TaxTMI 
TaxTMI 
2011 (9) TMI 803
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....- (short term capital gains). 2. ITA No.16/2003 is filed by the revenue being aggrieved by the relief granted by the ITAT in favour of assessee and cross objection 1/2009 is filed by the assessee being aggrieved by the finding of the Tribunal that the principle of mutuality is not applicable to the present case. 3. The material facts leading up to this appeal and cross objection are as follows: The assessee-Company was incorporated on 22.01.1976 with the object to run the business in real estate. The assessee filed return of income on 31.03.1998 for the assessment year 1996-97 with nil income. The assessee company followed Mercantile system of accounting. The return was processed u/s 143 (1) (a) on 26.10.1998. While going through the returns filed by the assessee it was noticed that the assessee company although showing land as stock in trade in the balance sheet, the same has not been taken it to profit and loss account thereby reducing the taxable income to that extent. Further, the assessee company shows, in the Balance Sheet nil fixed assets for the year 1995-96 whereas for the assessment year 1996-97 the fixed assets is shown as Rs.6,03 crores and the as....
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....above. d) The surplus resulting on construction activity under the scheme is taxed as business income. e) The amount/consideration received from T1 to T2 right holders is treated, as receipt in hands of the assessee company and is taxed as short term capital gains. f) The surplus resulting on the maintenance activity is treated as business income. g) Depreciation on the building is not allowed." and accordingly prepared the profit and loss account for the year ended 31.03.1996. Being aggrieved by the said order passed by the Assessing Officer, the assessee preferred an appeal before the office of the Commissioner of Income Tax, (Appeals)-II, Bangalore in ITA No.458/CIT(A)-II/01-02 and the first appellate authority confirmed the order passed by the Assessing Officer. Being aggrieved by the same, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Bangalore Bench, Bangalore, (for short 'the ITAT') in ITA No.504/Bang/02. On 20.08.2002, the ITAT also confirmed the order passed by the first appellate authority and the Assessing Officer by holding that the principle of mutuality was not applicable and the income der....
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....d in law in not holding that the income is also liable to be exempt on the principle of mutuality having regard to the ratio of the decisions of the Supreme Court in 243 ITR 89 and 226 ITR 97? 5. We have heard learned counsel for the appellant/revenue and the learned counsel for the respondent/assessee. 6. Learned counsel for the appellant/revenue reiterated the grounds urged in the appeal memo and submitted that the Tribunal having found that the amount received by way of deposit from the shareholders for allotment of construction portion was to be treated as income from business as the assessee was dealing in real estate, was not justified in holding that the lease made in favour of T1 and T2 along with lawn area was not in the earlier scheme and did not stand on the same footing as that of the shareholders depositing the amount proportion to the allotment of floor area made in their favour and a perpetual lease was executed in their favour in respect of both T1 and T2 area and lawn area and therefore the said amount was rightly treated as short term capital gain and the Tribunal only on the ground that the said two persons to whom T1 and T2 are allotted and t....
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.... and T2 and the lawn area have been allotted stand on the same footing as other Directors and once it is held that the said amount should be treated as business income as treated in respect of other shareholders, question of treating the said income as short term capital gain would not arise and the Tribunal was justified in treating it as stock in trade of the assessee and further submitted that the maintenance deposit was for the future maintenance of the common area to provide to all the shareholders of the company. He further submitted that the Tribunal was not justified in holding that the principle of mutuality is not applicable to the facts of the present case having regard to the decisions relied upon by him which would be referred to at the time of consideration of the substantial questions of law and the Tribunal was not justified in negativing the contention of the assessee that business income is also liable to be exempted on the principle of mutuality having regard to the ratio of the decisions of the Supreme Court referred to by him. 8. We have given careful consideration to the contentions of the learned counsel for the parties and scrutinised the material ....
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....x (193 ITR 694) wherein the division bench of Bombay High Court has held that where there is private motive and possibility of exploitation for commercial purposes, question of mutuality would not be there and has observed as follows: "That having regard to the manner in which the non-refundable deposits were taken from the share-holders, the shareholders were allotted floor space area which they were not only entitled to occupy but were also entitled to assign to others on payment of compensation and to transfer their occupancy rights by sale of shares and the purpose for which the compensation was charged, the whole transaction was, in reality, a sale of floor space by the assessee-company to its shareholders. The assessee-company had kept with itself only the right of the management of property as a whole, the compensation being charged by way of reimbursement of the expenses which were likely to be incurred. After parting with the right of occupancy of the floor area to every member, what remained with the assessee was merely ownership in the technical sense of the worl. The residuary rights of ownership which remained with the assessee-company were negligible and of ....
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....he requirement of registration of the sale deed in the context of Section 22 is not warranted." 12. Having regard to the terms of agreement in the present case, the authorities below have held that the occupants are given as per the agreement absolute right over the property, right to occupy the property, right to alienate or sell the property and the agreement would clearly show that in view of the consideration of deposit, the occupants would get allotted a specific commercial apartment together with a perpetual, uninterrupted, absolute and exclusive right to use and enjoy such apartment and the common area, along with the right to exploit, let out or otherwise enjoy the same and appropriate the income, usufruct and other benefits therefrom with such member also having the right to dispose of his share, deposit and interest vested in him in respect of the apartment allotted to him by a document intervivos or otherwise and in view of the above said rights which are conferred upon the occupants, it is clear that the profit motive is involved in the scheme prepared by the respondent/assessee for conferring title under the agreement as referred to above and the income that ....
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....t term capital gain as it is clearly observed in paragraph 8.3.2 that they do not find any difference between the terms of allotment units between these two class of unit holders. The right acquired by both the class are also similar. Thus, it amounts to sale of property to T1 and T2 unit holders also. The nomenclature given to such deposits is nothing but only for transfer by way of sale such units only and therefore they are to be treated as business income thereby setting aside the order passed by the Tribunal by the first appellate authority and the Assessing Officer holding that income as short Term capital gain attracting tax u/s 45 of the Act. It is clear from the perusal of the material on record including the agreement entered into in respect of T1 and T2 unit holders and also the lawn area thereon do not stand on the same footing as the agreement entered into with the other shareholders, the persons in whose favour the said agreements were entered into and various amounts were received by the Directors of the assessee-company and the amounts received under the various agreements from the allottees of T1 and T2 and lawn area under different agreements entered into their fa....
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....10,000 sq. ft. lawn space at 4th floor of the said commercial complex was given to Mr.Jitendra Majethia and his group on a perpetual lease for indefinite period from August 1999 for consideration of Rs.1.05 crores. The built up space of 4000 sq. ft. at T1 and T2 and lawn area of 10000 sq. ft was given on perpetual lease to Mr.Jitendra Majethia and his group of person and the deeds envisaged that the lessee being desirous of acquiring by way of lease, the constructed area on the 4th floor of the building standing on the schedule 'A' property along with the open garden space in front of the said constructed area, approached the confirming party and the lessor herein; and whereas the lessor and the confirming party informed the lessee that the said constructed area has still not been assessed to municipal tax in view of the same being constructed over and above the constructed area sanctioned and the perpetual lease was created. It is also clear that the lessee accepts a lease of apportion of the premises hearing No.T1 on the 4th floor of the building standing on the property bearing No.148, Infantry Road, Bangalore and lessees have paid altogether one time premium of Rs.105.00 lakhs ....