LUDOMILA ANTONIO M PEREIRA,THIVIM vs. INCOME TAX OFFICER, WARD - 2(2), PANAJI

IN THE INCOME TAX APPELLATE TRIBUNAL : PANAJI BENCH: GOA BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA Nos.427 & 428/PAN/2018 Assessment Years: 2009-10 & 2010-11 Ludomila Antonio M Income Tax officer, Ward- Pereira 2(2), Panaji. HN 134/3, Deus Cadeau, Vs. Auchit Waddo, Thivim, Bardez, Goa (PAN: ABAPL7447B) (Appellant) (Respondent) & ITA Nos.429 & 430/PAN/2018 Assessment Years: 2009-10 & 2010-11 Ignatius J Pereira Income Tax officer, Ward- HN 134/3, Deus Cadeau, 2(2), Panaji. Vs. Auchit Waddo, Thivim, Bardez, Goa (PAN: AEFPP1035B) (Appellant) (Respondent) Present for: Appellant by : Shri S. J. Kamat, CA Respondent by : Shri Mayur Kamble, Sr. DR Date of Hearing : 15.06.2022 Date of Pronouncement : 30.08.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: All these four appeals by the two assessees are directed against the common order of ld. CIT(A), Panaji-1, vide ITA Nos. CIT(A) Panaji- 1/10197, 10120 dated 24.05.2017 and 10198 & 10121 dated 25.05.2017 for A.Ys. 2009-10 and 2010-11 passed against the assessment order u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by ITO, Ward-2(2), Panaji all dated 29.04.2016. Since grounds are common and facts are identical, we dispose of all these four appeals by this consolidated order for the sake of

2 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 convenience by treating the appeal in ITA No. 427/PAN/2018 (Ludomila Antonio M Pereira) as the lead case and the result of which is applicable in equal force to the other appeals also.

5.1. Assessees are the owners of mining lease which is a leasehold asset. This was acquired by the assessees by way of inheritance by testamentary succession from their mother/mother in law Mrs. Francisca Sequeira i.e. succession in terms of a will left behind by Mrs. Francisca Sequeira, who expired on 06.11.2002. Mrs. Francisca Sequeira had obtained the mining permission/concession in 1951. An agreement dated 26.02.2007 was entered into between the assessees and Muktar Minerals Pvt. Ltd. (in short “M/s. MMPL”) for the transfer of

3 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 mining concession known as ‘GORDITEMBO’ situated at Netrulim Taluka in Sub-district of Sanguen, district of South Goa for which the mining concession was granted under title of concession no. 12 of 1951 dated 26.02.1951 by erstwhile Portuguese regime to Late Mrs. Francisca Sequeira. Under the said agreement, assessee and the other party agreed for the transfer of said mining concession (now deemed mining lease) for a total consideration of Rs.78,00,000/- out of which Rs.28,00,000/- had been received by the assessees up to AY 2011-12, details of which are tabulated as under:

AY Advance Amount (Rs.) 2007-08 8,00,000 2008-09 5,00,000 2009-10 7,50,000 2010-11 5,25,000 2011-12 2,25,000 Total 28,00,000

5.2. In the course of assessment proceedings, assessees submitted that they are not in the business of any mining related activity and, therefore, the aforesaid capital asset was not a business asset and hence, not shown in the Balance Sheets of the assessees which otherwise were prepared for their business of Bar and Restaurant. It was further submitted that no mining was carried out by the assessees in the said capital asset. Reference was also made to para 4 of the subject agreement to point out that it was a transfer of capital asset being mining lease/concession comprising of the exploration as well as development work, all of which are capital assets within the meaning of the Act. Thus, the assessees submitted that since the transfer based under the said agreement is not connected with the business of the assessees of running a Bar and Restaurant the same was not accounted

4 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 in the financial statements of their business run in the name of M/s. Willgill Bar & Restaurant.

5.3. It was also submitted that the agreement between the assessees and M/s. MMPL was in force and was not cancelled and also that the advance received was not forfeited during the year under consideration. Accordingly, assessees contended that no income from the capital asset was derived by them. Assessees also submitted that transfer was not completed during the year under consideration as certain payments were yet to be made in terms of the agreement referred above. Also the possession was never given to M/s. MMPL.

5.4. Assessees also submitted that advance received by them in the agreement for transfer of mining lease is not subject to section 56(2)(ix) of the Act, during the year under consideration as the said section was not on the statute book for the year under consideration.

5.5. For the advance received in AY 2007-08 of Rs. 8,00,000/- and in AY 2008-09 of Rs. 5,00,000/- it was submitted by the assessee that these were treated as income by the Ld. AO in those respective assessment years which was deleted by the Ld. CIT(A) in ITA No. 62/CIT(A)/PNJ-1/15-16 dated 14.06.2016 for AY 2007-08 and also for AY 2008-09. Assessees submitted that department had accepted the appellate orders of Ld. CIT(A) in the preceding assessment years and has not filed any appeal before the Tribunal against them. Accordingly, the issue, therefore, has attained finality. Assessee thus, submitted that rule of consistency is to be followed since treatment of advance received by the assessees spread over different assessment years is identical, there being no change in the facts and circumstances arising out of the transfer of mining lease/concession to M/s. MMPL.

5 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 5.6. On the assertions made by the assessee, Ld. AO summoned the Managing Director of M/s. MMPL Shri Shaikh Muktar u/s. 131 of the Act for the purpose of cross verifying the information who appeared personally and whose statement was recorded u/s. 131 of the Act.

5.7. From the statement reproduced in the assessment order, it is noted that Shaikh Muktar confirmed that an agreement for transfer of mining lease was entered into on 26.02.2017 for a total consideration of Rs. 78,00,000/- out of which Rs. 28,00,000/- were paid till date (details are tabulated above). In respect of the balance Rs. 50,00,000/- outstanding under the agreement, in answer to question no. 6, it was stated that the transfer of mining lease was not forthcoming due to Government policy and accordingly, the parties entered into an “Addendum to the Agreement for transfer of lease” wherein the parties agreed to alter the understanding regarding the balance payment which is noted as below:

On 25.02.2009 Rs.7.50 lakh On various dates in 10 equal instalments of Rs.75,000/- Rs.7.50 lakh On obtaining forest clearance Rs.15,00 lakh On starting production Rs.15.00 lakh On renewal of lease Rs.15.00 lakh On transfer of lease Rs.5.00 lakh

5.8. In answer to question no. 8 it was confirmed that the amount of Rs. 28 lakh paid to the two assessees is not refundable and is a loss to the company if the agreement is not fulfilled. Assessee also submitted that the amount of advance received during the year is part consideration for the sale of capital asset and there is no transfer during the said assessment year. The asset has not been transferred and the possession not given to M/s. MMPL. It was also submitted that provisions of section 51 of the Act are still in force and covers the case of the assessee. While completing the assessment, Ld. AO noted that

6 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 assessee has completed the negotiation and has arrived at an agreement and, therefore, the provisions of section 51 are not applicable. He further noted that Shaikh Muktar has confirmed that the amount of advance paid to the assessee is a loss to the company and is not refundable. Ld. AO also noted that assessee has not shown the amount of advance received in their Balance Sheets and, therefore, it should be taxed in the hands of the assessees in the respective assessment years by treating it as income. Accordingly, Ld. AO completed the assessment by apportioning 50% of Rs.7,50,000/- in the hands of the assessee and the balance 50% in the hands of the spouse of the assessee i.e. Shri Ignatius J. Pareira since assessees are governed by Portugese Civil Code u/s. 5A of the Act. Aggrieved, assessee went in appeal before the Ld. CIT(A).

5.9. Before him the submissions made were reiterated. While dealing with the issue in hand, Ld. CIT(A) in para 8 agreed with the contention of the assessee to hold that section 56(2)(ix) was not present in the statute book and, therefore, no addition can be made under this section. He further noted in para 13 that since the mining lease rights did not exist with effect from 23.11.2007, the same cannot be transferred and, therefore, the receipts in the hands of the assessee for AY 2009-10, 2010-11 and 2011-12 cannot be in respect of transfer of mining lease rights. He further noted in para 14 that once the rights do not exist, there is no necessity to reflect the same in the Balance Sheet of the business of the assessee and , therefore, to that extent the contention of the assessee is correct. However, Ld. CIT(A) sustained the addition made by the Ld. AO by holding that section 56(2) states very clearly that it is without prejudice to the generality of the provisions of sec. 56(1) and, therefore, even if the income is not listed in sec. 56(2) of

7 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 the Act, it will certainly fall u/s. 56(1) of the Act. Aggrieved, the assessee is in appeal before the Tribunal.

(i) Advance of Rs.28 lakh have been received by the assessee from M/s. MMPL under the agreement dated 26.02.2007 in respect of transfer of mining lease/concession. Both the parties have confirmed about the receipt/payment of the said advance. (ii) The total advance of Rs. 28 lakh received by the assessees is spread-over in five years from AYs 2007-08 to 2011-12 in terms of the same agreement. (iii) Out of the five years in which the advances were received for two assessment years i.e. AYs 2007-08 and 2008-09 Ld. CIT(A) has deleted the addition made in this respect by the Ld. AO. (iv) Department is not in appeal in respect of the deletion of addition made towards advances and thus, the issue had attained finality. (v) The payments mentioned in the said agreement are milestone based as confirmed by the Managing Director Shaikh Muktar of M/s. MMPL which includes payment of Rs. 5 lakh as the last payment under the agreement on the occasion of transfer of lease. (vi) The possession was not handed over by the assessee.

8 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 (vii) The impugned agreement has not been cancelled by the parties involved therein. (viii) The amount of advance received by the assessee has not been forfeited. (ix) The transfer as contemplated by the agreement has not been completed. 8.1. Before us, provisions of section 56(2)(ix) and section 51 of the Act were referred during the course of argument. Relevant portion of the same are reproduced as under:

“Section 56(2)(ix) – any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if – (a) such sum is forfeited; and (b) the negotiations do not result in transfer of such capital asset;” Section 51. Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money"received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition: Provided that where any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the total income of the assessee for any previous year in accordance with the provisions of clause (ix) of sub-section (2) of section 56, then, such sum shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.” 8.2. From the perusal of the above sections, it is noted that clause (ix) of section 56(2) of the Act has been inserted by the Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 i.e. applicable from AY 2015-16. We also note that a proviso was inserted to sec. 51 of the Act by the same Finance Act applicable from AY 2015-16. Thus, in our considered view, provisions of section 51 will govern the case before us as section 56(2)(ix) of the Act is brought on the statute book w.e.f. AY 2015-16 only.

9 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 8.3. We also note that Ld. CIT(A) has deleted a portion of total advance received by the assessees which was treated as income in AYs 2007-08 and 2008-09. Relevant finding of Ld. CIT(A) from the order of AY 2007- 08 is reproduced as under:

“I have gone through the assessment order and submission of the appellant. The appellant entered into a contract with M/s. Muktar Minerals for transfer of mining lease for a total consideration of Rs. 78 lakhs and received an advance of Rs. 8 Lakhs during the year under consideration. Till date, a total of Rs. 28.00 lakhs has been received by the appellant, however the capital asset has not been transferred. There is no dispute about these facts. During the course of reassessment proceedings, the A.O. recorded the statement of Muktar Shaikh, Director of Mis. Muktar Minerals. In this statement, Mr. Muktar stated that if the ban on mining is not removed, Rs. 28 lakhs, advance paid to the assessee would be a loss to the company, as the advance given is non-refundable. The A.O. concluded on the basis of this statement and the amended provisions of section 51 and newly inserted section 56(2)(ix), that the advance received is income of the assessee for the year under consideration. On the other hand, the appellant argued that the amendment to section 51 is effective from 01.04.2015 and the same cannot applied retrospectively i.e. on A.Y. 2007-08. He further argued that the advance received takes the shape of income only when capital asset is transferred and entire sale consideration is received. In this case, transaction has not been completed because of the ban on mining activities. However, the agreement between assessee and M/s. Muktar Minerals have not been cancelled or annulled and therefore, it can not be said that the appellant has forfeited the advance received. In my opinion also, the amendment to section 51 is not retrospective and can not be applied to A.Y. 2007-08. In this case, neither major portion of consideration has been received, nor capital asset has been transferred and therefore, the advance cannot be treated as income. The A.O. was not justified in treating the advance of Rs. 8 lakhs received during the year under consideration, as appellants income. The same is hereby deleted. Since the appellant is covered u/s. 5A of the I. T. Act this order shall be effective in the case of spouse of the appellant, Mr. Ignatius Pereira also.”

8.4. It has been submitted before us that department is not in appeal on the relief granted by the ld. CIT(A) for AYs 2007-08 and 2008-09. Considering the said facts, we note that different stand taken by the Ld. CIT(A) on the identical facts and circumstances in the present case before us by treating a part of the transaction of total advance received

10 ITA Nos.427 to 428/PAN/2018 Ludomila Antonio M. Pereira & ITA Nos. 429 to 430/PAN/2018 Ignatius J. Preira, A.Ys: 2009-10 & 2010-11 by the assessees as income, is not warranted, more particularly when the department is not in appeal on the same issue which in our considered understanding has attained finality.

8.5. Further, Ld. CIT(A) has observed that source of advance received by the assessee has not been provided which according to us is not so in the given case. Since it has been duly confirmed by Shri Shaikh Muktar of M/s. MMPL who brought it to the assessee in accordance with the terms of the agreement. Accordingly, considering the facts and circumstances of the case, relief granted in the earlier years on the part of total advance received and provisions of law, we find it proper to delete the addition made by the Ld. AO and confirmed by the Ld. CIT(A) since the assessees are covered u/s. 5A of the Act. This finding of ours shall be effective on both the assessees i.e. Shri Ignatius J. Pereira and Smt. Ludomila Antonio M Pereira. 9. In the result, all the four appeals of the assessees are allowed. Order pronounced under Rule 34(4) of the IT (AT) rules, 1963 on 30.08.2022.

Sd/- Sd/- (CHANDRA MOHAN GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30.08.2022 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent:. 3. CIT(A)-1, Panaji 4. The CIT- Panaji. 5. The DR, ITAT, Panaji Bench, Goa //True Copy// [ By Order Senior Private Secretary