Income Tax Appellate Tribunal - Delhi
Star Estates Management (P) Ltd. vs Deputy Commissioner Of Income Tax on 11 July, 2001
Equivalent citations: (2003)78TTJ(DELHI)625
ORDER
I.S. Verma, J.M.
1. In this appeal the assessee has objected to the order of the CIT(A), dt. 4th Sept., 1995, by way of following grounds :
"1. That the learned CIT(A) has erred in law in upholding the action of the AO in treating as income/trading receipt the sum of Rs. 8,71,282 being the maintenance security deposits received by the appellant-company from the flat owners towards due payment of common services and maintenance charges.
2.1. That the learned CIT(A) has erred in law in upholding the action of the AO in treating the sums of Rs. 5,84,732 and Rs. 2,86,550 received by the appellant in respect of the flats and car parkings, respectively, towards common assets replacement fund as income/trading receipt of the appellant-company.
2.2. That the additions are also bad in law inasmuch as this ground has not at all been discussed/dealt with by the learned CIT(A), but wrongly bracketed with the ground for the addition of the security deposit.
3. That the action of the learned CIT(A) in upholding the above additions of Rs. 8,71,282, Rs. 5,84,732 and Rs. 2,86,550 is wholly unwarranted, unjustified, illogical and contrary to the principles of the judicial propriety by reason of not following the appellate orders of the Hon'ble Tribunal in the appellant's own case for the earlier years without pointing out any distinguishing facts to justify a different conclusion.
4. That the order of the learned CIT(A) is also bad in law being based on conjectures, surmises and wrong premises or impression that the assessee had collected the amount under different names for the sale of flats inasmuch as the appellant-company was not the seller of the flats but was only service/maintenance agent having an independent legal identity and its own independent organisation, staff and the nominated members amongst the flat owners on its management committee.
5. That the order is bad in law and wrong on facts."
2. We have heard the counsel for the assessee as well as the Departmental Representative.
3. The counsel for the assessee, relying on the orders of the Tribunal in assessee's own case for asst. yrs. 1983-84 to 1991-92 except asst. yr. 1988-89 in which year there was no addition similar to made in other years, submitted that the appellant's case is covered by the orders of the Tribunal in immediate previous years in assessee's favour and against the Revenue but the CIT(A) did not follow the orders of the Tribunal and has rejected the assessee's appeal in an arbitrary and illegal manner. He therefore, submitted that the order of the CIT(A) is liable to be set aside on both the issues.
3.1. The learned Departmental Representative, on the other hand, supported the order of the CIT(A) by disputing the appellant's claim that the receipts in question were not of revenue nature. Referring to the orders of the Tribunal (supra), the learned Departmental Representative submitted that the Tribunal has gone only by the condition relating to refund or transferability of the so-
called security appearing in the agreement between the appellant and the builder but in fact it is not so. With regard to the second issue, the learned Departmental Representative submitted that the amount having been collected by the appellant for providing various services, the same was of revenue nature and how the appellant was providing the services was not relevant at all.
4. We have considered the rival submissions, facts and circumstances of the case and the orders of the Tribunal in assessee's own case for the asst. yrs. 1983-84 to 1987-88 and 1989 to 1991-92 but before giving our opinion we consider it useful to state the brief facts necessary for the disposal of the issues and as have been revealed from the records.
(i) The facts relating to the issues are that a private limited company named M/s Ansal Properties & Industries (P) Ltd. constructed a building consisting of various floors/flats on plot No. 43, Nehru Place, New Delhi, and appointed the appellant-company [M/s Star Estates Management (P) Ltd. hereinafter called the "Appellant"] as its service agent for the said building subject to the terms and conditions stipulated in letter dt. 4th July, 1980, by M/s Ansal Properties & Industries (P) Ltd. and agreed upon by the appellant, details of which are as under :
"M/s Ansal Properties & Industries (P) Ltd.
115-Ansal Bhawan, 16-K.G. Marg, New Delhi-110 001.
4th July, 1980 M/s Star Estates Management (P) Ltd 115-Ansal Bhawan, 16-K.G. Marg, New Delhi.
Sub : Your appointment as service agent Dear sir, We have agreed to appoint you as service agents for the building on plot No. 43-Nehru Place, New Delhi, for maintenance, upkeep and preservation of the building, insurance, operation of common services and management of common areas on the following terms, conditions and agreement.
1. That you will undertake at your own cost:
(a) Maintenance and repairs of main structure and common areas such as passages, corridors, common walls etc. of the building and other spaces used and enjoyed by the buyer in common with other flat owners of the building and fire insurance of building;
(b) maintenance and repairs of lifts including replacement of parts and labour, etc.;
(c) lighting the passages, corridors, basement and other common spaces;
(d) supply of water used for gardens, common toilets and other common services;
(e) painting and polishing of the exterior of the building and all common passages and corridors, etc.;
(f) repair and maintenance of underground water reservoir, overhead tanks, water line, etc. to ensure continuous supply of clean water;
(g) maintenance and repair of all common soil, waste pipes, sewer lines, manholes, etc.;
(h) maintenance of regular staff like manager, accountant, chowkidar, sweeper, etc. to render the aforesaid services;
(i) such other expenses as deemed necessary or incidental to the maintenance and upkeep of the building by us.
2. That you will recover such charges based on per sq.ft. of covered area as may be decided, so however, that such percentage thereof as may be considered reasonable by us from time to time, but in no case exceeding 25 per cent, shall be held towards the flat owners common capital assets replacement fund to be used for the replacement of the capital equipment such as lifts, pumping sets, water mains, electric cable, etc. as and when they become unserviceable and are considered fit for replacement by us in consultation with the flat owners. In the event of the termination of the agreement, the unutilised amount of such capital replacement fund shall be made over by you to the flat owners managing committee or the person or agency entrusted to take over the building maintenance work from you.
3. That you will also be entitled to recover the charges for water used by flat owners/occupiers.
4. That for the time being the service charges are fixed @ 2 paise per sq. ft. of the area of the respective flats, 25 per cent of which shall be held towards the flat owners common capital assets replacement fund to be applied for replacement of capital equipments as stated in para 2 above.
5. That you will be entitled to collect a security deposit @ Re. 1 per sq. ft. of the area of the flat without interest as security towards due payments of the expenses. The same shall be refundable to the flat owner or transferable on the transfer of flat by him.
6. That separate maintenance agreement will be entered into by you with the flat buyers.
7. That the agreement may be terminated by us by six months previous written notice in case we find that your performance as service agent is not satisfactory in which case you will hand over the maintenance of the building including all the assets and liabilities to flat-owners co-operative society or committee or such person or association as may be named by us in consultation with the flat owners.
You are requested to sign and return the copy of this letter by way of your acceptance.
Thanking you, Yours faithfully For Ansal Properties & Industries (P) Ltd.
Sd/-
(Director)".
(ii) M/s Ansal Properties & Industries (P) Ltd., while selling the flats had entered into agreement with the purchasers and as per condition No. 13 of the agreement relating to maintenance of the building and common services (a photocopy of the agreement with one of the purchasers M/s Commercial Automobiles of Jabalpur, who had purchased storage space No. B-6 filed before us) the purchasers were to pay an amount @ Re. 1 per sq. ft. of the area of the flat as so-called security without getting any interest thereon. The term No. 13 of the agreement is in the following terms :
"Maintenance of the building and common services
13. Because of their knowledge, experience and technical expertise in maintaining multi-storied buildings and running of common services in such buildings, the promoter hereby appoints M/s Star Estates Management (P) Ltd., 115-Ansal Bhawan, 16-Kasturba Gandhi Marg, New Delhi called SEMPL hereafter or their nominee as service agents for maintenance, upkeep and preservation of the building, operation of common services and management of common areas, SEMPL shall render their services on the terms and conditions and obligations mentioned in the agreement which is being signed separately. The appointment of service agents is binding on the flat buyer and cannot be changed without the written consent of the promoter.
The buyer agrees and binds himself to pay to SEMPL maintenance and service charges at the rate of 20 paise per month per sq. ft. of the area of his flat to be utilised by SEMPL for the purposes listed in the second schedule of this agreement, provided that a fixed percentage of these charges not exceeding 25 per cent shall be earmarked for a Sinking Fund meant for replacement of capital equipment, such as, lifts, pumping sets, water mains, electric cables, etc. as and when they become unserviceable. The discretion as to when they shall be replaced or repaired will rest entirely with SEMPL. The rate of maintenance and service charges at 20 paise per month per sq. ft. of the covered area of the flat has been fixed in the context of the current prices of commodities and services and official levies, fees and taxes, including water and electricity charges. It will be raised after every three years by 10 per cent. The buyer agrees to this acceleration and further specifically agrees that the promoter or SEMPL may suitably increase the aforesaid, rate of maintenance and service charges in the event of an increase in the above-mentioned factors of cost particularly official-levies and charges e.g. increase in electric tariff, water charges, etc. Furthermore; before the occupation of the flat, the buyer shall keep a security deposit of Re. 1 per sq. ft. of the area of his flat without interest with SEMPL as security towards the payment of the expenses. He agrees that he shall be liable to pay interest at the rate of 18 per cent to SEMPL on the dues in arrears against him after the due date of payment prescribed by SEMPL in this behalf. A separate agreement between the flat buyer and SEMPL will be signed specifically incorporating the above points."
(iii) The appellant-company, on the strength of condition No. 5 of the agreement appointing the appellant as a service agent and condition No. 13 of the agreement between M/s Ansal Properties & Industries (P) Ltd. and the purchasers entered into further agreement with the purchasers and as per agreement between the appellant and one of the purchasers M/s Petro Chemical Engg. Co. (P) Ltd. who had purchased office space No. 1506 (copy placed before us), which is in the following terms :
"AGREEMENT Articles of Agreement made at New Delhi this 15th Oct., 1980, between M/s Star Estates Management (P) Ltd., 115 Ansal Bhawan, 16, Kasturba Gandhi Marg, New Delhi, called SEMPL hereinafter and M/s Petrochemical Engineering Co. (P) Ltd. Mr. Arya Mittar Sharma S/o Shri P.C. Sharma, Shri Pramod Chandra Sharma, S/o Shri K.C. Sharma, Kumari Indu Sharma D/o Shri K.C. Sharma 303, Jyoti building, 66-Nehru Place, New Delhi, hereinafter called the buyer which expression shall unless it be repugnant to the context or meaning thereof be deemed and include his/her/their or each of their heirs, executors, administrators and assigns.
Whereas the buyer has entered into an agreement on 15th Oct., 1980, with M/s Ansal Properties & Industries (P) Ltd. 115, Ansal Bhawan, 16-Kasturba Gandhi Marg, New Delhi, hereafter referred to as the promoter under which he has agreed to buy office space No. 1506 on floor 15th in the "Chiranjiv Tower" building at Plot No. 43, Nehru Place, under the terms and conditions set out in the said agreement.
And whereas the promoter has entrusted the work of the maintenance, upkeep and preservation of the building, operation of common services therein and management of the common areas thereof to SEMPL as its service agents on a permanent basis.
And whereas in pursuance of Clause 13 of the said agreement a separate agreement between the flat buyer and SEMPL has to be signed in respect of the terms and conditions and obligations under which SEMPL shall render their services.
Now, therefore, this deed witnesseth and it is hereby agreed and declared by and between the parties hereto as follows:
1. The buyer agrees and binds himself to pay to SEMPL maintenance and service charges at the rate of 20 paise per sq. ft. per month of the areas of his flat, to be utilised by SEMPL for the purposes listed in schedule II of the agreement between the buyer, and the promoter, provided that a fixed percentage of these charges not exceeding 25 per cent shall be earmarked for a sinking fund meant for replacement of capital equipment such as pumping sets, water mains, electric cables, etc. as and when they become unserviceable. The discretion as to when they shall be replaced or repaired will rest entirely with SEMPL. The rate of maintenance and service charges at 20 paise per sq. ft. of the area of the flat has been fixed in the context of the current prices of commodities and services and official levies, fees and taxes, including water and electricity charges. It will be raised after every three years by 10 per cent. The buyers agree to this acceleration and further specifically agrees that the promoter or SEMPL may suitably increase the aforesaid rate of maintenance and service charges in the event of an increase in the above-mentioned factors of cost particularly official levies and charges e.g., increase in electric tariff, water charges, etc. Furthermore, before the occupation of the flat, the buyer shall keep a security deposit of Re. 1 per sq. ft. of the area of his flat without interest with SEMPL as security towards the payment of the expenses. He agrees that he shall be liable to pay interest at the rate of 18 per cent to SEMPL on the dues in arrears against him after the due dates of payment prescribed by SEMPL in this behalf.
2. It is agreed between the parties that SEMPL will present the bill for maintenance and service charges monthly in advance to be paid by the buyer before the close of the month for which the bill has been drawn up. The buyer agrees that if the bill is not paid by the last day of the month, he will pay to SEMPL, interest on the arears at the rate of 18 per cent per annum.
3. On their part, SEMPL will arrange to get structure of the building insured against fire and if necessary earthquake as soon as the building is occupied. They will maintain the building and keep it in good repair and provide all the services enlisted in Schedule II of the agreement between the buyer and the promoter.
4. Both parties to this agreement namely SEMPL and the buyer agree and bind themselves that in case any dispute arises between them such dispute shall be referred to the promoter or its nominee for arbitration whose decision will be binding on both the parties and shall be carried out of them as the final resolution of the said dispute.
In witness whereof the parties herein have hereunder signed on the day and year first hereinabove mentioned.
Sighed, sealed and delivered by for Star Estates Management The within named M/s Star Estates Private Limited" Management (P) Ltd. in the presence of :
(iv) Before the AO the assessee claimed the amount of so-called security collected during the year and also the amount collected in respect of the flats and car parking, respectively, towards common assets replacement fund as capital receipts exempt from income-tax. The AO, however, taxed the same as revenue/trading receipt.
(v) On appeal by the assessee the CIT(A), after refusing to follow the orders of the Tribunal in appellant's own case, confirmed the order of the AO by observing as under :
"Decision:
From the copies of the various orders produced by the assessee I find that the basic reason for allowing this point to the assessee is as below :
'In appeal, the CIT(A) took the view that the amounts in question were collected as security deposit which were refundable to the flat owners when they proposed to transfer the flats to other parties and that such amounts were kept as security to indemnify the assessee for non-payment of maintenance charges. He, therefore, held that the amount could not be treated as the income ,of the assessee and was, therefore, not taxable. In this view of the matter he did not go into the controversy whether the actual amount involved was Rs. 2,77,556 or only Rs. 1,02,352.' With the highest regard and respect for the Hon'ble Tribunal and the various appellate authorities I find that the logic for deleting the additions is not perfect. If the amounts have to be refunded, whenever the flat is transferred, it is immediately recovered from the next person buying the flat. For example the original allottee proposed to sell it to B the amount is refunded to A but it is immediately collected from B. When B transfers it to C it is refunded to B but simultaneously collected from C. Thus at any point of time these amounts remain with the assessee against a flat even though against different names from time to time. Thus the amounts have been collected and are available with the assessee in perpetuity and the assessee is using the amount. The amounts have been received during the course of the business of the assessee are available with the assessee and are being used by it but without paying the taxes. Under such circumstances it is income and irrespective of the fact that the amount is called security deposit and is refundable. Even though refunded to one person it again comes back to the assessee from the second person.
I find it extremely difficult to accept the fact that such practice of the assessee should be endorsed. Amounts purely collected under various pretexts but basically they relate only to the sale of flats. By calling them with different names the assessee tries to avoid legitimate taxes by giving it a facade of refundable deposit, etc. This would have been acceptable if an independent authority, of the association of the owner of the flats had collected these amounts and the assessee had no interest in that association. The same services could have been provided by forming independent association of the flat owners, And most of the people who work straightforward like that but in this case the assessee has collected the amounts under different garbs for the sale of flats only and is trying to avoid tax.
Both these amounts are part of sale receipts and are taxable. I see no reason to interfere. Both these grounds of the assessee are rejected."
5.(i) After careful consideration of the facts and circumstances of the case, rival submissions and various agreements placed on record what we have observed is that appellant's plea that the amount collected under the name of so-called "security" was refundable to the flat owners on the sale of the flat to somebody else and, therefore, was not revenue receipt has been found to be misguiding and false claim because, as is evident from the terms and conditions of all the three agreements i.e., (i) agreement between M/s Ansal Properties & Industries (P) Ltd. and the flat buyers, (ii) agreement between M/s Ansal Properties & Industries (P) Ltd. and the appellant for appointing the appellant as service agent, and (iii) agreement between the appellant and the owners of flats, it is absolutely clear that the condition relating to refundability and transferability of the so-called security collected by the service agent appears only in the agreement between M/s Ansal Properties & Industries (P) Ltd. and the appellant dt. 4th July, 1980, appointing the appellant as service agent and not in any of the other two agreements. In other words, the condition relating to refundability or the transferability of the so-called security do not appear either in the agreement between M/s Ansal Properties & Industries (P) Ltd. and the buyers of flats or and in the agreement between the appellant and the owners of the flat (who were buyers when agreement with M/s Ansal Properties & Industries (P) Ltd. was entered into). We are unable to understand as to how a condition between parties A and B can bind the third party C or how the parties A and B can claim that the agreement between them as binding also to third party C when the said third party is not a party to the agreement between A and B. In appellant's case we are unable to understand as to under which law the appellant can claim that the condition regarding refundability or the transferability of the so-called security, which is subject-matter of agreement between appellant and builder, can bind the flat owners. In the present case the flat owners also seems to have connived with the appellant by agreeing to pay the said sum in the garb of the security, because had it not been so then the agreement with flat owners would have contained a provisions for refund or transfer or adjustment of the said sum in the eventuality of sale of the flat or delay in payment of other maintenance charges.
(ii) Since none of the parties i.e., either the builder--M/s Ansal Properties & Industries (P) Ltd. or the service agent had made any provision regarding refund or transfer of the so-called security in their agreements entered into with the flat owners, the flat owners had no right to claim or get the amount refunded or transferred in anybody else name and that being the case, the word "security" has been used by the builder as well as the service agent to camouflage the true nature of the receipt probably with the connivance of flat owners also. Had the parties bona fidely intended or wanted to treat the amount collected from the flat owners, as refundable or transferable then why they omitted the condition relating to the refundability and transferability of that amount from the agreements entered into by the builder as well as by the service agent with the purchasers-cum-owners of the flat ?
(iii) The condition that the so-called security, which is claimed to have been taken to secure the future payments towards maintenance of the building will be without interest, on one hand and the condition that the flat owners shall pay interest (c) 18 per cent in case of default in payments towards maintenance of the building go to show that delayed payments by the flat owners, towards maintenance, were not to be adjusted against so-called security, It is common rule/knowledge that whenever a security is taken to safeguard the future payments, the same is adjusted just on the expiry of the limitation for the payment and there is no question of charging any interest on the delayed payments. The condition relating to the interest payment by the flat owners on the delayed payments and not adjustment of the same against the so-called security further confirms that the amount of so-called security was appellant's revenue receipt and not capital receipt or trust money as claimed by appellant.
6.1. This conclusion has been arrived at by us by following the law laid down by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), according to which the Courts/Tribunals are to take stock to determine the nature of new sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction. If we lift the corporate veil in this case to understand the real nature and intention of the agreement between the builder and the appellant on one hand and the agreements between the builder and the flat owners and between the appellant and the flat owners on the other hand, it becomes clear that it were the builder and the appellant who seems to have entered into a conspiracy to defraud the Revenue by using misguiding modus operandi and the terminology in the agreement between them and avoiding the same from the agreements with the flat owners.
6.2. Without prejudice to the above the appellant has not shown a single case where the so-called security was refunded or transferred.
7. In view of the above facts and circumstances, we are of the opinion the amount collected by the assessee in the garb of so-called security was neither refundable not transferable and was revenue receipt. Order of the CIT(A) on this point is confirmed.
8. With regards the second issue it is clear from the terms and conditions of all the three agreements (supra) that the amount had been collected to be utilised towards various types of expenses which the appellant was liable to incur and, therefore, the transaction is in the nature of charging the flat owners for providing various types of services in the form of maintenance of various services for the flat owners and the maintenance of the building and consequently, fall within the ambit of trading activities. The CIT(A) was, therefore, quite justified in confirming the order of the AO on this point. In view of above discussion we confirm the order of the GIT(A).
9.1. Before parting with the matter, we, with all respect to the various Benches of the Tribunal deciding these issues in appellant's own case for the asst. yr. 1983-84 to 1991-92 except asst. yr. 1988-89, are of the opinion that so far as first issue i.e., taxability of so-called security is concerned; the Hon'ble Benches have proceeded mainly on the basis of assessee's claim that the said so-called security was refundable based on letter dt. 4th July, 1980, written by M/s Ansal Properties & Industries (P) Ltd. appointing the appellant as service agent [we have taken this letter as agreement between the M/s Ansal Properties & Industries (P) Ltd. and the Appellant] and completely missed to consider the fact that condition relating to refundability or transferability of the so-called security was missing in the agreement between M/s Ansal Properties & Industries (P) Ltd. and buyers of the flats as* well as in the agreement between the appellant and the buyers of the flats who had since become the owners.
9.2. Similarly, so far as second issue is concerned the Tribunal has gone by the fact that a part of the amount so collected towards repairs and maintenance of various services, lifts and building, etc. was to be spent towards maintenance of capital assets. With respect to the Hon'ble Benches of the Tribunal, we are of the view that the appellant having collected the funds for providing various services, which may be including the maintenance of capital assets, the receipts have to be held to be as of revenue nature, subject, however, to the fact that the expenses incurred by appellant for providing all agreed services will also be of the revenue nature.
9.3. In view of the above facts and circumstances, we are of the opinion that the orders of the Tribunal (supra) are distinguishable and hence not followed.
10. In the result the appellant's appeal is dismissed.