 Interest on Fixed deposit The amount of state government received in form of grants and land premium / Lease rent as received on account of the state government was deposited with the bank during the period in which the same was not used by the assessee. The assessee being a nodal agencies not liable to pay tax on the amount of Interest on deposit 6] That as per Article 265 of the Constitution of India, 1949, which reads as under:- 265. Taxes not to be imposed save by authority of law no tax shall be levied or collected except by authority of law. 7.1] That Hon'ble Delhi High Court in the case of CIT vs Jai Parabolic Springs Ltd as reported in 306 ITR 0042 [ Delhi] has held that :- "18. Further, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objection before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier." 7.4] Hon'ble Bombay High Court in the case of Nirmala L. Mehta v. A. Balasubramaniam, Commissioner of Incometax 269 ITR 1 (Bom) wherein it was held as under:- "There cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. _________". 7.5] That 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Ld. Counsel for the assessee. The claim as lodged by the assessee by way of additional grounds of appeal relates to exclusion of the lease rent, Land premium and interest on funds of State Government. The decisions of Hon'ble Apex Court in the case of Jute Corporation of India Ltd. vs. CIT [Supra] and National Thermal Power Co. Ltd. vs. CIT [Supra] and various other High courts are squarely applicable on the facts of the present case. Respectfully following ratio laid down therein, we admit the additional grounds as filed by the assessee before this Hon'ble Bench for adjudication. I.T.A.No. 347/Ind/2013 : A.Y. 2003-04: Ground Nos. 2 to 8 : Issue regarding taxability of land premium as income: 10. The assessee through ground nos. 2 to 8 in the appeal in I.T.A.No. 347/Ind/2013 and other appeals has challenged the taxability of the Land premium as income of the assessee company. 11. The Assessing Officer while passing the assessment order u/s 143(3) r.w.s 254 dated 31-12-2009 added the amount of land premium as income of the assessee company. The facts as noted by the Assessing Officer in his assessment order are summarised as under :- S.No Facts Para No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Para 2.5 on inner Page No 9 of CIT[A]'s order 13. It was observed from the facts as noted by the assessing officer and also by the Ld CIT[A], it was very clear that land was not acquired by the assessee company but the same was acquired by the State Government and the amount of compensation was also paid by the State Government through Collector and the ownership of the land was also in the name of the State Government. The assessee on the basis of guideline of the State Government allotted the land to the eligible industries and the assessee company acted as a nodal agencies on behalf of the State Government, allotted land to the eligible industries and collected amount on account of Land Premium, Lease rent, Maintenance Charges, Development charges, Transfer fee etc. 14. The Ld CIT[A] in his consolidated order passed for assessment years 2004-05 to 2008-09 confirmed the addition as made by the assessing officer on account of land premium as income of the assessee company, the relevant paras of the order of the Ld CIT[A] is reproduced as under:- "2.5 I have considered the submissions of the assessee and noted that the land is provided to the assessee by government ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es etc. 2.6 The second limb of argument advanced by the assessee is that the land premium is a capital receipt. This part of argument was mainly advanced before the assessing officer at the time of passing the assessment order. However the same set of arguments have been put forth before me also, the assessee has relied mainly on two decisions of Hon'ble Supreme Court which are as under:- (i) Ukhara Estate Zamindaries P. Ltd Vs CIT 120 ITR 549 (SC). (ii) Member for Board of Agricultural Income Tax, Assam Vs. Sindhurani Chaudhurani & Other, 32 ITR 169. 2.7 It is observed that the second issue in this case is whether the receipt under consideration is a capital receipt or revenue receipt. In order to decide and examine this issue, it will be appropriate to go through the memorandum & article of association. A careful perusal of the same 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this regard, it will be appropriate to refer the agreement made by the assessee with the purchaser of the plots. Clause 2 of such agreement makes it abundantly clear that the amount of land premium is nothing, but the rent in advance. The clause 2 reads as under:- " 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." 2.9 In view of above discussion, there remains no doubt that the advance rent in the form of land premium is nothing but revenue receipt to be taxed as per Income Tax Act. During the course of appellate proceedings, the counsel of the assessee has further submitted that the decisions relied upon by the assessee in the case of Member of board of agriculture and Ukhara Estate Zamindaries P. Ltd are squarely applicable in the instant case. Although Assessing Officer has briefly distinguished these two cases yet in the interest of natural justice, I have gone through the above two cases to verify the contention of the assessee. In the case of Member of board of agriculture Income Tax, it is seen that the salamis/ premia were not at all dep....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... long term lease and earned rental income as well as the advance rent in the form of land premium. In the case relied upon by the assessee, Hon'ble Supreme Court reversed the decision of High Court saying that the assessee had dealt with its lease hold interest in the zamindari property as a land owner and the receipt of salami, premia and compensation were receipts of capital nature. Therefore, the facts are altogether different. In view of the foregoing discussion, I am of the considered opinion that the AO has correctly assessed the income as revenue receipt. The additions made under this head In the instant assessment year as well as in the AY 2006-07, 2007-08 & 2008-09 are hereby confirmed." 15. The assessee company against the order of the Ld CIT(A) preferred an appeal before this Hon'ble Bench argued its case at length. 16. The Ld. Counsel for the assessee company argued its case mainly on following issues, which are as under:- 1 The assessee company acts as a nodal agencies of the State Government and therefore entire receipt for and on behalf of the State Government is not an income of the assessee company 2 Cost of land was not claimed by the assessee in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. The second assessee SEZ Indore Limited(SEZ) is a wholly owned subsidiary of MPAKVN Ltd. and it is a Government Company engaged in the development of Special Economic Zone in the region in terms of provisions of Special Economic Zone Act, 2005. The main object of the assessee Company is to develop, promote, encourage or to assist in formation of Special Economic Zones and other allied infrastructure development work. The development of infrastructure is the primarily responsibility of the State Government. However, the State Government may delegate such responsibilities upon its instrumentalities. MPAKVN and the assessee Company are such instrumentalities, which are discharging the responsibility of industrial infrastructure development on behalf of the State Government for promotion of the industrial development in the State. The assessee allots the developed industrial land to the prospective industrialist to setup industry in the area developed by the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hereinunder: Sec. 57. State ownership in all lands: (1) All lands belongs to the State Government and it is hereby declared that all such lands, including standing and flowing water, mines, quarries, minerals and forests reserved or not, and all rights in the sub-soil of any land are the property of the State Government. Provides that nothing in this section shall, save as otherwise provided in this Code, be deemed to affect any rights of any person subsisting at the time of coming into force of this Code in any such property. Section 108. Records of rights: (1) A record of rights shall in accordance with rules made in this behalf be prepared and maintained for every village and such record shall include the following particulars: (a) the names of all Bhumiswamis together with survey numbers or plot numbers held by them and their area, irrigated or un-irrigated; (b) the names of all occupancy tenants and Government lessees together with survey numbers or plot numbers held by them and their area, irrigated or unirrigated; (c) the nature and extent of the respective interest of such persons and the conditions or liabilities, if a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the State, therefore the State has right over the lease premium. It is also the duty of the State to incur the development cost on its land, therefore State has allowed the assessee to adjust such expenses and cost from the amount of lease premium payable to the State by the lessor. In view of above following facts emerges: (i) The State Government had acquired the land from the landowners for industrial infrastructure development of area and had paid the compensation from exchequer. (ii) The name of State Government through industries department has been recorded in the revenue records as owner of land. Thus, State Government is the owner of the land on which industrial area/SEZ has been developed by MPAKVN/the assessee. (iii) The assessee/MPAKVN were involved in the industrial infrastructure development as an instrumentalities to discharge the responsibility of State Government towards infrastructure development as nodal agency. (iv) The lease deeds have been executed on behalf of State Government in the name of Governor of Madhya Pradesh. The assessee has no power or right to dispose of any of the assets without prior consent of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion in Appellate Order in ITA No. 402/2009-10 and 882, 883, 884/2011-12 which is relied upon by the CIT(A) in impugned order: Sr. No. Observation of CIT Response Para 2.5. I have considered ...............it is observed that the land under consideration has been given to the assessee by Government of M.P. and through an instruction referred above, any land premium and lease rent received from leased out land will be kept with respective Audhyogik Kendras for maintenance and further developments. First of all it is submitted that the land was not given by the State to the Assessee under ownership. The assessee was allowed by the State to discharge the responsibility of the State towards infrastructure development on the land belonging to State Government as an its instrumentality and in the capacity as nodal agency or executing agency of Govt. The lease premium so collected by the Assessee has been shown in the books of A/c of assessee as liability payable towards the State Government. The lease deed have been executed by the State in the name of the Governor through Managing Director of the assessee company who is a Gazetted Officer of the State Government....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... lease premium on behalf of State Government by the assessee within the ambit of taxable income an attempt has been made in this regard. 5. Para 2.5 continued .... This can be seen from the clause C(22) of the Memorandum wherein it has been clearly brought out that the object of the Audhyogik Kendra 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. It is submitted that such observation are based on the whims as the Ld. CIT(A) has drawn it merely on the basis of the object incidental to main object given in Memorandum of the company without appreciating the legal rights of ownership over the land. 6. Para 2.5 continued .... Moreover there is no denial on the part of the assessee that income has arisen. Once the income has arisen out of any transaction the same has to be taxed. This observation is baseless and contrary to the facts available on the record. The Ld. AO and CIT has observed that the assessee has credited the land premium collected to the State Government account as liability. Therefore it is clear that the assessee had never accepted the collection of leas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss of leasing out of land and getting rental income as well as premium is the business of the assessee. Therefore land premium is nothing but a revenue receipt is in form of advance rent which has loosely been named as land premium. Since the assessee is showing annual rent on account of such leasing of plots there is no reason why advance rent received should not be taxed accordingly under The Learned CIT has come to the conclusion that since as per Memorandum the assessee is in the business of leasing of land. Therefore land premium is nothing but revenue receipt in the form of advance rent. This observation is totally misconceived and under any stretch of imagination it cannot be assumed that lease premium is advance rent. The entire premises of Appellate order considering the lease premium as advance rent is without any substance and the basis. The main object of the assessee is to develop industrial area on the land of the State Govt. and to collect lease premium on its behalf. Thus, it is incorrect to say that the leasing is the business of the assessee. It can be business only if the assessee owns any land. In the present case, the assessee owns no land. The Supreme Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is received at the beginning of the lease for transfer of lessors right in the capital assets. The assessee has not charged the development cost to the profit and loss account as the same has been transferred to the State Government and net balance payable to State Government has been shown under the heard "Current Liabilities & Provisions" in the Balance Sheet. Therefore, the Revenue has accepted and admitted the infrastructure development cost incurred by the assessee as Capital Expenditure. Therefore, the lease premium shall also be capital revenue extending the same analogy. CASE LAWS RELIED UPON BY THE assessee IN SUPPORT OF ABOVE CONTENTIONS: (i) In case of Dy. Commn. of Income Tax vs. Sudarshan Chemicals Ltd. (22.07.2004 - ITAT Pune) :[2005] 95 ITD 131 (Pune), the Revenue Authorities have supported the case of the assessee herein and had argued that the one time lease premium is capital receipt. The relevant paragraph of the aforesaid order is as under: 4. The ld. DR has assailed the order of the CIT(A) by contending that the payment made by the assessee was for acquiring the leasehold rights which is an asset and therefore, the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a capital asset, and the money paid to purchase it may properly be held to be a payment on capital account. But the royalties are on a different footing". 5. It is true that in that case the leases were granted for 999 years; but, though it was one of the circumstances, it was not a decisive factor in the Judicial Committee coming to the conclusion that the salami paid under the leases was a capital asset. This Court in Member for the Board of Agriculture Incometax, Assam v. Sindhurani Chaudhurani [1957] 32 ITR169(SC) defined "salami" as follows :- "The indicia of salami are (1) its single non-recurring character and (2) payment prior to the creation of the tenancy. It is the consideration paid by the tenant for being let into possession and can be neither rent nor revenue but is a capital receipt in the hands of the landlord." 6. It is true that in that case the payments was paid in a single lump sum, but that was not a conclusive test, for salami can be paid in a single payment or by installments. The real test is whether the said amount paid in a lump sum or in installments is the consideration paid by the tenant for being let into possession. This C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ight of an enduring nature in the plot in question. In our opinion, the clause contemplating resumption of possession by the lessor if the premises were required by it for its own use for a public purpose on the conditions stated in the said clause would also not make much of a difference. Firstly, that is a clause which normally finds place in such leases and, secondly, the contingency contemplated was such which may or may not happen. In the instant case, it is not the case of the assessee that the said contingency has happened and the lessor has resumed possession over the plot in question. In this view of the matter, the amount of premium paid by the assessee was obviously in the nature of capital expenditure and the Tribunal was not right in holding it to be revenue expenditure. (iv) The Supreme Court in case of A.R. Krishnamurthy and Anr. vs. Commissioner of Income Tax, Madras (10.02.1989 - SC) :[1989]176 ITR 417 (SC) has held that the lease premium is consideration for parting away the right in capital assets, therefore it is capital receipt and cannot be taxed. The head-note reads as under: What is parted with under the terms of the lease deed is the right....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r, is upon the income tax authorities to show that there exist facts and circumstances which would make payment of what has been called salami, income. The position may be summed up in this way. When the interest of the lessor is parted for a price the price paid is premium or salami but the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent; the former is a capital receipt and the latter a revenue receipt. Parties may camouflage the real nature of the transaction by using clever phraseology and, therefore, it is not the form but the circumstances of the transaction that matter. The nomenclature used may not be decisive or conclusive but it helps the courts, having regard to the other circumstances, to ascertain the intention of the parties. 6. The Tribunal proceeded to say: Here in the present case what we find is that the assessee had chosen to take a large amount by way of premium but a lesser amount by way of royalty. The patent reason for the assessee to take a lesser, amount by way of royalty was that the amount received by him as salami was not taxable. There is, therefore, no doubt in this case t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on does not seem to be different in the present case. (vi) The Supreme Court in case of Durga Prasad Khanna Versus CIT (1969) 72 ITR 796 (SC) has also held that in para 5 that the departmental authorities as well the High Court were in error in treating the amount of premium of Rs. 55,200/- as advance payment of rent. The Apex Court in para 4 has stated that the payment of Salami (Premium) could not be treated as revenue receipt. The payment of being non-recurring nature. 4. On behalf of the assessee-assessee it has been urged that the sum of Rs. 55,200/- was paid to the lessor in lump for completing the cinema house without which the lessee could not have used the building for the purpose of exhibiting cinematograph films. According to the recitals in the deed which must be given due effect the lessees agreed to give this amount towards the cost of erection of the cinema house according to their suggestion and for defraying other charges and expenses. The payment of rent was expressly stipulated at the rate of Rs. 2,100/- per month and there was no indication whatsoever that any different or higher rate of rent was agreed to. It is further submitted that there wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount of money which a landlord insists on receiving as a condition precedent for parting with the land in favour of the lessee and that it was received by the landlord, not because of the use of the land, but before the land was put into use by the assessee. (9) The question of salami should not be decided on the length of the period of the lease, but on the nature of the right conveyed. The characteristics of the payment should be decided without reference of the nature of the lease including the wasting nature of the assets under the lease. (10) The smaller the salami the higher the rent and vis-a-vis (Birendra Kishore Manikya v. Secretary of State) is no longer a good law. Of course it is true, as to whether salami was income or not the same had to be decided on the facts of each case, but on the construction of the terms of the lease in the instant case, we hold that the payment has a close analogy to the payments as in Sindhurani's and Chintamani's cases. We also find that the sum of Rs. 20,000 in the present case is a consideration paid by the tenant at the beginning for being let into possession with the object of obtaining a new tenancy an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e land for cultivation under the lease.......salami is not a recurring or periodical payment or a fee or fine levied at fixed intervals from the tenant for the same holding." (ix) The Bombay High Court in case of Commissioner of Income Tax, Bombay City-III vs. Ratilal Tarachand Mehta (12.11.1976 - BOM HC) [1977] 110 ITR 71(Bom) has also held the lease premium, salami or pagadi as Capital Receipt and rejected the contention of the Income Tax Authorities to consider it as revenue receipt. 7. It is true that in the instant case there were at least more than 12 tenants in respect of which the assessee must have received these amounts by way of premiums from the respective tenants before granting the monthly tenancies to them. But here again, no material has been brought on record to show that the construction of the present building, from the tenants of which he received premium, was a part of his business as a builder or promoter. Moreover, even the department did not seek to include this item of Rs. 54,000 in the assessee's total income under section 10 of the Indian Income Tax Act, 1922, but the only attempt was to show that it was his income from other sources....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion under section 10(20-A) has been withdrawn, therefore the assessee has changed the accounting of the income of lease premium and lease rent. This argument was countered by AR stating that since beginning the assessee has credited the Lease Premium, Lease Rent and other revenues belonging to State Government in the accounts of State Government pursuant to order dated 14.12.1981 by the Industries Department, Government of Madhya Pradesh. In view of above, the Hon'ble Tribunal directed the assessee to produce the audited Balance Sheet and Profit & Loss Accounts of the years prior to 2003-04 to substantiate the arguments. In response to the same the assessee submits the Annual Accounts of following years for kind perusal of the Hon'ble Tribunal: S.No. Particulars 1 Balance as on 31-03-1986 2 Balance as on 31-03-1991 3 Balance as on 31-03-1999 2.2] That on perusal of the above Balance sheet, following facts emerge :- [A] ASST YEAR 1986-87 [ FOR THE YEAR ENDED ON 31-03-1986 ] (i) On page 3 of the Balance Sheet the State Government Account has been shown in the liabilities side and details have been provided in "Schedule - D" at page ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f which has been provided in "Schedule - 11" at page (9) where except amount of lease premium, lease rent which was collected on behalf of State Government, all other revenues have been shown. Similarly in expenses only Personnel Expenditure (Schedule - 12) and Administrative Expenditure (Schedule - 13) clearly shows that no expenses of development or construction of industrial area has been charged to Profit & Loss Account and the same have been first shown under the head "Capital Work in Progress" and upon completion of the work the same has been debited to the account of State Government in Schedule - 4. Thus, evidently, the entire lease premium, lease rent and security deposit collected on behalf of the State Government have been shown in Schedule - 4 as liability and the expenses incurred on development has been deducted therefrom. Thus, the assessee was acting as "Nodal Agency" of the State Government. [C] ASST YEAR 1999-00 [ FOR THE YEAR ENDED ON 31-03-1999] (i) On page 11 under the hear Current Liabilities of the Balance Sheet the State Government Account has been shown in the liabilities side in "Schedule - 6" The State Governme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s have been collected by the assessee company at the rate as prescribed by the State Government in the Rules. 3.5] That as per State Government Order dt 14-12-1981 , land was acquired by the State Government and handed over the same for development to the assessee company, major expenses in excess of Rs. 5,00,000/- were also incurred from the Grants as received from the State Government. Thus, development was done by the assessee company for and on behalf of the State Government. Hence, entire amount as received in connection with the allotment of the land pertains to the State Government. The State Government vide his order dt 31-03-2017 further clarified the nature of receipt as received by all the AKVN in the State of Madhya Pradesh. Hence, after clarification from the State Government there was no doubt about the nature of different receipt in connection with the land. It is also settled position of law that any explanation which has clarificatory in nature having retrospective effect, for this preposition we rely on the following decisions:- 1 CIT Vs Gold Coins Foods (P )Limited 304 ITR 308[SC] 2 Allied Motors (P) Ltd etc Vs CIT 224 ITR 0677 [SC] ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....HER OBJECT has consider that the assessee company is the OWNER OF THE LAND and is in business of leasing of the land as real estate business. The Ld. AO and CIT(A) failed to appreciate that the LAND OWNER is always the State Government and in all REVENUE RECORS the Industry Department, Government of Madhya Pradesh has been shown as OWNER of the land. The Ld. AO & CIT(A) has also failed to appreciate that the land and cost of development have not been shown in the balance sheet of the assessee company as assets of the assessee company. The land was never transferred and registered in the name of the assessee. Therefore, the Ld. AO & CIT(A) merely on the basis of collection of lease premium, lease rent by the assessee and its utilization as per the order of State Government, has erred in considering the assessee as OWNER of the land and development. 3.9] The Ld. AO & CIT(A) has also erred in not considering the provisions of section 13 and 149(2-A) of the Companies Act, 1956 which provides that no company can undertake any activity mentioned in clause (C) OTHER OBJECTS of the Company without complying the formalities as provided under section 149(2-A) of the Companies Act an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....apital receipt. (iv) The Ld. AO & CIT (A) have erred in considering the lease premium as "Advance Rent" without any reason just on whims and fancies. The assessee is collecting the lease Premium, Lease Rent, Transfer fees, Development Charges etc as per the Rules framed by the State Government. The assessee is separately collecting 3 years advance rent as "Security Deposit" and one year lease rent in advance in addition to lease premium which is received upfront before entering into an agreement for lease. " 19. The assessee during the course of hearing also placed reliance on the decision of the Hon'ble Mumbai Bench of ITAT in the case of City and Industrial Development Corporation of Maharashtra Limited Vs Assistant Commissioner of Income Tax [ Appeal Nos ITA No 2985/ Mum/2012 dt 08-08-2012 ]has held that [ refer paras 37 to 46] :- "37. We have heard the arguments advanced from either side at length and have also perused the material brought and placed before us for consideration. 38. Coming to the arguments of the Senior Counsel that the assessee must be treated as Government or surrogate or an agent, has to be considered and adjudicated at first. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tself, the liability for tax shall emerge, a typical example is that of service tax collected by the State on events being conducted by the vendors, have to be deposited by the State, in the Government exchequer, making the State an assessee under service tax as held by the Hon'ble Supreme Court in the case of RashtriyaIspat Nigam Ltd. vs Dewan Chand Ram Saran (CA No. 3905 of 2012). This is only possible where there is an activity of "trade or business", but, if, confined towards development, either of a new township or betterment of the functions of the local authority, 289(2) shall remain in the oblivion and shall not come into play. In this context when in the case of APRTC, reported in 52 ITR 524 (SC), the Advocate General sought to include activities in clause (2) in clause (1), the Hon'ble Apex Court negated the same by saying "no exception can be taken". Therefore, the functions and / or activity has to be seen primarily. The Hon'ble Supreme Court, thus observes, "Reading the three clauses together, one consideration emerges beyond all doubt and that is that the property as well as the income in respect of which exemption is claimed under clause (1) must be the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee an "agent" of the State. 41.XX XX XX 42. We find that according to MR&TP Act, 1966, the machinery sections, i.e. sections 113 & 113A talk of appointment of Development Authority and Local Authority and accordingly, through various Resolutions, in compliance of these sections, MR&TP Act has appointed the assessee as the Development Authority for development to new townships and Local Authorities for streamlining the functions of already existing towns like Aurangabad, Nashik, Nagpur etc. This, itself shows that the assessee is acting totally on behalf of the Government. Another distinguishing feature that can be seen in that as soon as the "Project" is complete, the project gets handed back to the State, i.e. when there is a development project, as per phases, and in the case of local authority, as and when the authorizing committee is satisfied, the reins are transferred to the municipal boards, from whom, the project was taken over, as we have seen from Resolution no. 10375 dated 06/08/2010. 43. In tune with these observations, read with sections 113 & 113A of MR&TP Act along with Articles 289(1) & 289(3) and holding that the assessee corporation is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nr vs Karnataka Urban Infrastructure Development & finance Corporation as reported in 284 ITR 0582 has held that:- "4. The material on record shows that the very purpose of constitution of the assessee was to act as a nodal agency for implementation of mega-city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialised institutions/nodal agencies as grant and the nodal agency will constitute a revolving fund with the help of Central and State shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/created by the Government of Karnataka as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction we are filing our written submission along with the paper book attached herewith. 1. The original assessment u/s 143(3) read with section 147 in this case was completed on 29.12.2006. The section 147 of Income Tax Act, 1961 was invoked in this case because the appellant was claiming the exemption u/s 10(20A) of Income Tax Act, 1961 till the financial year 2002-03 which was omitted w.e.f. 01.04.2003. Since the appellant had come under the ambit of taxation from A.Y. 2003-04, necessary action under the Income Tax Act was taken in this case for the A.Y. 2003-04 and A.Y.2004-05. The order of CIT(A) against the order of A.O. dated 29.12.2006 was passed on 15.01.2008 whereby the finding of AO given in the assessment order dated 29.12.2006 were upheld. However, Hon'ble ITAT vide their consolidated order dated 03.02.2009 for the A.Y. 2003-04 & 2004-05 have restored the issue to the file of AO for reconsideration and re-adjudication. The CIT(A) has passed a consolidated order for the A.Y. 2004-05 to 2008- 09 and separate order for the A.Y. 2003-04 against the assessment orders passed by the assessing officer in compliance to the direction of Hon'ble ITAT and also the orders o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deration has been given to the appellant by government of MP and through an instruction as referred above, any land premium and lease rent received from leased out land will be kept with respective audhyogik kendras for maintenance and further development. The assessee is not a mere custodian. It becomes a lawful owner of the land which has legally been transferred through government of Madhya Pradesh. I have also gone through the memorandum & article of association and observed that the assessee is authorized to purchase/acquire land on its own also apart from the land earmarked by the government of MP. (refer para A-l of memorandum of association). Therefore, there is no doubt that as far as the management and leasing of the land under the consideration is concerned, the assessee has been adequately independent/ equivalent to the owner of the land. This can be seen from clause C(22) of the memorandum wherein it has been clearly brought out that the object of the audhoygik kendra 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 part of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is calculated directly or indirectly to develop any of the company's business or to increase the value of or turn to account any of the company's assets property or rights; (10) To undertake, manage, control or otherwise deal with the business and undertakings of any person, firm or corporation when it may be necessary for the purpose of protecting the interests of the company, or for the purpose of protecting securities, realizing upon claims or carrying out any transaction or obligation which the company has entered upon; (11) To take part in the management, supervision and control of the business or operation of any undertakings, shares or other securities of which are held by the company or in which the company is otherwise interested, and for that purpose to appoint and remunerate any directors or accountants or other experts or agents; (12)To sell or otherwise dispose of the undertaking of the company or any part thereof for such consideration as the company may think fit and in particular (but so as not to restrict the generality of the foregoing) for shares, debentures, bonds or securities or obligations of any other company having objects....
X X X X Extracts X X X X
X X X X Extracts X X X X
....making a settlement of holding. Whereas in the case under reference, where leasing of the plot is for 99 years and there is no provision for conditions in the agreement to suggest the modality of transfers and renewable after 99 years. In other words, after the lease period expires, it is not the case of the assessee that they are not going to charge further premium at the time of renewal of lease. The salami in the referred case has been defined as single payment made for acquisition of right of the lessees to enjoy the benefit granted to them by the lease. In that case it was held as capital asset for the reasons that the right for the cultivation of the land being the capital in nature -was transferred to the lessee for a consideration called salami. Therefore the same was treated as capital asset. Hence, in view of the clear cut difference in the facts and findings of the cases, to that extent, the case law cited by the assessee is not applicable in the instant case where land premium charged is nothing but the advanced rent. The another case law, i.e., Ukhara Estate Zarnindaries P. Ltd. relied upon by the appellant was also gone through and it was seen that the facts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Xyz. which has been credited to State Government Account and is shown as liability in balance sheet, As explained to us the management of SEZ INDORE Ltd is of the view that the land belongs to state government and land premium so received also belongs to the state government therefore, it is to be credited to State Government account. However, the company retains the whole amount received with it and deploys the said premium amount for industrial and infrastructure development which the main object of the company. The main object of company as per memorandum of association is as reproduced below:- "To develop, promote encourage or the assist in the formation of Special Economic Zone(s), information Technology park, software park of any other such zone/ park, in accordance with the policies of the Government of India, Government of Madhya Pradesh or any other Government, or its department(s) of any agency of any regulatory body formed in this regard and to obtain and/or acquire land from Government or private sources and/or arrange, co-ordinate the availability of all essential infrastructural inputs such as water, power, telecommunication facilities and to construct roads....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, it appeal no. 1299(Bang) of 2013 where the upfront premium is treated as income and is charged to tax in the year of the receipt. Looking to all these facts, land premium is the revenue income of the company and the amount of Rs Xyzis to be included in the total income" It becomes evident from the detailed discussion in the order of the CIT(A) as reproduced above and also the finding of the special auditor that the Lumpsum Land Premium charged and collected by the appellant was nothing but revenue receipt earned in the process of business in development and sale of plots. Which has also been found supported by the memorandum of association and the copies of lease deeds wherein nature of receipt has been specified. 4. Memorandum and Articles of association I may request this Hon'ble Bench to kindly take note of the main objects of the company listed at serial no. 3, 4 & 5 (PARA A) at page no. 1 of the memorandum of association. Similarly we may draw the kind attention of Hon'ble members to incidental/ancillary objects of the company listed at 1,8,9,10,11,12,13,15,17,19,20 (PARA B), page no. 2 to 4 of the MOA. Further there is a list of other ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated 31.07.2017 read with circular dated 29.02.2016. 7. In view of the detailed discussion as above and various relevant documents filed through the paper book, we request this Hon'ble bench to confirm the action of AO and CIT(A) in considering the land premium belonging exclusively to the appellant and treating the same as revenue receipt for the purpose of taxation. " 22. We have carefully considered the rival submissions and have perused the material placed before us and also gone through the case laws cited by the respective Learned Representatives of the parties. The issue requires to be adjudicated is whether the land premium received by the assessee company is liable to be taxed as an income for the year under consideration. The main thrust of the arguments of the Ld. Counsel for the assessee remain three folds, firstly, the assessee being a Government Company and acting as a nodal agency for the State Government is not liable for the income tax, in terms of Article 289 of the Constitution of India; secondly, the receipt of premium is being accepted and collected by the assessee company on behalf of the State Government, and, thirdly, even if it is assumed that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnment of Madhya Pradesh. There is no doubt that there has to be a clear distinction between sovereign function and a function carried out as a trader or a businessman. If the function falls under the ambit of sovereign function, certainly any receipt arising therefrom cannot be subject to tax, but where the function is being carried out as a contractor, in that event, in our considered view, such receipt will be taxable. Moreover, as per the directives of the State of M.P., the entire receipt remains with the assessee company. Now coming to the third arguments of the assessee that even if it is assumed that the receipt is to be taxed as a business receipt, under the facts of the present case, that being a capital receipt cannot be taxed. This plea of the assessee company is contrary to the facts on record. Admittedly, in earlier years, the assessee itself has shown 1/99th of the land premium as a taxable receipt. Thus, such treatment reflects the intention of the assessee company that it was nothing but a business activity. The assessee has relied upon the judgement of the Hon'ble Supreme Court to buttress the arguments if the income is wrongly declared that cannot be taxed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncurred 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. Also no capital gain is offered when the lease is cancelled due to surrender of plot or due to any other reason and the said plot is allotted to other lessee on higher premium which shows that the difference of premium received is not a capital receipt, thus, the same stands revenue in nature." The case laws as relied upon by the Ld. Counsel for the assessee, Salami or the premium as may be called was not refundable. In our considered view, the fundamental aspect for the treatment of any receipt would certainly depend upon the intention of the assessee. In the case in hand from the Memorandum of Association as well as the Lease Deed as executed, the relevant clauses for the same are reproduced as under :- Clauses of Memorandum and Articles of Association of MPAKVN: "Ancillary/ incidental objects of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- "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 alternative accommodation, the assessee is liable to pay liquid damage to the members. On those peculiar facts of the said case, the Special Bench conducted that there was a continuing liability on the part of the assessee not only to provide the accommodation but also to provide other incidental services attached with the accommodation. Thus, in the said case, when the assessee was under obligation to provide accommodation as well as other services incidental to the accommodation to its members, then the amount received in advance was held to be recognized as income over the period during which the assessee remained under obligation to provide the accommodation and other services to the members. By considering the peculiar facts, Special bench held that the entire fee received by the assessee cannot be said to be accrued as income in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 perusal of the said letter your honor will please appreciate that the assessee company, which is fully owned by the government of M.P. and is being functioning under the instructions and polices made and decided by them, was provided with the land by the government and the company is to develop and manage the same for the said purpose. It is very important to note that the assessee company is only an extended and of government of M.P for the leasing out such land, that too on the terms and conditions, for and on behalf of government only, which are being laid down by the Government in that respect from time to time.(pl. refer sub clause (c) of clause No. 1 of the said letter.) It is further submitted that the assessee company is only an agency to collect Land premium and other revenues in respect of such land for and behalf of the government and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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 (Del), CIT vs. Archana R. Dhanwatey (1981) 24 CTR (Bom) 142 : (1982) 136 ITR 355 (Bom)]. 32. If particular levy is not permitted under the Act, tax cannot be levied applying the doctrine of estoppel [see Dy. CST vs. Sreeni Printers (1987) 67 SCC 279]. 33. This Court in the case of Nirmala L. Mehta vs. A. Balasubramaniam, CIT (2004) 191 CTR (Bom) 8 : (2004) 269 ITR 1 (Bom) has held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. In the case on hand, it was obligatory on the part of the AO to apply his mind to the facts disclosed in the return and assess the assessee keeping in min....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 challenged the addition as made by the assessing officer and as maintained by the Ld CIT[A] in respect of understatement of profit to the tune of Rs. 2,18,75,469/-. 33 The assessing officer in the assessment order disallowed the expenses as incurred to the tune of Rs. 2,18,75,469/- and added the same to the total income of the assessee. The assessing officer while making the above disallowance stated as under:- "6.8 In the above proposition of law on examination of Note appended to the Schedule (4) of the Balance Sheet it is noticed that the assessee had shown the Capital WIP as on 01.04.2002 at Rs. 23,97,10,477/- after due capitalization of the expenses. Examination of the particulars furnished in the Note further revealed that the assessee had shown the carrying out of the WIP during the previous year under consideration for Rs. 6,46,99,371/- From this it follows that the assessee did not carry out the capital ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 evidently that the projects/ creation of fixed assets is a continuous process in which the assessee is fully engaged. Even if it is believed that the projects were no more in existence, in that case there is no question of existence of such expenditure under the relevant heads under consideration. Similarly the assessee's objections for referring the Audiotrs comment is not going to help because they are the assessee's auditor not of the Income Tax Department. The assessee has not been in a position to prove anything contrary to the facts brought out by the auditors which in fact is the moral and lawful duty of Audiotrs. Therefore I do not find an infirmity in the order of AO in referring the comments of the Auditors and taking cognizance of the same. 2.8 Without prejudice to the inference drawn above, during the course of appellate proceedings, in the interest of natural justice, the assessee was requested to file complet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 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 which was continued for many years and as a policy the assessee was allocating 75% of its employees cost and administrative cost to the pending projects. However, since no major projects were in the hands of the assessee, therefore it was imperative for the assessee to reconsider its policy and charge entire expenditure to Profit and Loss Account. Ironically, the auditors of the assessee have mechanically given a qualification in their report without appreciating the current status and nature. The Auditor did not apply their mind to the rationality of 75% of expenses to be allocated to the projects when no major projects were in the hands of the assessee. It is further submitted that even in past, the Auditors must have raised an issue on the rationality of allocation of 75% amount of employees cost and other expense to any project without considering the size and work under the project. The Auditors failed to appreciate that the assessee had started de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roject. 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 :- "The Accounting Standards-AS 10 Para 93 of Accounting Standard 10, Accounting for Fixed Assets issued by the Institute of Chartered Accountants of India deal with the subject matter as under: "Administration and other general overhead expenses are usually excluded from the cost of fixed assets because they do not relate t a specific fixed asset. However, in some circumstances, such expenses as are specifically attributable to construction of a project or to the acquisition of a fixed asset or bringing it to its working condition, may be included as part of the cost of the construction project or as a part of the cost of the fixed asset." Thus, the assessee was following the Accounting standard AS 10 while capitalizing 75% of expenses specifically attributable to the construction of the project and when no such expenses were specifically attribu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere 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 impose his decision to transfer 75% of these expenses to a capital assets contrary to the accounting standard AS 10 and GAAP. It is the brain child of Ld. AO that the assessee by considering the aforesaid expenses as revenue expenses tried to avoid the payment of tax. Before reaching to any such conclusion it is necessary to ascertain whether the aforesaid expenses are capital expenses or revenue expenses in accordance with GAAP. Employee's cost and Other Expenses are whether revenue or capital It is undisputed that the expenses disallowed are pure revenue in nature and by stretch of imagination cannot be considered as capital expenses. When it is established that expenses disallowed are pure revenue expenditure then under what circumstances same can be considered as capital expenditure: (i) When expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "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 any provision that a change is impermissible or barred even when it is warranted by the existing situation. Where, the assessee a Government Company switched over from mercantile system to hybrid system in respect of its liability on account of interest because "it was not realizing interest in time" and the finding of the Tribunal was that the change over adopted "was a legitimate and bona fide need of accounting" and there was no mala fide intention". It was held that the procedure adopted by the assessee could not be said to violate Section 145 of Income Tax Act. The observation of the Ld. AO in para 6.5 to 6.9 of the order has tried to justify the disallowance merely on the ground of change in accounting policy without appreciating the rationality for capitalization of 75% of the employees cost and other expenses whether 75% is commensurate to the pend....