TMI Blog2018 (10) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the assessee company but a taxable revenue receipt. The company debits all the expenses incurred on development of plots in Profit and Loss account and hence the land premium being the consideration of leasing out of plot needs to be given the same treatment ie., treated as revenue receipt. The submission of the appellant – assessee that the land premium is in the nature of liability onwed by the appellant to the State Government is not acceptable. The assessee company is doing the business of Contractor and therefore, cannot take the shelter under Article 289(1) or 289(3) of the Constitution of India. There has to be a clear distinction between sovereign function and a function carried out as trader or a businessman. If the function carried out falls under the ambit of sovereign function, certainly any receipt arising there from cannot be subject to tax but where the function is being carried out as a contractor, in that event, such receipt is taxable and as per the directives of the State of M.P., the entire receipt remains with the assessee – company. A careful perusal of the Memorandum and Article of Association makes it crystal clear that the assessee's main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 A.Y.2008-09 ITA No.361/IND/13 Dt. 21.3.2018 8 ITA No.67/18 A.Y.2010-11 ITA No.206/IND/16 Dt. 21.3.2018 9 ITA No.68/18 A.Y.2009-10 ITA No.205/IND/16 Dt. 21.3.2018 3. Since the common question of law is involved in these appeals therefore, they are heard together and are being disposed of by this common order. For the sake of convenience the facts are borrowed from ITA.No.60/2018. 4. The appellant assessee (Madhya Pradesh Audyogik Kendra Vikas Nigam, Indore Ltd and Special Economic Zone (Indore Ltd.) (hereinafter referred as ' MPAKVN ' and 'SEZ' ) have preferred these appeals which relate to assessment years (2003-04, 2004-05, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11). Being aggrieved by the order dated 21.3.2018, passed by the Income Tax Appellate Tribunal Indore Bench, Indore by which the learned tribunal partly allowed the appeals except the addition related to land premium. The appellate tribunal directed the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee on the following grounds: (i) the assessee is not the owner of the land and has acted merely as a nodal agency and instrumentality of the Government hence not liable to tax. (ii) the amount of land premium (Salami) is capital receipt, hence not taxable under any circumstances. 8. The State Government had acquired the land under the provisions of the Land Acquisition Act, 1894 for the purpose of development of industrial area in the backward areas or no industry district as per the policy of Government of India to attract industrialization in the State. After acquisition of the land and payment of compensation to the landowners / farmers in terms of the award passed by the land acquisition officer and as may be modified by the competent authority or the Courts as the case may be, the land so acquired has been entered into the revenue record in the name of Industries Department, Government of Madhya Pradesh. The State Government through Industry Department became owner of the entire land acquired to develop an industrial area SEZ. 9. The State Government instead of undertaking the industrial infrastructure development work on its own delegated the responsibility up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med that the land is stock in trade of the assessee. In case of renting or lease business only rental income and other recurring charges are revenue receipt but not lease premium which is received for parting away the rights in capital assets. 13. The assessee has no right of ownership on the land and has acted merely as an agent or nodel agency for and on behalf of the State Government to achieve the object of industrialization in the State. The assessee collected the land premium on and behalf of the State Government hence not taxable in the hands of the assessee. During the relevant year the assessee has not filed their return as their income is exempted from the levy of tax by reasons of the provisions of Section 10(20A) of the Income Tax Act, 1961 as well as by the judgment of the Gujarat Industrial Development V/s. CIT , 1997 (142) CTR 181 . 14. In Finance Act, 2002, Section 10(20A) of the Act was deleted w.e.f. 1.4.2003 and the income of the appellant from the development of industrial infrastructures comes under the net of income tax. Due to the non-filing of the returns for the assessment year 2004-05, the revenue issued a notice under Section 148 of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Government and thirdly, even if it is assumed that the premium receipt is of the assessee company, even in that event it is not taxable being capital in nature. The plea of the appellant assessee that the assessee being a Government company cannot be taxed under Article 289 of the Constitution, has been rejected by giving the following finding which reads as under :- Article 289(1) says,- The property and income of a State shall be exempt from Union taxation Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith Nothing in clause ( 2 ) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of Government. 17. In respect of a second plea of the assessee that whatever is done i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re distinguishable on facts. In the present case, the assessee is also empowered to acquire land deal with the same in the manner it likes. Another distinguishing facts in the present case is that the assessee itself has treated as taxable in earlier years and in the present case, there was special audit, wherein the auditors have given a finding on facts by observing as under:- As stated above company is engaged in the business of industrial and infrastructure development, thus, land premium and other lease charges so received is a part and parcel of its business receipt. Therefore, land premium and lease rent so received is not a liability in the hand of the company. As in the estate business a builder debit all expenses incurred on construction and credit sale proceeds to profit and loss account considering them as revenue in nature. The company also debit all expenses incurred on development of plot in profit and loss account. Therefore, the land premium being the consideration of leasing out of plot needs to be given the same treatment i.e. treated as revenue in nature. Also no capital gain is offered when the lease is cancelled due to surrender of plot or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount before the execution of this deed. Moreover, it is contended by the assessee that matching principle is to be applied to give set off of the expenditure incurred in respect of the lease premium. It demonstrates that the assessee is not clear whether this receipt is revenue or capital in nature. From the above, it is clear that one time premium received by the assessee would be income of the year of the receipt. It can be safely inferred that the land premium is nothing but a kind of rent, which is certainly taxable. Under the identical facts, Coordinate Bench of this Tribunal in I.T.A. No. 1299/Bang/2013, in the case of M/s New Mangalore Port Trust, Mangalore vs. ACIT, has held as under:- 9.5 Thus it is clear that the Special bench has analyzed the respective obligations of the parties and found that in the said case, the assessee contributed to the accruing or arising of the income by rendering services or otherwise. It was also noted that in case of failure of the assessee to provide the allotted accommodation or the alternative accommodation, the assessee is liable to pay liquid damage to the members. On those peculiar facts of the said case, the Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of the assessee on the amount of State Government as received in the form of land premium, Lease rent, Transfer fee and development funds which actually pertained to the State Government and as per order of the State Government dated 31.03.2017 also it was clarified that the amount of lease rent, Interest on State Government, Transfer fee and development funds as received by the assessee actually pertained to the State Government. The assessee before the assessing officer himself vide his letter dated 17.12.2009 has submitted its detailed reply which was also considered in Para 7.6 of the assessment order the same is reproduced as under:- Further to our earlier submissions on the subject, we may submit that the land premium is being received by the assessee Company for and behalf of the government of M.P. according to the policies as decided by the M.P. Government in this respect. We may invite your honors kind attention on the instructions letter dated 14.12.1981, copy of which is enclosed herewith. On perusal of the said letter your honor will please appreciate that the assessee company, which is fully owned by the government of M.P. and is being functioning under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions and claimed that merely the amount of lease rent, land premium and interest on State Government Funds inadvertently offered for tax does not deprive the assessee company to lodge its claim before the Hon ble Bench. 28. The Hon ble Bombay High Court in the case of Balmukund Acharya Vs. DCIT as reported in 310 ITR 310 has held that: 31. Having said so, we must observe that the apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected [see S.R. Koshti vs. CIT (2005) 193 CTR (Guj) 518 : (2005) 276 ITR 165 (Guj), C.P.A. Yoosuf vs. ITO (1970) 77 ITR 237 (Ker), CIT vs. Bharat General Reinsurance Co. Ltd. (1971) 81 ITR 303 (Del), CIT vs. Archana R. Dhanwatey (1981) 24 CTR (Bom) 142 : (1982 136 ITR 355 (Bom)]. 32. If particular levy is not permitted under the Act, tax cannot be levied applying the doctrine of estop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of both the lower authorities and further added that the assessee has itself offered the income for tax on account of lease premium in the return of income. 31.1 We have heard the rival contentions and perused the records placed before us and gone through the judgments referred and relied by both the parties. We observe that in the preceding para no.22, we have given a categorical finding that the lease premium income offered by the assessee was a conscious decision and further Article 289(1) of Constitution of India is not applicable on the facts of the present case. Therefore, the grounds raised relating to this issue regarding exclusion of lease rent, land premium and interest income are devoid of merits and therefore, they are rejected. Issue regarding Under estimation of profit : 32 In the appeal as filed for the Asst Year 2003-04 [ Appeal No 347/Ind/2013 ], the assessee had challenged the addition as made by the assessing officer and as maintained by the Ld CIT[A] in respect of understatement of profit to the tune of ₹ 2,18,75,469/-. 33 The assessing officer in the assessment order disallowed the expenses as incurred to the tune of ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountant. (ii) The AO has mechanically relied upon the Audiotrs comments without taking into account the notes on accounts from which it emanates that the assessee was considering employee remuneration, administrative and general overheads as capital expenditure only when such expenditures were specifically attributable to the construction of a project. This means such expenditure were capitalized only till such time, the capital work was in progress and once the capital work has been completed these expenditure have not been capitalized and treated as revenue expenditure, Surprisingly, the facts in the case do not support the statement of the assessee. The assessee's contention that the projects were complete, therefore, the expenses were taken to profit and loss account is absolutely a contradictory statement because records for the year under consideration and subsequent year indicate evidently that the projects/ creation of fixed assets is a continuous process in which the assessee is fully engaged. Even if it is believed that the projects were no more in existence, in that case there is no question of existence of such expenditure under the relevant heads under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for development and further management and maintenance of the same. The land remained in the ownership of the State and the assessee was allowed to act as a nodal agency. The development of industrial area which was commenced in the year 1981 came to at halt around 2000 when most of the land available have been utilized for development. It is further submitted that in the year 2005 the State Government decided to develop first Special Economic Zone and therefore established a new entity in the name of SEZ Indore Limited and diverted the development work in that company. Therefore, no major projects remained with the assessee and all the resources and land available with it had been transferred to M/s. SEZ Indore Limited which has developed the first SEZ of the country in India. In the above background, there were need for the assessee to revisit its accounting policy which was continued for many years and as a policy the assessee was allocating 75% of its employees cost and administrative cost to the pending projects. However, since no major projects were in the hands of the assessee, therefore it was imperative for the assessee to reconsider its policy and charge entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of capital works in progress. Now this year management has changed their policy and it has been decided that major expenditure has been incurred on maintenance activities instead of infrastructure activities hence there is no need to allocate 75% of expenditure to work in progress 36 Thus, it is clear that the assessee was considering employees' remuneration, administrative general overheads as capital expenditure only when such expenditures were specifically attributable to the construction of a project. This means such expenditures were capitalized only till such time, the capital work was in progress and once the capital work has been completed these expenditures have not been capitalized and treated as revenue expenditure. 37. Regarding the Accounting Standards-AS 10, the AO stated as under :- Para 93 of the Accounting Standards-AS 10 Para 93 of Accounting Standard 10, Accounting for Fixed Assets issued by the Institute of Chartered Accountants of India deal with the subject matter as under: Administration and other general overhead expenses are usually excluded from the cost of fixed assets because they do not relate t a specific fixed asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going in to the merit and submissions made by the assessee. The Ld. CIT(A) failed to appreciate the notes to the accounts , which categorically mentioned that the assessee was capitalising the revenue expenses only in case these expenses have been specifically attributable to any project or fixed assets, which is as per the accounting standard and GAAP. The Ld. CIT(A) has also erred in considering the above treatment of revenue expenses by the assessee as change in accounting method/policy where there was no change in the accounting method/policies and the assessee continued to follow the same accounting methods and policies which were regularly employed by the assessee. When the aforesaid expenses are not directly related to any project nor specifically attributable to construction of a project/fixed assets, the Ld. AO can not impose his decision to transfer 75% of these expenses to a capital assets contrary to the accounting standard AS 10 and GAAP. It is the brain child of Ld. AO that the assessee by considering the aforesaid expenses as revenue expenses tried to avoid the payment of tax. Before reaching to any such conclusion it is necessary to ascertain whether the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributable and when these revenue expenses are not specifically attributable, the assessee is treating the same as revenue expenditure following accounting standards GAAP. The assessee rely upon following Judgment in support of his argument: (i) CIT Vs. Punjab State Industrial Development Corporation Limited (2002) 255 ITR 351 (P H) it is undoubtedly correct that the statue stipulates that the income shall be computed on the system of accounting regularly followed by the assessee. It should mean during the period under consideration. However, the provision cannot be interpreted to mean that once a system of accounting is adopted, it can never be changed. Regular cannot in the present context mean permanent. It has not been pointed out with reference to any provision that a change is impermissible or barred even when it is warranted by the existing situation. Where, the assessee a Government Company switched over from mercantile system to hybrid system in respect of its liability on account of interest because it was not realizing interest in time and the finding of the Tribunal was that the change over adopted was a legitimate and bona fide need of accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of addition to the fixed assets, hence, there was no justification for making the addition merely on the basis of remarks in the clause 11[c] of the Tax audit report. The remarks of the Tax auditor which is important piece of evidence but the same is not considered as conclusive piece of evidence. Considering the written synopsis of the assessee and on perusal of the Profit Loss account, we are of the view that expenses as claimed by the assessee were incurred for day to day maintenance and also incurred for day to day administrative work which was not in the capital nature. We hereby direct the assessing officer to delete the addition of ₹ 2,18,75,469/- as made on account of understatement of profit. 19. It is submitted by Shri P. Kaurav, learned Senior counsel, that the Government of M.P. had acquired the land for the purpose of development of industrial area. The learned appellate tribunal has committed an error in treating the assessee as owner of the land and consequently treating the land premium as income of the assessee whereas, the lease premium received by the assessee is capital receipt for and behalf of the State Government hence, not taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be taken to constitute rental income in the hands of lessor, obliging to lessee to deduct tax at source under Section 194-I of the Act and that in such a situation the lease assumes the character of deemed sale and held that TDS was not deductable on payment of lump sum lease premium for company for acquiring long term lease for 99 years. He has also drawn our attention to the decisions of Apex Court, High court of M.P., High court of Calcutta and High court of Karnataka in the case of Commissioner of Income Tax V/s. Panbari Tea Co. Ltd ., (1965) 57 ITR 422 (SC), A.R. Krishnamurty V/s. Commissioner of Income Tax , (1989) 43 Taxman 30 SC, Maharaja Chintamani Saran Nath Sah Deo V/s. Commissioner of Income Tax , (1971) 82 ITR 464 (SC), Durga Prasad Khanna V/s. CIT , (1969) 72 ITR 796 (SC), Commissioner of Income Tax V/s. Project Automobiles ,(1987) 35 Taxman 181 (M.P.) , Promod Ch. Roy Chowdhury V/s. Commissioner of Income Tax , (1962) 46 ITR 1064 (Cal.) , Commissioner of Income Tax V/s. Karnataka Urban Infrastructure Development Finance Corpn. (2006) 155 Taxman 288 (Kar) and the decision of Mumbai High court in the case of City and Industrial Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land premium and is incurring expenditures to develop the land and maintaining industrial infrastructure. The issue has been examined by all the Authorities and thus does not give rise to a question of law much less the substantial question of law. The land premium was the income of the assessee and these amount have never been transferred to the State Governmental by the assessee companies and prayed for dismissal of the an appeals. 25. The assessee has been acting independent / equivalent to the owner of the land which is clear from the Clause 22 of the Memorandum where it is clearly brought out that the object of the MPAKVN and SEZ shall be to sell, improve, manage, develop, exchange, lease, mortgage, dispose off, deal with all or any part of property and rights of the company. Moreover, there is no denial on the part of any transaction, the same has to be taxed under the Income Tax Act, 1961 unless the same is exempted by a particular provision of the Act. 26. Till the assessment year 2003-04, the assessee had been first showing the land premium as part of income and subsequently claiming exemption under Section 10(20A) of the Income Tax Act. However, this section ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee under consideration. 30. A careful perusal of the Memorandum and Article of Association makes it crystal clear that the assessee's main object is to develop, promote, encourage, assist in growth and establishment of industries etc. with ancillary/incidental objects of carrying out of business. A reference to objects as specified under B9 to B12 makes it clear that the assessee is in the business with a motive to earning the profit. The relevant paras of such objects are reproduced as under :- Ancillary/incidental objects of the company shall be: B(9) To carry on any other trade or business whatsoever which can, in the opinion of the company, be advantageously or conveniently carried on by the company by way of extension of or in connection with any such business as aforesaid or is calculated directly or indirectly to develop any of the company's business or to increase the value of or turn of account any of the company's assets property or right; (10) To undertake, manage, control or otherwise deal with the business and undertakings of any person, firm or corporation when it may be necessary for the purpose of protecting the interests of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the modality of transfers and renewable after 99 years. 35. The case Ukhara Estate Zamindaries P. Ltd., (supra) relied by the appellant, is also distinguishable from the facts of the instant case. Inthat case, the assessee was himself a lessee who took over the Zamindari Properties of a family for 99 years. The lease items comprised of coal bearing lands/mines, government promissory note, jewellery, arrears of rent etc. The appellant granted several sub leases for 90 years to various companies and received salami as well as compensation for compulsory acquisitions. This was a single lease by the appellant and receipt of salami by granting of sub leases for management of real property as an owner of lease hold interest was construed and treated as capital asset. Whereas in the instant case, the land was given by the State Government and the assessee has transferred the same on long term lease and earned rental income as well as the advance rent in the form of land premium. The issue has been dealt with by all the authorities considering all the aspects of the case and recording their finding. 36. No substantial question of law is involved in these batch of appeals for de ..... 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