TaxTMI 
TaxTMI 
2011 (10) TMI 491
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.... natural justice and fair play. 2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction. 3. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had not made any transfer liable to capital gains tax during the relevant year. 4. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing Officer erred in not reading the agreements of Prestige Estates Private Limited with the appellant and its shareholders as a whole. 5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the agreement entered into by the appellant was only for development of property and not an agreement for transfer of any asset. 6. For that the Commissioner of Income Tax (Appeals) has failed to appreciate that the appellant has not alienated any immovable property during the year under appeal. 7. For that the Commissioner of Income Tax (Appeals) wrongly concluded that the appellant had transferred 50% of the land owned by it. 8. For that the....
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....e Commissioner of Income Tax (Appeals) erred in confirming the addition of 50% of 6.29 acres i.e. 50% of 274472 Sq. Ft = 1,37,236 Sq. Ft which already belonged to the appellant company. 18. For that, without prejudice to the above that there was no transfer, the Commissioner of Income Tax (Appeals) erred in treating the guideline value as the full value of consideration. 19. For that without prejudice to the above that there was no transfer, the Commissioner of Income Tax (Appeals) failed to appreciate that the guideline value adopted by the Assessing Officer for the purpose of computation of capital gains at a uniform value of Rs. 4,000/- per sq. ft both for land as well as built up area, is exceedingly high and arbitrary. 20. For that, without prejudice to the above that there was no transfer, the Commissioner of Income Tax (Appeals) failed to appreciate that the cost of square foot of land and cost of construction of square foot of built up area cannot be equal and arbitrarily applied the same built up area and at best could only have treated the guideline value of the built up area that could possibly belong to the shareholders of the appellant prior to the transaction....
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....ax (Appeals) failed to appreciate that the other party to the agreement was only entitled to 50% of the shares in the appellant company, to be by way of fresh allotment of shares by the appellant company. (5) For that, without prejudice to the above that there was no transfer, the Commissioner of Income Tax (Appeals) erred in treating the guideline value adopted by the Assessing Officer as the full value of consideration and upholding the FMV as on 1.4.1981 fixed by the Assessing Officer. (6) For that, without prejudice to the above that there was no transfer, the Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing Officer erred in computation by not deducting the cost attributable to the Open Space Reservation. (7) For that without prejudice to the earlier grounds the Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing Officer has calculated the capital gains, incorrectly. (8) For that the Commissioner of Income Tax (Appeals) erred in disallowing depreciation on roads as the required details are available with the appellant. (9) For that the Commissioner of Income Tax (Appeals) failed to appreciate that the sum of Rs....
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....ssues raised before the first appellate authority have been reiterated in the grounds of appeal while challenging the order of the Assessing Officer and its confirmation by the ld. CIT(A). 5.1 As regards first issue, facts indicate that the assessee company has entered into an agreement on 26.05.06 at Bangalore with M/s. Prestige Estates Projects Private Ltd. (PEPL). The salient features of the agreement are as under: * Large part of the "Schedule Property" the assessee owns and which still remains undeveloped with old dilapidated buildings which are no longer required by the assessee company; * The assessee company is desirous of developing the Schedule property into a. modern commercial building consisting of office building and a shopping mall ; * PEPL is in the business of real estate development, construction, managing and leasing office space and malls and has gained considerable expertise in real estate development, management and leasing of office spaces and shopping malls; * The type and nature of development : Out of total Schedule property, an extent measuring approximately 6.29 acres ....
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....rty shall also include one time project management fee of Rs. 10 crores to be charged by the Second Party basically for concept creation, implementation and supervision, tenancy mix, fixation and tenancy programming of the building/s to be built on the Schedule Property. This Management fee of Rs. 10 crores will be paid/adjusted in instalment over the period of implementation of the project. (b) For the purpose of facilitating investment by the Second Party the aforesaid amount, the First Party shall open a separate Bank account in the name of the First Party, to be operated by the Second Party and its authorized Signatories up till the investment by the Second Party reaches Rs. 115 crores. The Second Party shall bring in its own funds for the purpose of implementation of the project to the extent of the Investment to be made by the second party, into this account and is fully authorized to payout and discharge all the expenses and costs incurred on the project. The amount so brought in by the Second Party into this account shall be treated by the First party as Second Party's payment towards allotment of shares of the First Party until the investment by the Second Party r....
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....ngs. (xii) It shall not transfer portions of the Schedule Property until sanction of construction plans for the proposed Office building and Shopping Mall. 7. Special conditions : (a) Its clearly agreed between the First Party and the Second Party, that office building and the shopping mall has to be built utilizing about 6.29 acres of land marked in the plan attached as Annexure 1, with not less than 9,80,000 sq.ft. of built up area. To achieve this built up area it shall be lawful for the Second Party to utilize the unused FSI of the rest of the Schedule Property. It is further agreed between the parties hereto that upon sanction of Construction plans by the statutory authorities, it shall be lawful for the first party to dispose of in any manner the portions of the Schedule Property other than the above six acres of land, reserved for the office building and the shopping mall. The First Party shall be free to undergo the process, of merger and demerger for separating the portions of the Schedule Property, without altering the shareholding pattern and all such process including clearance of statutory liabilities arising of such transactions shall be completed by th....
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....herwise duly consented' by the Second Party. (b) That they shall not transfer, except amongst themselves the shares of the said Company to any third party/ies. (c) That they shall not, without the consent of the Second Party, create charge I lien on the shares held by them in the said company. (d) That they shall not appoint Directors to the said Company other than amongst themselves, without the consent of the Second Party." * "5. The members of the First Party agree that upon Second Party completing an investment of Rs. 115 crores in the project as per the terms of the joint development agreement, the Second Party shall be entitled to seek allotment of such number of shares so as to make members of the First Party and the Second Party become equal stake holders in the said Company, thereby converting the said company as a special purpose vehicle to implement and own the project." * "8. It is clearly agreed between the First Party and the Second Party that if any of the members of the First Party wish to dispose off their shareholdings the other members of the First Party shall have the first opinion to purchase the same and in th....
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....2006 wherein it is stated that the " ...parties hereto jointly undertake the development of Schedule Property into an office building and a shopping mall as a joint venture wherein the first party brings in the schedule property as its contribution and the second party brings in its experience, expertise and funds to do the development of the schedule property and both the parties share land and the buildings to be developed thereon in equal shares i.e. 50:50 and enjoy the usufructs thereof in the same ratio..". Please explain why this should not be treated as a joint venture and taxed accordingly as transfer in the hands of M/s Vijaya Productions Pvt. Ltd. Ans. no. 4. At pp2 of the agreement referred to in the question the development would be as a joint venture wherein VPPL brings in the property as its contribution and PEPL does the development; the intention of the agreement is not a joint venture in the legal sense but the property would remain with VPPL and PEPL would bring money into VPPL towards share application money and shares would be allotted to PEPL once they bring in Rs. 145 cr. at 50% of equity shares and the present shareholders shareholding would be 50% of the ....
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....L declares dividend to its shareholders. PEPL has the option of selling the shares to the existing shareholder or to the others with the consent of the existing shareholders as per clause 8 of the shareholders' agreement. Q. no. 14. PEPL will earn dividends only on Rs. 6 cr. and not on the balance treated as share premium of Rs. 109 cr. Please explain the commercial expediency of PEPL. Ans. no. 14. This can best be answered by PEPL Q. no. 15. What is the value of the property in the books of account of VPPL in AY 06-07? Ans. no. 15 The value of the property in the books of account in AY 06-07 is Rs. 52.36 cr. for 230 grounds and this has been the value from 31.3.2003 onwards. Q. no. 16. Please refer to pp 77 of the agreement referred to above. In the event of sale by the shareholder the existing shareholders of PEPL, the first right of refusal would lie with the other party. What would be the valuation of shares in that event? Ans. no. 16. The valuation of shares would be as per the prevailing market price of the shares based on the asset value and the future earnings of the company which will be mutually agreed upon. Q. no. 17 Is there any power of attorney gr....
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....ng Director of the assessee company. 6.1 Giving reference of all the above 5 ingredients, the assessee's counsel pleaded that none of the ingredients are present, so there is no provision attracting capital gains as one cannot trade with oneself and make profits as held by the Hon'ble Supreme Court in the case of CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86. The agreement dated 26.05.2006 is only an agreement of understanding which had clauses to safeguard that in case PEPL is not able to bring in the share capital, the amount brought in by PEPL will be refunded by the assessee company giving reference to Entitled Rules for Interpretation of Deeds and Documents and following rules of interpretation, it has to be noted by reading document/agreement and stating 4 rules of interpretation, it was pleaded that the agreement is to be read in terms of guidelines, which is clear in its scope and intention and reference was made to clause 6 (ix) in page 3 which states that the agreement is for subscription to share capital, which is further reiterated in the shareholder's agreement. It is because the agreement has not been read as a whole, the Assessing Officer has held that there was ....
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....ties below has pleaded that the assessee had entered into an agreement with the Prestige Estates Projects Ltd. (PEPL) for development of commercial complex known as Vijaya Mall. The clauses highlighting the intention of the joint venture and the consideration for the joint venture are to decide the issue in the present case. Para 5 of page 2 of the agreement, it was clear intention of both the parties to the agreement to jointly undertake the development of the schedule property into an office building and a shopping mall as a joint venture, wherein the first party i.e. the assessee brings in the schedule property as its contribution and the second party brings in its experience, expertise and funds to do the development of the schedule property and both the parties share land and building to be developed thereon in equal shares and enjoyed the usufructs thereof in the same ratio. As regards consideration of 50% of the total built-up area along with the 50% of all other benefits such as car parking, terrace and other benefits in the building/mall of the constructed area, it is further stated that it was obligatory of the second party to apply for and secure all necessary approvals ....
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....sing Officer as well as the ld. CIT(A) is just and proper and being legally correct should be upheld. 8. We have carefully considered the arguments of the rival sides, material on record and various precedents cited before the lower authorities as well as before us and find that capital gains arises only when there is a "transfer" of "capital asset". The term "transfer" has been defined in section 2(47) of the Income-tax Act and in relation to that capital asset includes : I. The sale, exchange or relinquishment of the asset, or II. The extinguishment of any rights therein, or III. Compulsory acquisition thereof, or IV. Conversion of assets into stock-in-trade, or V. Any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the TP Act, 1882, VI. Any transaction (whether by becoming member, acquiring shares etc. in a company or AOP etc. by way of agreement or arrangement etc.) which has the effect of transferring or enabling the enjoyment of, any immovable property. Therefore, the term "transfer" as defined in the ....
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....50% share of all other benefits in the developed property. So, the action on the part of the assessee in this case in giving its rights to claim the land and instead accepting the 50% of the built-up area of the new commercial complex and shopping mall is a clear case of relinquishment of rights in the property, thereby resulting in transfer as defined in section 2(47) of the Act. Thus, in our view, the Assessing Officer has rightly held that the assessee has factually transferred 6.29 acres of land out of which the assessee would benefit by way of 4,90,000 sq.ft. of built-up area and 50% consideration and the balance consideration includes car parking, terraces and other benefits for the transaction with PEPL to hold that the transaction taken place amount to transfer of capital asset and exigible for capital gains/capital gains tax and he has rightly invoked section 50C of the Act for arriving at a right figure of capital gains by taking value of Rs. 4,000/- as sq.ft. cost and the ld. CIT(A) is fully justified in upholding the action of the Assessing Officer in view of the discussion held with the support of case law cited and applied. While concurring with the finding of the ld.....
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....m Diana Hotels as business income and that even during the course of appeal proceedings also, though the assessee has taken up as one of the ground in first appeal stage, but had not come with any satisfactory explanation as to why the lease rental received from Diana Hotel should not be treated as income from other sources. So, the ld. CIT(A) upheld the action of the Assessing Officer on this point and because of which, the assessee has come up in further appeal and while reiterating the submissions as made before the Assessing Officer and the ld. CIT(A), it was pleaded for treating the lease rent received from Diana Hotel as business income instead of income from other sources as held by the Assessing Officer and confirmed by the ld. CIT(A). 11. As regards shifting income from 'Business Income' to "other sources", it was, statement of facts filed with appeal papers and at the time of hearing, submitted that the assessee has leased out 72 grounds of land at 183, N.S.K. Salai, Vadapalani, Chennai to M/s. Diana Hotels Ltd., Hyderabad. For this, the assessee company has entered into a memorandum of revenue sharing leave and license arrangement dated 6.6.2005. A hotel by name Green....
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....that the income was income from other sources was correct. " As such, while concurring with the finding of the ld. CIT(A), we dismiss this ground of appeal of the assessee. 12. As regards next issue in relation to disallowance of depreciation on roads, the assessee, at the time of hearing has not pressed this ground No. 23 of memorandum of appeal and endorsement to this effect has been made by the ld. Counsel for the assessee on the bottom of grounds of appeal at page 3. Therefore, this ground of appeal is dismissed as not pressed. 13. As a result, the appeal of the assessee gets dismissed. Abraham P. George, Accountant Member - Despite discussions, deep study of the order of Ld. Judicial Member and despite giving considerable thought, I find it difficult to subscribe to the view taken by the Ld. JM that there was a 'transfer' within the meaning of Section 2(47) of the Act of 6.29 Acres of land or any part thereof during the relevant previous year, by the assessee to M/s. PEPL. I am also unable to subscribe to the view that consideration for the alleged transfer was correctly worked out by the Assessing officer. Again I find it difficult to confirm the order of the Ld. ....
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....Nos. 158, 159, 161/1&2; 174/1&2, 175/l&2) 5/3 (Old Nos. 168/1&2, 169/1&2) 5/4-(Old Nos.173/3) 5/7 (Old No.173/2) and 5/5 (Old No. 173 Part) all situated in Arcot Road within the Corporation limits of the City of Chennai measuring about 230 grounds in extent and morefully described in Schedule hereunder and also clearly delineated in the plan attached as Annexure 1 to this agreement and hereinafter referred to as Schedule Property for the sake of convenience and brevity. Whereas the First Party acquired absolute ownership over the Schedule Property in terms of the documents of title, morefully described in Annexure 2, to this agreement and the First Party represent and warrant that, ever since the date of acquiring the Schedule Property, the First Party is in peaceful possession and enjoyment of the Schedule Property without any let, claim or hindrance from anyone and that its title to the Schedule Property is free from all encumbrances, charges, claims of any kind, demands acquisition proceedings, restrictive covenants and servitudes. Whereas the First Party further represents that the Schedule Property is a commercially classified land and capable of being developed into com....
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....ule Property or any portions thereof, hereinafter referred to as the First Party's Constructed Area. 2. The type and nature of development: Out of total Schedule Property, an extent measuring approximately 6.29 acres identified in the red colour (hatched portion) in the plan annexed hereto as Annexure 1 shall be developed by constructing thereon an Office Building and a Shopping Mall with a total super built-up area of not less than 980,000 sft. In putting up this construction, it is clearly agreed and understood between the First Party and the Second Party that the Second Party shall be entitled to utilize FSI of the entire Schedule Property, wherever possible and permissible by the concerned authorities. 3. Second party's right to develop: (a) The First Party hereby irrevocably authorizes, empowers and permits the Second Party to undertake development of the Schedule Property into an Office Building and a Shopping Mall with a total built-up area of not less than 980,000 sft. and in that connection get prepared the necessary concept drawings, architectural designs, sanction drawings by appointing an Architect of its choice and both the parties shall mutually fina....
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....y into this account shall be treated by the First Party as Second Party's payment towards allotment of shares of the First Party until the investment by the Second Party reach Rs. 115 Crores including the Project Management Fee. The Second Party shall furnish to the First Party, every quarter commencing from the date of implementation of the project, a report giving details of the expenditure incurred by the Second Party in implementing the project. (c) On the Second Party bringing in totally Rs. 115 crores investment into the project in the manner stated above, the First Party shall allot such number of shares as may be required so as to make the Second Party 50% equity shareholder and the Second Party thereby becoming entitled to the remaining 50% of the total built-up area along with 50% of all other benefits such as car parkings, terrace, and other benefits in the building/s to be built on the Schedule Property or any portions thereof, hereinafter referred to as the Second Party's Constructed Area. While so allotting the shares, the value of each share considered over and above the face value of each share will be treated as share premium. (d) All additional i....
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....ing tenders would be done on mutual consent. All work order, appointments, will be issued by the Second Party for and on behalf of the First Party and the payments to all the agencies will be made by operating a separate bank account to be maintained for the said purpose. (iii) In the absence of the conditions of force meajure, restrictions, court orders, prohibitions and such other conditions which are not under control of Second Party and all other conditions being normal, the Second Party shall complete the project within 36 months from the date of commencement of construction with a grace period of 3 months. (iv) Upon completion of the project or during the implementation of the project the Second Party shall be responsible for tenancy programming, finalizing the leasing terms in consultation with the First Party. (d) Compliance of Statutory Requirement: In construction and completion of the project, the Second Party shall fully adhere to the sanction plans, permits and licenses issued by the concerned statutory authorities and keep the First Party and all its present directors fully indemnified against action, loss or claim on account. 6. Covenants and obl....
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....ailed in Annexure-4, except amongst themselves for the purpose of consolidation of shareholdings. (xii) it shall not transfer portions of the Schedule Property until sanction of construction plans for the proposed Office Building and Shopping Mall. 7. Special conditions : (a) Its clearly agreed between the First Party and the Second Party, that Office Building and the Shopping Mall has to be built utilising about 6.29 acres of land marked in the plan attached as Annexure-1, with not less than 980,000 sq.ft. of built up area. To achieve this built up area it shall be lawful for the Second Party to utilize the unused FSI of the rest of the Schedule Property. It is further agreed between the parties hereto that upon sanction of Construction plans by the Statutory Authorities, it shall be lawful for the First Party to dispose of in any manner the portions of the Schedule Property other than the about six acres of land reserved for the Office Building and the Shopping Mall. The First Party shall be free to undergo the process of merger and demerger for separating the portions of the Schedule Property, without altering the shareholding pattern and all such process includin....
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.... agreement by issuing one more notice after the expiry of 15 days notice stated above. In case the First Party chooses to cancel the Agreement on account of breach/default by the Second Party, the First Party shall allot proportionate equity shares at premium to the extent of amount invested by the Second Party in the First Party company, if not already done. (ii) Notwithstanding the above, at its option, the First Party is entitled to insist for specific performance by the Second Party and also sue the Second Party for the damages/losses incurred by the First Party on account of such breach. (v) In case of delay in completing the project beyond agreed time, after the grace period of 3 months, the Second Party shall be liable to compensate the First Party @ Rs. 25,00,000/- per month of delay out of its own funds and expenses until completion of the project. (C) By the First Party: Failure on the part of the First Party to observe and perform all its obligation: detailed under clause 6 above and any misrepresentations shall constituted breach by the First Party. (D) Rights/Remedies Available To The Second Party : The Second Party, apart from being entit....
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....rty from the concerned authorities. 3. To deal and correspond with the Tamil Nadu Electricity Board for obtaining electricity connection or connections including making or putting up a sub-station for and/or in respect of or relating to the said building/buildings which will be constructed hereafter on the Schedule Property and for the said and other purposes to sign all letters, applications, undertakings, terms and conditions, etc., as may from time to time be though necessary or as may be required by the concerned authorities. 4. To appear on our behalf and in our name and to represent our interest before the Survey Authorities, Land Revenue and Assessor of Municipal Rates and Taxes, Town Planning Authorities, and Municipal Offices and other Government and Semi-Government Offices for the renewal or grant of Licences and Permits or for any other purposes as may be necessary under any local Act, Rule or Regulations and also to appear before any public or Government Office or other Authorities whomsoever in connection with the Schedule Property. 5. To make applications for water and sanitary connections, electricity supply and other inci....
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....eement has been reproduced by Hon. JM at para 5.1 of his order, and hence not repeated. 3. Now comes the test of Section 2(47) of the Act vis-a-vis the above documents. Section 2(47) is reproduced hereunder. Transfer, in relation to a capital asset, includes, (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion of treatment; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable p....
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.... stated that both parties shall be entitled to enjoy the usufructs and share the land and building to be developed, after development, in 50:50 ratio. At clause 1 it is stated that assessee is entitled to 50% of total built up area and other benefits in the building to be constructed, with nothing mentioned of the entitlement of M/s PEPL. No doubt as aforementioned the preamble does say that M/s PEPL is entitled to 50% share of land and built up area, but then again at clause 4(c) it says that such entitlement would only be through participation in the equity to be issued in the assessee company and to be subscribed as and when the amount infused by M/s PEPL reached Rs. 115 Crores. More importantly clause 4(b) says that operation of the bank account in which such sum is deposited, though in the name of assessee company, shall be by M/s PEPL. Or in other words M/s PEPL held the right to withdraw the money deposited in such account and operations thereof. By implication, M/s. PEPL had parted with nothing on the date of agreement viz. 26.05.2006. It is here that the letter dated 9th March, 2010 written by M/s. PEPL produced by the assessee before learned CIT(A), becomes relevant. This....
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....land. 9. Further we wish to confirm that we have not entered into any Agreement so as to constitute an AOP, such that the land is transferred to the said AOP so as to develop and re-transfer any land/built up area back to Vijaya Productions Pvt. Ltd. 10. Our right in the proposed venture is only to the extent of 50% holding in the Equity Share Capital of Vijaya Productions Pvt. Ltd., and 50% interest in the Management of the Company. That possession was not handed over is also clear from two clauses in the agreement. First is clause 6(vi) which says that assessee was to demolish old structures in the property and clause 6(vii) which says that assessee was to evict all occupants in the property, within one month of obtaining sanction and approvals for construction. Paper Book Vol. I pages 36 to 38, pages 39 to 43, pages 44 and 45 are approvals from Tamil Nadu Fire And Rescue Services Department, Ministry of Environment & Forests, BSNL and Airports Authority of India, dated 10.12.2009, 12.06.2007, 11.06.2007 and 9.11.2009 respectively, whereby various sanctions have been given for construction, by such authorities. The dates were well after the relevant pre....
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....y here, continued to be vested with the assessee company. No doubt development right, is definitely a part of the bundle of rights associated with ownership, but can we say that such right stood extinguished through the agreement? The agreement was always in substance for commercial exploitation of the property, but the possession and control of the property remained with the assessee. There is nothing on record to show possession was ever handed over to M/s PEPL. In fact all permission necessary for building construction like planning permission dated 10-12-2004 from Tamil Nadu Fire & Rescue Services Department (PB-Vol. I-pages 36 to 38), environmental clearance dated 12-06-2007 from Ministry of Environment & Forests (pages 39 to 43), NOC dated 11-06-2007 from BSNL (page 44) and NOC dated 9-11-2009 from M/s Airports Authority of India (page 45) were all in the name of assessee. We cannot in such circumstances say that assessee had extinguished any of its' rights in the property. 7. Now taking up clause (v) of Section 2(47), can we say that there has been a part performance of the nature referred in Section 53A of the Transfer of Property Act (TP Act). The ingredients required t....
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.... relevant previous year. 9. Now coming to the conclusions reached by ld. JM at para 8.2 of his order, first finding is that assessee had agreed to reduce its shareholding to 50% of total share capital. In the first place assessee is a limited company, and the said company was not holding any of its' own equity shares. The equity shares were owned by various parties listed at Annexure 4 to the agreement. Therefore, there was no question of reducing any shareholding by assessee company in its' own share capital. What was agreed by clause 4(c) of the agreement, was to allot the shares to M/s PEPL, so as to facilitate equity participation by M/s PEPL and there was no reduction of any share capital mentioned or contemplated by the parties anywhere in the agreement. Hon. Apex Court in the case of Khoday Distilleries Ltd. v. CIT [2008] 307 ITR 312/[2009] 176 Taxman 142 has held that word allotment indicated creation of shares by appropriation out of inappropriated share capital and such creation did not amount to transfer. Second finding is that after the agreement dated 26-05-2006, there was reduction in shareholding pattern to 50%. In the first place there was no allotment or transfe....
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....nt value of the cost of construction of 490000 sq.ft. of building. For that is what it would get in the 3.145 acres of land with it, presuming the other half to be that of M/s PEPL. The working in this regard given by the AO and confirmed by the ld. CIT(A) is as under: "(a) Sale consideration (i) 50% of 6.39 acres i.e. 50% of 274472 sq.ft. 1,37,236 sq.ft. (ii) 50% of 9,80,000 sq.ft. 4,90,000 sq.ft. Total 6,27,236 sq.ft. Guideline value adopted at Rs. 4000/- per sq.ft. Sale consideration Rs. 2,50,89,44,000 (a)" The above working is, in my opinion incorrect and irrational. In the first place, assessee never received any land in the transaction. What it received was a promise that it would be given 4,90,000 sq.ft constructed area in lieu of half of the land. To presume that construction cost per sq.ft will be equal to guideline value of land per sq. ft. is illogical. They were not comparables. The value will have to be limited to net present value (NPV) of the probable construction cos....
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....appears to be credible. Ld. CIT(A) also did not give any reason for rejecting the relevance of the leave and licence agreement with M/s Diana Ltd. and as to why the explanation given by assessee was not considered satisfactory. I am therefore of the opinion that justice demand the issue to be revisited by AO. Hence I set aside the orders of the lower authorities in this regard and remit it back to the AO for fresh consideration, based on the documents filed by the assessee and for disposal in accordance with law, after giving an opportunity to the assessee to explain its' position. 13. On the issue regarding disallowance of depreciation on roads, I am in full agreement with the view taken by the ld. JM. 14. Hence out of concise grounds 1 to 10 filed by the assessee grounds 3 to 4 and 7 are allowed, ground No. 5 is partly allowed, ground No. 9 is allowed for statistical purposes and ground No. 6 and 8 are dismissed. Concise ground 1, 2 and 10 are general needing no specific adjudication. 15. In the result appeal of assessee is partly allowed. Reference under section 255(4) of the Income-tax Act, 1961 As there is difference of opinion between the Members constituting t....
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....sing authority has then treated a sum of Rs. 2,28,52,471/- as income from other sources against the assessee returning it as business income. The assessing authority has further made a disallowance of depreciation of Rs. 1,19,850/-. 4. These additions/disallowances were taken in first appeal before the Commissioner of Income-tax(Appeals). After considering the various grounds and arguments of the assessee company, the Commissioner of Income-tax (Appeals) dismissed the appeal filed by the assessee. The assessee was aggrieved and therefore has come before the Tribunal, in second appeal. 5. The assessee has taken before the Tribunal all those grounds, which were raised before the Commissioner of Income-tax(Appeals). The learned Judicial Member, who proposed the order for the Bench, has held that the grounds raised by the assessee company are liable to be dismissed. He agreed with the findings of the assessing authority and the Commissioner of Income-tax (Appeals) and sought to dismiss the appeal filed by the assessee. 6. The learned Accountant Member, on the other hand, proposed a dissenting order. The learned Accountant Member accepted the contention of the assessee company ....
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....'ble President has nominated me as the Third Member. 13. In the meantime, the assessee has filed an application before the Hon'ble President to reframe the questions to be considered by the Third Member through its petition dated 29-6-2011. The Hon'ble President decided the petition by observing that the Third Member himself can decide the application for reframing the questions. 14. It is in culmination of all the events stated above, that this appeal is placed before me. 15. At the time of hearing this appeal, the question of reframing the question by the Third Member was considered in the open Court. I had the occasion to hear both sides on this interlocutory prayer. It was decided almost by consensus that the Third Member may reframe the question, if found necessary in the light of the findings arrived at by him in respect of the two questions already framed by the dissenting Bench. 16. In the light of the above prelude, I proceed to consider the issues placed before me. 17. Even though the learned Members of the dissenting Bench have stated the facts of the case, it is necessary for the sake of convenience and clarity that the bare facts of the case may be repea....
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....in the above fields. 18.3 The parties having agreed to associate in a Joint Venture Project (JV), the value of schedule property was determined at Rs. 115 crores. As the assessee VPPL is committing the schedule property for the development of the JV project, it was agreed that the property valued at Rs. 115 crores shall be treated as the contribution of the assessee VPPL towards the funds of the JV. The Bangalore based party PEPL also agreed to invest a sum of Rs. 115 crores as its contribution to the JV. Thus, the assessee VPPL and the other party PEPL agreed to share 50:50 of the JV contribution. 18.4 In return of 50% to the JV contribution, the agreement allotted 50% of the super built-up area consisting of office buildings and shopping malls alongwith 50% of all other benefits such as car parking, terrace, etc. to be developed in the schedule property, to each of the parties. The Bangalore party PEPL is further entitled for the right to utilize the FSI of the entire property whenever possible and permitted by concerned authorities. The exact wording of this consideration in the agreement read that an extent measuring approximately 6.29 acres identified in the red colour p....
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....elopment agreement was agreed into. This agreement was necessitated in terms of the covenants included in the joint development agreement. It has been agreed by the parties to the joint development agreement that the assessee company VPPL shall allot such number of shares to PEPL, whereby the proprietary interest of PEPL is protected by acquiring equity holding in the capital of the assessee company. As per the development agreement dated 26-5-2006, shares of the face value of Rs. 10/- each are to be allotted to PEPL at a premium and the shares are to be allotted upon completion of the investment of PEPL to the extent of Rs. 115 crores. As a result of the allotment of shares to PEPL, that company PEPL shall become 50% equity shareholder in the assessee company VPPL. In order to maintain the above ratio of 50% of the equity shareholding it was also agreed upon in the joint development agreement that the assessee company shall not increase its issued and paid-up capital by issuing additional shares to the existing shareholders. It is for the purpose of executing the above conditions stipulated in the development agreement that the shareholders of the assessee company have entered int....
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.... built up area (9,80,000 sft. divided by 2) with 50% right in the other incidental facilities. The other company, PEPL is to contribute 115 crores towards the project, upon which PEPL shall be allotted 50% equity shareholding of the assessee company VPPL and thereby both the parties to the agreement shall become equal stakeholders in the assessee company and so also M/s. PEPL shall be in return entitled for one half right in the built up area and in the remaining facilities with a further right to utilize the FSI of the entire schedule property wherever possible and permitted by the concerned authorities. 18.8 As the rearrangement of equity shareholding is called for as a result of the development agreement executed between VPPL and PEPL, the dominant shareholders of VPPL have entered into another shareholders agreement with PEPL to undertake the responsibility of allotting 50% of equity shares to PEPL. 19. It is in the above framework, that the whole scheme of developing the property has been arranged as a JV between VPPL and PEPL. 20. In the above factual scenario, the Assessing Officer examined the nature of the development agreement concluded by the assessee with PEPL.....
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....ndexation. The property transferred by the assessee was the land of 6.29 acres measuring to 2,74,472 sft. The Assessing Officer adopted a fair market value of Rs. 132.70 per sft. as on 1-4-1981. This comes to Rs. 3,64,22,434/-. This cost was indexed to Rs. 18,90,32,432/-. This cost of Rs. 18,90,32,432/- was deducted from the computed sale consideration of Rs. 25,89,44,000/-. The differential amount has been treated as the long term capital gains at Rs. 231,99,11,568/-. 24. As per the return of income filed by the assessee it has disclosed a business income of Rs. 2,28,52,471/-, in the nature of share of revenue income. The Assessing Officer has treated this business income as income from other sources. And alongwith other additions and disallowances, the Assessing Officer completed the assessment on a taxable income of Rs. 234,81,72,680/-. 25. The assessment was taken in appeal. The Commissioner of Income-tax (Appeals) confirmed that the joint venture agreement entered into by the assessee company was in the nature of transfer of a capital asset and the assessee was liable for capital gains taxation. He accordingly confirmed the addition of Rs. 231,99,11,568/- under the head ....
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.... Commissioner of Income-tax (Appeals) also has not discussed the facts relating to the issue. He, therefore, held that there was violation of the principles of natural justice and the matter was decided at the back of the assessee company. Accordingly, he set aside the issue to the file of the assessing authority with a direction to reconsider the matter afresh after giving the assessee an effective opportunity of being heard on the matter. 30. On the matter of depreciation on roads, the learned Accountant Member agreed with the view taken by the learned Judicial member. 31. In paragraph 11 of his order the learned Accountant Member has further held that if at all a case of long term capital gains is arising out of the present appeal, the working of the quantum made out by the assessing authority is not correct, as the method of computation adopted by the assessing authority is erroneous. 32. As the learned Members of the Bench have differed in their views on two issues as discussed above, questions were framed for reference to Third Member and as such the matter is placed before me. 33. The first question to be considered is whether in the facts and circumstances of th....
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.... the assessee company has executed a power of attorney in favour of PEPL to initiate the development of the project by applying for the necessary permissions and approvals of the Government and local authorities and to do all necessary things to bring the project into reality. 38. This joint venture project as far as the impugned previous year is concerned, was only in a nascent stage. As per the agreement, PEPL is to bring Rs. 115 crores into the account of the JV, for which the assessee company will allot commensurate number of shares in its equity share capital. That is, PEPL will become an equal shareholder in the equity capital of the assessee company VPPL in course of time once PEPL performed its obligations. The allotment of shares out of the capital of VPPL is governed by the agreement entered into between the shareholders of VPPL and PEPL. All the above features make out a case of a JV for developing a modern commercial complex by contemplating reconstruction in the control and capital structure of the assessee company; by adjusting rights in the immovable properties by providing the vacant land and in return getting a share in the undivided right over the land as well ....
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....in the impugned previous year. All those things are to happen in the future. The joint venture has not started the construction in the impugned previous year. The commercial complex was yet a proposed project. As already stated, a transfer is contemplated only in the case of an existing property. In the present case the property is only in the nature of mutual rights. The project and development are yet to happen. Strictly speaking, the projects and plans may happen or may not happen. That is why the parties call the arrangement as agreements. The assessee company has not transferred any property as such, either in favour of PEPL or in favour of the JV. In these circumstances there cannot be a case that the assessee had sold or extinguished or relinquished any of its assets/rights. The rights of the assessee company and PEPL are with reference to the property to be built in future. Therefore, there cannot be a case of extinguishment of any right in the property held by the assessee. 41. The assessing authority has made a fundamental error in knocking down the wholesome business arrangement into independent segments and to treat certain segments as instances of transfer. The Asse....
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.... handing over possession of the property to anybody. The assessee company itself is contemplating a joint venture for the development of the commercial complex. The joint venture is not a new legal entity. It is an extension of the assessee company itself. In those circumstances, there cannot be a case of transfer at all. The power of attorney was executed in favour of PEPL only to enable its contractual obligations in planning, implementing and executing the project as construed in the joint development agreement. It is for PEPL, being experts in the field, to conceive the blue print of the project, get the approval of the concerned authorities, to undertake the construction activities and do each and everything to transform the concept into reality. The power of attorney does not convey any sort of right in favour of PEPL. 45. It is necessary to consider in this context that the only way for PEPL to acquire its rights in the properties of the joint venture project is to subscribe to the shares of VPPL in future, as stated in the shareholders agreement. If at all there could be a case of Transfer of an asset to PEPL, the said Transfer will not happen until PEPL has subscribed s....
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....is existing, there is no question of estimating the probable cost of construction and discounting to NPV, for the statutory purpose of computing capital gains. No commercial complex is available at the particular point of time. That basic vacuum is apparent. It is something to come within a period of three to four years in future. The exercise suggested by the learned Accountant Member is like a project forecast, relevant for cost and finance management. It cannot be applied to Income-tax law. No capital gains can be worked out on such forecast. 51. If at all there is a case of computing long-term capital gains in the above scheme contemplated by the assessee, It is to be looked into as to from whom the right is being transferred, whether it is from the assessee company to PEPL or from the shareholders of the assessee company to PEPL. All these matters have to be determined on the basis of the development of the project year after year. The final line may be drawn on induction of the agreed funds and consequential allotment of shares to PEPL and on completion of the project. Anyhow the issue will have to be considered afresh, as and when it arises. 52. In short, I have to sta....