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2016 (3) TMI 752 - ITAT MUMBAI

2016 (3) TMI 752 - ITAT MUMBAI - TMI - Disallowance u/s 43B - premium on transfer of lease-hold rights of land owned by BMC - Held that:- premium on transfer of lease-hold right is not collected under any provisions of any law in force in India, we hold that said premium on transfer of lease-hold rights of land owned by BMC is not a ‘fee’ as defined u/s 43B(a) of the Act and is not hit by Section 43B(a) of the Act and the same cannot be disallowed for non- compliance of provisions of Section 43B .....

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was also not making payment to BMC knowingly fully well that it is an unascertained and contingent liability as the matter as to legality and validity of the said premium both as statutory and contractual liability were under challenge and legal dispute being sub-judice with the Hon’ble Bombay High Court, when the assessee filed his return of income in October 2007 with the Revenue claiming the said expenditure of ₹ 12,00,000/- as deduction u/s 37(1) of the Act in the computation of incom .....

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ssified as statutory as well as contractual liability at the time of filing of return of income with the Revenue by the assessee in October 2007 . Thus, based on our above discussion and reasoning, the grounds of the appeal raised by the assessee are rejected and are dismissed

TDS u/s 194C - Labour charges paid by invoking the provisions of section 40(a)(ia) - non deduction of tds - Held that:- The assessee has taken a plea that the assessee being individual there was no liability to .....

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ing 2007-08, there was no liability on the assessee to deduct tax at source on these payment . The CIT(A) has not adjudicated this plea of the assessee raised for the first time by the assessee before the CIT(A) that provisions of Section 194C of the Act was not applicable on the assessee being an individual as being builder and developer himself and not a contractor . In our considered view, the matter needs to be set aside and restored to the file of the A.O. for determination of issue de-novo .....

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TANT MEMBER For The Assessee : Shri Nishit Gandhi For The Revenue : Shri Satya Pal Kumar- (DR) ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 3340/Mum/2012, is directed against the order dated 20-02-2012 passed by learned Commissioner of Income Tax (Appeals) (hereinafter called the CIT(A) ) and the appeal before the CIT(A) arose from the assessment order dated 23.12.2009 passed by the learned assessing officer (Hereinafter called the AO ) u/s 143(3) o .....

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e CIT (A) failed to appreciate that the amount payable to Brahanmumbai Municipal Corporation ("BMC") was not covered by the provisions of section 43 B of the Act so as to call for the disallowance. 1.3 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. 2.1 The Id. CIT (A) erred in confirming the action of the A.O. in disallowing the claim of deduction amounting to ₹ 3,02,575/- on account of labour charges paid, by .....

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account, the assessee has debited a sum of ₹ 12 lacs as provision for BMC payment which is shown as payable under the head current liabilities. The assessee was asked to explain the same as to why this provision being an unascertained liability should not be disallowed . In reply , the assessee submitted that the original lessor is BMC and Mr. Sylvestor & Others are original lessee. When a lessee transfer his lease-hold rights to other party, the said other party has to pay to lessor .....

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be incurred in discharging that liability could be deducted from the profits and gains of the business. The assessee is following mercantile system of accounting and is entitled to deduct from profits and gains of business such liability which had accrued during the period for which profits and gains were being computed, therefore, the assessee was entitled to deduction of confirmed and accrued contingent liability. The assessee relied upon the decisions in the case of CIT v. Southern Estates ( .....

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e A.O. observed that there is a dispute between BMC and the assessee regarding payment of certain dues and the matter is pending before the Hon ble jursidictional High Court. In the meanwhile, assessee made a provision for transfer fee payable to BMC @ 10% of agreement value , as against earlier transfer fee rate of 7% of agreement value and as against BMC's demand of increased transfer fee @ 50%. However, the same is also not paid yet as BMC has not agreed upon. The A.O. held that firstly, .....

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iability has not been crystallized being a disputed contractual liability. In mercantile system of accounting, the income & expenditure accrues when there is a right to receipt and right to payment is established and once the right is withheld by way of a dispute, then the accrual of income & expenditure is postponed till the final settlement of the dispute. It is a settled law that the disputed liability accrues only in the year of final settlement, therefore, the claim made by the asse .....

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Oriental Motor Car Co.(P.) Ltd. (All.) 124 ITR 74 3. Acentric Chemical Works Ltd. v. DCIT (Guj.) 266 ITR 47 4. CIT v. Highway Construction Co. P. Limited 223 ITR 32 5. N Sundereswaran v. DCIT 226 ITR 142(Ker.) 6. CIT v. Bharat Fire Bricks and Potteryware Private Limited 202 ITR 821(Cal.) 7. Navjivan Roner Flom Pulses Mills Limited v. DCIT 73 ITD 265(Ahd. Trib.) On the basis of facts and circumstances and the judicial pronouncements, the A.O. disallowed the sum of ₹ 12 lacs and added the s .....

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hers are original lessee. The assessee submitted that when the lessee transfer his right to other party, the said party to whom the lease hold rights are transferred by the lessee has to pay the transfer charges to the BMC. The BMC has suddenly increased its transfer charges from 7% of agreement value to 50%. The assessee had made provision of transfer charges of ₹ 12,00,000/- @10% of agreement value as against 50% demanded by BMC, to be payable in due course assuming that it will be settl .....

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e is in appeal before the Tribunal. 7. The ld. Counsel for the assessee submitted that the assessee has to pay transfer fee to BMC and accordingly the assessee has made provision of ₹ 12 lacs with respect to the plot of land which was purchased by the assessee which was a leasehold land for 999 years. The original lessor is BMC and Mr. Sylvestor & Others are original lessee. The assessee has to pay transfer charges to the BMC @ 7% of agreement value and the BMC has suddenly increased t .....

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ions vide No. 166 of 1997, 2370 of 2006, writ petition no 1262 of 2010 and 718 of 2010 were filed by various aggrieved petitioners before the Hon ble Bombay High Court and the said Writ Petitions were disposed of and allowed by the Hon ble Bombay High Court , vide common judgment dated 15-02-2011 , by holding as under:- 12. The Supreme Court has thus held that whenever there is compulsory exaction of money, there should be specific provision for the same. In the present case, we have not been po .....

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o seek prior permission of the Corporation before assigning his lease hold rights. As prior permission itself is not contemplated, there is no question of the Corporation levying any penalty for assigning the lease hold rights without prior permission of the Corporation. The demand made by the Corporation in that regard, therefore, is without authority of law. 13. In these circumstances, therefore in our opinion, all these Petitions will have to be allowed. They are accordingly allowed. It is he .....

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transfer fees from the assignee. The amount that might have been collected by the Corporation pursuant to the demand notice which has been made in these Petitions are directed to be refunded by the Corporation after adjusting any legal demands that may be due to the Corporation from the Petitioners within a period of eight weeks from today. The ld. Counsel submitted that the Municipal Corporation of Greater Bombay (also known as BMC) has filed SLP(C) No. 16197/2011 with the Hon ble Supreme Court .....

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the case of Bharat Earth Movers Limited, (2000) 245 ITR 428 (SC) and Taparia Tools Private Limited , (2015)372 ITR 605(SC). 8. The ld. D.R., on the other hand, relied on the orders of authorities below and submitted that the demand has not been paid by the assessee to the BMC and there is thus non compliance of provisions of Section 43B(a) of the Act and the authorities below has rightly made the disallowance. 9. We have heard the rival contentions and also perused the material available on reco .....

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the agreement value since 1993 (earlier it was 5%) but suddenly the premium has been increased from 7% of agreement value to 50% of value of land as per ready reckoner rate by Resolution of the Improvement committee/corporation in March/April 2008 for which the proposal was moved by BMC in July 2007. The assessee has made provision of 10% i.e. ₹ 12,00,000/- in the books for accounts for the previous year relevant to the assessment year 2007-08 assuming that it is finally settled at 10% , .....

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by BMC on transfer of lease-hold rights of the land owned by BMC from lessee s to purchasers/assignees , Writ Petitions bearing No. 166 of 1997, 2370 of 2006, 1262 of 2010 and 718 of 2010 were filed by various aggrieved petitioners before the Hon ble Bombay High Court and the said Writ Petitions were disposed of and allowed by the Hon ble Bombay High Court , vide common judgment dated 15-02-2011 , by holding as under:- 12. The Supreme Court has thus held that whenever there is compulsory exacti .....

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re is any term in the Lease Deed with which we are concerned in these petitions requiring the lessee to seek prior permission of the Corporation before assigning his lease hold rights. As prior permission itself is not contemplated, there is no question of the Corporation levying any penalty for assigning the lease hold rights without prior permission of the Corporation. The demand made by the Corporation in that regard, therefore, is without authority of law. 13. In these circumstances, therefo .....

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r permission of the Corporation for assignment of lease hold rights the Corporation cannot demand any transfer fees from the assignee. The amount that might have been collected by the Corporation pursuant to the demand notice which has been made in these Petitions are directed to be refunded by the Corporation after adjusting any legal demands that may be due to the Corporation from the Petitioners within a period of eight weeks from today. We have observed that the Brihanmumbai Municipal Corpor .....

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al ) , it was proposed to recover premium in respect of transfer of leased plot at the rate of 50% of the unearned income taking into account the value of land as per Ready Reckoner rates prevailing on the first day of the year in which these cases are decided by Municipal Corporation of Greater Mumbai instead of prevailing rate of 7% of the total consideration amount mentioned in the documents submitted for transfer of lease plot as premium . The prevailing rate of 7% was approved vide Resoluti .....

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g into account value of the land as per ready reckoner rate prevailing on the first day of the year in which a transfer case is decided is recovered. Thereafter , the proposals were recommended for approval and it is stated by the assessee counsel before us that the same was finally approved in March /April 2008 hiking the premium to 50% of the unearned income taking into account the value of land as per Ready Reckoner rates. The Hon ble Bombay High Court in its judgment dated 15-02-2011 while d .....

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1 held that the amount that might have been collected by the Corporation pursuant to the demand notice which has been made in these Writ Petitions filed with the Hon ble Bombay High Court are directed to be refunded by the BMC after adjusting any legal demands that may be due to the BMC from the Petitioners within a period of eight weeks from the date of judgment. Against this judgment of the Hon ble Bombay High Court, the Municipal Corporation of the Greater Mumbai also known as BMC has filed S .....

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cted under authority of any law in force whether Central Act or State Act or any other law in force in India nor is the said premium charged by BMC is a contractual liability as per lease deed executed between lessor and lessee as no such clause exists in the lease deed allowing chargeability of said premium by BMC and the BMC has no authority to collect such premium from purchaser/assignees of the lease-hold rights in the land of which BMC is owner neither being as a statutory liability nor as .....

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of value of land as per ready reckoner rate by resolution of the Improvement committee/Corporation in March/April 2008 , and said increase to 50% was also subject to dispute and challenge before the Hon ble Bombay High Court vide writ petition no 718 of 2010 filed by the Techno Realtors Private Limited in the year 2010, there was a challenge to legality and validity of said increased rate of 50% of value of land as per ready reckoner rate . It is also pertinent to mention that writ petition no. .....

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imited later filed writ petition no 1262 of 2010 which is disposed of by the Hon ble Bombay High Court vide the common judgment dated 15-02-2011 allowing the said writ petition. Thus, the dispute with respect to charging of premium on transfer of lease hold rights in the plots of the land owned by BMC was with the Hon ble Bombay High Court since 1994. Thus, the assessee was well aware of the on-going legal dispute with respect to challenge to legality and validity of the charging of the premium .....

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on transfer of lease-hold rights is collected without any authority of law in force in India and hence not a statutory liability nor the said premium charged is a contractual liability in the absence of provisions/clause in the lease deed executed by and between the lessor and the lessee authorizing charging of said premium on transfer of lease-hold rights in the land owned by BMC in favour of purchasers/assignees. The assessee was aware of the legal dispute pending at the Hon ble Bombay High Co .....

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turn of income with the Revenue in the month of October 2007 as the said hike was accepted by BMC only in March/April 2008 and there was no specific on-going litigation with respect to this proposed hike to 50% pending with any legal forum at the time of filing return of income by the assessee with the Revenue in October 2007. The assessee made provision of ₹ 12,00,000/- @10% of agreement value making an estimate that the liability would be ultimately settled around this amount. The assess .....

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ted 15- 02-2011 that this premium on transfer of lease-hold rights collected by BMC is not collected under any provisions of any law in force in India be it a Central Act or State Act or any other law in force in India. Section 43B(a) of the Act clearly stipulates that to be covered under the provisions of Section 43B(a) of the Act the fee must have been payable under any law for the time being in force. The Section 43B(a) of the Act is reproduced here-in-below : [Certain deductions to be only o .....

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said premium on transfer of lease-hold rights of land owned by BMC is not a fee as defined u/s 43B(a) of the Act and is not hit by Section 43B(a) of the Act and the same cannot be disallowed for non- compliance of provisions of Section 43B of the Act. The second contention of the Revenue is that the liability has not crystallized during the assessment year being a disputed and contingent liability as the same being un-ascertained liability and the said liability will crystallize in the year of f .....

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velopment on this issue vide letter no. MCHI/SEC/11-12/107 dated 20-09-2011. The Hon ble Bombay High Court has finally vide judgment dated 15-02-2011 held that premium on transfer of lease hold property owned by BMC is not a statutory liability being without authority of any law in force in India nor a contractual liability as there is no stipulation in lease deed executed between lessor and lessee about the chargeability of said premium. The matter is still sub-judice with the Hon ble Supreme C .....

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ing the previous year shall be allowed as deduction although the quantification and discharge of the liability may be done at a later stage. Here, in the impugned appeal we are concerned with a liability whose leviability both being as a statutory liability as well as being a contractual liability per-se was subject of legal dispute and challenge before the Hon ble Bombay High Court on the grounds that neither it is statutorily valid as being without authority of any law in force in India be it .....

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in October 2007 . With the above facts and background , in our considered view, when the assessee was fully aware of the legal dispute going on in the Hon ble Bombay High Court with respect to challenge as to the legality and validity of charging per-se of the said premium by BMC on transfer of lease-hold rights on the land owned by BMC, both as a statutory as well as a contractual liability, it could not be said that the liability has arisen or accrued against the assessee being an ascertained .....

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ates that provisions should be made for "all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information." Accounting Standard AS-29 issued by The Institute of Chartered Accountants of India (ICAI) deals with "Provisions, Contingent Liabilities and Contingent Assets'. The purpose of the accounting standards is to ensure that the balance sheet and P&L Account of an enterpri .....

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s under: "(a) a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; Or (ii) a reliable estimate of the amount of .....

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rces embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision should be recognised." Appendix A to AS-29 sets out in a tabular the summary of the AS. The provisions which are recognised and those that are not are set out in separate columns. What is not recognised is a provision for a liability which arises from 'a possible obligation' that may, but pr .....

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ability of premium on transfer of lease-hold rights in land owned by BMC in favour of purchaser/ assignees was also subject to challenge before the Hon ble Bombay High Court that it is neither a statutory liability as being levied without any provisions in any statute in force in India be it a Central Act or State Act or any other law in force in India and also subject to challenge that it is also not a contractual liability as there is no provision / clause in the lease deed entered into by and .....

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h Court of which the assessee was fully aware . The assessee was also not making payment to BMC knowingly fully well that it is an unascertained and contingent liability as the matter as to legality and validity of the said premium both as statutory and contractual liability were under challenge and legal dispute being sub-judice with the Hon ble Bombay High Court, when the assessee filed his return of income in October 2007 with the Revenue claiming the said expenditure of ₹ 12,00,000/- a .....

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Bombay High Court both with respect and regard to being classified as statutory as well as contractual liability at the time of filing of return of income with the Revenue by the assessee in October 2007 . Thus, based on our above discussion and reasoning, the grounds of the appeal raised by the assessee are rejected and are dismissed. We order accordingly. 10. Now, coming to the next grievance of the assesseee, the assessee challenged the confirmation of A.O. s assessment order dated 23.12.200 .....

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e Electricals Labour charges (Electrical work) 1,60,000 4. Reliable Security & New India Security Agency Security charges 14,081 3,16,656 The assessee submitted that as per the list of person as specified in Section 194C(1) of the Act who are liable to deduct tax at source as per the law as applicable for the assessment year 2007-08 , individuals have not been specified and the assessee being individual is not liable to deduct tax at source u/s 194C(1) of the Act . The assessee submitted tha .....

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(a)(ia) read with section 194C (2) of the Act , the AO disallowed the expenditure. While doing so, the A.O. observed that the assessee is engaged in the business of developing and construction wherein he executes contract which is entered between the buyer and himself, hence, the provisions of section 194C(2) of the Act would be applicable instead of section 194C(1) of the Act. As per the above said section 194C(2) of the Act which is applicable in the assessee's case, it is very clear that .....

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ted 23.12.2009 passed u/s 143(3) of the Act. 9.Aggrieved by the assessment orders dated 23.12.2009 passed by the A.O. u/s 143(3) of the Act, the assessee preferred an appeal before the CIT(A) and submitted that during the previous year relevant to the assessment year, the assessee had made payment to contractors of the labour job/service charges to the extent of ₹ 3,16,656/- to four different parties. The A.O. had mis- interpreted Section 194C(2) of the Act in a different way and disallowe .....

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ment order. He held that to cover its lapses to deduct tax at source, the assessee has deliberately tried to play with the words mentioned in the Section. The CIT(A) held that the moment a contract is given a person is liable to deduct tax at source if the transaction is above the said monetary limit as envisaged in the Act. i.e. 1% where the payment is being made or credit is being given to an individual or HUF or 2% where the payment is being made or credit is being given to a person other tha .....

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e assessee submitted that assessee is a builder and developer and payment to certain contractors were made during the assessment year, but no tax was deducted at source. The ld. Counsel submitted that there was no provision in the Act which obliges the assessee for such deduction of tax at source as per the then applicable laws if the payments were made by an individual who is a builder and developer to the contractor. The ld counsel for the assessee drew our attention to the then prevailing Sec .....

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ed by the CIT(A) nor any remand report was called by the CIT(A). The ld counsel for the assessee relied on the decision of the Hon ble Calcutta High Court in the case of CIT v. Shri Rinku Mallick (ITAT No. 96 of 2012, GA No. 1368 of 2012). 13.The ld. D.R., on the other hand, relied upon the orders of authorities below. 14. We have considered the rival contention and also perused the material available on record. We have observed that the assessee is engaged in the business of builder and develop .....

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see has deducted tax at source with respect to other payments which is covered under Act. No tax has been deducted at source with respect to these three parties to whom payment of ₹ 3,02,575/- was made which is subject matter of challenge in this appeal. The assessee has taken a plea that the assessee being individual there was no liability to deduct the tax at source u/s 194C of the Act as per the then prevailing section 194C of the Act as the assessee is builder and developer and appoint .....

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