DCIT - 20(1), MUMBAI vs. M/S. J.B. ENGG. WORKS, MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

This appeal has been filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-20, Mumbai {(in short Ld. CIT(A)} dated 21.03.2006, decided

2 J.B. Eng. Works against the assessment order passed by the Assessing Officer (in short ‘AO’) u/s 143(3) of the Act, for the assessment year 2003-04, on the following grounds:

“1. The learned CIT(A) has erred on facts and in law and in the circumstances of the case erred in holding that Rs. 1,50,00,000/- received on sale of land as Long Term Capital Gain without appreciating the fact that the land was never shown In Block of assets. 2. The learned CIT(A) has erred on facts and in law and in the circumstances of the case erred in holding that, Rs. 1,50,00,000/- is not assessed in the hands of the assessee as Trust has offered the same for tax, without appreciating the fact that actually it was a colourable device and trust was not having any legal right. 2.1 The learned CIT(A) has erred on facts and in law and in the circumstances of the case erred in holding that brought forward unabsorbed depreciating to be set-off against any income of the current year. 3.The appellant prays that the order of the CIT-(Appeals) on the above grounds be set aside and that of the AO be restored. 4.The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary.”

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3.1. The brief facts, as culled out from the assessment order, are that during the course of assessment proceedings it was found by the AO that main source of income of the assesseee during the year was on account of sale of factory building located at Andheri (E), Mumbai. This amount was credited to the P & L Account. However, in the computation of income filed along with return of income, the assessee showed the income as Long Term Capital Gains and offered it for taxation. The Capital Gain was shown to have arisen from sale of land. The sale consideration was declared at Rs.1,50,00,000/- and the entire amount was offered as Long Term Capital Gains. Details were called for by the Assessing Officer. In the details submitted it was brought to notice that by an Indenture dt.7.5.1972, the assessee had taken a plot of land on lease from M/s Bombay Xaverian Corporation Limited for a period of 98 years at a monthly rent of Rs. 350/- per month, and that the assessee had constructed a factory building on the land taken on lease, which it was using for the purpose of its business. It was further stated that the assessee granted a lease of the first floor of' the building that it had constructed to a Trust called the Writer Jesia Family Trust (Trust) by a Lease Deed dated 16-02-1984. The lease was initially for a period of one year but was renewable for further periods of one year at a time and the Trust continued to occupy the premises as a tenant. It was stated that the tenancy in favour of the Trust was in force in the previous year relevant to the assessment year 2003-04. In this backdrop, it was brought to notice that the assessee entered

4 J.B. Eng. Works into an Agreement with a company namely M/s Sun Pharmaceuticals Industries Ltd., to which the Trust was also a party. Pursuant to this Agreement, the assessee agreed to transfer to the said company, the factory building, which the assessee had constructed on the land as well as assigned the benefits of their lease hold interest for the unexpired period of the lease for an aggregate consideration of Rs.4,95,00,000/-. In terms of the Agreement, the assessee was obliged to hand over vacant possession of the entire building including the area in occupation of the Trust. The Trust had agreed to vacate the premises on suitable alternative accommodation being provided to them or failing which, on a payment of Rs. 1,50,00,000/-, being made. The total sales consideration of Rs.4,95,00,000/- was given the following tax treatment by the assessee in its return: a) Rs.1,50,00,000/- was taken as the sale consideration for the land and was offered as Long Term Capital Gains. b) Rs.1,50,00,000/- paid to the Trust was held as taxable in the hands of the trust. c) Rs. 1 ,95,00,00O/- was reduced from the block of assets in respect of the building. In the back ground of the above facts, the Assessing Officer found that the assessee had never shown the land in the fixed assets schedule in its books of account. In this context, it was pointed out that although the assessee has claimed only lease rights over the land, for the purpose of working of capital gains, the actual value of land has been

5 J.B. Eng. Works taken as per a valuation report. Considering all these facts and circumstances, the Assessing Officer asked the assessee to show-cause that why the entire sale consideration should not be computed as Short Term Capital Gains as per the provisions of Section 50 of the Act. In response, it was submitted by the assessee that the Section 50 is applicable only where the property transferred is depreciable asset. It was accordingly argued that land being not a depreciable asset, it cannot attract Section 50. Reliance was placed in this regard on the decision in the case of Teletube Electronics Ltd. vs. JCIT 80 ITD 251 (Delhi). Further, it was also submitted that land is a capital asset in terms of section 2(14) of the I.T. Act, 1961. In this context, placing reliance on the decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Vimal Chand Golecha 201 ITR 442, it was argued that for the purpose of section 32, building which is entitled for depreciation, would mean only the superstructure and not the land. On the question that why the land was not shown as fixed asset, it was stated that it was so because the land had been taken on lease. Elaborating further, it was submitted that what the assessee had actually sold was the factory building along with its interest in the leasehold land. It was also argued that since the factory building is a depreciable asset and the leasehold right in the land, a capital asset, separate valuation report had been obtained to apportion the composite sale consideration into consideration for factory building and consideration for leasehold rights. Placing reliance once again on the decision

6 J.B. Eng. Works of CIT vs Vimal Chand Golecha, supra, wherein it was held that if price of capital assets has been charged as one consolidated figure, the assessee is entitled to bifurcate the same and determine the nature of the capital gains viz., Short Term or Long Term independently, it was submitted that since the cost of the acquisition of leasehold right in land was Nil, the entire sale consideration apportioned towards leasehold right in land had been offered for taxation. Furthet, the decision of the Honourable Calcutta High Court in the case of CIT vs. Estate of Omprakash Jhunjhunwala 254 ITR 152 was relied upon, in support. These submissions were not accepted by the Assessing Officer. It was his view that the land had not been shown in the fixed asset schedule and that it was an integral part on which the factory building was existing. The Assessing Officer was, therefore, of the view that the entire profit arising on account of sale of Depreciable asset, i.e., the factory building on which depreciation has been claimed by the assessee is taxable u/s 50 of the I.T. Act. 1961. It was also pointed out by the Assessing Officer that the purchaser i.e. M/s Sun Pharmaceutical Industries Ltd., has also taken the entire proceeds to be arising out of purchase of building. The AO also found that the decision of Vimal Chand Golecha, supra, pertains to a case where the assessee had purchased the land in 1962 and construction of building had taken place later on. The Assessing Officer further found that the ratio of the decision in the case of CIT vs Estate of Omprakash Jhunjhunwala is not applicable to the assessee's case

7 J.B. Eng. Works since in this case the issue to be decided was whether the income ought to be taxed as income from business or capital gains. Considering all these facts and circumstances, the Assessing Officer treated the entire consideration of Rs.4,95,00,000/- as arising out of sale of factory building and held the entire sale consideration as Short Term Capital Gains in terms of Section 50(1) of the I.T. Act, 1961.

3.2. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A). In appeal, the submissions made before the Assessing Officer were reiterated. It was further submitted that when a lessee constructs a building on a leased premises there is no merger of his interest as a lessee into his interest as an owner of the building. It was submitted that in a situation like this, there are two independent interests in two different assets. Accordingly, it was submitted that leasehold interest in the land was rightly offered for tax as Long Term Capital Gains. Referring to the Assessing Officer's argument that the land was not shown in the fixed assets schedule, it was submitted that as the assessee had not paid any sum by way of premium for acquisition of land, and there was no question of reflecting the land as an asset in the balance-sheet. Reference in this regard was made to Accounting Standard- 10 which clarifies that an asset is recorded in the books when some consideration in money or monies worth has been paid for it. It was also submitted that the treatment given to the transaction in the accounts by M/s Sun

8 J.B. Eng. Works Pharmaceuticals Industries Ltd. is not determinative of the true nature of the transaction as the same has to be determined on the basis of the relevant documents.

3.3 After considering all the submissions of the assessee and observations made by the AO in the assessment order. It was held by the Ld. CIT(A) that the assessee had transferred independent interests in two different assets and therefore, capital gains arising on assignment of lease held interest in the land being a capital asset was rightly offered for tax as long term capital gain and the consideration attributable to transfer of the building was rightly offered for tax as short term capital gains. Thus the claim of the assessee was allowed by him.

3.4. Being aggrieved, the revenue filed the appeal before the Tribunal. It has been argued by Ld. Department Representative (in short DR) that only lease rent was being paid by the assessee and that land was not shown as part of the block of assets. He read relevant portion of the assessment order before us and relied upon the same.

3.5 On the other hand, Ld. Counsel of the assessee made detailed arguments in support of the order of Ld. CIT(A). Our attention has been drawn on the lease agreement entered into by the assessee as lessee, to show that period of the lease was for 98 years and therefore, in a view there was clear intention of the lesser to transfer the ownership, and that it was clear

9 J.B. Eng. Works from the perusal of this agreement that only lease rent was to be paid by the assessee, and no premium was paid and therefore, under these circumstances there was no question of showing this asset as part to block of assets, since no cost in the form of any premium was paid by the assessee to the lesser. It was further submitted that in 1974 building was constructed by the assessee. It has been further submitted that land and building were two separate assets and were sold as such by the assessee, and that different amount of consideration have been decided between the assessee and the purchaser, and therefore, these should be assessed accordingly in the hands of the assessee. In support of his arguments Ld. Counsel has placed reliance upon the judgments which have been taken note of by the Ld. CIT(A) while deciding this issue in favour of the assessee. Lastly, Ld. Counsel vehemently relied upon the detailed finding of Ld. CIT(A) and requested for upholding same.

3.6. We have heard both parties very carefully, and gone through orders of the lower authorities, as well as material placed before us for our consideration and also the judgments relied by the lower authorities while deciding this issue which were reiterated before us. It is noted that the AO's decision on the issue mainly hinges on his view that land was an integral part of the asset, on which the factory building existed. Accordingly, he held that the entire consideration was on account of sale of a depreciable asset i.e. the factory building. One further reason that prompted him to this decision was

10 J.B. Eng. Works the fact that the land was not shown in the fixed asset schedule of the balance sheet of the assessee. But, after considering the facts of the case as well as the Agreement concerned, Ld CIT(A) did not agree with the observations of the AO. He recorded detailed and well reasoned findings for determining true nature of transaction, based upon his analysis of various clauses of the said agreement as well as other facts of the case. We shall examine all these findings and analysis done by him. As per Ld CIT(A), the Agreement of sale dated 9.05.2002 clearly shows that the appellant had transferred two assets (i) the building and (ii) Lease hold rights on the land on which the building was constructed. Relevant Clause of this agreement (on page 5) laying out scope of the transaction is reproduced as under:

"The vendors have agreed to sell to the Purchaser and the Purchaser has agreed to purchase form the vendor all right, title and interest of the vendors in the said immovable property and in the said building with vacant possession of the said property and the said building including vacant possession of the said entire first floor premises occupied by the confirming Parties as the lessees/tenants thereof but subject to the said Indenture of Lease dated 7th May, 1972…"

It would be clear from the perusal of the above that the Agreement was for transfer of two assets ; (i) right, title and interest of the assessee in the said immovable property i.e. the land and (ii) right, title and interest in the said building

11 J.B. Eng. Works i.e., the factory building. There were in fact two transactions couched in this Agreement. It is further noted that this is indicated in many other parts of the Agreement also namely, on pages-8 & 9, where it has been specifically mentioned that what is being transferred includes "all that piece or parcel of land ....." and "entire commercial industrial building comprising ground plus two floors......". It has been further noted by Ld CIT(A), and shown to us also by the Ld Counsel from various pages of the Paper Book that in the application in Form No.37-I submitted by the assessee before Appropriate Authority under, Chapter-XXC of the I.T. Act, 1961 for transfer of this property, the assessee had disclosed that the property that was sought to be conveyed was the leasehold interest in the land as well as ownership interest in the building. The Appropriate authority also approved the Agreement and issued its ‘No Objection Certificate’ to the proposed transferee of assets by its order dated 12-04- 2002. On the basis of this, it was argued that the Appropriate Authority also has, therefore, recognised that the transaction in the Agreement included transfer of two independent properties. It has been noted by Ld CIT(A) that the leasehold right was originally granted to the assessee for a period of 98 years by an Indenture dated 07-05-1972 by the Bombay Xavarian Corporation Pvt. Ltd. at a monthly rent of Rs.350/-. The fact that the lease right did not merge with the factory building and remained an independent interest, is evident from the fact that this lease right continued to exist even after its transfer to M/s Sun Pharmaceuticals

12 J.B. Eng. Works Industries Ltd. In fact, by virtue of the Agreement, all obligations attached to the lease right were to be fulfilled by Sun Pharmaceuticals Ltd after the transfer. In page-9 of the Agreement, it has been clearly mentioned that the purchaser has to observe and perform all that is contained in the Indenture of Lease dated 07-05-2002. It, therefore, transpires that the lease right continues to exist even after the transfer. It never merges with the building as argued by the Assessing Officer. In addition to analysing the facts of this case, Ld CIT(A) also analysed position of law on the basis of judicial decisions. In the case of CIT vs Vimal Chand Golecha, supra, Hon'ble Rajasthan High Court has clearly held that the land is a capital asset in terms of section 2(14) of the I.T. Act, 1961 and it treated as a separate asset and that a building which is entitled for depreciation would be the super- structure and would not include the site. Similarly, in the case CIT vs. Estate of Omprakash Jhunjhunwala, supra, Hon'ble Court held that if the interest in the leasehold plot was held by an assessee for more than three years, the sale proceeds of that interest would be assessable as Long Term Capital Gains while the sale proceeds of the structure would be taxable as Short Term Capital Gains if it was sold before the expiry of three years. It is further noted that decision of the Honourable Bombay High Court in the case CIT vs City bank NA 261 ITR 570 also supports the assessee's stand. It is further noted by us that this view has been reiterated by Hon’ble Bombay High Court in the case of Hindustan Hospitals 335 ITR 60 at pages 62 and 67.

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3.7. Thus, analysis of facts of this case, when compared with the judicial position as clarified by various courts, make it clear that the assessee had transferred two rights, namely the lease right which is a capital asset and the factory building which was offered to tax in terms of section 50. In our considered view, treatment of the assets in the purchaser’s account, does not have any material bearing on taxability of the receipt in the hands of the assessee, since purchaser's treatment of the transaction in its accounts is not determinative of the true nature of the transaction. Further, with regard to contention of the AO that assessee had never shown the land in its fixed assets schedule, we find force in argument of the assessee that as it had not paid any sum by way of premium for acquisition of land, there was no question of reflecting the land as an asset in the balance- sheet. Important point to be noted is that the land was held by the assessee on lease, on payment of monthly rent. There was no purchase price paid. In the light of the above facts and circumstances, we concur with the findings of Ld CIT(A) that the assessee had transferred independent interests in two different assets and therefore the Capital Gains arising on the assignment of leasehold interest in the land being a capital asset was rightly offered for tax as Long Term Capital Gains and the consideration attributable to the transfer of the building was rightly offered for tax as Short Term Capital Gains. No interference is called for therein, and therefore same are upheld. Thus, Ground No 1 of Revenue’s appeal is dismissed.

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4.1. Brief facts as culled out from the assessment order are that during the course of assessment proceedings the AO decided the issue with reference to the question whether the payment of Rs.1,50,00,000/- is an application of income or diversion of income. In this context, he found that out of four partners in the assessee firm and out of the four trustees in the Trust, two are common. Based on this, he further found that the control of the property remains with the same person. Referring to clauses D, E & N of the Agreement for sale, the Assessing Officer doubted bonafide in the action of the firm in giving 7,500 sq.ft. area on ownership basis to the Trust. According to him, this is a dubious method developed by the assessee so that the income arising out of the sale can be transferred to the Trust and tax concessions could be availed by treating the assets as Long Term Capital Asset. According to him, this was merely an application and not diversion of income. He also found that the entire exercise was a colorable device used by the assessee to reduce tax burden. It was also his observation that in several judicial pronouncements, it has been held that when an income is

15 J.B. Eng. Works passed on to another person without an overriding legal obligation, it is merely an application of income and not diversion of' income. In this context, he was of the view that the usage of the funds of Rs.4,95,00,000/- is based on the discretion of the assessee and not an any legal obligation. It was further pointed out that the entire sale consideration given to the trust has been withdrawn by the Trustees without any amount incurred for making provision for any other accommodation for running the Trust. The AO also held that merely because the Trust had offered the income for taxation as Long Term Capital Gains, it does not mean that the amount is not taxable in the hands of the assessee. Attention was also invited to the fact that the assessee had been claiming depreciation on the entire factory building notwithstanding its claim that one floor has been used by the Trust. Reference was also made to the income and expenditure account and Balance sheet of the Trust to indicate that the Trust does not have any substantial activities. It was also observed that the assessee has paid an inflated consideration to the Trust merely to reduce the tax liability by converting the maximum gain as Long Term Capital Gains. The Assessing Officer also relied on the decisions of the Hon'ble Supreme Court in the cases of Mcdowell & Co. Ltd 154 ITR 148, CIT vs Meenakshi Mills Ltd 63 ITR 609, Workman of Associated Rubber Industry Ltd vs Associated Rubber Industry Ltd 157 ITR 77 and CIT vs Durga Prasad More 82 ITR 540 and on the decision of the Mumbai bench of ITAT in the case of Bombay Oil Industries

16 J.B. Eng. Works Ltd vs DCIT 82 ITD 626, to support his view that the transaction was a colorable device. In light of the above, the sum of Rs, 1,50,00,000/- was also held as taxable in the hands of assessee firm as arising out of sale of factory building and was reduced from the amount shown under the head buildings held by the assessee, and the resulting surplus was treated as Short Term Capital Gain.

4.2. Being aggrieved, the revenue contested the matter before Ld. CIT(A). In the first appeal before Ld CIT(A), it was submitted by the assessee that the Assessing Officer's stand that the transaction was a colorable device is neither factually correct nor justified in given facts and circumstances of the case. Attention was drawn in this context to the fact that the Trust was created in 1984 and has been accepted as genuine. It has been assessed in respect of income that it has earned from subletting the premises taken by it on lease since 1984. Attention was also drawn to the fact that initially the Department sought to assess the income earned by the Trust as the income of the assessee. This contention of the Department was rejected by the Tribunal in its order dated 23.04.1996 in ITA. No.8226-8227/Bom/92. It was also argued that the amount of consideration which has accrued to the Trust has been offered for tax as Capital Gains. As an alternative argument, it was also argued that, even assuming, if a view is taken that the entire sum of Rs.4,95,00,000/- represents the sale consideration which accrued to the assessee, in

17 J.B. Eng. Works that case also the assessee would be entitled to a deduction for the amount of Rs. 1,50,00,000/- paid by it to discharge its obligation for handing over vacant position of the building to M/s Sun Pharmaceutical Industries Ltd as an expenditure incurred wholly and exclusively in connection with the transfer. Reliance was in this regard, placed on the decision of Hon'ble Bombay high Court in the case CIT vs Shakuntala Kantilal 190 ITR 56, wherein it was held that any expenditure incurred by an assessee to effect the transfer will be expenditure incurred wholly and exclusively in connection with the transfer. Reliance was also placed on the decisions in the cases CIT vs Venkatraman 137 ITR 846 (Mad), CIT vs Naozar Chenoy 234 ITR 95 (AP), CIT vs Abrar Alvi 247 ITR 313 (Born) and CIT vs Bradfrod 261 ITR 222 (Madras), for the same proposition. In view of these submissions, it was argued that the Assessing Officer was not justified in determining the Short Term Capital Gain at Rs.3,56,00,000/-.

4.3. Before us, Ld. Departmental Representative has drawn our attention on the relevant portion of the assessment order, and argued that no activities have been done by the trust, and that the trust is nothing but family members only. It has been argued by him, in nutshell, that this was a colorable device used by the assessee to reduce its tax liability. It was requested by him that Ld. CIT(A) has wrongly deleted the addition made by the AO and therefore, his action should be reversed and addition made by the Ld. AO should be restored.

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4.4. On the other hand, Ld. Counsel has supported the order of Ld. CIT(A). It was submitted by him that in the year 1984 the lease was granted by the assessee to the family trust on yearly renewable basis. Although, the trusts, in turn, leased out the same to the third parties, but trust only used to pay lease rent to the assessee firm. It was further submitted that in 1984-85, the revenue assessed rental income of the trust in the hands of the assessee firm. This matter reached upto Tribunal, wherein action of the AO was reversed by the Hon’ble Tribunal and it was held that trust was a separate assessee, and therefore, income of the trust cannot be included in the hands of the assessee. He placed reliance of the copy of the order of the Tribunal in ITA No.8226- 8227/Bom/ dated 23rd April, 1996. Our attention was drawn on Form no. 37I filed with the appropriate authority u/s 269UC of the Income Tax 1961, being the statement of agreement for transfer of immovable property, in pursuance to rule 48 of the Income Tax Rules, wherein it was shown that impugned transferred property was encumbered in the sense that first floor of the said property was given on lease to M/s Writer Jesia Family Trust, and our attention was also drawn on Column no. 13 of Form 37I, to show that amount payable to said trust was separately year marked. Our attention was further drawn upon the indenture dated 9th May, 2002 between the assessee firm, the said trust and purchaser namely M/s. Sun Pharmaceutical Ltd., to show that trust was also made party in the said instrument. Our attention was

19 J.B. Eng. Works drawn on various of the pages of the instrument to show that this transactions was carried out subject to consent and confirmation of the aforesaid trust for which a sum of Rs. 1.50 crores was payable to the trust in capacity of confirming party. The Ld. Counsel relied upon the detailed findings of the Ld. CIT(A), as well as various cases relied upon by the Ld. CIT(A) in its order while deciding this issue in favour of the assessee. Reliance was also placed on the judgment of CIT vs Shakuntala Kantilal 190 ITR 57 (Bom), in support of the proposition that expenses incurred for transfer of property would be deductible, as an alternate claim to the assessee, on account of expenses incurred for effecting transfer of the property. Further reliance was placed on the judgment of Hon’ble Bombay High Court in the case of Abral Alibi 247 ITR 312 for the proposition that amount paid to the tenant can be deducted from the amount of sales consideration for computing taxable amount of capital gains. Lastly, it has been argued by the Ld. Counsel that amount paid to the trust by the said purchaser has been assessed as income of the trust in its hands. Our attention was drawn on the copy of the return filed by the trust showing that a sum of Rs.1.50 crores has been included by the trust in its return, which has been accepted by the revenue. In nutshell, he requested for upholding the order of Ld. CIT(A) on this issue.

4.5. We have gone through the submissions made by both the sides, the orders of lower authorities, material placed before us for our consideration as well as judgments relied upon by all

20 J.B. Eng. Works the parties. It is noted that Ld. CIT(A) has passed a detailed and well reasoned order and gave detailed findings, while allowing claim of the assessee firm. We find that he has rightly held that there were two issues which were to be examined for deciding this ground i.e. (i) whether the payment of Rs.1,50,00,000/- to the Trust was an application of income or diversion of income by overriding title, and (ii) whether the transaction was a colorable device.

In fact, these were the two premises on which the Assessing Officer has taken his decision, and both of these have been aptly dealt with by Ld CIT(A), while adjudicating first appeal, and we also deal with observations of the AO and findings of Ld CIT(A) as under:

(i) With regard to the first issue, on the basis of analysis of the Agreement of sale dated 09.05.2002, it was found by Ld CIT(A) that the payment to the Trust was a ‘diversion of income’. He made a specific reference to Clause-P of the said Agreement in which it was clearly mentioned that the purchaser had agreed to pay a sum of Rs.1.50 crores to the Confirming Parties, i.e. the Trust and that the Confirming Parties have agreed to hand over vacant and peaceful possession of the first floor premises of the building to the vendors, i.e. the assessee firm, which made it clear that right at the inception the payment was made to the Trust by M/s. Sun Pharmaceutical Industries Ltd, and that at no stage, the consideration was received or

21 J.B. Eng. Works receivable by the assessee. It is further worth noting that by virtue of this tripartite Agreement between the assessee, the Trust and M/s Sun Pharmaceutical Industries Ltd, the consideration of Rs. 1.50 crores was directly paid to the Trust for handing over vacant possession of the building to the assessee. This amount was never received by the assessee. In view of these facts and circumstances, we do not find substance in the contention of the AO that this was application of income. It has been further observed by the AO that this income was passed on to the Trust without an overriding legal obligation. This is not borne out by facts. The Agreement of sale dated 09.05.2002 was a tripartite Agreement between the three parties and this was the basis of the sale the consideration paid to the Trust and the other conditions related to it. The consideration of Rs.1.50 crores was payable to the Trust by virtue of this Agreement and, as a result it cannot be said that this was not based on any legal obligation. Thus, we find that Ld CIT(A) has rightly rejected the contentions of the AO on this issue.

(ii) With regard to the second issue i.e. whether the transaction was a colorable device or not, it was held by Ld CIT(A) that the Assessing Officer's findings in this context were based on presumptions. It was noted that in the past, the income earned by the Trust was held as the assessee’s income. However, the Hon'ble ITAT vide its order dated 23.04.1996, supra, had rejected this contention. Thus, this issue had already passed through

22 J.B. Eng. Works judicial scrutiny. In these circumstances, it cannot be held, only on the basis of presumptions, that the transaction was a colorable device. The circumstances highlighted by the Assessing Officer to show that the transaction as a colorable device cannot take precedence over earlier judicial scrutiny and a specific tripartite Agreement. Besides, the circumstances highlighted by the Assessing Officer cannot be treated as very unusual or improbable. In any case, the Trust has offered the consideration as income, in its return of income. In our opinion, Ld CIT(A) has rightly rejected the stand of the AO on this issue also.

(iii) Further, in addition to the above, there is one more angle to resolve this issue. It has been rightly argued by Ld Counsel that even if the entire sum of Rs.4,95,00,000/- is viewed as the sale consideration accruing to the assessee, deduction of Rs. 1.50 crores is available to the assessee as an expenditure incurred wholly and exclusively in connection with the transfer. The assessee’s reliance on the decision in the case of CIT vs. Shakuntala Kantilal and other cases is correct on this issue. Further reference can be made on this issue upon the judgment of Hon’ble Bombay High Court in the case of Abrar Albi 247 ITR 312, holding that expenses incurred on transfer can be deducted from the amount of sales consideration. Accordingly, from this point of view also, the issue raised by the Assessing officer is not material and inconsequential in effect, particularly when seen against the fact the trust has offered the said consideration as income.

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Thus, in view of the above discussion, we find that Ld CIT(A) has rightly held that the Assessing Officer was not justified in taxing the sum of Rs.1.50 crores in the hands of the assessee and treating it as part of short term capital gain, and therefore no interference is called for in the well reasoned and detailed findings of Ld CIT(A), and therefore these are upheld. Thus, Ground No 2 of appeal of the revenue is dismissed.

5.1. In the assessment order, the AO failed to allow set off of unabsorbed depreciation of preceding years, aggregating to Rs.5,92,524/-, against the income assessed under the head income of capital gain.

5.2. Brief facts, as culled out from the assessment order, are that in assessment proceedings, it was found that the assessee had adjusted total depreciation of Rs.5,92,524/- pertaining to assessment years 2001-02 and 2002-03 against the Capital Gains. This treatment by the assessee was rejected by the Assessing Officer on the ground that unabsorbed depreciation can be claimed only against business income and not against capital gains in terms of section 29 of the I.T. Act, 1961, which says that income referred to in section 28 shall be computed

24 J.B. Eng. Works in accordance with the provisions contained in section 30 to 43D. Reference was also made to section 32(2) of the I.T. Act, 1961 to hold that unabsorbed depreciation can be allowed only from the business income.

5.3. Being aggrieved, the revenue contested the matter before the CIT(A) wherein it was submitted that unabsorbed depreciation brought forward from earlier years should be considered as current year’s depreciation under the Income Tax Act, and thus, it should be allowed to be set-off against any income of the current year. Ld. CIT(A) considered submissions of the assessee and held that brought forward depreciation stands on the same footing as the current year’s depreciation and, therefore, unabsorbed depreciation of past years can be set-off against income chargeable under any head. Section 32(2) makes it clear. This also finds judicial support from the decision given by the Hon’ble Supreme Court in the case of CIT vs. Jaipuria China Clay Mines (P) Ltd. 59 ITR 555 and Garden Silks vs. CIT 189 ITR 512. Accordingly, Ld CIT(A) accepted submissions of the assessee and allowed this ground of appeal. We find that this issue is covered in favour of the assessee, and therefore Ld CIT(A) has rightly decided the same in favour of the assessee. Nothing wrong therein could be pointed out by Ld DR, nor found by us, and therefore the same is upheld. Thus, Ground No 3 is dismissed.

25 J.B. Eng. Works 6. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 30th October, 2015.

Sd/- Sd/- (Amit Shukla ) (Ashwani Taneja) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated 30/10/2015 ctàxÄ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai