Tc/3/2004 Of Commr. Of Income Tax v. Mangal Tirth Estates Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 29.11.2007 Coram The Honourable Mr.JUSTICE K.RAVIRAJA PANDIANandThe Honourable Mrs.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) Nos.3, 626 and 904 of 2004and 2432 of 2006 Commissioner of Income Tax - III,Chennai... Appellant in all appeals Mangal Tirth Estates Ltd.,769 Mount Road,Chennai – 600 002... Respondent in all appeals APPEAL under Section 260A of the Income Tax Act against the orderdated 12.6.2003 made in I.T.A.No.2037/Mds/94 on the file of theIncome Tax Appellate Tribunal Madras 'C' Bench for the assessmentyear 1992-93. APPEAL under Section 260A of the Income Tax Act against the orderdated 18.02.2004 made in I.T.A.No.28/Mds/97 on the file of the IncomeTax Appellate Tribunal Madras 'A' Bench for the assessment year 1993-94. APPEAL under Section 260A of the Income Tax Act against the orderdated 03.06.2004 made in I.T.A.No.1989/Mds/97 on the file of theIncome Tax Appellate Tribunal Madras 'C' Bench for the assessmentyear 1994-95. APPEAL under Section 260A of the Income Tax Act against the orderdated 17.02.2006 made in I.T.A.No.44/Mds/2002 on the file of theIncome Tax Appellate Tribunal Madras 'A' Bench for the assessmentyear 1996-97. https://hcservices.ecourts.gov.in/hcservices/ TC.[A] No.3/2004: against the I.T.Appeal No.17/94-95 dated 29.7.94 on the file ofthe Commissioner of Income Tax [Appeals] I Madras against the orderdated 2.3.1994 in GI/P.A.No.31.084 CO.0339/92-93 on the file of theAsst. Commissioner of Income Tax, Central Circle II[4], Madras 34. TC[A] No.626/2004: as against ITAWT/GT/Appeal No.117/96-97, dated 9.10.96 on thefile of the Commissioner of Income Tax [Appeals] I, Madras for theassessment of the year 93-94 as against Order dated 28.3.96 inPAN/GIR.No.31084-CQ-03339 on the file of the Assistant Commissionerof Income Tax, Central Circle II[4] Madras for the assessment year93-94. TC[A] No.904/2004as against the Order dated 16.7.97 in Appeal NO.112/97-98 on thefile of the Commissioner of Income Tax[appeal] I, Chennai against theorder dated 24.03.97 in P.A.No.31.084 CQ 03339 on the file of theAsst. Commissioner of Income Tax, Central Circle III[2], Madras 34for the assessment Year 94-95. TC[A].2432/2006 against the Order dated 9.11.2001 in ITA.No.217/2001-2002 on thefile of the Commissioner of Income Tax [A] V, Chennai against theorder dated 15.3.1999 in GIR.No.3100 M on the file of the JointCommissioner of Income Tax, Spl. Range X, Chennai for the assessmentof the year 96-97. CHITRA VENKATARAMAN,J. These tax case (appeals) are preferred by the Revenue. T.C.(A)No.3 of 2004 relates to the assessment year 1992-93; T.C.(A) No.626of 2004 relates to the assessment year 1993-94; T.C.(A) No.904 of2004 relates to the assessment year 1994-95 and T.C.(A) No.2432 of2006 relates to the assessment year 1996-97. 2. The issues raised in these tax cases are one and the sameexcept the question relating to the deductibility of the entireexpenditure incurred under completed contract method of accounting. https://hcservices.ecourts.gov.in/hcservices/ The following are questions of law raised in these tax case appeals: (T.C.(A)No.3 of 2004):"1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the amenitiescharges paid for central air conditioning of the shopssold should be treated only as an advance and not as atrading receipt? 2. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the receiptfor allotment of car park should be treated as areturnable deposit, when as per the sale deed, theownership of the shop and the car park are inseparable? 3. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the entireexpenditure incurred during the year should be allowed asa deduction, although the assessee is following a"completed contract method" of accounting its income?" 2. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the receiptfor allotment of car park should be treated as areturnable deposit, when as per the sale deed, theownership of the shop and the car park are inseparable? 3. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the entireexpenditure incurred during the year should be allowed asa deduction, although the assessee is following a"completed contract method" of accounting its income?" (T.C.(A)No.626 of 2004): 1. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal is right inlaw in holding that the amenity charges amounting toRs.39,08,725/- was assessable as returned income of theassessee for the assessment year 1993-94? 2. Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal is right in law inholding that the amount of Rs.5,16,336/- charged towardscar parking space was a trading receipt liable to tax forthe assessment year 1993-94? (T.C.(A)No.904 of 2004): 1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the amenitiescharges paid for central air conditioning of the shopsshould be spread over a period of five years?2. Whether in the facts and circumstances of the case,the charges collected for air conditioning the premisesshould be treated as part of the sale price of the shops? (T.C.(A)No.2432 of 2006):1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the amenitiescharges paid for central air conditioning of the shopssold should be treated only as an advance and not as atrading receipt? 2. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the receiptfor allotment of car park should be treated as areturnable deposit, when as per the sale deed, the ownership of the shop and the car park are inseparable?" 3. The assessee herein is a company engaged in the business ofconstruction and sale of multi-storeyed office-cum-shopping complex,by name Spencer Plaza, Chennai. In the returns filed, the assesseeclaimed that as per the development agreement, the assessee has toprovide air conditioning to the shops and to allot car park. Hencethese receipts regarding air-conditioning was a deposit vide Clause 3of the agreement. In any event, considering the obligation toprovide the facility, the entire amount could not be assessed in theyear of receipt. As regards the receipt of the car park, theassessee claimed the same as interest-free refundable deposit. Apartfrom this, the assessee also claimed deduction on advertisement,sales promotion and legal charges, etc. The assessee claimed loss inits return. This was rejected by the assessing authority by makingaddition on account of the amenity charges paid by the buyers for airconditioning the shops and for allotment of car park. The assessingauthority disallowed the claim on the entirety of expenditure onadvertisement, sales promotion and legal charges on the ground thatthe assessee followed the completed contract method of accounting.Hence, he held that only a portion of the expenditure relating to thespace already constructed during the year could be allowed. Thus theamortization done in the accounts over a period of 10 years wasconsidered as against the claim for deduction of the entireexpenditure as per the Income Tax Adjustment Statement. 4. The assessee preferred an appeal before the Commissioner ofIncome Tax (Appeals). The Commissioner of Income Tax (Appeals)dismissed the appeals on all counts, taking the view that theamenities charges paid for the air-conditioning was not an advancebut part of the consideration for the shops and hence, to be treatedas trading receipts. The Commissioner of Income Tax also held thatthe transfer deed clearly stated that the reserved car park space andthe shop are inseparable and hence, the consideration received on thecar park could not be treated as advance. On the question of theclaim for deferred revenue expenditure, the Commissioner of IncomeTax upheld the Assessing Officer's view that the assessee was notentitled to adopt one method of accounting of the Company's accountand modify it for income tax purpose to suit the convenience of theassessee. He held that the assessee could have only a proportion ofthat expenditure allowed in the year under construction on the basisof completed contract method. This resulted in the assesseepreferring a further appeal to be preferred before the Tribunal. TheTribunal held that the amenity charges were not to be treated astrading receipt; so too, the receipts for the allotment of car park.On the issue of deferred revenue expenditure on legal andadvertisement charges, it allowed the claim in full. On the salespromotion charges, it remanded the matter back to the AssessingOfficer to consider the claim to the extent law permitted. It heldthat the accounting policy and the system permitted the assessee to distribute the expenditure over the period of six years. However, asthe expenditure was incurred in one year, the claim had to beentertained. The Tribunal allowed the appeals of the assessee. 5. Aggrieved by this, the Revenue has come on appeal before thisCourt under Section 260(A) of the Income Tax Act, 1961. 6. Learned senior standing counsel appearing for the Revenuepointed out that the shopping complex provided all purchasersamenities such as central air conditioning and hence, the amountreceived in advance for air conditioning is a revenue receipt andthat the same cannot be apportioned for five years. Learned counselsubmitted that this is part of the consideration on sale andconstruction; hence a trading receipt to be taxed in entirety in theyear of receipt and cannot be spread over the period of five years.As regards the deposit receipt on the allotment of car park, shesubmitted that since the allotment of car park is inseparable fromthe purchase of the shop, the same could not be treated as refundabledeposit. As to the expenditure incurred on advertisement, legal andsales promotion, she submitted that the assessee had accounted forthe income on a completed contract basis. Reading the various clausesof the sale agreement on allotment of car park and the air-conditioning facility in the sale agreement and the consistent systemof maintenance, learned counsel submitted that the Tribunalmisdirected itself in allowing the receipts to be spread over aperiod of five years and in granting the deduction on theexpenditure. As to the claim on the deduction on legal expenses,advertisement expenses and sales promotion expenses, she submittedthat consistent with the method of maintenance of accounts, thedeductions on legal expenses, advertisement expenses and salespromotion expenses have to be spread over. Since the receipts andcosts are taken on the basis of the completed contract, the expensesincurred cannot, in entirety, be attributed to the completed contractmethod. 7. Per contra, Mr.Arvind Datar, learned senior counsel appearingfor the assessee pointed out that befitting the nature of the asset,the amount received on the amenities provided for was spread over fora period of five years. In terms of the contract, the assessee hadan obligation to maintain the air conditioning system for a period offive years. He submitted that matching the character of the receiptwith the obligation under the agreement, the Tribunal has rightlyheld that the receipts have to be spread over to a period of fiveyears for the purpose of income tax liability. Referring to thematching principles as held by the Bombay High Court in 260 ITR 102at 107 (COMMISSIONER OF INCOME-TAX Vs. TAPARIA TOOLS LTD.), hesubmitted that the same theory extended to the case of car park too.He emphasised that as far as the allotment of car park space isconcerned, it is a refundable deposit and that whenever the ownersells his shop or the office space, the assessee has an obligation to refund the deposit amount to the owner. He further pointed out thatthe assessee has been following the mercantile system of accountingand that the assessee received the amount from persons purchasing theshops with central air conditioning facility. The assessee has notprovided air-conditioning facility to the shops during the relevantyear and that it provided the same only on 29.9.2002. Consequently,the amount should not be taxed in the year of receipt. The HighCourt held that it should be taxed only on a spread over basis intune with the terms of the agreement to provide the facility for aperiod of five years. He pointed out that the distortions in thematter of arriving at the taxable income need to be avoided and thatthe true profit and loss picture of the company for the purpose ofassessment following the real income theory is possible only byapplying the matching principles concept. In the abovecircumstances, he submitted that there are no merits in the appeal todisturb the order of the Tribunal. 8. Heard the learned counsel on either side and perused therecords. 9. It is seen that the assessee started its constructionactivities on the project during the previous year relevant to theassessment year 1988-89. The assessee follows the completed contractmethod of accounting as recommended by the Institute of CharteredAccountants for the recognition of the Revenue and allocation ofrelated costs for the construction and development project. Theconsistency of following this method is reflected in the noteappended to the annual reports. It is admitted by the Revenue thatthe said method was accepted by them. The first phase ofconstruction was completed by the assessee during the accountingperiod relevant to the assessment year 1992-93. The assessee filedthe return on the basis of the Income Tax Adjustment Statementdeclaring loss. The Income Tax Officer finalised the assessment andcomputed the profits and gains with reference to the method ofaccounting regularly employed by the assessee. The Income Tax Officerrejected the return based on the Income Tax Adjustment Statement,which did not form part of the accounts of the assessee on the viewthat the Assessing Officer was not in any manner bound by theadjustment statement. The Assessing Officer pointed out that theassessee had been systematically following the mercantile system ofmaintenance of accounts in a method whereby, revenue receipts andrelated costs were recognised with respect to completed phase ofconstruction and sold. He pointed out that the assessee recognisedthe revenue only on the completed contract basis and costs andreceipts are accumulated till the completion of the first phase ofthe project. During the previous year relevant to the assessmentyear 1992-93, the assessee had completed the first phase ofconstruction and prepared its Profit and Loss Account. 10. The Income Tax Officer pointed out that the entire shoppingcomplex is a centrally air-conditioned one. As such, all buyers, ingeneral, have the facility without any exception. He pointed out thatthe buyers of the office space did not enter into a separate amenityagreement and the sale consideration was inclusive of any amenitycharges. He held that only in the case of shops sale, the assesseeartificially broke the sale consideration through a separateagreement. In the face of the totallity of the circumstances, theattempt of the assessee to separate this receipt from the agreementand spread over it over a number of years by taking recourse toClause 4 of the agreement was not sustainable. Read with Clause 5,the Assessing Officer held that since the receipt of the amenitycharges was referable to the total consideration for the shop andrelatable to the phase of construction completed during the periodrelevant to the assessment year and sold, the receipt was taxable astrading receipt in the year for which the sale of the respective shopspace took place. The Assessing Officer pointed out that the assesseehad artificially broken the sale consideration to have the amenitycharges payable as a lump sum at the time of sale of the spaceitself. He pointed out that as per the agreement, the plant andmachinery were not transferred and only the use of the facilities wassold. Hence, the cost of the plant and machinery would be capitalexpenditure and the accrued liability for future years on capitalaccount. 11. A perusal of the order of the Commissioner of Income Tax(Appeals) on this aspect shows that the Commissioner of Income Tax(Appeals) rejected the plea on amenity charges and held that therewas no dispute that the entire building was centrally airconditioned. There was no case for differential treatment in respectof amenity charges pertaining to office space and shop space. TheCommissioner of Income Tax (Appeals) upheld the view of the AssessingOfficer that the amenity charges are trading receipts linked to thesale of the space. 12. Considering the admitted fact that the entire building iscentrally air conditioned, the Commissioner of Income Tax (Appeals)held that the assessing authority was justified in holding them astrading receipt linked to the sale of space. Referring to thedecision of the Bombay High Court reported in (1991) 96 CTR 54 (SHREENIRMAL COMMERCIAL LTD. Vs. CIT), the Commissioner of Income TaxAppeals held that the amenity charges are assessable as tradingreceipts. 13. A reading of the Tribunal's order on this issue shows that itaccepted the case of the assessee by stating that the Commissioner ofIncome Tax (Appeals) went wrong in stating that the entire buildingwas centrally air conditioned and that according to the assessee, https://hcservices.ecourts.gov.in/hcservices/ only the commercial space situated in the ground, first and secondfloors were centrally air conditioned and not the office and otherplaces. Consequently, the amenity charges should not have beenassessed as income in the year under consideration. It also pointedout that the assessee had not provided the facility to the shopsduring the relevant assessment year and that the amount was receivedonly from persons, who were willing to purchase the shops and thiswas specifically intended for the commercial space situated in theground, first and second floors. Thus the Tribunal upheld the claimof the assessee. https://hcservices.ecourts.gov.in/hcservices/ only the commercial space situated in the ground, first and secondfloors were centrally air conditioned and not the office and otherplaces. Consequently, the amenity charges should not have beenassessed as income in the year under consideration. It also pointedout that the assessee had not provided the facility to the shopsduring the relevant assessment year and that the amount was receivedonly from persons, who were willing to purchase the shops and thiswas specifically intended for the commercial space situated in theground, first and second floors. Thus the Tribunal upheld the claimof the assessee. 14. On the question of providing car park, the assessingauthority held that the car park space merged with the right over theundivided share of the land. The Revenue pointed out that, as adeveloper, the assessee acquired no right of ownership over the landor the superstructure. The assessee rendered his services as adeveloper and was transferring the use of the space to the buyer.There is no reference in the agreement as to the assignment ofownership of the basement to the assessee. The possibility of theassessee refunding the deposit on the allottee or transferring thesame did not, in any way, stand in the way of the deposits treated asthe receipts in the hands of the assessee. The Income Tax Officerheld that the receipts were relatable only to the space constructedand sold during the year and hence revenue receipts assessable in theyear. Consequently, he took the view that the question of spreadingover did not arise. He pointed out that the receipts were relatableto the space constructed and sold during the year alone wasconsidered for assessment. The assessee made an alternate plea thatin the event of the Assessing Officer holding that the basement didnot belong to the assessee, then the outlay would have to be allowedas a revenue expenditure, being a charge on the profits. This theassessee said was made without prejudice to its claim fordepreciation. The Assessing Officer considered this and pointed outthat all that the assessee had in the car park space was the right tooccupy and use the basement. The space put under the ownership of thevendor or the assessee did not include the basement. He pointed outthat the assessee, on his own volition, had transferred it to hiscapital account and had intended to use it for its own purpose. Theright to use the basement was a capital asset but no depreciation waspermissible on the right to use as distinguished from ownership ofthis portion to have the benefit of depreciation. He also held thatthere is no charge over profit also. 15. As regards the car park, on the first appeal, theCommissioner of Income Tax (Appeals) pointed out that the car parkwas transferred to various buyers after receiving consideration.Referring to Schedule 'C' of the Transfer Deed for sale of undividedshare, the Commissioner of Income Tax (Appeals) noted that what wastransferred to the buyers was an undivided share in the land and theapartment together with the reserved car park space, and hence were 15. As regards the car park, on the first appeal, theCommissioner of Income Tax (Appeals) pointed out that the car parkwas transferred to various buyers after receiving consideration.Referring to Schedule 'C' of the Transfer Deed for sale of undividedshare, the Commissioner of Income Tax (Appeals) noted that what wastransferred to the buyers was an undivided share in the land and theapartment together with the reserved car park space, and hence were inseparable one, that one could not be sold or disposed of withoutthe other. The appellate authority pointed out that the agreementstipulated that so long as the office space was reserved for thebuyer and the same was transferred along with the right to occupy anduse the car park, neither the principal buyer nor the subsequentbuyer would be required to surrender vacant possession of the carpark space to the assessee. The appellate authority pointed out thatthough the deposit was called refundable deposit, considering thenature of the business of the assessee, which is development and saleof property, the consideration received for assigning the rights oncar parking space to various buyers was a trading receipt in thecourse of the appellant's business. He pointed out that the sale ofcar park space was linked to the sale of undivided sale of the land.Hence, he upheld the assessment as trading receipt. On appeal by theassessee, the Tribunal, however, allowed the claim of the assesseetreating it as a refundable amount and hence not taxable as income. 16. On the question of deferred revenue expenditure onadvertisement, sales, promotion and legal charges, it is seen that asthe accounts were maintained on completed contract basis, the samewas amortized over a period of ten years. However, in the Income TaxAdjustment Statement Account, the assessee claimed the entireexpenditure as deduction. The Assessing Officer took the view thatthe benefit of the expenditure would cover even those areas stillunder construction and considering the method of accountingconsistently employed, the Assessing Officer rejected this plea fordeduction in full and held that the same was to be amortized. 17. On the question of deferred revenue expenses, the appellateauthority pointed out that expenses incurred arose under the head'advertisement, sales promotion and legal charges.' The assesseeclaimed entire expenditure as deduction under Section 37 of theIncome Tax Act, 1961. The assessing authority pointed out thatconsidering the completed contract method of working out the profits,only a proportion of the expenditure could be related to the spacealready constructed. The Commissioner of Income Tax (Appeals)rejected the plea for entire expenditure to be allowed as deduction.Taking the view that the assessee had regularlyfollowed the completed contract method of accounting for recognitionof revenue and recognised the allocation of the related cost to theparticular phase of construction and development project, theappellate authority pointed out that the assessing authority rightlycalculated that the profits and loss of business could be properlydeduced with reference to the method of accounting adopted by theassessee. The assessee had been consistent in its method ofaccounting that the receipts and cost were recognised with respect toonly the phase of construction, which has been completed and becomescapable of being so. 18. In the face of the admitted position that the revenue andthe expenditure were relatable to the completed method ofconstruction, the appellate authority confirmed the assessment order.In the appeal before the Tribunal, on the question of deferredrevenue expenditure claimed as deduction, the Tribunal held that theclaim of the assessee as regards the sales promotion expenses spreadover to ten years could not be allowed as deduction in full. TheTribunal directed the Assessing Officer to consider the claim onsales promotion expenses and allow the deduction to the extentpermissible under law. As far as advertisement and legal charges areconcerned, the question of spreading over did not arise and hence tobe allowed in full. 19. Before adverting to the contentions of the parties herein, weneed to advert to the deeds under which advances for centralised air-condition and the deposits for car parking are received and the claimconsidered by the authorities. Learned counsel for the respondentfiled before us copies of sample documents covering sale deed of anundivided portion of the land, builder's agreement, Air conditioningagreement, car park agreement. On every sale of the shop/officespace effected, the purchaser enters into a contract one with theowner viz., Spencer & Co. Ltd. for transfer of undivided share of theland and the second with the developer, the assessee herein forconstruction as per the specification. Apart from this, there is anagreement for providing air-conditioning facility and an agreementfor providing car park facility. 20. A perusal of the sample sale deed dated 31.5.2000 for theshop shows that Spencer and Co. sold undivided share of the land.Apart from conveying the undivided share in the land, the deedcontained various clauses pertaining to the enjoyment of commonamenities, the rights of the developer, allotment of the car park aswell as the rights of the purchaser. Schedule 'C' in the sale deedrelates to the restrictions on the rights of the purchasers. Clause'e' of Schedule 'C' refers to the sale of undivided share in the landand the apartment referred to in Schedule 'B' together with reservedcar park space shall always be considered as inseparable and onecannot be sold and disposed of without the other or the others.Schedule 'D' deals with the rights included in the transfer to thepurchaser. Clause 12 of the agreement shows thatterraces/basement/atriums/ unreserved car park space shall alwaysremain under the control, ownership and use of the developer or theirnominees. Schedule 'E' relates to instances of expenses to be paidby the purchaser. These expenses are stated to be only "instances"without prejudice to the generality of the term "expenses and out-goings". The instances stated referred to the cost of maintenanceand upkeep of all common area including repairs and replacement tothe structural, sanitary, electrical, electronic or mechanicalsystems of the buildings. The Schedule also states that for these purposes, the purchaser has to enter into maintenance agreements withthe agency specified by the developer. The deed also states that thedeveloper may, at his option, require the purchaser to deposit withthe specified agency a Security deposit of such sums as would yielda return equivalent to the purchaser's obligations under items (b) &(c) of Schedule 'E'. It further stipulates that in the event of theyield on the amount of the deposit not being adequate to cover suchcharges, the purchaser shall pay the agency such excess amount uponbeing advised by the agency. On transfer of the apartment, thepurchaser is entitled either to transfer the security depositstanding to their credit to the transferee or to refund the depositsstanding to their credit subject to the condition that the transfereeenters into a fresh maintenance agreement with the company and paysuch deposits as may be notified by the company. 21. A perusal of the copy of a typical Builder's agreement filedshow that the builder agreed to get the conveyance of undivided sharefrom Spencer & Co. Ltd., on condition that the proposed owner wouldengage the assessee to build an apartment for shop/showroom/officespace and that the builder's agreement is subject to diverse otherconditions contained in the sale deed to be executed. Clause 21specifically refers that the proposed owner shall enter into suchagreements for maintenance of Spencer Plaza and its appurtenances asstipulated by the builder covering upkeep of all common areas, allkinds of repairs, maintenance of elevators, air-conditioning system,standby generators, periodical colour wash of all common areas etc. 22. It is seen that in respect of sale of office space, theassessee entered into two contracts, one for the transfer of anundivided share and the second for construction as per thespecification. In respect of office space, the considerationreceived is inclusive of the provision of amenities and they aretreated as part of the revenue from the property development. Asregards the sale of shop space, the assessee entered into three suchagreements. 23. A sample of the air-conditioning agreement between thebuilder and purchaser shows that the builder shall install thenecessary Central Air-conditioning Plant and accessories at theircost to enable them to extend the Air-condition facilities. 24. The agreement entered into between the purchaser and theassessee herein reveals that as per clause (1), the builder is topurchase and install necessary central air-conditioning plant andequipments and other accessories at their own cost in order to enablethem to extend the central air-conditioning facility tothe said apartment. The charges are fixed at Rs.250/- per sq.ft. ofsuper built up area as deposit to the builder (Clause 3). As perClause 4, the builder is authorised to adjust 20% of the depositannually towards the central air-conditioning amenities to be provided from the date of installation of the plant for five years orappropriation of entire deposit or such percentage as may be requiredto be adjusted. Even after the deposit is completely adjusted, theassessee has to provide the same facility to the owner at noadditional capital cost. Under Clause 4, it is stipulated that thereplacement cost or repairs and maintenance are to be borne by theowners of the property. Clause 6 stipulates that the assessee has toenter into a maintenance agreement with the Plaza Maintenance andService Ltd., for maintenance of the equipment. Clause 2 dealingwith the ownership of the plant on the builder states that the sameis subject to Clause 8. Clause 8 states that if the owners of notless than 75% of the total shopping and office area desire that air-conditioning plant and service should be operated and maintained byany person other than the builder, the builder is to forthwithtransfer the ownership and control to the person nominated by suchowners without any consideration. 25. The sum and substance of this agreement is that the plant isinstalled by the builder at its cost to extend the facility to theowner. The ownership of the plant, although is stated to rest on theassessee, yet it is subject to Clause 8. This only shows that theownership of the plant and equipment rest with the assessee only onpaper and that the effective ownership rest only with the apartmentowner. This is inferred further by Clause 5 which states that evenafter the expiry of five years, adjusting the amount, the buildershall continue to provide the facility at no cost. In the face of theclauses and Schedule 'E' of the Sale deed executed by the owner infavour of the purchaser of the shop, it is clear that the status ofthe assessee is no more than that of a service provider and inreality with no ownership over the plant and machinery. The thrustof the agreement is that it casts an obligation to provide the sameas per the terms of the sale agreement. Through a separateagreement, the cost of providing for the machinery is separatelystated to claim the adjustment over a period of five years. Thecharges collected are the rate per square foot. In the background ofthe various terms of the agreements, the view of the Tribunal cannotbe upheld. We reject the plea of the assessee for a spread over onthe receipts relating to the amenities provided. The contractcontemplates that the facility on air-conditioning is not somethingexclusively given to the shops alone. 26. As already seen, the assessee is in the business ofconstruction and sale of built-up areas. Read in the context of thesale agreement and the one with the developer, the execution of aseparate agreement on air-conditioning facility appears to be nothingbut a device to suit the convenience of the assessee. Admittedly,the entire office-cum-shopping complex is a centrally air-conditionedone. The purchasers, without any exception, take this facility andthere is no option to stay out of this common facility. Although theconstruction might have been split into more than one contract, as may be seen from the model agreement, what has been spoken to underthe agreement is a part of the entire transaction of sale. Read inthe background of Clause 8 of the air-conditioning agreement that thetransfer would be without any consideration and the terms of the saleagreement on the rights of the purchaser to common facilities, itstands to reason that what has been collected in the name of chargesfor the facility extended is, in reality, recouping of the chargesfor the installation of the plant. As rightly pointed out by theAssessing Officer and confirmed by the Commissioner of Income Tax(Appeals) in the case of sale of the office space, the saleconsideration received is inclusive of the provision for amenitiesand are treated as part and parcel of the property development. Assuch, going by the character of the receipt and having regard to thecompleted contract method to arrive at the Profit and Loss Account,the question of spreading over to five years in terms of theagreement providing air-conditioning facility for five years does notmerit any favourable consideration from any angle. We do not agreewith the reasoning of the Tribunal and the submission by theassessee. We approve of the view of the Income Tax Officer to holdthat the sum received is a revenue receipt and is relatable to thephase of the completed contract during the period relevant to theassessment year and hence not entitled to the spread over of thisreceipt. The receipt is part of the sale consideration. Hence, goingby the various terms of the agreement, we have no hesitation inaccepting the submission of the learned counsel for the Revenue toassess the trading receipt in the year of receipt. 27. On the question of car park, under the terms of the saleagreement, the purchaser is allotted a car park area of an extentcommensurate with the undivided share given. This is a reserved carpark exclusively for the owners. It is stated that in considerationof the purchaser acquiring an undivided share in the land for thepurpose of construction of a shop through the assessee/developer, theappellant/assessee was willing to allot the car parking space. Thecar parking space shall be utilised only for keeping the vehicles andsubject to the condition referred in the maintenance of the Plaza.As rightly pointed out by the learned counsel for the Revenue, underthe agreement, as per Schedule 'C', transfer of the reserved car parkspace is inseparable with the transfer of undivided share. Clause(e) to Schedule C of the sale deed, touches on the rights of theowner as to the car park:"(e)to sell or dispose of the undivided share ofthe land conveyed herein only along with theApartment referred to in the Schedule "B" heretoand the reserved car park space if any. Theundivided share in the land and the apartmentreferred to in the Schedule together with thereserved car park space shall always be consideredas inseparable and one cannot be sold or disposedof without the other or others. " 28. Clause 12 of the sale deed touches on what is given to thedeveloper. This reads as follows: "The terraces/basement/atriums/unreserved car parkspace of the buildings in spencer plaza shall alwaysremain under the control, ownership and use of thedeveloper or their nominees. The developer or theirnominees shall be exclusively entitled to any income thatmay be derived from the same. The purchaser shall haveno right to object to such use of theterraces/basement/atriums/unreserved car park space onany grounds whatsoever. The use of unreserved car parkspace shall be regulated by the developer or theirnominees. The purchaser further agree not to object tothe use of common areas, amenities and lifts by thedeveloper or its nominee/s for use of terraces/basement/atriums/unreserved car park." 29. A reading of the model car park agreement shows that ownersare to deposit a sum of Rs.35,000/- interest free and that the ownersare liable to pay municipal tax and other public charges in respectof car park. Learned counsel appearing for the assesee pointed outthat where the owner had surrendered the car park space so purchased,there is a reversal entry in the accounts resulting in the refund ofthe amount deposited. 30. Whatever might have been the reason which prompted theassessee to go for an agreement with the purchaser to deposit acertain sum with the assessee, contrary to the contention of theassessee and read in the context of the sale agreement, subject towhich alone the car park agreement is entered into, the fact remainsthat the allotment of car park is a part and parcel of an agreementof the sale. The builder's agreement is subject to the diverse otherconditions of sale. The utilisation of the car park is part of thepurchaser's rights contemplated under the sale agreement. The onlyright that the builder has in the car park is as per Clause 12 whichis an unreserved car park. Hence, the nature of the receipt forallotment of car park is car park agreement itself derives itsstrength only for the sale agreement and has no independentexistence. It is a part of the sale consideration and a tradingreceipt. There are no reasons to delineate the same from the overallcost charged from the purchaser. The right of the assessee isrelated only to the extent of an unreserved car park to collectcharges on the reserved car park. In the face of the sale agreement,the said sum is liable to be assessed at the hands of the assessee asa trading receipt without any spreading over. Consequently, theorder of the Tribunal on this score cannot be accepted. 31. Learned senior counsel submitted that considering the standof the Revenue in computing the profit and loss of the business, the https://hcservices.ecourts.gov.in/hcservices/ Revenue is bound to apply the matching principle to consider theclaim of the expenditure incurred to be granted in full withoutamortization. It may be pointed out that the assessee has beenconsistently following the completed contract theory for the purposeof arriving at its real income. Learned counsel appearing for theRevenue filed a copy of the Accounting Standards issued by theInstitute of Chartered Accountants on accounting for constructioncontract. This provides for costs to be accumulated in a constructioncontract to work out the profit and loss of the business. Therevenue of the assessee is worked out on the basis of thecompletion of the part phase of construction. Admittedly, theassessee completed the first phase of construction during thisperiod. The Assessing Officer held that the method of accountingadopted by the assessee was such that the profits and gains of theassessee could be properly deduced by applying the completed contractmethod. It is not denied by the assessee that the adjustmentstatement on the basis of which the claim is made by the assessee forthe spread over, did not form part of the accounts. Hence, heignored the statement to go by the regular method by which theassessee maintained the accounts, namely, the mercantile accounting,and worked out the income as referable to the completed phase ofconstruction. The assessment order referred to the notes under theNotes on accounts of the relevant period (1992-93) as follows:"Income from property development is recognised inthe year in which the building space is completedand is ready for occupation by the buyers;(i) in respect of building space for whichsale deed has been executed, irrespective ofthe receipt of entire consideration. (ii)In respect of others, on receipt of fullconsideration. " 32. It is seen from the order of the Assessing Officer that theassessee amortized the expenses on advertisement, sales promotionand legal charges over a period of ten years in its books ofaccounts, so that one-tenth of the expenses was debited to theprofits of the year and the balance carried forward for set off inthe subsequent year. The claim for deduction against the receipt ofthe current year was made only on the basis of the Income TaxAdjustment Statement. The Assessing Officer held, since the benefitof the expenditure had relevance even in respect of the space stillunder construction, only a proportion was taken as relatable to theyear under consideration. 33. Learned senior counsel for the assessee insisted on theapplication of the matching principle and on the relevancy of thesame in working out the real income of the assessee, lest distortionwould fall on the computation. It may be seen, no materials wereplaced either before the authorities or before this Court tosubstantiate the contention that in adopting the completed contract method, the computation had resulted in an unrealistic picture on theright profit and loss. 34. The finding of the authorities below, particularly the IncomeTax Officer, clearly shows that the assessee maintained the systemof accounts on mercantile basis, adopting the completed contractmethod. 33. Learned senior counsel for the assessee insisted on theapplication of the matching principle and on the relevancy of thesame in working out the real income of the assessee, lest distortionwould fall on the computation. It may be seen, no materials wereplaced either before the authorities or before this Court tosubstantiate the contention that in adopting the completed contract method, the computation had resulted in an unrealistic picture on theright profit and loss. 34. The finding of the authorities below, particularly the IncomeTax Officer, clearly shows that the assessee maintained the systemof accounts on mercantile basis, adopting the completed contractmethod. 35. In this connection, while considering the claim of spreadover of business expenditure, the decision of the Supreme Courtreported in 225 ITR 802 (MADRAS INDUSTRIAL INVESTMENT CORPORATIONLTD. Vs. C.I.T.) needs to be noted. The decision reported in 225 ITR802 (MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. Vs. C.I.T.) isrelated to a case of a company issuing debentures at a discount.Taking note of the period of redemption of 12 years, the discount wasdivided over a period o