NETWORK CONSTRUCTION COMPANY,MUMBAI vs. ACIT CIR 2, MUMBAI

The first issue in the appeal of assessee is against the order of CIT(A) confirming the action of Assessing Officer in making addition by invoking the provisions of Section 50C of the Act whereas the transaction under consideration is between the members of AOP, which is governed by the special provisions of Section 45(3) of the Act. For this, assessee has raised the following ground of appeal: -

“1) The learned CIT(A) erred in confirming the additions made by the then AO to the tune of Rs.5,10,47,000/- by invoking the provisions of section 50C without appreciating the fact that the transaction under review is between member of the AOP and AOP which is governed by the special provisions u/s 45(3) and not by section 50C and hence the provisions of section 50C are not applicable to such transfer.”

The assessee has also raised Additional grounds but pressed only ground No. 2 as raised vide additional grounds, which is as under: -

Briefly stated, facts are that assessee purchased development rights in respect of 7 buildings from Jayraj Devidas and others. This development right in respect of three buildings was shown on the asset side of the Balance sheet under the head ‘Investments’ as on 31.03.2010 relevant to assessment year 2010-11. Subsequently, assessee entered into a Joint Venture agreement and agreed to contribute the said development right as ‘capital contribution’ at an agreed consideration of Rs. 5 crores to Benchmark Properties, i.e. the AOP. The relevant Joint Venture agreement is enclosed in assessee’s paper book at pages 42 to 52. The assessee filed its return of income for assessment year 2012-13 and disclosed the amount of Rs. 5 crores as ‘capital contribution’. The assessee has disclosed development rights in respect of 3 buildings under the asset side of the Balance sheet under the head ‘Investments’ and vide the Joint Venture agreement dated 01.07.2010, assessee has agreed to contribute the said remaining development right as ‘capital contribution’ for an agreed consideration of Rs. 5 crores to the AOP, M/s. Benchmark Properties. The Assessing Officer while framing assessment treated transfer of the development right in the three buildings under Section 50C of the Act inspite of claim made by assessee that provisions of

Aggrieved, assessee preferred appeal before the CIT(A). The CIT(A) also confirmed the action of the Assessing Officer by holding that this is transfer of capital asset covered by provisions of Section 50C of the Act by relying on the decision of ITAT, Lucknow Bench in the case of Carlton Hotels Pvt. Ltd. by observing in Para 7.5 as under :-

The learned counsel stated that even the provisions of Section 50C of the Act are not applicable as there is no transfer of land and building, but merely transfer of development rights which were acquired by entering into Development Agreement dated 11.12.2006 and 28.06.2007 with Jayraj Devidas and others and assessee was never the owner of the land and building and had only acquired simple development rights which was transferred by it to the AOP, M/s. Benchmark Properties. The learned counsel submitted that the assessee has righty declared the transaction in terms of Section 45(3) of the Act instead assessed by Assessing Officer and confirmed by CIT(A) under Section 50C of the Act.

On the other hand, the ld. Senior DR, Ms. Kavita Kaushik heavily relied on the decision of ITAT, Lucknow Bench in the case of Carlton Hotels Pvt. Ltd. (supra). She also relied on the orders of CIT(A) and Assessing Officer.

We have heard the rival contentions and gone through the facts and circumstances of the case.We noted that assessee had acquired development rights emanating from land bearing Serial No. 24 Hissa No. 1 and 2 situated at Mirra Road District, Thane from Mr. Jayraj Devidas and others vide development agreement dated 11.12.2006 and 28.06.2007. We also noted from the agreements that the assessee has acquired total development rights to develop about 7

The learned Counsel for the assessee also drew our attention to the provision of section 50C of the Act which read as under: -

In view of the above, the learned Counsel stated that the introduction of development rights by way of capital contribution under “17. What is the profit or gain which can be said to accrue or arise to the assessee when he makes over his personal asset to the partnership firm as his contribution to its capital. The consideration, as we have observed, is the right of a partner during the subsistence of the partnership to get his share of profits from time to time and after the dissolution of the partnership or with his retirement from the partnership to receive the value of the share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges, when his personal asset merges into the capital of the partnership firm a corresponding credit entry is made in the partner’s capital account in the books of the partnership firm, but that entry is made merely for the

The learned Counsel for the assessee specifically relied on the Mumbai Tribunals decision in the case of Voltas Ltd Vs. ITO [2016] 74 taxmann.com 99 (Mumbai), wherein it is held that the provisions of section 50C of the Act could not be applied to sale development rights of land owned by the assessee. We noted that the provisions of section 45(3) provides that when a person transfer his capital asset to a firm

Coming to the additional ground raised by assessee, the same need no adjudication as we have already adjudicated the issue of applicability of provision of section 45(3) of the Act, hence there is no question of adjudication of provision of section 50(C) of the Act