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TMI Blog2012 (12) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... eement the assessee forfeited the amount of non refundable security deposit on account of failure of the licensee to enter into leave and license agreement. The amount received is in the nature of capital receipts and not chargeable to tax". 4. On being questioned by the AO, it was submitted by the assessee that it was in the nature of capital receipt. The assessee produced the letter of Intent dated 01- 03-2006 between the assessee and Credit Suisse First Boston (India) Securities Pvt. Ltd. which sets out the major terms and conditions to be included in the leave and license agreement between the two parties which was to be signed within 30 days of signing the letter of Intent. Clause 13 and 19 of the letter of Intent was brought to the notice of the AO which reads as under : "13. Non-Interest Bearing Refundable Security Deposit A sum equivalent to 11 months License Fee ("Security Deposit") must be paid in cash by the Proposed Licensee to the Proposed Licensors at the time of signing the leave and licence agreement. The Proposed Licensee shall pay one months rent (which will form part of the Security Deposit) as part of the security deposit, as mentioned herein above, at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rent which he would fail to receive if he is not entitled to let out the property again. Since the assessee in the present case received the amount for not executing the agreement after signing the letter of Intent, therefore, character of the receipt is in the nature of rent. He further noted that by the impugned breach of contract there was no damage to the profit making apparatus, i.e., property of the assessee and therefore the amount forfeited being compensation cannot by any stretch of imagination be treated as capital receipt. Relying on various decisions, the AO rejected the claim of the assessee and made the addition of Rs. 35,07,884/- to the total income of the assessee. 7. Before the CIT(A) it was submitted that it is a receipt which falls under the head 'Income from house property' and not under the head 'business' or residual head. It was submitted that though the forfeited deposit falls under the head 'Income from house property', it is still not taxable as the amount forfeited does not represent the "annual value" of the property as contemplated u/s. 22 and 23 of the I.T. Act. It was accordingly submitted that the forfeited deposit is a capital receipt not exig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer & Others reported in 152 Taxmann 55 he submitted that assessee admittedly being owner of the flat held as stock in trade, the rental income from leasing the said flats was held assessable as income from house property and not as business income. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Addl. CIT Vs. Rama Leasing Company Private Ltd. reported in 20 SOT 505 he submitted that the Tribunal in the said decision has held that compensation received for premature surrender of lease though revenue receipt, is not chargeable to tax. 10. Referring to the decision of the Pune Bench of the Tribunal in the case of Datar & Co. Vs. ITO reported in 67 TTJ 546 he submitted that compensation for termination of lease agreement though revenue in character cannot be brought to tax. Referring to the decision of the Pune Bench of the Tribunal in the case of Eagle Flask Industries Ltd. Vs. DCIT reported in 72 ITD 455 he submitted that the decision of higher authorities is binding on lower authorities in judicial hierarchy. He accordingly submitted that the receipt cannot be brought to tax. 11. The learned D.R. on the other hand strongly relied on the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual value cannot be computed as income under this head. While deciding the issue the Mumbai Bench of the Tribunal has followed the decision of the Pune Bench of the Tribunal in the case of Datar and Company Vs. ITO reported in 67 TTJ 546. 15. We find the Pune Bench of the Tribunal in the case of Datar and Company (supra) while deciding taxability of compensation for termination of lease agreement at para 9 of the order has held as under : "9. However, we find sufficient force in the alternate contention of the learned counsel for the assessee. It is well settled legal position that income of the assessee has to be computed under various heads specified in Chapter-IV, if any receipt does not fall under any specific head, then it has to be assessed under the residuary head 'income from other sources', but if any receipt falls under a specified head, but the same cannot be computed under that head, then it cannot be assessed as income of the assessee under any other head and would not escape the taxation. This principle has been laid down by the Apex Court in the case of Nalinikant Ambalal Mody Vs. S.A.L. Narayan Row, CIT (1966) 61 ITR 428 (SC) and was applied by the Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08-2005 Rs. 12,50,000/- 05-12-2005 Rs. 77,50,000/- -------------------- Rs. 90,00,000/- -------------------- It was submitted that the company has received interest on loan. It has earned profit on redemption of liquid fund which has been offered to tax. 20. However, the AO was not satisfied with the explanation given by the assessee. According to him as per the provisions of section 36(1)(iii), for claiming interest on borrowed capital, such borrowed funds should not only be invested in the business of the assessee but it should also continue to remain in the business. This provision cannot be construed as enabling the assessee to burden the business with interest even while taking the amount initially borrowed for the business but subsequently taken out of the business diverting it as loans to sister concern either with no interest or with nominal interest. For this proposition he referred to the decision in the case of Indian Metals & Ferro Alloys Ltd. Vs. CIT reported in 193 ITR 344 and in the case of CIT Vs. Abishek Industries Ltd. reported in 286 ITR 01. He accordingly disallowed interest to the tune of Rs. 1,39,096/-. 21. Before the CIT(A) it was contended that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it borrowed funds @ 8% from UTI Bank. Fourthly, the appellant has not explained any business compulsion or expediency to advance the money @4% to a group concern. Therefore, the claim of the appellant that there is no direct nexus between borrowed funds and advance to sister concern does not advance the case of the appellant unless it is established that advance was made at lower rate of interest for business purposes and out of business expediency. But the appellant failed to furnish any explanation in this regard." Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 23. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the various details furnished by the assessee in the Paper Book as well as the submissions made before the lower authorities we find the loan obtained from Axis bank was utilised by the assessee for purchase of the property and there is no evidence on record to show that any borrowed fund has been given at concessional rate to the sister concern. The loan adva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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