Income Tax Appellate Tribunal – Mumbai
Ito (It) 2(1)(1), Mumbai vs Adminstrator Of The Estate Of Late … on 19 February, 2020 1 IN THE INCOME TAX APPELLATE TRIBUNAL “I”, BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA No.1389/Mum/2015 (Assessment Year: 2011-12)
ITO(International Vs. Administrator of the
Taxation)-2(1)(1), Estate of Late Mr. E. F.
Room No.1724, 17 t h Floor, Dinshaw,
Air India Building, 412,Churchgte Chambers,
Nariman Point, 5 Sir Vithaldas Thakersey
Mumbai-400 021 Marg, Mumbai-400 020 PAN No.AAEPD8394A Appellant .. Respondent ITA No.334/Mum/2017 (Assessment Year: 2012-13)
ITO(International Vs. Administrator of the
Taxation)-2(1)(1), Estate of Late Mr. E.F.
Room No.1724, 17 t h Floor, Dinshaw,
Air India Building, 412,Churchgte Chambers,
Nariman Point, 5 Sir Vithaldas Thakersey
Mumbai-400 021 Marg, Mumbai-400 020 PAN No.AAEPD8394A Appellant .. Respondent Revenue by Shri Parag Vyas, Sr. Counsel & Shri Sreekar, CIT-D.R. Assessee by Shri Dilip S. Damle, A.R. Date of Hearing 22/11/2019 Date of Pronouncement 19/02/2020 2 ORDER
PER G.MANJUNATHA (A.M):
These two appeals filed by the Revenue are directed against
separate, but identical orders of the Commissioner of Income Tax
(Appeals)-10, Mumbai, dated 28/10/2014 & 27.09.2016 and they pertain
to Assessment Years 2011-12 & 2012-13 respectively. Since, the facts
are common and issues are identical, for the sake of convenience, these
appeals were heard together and are disposed of by this consolidated
order.

ITA No.1389/Mum/2015 2. The Revenue has raised the following grounds of appeal:

“1. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the advance of Rs 269.48cr, received by the assessee on transfer of asset, as income by the AO in the light of serious dispute between developer and the assessee regarding the validity of lease rent agreement as well as development right agreement.
2. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the advance income of Rs 269.48cr received by the transfer of asset without appreciating the fact that in the relatively new circumstances the AO analyzed and concluded that Revenue has arisen on account of transfer of asset and the tax on the Revenue generated cannot be postponed indefinitely.
3. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in holding that the advances received in different years, though credited in the account of the assessee in the previous year relevant to the AY-2011-12,is not taxable in that assessment year without appreciating the fact that these amounts had been shown as the contingent receipts by the assessee and were not offered to tax in year of receipt.
4. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in holding that the lease rent and 12% of sale proceeds pertaining to the AY 2009-10, 2010-11 and the instant assessment year 2011-12 deposited in the Bank A/c of the assessee on the Bombay High Court’s directions, cannot be taxed in this year, without appreciating the fact that these amount had been shown as the contingent receipt by the assessee and were not offered to tax in year of receipt.
5 The Appellant prays that the order of the Id. CIT(A)’s on the above grounds be set aside and that of the Assessing Officer restored.
3 6 The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
3. The brief facts of the case are that the assessee, administrator of
estate of late Mr. Edulji Framrize Dinshaw, is assessed as an individual
and in the capacity of representative of the assessee filed its return of
income for the AY. 2011-12 on 29.07.2011 declaring total income of
Rs.1,33,34,503/-, comprising of income from short term capital gains and
income from other sources. In addition, the assessee had also
disclosed long term capital loss of Rs.18,99,26,806/- and carried forward
said loss u/s 74 of the Income Tax Ac,1961. The case of the assessee
was selected for scrutiny, and notices under section 143(2) and 142(1)
of the Income Tax Ac,1961 were issued. In response to notice, the
authorised representative of the assessee Shri Dilip S. Damle attended
from time to time and filed various details as called for.

4. During the course of assessment proceedings, the AO noticed that
the AIR information available in the departmental data base system
shows the records of 19 number of registration details with respect to
transfer of immovable properties worth Rs.85,52,30,000/- and CIB
information of 43 transactions of Rs.36,31,00,000/- entered into by the
assessee or on assessee behalf during the F.Y. 2010-11 relevant to A.Y.
2011-12, but no income from said transaction has been offered to tax
under the head capital gains, therefore, he called upon the assessee
representative to explain and reconcile AIR data base with return of
income filed for the relevant year. In response, the authorised
representative of the assessee filed a letter dated 18.12.2013 and
explained information available in AIR data base and also contended
that amount received towards agreement for sale of properties, i.e. flats
4 in the building owned by the assessee cannot be treated as transfer u/s
2(47)(v) read with section 53A of the transfer of properties Act, 1882.
The relevant written submissions of the assessee have been reproduced
by the AO in assessment order at para. 5.2 on pages 3 of assessment
order.
5. The facts culled out from the records in respect of impugned
dispute are that one Mr. Edulji Framrize Dinshaw a parsi American,
resident of New York, USA had during his life time inherited vast tracks
of land in northern suburbs of Mumbai which were acquired by his father
Late F.E. Dinshaw (EFD). In February 1970, EFD executed his Will
appointing his sister Ms. Bachoobai Woronzow (‘BW’) as the executrix of
the Will for administering the Estate. The Bombay High Court vide its
order dated 21st December 1972 appointed Mr. Nusli N Wadia (“NNW”)
as the Administrator of the Estate of EFD (“the assessee”). Mr. NNW,
acting as the sole Administrator of the estate of the said E.F.Dinshaw,
entered into agreements with developers of real estate (M/s Ivory
Properties and Hotels Private Limited in relation to development of
designated land admeasuring 205.69 acres and M/s Ferani Hotels
Private Limited in relation to development of the designated land
admeasuring 478.50 acres (hereinafter referred to as “developers”}. By
the said agreements, the developers were appointed as Project Co-
ordinators for the purpose of development and construction thereon on
the immovable properties forming part of the estate of the said E.F.D.
Mr. NNW as Administrator of the estate would grant a lease of the
immovable properties of the estate of the said E.F.D for certain agreed
period of 5 years and developers would clear the land of encroachers at
their own cost and develop the properties by construction thereupon. It
5 was agreed between the parties that whenever the spaces in the
constructions are sold, NNW, acting as the sole Administrator of the
estate of the said Dinshaw would be entitled to receive from the
customers 12% of the consideration. Clause 12 of the said Agreements
with the developers reads as under:

“All gross realizations from the disposal/transfer, (by any and all different formats) as aforesaid, of the different developed segments, are to be divided between the Owner and the Company respectively towards the respective price of the land and sale-price of the building/s (segment-wise) as per the table set out hereunder:
a) 12% (twelve percent) of all such gross receipts/realizations shall be receivable by the Owner (directly from the purchasers/prospective purchasers/ unitholders /flat holders by Payee’s A/c cheques) and the same shall belong to and shall be the property of the Owner.
b) 88% (eighty eight percent) of all such gross receipts/realizations shall be receivable by the Company (directly from the purchasers/prospective purchasers/unit holders/flat holders by Payee’s A/c cheques) and the same shall belong to and shall be the property of the Company.”

Mr. NNW, acting as the Sole Administrator of the said estate, and the
developers has entered into MOU’s with the purchasers from 1997
onwards for sale of units in the building(s) to be constructed along with
share of land. Mr. NNW in his capacity as the Administrator has received
monies (representing instalments) which have been recorded in its
books of accounts of the estate as “Advances” and reflected on the ‘Liabilities’ side of the Balance Sheet. However, where conveyances
have been executed, the advances have been recorded as
consideration accruing on sale of land and the profit arising there from
has been offered to capital gains tax in the AY 2002-03 and AY 2003-04
in the hands of the Estate. The Department had considered these gains
as Business Income in various years arising out of the business of real
estate activity carried out by NNW the Administrator. The Tribunal has
consistently held that the same is Capital Gains and not Business
Income in the hands of the estate. The transaction which was involved in
6 AY 2003-04 related to sale of assessee’s interest in land situated at
Malad, Mumbai in respect of which the development rights were
awarded to M/s Ivory Properties Pvt. Ltd. In AY 2003-04, the assessee
had executed two conveyances in favour of M/s Blueberry & M/s
Property Venture and 12% share in the sale consideration received from
the transferee was offered to tax under the head “Capital Gains” in the
year in which the conveyances were executed. As such, in respect of
sale of land covered by the development agreement with Ivory
Properties Pvt. Ltd, also; the appellate authorities up to the Hon’ble
Supreme Court had upheld the assessee’s contention that the profit
made by the assessee would be assessable under the head “Long Term
Capital Gains”. Further, in the year 2008, Mr. NNW took legal steps for
termination of his agreements with Ivory & Ferani respectively. The
assessee not only terminated the Development Agreements but also
revoked the Powers of Attorney given to each of the Developers. The
assessee also filed suits against the Developers i.e. Ivory & Ferani in the
High Court of Bombay which are currently pending as Suit no. 414 of
2008 and Suit No.1628 of 2008 respectively. Assessee notified the
members of the public at large by publishing public notices in the
newspaper about termination of the Development Agreements as also
about the revocation of the Powers of Attorneys issued in their favour.
Assessee filed criminal complaints against Ivory and Ferani and their
Directors with the Economic Offences Wing (EOW) Mumbai; under
Sections 406, 409, 420 read with 120(b) of the Indian Penal Code for
perpetrating fraud by employing disingenuous modus operandi and
thereby misappropriating the assessee’s land by selling it to itself and
not to genuine third party purchasers. Based on the complaints filed
before the EOW an FIR was registered against the Ferani and its
Directors in January 2011. As regards Ivory; in 2008 EOW registered
7 the FIR under Section 406, 409, 420 read with 120(b) against Mr. C.L.
Raheja and his sons for cheating and criminal breach of trust. The EOW
has completed investigation and have also collected the necessary
details and documents corroborating the fraud perpetrated by them on
the Appellant. Based on the statements recorded EOW was satisfied
that fraud / cheating and misappropriation was committed and
accordingly on 22nd October 2013 EOW has filed charge sheet against
Mr. Chandru L. Raheja and his two sons Ravi and Neel u/s. 406, 409,
420 r/w 120 (b) of IPC. The case is now pending for trial before the
Metropolitan Magistrate, 47th Court at Esplanade Court Mumbai. As
regards to Ferani, an application seeking ad-interim and interim
Injunctions was moved before Hon’ble Bombay High Court. The order
thereon was pronounced by the Single Bench of the Bombay High Court
on 19th July 2010. In its order dated 19.07.2010, the Hon’ble Bombay
High Court found prima-facie case in favour of the Administrator of EFD.
However the Court also accepted that the preliminary issue relating to
limitation needs to be decided before proceeding in the matter. Against
the order & judgment of the Single Judge, Ferani filed an appeal and the
Division Bench of the High Court by its interim order dated 26.07.2010
stayed the judgment of the Single Judge. Administrator also filed an
cross appeal against order of single judge on 3rd August 2010 which
was admitted and directed to be heard along with the Appeal of Ferani.
Later on, the Division Bench of the Bombay High Court by its common
order and judgment dated 19.07.2012 allowed the appeal of Ferani since
the Single Judge had disposed of the entire Notice of Motion contrary to
Section 9-A of CPC. The judgment of the Single Judge was set aside to
that extent. In its judgment dated 19.07.2012, the Division Bench of the
High Court framed the preliminary issues under section 9A of CPC as
8 ‘Whether the claim of the Plaintiff in the suit is barred by limitation’ and
further directed as follows:

“(i) Pending the hearing and final disposal of the preliminary issue, (Ferani) is directed to maintain accounts and to continue depositing an amount equivalent to 12% of the gross sale consideration in a designated bank account. The amount upon deposit shall be invested in a fixed deposit to abide by further orders of the learned Trial Judge”; and
(ii) Liberty is reserved to the Administrator to apply before the Learned Single Judge for appropriate interim reliefs after the final decision on the preliminary issue”.
6. During assessment proceedings, he AO, after considering relevant
submissions of the assessee, agreement between the parties,
subsequent dispute and cancellation of agreement and power of
attorney and also orders of the Hon’ble Bombay High court in civil suits
came to the conclusion that although the assessee had received 12%
share in sale proceeds of developed area in building constructed on the
leased land, but income from said transaction has not been recognised
for want of conveyance of land title. The AO further observed that if you
go through the contents of agreement between the parties coupled with
power of attorney given to developers, it is very clear that the assessee
had voluntarily entered into lease agreement in the year 1995 and also
entered into a development agreement for development of a property for
agreed revenue sharing. Further, the assessee had received his share
of 12% revenue from sale proceeds of developed building upto financial
year 2008 and shown under the head advances from customers. He
further, observed that although, there was dispute cropped up between
the parties in respect of share of revenue and matter went to the Hon’ble
Bombay High Court, but on perusal of orders of the Hon’ble Bombay
High Court in various civil suits, the Hon’ble Bombay High court did not
granted injection to the assessee nor stopped development activities in
9 the impugned land, therefore it can be safely held that the agreement
between the parties is in force subject to court verdict and the assessee
is continued to receive his 12% share of revenue from sale of properties,
which is evident from the fact that the developer M/s Ferani Hotels
Private Limited had deposited assessee share in designated bank
account. He, therefore, opined that the assessee had absolute right over
the money received towards sale of property and hence amount
received in the impugned assessment year, including amount received
in earlier year is taxable for the impugned assessment year under the
head income from business. Further, although the AO had taken a view
that amount is assessable under the head business income, but
subsequently changed his stand and held that the assessee’s share of
12% income from sale of flats is assessable under the head income from
other sources on the ground that amount shown under the head
advances is a liability which ceased to exist as liability and therefore was
assessable under the head income from other sources. The AO had
also taken support from the provisions of Maharashtra Flat/Apartment
Owners’ Act, (MOA) Act, to come to the conclusion that there being
deemed conveyance in favour of the flat purchasers, and hence income
accrued in a financial year relevant to A.Y. 2011-12 becomes deemed
conveyance of land. The AO further observed that the assessee is
continued to receive money towards 12% share of income from sale of
property and credited into advance account without offering any income,
even though there is no obligation on the assessee to repay the same to
the flat purchasers. The assessee was not able to prove that there
existed any liability to the creditors shown in the books of accounts. As
such the liability is a nonexistent and liable to be treated as income as
there is cessation of liability. Even otherwise, the amendment in the
Maharashtra Flat/Apartment Owners’ Act mandates deemed
10 conveyance of title of land to the flat owners makes the condition
imposed by the assessee of transfer of title of land to recognise revenue
is illegal condition within Maharashtra and the accounting of receipts of
sale proceeds as liability under the category of advance is also rendered
illegitimate and illegal. Thus, the entire advance received up to
31.03.2011 is not an advance, but a liability which has ceased to exist or
a liability which has been legally watered down by the due process of
law. Therefore, he opined that entire advances received upto 31.03.2010
of Rs.269,48,90,886/- is treated as non existing liability and assessed
under the head income from other sources. Similarly, the amount of
advance received for the assessment year 2011-12 has been treated as
non existing liability and assessed under the head income from other
sources. Further, the AO had also assessed lease rental receivable
from M/s. Ivory Properties and Hotels Pvt. Ltd., Mumbai and rent
received from M/s. Ferani Hotels Pvt. Ltd. under the head income from
other sources.

7. Aggrieved by the assessment order, the assessee preferred
appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has
filed elaborate written submissions on this issue which has been
reproduced at para 5 on pages 47 to 127 of Ld. CIT(A) order. The sum
and substance of arguments of the assessee before the Ld. CIT(A) are
that the AO has completely ignored the judicial decisions/judgements
given by the Jurisdictional ITAT as well as Hon’ble Bombay High Court,
in assessee’s own case while assessing the income under the head
income from other sources for which there was no reason for doing so.
The assessee had also vehemently argued the issue in light of judgment
of Hon’ble Bombay High Court in civil suits filed by the assessee in
connection with cancellation of agreement entered with M/s. Ferani
11 Hotels Pvt. Ltd. and subsequent findings of Hon’ble Bombay High Court
that the assessee is having a prima-facie grounds for cancellation of
agreement and power of attorney as such it is very clear that the Hon’ble
Bombay High Court has in principle accepted the contentions of the
assessee. The assessee further contended that even though agreement
and power of attorney was cancelled, the developer unilaterally opened
an account in bank in their name and deposited 12% share of the
assessee to said bank account, however, fact remains that the account
opened by the developers is nowhere connected to the assessee and
also the assessee is neither operating said bank account nor used the
money lying in the said bank account because the amount deposited in
the said account is kept in fixed deposits under the supervision of trial
court and therefore it cannot be said that money deposited in designated
account is belonged to the assessee, consequently income accrued for
the year under consideration. The assessee had also relied upon
plethora of judicial decisions in support of his argument and argued that
interim amount received pursuant to order of Court is not liable to tax in
the year of receipt but it is taxable in the year when final award is passed
by the Court. Since, the matter is subjudiced before the court, unless
the court decides the issue finally the disputed amount cannot be
considered as income accrued to the assessee.

8. The Ld. CIT(A), after considering the relevant submissions of the
assessee and also by relying upon various evidences including certain
judicial precedents and also judgments of Hon’ble Bombay High Court
in civil suits filed by the parties, held that amount received by the
assessee towards 12% share from sale of flats is assessable under the
head capital gains when the appellant has conveyed ownership rights in
the land in favour of the purchasers, but not assessable under the head
12 income from business or profession. The Ld. CIT(A) further held that the
assessee has right from the beginning considered amount received from
sale of flats including for A.Y. 2001-02 and 2002-03 under the head long
term capital gains, however, the AO while passing the assessment
order for AY. 2003-04 assessed the income under the head income from
business. Subsequently, on appeal the appellate authorities, including
the ITAT and the jurisdictional Hon’ble Bombay High Court has held that
profit/gain arising on transfer of ownership rights in the land was
assessable under the head capital gains. Therefore, he opined that there
is no merit in the finding of the AO in first part of the assessment order
that income received towards sale of flat is assessable under the head
income from business/profession.

9. In so far as, the findings of the AO in regard to addition towards
advances received from customers from sale of flats under the head
income from other sources, the Ld. CIT(A) observed that when income
was chargeable to tax only under the head capital gains as the charge of
tax is inextricably linked with the transfer of a capital asset and hence
the question of taxing the advances shown under the head liabilities
under any head of income including income from other sources as there
is no transfer of capital assets in the given previous year. The Ld. CIT(A)
further observed that the AO’s action is also completely unjustified and
incorrect in view of the accounting principles for recognition of income,
because unless the income accrued during the relevant financial year
the question of taxation of said receipts does not arise. He, further,
opined that the AO has taxed entire receipts under the head income
from other sources including amount received in earlier period without
appreciating the fact that on one side he admits that advances received
is towards sale of property and on the other hand he opined that
13 liabilities shown under the head advances is ceased to exist and
consequently assessable under the head income from other sources
without appreciating the fact that provisions of charging section 4 & 5
which empowers and Income Tax Authority to assess income to tax in a
particular assessment year, but not income of a just preceding account
year. Therefore, he opined that the AO has assessed advances
received under the head income from other sources without adducing
any cogent evidence and material to establish that the sums received by
the assessee during the financial year 1995-96 to 2008-09 became
income chargeable to tax in the assessment year 2011-12, which has
been accepted as liabilities by the AO in all the preceding assessment
years upto assessment year 2010-11. Accordingly, deleted additions
made by the AO of Rs.2,69,48,90,886/- under the head income from
other sources. Similarly, the Ld. CIT(A) had also deleted additions made
by the AO towards advances received for the assessment year 2009-10
to 2011-12 on the ground that amount received towards 12% share of
income from sale of flats is not liable to tax, because the assessee has
not transferred right in immovable property during the relevant period
due to cancellation of development agreement dated 02.01.1995 and
also revocation of the power of attorney given to PHFL. The relevant
findings of the Ld. CIT(A) are as under:

“7.1 Having taken note to the AO’s order as well as appellant AR’s submissions, I find that the appellant received the gross sums of Rs.278,51,85,876/- during the period 1995-96 to 2008-09 from various intending purchasers of the constructed spaces in terms of the Development Agreements dated 02.01.1995. Out of the aforesaid sum received by appellant in the form of ‘Deposits’, the appellant has already offered a sum of Rs.9,02,94,990/- as income of the appellant under the head ‘Capital Gains’ in F.Ys 2001-02 85 2002-03 in the year when the relevant conveyances were executed in respect of sale/transfer of land. However, the appellant did not recognize the income for the remaining ‘Deposits’/ ‘Advances’ aggregating Rs.269,48,90,886/- in his books of accounts or in the income-tax returns on the ground that relevant conveyances were not executed. I find that while completing the assessment of the appellant u/s. 143(3) of the Act for
14 A.Y.2003-04, the AO merely changed the head of income as “Business
Income’ instead of ‘Capital Gains’ as disclosed by the appellant but did not
dispute the year of taxability of the income which accrued in the hands of the
appellant on execution of conveyance in favour of the purchaser of the spaces
constructed in terms of Development Agreement dated 02.01.1995. It is also a
fact on record that the AO accepted the appellant’s method of revenue
recognition in all the preceding assessment years as disclosed by the
appellant. Except changing the heads of income as recorded above in respect
of assessability of income as a result of transfer/sale of land when the
conveyance deed was executed by the appellant in none of the preceding
assessment year, the AO did not make any whisper in relation to assessability
of ‘Deposits’/ ‘Advances’ received by the appellant pursuant to the
agreements executed with the intending purchasers of the flats/constructed
spaces. Thus, it is amply clear that the AO accepted the appellant’s
proposition that income arising from transfer of appellant’s right in lands were
chargeable to tax only in the year’s in which the relevant conveyances were
executed and not in any other year. The perusal of assessments completed
under Section 143(3) of the Act in the case of the appellant in all the
preceding assessment years establishes that the Assessing Officers
consistently accepted that the ‘Deposits’ / ‘Advances’ received from the
intending purchasers represented ‘Liability’ and hence, it did not represent
income of the appellant for the years in which either the relevant Agreements
were executed or the amounts received as per the Agreements dated
02.01.1995. In view of the above facts of the appellant’s case, I do not find
any merit in the AO’s action of assessing the said sum of Rs.269,48,90,886/-
as appellant’s income chargeable in the A.Y.2011-12. Even in my considered
view, the action of the AO is completely contrary to the provision of charging
Section i.e. Section 4 and 5, which empowers an Income-tax Authority to
assess income to tax in a particular assessment year for income of a just
preceding accounting year. Even, I find that the AO could not adduce any
cogent evidence and material to establish that the sums received by the
appellant during the FYs 1995-96 to 2008-09 became Income’ chargeable to
tax in the AY 2011-12, which-has been accepted as ‘Liabilities’ by the
Assessing Officers in the all the preceding assessment years upto A.Y. 2010-
11.
7.2 In my considered view, the AO has wrongly assumed that the sum of
Rs.269,48,90,886/- has become income due to cessation of the liability as the
AO is of the view that the appellant can appropriate 12% share in the sale
proceeds as his income and he had no liability whatsoever to refund it. This
assumption of the AO is based on the judgment of the Division Bench of the
Bombay High Court in the case of N.N. Wadia Vs Ferani Hotels Limited in
Appeal No. 817 of 2010 in Suit No. 1628 of 2008 dated 19.07.2012. However,
the AO’s this assertion is completely incorrect and without having any basis
for the same. The AO completely ignored this hard truth that the appellant’s
right of 12% share of sale proceeds of any sale agreement with the
prospective purchaser of the flat/premises exists only in lieu of the .appellant’s
liability to execute the conveyance deed in favour of the intending purchasers
of the constructed spaces with the specific intention of acquiring the
ownership rights and interests in the land over which the Developers had
15 constructed the buildings. The payments were not intended for any other
purpose but for the specific purpose of acquiring the rights in the land owned
by the appellant. Besides this, the decision of Division Bench of Bombay High
Court dated 19.07.2012 was merely interim directions which did not in any
manner resolve the disputes between the parties as wrongly assumed by the
AO. Hence, the AO was in error in concluding that the disputes between the
parties stood resolved and 12% share received by the appellant or allegedly
received by the Developer on behalf of the appellant became income of the
appellant because it was the least minimum consideration receivable and for
which Administrator had no liability to refund.

7.3. Even, I find that the Division Bench of Hon’ble Bombay High Court
nowhere decided the the claims & counter claims of the parties to its finality
but only required the Trial Court to first meet the preliminary objection of the
Developer regarding maintainability of the suit on the • ground of limitation
and only thereafter proceed with the trial. In view of the same, the said
judgment nowhere crystallized the rights & obligations of the parties to the
dispute. I, therefore, do not find any merit in the AO’s conclusion that
Rs.269,48,90,886/- or any part thereof being the ‘Deposits’ / ‘Advances’
received from intending purchasers during the FYs 1995-96 to 2008-09
became legally chargeable to tax in A.Y.2011-12. Even as per the methods of
accounting prescribed in Section 145, the amounts/deposits received in the
years prior to 2010-11 could not be brought to tax in AY 2011-12 under the
provisions of the I.T. Act, 1961. Even I also find force in the appellant AR’s
this argument that the AO himself was not convinced by his own action that
the amount received by the appellant in a period of 14 years i.e. From F.Y.
1995-96 to 2008-09 became chargeable to tax as income in A.Y.2011-12,
which is evident from his subsequent action of re-opening of the assessment
of the appellant u/s.148 of the Act for A.Y.2007-08 and 2009-10. To this
effect, the appellant’s AR filed copies of notices u/s.148 of the Act in the
appellate proceedings. Besides this, specifically the appellant’s AR also
brought my attention to specific finding of the AO recorded in para 28 of the
assessment order, which reads that “”Without prejudice to the above,
proceedings are being separately initiated to examine the chargeability of
income out of the 12% share in the sale proceeds and other receivables,
arising in each earlier previous years in the assessment year relevant to the
respective previous year of receipt or accrual.” In view of these facts and also
after taking noting to the fact that jurisdictional Bombay High Court in the
appellant’s case in A.Y.2003-04 has specifically held that the appellant holds
the land by way of investment and hence, the gains/profit arised from the
transfer of land was chargeable to tax in the year in which the transfer of such
capital asset takes place. Hence, I have no hesitation to hold that the action of
the AO in taxing the sum of Rs.269,48,90,886/- which was ‘Deposits/Advances’ shown by the appellant in its books of accounts
pertaining to F.Y. 1995-96 to 2008-09 cannot be brought to tax in the year
A.Y.2011-12 as ‘Income from Other Sources’ keeping reliance on the decision
of jurisdictional Bombay High Court’s judgment in the appellant’s own case in
A.Y. 1987-88 to 1989-90 and also A.Y.2003-04. Accordingly, I consider it
proper and appropriate to hold that the AO’s action of taxing the entire sum of
Rs.269,48,90,886/- which was received by the appellant in a period of 14
16 years as “Income from Other Sources’ in A.Y.2011-12 is completely incorrect
and unjustined under the provisions of Income-tax Act as well as against the
accounting principles. Therefore, the addition so made by the AO of
Rs.269,48,90,886/- stands deleted. Therefore, the appellant’s these grounds
of appeal are allowed.

7.4 Even it is also very important fact to note that the judgment of the
Division Bench, Bombay High Court, which the AO took note to hold that there
was cessation of liability on the part of the appellant was adjudicated in July
2012 subsequent to accounting year closing of the assessment year 2011-12
i.e. 31.03.2011. Hence, the cognizance taken by the AO of this order in
respect of Return of Income filed prior to this judgment of the Bombay High
Court was completely wrong and. unjustified.

8. Through Ground Nos. 17 & 18, the appellant has agitated against the AO’s
action of making addition of Rs.6,35,29,260/- & Rs.2,62,55,640/- collected by
M/s.FHL during F.Y.2008-09 and 2009-10 respectively on account of alleged
12% share in the hands of the appellant. The appellant contended that no
opportunity was granted by the AO before making this addition, hence the AO
has violated the principles of natural justice. Therefore, the appellant
requested that the additions so made deserves to be deleted in full.

8.1 Having taken note to the AO’s order as well as appellant AR’s
submissions and documents available on record, it is evident that the
appellant instituted legal proceedings -Civil/Criminal in 2008 against the
Developers who were party to the Development Agreement dated 02.01.1995.
Subsequent to that, M/s.IPHPL neither entered into agreements with the
intending purchasers nor collected & paid any sums to the appellant’s 12%
share in the sale proceeds. But M/s.FHPL continued with the development of
the land and continued to enter into agreements with the intending purchasers
for sale of the constructed spaces. Though the appellant had not only issued
notice of termination of the Agreement but also revoked the Power of Attorney
granted to FHPL under the Development Agreement dated 02.01.1995. Even
the Administrator had also filed lis pendence notice with the office of the sub-
registrar, Borivali. The Administrator also published public notices warning the
members of general public cautioning them against entering into any
agreements with the Developers in view of the pending litigation. Despite all
such steps taken by the appellant, FHPL continued to develop the property
and entered into registered Agreements for Sale. Consequent to that
M/s.FHPL. collected 12% share in the sale proceeds on account of sale of
constructed spaces by the intending purchaser on behalf of the appellant, but
as the appellant/administrator of the estate initiated legal proceedings against
M/s.FHPL as detailed above, hence, the appellant instructed his Banker, ICICI
Bank not to accept payments from the intending purchasers or from the
Developers. In this situation, I find that the Developer M/s.FHPL without the
consent of the appellant opened an account with Indian Bank, Bandra under
the name & style of “Ferani Hotels Pvt Ltd A/c N.N. Wadia Share” having A/c
No.843184512 in which it has deposited various sums being 12% share of the
sale proceeds received from the intending purchasers. I find that in the course
of assessment proceedings, the AO gathered the information of deposits
17 made in this bank account of Rs.6,35,29,260/- & Rs.2,62,55,640/- in FYs
2008-09 & 2009-10 respectively from the Developers and the Bank by issuing
notice u/s. 133(6) of the Act. I find that the AO having taken note to the
decision of the Bombay High Court referred as above, held that the amounts
so collected/deposited by M/s.FHPL was an act of the agent of the appellant
and hence, the same represented minimum share in the sale proceeds for
which the appellant had no liability to refund. In view of the same, the AO
brought the total sum so received in F.Y.2008-09 and 2009-10 chargeable to
tax under the head ‘Income from Other Sources’ in A.Y.2011-12.

8.2 However, I am completely not in agreement with the AO’s action of taxing
the aforesaid sum in the hands of the appellant in A.Y.2011-12 after taking
note to the fact that the appellant had taken all legal steps preventing FHPL to
proceed with the development and enter into agreements for sale of the
constructed spaces with the intending purchasers. Not only this, the appellant
had also instituted civil & criminal proceedings seeking cancellation of
agreements and restoration of land. Besides this, I also note that the said
deposits were made by M/ s. FHPL in the Indian Bank Account without having
any permission/consent from the appellant. Therefore, the amount so
deposited in the said account by no means can be said belonged to the
Administrator nor such amount ever reached to the Administrator. Hence, by
no stretch of imagination the same can be brought to the ambit of income in
the hands of the appellant chargeable to tax in A.Y.2011-12. It is also evident
from the appellant’s submission that M/s. FHPL did not ever intimate or
provide any details of such collection to the appellant. The appellant could
gather this information of such deposit only after inspection of the assessment
records of the AO subsequent to the assessment order passed by the AO for
A.Y.2011-12. . Therefore, I find that no income accrued to the appellant on
account of unauthorized sale of constructed spaces carried out by FHPL in
the name & on behalf of the appellant. It is also a fact on record that the
Hon’ble Bombay High Court directed M/s.FHPL for maintain a separate
account of 12% share of the sale proceeds as an interim measure which will
be liable to be governed by the order of the Trial Court. Thus, the rights &
obligations of the parties in the amounts collected were subject to the
outcome of the order to be passed by the High Court. Hence, the . rights of
the appellant in the amounts so collected remained ‘ indeterminate
and inchoate. Further to that, even I also find that the developer M/s.FHPL
opened the bank account in July 2009 in Indian Bank for depositing 12%
share suo moto once the appellant stopped through its banker to take
any deposit from FHPL or by any prospective/intending purchasers of
the premises. Thus, the appellant’s this initiative of depositing 12% share suo
moto in separate account was much prior to the order delivered in July, 2012
by the Hon’ble Bombay High Court. Hence, in my considered view, there is no
sanctity in taxing the aforesaid sum in the hands of the appellant on the basis
of High Court Judgment which was delivered in July 2012 after the closure of
the accounting year. In view of the same, I consider it proper and appropriate
to hold that the action of the AO of taxing the aforesaid sum of
Rs.6,35,29,260/- and Rs.2,62,55,640/- received in F.Y.2008-09 and 2009-10
in A.Y.2011-12 is completely incorrect and unjustified under the provisions of
Income-tax Act. Accordingly, the addition made by the AO stands deleted.
18 9. Through Ground NO. 14 to 16, the appellant has agitated against the AO’s
action of making addition of Rs. Rs.17,32,37,955/- on account of alleged 12%
share of the sale realization with reference to M/s.FHPL. The appellant also
contended that the said addition was made without giving opportunity of being
heard and hence, the AO violated the principles of natural justice. Further to
that, the appellant also contended that the AO ignored the fact that the
appellant had already terminated his agreement with M/s.FHPL in 2008 and
also revoked the Power of Attorney. Therefore, no part of the said sum was
chargeable to tax as income since the matter was subjudice before the
Hon’ble Court.

9.1 Further, the appellant. also submitted that the AO’s action of taking note of
judgment of Bombay High Court for taxing the aforesaid sum in the hands of
the appellant was also contrary to the fact that the said judgment was given
by the Court in July 2012. Therefore, by no stretch of imagination, FHPL could
have deposited any sum in F.Y.2010-11 in compliance to said order. Hence,
the AO’s action of inferring base for taxing the aforesaid sum in the hands of
the appellant in A.Y.2011-12 based on Bombay High Court’s judgment was
completely erroneous.

9.2 I find that the aforesaid sum of Rs. 17,32,37,955/- was deposited by the
Developer M/s.FHPL, unilateral!/ and without the consent of the appellant,
who had executed Agreements for Sale in favour of the intending purchasers
after 2008 even though the appellant had instituted legal proceedings seeking
cancellation of agreement dated 02.01.1995. I find that this act of the
developer in executing the agreement for sale was without the consent of the
appellant and also after revocation of Power of Attorney given by the
appellant in favour of M/s.FHPL consequent to Development Agreement
dated 02.01.1995. Even I find that the appellant had filed suit in the Court for
cancellation of the agreement dated 02.01.1995 and restoration of land on
account of fraud committed by the Developer while executing the agreement.
Having taken note to the submission of the appellant and the documents on
record, I am of the considered view that the AO was completely unjustified in
his action in holding that the appellant by .executing agreements in 1995 and
granting irrevocable development rights and executing power of attorney
authorizing FHPL to undertake sale of the constructed spaces, the
Administrator had also granted rights to the developer to conduct sale of his
ownership rights in land.

9.3 Having taken note to the decision of Single Judge of Bombay High Court
Interim Order delivered on 19.07.2010 wherein, the Hon’ble Judge has made
adverse comments on the act of the Developer. Besides this, taking note of
investigation conducted by EOW against the IPHPL and FHPL and also after
admission of Suits filed by the appellant before the Bombay High Court for
cancellation of the Development Agreement dated 02.01.1995, it is explicitly
evident that the terms and conditions for the development which was stated in
the Development Agreement dated 02.01.1995 was subjudice and therefore,
in view of the fact that the aforesaid sum which was deposited by the
Developer M/s.FHPL without having consent from the appellant in the Indian
19 Bank Account to which the appellant has no access nor the appellant has any right over such money to use in any manner. In my considered view, the act of the AO in bringing the said sum of Rs. 17,32,37,95s/- to tax was completely unjustified and incorrect when in the given facts of the appellant case, where the rights and obligations of the parties arising .from the interpretations and execution of the agreement dated 02.01.1995 are indeterminate and inchoate. Even, it is also observed from the submission of the appellant on record that the lis pendence notice were served by the appellant to the Sub-Registrar, Borivali, for restraining for registration of development and sale agreement by the Developer in relation to constructed spaces.

9.4 Even, I find that the action of the AO in treating the FHPL as agent of the appellant for taxing the aforesaid sum under the head ‘Income from Other Sources’ in A.Y.2011-12 was contrary to the term stated in Clause 15 of the Agreement dated 02.01.1995, which clearly manifest that the relationship between the Appellant and Developer was not one of Principal and Agent. Therefore, I have no hesitation to hold that the unilateral conduct and acts of FHPL in executing the agreement for sale of land on behalf of the Administrator, in a situation where the operation of the agreement dated 02.01.1995 itself is subjudice, and also the sum allegedly so collected and deposited by FHPL in its account with Indian Bank, cannot be brought to tax in the hands of the appellant as the same was not accessible to the appellant.

9.5 Even I find that the AO’s reliance on judgment of the Apex Court in the cases of CIT Vs United Provinces Electric Supply Co [244 ITR 764] and CIT Vs K.C.P. Ltd [245 ITR 421] is not applicable in the appellant’s case as the same, is clearly distinguishable on the facts of the appellant’s case. In the case of the appellant, the amount collected by FHPL is assessable under the head ‘Capital Gains’ where as the decision relied upon by the AO is in respect of income assessable under the head ‘Profits and Gains of Business’. Thus, in the circumstances where the appellant has filed Suit for cancellation of Development Agreement dated 02.01.1995 and also revoked the Power of Attorney given to FHPL. Any unilateral execution of agreement for sale by FHPL cannot be termed as income of the appellant. In view of the same, I consider it proper and appropriate to hold that the addition so made by the AO of Rs. 17,32,37,95s/- was completely unjustified and incorrect. Accordingly, the same is deleted.

10. In so far as, additions made by the AO towards lease rental
income of Rs.39,60,000/-, the Ld. CIT(A) observed that the AO was
incorrect in bringing to tax lease rental even though it was demonstrated
that the assessee has cancelled development agreement dated
02.01.1995 and a civil and criminal proceedings have been filed against
the developer in the courts. He further observed that the AO did not
bring on record any documents or material except the agreement dated
20 02.01.1995 under which the leasehold rights were intended to be
granted. Moreover, the agreement itself provided for grant of lease only
for a period of five years and not beyond, therefore, he opined that the
AO was not having sufficient and cogent material on the basis of which
he could infer that assessee had subsisting and enforceable right to
claim lease rent as the assessee never executed any registered
document by which lease of property was granted in favour of the
developers. Accordingly, he deleted additions towards lease rental
amounting to Rs.39,60,000/- under the head income from other sources.
The relevant findings of the Ld. CIT(A) are as under:

10. Through Ground No. 19 to 21, the appellant has agitated against the AO’s action of taxing the lease rent income of Rs.39,60,000/- as income of the appellant assessable in A.Y. 2011-12. The appellant contended that the AO erred in assessing alleged lease rental of Rs.19,80,000/- each from the FHPL and IPHPL without bringing any document on record to suggest that the appellant had in fact granted lease of demised land and such lease was legally in force in terms of which the appellant could have received the lease rent in F.Y.2010-11. The appellant further submitted that the Administrator has terminated the tenancies through proper legal channel in 2008, hence, the AO could not assess any lease rent in the hands of the appellant in absence of any legal document to this effect.

10.1 I find that the AO has assessed the sum of Rs.39,60,000/- as lease rental income in the hands of the appellant in terms of the agreement dated 02.01.1995 by which the Administrator had agreed to grant lease of the demised lands in favour of the Developers for period of five years. He also noted that Clause (2) of the Agreements provided that the lease would be executed in the form agreed and annexed to the Agreement. It was also provided therein that the Administrator would execute the Lease in the agreed format as and when the Developers called upon the Administrator to execute.
In consideration of grant of lease rights the Developers were required to pay monthly lease rents of Rs.55,OOO/- each. It is an admitted fact that although the Form of Lease agreement was agreed and was annexed to the Agreement dated 02.01.1995, yet no lease deeds were formally executed in favour of the Developers since they did not called upon the Administrator to formally execute the lease document. It is also an admitted fact that even though lease deed was not formally executed the developers paid monthly sums of Rs.55,000/- to the Administrator which he continued to accept. Thus, based on the appellant’s act and also of the Developer, the AO held that there existed an arrangement between the parties in terms of which appellant was receiving Rs.55,000/- per month from each of the Developer. However, from the document and the appellant’s submission, it is inferred that the appellant
21 had specifically terminated the agreement in year 2008. Besides this, it is also
a fact on record that the counsel of the Administrator issued legal notices in
the year 2008 terminating the arrangements under which the Developers were
paying monthly sums of Rs.55,000/-. In view of the same, the appellant claims
that no lease rental income can be termed as income of the appellant as the
Development Agreement dated 02.01.1995 itself was terminated by the
appellant.

10.2 This was also brought to my notice by the appellant’s AR that the
Administrator stopped accepting the monthly payments. Subsequent to that
the Developers had deposited monthly amounts in the accounts unilaterally
opened by both the Developers in their own names. However, the appellant’s
AR claimed that such unilateral act did not result in accrual of any income in
the hands of the appellant. Hence, it was requested that addition so made by
the AO should be deleted.

10.3 Having perused the AO’s order and appellant AR’s submission, I find that
the lease rental amount i.e. Rs.39,60,000/- which was assessed as income of
the appellant for AY 2011-12 relates to the period F.Y.2008-09 to 2010-11
meaning thereby payment pertaining to A.Y.2009-10 and 2010-11 were also
assessed as income of the appellant in A.Y.2011-12. After taking note of the
submission and documents on record, I find that a sum of Rs.26,40,000/-
which is forming part of Rs.39,60,000/- allegedly pertained to FYs 2008-09 &
2009-10 relevant to AYs 2009-10 & 2010-11 respectively. Therefore, I find
that the action of the AO in charging such sum i.e. Rs.26,40,000/- in the
hands of the appellant in A.Y.2011-12 is completely unjustified and incorrect.
Further to that, the remaining sum of Rs.13,20,000/- pertained to F.Y.2010-11
though it is relevant to A.Y.2011-12 but as I find that the said sum was
unilaterally deposited by the Developer in their account without any intimation
to the appellant. Further to that, even I find that the appellant has no
accessibility to the said sum which was deposited in the accounts maintained
and operated by the Developer without having any consent from the appellant
to this effect. Surprisingly, even it is also inferred from the appellant’s
submission that there was no intimation to the appellant about any such
deposit in a separate account. In view of the same and also taking note of
entire facts and submission available on record, I consider it proper and
appropriate to hold that even this sum of Rs.13,20,000/- cannot be brought to
tax in the hands of the appellant in view of dispute in relation to cancellation of
Development Agreement dated 02.01.1995 and Civil and Criminal
proceedings filed by the appellant against the Developer in the Courts. In view
of the same, I consider it proper and appropriate to hold that the addition
made by the AO of Rs.39,60,000/- in the hands of the appellant is against the
provisions of law and hence, the same is deleted.

10.4 Under none of the charging provisions of the Income-tax Act, 1961, sum
of Rs.26,40,000/- could be brought to tax in AY 2011-12. Even if one accepts
the AO’s presumption that appellant was legally entitled to receive lease rent
on monthly basis, yet both under the mercantile system and the cash system
of accounting, the income allegedly pertaining to FYs 2008-09 & 2009-10
could not be assessed to tax in AY 2011-12. Particularly AO has admittedly
22 that lease rent is assessable under the head ‘Other Sources’. In the
circumstances it was necessary for the AO to prove that the said sum of
Rs.26,40,000/- was either received by the appellant during FY 2010-11 or
legal right to receive such income accrued or crystallized during FY 2010-11.
In absence of fulfillment of either of the two situations the AO could not
assess Rs.26,40,OOO/- as appellant’s income in AY 2011-12.

10.5 Even with regard to assessment of Rs.13,20,000/- allegedly
pertaining to AY 2011-12 I find that the sum was not chargeable in the
appellant’s hands because the assessee did not have any subsisting legal
right to claim or receive lease rentals from the Developers. It is true that the
Agreements dated 02.01.1995 envisaged granting of lease of the demised
lands in favour of the Developers. Save & except the clause (2) of the
Agreements dated 02.01.1995 there was nothing more on record which
established that the lease of land was in fact granted in favour of the
Developers. The agreements of 02.01.1995 specifically provided that the
lease would be granted in the form agreed between the parties. Format of
the lease was annexed to the Agreements. However it is an admitted fact that
such lease agreement was never formally executed by the Administrator in
favour of either of the Developers. A lease creates an interest in an
immovable property, such lease is required to be evidenced by a
registered deed, duly stamped as per the provisions of the Indian Stamp Act.
In the present case admittedly the Developers have claimed that lease rent
payable was Rs.55,000/- per month. In other words the consideration payable
for grant of lease was in excess of Rs. 100/- and therefore in – order to
acquire any enforceable legal leasehold rights, it was necessary that the
lease was granted by a formal written agreement which was properly stamped
and registered. Nothing has been brought on record by the AO which in any
manner suggests that any formal lease agreement creating perpetual lease in
favour of the Developers was created by the appellant. This needs to be
noted because Clause (2) of the Agreement of January 1995 had envisaged
the lease only for a limited period of 5 years which stood expired in January
2000. In the circumstances for the AO to infer subsistence of lease in FY
2010-13^^’existence of a formal lease deed was necessary. I therefore find
force in the submissions of the A/R that in absence of a properly executed
lease deed there did not exist any legally enforceable agreement under which
the assessee could demand payment of lease rent. At the same time it is also
noted that the Developers made monthly payments and the appellant
accepted such payments till 2006 and 2008 from IPHPL and FHPL
respectively. However in absence of the registered lease agreement,
such payment could only be inferred as a private agreement or arrangement
between the parties which did not create enforceable lease rights in favour of
the payers on perpetual basis. In my considered opinion the payments could
at best be considered to be contractual payments not amounting to
tenancy or lease because such an arrangement was not supported
by any registered & stamped instrument of lease. Whatever private
arrangement or understanding in terms of which monthly payments were
made, was terminated by the assessee by issuing legal notices. Once the
assessee took requisite steps for termination of agreement of his private
understanding with the developer the assessee itself never acknowledged or
23 accepted that any lease hold rights subsisted with the Developers. The AO did not bring on record any documents or material except the agreement dated 02.01.1995 under which the leasehold rights were intended to be granted. Moreover the said agreement itself provided for grant of lease .only for a period of 5 years and not beyond. Viewed from any angle therefore I find that there was no sufficient & cogent material available with the AO on the basis of which he could infer that assessee had subsisting & enforceable right to claim lease rent as the assessee never executed any registered and duly stamped document by which lease of property was granted in favour of the Developers, In view of the foregoing therefore I hold that the AO was not justified in assessing lease rent of Rs.13,20,000/- allegedly pertaining to FY 2010-11. For the reasons set out in the aforesaid the AO is directed to delete the addition of Rs.39,60,000/-.
11. The Ld. Sr. Counsel, Shri Parag. A. Vyas, appearing for the
Revenue submitted that the Ld. CIT(A) was erred on the facts and in the
circumstances of the case and in law, deleting additions made by the AO
towards advance of Rs.269.48 crores on transfer of assets in light of
serious dispute between the developer and the assessee regarding the
validity of lease agreement as well as development right agreement. The
Ld. Sr. Counsel further submitted that the Ld. CIT(A) has failed to
appreciate the facts in light of various reasons given by the AO to
assess advances under the head income from other sources which is
evident from the fact that the Hon’ble Bombay High Court has not
granted any interim relief to the assessee for cancellation of agreement
dated 02.01.1995 and power of attorney. The Ld. Sr. Counsel further
submitted that the first and foremost question needs to be answered is
whether income arising from development agreement is in the nature of
capital gains or in the nature of business income. He further submitted
that income arising to the assessee from the agreement dated
02.01.1995 is taxable as business income, since on entering into the
development agreement the assessee has changed its holding from that
of investment to that of stock in trade. He further submitted that the term
stock in trade is not defined under the Income Tax Ac,1961 and
24 therefore a dictionary meaning may be adopted as per which the term
stock in trade means, the inventory carried by a retail business for sale
in the ordinary course of business. He further refers to the decision of
Hon’ble Supreme Court in the case of Director General of Income Tax,
Admin and others vs. GTC Industries Ltd. & ors reported in (2016) 240
taxman 209 has noted the fact that entering into a development
agreement would convert land into stock in trade. The Ld. Sr. Counsel
had also referred the decision of Hon’ble Supreme Court in the case of
Raja J. Rameshwara Rao vs. CIT (42 ITR 179) and submitted that when
land is sold in flats after development of the area to make it more
attractive the same amounts to a business activity. The Ld. Sr. Counsel
further submitted that the moment the assessee entered into a
development agreement it becomes stock in trade of the assessee,
consequently any income arising from said transaction is assessable
under the head income from business. Since land was part of
development agreement on entering into development agreement it
becomes stock in trade based upon decisions of the Hon’ble Supreme
Court of India cited above and the meaning of the term Stock in Trade.
Since interim relief was refused by the Bombay High Court vide order
dated 19th July 2010, the income relating to the transactions pertaining
to the period from 1995-96 to 2010-11 relating to the development
agreement treated as an advance by the assessee acquired the
character of accrued income. The provisions of section 52 and 53A of
the Transfer of Property Act enclosed marked Exhibit A may be
considered in this regard. As per section 52, a third party acquires right
in a property which is subject matter of a suit depending upon the result
of the suit or as directed by the Court. In the instant case, the Hon’ble
Bombay High Court in July 2010 rejected the motion for interim relief on
the basis of equity. This is also confirmed by the Division Bench of the
25 Bombay High Court in 2012 hence the whole of the income of the
assessee shown as advance pertaining to the period from 1995 to 2008-
09 is income relating to the year 2011-12. The ld. Sr. Counsel further
submitted that on taxability of income deposited in designated bank
accounts for sale of flats during 2009-10 to 2011-12, it seems these
deposits are under court order and as per court order dated 19th July
2010, ad interim stay has been rejected only a direction has been given
that future sale of flats would be subject to concurrence of both parties.
The income pertaining to sale of flats prior to the filing of the suit would
be taxable for the A.Y.2011-12 as stated above while the one relating to
the period after filing of the suit may be subject to the application of
section 52 of the Transfer of Property Act and the order of the Bombay
High Court dated 19th July 2010.

12. The. Ld. Sr. Counsel, further, submitted that as per the doctrine of
Lis Pendens incorporated in section 52 of the Transfer of Property Act,
1882, the transfers of third parties although not illegal (as held by the
Supreme Court of India in Thomson Press India Ltd vs Nanak Builders
and Investors Private Limited) would depend upon the result in the
pending proceedings. In the pending proceedings interim stay was
refused in respect of the flats already sold by Ferani, but future sales
were made effective subject to concurrence of all parties. This aspect
was also overruled by the Bombay High Court Division bench in its
judgment dated 19th July 2012. Since interim stay was refused by
Bombay High Court one may argue that income in respect of these
transactions also accrued on date of the decision in 2010. He, further,
submitted that on the aspect of amount being not available to the
Assessee one may see that the Assessee as per the decisions of the
Bombay High Court in 2010/2012 cannot put the construction or sale of
26 flats on hold. Hence the only issue which would remain in the equity of
things would be whether it would be entitled to further compensation in
addition to the 12% deposited in a designated bank account. In any view
of the matter the assessee would not be receiving any amount lesser
than that of 12% already being credited to the designated bank account
which it can always without prejudice to its contentions seek to withdraw.
It may be noted the Assessee itself on its own account had stopped
accepting the 12% amount on the ground that the agreement is in
dispute. Under section 11 of the Maharashtra Ownership Flats Act 1970
even the land has to be transferred to the purchaser of the Flats
(society). Hence, in any view of the matter the amounts
received/deposited in bank accounts (including lease rentals) as stated
above are rightly treated as income of the year 2011-12. In the decision
of the Bombay High Court in the Assessee’s own case for A. Y. 2003-04,
the Hon’ble High Court was not apprised it is respectfully submitted
about the decision of the Supreme Court of India holding sale of land
(based upon development contract) to be business income and follows
the earlier order for years not concerned with the development
agreement without either side attempting to point out the difference.

13. The Ld. Sr. Counsel further referring to Maharashtra
Flat/Apartment Owners’ Act, 1970 submitted that section 11 of said Act,
is very clear that the promoter shall take all necessary steps to complete
his title and convey to the organisation of persons, who take flats, which
is registered either as a co-operative society or as company or an
association of flat owners, his right title and interest in the land and
execute all relevant documents, therefore in accordance with the
agreement executed under section 4 and if no period for the execution of
the conveyance is agreed upon, he shall execute the conveyance within
27 the prescribed period and also deliver all documents of title, relating to
the property which may be in his possession or power. The Ld. Sr.
Counsel further submitted that the plain reading of section 11 in
conjunction with section 52A of transfer of property Act 1882, makes it
very clear that once an agreement for sale is entered into between the
parties, then the title and interest in the said property passed on to the
buyer and consequently transfer take place within the meaning of
section 2(47)(v) of the Income Tax Ac,1961. The Ld. Sr. Counsel further
submitted that in this case although assessee continued to receive 12%
share of income from transfer of property, but deferred recognition of
revenue for indefinite period even though the developer has conveyed
ownership to the flat buyers by citing a reason that he had cancelled
development agreement and power of attorney. But, fact of the matter is
that the Hon’ble Bombay High Court has not granted any interim relief or
stay to the developer for construction work. Further, the Hon’ble
Bombay High Court held that M/s. Ferani Hotels Pvt. Ltd. can continue
construction activities, however further stated that no sales unless the
consent of the owner. This clearly indicates that the developer is
continued to develop the property and the assessee is receiving his
share of income, therefore it cannot be said that amount received,
towards sale of property is an advance in the nature of contingent
liability. The Ld. Sr. Counsel had also extensively argued the issue in
light of various clauses of agreement and findings of Hon’ble Bombay
High Court in civil suit and submitted that the assessee is postponing tax
liability on the income which is accrued for the year even though there is
no injection or stay from the court. Therefore, the AO was right in
assessed advances shown in the balance sheet under the head income
from other sources and this order should be upheld.
28 14. The Ld. Sr. Counsel for the assessee submitted that the Ld. CIT(A)
has rightly appreciated the facts in light of various evidences filed by the
assessee to come to the conclusion that the AO was incorrect in holding
that amount received towards 12% share of income from sale of flats is
assessable under the head income from business. The Ld. Sr. Counsel
further submitted that the issue of head of income under which receipt
from sales is assessable is no longer an issue, because the matter has
been finally settled by the Hon’ble Bombay High Court in assessee’s
own case for earlier period where the assessee had offered income
under the head income from capital gains, whereas the AO had
assessed under the head income from business or profession. On
appeal, the appellate authorities including Ld. CIT(A) and ITAT held that
income embedded in the advance received was chargeable only under
the head income from capital gains and that too in the year of the
transfer of the capital asset. The Ld. A.R. further submitted that the Ld.
CIT(A) had recorded categorical finding in paras 6.9 to 6.21 that income
received from transfer of capital asset is chargeable to tax under the
head capital gains but not under the head income from other sources.
These specific findings of the Ld. CIT(A) are not challenged by the
Department in any of the grounds of appeal and once the findings of the
Ld. CIT(A) goes unchallenged, then ground No.1 becomes only
academic, because nowhere in any grounds it is claimed by the
Revenue that transfers of the capital assets took effect in assessment
year 2011-12 and some received represents consideration in respect of
asset transfer.

15. The Ld. A.R. for the assessee further replying to argument of the
Ld. Sr. Counsel for the Revenue submitted that when income from sale
of flats has been consistently assessed under the head capital gains and
29 such treatment has been finally approved by the Hon’ble Bombay High
Court, then there is no reason for the AO to hold that the land has been
converted into stock in trade when development agreement is entered.
In fact, it is not the case of the AO that the assessee has converted
investments into stock in trade thereby provisions of section 45(2) of the
Income Tax Act, 1961 and subsequent sale of flats is a sale of stock in
trade and resultant income is assessable under the head income from
business/ profession. The Ld. A.R. further submitted that no doubt the
assessee had entered into a development agreement in the year 1995
and received sale consideration wherever conveyance has been entered
into to transfer right and interest in land upto assessment year 2003-04.
In fact, the assessee had executed 2 sale deeds and income there from
has been offered under the head income from capital gains. The AO
disputed and assessed income under the head income from business or
profession, but ultimately the Hon’ble Bombay High Court has held that it
is assessable under the head income from capital gains. Therefore,
there is no merit in arguments of the Ld. Sr. Counsel for the Revenue.

16. The ld. Sr. Counsel for the assessee in reply to arguments of the
Ld. Sr. Counsel for the Revenue that even if income is not assessable
under the head capital gains, but the AO was very much right in
assessing advances shown in the balance sheet under the head income
from other sources as non existing liability because the assessee was
deferring incidence of tax for unlimited period on the ground of dispute
between the parties and cancellation of development agreement dated
02.01.1995 and power of attorney, but fact remains that the assessee
has cancelled development agreement dated 02.01.1995 in the year
2008 and a suit has been filed before the court. The assessee had also
filed criminal cases against Ivory hotels and Properties Pvt. Ltd., for
30 which the economic offence wing of Mumbai Police had filed charge
sheet. In so far as agreement with M/s. Ferani Hotels Pvt. Ltd.,
agreement and power of attorney has been cancelled and also a civil
suit has been filed in the court of law to restore the possession and the
legal title of the disputed land with the assessee. The Hon’ble Bombay
High Court single member judge had taken up the case for hearing, but
at a time of hearing M/s. Ferani Hotels Pvt. Ltd. had challenged the
application filed by the assessee on the ground of limitation. However,
the Hon’ble Bombay High Court has passed an interim order and
observed that the assessee had prima-facie grounds for cancellation of
agreement and power of attorney. Although, the Division Bench of
Hon’ble Bombay High Court has suspended the judgment of Hon’ble
Single Judge, but has not given any finding in respect of dispute
between the parties, however, only stated that the dependants M/s.
Ferani Hotels Pvt. Ltd. can continue construction and sale of flats in
concurrence with land owners, till the court decides the dispute between
the parties. Therefore, it does not mean that the income in respect of
amount deposited in designated bank account is accrued to the
assessee for the year under consideration; consequently, it can be
assessed under the head income from other sources. The Ld. A.R. for
the assessee further submitted that the AO has assessed total
advances received by the assessee upto assessment year 2011-12
under the head income from other sources as nonexistent liability, but
provisions of section 56 does not permit the AO to assess income of
earlier years in the year under consideration. The Ld. A.R. further
submitted that assuming for a moment but not accepting, the liability is
ceased to exist, but provisions of section 41(1) of the Income Tax Act,
1961 cannot be invoked, if income is assessed under the head income
from other sources. In this regard, he relied upon various judicial
31 precedents including the decision of ITAT Kolkata Bench in the case of
DCIT vs. M/s. Everyday Industries India Ltd. in ITA No.94/Kol/2004
dated 03.02.2016. The assessee had also relied upon the decision of
ITAT Mumbai, in assessee’s own case, in ITA No.1033/M/2018 dated
27.03.2019 and argued that under identical set of facts, the Tribunal held
that amount lying in designated bank account opened by the developer
in the name of the assessee and consequent interest is integral part of
the funds under the custody of the court and said amount is not
accessible to the administrator. The assessee had also relied upon the
decision of Hon’ble Karnataka High Court in the case of CIT vs. L.
Sambasiva Reddy (2015) 62 Taxmann.com 174 and the decision of
ITAT, Mumbai in the case of Bombay Gowrakshak Mandali vs. ITO in
ITA NO.5508/M/2014.

17. We have heard counsels of both parties, perused materials
available on record along with orders of the revenue authorities.
We have also carefully considered case laws cited by both sides.
The fact which leads to impugned dispute are that the assessee
entered into a development agreement and power of attorney
infavour of M/s Ivory Hotels & Properties Limited and M/s Ferani
Hotels Private Limited in the year 1995 for development of certain
parcel of lands in Mumbai. The Administrator of the Estate of late
EFD terminated the Development Agreement and filed Suit in
Bombay High Court in 2008. Upon termination of the Development
Agreement in May 2008, the Administrator had instructed ICICI
Bank not to accept deposits being 12% share of the sale proceeds
receivable under the Agreement dated 02.01.1995. Since Estate of
EFD as well as its Banker i.e., ICICI Bank was not accepting the
payment of 12% share of the sale proceeds, Ferani su-motto,
32 unilaterally opened a Current A/c bearing No.843184512 with
Indian Bank, Bandra Branch, Mumbai under the
nomenclature/cause title of “Ferani Hotels Pvt. Ltd-NN Wadia
share” and utilized for depositing the 12% share of the proceeds
arising from sale of flats/units by Ferani after the determination of
the development agreement in 2008. Although such A/c was
opened by Ferani: the Administrator was never informed about
bank name, details of such an A/c nor had the Administrator
authorized Ferani to open the said account and collect and deposit
such sums in the said account. The Administrator moved an
application bearing Notice of Motion No. 1863/2008 in Suit No.
1628 of 2008; seeking ad-interim and interim Injunctions against
Ferani who alone was unilaterally carrying on development work
in terms agreement dated 02.011995 even after the agreement
was determinated and power of attorney given to both developers
was withdrawn. The hearing of the motion was conducted on
24 “‘ June 2010. The order thereon as pronounced by the Single 19t1
Bench of the Bombay High Court on July 2010. In its order
dated 19.07.2010 the Hon’ble Bombay High Court found prima-
facie case in favour of the Administrator of EFD and observed in
Para-68 (Page-771-772) as follows:
“It may be mentioned that a defendant, who is on the wrong side of the law,
upon having committed acts of fraud and deceit and put up construction after
having committed such fraud cannot make bold to state to Court that no matter
what his act is; he must be entitled to construct and develop the property. Once
a prima-fade case is made out by the plaintiff for grant of interim relief in equity,
the defendant cannot defeat the relief being granted upon his own convenience
and to seek to balance it with the prima-fade case. It is only if the convenience
of the defendant is such as can be balanced with plaintiffs case that the concept
33 and doctrine of the term ‘balance of convenience’, can weigh in favour of the
defendant.”
18. We further noted that During the hearing on the Notice of Motion
before Single bench of the High Court, Ferani raised the plea of
limitation in terms of Sec. 9A(1) of the Civil Procedure Code. The
Court noted that since the plea regarding bar of limitation was a
preliminary issue which went to the root of the jurisdiction of the Court
it had to be decided in the first instance. Since the preliminary issue
of limitation was required to be decided first, the Court ordered Ferani
not to put any party either genuine third party or related parties in
possession of the constructed premises except with the approval of
the assessee pending the Suit. The Court also directed that the issue
relating to limitation would be decided first being the jurisdictional
issue. Since in the order dated 19.07.2010 the Bombay High Court
had issued injunction against Ferani from handing over possession
to the Flat purchasers; an appeal being Appeal No. 817 of 2010 was
moved before the Division Bench of the Bombay High Court by
Ferani. Similarly, since the injunction as sought by Estate EFD was
not granted; counter appeal being Appeal No. 806 of 2010 was filed
by Estate EFD before Division Bench of the Bombay High Court. The
Division Bench of the Bombay High Court by its judgment dated
19.07.2012 (Page 787- 822) decided these Cross Appeals which
arose from the judgment of the Bombay High Court order dated
19.07.2010 passed in relation to Notice of Motion No. 1863 of 2010
seeking ad interim relief. This is apparent from the opening para of
the Judgment which reads:
“These appeals arise from a judgment dated 19.07.2010 of a Ld. Single Judge
on a Motion for interim relief in his Suit. When an application for Ad interim
34 relief came up for hearing before the Ld. Single Judge; an objection to the
maintainability of the Suit was raised on behalf of the first defendant on the
ground that the claim was barred by limitation.”
After considering the arguments on behalf of the rival parties; in Para-
35 the High Court recorded the following findings:

(i) Appeal 817 of 2010 filed by Ferani Hotels Private Limited shall stand allowed and the impugned order of the Learned single Judge dated 19 July 2010 shall stand set aside:
(ii) The following issue is raised under Section 9A of the Code of Civil Procedure,1908 and shall be tried as a preliminary issue: “Whether the claim of the Plaintiff in the suit is barred by limitation.”

(iii) ……………………………
(iv) .P ending the hearing and final disposal of the preliminary issue, …
Ferani Hotels Private Limited is directed to maintain accounts and to continue depositing an amount equivalent to 12% of the gross sale consideration in a designated bank account. The amount upon deposit shall be invested in a fixed deposit to abide by further orders of the Learned Trial Judge:
(v) Liberty is reserved to the Plaintiff to apply before the Learned Single Judge for appropriate interim reliefs after the final decision on the preliminary issue;

(vi) We clarify that all the observations contained in this judgment are confined to the issues which have arisen before this Court at the present stage and the view expressed by the Court on the merits of the rival contentions shall not come in the way of the disposal of the Notice of Motion or the suit in terms of the directions issued.
19. We further noted that from bare perusal of the judgment dated
19.07.2012, it is very clear that the Division Bench of the High
Court did not adjudicate the Suit filed by the appellant wherein the
assessee had requested for granting relief in the form of
cancellation Agreement dated 02.01.1995 and possession of the
property. The Bombay High Court had granted liberty to the
35 assessee even to apply for interim relief once the preliminary issue
was decided by the trial court. It is therefore factually and legally
incorrect to canvass a proposition that in view of the judgments of
the Bombay High Court dated 19.07.2010 and 19.07.2012 the
assessee’s plea for grant of injunction against Ferani was rejected
forever and thereby the sale agreements executed by Ferani had
become final and consequently therefore the income embedded in
the entire advance received during the period 1996-97 to 2010-11
become chargeable to tax in AY 2011-12. Further, the contention
raised to this effect by the Id. Counsel for the revenue is not
supported by the specific liberty granted by division bench in its
order dated 19.07.2012. It is also to be noted that the sum of Rs
269.48 crores assessed as income in AY 2011-12 includes only
Rs. 156.48 Crores received under the agreement with Ferani and
remaining sum of Rs 113 Crores was received under the
agreement with Ivory. In respect of Ivory, there was no order of the
court either on the Notice of Motion or in the suit filed. In that view
of the matter, inference against the assessee could not be drawn
in AY 2011-12 in relation to amounts received in total in Rs 269.48
Crores. As regards agreement with Ivory there was no
development during the financial year 2010-11 so as to warrant
drawing any inference that income to the assessee accrued during
the relevant year in respect of sums received up to 2008-09 under
the agreement with Ivory. It is also entirely incorrect on the part of
the AO as also the Ld. Counsel for the Revenue to interpret & hold
that the judgement of Bombay High Court dated 19.07.2012 finally
adjudicated upon the rights and obligations of the parties arising
from the Development Agreement dated 02.01 .1995. The AO
while completing the income tax assessment order for A.Y. 2011-
36 12 interpreted the judgment of the Bombay High Court dated
19.07.2012 in the manner that the Court had finally decided on the
assesses entitlement to receive the consideration on sale of the
constructed spaces in his own right even though the Suit has
remained pending even till today. In fact the Hon’ble High Court
directed that pending hearing and final disposal of the preliminary
issue; Ferani would maintain the accounts and to continue
depositing an amount equivalent to 12% of the gross sale
consideration in the designated Bank account. The Court further
directed that the amount upon deposit would be invested in Fixed
Deposits to abide by the further orders of the Ld. Trial Judge.
From bare perusal of the order of the High Court’s judgment: it
was evident that nowhere the High Court had in any manner
expressed any opinion or made any observation that the
moneys deposited in the designated A/c by Ferani could be
appropriated by Estate EFD or that the Estate EFD could
exercise control or domain either over the amounts deposited in
the designated A/c or over the fixed deposits made by Ferani
out of the sums deposited in the designated A/c. Nowhere the
Court had even indicated that in its opinion Estate EFD could
have any access to the sums collected by Ferani. Keeping in
mind the fact that Estate of EFD in the Suit filed had requested
for cancellation of the Agreement dated 02.01.1995 and had
sought restitution of the property in its original form, the Court
had categorically directed that the amounts invested by Ferani
in fixed deposit would abide by the further orders of the Trial
Judge trying the Suit filed by Estate of EFD. In the
circumstances, it is very clear that the Court was very
categorical in its direction that the amount collected by Ferani
37 would remain under its exclusive control and over which Estate
of EFD would neither have any control or access. Further this
fact has been accepted by the ITAT “E” Bench Mumbai for AY
2013-14 in its order in ITA No. 1033/Mum/2018 Dt. 27.03.2019.
The coordinate bench of the ITAT agreed with the assessee’s
contention that the amounts collected and kept in deposit by
Ferani was under court custody and its disposal dependent upon
the final order of the Court trying the suit. The relevant findings
of the Tribunal are as under:

13. We have heard rival contentions and gone through facts and circumstances of the case. We have gone through the detailed arguments made by Ld Counsel for the assessee. We have also heard LD CIT-DR and gone through case records. We noted that the amount of Rs.4,06,41,567/- credited by Indian Bank on the FDs did not constitute income chargeable to tax for the A.Y. 2013-14 for the present assesse merely on the ground that the bank had deducted tax at source and the tax payment was reported against the PAN allotted in the name of Estate of EFD. We have notice from the judgment of Hon’ble Bombay High Court dated 19.07.2012 that the relevant directions of the High Court were pronounced while disposing the appeal filed by Ferani against the judgment of the Single Judge disposing Notice of Motion for Interim relief. We are of the view that CIT was unjustified in drawing inference against the assessee on the ground that it was the assessee who had approached the Court and therefore assessee could not deny the fact that the fixed deposits were made in its favour on the basis of Court directions & the FDs legally belonged to the assessee. We have noted the fact that the assessee had filed Suit before Hon’ble Bombay High Court in 2008 after terminating the Agreement dated 02-01-1995 and prayed for restitution of the property in its original form. The said Suit was pending and therefore the rights of the Parties flowing from the Agreement dated 02-01-1995 were inchoate and/or indeterminate. Even the CIT (A) in his appellate order for the A.Y. 2011-12 dated 28.10.2014 had held that no income arising from Agreements for Sale unilaterally executed by Ferani during F.Y.2010- 11 was legally chargeable to tax in assessee’s hands because the entire matter was sub-judice and assessee was never a party to the Agreements for Sale executed by Ferani and for which the amounts were deposited in the Bank A/c opened by Ferani in its own name. But it is to be mentioned that these facts itself is enough to create the debate and this order of CIT(A) is pending adjudication before Tribunal. Moreover, we make it clear that this order of ours will in no way affect the hearing of that appeal. Copy of the appellate order for the A.Y. 2012-12 is enclosed at Pages 172 to 347 of the assessee’s Paper Book. The same view was taken by the CIT (A) for A.Y. 2012-13 as well. The appeal against the order u/s 143(3) for A.Y. 2013-14 is pending
38 before CIT (A). However, it is evident that on the same set of facts as prevailed in the prior years and the appellate authorities have held that since the assessee was not a party to any of the Sale Agreements after the Agreement dated 02-01-1995, which was terminated in May 2008, no income could be legally inferred with reference to amounts unilaterally collected by Ferani. However, until the Suit was decided one way or other no income in law could be inferred in the assessee’s hands on substantive basis and in case revenue want to assessee the same here it can only be assessed on protective basis at the most. But that is not the case here because revenue has to give find where this has to be assessed on substantive basis.

14. Be the same as it may, in the present case the issue is not whether the part of the sale price deposited in the A/c No. 843184512 was assessable as income of the assessee. After the A/c No. 843184512 was unilaterally opened by Ferani in July 2009, the amounts collected & kept in said Current A/c did not yield any further income. In July 2012 the Division Bench of Hon’ble Bombay High court while disposing of the appeal of Ferani, however issued directions to Ferani to maintain the account of the amounts collected and deposited in the designated A/c. The Hon’ble High Court further directed Ferani (and not Estate of EFD) to make FDs out of the sums collected. The Hon’ble High Court’s order further clarified that the amount invested in the Fixed Deposit would abide by further orders of the Trial Judge. As such the directions of Hon’ble Bombay High Court were express in their intent and language. Nowhere the order Court required Estate of EFD to take any steps with regard or with reference to amounts collected by Ferani. It was not for Administrator to keep account of the moneys collected. The directions of the Court expressly bound Ferani to deal with the amounts collected by it in a particular manner. Even though the Court permitted Ferani to proceed with collecting the sale proceeds from the Flat purchasers and the Court had required Ferani to maintain the accounts in respect of 12% share of the sale proceeds collected by it and further required Ferani to periodically keep such sale proceeds in fixed deposits so that Ferani did not have free and unfettered access to sums so collected. The Court also made it expressly clear that the amounts upon being invested in Fixed Deposits would ultimately be governed by the orders of the Trial Court. The directions of Hon’ble Bombay High Court made it clear that the deposits kept with the Bank under the orders of Hon’ble Bombay High Court essentially constituted funds in custodia legis. In other words, upon the amounts being kept in FDs the funds remained in the custody of the Court. In the circumstances therefore interest accruing on these fixed deposits also constituted integral part of the funds under the custody of the Court and not accessible to the Administrator.
20. We further noted that after the Agreement for development was
terminated in May 2008 and the Suit was filed in Bombay High
Court, only one of the Developer viz. Ferani unilaterally
continued to execute Agreements for Sale in favour of the Flat
39 purchasers by using the Power of Attorney executed in its
favour in January 1995, even though said Power of Attorney
was legally revoked in 2008. Since Administrator was never
party to any of the Agreements unilaterally executed by Ferani
and no part of the consideration ever reached the Bank A/c of
Estate EFD, the assessee rightly neither accounted the receipt
of the part consideration in its books nor reported any gain or
profit accrued on execution of Sale Agreements in the I T
returns filed 21. In this factual back ground, the question that needs to be first
answered is whether the AO was right in stating that income from
sale of flats under agreement dated 2-1-1995 is assessable under
the head income from business or profession. The issue of head of
income under which amount received towards 12% share of
income from sale of flats under agreement dated 2-1-1995 is
assessable in attained finality, because the Hon’ble Supreme
Court for the A.Y. 2003-04 had accepted the contention of the
assessee that income is assessable under the head income from
capital gain in SLP filed by the revenue. Therefore, in the first
instance the Id. Counsel for the revenue should have restricted his
arguments with reference to the grounds of appeal which arose
from the orders of the authorities below. It is not permissible for
the counsel of the revenue to make out a case which the revenue
itself had never made out. In the present case, appellant before
this tribunal is the Assessing Officer who had passed the
assessment order. In the order passed under section 143(3), the
A.O. had consciously and after due application of mind to various
facts opted to assess the income under the head “Other Source”
40 and not profits and gains from business. In the circumstances,
while representing the A.O., his counsel cannot be permitted to
make out a case which was not the case of the A.O. at the
assessment stage. It is further material to draw attention to the
fact that CIT(A) in his order recorded a categorical finding that the
amounts assessed as income were received as ‘advance” from
various persons to whom the assessee had agreed to transfer his
right, title and interest in land. The income embedded in such
advance could therefore be assessed only under the head “Capital
Gains” and not under any other head of income. Further such
income could only be assessed in the relevant previous year in
which transfer of the capital asset took legal effect On scrutiny of
memorandum of appeal, it was noted that, in four grounds of
appeal the Revenue has not challenged the said specific finding
and directions of CIT(A). In absence of any specific challenge to
the CIT(A) finding in the grounds of appeal, the Revenue cannot
be permitted to raise arguments in relations to head of income,
more particularly when the matter was settled in earlier years.
22. We further noted that the CIT(A) had recorded categorical
finding in his order, wherein he has first set out the historical
background of assesses case inter alia giving details of past
assessments in which profit on sale of inherited lands was
assessed as business income, but held to be assessable under
the head Capital gains by the appellate authorities including
Hon’ble Bombay High Court. In respect of lands which were
subject matter of development agreements dated 02.01.1995, the
assessee had recognized income on execution of four
conveyance in AY 2002-03 and AY 2003-04 respectively. The
41 income was offered under the head Capital gains. In the assessment
under section 143(3) for the AY 2003-04, the A.O. assessed the same
under the head profit and gains of business. It may be noted that in
AY 2003-04 CIT(A) relying on the ITAT order for AY 1987-88 to
1989-90 and 1991-92 to 96-97 decided that the income from sale
of land should be taxed as capital gains. The same was confirmed
by ITAT. The High Court also decided the issue in favour of the
assessee by relying on the courts order of AY 1997-98. The
Hon’ble Supreme Court has dismissed SLIP filed by department
for AY 2003-04 on 07.01 .2013. Therefore it is very clear that for
AY 2003-04 the subject land which is covered by the development
agreements dated 02.01.1995 was considered and held by the
Hon’ble Bombay High Court to be capital asset” and not ‘stock in
trade”. The CIT(A) has further held that as per the principle of
consistency, it was necessary for the A.O. to bring on record new
material or evidence to establish that position accepted or allowed
to be persisted in the past by the parties was not legally and
factually correct. Before, the AO departs from the view adopted
earlier it is necessary for him to establish with sufficient evidence
that position accepted by the parties in the earlier years was legally
or factually no longer tenable.
23. It is pertinent to note that, no taxable event contemplated by
section 2(47)(v) and section 45 of the I T Act., had taken place
during the financial year FY 2010-11 so as to enable the AO to
assess the amounts received during the FY 1996-97 to 2010-11
to be assessed as income of the AY 2011-12. It is further
material to state that the AO himself has contradicted his
conclusion because after completion of assessment for the AY
42 2011-12, he reopened the assessments of the AYs 2007-08 to
2010-11 u/s 147 of the Act for assessing the advances received
from the flat purchasers in the relevant financial years on the plea
that income was assessable in the respective years when
agreements were executed and amounts were received The
assessee never in the past changed holding of his land from “capital
asset” to “stock in trade”. The income tax assessment of the assessee
for the AY 1995-96 i.e. the year in which development agreements were
executed, was completed u/s 143(3), In that order, the AO did not
record any finding to the effect that by entering into Development
Agreement coupled with the receipt of Security Deposit of Rs 200
Lacs the land was converted into “stock in trade”. Even in the
assessment order for the AY 2003-04, when the assessee had
offered the income on execution of two conveyances the AO
assessed the said profit as business income by following the
reasons discussed in the prior year which were disapproved by the
Bombay High Court. In the assessment order for the AY 2003-04 no
case was made out by the A.O. that the Land which was subject
matter of the Development Agreement dated 02.01.1995 was
converted into “stock in trade” because of the fact that transfer of
land was under a development agreement. In absence any such
finding in the prior year’s assessments completed under section
143(3), the AO could not make out an altogether new case when
factual matrix of the case did not change in the FY 2010-11.
Further, virtue of signing of development agreement dt.
02.01.1995, land did not change the colour/character from
investment/capital asset to stock in trade. We further noted that
land was acquired way back in 1923 and since then it was held as
capital asset/investment. The Administrator along with Bachoobal
43 Woronzow (BW) being the sole beneficiary of the Estate of late
E.F.Dinshaw entered into the development agreement in 1995
even though the land was inherited as far back in 1936. In other
words, the Administrator of the Estate and the sole beneficiary
dealt with the land for the first time, almost after 60 years from the
time land was inherited. All the above fact clearly demonstrates
that holding of land cannot be construed as stock in trade thereby
the resultant gain also cannot be taxed under the head business
income. In any case, the AO in his order ultimately taxed the
income under head “Income from other sources” while computing
the total income of the assessee. This clearly proves that AO
himself was not convinced that taxability of this income under the
head “business Income”. The department has also rightly not
taken any ground of appeal to tax the same under the head
business. We, therefore, are of the view that the Ld. Counsel is
trying to open a concluded fact on taxability of income under the
head “capital gain”, though such grounds are not pleaded in present
appeal filed by the department.
24. The Id. Counsel for the Revenue has relied on the case of DG of
Income tax (admin) and Ors vs GTC industries Limited and Others
reported in (2016) 240 taxmann 209 (SC) in support of his contention
that wherever an assessee enters into a Development Agreement
with a builder, then it necessarily leads to inference that the
assessee has converted the capital asset into stock in trade.
However it is to be noted that the facts of this case are totally
different and cannot be relied on in the present matter. In this case,
the assessee a sick industry was de-registered from Sick Industrial
Companies Act as and when its net worth became positive after years
44 later, assessee put on sale one of its property. Further, the question
for decision before the Supreme Court was not whether income
arising from sale of land was assessable as business income or
capital gain. The question was also not whether the immovable
properties of GTC were its capital asset or stock in trade. In that
case, GTC was a sick company under SICA and scheme for its
revival was sanctioned by BIFR. During the period of revival scheme
the said GTC entered into agreements with transfer of its immovable
properties to two property developers by executing the development
agreements. The IT department however sought to attach these
properties for recovery of taxes. The recovery proceedings were
opposed by GTC claiming that it was a sick company and during the
period when revival scheme is in operation attachment of its
properties by IT department was not permissible. Question for
decision before the SC was therefore, whether the attachment of the
properties was permissible and the attachment was legally valid. The
relevant findings of the Supreme Court on the issue are as under.
“What follows from the above is that the High Court was convinced by the reason that the question as to whether the company had indulged in sale of assets unauthorisedly and in violation of para 9 (5) (b) which is yet to be taken by the Board. The High Court also proceeded on a palpably wrong presumption that the sanctioned scheme was still under operation and, therefore, bar under Section 22 of the S/CA applied. For this reason, it directed that the only remedy left for the Revenue was to approach the Board for lifting of bar under Section 22 of the 3/CA. From the facts and events noted above, this premise and assumptions are clearly erroneous and contrary to record. (19)”
………..
“The Income Tax Department shall be entitled to take steps for attachment of the properties of the Company, including Ville Pane Land as per the provisions of the Income Tax Act and shall be entitled to sell the same. If there are any secured creditors in respect of these properties, such attachment and sale shall be subject to rights of those creditors. Out of the proceeds, the principal amount of tax due to the income tax Department and even the admitted excise dues shall be paid to the Revenue. In so far as payment of interest and penalty is concerned, that would be dependent upon the decision which the Board
45 would give. (33)’ 25. From the plain reading of the findings of the Supreme Court in
the case of GTC, it was evident that the court was never called upon
to decide the nature and character of GTC’s land holdings nor the
court was deciding the question as to whether the income on sale of
immovable properties was assessable as capital gains or business
income. Therefore it is incorrect to say that Hon’ble SC had decided
issue of conversion of capital asset into stock in trade. In this regards,
it is relevant to make a reference to very important observation of
supreme court in the case of CIT vs Sun Engineering works (198 ITR
297). The observations are as follows “it is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be complete “law” declared by the court. The judgment must be read as a whole and observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the question involved in the case in which it is rendered and while applying the decision to later case, the court must carefully try the ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the question under consideration by this court, to support their reasoning. It is not proper to regard a word, clause or a sentence occurring in the judgment of the supreme court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment”

Applying these observations to the assessee case, one
needs to ascertain whether the judgment relied upon was at all
applicable or relevant in deciding the assesses case. The lands
were inherited by EFD on demise of his father in 1936 and after his
demise in 1970 the lands were held by the Administrator for the
benefit of his sister. In the context of the entire land holding of
F.E.D admeasuring 2500 Acres approximately which was inherited
by his two non-resident children i.e. EFD and BW, the Bombay High
46 Court had taken note of these material facts and also observed that
no sale of land had taken place in the life time of EFD, but the sale
of land first took place almost after 65 years after the land was
purchased. The high court in the assesses own case therefore held
that entire land holding in the hands of the Administrator was
capital asset and therefore income on it’s transfer was assessable
as capital gains but not as business income. Even though the
CIT(A) in his order has elaborately discussed this judgment of the
jurisdictional High Court which has become final and therefore
binding on the Revenue, the Ld. Counsel for the Revenue has not
brought on record any material to distinguish the same. Therefore
we are of the considered view that the in judgment relied upon by
the ld Counsel, no principle of law per se was laid down nor the
court was called upon to decide the question about characterization
of income when the land admittedly was acquired as a business
asset and it was given for development by a sick company to raise
financial resources. In fact, it appears that it was sick company’s
assertion that land being business asset was converted by it as
stock in trade. No such averment has ever been made in the
present case by the assessee at any time before any authority.
Further, no immovable property of the assessee was converted into
stock in trade in any of the years and also not put the entire
property on sale and hence the facts of the case quoted by Id.
counsel are totally different from the present case and hence not
applicable.
26. The Id. Counsel has further relied on the case of Raja J.
Rameshwar Rao vs. CIT, reported in 42 ITR 179 (SC) in support of
his contentions. The facts of this case are totally different and
47 cannot be relied on in the present matter. In this case, the person
acquired the land with a view to selling it later after developing it. The
person also went on dividing the land into plots, developed the area to
make it more attractive and sold the land not as a single unit but in
parcels. Based on these facts, the court has upheld that he is
carrying on business and making a profit. Facts of this case were
somewhat similar to the facts involved in the case of G.
Venkatswomi Naidu and Co Vs CIT (35 ITR 594)(SC). The
judgment of the Bombay High Court in the assesses case was
rendered after due consideration of this SC judgment which has
laid down several tests for deciding whether the income derived
from dealings in land is to be assessed as business income or
capital gains. After examining the facts and circumstances in
which land was acquired by FED and the manner in which it was
held by the successors and considering the changed
circumstances in which the holding of the land itself became
difficult, the Bombay High Court had categorically held that the
dealings of the Administrator with the inherited land were with a
view to protect the corpus of the estate as well as interest of the
beneficiary and therefore, could not be regarded as business or
adventure in the nature of trade and therefore the income was
assessable only under the head Capital Gain’ and not under the
head business”.
27. Further, in every case where land is given to a developer
under Development Agreement there cannot be a presumption that
the owner of the land has converted the land in to stock in trade.
In this regard, the assessee relied upon the decision of the ITAT
Kolkata in ITA No94IKolI2012 dated 03.02.2016, in the case of
48 Eveready Industries India Ltd. In this case, assessee had acquired
an industrial plot of land at Madras in 1971 for setting up a factory.
After the factory was operated for 23 years the company decided
to consolidate its operations at one location. Pursuant to such
decision, the factory land was found surplus. In December 2004
the assessee entered in a development agreement in respect of
7.1. Acres of land with a developer who agreed to pay part
consideration in cash and part consideration in the form of 20% of
the constructed area in the proposed new building which the
developer was to construct. The AO held that the gain realized by the
assessee on transfer of the development rights was assessable as
business income. On appeal, the CIT(A) & ITAT concurrently held that
the gain was assessable as Capital Gains and not as business
profit. The ITAT held that under the agreement the assessee land
owner was to receive a definite consideration and the assessee did
not participate in any manner in the activity of development,
construction and sale of the new building. All the cost and
expenses associated with development and construction of the
new buildings was to be borne by the developer and assessee had
no obligation to perform. All risks associated with the venture of
development of real estate were solely borne by the developer and
no risk was shared by the land owner. The ITAT, therefore agreed
with the assessee contention that the assessee itself never took
part in trade and no risks associated with the adventure in the
nature of trade was borne by the land owner. Therefore, in
deciding true and correct nature and character of income it is
necessary to examine facts and surrounding circumstances of each
case. It is not correct or appropriate to pick up some facts or stray
observations in the judgment of the court, divorced from the factual
49 context in which it is made by the court. In the assesses case, the
land was acquired way back in 1923 and since then it was held as
investment or capital asset and never as stock in trade. No
activity was carried on in the said land. The administrator jointly
with the sole beneficiary of the estate of EFD entered into the
development agreement, and hence the facts of the case quoted
by Id. Counsel, being totally distinguishable, and these judgments
have no application.
28. The Id. Counsel has made statement that ‘income pertaining
to sale of flats prior to filing of suit would be taxable for AY 2011-12
as stated above while the one relating to period after filing of the
suit may be subject to application of section 52 of the Transfer of
property Act, 1882 and the order of the Bombay High Court dated
19 th July 2010. In this regard, it is important to note that since the
Agreement itself stands determinated, the question of declaring an
income from the proceeds calculated on the alleged Agreement
cannot be part of taxable income. Under such circumstances, the
amounts received from the flat purchasers will be liable for tax
subject to outcome of the decision in civil suit. Therefore, entire
amount assessed by A.O. for A.Y. 2011-12 is incorrect. Further, it
is noted that the bank account was opened by Ferani in the name
of Ferani Hotels Pvt. Limited A/c – N N Wadia share”, but the bank
statement shows in the name of Ferani Hotels Pvt. Limited” only
and not the Administrator of EFD. The said account was never
opened by the Administrator nor had the Administrator consented
for opening of such an account. The Administrator had never
provided his PAN nor the Bank completed KYC formalities in
respect of this account. The account title includes the name of
50 Shri. N.N. Wadia; nowhere it clarifies as to in what capacity name
of Shri NN Wadia has been mentioned. It is material and pertinent
to note that Shri N.N. Wadia is assessed to tax in his own name
and in his own right in respect of income which he earns in his
individual capacity as Administrator of the Estate of EFD in terms
of Section 168 of the Act. As such, the mere reference to the name
of N.N. Wadia in the account opened and operated by Ferani
Hotels Pvt. Ltd., could not lead to conclusion that the amounts
deposited by Ferani belonged to Estate of EFD. The Administrator
Estate of E.F. Dinshaw does not have any control or domain over
neither the said account nor such account can be operated by the
assessee.

29. We further noted that the coordinate bench of this tribunal in
its order 27 03.2019 in ITA No. 1033/Mum/2018 for AY 2013-14
had taken note of this factual and legal background. Taking into
account specific directions contained in the High Court’s order
dated 19.07.2012, the tribunal agreed that the rights and
obligation of the parties flowing or arising from or under the
agreements dated 02.01.1995 where indeterminate. The ITAT also
agreed that the fixed deposits made by Ferani under the order of
the High Court did not belong to the Administrator as he neither
had control or domain over the said amounts and these fixed
deposits were to be governed by the order of the Trial Court
before whom the suit was pending. Once the tribunal has held that
the amounts collected by Ferani during the pendency of the suit and
kept in FD’s are amounts kept in custody of the court and not
accessible to the Administrator till disposal of the suit and to be
governed by the final order of the high court, then the amounts so
51 collected cannot be considered to be income of the assessee.
Further, the AO has brought to tax advances which the assessee
had received during the period 1996-97 to 2008-09 totally Rs
269,48,90,856/- under the head other source. We are surprised to
note that the AO had made additions contrary to the provision of
section 56 of the Income Tax Act which govern the assessment of
income under the residuary head. Further, said provisions
nowhere permit the A.O. to assess receipts of prior years in one
lump sum in later year on the ground that in prior years the receipt
was not taxed. The A.O., on one side has admitted that Rs 269.48
Crores was received for transfer of asset and there were serious
disputes between the developer and the assessee and on the
other hand an advance shown under liabilities in balance sheet is
income of the assessee without assigning any reasons as to how
a liability takes character of income for the AY year 2011-12. The ‘asset in question is inherited land which was acquired in 1923 by
FED and inherited in 1936 by E.F.D. The Bombay High Court in its
judgment considered the circumstances in which the entire land
was inherited by the children of F.E.D. and held that the
Administrator was holding this land as capital asset and therefore
income on its transfer can only be taxed under the head ‘Capital
Gains”. In the circumstances, once the A.O. has admitted that Rs.
269.48 crores was received as Advance against transfer of asset,
then he could not under the provisions of section 56 of the Act
assess the same as income because none of the taxable events
contemplated under section 56 took effect in FY 2010-11.
Moreover as held by the High Court, the land in question is capital
asset of the assessee, and hence, income embedded in advances
against the transfer can only be assessed under the head capital
52 gains and that too in the year in which ‘transfer” of the capital
asset legally takes effect and not in any year. Since, in the suit
the assessee has claimed for cancellation of development
agreement in its entirety and has prayed for repossession of the
entire land in its original form, the transfer of the capital asset if
any can happen only when the suit of the assessee is finally
decided by the Court and the decision of the court becomes final.
In view of these facts, the amounts which the assessee received during
the period 1995-96 to 2010-11 could not be charge to tax as income in
AY 2011-12, under the head income from other source or any other
head of income.
30. In so far as the observations of the AO in para. 26 of the
assessment order, we find that although the A.O. considered the
advances received in the prior years as income for AY 2011-12 on
the ground that there was cessation of liability, but nothing more
has been elaborated on this point. In this regard, it is pertinent note
that in the assessment order, the A.O. assessed the income under
the head income from other sources. We further note that section
56 of the Income tax Act, 1961 defines the scope of the income
which is chargeable to tax under the head Other Source. The
residuary head of income can be invoked only when the income is
not found assessable under any other head of income. In the
instant case, as admitted by the A.O., the advances were received
against the transfer of land and therefore any consideration
received for transfer of immovable properties could not be
assessed under the head other sources. Further, the A.O has also
accepted the fact that there were serious disputes between the
developer and the assessee regarding the validity of the lease
53 agreement as well as development right agreement. The
documents on records prove beyond doubt that such disputes
were sub judice even till March 2011 being the end of previous
year. Once it is evident that the disputes were sub judice then, it
could not be argued that during the pendency of the legal
proceedings there was cessation of liability. As such on the facts
of the case, it could not be established that there was cessation of
liability. It is further observed that section 41(1) has no
application, because the liability contemplated by that section
relates to trading liability for which deduction was allowed to the
assessee the computation of income of any earlier year. In this
case, the amount assessed was never allowed as a deduction in
any earlier year.

31. In this regard, the assessee placed his reliance on the
decision of the coordinate bench of this tribunal in I.T.A. no.
5508/Mum/2015 dated 06.02.2015 for AY 2010-11 in the case of
Bombay Gowrakshak Mandali vs I T.O. In this case, the assessee
trust owned a property in Mumbai. The trust had entered into a
development agreement with M/s Lokhandwala Construction
Industries Limited for which consideration of Rs 11 Crores or Rs 50
per square feet of available FSI whichever is higher was to be paid.
The said trust received Rs 32.50 Crores from the developer.
However, since there were disputes with the developer with
regards to quantum of available FSI, advance of Rs 32.50 Crore
received from the developer was shown as liability in its books.
The manner in which the advance received was shown in the
balance sheet and the disclosure in relation thereto by way of
Notes in the audited accounts was consistently same in all the
54 past years and was accepted by the Revenue in past
assessments. In AY 2010-11, the A.O assessed the said sum on
the ground that it was income of that year because there was
cessation of liability. On appeal by the assessee, the ITAT
observed that development agreement was entered in 1984 and
advance was received was never disputed. Till preceding year,
advance received in 1984 was treated as advance and was never
disputed. The fact that from 1984 till date there had being no
change in the status of the transaction and there was neck deep
litigation was also not disputed by the Revenue. Keeping in mind
these facts, the ITAT held that for an amount to be added back
under section 41(1) which should bear the charter of income.
Nowhere from the orders of Revenue authorities it appeared that
during the year, something new happened had which converted
the advances into remission of liability to be treated as income.
The Tribunal held that invocation of section 41 (1) was uncalled
for. We find that facts of the present case are pari materia to the
case considered by the Tribunal. Even in this case, the entire
transaction with the developers is in neck deep in litigation and the
assessee has filed suit requesting for cancellation and restitution of
the lands. Even at the beginning and the close of the FY 2010-11,
the disputes between parties was sub judice and bearing the order
passed on Notice of Motion seeking interim relief and there was no
process on the main suit which remained pending. As such, during
the relevant year, there was no material change in the factual
matrix in the assessee case. We therefore are of the opinion that
the decision of the ITAT squarely applies to the facts of present
case.
55 32. Further, in our considered view in order to tax any receipt as
income, it is necessary for the Revenue to show that the receipt of
the money is without any conditions attached and the recipient has
complete domain, control and ownership over the money received.
Wherever money is received in terms of agreement which by itself
is disputed and pending for decision in court, then no income
embedded in such receipts can be made exigible to tax as income
for the simple reason that the recipient has inherent obligation to
refund the same to the payer in the case in the event the court
decides the other way. In this regard, reliance is placed on the
decision of the Karnataka High Court in the case of CIT vs. L.
Sambashiva Reddy (62 Taxmann.com 174). In this case, it is the
case of the revenue that once the single judge in her order
refused to grant injunction against Ferani to proceed with
construction, then it automatically lead to conclusion that all
agreements with flat purchasers become final and thereby
income accrued. We are unable to agree with arguments of the
ld. Sr. Counsel for the revenue for the simple reason that in the
first place it is to be noted that in the order dated 19.07.2010 the
Court restrained Ferani from handing over possession of flats to
related as well as non-related third parties till the Notice of
Motion was disposed. Once the court restrained Ferani from
handing over possession, it implied that the agreements with flat
purchasers could not have been given effect to and thereby there
would not have been transfer of property in law. Even in the
decision of the division bench of the High Court in July 2012, the
Court directed the Trial Court to first decide the preliminary issue
of limitation in terms of Section 9A of CPC and thereafter to
proceed with the suit. It also granted liberty to the assessee at
56 that stage to seek interim relief by moving Notice of Motion.
Therefore, it is factually and legally incorrect for the Id. Counsel
to contend that upon disposal of assessee Notice of Motion
seeking ad interim relief the agreements with the parties become
final and income chargeable to tax accrued in AY 2011-12.

33. We further noted that when, the appeals were fixed for clarification
on 22/11/2019, the Ld. AR for the assessee submitted that the Hon’ble
Supreme Court, vide its order dated 04/10/2019 passed by the three
judge Bench in Ivory SLP and Ferani review petition, decided the
reference of question of law in favour of the administrator holding that
the issue of limitation cannot be decided u/s 9A of Civil Procedure Code
and all the issues, including limitation of petition filed by the parties and
the merit of the matter to be decided by the trial court on the basis of
contentions of both the parties and also, decide any applications seeking
interim injunction/ relief if any. From the above, it is very clear that as of
date, there is no material change in factual matrix, because after the
administrator determinated the agreements dated 02/01/1995, revoked
the power of attorney granted to Raheja and filed the suits in the Hon’ble
Bombay High Court in 2008, there is practically no progress and the
entire matter is sub-judice. Therefore, we are of the considered view that
there is no merit in the contention of the Ld. AR for the revenue that the
decision of Division Bench of Hon’ble Bombay High Court in review
petition filed by Ferani Hotels Pvt.Ltd, has rest the matter of dispute
between the parties regarding development agreement and sharing of
sale consideration, and consequently, income accrues to the assessee
for the impugned asst year.

34. In this view of the matter and considering facts and circumstances
of this case, we are of the considered view that the ld. CIT(A) after
57 considering relevant facts has rightly held that the AO was incorrect in
taxing advances received by the assessee up to the A.Y. 2011-12 as
income chargeable to tax under the head income from other sources.
Hence, we are inclined to uphold findings of the ld. CIT(A) and reject
grounds taken by the revenue.

35. The next issue that came up for our consideration from revenue
appeal is taxability of lease rental received by the administrator. The AO
has made additions towards lease rental deposited by Ivory and Ferani
in separate account under the head income from other sources on the
same reasoning on which he had assessed advances under the head
income from other sources. It is the contention of the assessee that
lease rent allegedly deposited in the separate bank accounts by
Ivory & Ferani of Rs. 39.60000/- was not legally chargeable to
tax as income of the assessee as there was no privity of contract
during the FYs 2008-09 to 2010-11 in terms of which the
assessee could have claimed such rent from Ivory & Ferani.
36. We have heard counsels of both parties and perused
materials on record along with orders of lower authorities. We
find that in the agreements dated 02.01.1995 with Ferani & Ivory
clause 2 envisaged that the assessee would grant a lease of the
demised lands for a period of 5 years. In the circumstances,
merely because grant of lease was provided in the Agreement
dated 02.01.1995 but when in fact the lease deed was never
executed in favour of the parties, then said Ferani & Ivory could
not presume that lease rights were in fact awarded in their favour
by the Administrator. In absence of any formal registered lease
agreement, Ivory & Ferani could not legally infer that the lease of
58 land was granted by the Administrator in respect of the lands.
The fact that the enforceable lease was not in operation was not
disputed by the revenue. The Ivory had accepted contractual
tenancy when it had executed conveyance in FY 2001-02 and
2002-03. The assessee had filed copy of lease deed dated 25-
10-2001. We find that clause (iv)(b) of the deed of conveyance
dated 25.10.2001 executed between the assessee and Ivory
properties and hotels Pvt. ltd and Toyota Lakozy Auto Pvt. Ltd.,
which clearly talks about contractual monthly tenancy on the
expiry of the lease. From the above, it is evident that even if one
accepts the claim of the developers that lease for the period of
five years was granted the same came to conclusion in January
2000 on expiry of five year period. Thereafter the relationship
between the parties was that of landlord and contractual monthly
tenant. Before the lower authorities, the assessee had filed
requisite documentary evidence to prove that in 2008 the
assessee had taken necessary legal steps to terminate the
contractual tenancy of each developer. In the circumstances,
once the assessee had taken legal steps to terminate the
contractual monthly tenancy, the developers could not
unilaterally claimed themselves to be having leasehold rights in
the land in terms of covenants contained in the agreement dated
02.01.1995.

37. We further noted that the Assessing Officer before
concluding that income by way of lease rent had accrued, failed
to bring on record sufficient, adequate and cogent documentary
evidence which proved that a legally valid & binding agreement
subsisted between the Administrator and Ferani & Ivory in terms
59 of which the assessee had vested right of claiming monthly rent
from them. The assessee had taken sufficient legal steps for
termination of tenancies which could be inferred only from the
conduct of the parties and consequent to the termination of
tenancies, the assessee had stopped accepting the monthly
payments tendered by Ivory & Ferani. Further, when the
assessee stopped accepting the monthly payments, Ferani &
Ivory unilaterally opened accounts with the Banks in their own
names and continued depositing the monthly sums of Rs.55,000/-
. But, fact remains that these accounts were opened by Ferani &
Ivory entirely on their own volition and in their own names and the
Administrator had never granted his consent either for opening of
the Accounts or depositing the monthly sums of Rs.55,000/-. It is
also material that there existed no privity of contract either written
or implied in terms of which Ferani or Ivory had legal obligation to
pay and the Administrator had vested right to demand payment of
monthly lease rent. These accounts were opened by these
companies by providing details & information about themselves.
The Administrator of Estate of EFD had never authorized or
permitted either of the companies to open the account nor had it
provided any information enabling either of the companies to
open these accounts. In the circumstances, on account of
unilateral acts of the project coordinators, no income in law could
be inferred particularly when no part of the income assessed was
either legally due to the assessee or when the amounts were not
actually received by the Administrator. The ld. CIT(A) after
considering relevant facts has rightly held that the AO was incorrect in
taxing lease rent as income chargeable to tax under the head income
from other sources. Hence, we are inclined to uphold findings of the ld.
60 CIT(A) and reject grounds taken by the revenue.
38. In the result, appeal filed by the Revenue for Asst. Year 2011-12 is
dismissed.
ITA.No. 334/Mum/2017-Asst Year 2012-13.

39. The facts and issues involved in this appeal filed by the revenue
are identical to facts and issues, which we had considered in ITA.No.
1389/Mum/2015, for Asst Year 2011-12, but for figures. The reasons
given by us in preceding paragraphs in ITA No. 1389/Mum/2015 for Asst
Year 2011-12 shall mutatis mutandis apply to this appeal also. We,
therefore for detailed reasons given in preceding paragraph in ITA No.
1389/Mum/2015 upheld the findings of the ld. CIT(A) and dismiss appeal
filed by the revenue.

40. As a result, appeals filed by the Revenue for Asst. years 2011-12
and 2012-13 are dismissed.
Order pronounced in the open court on this 19 /02/2020 Sd/- Sd/-
(SAKTIJIT DEY) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 19/02/2020
61 Thirumalesh Sr.PS Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Mumbai

News Reporter

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: