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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI S.S. VISWANETHRA RAVI, JM &DR. A.L.SAINI, AM
आदेश / O R D E R
Per Dr. A. L. Saini: The captioned appeal filed by the assessee, pertaining to Assessment Year 2011-12, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-2, Kolkata, in appeal No.1190/CIT(A)-2/14-15, dated 09.11.2017, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 28.03.2014.
The grievances raised by the assessee are as follows:
“1. That on the facts and circumstances of the case, the ld. Commissioner of Income Tax (Appeals) erred in confirming the addition of long term capital gain of Rs.13,69,200/- u/s 45 of the Income Tax Act, 1961. 2. That the appellant craves leave to add, alter, amend, delete, substitute any of the grounds and/or take additional ground/s before or at any time of hearing of this appeal.”
Raj Kumar Bhutoria Assessment Year: 2011-12 3. The brief facts qua the issue are that during the scrutiny assessment, the AO noted from the AIR information filed by the Additional District Sub Registrar, Burdwan, that the assessee has sold a property on 16.08.2010 for a consideration of Rs.1,36,92,000/- but the same has not been credited in the Profit & Loss account as income from sale of property. During the assessee proceedings, the assessee was asked to explain for not crediting the income. In response, the assessee submitted the following before the AO: i) The assessee had purchased a land (10% undivided share) jointly with eight others through deed no.6959 dated 19.05.2000 situated at 23,G.T. Road, Burdwan. ii) To develop the above land all share holders entered into a Development Agreement dated 12.01.2003 with Fortuna Commodities Pvt. Ltd., Kolkata. iii) After purchasing the above land all the nine partnersconstituted a partnership firm known as City Tower. iv) As per clause 9 of the Development agreement the developer was entitled to have the ground, first and second floor as consideration. And as per clause no.10 it was duly agreed that the owners would sign and transfer the agreed upon floors to the intending suggested by the developer and all such payment received/receivable shall be exclusively in consideration of its investments. v) The developer among other area sold about 2282 sq.ft. on the first floor to M/s Walk Well vide Conveyance deed no.P 5583 of 2008 and 3077 of 2010 where the assessee was one of the signatories.
From the details furnished by the assessee and the copy of deeds, it has been found that the assessee being one of the co-sharers of 9 partners purchased a piece of land measuring 17321 sq ft (0.398 acre) at Radhanagar Mouza, 23 G T Road, Burdwan for a consideration of Rs.51 lakhs, out of which the assessee contributed Rs.5,10,000/- towards his share. The assessee has entered into an agreement along with other con-sharers with the developer for development of the property and Raj Kumar Bhutoria Assessment Year: 2011-12 possession and sale of the developed property. The synopsis and highlights of the agreement are as under: i). On completion of the building, entire basement, 2000 sq.ft each at 1st Floor, 3rd Floor, 4th Floor have been handed over to the owner co-sharers. ii).The entire roof has been handed over to the owner co-sharers with a prospective agreement of construction on the roof on getting approval of the sanction plan from the municipality. iii).Other facilities of common area will be enjoyed by the co-sharer owners. iv).Thedeveloper/builder shall be entitled to enter into an agreement with the owners approval for transfer of the ground floor, first floor and 2nd floor to the intending transferee/purchaser of the portion mentioned in schedule B, Part II of the deed. It is clarified that all amount or payments receivable in respect of the ground floor, first floor and 2nd floor shall be received by the developers/builders exclusively in consideration of its investments of substantial amount in construction and the owners shall have no claims thereto.
From the above, the AO noted that it is apparent that the assessee has made investment of Rs.5,10,000/- for purchasing a piece of land in the F.Y 2010-11 against which the assessee received part of the developed building in his possession. The area of possession is determined as under:
Area received by the 9 co-sharers(owners):
At 1st Floor :2000 sq.ft At 3rd Floor : 2000 Sq.ft. At 4th Floor :2000 sq.ft. At basement :13857 sq.ft (estimating 20% of land utilized for statutory deduction) At roof :13857 sq.ft Total 33,714 sq. ft.
Raj Kumar Bhutoria Assessment Year: 2011-12 The proportionate share of the assessee is 3371 sq. ft. in the ratio of investment @10% of the total purchase value of land. In the FY 2010-11, the co-sharer has entered into a sale transaction of 2282 sq. ft. with M/s Walk. Out of the sale proceeds of 2282 sq. ft. the assessee is the owner in respect of 228.2 sq. ft. The assessee has got possession of 33,714 sq. ft. already in his possession as per agreement with the developer.
The registered valuation of the 282.2 sq. ft. is Rs.13,69,200/- (total value is Rs.1,36,92,000/-). For the purpose of determining long term capital gain, the purchase value is appreciated according to the cost inflation index as under:
(Rs.5,10,000 × 711/406 = Rs.8,93,128/-.
The assessee has already got possession of 33,714 sq. ft. in the earlier year, which is in lieu of surrendering possession over the 282.2 sq. ft. area sold in this year. Area wise the assessee got much more possession than the surrendered area. On getting the possession of his proportion from the developer, the assessee has not considered the equivalent value of area as deemed long term capital gain. The profits derived from sale of area though the sale consideration is not received by the assessee is required to be treated as deemed capital gain on maturity of the sale of that area in absence of treatment of capital gain in respect of that area not considered as capital gain in the year of getting possession as per section 45 of the I.T. Act, 1961.
The assessing officer noted that according to section 45(2) of the Act, which was inserted with effect from A.Y 1985-86, if a capital asset is converted into stock in trade, the notional profit arising from transfer by way of conversion of capital asset into stock-in-trade will be chargeable in the year in which stock-in- trade is sold. For the purpose of computing the capital gains, the fair market value of the capital asset on the date of on which it was converted or treated as stock in trade shall be deemed to be the full value of consideration received or accruing as a result of the transfer of the capital asset. Therefore, AO noted that the income earned by the assessee considered as deemed capital gain limited to the sale Page | 4
Raj Kumar Bhutoria Assessment Year: 2011-12 proceeds only for this year, though the actual capital gain on getting possession of the share of the developed area is much more, but the value assessable in this year is restricted to the sale proceeds for this year only.After crystallizing the investment of assessee in earlier year of getting possession, there is no part of cost value in respect of the sale proceeds for this year for determination of long term capital gain out of the sale proceeds. Hence, the assessing officer treated the entire proportion of sale amounting to Rs.13,69,200/- as deemed capital gain u/s 45 of the Act and added back to the total income of the assessee.
Aggrieved by the order of the ld. AO, the assessee filed an appeal before the ld CIT(A) who has confirmed the addition made by AO observing the followings:
I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the Assessing Officer during the assessment proceedings. The facts of the case is that the land in this case was purchased in May, 2000 and an agreement was made with the developer for development of the property in Jan, 2003. In the month of Dec, 2004, this land was transferred into Partnership firm. As per the agreement, the developer will retain ground, first and second floor and the owner will keep third, fourth and fifth floor. The Assessing Officer made the addition after considering the issue in details while passing the order in the matter. The documents as filed either during the assessment proceeding or at the stage of appellate proceedings does not suggest that the appellate filed any details either at assessment proceedings or appellate stage that the capital gain tax has been paid on these transactions. The Assessing Officer has mentioned in the order that as per agreement the developer will receive all payment for transfer of his share exclusively in considering of its investment for construction of the property. Hence, it is clear from the agreement that the payment as received by the developer was in lieu of transfer of his right in the property by the appellate. The appellate did not mention at any stage that he received any consideration in lieu of his shares of portions in the past and paid tax accordingly. As the Assessing Officer has already discussed the issue in details while passing the order and as discussed above, the order of the Assessing Officer is upheld. This ground of appeal is dismissed.
6. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
Raj Kumar Bhutoria Assessment Year: 2011-12 7.The ld. Counsel for the assessee submitted before us that the assessee and other 8 persons purchased a land on 19.05.2000 at Rs.51,00,000/- with contributions varying from 5% to 20% per persons( vide agreement at pb130). The assessee contributed 10% i.e. Rs.5,10,000/- towards the purchase of land. Thereafter, on 12.01.2003, a development agreement between Fortuna Commodities Pvt. Ltd. and the nine owners of the land for development of the land into a multi- storied building was made (vide pb.109). The consideration for the development of the property was clearly spelt in the agreement dated 12.01.2003 in Schedule B -Part I and Part II of the deed. The Part I of the owners specifying the entire basement, 2000 sq. ft of 1st Floor, 3rd Floor & 4th Floor. Part II of the Developer specifying entire ground floor, 1st floor except 2000 sq.ft. and 2nd Floor. The ld. Counsel for the assessee stated that the consideration of the developer, Fortuna Commodities Pvt. Ltd. is clearly specified on Point No.10 of Page 9 of the Development Agreement dated 12.01.2003 which is as follows:
"The developer/builder shall be entitled to enter into an agreement with the owners approval for transfer of the ground floor, first floor and 2nd floor to the intending transferee/purchaser of the portion mentioned in schedule B, Part II of the deed. It is clarified that all amount or payments receivable in respect of the ground floor, first floor and 2nd floor shall be received by the Developers/Builders exclusively in consideration of itsinvestments of substantial amount in construction and the owners shallhave no claims thereto." Therefore, the ld. Counsel for the assessee submitted before the Bench that all the owners of the land form a Partnership firm named City Towers by a registered deed dated 02.12.2004 and the share of each individual in the property under development was converted into capital contribution of each partners in the new firm. Thus, the Capital introduced by partners in Firm in proportion of percentage ownership in land under development results in‘CITY TOWERS’ becoming the owners of the Land under development. Theproportion of contribution to capital has been defined in the Partnership Agreement. On completion of the building the partnership firm ‘CITY TOWERS’ starts itsbusiness of Hotel & Renting in the premises received as part of developmentagreement being the owner of the land.The Developer Fortuna Commodities Pvt. Ltd enters into agreement to sale its portion of the First Floor to Walk Well , a Partnership Firm for a consideration Page | 6
Raj Kumar Bhutoria Assessment Year: 2011-12 of Rs 36,51,200/-. The amount was fully paid by Walk Well on12-08-2008 through Bank Finance taken by the firm from Burdwan GraminBank who also is the Mortgagee of the property. The developer Fortuna Commodities Pvt. Ltd enters into deed of Indenture or Conveyance Agreement with Walk Well on receipt of total consideration andthe same Conveyance Agreement dated 21-08- 2008 is put up for Registration. The Conveyance Deed of 1stFloor property sold by Fortuna Commodities Pvt. Ltd,Developer, to Walk Well gets Registered on 16-04- 2010. This Agreementdated 21-08-2008,whose full payment has been done through bank finance by the Buyer Walk Well which is reported by ADSR, Burdwan in AIR mentioning allpersons in agreement being owner, developer, buyer & mortgagee. Therefore, the ld. Counsel for the assessee submitted that conveyance agreement registered do not belong to the assessee and hence no capital gain is attracted.
On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the material available on record, we note that during the course of scrutiny proceedings the assessee was confronted with an AIR Information filed by the AdditionalDistrict Sub Registrar, Burdwan which provided that there has been a Registration of property on 16-08-2010 for aconsideration of Rs 1,36,92,000/-, of which the assessee was a signatory. This has been interpreted by theLd A.O. as therehas been a sale ofproperty by the assesseewhich has not been credited in the Profit & Loss Account of the assessee. We note that very vital fact has been ignored by the Ld A.O. which is that the Agreement of Conveyance or Indenture reportedby the Additional District Sub Registrar, Burdwan is dated 21.08.2008. The Agreement of Sale wasdated 29.04.2008 and all the consideration amount was received during the AY 2009-10. The Agreement for Sale wasmade into Agreement of Indenture or Conveyance dated 21.08.2008whenthefull considerationwas paid by the buyerthrough Bank Finance on 12.08.2008. Page | 7
Raj Kumar Bhutoria Assessment Year: 2011-12 Thepossessionwas handed over during the AY 2009-10. The Registration of the Propertywas takenupon 16.04.2010 bythe Additional District SubRegistrar,Burdwan. Therefore, we note that the transaction does not at all belong to Assessment Year 2011-12,even if the Registration took place on 16.04.2010,as all therelevant activities of agreement i.e. agreement, payment, andpossession ,etc. took place in AY 2009-10. Therefore, the addition madeby the Ld A.O. of deemed capital gain is erroneous as the same does not belong to the assessment year under consideration, that is A.Y.2011-12. For that we rely on the following judgments:
(a) Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 (Bom-HC), wherein it was held that in case ofdevelopment agreement, if the contract, read as a whole indicates passing of or transferring of complete control over the property in favour ofthe developer, then date of the contract would be relevant to decide the year of chargeability of capital gain andsubstantial performance of the contract would be irrelevant.
(b) M. Siva Parvathi v. ITO [2010] 129 TTJ 463 (ITAT-Vishakhapatnam), wherein it was held that the delay in registering the saledeed had occurred because of genuine reasons which were beyond the control of the assessees. Since the finalregistration of the sale was only in fulfillment of the contractual obligation, the logical conclusion was that theprovisions which did not apply at the time of entering into the transaction initially would not be applicable at the time of completion of the transaction.
Therefore, taking into account the facts of the assessee and the judicial precedents cited above, thetransaction does not belong the assessment year under consideration hence the addition should not be made.
We note that property sold does not belong to the assessee. The assessee had purchased a land (10% undivided share) jointly with 8 others through deed no.6959 dated 19.05.2000, situated at 23, GT Road, Burdwan. To develop the above land, all share holders entered into a Development Agreement dated Page | 8
Raj Kumar Bhutoria Assessment Year: 2011-12 12.01.2003 with Fortuna Commodities Pvt. Ltd., Kolkata.After purchasing the above land all the 9 partners constituted a partnership firm known as CITY TOWER, the partnership deed was duly registered with the ADSR, Burdwan vide conveyance no.203IV, dated 02.12.2004. As per clause 9 of the Development Agreement the developer was entitled to have the Ground, First andSecord Floor as consideration. The land was handed over to a Developer - Fortuna Commodities Pvt. Ltd by Development Agreement dated 12.01.2003 to develop the above property into a multi-storied building according to modern taste and design. The Developer as part and parcel of consideration will take or be entitled to have the Ground, First and Second Floor asconsideration. The property sold and under assessment was First Floor property which did not belong to the assessee nor the Partnership Firm - City Tower.The Developer had sold his share of property which did not in any way belonged to the assessee. Further the considerationof the property also was received by developer not by the assessee. Therefore, nothing would be taxable in the hands of the assessee. Therefore, considering the entirety of the facts and circumstances of the case the addition of Rs. 13,69,200/- needs to be deleted. Accordingly, we delete the addition of Rs.13,69,200/-.
In the result, the appeal filed by the assessee is allowed.
Order is pronounced in the open court on 30.01.2019.