Tca/439/2018 Of The Commissioner Of Income Tax v. City Lubricants Pvt Ltd

In the High Court of Judicature at Madras The Honourable Mr.Justice T.S.SIVAGNANAMand The Honourable Mrs.Justice PUSHPA SATHYANARAYANA Tax Case Appeal No.439 of 2018 The Commissioner of Income Tax,Chennai....Appellant M/s.City Lubricants Pvt. Ltd.,No.14, Thiruneermalai Road,Chrompet,Chennai – 600 044.PAN: APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 20.12.2017 in ITA No.3250/Mds/2016 onthe file of the Income Tax Appellate Tribunal Chennai 'C' Benchfor the assessment year 2007-08, and against the Appellate orderdated 01.09.2016 made in ITA 203/CIT (A)-1/2015 -16, passed bythe commissioner of Income Tax(Appeals)-1 Chennai, for theAssessment year 2007-2008 and the against the Assessment orderdated 25/03/2015 made in PAN/GIR No.AABCC38254 Passed by theDeputy Commissioner of Income Tax, corporate Circle 1(2)Chennai, for the Assessment year 2007-2008. This appeal by the assessee filed under Section 260A of theIncome Tax Act, 1961 (“the Act” for brevity), is directedagainst the order dated 20.12.2017 in ITA No.3250/Mds/2016 on https://hcservices.ecourts.gov.in/hcservices/ the file of the Income Tax Appellate Tribunal Chennai 'C' Benchfor the assessment year 2007-08. 2.The appeal was admitted by the Hon'ble First Bench byorder dated 17.07.2018 on the following substantial question oflaw: “Whether the learned Tribunal substantiallyerred in law in holding that Rs.9 Crores receivedby the assessee pursuant to a DevelopmentAgreement had not accrued as income and was, therefore, not taxable till the Joint DevelopmentAgreement took off and sale proceeds were receivedby the developer?” 3.The assessee filed their return of income for theassessment year under consideration, AY 2007-08 on 24.09.2008admitting a loss of Rs.4,11,076/-. The return was processedunder Section 143(1) on 26.03.2009. The assessee's case wasselected for scrutiny under Section 147 of the Act, notice underSection 148 dated 19.04.2013 was issued and the reason forreopening was that during the assessment proceedings for AY2010-11, it was found that the assessee entered into adevelopment agreement with L&T Urban Infrastructure Ltd. fordevelopment of its land of 35 acres 44 cents in KanchipuramDistrict and the development agreement was entered into on09.03.2007. As per the various clauses of the developmentagreement, the developer was granted irrevocable licence todevelop the land, vacant possession of the property was handedover to the developer and a power of attorney dated 16.03.2007was also executed in favour of the developer by the assesseeCompany. Since physical possession of the property was givenand an amount of Rs.9 Crores was received by the assessee fromthe developer towards advance during the financial year 2006-07,capital gains is eligible on the transfer of property underconsideration as per provisions of Section 2(47) r/w. Section 45of the Act. It was stated that for AY 2007-08, the assessee inits return of income had not admitted capital gains andconsequently, no assessment was made for the said year. Theassessee resisted reopening contending that there was notransfer of the land and the transaction cannot be treated to bea deemed transfer under Section 2(47)(v) of th Act. TheAssessing Officer after considering the stand taken by theassessee held that since the original development agreement andpower of attorney were cancelled, it cannot be treated astransfer under Section 2(47) of the Act. However, with regardto the amount of Rs.9 Crores received by the assessee asadvance, the Assessing Officer came to the conclusion that thesame has to be treated as a windfall gain and treated as incomefrom other sources and accordingly completed the assessment byorder dated 25.03.2015. Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income Tax-I [CIT(A)], Chennai. The appeal was allowed by order dated01.09.2016. Aggrieved by the same, the revenue preferred appealbefore the Tribunal which was dismissed by the impugned order. 4.Mr.T.Ravikumar, learned Senior Standing Counsel appearingfor the appellant/revenue after setting out the factual positionand referring to the various clauses in the Memorandum ofUnderstanding dated 16.11.2016 submitted that theAssessing Officer was right in treating the sum of Rs.9 Croresas income in the hands of the assessee and this fact came tolight during the scrutiny of the returns for the year 2010-2011.It is submitted that the assessee received the sum of Rs.9Crores during the financial year 2006-07 relevant to AY 2007-08and the amount remained with the assessee till 2015. Further,the MOU was cancelled only in February 2015 and therefore, theAssessing Officer was right in treating the said amount as awindfall gain. It is submitted that the CIT(A) while examiningthe said aspect did not give sufficient reasons as to why theorder of assessment required interference. Before the Tribunal,it was submitted that the CIT(A) failed to appreciate that theAssessing Officer was right in treating the sum received fromthe developer as a windfall gain as no clear cut finding existedwhether the liability still existed. Further, the CIT(A) erredin not giving a finding whether the income derived from the sumof Rs.9 Crores received by the assessee has been offered to tax.Though such contentions were put forth before the Tribunal, theTribunal without assigning proper reasons erroneously dismissedthe appeal filed by the revenue. The learned senior standingcounsel also referred to the balance sheet as on 31.03.2008 andthe annexures to the same. In support of his contentions,Mr.T.Ravikumar, learned senior standing counsel referred to thedecisions in the case of Commissioner of Income Tax vs.T.V.Sundaram Iyengar & Sons Ltd. [(1996) 222 ITR 344(SC)],Commissioner of Income Tax vs. Balbir Singh Maini [(2017) 398ITR0531(SC)], Seshasayee Steels (P) Ltd. vs. Assistant Commissionerof Income Tax [(2020) 115 taxmann.com 5(SC)] and Commissioner ofIncome Tax -8 vs. Lok Housing Constructions Ltd. [(2016) 70taxmann.com 2(SC)]. 5.Per contra, Mr.S.Sridhar, learned assisted by M/s.HarshiniJothiraman,learnedcounselappearingfortherespondent/assessee contended that the CIT(A) reversed the orderpassed by the Assessing Officer after considering the full factsand the Tribunal re-appreciated the factual position andconcurred with a view taken by the CIT(A) and as such, nosubstantial question of law arises for consideration in thisappeal. Further, it is submitted that the amount of Rs.9 Croreswill not fall within the definition of 'income' as defined underSection 2(24) of the Act. Further the reopening of the assessment was by invoking Section 2(47)(v) of the Act and theissue pertaining to the advance of Rs.9 Crores received by theassessee was never a reason for reopening and therefore, theorder of the Assessing Officer is erroneous. It is submittedthat none of the decision relied on by the learned standingcounsel for the revenue would apply to the facts andcircumstances of the case. In the case of T.V.Sundaram Iyengar& Sons Ltd., the assessee themselves treated the money as theirown money, whereas the assessee in the case on hand treated itas a liability. It is further submitted that the AssessingOfficer committed a factual error in observing that thedevelopment agreement and the power of attorney were cancelledwhereas the same continued to remain in force. It is furthersubmitted that the interest of the revenue has been sufficientlyprotected as the advance amount is to be reduced from the costof acquisition and in terms of Section 51, the assessee will bepaying more tax. 6.Heard the learned counsels on either side and perused thematerials available on record. 7.The assessment for the relevant year, AY 2007-08 wasreopened based on certain information which the AssessingOfficer noticed during the assessment proceedings for AY 2010-11. The reasons for reopening were furnished to the assessee, areading of which shows that the Assessing Officer proposed toapply Section 2(47) of the Act and observed that the assesseehas not admitted the income in their return and not offered forcapital gain tax. Thus, the issue pertaining to the amount ofadvance received by the assessee, namely, Rs.9 Crores was neverthe subject matter of the reopening proceedings which issufficient to hold that the assessment order dated 25.03.2015 tobe a nullity. Nevertheless, we heard the learned counsels oneither side very elaborately. The question would be whether theamount of Rs.9 Crores can be stated to be a windfall gain andtreated as income from other sources. Before doing so, we maypoint out that the objections given by the assessee for thereopening of the assessment proposing to invoke Section 2(47) ofthe Act was accepted by the Assessing Officer and it was heldthat the transaction cannot be treated as a transfer underSection 2(47) of the Act. However, the Assessing Officerbrought to tax the amount of Rs.9 Crores under the head 'incomefrom other sources' by treating it as a windfall gain. Toexplain what is a windfall gain, the learned counsel for therespondent referred to P.Ramanatha Aiyar's Advanced Law Lexicon,3[rd] Edition, 2005, whereunder, 'Windfall' has been explained tobe an unanticipated benefit, usually in the form of a profit andnot caused by the recipient. 'Windfall gains and losses' hasbeen explained to be gain or loss resulting from circumstancesoutside the control; of the recipient. Having noted the meaning of a windfall gain it has to be seen as to whether the saidamount of Rs.9 Crores was a windfall gain for the assessee.After carefully perusing the terms and conditions of the MOUdaed 16.11.2016, the Joint Development Agreement dated09.03.2007, the Escrow Agreement dated 14.03.2007, the Power ofAttorney dated 16.03.2007, it is evidently clear that the amountof Rs.9 Crores was paid as advance under the MOU. The saidamount was to be adjusted/appropriated against the revenue shareof the assessee. The modus/manner of adjustment/appropriationwas agreed to be done based on mutual agreement. This amountremained with the assessee, the assessee in turn created amortgage in favour of the developer to the tune of about Rs.120Crores and possession of the land was handed over for thepurpose of development. The Joint Development Agreement did nottake off and the matter remained as such and ultimately, inFebruary 2015, the developer addressed the assessee to returnthe amount of Rs.9 Crores before 31.03.2015. Even at that pointof time, the agreement was not cancelled and the power ofattorney granted to the developer remained in force. Therefore,by no stretch of imagination, the sum of Rs.9 Crores in thehands of the assessee can be treated to be a windfall gain as itdid not accrue to the assessee as a result of circumstancesoutside their control. Therefore, the finding of the AssessingOfficer is incorrect. The Assessing Officer appears to havebeen guided by the fact that the amount of Rs.9 Crores remainedwith the assessee from the financial year 2006-07 till 2015-16and therefore, it should be treated as an income in the hands ofthe assessee and brought to tax because the amount was returnedto the developer only in March 2015. 8.Firstly, we need to consider as to whether the said amountof Rs.9 Crores can be treated as income from other sources.Section 56(1) of the Act states that income of every kind whichis not to be executed from the total income under the Act shallbe chargeable to income tax under the heard “income from othersources”, if it is not chargeable under any of the headsspecified in Section 14, Items A to E. Section 14 deals withheads of income, wherein the following classification has beenmade, namely, A-Salaries, B-Omitted, C-Income from houseproperty, D-Profits and gains of business or profession, E-Capital gains. There is no finding rendered by the AssessingOfficer that the sum of Rs.9 Crores does not fall under theheads A to E to be brought under head 'F' which deals with'Income from other sources'. Therefore, the finding of theAssessing Officer is perverse. Further, we find that whatweighed in the mind of the Assessing Officer to hold that theamount of Rs.9 Crores lies in the hands of the assessee was awindfall gain is by referring to an event which took placeduring the assessment year 2015-16. Obviously, this could nothave been done by the Assessing Officer because the assessment which was the subject matter of consideration was of the year2007-08. The Joint Development Agreement , Power of Attorney,the mortgage were all in force at the relevant time. In fact,even on the date when the Assessing Officer completed theassessment under Section 147 of the Act by order dated25.03.2015, the Joint Development Agreement was not rescindedand the Power of Attorney was not cancelled. Therefore, onfacts, the Assessing Officer could not have held that this is onaccount of a windfall gain to be brought to tax under the head'income from other sources'. 9.The decision in the case of T.V.Sundaram Iyengar & SonsLtd. would not apply to the facts and circumstances of the caseon hand as in the said decision, the assessee itself treated themoney as its own money and taken the amount to its profit andloss account, whereas in the instant case, the assesseecontinued to show the same as a liability. The decision in thecase of Balbir Singh Maini also would not be of relevancebecause the Assessing Officer himself held that Section 2(47)(v)of the Act could not be applied. The decision in the case ofSeshasayee Steels (P) Ltd., is also distinguishable on facts asit pertains to the question whether the transaction would fallunder Section 2(47) of the Act which does not arise in the caseon hand, equally the decision in the case of Lok HousingConstruction Ltd. 10.Thus, for all the above reasons, we hold that the orderpassed by the Tribunal does not call for any interference andconsequently, the Substantial Question of law is required to beanswered against the revenue. 11.In the result, the tax case appeal is dismissed and theSubstantial Question of law is answered against the revenue. Nocosts. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar cseTo 1.The Income Tax Appellate Tribunal, Madras 'C' Bench. Madras 'C' Bench. 2.The Commissioner of Income Tax (Appeals),Corporate Circle 1(2),Chennai.3.The Deputy Commissioner of Income Tax ,Corporate Circle 1(2),Chennai.+1 cc to M/s.T.Ravikumar, Advocate Sr.No. 28527 RLD(CO)RMP(20/10/2020) TCA.No.439 of 2018