TaxTMI 
TaxTMI 
2010 (12) TMI 233
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....er, it was explained by the assessee that he and a company by name Small Success Finance & Trading Pvt. Ltd., in which he was a director at that time, had acquired a right in the Nigam property by entering into an agreement with the owner of that property on 3rd February, 1998 in terms of which he was to get 75% and the company was to get 25% of the property, that he wanted to build a bungalow for his residence in the property in the area he got, that after some time it transpired that the owner of the property could not obtain vacant possession of the property due to encumbrances and an injunction obtained by one Mr. Kela against Nigam, that in the meantime property prices had shot up and the assessee apprehended that he could not muster the required resources, that another rich businessman by name Dilip Sanghavi and his wife Vibha Sanghavi became interested in buying the property by paying huge amounts to the tenants and also to the assessee, that in the light of these developments the assessee received Rs. 3,00,00,000 and walked out of the agreement with Nigam, that a deed of cancellation was entered into on 31-1-2007 for this purpose and it was this amount of Rs.3 crores that w....
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....s mention of a bungalow to be built on the plot for the residence of the assessee in his 75% share of the plot. This agreement is an after-thought because it mentions the modalities of the working of the agreement dated3-2-1998 which is not possible unless the parties had prior knowledge of the same. Further, the agreement dated15-1-1998 was notarized only on13-2-1998 as seen from the date mentioned by the notary, which is a date after the MoU dated3-2-1998. Thus the assessee has attempted to give a colour of a sale and purchase transaction in the agreement dated15-1-1998 though in reality and as evident from the agreement dated3-2-1998 it is a pure business transaction of construction and sale of apartments/row houses. (c) The cancellation agreement dated31-1-2007 under which the assessee received the compensation has also tried to give colour to the MoU of3-2-1998 as a simple purchase and sale transaction, which it was not. (d) The owners of Nigam property never intended to transfer any right in the property to the assessee or Small Success but only intended to give them a power of attorney for effecting the agreements between prospective buyers of the apartment....
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....n 3-2-1998 (repeatedly referred to in the order of the CIT(A) as 13-2-1998) a document styled "Memorandum of Understanding" was executed between the Nigams who were referred to as "plot owners" and Small Success which was referred to as "developers" therein. Clause (1) of the MoU referred to the representations made by the plot owners (Nigams). They represented to the developers, in sub-clause (b) that a total of 2 FSI was available for construction on the plot, made up of 1 FSI in respect of the plot, 0.40 FSI by way of reservation TDR for garden, another 0.40 FSI for TDR for road and 0.20 FSI by way of slum TDR. In sub-clause (c) it was further represented by them that it was possible to consume the entire FSI of 2 by demolishing the structure in the plot and constructing new structures thereon. It also listed out the options available as to how the entire 2 FSI can be utilised by referred to permutations and combinations of row houses and a multi-storied building. Relying on these representations, the understanding arrived at between the parties (Nigams and Small Success), as per clause (2) was as under:- (a) The developers to carry out the construction on the said prope....
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....against the amount payable by Small Success and the assessee for the purchase of 15000 s.ft. of the plot. We wish to clarify this point because there appears to be some misunderstanding as to the true purport of the MoU. We will address this point a little later. The other duties and obligations of the owners are mentioned in sub-clause (d) of clause (2). 9. On 16-2-1998 a document styled as "Declaration Cum Confirmation" was executed between the assessee and Small Success jointly referred to as purchasers or co-owners on the one hand and the Nigams (who were three in number) on the other hand, who were referred to as vendors. Clause 1 of the document affirmed that a copy of the agreement dated 15-1-1998 entered into between the assessee and Small Success was given to the vendors and was also annexed to the document and that the vendors are fully aware of the contents thereof. It may be recalled that the agreement dated 15-1-1998 contained the terms agreed to between the assessee and Small Success inter se with regard to the purchase of the plot from Nigam and they were briefly referred to earlier. Clause 2 of the declaration provided that if the rules of the JVPD Scheme do not ....
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....ncluding the assessee and Small Success who are jointly referred to as the 5th confirming party, and one Mrs. Vibha Dilip Shanghvi. It narrated the events that led to the non-execution of the sale deed in favour of the assessee and Small Success. Briefly stated, one Nandlal H. Kela had obtained an injunction on the sale of the plot by the Nigams alleging that he had a right to obtain conveyance of the plot in his favour, a fact which was not known to the assessee when he entered into an agreement with the Nigams to acquire the plot. There were tenants in the existing building who claimed interest in the property by way of tenancy of the second and third floors and also claimed to have paid monies to the Nigams for obtaining the tenancy. Thus several encumbrances and impediments to the sale of the property were there. All these are narrated and those tenants were also included in the agreement to assign as confirming parties. Ultimately it appears that Mrs. Vibha Dilip Shanghvi was prepared to pay a huge amount, almost Rs. 21 crores, for the property, undertaking also to pay off the tenants and the assessee and Small Success by offering all of them substantial amounts. Clause (w) to....
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....on behalf of the Department, that the agreement was an after-thought and was actually entered into after the MoU was entered into though it bore an earlier date. This suspicion was sought to be strengthened by referring to the fact that the agreement, though purported to have been executed on15-1-1998, was actually notarised on13-2-1998. It must be remembered that the agreement is between the assessee and Small Success, which is a private limited company in which he is a director. Knowledge of the company is in fact knowledge of the assessee. It must be the assessee herein who was negotiating with the Nigams for the purchase of the plot. Therefore it is not unusual that even in the agreement executed on15-1-1998 there is reference to the broad terms agreed to between the plot owners and Small Success. Further, the terms of this agreement include the reference to the fact that the assessee was desirous of building a residential bungalow for his own residence by utilizing 75% of the area of the plot. In any case, the stamp paper was purchased by the assessee on13-12-1997 which is much before the date of the agreement. Though this may not be conclusive, there are no other suspicious f....
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....e of the plot. Eventually the deal did not materialise due to various reasons and the assessee relinquished and surrendered his rights in the property in favour of Vibha Shanghvi after receiving the sum of Rs. 2,25,00,000 from her. Applying with respect the judgments of the Hon'ble Bombay High Court cited supra we hold that the amount is assessable as capital gains. 16. The CIT(A) has spelt out a business motive on the part of the assessee in order to bring the amount to tax under the head "business". For this purpose he has referred to the fact that the assessee was to develop and sell 15000 s.ft. of the FSI available in respect of the plot and receive construction cost of Rs. 1350 per s.ft. He has viewed the MoU as a development agreement. There seems to be, with respect, a misreading of the MoU. As we have already noted, the plot was of 15000 s.ft. with FSI of 2 which means 30,000 s.ft. can be built thereon. The assessee and Small Success were to acquire only the plot which is of 15000 s.ft. and could build, for their own use, only 15000 s.ft. The additional FSI of 15000 s.ft. did not belong to them but was to be retained by the owners themselves. After representing to the as....