2013 (12) TMI 307 - AT - Income Tax

Sale consideration for capital gains includes forfeited deposit, damages, and possession handover amount. Assessee's exclusion argument dismissed.

Hyderabad Bottling Co. Ltd. Versus Deputy Commissioner of Income-tax

The Tribunal upheld the Commissioner of Income-tax (Appeals)' decision that the entire amount of Rs. 15,77,26,000, including forfeited deposit, damages, ... Computation of long term capital gains – Earlier the assessee has entered into a development agreement with Sri Gourisanker Gupta, Smt. Saritha Gupta and M/s. Vansh Builders, for development of the property situated at 8-3-949/1, Punjagutta, (Ameerpet), Hyderabad - Later, the said agreement was cancelled - The assessee entered into an agreement to sell for transfer of land with M/s G. S. Builders P. Ltd., for a total consideration of Rs. 13 crores – Sri Gourisanker Gupta and Smt. Saritha Gupta are directors in M/s. G. S. Builders P. Ltd - Apart from sale consideration of Rs. 13 crores the assessee also received an amount of Rs. 2,66,26,000 vide agreement dated December 26, 2001 and Rs.11 lakhs on February 28, 2008 - Held that:- The consideration received through earlier agreement is nothing but a part of the sale consideration received by the assessee towards transfer of the property – Judgement of Smt. Smita N. Shah v. Joint CIT [2004 (7) TMI 285 - ITAT BOMBAY-H] cannot be followed - The findings in the case of arm's length transaction cannot be applied to the transaction of the assessee, where the parties were interrelated and the assessee was involved in tax evading methods – Decided against assessee. Issues Involved:1. Whether the Commissioner of Income-tax (Appeals) was justified in considering the forfeited deposit and damages as part of the sale consideration for computing long-term capital gains.2. Whether the amount received for handing over possession of the property should be included as part of the sale consideration.3. Application of Section 51 of the Income-tax Act regarding the forfeited deposit and its impact on the computation of capital gains.4. Determination of the correct sale consideration for computing long-term capital gains.Issue-wise Detailed Analysis:1. Forfeited Deposit and Damages as Sale Consideration:The assessee contended that the amount of Rs. 2,66,26,000, which included a forfeited deposit of Rs. 2,00,00,000 and Rs. 66,26,000 received towards damages, should not be considered as part of the sale consideration. The Assessing Officer and the Commissioner of Income-tax (Appeals) disagreed, considering the entire amount as part of the sale consideration. The Tribunal noted that the developers and the purchaser were interrelated parties, and the agreements indicated that the forfeited deposit and damages were indeed part of the sale consideration. The Tribunal upheld the view that the amount was part of the sale consideration for computing capital gains.2. Amount Received for Handing Over Possession:The assessee argued that the Rs. 11,00,000 received on February 28, 2008, for handing over possession of the property should not be included in the sale consideration for the assessment year 2005-06. The Assessing Officer included this amount in the sale consideration. The Tribunal found that there was an oral agreement for this payment at the time of the sale agreement in 2005, and thus, it should be considered as part of the sale consideration for computing capital gains for the assessment year 2005-06.3. Application of Section 51:The assessee argued that if Section 51 of the Income-tax Act was applied (as suggested by the Assessing Officer), the negative value resulting from the forfeited deposit after adjusting the cost of acquisition should be ignored for computing capital gains. The Tribunal noted that the forfeited deposit was part of the sale consideration and should be included in the computation of capital gains. The Tribunal referenced the Supreme Court's decision in Travancore Rubber and Tea Co. Ltd. v. CIT, which held that forfeited deposits are capital receipts and should be considered in the computation of capital gains.4. Determination of Sale Consideration:The Tribunal examined the agreements and the relationship between the parties. It found that the entire amount of Rs. 15,77,26,000, including the forfeited deposit, damages, and the amount received for handing over possession, constituted the sale consideration. The Tribunal rejected the assessee's argument that only Rs. 13 crores should be considered as the sale consideration. It concluded that the assessee's attempt to reduce tax liability by excluding certain amounts from the sale consideration was not justified.Conclusion:The Tribunal upheld the order of the Commissioner of Income-tax (Appeals), confirming that the entire amount of Rs. 15,77,26,000 should be considered as the sale consideration for computing long-term capital gains. The appeal of the assessee was dismissed. The Tribunal emphasized that the interrelated nature of the parties and the terms of the agreements indicated that the amounts in question were part of the sale consideration. The order was pronounced on January 18, 2013.