TaxTMI 
TaxTMI 
2013 (10) TMI 544
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....he assessee company actively manipulated the scheme of things in garb of legal provisions to avoid the incidence of tax liability (McDowell & Co. Ltd. Vs CTO (154 ITR 148). 2. The assessee is engaged in the business of construction and started construction of 15 storied building consisting of 85 dwellings units in the year 2002-03. The assessee has finished major construction activity in early 2005 and has received the "Occupation Certificate" from BMC authorities upto the 13th floor on 31st May, 2005. As per the details, the first flat was sold in February, 2004, thereafter year wise sales are as follows: Financial year No. of flats sold 2003-04 1 2004-05 43 2005-06 23 Total 67 3. It is the claim of the assessee that it is a mutual benefit company therefore it has not made any profit from the construction activity as it has only collected the construction cost from the flat owner. The company has entered into a tripartite agreement with the flat owners. The parties to the sale agreement being the flat purchaser, the assessee company and a partnership firm Viz., M/s. Calico Associates who held 12,100 shares of the assessee company. 4....
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....ved by the assessee company. 4.2. After analyzing the transfer of shares vis-à-vis flat, the AO observed that the allotment of shares was an incidental event which was forced by the assessee company. The AO was of the firm belief that the assessee company has tried to avoid paying taxes by putting forward arguments of mutuality, claim of no material loss to the assets of the company. The assessee company has further tried to evade tax by splitting the cost of the flat between itself and its sister concern M/s. Calico Associates. Hence the claim of the assessee company that it is in receipt of only construction cost cannot be accepted and the sale value for the flat has to be considered. 4.3. The AO noted that the assessee has sold total 67 flats upto 31.3.2006 and computed the total sale value of the 67 flats at Rs. 13,11,89,500/-. However, adopting the market value of the Stamp Duty Office, the total sale value comes to Rs. 20,60,19,625/-. After deducting the cost of construction Rs. 6,28,20,000/- and cost of land Rs. 3,59,97,590/-, the AO computed the net taxable profit for the year at Rs. 10,72,02,035/-. 5. Being aggrieved by this finding of the AO, the assessee ....
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....ture of the transactions finds the judicial support by virtue of s. 269UA 27(iiib) and also by virtue of the decisions as referred to above. I therefore find that the said objections of the Assessing Officer are untenable in law. In light of the above discussion and contentions, I hold that the income from sale of shares and the occupancy rights cannot be assessed in the hands of the appellant company. This ground of appeal is therefore allowed." 6. Aggrieved by this finding of the Ld. CIT(A), Revenue is before us. 7. The Ld. Departmental Representative strongly submitted that the assessee was the owner of the property which has been transferred and therefore liable to tax. The Ld. DR strongly relied upon the findings of the AO. 8. The Ld. Counsel for the assessee reiterated what has been submitted before the lower authorities. 9. We have considered the rival submissions and perused the orders of the lower authorities and the material evidence brought on record in the form of Paper Book. Let us first see how the assessee company came into possession of the impugned land. "Vide an agreement dated 14.04.1950, the trustees of N. M. Petit Cha....
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....as transferred to M/s. Creative enterprises vide agreement dated 12.07.2004. Since the asset belonging to the appellant, i.e. Land, was transferred, the said income from transfer of plot was offered to tax in A.Y. 2005-06 by the appellant and duly accepted by the department. The appellant company was left with the possession of the plot of land admeasuring 4.296.87 sq. mts. 9.1. The assessee started construction on this plot of land admeasuring 4296.87 Sq. mtrs. The occupancy rights in respect of premises to be constructed were attached to the shares. Out of 12100 shares, 9980 shares were attached with the property. The shareholders sold such shares are included the occupancy rights and profits thereon was duly offered to tax by them in the return of income for A.Y. 2006-07 which has been accepted by the department. Occupancy rights being attached to the shares can also be found from the following clauses of Articles of Association of the company. a) Upon any person acquitting or holding the required number of shares such share holder shall have a right of use and occupation of undivided interest on the property of the Company (hereinafter referred as the Premise....
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....ch as in that case the company had entered into the lease agreement with the members for the lease rent of Rs. 1/-. The members were thereafter collecting lease rent of Rs. 7/- from Ahmednagar Sahakar Co. Op. Bank Ltd, and were paying Rs. 1/- to the assessee. On these facts, the Tribunal held that only the legal owner can be assessed to rental income. The facts in the present case are different and therefore the ratio of the decision of the Tribunal cannot be applied. 9.3. Considering the entire facts into totality along with the Articles of Association of the Company, in our considerate view, there is no doubt that occupancy rights were attached to the shares of the company, the share holders have transferred their shares, the assessee has only received the cost of construction whereas the entire gain from such transfer arose to the share holder who have rightly declared the income of their respective hands and has been rightly taxed by the department in the hands of the share holders. The dual ownership of the property i.e. legally owned by the company and defacto by the members is an accepted position in the Income tax law. For this proposition we rely upon the decision of th....