MATOSHREE REALTORS,MUMBAI vs. JT CIT 18(3), MUMBAI

per the letter, the assessee has agreed to purchase 50,000 sq.ft. building for a consideration @Rs.36,000 per sq.ft and assured to pay a sum of Rs.40 crores advance in due course.

3. During the course of assessment proceedings, the AO issued a show cause notice to the assessee to explain computation of long term capital gain from relinquishment of booking rights in the project and also to furnish necessary evidence to justify computation of capital gain. In response to show cause notice, the assessee submitted that it had entered into an agreement for purchase of 50,000 sq.ft. building on 7 Matoshree the proposed building to be constructed at ‘Kohinoor Mills No.3’ by paying an initial advance money of Rs.1 lakh and also agreed to pay balance consideration of Rs.40 crores as per the terms and condition of the offer letter. The assessee further submitted that the agreement was in the form of an offer for purchase of units in the said project which was accepted by KPPL and this acceptance was conveyed by KPPL vide letter dated 25-06-2005 confirming booking of 50,000 sq.ft. of building for a consideration @ Rs.36,000 per sq.ft. The assessee further submitted that in pursuance of said agreement for purchase of booking rights, the assessee has paid a sum of Rs.4 crores on 19-07-2005 and balance amount of consideration of Rs.36 crores from August, 2005 to December, 2006. The assessee further submitted that it had entered into MOU on 05-10-2007 to ratify initial agreement between the assessee and KPPL, because the assessee has paid advance amount to one of the consortium partners. The consortium partners has formed a SPV to acquire the property from NTCL because of which it has entered into a MOU specifying terms and conditions of purchase of property. The 8 Matoshree assessee further submitted that it has got right over the property when it had entered into an understanding / agreement for purchase of the property by paying an initial deposit of Rs.1 lakh on 25-06-2005 which has been accepted by the seller. Therefore, the impugned asset is held for a period of more than 36 months and accordingly, it has rightly computed long term capital gain from surrender of booking rights in the property. In this regard, it has filed necessary correspondence between the SPV and the assessee and deed of cancellation dated 28-06-2008.

4. The AO, after considering necessary submissions of the assessee and also by taking into account the documents filed by the assessee during the course of hearing, observed that the assessee has got right over the property 5.10.2007, the MOU is signed by the assessee and the seller of the property, M/s Kohinoor-CTNL Infrastructure Co Ltd. The AO further observed that the assessee has entered into a MOU dt.

5.10.2007 for purchase of property specifying terms and conditions and also on payment of advance consideration on which date the assessee got right over the property. Though

9 Matoshree the assessee claims to have entered into an agreement for purchase of booking rights by way of a letter dated 25-06- 2005, the sequence of events clearly establishes the fact that the assessee has got right over the property on 05-10-2007.

The AO further observed that the date when the assessee has offer for purchase of property by way of letter dated 25-06- 2005, the seller did not even have right over the property which is evident from the fact that NTCL has accepted bid submitted by the consortium partners on 13-08-2005 which was further accepted by the Board of Directors of NTCL in their 195th meeting held on 14-09-2005. The AO further observed that after successful bidding and payment of sale consideration, NTCL entered into a sale deed on 11-10-2005 conveying title and interest in the property in favour of Kohinoor-NTCL Infrastructure Co Ltd. The AO further observed that the assessee has entered into a MOU with the seller of the property specifying terms and conditions on 05- 10-2007 on which date it has got valid title / interest in the property. Therefore, he opined that the period of holding of the impugned asset from the date of MOU i.e. 05-10-2007 to 10 Matoshree the date of surrender , i.e. on 28-06-2008 is less than 36 months and accordingly, surplus from surrender of booking rights is assessable under the head short term capital gain.

5. The AO has extensively discussed the issue in his order and brought out clear fact that as on the date of offer letter i.e. on 25-06-2005, the consortium partners did not have any right in the proposed project, therefore, the claim of the assessee that it had entered into an agreement cum understanding with Kohinoor Projects Pvt Ltd for purchase of booking rights cannot be accepted. The AO further observed that the date and events as per the documents submitted by the assessee clearly proves the fact that the seller does not have any right to sell booking rights in favour of the assessee on the date of letter i.e. on 25-06-2005, therefore, came to the conclusion that the assessee has acquired booking rights only on the basis of MOU on 05-10-2007 and prior to that date, the assessee in no way had any ownership of the booking rightly accordingly re-worked short term capital gain by taking into account date of acquisition of booking rights from 05-10-2007 to surrender of booking rights on 28-06-

11 Matoshree 2008 which is less than 36 months.

6. Aggrieved by the assessment order, the assessee preferred appeal before CIT(A). Before the CIT(A), the assessee reiterated its stand taken before AO to argue that it has rightly computed long term capital gain on surplus from relinquishment of booking rights in the property as the holding period of the asset is more than 36 months from the date of agreement, i.e. 25-06-2005. The assessee further submitted that it has entered into an agreement cum understanding for purchase of 50,000 sq.ft. building to be constructed in ‘Kohinoor Mills No.3’ and paid advance sale consideration of Rs.40 crores on various dates starting from 25-06-2005 to December, 2006. The assessee further submitted that its offer of purchase has been accepted by the seller by way of letter and terms and conditions of agreement has been ratified by way of a MOU dated 05-10-2007, otherwise, the right and interest in the property has accrued to the assessee when its offer of purchase has been accepted by the seller. The assessee referring to MOU and letter addressed to M/s Kohinoor Properties Pvt Ltd dated 25-06-2005 submitted that 12 Matoshree it has finalized purchase of property, however, a confirmamental agreement has not been entered into because the consortium partners has taken time to enter into a written agreement because of various reasons. But the fact remains that its offer for purchase of property has been accepted in terms of advance payment and hence it has got valid right in the property from the date of booking, i.e. on 25-06-2005, therefore, holding period of the asset is more than 36 months and hence, surplus from relinquishment/surrender of booking right is rightly computed under the head long term capital gain.

7. The CIT(A), after considering relevant submissions of the assessee and also relying upon certain judicial precedents, observed that it was clear from the facts stated that the parties to the contract were contemplating for purchase and sale of property by way of an offer and acceptance which is evident from the fact that the assessee has offered to buy property by paying an initial deposit on 25-06-2005 which has been accepted by the seller by acknowledging the assessee’s offer on the same date by way of a letter. The CIT(A) further

13 Matoshree observed that the assessee had entered into a contract / agreement to purchase the property on 25-06-2005 which created ownership right in favour of the assessee in the said property. All the elements of an agreement / contract were present in the letter of offer dated 25-06-2006 on which date a specific enforceable contract to acquire immovable property came into existence. Such agreement / contract conferred upon the assessee all legally enforceable rights in respect of the capital asset. The assessee has surrendered his booking right by a deed of cancellation on 28-06-2008 which resulted into long term capital gain as the period of holding of the capital asset in the hands of the assessee was more than 36 months. Accordingly, the assessee has rightly offered capital gain for taxation under the head ‘Long Term Capital Gain’.

8. The CIT(A) has extensively discussed the issue in the light of the letter addressed by the assessee to Kohinoor Projects Pvt Ltd to come to the conclusion that letter written by the assessee contains all elements of a valid agreement / contract which confers the assessee all rights and interest in the property. The CIT(A) also discussed the provisions of 14 Matoshree section 2 of Law of Contracts to hold that an offer and its acceptance results into a valid, binding and conclusive contract between the parties. The CIT(A) also discussed section 10 of the Contract Act, to hold that unless the particular law requires a contract to be in a prescribed form, a contract could be deduced from behavior of the parties’ correspondence between them and even their conversations, etc. The CIT(A), after discussing the law of contracts and the provisions of Transfer of Property Act, 1882 came to the conclusion that contract / agreement had already come into existence on 25-06-2005 while making an offer of purchase of property. Therefore, once such agreement / contract for purchase of the property in question is entered into by making an offer and its acceptance by way of written exchange of letters and making payment for the property purchased, the assessee firm had acquired certain bundle of rights in the property which was legally enforceable rights and the transfer of property is said to have taken place as provided u/s 2(47) of the Act. Therefore, it cannot be denied a right in that capital asset has been created in favour of the 15 Matoshree purchaser from the date of the agreement itself, which, in the present case is 25-06-2005. With these observations, the CIT(A) directed the AO to assess capital gains under the head ‘Long Term Capital Gain’. Aggrieved by the order of CIT(A), the revenue is in appeal before us.

9. The Ld.DR submitted that the Ld.CIT(A) erred in holding that impugned asset is a long term capital asset and resultant capital gain is assessable under the head long term capital gain, even though the AO has clearly brought out facts which lead to an undisputable conclusion that the asset is a short term capital asset held for a period for less than 36 months. The Ld.DR further submitted that the CIT(A) heavily relied upon one fact, i.e. the letter addressed by the assessee to one of the consortium partners on 25-06-2005 which is on a simple plain paper without any terms and conditions of purchasing a property. Therefore, the CIT(A) was incorrect in holding that the assessee got right over the property from 25-06-2005. The Ld.DR further submitted that as on the date of letter, i.e. on 25-06-2005, the seller not even had any right in the property and hence, under these facts and circumstances, it is highly

16 Matoshree incorrect and impractical to say that the parties have entered into a valid agreement for conveying title and interest in the property. The dates and sequence of events recorded by the AO from the document submitted by the assessee clearly indicates that the consortium partners have got confirmation from NTCL about its successful bid for the property which has been validly accepted by the Board of Directors in their meeting held on 14-09-2005. This fact has further strengthened by the fact that the consortium partners have formed a SPV known as Kohinoor-CTNL Infrastructure Co Ltd which has been incorporated much after the assessee’s offer letter dated 25-06-2005 and the seller of the property has entered into a sale agreement with the SPV on 11-10-2005.

The assessee, later on, entered into a valid MOU setting forth terms and conditions of agreement to sell property. All these facts are subsequent to the date of assessee’s letter dated 25- 06-2005. The AO has rightly taken holding period of the asset from the date of MOU i.e. on 5th October, 2007 and the date of surrender of booking rights on 28-06-2008 and the period of holding of asset from 05-10-2007 to 28-06-2008 is less than 36

17 Matoshree months and accordingly, the AO has rightly assessed surplus from surrender of booking rights under the head short term capital gains.

10. The Ld.AR for the assessee on the other hand, strongly supporting the order of the CIT(A) submitted that the holding period of the impugned asset is more than 36 months from the date of agreement / contract, i.e. on 25-06-2005 to the date of surrender of booking right, i.e. on 28-06-008 and accordingly, it has rightly computed gain from surrender of booking rights under the head Long Term Capital Gain. The Ld.AR further submitted that the AO has heavily relied upon the MOU entered into by the assessee with Kohinoor-CTNL Infrastructure Co Ltd, ignoring the fact that it had already entered into a valid agreement for purchase of property from one of the consortium partners, M/s Kohinoor Projects Pvt Ltd which fact has been confirmed by both the parties. The Ld.AR referring to the MOU dated 05-10-2007 submitted that it has entered into MOU only for the purpose of ratifying earlier terms and conditions of agreement dated 25-06-2005, but actual agreement took place between the parties on 25-06-2005 on which date the assessee

18 Matoshree has offered to buy property and its offer has been accepted by the seller. The assessee has written a letter specifying terms and conditions of agreement and the seller has acknowledged offer by way of an acceptance. Therefore, the offer and acceptance would give rise to a valid contract between the parties for purchase of property. Therefore, holding period of the asset should be considered from the date of letter dated 25-06-2005. In this regard, he relied upon the following case laws:-

Anita D Kayani vs ACIT (2017) 163 ITD 451 (Mum) Ms. Madhu Karva vs CIT (2014) 363 ITR 54 (P&H) CIT vs Tata Services Ltd (1980) 122 ITR 594 (Bom)

19 Matoshree term capital gain’. The facts with regard to the nature of asset and consideration for transfer of booking rights have not been disputed by both the parties. The assessee itself has accepted the fact that booking rights is a capital asset and surplus from transfer of booking rights is assessable under the head ‘Capital gains’. The only dispute is with regard to period of holding of impugned asset and surplus from transfer of booking rights is taxable under the head ‘Long Term Capital Gains’. According to the assessee, it has got valid title in the property on 25-06- 2005 by way of an agreement cum understanding with the seller of the property. The assessee further contended that it has made an offer for purchase of 50,000 sq.ft. in the proposed building to be constructed in Kohinoor Mill No.3 from consortium partners of Kohinoor Projects Pvt Ltd and Kohinoor CTNL, Mumbai and its offer has been accepted by the sellers by way of an acknowledgement dated 25-06-2005. The assessee further contended that as per the terms of agreement between the parties, it has paid initial deposit of Rs.1 lakh on 25-06- 2005 and a further sum of Rs.4 crores on 19-07-2005. The assessee further contended that the balance amount of Rs.36

20 Matoshree crores has been paid on various dates from August, 2005 to December, 2006 and the same has been paid by various parties on behalf of the assessee which has been acknowledged by the consortium partners. The assessee further contended that though it has entered into a valid agreement for purchase of property on 25-06-2005, it has entered into a MOU on 05-10- 2007 with Special Purpose Vehicle formed by the consortium partners known as “Kohinoor – CTNL Infrastructure Co Ltd only to ratify earlier terms and conditions in writing. But, undisputed fact is that it has got right over the property on the date of agreement, i.e. on 25-06-2005. Therefore, holding period of the asset should be considered from the date of agreement. If holding period of the asset is considered from the date of agreement, i.e. on 25-06-2005 till the date of surrender of booking right on 28-06-2008, it is more than 36 months and hence, surplus from surrender of booking rights is assessable under the head ‘Long Term Capital Gain’.

The AO further observed that the letter addressed by the assessee to Kohinoor Projects Pvt Ltd on 25-06-2006 is self serving document which does not have any legal support. The AO further observed that dates and events as per the document submitted by the assessee clearly proves an undisputed fact that as on the date of letter, the seller itself did not have any right over the property. According to the AO, bid submitted by the consortium partners has been accepted by the Board of Directors of NTCL on 14-09-2005 in their board meeting. The AO further observed that the consortium partners have formed a Special Purpose Vehicle vide their individual resolutions dated 16-07-2005 and 28-06-2005 which is after the date of letter addressed by the assessee. The AO further observed that NTCL has opened public tender on 21-07-2005 which has been informed to the consortium partners on 13-08-2005. Till such time, the consortium partners did not even know whether they will be successful in their bid for purchase of property. Under these facts and circumstances it is highly impractical to accept

22 Matoshree the arguments of the assessee that it had entered into a valid agreement for purchase of property on 25-06-2005. The AO, further referring to the sale deed executed by NTCL in favour of Kohinoor-CTNL Infrastructure Co Ltd consortium on 11-10-2005 observed that only after valid title came into the hands of Kohinoor-CTNL Infrastructure Co Ltd, the assessee has entered into a MOU to acquire property in the proposed building to be developed by the SPV on 5th October, 2007. Therefore, there is no merit in the arguments of the assessee that it has got valid right and interest in the property on 25-06-2005.

Sub section (v) of section 2(47) refers to provisions of section 53A of the transfer of Property Act, 1882 to define the term “transfer” which includes any transaction involving allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.

As per the provisions of section 53A of the Transfer of Property

23 Matoshree Act, 1882, for transfer of an immovable property, there should be a contract for consideration in writing and the same should be signed by the transferor. The contract should be for transfer of immovable property and from therein the term necessary to constitute transfer should be certainly ascertained. The transferee should be taken possession of the property and has done something for furtherance of the contract. The transferor should be ready and willing to perform his part of contract. The provisions of section 2(47)(v) of the Income-tax Act, 1961 includes the term ‘ part performance referred to in section 53A of the Transfer of Property Act, 1882 for purpose of transfer of a capital asset. From the conjoined reading of section 2(47)(v) of The Income Tax Act, 1961 and section 53A of the Transfer of Property Act, 1882, for a valid conveyance of an immovable property, there should be an agreement in writing, signed by the transferor and transferee setting forth terms and conditions of Transfer of Immovable Property. The said provisions of section 53A further clarifies that any transaction involving allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the 24 Matoshree nature referred to in section 53A of the Transfer of Property Act, 1882, would come under the definition of “transfer of capital asset”. Further, the provisions of sections 54 and 55 of the Transfer of Property Act, 1882 make it clear that a contract of sale does not itself create any interest in or charge on such property. Therefore, any agreement to sell that is not a registered deed of conveyance or deed of sale will fall short of the requirement of sections 54 and 55 of the Transfer of Property Act, 1882 and will, therefore, confirm no title and interest in an immovable property except to the limited right granted u/s 53A of the Transfer of Property Act, 1882.

According to the Transfer of Property Act, 1882, an agreement for sale, whether with or without possession, is not a conveyance. Further, the Registration Act, 1908 requires registration of document that contains a contract to transfer for consideration relating to any immovable property for the purpose of section 53A of Transfer of Property Act, 1882 makes it mandatory for registration of all documents in relation to immovable property. Therefore, from the above legal position it is very clear that for transfer of an immovable property, there

25 Matoshree should be an agreement in writing signed by the transferor and transferee and the same should be registered under the Registration Act, 1908. Unless and until the agreement to sell is not registered under the Registration Act, 1908, the rights and interest in the property will not be transferred to the transferee.

26 Matoshree of Rs.40 crores in advance. The letter further states that out of the above, a sum of Rs.4 crores should be paid on or before 19-07-2005. The assessee also relied upon letter written by Kohinoor Projects Pvt Ltd on 25-06-2005 accepting offer of the assessee for purchase of property by stating that they confirm the arrangement of purchase of property subject to receipt of payment on stipulated date. The assessee claims that as per the offer and acceptance between the parties, it had paid an advance consideration of Rs.40 crores on various dates which has been accepted by the seller of the property. Therefore, it has got valid right in the property on the date of letter, i.e. on 25-06-2005.

Whether booking rights is a capital asset and it is transferable or not is not disputed by both the parties. The only dispute is with regard to the date of acquisition of booking right and period of holding of the right. The assessee claims that it has got right over the property from 25-06-2005 when it made an offer for purchase of property by way of a letter addressed to Kohinoor Projects Pvt Ltd. The AO claims that the assessee has 27 Matoshree got right over the property on 05-10-2007 when a valid MOU was entered into between the assessee and the SPV setting forth terms and conditions of purchase of property. If, date of letter of offer is considered as valid agreement to sell, holding period of the asset is more than 36 months and resultant surplus is definitely assessable under the head ‘Long Term Capital Gain’. If, holding period of the asset is considered from the date of MOU, i.e. on 05-10-2007, impugned asset is held for a period less than 36 months and resultant surplus is assessable under the head Short Term Capital Gain.

The paper book filed by the assessee contains letter addressed to Kohinoor Projects Pvt Ltd and its acceptance letter written by consortium partners. The assessee also filed copy of MOU dated 05-10-2007 and cancellation of booking rights deed dated 28-06-2008. On verification of the details filed by the assessee, we find that the assessee has addressed a letter in a 28 Matoshree plain paper to one of the consortium partners and agreed to purchase an area admeasuring 50,000 sq.ft. at the agreed rate of Rs.36,000 per sq.ft. In the said letter, except area to be purchased and rate agreed upon, no other terms and conditions are mentioned. The acceptance letter issued by Kohinoor Projects Pvt Ltd, one of the consortium partners, simply confirms the arrangement as stated in the offer letter of the assessee subject to receipt of payment on stipulated date.

Except these two simple facts, the offer letter and acceptance letter do not contain anything about the description of property, terms and conditions of agreement. We also have gone through the MOU executed by the assessee on 05-10-2007. In the MOU, though it is not registered, it contains all valid terms and conditions of an agreement to sell. In the said MOU, both the parties have deduced their terms and conditions in writing and also signed by both the parties which has been duly executed. In the said MOU, all other conditions of a valid contract for sale / agreement to sell has been specified. We further observe that as on the date of letter, i.e. on 25-06- 2005, the consortium partners does not even know whether

29 Matoshree they are successful in their bid for purchase of the property.

The bid has been accepted by NTCL on 13-08-2005. The said offer has been confirmed by NTCL board on 14-09-2005, as per the Board of Directors 195th Board meeting. We further observe that the consortium partners have formed an SPV known as Kohinoor-CTNL Infrastructure Co Ltd subsequent to the confirmation received from NTCL. NTCL has executed a valid sale deed in favour of the SPV on 11-10-2005 which is registered with the Sub Registrar. After receipt of valid title in the property, Kohinoor-CTNL Infrastructure Co Ltd has entered into a valid MOU setting forth terms and conditions of the property and agreed to convey title in the property in favour of the assessee on 05-10-2007. Therefore, we are of the view that when the seller of the impugned property itself did not have any right over the property, agreeing to convey the title in the property in favour of a third party appears to be impractical and unusual. Therefore, we are of the view that there is no merit in the claim of the assessee that it has got valid right and interest in the property on 25-06-2005 by way of a simple letter addressed to the proposed buyer of the property. We,

30 Matoshree further was of the opinion that right / interest in an immovable property could accrue only by way of an agreement embedding conscious ad edem. We further opine that booking right in flat / apartment or a property shall be treated as acquired upon execution of buyer’s agreement with the seller and not on the date of booking confirmation letter for provisional allotment of flat.

The Hon’ble High court after considering facts held that right to acquire a plot of land is capital asset within the meaning of section 2(14) of the Act. In this case, there is no dispute with 32 Matoshree regard to nature of asset. The assessee itself accepted booking right is a capital asset. Therefore, the case law relied upon by the assessee is not applicable. The assessee also relied upon Hon’ble Punjab & Haryana High Court in the case of Ms.

MadhuKaul vs. CIT(2014) 363 ITR 54 (P&H-HC). The Hon’ble High court, considering fact of the case held that the mere fact that possession was handed over later date, does not detract from the fact that the allottee was conferred a right to hold property on issuance of allotment letter. In the case before, Hon’ble Punjab & Haryana High court, the property was identified and valid allotment letter was issued. In this case, the assessee addressed a letter to the prospective buyer of the property, on which date the seller does not even know whether he would succeed in bidding. Therefore, we are of the view that the case law relied upon by the assessee are not applicable to the facts of present case and hence, not followed.

33 Matoshree of whether booking rights in a property will accrue on the date of allotment letter or from the date of agreement to sell. The Hon’ble High Court after considering relevant facts held that right/interest in an immovable property can accrue only by way of an agreement to sell, but not on the date of allotment letter confirming booking rights. The assessee challenged order of Hon’ble Delhi High Court before Hon’ble Supreme Court and the Hon’ble Supreme Court dismissed SLP filed by the assessee in SLP No. 30670/2014 dt. 26-10-2015, and upheld finding of Delhi High Court. Though simple dismissal of SLP does not amount to law laid down on the issue, we prefer to follow Hon’ble Delhi High Court in the case of Gulshan Malik vs. CIT(Supra), as the Hon’ble Court considered the law laid down by Hon’ble Punjab & Haryana High Court in the case of CIT vs. Ved Prakash & Sons (HUF)(1994) 207 ITR 148. The relevant portion of order of Delhi High Court is reproduced below:-

“A ‘capital asset’ under the Act is property of ‘any kind’ that is ‘held’ by the assessee. Necessarily, a capital asset must be transferable. Thus, to understand what kind of property can be considered a capital asset, it would be apposite to refer to the definition of transfer in section 2(47). Section 2(47) (v) and (vi), and Explanation 2 make it adequately clear that possession, enjoyment of immovable property, as well as an interest in any asset are all transferable 'capital assets'. • The reference to acquisition 'by way of an agreement or any 34 Matoshree arrangement or in any other manner whatsoever' establishes that it is not conveyance of property or the doctrine of part performance (enacted through section 53A of the Transfer of Property Act) which results in enforceable rights, for the purposes of the Act. • The scheme puts it beyond doubt that even rights or interests in a property are kinds of property that are transferable capital-assets. Thus, there is no doubt that booking rights or rights to purchase the apartment or rights to obtain title to the apartment are also capital assets that can be transferable. [Para 7] • The only question that arises for consideration is whether the booking rights to the apartment accrued to the assessee on the date of application for allotment /confirmation of allotment or on the date of execution of the agreement to sell, i.e., the buyer's agreement. A right or interest in an immovable property can accrue only by way of an agreement embodying consensus ad idem. The nature of the right sought to be transferred here is the right to purchase the apartment and obtain title, termed 'booking rights'. Only that agreement which intends to convey these rights according to both parties can be considered as the source of accrual of rights to the assessee. • The confirmation letter dated 6-8-2004 specifically states first, that no right to provisional/ final allotment accrues until the buyer's agreement is signed and returned to the builders and second, that no right to claim title/ownership results from the confirmation letter itself. Thus, it is clear that the builders do not intend to convey any right of provisional /final allotment or any right to claim title/ownership under the confirmation letter. • There being no intention to convey rights in this document, it would be impermissible to find that the right to obtain title/'booking rights' emanated from the confirmation letter. These rights may only be located in buyer's agreement, and thus, the date of acquisition of the capital asset must be considered the date of signing of said agreement, i.e. 4-11-2004. [Para 8] • These rights were transferred by.the assessee on 2-11-2007. Thus, the capital asset in the form of these rights was held for a period of 35 months and 28 days,. La, a short-term capital asset thus rendering the profits from the transfer-of-this capital asset taxable as short-term capital gain [ P 9 ] a Thus, there is no legal infirmity in the order of the Tribunal. The appeal is accordingly dismissed. [Para 11]”

35 Matoshree

2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared income of Rs.96,60,860/- in its return filed on 13/10/2010 (Assessment Year 2009-10). Likewise, for Assessment Year 2010-11, the assessee declared nil income in its return filed on 30/09/2011, declaring loss of Rs.5,87,294/- but declared books profit at Rs.35,80,941/-. Both the returns were processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter the Act) and subsequently selected for scrutiny, consequently, statutory notices u/s 143(2) and 142(1) along with questionnaire dated 13/12/2013 were served upon the assessee. The assessee is engaged in the business of investment, financing in shares and securities and dealing in properties. The assessee booked two flats in Financial Year 2004-05, registered in Financial Year 2007-08 and sold on in December, 2009. The assessee made initial payment of Rs.3,08,810/- on 05/03/2005 and further payment was made on 14/10/2009. The assessee made total payment of Rs.68,78,700/- and Rs.75,06,200/-,

36 Matoshree respectively of the flats. The assessee never occupied the flats. The stand of the Revenue is that as per transfer of Property Act, section 53A, possession is necessary for ownership purposes. Thus, before adverting further, we are reproducing hereunder the relevant provision of section 53A of the Transfer of Property Act for ready reference:-

“53A. Part performance

Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: PROVIDED that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.” The aforesaid section, if analyzed, it speaks about taking possession of the property or any part thereof or the transferee, being already in possession, whereas, in the present cases, no possession was taken by the assessee and only rights were sold. The assessee made the payments in 2009 and thereafter he got the rights to sale the property, therefore, prior to that he was having no right to sale the same. The reply of the assessee vide letter dated 12/03/2013 (reproduced in the assessment order) was duly considered. There is no dispute to the fact that the final payment was made by the assessee in September 2009 and subsequently, without taking the possession of the flats, the rights were sold in the December 2009. The assessee received the rights or the flat, when he made

37 Matoshree final payments to the builder in September, 2009. Thus, in our view, the capital gain arose on the transaction in September, 2009, which has to be treated as Short Term Capital Gain as the holding period over the flats was less than three years. Our view find support from the decision, on identical facts and the ratio laid down therein by Hon'ble Delhi High Court, in the case of Gulshan Mallik vs CIT (2014) 43 taxman.com 200(Del.)/(2014) 223 taxman 243(Del.). The relevant portion of the same is reproduced hereunder for ready reference and analysis:-

“This is an appeal filed against the order of the Income Tax Appellant Tribunal ("ITAT") in dated 27.02.2013, which upholds the order of the Commissioner of Income Tax (Appeals) ("CIT-A") confirming the assessment order of the Assessing Officer ("AO"). The short question of law that arises is whether on facts, capital gains are taxable as long-term or short-term capital gains. The brief facts are as follows:

2.11.2007 as the assessee never had possession of the apartment. The assessee's second appeal before the ITAT was also dismissed vide order dated 27.02.2013 on the ground that no rights in the property accrued to the appellant/allottees on the date of filing of the application for allotment i.e. 31.7.2004, as notes 1 and 2 enclosed with the confirmation letter dated 06.08.2004 received in response to the allotment application states clearly that no rights to the property would accrue to the allottees until the buyer's agreement was signed and returned; the buyer's agreement was executed only on 4.11.2004. Consequently, the ITAT found that the capital asset was sold within a period of 36 months thus rendering the profits from the sale taxable as short-term capital gains, which do not qualify for the deduction under Section 54.

'2. In this Act, unless the context otherwise requires,

(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include

39 Matoshree

(42A) "short-term capital asset" means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer:

** ** ** (47) "transfer", in relation to a capital asset, includes, (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or in a case where the asset is converted by the owner thereof into, or is (iv) treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond ; or any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a (v) contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any (vi) arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Explanation ** ** 1. **

Explanation 2. For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India .'

40 Matoshree

Thus, to understand what kind of property can be considered a capital asset, it would be apposite to refer to the definition of transfer in Section 2(47) of the Act. Section 2(47)(v) and (vi), and Explanation 2 make it adequately clear that possession, enjoyment of immovable property, as well as an interest in any asset are all transferable "capital assets". The reference to acquisition "by way of any agreement or any arrangement or in any other manner whatsoever" establishes that it is not conveyance of property or the doctrine of part performance (enacted through Section 53A of the Transfer of Property Act) which result in enforceable rights, for the purposes of the Income Tax. The scheme of the Act puts it beyond doubt that even rights or interests in a property are kinds of property that are transferable capital assets. Thus, there is no doubt that booking rights or rights to purchase the apartment or rights to obtain title to the apartment are also capital assets that can be transferable. However, even while this Court agrees with the submissions of the appellant, it is pertinent to note that this question does not arise in these facts. Neither the CIT-A nor the ITAT have held that a capital asset can only be title to/ownership of the apartment. The order of the CIT-A locates the source of the booking rights i.e. date of acquisition of capital asset as the buyer's agreement dated 4.11.2004, which finding is subsequently confirmed by the ITAT by additionally relying on the receipts at the time of confirmation of allotment. Thus, in these facts, the question of whether the booking rights are a transferable capital asset is not contentious. The judgment in Ved Parkash (supra) is also consequently of no assistance in this matter since the reasoning therein turns on whether "capital asset" refers only to title to property as opposed to other rights/interests in the property.

8. This being the case, the only question that arises for consideration is whether the booking rights to the apartment accrued to the assessee on the date of application for allotment/confirmation of allotment or on the date of execution of the agreement to sell i.e. the buyer's agreement. This Court is of the opinion that a right or interest in an immovable property can accrue only by way of an agreement embodying consensus ad idem. The nature of the right sought to be transferred here is the right to purchase the apartment and obtain title, termed "booking rights". Only that agreement which intends to convey these rights according to both parties can be considered as the source of accrual of rights to the assessee. The confirmation letter dated 6.8.2004 (Annexure 3) specifically states first, that no right to provisional/final allotment accrues until the Buyer's Agreement is signed and returned to the builders and second, that no right to claim title/ownership results from the confirmation letter itself. Thus, it is clear that the Builders do not intend to convey any right of provisional/final allotment or any right to claim title/ownership under the confirmation letter. There being no intention to convey rights in this document, it would be impermissible for this Court to find that the right to obtain title/"booking rights" emanated from the confirmation letter. These rights may only be located in the Buyer's agreement, and thus, the date of acquisition of the capital asset must be considered the date of signing of said agreement i.e. 4.11.2004

9. These rights were transferred by the assessee on 2.11.2007. Thus, this Court is of the opinion that the capital asset in the form of these rights was held for a period of 35 months and 28 days, i.e. a short-term capital asset thus rendering the profits from the transfer of this capital asset taxable as short- term capital gains.

10. Ved Parkash (supra), in any event, can be distinguished from the facts in this case. In Ved Parkash (supra), the assessee sought to claim that the date of acquisition of the capital asset was the date of entering into the agreement

41 Matoshree to sell with the builder, by which the assessee had also received possession of the property. The Department, on the other hand, claimed that according to the conditions of the agreement, no right, title or interest in the property would be conveyed to the assessee until all instalments due and payable under that agreement were completed. It was also sought to be argued that the assessee became the titleholder to the property only once all the instalments were paid, and that title to the property was the only capital asset that could be transferred. It was in the context of these arguments that the Court held first, that it is incorrect to say that the assessee had no right or interest in the property until the completion of payment of all instalments under the agreement as the assessee was a beneficial owner from the date of signing the agreement, having been put in possession of the property as of that date and second, that Section 2(42A) of the Act, in any event only uses the term "held" and not "owned", thus indicating that a capital asset need not only refer to full title over any property. Ved Parkash (supra) can thus be distinguished on two grounds, first, that in the instant matter, booking rights are sought to be sourced in the allotment application/confirmation letter and not in an agreement to sell, second, no right of possession or similar beneficial interest was conveyed to the assessee in the instant case when the application for allotment was made/confirmation letter was received. The agreement to sell was considered to be the source of a beneficial interest to the assessee in Ved Parkash (supra) only because the right of possession had been transferred to the assessee along with the agreement to sell. There cannot be any parity between the allotment application/confirmation letter in the instant case and the agreement to sell in Ved Parkash (supra), since the confirmation letter specifically states that no right of provisional allotment/final allotment will result from it to the assessee.

11. This Court is thus of the opinion that there is no legal infirmity in the order of the ITAT. The appeal is thus dismissed along with pending applications.”

2.3. It is noted that in the aforesaid decision, the Hon'ble High Court duly considered/distinguished the decision in the case of CIT vs Ved Prakash & Sons (HUF) (supra), wherein, in Para-8 onwards, clearly held as under:-

42 Matoshree emanated from the confirmation letter. These rights may only be located in the Buyer's agreement, and thus, the date of acquisition of the capital asset must be considered the date of signing of said agreement i.e. 4.11.2004

2.4. So far as, the decision in the case of CIT vs Vimal Lalchand Mutha (1991) 187 ITR 0613 (Bom.) is concerned, the 43 Matoshree question before the Hon'ble High Court was with respect to validity of Long Term Capital Gain, where the assessee was holding rights for more than 36 months before transferring the same, whereas, in the present appeals, before us, the holding period is less than three years/36 months. It is also noted that the Hon'ble Delhi High Court affirmed the decision of the Tribunal considering various aspects including section 2(42A) of the Income Tax Act, 1961, section 2(14), 2(47) along with explanation. The Hon'ble Delhi High Court considered the question ‘whether the booking rights to the apartment accrued to the assessee on the date of application for allotment/confirmation of allotment or on the date of execution of the agreement to sale i.e. buyers agreement’. The Hon'ble Court held that a right or interest in any immovable property accrues only by way of an agreement embodying consensus ad idem. The assessee made the final payment in September 2009 only, therefore, the decision in the case of Ved Prakash & Sons (HUF) is not applicable to the facts of the present appeals. The final payment was made in September, 2009 and thereafter the assessee got the right to sale the property and before that he was having no right to sale the same. So far as, the other cases, relied upon by the assessee, are concerned (made available in the paper book) since, either the facts are different and no decision from Hon'ble Apex Court was cited, whereas, as mentioned earlier, the SLP against the decision from Hon'ble Delhi High Court in the case of Gulshan Mallik vs CIT (supra) was dismissed by Hon'ble Apex Court and further the decision of Hon'ble Delhi High Court is dated 14/03/2014, whereas, the decision in the case of Ved Prakash & Sons (HUF)(supra) was reported in 1994. Therefore, respectfully following the same, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), resultantly; both the appeals of the assessee are having no merits, therefore, dismissed.”

44 Matoshree property, unless it is conveyed through a valid agreement to sell specifying terms and conditions though it is not registered.

In this case, the letter addressed by the assessee is only a self serving document which does not have any legal sanctity. On the other hand, the evidence relied upon by the AO, i.e. the MOU is a valid document conferring title and interest in the property in favour of the assessee, which happened on 05-10- 3007, but not on 25-06-2005. We further noticed that though the assessee claims to have paid initial advance amount of Rs. 1,00,000/- along with letter on 25-6-2005, on perusal of details filed by the assessee, the assessee has paid Rs. 1,00,000/- on 25-7-2005. We further noticed that though the assessee claims to have paid Rs. 40,00,00,000/- advance on various dates starting from 25-06-2005 to December 2006, on perusal of payment details we find that the assessee has paid Rs. 4,01,00,000/- from its account and balance amount has been paid by some third parties. The assessee further claims that it had taken loan from some parties and they have directly paid to the seller for which it has paid interest. Assuming for a moment, but not accepting, even if date of first payment is 45 Matoshree considered for the purpose of reckoning holding period, the first payment was made on 19-7-2005 and if that date is considered, holding period of asset is still less than 36 months.

Therefore, we are of the view that the assessee has got valid right over property on 05-10-2007, but not on 25-06-2005 and hence, the A.O. was right is treating surplus from surrender of booking right under the head short term capital gain. The CIT(A), without appreciating facts, held that the impugned asset is long term capital asset. Hence, we reverse findings of CIT(A) and upheld findings of the Assessing officer.

During the course of assessment proceedings, the AO noticed that the assessee has kept fixed deposit of Rs.15 crores in CKP Co-operative Bank. However, no interest income has been offered to tax under the head ‘Income from other sources’.

Therefore, the assessee was called upon to furnish necessary details of fixed deposits and related interest income earned

46 Matoshree from such deposits. In response to query raised by the AO, the assessee submitted that the firm had incurred interest expenditure on loan obtained against security of fixed deposit.

The loan had been obtained from bank which has been utilized for providing loans and advances to sister concerns and others.

The firm has earned interest of Rs.31.95 lakhs on loans so advanced. No interest has been charged on loans given to sister concerns as the investment in sister concerns were out of commercial expediency as the assessee company and other associates are involved in property development business and the firm derives benefit from investment made in its associate concerns. The assessee further submitted that it also received interest income of Rs.2,93,67,955 on fixed deposits which has been netted against interest paid on loan and difference of Rs.5,69,790 has been debited to the P&L Account. The assessee further contended that its interest payment satisfies the requirements of section 36(1)(iii) and deserves to be allowed. In this regard, the assessee relied upon the decision of Supreme Court, in the case of CIT vs SA Builders 288 ITR 1(SC). The AO, after considering relevant submissions of the 47 Matoshree assessee observed that the purpose of taking loan against fixed deposit was to pay interest on the borrowings. The assessee also used loan proceeds to advance interest free loans to its sister concerns without charging any interest. The action of the assessee is not in conformity with the provisions of the Income- tax Act, as interest under the head ‘interest on fixed deposit’ is taxable under the head ‘Income from other sources’ and not as ‘Income from business or profession’. Since, the assessee has not paid interest on loan borrowed against security of fixed deposit towards its business activity, netting of interest earned on fixed deposit cannot be permitted against interest paid on funds borrowed against security of fixed deposit. Aggrieved by the assessment order, the assessee preferred appeal before CIT(A).

Admittedly, in this case, the assessee is involved in the business of property management consultancy. The assessee has kept surplus funds in bank for a short period. Therefore, the interest income from fixed deposit is assessable under the head, ‘Income from other sources’. Though, the assessee claims to have paid interest to bank for loan taken against

50 Matoshree security of fixed deposit, loan proceeds have been utilized for advancing interest free loans to sister concerns. Therefore, the assessee is not eligible for deduction towards interest paid on loan against interest earned from fixed deposit.

Admittedly, such loan has been utilized for advancing interest free advances to sister concerns and associates. This fact has been admitted by the assessee before the lower authorities.

Though the assessee claims to have advanced loans to sister concerns out of commercial expediency failed to prove any commercial expediency in advancing loans to sister concerns.

Therefore, we are of the view that the AO was right in denying

51 Matoshree netting off of interest paid to bank for loan taken against security on fixed deposit against interest earned from fixed deposit from the same bank. The assessee has relied upon the decision of Hon’ble Supreme Court in the case of CIT vs SA Builders (supra) to argue that interest cannot be disallowed on loans advanced to sister concerns and subsidiaries out of commercial expediency. In this case, the assessee has failed to prove nexus between loans and advances given to subsidiaries and business expediency from such loans. Therefore, we are of the view that the case law relied upon by the assessee has no application to the facts of the present case. The CIT(A), after considering relevant submissions, has rightly upheld addition made by the AO. We do not find any error or infirmity in the order of CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and reject the ground raised by the assessee.

The assessee has filed a petition for admission of additional ground of appeal by raising a ground seeking set off of interest received from loans and advances of Rs.31,94,644 against interest earned from fixed deposit.

52 Matoshree

53 Matoshree security of fixed deposit and the loan proceeds have been used for advancing loans which generates interest income.

Therefore, interest income earned by the assessee of Rs.31,94,644 needs to be set off against interest paid to the bank.

54 Matoshree earned from loans of Rs.31,94,644 against interest paid to bank for loan taken against security of fixed deposit.

According to the AO, the assessee has not carried out any business activity, therefore, expenditure claimed in the nature of general administrative and overhead expenses cannot be allowed, as deduction. It is the claim of the assessee that expenditure incurred by the firm is in the nature of general

55 Matoshree administrative and overhead expenses, which are necessarily to be incurred for keeping corporate status of the assessee, even if the assessee does not carry out any business activity for the year under consideration. The assessee further contended that it is in the business of project management services, however, due to adverse business conditions, could not be able to generate any revenue for the year under consideration. But, mere fact that there is no business receipt for the year is not a ground to decide, the assessee has discontinued its business operations, therefore, the AO was incorrect in disallowing expenditure claimed to keep the business intact. The CIT(A), after considering the relevant submissions of the assessee and also relying upon certain judicial precedents, including the decision of Bombay High Court in the case of CIT vs Ralliwolf Ltd 121 ITR 262 (Bom) observed that mere fact that there has been no receipts during the period cannot lead to an inference that there is no business activity. The relevant portion of order of the CIT(A) is extracted below:-

56 Matoshree 76. Admittedly, the appellant has not carried out the regular business activity of providing projects management services during the period under consideration. But at the same time, it cannot be presumed that the appellant has stopped business operations. There is no evidence placed on record by the Assessing Officer in this regard. The appellant is in the business of providing the project management services and during the period under consideration, it has not got any consultancy project for providing management services but the business as such has not stopped its operations.

the case of Income Tax Officer vs Mokul Finance (P) Ltd., (2007) 110 TTJ Delhi 445, has held that "In the light of this legal position, it would follow that unless there is some material on record to show that the assessee has completely abandoned the share dealing business, merely because there are no business transactions in the relevant previous year cannot be reason enough to come to the conclusion the business has come to an end. It could not thus be said; as was the case before the Hon'ble Madras High Court, that the assessee had "completely abandoned or closed the business forever" Unless the business is abandoned or closed and even if business is at a dormant stage 57 Matoshree waiting for proper market conditions to develop, the expenditure incurred in the course of such a business is to be allowed as deduction. For this reason also, the disallowance made by the AO was not justified, and the CIT(A) rightly deleted the same."

58 Matoshree expenditure. Hence, we are inclined to uphold findings of the CIT(A) and dismiss ground raised by the revenue.