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2017 (11) TMI 1290 - AT - Income TaxRentals received during the period of project completion - taxability under what head? - nature of income - Held that:- In view of the clear distinction of interest earned on surplus funds deposited during the completion of project and the receipts which are inextricably connected to setting up of the project, the law is very clear. In the present case, the rents are received on a property purchased for setting up of the project and is inextricably linked to the completion of the project. Considering the fact that the assessee had taken steps to evict tenants and also paid compensation to them while getting vacant pocession for completing the project, the rental receipts received during the period have to be set off to the cost of project. Accordingly, it is of the opinion that the said amounts cannot be brought to tax as ‘income from house property’, and as assessee has rightly treated them as ‘capital receipts’ and set off to work-in-progress, the stand of the assessee is consistent with the principles governing such receipts. Accordingly, the orders of the Ld. CIT(A) and A.O. are set aside and assessee’s grounds on the issue are treated as allowed. The receipts are to be considered as capital receipts only. In the light of the above decision of treating the “rental receipts” as “capital receipts” during the impugned years, hereby direct the A.O. to exclude the rent received from M/s. Ramdharam Kanta only as capital receipt. Since the proceedings initiated are u/s 147 of the Act, on the return of income filed by the assessee declaring house property income following the principles laid down by the Hon’ble Supreme Court in the case of CIT vs. Sun Engineering Work P. Ltd., (1992 (9) TMI 1 - SUPREME Court) the amounts already offered cannot be excluded. The proceedings u/s 147 are for the benefit of the revenue aimed at gathering the escaped income of the assessee, as held by the Hon’ble Supreme Court. To that extent, in AY 2008-09 assessee’s offering of rental income in the return filed is to be accepted and cannot be excluded. In other years, the rental receipts are to be treated as capital receipts and therefore gets excluded to be adjusted in capital work in progress of the project. Appeals of assessee are partly allowed.
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