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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI G. MANJUNATHA & SHRI RAM LAL NEGI
Date of Hearing 22/07/2019 Date of Pronouncement 09/08/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax Appeals–12, Mumbai, dated 09/03/2009 and it pertains to the Assessment Year 2005-06. The assessee has raised the following grounds of appeal:-
1. The learned Commissioner of Income Tax (Appeals) erred in holding that the gains of Rs.25,00,000/- were assessable as speculation gains and In doing so he amongst others failed to appreciate that a. the consideration received under the deed of transfer dated 14.6.2004 related to a capital asset (TDR rights) b. The TDR rights have been granted by the Government of Maharashtra for the city of Pune c. The appellant had not transferred the capital asset viz. TDR under the memorandum of understanding dated 17.8.1996. d. The amount received by the appellant under the 'deed of transfer' of TDR rights was in the nature of capital receipt not liable to income Tax. e. The capital asset transferred did not have any cost of acquisition and accordingly the gain arising on transfer of TDR was not assessable U/S. 45 of the Act. WITHOUT PREJUDICE TO THE ABOVE 2. The learned Commissioner of income Tax (Appeals) erred in riot assessing the income arising on receipt of consideration under the 'Deed of Transfer' dated 14.6.2004 as income under the head 'Long Term Capital Gains' 3. The learned Commissioner of income Tax (Appeals) erred in not granting deduction u/s. 54EC of the Act for the consideration Invested by the appellant In NABARD Capital gains Bonds 4. The learned Commissioner of Income Tax (Appeals) erred In charging Interest u/s. 234A, 234B, 234C and 2340 of the Act and having regard to the facts and circumstances of the case and In law the appellant denies his liability for payment of interest under the aforesaid sections.
At the time of hearing, the Ld. AR for the assessee, submitted that there is a delay of 658 days in filing appeal before the Tribunal, for which necessary petition for condonation in delay appeal along with affidavit has been filed explaining reasons for delay in filing of appeal. As per which, the assessee could not file appeal within the time allowed under the Act, because of his ill-health, for that period starting from 24/07/2008 to 11/09/2009, where the assessee was admitted with three fractures of his shoulder and had undergone emergency operation for obstructed hernia, due to this the assessee could not do his day to day activities, which is resulted in not filing appeal before the Tribunal. Therefore, the delay in filing of appeal may be condoned in the interest of justice. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of Ummer Vs. Pottengal Subida and others in Civil Appeal No. 2599 to 2600/2018.
The Ld. DR, on the other hand, strongly opposing condonation petition filed by the assessee submitted that the assessee is seeking condonation of delay in filing appeal by filing an affidavit without there being any evidence to support contents of said affidavit, therefore the delay in filing appeal should not be condoned.
We have heard both the sides, perused the material available on record. Although, there is no supporting evidences filed in support of contents of affidavit explaining reasons for not filing the appeal, but a sworn statement in form of affidavit cannot be ignored in total. Further, when we go through, the reasons given by the assessee for not filing appeal in time, we find that the assessee was hospitalized for sickness, which is evident from the fact that during the period from 24/07/2008 to 11/09/2009, he was in hospital for three occasions for different treatments. We, further noted that when health issues and income tax matter comes together, certainly the matter concerning health issues needs to be given preference. In this case, it is not in dispute that the assessee is aged more than 82 years and obviously, the age old related sickness/health issues will follow. Therefore, we do not find anything suspicious about reasons given by the assessee for condonation of delay in filing of appeal.
Therefore, we are of the considered view that there is a merit in condonation petition filed by the assessee and accordingly, condoned, the delay in filing in appeal and admit the appeal for hearing. This view expressed by us is fortified by the decision of Hon’ble Supreme Court in the case of Ummer Vs. Pottengal Subida and others (supra), where in paragraph 17, the Hon’ble Supreme Court categorically held that the Hon’ble High Court should have taken liberal view in the matter and held the cause shown by the appellant as sufficient cause within the meaning of section 5 of the Limitation Act, and accordingly should be condoned, the delay in filing of the appeal. Therefore, considering facts and circumstances of this case and also taken support from the decision of Hon’ble Supreme Court in the case discussed hereinabove, we condoned delay in filing appeal and admit appeal for hearing.
The brief facts of the case are that the assessee is a individual, filed his return of income for AY 2005-06 on 20/07/2005 declaring total income at Rs. 1,04,510/-. The case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that during the year under consideration, the assessee has computed Long Term Capital Gain from sale of TDR and accordingly, called upon the assessee to file necessary evidences including details of assets sold, cost of acquisition and proof for investment in NABARD Bonds to claim exemption u/s 54EC of the I.T.Act, 1961. In response, the assessee has filed a deed of transfer dated 14/06/2004 and as per said deed, the assessee has transferred TDR rights to M/s Panchsheel Recreation Club Pvt.Ltd. for total consideration for Rs. 50 Lacs. The assesee claims that he had right to acquire TDR in view of land acquired by Pune Municipal Authority and the same has been transferred to the third party for a consideration of Rs. 50 Lacs. It was further submitted that the right in TDR in lieu of land is a capital asset and hence, the same has been rightly considered under the head capital gains and after considering necessary cost of acquisition computed Long Term Capital Gain of Rs. 25 Lacs. The assessee has also claimed exemption u/s 54EC for investments in NABARD Bonds. The Ld. AO after considering the relevant submission of the assesee held that the assessee has sold rights in TDR in the year 1996 and accordingly, paid all taxes thereon for the relevant assessment year 1997-98. The Ld. AO further observed that the assessee had once again purchased TDR by virtue of deed of cancellation dated 14/06/2004. Therefore, the period of holding of the asset i.e, TDR is less than 36 months and accordingly, gain received from transfer of TDRs is assessable under the head Short Term Capital Gain and accordingly, assessed surplus from sale of TDR under the head Short Term Capital Gain and also denied benefit of exemption claimed u/s 54EC of the I.T.Act, 1961.
Aggrieved by the assessment order, the assesee preferred an appeal before the Ld. CIT(A). Before the Ld.CIT(A), the assessee reiterated his arguments made before the AO. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that right in TDRs is a capital asset as defined u/s 2(14) and hence, gain arose from transfer of capital asset is assessable under the head capital gains. The Ld. CIT(A) after considering the relevant submission of the assesee and also taken note of sale of TDR in the year 1996, repurchase the same on 14/06/2004 and subsequent sale to third party during the same financial year, came to the conclusion that the transactions is in the nature of speculative transactions as defined u/s 43(5) and accordingly, assessed surplus generated from sale of TDRs as speculative business profit.
Similarly, in respect of exemption u/s 54EC of the I.T.Act, 1961, the Ld. CIT(A) held that when consideration received from sale of TDR does not fall under the head capital gains, the question of giving benefit u/s 54EC of the I.T.Act,1961, for the said amount does not arise. The relevant findings of the Ld. CIT(A) are as under:-
2.3 I have considered the submissions of the Appellant and the asstt. order. It is an undisputed fact that the Transferable Development Rights (TDR) was not inexistence when the MOU dt 17.8*96 was made and also on the date when the subsequent transfer was made on 14.6.04. As such there was no capital asset on the date of the said MOU and the subsequent transfer made. The purported TDR which were transacted upon were never allotted by concerned Authorities. The Appellant had also not filed any materials to evidence that it had made a claim for allotment of TDR or that Its proposal is under active consideration of the concerned the paper book filed for the Appellant it could be seen that the Govt. has only allowed TDRs in respect of Slum Redevelopment Scheme in Pune and the case of the Appellant dogs not fall under the said scheme. Moreover, the TDR under Slum Redevelopment Scheme had been sanctioned only with effect from 5.08.04. In the case of the Appellant the property had been acquired by the Pune Municipal Commissioner on 12.06.1986 and so far there has been no sanction for the allotment of TDRs in respect of said acquisition till date. In the absence of any concrete sanction for TDR, the transactions made by the Appellant is on a non-existing asset and as such cannot be treated as capital asset within the meaning of sec.2(14). As the transactions pertain to a non-existing asset, such transactions cannot be held as profit or gains arising from the transfer of a capital asset for the purpose of computing capital gains. In view of the above, the contention of the Appellant that the gains be treated as LTCG and the action of the Assessing Officer in treating the same as 5TCG is erroneous. The provisions of Chapter -IVE pertaining to capital gains does not apply to the transactions made by the Appellant resulting In the profit of Rs.25 lacs. The Appellant had transacted on the n on -existing capital asset ie TDR, once by way of MOU on 17.8.96, secondly while canceling the earlier MOU and thirdly on transfer of the purported TDR on 14.6.04. All these activities lead to a conclusion that the Appellant had planned out a systematic business activity in transacting In the non-existing TDRs with a motive to earn profit The transactions carried out by the Appellant is in the nature of trade and does not amount to earning of capital gains on transfer of capital asset. As the Appellant was not owning any capital asset as on the dates the transactions were made, the intention of the Appellant becomes clear that he was not contemplating on the actual delivery of the TDRs. The Appellant had contemplated to make profits out of transactions without the requirement of delivering the TDRs. In the instant case, the TDR has to be treated as a commodity like stock and shares, immovable properties, etc. The transactions carried out by the Appellant are within the meaning of speculative transactions as provided in section 43(5).
In view of the above, it is held that the transactions made on account of the non-existing TDRs cannot be held as a transfer of capital asset. The transactions are nothing but a speculative business activity out by the Appellant and the profits made thereof are in the nature of speculative income. The Assessing Officer is directed to treat the gains of Rs.25 lacs as speculative business Income of the Appellant. Accordingly, the ground nos. 1 & 2 are dismissed.
3. The ground no.3 is that the Assessing Officer erred in not granting deduction u/s 54EC for the consideration invested by the Appellant in NABARD Bonds. 3.1 As I have held that the consideration received amounting to Rs.25 lacs hits not falling under the head Capita! Gains, the question of granting deduction u/s 54EC for the said amount does not arise. Accordingly, this ground of appeal is rejected.
The Ld. AR for the assessee, at the time of hearing, submitted that the Ld. CIT(A) was erred in assessing surplus generated from sale of TDR as speculative profit without appreciating the fact that, when the asset was sold on 1996, the department has assessed surplus under the head capital gains. The Ld. AR, further submitted that right in TDR is a capital assets, because such right has been inextricable linked with the asset, which was acquired by the municipal corporation. Although, there is no TDR was allotted to the assessee, but the assessee had a right to acquire TDR in lieu of acquisition of land by the authorities. The said right has been transferred to the third party, for which necessary consideration has been paid. When, TDR is considered to be asset, then any right in such TDR is also a capital asset within the meaning of section 2(14) of the I.T.Act, 1961. Therefore, the assessee has rightly computed surplus under the head Long Term Capital Gain and accordingly, taken benefit of exemption u/s 54EC of the I.T.Act,1961 for purchase of NABARD Bonds.
The Ld. DR, on the other hand, strongly supporting order of the Ld. CIT(A) submitted that on perusal of sequent’s of events, it is abundantly clear that the nature of transactions undertaken by the assesse are in the nature of speculative transactions. Therefore, the Ld. CIT(A) has rightly invoked provision of section 43(5) to tax surplus as speculative business profit and his order should be upheld.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The facts borne out from records clearly indicates that the assessee has got a right in TDR in lieu of acquisition of immovable property by the Municipal Corporation of Pune. Although, there was no Transferable Development Rights (TDR) was in existence, when the MOU dated 17/08/1996 was entered into by the assesee with third party for transfer of right in TDR, but surplus derived from transfer of TDR rights has been assessed under the head capital gains. During the year under consideration, the assessee has cancelled MOU entered on 17/08/1996 for transfer of TDR, because the purchaser was not willing to wait any more, because of delay in allotment of TDRs by the competent authority. However, the assessee has got a new buyer for right in TDR and accordingly, one more MOU agreement dated 17/08/1996 was entered into and transferred right in TDR to third party for a consideration of Rs. 50 Lac. The fact that there was no TDR in hand, when original MOU was entered into in the year 1996 and also in the year 2004 was not disputed by both the parties.
The Ld. AO has assessed surplus from sale of right in TDR under the head Short Term Capital Gain, for the reason that the period of holding of the asset is less than 36 months, because the assesse has sold right in TDR in the year 1996 and bought back, the same during the financial year 2004-05, therefore, he opined that the period of holding of the asset is less than 36 months and hence, the same is assessable under the head Short Term Capital Gain. The Ld. CIT(A) has altogether taken a different view and assessed surplus under the head speculative profits by taking note of provisions of section 43(5), for the reasons that the assessee is involved in repetitive transactions of buying and selling of TDR.
Except this, the lower authorities had never disputed the fact that the assessee has transferred right in TDR to third party. In this factual back ground, if you examine, whether right in TDR is a capital asset and surplus from sale of such capital assets is assessable under the head capital gain, there is no doubt of whatsoever, with regard to the fact that TDR is a capital asset, because it is inextricably linked with immovable property and also flows from transfer of immovable property. When, TDR is considered to be an immovable property/assets within the meaning of section 2(14) of the I.T.Act, then any right in such TDR is also needs to be considered as a asset within the meaning of section 2(14) of the I.T.Act, 1961. Therefore, we are of the considered view that the Ld. CIT(A) was erred in considering surplus from transfer of TDR under the head speculative business profits.
Coming to the observations of the AO. The Ld. AO has observed that the period of holding of the assessee is less than 36 months, consequently surplus generated from sale of such asset is assessable under the head Short Term Capital Gains. We find that the assesse has sold right in TDR way back in 1996 by virtue of a MOU dated 17/08/1996. The said MOU has been cancelled by way of cancellation deed dated 14/06/2004, because the purchases was not willing to wait any more, because of delay in allotment of TDRs by the competent authority. The assessee has sold the same right in TDR to third party vide agreement dated 14/06/2006, for a consideration of Rs. 50 Lacs. Therefore, now the question before us is determination of period of holding, whether it is from the date of original transfer of assets or the date, when the assesse has cancelled MOU entered into in the year 1996. Admittedly, the cancellation deed dated 14/06/2009 clearly states that the purchaser was not willing to wait any more, because of delay in allotment of TDR rights and accordingly, the assessee was forced to cancel deed of transfer entered into in the year 1996. When, the asset transferred was cancelled for some reasons, the same cannot be considered as repurchase of the asset, for the purpose determination of period of holding, because the period of holding of the asset has to be determined from the date of original acquisition/purchase. In this case, there is no doubt, with regard to the fact that the assessee has derived right in TDR by virtue of acquisition of immovable property by the municipal authorities in the year 1986 and such right is conferred on the assessee from the date of acquisition of the property. The subsequent cancellation and sale of TDR to third party cannot be considered as purchase of TDR from a third party.
Therefore, we are of the considered view that, for the purpose of determination of period of holding, the period of holding of the asset from the date of acquisition of property by the municipal authorities has to be considered, but not from the date, when MOU was cancelled in the year 2004. If you take, the original date of acquisition of property, then the period of holding of the asset is more than 36 months and hence, surplus from transfer of asset is rightly assessable under the head long term capital gains.
Coming to exemption claimed u/s 54EC of the I.T.Act, 1961.
The AO never discussed, the issue of exemption claimed u/s 54EC of the I.T.Act, 1961 for purchase of NABARD Bonds in his assessment order, although surplus generated from transfer of right in TDR has been assessed under the head income from capital gains. Although, the Ld. CIT(A) has admitted fact that the assessee has claimed benefit of exemption u/s 54EC of the I.T.Act, 1961, but exemption claimed was denied, because income from transfer of TDR has been assessed under the head speculative business profit.
The assessee has filed copies of capital gain bonds issued by NABARD for amounting to Rs. 25 Lacs. However, the facts with regard to purchase of NABARD capital gain bonds within prescribed limit provided u/s 54EC of the I.T.Act, 1961, has not been examined by the Ld.AO, as well as the Ld. CIT(A). Therefore, we are of the considered view that the issue needs to be re-examined by the AO, in light of the evidences filed by the assessee and hence, we set aside the issue to the file of the AO, for the limited purpose of verification on facts with regard to the investments in NABARD capital gain Bonds for the purpose of exemption claimed u/s 54EC of the I.T.Act, 1961. In case, AO found the investment is within stipulated time and it has fulfilled all other conditions, then AO is directed to allow benefit of exemption u/s 54EC of the Act, as claimed by the assessee
In the result, appeal filed by the assessee is allowed for statistical purpose.
Order pronounced in the open court on this 09 /08/2019