TaxTMI 
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2018 (3) TMI 1646
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.... 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 remuneration and benefits, administrative and general overhea....
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....t 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. 8. That the Ld. CIT(A) has also erred in law in treating the land premium receipts as advance rent....
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.... 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 circumstances of the case the amount of land premium earned from areas of Rs. 4,13,878/- as included in the figure of total income be treated as a capital receipt and requires to be excluded from the total income of the assessee being not liable to tax. 3] That on the facts and in the circumstances of the case the amount of interest on deposit of Rs. 91,84,362/- as received by the assessee in the capacity of the nodal agencies of the state government, included in the figure of total inc....
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....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 it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. Reliance can be placed on Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC)." 19. In view of the above discussion, it is very clear that there is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case. Therefore, there is no infirmity in the order of the Tribunal. 7.2] That Ho....
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....takable 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 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 (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 doctri....
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....nd 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. 1 Land premium received on allotment of Industrial land treated as liability and spread over 99 years of lease for financial year 2001-02 and accordingly accounted for 7.1 2 The ownership of land leased out is belonging to the M.P State Govt and the assessee is to develop land and leased the land as per the instruction of the State Government 7.9 3 In view of the Specific Instruction of the State Govt, it is apparent that the lease rent and the Land Premium received by the assessee especially in respect of the land belonged to the State Govt is remained with it and is not to be parted with the State Govt. However, the sameneeds to be utilized for the development of the Plots. 7.10 4....
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....lopment 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 of Madhya Pradesh through DIC. It is also noted that the MP government, for development of industries and infrastructures acquire land and makes payment of compensation through collector of the particular area. This land is subsequently given at the disposal of audhogikvikaskendras and other agencies engaged in the process of development of industries, housing and infrastructure. It is observed that the land under consideration has been given to the assessee by the 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 audhogikkendras for maintenance and further development. The assessee is not a mere custodian. It becomes a lawful owner of the land w....
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....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 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 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 undertaking of any person, firm or corporation when it may be necessary for the purpose of protecting the interests of the company, or for the pur....
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....es 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 dependent on the rate of the rent charged. However, the same varied with the quality of land leased out for the purpose of agriculture. But in the instant case, as brought out above, the land premium is nothing but advance rent fully dependent on the rate of rent. Further in that case, the salami was defined as lump sum nonrecurring receipt of money paid by tenant to land lord before 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 sin....
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.... 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 its books of account as expenses but the same was borne by the State Government. The amount of development expenses were also not charged to the Profit & Loss Account. Hence, following the principle of Matching concept the gross receipt on account of Land Premium and Lease rent is not taxable as income. 3 The different clauses of Memorandum of Association is not a conclusive until the same act actually done by the assessee company. In the present appeal it was claimed that land was not purchased by the assessee in its name and therefore not liable to taxed as income in its own name 4 In any case if it was accepted that the amount of land premium pertains to the assessee company, in that case the said amount of land premium was a capital receipts and not liable to tax as a revenue receipts. 17. The Ld. Counsel for the assessee during the....
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.... 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 assessee in consideration of payment of (i) Land Premium, (ii) advance rent, (iii) security deposit equivalent to one year rent, (iv) other annual charges for maintenance. The amount of land premium collected by the assessee are credited in the account of State Government as capital receipt and the same are appropriated as per the standing orders of the State Government for further development. The Income Tax Authorities have treated the land premium as revenue receipt 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. Ownership: State Govt. v/s. assessee The State Government had acquired the land under the provisions o....
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.... 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 any, attaching thereto; (d) the rent or land revenue, if any, payable by such persons; and (e) such other particulars as may be prescribed. (2) The record of rights mentioned in sub section (1) shall be prepared during a revenue survey or whenever the State Government my by notification so direct. Sec. 109. Acquisition of rights to be reported: (1) Any person lawfully acquiring any right or interest in land shall report orally or in writing his acquisition of such right to the patwari within six months from the date of such acquisition, and partwari shall at once give a written acknowledgement for such report to the person making it in the prescribed form. Sec. 110. Mutation of acquisition of right in Field Book and other relevant land records: (1) The Patwari shall enter into a register prescribed for the purpose every acquisition of right reported to him under section 109 or which comes to his notice from intimation from Gram Panchayat or any other sources. That, after acquisition of lands for the purpose of....
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....ght to dispose of any of the assets without prior consent of the State Government. Therefore, the assessee is under obligation to follow the directions of the State Government in respect of the land. (v) The lands have not been recorded in the books of A/c of the assessee/MPAKVN as Assets as the assessee is not the owner and have no right over the title of the land. (vi) Lease Premium collected by the assessee/MPAKVN from the industrial unit have been shown in the books of A/c as liability towards the State Government under the head "Current Liabilities & Provisions" in the Balance Sheet. (vii) The assessee/MPAKVN are regularly incurring cost and expenses towards infrastructure development of the industrial area and its maintenance on behalf of State Government. Therefore owns such monies from the State Government. (viii) The State Government instead of reimbursing the cost and expenses of infrastructure development incurred by assessee/MPAKVN allowed the assessee to adjust such cost and expenses from the amount payable to the State Government towards lease premium as per order dated 14.12.1981 and explanation dated 31.03.2107. (ix) The object clause of the Memorandum of ....
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....ernment instead of reimbursing cost and expenses incurred on development of land to assessee allowed the assessee to adjust the same from the amount payable to State Government towards lease premium collected and shown in liability. 2. Para 2.5 continued .... The assessee is not a mere custodian it becomes a lawful owner of land which has legally been transferred through Government of M.P. It is denied that the assessee is the lawful owner. It appears that Ld. AO/CIT(A) did not verify the facts properly. The lands of the industrial area have never been transferred or vested by the State Government in the assessee in any manner. There is no order or conveyance deed to give effect transfer or vesting of the land to the assessee. It is submitted that the land still belongs to and owned by the State Government, which is evident from the fact that revenue record contains the name of the State Government as an owner and also the lease deeds are executed in the name of Governor in compliance of Article 154 of the Constitution of India. Thus this observation of Learned CIT is without any substance and evidence. 3. Para 2.5 continued .... I have also gone through the Memorandum of Asso....
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....s income. Thus this observation of Ld. CIT is incorrect. 7. Para 2.5 continued .... Therefore in my considered view the income arising as a land premium which has duly been accounted for by the assessee is necessarily to be taxed in the hand of the assessee. At the outset it is denied that the assessee has ever considered, the lease premium as its income. The observation of CIT is contrary to the facts recorded by Ld. AO and himself that the lease premium has been credited to the account of State Government as liability. Therefore, the order is not sustainable in the eyes of law. 8. Para 2.6 The second limb of argument advanced by the assessee is that the land premium is a capital receipt.. It is settled legal position that the lease premium in addition to lease rent received for parting away the rights and possession in the party before commencement of the lease is Capital Receipt. The lease rent is payment is for enjoyment of the right uninterruptedly. Various case laws in this regard have been discussed later on. 9 Para 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 dec....
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.... In the present case the assessee is collecting one time lease premium for parting away the right and possession, advance rent for one year, security deposit in the form of one year advance rent and annual rent for continuation lease. Therefore, lease premium cannot be treated as advance rent in given case. 11. Para 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. ....... The land premium is nothing but advance rent fully dependent on the rate of rent. Further in that case the salami was defined as lump sum not recurring receipt of money paid by the tenant to landlord before making a settlement of holding. Whereas in the case under reference, where leasing of plot is for 99 years and there is no provision for conditions in agreement to suggest the modality of transfer and renewables after 99 years. The contentions of the CIT(A) are misconceived one, on one hand he has stated that "the land premium is nothing but advance rent fully dependent on the rate of rent. Further in that case the salami was defined as lump sum not recurring receipt of money paid by th....
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.... by referring to the judgment of Madhya Pradesh High Court in the case of Project Automobiles 167 ITR 781 wherein it was held that premium payable by the assessee to secure a permanent lease cannot be considered as advance rent and the same as to be held as capital expenditure. Further reliance was placed on the judgment of AP High Court in the case of Aditya Minerals Pvt Ltd. 167 ITR 774 which was relied upon by the ld. CIT(A) in AY 92-93. The reliance was also placed on the Supreme Court judgment in the case of Panbari Tea Co Ltd. 57 ITR 422. The ITAT Pune bench after considering the arguments of the revenue and various judgment of the Supreme Court and other High Courts has held: In our opinion, it is the settled legal proposition that where lump-sum money is paid before acquiring leasehold rights then such payment has to be considered as capital expenditure. It is clear beyond doubt that if any consideration is paid for acquiring leasehold rights then such payment would be in the nature of capital expenditure. So, if the interest of the lessor is parted with for a price then the price paid as to be considered as premium/salami which is neither assessable as income in the ....
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.... the assessee to prospect for bauxite in some cases for 6 months and in others for a year or two and observed : "The definition of salami was a general one, in that it was a consideration paid by a tenant for being let into possession for the purpose of creating a new tenancy." 7. Applying that test this Court held in that case that under the said licenses there was a grant of a right to a portion of the capital of the licensor in the shape of a general right to the capital asset. (iii) The Jurisdictional High Court of Madhya Pradesh in case of CIT Versus Project Automobiles (1987) 167 ITR 781 M.P. has held that the payment of lease premium even in installment does not change the character and it cannot be treated as advance rent. The Court has in unequivocal words has held that the lease premium or Salami in order to obtain the right of an endeavoring nature in the plot in question is capital expenditure for the lessee. Therefore the same would be capital receipt for the lessor. Para 23 of the order reads as under: 23. In view of the foregoing discussion, we are of the opinion that the principles laid down in the cases relied on by learned counsel for the Department are ap....
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....t of mining lease for any period then obviously the cost of acquisition' of the land would include the 'cost of acquisition' of the mining right under the lease. There is a live nexus between the 'cost of acquisition' of the land and the rights granted under the lease. The amount paid by the assessee was not only the cost of acquiring the land but also of acquiring bundle of rights in the said land including the right to grant lease. There is thus 'cost of acquisition' which is attributable to the right of limited enjoyment transferred by the grant of the lease. So far as the apportionment of the cost of acquisition is concerned, it is a question of fact to be determined by the ITO in each case on the basis of evidence. (v) The Supreme Court in case of Maharaja Chintamani Saran Nath Sah Deo Versus CIT Bihar and Orissa (1971) 82 ITR 464 Hon'ble Supreme Court has held that the principle on which the Courts have acted whether a payment described as Salami or Premium is capital or revenue receipt are well settled. Salami or Premium is a single payment made for the acquisition of right of the lessor by the lessee to enjoy the benefits granted by the lea....
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.... 1941 which was only for one year and which was for a different purpose, namely, prospecting could afford a reasonable basis for determining whether the terms of the 1944 lease were fixed in such manner that part of the proceeds of royalty were included in the figure of the salami. The object of a prospecting lease is entirely different and since the period was only one year it is quite reasonable to assume that the royalty was fixed at a higher rate because it was not known how much quantity of mineral would be extracted during that period. The lease of 1944 was for a much longer period i.e. 30 years. When a lessor creates a lease for that period it is legitimate for him to charge more amount by way of salami or premium as he is transferring possession of the demised land for a considerably long period. A lessor may also think that the rate of royalty need not be the same as it was in the case of the prospecting lease and taking an over all business view royalty at a slightly less rate may be charged. The Tribunal's decision based as it was only on a comparison of the terms of the leases of 1941 and 1944 does not appear to take into consideration all these relevant matters. It....
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....venue receipt, the payment being of a non-recurring nature. (vii) A similar question has also been answered by the Calcutta High Court in case of Pramode Chandra Roy Choudhary Versus CIT West Bengal 1962 (46) ITR 1064 that the premium of salami is capital receipt. The Court after considering various judgments of Supreme Court in this regard laid the following principles: (1) Prima facie premium is no income; it is for the taxing authorities to prove that the facts exist which would make the same an income, if they seek to tax it. (2) Where the premium represents payment of rent in advance it is income. But if it represents the whole or part of the price of the land or the sale price of the leasehold interest, it is not income but capital. (3) Salami to be income, should be a periodical monetary return coming in with some of sort of regularity or expected regularity from definite sources. (4) Salami or premium paid at the beginning of a mining lease for a long period ordinarily represents the purchase price of an out and out sale of the property and the sum received is capital and not income, but rent or royalty paid periodically is income. The principle is the same, whe....
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....ng the lease. In view of the absence of any evidence on behalf of the department to show that the rental of Rs. 800 is low and the period of the lease is short and there being no other attending circumstance and in view of assessees proof of another building lease of a contiguous area showing the same state of affairs, we find that the receipt of the said sum of Rs. 20,000 is a capital receipt and not an advance rent. (viii) The Supreme Court in case of Member for the Board of Agriculture Income Versus Sindhu Rani Choudhrani (1957) 32 ITR 0169 has defined the Salami (Premium) as follows: Salami was described by Lord Wright in Kamakshya Narain Singh v. Commissioner of Income-tax, a case of a grant of a mining lease for a period of 999 years in the following word : "The salami has been, rightly in their Lordships opinion, treated as a capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted to them by the lease. That general right may properly be regarded as a capital asset, and the money paid to purchase it may properly be held to be a payment on capital account." The Supreme Court in the said case defined "sa....
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....2.2007 - ITAT Mumbai) [2007] 106 ITD 231(Mum) has considered the same issue in favour of the assessee. The headnote reads as under: Capital or revenue expenditure--Premium or salami paid for acquisition of land in Industrial area for 99 years Not refundable on termination of agreement before 99 years.--Assessee entered into an agreement with Maharashtra Industrial Development Corporation (MIDC) by writ it was given on land lease for 99 years for its purpose as factory/plant. The assessee paid a huge amount as "premium or salary" and rent was fixed at Rs. 1 per annum. The amount paid as premium or salami was non-refundable on termination of lease before 99 years. The AO treated the amount paid as "premium or salami" as capital expenditure. The assessee contended that it was an advance rent and, therefore, deductible as revenue expenditure. Held: The contention of the assessee was not acceptable. The amount paid as premium or salami was not an advance rent and enduring benefit was to be obtained by the assessee for 99 years and as such it was a "premium or salami" and thus to be treated as capital expenditure. In view of above submission, the appeal may kindly be allowed and the ....
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....own under point no. (3) of Schedule "D". (ii) Profit & Loss Account at page (4) shows Income and details of which has been provided in "Schedule - K" at page (14) 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 - L) and Administrative Expenditure (Schedule - M) 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 - D. Thus, evidently, the entire lease premium, lease rent and security deposit collected on behalf of the State Government have been shown in Schedule - D as liability and the expenses incurred on development has been deducted therefrom. Thus, the assessee was acting as "Nodal Agency" of the State Government. [B] ASST YEAR 1991-92 [ FOR THE YEAR ENDED ON 31-03-1991] (i) On page 1 of the Balance Sheet the State Government Account has been shown in the liabilities side ....
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.... which has been provided in "Schedule - 8" at page (12) 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 - 9) and Administrative Expenditure (Schedule - 10) 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 - 6 as per Annexure - 1 on page 18. 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. 3.1] That from the analysis of the Balance sheet as enclosed for the period prior to 2003-04 it is proved beyond doubt that the assessee company act as a nodal agency for and on behalf of the State Government. 3.2] That it is admitted facts ....
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....tion of Maharashtra Ltd Vs ACIT Appeal Nos ITA No 2985/ Mum/2012 dt 08-08-2012 2 CIT and Anr Vs Karnataka Urban Infrastructure Development and Finance Corporation 284 ITR 0582 (Karnataka) 3 Karnataka State Agricultural Produce Processing & Export Corporation Ltd ITA No 1078/Bang/2012 dt 20-12-2013 for the Asst Year 2008-09 4 CIT Vs Delhi State Industrial Development 295 ITR 0406 [Delhi] MATCHING CONCEPT OF ACCOUNTING : 3.7] The assessing officer was also grossly erred in taxing the entire amount as received by the assessee company on account of land premium, lease rent, Transfer Fee and Interest on funds of the State Government as income of the assessee company without following the basic accounting principle of matching concept. Since, cost of land and development expenses have never been charged by the assessee in its books of account as expenses but all such cost have been deducted from the outstanding due of the State Government. Therefore, the Ld. AO has grossly erred in considering the Lease Premium, Lease Rent and other income pursuant to allotment of land to the industries as Income but failed to appreciate that without expenditure how these assets were creat....
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....ight of use was transferred from the land owner to the Industries for 99 years and 30 years as the case may be and the lease rent was payable on annual basis. It is settled position of law that right in land was transferred for longer lease is to be considered as transfer of ownership to the lessee and therefore the amount of land premium as paid for the transfer of right is to be considered as capital receipt in the hand of the assessee company. For this preposition we placed reliance on the following direct decisions: - 1 Member for the Board of Agricultural Income Tax Vs Sindhurani Chaudharani and Ors 32 ITR 0169 [SC] 2 Ukhara Estate Zamindaries (P) Ltd vs CIT 120 ITR 0549 [SC] The assessee also rely upon all other 11 judgments on this subject which have provided in the Synopsis of Judgments during the course of Arguments. 3.10.3] The Lease Deed provided in paper book clearly prove the contentions of the assessee as under: (i) Lease Premium is one time upfront amount received by the assessee on behalf of the State Government for parting away the interest in the property and right to enter in the land, therefore it is capital receipt. (ii) Lease Rent ....
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.... Law declare to be incidental the ordinary functions of Government". 39. To our mind, the entire case of the assessee in the instant case, hinges on clause (2) or clause (3) of Article 289 of the Constitution of India. The basic purport of Article 289(2) is to neutralize clause (1), but with a rider that, if there is any "trade or business", done on behalf of the Government or any operations connected therewith or any property issued or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. To make this clause effective, even for Government / State, conduct of "trade or business" is necessary, which simply means involvement of commercial and profit motive for the vendor. This is in line with the decision of Hon'ble Supreme Court of India in the case of APSRTC (supra), relied upon by the DR, wherein the Hon'ble Supreme Court had observed, "....the facts that the trading activity carried on by the assessee may be covered by article 289 (2) of the Constitution does not really assist the assessee's case. Even if a trading activity falls under clause (2) of article 289 of the Constitution, it can sustain a claim for ....
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....ercial motive attached with it. The only clause left for our consideration then would be clause (3), which shall come into play once clause (2) is disbanded and as soon as it become disbanded, clause (3) come to life, which operates only if, "Parliament may by Law declare to be incidental to the ordinary functions of Government". Here, in the instant case, we have to read "Parliament" as "State Government" because in the instant case, it is the State Government which has authorized the assessee to perform the development projects at Navi Mumbai, Vasai- Virar, Waluj and such other places. 40. We cannot agree with the argument of the DR that there is no document which has drawn out the Agent- Principal relationship, because the very first Resolution dated 18th March, 1970 mention in para no. 2 that ".... which would act as an "agent" of Government for the development of the areas with a view to secure the above objective", and in para no. 3 of this Resolution clearly say, "The subsidiary company will work under the control and supervision of the State Government in the General Administrative Department". In our opinion, the first Resolution itself makes it clear that the assessee i....
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....nt undertaking for the last three years, therefore, even this cannot be called as an afterthought and applying the 'rule of consistency' we hold that the department cannot be allowed to take a distinctive approach in the current year. 44. The revenue authorities were thus, clearly in error, in assessing the business income in the hands of the assessee at Rs. 63,786.58 lacs. We delete this income, as not belonging to the assessee. 45. Ground no. X to XXIV. We have held that there is no business activity of the assessee on its own and the assessee does not hold any assets in its own name, as is evident from the Balance Sheet filed with the revenue authorities, the question of treatment of the same does not arise, besides that all expenses incurred by the assessee whether capital or revenue are on behalf of the State Government of Maharashtra and which are reimbursed to the assessee. In these circumstances, there cannot be any capital expenditure incurred by the assessee on physical and social infrastructure. In that case, all the impugned grounds become infructuous, hence these are dismissed. 46. Ground no. XXV The ground is taken on contingency that in case grounds....
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....e was carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the project could not be fully implemented, is deposited in a bank to earn interest. That interest earned is also again utilised for the implementation of the mega-city scheme which is also permitted under the scheme. Therefore, in computing the total income of the assessee for any previous year the interest accrued on bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of mega-city scheme. 5. Therefore, we do not find any error in the conclusion reached by the Tribunal that there was no income earned by way of interest by the assessee and setting aside the order of AO which is affirmed by the first appellate authority. The finding given by the Tribunal is purely a question of fact. We do not find any substantial question of law involved in this appeal and therefore, this appeal is liable to be dismissed at the stage of admission itself." 21. The Ld. Departmental Representative has reiterated the submissions before us as made in t....
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....sed any land on its own for establishment/promotion of industries, (d) Government allocates and disburses the funds for acquisition of land under consideration which reaches to the assessee through DIG, (e) As per instruction 6/3/81/ 11-B, dated 14.12.1981 issued by Commerce and Industry department of MP government, the government is supposed to make available the land to the assessee. Further during the course of appellate proceedings, the assessee has brought to my notice the instance when the MP government has instructed the assessee to spare an amount of Rs. 10 Crores to be given to MP Trade and facilitation corporation to participate in equity of MPAKVN, Ujjain. Through the above mentioned arguments, the assessee has tried to establish that the land belongs to Madhya Pradesh government and the amount of land premium needs to be considered as liability of the appellant towards the government of Madhya Pradesh. I have considered the submissions of the assessee and noted that the land is provided to the assessee by government of Madhya Pradesh through DIG. It is also noted that the MP government, for development of industries and infrastructure acquires land and makes payment o....
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....nced 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 decisions of Hon'ble Supreme Court which are as under:- (i) Ukhara Estate Zamindaries P. Ltd. Vs. CIT 120 1TR 549 (SC) (ii) Member for the Board of Agricultural Income Tax, Assam Vs. Sindhurani Chaudhurani & Others 32 ITR 169. It is observed that the second 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 the 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 businesses, A reference to objects as specified under B9 to B12 makes it clear that the assessee is in the business with a motive of 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 ....
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....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." 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 cases of Member for the Board of agriculture income 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 case laws to verify the contention of the assessee. In the case of Member of the Board of Agriculture Income Tax, it is seen that the salamis/premia were not at all dependent on the rate of the rent charged. However, the same varied with the quality of land leased out for the purpose of agriculture. But in the instant case, as brought out above, the land premium is nothing but....
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.... appellant 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. 3. Special Audit u/s 142(2) of Income Tax Act 1961on land premium- During the subsequent assessment years i.e.2011- 12,2012-13,2013-14 & 2014-15, the assessing officer had got the special audit conducted section under 142(2A) of Income Tax Act 1961. The copies of special audit reports are placed at page no.79 to 137 of paper book. The special auditor has clearly reported that the Land Premium is the revenue income of the appellant. The said conclusion was drawn by the auditor keeping in account various documents like memorandum of association, lease deeds and various facts and circumstances of the case. The relevant part of notes given by the special auditor in the above mentioned assessment y....
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.... leasing out land to industries for industrial purpose. On this, they collect upfront land premium and other lease charges. 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. 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. Further in the recent judgment in the case of New Mangalore Por....
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....on in lieu of the lease of the land has been properly specified. It has clearly been brought out that land has been leased out for rent or advance rent or land premium. The appellant has also been reflecting the part of land premium in the return of income for the A.Y. 2003-04 to 2008-09 and subsequent. Therefore, there is no question of considering the land premium as capital receipt. Accordingly it is requested that the action of CIT(A) in confirming the order of AO may kindly be upheld on the issue of taxability of land premium. 6. High Court orders in writ petition It is not out of place to mention here that the appellant, in the subsequent year i.e. A.Y. 2014-15, soon after the completion of assessment order and raising the demand on the same issue of land premium had preferred a writ petition in Hon'ble M.P. High Court for stay of the demand. Hon'ble High Court vide it's order dated 13.11.2017 had declined to interfere with the action of assessing officer in perusing the recovery of demand. Rather Hon'ble High Court had opined that the department was justified in issuing demand notice and was also justified in issuing letter dated 04.10.2017 for recovery of 20% of demand ....
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....n of India, the Union Government is authorized to impose any tax to such extent, being as Parliament by law provides in respect of trade or business of any kind carried on by us on behalf of the Government for State, for any operation connected therewith or any property used or occupied for the purpose of its trade or business or any income accruing or arising in connection therewith. However, as per Article 289(3) 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. We have perused the objects of the assessee company. A bare perusal of the same, demonstrates that what the assessee company is doing, is purely a work of businessman/contractor. Therefore, the assessee company cannot take shelter under Article 289(1) or 289(3) of the Constitution of India. Hence, this plea of the assessee company is rejected. Now coming to another plea of the assessee company that whatever is being done is done on behalf of the Government of Madhya Pradesh. In support of this, the Ld. Counsel for the assessee has taken us to various instructions by the Government ....
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....al right may properly be regarded as a capital asset and the money paid to purchase to it may properly be held to payment on capital account. and Hon'ble Madhya Pradesh High Court in the case of Project Automobiles, 167 ITR 781, wherein it was held that premium payable by the assessee to secure a permanent lease cannot be considered as advance rent and 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 and 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....
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.... 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 altogether or in part similar to those of the company." Clause 2 of the agreement of Lease 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 t....
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.... Government. In the ground of Land premium, it was held that the same was received by the assessee company for and on behalf of the State Government. Similarly, 1/99th share of land premium as offered inadvertently also claims to exclude, 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 ....
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....were received by it for and on behalf of the State Government and, therefore, entire amount so received was not liable to be taxed in its hand. Thus, entire material 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 (Gu....
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....ndation (2005) 274 ITR 562 (Guj) 5 CIT v/s. Kerala State Co-Operative Marketing Federation Ltd. (1992) 193 ITR 624 (Ker) 6 Balmukund Acharya Vs DCIT 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/I....
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....duced as 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 evidently that the projec....
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....ea 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 which was continued for many years and as a policy the assessee was allocating ....
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.... 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 the project/fixed assets. Likewise 75% of employee remuneration, administrative expenses and financial expenses have been charged to 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 :- "The Accounting Standards-AS 10 ....
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....tion, 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 impose his decision to transfer 75% of these expenses to a....
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.... 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 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 m....