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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Date of Hearing – 20.04.2016 Date of Order – 29.04.2016
O R D E R PER SAKTIJIT DEY, J.M.
Instant appeals of the assessee are directed against separate orders of the learned Commissioner (Appeals)–23, Mumbai, for the assessment years 2006–07 and 2007–08.
2 M/s. Raval & Company ./2011 – A.Y. 2006–07
The only issue involved in the aforesaid appeal relates to allowability of an amount of ` 1,93,58,149, while computing long term capital gain.
Brief facts are, the assessee a partnership firm filed its return of income for the year under consideration on 31st October 2006, declaring loss of ` 34,83,952. During the assessment proceedings, the Assessing Officer noticed that the assessee during the relevant previous year has sold a plot of land at Kandivali, to Puja Enterprises declaring recorded sale consideration of ` 2.65 crore. He also noticed, after claiming expenditure and benefit of indexation, assessee has shown loss of ` 24,24,284 under the head long term capital gain. On verification of material on record as well as the terms of sales agreement dated 11th August 2004, the Assessing Officer found that market value of the property as per stamp duty authorities is of ` 3,61,88,000. Since the assessee had shown sale consideration of ` 2.65 crore, the Assessing Officer called upon the assessee to explain why the value determined by the stamp duty authority should not be deemed to be the sale consideration received by the assessee in terms of section 50C. In response to the query raised by the Assessing Officer, it was submitted by the assessee that sale agreement entered
3 M/s. Raval & Company with the buyer of the property was subject to the NOC to be issued by the Collector on payment of charges / revenue. It was submitted, as the difference between the market value as determined by the stamp duty authority and the total payment made by the purchaser is approximately 10% the deal is genuine and addition may not be made. The Assessing Officer, however, did not find merit in the submissions of the assessee. Invoking the provisions of section 50C, the Assessing Officer concluded that the capital gain has to be worked out by adopting market value of ` 3,61,88,000, as determined by the stamp duty authorities. As the assessee had shown sale consideration of ` 2,65,00,000, the differential amount of ` 96,88,000, was added to the long term capital gain. Being aggrieved of such addition, the assessee preferred appeal before the learned Commissioner (Appeals).
Before the first appellate authority, it was submitted by the assessee, as per the development agreement between the assessee and Puja Enterprises, the actual sale consideration was ` 3,24,58,149, out of which as per the terms of the agreement, Puja Enterprises was required to pay an amount of ` 1,92,58,149, directly to the Collector for/on behalf of the assessee as per the order of the Collector dated 28th July 2004. It was further submitted, in addition to the amount paid by Puja Enterprises, the assessee also paid an additional amount of ` 1,25,429 to the Collector. Thus, the total payment to the Collector
4 M/s. Raval & Company was ` 1,93,58,149, which should be considered as part of the sale consideration and the amount actually received by the assessee from Puja Enterprises was ` 1,31,00,000. Therefore, it was submitted by the assessee, difference between the value adopted by the stamp duty authority at ` 3,61,88,000 and the sale consideration shown by the assessee at ` 3,24,58,149, being less than 10% of the sale consideration, no addition should have been made. The learned Commissioner (Appeals), after considering the submissions of the assessee and perusing the material on record, however, was of the view that the amount paid to the Collector towards NOC was not by the assessee but by Puja Enterprises. Therefore, it cannot be treated as a cost wholly and exclusively incurred in connection with transfer of the asset. He, therefore, upheld the action of the Assessing Officer.
Learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, out of the agreed sale consideration of ` 3,24,58,149, the vendee in terms of the agreement directly paid an amount of ` 1,92,32,720 to the Collector. In addition to the aforesaid amount, the assessee paid an amount of ` 1,25,429 to the Collector. Thus, the total amount paid to the Collector towards NOC is ` 1,93,58,149. Learned Authorised Representative submitted, since the amount paid to the Collector was part of the sale consideration, it has to be reduced while computing long term capital
5 M/s. Raval & Company gain. Learned Authorised Representative submitted, neither the Assessing Officer nor the learned Commissioner (Appeals) have examined this aspect. He submitted, assessee has moved an application for rectification under section 154 of the Act before the first appellate authority pointing out the fact that the amount paid to the Collector form part of the sale consideration the application still remains pending. Learned Authorised Representative submitted, in these circumstances, the addition made is not justified.
Learned Departmental Representative on the other hand submitted, since assessee’s application for rectification under section 154 is pending before the learned Commissioner (Appeals), the issue may be restored back to the file of the learned Commissioner (Appeals) for deciding afresh.
We have considered the submissions of the parties and perused the material available on record. As could be seen from the submissions of the learned Authorised Representative as well as facts and material brought on record, the dispute is confined to whether the amount of ` 1,93,58,149 paid to the Collector for obtaining NOC should be considered as part of sale consideration. On a perusal of the development agreement between the assessee and the Puja Enterprises, a copy of which is placed at Page–15 of the paper book, it
6 M/s. Raval & Company is noticed that the sale consideration payable to the assessee was recorded at ` 2,65,00,000. However, as per clause 10 of the development agreement, an amount of ` 1,34,00,000, was to be paid by the assessee and an amount of ` 58,32,895 by buyer. However, it is the claim of the assessee that the developer apart from paying his share of ` 58,32,720, has also paid an amount of ` 1,34,00,000 on behalf of the assessee. Thus, it is the contention of the assessee that the amount of ` 1,93,58,149, should be considered as part of sale consideration and if the actual amount of ` 1,31,00,000 received by the assessee is taken into consideration, the total sale consideration would come to ` 3,24,58,149. However, the learned Commissioner (Appeals) rejected assessee’s claim on the ground that the amount paid to the Collector was by the developer Puja Enterprises and not by the assessee. In our view, the claim of the assessee requires to be examined by analysing the terms of the development agreement as the development agreement clearly states that the assessee has to pay ` 1,34,00,000 to the Collector towards his share. In case, the developer / buyer has paid the amount to the Collector on behalf of the assessee, it should be treated as part of the sale consideration. Further, rest of the amount paid to the Collector whether constitute part of sale consideration, in our view, requires to be examined afresh. It is further noticed that the assessee has moved an application for 7 M/s. Raval & Company rectification under section 154 of the Act, as far back as 31st December 2014, which as per the statement of the learned Authorised Representative is still pending. Considering the aforesaid factual position, we are inclined to set aside the impugned order of the learned Commissioner (Appeals) and restore the matter back to her file for deciding afresh and only after due opportunity of being heard to the assessee. Ground is allowed for statistical purposes.
In the result, appeal is allowed for statistical purposes. ./2011 – A.Y. 2007–08
The only dispute in the present appeal is in respect of addition of amount of ` 65,00,000, as income from other sources instead of capital gain as claimed by the assessee. In the course of assessment proceedings, the Assessing Officer noticed that in the computation of income, assessee computed long term capital loss of ` 1,95,90,000 on account of sale reversionary rights. On a perusal of deed of conveyance dated 17th July 2006, between the assessee and Megus Estate and Hotels Pvt. Ltd., it was noticed by the Assessing Officer that the assessee has given on lease the property to one Shri Shivratan Gordhandas Mohatta, for a period of 999 years i.e., from 20th July 1951 to 19th July 2960. The Assessing Officer was of the view, the lease for a period of 999 years for all practical purposes amounts to 8 M/s. Raval & Company sale. According to him as the assessee had sold rights of the property on which it has no ownership, the income derived from transfer of reversionary right it should be treated as income from other sources. In response to the show cause notice issued by Assessing Officer assessee submitted that out of the larger piece of land which was subsequently sub–divided into 12 pieces and numbered as Plot no.1 to 12. Plot no.1 to 6 were leased out to a person for a period of 999 years from the date of lease at the lease rent of ` 2,000 per month. However, as on date, the property still stands in the name of the assessee. It was submitted, as the property was given on long term lease the assessee wanted to encash the land and interest thereof by selling the reversionary rights of plot to Megus Estate and Hotels Pvt. Ltd. It was submitted, as the purchaser got the reversionary right on “as is where is” basis and along with the terms of lease deed of the year 1951 the full right of lessee are also passed resultantly the title and ownership of the land will come back to Megus Estate and Hotels Pvt. Ltd. at the end of the term of 999 years as well as the reversionary rights are transferred to Megus Estate and Hotels Pvt. Ltd. along with the residual / unexpired lease right of the lessee. It was submitted, the assessee year after year was showing the plot of land as fixed asset and the property was also valued as on 1st April 1981 for claiming long term capital gain indexation. It was submitted,
9 M/s. Raval & Company as the lease is directly connected to land dealing and forms part of capital asset, gain derived from transfer is to be assessed as long term capital gain. The Assessing Officer after considering the submissions of the assessee, however, was of the view that as per section 269UA(f) of the Act, if the property is leased for a period of more than 12 years, then the lessee is a deemed owner of the property. Applying the aforesaid provisions, the Assessing Officer observed, as the property was leased out to the person concerned for a period of 999 years, it satisfies the criteria of deemed ownership, hence, Shri Shiv Ratanji Mohta, the lessee, was the owner and not the assessee. Therefore, under no circumstances, assessee can be treated as owner. Hence, the amount of ` 65,00,000, received by the assessee on sale of reversionary right is chargeable to tax as income from other sources. Alternatively, it was observed by the Assessing Officer that as the assessee has already leased the property for a period of 999 years, there is no question of assessee having any cost of acquisition of the reversionary right which has to be taken as nil. He opined that the contention of the assessee that the property would revert back to it after expiry of 999 years is inconceivable as there would be neither the assessee nor any of its generation to see whether the property revert back. Accordingly, he treated the amount of ` 65,00,000 received towards transfer of revisionary right as income from other sources.
10 M/s. Raval & Company Being aggrieved of the aforesaid decision of the Assessing Officer, assessee preferred appeal before the learned Commissioner (Appeals).
The first appellate authority referring to certain judicial pronouncements observed, when the lease is for a period of 999 years, it is to be called as lease in perpetuity and would amount to transfer of perpetual right in the plot of land. Therefore, for all practical purposes, the assessee would be deemed to have transferred its right over the property when entering into lease of 999 years. Hence, the assessee has no rights remaining in the land to be transferred. Therefore, lessee is the deemed owner of the property and not the assessee. Therefore, transaction cannot be treated as transfer of capital asset in terms of section 2(47) of the Act. Accordingly, he confirmed the decision of the Assessing Officer.
Learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, though, assessee has entered into a lease transaction with the lessee for a period of 999 years, but it has not parted with its ownership over the property which still remains with the assessee. Learned Authorised Representative submitted, the assessee has shown the leased assets in its Balance Sheet over the year and is also continuing to show the same till now. Therefore, it cannot be said the assessee is not the owner of the 11 M/s. Raval & Company property. Learned Authorised Representative submitted, the Assessing Officer was not correct in invoking the provisions of section 269UA(f) as it is applicable only in case of transfer as envisaged under Chapter– XX–C and not under section 2(47) of the Act. Learned Authorised Representative submitted, the learned Commissioner (Appeals) while deciding the appeal relating to imposition of penalty under section 271(1)(c) of the Act has appreciated this fact while deleting the penalty. Learned Authorised Representative further submitted, the Assessing Officer himself while completing assessment for assessment year 2004–05, has accepted assessee’s claim of capital gain in respect of similar transaction with Megus Estate and Hotels Pvt. Ltd. He, therefore, submitted, the amount of ` 65,00,000, cannot be assessed as income from other sources and should be treated as capital gain.
Learned Departmental Representative relied upon the decision of the learned Commissioner (Appeals).
We have considered the submissions of the parties and perused the material available on record. The main ground of challenge by the assessee is section 269UA(f) invoked by the Assessing Officer, to treat the lessee as deemed owner is only applicable in respect of Chapter XX–C i.e., purchase by Central Government of immovable in certain cases of transfer. As the assessee has sold the property to Megus
12 M/s. Raval & Company Estate and Hotels Pvt. Ltd., neither Chapter XX–C nor section 269UA(f) is applicable. Learned Authorised Representative has contended, reversionary rights are nothing but rights that arise in relation to a capital asset. However, as could be seen, the assessee has transferred lease hold rights of the property to the lessee in the year 1951 for a period of 999 years. Therefore, it has to be seen even after leasing out the property for such a long period whether assessee still retains its ownership right over the property. It is well known fact that right of ownership over an immovable property consists of a bundle of rights. Therefore, for ascertaining the fact whether assessee has transferred all its rights over the property to the lessee, in terms of the lease deed has to be carefully analysed. On a perusal of the assessment order as well as order of the learned Commissioner (Appeals) it is not forthcoming whether they at all have examined the terms of lease deed. Assessee has also not furnished a copy of the lease deed before us to find out the terms and conditions of lease. Even, the assessee has not furnished copy of agreement with M/s. Magas Properties and hotels in respect of the subject property. In absence of these documents, it is difficult for us to record any conclusive factual finding in respect of assessee’s ownership right over the property. Further, for proving the fact that it still retains ownership right over the property assessee is required to bring on record material / evidence to show
13 M/s. Raval & Company that the subject property continues to remain in the name of assessee in government records or at least some more evidence to conclusively prove that ownership rights of the property was completely not transferred to lessee. As these important factual aspects have not at all been examined by the Departmental Authorities, we deem it appropriate to restore the matter back to the Assessing Officer for deciding afresh after due opportunity of being heard to the assessee.
In the result, assessee’s appeals are allowed for statistical purposes. Order pronounced in the open Court on 29.04.2016