TMI Blog2023 (10) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... position of law and backed by binding judicial precedents. No contrary decision has been shown to us. Therefore, the adjudication rendered in the impugned order could not be faulted with. In the result, the revenue s appeal stands dismissed. Nature of income - Forfeiture of security deposit - termination of certain lease agreement - income from house property or 'income from other sources' - HELD THAT:- The amount waived by one party would be the income of the other party. The amount waived should only be considered as income from other sources . It is not correct on the part of the assessee that there is extinguishment of right to rent. Right to rent is not transferred to anyone. Right to rent had not extinguished also as the assessee can very well rent the property to any other person as it wishes immediately after the forfeiture of the deposit also. The right to rent the property was very much with the assessee even after the forfeiture and hence, it could not be treated as transfer. Therefore, assessee's claim that there was extinguishment of right could not be accepted. There was no transfer of any right which would justify assessment of receipt as capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law. 2. The learned CIT(A) has erred in holding that the loss on forward contracts of Rs. 10.83 Crores cannot be considered as speculation loss and outside the scope of provisions of Sec. 43(5), without appreciating the fact that the forward exchange contracts issued by the bankers were cancelled by the assessee prior to the date of settlement. 3. The learned CIT(A) failed to note that the assessee has benefitted by prior settlement of contracts, which is speculative in nature. As is evident, the sole ground is to determine the nature of loss arising on forward contracts cancelled by the assessee prior to the date of settlement. 4. The assessee being resident corporate assessee is stated to be engaged in manufacturing/export of mineral ores. During assessment proceedings, it transpired that the assessee suffered loss on forward exchange contracts. The Ld. AO held that such transactions are covered under the scope of Sec. 43(5)(a) since the transactions have ultimately been settled otherwise than by actual delivery and therefore, loss would be speculative in nature. Though the contracts were entered to guard against loss that may be arising on future forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aler in foreign exchange, but was an exporter of cotton. Therefore, the Tribunal rightly took note of the transaction done by the assessee though, in order to hedge against the losses, the assessee booked foreign exchange in the forward market with the bank. However, the export contracts entered into by the assessee for the export of cotton in some cases failed and therefore the assessee was held to be entitled to claim deduction in respect of the said amount as business loss . It will be beneficial to refer to the decision of the Bombay High court in the case of JTVs. Badridas Gauridu Pvt Ltd reported in(2003) 261 ITR 256]. In that case, the assessee was not a dealer in foreign exchange, but was an exporter of cotton as in the case before us. The assessee therein booked foreign exchange contracts, which were held to be only incidental to the assessee's regular course of business. The Bombay High Court relied on the decision of the Calcutta High Court in the case of CIT Vs. Sooraj Mull Nagarmull (129 ITR 169). 7.1.5 The facts in the assessee's case are similar as decided by the jurisdictional Madras High court, Bombay and Calcutta High courts referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income under the head long term capital gains. The learned CIT(A) failed to appreciate the alternate claim of the appellant that if the forfeiture of balance of security deposit, for premature termination of lease agreement, is to be treated as revenue receipt, then it is only annual value which can be assessed under the head Income from House property since, such receipt would fall only under the head Income from house property. As is evident, the sole issue that arises in the assessee s appeal is to determine the nature of amount received by the assessee on termination of certain lease agreement. The income so earned by the assessee from leasing out of house property has been offered as well as assessed under the head income from house property . 8. The relevant facts qua the issue are that the assessee leased out certain property to M/s Nilgiri Diary Farm Ltd. (Lessee) and received advance amount of Rs. 700 Lacs. Subsequently, the deed was cancelled and the assessee entered into lease cancellation deed on 25.11.2011. As per Clause-8 of the deed, the assessee refunded advance of Rs. 150 Lacs. After adjusting lease rent for the period Sept. 09 to Jan. 2010, the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has to verify whether tax was levied on the aforesaid amount both under capital gains and as other sources income and grant appropriate relief. 7.3.3 As to the head of income in which the aforesaid amount has to be assessed, the AO held that the assessee is not a tenant but the owner and the termination of contract does not fall under the scope of section 55(2). The forfeiture of deposit does not contain a date of reckoning and hence the reason for treating it as a long term capital asset and having a period of holding more than 36 months is also not proven. There was no basis for the assessee to treat the receipt as long term capital gains. The AO therefore treated the income as income from other sources. 7.3.4 On the other hand, the AR submitted that there was extinguishment of right and therefore rightly offered as long term capital gains. The AR in the alternative claimed that the same may be considered as income from house property. 7.3.5 I have analysed the facts. As per the lease cancellation agreement, clause 8 reads as under:- The First Party and Second Party agrees that out of the security and additional deposit totaling Rs. 7,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of taxes. The assessee s reasoning is that there was an extinguishment of right and therefore, the gains would be LTCG. In the alternative, the assessee claimed that the same would be considered as Income from house property . The Ld. CIT(A), upon perusal of cancellation deed, observed that the amount of Rs. 514.94 Lacs was waived-off by the assessee and there was no forfeiture or extinguishment of any right in the property. The amount waived by one party would be the income of the other party. The amount waived should only be considered as income from other sources . It is not correct on the part of the assessee that there is extinguishment of right to rent. Right to rent is not transferred to anyone. Right to rent had not extinguished also as the assessee can very well rent the property to any other person as it wishes immediately after the forfeiture of the deposit also. The right to rent the property was very much with the assessee even after the forfeiture and hence, it could not be treated as transfer. Therefore, assessee's claim that there was extinguishment of right could not be accepted. There was no transfer of any right which would justify assessment of receipt a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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