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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘B, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, AM:
This appeal is filed by the revenue against the order of CIT(A) - 4, Hyderabad, dated 22/03/2017 relates to the AY 2011-12.
Briefly the facts of the case are, assessee is a company, not filed return of income for the AY 2009-10. AO received information from Directorate of Income-tax (CIB) regarding transaction involving immovable property entered into by the assessee during previous year relevant to AY 2008-09. AO issued notice u/s 148 of the Act on 09/10/2013, which was served on the assessee on 28/10/2013 by obtaining proper approval from Additional CIT, Range – 16, Hyderabad, calling for return of income. Subsequently, notices u/s 142(1) were issued and in response, assessee has filed return of income on 09/03/2015 for the AY 2009-10, in which, it has not offered any long term capital gain (LTGC) and along with return of
2 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. income, filed a letter dated 11/03/2015, wherein it was stated as under:
" that the assessee company is not liable to capital gains for the AY 200910 as the company is not the owner, of the above properties and it has not transferred any ownership pertaining to the above properties. The assessee has entered into a development agreement with the original owners as its business transaction in the normal course of its business. The said property is in litigation over its title with other parties. Therefore, the development agreement could not be implemented due to various litigations 'in courts at various stages about the title of its original owners with whom the company has entered into development agreement. The company has signed the documents in the above transactions as mentioned in the notice at the request of the vendees as a consenting party being development agreement holder along with the legal heirs of original owners and the decree holder. Therefore, there cannot be any capital gains in the hands of the assessee company in the above transactions for the said assessment years.
Hence, at no point of time the assessee company M/s Mohan Mansions Pvt. Ltd. is a legal owner and it has entered into the above said transactions as its business transaction being developer. Therefore, the provisions of Section 5OC are not applicable to the assessee company. Therefore, the difference of Rs. 3,17,25,600 (Rs. 1,53,69,600 + Rs. 1,63,56,000) cannot be treated as income from Long Term Capital Gains to the assessee and accordingly not taxable in the hands of the company.”
2.1 After considering the return of income and letter submitted by the assessee, the AO rejected the contention of the assessee and observed that in the sale deeds relating to the properties, which were transferred by the M.D. of the assessee company as the executant and the main signatory of the above said two sale deeds. He further noticed that statutory fees for registration of the above two documents and also the deficit stamp duty of Rs. 1,62,930/- levied in respect of the instrument on Shri V. Mohan Rao and therefore, the
3 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. burden of proof lies on the assessee to prove that the whole or any part of the sale consideration had not been received by it by providing necessary evidence. Against this, the assessee has submitted that at no point of time assessee was the owner of the property or it is liable to capital gains for sale of such property. After considering the submissions of the assessee, the AO treated the above sale transactions as belong to the assessee and invoked section 50C, accordingly, brought to tax the LTCG in the hands of the assessee. Aggrieved, the assessee preferred an appeal before the CIT(A).
Before the CIT(A), the assessee filed detailed submissions, which are as under: "Sri Shivella Sayanna, S/o. Ramanna along with his son Sri Shivalla Yadaiah have executed an agreement of sale on 15/07/1973 for the sale of property situated at Plot No.16 forming part of S.No.403/120/9 situated at Shaikpet Village, Hyderabad admeasuring to 1136.00 Sq. Yards or 949.7 Sq. Meters in favour of Sri A. V.Desai S/o. Viswanath Desai for a total sale consideration of Rs.6,316.00. Sri A. V.Desai has paid an amount of Rs.6,300/- at the time of the agreement of sale as part consideration. Upon receipt of major part of sale consideration, Sri Shivella Sayanna, S/o. Ramanna along with his son Sri Shivalla Yadaiah have handed over the possession of the said property on the date of agreement of sale, i.e., 15/07/1973 to Sri A.V.Desai. However, Sri Shivella Say anna, S/o. Ramanna along with his son Sri Shivalla Yadaiah have not registered the property in favour of Sri A.V. Desai subsequent to the sale of agreement. Sri Shivella Sayanna died subsequently. After Shivella Sayanna's death, his wife Smt. Shankaramma and son i.e., Sri Shivalla Yadaiah have not bothered to register the property in favour of Sri A. .Desai .
Sri A.V. Desai having paid the balance consideration and after lot of persuasion has filed a suit for specific performance for registration of property in the court of Third Assistant Judge, CCC, Hyderabad. Smt. Shankaramma and son i.e., Sri Shivalla Yadaiah contended that they spent huge amounts when some
4 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. litigation has arisen, and sent a proposal for compromise for which Sri A.V. Desai agreed and entered into a compromise by making further payment. Finally the court has given a decree to the compromise in favour of Sri A.V. Desai on 11/12/1996. Sri A.V. Desai, therefore, is the legal owner of the Property even on the date of the above transactions being a decree holder. Further, as per the provisions of Sec.53A of the Transfer of the Property Act, 1882 also, Sri A.V. Desai is the Owner of the Property by virtue of agreement of sale dated 15/07/1973 till the date of transfer in the two transactions as mentioned in your notice.
This being the situation of the case, Smt. Shankaramma and son i.e., Sri Shivella Yadaiah. along with the other legal heirs of Sri Shivella Sayanna, S/o. Ramanna have entered into a development agreement with M/s. Mohan Mansions Limited on 31/10/1988 and taken an advance of Rs.20 lakhs in 1988 for the development of the property though they are not legal owners pending litigations. The terms of the development agreement was registered on 15th April, 2006 as a Development Agreement Cum General Power of Attorney for the development of the said property vide document No. 1579 of 2006 with Sub Registrar, Hyderabad. The development agreement could not be implemented due to various litigations in courts at various stages including that of with Sri A.V. Desai as mentioned above.
Then Sri A.V. Desai, the Decree holder for part of the land agreed to be developed by the company, disposed off his decreed land to the extent mentioned in the above two transactions by making it two parts, one in favour of Sri N.Raja Babu and others vide document No.3597/2008 on 25/09/2008 and the other in favour of Sri Amaravadi Laxmi Narayana vide document No.2188/2008 on 09/06/2008. The assessee company M/s. Mohan Mansions Limited being a development agreement holder has joined as a consenting party at the request of the vendees in the above two transactions. All these facts were clearly incorporated in the sale deeds mentioned in the notice.
4…………
In this connection it is submitted that the assessee company is not liable to capital gains tax for the A.Y. 2009-10 as the company is not the owner of the above properties and it has not transferred any ownership
5 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. pertaining to the above properties. Further the assessee company has entered into a development agreement with the original owners as its business transaction in the normal course of its business. The said property is in litigation over its title with other parties. And hence the development agreement could not be implemented due to litigations in courts at various stages about the title of its with whom the company has entered into development agreement. It is also a fact that Sri V. Madan Mohan Rao has signed the documents on behalf of assessee company in above transactions at the request of the vendees as a consenting party being development agreement holder and the legal representative of original owners along with decree holder. The assessee company has not received any consideration from the vendees.
In this connection, it is important to mention that Sri V.Madan Mohan Rao has signed the documents only as a power of attorney holder on behalf of the original owners being development agreement holder and also signed on behalf of the assessee company as a representative being managing director along with the decree holder who is the legal owner at the time of execution of the documents. The documents were also signed by the decree holder who is the legal owner. The assessee company and Mr.V.Madan Mohan Rao, Managing Director has not paid the stamp duty also in these transactions. The said amount was also not found in companies books and records by the assessing officer when they were produced before him in assessment proceedings. The stamp duty was to be paid always by the vendees only.
The assessee company has also submitted the copy of bank statement for the Current Account No.556 held in the name of the company with M/ s. The Andhra Pradesh State Co-operative Bank Ltd for the financial year 2007-08 and 2008-09 and onwards during the course of assessment proceedings as a proof for non receipt of the sale consideration. The assessing officer also not found any material during the assessment proceedings that the assessee company has received any part of the consideration. As per the two sale deeds, out of the total sale consideration of Rs.1,13,60,000. 00 an amount of Rs.1,01,80,000.00 was by way of cheques by the vendees to the vendors in the above two transactions which is very clearly mentioned in the sale deeds with cheque numbers and the name of the bank in which the amount was aid. Only Rs.11,80,000.00 was
6 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. paid in cash. The above cheques were also or credited to the bank account of the assessee company. The learned assessing officer while finding no material that the assessee company has received sale consideration failed in his duty to find the recipient of the consideration particularly when it was paid by banking channels. When the assessee company denies that it is in receipt of consideration from the sale of the said properties, it is the assessing officer to prove that the assessee company has received the income from sale consideration with corroborative evidence as the assessee cannot prove the negative that who has received the same. The assessee company has relied on the judgement of ITAT, Mumbai Bench "A", Mumbai in ITA No.5125/M/2013 in the case of M/s.Kroner Investments Ltd., vs. DCIT-5(2), Mumbai in this regard.
The learned assessing officer has failed to appreciate the fact that the provisions of section 5OC of the Income Tax Act, 1961 are not applicable to the business transactions and as the assessee company being a developer, the income, if any, on account of difference in stamp duty value and the sale consideration will be taxed in the hands of the owner. Further, the company has no right of ownership on properties subject to assessment and even the development agreement itself is void as the ownership lies with decreed person and not with the original owners with whom the development agreement was executed. The assessing officer ought to have enquired before making the assessment who is the owner of property before invoking the provisions of sec 5oC for levying capital gains tax in the hands of the assessee particularly when there is no material on record which says the assessee is the owner of the property. Therefore, the difference of market value for stamp duty and the registered value of Rs.3,17,2S,600 cannot be treated as income from long term capital Gains to the assessee company and accordingly not taxable in the hands of the company as it being a developer and not owner. Further invocation of the provisions of sec. 5OC are not warranted in the assessee's case as it is a business transaction in its hand as held In the case of CIT v. Thiruvengadam Investments P Ltd., (2010) 32 ITCL 659 (Mad-HC) : (2010) 320 ITR 345 (Mad.). Section SOC specifically deals with transfer of Capital Asset only which is not so in the case of the assessee company as held in the case "Inderlok Hotels P. Ltd., v. ITO (2009) 27 II ITCL 364 (Mumbai 'T'-Trib) : (2009) 318 ITR 234 (Mum-Trib) : (2009) 32 SOT 419 (Mum-Trib) . It is also clear from
7 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. Explanation given in CBDT Circular No.8 dated 27/08/2002 that basic intention to insert section 50C is for the purpose of determining full value of sale consideration for the purpose of computation of capital gains under sec. 48 of the IT Act., 1961.
Further, the assessee company has filed a letter on 10/03/2015, seeking intimation of reasons for reopening the assessment u/s.147 of the Income Tax Act, 1961. The assessee company also sought during the course of assessment proceedings the reasons for reopening the assessment proceedings vide its letters dated 11/03/2015 and 17/03/2015. The assessing officer intimated the reasons vide his letter on 27/03/2015. The assessee company has objected to the validity of the notice issued u/ s.148 of the Income Tax Act, 1961 vide its letter on the same day on 27/03/2015 on which the reasons were intimated for reopening the assessment proceedings and questioned the reasons recorded for the reassessment with a request for a speaking order on the objections before proceeding further. However, the assessing officer has not considered the objections made by the assessee company to the notice and completed the assessment arbitrarily by making a huge addition. Therefore the assessing officer is not correct in completing the assessment without disposing of the objections raised by the assessee company and contended that a speaking order needed to be passed before proceeding with assessment with regard to issue of notice u/ s.148 of the Income Tax Act, 1961. The reopening is based only on presumptions without any material evidence thereof Hence the reopening itself is bad in law and assessment based on such reopening is liable to be struck off The action of the assessing officer in assuming the power conferred u/s.147 of the Act was thus accordingly without jurisdiction and therefore the assessment based on such notice was objected to and that before proceeding with the assessment a speaking order is necessary on such objections to the reopening of the notice as to how it stands justified in the given facts as held by the Apex Court in the case of GKN Drive Shaft Ltd., (reported in 259 ITR 19)."
The CIT(A) after considering the submissions of the assessee has allowed the appeal of the assessee by observing as under:
8 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. “6. I have carefully considered the facts of the case, the assessment order and the detailed submissions of the appellant. The Assessing Officer mainly added the as per stamp duty in the assessee's hands and taxed capital gains after issuing notice u/s 148. On verification of the details furnished it is apparent that the appellant is not the owner and the appellant has entered into a development agreement with the owners. As per the sale deed dated May, 2008, the Assessing Officer has taken the sale value in which there are seven parties who are the vendors i.e. the owners of the land and the Managing Director of the appellant company, Shri V.Madan Mohan Rao as agreement holder and Shri A.V.Desai and Shri V.Krishna Mohan are the selling parties altogether made the agreement in favour of Shri Amaravadi Laxmi Narayana who is the vendee. Based on this sale deed, without verification and without considering the appellant's submissions, the Assessing Officer has taxed the capital gains in the hands of the appellant who is the agreement holder. From this agreement itself it is clear that the appellant is not the owner of the property. Therefore, it is not fair enough and not justifiable to tax the capital gains, taking the entire sale value as per stamp duty purposes, in the hands of the company itself. The Assessing Officer should have taxed the vendors instead of the appellant without any further enquiry or evidence. Hence, the addition made by the Assessing Officer is deleted and the grounds raised by the appellant are allowed.”
Aggrieved by the order of CIT(A), the revenue is in appeal before us raising the following grounds of appeal:
“1. Based on the facts and in the circumstance of the case, CIT(A) has erred in not appreciating the fact that assessee being the GPA holder has actually executed the sale deed and is liable for capital gains in his hands.
Based on the facts and in the circumstances of the case CIT(A) has no appreciated the fact that assessee has not brought out as to who has actually received the sale consideration on sale of the land in question.
The appellant craves leave to amend or alter any grounds or add a new ground, which may be necessary.
9 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. 5. Considered the rival submissions and material on record. It is noted that Shri Shivella Syanna has executed an agreement of sale on 15/07/1973 for the sale of property situated at Shaikpet Village admeasuring 1136 sq.yds. in favour of Shri A.V. Desai for a total consideration of Rs. 6,316/-. Shri A.V. Desai has paid sale consideration. On receipt of sale consideration, Shri Shivella Syanna has handed over the possession of the said property on 15/07/2013 to Shri A.V. Desai, but, Shri Shivella Syanna has not registered the property in favour of Shri A.V. Desai. Subsequently, Shri Shivella Syanna died and the legal heirs of the deceased person have not bothered to register the property. Therefore, Shri A.V. Desai has filed a suit for a specific performance for registration of the property. The Court of Third Assistant Judge, CC, Hyderabad has given decree of compromise in favour of Shri A.V. Desai on 11/12/1996. At this stage, legal heirs of late Shri Shivella Syanna, namely, Smt. S. Sankaramma and Shri S. Yadaiah entered into a development agreement with the assessee on 31/10/1988 and took an advance of Rs. 20,00,000/- for the development of the property even though they are not legal owners of the property pending litigation. The development agreement was registered on 15/04/2006 as a development agreement-cum-GPA for the development of the said property and the development agreement could not be implemented due to various litigations in the court at various stages including that with Shri A.V. Desai.
5.1 Even, Shri A.V. Desai, decree holder for part of the land also agreed to develop the property with the assessee, sold decreed land in the name of Shri A.V. Desai to the extent of above two sale transactions, which was registered in favour of one Mr. N. Raja Babu and Shri Amaravadi Laxminarayana.
10 I.T.A. No. 1054/Hyd/2017 Mohan Mansions Ltd. The assessee being a development agreement holder has joined as a consenting party at the request of the vendees in the above two sale transactions. Considering the fact that assessee has acted as a consenting party and not as a seller, we are of the view that the AO is wrong in assessing the sale transactions in the hands of the assessee and therefore, we are in agreement with the findings of the CIT(A) and accordingly, we uphold the order of CIT(A) and dismiss the grounds raised by the revenue.
In the result, appeal of the revenue is dismissed. Pronounced in the open court on 24th January, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 24th January, 2018
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