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2019 (1) TMI 197
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....ntire addition of Rs. 11,68,50,670/- made on account of alleged House Property income at accrual basis without appreciating the fact that the payment received by the assessee was termed as compensation by assessee was a misnomer, in fact it was rent receipt for use of premises." 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to delete the entire addition of Rs. 11,68,50,670/- made on account of alleged House Property income at accrual basis without appreciating the fact that the property of the assessee has been exploited commercially for the purpose of earning income, falls under the head house property income and the precondition that the lease rent commences after the approval from MOEF and IMCGM is a different issue and in no way it effects the receipt before the commencement of lease." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to delete the entire addition of Rs. 11,68,50,670/- made on account of alleged House Property income at accrual basis without appreciating the fact that the lessee has deducted the Ta....
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....ing of conditions precedent has been recognized as Fit-Out period and date when conditions precedent are complied with has been treated as Rent Commencement Date. Lease rent would commence from Rent Commencement Date. Rent Commencement Date would begin only on completion of certain conditions precedent elaborated in Table B of the lease agreement. Para 8 of the Original Lease Agreement is reproduced below:- "8.1 The parties hereto agree that both the Lessor and the Lessee undertake to fulfill their respective obligations under the specified conditions Precedent and the stipulated time frame for the obligations of the Lessor so as to commence the Lease rent from the Rent Commencement date as set out in Annexure 3 hereto as per schedule and provisions therein time being the essence or as may be mutually extended. The period referred to herein as the said Fit-Out Period shall start from the date of execution hereof and shall end one day prior to 1st October 2011 OR on the date of fulfillment of the conditions in Table B of the said conditions precedent herein, in so far as the fulfillment of the conditions precedent relate to/are incumbent on the lessor, whi....
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.... 6 of the Supplementary Lease Agreement that in case the assessee fails to procure the MOEF approval and OC by 31.12.2002, lessee will have the absolute right to terminate this supplemental agreement and the entire aggregate advance paid by the lessee shall become forthwith due and refundable by the lessor to the lessee. Para 6 of the Supplemental Lease Agreement has been reproduced below: "Without prejudice to the rights of the parties hereto under the terms of the said Agreements, it is specifically agreed between the parties hereto that in the event that on 31st December 2012, the Lessor has failed to procure the said MOEF approval, and / or has failed to procure the said OC in accordance with provisions of clause 4.3 above, except if the delay is caused on account of any failure on the part of the lessee to comply with its obligations in condition (Hi) of table A of the conditions precedent annexed hereto, then the lessee will have the absolute right to terminate this supplemental agreement and the said agreements together by giving a 3 month's written notice. Upon such termination the entire said aggregate advance paid by the lessee under the supplemental agreemen....
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....received any rent from them as they have not occupied the premises for want of Coastal Regional Zone certificate and Occupancy certification from Municipal Corporation of Greater Mumbai. Since conditions precedent have not met with consequently no compensation/rent accrued/became due, to the assessee, therefore, I am of the view that the addition made of Rs. 11,68,50,670/- at accrual basis by assessing the amount as House Property income is not found to be in order and therefore, I direct the AO to delete the addition. These grounds of appeal are allowed. 7. Against the above order of CIT(A), Revenue is in further appeal before us. 8. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. From the record we found that the assessee had entered into a lease agreement dated 18.02.2011, which was subsequently amended vide supplementary agreement dated 16.01.2012 by which the company had given on lease its property i.e land along with building struc....
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....pplementary lease agreement that this fresh agreement will be supplemental to the original proposed lease agreement and wherever there is any contradiction or conflict between the original lease agreement and supplementary lease agreement, then terms and conditions mentioned in the supplementary lease agreement will prevail over the terms and conditions mentioned in the Original Lease Agreement (to that extent original lease agreement shall stand superseded /modified) 10. It is clear from the lease agreement that the proposed lessee was for the purpose of starting a Hotel at the impugned property. The situation of the property was near sea beach / coast and location of the property was the prime reason for converting the impugned property into a Hotel. However, for carrying out this business prior approvals from Ministry of Environment and Forests (MOEF) and Occupancy Certificate (OC) from MCGM were necessary. These permissions were to form the basis of Proposed Lease Agreement for this property. The lessee in this Proposed Lease Agreement made these permissions/ approval [both in Original as well as Supplementary Lease Agreement] as "conditions precedent". As per our considered vi....
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....tions relating to/incumbent on the Lessor Sr. No. Conditions Compliance Period (vii) Lessor shall procure approval from the prescribed Authority fies in accordance with the approved plans in pursuance of the Government Notifications dated 7th January, 2011 with regards to the Coastal Regional Zone clearance. On or prior to 30th June, 2011 or before another later date to be mutually decided between the parties in writing, but definitely prior to the issue of the Occupation Certificate by the said MCGM for the said defined in clauses 4.3 of this supplemental Agreement). (viii) Lessor shall procure the revised Occupation certificate from MCGM in respect of the Building as per the said Approved Plans. Within 60 days of receipt of the said written intimation / said revised written intimation / said MOEF compliance Written intimation, whichever is later. 14. Thus, basically Conditions Precedent remains same in both the agreements. 15. We have also observe that Clause-9 of the original agreement both the parties mutually agree with the payment of said lease rent by lessee commence forthwith upon the expiry of said Fit-out period. Furthermore, in the Supple....
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....eement (proposed) and shall end a day prior to 1st October, 2011 (extended to 30th June 2012 by Supplementary Lease Agreement ) or on the date of fulfillment of conditions in Table B of the said conditions precedent, whichever is later. 19. We also observe that as per para 4.2 of the Supplementary Lease Agreement the lessor has agreed to procure the approval of Ministry of Environment and Forest (MOEF) on or prior to 30.06.2012 or before another later date to be mutually decided between the parties, but definitely prior to the issue of OC by the Municipal Corporation of Greater Mumbai (MCGM). Thus, proposed lease agreement (Original Lease Agreement as well as Supplementary Lease Agreement) was dependent upon compliance of these conditions precedent by the lessor i.e. the lessor is required to bring approval from MOEF and later OC from MCGM. 20. We also observe that as per the supplementary lease agreement, since the approval from MOEF got '"delayed, it was agreed between the proposed lessor and the lessee that some advance would be paid to the lessor in the form of compensation or advance or revised advance. Para 5 of Supplementary Lease Agreement reads as under: ....
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....t commencement date. It is clear that since rent commencement date has not commenced, no compensation (term used for rent) becomes payable, during A. Y.2013-14. The assumption of the AO that lessor got right on accrual basis to get compensation was incorrect. The lessee had merely agreed to pay some advance i.e. @ Rs. 4.20 crores each quarter, pending obtaining approval from MOEF and later OC from MCGM by the lessor. Furthermore, both the proposed lessor and the lessee agreed that advance at the rate of Rs. 4.20 crores per quarter would be paid from October 2011 onwards. It is repeatedly made clear that this advance was subject to clause 5.3 and para 6 of the proposed Supplementary Lease Agreement. The relevant clauses/ paras subject to which payment of advance was agreed upon, are reproduced below: Para 5.3 It is further specifically agreed between the parties hereto that in case the Lessor is unable to procure the said MOEF Approval as provided in condition (vii) of the Table B of the said Conditions Precedent being Annexure "1" hereto then the Lessee shall be entitled not to make, on demand or at the request by the aforesaid to the Lessor until the Lessor is ab....
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....r to the lessee, without any set off claims, counter claims, adjustments, of any nature whatsoever. The lessor shall use its best endeavours to claim refund of the taxes (paid by the lessee to the lessor pursuant to this supplemental agreement) from the applicable government authorities as per applicable provisions of law and upon receipt of such tax refund, forthwith refund such refunded tax amounts to the lessee. It is agreed by the Parties hereto that the Lessee will thereafter not be liable to further pay the said Advancethe said Revised Advances or any further payments as mentioned in clause 5.6 above or the said Compensation. Further it is clarified that upon such termination by the Lessee the consequences of termination under this Agreement and the said Agreements shall specifically follow as per the provisions thereof. 23. It is apparent from para 6 of Supplementary Lease Agreement that in case lessor is unable to procure the approval from MOEF and procuring the OC then the lessor shall be liable to refund the entire aggregate advance paid by the proposed lesseee. If amount is to be refunded to the lessee, then it is only an advance. 24. Clause 5.4 of the Supplementar....
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....the lease rent or amenity charges, (clause 5.4. of Supplementary Lease Agreement) f) Only upon procurement of approval from MOEF and OC from MCGM the compensation shall be treated and appropriated by the lessor as compensation. (clause 5.6. of Supplementary Lease Agreement). Without obtaining the approval from MOEF and OC from MCGM the amount paid as compensation / advance / revised advance/aggregate advance is merely an advance and cannot be treated as compensation for occupying the property for carrying out structural changes (clause 4.6., 5.1. and 5.6. of Supplementary Lcaso Agreement). g) Conditions precedent have to be met with otherwise whatever advance is given, it is refundable to the lessee. [Para 6 of Supplementary Lease Agreement]. 26. It is also relevant to mention here that proposed lessee had treated the amount of Rs. 2.10 crores given to the proposed lessor during the impugned period as "advance" and that AO during last year in scrutiny assessment accepted the claim of the assessee that the amount received was only an "advance" and did not form taxable income. 27. The AO also did not consider the fact that only advance of Rs. 2.10 crores has b....