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2020 (3) TMI 110 - AT - Income TaxNature of advance received - transfer of capital assets is in dispute regarding the validity of lease rent agreement as well as development right agreement. - Taxability as income from other sources - Addition on account of alleged 12% share of the sale realization of flats - Business income or capital gains - HELD THAT:- Once the tribunal has held that the amounts collected by Ferani during the pendency of the suit and kept in FD's are amounts kept in custody of the court and not accessible to the Administrator till disposal of the suit and to be governed by the final order of the high court, then the amounts so collected cannot be considered to be income of the assessee. Further, AO has brought to tax advances which the assessee had received during the period 1996-97 to 2008-09 totally ₹ 269,48,90,856/- under the head other source. We are surprised to note that the AO had made additions contrary to the provision of section 56 of the Income Tax Act which govern the assessment of income under the residuary head. Further, said provisions nowhere permit the A.O. to assess receipts of prior years in one lump sum in later year on the ground that in prior years the receipt was not taxed. It is further observed that section 41(1) has no application, because the liability contemplated by that section relates to trading liability for which deduction was allowed to the assessee the computation of income of any earlier year. In this case, the amount assessed was never allowed as a deduction in any earlier year. AO was incorrect in taxing advances received by the assessee up to the A.Y. 2011-12 as income chargeable to tax under the head income from other sources. Taxability of lease rental - Held that:- Merely because grant of lease was provided in the Agreement dated 02.01.1995 but when in fact the lease deed was never executed in favour of the parties, then said Ferani & Ivory could not presume that lease rights were in fact awarded in their favour by the Administrator. In absence of any formal registered lease agreement, Ivory & Ferani could not legally infer that the lease of land was granted by the Administrator in respect of the lands. Enforceable lease was not in operation was not disputed by the revenue. The Ivory had accepted contractual tenancy when it had executed conveyance in FY 2001-02 and 2002-03. The assessee had filed copy of lease deed dated 25- 10-2001. We find that clause (iv)(b) of the deed of conveyance dated 25.10.2001 executed between the assessee and Ivory properties and hotels Pvt. ltd and Toyota Lakozy Auto Pvt. Ltd., which clearly talks about contractual monthly tenancy on the expiry of the lease. It is evident that even if one accepts the claim of the developers that lease for the period of five years was granted the same came to conclusion in January 2000 on expiry of five year period. Relationship between the parties was that of landlord and contractual monthly tenant. Before the lower authorities, the assessee had filed requisite documentary evidence to prove that in 2008 the assessee had taken necessary legal steps to terminate the contractual tenancy of each developer. Once the assessee had taken legal steps to terminate the contractual monthly tenancy, the developers could not unilaterally claimed themselves to be having leasehold rights in the land in terms of covenants contained in the agreement dated 02.01.1995. AO before concluding that income by way of lease rent had accrued, failed to bring on record sufficient, adequate and cogent documentary evidence which proved that a legally valid & binding agreement subsisted between the Administrator and Ferani & Ivory in terms of which the assessee had vested right of claiming monthly rent from them. The assessee had taken sufficient legal steps for termination of tenancies which could be inferred only from the conduct of the parties and consequent to the termination of tenancies, the assessee had stopped accepting the monthly payments tendered by Ivory & Ferani. When the assessee stopped accepting the monthly payments, Ferani & Ivory unilaterally opened accounts with the Banks in their own names and continued depositing the monthly sums of ₹ 55,000/- . But, fact remains that these accounts were opened by Ferani & Ivory entirely on their own volition and in their own names and the Administrator had never granted his consent either for opening of the Accounts or depositing the monthly sums of ₹ 55,000/-. It is also material that there existed no privity of contract either written or implied in terms of which Ferani or Ivory had legal obligation to pay and the Administrator had vested right to demand payment of monthly lease rent. These accounts were opened by these companies by providing details & information about themselves. The Administrator of Estate of EFD had never authorized or permitted either of the companies to open the account nor had it provided any information enabling either of the companies to open these accounts. On account of unilateral acts of the project coordinators, no income in law could be inferred particularly when no part of the income assessed was either legally due to the assessee or when the amounts were not actually received by the Administrator. CIT(A) after considering relevant facts has rightly held that the AO was incorrect in taxing lease rent as income chargeable to tax under the head income from other sources. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue.
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