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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri A T Varkey, JM, & Shri M.Balaganesh, AM]
Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-8, Kolkata [in short the ld CIT(A)] in Appeal No. CIT(A), Kolkata-8/10183/2014-15 dated 28.10.2016 against the order passed by the ACIT, Circle-30, Kolkata [ in short the ld AO] under section 143(3) / 254 of the Income Tax Act, 1961 (in short “the Act”) dated 21.07.2014 for the Assessment Year 2008-09.
The only effective issue involved in this appeal is as to whether the ld CITA was justified in confirming the disallowance of capital loss of Rs 78,60,000/- in the facts and circumstances of the case.
2 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09 3. The brief facts of this issue are that the assessee filed his return of income for the Asst Year 2008-09 on 30.10.2009 declaring total income of Rs 34,08,690/-. In the first round of assessment proceedings, a sum of Rs 78,60,000/- was added back disallowing the said loss which was set off against capital gain of Rs 94,48,000/- received on sale of property at Gurgaon. The ld CITA passed an exparte order for non-appearance on behalf of the assessee. The assessee pleaded that the notices were sent by the ld CITA’s office to the wrong address. This tribunal in first round of proceedings remitted the issue to the file of the ld AO for fresh consideration.
3.1. The assessee is having regular income from property dealing business , rent and other sources. He is also associated with many philanthropic activities. The assessee is a settler of a trust named as ‘Al-Habib-Welfare & Charitable Trust’ as per the Deed of Trust executed on 29.2.2000. He entered into a contract with the said trust whereby, using his influence, he committed them a constructed area of approximately 4000 sq.feet in and around Kolkata with an approximate value of Rs 25,00,000/- which was at a highly discounted price. The agreement between the assessee and the said trust was entered on 11.9.2002 and subsequently an advance of Rs 23,90,000/- was taken from the said trust by the assessee for purchase of 4000 sq.ft area to create a Musafirkhana to house the poor travellers. The The assessee showed several places in different areas in and around Kolkata to the trustees of the said trust but none of them were upto the expectations of the trust. The agreement entered into by the assessee with the said trust on 11.9.2002 clearly imposed a condition that in case if the assessee is not able to arrange the required property for the trust, the advance drawn by the assessee should have to be refunded to the trust together with cumulative interest of 2% per month. The said trust followed up with the assessee on various dates starting from 25.3.2003 onwards for recovery of the dues from the assessee. The assessee also wrote a letter dated 10.7.2004 to the said trust stating that since he had no project readily in his hand at the time of receiving the advance from the trust, he had parked the said advance sum 2
3 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09 of Rs 23,90,000/- with Jai Maa Kali Rice Mill. He further stated that he had withdrawn Rs 10,00,000/- from Jai Maa Kali Rice Mill on 9.7.2004 and had utilized the same for advancing to Green Max Estate Pvt Ltd to acquire a flat and the said flat would be handed over to the trust as and when possession of the same is handed over to assessee. The assessee was allotted Unit No. 403 in Graden Court C in “The IVY’ Condominium Complex, Sector 28, Gurgoan, Haryana, India on 23.2.2005. This shows that the assessee had effectively utilized the monies drawn from the aforesaid trust to purchase a flat in his name at Gurgoan and that the said flat was allotted to him on 23.2.2005 by Green Max Estate Pvt Ltd. The assessee entered into a buyer’s agreement on 15.9.2005 with Green Max Estate Pvt Ltd (Developer) in respect of Flat No. 403, in Garden Court, Block C, on 4th floor in the Group Housing Complex having an approximate super area of 3540 sq.ft (328.90 sq. meters) for agreed purchase consideration of Rs 1,16,82,000/- . The assessee even availed bank loan from ABN Amro Bank vide sanction letter dated 14.10.2005 for Rs 95,18,000/- for purchase of this flat at Gurgoan. The assessee offered to the aforesaid trust to use the flat at Gurgoan for its charitable purposes and adjust the same in lieu of advance already drawn by him and requested to take over the bank loan from ABN Amro Bank also along with the flat. The aforesaid trust vide its letter dated 14.11.2005 to the assessee indicated that the cost of the flat at Gurgoan would be beyond its comprehension and expressed its inability to take over the said flat for its charitable purposes. In the said letter dated 14.11.2005, the trust also accused the assessee for having bought a flat in his name using the monies belonging to the charitable trust. It was also strongly indicated by the trust to the assessee in the very same letter that the assessee should sell the flat at Gurgoan and buy some property at Kolkata in the name of the trust and final time of one year to complete the said deal was allowed to the assessee by the trust. The assessee wrote a letter dated 12.12.2006 to the said trust stating that he had made arrangement to sell his flat at Gurgoan and proceeds of the same would be utilized to buy a suitable property in the fringe locality of Kolkata to meet the requirements of the trust and sought for six months time to complete the 3
4 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09 entire process. The assessee finally sold his Gurgoan flat vide sale agreement dated 4.1.2007 to a third party having super area of 3540 sq.ft along with one car parking space for Rs 2,33,64,000/-. The rights held by the assessee pursuant to agreement of sale entered on 15.9.2005 into with Green Max Estate Pvt Ltd got transferred to the new buyer of the flat pursuant to the new agreement of sale entered on 4.1.2007. As per the payment receipt issued by the assesee to Dr Rajendra Singh , the assessee had received the following payments on sale of property at Gurgoan :-
22.1.07 24,00,000 Chq No. 102353 drawn on Citibank 7.3.07 30,00,000 Chq No. 102364 drawn on Citibank 30.3.07 1,50,00,000 DD No. 413740 drawn on Citibank 16.4.07 23,89,000 Chq No. 102373 drawn on Citibank 16.4.07 1,50,000 Chq No. 102372 drawn on Citibank towards Interest
The assesee wrote a letter to the aforesaid trust dated 20.6.2007 intimating that he had already advanced a sum of Rs 60,00,000/- for purchasing a property at Kolkata in the name of the aforesaid trust for setting up Musafirkhana and that the possession of the said property would be delivered within a short time. The said trust was allotted two flats on 21.3.2008 at NCCF ‘Sunny Fort’ Housing Project at New Town bearing Unit No. D0101 (built up area of 1682 sq.ft) for Rs 56,57,500/- at the premises no. AA-IIB, Block -7, Newtown, Kolkata and Unit No. A0101 (built up area of 1353 sq.ft) for Rs 45,92,500/- at the premises no. AA-IIB, Block -7, Newtown, Kolkata including two separate car parking spaces. Hence it could be observed that the assessee had spent a sum of Rs 1,02,50,000/- ( 56,57,500 + 45,92,500) towards purchase of two properties on behalf of the trust. Since the assessee had drawn only Rs 23,90,000/- from the said trust way back on 11.9.2002, the assessee claimed the differential payment of Rs 78,60,000/- ( 1,02,50,000 -23,90,000) as compensation paid by him to the trust.
3.2. The assessee declared capital gains on sale of booking rights of flat at Gurgoan of Rs 94,48,749/- and reduced the loss incurred by him on the property transactions 4
5 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09 amounting to Rs 78,60,000/- as above from the said capital gains. The assessee accordingly offered the differential sum of Rs 15,88,749/- as short term capital gains in the return of income for the Asst Year 2008-09.
The ld AO disallowed the loss of Rs 78,60,000/- claimed by the assessee on the ground that the said loss had got nothing to do with the sale of property at Gurgoan and the liability incurred by the assessee by paying extra compensation to the trust amounting to Rs 78,60,000/- is only his personal liability. It was further held that the assessee was not having any capital asset in respect of properties purchased at Rajarhat , Newtown, Kolkata as admittedly the said properties were purchased only in the name of the trust using the funds of the assessee. These findings were upheld by the ld CITA after giving partial relief to the tune of Rs 9,49,475/- due to erroneous consideration of figures in the computation of capital gains. Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute that the properties at Rajarhat, New Town were purchased from M/s Sunny Rock Estates and Developer P Ltd in the name of Al Habib Welfare & Charitable Trust by the assessee using his own funds. This was done by him as compensation for using the funds of the trust for his personal purposes in the past. From the various correspondences exchanged between the assessee and the said trust as detailed supra, we find that the assessee at the first instance had purchased a flat at Gurgoan for the purpose of usage of the trust activities only. But since the trust refused to accept any property other than in the fringe locality of Kolkata and due to heavy pressure applied by the said trust on the assessee to locate a property in Kolkata for pursuing its charitable objects, the assessee was forced to sell the flat at Gurgoan and utilize the proceeds thereon for purchasing a property at Rajarhat, Newtown in the name 5
6 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09 of the trust for a higher amount due to huge rise in real estate market and due to effluxion of time. But it cannot be brushed aside that the assessee was having the said flat at Gurgoan together with an attached encumbrance of amounts drawn by him from the said trust which had to be compensated in future either in cash or in kind for the benefit of the trust. Hence there was an attached encumbrance in the form of a contractual obligation to be fulfilled by the assessee to the trust. We find that the ld AR placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Satyabrata Dey in GA No. 172 of 2014 , G.A.No. 227 of 2014 , ITAT No. 20 of 2014 dated 7.5.2014 wherein the Hon’ble Court under similar circumstances ordered as under:-
“The Court: The application for condonation of delay is allowed. The subject matter of challenge in this appeal is a judgment and order dated 14th May, 2013 by which the appeal preferred by the assessee was allowed. Aggrieved by the order the Revenue has come up in appeal. The facts and circumstances of the case briefly stated are as follows: The assessee entered into an agreement dated 2nd September, 2004 with one, Bhagyalakshmi Commercial Company Pvt. Ltd. Under the aforesaid agreement the latter agreed to sub-lease the flat nos. 3b and 3c at premises no.5, Lowdon Street, Kolkata to the assessee. The assessee on his part entered into an agreement dated 5th May, 2005 with one, Onkar Management Pvt. Ltd. agreeing to transfer the aforesaid two flats at a consideration of Rs.90 lakhs. The assessee took an advance of a sum of Rs.10,000/-. The assessee, however, in breach of agreement dated 5th May, 2005 transferred the flats on 4th August, 2006 to Poonam Agarwal at a sum of Rs.2 crore 20 lakhs. Onkar Management Pvt. Ltd. sued the assessee for recovery of damages. An award was passed on 30th September, 2007 directing the assessee to pay a sum of Rs.72 lakhs. The assessee filed his return for the assessment year 2007-08 on 29th March, 2008 claiming deduction of the said sum of Rs.72 lakhs under Section 48(i) as expenditure incurred in connection with the transfer. The assessing officer and the CIT(A) both held against the aforesaid claim of the assessee which was ultimately allowed by the learned Tribunal. It is this order of learned Tribunal which is under challenge.
Therefore, the question for consideration is whether the sum of Rs.72 lakhs paid by the assessee pursuant to the award passed in favour of Onkar Management Private Limited can be treated as expenditure incurred with regard to the transfer under Section 48(i) of
7 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09 the Income Tax Act. Section 48in- so-far-as the same is relevant or material for our purpose, reads as follows:
"48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto; Mr. Dubey, learned Advocate appearing for the Revenue, submitted that the sum of Rs.72 lakhs could not be deducted from out of the capital gains made by the assessee nor the sum of Rs.72 lakhs could be taken into account for the purpose of computation of the capital gains. He, in support of his submission, relied upon a judgment in the case of Commissioner of Income Tax, Visakhapatnam vs. Attili N. Rao, reported in (2003) 9 Supreme Court Cases 658. What had happened in that case was that the assessee was in debt payable to the Excise Department of the State of Andhra Pradesh. In order to secure the debt the assessee mortgaged his immovable property which, at a later date, was sold by public auction. A sum of Rs.5,62,980/- was realised.
The State deducted a sum of Rs.1,29,020/- towards debt due by the assessee to the State and the balance sum was made over to the assessee. The assessee contended that the sum of Rs.1,29,020/- due by him to the State should be deducted from the total consideration for the purpose of computing capital gains. The contention of the assessee was rejected.
The aforesaid judgment, in our view, has no application to the facts and circumstances of the case. The money received by the assessee in hand and the money applied in repayment of the dues by the assessee to the State have both to be taken into account for the purpose of computing the capital gains. The money applied in repayment of the debt due by the assessee is no less a money received by the assessee. The present case is altogether different.
Mr. Bharadwaj, learned Advocate appearing for the assessee/respondent, has drawn out attention to a judgment of the Madras High Court in the case of Commissioner of Income Tax vs. Bradford Trading Company Private Limited, reported in 2003 (261) ITR 222 (Madras). An almost identical situation had arisen before the Madras High Court. The facts briefly were that the assessee had entered into an agreement with one Buhari, agreeing to allow the latter to participate in the hotel business. The assessee subsequently sold the hotel to ITC and settled the matter with Buhari at a sum of Rs. 2 lakhs. The Madras High Court following an earlier judgment of the Bombay High Court, held as follows:
"The Bombay High Court in CIT v. Shakuntala Kantilal [1991] 190 ITR 56 (58 Taxman 106), has dealt with a case where the assessee owned a piece of land and she entered into an agreement of sale of the said property with one R and a dispute subsequently arose and R filed a suit for specific performance and there was a settlement whereby 7
8 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09 the assessee agreed to pay certain sum of money to R and in the meantime, the assessee entered into another agreement of sale in 1967 in respect of the same property with one C and C gave an assurance to R that on the completion of the sale, they would deduct a sum of Rs.35,504/- from the total consideration and pay it to R. The assessee claimed that the sum of Rs.35,504/- from the total consideration and pay it to R. The assessee claimed that thesum of Rs.35,504/- should be allowed as deduction for the purpose of computing her income from capital gains. The Bombay High Court held that unless the assessee had settled the dispute with R, the sale transaction with C could not have materialised and the sale consideration had to be reduced by the amount of compensation paid to R. We are in agreement with the view expressed by the Bombay High Court that the expression used insection 48 of the Act, viz., 'expenditure incurred wholly and exclusively in connection with such transfer' has wider connotation than the expression, 'for the transfer'. We are of the view that but for the payment of Rs.2 lakhs, the transfer would not have taken place and the payment has necessarily to be made for the transfer of the hotel in favour of India Tobacco Company Limited. Hence, we are of the view that the sum of Rs.2 lakhs was expended by the assessee wholly and exclusively in connection with the transfer of the capital asset and not de hors the transfer". We are in agreement with the views expressed by the Madras High Court and the Bombay High Court. The question formulated above is, therefore, answered in the affirmative and in favour of the assessee. The appeal preferred by the Revenue is, therefore, dismissed.”
5.1. Respectfully following the aforesaid decision of Hon’ble Jurisdictional High Court, we are inclined to grant relief to the assessee in the instant case. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 16.11.2018
Sd/- Sd/- [A T Varkey] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 16.11.2018 SB, Sr. PS 8
9 ITA No.2233/Kol/2016 Jamshed Ali Molla A.Yr. 2008-09
Copy of the order forwarded to: 1. Shri Jamshed Ali Molla, 79C, Dilkhusa Street, 17, Colonel Biswas Road, Kolkata- 700019, 2. ACIT, Circle-30, Aayakar Bhawan Dakshin, 2, Gariahat Road (South), Kolkata- 700031. 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.