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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 12.09.2012 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.
The only issue raised by the assessee from Ground No.1 to 4 is against the order of Ld. CIT(A) confirming the order of AO in brining to tax the long term capital gain of Rs.3,09,87,506/- despite the fact that sale has taken place in the AY 2012-13 ans not in the current assessment year whereas the issue in ground
The facts in brief are that the assessee is a public limited company engaged in the business of manufacturing of hosiery items besides doing job work. The assessee entered into an agreement to acquire on lease a plot of land located at MIDC industrial area plot No.A/745 & A/746 in TTD Industrial Area, District Thane as per agreement dated 28.02.1992 with M/s. Om Textiles Pvt. Ltd. As the said plot No.A/745 & A/746 in TTD Industrial Area, District Thane, was taken on lease by the latter party from MIDC, the MIDC was the owner and lessor and M/s. Om Textiles Pvt. Ltd. was the lessee. Thereafter, the M/s. Om Textiles Pvt. Ltd. agreed to assign the leasehold rights in favour of the assessee which were not approved by the MIDC and thus no lease deed could be executed in favour of the assessee, however, the assessee after taking possession of the said plot constructed a factory building and started manufacturing of hosiery items from the said plot. On 04.04.2008 assessee further entered into an agreement with M/s. Patel Hosiery Mills, a partnership concern, to transfer its occupational rights in the plot No.A/745 & A/746 in TTD industrial area, Thane for a consideration of Rs.3,25,00,000/- to M/s. Patel Hosiery Mills . In the said agreement it is specifically provided that permission from MIDC is pre-condition for transfer of rights and if the permission is denied by MIDC, the advance given to the assessee by M/s. Patel Hosiery Mills would be refunded without interest. The assessee received a total amount of Rs.2,33,00,000/- till 31.03.2009 from M/s. Patel Hosiery Mills against the total consideration of Rs.3,25,00,000/- and also gave part possession
3 M/s. Darshan Hosiery Industries Ltd. of the plot as token of security of money already paid of Rs. 2,33,00,000/-. The AO during the course of assessment proceedings, called upon the assessee to furnish copy of agreement dated 04.04.2008 and also the confirmation thereof subsequently which was supplied by the assessee vide letter dated 07.10.2011 filing a copy of the agreement along with final copy of confirmation of sale deed dated 26.04.2011. Thereafter, the AO called upon the assessee to show cause as to why the capital gain arising from the sale of the premises should not be brought to tax in A.Y. 2009-10 as the sale has taken place in the instant year which was replied by the assessee by submitting that the land on which the factory building was constructed belonged to MIDC and it is only the occupational rights accrued in favour of the assessee which the assessee has agreed to transfer to M/s. Patel Hosiery Mills conditional upon MIDC according its approval in favour of the M/s. Patel Hosiery Mills. The assessee submitted that registered sale deed was made in favour of M/s. Patel Hosiery Mills on 10.05.2011 thus in terms of agreement dated 26.04.2011 M/s. Patel Hosiery Mills became entitled to land and building when MIDC finally registered the rights as lessee in the name of M/s. Patel Hosiery Mills on 10.05.2011. Thus the assessee contended that long term capital gain arose in A.Y. 2012-13 and not in the A.Y. 2009-10 as held by the AO. Finally, the AO rejecting the contentions of the assessee treated the long term capital gain of the assessee as in A.Y. 2009-10 by assessing the total income at Rs.3,19,93,690/- as against the declaring income of Rs.10,06,190/-.
4 M/s. Darshan Hosiery Industries Ltd.
In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by holding that the sale of rights in respect of the said property has taken place in A.Y. 2009-10 as the agreement was executed on 04.04.2008 for a total consideration of Rs.3,25,00,000/- which was partly received to the tune of Rs. 2,33,00,000/- till the year end i.e. 31.03.2009. The Ld. CIT(A) also observed that assessee has given part possession of the premises with signing of this agreement and the partners in M/s. Patel Hosiery Mills and directors of the assessee company were common and thus concluded that transfer has taken place between the related parties in the current year. The Ld. CIT(A) also noted that MIDC has never confirmed the lease in favour of the assessee despite that the assessee continued unhindered manufacturing activity on the said plot besides constructing 1625.10 sq. mtr. of factory building on the said plot for which the completion certificate was issued by MIDC on 11.03.1996. Thus the Ld. CIT(A) concluded that the confirmation of lease by MIDC was a mere formality to the transfer the premises by the assessee to M/s. Patel Hosiery Mills and thus justified the addition of capital gain resulting from the sale of land and building in the current year.
The Ld. A.R. vehemently submitted before the Bench that the transfer of rights by the assessee in plot No.A/745 & A/746 had taken place in A.Y. 2012-13 as the final deed of confirmation was executed on 26.04.2011 and the agreement dated 04.04.2008 was for conditional transfer for the cancellation of this agreement in the eventuality the MIDC not according its permission for transferring the rights in favour of M/s. Patel Hosiery Mills. The Ld. A.R. candidly accepted before
5 M/s. Darshan Hosiery Industries Ltd. the Bench that assessee has accepted Rs.2,33,00,000/- out of total consideration of Rs.3,25,00,000/- till 31.03.2009 but the transfer of this property can not be preponed to the current year by mere fact that assessee has received 70% of the total consideration and also handed over a part of the possession to the said buyer as security. The Ld. A.R. submitted before us that the said capital gain was duly offered to tax in A.Y. 2012-13 by inviting our attention to the statement of total income and copy of income tax return filed at page No.12 & 13 of the paper book. The Ld. A.R. also took us through the agreement of transfer explaining the various clauses in the said agreement and submitted that the permission from MIDC was the essence of the agreement and non grant of approval would have resulted into cancellation of this agreement and refunding of money already received. The Ld. A.R. submitted that it is immaterial that the director of the assessee company is also a partner in the firm purchaser M/s. Patel Hosiery Mills and would not make the transaction a colourable devise which is not the case of the AO or Ld. CIT(A) in any case. The Ld. A.R. also submitted that despite entering into agreement dated 04.04.2008 by the assessee with M/s. Patel Hosiery Mills for transfer of land and building, the assessee continued to carry its business operations in the said premises by referring to the copies of income tax return filed with the department copies whereof are attached in the paper book at page No.64 onwards. The Ld. A.R. submitted that the assessee was doing substantial business by referring to the copy of P & L account filed at page No.75 of the paper book and submitted that the sales during the year were Rs.4,47,36,781/- vis-à-vis sale in the preceding previous year of 6 M/s. Darshan Hosiery Industries Ltd. Rs.4,36,86,889/-. The Ld. A.R. drew our attention to final lease deed dated 10.05.2011 executed in favour of the buyer to reinforce his arguments. The Ld. A.R. submitted that during the year no transfer of right has been taken place as is clear from the final lease deed executed on 10.05.2011 and therefore submitted that it can not be brought to tax in current year.The ld AR relied on a series of decisions in support of his arguments namely (i) C.S. Atwal Vs CIT 378 ITR 244 (P & H) (ii) Suraj Lamp and Industries Pvt Ltd Vs State of Haryana and Others 340 ITE 1 (SC) and CIT Vs Tata Tele Services. 122 ITR 594 Bom. Finally the ld AR prayed before the bench that the order of CIT(A) may be reversed by directing the AO to delete the long capital gain of Rs. 3,09,87,506/- .
The ld DR on the other hand relied on the orders of the authorities below by submitting that the transfer of rights have taken place during the year in view of the fact that the assessee has entered into agreement for transfer of rights in the land and building during the year for a consideration of Rs. 3,25,00,000/- out of which the assessee has received substantial amount of Rs. 2,33,00,000/- and also given part possession of the property. So far as the conditional transfer is concerned as argued by the ld AR , the ld DR submitted that the permission from MIDC was a mere formality. The ld DR tried to justify the treatment of sale during the year by referring to the fact the MIDC never granted permission of lease in favour of the assessee and assessee occupied the property and carried on his business without such permission. Countering the argument of ld AR that the income has been offered to tax in AY 2012-13, ld DR argued that mere returning the income in subsequent year
7 M/s. Darshan Hosiery Industries Ltd. would not change the correct position of law. Finally DR submitted that in view of all these facts the order of CIT(A) deserved to be affirmed.
We have heard the rival contentions of the parties and perused the materials on records as placed before us. The undisputed facts as arising from the records and from the rival arguments are that the assessee agreed to transfer its occupational rights in the land and building comprised in in plot No.A/745 & A/746 to M/S Patel Hosiery Mills vide agreement dated 4.4.2008 which was registered and confirmed on 26.4.2011 by the MIDC. The said agreement dated 4.4.2008 contained a condition that permission from MIDC is essence of the agreement and in the eventuality of MIDC declining it, the agreement would be cancelled and the money already paid at the time of signing would be refunded. The another important fact is that the assessee has already offered to tax the gain arising out of the said transfer of rights in assessment year 2012-13 on the basis of final registration which was done on 26.4.2011. It is also undisputed the assessee despite giving part possession of the property to M/S Patel Hosiery Mills continued to carry on its business from the said place during the intervening period of agreement dated 4.4.2008 and final registration by MIDC on 26.4.2011. After taking all these facts into consideration and the ratio laid down in the various decisions referred by the ld AR we hold that it is settled position of law that transfer takes place only when the possession is given with full settlement of consideration and registration is not a condition for treating the transaction as sale for the purpose of Income Tax Act. In the present case the consideration was settled in the assessment
8 M/s. Darshan Hosiery Industries Ltd. year 2012-13 coupled with registration in favour of M/S Patel Hosiery Mills by MIDC besides giving complete possession. Thus in the present case all these conditions were not satisfied during the year. Moreover the gain on the said property stood assessed to tax in assessment year 2012-13 and double taxation is not permissible under the Act as it would amount to double taxation if the transaction is treated as sale during the year. Considering all these facts, we are of the considered opinion that the transaction of sale of occupation rights has not taken place in the current year and accordingly we set aside the order of CIT(A) and direct the AO to delete the addition.
The appeal of the assessee is allowed.
Order pronounced in the open court on 30.04.2019.