RAJESH PRATAP VED,MUMBAI vs. DCIT - 13 (3)(1), MUMBAI

This appeal in A.Y.2015-16 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-21, Mumbai in appeal No.CIT(A)-21/DCIT-13(3)(1)/IT-145/217-18 dated 10/12/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 11/12/2017 by the ld. Dy. Commissioner of Income Tax-13(3)(1), Mumbai (hereinafter referred to as ld. AO).

The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the addition made on account of sale consideration of property amounting to Rs.44,63,434/- in the facts and circumstances of the case.

We have heard rival submissions and perused the materials available on record. We find that assessee is an individual and had filed his return of income for the A.Y.2015-16 on 30/09/2015 declaring total income of Rs.12,84,79,720/-. The assessee is also a Director of Regal Hotel Pvt. Ltd., Further the assessee filed its revised return of income on 30/03/2017 declaring revised total income of Rs.11,67,24,470/-. During the year under consideration, the assessee has shown income from salary, loss of house property, income from business and professions, income from long term capital gain and income from other sources.

During the year under consideration, the assessee Mr. Rajesh Pratap Ved along with Shri Pratap H Ved, Smt. Krishna P. Ved and Smt. Krupa R. Ved sold the following premises as well as rights in the society as per agreement dated 21/01/2015 to one Mr. Rohit Madan Shetty: a) Flat No.701 of Krishna Krupa belonged to Mr. Pratap H Ved. b) Flat No. 801 of Krishna Krupa along with Terrace belonged to Mr. Rajesh P Ved- the assessee and c) The rights in the society The Nutan Laxmi Co-operaive Housing Society along with share certificate, membership of the society and all other benefit available to the member of the society and belonged to Mr. Rajesh Pratap Ved, Shri Pratap H Ved, Smt. Krishna P. Ved and Smt. Krupa R. Ved jointly.

We find that the narration of the following undisputed facts would be relevant for understanding the issue in dispute before us:- a) The plot of land and structure at Juhu Vile Parle Scheme Mumbai was originally purchased on 18th June, 2004 in the names of Shri Pratap Hirji Ved, Mrs. Krishna Pratap Ved, Shri Rajesh Pratap Ved (the assessee) and Mrs. Krupa R Ved from Mrs. Rupa Prakash Pandya and others. Along with plot and structure, all the rights in 5 shares of The Nutan Laxmi Co-operative Housing Society Ltd and all lease hold rights along with tenants were part of the purchase cost. On purchase of the plot, one becomes a member of the Nutan Laxmi Co-operative Housing Society Ltd and a member has number of rights attached to the plot such as being part of association, rights in getting priority in membership of various associations including right of membership of Juhu Gymkhana, concessional rights in hiring of plots for various occasions etc.

We find that the ld AO observed that the sale consideration was distributed among 4 persons , whereas the cost of purchase was borne by two persons only i.e Pratap Ved and Rajesh Ved and that no payments were made by Smt Krishna Ved and Smt Krupa Ved. Accordingly, the ld AO held that the sale consideration is to be divided only between two persons as under:-

We find that the ld CIT(A) has confirmed the addition on a different ground by stating that the addition should have been made under Section 64(1) of the Act by applying clubbing provisions.

We find that Shri Pratap H Ved, Shri Rajesh Ved (assessee herein before us), Smt Krishna Ved and Smt Krupa Ved, had joined the partnership firm M/s Radhe Enterprise. We find from the facts narrated hereinabove that assessee and Shri Pratap H Ved had paid for the cost of acquisition of the plot originally and hence when plot was brought in as capital contribution to the partnership firm, their respective capital accounts were duly credited for such amount. We find that the rights over the leasehold property belonged toa ll the four members of Ved family which is evident from Share Certificate No. 30 of Nutan Co- operative Housing Society Limited. We find that when originally the property was assigned from four individuals to partnership firm, the partners account were credited with full amount of cost incurred individually and therefore, the full cost was given to them. Therefore the rights which have remained with four individuals were without cost and belonged to all the four persons. There is no dispute that all the four persons had come forward to sign the agreement of sale dated 20.1.2015 pursuant to which , capital gains became assessable. There is no dispute that the flats were ultimately sold together with the rights in leasehold property , rights in membership etc which were owned by all the four persons and which remained with the individuals and were never transferred to the firm. Hence we hold that logically the sale consideration is to be distributed between four persons. In view of that, a portion of sale consideration is required to be assigned to the rights of membership etc which were not given to the firm. Therefore, there is no transfer from husband to wife of any right or any value. In view of that no value can be assigned under Section 64(1) of the Act by applying clubbing provisions thereon. Moreover, we find that the ld CITA grossly erred in applying the clubbing provisions u/s 64(1) of the Act even for mother. Admittedly, as per law, the same could be applied only for spouse and for son’s wife. Hence the addition sustained by the ld CIT(A) deserves to be deleted on this count itself.

In any case, we find from the income tax returns of Smt. Krishna Ved and Smt Krupa Ved for the Asst Year 2015-16, which are forming part of the paper books filed before us, they had duly disclosed the capital gains attributable to their share without claiming any deduction towards cost of acquisition. We find from the computation of income for the Asst Year 2015-16 of both the ladies, that they were conscious of their income tax obligations and had duly disclosed the share of their sale consideration as long term capital gains (without any cost) and had duly claimed deduction u/s 54EC of the Act by making reinvestment in eligible bonds. We find that the ld AR submitted that the returns filed by two ladies have been accepted by the department. Hence there is no need to bring to tax the very same sale consideration in the hands of assessee herein, inclusion of which , would only result in double taxation. Hence we hold that the entire addition made in the sum of Rs 44,63,434/- in the hands of the assessee is hereby directed to be deleted and grounds 1& 2 raised by the assessee are allowed.

The Grounds 3 & 4 raised by the assessee are with regard to chargeability of interest u/s 234C of the Act which is consequential in nature. Needless to mention that the same would always be on the returned income and not on the assessed income.

In the result, the appeal of the assessee is allowed.