TaxTMI 
TaxTMI 
2017 (12) TMI 576
X X X X Extracts X X X X
X X X X Extracts X X X X
....ender of Rights by cancellation deed at Rs. 45,07,91,4821- as Long Term Capital Gain instead of Short Term Capital Gain of Rs. 77,23,00,8181- as assessed by the Assessing Officer". (ii) "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Of to treat the capital gain amounting to Rs. 45,07,91,4821- as Long Term Capital Gain". (iii) "Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Of to treat the capital gain amounting to Rs. 45,07,91,4821- as Long Term Capital Gain when on 25.06.2005 there was no acquisition pf property and thus the right in the property was only a provisional asset and not a real asset". (iv) "Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to allow expenses claimed by the assessee of Rs. 4,90,8681- without accepting the fact that the assessee has not carried out any business activity during the year". 2. For this and other reasons it is submitted that the order of the CIT(A) may be set aside and that of the AO restored." 2. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er dated 25-06-2005, addressed to M/s Kohinoor Projects Pvt Ltd. As per the letter, the assessee has agreed to purchase 50,000 sq.ft. building for a consideration @Rs.36,000 per sq.ft and assured to pay a sum of Rs. 40 crores advance in due course. Out of the above Rs. 40 crores advance, agreed to pay a sum of Rs. 4 crores by 19-07-2005. Further, as per the understanding between the assessee firm and the SPV, the assessee has paid an amount of Rs. 40 crores over a period from August, 2005 to December, 2006. Subsequently, the assessee firm entered into a MOU on 05-10-2007 with Kohinoor-CTNL Infrastructure Co Ltd specifying terms and conditions of purchase of property mentioning the payments of advance consideration. Later, the above project could not materialize because of some legal hassles and the seller of the property, Kohinoor-CTNL Infrastructure Co Ltd, offerred the assessee's alternate rights instead of the booking rights in 'Kohinoor Mills No.3' and accordingly entered into a deed of cancellation on 28-08-2008 as per which the assessee has got refund of advance amount of Rs. 40 crores and also compensation of Rs. 78.85 crores for surrender of booking right in the proposed pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee during the course of hearing, observed that the assessee has got right over the property 5.10.2007, the MOU is signed by the assessee and the seller of the property, M/s Kohinoor-CTNL Infrastructure Co Ltd. The AO further observed that the assessee has entered into a MOU dt. 5.10.2007 for purchase of property specifying terms and conditions and also on payment of advance consideration on which date the assessee got right over the property. Though the assessee claims to have entered into an agreement for purchase of booking rights by way of a letter dated 25-06- 2005, the sequence of events clearly establishes the fact that the assessee has got right over the property on 05-10-2007. The AO further observed that the date when the assessee has offer for purchase of property by way of letter dated 25-06- 2005, the seller did not even have right over the property which is evident from the fact that NTCL has accepted bid submitted by the consortium partners on 13-08-2005 which was further accepted by the Board of Directors of NTCL in their 195th meeting held on 14-09-2005. The AO further observed that after successful bidding and payment of sale consideration, NTCL entered into a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccepted by the seller by way of letter and terms and conditions of agreement has been ratified by way of a MOU dated 05-10-2007, otherwise, the right and interest in the property has accrued to the assessee when its offer of purchase has been accepted by the seller. The assessee referring to MOU and letter addressed to M/s Kohinoor Properties Pvt Ltd dated 25-06-2005 submitted that it has finalized purchase of property, however, a confirmamental agreement has not been entered into because the consortium partners has taken time to enter into a written agreement because of various reasons. But the fact remains that its offer for purchase of property has been accepted in terms of advance payment and hence it has got valid right in the property from the date of booking, i.e. on 25-06-2005, therefore, holding period of the asset is more than 36 months and hence, surplus from relinquishment/surrender of booking right is rightly computed under the head long term capital gain. 7. The CIT(A), after considering relevant submissions of the assessee and also relying upon certain judicial precedents, observed that it was clear from the facts stated that the parties to the contract were conte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urchased, the assessee firm had acquired certain bundle of rights in the property which was legally enforceable rights and the transfer of property is said to have taken place as provided u/s 2(47) of the Act. Therefore, it cannot be denied a right in that capital asset has been created in favour of the purchaser from the date of the agreement itself, which, in the present case is 25-06-2005. With these observations, the CIT(A) directed the AO to assess capital gains under the head 'Long Term Capital Gain'. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 9. The Ld.DR submitted that the Ld.CIT(A) erred in holding that impugned asset is a long term capital asset and resultant capital gain is assessable under the head long term capital gain, even though the AO has clearly brought out facts which lead to an undisputable conclusion that the asset is a short term capital asset held for a period for less than 36 months. The Ld.DR further submitted that the CIT(A) heavily relied upon one fact, i.e. the letter addressed by the assessee to one of the consortium partners on 25-06-2005 which is on a simple plain paper without any terms and conditions of purchasing a pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e parties. The Ld.AR referring to the MOU dated 05-10-2007 submitted that it has entered into MOU only for the purpose of ratifying earlier terms and conditions of agreement dated 25-06-2005, but actual agreement took place between the parties on 25-06-2005 on which date the assessee has offered to buy property and its offer has been accepted by the seller. The assessee has written a letter specifying terms and conditions of agreement and the seller has acknowledged offer by way of an acceptance. Therefore, the offer and acceptance would give rise to a valid contract between the parties for purchase of property. Therefore, holding period of the asset should be considered from the date of letter dated 25-06-2005. In this regard, he relied upon the following case laws:- Anita D Kayani vs ACIT (2017) 163 ITD 451 (Mum) Ms. Madhu Karva vs CIT (2014) 363 ITR 54 (P&H) CIT vs Tata Services Ltd (1980) 122 ITR 594 (Bom) 11. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. We have also carefully considered the case laws relied upon by the parties. The solitary issue that came up for our con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Capital Gain'. 12. The AO observed that holding period of the asset is less than 36 months which is evident from the fact that the assessee has entered into a valid MOU setting forth terms and conditions of conveying title and interest in the property on which date the right in the property accrued to the assessee. The AO further observed that the letter addressed by the assessee to Kohinoor Projects Pvt Ltd on 25-06-2006 is self serving document which does not have any legal support. The AO further observed that dates and events as per the document submitted by the assessee clearly proves an undisputed fact that as on the date of letter, the seller itself did not have any right over the property. According to the AO, bid submitted by the consortium partners has been accepted by the Board of Directors of NTCL on 14-09-2005 in their board meeting. The AO further observed that the consortium partners have formed a Special Purpose Vehicle vide their individual resolutions dated 16-07-2005 and 28-06-2005 which is after the date of letter addressed by the assessee. The AO further observed that NTCL has opened public tender on 21-07-2005 which has been informed to the consortium part....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sferor and transferee setting forth terms and conditions of Transfer of Immovable Property. The said provisions of section 53A further clarifies that any transaction involving 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, would come under the definition of "transfer of capital asset". Further, the provisions of sections 54 and 55 of the Transfer of Property Act, 1882 make it clear that a contract of sale does not itself create any interest in or charge on such property. Therefore, any agreement to sell that is not a registered deed of conveyance or deed of sale will fall short of the requirement of sections 54 and 55 of the Transfer of Property Act, 1882 and will, therefore, confirm no title and interest in an immovable property except to the limited right granted u/s 53A of the Transfer of Property Act, 1882. According to the Transfer of Property Act, 1882, an agreement for sale, whether with or without possession, is not a conveyance. Further, the Registration Act, 1908 requires registration of document that contains a contract to transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pute is with regard to the date of acquisition of booking right and period of holding of the right. The assessee claims that it has got right over the property from 25-06-2005 when it made an offer for purchase of property by way of a letter addressed to Kohinoor Projects Pvt Ltd. The AO claims that the assessee has got right over the property on 05-10-2007 when a valid MOU was entered into between the assessee and the SPV setting forth terms and conditions of purchase of property. If, date of letter of offer is considered as valid agreement to sell, holding period of the asset is more than 36 months and resultant surplus is definitely assessable under the head 'Long Term Capital Gain'. If, holding period of the asset is considered from the date of MOU, i.e. on 05-10-2007, impugned asset is held for a period less than 36 months and resultant surplus is assessable under the head Short Term Capital Gain. 16. With these background, the issue needs to be answered is whether the assessee has got right over the property as on 25- 06-2005 or on 05-10-2007. The assessee has filed paper book containing various details filed before the lower authorities. The paper book filed by the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ver the property, agreeing to convey the title in the property in favour of a third party appears to be impractical and unusual. Therefore, we are of the view that there is no merit in the claim of the assessee that it has got valid right and interest in the property on 25-06-2005 by way of a simple letter addressed to the proposed buyer of the property. We, further was of the opinion that right / interest in an immovable property could accrue only by way of an agreement embedding conscious ad edem. We further opine that booking right in flat / apartment or a property shall be treated as acquired upon execution of buyer's agreement with the seller and not on the date of booking confirmation letter for provisional allotment of flat. 17. Coming to the case laws relied upon by the assessee. The assessee has relied upon plethora of judgements, including the decision of Hon'ble Bombay High Court in the case of CIT vs Tata Services Ltd (supra). We have gone through the case law relied upon by the assessee in the light of the facts of the present case. In the case of Anita D Kayani vs ACIT (supra), the issue before the co-ordinate bench of this Tribunal was whether holding period of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on by the assessee are not applicable to the facts of present case and hence, not followed. 18. Coming to the decision of Hon'ble Delhi High Court, in the case of Gulshan Malik vs. CIT (2014) 223 Taxmann 243 (Delhi- HC). The Hon'ble Delhi High Court has considered similar issue of whether booking rights in a property will accrue on the date of allotment letter or from the date of agreement to sell. The Hon'ble High Court after considering relevant facts held that right/interest in an immovable property can accrue only by way of an agreement to sell, but not on the date of allotment letter confirming booking rights. The assessee challenged order of Hon'ble Delhi High Court before Hon'ble Supreme Court and the Hon'ble Supreme Court dismissed SLP filed by the assessee in SLP No. 30670/2014 dt. 26-10-2015, and upheld finding of Delhi High Court. Though simple dismissal of SLP does not amount to law laid down on the issue, we prefer to follow Hon'ble Delhi High Court in the case of Gulshan Malik vs. CIT(Supra), as the Hon'ble Court considered the law laid down by Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ved Prakash & Sons (HUF)(1994) 207 ITR 148. The relevant portio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * There being no intention to convey rights in this document, it would be impermissible to find that the right to obtain title/'booking rights' emanated from the confirmation letter. These rights may only be located in buyer's agreement, and thus, the date of acquisition of the capital asset must be considered the date of signing of said agreement, i.e. 4-11-2004. [Para 8] * These rights were transferred by.the assessee on 2-11-2007. Thus, the capital asset in the form of these rights was held for a period of 35 months and 28 days,. La, a short-term capital asset thus rendering the profits from the transfer-of-this capital asset taxable as short-term capital gain [ P 9 ] a Thus, there is no legal infirmity in the order of the Tribunal. The appeal is accordingly dismissed. [Para 11]" 19. The Co-ordinate Bench of Mumbai ITAT has considered similar issue in the case of M/s Paradise Textiles Pvt Ltd vs. DCIT in ITA No. 4473/Mum/2015 dated 28-11-2017, where the Hon'ble Accountant Member is a co-signatory to the order. The Co-ordinate bench after considering SLP dismissed by the Hon'ble Supreme Court in the case of Gulshan Malik vs. CIT(Supra) held t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: PROVIDED that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." The aforesaid section, if analyzed, it speaks about taking possession of the property or any part thereof or the transferee, being already in possession, whereas, in the present cases, no possession was taken by the assessee and only rights were sold. The assessee made the payments in 2009 and thereafter he got the rights to sale the property, therefore, prior to that he was having no right to sale the same. The reply of the assessee vide letter dated 12/03/2013 (reproduced in the assessment order) was duly considered. There is no dispute to the fact that the final ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The appellant subsequently filed return of income on 31.3.2009 for the assessment year 2008-2009, with income declared to be Rs. 3,84,874/-. In the computation of income, the appellant had declared a long term capital gain of Rs. 31,35,740/- on the sale of booking rights/extinguishment of rights in the apartment. An exemption was claimed under Section 54 of the Act, 1961 as the same was invested in purchase of another apartment in June 2008. 3. After the return was processed under Section 143(1) of the Act and the case was thereafter selected for compulsory scrutiny, an order of assessment was passed under Section 143(3) of the Act on 30.12.2010 whereby an addition of Rs. 28,20,000/- was made by the Assessing Officer (AO) to the income declared by the appellant on account of short-term capital gain. No deduction under Section 54 was allowed since it is available only in respect of long-term capital gains. The total income was thus assessed to be Rs. 32,10,145/-. The appeal against the order of the AO before CIT-A was dismissed by an order dated 25.11.2011, on the grounds that the rights in the apartment accrued to the appellant only when the apartment was purchased by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n relation to a capital asset, is a wide and inclusive definition that encompasses even transfer of a right in property, thus including within its ambit, transfer of booking rights, second, that a combined reading of Sections 2(14) and 2(47) of the Act show that transfer of a capital asset is not restricted to transfer of ownership in immovable property alone. The learned counsel for the Revenue, on the other hand, relies on the order of the learned ITAT member who held that booking rights accrued in the assessee only once the buyer's agreement of 4.11.2004 was signed, thus making the profits from sale taxable as short-term capital gains. 6. It would be appropriate to extract Section 2(14), 2(42A), 2(47) here in relevant part. Section 2 of the Act reads: '2. In this Act, unless the context otherwise requires, (14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include ** ** ** (42A) "short-term capital asset" means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer: ** *....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ner whatsoever" establishes that it is not conveyance of property or the doctrine of part performance (enacted through Section 53A of the Transfer of Property Act) which result in enforceable rights, for the purposes of the Income Tax. The scheme of the Act puts it beyond doubt that even rights or interests in a property are kinds of property that are transferable capital assets. Thus, there is no doubt that booking rights or rights to purchase the apartment or rights to obtain title to the apartment are also capital assets that can be transferable. However, even while this Court agrees with the submissions of the appellant, it is pertinent to note that this question does not arise in these facts. Neither the CIT-A nor the ITAT have held that a capital asset can only be title to/ownership of the apartment. The order of the CIT-A locates the source of the booking rights i.e. date of acquisition of capital asset as the buyer's agreement dated 4.11.2004, which finding is subsequently confirmed by the ITAT by additionally relying on the receipts at the time of confirmation of allotment. Thus, in these facts, the question of whether the booking rights are a transferable capital asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the date of entering into the agreement to sell with the builder, by which the assessee had also received possession of the property. The Department, on the other hand, claimed that according to the conditions of the agreement, no right, title or interest in the property would be conveyed to the assessee until all instalments due and payable under that agreement were completed. It was also sought to be argued that the assessee became the titleholder to the property only once all the instalments were paid, and that title to the property was the only capital asset that could be transferred. It was in the context of these arguments that the Court held first, that it is incorrect to say that the assessee had no right or interest in the property until the completion of payment of all instalments under the agreement as the assessee was a beneficial owner from the date of signing the agreement, having been put in possession of the property as of that date and second, that Section 2(42A) of the Act, in any event only uses the term "held" and not "owned", thus indicating that a capital asset need not only refer to full title over any property. Ved Parkash (supra) can thus be distinguished o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....visional/final allotment or any right to claim title/ownership under the confirmation letter. There being no intention to convey rights in this document, it would be impermissible for this Court to find that the right to obtain title/"booking rights" emanated from the confirmation letter. These rights may only be located in the Buyer's agreement, and thus, the date of acquisition of the capital asset must be considered the date of signing of said agreement i.e. 4.11.2004 9. These rights were transferred by the assessee on 2.11.2007. Thus, this Court is of the opinion that the capital asset in the form of these rights was held for a period of 35 months and 28 days, i.e. a short-term capital asset thus rendering the profits from the transfer of this capital asset taxable as short-term capital gains. 10. Ved Parkash (supra), in any event, can be distinguished from the facts in this case. In Ved Parkash (supra), the assessee sought to claim that the date of acquisition of the capital asset was the date of entering into the agreement to sell with the builder, by which the assessee had also received possession of the property. The Department, on the other hand, clai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;ble High Court was with respect to validity of Long Term Capital Gain, where the assessee was holding rights for more than 36 months before transferring the same, whereas, in the present appeals, before us, the holding period is less than three years/36 months. It is also noted that the Hon'ble Delhi High Court affirmed the decision of the Tribunal considering various aspects including section 2(42A) of the Income Tax Act, 1961, section 2(14), 2(47) along with explanation. The Hon'ble Delhi High Court considered the question 'whether the booking rights to the apartment accrued to the assessee on the date of application for allotment/confirmation of allotment or on the date of execution of the agreement to sale i.e. buyers agreement'. The Hon'ble Court held that a right or interest in any immovable property accrues only by way of an agreement embodying consensus ad idem. The assessee made the final payment in September 2009 only, therefore, the decision in the case of Ved Prakash & Sons (HUF) is not applicable to the facts of the present appeals. The final payment was made in September, 2009 and thereafter the assessee got the right to sale the property and before th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e first payment was made on 19-7-2005 and if that date is considered, holding period of asset is still less than 36 months. Therefore, we are of the view that the assessee has got valid right over property on 05-10-2007, but not on 25-06-2005 and hence, the A.O. was right is treating surplus from surrender of booking right under the head short term capital gain. The CIT(A), without appreciating facts, held that the impugned asset is long term capital asset. Hence, we reverse findings of CIT(A) and upheld findings of the Assessing officer. 21. The next issue that came up for our consideration from assessee's appeal is disallowance of interest paid amounting to Rs. 2,93,67,955 on loan taken against security of fixed deposit. During the course of assessment proceedings, the AO noticed that the assessee has kept fixed deposit of Rs. 15 crores in CKP Co-operative Bank. However, no interest income has been offered to tax under the head 'Income from other sources'. Therefore, the assessee was called upon to furnish necessary details of fixed deposits and related interest income earned from such deposits. In response to query raised by the AO, the assessee submitted that the firm had in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted off interest paid towards loan against interest income. Therefore, the AO was incorrect in denying netting off benefit. The CIT (A), after considering the relevant submission of the assessee and also relying upon certain judicial precedents observed that submissions of the assessee have been devoid of any merits. The interest income is not a business income and has to be assessed under the head 'Income from other sources' unless the business of the assessee is lending of money as decided by the various judicial pronouncements. The assessee has claimed interest paid on loan borrowed against security of fixed deposit against interest earned on fixed deposit. The interest expenditure incurred by the assessee for loan taken from the same bank has been utilized mostly for advancing interest free loans to sister concerns. Thus, it is evident from the above fact that there is no co-relation between interest income earned and interest expenditure incurred. Though the assessee claims to have utilized loan amount to make investment in sister concerns to derive commercial benefit, assessee failed to prove any commercial expediency in advancing loans to its sister concerns. Therefore, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elied upon the decision of Hon'ble Supreme Court in the case of CIT vs SA Builders (supra) to argue that interest cannot be disallowed on loans advanced to sister concerns and subsidiaries out of commercial expediency. In this case, the assessee has failed to prove nexus between loans and advances given to subsidiaries and business expediency from such loans. Therefore, we are of the view that the case law relied upon by the assessee has no application to the facts of the present case. The CIT(A), after considering relevant submissions, has rightly upheld addition made by the AO. We do not find any error or infirmity in the order of CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and reject the ground raised by the assessee. 25. Coming to the additional ground raised by the assessee. The assessee has filed a petition for admission of additional ground of appeal by raising a ground seeking set off of interest received from loans and advances of Rs. 31,94,644 against interest earned from fixed deposit. 26. The Ld. Sr. Counsel submitted that additional ground raised by the assessee relates to alternative claim of interest expenditure disallowance, the facts o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion from revenue appeal is administrative and other expenses allowed by the CIT(A). During the appellate proceedings, the assessee has raised an additional ground challenging the action of the Ld.AO disallowing the claim of expenditure made by the assessee on the ground that the assessee has not carried out any business activity and also not generated any income from such business activity during the relevant financial year. It was noticed by the AO that the firm had not undertaken any business activity of providing project management services and no receipts were shown in the P&L Account for the year under consideration. According to the AO, the assessee has not carried out any business activity, therefore, expenditure claimed in the nature of general administrative and overhead expenses cannot be allowed, as deduction. It is the claim of the assessee that expenditure incurred by the firm is in the nature of general administrative and overhead expenses, which are necessarily to be incurred for keeping corporate status of the assessee, even if the assessee does not carry out any business activity for the year under consideration. The assessee further contended that it is in the bus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Vs Aspintech India (Pvt) ltd 229 CT, 72 (Guj). the case of Income Tax Officer vs Mokul Finance (P) Ltd., (2007) 110 TTJ Delhi 445, has held that "In the light of this legal position, it would follow that unless there is some material on record to show that the assessee has completely abandoned the share dealing business, merely because there are no business transactions in the relevant previous year cannot be reason enough to come to the conclusion the business has come to an end. It could not thus be said; as was the case before the Hon'ble Madras High Court, that the assessee had "completely abandoned or closed the business forever" Unless the business is abandoned or closed and even if business is at a dormant stage waiting for proper market conditions to develop, the expenditure incurred in the course of such a business is to be allowed as deduction. For this reason also, the disallowance made by the AO was not justified, and the CIT(A) rightly deleted the same." 80. The ITAT Mumbai in the case of Bechtel International Inc., USA Vs ADIT, ITA No.2188/Mum/2010 has held that mere inactivity for a limited period does not mean that the taxpayer's ....