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Income Tax Appellate Tribunal, “A ”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These appeals are filed by the Revenue and Cross Objection by assessee against the order of CIT(A)-30, Mumbai dated 01/06/2012 for the A.Y.2006-07, 2007-08 and 2008-09 in the matter of order passed u/s.143(3) / 143(3) r.w.s. 147 of the IT Act.
2. The grounds taken by Revenue in all the years under consideration are common. The grounds taken in the A.Y. 2008-09 are as under:- 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the AO to the tune of Rs. 1,15,04,1857- being amount collected by the assessee and not offered as income by the assessee". 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee that the receipts do not crystallize till the matter attains finality in the High Court and as receipts are shown in balance sheets, ignoring the fact that mere entries in books of accounts do not determine true nature of income ".
3. The appellant prays that the order of the CIT(A) be set aside and matter may be decided according to law. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
Rival contentions have been heard and record perused.
4. Facts in brief are that the assessee is a partnership firm engaged in the business of construction industrial and service gala. During the assessment proceedings the assessee was asked to explain why the amount deposited with court Rs. 1,15,04,185/- should not be added to the total income. The assessee submitted to the A.O that there are 2 building under construction named building no. 9 and building no. 5. The building no. 9 is named as "Laxmi Plaza" and galas constructed are in the nature of industrial galas. The building No. 5 is named as "Laxmi Mall" are in the nature of service gala with improved quality of construction. The assessee submitted that the firm had shown the sales revenue net off of deposit money made with the court (as per High Court order passed in September 1998). In this regard the assessee firm stated that the member of the societies of the estate has filed suit against the firm restraining assessee firm from construction and consumption of remaining FSI. The City Civil Court in September 1998 passed the order in favour of the firm. The same order was challenged before the Hon'ble High Court by the society members. The Hon'ble Bombay High Court permitted the firm to consume the FSI subject to certain conditions including the condition of deposit of Rs. 500 per Sq.ft. with the city Civil Court on the sale of gala by the firm. The assessee firm submitted that the outcome of the money deposited with court will depend on the decision of the Hon'ble High Court, it is in the ;nature of contingent as the final decision is yet to be given by the court and thereby the outcome of deposit of Rs. 500 per sq.ft. will be crystallized only after the decision of the High Court. The assessee further submitted that in case if the assessee firm loses the case before the High Court then the society will be entitled to share of additional FSI (which is enjoyed FSI by the assessee firm) with the existing gala owners. In view of this the assessee firm has shown this amount of deposit of Rs.1,15,04,185/- as contingent in nature and shown as deposit in the books of accounts till the conclusion of dispute and the decision of the Hon'ble High Court.
5. The A.O has not accepted the assessee's contention. The AO has stated that the Hon'ble High Court has only directed the assessee to make the deposit in respect of the litigation and the amount deposited alongwith interest thereon shall be paid over to the party who wins the appeal. This proves that the aforesaid claim of the assessee is not an ascertained liability but a contingent liability. The same cannot be claimed as deduction from the sale proceeds of the property. Therefore the A.O added the same to the total income of the assessee.
By the impugned order, CIT(A) deleted the addition after considering various judicial pronouncements. The precise observation of CIT(A) was as under:- 7. I have gone through the issue. From the discussions above, it is seen that there is dispute between the appellant and the owners of the industrial sheds (which were earlier purchased from the appellant) with regard to the entitlement of additional FSI available on the land owned by the appellant. The erstwhile purchasers of industrial sheds were of the view that they are also entitled to the benefits of additional FSI available now with the appellant. The erstwhile owners have filed a case before the Hon'ble City Civil Court against the appellant vide SC Suit No. 3159 of 1993. The City Civil Court in their interim order allowed the appellant to do pilling work upto one feet above ground level of the proposed building and the court (order dated 8.9.09) has not given relief of injunction to restrain the appellant from carrying out construction of additional structures consuming balance FSI. Aggrieved by the order of the Court, the owners of the industrial shed filed an appeal in the High Court (order dated 22,12,98) and the Hon’ble High Court has passed the following order: "The following order shall operate pending the appeal (1) Respondent No. 1 will be entitled to consume and/or deal with balance F.S.I 0.43 viz. 3,94,680 sq.ft. subject to following conditions: i) Respondent no. 1 shall disclose to the intending gala purchasers about pending of L.C. Suit No. 3159 of 1995 in the City Civil Court. Appeal from Order No. 1050 of 1998 and Writ Petition no. 2666 of 1993 in the High Court. ii) Respondent No. 1 shall deposit Rs. 500/~ sq.ft. in the City Civil Court, within 15 days from the date of agreement for sale of gala with the intended purchaser/s. iii) Respondent No. 1 shall file the statement quarterly in the City Civil Court pertaining to area agreed to sell, the total consideration, and name and address of the such intended purchasers. iv) The Registrar of City Civil Court, Mumbai, shall invest the amount deposited in the Court, in the quantum of Rs. 1 lakh in the Nationalised bank for a period of initially one year and to go on renew till the hearing and final disposal of the suit No. 3159 of 1995. v) The amount deposited with accrued interest will be paid to the party which succeeds in Suit No. 3159 of 1995. vi) Respondent No. 1 shall not sell and /or dispose of the suit plot of land save and except the suit galas to be constructed, vii) Respondent No. 1 shall not give the galas to be constructed on the suit plot of land on Leave and License Basis and/or on Lease to any person." Subsequently the Hon "hie City Civil Court in it's order dated 8/9/2008 decided the issue in favour of the appellant but the court has not directed to, refund the deposit to the appellant. The appellant filed petition before the HonTole High Court requesting to release the amount and the petition is pending. In the meantime the owners of industrial shed has also filed appeal before the Hon'ble High Court against the order of the City Civil Court and the matter is pending before the High Court. The relevant grounds raised before the High Court by the owners of the industrial sheds are as follows; B) That the Learned Judge erred in partly Decreeing the Suit and i dismissing it in respect of Declaration and Injunction for user of F.S.I by the Building Respondent No. 1 which is rightfully belongs to the Societies formed by the Unit Purchasers under Maharashtra Ownership of Flats Act. J) That the Learned Judge erred in holding that the Respondent No. 1 has not utilized additional F.S.I. contrary to the Development Control Regulation for Greater Bombay inspite of the fact that societies in the Suit property formed and registered more than two decades ago. In such circumstances the societies are exclusively entitled for further development and utilization of available PS I as per Maharashtra Ownership of Flats Act, 1966 from the date of registration the right of society accrues to the balance F.SI from the date of registration of society as per the relevant provisions of law. M) That the Learned Judge while coming to the conclusion that the appellants are entitled for the conveyance in respect of the suit property in favour of the unit purchasers also ought to have come to the conclusion that the FSI available on the suit land/suit property is also required to be conveyed to the purchasers and they will be exclusively entitled for the said FSI for further development of the suit property in future and the Respondent No. 1 will have no right, title and interest or claim on the said additional FSI available on the Suit Plot of Land. AA) That the Learned Judge ought to have to come to conclusion that the Respondent No. 1 is not entitled to utilize the F.S.I. and put up structure subsequent thereon hence the same will be in contravention of the obligations put by the Maharashtra Ownership of Flats Act (MOFA) on a Builder/Developer i.e. Respondent No.
BB) That the Learned judge failed to appreciate that once the conveyance will be executed in favour of the Society and the purchasers of Gala/Units in respect of the suit property then the Respondent No. 1 will not have any right, title interest in FSI available for construction thereon and the same cannot be utilized by the Respondent No. 1 as the Respondent No, 1 is not the owner of the suit property. As such the plan sanctioned in respect of the suit property in favour of Respondnet no. 1 will be of no use because he will not be able to put up structure as he ceases to be owner of the Suit property. 7.2 The appeal filed by the owners of the industrial shed are pending before the Hon'ble High Court , The monies deposited by the appellant are also not refunded to the appellant. These facts clearly brings out that there is dispute, about the receipt of Rs. 500 per sq.ft. of the spaces sold out and only the High Court's decision will bring the dispute to end and then only it will be known who is entitled to the receipt of Rs. 500 per sq.ft. Until then the receipt cannot \ be considered as income of the appellant as it has not accrued to the appellant in view of the pending dispute. The Hon'ble Bombay High Court in the case of FGP Ltd. vs. CIT 326 1TR 444(Bom) has held as follows: "
The Apex Court in Godhra Electricity Co. Ltd. (supra) has laid down the test to assessee income in the hands of an assessee. The assesses therein was also following the mercantile system of accounting and had made entries in the books regarding electrical charges for the supply made to the consumers, however, no real income had accrued to the assessee company. The Tribunal had held that it represented hypothetical income and the A.O was not right in assessing it to tax. Before the Supreme Court it was urged that even in case of mercantile system of accounting, tax can only be imposed if there is real income and income-tax cannot be imposed on hypothetical. The Court held even in mercantile system what has to be seen is whether income can be said to have really accrued to the assessee company. The Court referred to the judgement of the income can be said to have really accrued to the assessee company. The Court referred to the judgment of the Court in H.M. Kashiparekh & Co. Ltd. vs. CIT (1960) 39 ITR 706 (Bom) which view was approved by the Supreme Court in CIT vs. Birla Gwalior (P) Ltd. 1973 CTR (SC) 349 : (1973) 89 ITR 266 (SC). What can therefore, be assessed is real income as income-tax is a tax on income, The test therefore, before income can be taxed is whether there is real accrual of income. In our opinion, the ratio of that judgement fully applied to the facts of the present case.
In the instant case, there is no accrual of income. There is dispute between the parties for the relevant assessment year which £ was pending in arbitration. It is only on the arbitral proceedings coming to an end and award being passed and income received by the assessee, will it be liable to be assessed. 7.2.1 The Hon'ble ITAT Amritsar Bench in the case of ITO vs. Kuthiala Cold Storage 48 TTJ(Asr)™ 46 ITD 1 13™ has held as follows: “ have heard the parties at length and further considered the relevant material on record. There is no dispute that the order issued by the Punjab & Haryana High Court on a writ petition filed by the assessee and other cold storage owners and the following order was passed: "The main case may be listed after the decision of CWP No. 922 of 1979, Meanwhile, stay in the same terms is granted by the Supreme Court in W.P. No. 609 of 1979 Krishna Ice and General Mills vs. State of Haryana granted on 20th June, 1979. We may further clarify that the petitioners shall also provide the names and particulars of each of their customers from whom they charge the amount in excess of the prescribed limit."
The writ petition was dismissed on 25th April, 1980, and the stay was vacated but till the matter was decided on 25th April, 1980, the question whether the assessee could recover storage charges in excess of Ks. 11.50 per bag fixed by the Government remained disputed and in view of the above dispute the amount recovered in excess of the amount fixed could not be treated as income which had accrued to the assessee in the accounting year ending on 31st March, 1980. The above view have full support from the decision of the Supreme Court in the case of CIT vs. Hindustan Housing and Land Development Trust Ltd. (1986) 58 CTR (SQ 179: (1986) 161 ITR 524 (SC), wherein their lordship observed as under:
" Held, affirming the decision of the High Court, that although the award was made by the arbitrator on 29th July, 1955, enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government. And the dispute was regarded by the Court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of the appeal being allowed. .There was no absolute right to receive the amount at that stage. If the appeal was allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7,24,914/- was not income arising or accruing to the respondent during the previous year relevant to the asst. yr 1956-57." 7.2.2 In the case of Sheo Prasad Singhal vs. ITO 25 TTJ(DEL) 308, the Hon'ble ITAT Delhi Bench has held as follows: - "I have heard the parties at great length, perused the orders written by the authorities below, which are quite long and detailed and I have also ; considered the decisions relied upon by both the sides before me. On a careful consideration of these, I am of the opinion that the view taken r by the Id. Accountant Manager appears to be just and correct. The i order of the ITO as well as the CIT(A) suggest that the award given by the arbitrator was under the rule of the Court by an order passed by the High Court on 22nd Jan., 1979. This does to seen to be correct. Actually it was the order passed by the First Additional Civil Judge, Agra on the date which was an ex parte order. It is not doubt true that once the award becomes the rule of the Court, it becomes enforceable and acquires validity. The Delhi High Court held in the case of Faxika Electric Supply Co, Ltd. vs. CIT (1983) 36 CTR (Del) 355: (1983) 143 ITR 557 (Del) that an award of an arbitrator that is not filed in Court and made a rule of the Court has no force or validity. It cannot create, extinguish or pass any title or interest. Nobody can rely on such award by way of attack or defence in any proceeding whatsoever. No party can be prejudiced or benefited by the mere existence of such an award. Since this award has become the rule of the Court as per the order passed by the First Additional Civil Judge on 22nd Jan., 1979, this has become enforceable. But his position has to be seen what would happen when the operation of the decree passed consequent on making the assessee award rule of the Court, was stayed by the High Court. After staying the operation of the decree, the Allahabad High Court by a subsequent order passed on 2nd April, 1980 directed the Government to deposit entire decrial amount in the execution court and permitted the assessee to withdraws the money only on furnishing an adequate security with the stipulation that if the amount was not deposited within the period mentioned, the stay order granted would be automatically discharged. Thereafter by furnishing a bank guarantee, the assessee was permitted to withdraw the money. The bank guarantee given by the Central Bank of India provided that the bank , would undertake to pay the entire amount of Rs. 2,45, 190 without any demur merely on the demand of the Hon'ble High Court if the revision was allowed by it. The Ld. Accountant Member felt that when as a consequence of application filed in the High Court challenging the very validity of the appointment or arbitrator and when the High Court stayed the operation of the decree, no right to those amounts accrued to the assessee within the meaning of s.5 of the IT Act, so as to say tat those amounts were the income of the assessee. The mere receipts of the money by furnishing a bank guarantee does not mean that the assessee received the amount as and by was of income. It is only tentative Member attached with the liability of repayment in case the suit was decided against it. While the Id. Judicial Member took the view that because the amount was received by the assessee, it constituted his income. In other words, while according to the Id. Accountant Member no right to receive the income accrued to the assessee consequent on the filing of a suit by the Government in the High Court, the Id. Judicial Member felt otherwise. The question, therefore boils down to whether in a situation like this a right to receive the income accrued to the assessee or not. In other words when a suit is filed in the High Court questioning the decree passed by the lower authorities and when the High Court stayed the very operation of the decree, could a right to receive the income be said to have accrued within the meaning of s.5 of the IT Act because it is that section that permits all levy of tax. Sec. 5 states that the total income of any previous year of a person, who is a resident includes all income from whatever source derived which is received or is deemed to be received in India during such year or accurse or arises to him outside India during such year, Other partitions of s.5 are not quoted here as they are not relevant here for the present purpose. It, therefore, follows that any receipt in order to be income must be a receipt received as income or in the alternative or right to receive that income must accrue to him or arise to him and the accrual or arisal of that right must be during the previous year. It is now settled law that there is not much of difference between the expressions 'accrue' or 'arise' while there is not much of overlapping also. What is, therefore, to be seen is whether any right accrued to the assessee to receive this amount as income. This question is very vexed one and to engaged the attention of several High Court in the country. Identical question arose under several Acts e.g. Land Acquisition Act but the underlying Principle is that when an appeal is filed, whether if the amount decreed by a lower Court in favour of an assessee could be said to have given him a right to receive it. In other words whether a right accrued to him or not. Dealing with the question arising under the land Acquisition Act but involving an identical question as now before me. The Delhi High Court in the case of Harish Chandra & Ors. '( vs. CIT (1985) 45 CTR (Del) 329: (1985) 154 ITR 478(Del) held that so long as the appeals pending the enhanced compensation determined the District Judge could not said to have accrued and could not be taken into account in computing the capital gains. That could not be said to have accrued and could not be taken into account in computing the capital gains. That was a case where land was acquired by the Government under the Land Acquisition Act of 1984. A notification under s. 4 of the Act was made. Thereafter a declaration under s.8 was also made. The assessee then filed their claim before the Land Acquisition Collector for a sum of about Rs. 24 lacs. The Land Acquisition Collector after due enquiry gave an award for a sum of Rs. 12,13,000. After this award the amount was deposited but the assessee did not accept this award of compensation. He moved reference petition under s. 18 of the Land Acquisition Act for the determination of compensation by the Government. The Additional District Judge determined the compensation by enhancing it by Rs. 3.58 lacs. Still dissatisfied the assessee filed appeal for further enhancement in the High Court. The Government also filed a counter appeal against in the enhancement granted by the Additional District Judge in the High Court. Both the appeal were pending in the High Court. During the pendency of the appeals the assessee was allowed to withdraw the enhanced compensation by furnishing securities for restitution. Then the question arose before the High Court (i) whether on the facts and in the circumstances of the case the Tribunal has right in taking into account the compensation received by each of the assessee pursuant to the order of the District Judge. It so happened in this case the compensate awarded by the Distant Judge was taken into account by the Tribunal while making the assessment for the asst. yr 1966-67 even though the enhanced compensation was awarded on 12lh Sept., 1969 and received by the assessee in September, 1970. Neither of these dates fell in the asst. yr 1966-67 but still the Tribunal held that the enhanced compensation was to relate back to the asst. yr 1966-67 and consequently assessable in the year. The assessee questioned this conclusion of the Tribunal and, therefore, the matter went up before the High Court to decide the broad question whether in a case where appeals are filed could it be said that a right to receive that amount accrued. Dealing with the question, the Delhi High Court held on p.486 of the report. "Under the Act income is taxable when it accrues, arises or is received, or when it is by fiction deemed to accrue, arises or is deemed to be received. Receipt is the only test of chargeability. If income accurse or arises it may become liable to tax [see CIT vs. Ashokbhai Chimabhai (1965)56ITR42(SC)".
Then the High Court held in Harish Chandra & Ors vs. CIT (1985) 45 CTR (Del) 329 : (1986) 154 ITR 478 (Del) at 486 to9 488: "It is thus clear that unless and until there is created in favour of the assessee a debut due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. In cases of claims for determination of compensation by the Court, no debt is until the amount of compensation is judicially determined at all stages provided in the Acquisition Act. The offer made by the Collector by his award, it not accepted by the assessee, would not result automatically in a liability to pay enhanced compensation as claimed by the assessee. The claim made by the assessee is in respect of an inchoate right and unless the question of payment of any enhanced compensation is decided and the amount of enhanced compensation becomes determinable and payable, the amount cannot be said to arise or accrue. With the filing of the appeal by the Government against the determination of compensation by the District Court, the amount is in jeopardy. The right to receive the enhanced compensation by the assessee is clearly unsettled. The assessee has withdrawn it only on furnishing security for restitution. The withdrawal of the amount is contingent in as much as it is likely to be defeated by the acceptance of the appeal of the Government. The liability to pay additional or enhanced compensation is an incents or contingent right not creating a debt." It will be seen from this judgment that with the filing of the appeal by the government against the determination of compensation by the District Judge, the amount fell into jeopardy, that the right to receive the enhanced compensation was clearly unsettled, that the withdrawal of the amount was subject to the contingent right in as much as it was likely to be defeated by the acceptance or the appeal of the government. The liability to pay additional or enhanced compensation was, then an incheate or contingent right not creating a debt. This pronouncement of law by the Delhi High Court even though under the Land Acquisition Act settles in my opinion the issue that when an appeal is filed by the government the amount in question becomes unsettled and the right of the assessee becomes contingent and the fact that the amount was withdrawn by the assessee or was allowed to be withdrawn by the assessee was likely to be defeated and, therefore, no right accrue to the assessee in so far as that amount was concerned. If this is the correct position of law is regard to the present matter, as I understand , it is to be, then the assessee in this case did not acquire any right to receive the money in question although the High Court had permitted the assessee to withdraw the money in accordance therewith. The contest of the Government of Rajathan was that the appointment of the arbitrator invoking cl 25 of the agreement for the execution of the contract works was clearly untenable and beyond jurisdiction and the whole proceedings were arbitrary and one sided and were liable to be set aside. The finality of the decree passed by the Additional District Judge was so disturbed with the grant of the order of the High Court staying the operation of the decree that it cannot be said that any enforceable right to receive the sum in question accrued to the assessee. Unless such a right accrued to the assessee, the amount received cannot be brought to tax under s. 5 of the IT Act. In this context the question whether the assessee is following mercantile system of accounting or cash system of accounting or hybrid system of accounting does not really matter as the system only helps computing the income. If the assessee ultimately succeeds in the High Court, then it can be said that a right to receive those amounts accrued to the assessee and those amounts could then be brought to tax but not till then. I am therefore, of the opinion that the view expressed by the Id. Accountant Member is fair, reasonable and correct and I :. ^:,.^ endorse it. This will settle both the question because both the questions are so interconnected that the decision of one will govern the decision of the other. Since the receipt of the amount is itself jeopardy, the questions of taxing interest attributable to that amount cannot be said to have accrued." 7.2.3. The Hon’ble ITAT Jaipur Bench in the case of Sohanla vs. ITO 16 TTJ(J)) 550 has held: "The assessee is a dealer of Urea, the price of which is regulated by the Central Government. With effect from 1st June, 1974, the selling price of Urea was enhanced by the Govt. Under the Notification but a condition was imposed that old stock would be sold at an old rate. The assessee disputed such restriction imposed by the Govt. And dispute was carried to the Hon'ble High Court under a writ petition. Pending the writ, the High Court permitted the assessee to sell the old stock at the enhanced rate, subject to the condition that a separate account for the difference of the old and the enhanced rate would be maintained and the excess amount would be deposited with the Distt. Collector. The said writ was finally decided by the High Court in December, 1978 and, then the assessee made an application for refund of the excess amount that was being deposited with the Collector, Then, the State Government opposed the submission of the assessee and the High Court ordered the refund of the amount subject to the assessee furnishing a bank guarantee. It was stated in the order that if in appeal, the order of the High Court was reversed by the Supreme Court, then the whole amount refunded to the assessee would be paid back by the latter. The ITO brought the entire amount refunded by the Collector to the assessee to tax in the year under appeal. The assessee also failed in appeal before the AAC.
The submission of Shri Ranka, Id. Counsel for the assessee before me is that in any case the impugned amount cannot be taxed in the year under appeal as assessee's income. The submission of Shri Ranka is that even on mercantile system of accounting, no right was vested in the assessee with regard to the amount refunded by the Collector to the assessee on the conditional order of the High Court. He say that it would become the income of the assessee only when the dispute is finally settled by the Hon'ble Supreme Court. Shri Ranka argues that by virtue of the notification passed by the Central Government the assessee was not entitled to sell the old stock at the enhanced rate and, therefore, it was not entitled to the difference of the old rate and the enhanced rate, The fetter that was created by the Notification of the Government, Shri Ranka says continued to operate even after the decision of the High Court in the writ, as the writ decision was not final, in as much as, the appeal was filed before the Supreme Court by the State Government. Shri Ranka also argues that at no state, the amount was absolutely given to the assessee, but at all stages it was subjected to conditions and, therefore, there was no vested right of the assessee in the amount. On the other hand, the revenue argues that, the assessee is in possession of the amount refunded by the Collector and that unless the order of the High Court is reversed by the Supreme Court, the assessee has a vested right in the impugned amount. The Hon'ble Supreme Court in the case of E.D. Sasoon & Co. Ltd. & Ors. Vs. CIT (1954) 26 ITR 27(SC) observed at page 51 that if the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained and that the basic fact is that he must have acquired a right to received the income. What is right to receive the income-this question was further examined by the Hon'ble Madhya Pradesh High Court in the case of Sarupchand Hukamchand Pvt. Ltd., vs. CIT (1982) 133 ITR 295 (MP). On page 298, the High Court observes enforceability by legal process is considered to be sine qua non of a legal right. For such observation, reliance was on the book by Paton on Jurisprudence (4th Edition page 286). Then the High Court observes the question of enforceability of the right to receive the income is, therefore, embedded in tee concept of accrual of income while considering the question of taxability of such income under the provisions of the IT Act. The point at issue has to be seen in the light of the above legal position. The question for consideration is whether the assesses had acquired . any enforceable right in the year under appeal. The High Court passed the order pending the writ in the first instance at 3rd Oct, 1974 permitting the assessee to sell the stock at the enhanced rate subject to the condition that the excess amount would remain in deposit with the Collector and a separate account will be maintained by the assessee therefore. It clearly shows that the assessee had not acquired an enforceable right during the year under appeal to get the amount, which was deposited with Collector. The assessee having not acquired the impugned amount during the year under appeal, which according to the Madhya Pradesh High Court is embedded in the concept of accrual of income. I hold that the ITO was not right in bringing the difference of the old and new rate to tax in the year under appeal. The question in which year the said amount is taxable is besides the point." 7.2.4 The Hon'ble ITAT Jaipur Bench in the case of Smt, Sharda Pareek Vs. ACIT 50 SOT 439 has held as follows: 10.1 However, the moot question is whether the interest so received is taxable in the year under consideration or not. The Id.CIT(A) has confirmed the action of the A.O by observing that interest has been accrued and for that purpose he has placed reliance on various case laws whereby it has been held that interest is accrued on the basis of year to year. In those cases the interest was received on compensation awarded on account of acquisition of land. But here is the question of interest awarded on compensation on account of death by accident. In case of Land Acquisition the statutory body as well as the agriculturists filled appeal before the High Court to enhance the compensation or to reduce the compensation as the case may be. However, in the present case there is no question of enhancing the compensation on account of land acquisition but the case is on account of compensation awarded on account of death of the person due to accident. MACT has awarded some compensation and has also directed to pay interest to the assessee. The Insurance Company has filed appeal before the Hon'ble Jurisdictional High Court and Hon'ble Jurisdictional High Court has admitted the appeal of the Insurance Co. and Insurance Company has raised a very valid point which has been mentioned in the written submissions which is part of this order also. There may be possibility -that compensation can be reduced can be cancelled in toto or can be upheld. Appeal is admitted, there is no dispute. If the compensation is upheld, then of course, interest is also to be upheld. However, the rate may be less or more. If the award granted by MACT is annulled or reduced, then in that case interest on that amount has to be annulled or reduced. There are so many cases also where interest granted by MACT or High Court was reduced by Hon’ble Supreme Court. We will discuss some of the cases in later paras. If the amount is reduced or annulled, then there is no provision under the IT Act for refund of tax paid by the assessee for a particular year. In that situation the assessee will be in a adverse position and no court has held in any case that any person aggrieved should be in adverse position. This is a case of death by accident and if the legal heir directed to refund the compensation along with interest then there is not remedy to these legal heirs. Therefore, in view of these facts and circumstances, we are of the considered view that interest so awarded is liable to be assessee in the year in which it reached its finality." 7. 3 In view of the above decisions, I am of the view that the amount of Rs.500 per sq.ft. for the spaces sold out is a disputed receipt and it will become ' income of the appellant only if the dispute comes to the finality and the final decision is in favour of the appellant. Until then the receipt cannot be considered as income in the appellant's hands. Hence no income has accrued to the appellant from the receipt of Rs. 500 per sq.ft. from the spaces,. sold .out in this accounting year relevant to this asst. year. The A.O is directed to delete the addition made. p. In the result, the appeal is allowed.
Against the above order of CIT(A), revenue is in further appeal before us.
We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. From the record we found that the assessee firm is engaged in the construction business since 1964. The assessee firm took the development of the laxmi industrial estate as per the BMC plans approved in 1976. As per the approved plan of 1976, the assessee firm was entitled to the construction of FSI of 52553 sq.rntr.. The assessee firm has developed, constructed and consumed the FSI of 38351.35 sq.mtr up to 31/03/1995. The building wise utilization of the FSI for the period between 1976 and 1995 is as under:-
Building Number FSI Utilised - in sq.mtr. 1,3,5,7 5891.54 2,4,6 4099.17 8,9,11 3932.87 13,15,16 3278.46 23,25,27 3932.87 29, 31, 33 5870.61 30, 32,34,35 9973.90 21 1371,93 Total 38351.35
From the record we found that the assessee firm has developed and sold the above FSI to the purchaser and the society for each of the building was formed as per the Co-operative Society Act. The balanced FSI available in hand with the assessee firm in 1995 was 14202.40 sq.mtr. In 1995 the assessee firm submitted the revised plan before the BMC and got the permission for total FSI of 89226.13 sq.mtr. As per the revised plan of 1995, the assessee firm was entitled to additional FSI as under: FSI entitlement as per 1995 plan 89226.13 sq.mtr. Less: FSI entitlement as per 1976 plan 52553,75 sq.mtr Balance Additional FSI 36672.38 sq.mtr
The dispute arose between the assessee firm and the various societies as regards the entitlement of the additional FSI of 36672.38sq.mtr. The societies had filed suit before the Hon'ble Bombay'' City Civil Court in 1995 against the assessee firm, restraining the assessee firm from further construction and consumption of the additional FSI claiming that the society of unit purchasers has the right in the additional FSI. The assessee submitted the copy of the suit filed by them. At the first instance, the Hon'ble City Civil Court granted stay against further development vide order dated 15.05.1993 in following words:
At this stage it is not proper to express any opinion on the merit of the suit, The Learned advocate for the plaintiffs and the defendant no, 1 agreed that the defendant no. 1 should be allowed to do only piling work. The said piling work may be one feet above the ground level and it should not be more then one feet above the ground level The above statement of the learned advocate for the Plaintiffs and the dependent no.l appeals to me proper and acceptable. Hence the defendant no.l is allowed to do piling work upto one feet above ground level only of proposed building.
The City Civil Court passed the order in September, 1998 in favour of the assessee firm that the firm is the sole owner of the additional FSI. The said order was challenged by the societies before the Hon'ble Bombay High Court. The Hon'ble Bombay High Court permitted the assessee firm to consume the additional FSI, subject to the certain condition, including the condition of the deposit of Rs.500/- per sq. ft. of built up area with City Civil Court on sale of gala by the assessee firm. The assessee firm was required to deposit @ Rs.500/- per sq. ft. of built up area of gala sold in respect of additional FSI. The order of the hon'ble High Court reads as under:
Respondent No. 1 shall disclose to the intending gala purchasers about pending of L. C. Suit No. 3159 of 1955 in the City Civil Court, Appeal from Order No. 1050 of 1998 and Writ Petition No. 2666 of 1993 in the High Court.
5.4 The assessee submitted that In addition to deposit of Rs. 500/- per Sq ft, the appellant firm was directed to mention the dispute in the agreement for sale and the appellant has on page 12, in clause (xii) of preamble mentioned as follows: "One Subodh S. Shah and L. M. Ghanshani claiming as a member and Chief Promoter respectively of Laxmi Industrial Premises Co- operative Housing Society Limited (proposed) have filed short cause suit no. 3159 of 1995 in the Bombay City Civil Court at Bombay, against the Promoters for certain reliefs, viz. conveyance of the said land in their favour and / or respective societies, for accounts and a permanent order of injunction restraining the Promoters from consumption of additional FSI and from construction. They had also made interim application restraining the Promoters from further construction which was disposed of in favour of the Promoters, by the City Civil Court's order dated 8th September 1998. The said order has been challenged by the said S.S. Shah and L. M. Ghanshani in the Hon'ble High Court by filing an Appeal from Order No. 1050 of 1998 which has been admitted and the Promoters have been permitted to consume balance FSI of 0.43 on fulfillment of the conditions laid down therein;"
Also the title certificate issued by the advocate enclosed at page 30/31 of agreement for sale also clearly records the said fact. The assessee submitted the copy of specimen sale agreement. Till the time the Hon'ble Bombay High Court permitted construction in 2001- 02, from 1995 to 2002 the appellant was barred from further development and it could commence development only due order of the Hon'ble Bombay High Court. The dispute was in respect of additional FSI of 36672.38 sq. mtr., which has arisen after the submission of .revised plan in 1995. There was no dispute as regards the entitlement of FSI of "52553.75 sq. mtr. as per the original approved plan of 1976. Out of undisputed 52553.75 sq. mtr. of FSI, the assessee firm has already utilized 38351.35 sq. mtr. The undisputed FSI eligibility with the assessee firm was 14202.40 sq. mtr equivalents to 152874 sq. ft with the conversion factor of 10.764 per sq. mtr. The assessee firm is entitled to undisputed FSI of 152874.63 sq. ft. built up area. An FSI sold after 152874.63 sq. ft. will be liable for court deposit @ Rs.500/- sq. ft. built up area. The area developed after 1995 can be summarized as follows:
Area in sq Area in sq feet meter Total FSI available as on 1995 89220.46 9,63,894 sq. ft/ - sq. mtr FSI not in dispute that belongs to appellant 52553.75 5,65,689 sq. ft . sq. mtr FSI in dispute for which right of 36666.71 3,94,680 sq. ft development is subject to outcome of sq. mtr judicial proceedings and Rs. 500 to be deposited in Court i
The area sold upto 1,52,874.63 sq ft belonged to the assessee firm undisputedly and therefore whole of the sale consideration belongs to the assessee and has been duly accounted for in the books of accounts. As per the chart enclosed for A Y 2006-07, 2007-08 and 2008-09, the assessee started making deposit with court an amount equal to Rs. 500 per sq ft once the disputed FSI was utilized. The amount deposited in the Court in the three years in appeal are as follows; A Y 2006-07 AY 2007-08 A Y 2008-09, Sale in Sq ft out of 16716 850 After order 4499 undisputed FSI Sale in Sq ft out of disputed 34180 25404 18623 FSI Total sale during the 50896 26254 23122 year in sq. ft.
Amount deposited with Rs. Rs. Rs. Court @Rs. 5007- per sq ft 2,11,89,157/- 1,56,57,595/- 1,15,04,185 of sale of disputed FSI
Thus, the amount to the extent of Rs. 500 per Sq Ft has not accrued to the appellant and therefore cannot be treated as income of the assessee. The A.O has misunderstood the issue as of deduction of amount. The said amount has not accrued to the assessee and the question of claiming it as deduction would arise only if it is first held that it is income of the assessee.
From the record, we also found that the ownership of additional FS1 is in dispute and the assessee has been permitted to develop and sell the such disputed additional FSI subject to certain conditions and deposit of Rs. 500 per sq ft of such additional FSI sold. The right to the said amount of Rs. 500 per sq ft has not accrued to the assessee and the owner of such amount would be decided by Courts and till such time as the issue is resolved the said amount does not accrue to the assessee. 16. In the case of Hindustan Housing and Land Development Trust Ltd., 161 ITR 524 at page 530 Hon’ble Supreme Court held as under:- "It is sufficient to point out that there is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles."