TRIPLE ESS INFRASTRUCTURE P.LTD,NEW DELHI vs. ADDL.CIT, RANGE-27, NEW DELHI

PER AMIT SHUKLA, J.M

The aforesaid appeal has been filed by the assessee against impugned order dated 16.1.2019 passed by Ld. CIT(A) 27, New Delhi for the quantum of assessment passed u/s 143(3) for the assessment year 2015-16. In various grounds of appeal assesee has challenged following additions :-

 Addition of Rs. 7,43,44,113/- by treating the long term capital gain as short term gain;  Disallowance of credit of other expenses in relation to the property amounting to Rs. 1,13,82,644/- ; and  disallowance of business expense being maintenance charges of Rs. 1,69,662/- and penalty of Rs. 6,000/-. 2. The facts in brief qua the first issue are that, the assessee company had owned 50% rights in a pent house situated at 617A, the Magnolias DLF Golf Links, DLF City, Gurgaon. This was reflected in the fixed asset in the books of accounts. The said pent house was jointly owned by the assessee company with Shri Satish Batra who had 50% share in the property. The assesee has purchased the pent house from M/s. DLF, vide allotment letter dated 13.10.2005 and also ‘Buyers agreement’ was also entered vide agreement dated 8.3.2006. A copy of such agreement are being placed before us in the paper book from pages 72 to 146 and also the agreement to sell dated 29th January, 2015. The assesee has acquired the property by taking a loan of Rs. 3.5 crore from ICIC Bank who directly made payment to DLF on 30.11.2005 and further payment of Rs. 1,23,36,200/- has been made by Shri Satish Batra in respect of share in property to DLF on 30.11.2005. During the year under consideration both the co owners who had sold the property to Shri Pankaj Munjal, son of Shri O.P. Munjal, resident of B-5, Greater Kailash Part-1, New Delhi for a total consideration of Rs.23,09,08,220/- . Being 50% the owner of the property, the value of sale consideration in respect of the share owned by the assesee came to Rs. 11,54,54,110/-. The assesee besides other expenses has capitalized the interest paid on loan which was utilized for purchase of pent house towards the cost of the acquisition / cost of improvement and has claimed indexation on same while long term

capital gain at Rs., 1,49,96,561/-. Since assessee had also incurred business loss of Rs. 7,55,633/- same was partly set off against long term capital gain and partly against interest income. Ld. AO has duly noting entire facts and submissions made by the assessee and disallowed the long term capital gain of Rs. 1,46,96,561/- on sale of pent house and instead computed short term capital gain of Rs. 7,39,87,362/- mainly on the following reasons :-  According to the Ld. AO, the pent house came into existence in 2012 when the construction of property was completed and the possession was transferred to the Assessee company. Therefore, as per the ld, AO, the property was a short term capital asset.  Ld. AO while computing short term capital gain on the property allowed interest cost to the extent of Assessee's share in the property up to June, 2012 when possession of the property was taken.  The Ld. AO also disallowed other cost of improvement of Rs.1,23,16,105.98 stating the reason that the same was subsumed in the rebate of Rs. 98,62,770/-.  In addition to the above, he also disallowed business expenses of Rs. 7,37,462/- in relation to the capital asset.” 3. Ld. CIT(A) too has upheld the action of the AO to treat the transaction of capital asset as long term capital gain and also directed the AO to allow the interest till date of possession at July, 2012. In addition to that he gave following directions to the AO :

i. “To verify the actual interest paid by the appellant on the loan borrowed for this property and rework the figures of interest disallowance, if any. ii. He directed the AO to ascertain the exact facts about borrowing of the loan before allowing the interest corresponding to the shares of the appellant. iii. Regarding the other expenses of Rs. 1,13,82,644/- and rebate of Rs. 98,62,770/- he directed the AO to look into the nature of expenses and allow them as per law. He also directed him to consider net of these expenses and rebate/discount received for the purpose of capital gain iv. Regarding expenses claimed of Rs. 7,37,462/- in profit & loss account, he directed the AO to verify such expenses from the computation of income and allow accordingly the expenses leading to double addition. ” 4. Before us Ld. Counsel for the assessee Shri Ajay Wadwa first of all submitted that here in this case the period of holding of the pent house has to be reckoned from the date of allotment of the property i.e 13.10.2005 and not from the date of possession in 2012. The allegation of the revenue authorities is that, since assessee has received the possession of the flat in July 2012, therefore, the flat itself came into existence only in July, 2012 and prior to this period it was mere right in the property and hence according to them the capital asset which was sold by the assessee was a flat and not the right and therefore, the holding period should be computed from the date of possession to the date of sale. In this regard he submitted that even from the perusal of the agreement to sale dated 29.1.2015 and

the buyers agreement dated 8.3.2006, it is clearly borne out that assessee was allotted a flat vide allotment letter dated 13.10.2005. Thus, assessee right in the property had accrued on the date of allotment itself. He further pointed out that assesee immediately made the entire payment of Rs. 5.10 crore to M/s. DLF on 30.11.2005 itself. From the perusal of the entire material placed on record he submitted that the following facts emerged :-  That the Assessee was allotted specific number of the Flat i.e. 617A on the date of allotment. The Flat number was subsequently changed from 617A to 625 due to change in the height of the Building.  That the Assessee made complete payment of the Flat in the year of allotment.  That even, the Apartment Buyer Agreement was signed on 08.03.2006 which was the same year in which allotment was made.  That only the possession of the Flat was transferred in July 2012 Hence a right to hold the Flat was conferred to the Assessee on the date of allotment when the specific Flat was identified and allotted to the assesee and a full payment was made to M/s. DLF. Merely just because the possession was delivered to the Assesee subsequently, it cannot be said that the Assessee was not holding the Flat before the date of possession.” 5. Shri Wadhwa further placed from the reliance of CBDT circular No. 471 (F.No. 207/27/85-IT(A-II), DATED 15.10.1986 which describes the nature of right that an allottee acquires on allotment of flat under Self-Financing Scheme. According to it, the allottee gets title 5

to the property on the issuance of an allotment letter and the payment of instalments is only a consequential action upon which the delivery of possession flows. He pointed out that part 2 of the aforesaid circular clearly clarifies that for the purpose of income tax act, the alottee gets the property on the issuance of allotment letter and payment is only follow up action and the delivery of possession is only a mere formality. In support of his contention he relied upon the following case laws :- a. Hon’ble Punjab and Haryana High Court in the case of Vinod Kumar Jain v. CIT, Ludhiana (2012) 344 ITR 501 b. Ms. Madhu Kaul v. CIT (2014) 363 ITR 54 c. Hon’ble Jurisdictional High Court of Delhi in the case of CIT v. K. Ramakrishnan (2014) 363 ITR 59 d. Hon’ble Jurisdictional High Court of Delhi in the case of CIT vs. Jitendra Mohan (2007) 165 Taxman 524 (Delhi) e. Hon’ble Madra High Court in the case of CIT vs. S. R. Jeyashankar (2015) 373 ITR 120 (Madras) f. Hon’ble Mumbai Tribunal in the case of Anita D. Kanjani v. ACIT (2017) 163 ITD 451 g. Hon’ble Mumbai Tribunal in the case of DCIT vs. Deepak Shashi Bhusan Roy (2018) 96 taxmann.com 648 h. Jindas Panchand Gandhi (2005) 279 ITR 552 (Gujarat) i. CIT vs. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj) j. Hon’ble Kolkata Tribunal in the case of ACIT vs. Mrs. Sheela Chopra in ITA No. 169/Kol/2014

judgment in the case of CIT vs. Balbir Singh Maini 398 ITR 531 (SC) wherein the Apex Court has laid down principle that for the purpose of section 2(47) (v), the transfer of a capital asset which has been referred by way of part performance in terms of section 53-A of the Transfer of Property Act would mean that the agreement should be registered and since here in this case agreement to sell has not been registered it cannot be said that the agreement is valid and therefore, the period of agreement or allotment letter cannot be treated as determining date for acquiring the property. Thus, the treatment of short term capital gain on the fact of the present case is fully justified. 10. In the rejoinder, Shri Ajay Wadhwa submitted that the ratio and principle of Hon’ble Supreme Court will not apply because the said case is applicable with regard to the date of sell wherein the Hon’ble Apex Court held that sale agreement should be registered in terms of section 53-A. Here it is not in dispute that prior to 2012 the assesee had acquired the right in the property and such right is reckoned as capital asset and also falls within the ambit of definition of transfer as given in section 2(47) that right was vested in the said property right from the date of allotment letter or at the most from the date of the Buyers Agreement dated 8.3.2006. This right was converted into property by virtue of the same agreement and that property has been sold in this year. Thus, the principle laid down by the Hon’ble Supreme Court wil not apply here. 11. We have heard the rival submissions , perused the relevant findings given in the impugned orders as well as the material referred to before us at the time of hearing. From the facts as discussed in the foregoing paragraphs, it is an undisputed fact that assessee had acquired a flat being 50% owner with DLF Ltd. The acquisition of flat has been stated by way of allotment letter dated 13.10.2005 by which

assessee was allotted a particular unit with specified price consideration and immediately after the allotment of the letter the assessee has made the entire payment of the flat. Thereafter, Buyer’s agreement was entered into with DLF Limited, whereby assesee got all the rights on the same flat vide agreement dated 8.3.2006 and the entire consideration was paid much prior to the agreement dated which has also been acknowledged by the party in the said agreement. This is evident from not only the buyer’s agreement but also from the sale agreement dated 29th January, 2015, the details of which are given at pages 56-57 of the paper book. Now in the year under consideration assessee alongwith the other co-owner had sold the property and the assessee’s 50% share was offered to tax as long term capital gain after computation u/s 48 and Indexation. 12. The moot question before us is whether the sale and transaction of the capital asset is to be taxed as short term capital gain or long term capital gain. The revenue has calculated the date from the date of possession, that is, July 2012, whereas assessee is taking the date for determination of the period from 13.10.2005 which is the date of allotment of letter. Here in this case both the authorities have acknowledged that assessee had the right in the property from the date of allotment / buyer’s agreement and such right was converted into property only in July, 2012, hence that is the date of acquisition of asset. Such a view cannot be sustained, because right in the property has been recognised as capital asset under the Act for which there cannot be any dispute. The right in the property has been treated as transfer in relation to a capital asset in terms of clause (ii) of sub-section 47 of section 2. the Hon’ble Delhi High Court in the case of Gulshan Malik vs CIT (supra) after analysing the provision of section 2(14), 2(42A) and 2(47) have held that the capital asset under the act is a property of ‘any kind’ which is held by the assessee and

such capital asset must be transferrable. Enjoyment of immovable property, possession as well as any right or interest in any asset are all transferrable capital asset and the reference to acquisition by way of an agreement or in any arrangement or in any manner whatsoever establishes the enforceable rights for the purpose of Income Tax Act. Booking rights or rights to purchase apartment or right to obtain the title to the apartment is also a capital asset that can be transferred. Hon’ble High Court held that date of agreement has to be taken as a date and not the allotment. If the ratio and principle of the Hon’ble Delhi High Court is to be applied to the facts of the present case, then the assessee has acquired the capital asset on the date of buyer’s agreement dated 8.3.2006. It was by virtue of this agreement only the assessee had acquired the flat and in pursuance thereof, letter of possession of flat was given. If revenue’s stand is taken into consideration, then, if assessee would have sold the flat prior to the possession i.e. July, 2012 would it not have been reckoned as long term capital gain taxable as long term capital gain and whether after the possession of the flat the nature of capital assets gets changed. Such a view cannot be accepted, because possession of the flat is flowing from the terms and conditions mentioned in the buyer’s agreement itself. Thus, in our opinion the date of possession cannot be reckoned as a date of the acquisition of the flat for the purpose of computing the period of short term or long term. We are in tandem with the contention of Mr. Ajay Wadhwa that, even if the date of allotment is not to be treated as the date of acquisition, but the date of buyer’s agreement dated 8.3.2006 is the date in which the assesee has acquired the rights in the property. Accordingly we direct the AO to treat the date of acquisition of the flat / property on 8.3.2006. 10. Coming to the judgment of Hon’ble Supreme Court in the case of CIT vs Balbir Singh Maini (supra), in that case, in terms of joint

development agreement of a particular land entered between the assessee and another two parties and as per the said JDA , developer would undertake to develop the land owned in the name of the assessee’s society. Later on, due to certain disputes with regard to necessary permission for the development which was not granted, the JDA even did not take off. AO held that since physical and vacant possession had been handed over under the JDA, therefore, the same would tantamount to transfer within the meaning of section 2(47). On these facts the Hon’ble Supreme Court held that an agreement to sale which fulfil the ingredients of section 53A has undergone a change by “Registration and Other Related Laws Amendment Act, 2001’ and there was a simultaneous amendment in section 53A of the Transfer of Property Act and section 17 and 49 of the Indian Registration Act. Since JDA was not registered then it shall have not effect in the law for the purpose of section 53A, that means it was not agreement in the eyes of law. It was clarified by the Hon’ble Supreme Court to clarify the transfer as a capital asset, there must be contract which can be enforced in law u/s 53 of the Transfer Property Act. In absence of any registration there is no contract in the eyes of law. The object of section 2(47) (vi) was to bring within the tax net de facto transfer of any immovable property and expression ‘enabling the enjoyment’ takes colour from the earlier expression ‘transferring’ so that it is clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof. The idea is to bring within the net transactions where though title may not be transferred. In that case the Hon’ble Apex Court has also held that no income has accrued to the assessee and also there was no question of taxing income as under the capital asset as the asessee did not acquire any right to receive income as much as alleged right which shall depend upon necessary permission obtained . Ostensibly the ratio and

principle of this judgment would not apply on the facts of the present case, because it was never in dispute by the revenue that assesee did not had a valuable right in the property which is a capital asset under the Income Tax Act and it is this capital asset which has been sold by the assesse in this year. Thus, we hold that, firstly it is a transfer of a long term capital gain; and secondly, the same has to be taxed as long term capital gain. Consequently ground No. 1 to 6 is allowed. 14. Coming to the issue of interest expenses on the interest paid on loan borrowed to the extent of the assessee’s share in the property up to the date of possession, as raised in ground No. 8, the same also gets covered in view of our finding given above. We find that, reason for disallowing of interest cost by the AO is as under :- i. “Cost of improvement consists of only interest paid to the financial institutions and not payment to M/s. DLF for any addition or alteration. ii. The Assessee raised excess loan from ICICI to pay on behalf of Sh. Satish Batra iii. Excess amount of Rs. 1,11,94,655/- was shown as advance to Sh. Satish as on 31.3.2006 iv. Advance repaid by Sh. Satish Batra on 27.02.2008 was not used to repay excess loan but was invested in share of M/s. Vimal Plast. v. Assessee was paying huge interest on loan and making interest free advances to sister concerns. vi. Loans granted to the related parties were not for business purpose.”

S. No. F. Year Particulars Date Amount Remarks 1. 2012-13 DLF Limited 04.12.2012 95,349.00 Service Charges Towards Service Charges payable to DLF against Bill No.04.12.12 of Rs. 190,698/- and 50% transferred to Mrs. Satish Batra Total-A 95,349.00

Grand Total-A+B+C 11,382,473.24

It has been submitted by the Ld. Counsel that all these charges are clearly towards the expenses incurred on the asset which has to be allowed as cost of improvement or expenditure incurred wholly and exclusively connected with the transfer.

Maintenance Charges Rs. 1,69,662/-

Commission paid Rs. 5,61,800/-

Penalty Rs. 6000/-

same has already been disallowed by the assesee in the computation of income, therefore, further disallowance leads to total addition on the same amount. We find the contention of the Ld. Counsel is correct and therefore, we direct the AO to remove the disallowance because assessee has already added back in the computation of income. 21. In so far as commission of Rs. 5,61,800/- Ld. Counsel pointed out AO while computing the short term capital gain has reduced the commission and therefore, if income is to be computed as long term capital gain then same treatment should be given. We find substance in the arguments of the Ld. Counsel , if the nature of commission has is in relation to the transfer of capital asset then while computing the long term capital same should be allowed. However, in respect to maintenance expenses which were for the upkeep of the flat the same would not be allowed as a part of cost of acquisition of capital asset and therefore, same cannot be allowed. 22. Accordingly appeal of the assessee is partly allowed. 19. In the result appeal of the assessee is partly allowed. Order Pronounced in the open court on 28th May, 2019. sd/- sd/- (L.P. SAHU) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28/05/2019 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR

ITAT, New Delhi