TaxTMI 
TaxTMI 
2015 (11) TMI 1775
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.... 11, Tukoganj, Main Road to M/s Entertainment World Developers P. Ltd., Indore as per details given below: S.No. Plot No. Area in sq. ft. Particulars 1 11 70484.00 Kalani Bros. (Indore) P. Ltd. 2 11/1-11/6 29516.00 Padma Homes P. Ltd. TOTAL 100000.00 As per the agreement to lease dated 21.5.2003, M/s. Entertainment World Developers P. Ltd. (M/s. EWDPL) had agreed to pay security deposit of Rs. 4,42,80,000 and Rs. 10,57,20,000 to the M/s. Padma Homes P. Ltd. and M/s. Kalani Bros.(Indore) P. Ltd., respectively. The agreement to lease is reproduced in the assessment order page 2 to page 5. After lease agreement, a supplementary agreement to lease was executed on 1st March 2006. As per the supplementary agreement to lease, M/s. EWDPL had further agreed to pay Rs. 15 crores as per the particulars given below to the M/s. Padma Homes P. Ltd. and M/s. Kalani Bros. (Indore) P. Ltd.: S.No. Amount of security deposit Security deposit to be paid to (Rs.) 1 M/s. Kalani Bros P. Ltd. Rs.10,54,92,000 2 M/s. Padma Homes P. Ltd. Rs.4,45,08,000 The supplementary agreement to lease reads as under: ....
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....; Total: Rs.1,500.00 lacs AND WHEREAS show now the FAR has increased from 1.5 to 2.5 allowing the Lessee to exploit the property in a manner which will fetch him a higher return and since the present Collector's guideline is also Rs. 320/- per sq. ft., the Lessor and the Lessee have mutually decided to increase the security deposit to Rs. 3,000.00 lacs accounting for higher return which the Lessee will earn due to the FAR having increased from 1.5 to 2.5. AND WHEREAS now that the Mall has become operational, it is agreed between the Lessor and the Lessee that the said increased security deposit of Rs.3,000.00 lacs will be paid as follows: - (a) To Kalani Brothers (Indore) Pvt. Ltd. Rs.2,114.52 lacs (b) To Padma Homes Pvt. Ltd. Rs. 885.48 lacs Total Rs.3,000.00 lacs NOW THIS DEED WITNESSETH AS FOLLOWS: 1. That, the following....
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....nless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the one part AND M/s Entertainment World Developers Pvt. Ltd., a company incorporated under the Indian Companies Act, 1956 and having its administrative office at 11, Tukoganj Main Road, Indore, hereinafter called to as "Lessee/Second Party" (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the other part. WHEREAS the Lessors own and possess a plot of land admeasuring 1,00,000 sq. Ft. the details of which are as under: - 1. 11 70484 Kalani Brothers 2. 11/1-11/6 29516 Padma Homes Pvt. Ltd. Total 100000 AND WHEREAS the Lesee has applied to Madhya Pradesh Housing Board for construction of a Housing-cum-Family Entertainment Centre-cum-Multiplex-cumshopping Mall (hereinafter referred to as the project on) the aforesaid land, owned by the Lessors. AN....
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....e Lac fifteen thousand) per annum as annual Lease Rent for the demised premises in the following manner: i. To Kalani Brothers (Indore) Pvt. Ltd. Rs. 81,000/- ii. To Padma Homes Pvt. Ltd. Rs.34,000/- Lessee shall pay the Annual Lease Rent herein mentioned in advance on 1st of every month starting from 1st of July each year and if the same is not paid in time, on or before the due date, the Lessor shall have the right to change interest @ 15% per annum. The Lease rent and the interest thereon shall be charged on the aforesaid land and the structure erected thereon. All such dues will be as first charge and any encumbrance created by the Lessee would not affect or postpone the said charge. 4. That, the Lessee shall demolish the existing structure for the purposes of construction of the said project and do all such acts and deeds that may be necessary for the construction of the said project on the aforesaid land. All expenses with regard to the construction of the said project by the Lessee and all liabilities an....
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....nd shall be paid to the Lessor. The consideration for the said area of the land shall be at the rate of Rs. X per sq. ft. where X = value of the land / FAR permitted. 4.1.3 Here, it would be pertinent to mention that a Supplementary Agreement to Lease was executed on 1st March 2006. As per this Supplementary Agreement to lease, M/s Entertainment World Developers Pvt. Ltd., Indore had further agreed to pay Rs. 15,00,00,000/- as per the particulars given below to the assesee and M/s Padma Homes Pvt. Ltd. :- S.N. Amount of security deposit Security deposit to be paid to (Rs.) 1 M/s. Kalani Brothers P. Ltd.,(i.e. assessee) Rs. 10,54,92,000/- 2 M/s. Padma Homes Pvt. Ltd. Rs. 4,42,80,000/- 4.1.4 The extract of the Supplementary Agreement to lease is reproduced as under:- " SUPPLEMENTARY AGREEMENT TO LEASE This supplementary Agreement to the Lease Agreement dated 21st day of May, 2003, is executed on this 1st day of March, 2006 BY AND BETWEEN (c) Kalani Brothers (Indore) Pvt. Ltd. ....
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.... the FAR has increased from 1.5 to 2.5 allowing the Lessee to exploit the property in a manner which will fetch him a higher return and since the present Collector's guideline is also Rs. 320/- per sq. ft., the Lessor and the Lessee have mutually decided to increase the security deposit to Rs. 3,000.00 lacs accounting for higher return which the Lessee will earn due to the FAR having increased from 1.5 to 2.5. AND WHEREAS now that the Mall has become operational, it is agreed between the Lessor and the Lessee that the said increased security deposit of Rs. 3,000.00 lacs will be paid as follows: - (a) To Kalani Brothers (Indore) Pvt. Ltd. Rs.2,114.52 lacs (b) To Padma Homes Pvt. Ltd. Rs. 885.48 lacs Total Rs.3,000.00 lacs" 4.1.4.1 Examination of the details revealed that M/s. EWDPL had made the payment of security deposit to the assessee of Rs. 21,05,52,000/- as per particulars given below: Previous Year Amount of security deposit paid 2003-04 Rs. 7,04,92,487/- 2004-05 Rs. 3,41,00,000/- 2005-06 Rs.10....
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....nt for the demised premises. Lessee shall pay the annual lease rent herein mentioned in advance on 1st of every month starting from 1st of July each year if the same is not paid in time, on or before the due date the Lessor shall have the right to charge interest @ 15% per annum. The Lease rent and the interest thereon shall be charged on the aforesaid land and the structure erected thereon. All such dues will be as first charge and any encumbrance created by the Lessee would not affect or postpone the said charge. 3. That all the expenses related to the execution of this deed, Stamp Duty Registration Fees etc. shall be borne by the Lesseee. 4. That the Lessee shall abide by all the rules, regulations, orders and bye laws etc. as are in force at the present and as may be laid down from time to time by the MP Government Indore Municipal Corporation town & Country Planning and/or any other competent authority in respect of this plot of land. 5.That the Lessee shall be responsible to pay regularly to the Indore Municipal Corporation or local authority, Electricity Board the other authorities concerned, ....
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.... relevant extract of the order u/s 143(3) of I.T. Act is reproduced as under: - Further the under signed has sought information u/s 133(6) from the office of the Distt. Registrar. The information received vide letter No. 1340/D.R./2006 dated 26/12/2006, which is being reproduced in its original form as below: - After going through the report that clearly mentions about the difference between agreement to lease and the lease deed as registered with the registrar office, shows that stamp duty on an amount of 15+5 crores has been sought to be evaded as a result of a conspiracy done. Therefore, it is further made evident that the assessee in collusion with the sister companies has hatched a conspiracy to evade its dues not only towards the State Govt. Department's but also towards the Central Government Department. Therefore not being deceived by its submissions there is a clear case of capital gains being made by the assessee in above mentioned transaction. Further as discussed before right to enjoyment has been clearly established. Further consideration has been paid as discussed above. Further as per submissions made by th....
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....ning the view that the money has been handed over in a platter in lieu of a transfer as discussed above without any interest of any kind in return. (v) Further in the case of LPH almost 10% of the figure given as security deposit is being given as yearly lease rent. Whereas in the case of the assessee a petty amount which is not even 1% of the security deposit is being received as so called annual lease rent. (vi) Further in the case of LPH the lease deed clearly mentions of an year by year increment after a certain time. Whereas here in the assessee's case there is no mention of any increment of any kind how so ever. (vii) Further in case of LPH there is a clear mention of annual lease rent clauses and annual increment clauses. Whereas in the case of the assessee the same is either not mentioned or not mentioned as clearly. Therefore the above quoted facts and circumstances clearly speaks for themselves and hence the case law quoted by the assessee is irrelevant to this case. Further since no mention of the above-mentioned points i.e. security ("Premium" to be correct) etc. is mentioned in the claimed leas....
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....r dated 13/12/2011 had made its submission. It was submitted. "The assessee co. apart from deriving rental income from property situated at 11, Tukoganj Main Road, indore was carrying on the business of dealing in Electrodes, AC Pressure Pipes, CID, Frints Rubber Rings etc. till assessment year 1999-2000 and thereafter there were continuous losses till the assessment year 2003-04. During the year the assessee leased out its ownership land admeasuring 70,784 sq.ft. situated at 11, Tukoganj Main Road, Indore to a Company namely 'Entertainment World Developers Private Limited' for a period of 29 years as per Lease Deed dated 5th July,2003.Before the execution of the lease deed the assessee had entered into an agreement for lease dated 02.05.2003. That as per the said agreement, the assessee received an amount of Rs. 7,04,92,487/- as a refundable security deposit. That as per the agreement to lease, it has been agreed that the security deposit shall be refundable by the lessor to the lessee at the end of the lease period stipulated or at the termination of lease deed with t....
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....t for sale or lease of the land. (b) The said security deposit to be refunded on the termination of the lease of land cannot be the absolute property of the Assessee and hence it could not be taken as the consideration for the transfer of capital assets. (c) Since the refundable security deposits is not consideration for transfer of land and in fact the land is not transferred, the capital gain chargeable to tax cannot be worked out under the provision of the Income Tax Act. Further it is submitted that the transaction being a lease agreement, there was no transfer of an asset and hence there is no question of attracting provision of Sec. 45 for capital gains. Further it is submitted that as the security deposit is refundable on the expiry/termination of lease, it is in the nature of a debt for the assessee and as such cannot be treated as consideration for transfer of property. Further reliance is placed on the case of ADDITIONAL COMMISSIONER OF INCOME TAX VS. LAKE PALACE HOTELS & MOTELS LTD (2004) 83, ITJ 1031 where in it is held that in case of lease of land the refundable deposit cannot be consi....
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....t has only given the lessee the right to enjoy property for a period of 29 years. Quote: 2(47) ["transfer", in relation to a capital asset, includes: - (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the assets is converted by the owner thereof into, or is treated by him as, stock in trade of a business carried on by him, such conversion or treatment;][or] (v) the maturity or redemption of a zero coupon bond; or] (vi) any transaction involving the 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 (4) of 1882 ; or (vii) any transaction ( whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arran....
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....ill revert back to the lessor. The lease deed is subject to the lessee making available two units (shops) in the commercial complex to be built in the premises. The queries in this regard are:- (1) Whether there is any capital gains tax to the lessor on reversion of the lease hold rights along with building? (2) If the lessee sold the lease rights to prospective shop owners up to 31 years, how the income on sale of lease hold rights to the shop owners will be assessed? (3) Is there any depreciation that can be claimed on commercial complex by the lessee? Sir, in the opinion of the learned Author S. Rajaratnam, "In respect of long term lease of vacant land, the lessee will put up super structure. The lease deeds ordinarily contain a clause either providing for the lessee to leave the super structure intact while vacating the premises or provide for compensation by the lessor to the lessee at their value. The normal rule in absence of any specific clause is that the lessee is entitled to demolish the structure before vacating the same, but, if he leaves the super structure as such and then if such super structure has substantial value,....
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....in the assessee leased out a property namely "Jakson Hotel" on monthly rent of Rs. 40,000/- for a period of 20 years. During the course of assessment proceedings the A.O. treated the rental income as business income as against income from property. The CIT invoking provisions of section 263 of the Income Tax Act directed to recomputed the income as per provisions of section 22 and 23 of the Income tax Act. The Honorable High Court held: "That a question of law namely whether the tribunal was justified in holding that the income derived by the assessee leasing out the property was income from business arose reference." The aforesaid authority is being referred to because, income from lease of property can be assessed as either income from property or as income from business and that when there is no extinguishment of any rights or there being no transfer of property by the assessee the question of computing income from capital gain does not arise. Section 53A of the Transfer of Property Act, 1882 provides that the transfer should be for a consideration. The said section reads as under: QUOTE: Section 53A....
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....e date of such agreement for transfer, the value of the consideration payable after such date shall be deemed to be the discounted value of such consideration as on the date of such agreement for transfer, determined by adopting such rate of interest as may be prescribed in this behalf. UNQUOTE:- Since no premium has been charged for giving the said property on lease for 29 years and the security deposit is a refundable deposit after the expiry of the lease period or on the termination of the lease and hence, it is premium. Actually it is debt in the books of the accounts of the assessee. The consideration as far as premium is considered is nil. The only consideration for transfer as per section 269UA (iii)(B) is the aggregate of the monies (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the agreement for transfer, which is annual lease rent of Rs. 34,000/- per annum a period of 29 years. Since the security deposit is refundable after the period of 29 years of lease or on termination of the Lease Deed, it cannot be said to be a "CONSIDERATION", because a refundable d....
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....1,250/- was a capital receipt: The real test of a salami or premium is whether the amount paid, in a lump sum or in instalments is the consideration paid by the tenant for being let into possession. When the interest of the lessor is parted with for a price, the price paid is premium or salami, but the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital receipt and the latter are revenue receipts" Your Honor's attention is also drawn to 53DTR 92 Delhi High Court CIT Vs. C.J. International Hotels Ltd. "Conclusion: Assessee having constructed the building on land taken on lease from NDMC, it is the NDMC which is owner; further, in view of the provisions of s. 27(iii), it is the sub-licensee who would be 'deemed owner' of those premises which the sub-licensees transferred to the present occupiers and those occupiers interest-free security deposits from sub-licensees and no rent." In view of the above it is submitted that the amount received as refundable security deposit may kindly be accepted as such and no capital gain arises on property given on lease. ....
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....sp; (60.20%) 11,24,310 2005-06 2006-07 33,90,036 (242.9%) 79,76,601 (571.7%) 13,95,231 4.1.12.2 Examination of details further revealed that Shri Manish Kalani and Smt. Padma Kalani held the major portion of shares in the assessee company and M/s Padma Homes (P) Ltd., as particulars given below: A. Share holding pattern of Shri Manish Kalani A.Y. Holding of share in Kalani Brothers (Indore) Pvt. Ltd.,(the assessee) Padma Homes Pvt. Ltd. 2004-05 27% 6% 2005-06 27% 6% 2006-07 27% 30% B. Share holding pattern of Smt. Padma Kalani A.Y. Holding of share in Kalani Brothers (Indore) Pvt. Ltd.,(the assessee) Padma Homes Pvt. Ltd. 2004-05 27% 26% 2005-06 27% 26% 2006-07 27% 30% 4.1.12.2.1 Examination of the bank statements of the above concerns revealed that the assessee and M/s. Padma Homes Pvt. Ltd., had paid considerable amount in the shape of share application money to M/s. EWDPL. It was further noticed that immediately after the receipt of share application money M/....
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.... particulars given below:- S.N. Previous Year Assessment Year Amount of expenditure incurred upto 1. 2003-04 2004-05 Rs. 6,02,800/- 2. 2004-05 2006-07 Rs. 54,56,214/- 3. 2005-06 2007-08 Rs.66,04,34,272/- 4. 2006-07 2008-09 Rs.69,73,76,359/- 5. 2007-08 2009-10 Rs.94,22,91,392/- 4.1.13 Having taken a note of above facts I now proceed to adjudicate on the assessee's above arguments. 4.1.13.1 As regards the assessee's first contention that there was neither the relinquishment of right of the assessee in the plot leased out nor the leasing out of the plot enabled the lessee to enjoy rights as mentioned in clause(vi) of sub-section (47) of section (2) of the I.T. Act, it would be necessary to mention that the Legislature in the scheme of charging capital gain on transfer of a capital asset has categorically laid down that the asset shown be owned by the assessee within the meaning of the provisions of section 2(14) and there must be a transfer of the asset ....
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....linquishment of the asset constitutes "transfer" for the purposes of charging capital gain u/s 45 of the I.T. act. Here it would be reiterated that the assessee claimed that the leasing out of the plot for 29 years with the receipt of refundable deposit did not constitute "transfer". In this context it has to be mentioned that the definition of the term 'lease' has been given in section (105) of the Transfer of Property Act 1992. As per this section lease of immovable property is a transfer of a right to enjoy such property made for a certain time express to implicate or perpetuating in consideration of a price paid or promised, or of a money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. 4.1.13.6 Proceeding further in the matter it is a settled law that the meaning of "transfer" envisaged in sub-section (47) of section 2 of the I.T. Act is not strictly bound by the definition of "transfer" given the Transfer of Property Act. It would be reiterated that the definition of "transfer" in the I.T. Act is incl....
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....f the agreement to lease given in para 4.1.2 of this order may be referred to. From this it inevitably follows that the assessee had already rendered rights to M/s EWDPL to enable it to construct the aforesaid project. Needless to say it cannot be disputed that no one would apply to the State Government Authorities for such permission for construction without having rights over the plots unless and until there is a tacit agreement of transferring the plot to such person by entering into such make belief arrangement beneficial to them. The scope of this right was further widened by the Supplementary Lease Agreement. As per this Supplementary Agreement to lease the right to construct the hotel complex was rendered to M/s. EWDPL. In this context extract of the Supplementary Lease Agreement given in para 4.1.3 of this order may be referred to. From this it follows that by virtue of this transaction the assessee had actually relinquished its right in the leased out plot as well as rendered M/s EWDPL the right to enjoy over the property. 4.1.15.1 In this series it would also not be unnecessary to mention that further perusal of both the Agreem....
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....a 4.13 of the order. 4.1.18 Still proceeding further in the matter with regard to the assessee's argument that every type of transaction enabling the enjoyment of any immovable property for instance the letting out of house to a tenant or a simple transaction of a hotel giving room to a customer would also tantamount for the purposes of capital gain u/s 45, it would again be suffice to say the instances relied upon by the assessee are totally misplaced. It has to be mentioned that the house is primarily given on rent for allowing the tenant to reside in that house and not for the purpose of other enjoyment over the property as given by the assessee by leasing out to the lessee as discussed at length in the preceding paras. Similarly, in the case of giving a room to a customer in a hotel, the customer is entitled only to stay in the hotel room for few days. He is not entitled to carry out any other activity such as modification / alteration / renovation in the room contrary to the various amenities / rights rendered by the assessee in leasing out property to the lessee. In view of these facts it would rather be incorrect by any yardstick....
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.... the practical reasons. Therefore in view of this the assessee's mere mentioning of returning of the deposit does not lead to a conclusion that the assessee had not relinquished / extinguished its right in the property. 4.1.19.2 Before parting from the issue it would also be necessary to mention that as per the Agreement to lease the assessee has rendered right to the lessee to even sale the project or a part of the project so under taken, a situation of selling of a shop at a floor above the ground floor may arise. The purchaser would have the absolute right of ownership over that shop. Thus, at the expiry of the lease period the fate of the ownership of the shop would arise. Moreover, in that situation as per the terms of lease agreement the structure was to be demolished. Thus this casts a serious doubt on th entire transaction claimed to have been under taken by the assessee. As a matter of fact by virtue of this transaction the assessee had relinquished its right in the aforesaid plot. 4.1.19.3 Now coming on to the decisions of the Courts relied upon by the assessee in its favour, it is notic....
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....without any interest of any kind in return. v. In the case referred above almost 10% of the security deposit is being given annual rent. Contrary to this in the case of the assessee a petty amount which is not even 1% of the security deposit is being received as so called annual lease rent. vi. In the case referred above the lease deed clearly mentioned the increase in lease rent after certain time on annual basis. Contrary to this the lease deed is silent on this issue. vii. In the case referred above there is a clear mention of annual lease rent clauses and annual increment clauses. Whereas in the case of the assessee the same is either not mentioned or not mentioned as clearly. 4.1.20 As regards the assessee's reliance upon MP High Court's decision in the case of CIT vs Gulab Ray & Sons reported in 173 ITR 552 it would suffice to say the facts of this case are entirely different to that of the assessee in as much as in this case the issue before the Hon'ble High Court was whether the lease rent received was to be considered as business income or income from house property contrary to this ....
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....nbsp; Thus considering the entire facts and circumstances of the case as emerged from the discussion made above I hold the entire Security Deposit of Rs. 20,00,00,000/- as sale consideration in respect of the transfer of the Plots within the meaning of the provisions of section 2(47) for the purposes of charging Long Term Capital Gain u/s 45(1) of the I.T. Act. Here, it has to be reiterated that the assessee had received the security deposit of Rs. 20,00,00,000/- in the following previous years:- Amount of security deposit Received in P.Y. Rs. 7,04,92,487/- 2003-04 Rs. 3,41,00,000/- 2004-05 Rs.10,59,59,513/- 2005-06 4.1.22.1 Here, It would again be reiterated that the assessee had transferred its plots in the previous year 2003-04 on account of Agreement to Lease dated 21.05.2003, the entire amount of Security Deposit of Rs. 20,00,00,000/- is considered as sale consideration for the purposes of Long Term Capital Gain u/s 45(1) of the I.T. Act in A.Y. 2004-05 on substantive basis, on accrual basis. However, as the amount of Security Depos....
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.... 5,67,420/- and income of Rs. 9,17,049 respectively 5. 29.12.2011 Assessment for AY 2004-05 completed u/s 143(3) r.w.s. 153A determining total income of Rs. 20,92,36,550. The addition of capital gain on lease transaction was made on a substantive basis. 6. 29.12.2011 Assessment for AY 2005-06 completed u/s 143(3) r.w.s. 153A determining total income of Rs. 3,40,58,120.The addition of capital gain on lease transaction was made on a substantive basis. 29.12.2011 Assessment for AY 2006-07 completed u/s 143(3) r.w.s. 153A determining total income of Rs. 10,68,76,560.The addition of capital gain on lease transaction was made on a substantive basis. 3. The primary addition in all the above appeal relates to the addition of capital gain on a lease transaction. As the facts and the grounds relating to the said addition is common, we seek to present our submissions together in this submission. 4. In the original assessment proceedings u/s 143(3) completed on 29.12.2006 (hereinafter referred as "original assessment order for ease of reference), the AO treated the said lease transaction as sale transaction and taxed th....
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....ntinue to exist notwithstanding the fact that the search has been made. Thus a in the present case, the original pending appellate proceedings were still pending. The AO can not proceed to make the same addition in the block assessment without any incriminating material found in the course of search. The said view prevents the AO to undo what has already been completed and has become final in the original assessment proceedings. 9. Without prejudice to the above ground, we would further provide a detailed factual and legal submission on the appellant contention that the transaction entered into by the appellant is a lease transaction and accordingly no capital gain consequences arises. It is to be noted that for the purpose of this submission, we would first put forth the arguments put forth in the original assessment order for and next will further also deal with the AO's additional contention in search assessment order, if any. 10. First and foremost, we take your honour to the facts of the entire transaction. The appellant owns 70784 sq. ft. land which is situated at 11, Tukoganj Main Road, Indore. This land was given on lease to....
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....efund the same. The said aspect is accepted by the AO who doesn't offer any comments as to what would be the consequence in the event of the refund of the security deposit. Thus arises the first contention of the appellant as under - (a) The refundable security deposits under no circumstances can be considered as consideration received or accruing to the Appellant for sale or lease of the land. (b) The said security deposit to be refunded on the termination of the lease of land cannot be the absolute property of the Assessee and hence it could not be taken as the consideration for the transfer of capital assets. (c) Since the refundable security deposits is not consideration for transfer of land and in fact the land is not transferred, the capital gain chargeable to tax cannot be worked out under the provision of the Income Tax Act. 13. It is to be noted that the above contention is made without prejudice to all the other various contentions thereafter and especially without prejudice to the contention that the above mentioned agreement to lease is not a valid document in the legal sense and hence no legal ....
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....ny or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of, any immovable property." 14.1.1 The first and foremost vehement contention of the appellant is that the security deposit is refundable on the termination of lease and hence the same cannot be considered as the consideration for lease of land, as it is a debt appearing in the books of account of assessee. Thus, it is a liability to refund to the lessee on the expiry of the lease period or prior to termination of the lease deed. This being a lease agreement with refundable deposit after a period of 29 years and reversion of the leasehold property back to the lessor, there is no transfer of land and hence there is no question of attracting the provisions of Section 45 for sale of land. 14.1.2 Let us look into the applicability of clause (i) of the section 2(47) which deals with "relinquishment of right". In this regards, your honours attention is drawn to the Apex Court decision in case of Rasiklal Maneklal (HUF) 177 ITR 198 which has clearly held that "A relinqui....
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....distinguishing factor in the above case - in all the above cases the member or the shareholder (transferee) will be the ultimate owner of the property on the basis of his membership or ownership of the shares. There will be no reversion back to the any other person. No where the AO comments on or distinguishes the said aspect. The fact remains that on expiry of the period of 29 years, the lands is to be reverted back to the appellant. In fact the AO doesn't deal with the above situation at all. 14.2 As mentioned above, the AO relies on the various clauses in the agreement to state that the agreement to lease is in fact a "transfer" of immovable property. The comments made by the AO are reproduced as under- "In this series it would also not be unnecessary to mention that further perusal of both the agreements to lease revealed that following rights to enjoy over the leased plots have been rendered by the assessee to M/s EWDPL: (a) As per clause (3) of the agreement the lessee enjoys the facility to give the premises on rent or on the structure erected thereon. (b) As per clause (4) of the agreement the lessee was ....
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....appellant doesn't enumerate the fact relating to the security deposit. The relevant comments of the AO in the said order has been reproduced as under- "After going through the report that clearly mentions about the difference between agreement to lease and the lease deed as registered with the registrar office, shows that stamp duty on an amount of 15+5 crores has been sought to be evaded as a result of a conspiracy done. Therefore, it is further made evident that the assessee in collusion with the sister companies has hatched a conspiracy to evade its dues not only towards the State Govt. Department's but also towards the Central Government Department. Further how the said security deposit shall be refunded and how and in what form/shape the property shall be received is also not mentioned in claimed lease deed. Therefore looking at the above, valid apprehensions arise that the assessee has deliberately used all "colorable device" to deceive the state exchequer and the Central Govt. of its legal dues. 14.3.1 In this regards, it is important to first point out the facts relating to the chronology of the....
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.... (d) of Section 17, sub-section (1) and clauses (a) and (b) of Section 18, shall, if duly registered, take effect as regards the property comprised therein, against every unregistered document relating to the same property, and not being a decree or order, whether such unregistered document by of the same nature as the registered document or not" 14.3.5 Based on the above legal position, we submit that the AO was fundamentally wrong to consider the terms of the agreement to lease which is basically on invalid document in the eyes of law. The registered deed doesn't provide any option to the lessee to sell. Based on the said key aspect, the AO's contention strongly relying on the lessee option to sell falls completely and has no merits. 14.3.6 In the nutshell, on the basis of above contentions, we state that the AO has failed to consider the clauses contained in the registered lease deed which he ought to do and accordingly in the absence of right to sell granted to the lessee in the said agreement, the whole argument build up by AO falls apart. 14.3.7 Further we also vehemently deny the allegations of the AO regarding appellant not....
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....a shop at a floor above the ground floor may arise. The purchaser would have the absolute right of ownership over that shop. Thus, at the expiry of the lease period the fate of the ownership of the shop would arise. Moreover, in that situation as per the terms of lease agreement the structure was to be demolished. Thus this casts a serious doubt on th entire transaction claimed to have been under taken by the assessee. As a matter of fact by virtue of this transaction the assessee had relinquished its right in the aforesaid plot. 14.4.1 On perusal of the first point mentioned by the AO, it is crystal clear that AO distinguishes the lease made by the appellant with the lease of building / hotel room by stating that in the latter case, the lessee cannot modify / alter / renovate the building or hotel room. In this regards, the AO completely loses sight of the fact that the appellant has given "plot of land" on lease. The inherent use of the vacant plot of land would be to alter it to construct a super structure. The vacant land in itself is of no value without the superstructure. So why would any party enter into a lease transaction of a "....
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.... 4.1.7 of this order had also noticed that by not disclosing the entire facts to the State Govt., the concerned concern(s) viz the assessee, M/s Padma Homes Pvt. Ltd. and M/s EWDPL had hatched a conspiracy to evade the payment State Government's legitimate dues also. Needless to reiterate that there is neither any room for returning of the deposit by the lesser to the lessee nor any chance of termination / expiry of the lease period as elaborately discussed in the preceding paras. As a matter of fact the above facts themselves lift the corporate veil of the actual nature of the transaction. Hence I hold that the transaction of leasing out with the condition of returning of security deposit after the expiry of lease period apparently appears to be real but in reality was not real." 14.5.1 As the highlighted portion suggests, the AO states that since the appellant holds shareholding in the appellant, the entire transaction is a "colourable device". However, how the AO arrives at such a conclusion is not provided in the order. The appellant submits that merely because the appellant invested in the lessee, how the genuineness of the transaction gets affected is beyond co....
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....3A. In such an event, the discounted value of the lease rent of Rs. 81,000/- X 29/23,45,000 for its present value would come to Rs. 9,03,833/- (Rupees Nine lacs three thousand eight hundred thirty-three), which can at the most be treated as the consideration and not the Security Deposit which is refundable deposit and hence is a debt. 18. In view of the above, our contention is that the said amount of Rs. 9,03,833 may be considered as "consideration" for capital gain purposes. It is to be noted that the said contention is without prejudice to our primary submission that there is no capital gain implication because there is no "transfer" involved. 19. The first legal backup of the above contentions is present in the opinion of noted tax expert author Mr.S. Rajaratnam which is reproduced from CTR Encyclopedia Of Indian Tax Laws as under- "In respect of long term lease of vacant land, the lessee will put up super structure. The lease deeds ordinarily contain a clause either providing for the lessee to leave the super structure intact while vacating the premises or provide for compensation by the lessor to the lessee at their value. Th....
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....rge capital gains under s.45 r/ws. 48, the following four conditions are required to be fulfilled that; (i) There should be a capital asset; (ii) Capital asset should be transferred; (iii) Consideration has been received in lieu of transfer; and (iv) There was cost of acquisition and cost of improvement. All the four are conditions precedent and in case any requirement remains unfulfilled, there is no question of charging the capital gains. In the instant case, the assessee had not received any consideration in lieu of the transfer of capital asset because the land in question had been given on lease and the assessee received lease rent year after year and on that lease rent, tax had been paid in accordance with law." 22. It is pertinent to note herein that the above judgment has been affirmed by the Hon'ble Rajasthan High Court in decision cited at 321 ITR 165. The AO in its search assessment order has distinguished certain facts of the said case with the facts of the appellants case mainly security deposit being interest bearing in the cited case. Herein, we point out that the AO has completely failed to consider that....
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....ide our submissions dated 25.02.2013 for the both the appeallants. In furtherance to the said submissions, we now present legal submission covering the only the legal aspects of all the appeals including the appeals arising from original assessment as well as assessment in pursuance of search proceedings (under section 153A). The primary addition in all the above appeals relates to the addition of capital gain by treating the lease transaction as a sale transaction. Herein it is pertinent to note that the addition made in the above mentioned search assessment order pertained to the issue already dealt in the original assessment order i.e. lease transaction categorized as sale transaction. 1. Additions made in search assessment orders u/s 153A are bad in law - A search action u/s 132 was conducted on the appellant's business premises on 16.04.2009 and accordingly assessment proceedings u/s 153A were initiated. The same were concluded vide order u/s 143(3) r.w.s. 153A on 29.12.2011 for all the three assessment years viz. AY 2004-2005, AY 2005-2006 and AY 20062007 (here after referred as "search assessment orders"_. He....
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....ilation at Annexure B. The relevant extract has been reproduced as below" "(i) in assessments that are abated, the AO retains the original jurisdiction as well as the jurisdiction conferred on him by s. 153A for which assessments shall be made for each of the 6 assessment years separately; In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material i.e. (a)the books of accounts and other documents found in the course of the search but not produced in the course of original assessment and (b) undisclosed income or property disclosed in the course of search." The said extract clearly brings out the essence of assessment to be carried out u/s 153A, and makes it clear that only incriminating material can form the basis of assessment u/s 153A. In the present case of the assessee, no incriminating material has been found and additions have been made on the purely on the basis of the facts already considered in the original assessments completed u/s 143(3). Thus, the assessee contends that such search assessment u/s 153A is bad in....
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.... and hence liable to income tax. The said section is reproduced here for ease of referencde- "2(47) "transfer", in relation to a capital asset, includes, -- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the assets is converted by the owner thereof into, or is treated by him as, stock in trade of a business carried on by him, such conversion or treatment;][or] (iva) the maturity or redemption of a zero coupon bond; or] (v) any transaction involving the 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 (4) of 1882 ; or (vi) any transaction ( whether by way of becoming a member of, or acquiring 1. shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner what....
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....chall phrase, "similar animals" would mean other types of pets since the other animals in the list are common pets. The said principle is established principle in the Income Tax laws. The latest case to rely the said principle was Supreme Court decision in the case of CIT vs.Smifs Securities Limited. In the said seminal ruling, the Hon'ble Apex Court held that depreciation was allowable on "Goodwill" by invoking the principle of ejusdem generis which means terms falling withinthe sweep of the general definition must be included in it though not expressly named. The income-tax law grants depreciation to know-how, patents, copyrights, trademarks, franchises or any other business or commercial rights of similar nature. The Supreme Court had no hesitation in granting depreciation to "goodwill" as well because it fell within the sweep of the elastic phrase "any other business or commercial rights of similar nature". The purpose of the sid clause is also crystal clear - in the above-mentinoed transactions, although in fact there is a transfer of shares / membership, in substance there is transfer of underlying immovable property. Thus, the said p....
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....cost of acquisition and cost of improvement. All the four are conditions precedent and in case any requirement remains unfulfilled, there is no question of charging the capital gains. In the instant case, the assessee had not received any consideration in lieu of the transfer of capital asset because the land in question had been given on lease and the assessee received lease rent year after year and on that lease rent, tax had been paid in accordance with law." As in the above case, the appellant vehemently submits that there is no "transfer" of the asset and accordingly no capital gain arises. Further, similar to the facts of the said case, in the appellants case too the lease rent received year on year has been taxed as "business receipts". Further, it is pertinent to note herein that the above judgment has been affirmed by the Hon'ble Rajasthan High Court in decision cited at 321 ITR 165. The AO in its search assessment order has distinguished certain facts of the said case with the facts of the appellants case mainly security deposit being interest bearing in the cited case. Herein, we point out that the AO....
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....nbsp; 4. Legality of registered sale deed to be preferred over the unregistered sale deed Another contention of the appellant relates to the fact that the registered agreements do not contain the term provided right to the lessee to sell the leased land. In this relation, the appellant draws attention to the section 50 of the Indian Registration Act which in clear terms provides that the registered deed will prevail over the unregistered ones. The said section is reproduced herewith :- "1) Every document of the kinds mentioned in clauses (a), (b), (c) and (d) of Section 17, sub-section (1) and clauses (a) and (b) of Section 18, shall, if duly registered, take effect as regards the property comprised therein, against every unregistered document relating to the same property, and not being a decree or order, whether such unregistered document by of the same nature as the registered document or not" Relying on the above, it is submitted that the registered lease deed has to be considered good in the eyes of law and accordingly the same only can be considered by the Income tax authorities. 5. Other case laws Relied up....
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....the film has been debited to the profit and loss account. Therefore, even if we look at the case of the assessee from this angle, then also the income would be enhanced by the amount of Rs. 60,66,667 and there would be no relief to the assessee. As the highlighted portion of the said judgment establishes, the facts of the said case are grossly different from the appellants own case. The assessee in the above case has received a deposit of 70 lakhs for leasing out rights of a film. Accordingly it offered only part of the deposit received as income for the concerned year. The Tribunal had held that the entire deposit was taxable in the year in which the deposit was received as the entire cost of the film was debited to P&L. Further, the said deposit was non-refundable. However, the leasing agreement entered into by the appellant in the present case, clearly states the refundable nature of the deposit and hence the said cannot be treated as income of the assessee as done in the above mentioned case law by the assessee. The AO further relies on the decision of the Andhra Pradesh High Court in the case of Badri Narayan Vs Commiss....
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....ness income model, the graph of income vs. the interest cost is greatly skewed. Since the business model is not based on sale income, the capital cost of the asset is largely funded through bank loans as there are no internal accruals from sale of the individual shops and the units which can go in construction cost of the property. The entire construction cost is funded by equity and debt. Due to this reason, in the initial years, there is no surplus/profit as the interest cost is very high. Over the years, the interest cost comes down due to repayment of loans where as the lease rents/annuity income keep on rising as per the escalation clause of the contracts or the revenue share model from the total business done in the shopping mall. 3. The income of shopping mall come from lease rent or percentage of the total revenues /shopping done by the shop whichever is higher. As the turnover of the shop increases, the income of the shopping Mall also increases whereas the interest cost reduces due to repayments of the loan. 4. Hence, the profit/surplus is rear ended in the total business plan period or it comes out of increase in the equity val....
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....ully repaid by the year 201819 and the lease period of 29 years is till the year June 2032. 7. There is no income being earned by Entertainment World Developers Limited by sale of property and hence, the lease transaction cannot be treated as a sale transaction as has been done by the Ld. AO. 8. Entertainment World Developers Ltd. had planned to develop 10 Malls across the country and had plans to go public by the year 2008/09 and it was expected that when they go public, their shares will be quoted at a higher premium. 9. In view of this, the Appellant invested the amount received as interestfree security deposit in the share capital of Entertainment World Developers Ltd. in the expectation of substantial future profit, when the Entertainment World Developers Ltd goes public and its shares are quoted at premium. 10. Further, at the end of lease period of 29 years, the land with or without structure (as the structure belongs to the Lessee) will revert back, by which time, the land value will further increase and the Appellant will gain. 11. Thus, the Appellant's model ....
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....in the matter of Popular Packings Pvt. Ltd. and Anr. Vs. Union of India (UO) and Ors., MANU/RH/0135/2004, in Para No.19, it is held as follows: - Quote: - "19. Thus the exigibility of levy depends upon the language of the fiscal statute. Nothing can be added to or subtracted from the words of the taxing statute. Nothing can be implied in the taxing statute. It is the express words of the taxing statute which determine the field of its operation. There is neither intendment nor equity in a taxing statute." Unquote: - Emphasis laid by the Appellant. (iii) IN THE SUPREME COURT OF INDIA in the matter of Mathuram Agrawal Vs. State of Madhya Pradesh - MANU/SC/0692/1999, AIR 2000 SC 109, where in the last lines of Para No. 11, it is held as follows: - Quote: - "11. ............................ Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. THE STATUTE SHOULD CLEARLY AND UNAMBIGUOUSLY CONVEY THE ....
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....Quote: - Case Note: "Direct Taxation assessment - Section4 of the Income Tax Act assessee firm managing agents of several shipping companies respondent firm entitled to receive commission of 10 percent of freight charge under agreement between those companies subsequently commission reduced to 2 per cent whether larger commission already accrued during the previous year and thus assessable Tribunal decide question in favour of Assessee onbasis that even though actual reduction took place after year of account was over agreement to reduce commission was already their during currency of account year larger income neither accrued nor received by assessee firm Tribunals decision upheld by both High Court and Supreme Court, appeal dismissed". Unquote: - (ii) Further, in Para No.10, it is clearly held as follows: - Quote: - "10. ...................Income tax is a levy on income. No doubt, the Incometax Act takes into account two points of time at whichthe liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income, if income does not result ....
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.... (iii) Further, in this judgment, the Hon'ble Supreme Court has relied on the judgment of Commissioner of Income Tax, Bombay City I Vs. Shoorji Vallabhdhas and Co. - [1962] 46 ITR 144 (SC), MANU/SC/0228/1962, which is the above judgment and has again quoted in Para No. 11, as follows: - Quote: - "11. Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz , the accrual of the income or its receipt, yet the substance of the matter is the income. if income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a hypothetical income" which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax maybe payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account" (emphasis supplied).&n....
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....IL finalized its accounts prior to finalization of accounts by assessee and that in its audit report, it had made no provision for interest as payable to assessee, assessee's claim that interest had not accrued on advances, was to be accepted as any unilateral steps would not give assessee a legally enforceable right to receive interest - Held, yes - Whether unilateral claim of assessee, without other party acknowledging it, amounted to accrual in reality - Held, no - Whether, therefore, there was no accrual of interest income on advances given to RIL, 'L' company and RIIL and assessee had no right to charge interest on such advances". ix) Hon'ble Supreme Court in the case of UCO Bank vs. CIT (1999) 04 Taxmann 547 (SC). Section 5, read and sections 199 and 145, of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 1981-82 - Whether in view of CBDT circular, dated 9-10-1984, interest on a loan whose recovery is doubtful and which has not been recovered by assessee-bank for last three years but has been kept in a suspense account and has not been brought to profit and loss account of assessee, cannot be included in income of assessee - Held, yes - ....
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..... Section 4(1)(a) of the Indian Income Tax Act, 1922 (now Section 5(1)(a) of the Act), is concerned with cases of actual receipt and not with cases of paper receipt. What has got to be examined is that such receipt of income refers to the first occasion when the recipient gets the money under his own control. 10. Neither the word " income " nor the words " is received ", " accrues " and " arises " have been defined in the Act. The Privy Council in the case of CIT v. Shaw Wallace & Co. ILR [1932] Cal 1343, attempted a definition of the term " income " in the following words : "Income, their Lordships think......connotes a periodical monetary return ' coming in ' with some sort of regularity or expected regularity from definite sources." 11. Mukerji J. has defined these terms in Rogers Pyatt Shellac & Co. v. Secretary of State for India [1925] 1 ITC 363 as follows : "Now what is income ? The term is nowhere defined in the Act...... In the absence of a statutory definition, we must take its ordinary dictionary meaning...... The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. '....
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....ception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in present, solvendum in future (emphasis* supplied): see W. S. Try Ltd. v. Johnson (Inspector of Taxes) [1946] 1 All ER 532 and Webb v. Stenton and Ors., Garni-shees [1883] 11 QBD 518. Unless and until there is created in favour of the assessee a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. " Unquote: - 17. From the above judicial pronouncements, it can be observed that, there is no provision under the Income Tax Act, 1961, which provides for taxability of the notional income, which has not been received and not accrued to the assessee in terms of the agreement or otherwise. In the light of the above judicial pronouncements it is submitted that no notional interest on interest free security deposit can be taxed in the hands of the assessee. 18. That the Appellant has invested the security deposit received by them, as equity, in the company i.e. Entertainment World Developers Ltd., which is in business ....
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.... of such deposit. The Appellant business decision was to invest the interest free deposit as an investor in the company, which was going to develop, which has an attractive business plan and for the reason as discussed above. (iv) As per section 5 of the Income Tax Act also the notional income cannot be taxed as discussed supra. It is requested to kindly consider the above and delete the addition wrongly made by the Ld. A.O. Submission of appellant dated 25.11.2013: With reference to the above, most respectfully, the additional grounds of appeal being raised now were inadvertently left out to be raised while filing the appeal before your honour. Copy of the Additional Grounds of appeal is enclosed herewith. That since the following additional grounds goes to the root of the matter and are legal in nature the same may kindly be admitted since the omission of the ground was not willful and raising of the grounds may kindly be permitted in view of the decision of the Apex Court in the case of NTPC Vs.CIT 229 ITR 383. Held APP....
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....efundable interest free security deposit to be received against lease of land treating it as sale consideration for transfer of land of Rs. 10,44,46,750/- as against amount of Rs. 7,04,92,487/- received during the year. This addition of Rs. 10,44,46,950/- made U/s. 143(3) is included in addition of Rs. 20,92,78,750/- made in the assessment U/s 153A for the assessment year 2004-05. 5 IT-630/2007-08 2005-06 U/s. 143(3) i) Addition made on Rs. 4,35,398/- to the income of assessee treating it as cost of demolition charges. The addition made for Rs. 4,35,398/- treating it as cost of demolition is covered by the same ground for the assessment made U/s. 153A 6. IT-21/2007-08 2004-05 U/s. 154 Addition of Rs. 10,44,46,750/- towards amount of refundable interest free security was confirmed U/s. 154 on accrual basis. This addition of Rs. 10,44,46,950/- made U/s. 143(3) is included in addition of Rs. 20,92,78,750/- made in the assessment U/s 153A for the assessment year 2004-05. As can be seen from this table the five appeals have common grounds, hence, they are covered in one single order in succeeding paragraphs. ....
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....ow such security deposit will be refunded. The AO further observed that lease amount was small and no interest was being paid on refundable security deposit. He therefore came to the view that lease deed was a colourable device and it was not in fact a lease transaction but was a transfer of land. He also differentiated the case law cited by appellant in case of Lake Hotels and Motels Ltd. (2004)83 ITJ (ITAT, Jodhpur) 1031 on the basis of points listed above in this para. As a result AO charged the receipts shown as refundable security deposit as amount received towards transfer of land and taxed the entire security deposit of Rs. 20,92,78,750/-as capital gain, on substantive in AY 2004-05, while the amounts of such security deposits received in two subsequent year, i.e.AY 2005-06 & AY 2006-07 i.e. Rs. 4,41,00,000/- and Rs. 10,59,59,513/- were added in those two years also on protective basis, in assessment done u/s 153A. Besides this an amount of Rs. 10,44,46,750/- of such security deposit was also added in AY 2004-05 in assessment done u/s 143(3) and same addition was confirmed in application filed by appellant before AO u/s 154 of the income Tax Act.. 11. The AO's appre....
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....ted at 321 ITR 165. In this decision Hon'ble Rajasthan High Court in last para on page 4 observed as under:- "To be very specific, what is significant to note is, that even a combined reading of the two sections (section 45 & section 48), nowhere provides for any deemed profit or deemed gain or any hypothetical benefit deemed to have been received or to be accuring to the transferor, as a result of the transfer of the capital asset. We may refer to a judgment of the Hon'ble Apex Court, in CIT Vs. Infosys Technologies Ltd. [2008] 279 ITR 167 (SC), which has been relied on by the Ld. Counsel for the assessee, wherein it has been held that unless the benefit is made taxable, it cannot be recorded as income". The facts of the case referred above being similar to that present case and AO failed to indicate any differentiation on the key issues, finding of AO cannot be sustained. The refundable security deposit could not be held as value of consideration in view of the fact that land was leased for 29 years and AO could not prove from the terms of agreement that land transfer was irrevocable or that the security deposit was not refundable. Besides as held by the H....
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....143(3) of Income Tax Act. Hence assessment passed u/s 153A is bad in law. Since this is a legal ground which goes to the root of the matter, the same is hereby admitted following the decision in case of National Thermal Power Corporation (SC) 229 ITR 383 and Shilpa Associates (Raj) 263 ITR 317. 16. It is not possible to invoke provision of section 153A of the Income Tax Act, when scrutiny assessment order was already passed in this case u/s 143(3) of the Income Tax Act. For AY 2004-05 and AY 2005-06 and no incriminating documents were found during search which could establish that such lease agreement was bogus. When normal assessment was made u/s 143(3) and no incriminating material being found in search, the assessment do not abate after search u/s 153A of Income Tax Act as held in case of M/s Al Cargo Global Logistics Ltd. 137 ITD 287 (Mum.) (SB). 17. As a result appeal no. IT-916/11-12 is allowed on both the issue in search of assessment for AY 2004-05, that assessment u/s 153A was not valid and that amount of security deposit received on the basis of lease agreement could not be taxed as capital gain. Appeal no. IT-761/06-07 for AY 2004-05 against....
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.... All these four conditions/precedence and in any case in any condition remained unfilled, there is no question of charging of capital gain. In the instant case, assessee did not receive any consideration in lieu of transfer of capital asset because land in question has been given on lease and assessee received lease rent year after year and lease rent tax has been paid in accordance with law. The said ITAT decision was affirmed by Hon'ble High Court in the decision of 321 ITR 165 (CIT vs. Lake Palace Hotels and Motels Ltd.) and following the judgment, the ld. CIT(A) has allowed the claim of the assessee. We have gone through the order of Hon'ble High Court and we have also gone through the question framed by the Hon'ble High Court which are reproduced in the words of Hon'ble "High Court which read as under: The appeal was admitted on November 7, 2005, by framing the following substantial question of law: whether capital value of such deemed interest to the extent it has been charged lesser than the market rate can be considered as consideration for grant of lease in respect of which the capital gains has to be computed ?" 6. From the above quest....
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....sis of Jodhpur ITAT decision. 8. In respect of 153A bad in law on the ground that original assessment proceedings u/s 143(3) was completed on 29.12.2006 (hereinafter referred as "original assessment order for ease of reference), the AO treated the said lease transaction as sale transaction and taxed the total security deposit receivable as sale consideration of sale of land. The addition made in the search assessment order pertained to the issue already dealt in the original assessment order i.e. lease transaction categorized as sale transaction. The fact that the aforesaid issue bears no relation to the any of the material / documents / records found and seized during the search action on 16.04.2009. Ld. CIT(A) has relied upon the Circular No. 7 of 2003 which clarifies the position of the pending appeals as on the date of the search. The relevant portion is produced herewith - "The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under sec....
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....There is no seized material belonging to the assessee which was found and seized in relation to additions made. In a recent decision, Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) has held that completed assessments can be interfered with by the Assessing Officer while making assessment u/s 153A of the Act, only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which was not produced or not already disclosed or made known in the course of original assessment. In all these cases no assessments were pending on the date of search for these assessment years. No assessments were abated in terms of second proviso to section 153A of the Act. Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) has considered various High Court decisions relied upon by the learned DR. The Hon'ble Delhi High Court has considered the cases of Canara Housing Development Co. vs. DCIT; Madugula vs. DCIT; CIT vs. Chetandas Laxmandas and CIT vs. Anil Kumar Bhatia (supra). The only decision of the Hon'ble Allahabad High C....
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....‡à¤¨ रोड़, इनà¥à¤¦à¥Œà¤° के विलेख के संबंध में सतà¥à¤¯à¤¾à¤ªà¤¨ बाबदॠ। संदरà¥à¤à¤ƒâ€“ पटà¥à¤Ÿà¤¾ आपका पतà¥à¤° कà¥à¤°. अति. सीआईटी / आर पà¥à¤°à¤¥à¤® / कालानी गà¥à¤°à¥à¤ª/06-07 दिनांक 20.12.06 उपरà¥à¤¯à¥à¤•à¥à¤¤ विषय में लेख है कि संदरà¥à¤à¤¾à¤¨à¥à¤¸à¤¾à¤° चाही गई वांछनीय जानकारी के संबंध में आपके दà¥à¤µà¤¾à¤°à¤¾ पà¥à¤°à¥‡à....
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....¤†à¤¤à¤¾ है। फलसà¥à¤µà¤°à¥‚प उकà¥à¤¤ विलेख का पंजीयन à¤à¤¾à¤°à¤¤à¥€à¤¯ सà¥à¤Ÿà¤¾à¤®à¥à¤ª अधिनियम 1899 के अनà¥à¤¸à¤¾à¤° देय सà¥à¤Ÿà¤¾à¤®à¥à¤ª शà¥à¤²à¥à¤• चà¥à¤•à¤¾à¤•à¤° कराया जाना अनवारà¥à¤¯ था। अतः उकà¥à¤¤ विलेख को इस कारà¥à¤¯à¤¾à¤²à¤¯ दà¥à¤µà¤¾à¤°à¤¾ à¤à¤¾à¤°à¤¤à¥€à¤¯ सà¥à¤Ÿà¤¾à¤®à¥à¤ª अधिनियम 1899 की धारा 48 (बी) सहपठित धारा 47 (क) के तहत इस कारà¥à¤¯à¤¾à¤²à¤¯....
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....š की संà¤à¤¾à¤µà¤¨à¤¾ से इंकार नहीं किया जा सकता है । तदà¥à¤¨à¥à¤¸à¤¾à¤° इस कारà¥à¤¯à¤¾à¤²à¤¯ में पà¥à¤°à¤•à¤°à¤£ पंजीबदà¥à¤§ किया गया है। उपरोकà¥à¤¤ पà¥à¤°à¤°à¤•à¤£ के परीकà¥à¤·à¤£ से सà¥à¤ªà¤·à¥à¤Ÿ होता है कि षडयंतà¥à¤°à¤ªà¥‚रà¥à¤µà¤• सà¥à¤Ÿà¤¾à¤®à¥à¤ª डà¥à¤¯à¥‚टी की चोरी की गयी। इस संबंध में आपसे अनà¥à¤°à¥‹à¤§ है कि आपकà¥....
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....led to distinguish the case law referred by the assessee in the case of Jodhpur Bench of the ITAT in case of ACIT vs Lake Palace Hotels. Further, the finding of the Jodhpur ITAT was affirmed by the H'ble Rajasthan High Court. Thus, the CIT(A) held that the facts of the case referred were similar to the present case and the AO failed to indicate any differentiation on the key issues. Accordingly, the refundable security deposit could not be held as value of consideration in view of the fact that the land was leased for 29 years and the AO could not prove from the terms of agreement that land transfer was irrevocable or that the security deposit was not refundable. AR's arguments: - It was submitted that since the security deposit was refundable after the period of 29 years of lease or on early termination of the Lease Deed, it cannot be said to be a "CONSIDERATION" because a refundable deposit is a debt and not a "consideration" received. Thus, in absence of "consideration", capital gains cannot be computed u/s 48. Further, it was categorically pointed out that the lease deeds do not mention of "consideration". Financials of the ass....
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...., what would be the treatment in case the security deposit would get refunded? Similarly, the lessor could at a later date sell the said plot of land. How would the consideration be accounted for and offered for tax at that point in time? It was also argued that, even if the transaction is held to be a colorable device as elaborately explained herein below, consideration cannot be assumed. AO does not get absolute power to substitute his own terms into the agreement. He cannot modify the transaction to suit his stand. |- The learned AR had further submitted that in fact presently the lease deed entered into by the assesses with EWDPL has been cancelled. |- The assesses have entered into fresh lease deed with Indore Treasure Island Pvt Ltd (hereinafter known as ITIPL) for a period of 4 years and 11 months, wherein the security deposit amount is same. It may be noted that ITIPL is owned by outsider although the family members of Kalani have stake in it. Document 6 The above fact clearly suggests that the transaction entered into was that of lease and not transfer and hence question of capital gain does not arise. It was also pointed out ....
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....he land has remained within the group. Even if the corporate veil is lifted, then there is no transfer as everything remains in the group e) It was also argued that, the investment made by the lessor in the business of the lessee was done, so as to take benefit of the higher lease rentals which would be earned by the lessee from the tenants in the mall. It was submitted that merely because the assessee invested in the lessee, the genuineness of the transaction cannot get affected. It was also stated that the purpose of the investment by the assessee was to protect its leased land Therefore, the AR submitted that the said transaction was a commercial transaction entered into between Kalani Brothers, Padma Homes and EWDPL and by no stretch of imagination was it a colourable device. III. Transaction entered into by the assessee cannot be treated as "Transfer" AR's arguments: a) The AR argued that lease is not a transfer but merely a permission to use. Transfer would always imply permanency as well as whole or substantial rights of ownership passing onto the transferee. Further, the AR submitted the following in respect of various clauses....
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....aken place but the mortgage deed is entered by the assesses and not by the lessee and this aspect clearly proves that the assesse is still the owner of the property. b) The AR further submitted that in the assessees case, the right to the property has not been relinquished and it is clearly provided that the land would revert back after the lease period. Hence, there is no relinquishment of any asset. Apex Court decision in case of Rasiklal Maneklal (HUF) 177 ITR 198 has held that "A relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto". The current case clearly does not fall in the definition of relinquishment and accordingly, it is not a transfer by virtue of clause (i) of Section 2(47). c) If the interpretation made by the AO of the clause (vii) of Section 2(47) prevails then every type of transaction enabling the enjoyment of any immovable property would be treated as "transfer". Had it been so every transaction of a hotel giving room to a costumer shall get caught by the term "enabling the enjoyment of immovable property" and shall become subject to clutches of Capital Gains p....
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....ion 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate..........." Accordingly, as far as completed assessments are concerned, they do not abate. Document 10 The AO cannot proceed to make the same addition in the block assessment without any incriminating material found in the course of search. The said view prevents the AO to undo what has already been completed and has become final in the original assessment proceedings. Further, reliance can be placed on the decision of the Special Bench of the Mumbai ITAT in the case of M/s All Cargo Global Logistics Limited Vs DCIT 137 ITD 287 (Mum)(SB), wherein the scope of assessment u/s 153A was discussed. The relevant extract has been reproduced as below" "(i) In assessments that are abated, the AO retains the original jurisdiction as well as the jurisdiction conferred on him by s. 153A for which assessments shall be made for each of the 6 assessment years separately; In other cases, in addition to the income....