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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the revenue. The relevant assessment year is 2008-09. The appeal is directed against the order of the Commissioner (Appeals) – 23, Mumbai and arises out of the order u/s 143(3) of the Income Tax Act, 1961 (the ‘Act’).
The 1st, 2nd, 3rd & 4th ground raised by the revenue in this appeal address a common issue. They read as under:
1. The Ld CIT(A) has erred in appreciating the fact that the capital gain earned on the sale of the plot at MIDC, Nashik is to be assessed in the hands of the firm in which the assessee was a partner and not in the hands of the assessee as an individual, when the assessee had already retired from the said firm in the year 2002.
2. The Ld CIT(A) has erred in appreciating the fact that the capital gain earned on the sale of the plot at MIDC, Nashik is to be assessed in the hands of the firm in which the assessee was a partner and not in the hands of the assessee as an individual when as per the retirement deed of the firm M/s. Maharashtra Wire Drawing Co. dated 14.08.2002, the assessee had retired from the said firm and in lieu was given the plot under consideration located at MIDC, Nashik, as part of settlement of the firm by the firm.
The Ld. CIT(A) has erred in holding that since there is no record of the plot ever having been registered to the appellant/transferred to the appellant in the records of MIDC, since MIDC did not approve transfer to an individual, without appreciating that the transfer of the said plot in 2002, by virtue of retirement deed of the firm, from firm to the retiring partner is squarely covered within the ambit of transfer as per provisions of section 2(47) of the IT Act, 1961 and is not covered by any of the Transactions not regarded as Transfer as per provisions of section 47 of the IT Act, 1961.
The Ld. CIT(A) has erred in appreciating the fact that as per the Ninth Annual Report for the year ended 31.03.2006 of Shree Shyam Processors Pvt. Ltd. (the transferee to whom the plot was sold), the company acquired the plot of land at MIDC Satpur, Nashik and that it was acquired from the Director and majority shareholder, Shri S.B. Makharia, who received it on retirement from a firm in which he was a partner, in full satisfaction of his claims at a value of Rs. 2,00,000/- and that the same has been transferred to the name of the company. 3. Briefly stated, the facts of the case are that the assessee filed his return of income for the A.Y. 2008-09 on 21.05.2008 declaring total income of Rs. 22,67,533/-. During the course of assessment proceedings, the Assessing Officer (A.O.) found from the AIR information that the assessee had sold immovable property valued at Rs. 98,97,000/- and the deed was registered in the office of Joint Sub- Registrar, Nashik. The assessee submitted a copy of the said deed before the A.O. The deed was for transfer of plot no. D – 92, MIDC Satpur, Nashik Industrial area. Vide this assignment deed, the said plot was transferred to the company M/s. Shree Shyam Processors Pvt. Ltd. (SSPPL). The stamp duty valuation of the property was Rs. 98,97,000/- whereas the assessee had shown sale consideration of Rs. 2,00,000/-. From the submission made by the assessee, the A.O. noted that the assessee had received the said plot by virtue of retirement deed dated 14.08.2002. The said plot was claimed to be transferred to the company M/s. SSPPL somewhere in the year 2004. The assessee stated before the A.O. that a deed of assignment between the assessee and M/s. SSPPL ought to have been executed at that time. However, this was not done due to stamp duty and cost issues and therefore, the plot remained in the hands of the assessee. The said plot was assigned vide deed of assignment dated 15.07.2007 to the company M/s. SSPPL for a consideration of Rs. 2,00,000/-. The stamp duty valuation of the said plot was Rs. 98,97,000/-. The A.O. took (i) the value of the said plot as Rs. 98,97,000/- as per the provisions of section 50C and (ii) the cost of acquisition as Rs. 2,00,000/- and computed the capital gains accordingly.
4. Aggrieved by the order of the A.O., the assessee filed an appeal before the learned CIT(A). The learned CIT(A) allowed the appeal of the assessee in respect of the above grounds of appeal on the reasons that (i) there was no transfer at all of lease of plot during the previous year 2007-08 relevant to the A.Y. 2008-09, (ii) the deed of assignment was entered into between the firm and the company, (iii) the capital gains, if any, would be taxable in the hands of the firm and not the assessee as an individual. Therefore the learned CIT(A) has held that the capital gains cannot be taxed in the hands of the assessee as he is not a party to the transfer except that he has signed the deed of assignment as partner of the firm which has transferred the property.
5. Before us, the learned DR relies on the order of the A.O., whereas the learned counsel of the assessee supports the order passed by the learned CIT(A).
We have heard the rival submissions and perused the relevant material on record. We find that the assessee was having 50% share in the partnership firm Maharashtra Wire Drawing Company (MWDC). The firm MWDC had acquired 2 plot of land on lease of MIDC land over a period on which its production activity was carried out. In the year 1992, the production activity was stopped due to change in market conditions. In 2000, the MIDC insisted to carry out the production activity or return the plot of land. It was decided that the assessee retires from the firm MWDC and in lieu of his share of capital (Rs. 2,00,000/-), the one plot of land is to be transferred to the assessee vide retirement deed dated 14.08.2002. As per MIDC policy, the plot cannot be transferred in individual name. Therefore, the firm MWDC agreed to transfer the plot in favour of the company M/s. SSPPL wherein the assessee was a majority shareholder in lieu of assessee’s share capital of Rs. 2,00,000/- payable at the time of retirement. Accordingly, the company M/s. SSPPL brought the land in the books of accounts and reflected it as fixed assets and credited Rs. 2,00,000/- to loan account of the assessee in the books of the company and paid transfer fees and incidental expenses of Rs. 4,52,435/- on 24.06.2004 to MIDC. Subsequent to that, MIDC had given consent to transfer the land in the name of the company M/s. SSPPL from the firm MWDC vide letter dated 20.06.2005. The company M/s. SSPPL’ accounts showed land has been acquired from the assessee for Rs. 2,00,000/- in 2004-05. Advance paid for land of Rs. 6,52,435/- was categorised under fixed asset. Advance included transfer fees of Rs. 4,10,200/-, land value of Rs. 2,00,000/- and incidental expenses of Rs. 42,235/-. The same was also reported in the Director’s report and notes to the account for the year ended 31.03.2005. The company M/s. SSPPL agreed to purchase the land from the firm MWDC and took over the firm’s liability towards retiring partner. The firm settled the retiring partner’s dues by debiting its capital account and crediting to its assets (plot) as sale proceed. Mr. M.K. Santosh Hegde, Director of M/s. SSPPL lodged papers with MIDC. And MIDC informed that until and unless the deed of assignment is executed, the plot cannot be registered in the name of the company. The deed of assignment dated 15.07.2007 was executed between the firm MWDC (represented by the 3 partners) and the company M/s. SSPPL represented by the third party as a procedural requirement to record the lease land in the name of the company M/s. SSPPL. It is found that MIDC had already given its consent to transfer the land in the name of the company M/s. SSPPL in June 2005.
6.1 We find that the present deed of assignment is between the firm MWDC (assignor) as represented through its 3 partners including the assessee, and company M/s. SSPPL (assignee) through its Director Shri Santosh S Hegde. Since there is no record of the plot ever having been registered to the assessee / transferred to the assessee in the record of MIDC and since MIDC did not approve transfer to an individual, ultimately the transfer is between the firm MWDC and company M/s. SSPPL. Thus there is merit in the order of the learned CIT(A) that capital gains, if any would be taxable in the hands of the firm MWDC and not the assessee as an individual. The assessee has signed the deed of assignment only as a partner signing on behalf of the firm MWDC.
In Shin Satellite Public Co. Ltd. vs. Jain Studios Ltd. (2006) 2 (SC) 628 (para 16), the Hon’ble Supreme Court has held that a court will read the agreement as it is and cannot rewrite or create a new one.
6.2 The obtaining factual matrix has to be tested on the anvil of the aforesaid legal principles. Resultantly, we uphold the order of the learned CIT(A) and dismiss the above grounds of appeal.
Now we turn to 5th, 6th and 7th ground of appeal. They read as under:
The learned CIT(A) has erred in holding that the A.O. has not brought on record anything substantial or cogent to show that the appellant had no intention to hold the share as investment without appreciating that the fact the dividend income and LTCG shown by the assessee during this period is only Rs. 58,423/- and Rs. 6,44,932/- respectively as against the relatively substantial amount of Rs. 20,14,569/- shown as STCG.
6. The learned CIT(A) has erred in holding that the A.O. has not brought on record anything substantial or cogent to show that the appellant had no intention to hold the share as investment, without appreciating that the substantial frequent transactions in number of scrips (51 transactions of 46 different companies) clearly pointed that activity in shares by the assessee was adventure in the nature trade. 7. The learned CIT(A) has erred in holding that it cannot be said that the appellant was engaged in the trading of shares or that the gains earned from sale of shares in short term represent business income, without appreciating that the fact that income under the head of Business and Profession shown by the assessee in the return is Rs. 5,971/- as against the STCG of Rs. 20,14,569/- which clearly indicates that the main activity of the assessee during the period under consideration was trading in shares. 7.1 The A.O. noted that the assessee had shown Short Term Capital Gains (STCG) of Rs. 20,14,569/- on sale of shares. The assessee had purchased shares / units of mutual funds of Rs. 44,52,461/- and sold the same worth Rs. 64,67,030/-. Also the AO observed that (i) during this period the assessee dealt in 46 transactions of purchase and sales (ii) no shares or units of mutual fund had been held by the assessee as investment (iii) the assessee had also frequently purchased and sold shares / units of mutual fund and the average holding period was very short and (iv) the assessee had received meagre dividend of Rs. 58,423/-. Taking into account the magnitude, frequency of share transactions the A.O. held Rs. 20,14,569/- as business income.
7.2 In appeal, the learned CIT(A) has observed that out of 51 transactions reported, the holding period is as under:
Period of holding Number of transactions 30 days or less 15 31 days to 90 days 15 91 days to 180 days 15 181 days or more 6 Total 51
The learned CIT(A) noted that (i) in less than 30% of the transactions, the scrips were held for less than 30 days, (ii) there are no repetitive transactions seen, in the sense that the assessee has not re-entered the market after having disposed off his earlier holding, (iii) there are no intra-day trade nor short selling, (iv) the assessee is not otherwise dealing in the business of share trading or allied activities as F&O trading. Therefore, the learned CIT(A) directed the A.O. to treat the gains from the sale of shares as STCG and allowed the appeal of the assessee.
7.3 Before us, the learned DR relies on the order of the A.O. whereas the learned counsel of the assessee relies on the order of learned CIT(A).
7.4 Having heard the rival submissions and perused the relevant material on record, we find that the assessee has not indulged in repetitive transactions. He has not re-entered the market after having disposed off his earlier holding. There are no intra-day trades, nor short selling. The number of scrips transacted is about 46 in 51 transactions. The assessee has shown similar activity in the return of income filed in earlier assessment years. In view of the above factual matrix, we uphold the order of the learned CIT(A) and dismiss the above grounds of appeal.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open Court on 28/04/2017