ARDIN FABRICS PVT. LTD.,MUMBAI vs. ITO - RANGE 4(1)-(3), MUMBAI

Facts in brief are that, originally the assessment was completed under section 143(3) vide order dated 31.12.2008, by assessing the long-term-capital-gain of Rs.17,82,519/- arising out of sale of a ‘Industrial Gala’ in Chandivili, Saki Naka road, Andheri (East), Mumbai shown by the assessee as short-term-capital-gain (STCG). The assessee had worked out the long-term-capital-gain in the computation of income at Rs.2,82,520/- in the following manner: B Long Term Capital Gains Sale consideration of Industrial Gala>(a) 20,70,000 Less: Indexed Cost (Total Costs Rs.910,481/-) >(b) -16,87,480 Long Term Capital Gains (a – b) 3,82,520 Less: Deduction u/s 54EC –Amount Invested Rs.550,000/- -382,520 NIL 3 अ�ण कुमार �यंथे�ट�स �ाइवेट �ल�मटेड M/s Arun Kumar Synthetics Pvt Ltd ITA No. : 7118/Mum/2013 आरडीन फब�र�स �ाइवेट �ल�मटेड Ardin Fabrics Pvt Ltd The details of payment for the acquisition of the property made to the builder was disclosed in the following manner:- 1 Initial payment at the time of Booking of the Industrial Gala 02/06/1993 4,00,000 2 2nd Payment 01/08/1993 90,000 3 3rd Payment 01/08/1994 1,00,000 4 4th Payment 01/02/1995 52,590 5 5th Payment 05/05/1995 46,000 6 6th Payment 26/08/1995 46,000 7 Final payment FY 1998-99 139,510 TOTAL 874,000 8 Municipal Tax paid directly to the 04/02/2005 Bombay Municipal Corporation 36,481 TOTAL 910,481 All these payments were also shown in the audited Balance sheets, right from financial years 1993-94 to 1998-99. The AO applied the provision of section 50C and considered the sale consideration of Rs.31,58,200/-. After objections raised by the assessee with regard to the FMV as per Stamp value, the matter was referred to the Valuation Officer who valued the property at Rs.26,93,000/-. The short-term capital gain was thus computed at Rs.17,82,519/-, that is, (26,93,000- 9,10,481). In the First Appellate Stage, the objection of short- term-capital gain stood confirmed. In the second appeal filed before the Tribunal, this issue was set aside to the file of the AO for verification and examination of the documents, mainly occupation certificate from the Bombay Municipal Corporation (BMC), dated 10.03.1998 which was a vital evidence produced before the Tribunal.

Now in pursuance of the order of the Tribunal, the AO initiated the assessment proceedings on the issue of determination of long-term-capital-gain / short-term-capital- 4 अ�ण कुमार �यंथे�ट�स �ाइवेट �ल�मटेड M/s Arun Kumar Synthetics Pvt Ltd ITA No. : 7118/Mum/2013 आरडीन फब�र�स �ाइवेट �ल�मटेड Ardin Fabrics Pvt Ltd gain. In the set aside proceedings also, the AO, completed the assessment without any change and the short-term-capital- gain has been computed at the same income. The assessee’s contention has been that the entire payment was made in the year 1998 itself and occupation certificate was also obtained from BMC on 03.08.1998, therefore, when the property was sold in the relevant financial year, that is, FY 2005-06, then it has to be treated as long-term-capital-gain. The AO’s case has been that, assessee has got the possession of the ‘Industrial Gala’ only on 01.01.2005, that is, much after the occupation certificate was issued and, therefore, it has to be treated as STCG. The relevant observation and finding of the AO have been summarized in para 8 of the assessment order, wherein he held though the property came into hand on 10.03.1998 and occupation certificate was also given, but it does not in any way change the situation in so far as the nature of capital gain is concerned, because assessee got the final possession only on 01.01.2005, when key was handed to the assessee by the builder.

Before the Ld. CIT(A), the detailed submissions were made which has been incorporated by the CIT(A) from the pages 5 to 10 of the appellate order. However, he summarily rejected assessee’s contention after observing and holding as under:- “I have considered the facts of the case and contention of the appellant. I find that the Assessing Officer’s order is perfectly in order. It is not the occupancy certificate that will decide the position of the appellant. The position of 5 अ�ण कुमार �यंथे�ट�स �ाइवेट �ल�मटेड M/s Arun Kumar Synthetics Pvt Ltd ITA No. : 7118/Mum/2013 आरडीन फब�र�स �ाइवेट �ल�मटेड Ardin Fabrics Pvt Ltd the appellant is determined from the date when it took over the property by a Registered Deed. The said date is 01/01/2005 i.e. much after the occupancy certificate was issued. Therefore, the right of ownership was acquired by the appellant is on that date. It is right of ownership that stands transferred and not the right to possession. Therefore, the right of ownership was acquired by the appellant is on that date. It is of ownership that stands transferred and not the right to possession. Therefore, I do not find any infirmity in the order of the Assessing Officer and the same is confirmed and the grounds of appeal are dismissed”.

We have heard the rival submissions and also perused the relevant finding given in the impugned order as well as material placed before us. The short issue involved is, whether the industrial gala sold by the assessee would be 7 अ�ण कुमार �यंथे�ट�स �ाइवेट �ल�मटेड M/s Arun Kumar Synthetics Pvt Ltd ITA No. : 7118/Mum/2013 आरडीन फब�र�स �ाइवेट �ल�मटेड Ardin Fabrics Pvt Ltd taxed as STCG or LTCG and then only consequent deduction under section 54EC will flow. It is an undisputed fact from the perusal of the record that, assessee had acquired the industrial gala by way of ‘registered sale agreement’ dated 27.03.1994 for a total consideration of Rs.6,90,000/-. As per the payment of demand schedule, the entire payment of Rs.8,74,000/- including the sale consideration as well as other outgoings was to be done upto financial year 1998-99. The entire payment as per the agreement was in fact made before financial year 1998-99. Occupation certificate was also issued on 10.03.1998. Thus, the property was not only complete but also occupation certificate was issued. It has been submitted by the assessee that, only for the maintenance purpose, the keys were handed over to the builder with whom the contract for maintenance was signed for the period of 3 years which later on was not renewed. When the builder was unable to cooperate with the maintenance, the keys were taken back by the assessee on 01.01.2005. On these facts, it cannot be held that the effective date of ownership and right in the property in the assessee should be reckoned from 01.01.2005, that is, when the keys were given by the builder to the assessee. In fact, when the registered sale agreement was executed on 27.03.1994, the assessee had acquired the right in the property and such right got further fortified by the fulfillment of the covenants in the agreement by making the payment as per the time schedule. This further the possession was also given by issuance of occupation certificate on 10.03.1998. Thus, in all the aspect, the assessee not only became the 8 अ�ण कुमार �यंथे�ट�स �ाइवेट �ल�मटेड M/s Arun Kumar Synthetics Pvt Ltd ITA No. : 7118/Mum/2013 आरडीन फब�र�स �ाइवेट �ल�मटेड Ardin Fabrics Pvt Ltd owner of the property but also had all the rights in the said property much prior to 01.05.2005 in fact even prior to financial year 1998-99. Mere handing over the keys by the builder to the assessee does not in any manner prejudice or jeopardized the assessee’s right in the property when the builder has received the full consideration in FY 1998-99 and handed over the property with all rights and possession and was merely caretaker of the property. Thus, on the facts of the case, we hold that the assessee not only had right in the property for more than 3 years, but also was actually owner of the property, therefore, the sale of the property in the year 2005 has to be treated as sale of long-term capital assets and gain has to be assessed as long-term-capital-gain and the computation of long-term-capital-gain as shown by the assessee has to be accepted. Once the computation of LTCG is being accepted then consequently deductions will follow. With this direction, the ground raised by the assessee is allowed.

Now we will take for AY 2006- 07, whether exactly similar ground has been raised which has been admitted by both the parties that the facts and issue are identical therefore, our finding hereinabove will apply mutatis mutandis in this appeal also. In view of our finding given above, the appeal of the assessee is thus treated as allowed.