M.M. EXPORTS,KOLKATA vs. ITO, WARD - 42(1), KOLKATA [MERGED WITH WARD - 43(1)], KOLKATA

The Assessee is a partnership firm. It owned a property in M.G.Road, Bangaluru. By an agreement dated 20.10.2005 the partnership firm .i.e. assessee agreed to sell the property to one Shri Sanjay Todi alias Shri Sanjay Kumar Todi, who is also an incidentally one of the partners in the partnership firm. The sale consideration was agreed between the parties at a sum of Rs. 32,00,000/-. The assessee had paid a sum of Rs.5,00,000/- as advance at the time of signing of the agreement. In the agreement dt. 20.10.2015 in the representations of the vendor to the purchaser the vendor has assured the purchaser that they shall deliver vacant possession of the property on or before the execution of the sale deed. It is thus clear that no possession was handed over to the purchaser at the time when the agreement for sale was entered into between the parties. Under clause 2(b) of the Agreement dt. 20.10.2005, the purchaser agreed to pay the balance consideration sixty days from the

On 27.03.2007 the assessee and Mr. Sanjay Todi by registered sale deed sold the property to a third party Shri V.V.Kak and Smt. Meeta V.Kak. for a sale consideration of Rs.56,00,000/-. In the assessment of Shri Sanjay Kumar Todi for A.Y.2007-08 the question that arose for consideration was as to whether the difference between the price at which Mr.Sanjay Kumar Todi agreed to purchase the property from the assessee viz. Rs.32,00,000/- and the price at which the property was ultimately sold to a third party viz., Rs.56,00,000/- should be assessed under the head “income from other sources” or “capital gain”. The tribunal held that the aforesaid income was to be assessed under the head income under the head capital gain (Short term capital gain).

In the assessment of the assessee for A.Y.2007-08 the AO noticed that the property at M.G.Road, Bangaluru which was the subject matter of the discussion in the earlier paragraphs was part of the block of asset “Building” on which the assessee had claimed depreciation. The AO was of the view that there was a transfer of the aforesaid property during the previous year relevant to A.Y.2007-08. The AO was of the view that in view of the provision of section 50(1) of the Income Tax Act, 1961 (Act) the short term capital gain on transfer of the asset should be brought to tax. It is not disputed that the block of assets of building ceased to exist , as a result of the transfer of the property at M.G.Rod, Bangaluru. The AO accordingly computed the short term capital gain invoking the provision of section 50(1) of the Act. The assessee took a stand before the AO that as far as the assessee is concerned the sale consideration receivable by the assessee was only Rs.32,00,000/- and therefore capital gain should be taxed in the hands of the assessee by regarding Rs.32,00,000/- as full value of consideration received on transfer and not Rs.56,00,000/-. The assessee submitted that the difference between Rs.32,00,000/- and Rs.56,00,000/- (price for which property was sold to a third party) should be brought to tax in the hands of Shri ITA No..238/Kol/2016 M.M.Exports A.Y. 2007-08

Aggrieved by the aforesaid order of the AO determining the short term capital gain as per section 50(1) of the Act and treating Rs.56,00,000/- as the full value of consideration received on transfer of the property, the assessee filed appeal before the CIT(A). Before CIT(A) the assessee took a stand that by virtue of agreement dated 22.10.2005 between the assessee and Sanjay Todi, there was a transfer of the property in the previous year relevant to A.Y.2006-07 u/s 2(47)(vi) of the act and therefore there cannot be any assessment of capital gain in A.Y.2007-08. The above argument was put forth by the assessee in the statement of facts filed before CIT(A). Even in the written submission filed before CIT(A) the very same contention was put forth by the assessee. The CIT(A) however rejected the contention of the assessee and he held that the action of the AO in bringing to tax the short term capital gain in A.Y.2007-08 was correct for the following reasons : “I have gone through the above contention of the asseessee. In this regard it is to point out that though the 'appellant claims that agreement of sale was entered on 22-10-2005 amongst the Firm and Sanjay Kumar Todi at a price of RS.32,00,000/- and Capital Gain of Rs.30,71,522/- got accrued in F.Y 2005-06 however, this remains a fact that no capital gain was even shown In A.Y 2006-07 and the Asset continued to appear in the Balance Sheet upto subsequent Assessment Years. Therefore, the argument lacks factual basis. The assessee has further claimed that the C.I.T (A) has allowed capital gain in the hands of Shri ITA No..238/Kol/2016 M.M.Exports A.Y. 2007-08

Aggrieved by the order of the CIT(A) the assessee has preferred the present appeal before the Tribunal.

The assessee has raised several grounds of appeal. The sum and substance of which is that the short term capital gain pertains to A.Y.2006-07 and not A.Y.2007- 08. Alternatively the assessee has submitted that Capital Gain should be computed by considering the full value of consideration received or accrued on transfer of capital asset at Rs.32,00,000/-. The ld. Counsel for the assessee submitted before us that there was a transfer of the property in question by the assessee in favour of Shri Sanjay Todi by virtue of an agreement dated 20.10.2005. He placed reliance on the decision of the Hon’ble Bombay High Court in the case of Tata Services Ltd. (1980) 122 ITR 594 (Bom.). In the aforesaid case, there was an agreement for sale between the assessee and a third party. That agreement was cancelled and the property was sold to a third party. The assessee received some money for giving up his rights to purchase the property. The question before the Hon’ble Bombay High Court was whether the assessee had transferred any capital asset or not. The Hon’ble Bombay High Court held that the right to purchase the property and agreement was a capital asset and money received to relinquish such right gave rise to capital gain. In our view the aforesaid decision is not applicable to the facts of the present case because the assessee in this case was the owner of the property and the assessee cannot convey ITA No..238/Kol/2016 M.M.Exports A.Y. 2007-08

The next argument advanced by the assessee was that under section 2(47) (vi) of the act the transfer in relation to a capital asset includes the following transactions :- “(vi) 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 arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of, any immovable property.”

According to him the effect of the agreement for sale between the assessee and Shri S.K.Todi dated 20.10.2005 was that there was a transfer enabling the enjoyment of immovable property by Shri Todi. We do not find this argument to be acceptable as we have already seen, the assessee never gave possession of the property under the agreement dated 20.10.2005. Shri S.K.Todi at no point of time enjoyed the property in question in any other manner. We fail to see as to how the aforesaid clause in the definition of transfer will be of any assistance to the plea of the assessee that there was a transfer of capital asset under the agreement dated 20.10.2005 between the assessee and Shri S.K.Todi.

The ld. Counsel for the assessee relied on Explanation-2 to section 2(47) of the Act. The same reads as follows : “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; ]

We are of the view that none of the clause of Explanation-2 are attracted in the present case. We also are of the view that Explanation-2 will not be applicable to the facts of the present case and the same is restricted to cases of transfer of assets of a company pursuant to transfer of shares.

The ld. Counsel for the assessee has filed certain decisions in the paper book filed before us but has made reference to only few decisions. The first decision is of ITA No..238/Kol/2016 M.M.Exports A.Y. 2007-08

The learned counsel for the Assessee made an alternate submission which is to the effect that if for any reason the Tribunal upholds assessment of STCG in the hands of the Assessee for AY 2007-08, then the full value of consideration received should be considered at Rs.32,00,000 which is the agreed consideration which the Assessee has to receive from the purchaser as consideration for sale of the property under the agreement dated 20.10.2005 and not the sum of Rs.56,00,000 for which the property was ultimately sold to a third party. ITA No..238/Kol/2016 M.M.Exports A.Y. 2007-08

We have considered the alternative submission. Sec.50(1) of the Act is a special provision in so far as it relates to computation of capital gain on sale of a depreciable asset on which depreciation has been claimed. The said provisions read thus:

In the present case the block of assets ceases to exist and therefore the provisions of Sec.50(2) of the Act would apply. Under Sec.50(2) of the Act, it is only the income received or accruing as a result of transfer that should be reduced from the WDV of the block of building as on 1.4.2006 to arrive at the Short Term capital gain. Admitted factual position is that the Assessee was to receive only a sum of Rs.32 lacs from S.K.Todi as sale consideration in respect of the property. The admitted position is that the difference between Rs.32 lacs and Rs.56 lacs has already been taxed in the hands of S.K.Todi. In this factual background, we are of the view that the STCG on sale of the property has to be determined in the hands of the Assessee by adopting the income received as accruing as a result of transfer as Rs.32 lacs and not Rs.56 lacs. To this extent the plea of the Assessee is accepted.

In the result the appeal by the assessee is dismissed. Order pronounced in the open Court on 02.02.2018.