TMI Blog2014 (9) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... principal lease deed – Details not furnished - Held that:- The non-resident was an architect and engaged by the assessee for the purpose of carrying out the architectural study for development of the property obtained on lease - A payment equivalent to US $ 10,000 was allowed by the AO as there was a supporting invoice from the non-resident - the assessee made three payments to the non-resident of US $ 10,000, US $ 7500 and US $ 10,000 as second, third and fourth instalments - While making remittances of these payments to the non-resident, the assessee did not deduct tax at source and in this regard filed a certificate of CA for non- deduction of tax at source - the fact that the payment was second, third and fourth instalment has been duly recorded - the payment was for architectural fee and had to be allowed as a deduction to the assessee - the assessee be allowed a further deduction as expenditure in the matter of determination of income from such lease of the property – Decided in favour of assessee. - ITA Nos. 149 to 151/Bang/2014 - - - Dated:- 28-8-2014 - Shri N. V. Vasudevan And Shri Jason P. Boaz,JJ. For the Appellant : Shri Zain Ahmed Khan, C.A. For the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search was conducted. In the course of assessment proceedings, the AO noticed that the assessee had received a sum of ₹ 9,49,677 in A.Y. 2007-08 and a sum of ₹ 1,09,00,785 in A.Y. 2009-10. The aforesaid payments were received by the assessee on sale of transferable development rights (TDRs). The assessee purchased land belonging to Minerva Mills at Bangalore from National Textiles Corporation during F.Ys. 2004-05 2005-06 at a public auction. Out of the total extent purchased by the assessee, an extent of 58,378.49 sq.ft. of land at Municipal No.19, Part of CTS-2, LA No. 56, Gopalapura, Minerva Mills, Bangalore was given to Bruhat Bangalore Mahanagara Palike (BBMP) for public purpose viz., road widening. In lieu of payment of compensation for surrender of the aforesaid area of land, BBMP gave TDRs. 6. During the previous year relevant to A.Y. 2007-08, the assessee sold part of the TDRs for ₹ 25 lakhs. In the previous year relevant to A.Y. 2009-10, the assessee sold TDRs for a sum of ₹ 1,90,99,999. The assessee recorded expenditure in the form of cost of TDRs at ₹ 1,51,50,323 and ₹ 81,99,214 respectively in A.Y. 2007-08 and 2009- 10 in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid conclusion, the AO examined the objects of the company as enshrined in its objects clause of Memorandum of Association, which is to undertake construct and maintenance of and acquisition by purchase, lease, exchange of properties buildings and estates and to sell, mortgage or otherwise dispose of properties. The AO, therefore, held that the assessee was in real estate business. The AO also found that the assessee participated in a public auction and purchased the property in the normal course of business with the intention of exploiting it commercially for profits. The AO also referred to the fact that subsequently the assessee entered into a joint development agreement dated 12.10.2005 with M/s. Sobha Developers Ltd. for constructing a shopping mall on the land. A portion of the property was acquired by BBMP for road widening and the assessee was given TDRs in lieu of payment of compensation. The AO also made a reference to the fact that in the books of accounts of the assessee, wherein in the Profit Loss account, the assessee recorded expenditure for acquiring TDRs and corresponding sale proceeds on sale of TDRs. According to the assessee, the intention of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken as capital gains, the cost of acquisition would be the cost which is debited in the appellants account being the fair market value of the properties acquired are also in order. The treatment given by the Assessing Officer under the facts of the case. that business income accrues to the appellant, is in order and is upheld. 9. Before us, the ld. counsel for the assessee reiterated the stand of the Assessee as was put forth by the assessee before the AO/CIT(A). 10. We have given a careful consideration to the stand taken by the assessee in this regard. We have also seen the balance sheet as on 31.3.2007. The TDRs have not been recognized as capital asset in the books of account of the assessee. On the other hand, the treatment given by the assessee in the books of accounts when TDRs were sold clearly show that the same were considered as business asset of the assessee. The other circumstances brought out by the AO in the order of assessment, which we have already narrated in the earlier paragraphs of this order also go to support the conclusion of the AO that income on sale of TDRs was in the normal course of business and had to be considered as income from business. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. ₹ 4,00,00,000/- (four crore) towards reimbursement of interest free refundable Deposit payable under the Principal Lease Deed to the Trust; c. ₹ 4,0000,000/- ( four crore) towards reimbursement of the amounts spent by the Lessors in securing vacant possession of the schedule property from the tenants/un- authorised occupants therein. d. ₹ 19,17,70,000/- (nineteen crores seventeen lakhs seventy thousand) towards interest free refundable deposit in terms of this agreement. 14. The assessee had to account for the income from transaction of sub-lease of the property. The assessee declared a sum of ₹ 59,59,272. The assessee had recognized the receipts from the activity of leasing and sub-leasing under the head 'income from business' and recorded the receipts and expenditure as follows:- Credit side Transfer of Lease (Non Refundable Deposit) ₹ 11,46,38,000 Debit side Cost of Lease Cost of Lease ₹ 10,86,78,729 15. The first issue that the AO took up was that the assessee received a non-refundable deposit of ₹ 14 crores, whereas it has recognized ₹ 11,46,38,000 as income in the credit side of the Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess: Exclusion from cost of lease as discussed above ₹ 34,85,870 Revised cost of lease ₹ 10,51,92,858 As a consequence, the income from above sublease was recomputed by the AO as under: Revised consideration received from lease ₹ 15,46,38,000 Less: Revised cost of lease ₹ 10,51,92,858 Profit/income from sublease ₹ 4,94,45,142 Due to the above recomputation of net income from sub-lease was arrived at by the AO at ₹ 4,94,45,142 as against net income from sub-lease of ₹ 59,49,272; An addition of ₹ 4,34,85,870 was made to the returned income. 18. On appeal by the assessee, the CIT(A) confirmed the action of the AO, except for some relief given in the matter of disallowance of expenses out of ₹ 34,85,870. 19. Before us, the assessee has challenged the order of the CIT(Appeals), insofar as it relates to adding a sum of ₹ 4 crores as receipts on sale of sub-lease by the assessee. According to the assessee, though in the supplementary agreement dated 27.1.2007, the sum of ₹ 4 crores is stated to be towards reimbursement of interest free refundable deposit payable by the assessee to Charities, the same is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl No. Property Amount 1 Minerva Mills Property 24,60,00,000 2 St Mark's Property 31,68,70,000 23. It is not clear from the aforesaid letter as to whether the reference to the balance confirmed is with reference to ₹ 4 crores which the AO has pointed out in the order of assessment. Therefore, this confirmation letter, in our view, cannot be the basis to come to the conclusion that a sum of ₹ 4 crores was also refundable deposit by the assessee to Sobha Developers. In the absence of the clear recitals in the supplementary agreement dated 27.1.2007, we are of the view that the conclusions of the revenue authorities do not call for any interference. 24. As far as the expenditure in connection with sub-lease of the property in question is concerned, though in ground No.6, the assessee has challenged the entire addition of ₹ 34,85,870 before the Tribunal, the ld. counsel for the assessee pressed for deletion of an addition of ₹ 13 lakhs and another addition of ₹ 13,90,000. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the architectural study for development of the property obtained on lease. A payment equivalent to US $ 10,000 was allowed by the AO as there was a supporting invoice from the non-resident. A perusal of the said invoice, a copy of which is placed at page 44 of the assessee's paperbook shows that payment to the non- resident is the first instalment for architectural fee. Later on, the assessee made three payments to the non-resident of US $ 10,000, US $ 7500 and US $ 10,000 as second, third and fourth instalments. While making remittances of these payments to the non-resident, the assessee did not deduct tax at source and in this regard filed a certificate of CA for non- deduction of tax at source. In this certificate, the fact that the payment was second, third and fourth instalment has been duly recorded. It is therefore clear that the payment in question was for architectural fee and had to be allowed as a deduction to the assessee. We therefore hold that the assessee be allowed a further deduction of ₹ 13,90,900 as expenditure in the matter of determination of income from such lease of the property. We hold and direct accordingly. 30. Thus, ITA No. 149/Bang/2014 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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