TaxTMI 
TaxTMI 
2011 (1) TMI 1461
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....e restrictive interest in the property, must be reversed. 2. The CIT[A] erred in law and on facts in confirming the action of the assessing officer in adding u/s.41(1) of the Act a sum of Rs. 1,40,000/- on account security deposits received by the appellant in earlier year and which were never claimed as expenditure any time while computing the assessable income. Thus the addition must be deleted. 3. Ground No.1: Brief facts are that assessee is owner of a piece of land measuring about 7326.14 sq.mts. on which a house was also built. The house has been let out to one Shri Vinod P. Patel and Shri Rajesh P. Patel, his brother, and the tenancy was duly recorded in the revenue records. This property was sold through tripartite agreement to M/s Abhilasha Built-Art. The consideration payable to the assessee by M/s.Abhilasha Built-Art for the property was stated to be Rs. 90 lakhs and the consideration paid to Shri Vinod P. Patel and Shri Rajesh P. Patel, who were the confirming party in this tripartite agreement through which they had agreed to release, relinquish and surrender their rights, title, possession and interest in the property in favour of the developer wa....
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....n the case of Meghraj Baid vs. ACIT [114 TTJ 841]. 5. The ld. CIT(A) after considering these submissions found that names of the confirming parties had been incorporated in the tripartite agreement and it is recorded that with the confirmation of the parties who were in exclusive uninterrupted physical possession would also hand over their rights. He also noted that fact of tenancy has been recorded in the revenue records. The ld. CIT(A) agreed that what assessee has sold is his encumbered property and, therefore, full value of consideration for unencumbered property could not be adopted because it was a well known fact that tenanted properties fetch subsequently lower prices. He further observed at the same time sec. 50C was mandatory during the relevant period and, therefore, its application could not be totally ignored. He further observed that the entire consideration could not be assessed in the hands of the assessee because there were two sellers of the same property as the assessee has sold the title, whereas the tenants has sold the possession and their rights and, accordingly, he was of the view that proportionate amounts should be assessed which have been worked out vi....
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....and assessee was concerned with his own consideration. He argued that assessee has sold only title of property for development rights and, therefore, strictly speaking the provisions of sec.50C were not applicable. In any case, the AO was duty bound to refer the matter to the DVO for valuation of the mere title of the property without physical possession and in this regard he submitted that though sec. 50C has used the expression "may" but the same has been interpreted as "shall" by various Benches of the Tribunal and in this regard he mainly relied on the decision of the Jodhpur Bench of the Tribunal in the case of Meghraj Baid vs. ACIT [supra]. 7. On the other hand, Ld.DR submitted that for the purpose of sec. 50C it is only the assessee who has to be treated as the owner and the tenant cannot be called as the owner. He argued that the purpose of sec.50C was to check the cash element involved in the dealing of the property. Since the tenants have been allotted alternative flats by the builder in addition to Rs. 30 lakhs, the rest of consideration must have gone to the assessee only. He also submitted that the decision in the case of Chatrabhuj Dwarkadas Kapadia vs. CIT [supra]....
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....other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifica-tions, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. A plain reading of the above provisions show that wherever a transfer of capital asset, being land and building or both is involved, these provisions would be attracted. In the case before us, assessee has definitely transferred the title of the land and, therefore, section 50C was applicable. It cannot be said that since land was given for development rights, therefore, provisions of sec. 50C are not applicable. In the case before us assessee has himself admitted to the transfer of land, therefore, sec. 50C could be applicable. However, at the same time what asse....
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....wer value and the reason given was that assessee has sold only the title and that the possession was not with the assessee, we are of the view that the AO should have referred the matter to the DVO for valuation of the portion of the assessee's rights i.e. valuation of the title of the property without the possession. Therefore, following the above decision, we set aside the order of the ld. CIT[A] and remit the matter back to the file of the AO with a direction to first refer the matter to the DVO and thereafter assess the capital gains. 9. Ground No.2: After hearing both the parties, we find that during the assessment proceedings AO observed that in the balance-sheet a sum of Rs. 1.4 lakhs was being shown as security deposits. He then referred to the statement recorded during survey proceedings which is as under: "As per the return of income filed for AY 2005-06, the deposits from the following quarry lessees are shown as outstanding. S.No. Name of the Party Amount in Rs. 1 A Mahendra & Co. 35,000 2 Bharat Stone & Metal Supply Co. 10,000 3 Gulati Construction Corporation 10,000 4 Patel Quarries 5,000 5 Chandivali Quar....
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....was transferred to the profit & loss account in this year. At the same time, Ld. counsel of the assessee could not file copy of accounts for A.Y 2006-07, therefore, we set aside the order of the Ld. CIT[A] and remit the matter back to the file of the AO with a direction to verify if this amount has already been offered for tax in A.Y 2006-07, then it should be assessed in A.Y 2006-07, otherwise AO may decide the issue in accordance with the law. 14. In the result, assessee's appeal is allowed for statistical purposes. 15. I.T.A.No.5775/M/08 [Revenue's appeal]: In this appeal, Revenue has raised the following grounds: (A) Capital gain arising out of transfer of immovable property to M/s Abhilasha Built Art: Area: 7326.14 sq.mts. "On the facts and in the circumstances of the case the Ld. CIT[A] failed to appreciate that the AO had correctly worked out the deduction/consideration to be allowed towards "removal of impediment/solving of litigation" regarding transfer of immovable property." (B) Capital gain arising out of transfer of immovable property to M/s Unique Estate Development Co. Ltd: Area: 66984.84 sq.mts. 1) On the facts and in the circumst....
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.... this ground is concerned, this issue has been adjudicated by us while adjudication assessee's ground No.1 of assessee's appeal in the above noted para-8 whereby the matter has been remanded to the file of the AO for making reference to the DVO and, therefore, this ground has become infructuous and the same is dismissed accordingly. 17. As far as other grounds raised under caption (B) are concerned, they revolve around two disputes, namely, [i] dispute regarding transfer of property and [ii] application of section 50C. 18. Brief facts regarding transfer of property are as under: The assessee has through Memorandum of Understanding [for short MOU] agreed to transfer a land in village Chandivili measuring approximately 66984 sq.mts. to M/s. Unique Estates Development Co. Ltd. [for short Unique]. Vide MOU dated 24-4-1992 the land was agreed to be sold through Development Agreement for sale consideration @ Rs. 185 per sq.ft. of available FSI for a total consideration of Rs. 13.34 crores. There were some encroachments and other disputes on the land and the buyer had agreed to resolve the same at its own cost but for some of the issues for which the cost was to be borne by the asse....
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....e letter of Unique dated 8-10-2007 addressed to the assessee it emerged that Deed of Confirmation and Modifications dated 4-2-2000 was registered with the Sub Registrar Mumbai on 10-2-2000. This shows that there was a second registration also. 5) Though two power of attorneys dated 4-2-2000 were signed and the same were stated to be irrevocable, but same were subject to some other conditions as per Deed of Confirmation and Modifications dated 4-2-2000 which have been extracted at pages 15 & 16 of the assessment order and reads as under: "M/ UEDCL shall atleast 7 days before the commencement of construction of each building inform the owners about the same. Similarly within 7 days of obtaining Occupation Certificate in respect of any building the Developers shall inform the owners of the same and will given to the owners True Copy of such Occupation Certificate [point C of page 5] In respect of any building or buildings construction where of is commenced by Developers within a period of two years from the date hereof, M/ UEDCL shall before commencement of construction of each building pay to the Owners 20% of the consideration [i.e. Rs. 37/- per sq.ft.] in respe....
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....he developer before May, 2000. Finally Deed of Declarationcum- Indemnity and Deed of Confirmation-cum-Modifications were also executed before 4-2-2000. The developer made application for the commencement certificate to the Bombay Municipal Corporation which was accordingly issued on 28-4-2000. In respect of the observation of the AO that assessee has itself offered the capital gains for taxation, it was contended that mistaken view adopted by the assessee in offering the capital gains in the return of income was not a determinative factor because sec.45 provides that an amount should be charged under the head capital gains only in the year when transfer of such capital assets take place. It was argued that there cannot be any estoppel against the law and admission of the assessee cannot convert non taxable event into taxable. In this regard reliance was placed on various case laws, especially on the decision of the Bombay Bench of the Tribunal in the case of Srikant G. Shah vs. ITO 300 (AT) 324 (Mum) and in the case of M/s Vascon Engineers Pvt. Ltd. vs. CIT in I.T.A.No.5829/Mum/2002. 21. In respect of the observations that Deed dated 24-4-1992 is only MOU, it was submitted that ....
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....ng the submissions, decided the issue vide paras 3.15 to 3.21 which are as under: "3.15 The undersigned has carefully perused through the rival contentions. On a careful consideration of the facts and legal position, as established by the above mentioned case laws, the undersigned is of the considered view that the appellant had made a valid point that the development agreement between it and Unique was entered into by way of a MOU dated 24-04-1992 and has been actually acted upon subsequently, though there have been diverse obstacles and disputes during the intervening 13 years. No objection certificate in the Form 37-I of the IT Act was obtained, urban land ceiling authorities approached, encroachment dispute with Mr. Maqbul Dadamia settled, development agreement got registered with payment of the stamp duty amounting to Rs. 7,40,000/-, several power of attorneys executed, declaration cum indemnity & deed of confirmation cum modification etc were executed. It is on record and an undisputed fact that the first application to BMC for development of the land was made by Unique on 18-04-2000 and the first commencement certificate was issued by BMC on 28-04-2000. the develope....
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....particular date, the actual date of taking physical possession need not be probed into. It is enough if the transferee has by virtue of that transaction a right to enter upon and exercise the acts of possession effectively." 3.17 Clinching evidence is found available in favour of the appellant by way of the letter dated 26-12-2007 sent directly by Unique to their assessing officer which was placed on the paper book in which it was stated by M/s. Unique that "The above said project is offered by Unique Estate in A.Y. 2003-04 for taxation". When the developer himself declared this project in A.Y. 03-04 on its completion, then how can the assessee be taxed for the same in the A.Y. 05-06? Factum of the developer offering this project in the A.Y. 2003-04 for taxation itself is the sufficient proof for the claim that the possession was handed over to the developer much earlier, otherwise how can a project be completed without possession. The AO has not brought on record any evidence of any nature to controvert the claim of the appellant on MOU, application to ULC, commencement certificate issued by BMC, date of payments by Unique and claims made by Unique in letter dated 26-12-2....
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....ion, he could not backtrack and taken benefit of his own mistake. He then referred to the copy of statement of Shri Jitendra A. Sheth recorded during the survey conducted on 12- 12-2007. In particular he invited our attention to page 135 of the paper book, wherein through question No.21 assessee was confronted with the difference in area mentioned in various agreements and in reply the assessee also clearly mentioned different areas. This position became further clear from the letter written by M/s. Kapadia Consultants on 5-2-2004 to the assessee, copy of which is available at pages 150 to 151 of the paper book wherein different areas have been mentioned. This only shows that it was not clear as to how much area is being sold through MOU and the deal was finalised only much later. He further submitted that the decision relied on by the assessee in the case of Vascon Enggs. Pvt. Ltd. vs. ACIT [supra], copy of which is available at page 315 of the paper book, is totally distinguishable on facts. 24. On the other hand, Ld. counsel of the assessee mainly reiterated the submissions made before the CIT[A] and also strongly supported the order of the First Appellate Authority. He furth....
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....he ld. CIT[A] at para 3.17. This clearly shows that there is no question of transfer of land in the year under consideration when the project itself was completed by the developer Unique and even offered for taxation in A.Y 2003-04. 26. He pointed out that the Ld. DR has referred to the difference in areas by reference to the statement of the assessee recorded during the survey. He submitted that originally the area of 105826 mts. was shown in the MOU dated 24-4-1992 but certain lands were under encroachments and some other portion was meant for roads etc. The area kept on changing after removal of individual obstacles but this will not change the situation because the consideration was determined in terms of per square feet of built up area on the basis of FSI and not in terms of land area. The AO had enquired regarding the area of land from the developer i.e. M/s Unique and they had furnished detailed reply vide letter dated 14-12-2007 which is placed at pages 135 to 139 of the paper book. While concluding he submitted that case law relied before the CIT[A] may also be considered and again strongly relied on the decision of the Hon'ble Bombay High Court in the case of Chat....
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....ome. When the matter travelled upto the Tribunal the preliminary objection of the Revenue was rejected that grounds raised in the appeal that such interest income is not taxable cannot be entertained and original grounds were admitted. The Tribunal after detailed discussion and following the decision of the Hon'ble Bombay High Court in the case of Nirmala L. Mehta vs. CIT [269 ITR 1] held that the interest income is not taxable. Thus, it is clear that even if some item of income is offered for tax and if the same is not taxable, then assessee can still maintain that such item is not taxable. This position further becomes clear from the decision of the Hon'ble High Court in the case of Nirmala L. Mehta vs. CIT [supra]. In that case the facts were as under: The assessee was a resident of Mumbai. In the month of August, 1987, she won a lottery of the Government of Sikkim having a prize money of Rs. 6,30,000. The Government of Sikkim deducted income-tax in the sum of Rs. 62,088 as per Sikkim tax laws from the prize money of Rs. 6,30,000 and the balance amount of Rs. 5,67,912 was paid. In her return claimed deduction of Rs. 62,088 on the ground that the said sum was deducted ....
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.... Ultimately, it was held by the Hon'ble Court as under: "Held, (i) that merely because the assessee offered the prize money won in the lottery of the Sikkim government, to tax under the Incometax Act, 1961, that would not take away her right to contend that the prize money was not chargeable and assessable to tax under the Income-tax Act in the revisional jurisdiction. (ii) That prize money won by the assessee from the lottery of the Government of Sikkim could have been charged to tax only in accordance with the then existing Income-tax laws in the State of Sikkim and could not be charged to tax under the Income-tax Act, 1961." It would be further pertinent to note that the Hon'ble High Court at page 11 of the report referred to the decision of the Constitution Bench of the Supreme Court in the case of Amalgamated Coalfields Ltd. vs. Janapada Sabha, AIR 1961 Supreme Court in the case of 964 held thus: "The problem arose because the petitioner in her return for the asst. yr. 1988-89 filed on June 30, 1988, offered the prize money of the lottery to tax, rather a fundamental error of law on the part of the assessee, but that error of law on....
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....ent order dated November 29, 1989, for the assessment year 1988-89 shall have to be reworked out as per this order." Thus, it is very clear from the above decision that even if an item of income has been offered but the same is not chargeable to tax, then the same cannot be charged to tax. 28. In the case before us, the assessee had entered into a MOU on 24-4-1992 through which assessee had granted development rights to Unique and the consideration was fixed at Rs. 185/- per sq.ft. of the built up area which was to be approximately 7,00,000 sq.ft. Since various obstacles were there before starting the project, it was agreed through MOU itself that the developer would remove those obstacles and which were removed over a period of time. Assessee sought approval of the Appropriate Authority u/s.269UL and the same was granted vide sanction letter dated 16-7-1992 and the copy of the same is placed at page 73 of the paper book. The MOU was registered on 27-1-1999 with the Sub Registrar Bombay and stamp duty was paid accordingly. Various power of attorneys were also executed in favour of the developer and in the power of attorney dated 15th September, 1999, even power to execute doc....
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....t effected or completed under the general law. The court further observed at page 499 as under: "The above two clauses were introduced w.e.f. April 1, 1988. They provide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part-performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property [see s. 269UA(d)]. Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of immovable property is not effective or complete under the general law." The Court further laid down the following tests: 1. There should be a contract for consideration. 2. It should be in writing. 3. It should be signed by the transferee. 4. It should pertain to transfer of immovable property. 5. The transferee should have taken the possession of the property. 6. The transferee should be ready and willing to perform his part of the contract. Thus, f....