TaxTMI 
TaxTMI 
2013 (11) TMI 616
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....audit report under section 44AB of the Act. The case having been taken up for scrutiny the AO called upon the assessee to furnish the details of the claim made in the return of income. It may be noticed that the assessee showed income from capital gains. The AO noticed that the assessee company had taken two properties at New Bombay and Dombivali out of which the New Bombay property was sold for a total consideration of Rs.2,95,55,000/- and the same was offered for taxation under the head "Long Term Capital Gains". This property was in turn purchased from CIDCO for doing business. Assessee company entered into lease agreement to utilise the plot for construction of its new administrative office. As can be seen from page 43 of the paper book, vide letter dated 18.12.1993, CIDCO has given on lease a plot of land at CBD Belapur, New Bombay under Corporate Shifting Scheme in New Bombay. The lease period was 60 years and the land was to be used for construction of corporate office and if the entire area is not needed for the corporate office the assessee company is entitled to sell part of the built-up area to outsiders, subject to certain conditions. As per the terms and conditions the....
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....d accordingly applied to CIDCO for grant of permission to assign leasehold rights in the plot to the buyer. CIDCO having granted such permission, tripartite agreement dated 24th March, 2005 was entered into and thus the assessee received the impugned consideration. It was therefore contended that the main intention, at the time of entering into a lease with CIDCO in 1993 was to shift its corporate office but due to the change in the scenario it could not carry on construction activity and had to transfer the lease hold rights to a third party. It is thus seen that the assessee did not have even the remotest idea of purchase and sale of plots at the time of entering into agreement with CIDCO in 1993 and hence it cannot be treated as a transaction with an intention to sell the same at a later point of time, in the form of adventure in the nature of trade. Reliance was placed upon several case law in support of its contention that the main activity of the assessee being manufacture of cotton, yarn, etc. transfer of property, which is not related to the existing line of business, cannot be stated to be an adventure in the nature of trade and the intention has to be seen at the time of ....
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....dernization and expansion of business. Page 5 of the paper book shows that that main activity of the assessee company was only textile activity and it had no other segment of business operations. The learned counsel also adverted our attention to page 7 of the paper book to submit that the company's main intention was to develop new fabrics with variety of fibres and all other activities related thereto but it never had any future plan to develop any piece of land or to engage itself in purchase and sale of properties. He also referred to page 14 of the paper book to highlight that the profitability of the company was only dependent upon better operational efficiency of the units consisting of production of textile fabrics and there was no idea of entering into any new line of activity. Page 34 shows that the company was interested in developing its mill property and construction of new administrative office at Dadar. The learned counsel also referred to the letter dated 18.12.1993 addressed by CIDCO to assessee company to highlight that the plot at CBD Belapur was allotted under the new Corporate Shifting Scheme with a specific purpose, i.e. for construction of corporate office an....
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....for the assessee also submitted that the decisions relied upon by the AO as well as the CIT(A) are distinguishable on facts. 9. On the other hand, the learned D.R. strongly relied upon the orders passed by the tax authorities. The case of the learned D.R. is that from the moment the intention of the assessee changed, i.e. from the right to construct the administrative office to sell the rights in the said plot of land to a third party, the intention changes to that of taking the plot on lease for making profit, which amounts to adventure in the nature of trade. 10. We have carefully considered the rival submissions and perused the record. We have also carefully gone through the case law relied upon by the learned counsel for the assessee as well as the case law relied upon by the AO. At the time of entering into lease agreement with CIDCO in 1993 it cannot be said that there was an intention to carry on business of development of plot. In fact, the terms of the lease agreement clearly suggest that the assessee was to utilise the plot for construction of its new administrative office which, in turn, was meant to be utilised in the main business of the assessee, i.e. manufactur....
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....of realisation of investments concerning of purchase and resale, though profitable, are clearly outside the domain of adventure in the nature of trade. At the same time in deciding the nature of such transactions several factors are to be taken into consideration. The dominant factors are: (a) was the purchaser a trader or whether the purchase of the commodity (in the instant case entering into lease agreement) and its resale (transferring the lease hold rights to a third party through a tripartite agreement) allied to his usual trade or business or incidental to it; (b) nature of the commodity and quantity purchased and sold and whether such commodity is subject matter of trade of the assessee; (c) whether the purchaser (in the instant case the assessee in its capacity as lessee) by any act subsequent to the purchase improved the quality of the commodity purchased and thereby made it more readily resalable and whether they are similar to the operations usually associated with trade; and (d) whether such transactions are repeated. The court further observed that there may be other circumstances that need to be taken into consideration depending on the facts of each case but essenti....
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....usiness purpose, by way of a tripartite agreement the property was assigned to M/s. Shreya Enterprises, wherein it was made clear that though the assessee was in occupation and possession of the land and was entitled to carry out construction of building as per the plan it could not carry out the same and hence by mutual negotiations the assessee (seller) agreed to transfer and assign the rights in favour of M/s. Shreya Enterprises (Assignee). For the first time the rights have been assigned to a third party by the said agreement of lease. In other words, it was not a sale or transfer of property by the assessee for a profit but since the assessee could not make use of the rights assigned to it, through CIDCO it was transferred to a third party to whom CIDCO assigned the lease hold rights. It is, therefore, a case where the assessee could not make best use of the lease hold rights. Hence, through the mode of tripartite agreement the same was assigned to M/s. Shreya Enterprises for a consideration which cannot be, in the circumstances of the case, considered as an adventure in the nature of trade. In our considered opinion the amount received pursuant to the tripartite agreement is ....
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....tated that the assessee company was interested in carrying on activity of business in purchase and sale of property. It cannot even be stated as an isolated transaction of purchase and sale of property with an intention to make profit out of such transaction. As rightly observed by the Apex Court in the case of G. Venkataswami Naidu & Co. (supra) merely because the assessee makes some profit in a particular transaction it cannot be treated as an adventure in the nature of trade so long as the initial intention of a person - investing money - was to hold the property and utilise it for a different purpose. In the peculiar circumstances of the case it can only be said that it is only a case of capital gain and not profit derived from an adventure in the nature of trade. We therefore hold that the assessee is justified in declaring the amount received - from assigning its rights over the plot of land by a tripartite agreement - is assessable to capital gains tax. We direct the AO to compute the income accordingly. 15. Vide ground No. 2 and 3 the contention of the assessee was that the AO was not justified in disallowing the expenditure under section 14A read with Rule 8D of the IT ....