S. NARENDRAKUMAR & CO.,MUMBAI vs. DCIT CIR 22(2), NAVI MUMBAI

The present appeal has been preferred by the assessee against the order dated 25.09.2012 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

The sole issue raised by the assessee through its grounds of appeal is relating to the taxability of the income gained by the assessee from transfer of the assessee‟s right in „5 office premises‟ as to whether the same are to be assessed under the head „Long Term Capital Gains‟ or as „Income from Other Sources‟. During the assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) noticed that the assessee had shown long term capital gains of Rs.38,26,076/- on transfer of rights in the five „office premises‟ bearing No.219, 220, 221, 318 & 319 in the building named „Platinum Techno Park‟, at Vashi. The AO asked the assessee to furnish the complete details in this regard. On perusal of the details, the AO observed that the assessee had agreed to purchase the above mentioned office premises for a consideration of Rs.68,64,000/- and had paid an amount of Rs.48,02,000/- as advance to the builder on 02.09.05. The assessee relied upon a provisional allotment letter dated 02.09.05 issued by the builder to the assessee in this respect. Thereafter, the builder got its building plan and specifications approved from Navi Mumbai, Municipal Corporation on 03.08.06 and thereafter issued a final allotment letter dated 04.08.06 to the assessee. The said building „Platinum Techno Park‟ was being built specifically for activities related to information technology and as the assessee was not involved in the activity related to information technology, hence, it decided to sell/transfer its rights in the above mentioned office premises. On 17.12.08, it was informed by the builder to the assessee that the builder had sold rights of the assessee for a consideration of Rs.1,18,64,000/-. The resultant surplus was offered by the assessee as long term capital gains. The AO from the above facts observed that the assessee had got final allotment of the said office premises on 04.08.06 and the rights were sold/transferred on 17.12.08 and as such the holding period of the rights was less than 36 months. The gains arising there from had to be taxed as short term capital gains. He asked the assessee to explain in this respect. The assessee furnished the necessary explanation accordingly. After considering the explanation submitted by the assessee, the AO observed that the assessee had not entered into an agreement for sale of the above mentioned office premises with the builder which can be said to have created any enforceable rights in the asset. On the date of allotment letter, the property in question was not in existence. The whole exercise was speculative in nature for making quick profits. The assessee had never taken the possession of the property. The assessee was not in the business of buying and selling of the properties also. Hence, the income earned by the assessee from the said property was not the business income of the assessee. He, therefore, taxed the income of the assessee under the head “income from other sources”. Without prejudice to the above, he held that even otherwise, if the asset is to be treated as capital asset, even then, the assessee can be said to have acquired any interest in the property only on 04.08.06 when final letter of allotment was issued to him after getting necessary approvals by the builder from the Municipal Corporation in respect of building plan and commencement certificate etc. Under such circumstances, the said right was held by the assessee for less than 36 months and the resultant gains, would, in that event, be assessable as short term capital gains. Being agreed by the order of the AO, the assessee preferred appeal before the Ld. CIT(A).

The Ld. CIT(A), after considering the submissions of the assessee observed that the allotment letter dated 02.09.05 relied upon by the assessee had a clause (3) wherein it had been mentioned as under: “3. We are not issuing this Final Allotment Letter since the plans and specification are now duly approved and we have also received Commencement Certificate No.NMMC/TPD/BP Case No.A-5298/2351/2006 dated 3rd day of August, 2006.”

The Ld. CIT(A) observed that how the above reproduced clause (3) which mentioned that „the commencement certificate date 03.08.06 has been issued‟ could find place in the allotment letter dated 02.09.05. The facts itself speak that the above stated allotment letter dated 02.09.05 was in fact written/issued back dated after the issue of commencement certificate dated 03.08.06. The Ld. CIT(A) further observed that in both the letters dated 02.09.05 and 04.08.06, nowhere, the schedule of payment was mentioned, but, it had been simply stated that the same would be decided in agreement of sale to be executed in due course. Even the above letters did not talk about total consideration for the above stated „5 offices‟ nor was any date or time limit for entering into an agreement of sale specified. There was no mention of any obligation on the part of the assessee or on the part of the builder regarding the transactions in question. The Ld. CIT(A) further observed that there was neither any registered document nor any power of attorney given by the assessee to the builder for transferring his rights in the property in question. The assessee was not the signing party in any document executed for the transfer of his right to final purchaser. The assessee simply wrote to the builder to sell the properties and pay him the surplus. No rights were transferred by the assessee either in favour of the builder or in favour of any actual purchaser of the property. The Ld. CIT(A) thereafter concluded that the first letter of 2005 was a fabricated document and no rights had passed to the assessee even vide the second allotment letter of 2006 and there was no transfer of any right as there was no mention of any obligation on the part of respective parties, consideration, schedule of payment, date of completion of building and date of handing over of the possession etc. The necessary ingredients of a valid agreement i.e. proposal, acceptance, consideration along with rights and obligations of the respective parties was missing. The Ld. CIT(A), therefore, held that whatever interest/stake was created by the assessee was sold by the builder and the surplus so earned by the assessee is to be assessed as income from other sources. Being aggrieved by the order of the Ld. CIT(A), the assessee has come in appeal before us.

We have heard the rival contentions and have also gone through the records. Before us, the assessee has made the following written submissions: “HUMBLE SUBMISSIONS OF THE APPELLANT

Apart from that the Ld. A.R. of the assessee has submitted that the amount of Rs.48,02,000/- was paid by the assessee to the builder for the purchase of above stated „5 offices‟ by way of cheque No.237626 dated 02.09.05 and the builder had issued separate receipts regarding the advance received in respect of the above stated five offices all dated 06.09.05. He has further submitted that a vested right had occurred to the assessee on the date of booking of the offices in question. The said right was sold by the assessee after 3 years; hence, the resultant gains were taxable as long term capital gains. On the other hand, the Ld. D.R. has relied upon the findings of the lower authorities.

We find that though as per the findings available on record, the amount has been paid by the assessee to the builder vide cheque dated 02.09.05 and in lieu of which the 5 receipts dated 06.09.05 were issued by the builder to the assessee. However, a perusal of the letters dated 02.09.05 and dated 04.08.06 reveals that the commencement certificate and approval of building plan was issued by the competent authority on 03.08.06. Surprisingly, the fact of above issuance of commencement certificate dated 03.08.06 finds mention in the letter dated 02.09.05 which fact itself proves that the letter dated 02.09.05 is a fabricated document which has been drafted after the issuance of commencement certificate dated 03.08.06. Hence, no reliance can be placed on the said letter. There is another peculiar fact of the case. The payment was made by the assessee vide cheque dated 02.09.05 which was transferred by way of clearing on 03.09.05 as shown by the assessee from the copy of the bank account statement, placed on record during the course of arguments, thereafter, the receipts of payment in question had been issued by the builder on 06.09.05, but, surprisingly, the allotment letter has been shown to be issued on 02.09.05 i.e. on the date of issue of cheque. If the builder could issue the allotment letter on the date of issuance of cheque, then, we could not understand, what was the hitch in issuing the receipts of payment on the said date 02.09.05 itself. The facts itself speak that when the amount was transferred in the account of the builder, only then the receipts dated 06.09.05 were issued by the builder. Under such circumstances, there arises no probability of issuing of letter of allotment on 02.09.05. Even, otherwise, the contents of the letter itself speak that the same is a fabricated one. Admittedly, no approval of building plan, necessary permissions and even commencement certificate was issued to the assessee till 03.08.06. The Municipal Corporation had issued commencement certificate and necessary approvals etc. only on 03.08.06. The so called office premises were neither in existence on 02.09.05 nor there was any likelihood of their existence on the said date as no site/building plan etc. were sanctioned by any competent authority. The work had not commenced on the said date which in fact, can be said to have commenced on 03.08.06 only. Mere making of payment by the assessee to the builder, even prior to sanction of the building plan itself, cannot be said to have yielded in a vested right in the assessee to get a property which was neither in existence at that time nor any process for construction of the same had started. Another peculiar fact of the case is that in the letters dated 02.09.05 and also in the letter dated 04.08.06 which is verbatim copy of the other, in the opening lines, it has been mentioned that the authorized user of the space allotted is “activity relating to information technology only”. Even if, we rely upon the letter dated 02.09.05, it is clear that the assessee on the date of issuance of cheque for the advance amount was made aware that the authorized user of the office premises would be only in relation to the activity of information technology and no other activity was permissible to be carried out in the said offices. The identical wording has also been mentioned in the allotted letter dated 04.08.06. The assessee, thereafter wrote a letter dated 15.11.08 to the builder that he had booked the said offices specifically for extending his business and opening of branch office in Mumbai area, however since it had been mentioned in the said letters dated 02.09.05 and 04.08.06 that the allotted space could be used for activity relating to information technology and that the assessee had no such activity, hence a request was made to the builder to sell, transfer the rights of the assessee in the said offices to other parties at the best available market price and remit the principal amount and the gains thereupon to the assessee. The builder thereafter vide letter dated 17.12.08 informed the assessee that the office premises could be sold at Rs.1,18,64,000/- to which the assessee agreed and the resultant gains were offered by the assessee as capital gains. The above facts and circumstances clearly show that the assessee had not any intention either to buy the said office premises or to get possession of the same. The assessee perhaps provided finances to the builder and in lieu of which the builder offered him resultant gains. If the assessee had no business activity in the field of information technology and there was no use of the said offices to the assessee, the reasonable presumption would be that the assessee never intended to purchase or take possession of the said offices. Moreover, neither the property was in existence on 02.09.05 nor any plan was sanctioned nor any construction had started and there was such no probability of existence of the same in near future. Under such circumstances, no vested right in the property had passed to the assessee on 02.09.05. Even there was no agreement, no conveyance deed executed between the parties for creating any right in the property in question. The rights if any in the property could be said to have accrued to the assessee only after the issuance of commencement certificate dated 04.08.06. Hence, the rights if any relating to the offices in question which were likely to be built by the builder had accrued to the assessee only on 04.08.06. However, there was no payment schedule of installments, any likely date of completion of the project or the balance consideration payable by the assessee agreed to between the parties. Even the assessee in its balance sheet, the copy of which has been furnished by the ld. AR during the course of arguments, has shown the amount paid for the purchase of the alleged office premises under the head “Loans, Advances & Deposits” not under the head “Fixed Assets” or “Investments”, which itself show that the assessee never treated the alleged rights as its capital asset.

Now coming to the sale of the said rights. The excuse given by the assessee was that since he was not involved in any activity of information technology, hence the offices be sold to the another party. As observed above, the fact that the said office premises alleged to be allotted to the assessee could be used only for activity of information technology was very much in the knowledge of the assessee on the date of making the payment i.e. on 02.09.05 and even on 04.08.06 when the subsequent allotment letter was issued. The assessee did not revert back to the builder that since he was not in the activity of information technology, hence his principal amount be refunded. The facts itself speak that the assessee had advanced the money to the builder to make quick profits either by way of interest or by way of share in the profits which the builder may gain by selling the properties. The assessee neither executed any conveyance deed nor had been consenting party to any deed for conveyance executed between the builder and the actual purchaser of the property. The possession and ownership of the offices in question always remained with the builder. The assessee had been offered the amount of interest/profit on the finances provided by the assessee to the builder. Under such circumstances, the income accrued to the assessee relating to the above transaction has rightly been assessed by the lower authorities as income from other sources. We do not find any infirmity in the order of the Ld. CIT(A) in this respect and the same is therefore upheld.

In the result, the appeal of the assessee is hereby dismissed.