MUMBAI,: THE ISSUE IS - Whether if rent is due for receipt only after
fulfillment of certain conditions precedent, which are not yet
fulfilled then no addition for Income from house property should be made
- YES IS THE VERDICT.
Facts of the case
The
assessee company, engaged in the business of real estate construction
and letting of commercial premises, had filed return of income for
relevant AY. During the relevant year, the assessee did not carried out
any business activity. The case was selected for scrutiny assessment u/s
143(3). In the
assessment so framed u/s 143(3), AO made addition under
the head 'income from house property' amounting to Rs.11.76 Crores. On
appeal, CIT(A) deleted the same after observing that the assessee had
received only advance from the tenant, Junobo Hotels Pvt. Ltd. and had
not received any rent from them as they had not occupied the premises
for want of Coastal Regional Zone certificate and Occupancy
certification from Municipal Corporation of Greater Mumbai. Since
conditions precedent had not met with consequently no compensation/rent
accrued/became due, to the assessee, therefore, the addition made of Rs.
11,68,50,670/- at accrual basis by assessing the amount as House
Property income was not found to be in order and therefore, it was
decided to direct the AO to delete the addition. Aggrieved Revenue filed
appeal before the Tribunal.
Tribunal held that,
++
the assessee had entered into a lease agreement dated 18.02.2011, which
was subsequently amended vide supplementary agreement dated 16.01.2012
by which the company had given on lease its property i.e land along with
building structure thereon at Juhu, Mumbai to M/s Junobo Hotels Pvt
Ltd. However, no rental income has been offered in the Profit and Loss
Account. As per the terms of the contract, rent is receivable on Rent
commencement date which is in turn contingent upon the fulfillment of
certain conditions precedent. Until such completion of conditions
precedent, money received will be treated as an advance. Since during
the year under consideration, conditions precedent had not been
fulfilled i.e. Ministry of Environment and Forest (MOEF) approval and
Occupancy Certificate (OC) from Municipal Corporation of Greater Mumbai
(MCGM) has not been received, the rent received was treated as an
advance and accordingly not offered for tax in the return of income,
++
it is also relevant to mention here that proposed lessee had treated
the amount of Rs 2.10 crores given to the proposed lessor during the
impugned period as "advance" and that AO during last year in scrutiny
assessment accepted the claim of the assessee that the amount received
was only an "advance" and did not form taxable income. The AO also did
not consider the fact that only advance of Rs 2.10 crores has been
received during the impugned period and no further advance was received
after 30.06.2012. The AO did not take into consideration the
confirmation given by the proposed lessee that amount given pending
compliance of conditions precedent (obtaining of approval from MOEF and
later OC from MCGM) has been treated in its (lessee) books of accounts
as "advance";
++ as conditions
precedent have not been complied with, so nothing has become due to the
proposed lessor. Finding of the AO that amount of compensation /
advance/ revised advance was due to the lessor at the rate of Rs. 4.20
crores per quarter is not tenable. The addition made by AO on selective
reading of the proposed lease agreement was not justified. The detailed
finding recorded by CIT(A) are as per material on record which do not
require any interference . Furthermore the finding so recorded are
supported by observation, which has not been controverted by bringing
any positive material on record. In the result, appeal of the Revenue is
dismissed.