TaxTMI 
TaxTMI 
2021 (7) TMI 619
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....e consent of both the parties. 2. The assessee has raised following grounds of appeal in memo of appeal filed with the tribunal: "1. Because the Ld. Commissioner of Income Tax (Appeals), Allahabad while correctly holding that the Capital Gain on the impugned sale of property should be taxed in A.Y. 2012-13 instead of A.Y. 2013-14 as per law, has erred in giving further direction to the Assessing Officer that Freehold Conversion Charges of Rs. 1,43,62,000/- should not be allowed either as cost of improvement or expenses relating to transfer of the said property, treating it as mere reimbursement of expenses by the buyer without considering the fact that conversion of property from leasehold to freehold was essential to cure the title of the said property before transferring it to the buyer and it was also clearly mentioned in the registered agreement to sell dated 11.07.2011. 2. Because the Ld. Commissioner of Income Tax (Appeals) erred in concluding that the entire process of conversion of the said property from leasehold to freehold has been undertaken by the appellant i.e. seller only on behalf of the buyers. The appellant i.e. seller has acted merely as "nam....
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....sale was entered by the assessee for sale of his share of aforesaid property in previous year relevant to ay: 2012-13. The share of the assessee in the said property was 25% and hence total sale consideration with respect to share of the assessee was taken by the A.O was to the tune of Rs. 1,50,50,250/-, and the income was computed by the AO of the assessee for ay: 2013-14 after giving benefit of indexed cost of acquisition of property on 01.04.1981 based on the then prevailing circle rate(assessee's share in property-25%),the legal expenses and cost of improvement on account of conversion of property from leasehold to freehold expenses(assessee's share in property -25%). 4. The assessee being aggrieved by an assessment framed by the AO bringing to tax income from long term capital gains from sale of share of assessee(25%) in the aforesaid property in ay: 2013-14 , as against income offered to tax by assessee in the return of income filed for ay: 2012-13 , filed first appeal before ld. CIT(A) challenging assessment framed by AO against the assessee. The ld. CIT(A) , vide appellate order dated 20thMarch, 2017 for ay: 2013-14 was pleased to hold that the assessee income by way of ....
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....ct. The ld. Counsel for the assessee submitted that ld. CIT(A) has rightly held that income from long term capital gains arising from sale of share of the assessee in the aforesaid property is to be assessed to tax in ay: 2012-13 , but ld. CIT(A) exceeded in his jurisdiction in giving direction to A.O. by stipulating the manner in which assessment is to be framed for ay: 2012-13, wherein ld. CIT(A) directed that no deduction be allowed for amount paid for conversion of said property from leasehold to freehold. It was submitted that although ld. CIT(A) was seized of an appeal filed by assessee for ay: 2013-14, the ld. CIT(A) should have ordered the A.O. to decide the issue for ay: 2012-13 in accordance with law rather than giving directions to frame assessment in a particular manner. Our attention was drawn by ld. counsel for the assessee to the appellate order dated 20.03.2017 passed by ld. CIT(A) , Page No. 6 to 8, Para 4, which is reproduced hereunder: "4. Decision In view of the decisions of the Hon'ble Supreme Court and Allahabad High Court (supra) as cited by the ld.A.R in this regard. I hereby hold that the capital gainon sale of the impugned property ha....
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....eration mentioned here in above On receiving the said amount from the Second Party the First Party shall without undue delay,deposit the same with the State Government.' 4.2 Para 15 of the same agreement clinches the issue wherein it has been stated "15 If due to unforeseen reasons (like government policies) the aforesaid property is not converted to freehold by the state Government infavour of the First party within 18 months from the date of execution of this agreement to sell, the Second Party shall forthwith pay a furthersum of Rs. 1,10,00,000/- (Rupees one crore and ten lacks only) to the first party and the first party shall hand over possession of the property to the Second party immediately thereafter. Further, on such an eventuality, the Second Party shall have the option, within the period of validity of this agreement to sell, of getting the transfer/sale deed executed in its favour by the First Party in respect of the aforesaid property on an "as is where is" basis without the land being converted to freehold. However, the balance amount of the sale consideration of Rs. 1,06,33,000/- (Rupees one cores six lakhs and thirty three thousand only ) whic....
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....paid towards conversion of aforesaid property from leasehold to freehold and it is the sale of the same property which was before the tribunal while adjudicating appeal in Appeal No. ITA No. 68/Alld/2018 , as in the instant appeal before the tribunal, as the property was co-owned by four owners who sold their respective shares. 6. We have considered rival contentions and have perused the material on record. The issue before us is within narrow compass and concerns itself with the allowability of deduction u/s 48 towards cost of improvement with respect to amount paid by the assessee towards his share towards conversion of aforesaid property from leasehold to freehold. This issue was decided by tribunal in the case of Mr. Sanjay Majumdar ( brother of the assessee) who was also one of the co-owners of the aforesaid property . The issue was decided by tribunal in ITA no. 68/Alld/2018 in the case of brother of the assessee namely Mr. Sanjay Majumdar , based on the facts of the case and after considering the entire material on record which ,inter-alia, included, agreement to sale , freehold deed and sale deed , vide appellate order dated 28.01.2021 (wherein both of us were part of th....
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....Limited on 15.07.2011 , for a total consideration of Rs. 4,53,62,000/- , which sale consideration amount includes freehold premium, freehold conversion stamp duty amounting to Rs. 1,43,62,000/- . Thus, as per agreement the consideration value included freehold charges. The relevant clauses as is recorded in agreement to sell dated 15.07.2011, are reproduced hereunder: "AND WHEREAS the Second Party aforesaid wants to purchase the aforesaid leasehold property including House No. 9 and 9/2 (New Nos.40 and 41 respectively) Minto Road, Allahabad and also including three outhouses bearing nos. 42/9/1, 39/9/3, and 38/9/4 along with Nazul Plot No. 6, Rajapur Bandbawa, Allahabad and the total Area of the aforesaid Nazul Land 3102 Sq. Yards = 2593.58 Sq, Metres,(together with all rights, title and interest) and has offered a sum of Rs. 4,53,62,000/- (Rupees Four crores Fifty Three Lakhs and Sixty Two thousand only) (which amount includes freehold premium, freehold conversion stamp duty, etc. amounting to Rs. 1,43,62,000/-) as its sale consideration which is the maximum and most adequate price which the aforesaid property could fetch at present. Accordingly, the First Party agrees to....
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....1 Drawn on INS Vyaya Bank, Civil lines branch, Allahabad, for an amount ofRs. 50,00,000/- (Rupees Fifty lacs only ), (2} Banker's Cheque No 000929 dated 15 July 2011 Drawn on ING Vysya Bank, Civil lines branch, Allahabad, for on amount of Rs. 50,00,000/-(Rupees Fifty lacs only), (3) Banker's Cheque No.000930 dated 15 July 2011 Drawn on ING Vysya Bank, Civil lines branch, Allahabad, for an amount of Rs. 50,00,000 /- (Rupees Fifty lacs only) (4) Banker's Cheque No 000931 dated 15 July 2011 Drawn on ING Vysya Bank, Civil lines branch, Allahabad, for an amount of Rs. 50,00,000/- (Rupees Fifty lacs only), and (5) Cheque No 822977 dated 30 May 2011 drawn on ING Vysya Bank, Civil Lines branch, Allahabad in favour of Sudeb Majumdar for an amount of Rs. 37,29,000/-(for freeholdapplication) the receipt of which is hereby acknowledged by the First Party and the balance sale consideration of Rs. 2,16,33,000/-(Rupees Two Crores Sixteen Lakhs Thirty Three Thousand only) shall be paid by the Second party to each of the First party as provided hereunder." Thus , it could be seen that Rs. 37,29,000/- out of total advance of Rs. 2,37,29,000/-was paid by buyers to sellers towards....
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.... 3. That the First Party shall file an application for conversion of the aforesaid Nazul Plot No.6 Rajapur Bandhawa, Allahabad to freehold measuring 3102 Sq. yards = 2593.58 Sq. Meters along with the application money (part payment of frehold premium) out of the money advanced as provided herein. 4. The liability for payment of the application money and further conversion charges / premium of conversion from nazul to freehold land of the aforesaid property, including all charges, expenses, stamp duty, registration charges, etc. present or future in respect of the aforesaid property for freehold conversion shall be of the First Party who will bear, the same out of the money advanced by the Second Party under this agreement. The Second Party shall not be entitled to claim any refund whatsoever from the first Party, in respect of the payments made by the First Party under this clause. 5. Whenever any demand is raised/ made by or on behalf of the State Government for payment of the balance of the freehold conversion charges /premium, etc. during the period of validity of this agreement to sell, the Second Party shall forthwith pay to the First Party th....
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....d into freehold land, before being transferred to the buyers. Further, the conversion of leased Nazul land into freehold property shall certainly improve the title of the owners which shall become perfect on being converted into freehold property. The property consists of bundle of right and getting the said leased 'Nazul land' converted into freehold will certainly improve the title and marketability of the said land. Moreover, since it was a leased Nazul land , the ownership vested with Government till it is converted into freehold land and in that eventuality , the complete ownership of the property will get transferred to the assessee and his three brothers. Thus, presently title of the leased Nazul Land could have been transferred only after the land is converted into freehold land , deed is executed and conveyance charges/stamp duty paid for getting it converted into freehold in the name of sellers who are the registered lessee before ultimately transferring the land to the buyers, certainly the said freehold cost/charges were necessarily required to be incurred for removing the impediment to sale and getting the said land ultimately transferred to buyers. It will als....
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....have taken the onus for getting the said leased 'Nazul land' converted into freehold including follow up with Government authorities , for which the sellers have to extend full co-operation so that it can be expeditiously converted into freehold , including signing of all documents etc. required in connection therewith. The funding was done by buyers for said conversion of land to freehold , such as payment of stamp duty, conversion charges etc., but the same was paid out of the total sale consideration agreed upon in the agreement to sell , dated 15.07.2011 viz. Rs. 4,53,62,000/-, as is emerging from the records. 6.9 The agreement to sell , dated 15.07.2011 further provided that the period of validity of the agreement is 36 months and immediately thereafter , the agreement to sell shall stand rescinded , and the sellers will forfeit all the amounts paid by buyers under this agreement. The relevant clause in the agreement to sell , dated 15.07.2011 is reproduced hereunder: "14. That the period of validity of this agreement to sell shall be thirty six (36) months from the date of execution of this agreement to sell. Immediately thereafter, this agreement to....
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....,00,000/- ( exclusive of remaining unpaid freehold conversion charges, stamp duty etc as provided in agreement of sale ) to the sellers and get the possession of the property in their favour and at their option get the transfer/sale deed executed in their favour. It also provided that in case, the freehold conversion charges, stamp duty etc. are increased by Government, then the buyers will pay for the same. This clause also takes care of the sellers getting assured net consideration for their property and since the period of agreement to sale is fairly long period of thirty six months, in the eventuality of change in government charges/ stamp duty, the buyers are to bear the same. In that eventuality, there will be adjustment in the sale consideration which will stood increased to that extent and consequently the deduction on account of cost/charges towards improvement to the property shall also go up, so much so that it will be tax neutral. These are terms agreed by two willing independent parties to contract and they are within their rights to arrange their affairs, so long as it does not result in defrauding Revenue or infringing statutory provisions . There is nothing unusual ....
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....Section 48 of the 1961 Act were rightly applied with by the assessee, while computing income from long term capital gains chargeable to tax. 6.11 We have also gone through sale deed , dated 25.04.2012 . This sale deed was executed by sellers in favour of the buyers, after the said property was converted into a freehold property, There is nothing in the registered sale deed which can led us to any conclusion other than that the freehold conversion charges, stamp duty etc. were borne by the buyers which form part of the sale consideration as is agreed upon. The agreement to sell was valid for 36 months and sale deed was executed after the property was converted into freehold property. It is the covenant agreed by and between two independent willing parties as to the agreed sale consideration for the property, mode of payment and manner in which it is to be discharged. The parties are within their rights to arrange their affairs in the manner best suited to them , so long it does not violate statutory provisions or led to defrauding of Revenue. There was an impediment to transfer this leasehold Nazul Property unless the property is converted into freehold and hence to obviate....
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....s for ay: 2013-14, two references were made by ITO , 1(5), Allahabad to Additional Commissioner of lncome-tax,Range 1, Allahabad dated 30.10.2015 and 04.01.2016 , both u/s 144A of the 1961 Act in connection with sale/transfer of this property , which references were disposed of by Addl. CIT vide orders dated 18.12.2015 and 28.01.2016 respectively , which ultimately led to reopening of the assessment u/s 147/148 of the 1961 Act for the impugned ay: 2012-13. We have also gone throughthe reassessment order passed by AO u/s 147 read with Section 143(3) , dated 24.06.2016 and an order dated 27.02.2017 passed u/s 147 read with Section 143(3) and 154 of the 1961 Act and we are of the considered view that the AO has applied his mind before passing reassessment order. At the same time , we are in agreement with Id. CIT-DR that mistake has crept in reassessment order as cost of improvement is indexed by taking cost inflation index base of financial year 2012-13, while the entire payments were made for freehold charges / stamp duty etc in fy:2011-12. Thus, the cost inflation index base for fy: 2012-13 to be 852 was adopted while computing income from long term capital gains, while the cost in....