C I T JAIPUR vs. JADAV DEVI DANGAYACH

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 172 / 2015 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus Jadav Devi Dangayach, 903, Baba Harish Chandra Marg, Jaipur. ----Respondent/Assessee _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay & Mr. N.S. Bhati For Respondent(s) : Mr. Gunjan Pathak with Mr. Aditya Bohra _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 12/12/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of assessee reversing the view taken by A.O. 2. This Court while admitting the appeal on 27.09.2016 framed following substantial question of law: “1. Whether the Tribunal was right and justified in holding that the amount of Rs.2,42,44,000/- should not be treated as income of the assessee under Section 28(va) (a) of the Act being non compete fees received by it, ignoring the assessee’s own submission and the fact that the valuation of the property under question rose from Rs.7,56,000/- to Rs.2,50,00,000/- within 9 months.” and subsequently on 07.12.2017 following additional substantial

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question of law was framed: “Whether the tribunal was justified in passing the impugned order without application of mind and recording findings which are contrary to facts on records?”

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iii) The partnership firm was constituted on 10.05.2006 and reconstituted by retiring assessee on 15.03.2007 and between this period there is no business activity in the partnership firm except that application is moved for change of land use and land got converted. Since there is no business activity in the partnership firm between this period and prior to this period, hence there is no question of any reputation or good will or competitative business. Thus, payment so made to assessee is nothing but payment for sale of agriculture land. iv) As per the partnership deed the assessee has contributed her agriculture land measuring 5 bigha at nominal cost of Rs.7,56,000/- and thereafter payment of Rs.2,42,44,000/- was made on account of non compete fee to a person a aged 90 year and having no experience of such type of business. The DLC rate of the said land is also of Rs.2.50 crore which is the real payment made to assessee by firm. Thus that payment of Rs.2.50 crore is nothing but payment towards sale of agriculture land by assessee. In view of above facts, it is clear that substance of the transaction is sale of agriculture land, hence the income arising on transfer of agriculture land is liable for tax u/s 45 of the Act.” which was affirmed by the CIT (A) which reads as under: “iv. Thereafter,

the

partnership

was reconstituted on 8.3.2007 whereby the appellant exist the firm. It is pertinent to note that on page 2 of this partnership deed it was mentioned that Smt. Jadav Devi wanted to exit the firm on account of personal profits. On page 5 of the partnership deed in paras 8 & 9 it has been mentioned as follows:- 8- **;g fd tMko nsoh Maxk;p ds iwath [kkrs ds orZeku 'ks"k lkr yk[k NIiu gtkj :i;s dk Hkqxrku pSd la[;k 109430 fnaukd 15-03-2007 ,p- Mh-,Q-lh- caSd t;iqj ds }kjk Hkqxrku fd;k tk jgk gSA** 9- **;g fd tMko nsoh Maxk;p }kjk Hkqfe ,oa QeZ ls lEcfU/kr lHkh izdkj ds vf/kdkj NksMus] QeZ esa gksus okys ykHkks esa vius fgLls dks NksMus] QeZ ds dk;Z ls izfrLi/kk u djus ,oa Hkqfe lEcU/kh fdlh Hkh izdkj dk iz’ku vkus ij viuk lg;ksx djus ds izfrQyLo:i ,d eq’r jkf’k nks djksM fc;kfyl yk[k pOokyhl gtkj :i;s dk pSd la[;k 109429 fnuakd 15-03-2007 ,p- Mh-,Q-lh- cSad t;iqj ds }kjk Hkqxrku fd;k tk jgk gSA ** v) The submission of the AR during the assessment proceedings and subsequently during

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the appellate proceedings that the intention of the appellant was to save the payment of stamp duty on transfer of this land is also not supported by the evidence on record. To verify the submissions made by the appellant from time to time and assessment records of M/s Sequin Real State were called for. On perusal of these records it was seen that the appellant had presented the sale deed before the stamp and Registration Deptt. in the office of Sub-Registrar SR-4 (Annexure-4) for registration of the transfer of land by her to M/s Sequin Real Estate on 11/5/2007. The value of land had been evaluated at Rs. 58,39,703/- and the stamp duty payable had been determined at Rs. 4,03,840/-. It was 15 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach mentioned in this deed that a payment of Rs. 7,56,000/- had been made to her for the transfer of this land to the firm. vi) Moreover, on perusal of the accounts of the firm it is seen that the firm has been sown land introduced as capital by Smt. Jadav Devi Dangayach at Rs. 7,56,000/- in its books of accounts and this is shown at the same value in its closing stock. vii) On perusal of the file of M/s Sequin Real Estate Pvt. Ltd. it is seen that during the assessment proceedings they have filed a letter dt. 18/11/2009 wherein they have submitted that given the over whelming response to the housing project launched by the firm, the brand of the firm got established very quickly. Thereafter some differences arose between Jadav Devi and the other partners of the firm and she threatened to withdraw her portion of land and also wanted to start a competing project of the said portion of land. The action threatened by the appellant was likely to disturb the existing residential housing project of the firm. Since it had already received an amount of Rs. 415.44 lacs against the booking of 233 flats. So it took a conscious decision to negotiate terms of settlement with Smt. Jadav Devi for her peaceful exit and to pay a non competing fee of Rs. 2,42,44,000/-.

viii) The most damaging evidence against the appellant is that the fact that on the one had she has been stating all along that she signed the reconstituted partnership deed transferring her rights in the land to the firm to save on Stamp Duty and on the other hand has subsequently got

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the sale deed/conveyance deed registered with the Sub-Registrar as per annexure-A. Moreover, as per this document it is seen that the DLC rate of the land was Rs. 58,39,703/- so it is not understood why such a hefty payment of Rs. 2,42,44,000/- was paid/received by her over and above the DLC rate of the land determined by the Stamp Valuation Authority. ix) I have carefully perused all the case laws relied on by the AR and find that the facts of these cases are distinct from the facts of the case of the assessee. In fact the findings of the Hon'ble High Courts & Tribunal in all these orders go against the contention made on behalf of the appellant. In all these judicial pronouncement, the Hon'ble High Courts and Tribunals have consistently held that as per section 45(3) for the purpose of section 48 the amount recorded in the books of the firm is to be deemed to be the full value of consideration received or accrued. In the case of the appellant, the full value of the land as recorded in the books of account of the firm is only Rs. 7,56,000/-. In fact, as per the registered sale deed it has been mentioned in para 12 that Rs. 7,56,000/- has been paid to the appellant vide 17 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach cheque No. 109430 dtd. 15/3/2007. Therefore, as per the case laws relied on by the AR the capital gains that accrued to the appellant were only of Rs. 7,56,000/-. x) Regarding the reliance of the AR on the finding of the Hon'ble Delhi Tribunal in the case of DLF Universal Ltd., wherein it was held that subsequently if the asset is revalued or any other amount is credited in the account of the partner, it is to be considered as the amount recorded in the books of account for the purpose of capital gains tax on contribution of assets in partnership firm. The facts of the case are distinct in so far that the firm did not revalue the asset that is land contributed by the appellant in its books of account; the payment made was much more than the DLC rate determined by the stamp valuation authority; finally, the payment was made for severance of the partnership where it was clearly noted that the amount was paid to the appellant for not competing in business. xi) Regarding repeated submissions by the AR that the appellant was not competent to compete by virtue of her age and lack of experience it is held that she had given a general power of

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attorney to her son Sh. Jugal Kishore Dangayach aged 58 years and had authorized him to look after her business interest. She was exercising her right of safeguard here 18 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach business interest through her son who was competed to do so. xii) Regarding the submission of the AR that the case of the assessee was covered under the proviso to Section 28(va) it is held to be not tenable. The proviso clarifies that clause (a) of Section 28(va) shall not apply to any sum received on account of transfer of any right to carry on any business which is chargeable under the head capital gains. In the case of the appellant, the right to carry on any business chargeable to tax U/s 45(3) has been specified at Rs. 7,56,000/- as per discussion above. Any payment made over and above this amount would not be covered by the proviso and would fall with the provisions of section 28(va)(a). In view of the above discussion, it is held that the impugned income of Rs. 2,42,44,000/- is to be treated as income under section 28(va)(a) and the addition is confirmed."

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capital gain had worked out at Rs. 2,42,05,334/- claimed deduction U/s 54F, 54EC, U/s 54B at Rs. 2,42,05,334/- and had shown net taxable capital gain NIL, which has not been verified by the ld Assessing Officer at the time of assessment proceedings. We hold that the nature of transaction is covered U/s 54(3) of the Act, therefore, the Assessing Officer is directed to verify the deduction made by the Assessing Officer from the capital gain disclosed by the assessee in her return. The assessee's appeal on this ground is partly allowed. 11. The sole ground of revenue's appeal is against deleting the addition of Rs. 13,60,081/-. The ld Assessing Officer observed that M/s Sequine Real Estate had deducted TDS of Rs. 13,60,081/- on payment of Rs. 2,42,44,000/- being non compete fees and the said payment was deposited in the government account on 19/10/2007. The assessee had not claimed deduction of same. The same was added in the income of the assessee. The assessee challenged this issue before the ld CIT(A), who had allowed the appeal by observing that in fact credit has to be allowed to the appellant of this TDS after due verification after determining the tax liability of the appellant. The ld DR supported the order of the Assessing Officer. At the outset, the ld AR for the assessee submitted that the fact of this ground is that M/s Sequin Real Estate suo moto deducted and deposited Rs.13,60,088/- on 29-10-2007 with a interest of Rs.97,083/- on the payment of Rs.2,42,42,000/- by alleging such amount as payment towards non compete fees. At the time of payment no tax was deducted at source. Even the TDS certificate was not issued. The AO observed that the firm deducted a sum of Rs.13,60,088/- as TDS on the payment of RS.2,42,44,000/- being non compete fees. The assessee has not claimed the deduction of the same hence, no credit for TDS is allowed. He further made an addition of this amount by holding that the same is the income of the assessee. CIT(A) held that tax is deducted on the payment of the non compete fees which is assessed to tax and therefore the amount of TDS cannot be added to the income of the assessee and credit of TDS be allowed to her after due

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verification. At the time of payment no tax was deducted at source, and therefore no TDS certificate was issued. Subsequently as an afterthought the firm directly deposited the amount of tax deducted at source. No certificate was issued to the assessee. The ld AO on the basis of this had assessed this amount as business income u/s 28(va). Therefore, the AO is allowed to credit for the same. After considering the facts of the case, the Assessing Officer is directed tom verify the particulars of TDS and give the credit of tax deducted to the assessee after verification. Thus, the appeal filed by the revenue is dismissed. 5. However, counsel for the appellant has contended that the view which has been taken by the Tribunal has not considered the finding which has been affirmed by CIT(A) and Tribunal being fact finding authority has not given proper finding while reversing the view of two authorities and more particularly when the TDS has been deducted for claiming as non compete fee. 6. Counsel for respondent contended that the assessee (Jadav Devi) is now 94 years of age and the person who was managing the affairs has expired. In that view of the matter and looking to the age, no remand is required. However, looking to the fact that the original company has claimed non compete fee, and the same was withdrawn but once the TDS is deducted, the finding is required to be given by the Tribunal. 7. He contended that the aforesaid relief is to be considered reserving the finding given by the Tribunal and thereafter it will be open for the Tribunal to come to the same conclusion but after considering these two clauses, it will give its opinion in accordance with law.

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