TaxTMI 
TaxTMI 
2014 (3) TMI 288
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..... Asha Financial & Marketing Services), returning income for the relevant years from the said business (also refer PB pgs. 50 - 101, containing the said returns and the audited financial statements). As the dispute concerns primarily the income from the development of land at Vakola, a suburb of Mumbai, the events in relation thereto, though undisputed, bear statement. The property was purchased by one, Shri Hiralal C. Khatiwala, the assessee's father-in-law, in January, 1954. Vide an indenture dated 01.09.1970 (registered on 10.06.1971), it was converted into a property of his Hindu Undivided Family (HUF), consisting of himself as the Karta and his three sons, namely, Jyotendra, Prakash (the assessee's spouse) and Bharat Khatiwala. Shri Hiralal C. Khatiwala passed away on 09.01.1995. Subsequently, his HUF was dissolved on 11.02.2000 by mutual consent, whereby a defined share was allocated to eight family members, that falling to the share of Prakash and Bharat H. Khatiwala being at 17.10% each. The assessee purchased the share of her husband on 18.02.2000 for Rs.17.10 lacs vide a registered conveyance deed. Vide a release deed dated 21.03.2000, duly registered, all the oth....
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.... aspects of the work. Accordingly, conciliation was arrived at through an arbitrator, and a supplementary deed executed on 05.04.2004 (PB pgs.39-45). The principal modifications that came about were as under: i. The assessee was to surrender her right to receive nine flats (area: 6588 sq. ft.) for an agreed consideration of Rs.220.50 lacs, of which Rs.191.64 lacs stood received in advance, and the balance Rs.28.86 lacs was to be paid by 31.12.2004; and ii. Shri Bharat H. Khatiwala was to surrender his right to receive two flats (area: 1771 sq. ft.) for a consideration of Rs.70 lacs, of which Rs.47.50 lacs stood already received, and the balance Rs.22.50 lacs was to be received by 31.03.2005. The issues 3. The issue/s arising concern the income, including its nature and the year/s of its taxability, arising to the assessee under the foregoing arrangements. While no income was initially returned qua the Vakola property, i.e., vide her return for A.Y. 2005-06 on 31.10.2005 at Rs.292.14 lacs, the same was returned per revised return filed on 08.03.2006 at Rs.507.86 lacs. For A.Y. 2006-07, again, the assessee has returned the business income at Rs.227.80 lacs, i.e., apart th....
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....ts, it is found that the ratio laid down in the case laws quoted by the AR is not applicable to the facts of the present case. 11.4 The appellant's argument that the land's ownership still stands recorded in the names of the co-owner is also without any merit. As per s.2(47)(v) of the Act, 'transfer' includes any transaction allowing possession of property in part performance of a contract as mentioned in s. 53A of the Transfer of Property Act. Requisite authority in this case is obtained from the judgment of Bombay High Court in the case of Chaturbhuj Kapadia as reported in 260 ITR 491 (Bom). Hence, for income tax purposes, there is deemed transfer u/s.2(47); although in legal records; the appellant continues to be the owner. Therefore, it is held that pursuant to the transfer of land to M/s. Romell Properties, the built-up area obtained is in the nature of stock in trade and the land appurtenant also gets converted into stock in trade. 11.5 In this regard, upon my direction, the AR has filed computation of income for A.Ys. 2005-06 and 2006-07 on the twin bases that the entire transaction with Romell is to be taxed in A.Y. 2005-06 and that the 'remaini....
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....nce inasmuch as such an arrangement could not possibly be arrived at overnight, but only as a result of deliberations, including assessment of the land potential as well as of the applicable FSI, is also apparent from the fact that the advance payments commenced three months prior thereto, so that negotiations for the understanding had, in fact, commenced from an even earlier date. The same, accordingly, crystallized into an Agreement in August, 2001. It is to be further noted that apart from a nominal sum in cash, the entire consideration for the transfer of land is agreed to be passed in kind, i.e., by way of construction, in the ratio in which parity is struck between the two, i.e., the value of land and the value of construction thereon, being 55% of the former against 45% of the latter (which though is in terms of square feet, a different (lower) measure and, besides, in multiple due to vertical construction as would be apparent from the fact that 2961 sq. mtrs. yields over 55000 sq. ft. of constructed area). Further, the two owners, even assuming (though no contention or claim in its respect stands made) that a part of the said construction is to be utilized by them for their....
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.... deed dated 05.04.2004. The same, without doubt, and even as observed by the ld. CIT(A), would have a material impact on the income arising to the assessee, including its nature and the year/s of taxability. For one, it clearly shows that despite commencement of work on the project, events were in a state of flux, and crystallized only upon arriving at conciliation through an Arbitrator. This is of crucial significance as income by way of capital gains would arise, irrespective of its receipt, i.e., on the accrual of the right to receive, so that a delay in the execution of the project and, consequently, possession of the property in consideration would not - in the normal course - defer the accrual of the capital gain and, therefore, its assessability. However, where the receipt itself is in jeopardy, and the execution embroiled in differences, the uncertainty would exclude accrual, despite the fact that it (the uncertainty) may have arisen subsequent to the agreement in August, 2011, so that there was no uncertainty on the date the agreement was entered into (as in that case it would not have been entered into); the relevant date for the purpose being the year-end. Further, again....
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....is of the facts as found. Merely denying the same would not suffice when the facts speak otherwise. Further, though the value of land and the constructed space may be arrived at separately, though based only on the consideration arising from RPPL, or the fair market value of land or construction as referable thereto, once a residential flat is delivered to the assessee, it becomes a one, composite asset, different and apart from its constituents, i.e., the land and the structure thereon. Why, the same would only be purchased and sold in the market as such, i.e., a residential flat, so that we are unable to appreciate the assessee's ground no. 4 qua the change in the nature of the capital asset, which arises as the natural consequence of the finding of the land, to the extent finally retained, as forming part of the stock-in-trade of the assessee's business of development and, in any case, an adventure in the nature of trade (of development of property). In fact, it would still be so even where the land and the structure are treated as capital assets in the assessee's hands, as what results by way of output from the execution of the development agreement is clearly resid....
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....lture or mining, and which would only be separate economic activities by themselves. 5.1 It would also be relevant and pertinent to discuss the manner in which the said alteration (per the conciliation deed) is to be arrived at. This, in fact, represents the second (ii) issue arising for our consideration. This is as, as stated earlier, the modification in the terms of the Agreement per the conciliation deed has a material impact on the quantum of the capital gains, i.e., apart from the year/s of its taxability. Not only the assessee revised her return for A.Y. 2005-06 subsequent to the survey u/s.133A on 02.02.2006 at her business premises, substantially increasing her income, further computations of income were also filed for both the years at the instance of the ld. CIT(A) in view of his endorsing the conversion of a part of the capital asset into stock-in- trade. We have though found this as valid, yet confirmed it to be so only in respect of the land which continues to be in the ownership of the assessee, envisaged at 45% of her share per agreement dated 28.08.2001, and scaled down, as we shall presently see, to 21.77% subsequently per the deed dated 05.04.2004. This revisi....
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....ly as representing our understanding), we remit this aspect back to the file of the first appellate authority, so that the due process of adjudication is observed and no prejudice caused to either side; there being no argument on this aspect of the matter before us. We shall, nevertheless, clearly state the basis on which our calculation is premised to enable its appreciation. 5.2 We shall, for the sake of convenience, assume transfer of 55% of land against 45% of the constructed space, i.e., even though the assessee's share is 50% therein. This is as it would matter little if the said ratios are taken, i.e., instead of 27.5% and 22.5% (of the total land area) respectively, as we are dealing in terms of ratios. In any case, and further, all that would be required, if the calculations are based on the total land area, is to divide it by two (2) or multiply by one-half (½). The assessee relinquished 6588 sq. ft. out of her allocable area of 12760.75 sq. ft. (or 51.63%, i.e., working up to two decimal places), retaining the balance 48.37%. In so doing, she also transfers 51.63% of her 45% land, i.e., another 23.23%. The land area in percentage terms transferred by the as....
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.... in the parking space (to be retained by the parties in the ratio of 45% and 55%), the same involving apart from construction also land value, would have also to be suitably factored. It is though for the assessee to allocate the value of or ascribed to the constructed space between the construction of the residential units and the parking space. This would though become relevant only where the parking sold is not commensurate or in proportion to the area sold. 6.1 Another argument raised by the ld. AR during hearing was that what the assessee has received as consideration is the right to receive the constructed space, so that it cannot be equated with the actual available construction. True, but what needs to be appreciated is that this is precisely what the assessee has foregone, i.e., the right to receive a specified constructed area, against a defined consideration (Rs. 220.50 lacs). As such, there is parity between what is being sold and what is being valued. We are conscious that the area being retained by the owners, even going by the original agreement, may not be exactly 45% of the total area (2961 sq. mtrs.). This is as a part thereof (101 sq. mtrs.) is subject to deve....
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....eritance and sold the same in parcels because of huge area. It was under these circumstances that it was held that the same did not constitute business. Again, in CIT vs. N.S.S. Investments (P.) Ltd. [2005] 277 ITR 149 (Mad), the question was with regard to the investment in shares held for the purpose of earning dividend income as being capital assets and not stock-in-trade, which portfolio separately earmarked by the assessee. In the instant case, on the other hand, we have found the assessee, herself a builder and developer, to have acquired the land under reference through a series of preconceived and premeditated steps and, further, the transfer as not a case of an outright sale but per a development agreement, over which the assessee retains control. It is not, as clarified, a case of development of land as a building site, with a view to realize a better price. We have, so however, confined the finding of the same being in pursuance to trade only in respect of land finally retained by the assessee, so that there has been a conversion in its respect as contemplated u/s.45(2) (refer paras 4.2 to 4.4 supra). The decision in MCorp Global (P.) Ltd. vs. CIT [2009] 309 ITR 434 (....