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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI G. MANJUNATHA
O R D E R Per N.V. Vasudevan, Judicial Member These are three appeals filed by three different Assessees against three different orders all dated 31.7.2017 by CIT(Appeals)-4, Bangalore, relating to assessment year 2006-07.
The Assessees in & 1920/Bang/2017 are daughter and sons and Assessee in Late F. Thumboo Chetty respectively.
The revenue came into possession of a Joint Development Agreement dated 22.12.2005, hereinafter referred to as “JDA” entered into between the three Assessees in these three appeals and M/s. H.M. Estates & Properties, a Partnership firm, hereinafter referred to as “Developer”, in respect of property bearing No.157, Wheelers Road, Civil Station, Bangalore, hereinafter referred to as “the property”. As per JDA, in consideration of the Developer agreeing to construct and deliver to the Assessees, 30% of Development comprising of Apartments, common area, basement, car parking, surface car parking in the building to be constructed on the property, the developer was permitted to carry out development over the property with right to obtain conveyance of undivided share of land equivalent to the developers share of built up area. The area of construction that the Assessees would receive was to be identified in writing after the building sanction plan is obtained. There was also a supplemental agreement dated 27.1.2006 whereby the Assessee’s share of built up area was arrived at 27900 Sq.ft. Out of the Assessees share 22500 Sq.ft. built up area was given to the Developer @ Rs.4000 per sq.ft. and a sum of Rs.9 crores which was the value of 22500 Sq.ft. built up area was to be paid to Canara Bank in discharge of the amounts due by the owners to Canara Bank under a One Time Settlement. The Assessee’s were thus entitled to receive only 5400 Sq.ft. of built up area in the proposed development over and above the sum of Rs.9 Crores paid to Canara Bank.
Based on the JDA, the department initiated proceedings u/s.147 of the Income Tax Act, 1961 (“the Act”) by issue of notice u/s.148 of the Act dated 27.3.2013. In such assessment proceedings, the Assessee in who acted as Power of Attorney Agent of the other two Assessees, was examined by the DDIT(Inv.), Unit 1(1), Bangalore and in his statement, he stated as follows:
“Question No.6: It is seen that as per the answer to Q.No.4, you have stated that a property at No.157, Wheelers Road, Bangalore has been sold for a consideration of Rs.11.61 Crores during the F.Y.2005-2006. As seen from the details of the return of income for the A.Y.2006-07, the said transaction has not been reflected. Please offer your comments?
Ans: The property was inherited by me and had been mortgaged with Canara Bank as Collateral Security for a loan taken by M/s. Indo Global Spices Limited. I was a Director in the said Company. The property was transferred to M/s. H.M. Estates and Properties for a total consideration of Rs.11.61 Crores, out of which Rs.9 Crores went towards clearing of mortgage held by the Bank. Further initially some portion of the built up area was to be retained by me, but as per a later agreement the entire built up area was transferred to the buyer. The documents pertaining to the above transaction shall be produced. I had not reflected the capital gains of the said sale transaction, as I had taken shelter on the decision of the Delhi Bench of the Tribunal in the case of Addl.CIT Vs. Glad Investments Private Limited (2006) 102 ITD 227. However, now on being convinced by my Chartered Accountant and in view of the Supreme Court decision reported in 227 ITR 222 and 227 ITR 240 in the cases of R.M. Arunchalam Vs. CIT and V.S.Malhotra V/s CIT respectively, explained to me, I compute my Capital Gains for A.Y.2006-2007 as under:-“
Sale consideration received Rs. 11,61,00,000/- Less: Indexed cost of acquisition (at Rs.200 /sft for 1981) Rs. 3,91,64,778/- Balance Rs. 7,69,35,222/- Less: Deduction U/s.54 Rs. 2,21,00,000/- Net taxable long term capital gains Rs. 5,48,35,222/-
Based on the above and in the absence of any other information or document coming from the Assessee in the AO brought to tax Long Term Capital Gain (LTCG) of Rs.7,69,35,222/-. The AO did not allow exemption u/s.54 of the Act of Rs.2,21,00,000 claimed by the Assessee in the statement referred to above.
In the case of Assessees in 1919/Bang/2017, the AO initiated proceedings u/s.147 of the Act and passed an order assessing the sum of Rs.7,69.35,222/- as LTCG protectively in their hands also observing in the said order that though the JDA refers to three persons as owners of the property, since the Assessee in admitted that LTCG belongs to him the sum was being assessed substantively in his hands and protectively in the hands of the other two Assessees.
Before CIT(Appeals), the Assessees submitted the property belonged to all the three Assessees. The Assessee pointed out that the property originally belonged to Mr. R. Kempraj, who by a registered settlement deed dated 22.3.1958 settled the property in favour of his son Mr. F. Thumboo Chetty and his daughter in law, Nancy Thumboo Chetty (the Assessee in ). Mr. F. Thumboo Chetty died intestate and his wife Nancy Thumboo Chetty, his son Mr.Rajkumar Thumboo Chetty and his daughter Mrs.Ranjini Thumboo Chetty became entitled to 1/3rd share each in the 50% of share held by F. Thumboo Chetty over the property. The parties were Indian Christians governed by the Indian Succession Act, 1925 in the matter of intestate succession. Thus, Nancy Thumboo Chetty was entitled to 50% + 18.66% and Mr.Rajkumar Thumboo Chetty and Mrs. Ranjini Thumboo Chetty entitled to 18.66% share each over the property. The Assessees contended that LTCG should be assessed accordingly in the hands of each of the Assessees in proportion to their respective shares and deduction u/s.54 of the Act has to be allowed for the value of the built up area which the Assessees received from the developer.
The CIT(Appeals), however, was of the view that there was no valid documentary proof to show that the property belonged to three Assessees. Accordingly, the CIT(A) confirmed the action of the AO. Further, the CIT(A) also denied the benefit of deduction u/s.54/54F of the Act for want of evidence to prove the claim for deduction.
Aggrieved by the orders of the CIT(A), the Assessees are in appeal before the Tribunal. We have heard the rival submissions.
On the issue, whether sum paid to the bank to discharge loan on the property should be allowed as deduction or not, arguments advanced were the same as were advanced before the revenue authorities. We are of the view that the conclusions of the revenue authorities on this aspect is correct and therefore we concur with the view of the CIT(A).
As far as the issue, whether LTCG is to be assessed in the hands of Mr. Rajkumar Thumboo Chetty or all the three Assessees and the shares in respect of which they have to be assessed to LTCG, we find from the documents filed in the paperbook that property originally belonged to Mr.R. Kempraj, who by a registered settlement deed dated 22.3.1958 settled the property in favour of his son Mr. F. Thumboo Chetty and his daughter in law, Nancy Thumboo Chetty (the Assessee in ). F. Thumboo Chetty died intestate and his wife – Nancy Thumboo Chetty his son – Mr. Rajkumar Thumboo Chetty and his daughter Mrs. Ranjini Thumboo Chetty became entitled to 1/3rd share each in the 50% of share held by F. Thumboo Chetty over the property. Thus, Nancy Thumboo Chetty was entitled to 50% + 18.66% and Mr. Rajkumar Thumboo Chetty and Mrs.Ranjini Thumboo Chetty to 18.66% share each over the property. It is in their respective capacity and shares, that the Assessees entered into JDA with the Developer. The built up area which the Assessees were to receive from the developer should, therefore, be divided in the ratio in which each of the Assessee is entitled to share over the property. The value of built up area which the Assessees have retained ( 5400 Sq.ft.) is to be regarded as investment in purchase of new asset u/s.54/54F of the Act. This involves looking into the records and making calculations and ascertaining factual details and therefore, we remand the issue of determination of LTCG and deduction u/s.54/54F of the Act to the AO for adjudication afresh, after affording Assessee opportunity of being heard. The Assessees will also provide documentary evidence establishing flow of title to the property which can be in the form of primary of secondary evidence. The AO will consider the claim of the Assessees in the light of the findings/directions given above in accordance with law.
In the result, the appeals are treated as partly allowed for statistical purpose.
Pronounced in the open court on this 15th day of March, 2019.