Income from Business or Other Source of Fund is generated from business & sourced to FDRs

0
394
Income from Business or Other Source of Fund is generated from business & sourced to FDRs

Income from Business or Other Source of Fund is generated from business & sourced to FDRs

Short Overview:

Although funds generated from business were sourced to FDRs kept in bank interest income earned from FDRs could not be considered as business receipts when assessee’s main activity was not lending money for interest while it was real estate development and construction.

Assessee engaged in real estate development declared interest on bank FDRs as business income. AO taxed the same as income from other sources. Assessee’s case was that interest earned on FDR was a business receipt as it has parked surplus funds generated from business in banks in order to earn interest income and reduce construction expenses.

It is held that, Although funds generated from business were sourced to FDRs kept in bank interest income earned from FDRs could not be considered as business receipts when assessee’s main activity was not lending money for interest.

Decision: Against the assessee.

Relied: Totgar Co-operative Sales Society Ltd. v. ITO (2010) 322 ITR 283 (SC) : 2010 TaxPub(DT) 1466 (SC).

IN THE ITAT, MUMBAI ‘C’ BENCH

G. MANJUNATHA, A.M. & RAVISH SOOD, J.M.

Puran Ratilal Mehta v. ACIT

IT Appeal Nos. 1274 to 1279, 1320 to 1325 of 2011 and 6646 of 2012

A.Ys. 2001-02 to 2008-09

5 December, 2018

Appellant by: S.L. Jain

Respondent by: Abi Rama Kartikeyan

ORDER

G. Manjunathan, A.M.

These cross appeals filed by the assessee as well as the revenue are directed against separate, but identical orders of the Commissioner (Appeals)-23, Mumbai dated 29-10-2010 and 31-8-2012. Since all the appeals pertain to a single assessee and also the issues are identical, for the sake of convenience, these appeals were heard together and are disposed of by this common order.

2. The assessment for assessment year 2005-06 was completed under section 143(3) of the Income Tax Act, 1961, vide order dated 31-12-2007. Following the findings arrived at in the assessment order, assessments for assessment years 2001-02 to 2004-05 were reopened under section 147 of the Act and assessments were completed under section 143(3) read with section 147 of the Act on 5-12-2008. The assessment for the assessment year 2006-07 was completed under section 143(3) on 29-12-2008 following the findings in assessment order for assessment year 2005-06. The base year in which the core issue arises for consideration is assessment year 2005-06 which is challenged in ITA No. 1324/Mum/2011 by the assessee and I.T.A. No. 1278/Mum/2011 by the department. In all these appeals, the issues involved are common in nature.

3. The revenue, through its appeals, more or less taken common grounds of appeal for all assessment years. For the sake of brevity, grounds of appeal taken for assessment year 2005-06 in ITA No. 1278/Mum/2011 are reproduced hereunder :–

“1. On the facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in holding that capital gains tax will arise in assessment year 2008-09. In doing so, the learned Commissioner (Appeals) failed to appreciate that the assessee had received advance for flat and handed over possession of the flat. The learned Commissioner (Appeals) failed to appreciate that merely because agreement for sale is not registered doe: not mean that there has been no sale. The provisions of section 45(2) are hence applicable

2. The learned Commissioner (Appeals) erred in deleting the addition made on account of capital gains. The learned Commissioner (Appeals) erred in holding that the project was completed in assessment year 2008-09 and that the assessee was following project completion method.

3. The learned Commissioner (Appeals) erred in directing that the cost of construction of 26 flats constructed b Bhoomi Developers and handed over to the assessee in lieu of 19,600 sq.ft. given to Bhoomi Developers, be taken for the purpose of computing the Fair Market Value of land converted into stock in trade. Though the learned Commissioner (Appeals) held that the year of conversion of asset into stock in trade is 1994, the learned Commissioner (Appeals) failed to appreciate that the assessing officer ha rightly worked the cost of construction at 300 per sq.ft. which is the rate as in the year 1994.”

4. The assessee, in his appeal also has taken more or less common grounds of appeal for all assessment years under appeals. For the sake of brevity, ground of appeal taken for assessment year 2005-06 in ITA No.1324/Mum/2011 are reproduced hereunder :–

“1. Learned Commissioner (Appeals) erred in holding that land was converted into stock in trade by the appellant on 2-2-94 without properly appreciating the fact that appellant obtained IOD from Municipal Corporation on 9-1-97, CC on 6-5-98 and entered into an agreement of development of part of the land on 17-8-98 and user of land was changed from industrial to residential on 12-3-96.

2. Learned Commissioner (Appeals) erred in confirming method of valuation of land on the date of conversion at stamp duty value of the flats as reduced by cost of construction as incurred by the developer, without properly appreciating the fact that correct value of the land cannot be arrived at by process of reducing market price of the flats by cost of construction.

3. The learned Commissioner (Appeals) erred in not considering valuation report of the registered valuer valuing the land as on 30-9-98 at Rs. 10,68,77,880 while evaluating the value of the land on the date of conversion.

4. The appellant pray that correct date of conversion of land into stock in trade and correct value on date of such conversion be determined.”

5. The brief facts of the case are that the assessee is a proprietor of M/s. Powerline Products & M/s. Venus Tiles & Marbles, got leasehold rights of land in 1975 on assignment basis admeasuring 15,000 sq.yds. The assessee was running a factory on this land. Subsequently, out of the total land, the assessee decided to take 80,000 sq.ft. for the project and hence, converted into stock in trade. The assessee has applied for permission from MCGM for plan sanction on 2-2-1994. Due to some litigation on the land, subsequently, he has written a letter to MCGM to keep his application in abeyance as a result of which MCGM had issued IOD certificate on 9-1-1997. Further, the MCGM had issued commencement certificate for construction of project on 6-5-1998. The assessee had entered into a construction agreement with M/s. Bhoomi Developers for development of land and construction of housing project, viz. Maple Height, A-Wing. As per agreement, the developer has to develop 40,000 sq.ft. building. The assessee has entered into development agreement with M/s. Bhoomi Developers on 17-8-1988 where, in lieu of development rights, the assessee was entitled to 26 flats with built up area of 20,400 sq.ft. whereas the developer was entitled for 25 flats with a built up area of 19,600 sq.ft. Out of the total area of land, the assessee has given part of land to M/s. Bhoomi Developers in pursuance to a development agreement for development of building A-Wing and the balance part was retained by the assessee for construction of building B-Wing. The assessee has started receiving advance from prospective buyers of flats right from assessment year 2001-02 onwards. But the assessee, neither showed any income in respect of development and sale of flats for assessment year 2001-02 onwards, nor computed capital gain in respect of conversion of capital asset into stock in trade in terms of section 45(2) of the Income Tax Act, 1961.

6. The assessment for assessment year 2005-06 was taken up for scrutiny. During the course of assessment proceedings, the assessing officer noticed that even though the assessee was developing a housing project and receiving advance from prospective buyers of flat, no income has been offered for taxation and hence, issued a show cause notice asking as to why income shall not be estimated @15% on total work in progress shown in the books of account. In response to show cause notice, assessee, vide his letter dated 17-11-2007 submitted that he was following project completion method for recognition of revenue and accordingly, whatever advance received from the customers, has been shown as liabilities in its books of account. The assessee further contended that the project has been completed, in all respects, during assessment year 2008-09 and the income from the project has been offered for taxation, when the project has been completed. The assessee further contended that he was a developer of housing projects and as per the provisions of section 80-IB(10), the profit derived from housing project is eligible for exemption and accordingly, no income has been offered for taxation from the housing project. The assessing officer, after considering submissions of the assessee and also on analysis of provisions of section 45(2) of the Income Tax Act, 1961 held that the assessee converted his plot of land into stock in trade on 2-2-1994, when he had filed an application for plan sanction before MCGM. The assessing officer further observed that although the assessee has filed an application for keeping in abeyance the plan sanction for some reasons, but fact remains that he was having an intention to develop a housing project on the impugned land by filing application before MCGM, therefore, the date on which the assessee has filed application shall be taken as the date of conversion of capital asset into stock in trade within the meaning of section 45(2) of the Income Tax Act, 1962. Accordingly, the assessing officer computed long-term capital gain from conversion of capital asset into stock in trade by taking the value of flat as on 2-2-1994. However, as per the provisions of section 45(2), the said long-term capital gain will be taxed as and when the stock in trade is sold. Accordingly, reopened the assessment for the assessment years 2001-02 to 2004-05 and taxed long-term capital gain on proportionate basis, on the basis of advance received from customers towards sale of flat. Insofar as computation of long-term capital gain, the assessing officer has taken ready reckoner rate of completed flat as on the date of conversion, i.e. on 2-2-1994 and deducted the estimated cost of construction of Rs.300 per sq.ft. to arrive at a market value of land. The assessing officer, by taking into account the market value of the land, computed long-term capital gain by adopting cost of acquisition of Rs. 3,24,59,208 as on 1-4-1981, which is further based on the report of the government approved valuer and then applied indexed cost of acquisition by taking the indexation benefit and determined long-term capital gain of Rs. 4,54,90,393. Though, the assessing officer has discussed the taxability of capital gain for assessment year 2005-06, by mistake, the same has not been taxed and accordingly an order under section 154 dated 23-4-2008 has been passed and taxed capital gain by taking advance received on proportionate basis. Subsequently, on the basis of findings recorded for assessment year 2005-06, the earlier assessment for assessment years 2001-02 to 2004-05 were reopened and the resultant capital gain on conversion of capital asset into stock in trade has been worked out on the basis of advance received from the customers.

7. Aggrieved by the assessment order, the assessee preferred appeal before the Commissioner (Appeals). Before the Commissioner (Appeals), the assessee has reiterated its submissions made before the assessing officer to argue that the conversion of capital asset into stock in trade has taken place in assessment year 1998-99 when the assessee has got plan sanctioned from MCGM but not on the date of application filed for getting IOD. The assessee further contended that he has filed an application on 2-2-1994 and that the said application has been kept in abeyance which is evident from the fact that the IOD has been issued on 9-1-1997 and also the certificate of commencement was issued on 6-5-1998. The assessee has entered into an agreement with M/s. Bhoomi Developers on 17-4-1998 for development of A-Wing and also entered into a development agreement on 17-8-1998. All these factors go to prove an undisputed fact that the conversion has not been taken place on 2-2-1994. Therefore, the assessing officer was erred in holding that the assessee has converted his capital asset into stock in trade on 2-2-1994. Insofar as computation of long-term capital gain by taking cost of acquisition as on 1-4-1981, assessee submitted that when the registered valuer has arrived at a valuation of the land as on 30-3-1998 at Rs. 10,68,77,880, the valuation of plot of land as on 2-2-1994 cannot be Rs. 12,46,90,860.

8. The learned Commissioner (Appeals), after considering relevant submissions of the assessee and also by relying upon certain judicial precedents, held that when assessee has filed application for obtaining IOD on 2-2-1994, conversion of capital asset into stock in trade as envisaged under section 45(2) is said to have taken place on 2-2-1994. The learned Commissioner (Appeals) further observed that although the assessee has filed an application for keeping in abeyance the application filed for obtaining IOD, the fact remains that when he had applied for obtaining IOD with an intention to commence its business activity of development of project, the conversion of capital asset into stock in trade as envisaged under section 45(2) said to have taken place on that date. Therefore, there is no error in the finding of the assessing officer that the conversion of capital asset into stock in trade has been taken place on 2-2-1994. What is relevant for the purpose of determination of date of conversion is the intention of the assessee, but not the dates on which the assessee has filed an application. In this case, the assessee was intended to convert the plot of land into stock in trade by constructing residential premises/flats on 2-2-1994 which is evidenced by the fact that he has moved an application, therefore, subsequent events of obtaining IOD on 9-1-1997 and commencement certificate on 6-5-1998 is a follow up action which is irrelevant to decide the date of conversion. Insofar as computation of long-term capital gain on conversion of capital asset into stock in trade, the learned Commissioner (Appeals) held that the cost of land has to be arrived at on the basis of either the fair market value of the land as on the date of conversion or cost of construction incurred by the developer of a concerned building whereas the assessing officer has taken an estimated amount of Rs.300 per sq.ft. towards building without any basis. The learned Commissioner (Appeals) further observed that although the assessing officer had sought details from M/s. Bhoomi Construction towards cost of construction of building, in view of non receipt of required information, went on to estimate the cost of construction without any basis. Therefore, directed the assessing officer to determine the cost of construction on the basis of cost incurred by the developer to arrive at market value of land and accordingly set aside the issue to the file of the assessing officer to decide the issue afresh. Similarly, the question of taxability of capital gain under section 45(2) for the land converted into stock in trade was discussed and held that in view of the project completed for assessment year 2008-09, the capital gain payable as per the provisions of section 45(2) will also come into play at the time when the flats are sold in assessment year 2008-09. Accordingly, held that long-term capital gain computed on conversion of capital asset into stock in trade is taxable in the year in which the revenue from the project has been disclosed in the books of account of the assessee. Since the assessee has shown to have completed the project in all respect in assessment year 2008-09 and the resultant income has been offered to tax, held that capital gain also will be taxed in the assessment year 2008-09.

9. Aggrieved by the order of Commissioner (Appeals), the assessee as well as the revenue are in appeals before us.

10. The learned DR submitted that the learned Commissioner (Appeals) was erred in holding that capital gain tax will arise in assessment year 2008-09 in respect of conversion of capital asset into stock in trade as per the provisions of section 45(2) without appreciating the fact that the assessee had received advance for flat and handed over possession of the flat to the buyers much before assessment year 2008-09. The learned Commissioner (Appeals) failed to appreciate the fact that merely because the agreement for sale is registered does not mean that there has been no sale. The provisions of section 45(2) and resultant capital gin will come into operation when the assessee has sold the flats. In this case, the flats have been sold to the prospective buyers and accordingly, the assessing officer was right in computing long-term capital gain on proportionate basis on the basis of advance received from the buyers. The learned DR further submitted that the learned Commissioner (Appeals) was erred in holding that the assessee is following project completion method for recognition of revenue and accordingly capital gain on conversion of capital asset into stock in trade is taxable in the year when the business income was offered to tax. When the facts gathered by the assessing officer undisputedly prove that the assessee has deferred recognition of income on some grounds, even through the project has been completed in all respects much before assessment year 2008-09, the learned Commissioner (Appeals) was erred in upholding that the action of the assessing officer in taxing long-term capital gain for assessment year 2001-02 to 2006-07 when the assessee has received advance from the customers and handed over the possession of the flat. The learned DR further submitted that the learned Commissioner (Appeals) erred in directing the assessing officer to adopt cost of construction incurred by M/s. Bhoomi Developers to arrive at fair market value of the land as on the date of conversion of stock in trade, ignoring the fact that the assessing officer has rightly applied Rs. 300 per sq.ft. which is the rate as in the year 1994.

11. The learned AR for the assessee, on the other hand, submitted that when the learned Commissioner (Appeals) had accepted the fact that the assessee had obtained IOD on 9-1-1997 and C.C. on 6-5-1998 and entered into an agreement for development of part of the land on 17-8-1998, erred in concluding that conversion of capital asset into stock in trade has taken place on 2-2-1994 when the assessee had filed an application before MCGM for obtaining IOD. The learned AR for the assessee further submitted that the assessee, though filed an application before MCGM on 2-2-1994, the land in question was an industrial land upto 12-3-1996 before conversion of land into residential land by the revenue authorities. The MCGM has granted IOD on 9-1-1997 and also permitted to start construction on 6-5-1998. When all these evidences undisputedly prove the fact that the capital asset was not converted into stock in trade before 2-2-1994, the learned Commissioner (Appeals) went on to give a finding that the capital asset was converted into stock in trade on 2-2-1994 without any basis. The learned AR further submitted that date of conversion is not the date on which the assessee intended to commence its business, but it will be the date on which the asset becomes capable of being used as stock in trade. In this regard he relied upon the decision of ITAT, Mumbai Benches in the case of Estate of Late NJ Patel v. Dy. CIT (2007) 17 SOT 543 (Mum.) : 2007 TaxPub(DT) 0313 (Mum-Trib). The assessee also relied upon the decision of Vidhyadhar Containers Ltd. v. Dy. CIT 30 CCH 547.

12. The learned AR further submitted that the land was treated as factory building upto 31-3-1998 and only after getting permission from the concerned authorities, the assessee has converted its capital asset into stock in trade, therefore, the lower authorities were erred in concluding that conversion had taken place on 2-2-1994. Insofar as determination of long-term capital gain by taking fair market value of the land, the learned AR submitted that the assessing officer has taken ready reckoner rate of constructed flat as on 2-2-1994 @ Rs. 1,560 per sq.ft. and the same has been reduced by estimated cost of construction of Rs. 300 per sq.ft. to arrive at market value of Rs. 12,46,90,860. The assessing officer, on the basis of estimated fair market value of the land, computed long-term capital gain of Rs. 4,54,90,393 by reducing indexed cost of acquisition of Rs. 7,92,00,467 by taking fair market value of the land as on 1-4-1981. The assessing officer has taken estimated cost of construction without appreciating the fact that the land value cannot be determined by reverse working ready reckoner rate by adopting estimated cost of construction. The cost of land can be either determined on the basis of ready reckoner rate as on the date of conversion or actual cost incurred by the developer for construction of building. M/s. Bhoomi Developers has filed requisite details vide letter dated 20-4-2011 as per which, cost of construction per sq.ft. has been arrived at Rs. 591. Therefore, the assessing officer was erred in taking Rs. 300 per sq.ft. towards cost of construction.

13. We have heard both the parties and perused the material available on record. The solitary dispute in this group of appeals for assessment years 2001-02 to 2006-07 is computation of long-term capital gain on conversion of capital asset into stock in trade and the year in which such capital gain is taxable in the hands of the assessee. The assessing officer has taken 2-2-1994 as the date of conversion of capital asset into stock in trade. The assessee has challenged the date of conversion adopted by the assessing officer for the reason that conversion had not taken place on 2-2-1994, because although the assessee had intended to develop the property as stock in trade, because of regulatory reasons and certain legal disputes, the IOD has been issued by the MCGM. Therefore, without any authority of IOD and commencement certificate, the business cannot have taken place by merely filing an application for obtaining IOD. We do not find any merit in the argument of the assessee for the reason that the date of conversion of capital asset into stock in trade shall be determined either on the basis of entry passed in the books of account of the assessee or the intention of the assessee to exploit the capital asset into stock in trade for its business purpose. In this case, undisputedly, the assessee has not passed any entry in his books of account for converting its capital asset into stock in trade. But, the assessee intended to develop the impugned land into a stock in trade by filing an application for IOD before MCGM on 2-2-1994 which is the date on which conversion of capital asset into stock in trade said to have taken place. Although the IOD has been issued on 9-1-1997 and commencement certificate has been issued on 5-9-1998, what is relevant to determine the date of conversion is the intention of the assessee to commercially exploit the property which is on 2-2-1994. Though the assessee has relied upon certain judicial precedents including the decision of co-ordinate bench in the case of State of Late N.J. Patel (supra), we find that the facts are entirely different from that of assessee’s case, therefore, we are of the considered view that the lower authorities were right in coming to the conclusion that the conversion of capital asset into stock in trade said to have been taken place on 2-2-1994.

14. Coming to the computation of long-term capital gain on conversion of capital asset into stock in trade. The assessing officer has taken ready reckoner rate as on the date of conversion, i.e., on 2-2-1994 and then reduced estimated cost of construction of Rs. 300 per sq.ft. for arriving at the fair market value of the land for the purpose of computation of capital gain. The assessing officer has taken Rs. 1,560 per sq.ft. ready reckoner rate of constructed flats as on 2-2-1994 and then reduced Rs. 300 per sq.ft. estimated cost of construction and arrived at the market value of the land of Rs. 12,46,90,860. Further, on the basis of estimated market value, the assessing officer has reduced indexed cost of acquisition by taking into account fair market value of the land as on 1-4-1981 at Rs. 3,24,59,208 to determine long-term capital gain of Rs. 4,54,90,393. The fair market value taken by the assessing officer is based on the valuation report of government approved valuer and this has been supplied by the assessee to the assessing officer. There is no dispute with regard to the value determined by the assessing officer as on 1-4-1981. The only dispute is with regard to the deduction of cost of construction from the reckoner value to arrive at fair market value of land. The learned Commissioner (Appeals) had given a finding that the fair market value of the land as on the date of conversion can be determined either on the basis of ready reckoner rate or the cost of construction incurred by the developer. Although, the assessing officer has sought details of construction from the developer, in absence of any details supplied by the developer, went on to decide the value of the land by reducing the estimated cost of construction of Rs. 300 per sq.ft. Therefore, the learned Commissioner (Appeals) has directed the assessing officer to determine the fair market value of the land by obtaining cost of construction incurred by the developer. The assessee claims that M/s. Bhoomi Developers has filed requisite details vide their letter dated 20-4-2011, as per which cost of construction per sq.ft. works out to Rs. 591, as against the assessing officers adoption of Rs. 300 per sq.ft. Therefore, we are of the considered view that the learned Commissioner (Appeals) was right in directing the assessing officer to determine the fair market value of the land by taking cost of construction incurred by the developer. Since the developer has submitted requisite details in respect of cost of construction, the assessing officer is directed to adopt the cost of construction incurred by the developer in place of estimated construction cost taken to arrive at fair market value of the land accordingly, the ground taken by the revenue as well as the assessee are rejected.

15. The next question that came up for our consideration from this group of appeals including appeal for assessment year 2008-09 is year of taxability of long-term capital gain as envisaged under section 45(2) of the Income Tax Act, 1961. The assessing officer has taken date of conversion as 2-2-1994 and then computed long-term capital gain by taking ready recknoner rate of constructed flat as on the date of conversion and determined long-term capital gain of Rs. 4,54,90,393. According to the assessing officer, although the long-term capital gain envisaged under section 45(2) is payable as and when the assessee has sold the properties, but in this case, the assessee has deliberately postponed recognition of revenue from its project by giving some unplausible reasons, therefore, he came to the conclusion that long-term capital gain computed as per the provisions of section 45(2) shall be chargeable to tax proportionately, on the basis of advance received from customers. Accordingly, the assessing officer has reopened assessments under section 147 for assessment years 2001-02 to 2004-05 and charged long-term capital gain derived on conversion of capital asset into stock in trade. The assessing officer also computed long-term capital gain for assessment year 2006-07 on the basis of findings given for assessment year 2005-06. In toto, the assessing officer has computed long-term capital gain derived from conversion of capital asset into stock in trade proportionately for assessment years 2001-02 to 2006-07 on the basis of advance received from customers. It is the claim of the assessee that he is following project completion method for recognition of revenue from the project and accordingly, the business income has been offered for taxation in assessment year 2008-09. The assessee further contended that as per the provisions of section 45(2), long-term capital gain derived from conversion of capital asset into stock in trade shall be payable in the year in which such stock in trade has been sold. Since the project has been complete in all respects in assessment year 2008-09 and revenue from the project has been recognised, the capital gain shall be payable in respect of the project in the year in which such capital asset has been sold, i.e. in assessment year 2008-09.

16. Having heard both the sides, we find merit in the arguments of the assessee for the reason that it is an undisputed fact that the assessee has not declared any business income in assessment years 2001-02 to 2006-07. Though the assessee has received advance from customers, the said advance has been shown as liability in its books of account pending registration of sale deeds to the customers because the project had not been completed. It is also an undisputed fact that the assessee has proved with necessary evidence that the said project has been completed in all respects in assessment year 2008-09. It is also an undisputed fact that capital gain on conversion of capital asset into stock in trade is payable only in the year in which the assessee ultimately sells such stock in trade. In this case, on perusal of facts, there is no doubt, whatsoever with regard to completion of project in assessment year 2008-09. This fact has not been disputed by the assessing officer. Therefore, we are of the considered view that the learned Commissioner (Appeals) was right in coming to the conclusion that the project has been completed in assessment year 2008-09 and accordingly, the assessee has rightly recognised revenue from the project in the year in which the project has been completed. This being so, as per the provisions of section 45(2), the capital gain derived from conversion of capital asset into stock in trade shall be chargeable to tax in the year in which such stock in trade has been sold. Since these two events, i.e. completion of project and recognition of revenue from the project has taken place in assessment year 2008-09, the resultant capital gain derived from conversion of capital asset into stock in trade is also taxable in assessment year 2008-09. Accordingly, we are of the considered view that there is no reason to interfere with the findings of the learned Commissioner (Appeals) and hence, we are inclined to uphold the findings of learned Commissioner (Appeals) and reject ground taken by the revenue in all appeals.

17. The next issue that came up for our consideration from departmental appeal for assessment year 2008-09 is disallowance of deduction claimed under section 80-IB(10) in respect of housing project. The assessing officer has disallowed deduction claimed under section 80-IB(10) on the ground that the assessee has not fulfilled the conditions laid down to claim such deduction as the commencement of construction of the housing project was started before 1-10-1998 and also the completion of the project was not complete in all respects before 31-3-2008. The provisions of section 80-IB(10) stipulates that in order to get deduction, the eligible project should be commenced on or after 1-10-1998 and the project should be completed on or before 31-1-2008. In this case, the assessee has commenced its construction much before that date which is evident from the fact that the MCGM issued commencement certificate on 6-5-1998 and the assessee has spent amount towards development of land, i.e., filling up of plot providing trench and cutters and raising compound wall, etc. The assessing officer further observed that even though the provision mandates completion of project on or before 31-3-2008, on perusal of details it is clear that the assessee has not completed the project. The MCGM has not issued occupation certificate. Therefore, the claim made by the assessee under section 80IB(10) is not in accordance with the said provisions and accordingly denied the benefit of deduction.

18. It is the claim of the assessee that the project has been started on 5-10-1998 even though IOD has been issued by MCGM on 9-1-1997 and commencement certificate issued on 6-5-1998. The project stated to have been commenced only when the assessee has started physical construction activity which happened in this case on 5-10-1998. Therefore, the first objection of the assessing officer that the project was started before 1-10-1998 is not based on any evidence. In this regard, the assessee has furnished a certificate from the architect where it was stated that A-Wing of the building commenced on 5-10-1998. The assessee further stated that the building has been completed in all respects before 31-3-2008. Even though the assessee could not get occupation certificate from the MCGM which is because of certain legal hurdles in view of the nature of land on which the building was constructed. Otherwise, the assessee has obtained all other formalities including permission from fire fighting department of Municipal Corporation, certificate for lift operation from Municipal Corporation and also furnished architect’s certificate for completion of building on 27-11-2007. The assessee also filed copies of possession letter issued to occupants of the building along with certificate of civil engineer dated 14-1-2008 in order to prove that the building has been completed in all respects. Merely for the reason that OC has not been issued by MCGM, it cannot be said that the building has not been completed within the stipulated time. In this regard, the assessee has relied upon various judicial precedents including the decision of Hon’ble Bombay High Court in the case of CIT v. Hindustan Samuh Awas Ltd. (2015) 377 ITR 150 (Bom) : 2015 TaxPub(DT) 3817 (Bom-HC).

19. We have heard both the parties and perused the material available on record. The learned Commissioner (Appeals) has negated the observations made by the assessing officer for denial of deduction under section 80-IB(10). Although, the assessing officer has made observations with regard to the date of commencement of project and also the date of completion of project to deny the benefit, the learned Commissioner (Appeals) gave a categorical finding that the construction of the project has been started on or after 1-10-1998 and the project has been completed on or before 31-3-2008. The learned Commissioner (Appeals) has taken support from various details filed by the assessee including architect’s certificate, as per which A-Wing of the building has commenced on 5-10-1998. Even though, the assessee has done certain works in the site before 1-10-1998 which has been done, in order to comply with the directions of MCGM which stipulates that before issue of certificate of commencement, the assessee has to make the land suitable for construction by carrying out necessary filling and other works. The basic works carried out by the assessee including construction of compound wall and filling up of land cannot be considered as commencement of construction of the building. The said two works have been done before issue of commencement certificate by MCGM on 6-5-1998. In fact, the actual construction work has been commenced on 5-10-1998 as per the certificate of architect. Therefore, we are of the considered view that the assessing officer was incorrect in observing that the project work has been started before 1-10-1998.

20. Coming to the date of completion of project. According to the assessing officer, the project has not been completed before 31-3-2008 as per the requirement of provisions of section 80-IB(10). The assessing officer has given this finding on the sole basis of no OC certificate from MCGM. On the other hand, the assessee has filed enormous details including certificate by fire fighting department, certificate for lift operation from Municipal Corporation, architect’s certificate for completion of building on 27-11-2007, copies of possession letter issued to the buyers of the flat and also certificate of complete of civil engineer dated 14-1-2008. On perusal of details filed by the assessee, we find that the project has been completed before 31-3-2008. Insofar as occupation certificate, though it is necessary to obtain occupation certificate from MCGM after completion of the project, in this case, on perusal of details, it is very clear that the assessee has filed an application before MCGM for issue of occupation certificate on 19-5-2005 in case of A-Wing of the building. In respect of B-Wing, the details filed by the assessee including various permissions obtained from concerned departments, it is abundantly clear that the building has been completed in all respects before 31-3-2008. The assessee has given reasons for not obtaining OC from the Municipal Corporation as per which there was an ongoing dispute between the authorities and the land owners in respect of nature of land before the Hon’ble High Court because of which, the assessee could not get OC from the Municipal Corporation authorities. However, all other required permissions, including fire fighting clearance and lift operation has been issued by Municipal Corporation after ensuring that the building has been completed and fit for occupation. Therefore, we are of the considered view that merely for the reason that OC was not issued by Municipal Corporation, the assessing officer cannot ignore all other evidences filed by the assessee to prove that the said project has been completed within the stipulated time as per the provisions of section 80-IB(10) of the Income Tax Act, 1961. This legal proposition is supported by the decision of Hon’ble jurisdictional High Court in the case of Hindustan Samuh Awas (supra), where it was held that completion of housing project is a physical act which can be demonstrated on the spot and also through certificate issued by an architect. The Hon’ble Gujarat High Court in the case of ITO v. Saket Corpn. (2015) 234 Taxman 435 (Guj) : 2015 TaxPub(DT) 4336 (Guj-HC) held that when the building is completed in all respects, obtaining OC is not a mandatory requirement in order to ascertain whether the building was completed or not for the purpose of deduction under section 80-IB(10) of the Income Tax Act, 1961. The ITAT, Pune Bench in the case of Runwal Motel Housing (P.) Ltd in ITA No. 1015/PN/2011 had considered similar issue in the light of non issue of occupation certificate by municipal authorities and after considering relevant facts, held that when the assessee has handed over possession of the flat to the buyers, merely for non receipt of completion certificate, deduction cannot be denied. The learned Commissioner (Appeals), after apprising all facts, held that the assessee has fulfilled conditions prescribed under section 80-IB(10) in order to be eligible for deduction for eligible profits. We do not find any error or infirmity in the findings of the learned Commissioner (Appeals) and hence, we are inclined to uphold the findings of learned Commissioner (Appeals) and reject ground taken by the revenue.

21. The next issue that came up for our consideration for assessment year 2008-09 is chargeability of interest receipt from bank FD. The assessee has earned interest on FDR kept in bank and the same has been deducted from the cost of construction to arrive at net expenditure incurred for the project. According to the assessee, interest earned on FDR is a business receipt as it has parked surplus funds generated from business in banks in order to earn interest income and reduce construction expenses. Since there is a direct nexus between interest earned from FDR and business activity of the assessee, he has rightly treated interest income as part of its business receipts. The assessing officer has assessed interest earned on FDRs under the head ‘Income from other sources’ on the ground that the nature of activity, which decides the head of income, whether it is assessable under the head ‘Income from other sources’ or ‘Income from business or profession’. The assessing officer further observed that merely because the assessee has used its business funds to earn interest income, the character of the receipts cannot be changed when assessee’s main business activity is construction and development of flats. The assessing officer has analysed the fund flow position of the assessee to come to the conclusion that the funds deployed in FDR is arising out of profit derived from the project and hence, resultant interest income is assessable under the head ‘Income from other sources’.

22. We have heard both the parties and considered material available on record. The assessee has earned interest income on FDRs kept in bank and treated the same as part of its business receipts. According to the assessee, it has parked surplus funds generated from business in order to maximise receipts and reduce construction cost, therefore, there is a direct nexus between interest income and business activity of the assessee and hence, interest earned from FDRs is assessable under the head ‘Income from business or profession’.

23. Having heard both the sides, we do not find any merit in the arguments of the assessee for the reason that a particular receipt is assessable under a particular head of income shall be decided on the basis of nature of receipt with reference to the main business activity of the assessee. In this case, the assessee is in the business of development and construction of flats. Although the funds generated from business are sourced to FDRs kept in bank, the interest income earned from FDRs cannot be considered as business receipts when the assessee’s main activity is not lending money for interest. The assessee is in the business of real estate development and construction. He had kept surplus funds available with him in the bank in short term FDR in order to earn certain interest income. Therefore, in order to fix a particular receipt under particular head of income, there should be direct nexus between the receipt and the activity carried out by the assessee. If a particular receipt is generated out of its main activity of carrying out construction of buildings and flats, then obviously, the said receipt falls within the head ‘Income from business or profession’. If surplus fund not required immediately for business purpose is kept in bank FDRs to earn interest, obviously, the said interest income cannot be considered as part of assessee’s main business activity. In this case, the assessing officer has brought out clear facts that the assessee has deployed its profit derived from business activity in short term fixed deposit in order to earn interest income. The learned Commissioner (Appeals) has allowed relief to the assessee by following the Hon’ble Bombay High Court decision in the case of CIT v. Lok Housing (2009) 308 ITR 356 (Bom) : 2009 TaxPub(DT) 0268 (Bom-HC). We find that the facts of the case before the Hon’ble Bombay High Court are that the assessee has borrowed loans for the purpose of business and when funds were not immediately required for business, parked surplus funds in short term FD to recoup interest payable on loans. Under those facts, the Hon’ble Court came to the conclusion that interest earned from short term FD is part of business receipt of the assessee. In this case, on perusal of facts, we find that the assessing officer has arrived at a conclusion that the assessee has not borrowed any funds and whatever funds deployed in short term FD are generated out of his own business profits. The assessee failed to controvert the findings of the assessing officer with any details. Under these facts, the ratio laid down by the Hon’ble Supreme Court in the case of Totgar Co-operative Sales Society Ltd v. ITO (2010) 322 ITR 283 (SC) : 2010 TaxPub(DT) 1466 (SC) will squarely apply, where it was held that the Parliament has included specific business profit into the definition of the word ‘income’. Therefore, one is required to give a precious meaning to the words ‘Profits and gains of business or profession’. In the instant case, when we apply the ratio laid down by the Hon’ble Supreme Court in the said case, we find that interest earned on short term FD could not be said to be attributable to the activities of the assessee, mainly carrying on the business of construction and development of flats. Therefore, we are of the considered view that the assessing officer was right in assessing interest earned on FDR under the head ‘Income from other sources’. The learned Commissioner (Appeals), without appreciating these facts directed the assessing officer to assess interest under the head ‘Income from business or profession’, as claimed by the assessee. Hence, we reverse the finding of the learned Commissioner (Appeals) and restore the assessment of interest income under the head ‘Income from other sources’.

24. In the result, appeals filed by the assessee in ITA Nos. 1320 to 1325/Mum/2011 are dismissed and appeals filed by the revenue in ITA Nos. 1274 to 1277/Mum/2011 and ITA Nos. 1278 & 1279/Mum/2011 are also dismissed. The appeal filed by the revenue in ITA 6646/Mum/2012 is partly allowed.

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