MAHESH ARUN GAWLI,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 21(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

ITA No.4220/Mum/2017 (A.Y.2012-13)

This appeal in for A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-33, Mumbai in appeal No.CIT(A)-33/Rg.21/247/2015-16 dated 12/04/2017 (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) by the ld. Income Tax Officer 21(1)(2), Mumbai (hereinafter referred to as ld. AO).

Shri Mahesh Arun Gawli ITA No.7324/Mum/2018 (A.Y.2012-13)

This appeal in for A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-48, Mumbai in appeal No.CIT(A)-48/IT-306/AC-21(3)/2018-19 dated 26.10.2018 (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 26/03/2015 by the ld. Asst. Commissioner of Income Tax – 21(3), Mumbai (hereinafter referred to as ld. AO).

Facts of appeal in the case of Mrs. Asha Arun Gawli in and the proceedings before the ld. AO and ld . CITA 2. The only effective issue to be decided in this appeal is as to whether the sum of Rs.1,20,00,000/- received by the assessee from the sale of plot of land could be treated as long term capital gains or income from other sources. The interconnected issue involved therein to be decided is as to whether assessee would be entitled for deduction u/s.54/54F and 54EC of the Act if the aforesaid receipt is assessed as long term capital gains.

Shri Mahesh Arun Gawli WORKING OF LONG TERM CAPITAL GAINS ON SALE OF LAND AT PISOLI Land purchase in 1992-93 for Rs.43,037/- 1,51,498 Indexed Cost of Purchase = 43,037 x 785 / 223 -

1,20,00,000 Less: Sale Proceeds ----------------- 1,18,48,502 Taxable Long Term Capital Gains Less: Deduction Under Section 54 EC 50,00,000 Deposit in REC Bonds Deposit in Capital Gain A/c. 60,00,000 1,10,00,000 ---------------- ---------------- Taxable Capital Gain 8,48,502 ---------------- 8,48,500 Rounded Off ========= 3.1. The brief facts as narrated in page 2 of the order of the ld. CIT(A) are that assessee received a sum of Rs.1,20,00,000/- as her share from sale of plot of land bearing S.No.9, situated at Pisoli Village, Havelli Taluka, Pune. The assessee reflected the said receipt of Rs.1,20,00,000/- as share of sale consideration on sale of above mentioned plot. After claiming the benefit of indexation of cost of purchase, the assessee reported long term capital gains of Rs.1,18,48,502/- and made investment in Rural Electrification Corporation (REC) bonds to the tune of Rs.50,00,000/- and claimed deduction u/s.54EC of the Act for the same and further deposited a sum of Rs.60,00,000/- in capital gains account scheme for the purpose of re-investment in another residential house property and consequently claimed deduction u/s.54/54F of the Act . We find that the ld. CIT(A) had observed that the assessee made a declaration in respect of the above mentioned plot of land under the VDIS Scheme in 1997 and obtained a Certificate from CIT, City VII, Mumbai,

Shri Mahesh Arun Gawli wherein the said land was declared by her along with her 4 minor children namely (i) Miss. Geeta Gawli (ii) Miss Yogita Gawli, (iii) Master Mahesh Gawli and (iv) Master Yogesh Gawli. The declaration under the VDIS scheme was made by the assessee in her capacity as natural guardian of the minor children. The ld. AO has noted that the relevant Purchase Agreement dated 25.06.1992 showed the said four minor children viz.(i) Miss. Geeta Gawli- 9 yrs. (ii) Miss Yogita Gawli, 7 yrs. (iii) Master Mahesh Gawli-4 yrs. and (iv) Master Yogesh Gawli - 3 yrs. as purchasers and being minors, the assessee executed the deed of purchase on their behalf. Thus according to the ld. AO, the assessee was not the owner of the said immovable property.

3.2. The ld. AO has observed that as per the Agreement for Sale of the said immovable property dated 31.10.2011, the owners/vendors were the four children of the assessee viz. (i) Miss. Geeta Gawli - 28 yrs. (ii) Miss Yogita Gawli, 24 yrs. (iii) Mahesh Gawli - 23 yrs. and (iv) Yogesh Gawli - 21 yrs and the assessee was the consenting party. The ld. AO has noted that out of the safe consideration of Rs.6 crores, an amount of Rs.1.20 crores was received by the assessee as if she was one amongst the joint owners entitled to 20% of the sale consideration, but as per the sale agreement, she was only the consenting party. According to the ld. AO, it is apparent from all the three documents mentioned above that the assessee was not having any ownership right in the immovable property in question as her name nowhere appeared amongst the owners. Apart from ownership, she has no rights of whatsoever nature in the said property.

3.3. In view of the above facts, the ld. AO asked the assessee to show- cause as to why the amount of Rs.1,20,00,000/- received on sale of Shri Mahesh Arun Gawli property as being the consenting party should not be treated as “income from other sources”. The assessee filed a reply through her authorized representative as under:-

“In your above letter you have state that the assessee is not the owner of the property as such the proceeds be treated as income from oilier sources. In this connection we would like to inform you that the assessee has declared the property under VDIS in 1997 and had obtained the VD1S certificate date 27.08.1997 issued by a CIT City VII, Mumbai wherein the said land was declared by her in her name along with the names of her 4 minor children. From the VDIS certificate (already on your record) you will observe that Mrs. Asha Gawli has declared a sum of Rs. 2,15,183/- being she cost of the above property purchased in A. Y 1993-94 and has paid (he taxes under VDIS scheme. The certificate u/s 68(2) of the VDIS scheme 1997 was issued in the name of Mrs Asha Gawli as such all the assets declared by her in the above certificate belongs to her. WITHOUT PREJUDICE TO THE ABOVE From the sale agreement you will find that the assessee has signed as a consenting party along with the other co-owners and as such each co- owners and the assessee received a sum of Rs. 1,20,00,000/- by way of sale consideration from the purchaser. From the sale agreement you will find that the co-owners have agreed to part away 20% of their share to the assessee and accordingly directed the purchaser to make the payment of sale proceeding accordingly. It can be seen as a deemed gift from the co-owners to the assessee. This is reflected in the sale agreement wherein you will find that the purchaser has clearly bifurcated the sale proceeds equally amongst the assessee and the other co-owners. From the above facts you will find that, even the assessee did not have a clear title but it is for sure that she had an enforceable right and the interest (partly or fully) in the property by virtue of VDIS made by her

Shri Mahesh Arun Gawli declaring the above property in her declaration in 1997 supported by VDIS certificate or by way of deemed gift by the co-owners. It cannot be disputed that the property which was sold for Rs 6,00,00,000/- was not a capital asset and therefore any sum received in lieu of its transfer would be chargeable only as capital gains whether in the hands of the assessee or any other persons as the case may be. The nature of receipt will not alter even if the assessee is not having an absolute title. In the case of M/s TATA Services Limited 122 ITR 594 (BOM) it has been held that the words and phrases " Property under section 2(14) includes any rights which can be called property. Similarly in the case of M/s Sterling Investment Corporation 123 ITR 441 (BOM) a contractual right obtained under the contract of sale will be considered as capital Asset under section 2 (14). In the case of M/s PNB Finance Limited 252 ITR 491 (DELHI) it has been held that the 'property' is of widest import and it signifies every possible interest which a person can acquire, hold or enjoy. Does the right of the assessee in the above property is a capital asset itself and sale of her share, right title , claim and interest in the said property, would amount to transfer within the meaning of section 2(47) which would therefore attract the capital gain. From the above facts it is clear that Mrs. Asha Gawli is the rightful owner of the above land along with her 4 minor children. We therefore object to our show-cause notice for taxing the amount of Rs. 1,20,00,000/- as income from other sources. We further request you to kindly consider the amount of Rs. 1,20,00,000/- as income from capital gains.”

3.4. This explanation was not accepted by the ld. AO. According to the ld. AO, during the time when purchase agreement dated 25/06/1992 was executed and later on the VDIS declaration was made in 1997, the assessee had a role only in the capacity of natural guardian since her four children in whose names, purchase was effected and VDIS declaration was made, were minors. The ld. AO categorically observed that none of Shri Mahesh Arun Gawli the property documents including the VDIS declaration showed that assessee was one of the joint owners of the immovable property.

3.5. With regard to the alternative claim made by the assessee on without prejudice basis, that the sum of Rs.1,20,00,000/- received by the assessee from her children would only amount to gift and accordingly, exempt from income tax is concerned, the ld. AO observed that if the gift was from the sale consideration of Rs.6 Crores after the children sold the property, then also the receipt of Rs.1,20,00,000/- would be taxable in the hands of the children. According to the ld. AO, if the gift was made before the sale of land, then the sale agreement would have mentioned so and there should have been written agreement to this effect and declaration by the children to that effect at the time when the money was received or immediately thereafter and further, it should be so received by the assessee. According to the ld. AO, the facts on record did not suggest that it was a gift.

3.6. With the aforesaid observations, the ld. AO concluded that assessee was only a natural guardian of the immovable property and not joint owner of the property thereon, and accordingly treated the amount received in the sum of Rs.1,20,00,000/- as „income from other sources‟. Since the receipt of Rs.1,20,00,000/- was taxed in the head of „income from other sources‟, the ld. AO consequently denied the benefit of exemption claimed u/s.54 / 54F and 54EC of the Act for further investments.

3.7. During the course of first appellate proceedings, the assessee argued that it is the assessee who has purchased the property at Pisoli Village, Pune in the name of her four minor children and accordingly, had taken

Shri Mahesh Arun Gawli the role of natural guardian of the children for total consideration of Rs.2,15,183/- and moreover in the year 1997, the assessee on behalf of four children had declared the investment made in land at Pisoli Village, Pune of Rs.2,15,183/- under VDIS scheme 1997 and paid the full tax thereon and had obtained certificate from the ld. Administrative Commissioner for the same. It was vehemently argued that the agreement should be read as per the understanding of the parties to the agreement i.e. assessee, assessee‟s children and the purchaser and the department cannot hold that the agreement is not valid or the department cannot re-write the said agreement. It was pleaded that right in the agreement is a capital asset and hence, the income arose from the sale of such capital asset would result only as capital gain and not income from other sources. It is a fact that the purchaser had paid 20% of the total consideration of Rs.6 Crores to each of the five parties comprising of assessee and her four children in equal proportion of Rs.1,20,00,000/- each directly to their respective accounts. This goes to prove the clear understanding of the mind of the purchaser also that assessee effectively is one of the joint owners in the said property. It was pleaded that if in the mind of purchaser, assessee was not the joint owner, there was absolutely no need to make separate payment of Rs.1,20,00,000/- being 20% share directly to the assessee.

3.8. The ld. CIT(A) observed that assessee had received Rs.1,20,00,000/- from the purchaser i.e. Oricon Realty Pvt. Ltd., only as consenting party to the agreement and not as co-owner of the property. He held that once the amount of Rs.1,20,00,000/- is not received in the capacity of land owner or against any right over the land, but only as consenting party, it will certainly partake the character of income from other sources and taxed as such instead of income from capital gains on Shri Mahesh Arun Gawli sale of land. Accordingly, he directed the ld. AO to assess the assessee on substantive basis for the receipt of Rs.1,20,00,000/- under the head „income from other sources‟. In view of this decision, he consequently held that assessee is not entitled for deduction u/s.54EC and 54 /54F of the Act for further re-investments made.

3.9. With regard to the alternative ground taken by the assessee that the amount of Rs.1,20,00,000/- received by the assessee may be treated as a gift from the other co-owners is concerned, the ld. CIT(A) upheld the observation of the ld. AO that if the gift was from the sale consideration of Rs.6 Crores after the children sold the property, then the receipt of Rs.1,20,00,000/- would be taxable in the hands of the children and since the fact of gift made to the assessee was not even mentioned in the agreement and in the absence of any written agreement to this effect and gift declaration by the children at the time when money was received or immediately thereafter, the plea of the assessee is indivisible. With the aforesaid observations, he upheld the action of the ld. AO.

Facts of appeal in the case of Shri Mahesh Arun Gawli in and the proceedings before the ld. AO and ld . CITA

Shri Mahesh Arun Gawli 5.1. Facts are that assessee and his three siblings namely i)Miss Yogita Gawli ii) Mr Yogesh Gawli iii) Miss Geeta Gawli sold a property at the Pisoli, Pune, for Rs.6 crores. As per assessee, the sale proceeds of this property were divided equally in 5 parts of Rs. 1,20,00,000/- each and same was shown as sales consideration in the hands of assessee, his 3 siblings and his mother (total 5 parts). Therefore, as per assessee, the total sale consideration of Rs.1.20 crore each was shown in the hands of 5 individuals. For computing the cost of acquisition of the property, assessee has again divided the cost into 5 parts equally.

5.2. The ld . AO on the other hand held that assessee's mother had no ownership of the property and therefore, the sales consideration of Rs. 6 crores was to be divided into 4 parts and assessed as sales consideration of Rs.1.50 Crore each for the capital gain purpose in the hands of assessee and his three siblings. The ld. AO completed the assessment by dividing the total sale consideration of Rs.6 Crores into four parts equally and treated the sale consideration pertaining to assessee‟s share at Rs.1,50,00,000/- as against Rs.1,20,00,000/- reported by the assessee. However, while giving effect to the cost of acquisition of the property, the ld. AO took the total cost at Rs.2,15,183/- and instead of giving 1/4th value thereon to the assessee, he gave 1/5th value to the assessee and gave reduced cost of acquisition to the assessee after giving effect of indexation thereon. Accordingly, the ld. AO brought to taxable long term capital gain of Rs.1,13,48,502/- in the assessment.

5.3. The ld. CIT(A) observed that there is no dispute regarding total consideration of Rs.6 Crores received for the property. There is also no dispute regarding the property in question or the date of sale of the property. The ld. CIT(A) observed that effective dispute to be resolved

Shri Mahesh Arun Gawli herein is as to whether the ownership of the property in question can be held to be in the hands of four persons (i.e. assessee and three siblings) or in the hands of five persons (i.e. assessee, his three siblings and their mother). The ld. CIT(A) on examination of all the written submissions filed by the assessee including the sale document, purchase document, VDIS declaration of mother observed that the assessee and his three siblings are only declared as owners in the sale deed and there was no mention or inclusion of mother of the assessee as owner in the sale deed. The ld. CIT(A) further observed that mother of assessee was only mentioned as consenting party in the sale deed. The ld. CIT(A) also observed that VDIS declaration made by the assessee clearly show that the property was declared in VDIS-97 scheme by assessee‟s mother Smt. Asha Arun Gawli in the names of her four children including assessee as they were all minors at that time. Accordingly, he upheld the action of the ld. AO that the total sale consideration of Rs.6 Crores need to be divided equally only among four persons including the assessee and assessee‟s share thereon would amount to Rs.1,50,00,000/- towards sale consideration arising on sale of land at Pisoli Village, Pune. He further observed that the payment of Rs.1,20,00,000/- to assessee‟s mother would only have to be treated as an application of receipts by the children including the assessee. He categorically observed that merely part of the consideration was handed over to the assessee‟s mother either by co- owners directly or by the purchaser at the behest of the co-owners, when the mother was not owner of the property as per the sale document itself, the said receipt will not give raise to capital gains in the hands of the mother. The ld. CIT(A) however, rectified the mistake committed by the ld. AO with regard to giving deduction for 1/5th share of cost of acquisition in the hands of the assessee, to 1/4th share as there were Shri Mahesh Arun Gawli only four co-owners including the assessee in the property. The ld. CIT(A) directed the ld. AO to recompute the capital gains accordingly.

Facts of appeal in the case of Ms. Yogita Arun Gawli in and the proceedings before the ld. AO and ld . CITA

(a) The assessee i.e. Mrs. Asha Arun Gawli had purchased the property in 1992 in the names of four children who were minors thereby giving legal ownership of the said property only to the four children. The assessee i.e. Mrs. Asha Arun Gawli had acted only as a natural guardian cum custodian for the said property. Hence, for the purpose of arriving at the cost of acquisition in the hands of each children i.e. each co-owner of 1/4th share should be attributed to each of the four children.

(b) The assessee i.e. Mrs. Asha Arun Gawli has made a declaration under VDIS scheme 1997 wherein it has been Shri Mahesh Arun Gawli categorically mentioned that property was held by her in the names of her four children. Even in the said declaration, it was never claimed by the assessee i.e. Mrs. Asha Arun Gawli that assessee (Mrs. Asha Arun Gawli) had purchased this property in her name and that the children were only her benamidars. This was never the claim of the assessee i.e. Mrs. Asha Arun Gawli. Since, the purchase of this property held by the family was not disclosed to the Income Tax department, the assessee i.e. Mrs. Asha Arun Gawli came forward to wash off the sin by disclosing the said property under VDIS-97 which was accepted by the then Administrative Commissioner of Income Tax department. This alone does not confer any ownership right in the subject mentioned property in the hands of the assessee i.e Mrs Asha Arun Gawli. Even after this, the assessee i.e. Mrs. Asha Arun Gawli continues to be only a natural guardian and custodian of the said property on behalf of the four minor children.

(c) The assessee i.e. Mrs. Asha Arun Gawli had signed the sale deed on 31/10/2011 only as consenting party and not as co-owner of the property. This is basically done, in our considered opinion, only to protect the interest of the purchaser i.e. Oricon Realty Pvt. Ltd., in order to avoid future dispute on the aspect of title of the property. An act which is done for the purpose of avoiding any future dispute or for the purpose of administrative convenience, would not confer any ownership right in the hands of the assessee i.e. Mrs. Asha Arun Gawli. Hence, the assessee i.e. Mrs. Asha Arun Gawli can never be held as a beneficial or legal owner of the land situated at Pisoli Village, Pune.

Shri Mahesh Arun Gawli

8.1. With regard to the decision relied upon by the ld. AR on the Hon‟ble Jurisdictional High Court in the case of Amol C Shah (HUF) vs. ITO in Income Tax Appeal No.1219/2017 dated 27/01/2020, we find that the assessee in that case was holding tenancy right and was paid compensation. The holding of such tenancy right was a capital asset and accordingly, the compensation received by assessee was held by the Hon‟ble Jurisdictional High Court to be assessable only under the head „income from capital gains‟ and not „income from other sources‟. This decision is factually distinguishable with that of the assessee i.e Mrs Asha Arun Gawli as in the instant case before us as stated supra, the assessee i.e Mrs Asha Arun Gawli does not hold any right on the subject mentioned property in any manner whatsoever except acting as a custodian and natural guardian of her minor children. Hence, the said decision of the Hon‟ble Jurisdictional High Court which was heavily relied by the ld. AR at the time of hearing would not advance the case of the assessee.

8.2. It is not in dispute that assessee had received Rs.1,20,00,000/- directly from the purchaser i.e. Oricon Realty Pvt. Ltd., in view of the fact that she has signed the sale deed as consenting party. In this regard, the alternative argument advanced by the ld. AR before us holds good that the said sum could at best be treated only as gift given by four children to Shri Mahesh Arun Gawli their mother. We are in complete agreement with this. The receipt of money of Rs 1.20 crores is a movable asset for which no registration is warranted. Even oral gift is permissible and it need not be deduced into writing especially when it is done amongst close family members as there are least chances to suspect the same. This observation made by us gets further strengthened in view of the undisputed fact that the total sale consideration paid by Oricon Realty Pvt. Ltd., for this subject mentioned property at Pisoli Village, Pune was Rs.6 Crores only. In fact the ld. CIT(A) also in his appellate order categorically states that the total sale consideration of the property is only Rs.6 Crores and there is absolutely no dispute over the same. We have already directed hereinabove that the total sale consideration of the property of Rs.6 Crores should be divided equally among the four children of the assessee i.e. Mrs. Asha Arun Gawli. It is not the case of the revenue that Rs.1,20,00,000/- paid by Oricon Realty Pvt. Ltd., to the assessee i.e. Mrs. Asha Arun Gawli was over and above the total sale consideration of Rs.6 Crores. Hence, it could be safely concluded that the amount received in the sum of Rs.1,20,00,000/- by the assessee i.e. Mrs. Asha Arun Gawli would have to be treated as gift received by the assessee i.e. Mrs. Asha Arun Gawli from her four children in the interest of substantial justice and fair play. While making this decision, we are conscious of the fact that assessee had reported capital gains treating herself as one of co-owners in the subject mentioned property and had reported capital gains thereon. Since, we have held that the said receipt of Rs.1,20,00,000/- is neither sale consideration on sale of property nor it could be taxed as income from other sources in her hands and it is only a gift received from 4 children which is exempt u/s.56(2) of the Act, the same would ultimately result in a situation where the assessed income becomes lower than the returned income. We are conscious of this fact but at the same time, the revenue

Shri Mahesh Arun Gawli could not be unjustly enriched with unjust tax and the department shall be entitled to collect just and right tax in accordance with law from the right person. It is trite law that there is no estoppel against the statute. For the aspect that assessed income going below the returned income is concerned, we find that the Hon‟ble Gujarat High Court in the case of Gujarat Gas Company Ltd., vs. JCIT reported in 245 ITR 84 and also yet another decision of Hon‟ble Gujarat High Court in the case of Milton Laminates Ltd., vs. CIT reported in 37 Taxmann.com 249 had categorically held that assessed income could go below the returned income if there was obvious mistakes committed by either of the parties i.e., assessee or by the revenue. The underlying principle of these two judgments are that no tax could be collected from an assessee by the department except by an authority of law in consonance with Article 265 of the Constitution of India and no tax shall be collected from the assessee which is not due to be collected. Yet another principle which was laid in these judgments was that no tax shall be collected from the assessee merely because it was admitted by him or consented by him. In other words, any tax collected should be in accordance with law. Accordingly, the grounds raised by the assessee i.e. Mrs. Asha Arun Gawli are partly allowed subject to the directions given hereinabove.

8.3. In view of our decision rendered hereinabove in the case of Mrs. Asha Arun Gawli, the total sale consideration of Rs.6 Crores should be divided equally among four children @ Rs.1,50,00,000/- each and cost of acquisition of the property also should be distributed equally among four children and indexation benefit to be given to them. The resultant long term capital gains arising in the hands of each children shall have to be recomputed accordingly after giving the benefit of exemption u/s.54 / 54F / 54EC of the Act depending upon the proof submitted therein by each of Shri Mahesh Arun Gawli the children. The ld. AO is directed accordingly. Accordingly, the grounds raised by the assessee in the case of Mahesh Arun Gawli and Yogita Arun Gawli are partly allowed.

Order pronounced on 11/12/2020 by way of proper mentioning in the notice board.