1991 (5) TMI 102 - AT - Income Tax

Summary

Issues:
1. Whether the amount appropriated towards sinking fund is includible in the total income of the assessee.
2. Whether contributions to sinking fund are capital receipts exempt from taxation.

Detailed Analysis:
Issue 1: The appeal challenged the deletion of an addition by the CIT (A) related to the appropriation of Rs. 7,77,000 towards a sinking fund from the common outgoings rent. The assessee argued that the contribution to the sinking fund was not linked to recoveries or monthly outgoings but was intended for major structural repairs when needed. The CIT (A) accepted this argument, ruling that the sinking fund contribution was not income and thus not includible in total income. However, the ITAT disagreed, stating that the appropriation from common outgoings rent constituted revenue income and should be included in total income. The ITAT emphasized that the nomenclature "sinking fund" did not alter the nature of the receipt, which was a recurring component of rent.

Issue 2: The ITAT analyzed various legal precedents cited by the assessee to support the contention that sinking fund contributions were capital receipts. The ITAT distinguished these precedents, such as the Bombay State Road Transport Corporation case, emphasizing that they involved statutory obligations or capital reimbursements, unlike the present case. The ITAT concluded that the sinking fund contributions were revenue receipts and part of the rent received by the assessee, not eligible for deduction as capital receipts. The ITAT held that the sinking fund contributions were to be treated as revenue income and included in the total income of the assessee, allowing the appeal by the revenue.

In summary, the ITAT held that the appropriation towards sinking fund from common outgoings rent was revenue income and should be included in the total income of the assessee. The contributions to sinking fund were deemed part of the rent received, not capital receipts exempt from taxation, based on the nature of the receipts and absence of legal obligations to utilize the fund for specific purposes. The appeal by the revenue was allowed, overturning the CIT (A)'s decision.