TaxTMI 
TaxTMI 
2014 (2) TMI 1349
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....plots after claiming indexation benefit, however, the AO treated the same as income from business on the plea that assessee was engaged in the business of builder and developer, therefore, the plot so sold constituted its stock-in-trade, profits arising therefrom are liable to tax as income from business. 5. Before the CIT(A), the assessee has filed various documents under Rule 46A and contended that all these documents go to the root of the issue for deciding the intention and nature of asset acquired by the assessee, which is relevant for deciding profit arising out of sales of such assets. However, the CIT(A) rejected the additional evidence by stating that some of these documents were already filed before the AO and some of the documents were in public domain. The CIT(A) upheld the conclusion of the AO to the effect that profit arising from sale of plot of land was correctly assessed by the AO as income from business. 6. Against this order of the CIT(A), the assessee is in further appeal before us. 7. Learned AR drawn our attention to the audited balance sheet of earlier years filed before the lower authorities, wherein the assessee had shown the plot as investment. It was f....
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....idence filed by the assessee under Rule 46A, which were filed before the CIT(A) but not properly appreciated and rejected by him. 9. We have considered rival contentions and carefully gone through the orders of lower authorities and also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as submitted by the learned AR and learned DR during the course of hearing before us. From the record, we found that the assessee is a partnership firm and engaged in the business of builders and developers. During the year under consideration the assessee has shown sales from project Sea Queen Heritage of Rs. 32,03,41,361/- and offered net profit of Rs. 4,32,35,542/-. The assessee has also shown long term capital gain of Rs. 26,56,79,937/- on sale of plots No.256 & 257 and plots No.23B&C as against total sale consideration of Rs. 32,55,00,000/-. In computation of income assessee has offered the profit derived from sale of above plots as long term capital gain and offered tax @ 20% after claiming indexation benefits. 9.1 We had verified audited balance sheet of the assessee as placed on record, wherein we found that as on 31st March, 20....
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....are different in the instant case before us, wherein assessee has separately shown investment and profit arising thereon offered as capital gain. In respect of plots used by the assessee for construction of building thereon and thereafter sale, profit arose therefrom was treated by the assessee as business income. Furthermore, there is no restriction in the Income-tax Act, 1961, for use of capital assets as stock-in-trade. Relevant provisions are contained u/s 45(2) for computation of capital gains in respect of profit arising from transfer by way of conversion by the owners of capital assets into or its treatment by him as stock-in-trade of a business carried on by him. In this view of the matter, merely because some other plots were used by assessee in its business, cannot be made the reasons for declining the nature of other plots held as investment and sold after holding the same for more than three years. 9.2 From the record, we further found that the said plots of land were intended to be capital assets and have been so acquired, held and shown as advance investments in the audited books of account since many years in the past and the position that such plots of land represe....
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.... 6-6 5. Copy of ledger as a proof of refund of money to Sunny Housing (India) Pvt. Ltd. 5 7-9 6. Copy of share certificates of Sunny Housing India Private Limited 6 10- 11 7. Copies of all correspondences as a proof for the efforts made by appellant for purchase of plot 7 12- 17 9.3 However, the CIT(A) did not accept above document and the same were rejected by him after giving the reasons as stated below :- Sl. No. Type of Evidence CIT(A)‟s reasons and comments for rejection of A.E. 1. Copy of Scheme of Government It is in public domain and the AO is already in knowledge. The AO was aware and he considered the same while arriving at his decision. Therefore, rejected. 2. Ledger accounts of land for different years Copies not signed. No relevant, ledger accounts do not support the theory that plots were held separately as stock and investment. They are of no support. Therefore, rejected. 3. Ledger account of the firm in the books of partners Copies not signed. Not relevant, third party evidence. The AO was aware and he considered the same while arriving at his decision. Therefore, rejected. 4. Possession letter They were in knowledge of AO and th....
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...., one as investment and other as stock. The plots which were held as the investments of the 2 individuals Mr. M C Sunny and Mr. B.MShah did not automatically make the plots as investments of the firm unless two separate portfolios were maintained. Ledger account of the appellant firm showing the treatment of the plot as an asset in the books of individuals becoming partners later, being a 3rd party has no relevance. The period of holding is less than 3 years and hence could not be claimed as LTCG." 9.7 With regard to the above observation of the AO, we found that the assessee firm was never a dealer in land and the only Sea Queen Developers business of the firm was to develop the acquired plot by constructing a building thereon and sell the houses therein and the assessee firm has offered separately profit of business of development and construction of housing projects under the head „Profits and gains from the Business‟. Acquisition of the development rights were the only mode of acquisition of CIDCO plots. We found that the factual mistakes has been committed by the AO while recording the finding to the effect that the income from sale of plot at Kharghar was shown a....
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....9 From the record, we found that for the year ending on 1.03.2007 and 3 1.03.2008 plot no. 23B and 23 C and 256 and 257 were shown in separate Schedule of investments namely Sch "M" of and "E" respectively. The said plots under consideration in appeal at the year end were always valued at "at cost" and never on the principle of "cost or market value, whichever is lower" as applicable to a stock-in-trade. Maintenance of separate accounts, valuation thereof at cost, the manner of recording investments in the balance sheets and compliance of the terms of CBDT Circular No. 4 dt. 15.6.2007 prove that the intention of assessee firm was to treat the said plots of land as an investment and not as stock-in-trade. We also found that plot No. 23 B & C, Mr. M.C.Sunny and Mr. B.M.Shah entered into an agreement for the transfer of the Lease Hold Rights of the said plots with the intention to invest on 16.0 1.1999 [prior to formation of the partnership firm] and on constitution of the Partnership firm on 06.06.2003, the partners M.C.Sunny‟s and Mr. B.M. Shah‟s capital accounts were credited with the payments made for acquisition of the said plots thus making an introduction of capital....
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....e execution of tri-partite deed. Plots no. 23B and 23C were held for more than 5 years. Even if we count the period of holding from the date of constitution, it is more than 5 years and 1 month. Plots No.256 and 257 were held for more than 3 years 5 months. Period commenced from date of allotment or possession, which is supported by the decisions of the court reported in Tata Consultancy Ltd. 122 ITR 594(Bom), Vimal Lalchand Mutha, 187 ITR 613(Bom), 216 ITR 376(Bom), 245 ITR 747(Del), Anila Upendea Shah, 262 ITR 657(Guj), 301 ITR 345(Mad), Kasturi Estates P. Ltd. 62 ITR 578(Mad), Delhi Apartment(P) Ltd. 135 ITD 441(Delhi), Delhi Apartment (P) Ltd. 352 ITR 322(Delhi), Prem P. Tharani 3 ITD 482(Mum), Karishma Parikh, 44 TTJ 68(Ahd.) Sharad Thadani, 104 TTJ 567(Luck), Girish C. Bhatija, 113 TTJ 521 (Mum) and Jitendra Mohan, 1 SOT 594(Delhi). 9.11 From the record, we found that with respect to plot No.23B & 23C, a letter of intent was issued by CIDCO in October 1998 proposing to allot 2 plots on lease to Shri. Ramchandra Mahadev Tandel. In the year 1999, Mr. M.C Sunny & Mr.B.M.Shah [partners of the assessee firm from 2003] with intention to invest approached Shri.R.M.Tandel and others....
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....d by CIDCO by transfer order dt. 19.09.2005. Subsequently, the said plots held as Long Term Capital Asset and shown as such in the balance sheets of respective years were transferred under an Agreement of Sale dt. 01.08.2008 to M/s Ravechi Properties on consideration of Rs. 10,55,00,00 and the capital gains of Rs. 8,26,04,800 after deducting the indexed cost of Rs. 2,28,95,200 was offered for taxation by the assessee firm. All these important factual aspects and documentary evidences have not been properly appreciated by lower authorities which resulted into wrong conclusion of holding that profit arising on sale of plots held as investment is liable to tax as business income rather capital gains. 9.13 In view of above discussion, we set aside the orders of lower authorities and restore the matter back to the file of the AO for examining these documents in detail and for deciding afresh the taxability of profit arose on sale of plot as capital gains or as business income in terms of our observations made in para 9 to Sea Queen Developers 9.12. Needless to say the assessee should be given due opportunity before deciding the issue and the AO is also directed to consider the additio....
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....gh a nomenclature is stated as loans and advances. Besides, the Special Bench of the Income Tax Appellate Tribunal in the case of ACIT Vs. Bhaumik Colour Pvt. Ltd., reported in 313 ITR (AT) 146 (SB) held that even loan account between two sister concerns cannot be taxed in the hand of recipients as the assessee company is not a share holder of the other Company and vice versa. Like, we are not the Tribunal have been approved by the Bombay High Court in the case of CIT Vs. Universal Medicare P Ltd reported in 324 ITR 263 (Bom). Hence, the jurisdictional High Court has decided an issue it becomes the law of the land till it is reversed by the Supreme Court. It is further submitted that the Hon. Supreme Court in the case of Navanitlal Jhaveri 23 ITR 198 held that provisions of See. 2(22)(e) must be made applicable where dividend disguised as a loan is paid by a Company. The concept should not be stretched too far to involve absurdities. Besides it is submitted that the Hon. Supreme Court in the case of CIT Vs. Sarathy Mudaliar 83 ITR 170 and Kerala High Court in the case of CIT Vs. G Narasimhan (Decd) and others reported in 236 ITR 327 (SC) wherein the Court has held that any legal ....
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....wer authorities in their respective orders as well as judicial pronouncements cited at bar by ld. Authorized Representative and ld. Senior DR in the context of factual matrix of the case. From the record, we found that the assessee partnership firm, M/s. See Queen Developers ( in short SQD) is comprising of 3 partners namely Mr. M.C. Sunny, Mr. Bhupendra M. Shah' and Sea Queen Developers ltd. M/s. Sunny Housing India Pvt. Ltd. (SHIPL) is a private limited company engaged in business of development and construction of land and building. The assessee firm during the year had received advance from sunny Housing (India) Pvt. Ltd. (SHIPL) which was repaid by assessee in the said year, leaving a closing balance of Rs. 1,00,000/-. From the record, we found that the assessee firm (SQD) has not made any investment whatsoever in the shares of the said SHIPL, not even through its partners. The audited books of accounts and the balance sheet of the assessee firm clearly indicate that the assessee firm has not made any investment in the shares of the said SHIPL, a fact which is not controverted by the A.O. nor by CIT(A). Thus, the assessee firm is not a shareholder, directly or indirectly, ....
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....ered shareholder. The assessee firm (does not hold any shares of SHIPL) and has no shareholding in the capital of the said SHIPL. This fact was brought to the attention of the said AO who chose to ignore a very vital fact essential for attracting the provisions of Sec.2(22)(e). 11.3 There is a judicial pronouncement by the Special Bench of the ITAT in the case of Bhaumik Colour Pvt. Ltd., 313 ITR 146 (AT), wherein it has been held that the provision of Section 2(22)(e) can be attracted only when two conditions are satisfied namely a person receiving loan is registered shareholder and also a beneficial shareholder of the company from whom loan is received. Provisions of section 2(22)(e) will not apply when a person is registered shareholder but not a beneficial shareholder. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of the pro-visions of section 2(22)(e) will not apply. The proposition of law as laid down by the I.T.A.T., Special Bench in the case of Bhaumik Color Lab (supra) clearly laid down the conditions for bringing an assessee within the mischief of Section 2(22)(e), according to which both the conditions of reg....
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....e, the legislature must be taken to have used them according to the meaning which a Court of competent jurisdiction has given them. Page 156 para 23: " In the 1961 Act, the word " shareholder" is followed by the following words "being a person who is the beneficial owner of shares". This expression used in Section 2 (22)(e) , both in the 1961 Act and in the amended provisions w.e.f. 1st April ,1968 only qualifies the word " shareholder" and does not in any way alter the position that the shareholder has to be a registered shareholder. These provisions also do not substitute the aforesaid requirement to a requirement of merely holding a beneficial interest in the shares without being a registered holder of shares. The expression „being" is a present participle. A participle is a word which is partly a verb and partly an adjective. In Section 2(22) (e) , the present participle " being " is used to describe the noun „shareholder‟ like an adjective. The expression "being a person who is the beneficial owner of shares" is therefore a further requirement before a shareholder can be said to fall within the parameters of Section 2 (22) (e) of the Act. In the 1961 Ac....
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....tered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial then the provision of s. 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of s.2(22)(e) will not apply."Thus, it is absolutely clear that for being held liable for deemed dividend, assessee has to be both registered as well as beneficial shareholder. Assessee here was not so. Thus, assessee gets out of the deeming provision as contained in Section 2(22)(e) at the threshold itself. In our opinion, how the assessee utilized the advance received from M/s Prakash Gold Palace (P) Ltd. hardly has any relevance, once applicability of Section 2(22)(e) of the Act is ruled out. As far as the decision of Hon'ble jurisdictional High Court in the case of T.P.S.H. Sokkalal (supra) relied on by the learned D.R. is concerned, interpretation there involved Section 2(22)(e) of the Act as it stood prior to the amendment done to the said Section by Finance Act, 1987 with effect from 1.4.1988. Their Lordship was concerned with an assessment for assessment year 1973-74. In fact, in the decision o....