TMI Blog2013 (11) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... ause the assessee makes some profit in a particular transaction it cannot be treated as an adventure in the nature of trade so long as the initial intention of a person was to hold the property and utilise it for a different purpose. In the peculiar circumstances of the case it can only be said that it is only a case of capital gain and not profit derived from an adventure in the nature of trade - assessee is justified in declaring the amount received from assigning its rights over the plot of land by a tripartite agreement is assessable to capital gains tax - Following decision of G. Venkataswami Naidu & Co. vs. CIT [1958 (11) TMI 5 - SUPREME Court] - Decided in favour of assessee. - ITA No.2694/Mum/2009 - - - Dated:- 26-4-2013 - D Manmohan and D Karunakara Rao, JJ. For the Appellant : Shri Yogesh A Thar For the Respondent : Shri Ashutosh Rajhans ORDER:- Per: D Manmohan: This is an appeal filed at the instance of the assessee company and it pertains to A.Y. 2005-06. 2. Assessee raised four grounds which are taken up in seriatim for the sake of convenience. 3. Vide ground No.1 assessee contends that the AO as well as the CIT(A) erred in treating the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the original intention was to utilise it for business purpose. In the instant case the assessee having entered into a tripartite agreement with CIDCO and M/s. Shreya Enterprises whereby the original lease granted by CIDCO to the assessee was transferred to the third party, the income therefrom was sought to be treated as business income by holding that the entire character of the transaction of entering into a lease with CIDCO and transferring the same to a third party by way of a tripartite agreement would amount to adventure in the nature of trade. 5. Aggrieved, assessee contended before the first appellate authority that the assessee company was allotted the plot on lease by CIDCO on 18th December, 1993 under Corporate Shifting Scheme with a specific condition that the plot must be used for construction of office building only and hence at the time of entering into an agreement and taking over possession the intention was to construct corporate office. Therefore it cannot be stated that the assessee company acquired the land for the purpose of resale. In fact the assessee company could not make use of the plot for corporate office and hence it applied to CIDCO, vide letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on user and sub-lease, letter to develop and sell the plot, letter relating to removal of pipelines, request for possession of the land, tripartite agreement for sale of the plot to M/s. Shreya Enterprises and NOC in the name of the buyer. 7. He further observed that though the assessee company claimed that its intention was to shift its business premises to the new place at Belapur the fact remains that it never shifted and in fact it never took over possession of the such plot and, on the top of it, assessee company applied to CIDCO to get permission to sell the land to third party instead of surrendering such plot of land to CIDCO. Therefore, in the opinion of the learned CIT(A), when the assessee decided not to return the plot of land to CIDCO, the intention of the assessee changes from that of use of the land for its own business to selling the rights to third party, which would reflect that the purpose was to make profit only. He, therefore, concluded that the AO was justified in holding that it was an adventure in the nature of trade and thus the income, on transfer of leasehold rights, is assessable to tax under the head Profits and Gains of Business . 8. Further aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in focus was to engage itself in the business of manufacture of cotton and yarn. Since the assessee was not in a position to make use of the lease hold plot under Corporate Shifting Scheme, it had taken benefit of the lease hold rights by entering into tripartite agreement whereby the assessee company received some money for transferring the lease hold rights to a third party. Merely because it has received some money on such transfer it cannot be treated as an adventure in the nature of trade. The learned counsel relied upon the following decisions in support of his contention that the intention at the time of purchase has to be taken as the basis to consider as to whether the transfer of lease hold rights was an activity in the nature of trade or not: - i. G. Venkataswamy Naidu Co. vs. CIT 35 ITR 594 (SC) ii. Uttam S. Arora vs. DCIT iii. Baramati Taluka Sahakari Dooth Purvatha Sangh Ltd. vs. ACIT 75 ITD 284 (Pune) iv. Smt. Narasamma vs. ACIT 75 TTJ 298 (Bang) v. CIT vs. Sushila Devi Jain vi. CIT vs. Sohan Khan Mohan Khan 304 ITR 194 (Raj) It was further contended that though the ultimate possession was handed over to the assessee recently but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtite agreement for transfer of lease hold rights to M/s. Shreya Enterprises would amount to an adventure in the nature of trade. The expression adventure in the nature of trade has come up for consideration before the Apex Court in the case of G. Venkataswami Naidu Co. vs. CIT 35 ITR 594 wherein their Lordships elaborately considered the judicial precedents to set out the principles which are necessary to appreciate as to at what stage a transaction would amount to an adventure in the nature of trade eventhough the assessee, in the normal course, is not engaged in such business. The court observed that it is impossible to evolve any formula which can be applied in determining the character of a transaction and in fact no such effort should be made to consider the issue in the backdrop of such formula. In this context the court noticed that no doubt an isolated transaction can also satisfy the description of an adventure as a transaction in the nature of trade but there is an equally well known adage that one swallow does not make a summer. Thus the court observed that ordinarily an isolated transaction cannot be the sole criterion to test as to whether it is in the nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, by any chance if the entire area constructed is not needed by the assessee, the assessee is entitled to sell only 25% of the FSI at a stipulated price. Here also the assessee is not given unfettered right to sell the built up area in the manner it likes. The lessee is not allowed to transfer or assign its rights to any other person. The assessee is duty bound to submit to the CIDCO the plan of the building intended to be erected on the land within six months from the date of agreement of lease failing which the lease amount deposited stands forfeited. Clause 3 of the agreement shows that the lessee has to complete erection of the building within four years from the date of the agreement, with a specific stipulation that time is essence of the contract and any delay would give the Corporation a right to terminate the agreement or to revoke the agreement. The land allotted is subject to the condition that it would be utilised for permissible purposes only. Though the agreement was entered into in 1993 the assessee could not make use of the plot of land for its main business activity. The assessee made its best efforts from time to time to take possession of the plot of land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 4 of his order observed that the assessee was engaged in the business of property development whereas the material facts furnished before us clearly indicate that the assessee never intended to carry on any other business, other than manufacturing of cotton, yarn, etc. Therefore, in our considered opinion the AO has committed an error in recording a finding that the assessee is engaged in the business of property development. 13. The learned CIT(A) also recorded a finding that there was a request for additional plots for development activity whereas the plea of the assessee was that there is no such request; on the contrary the assessee having not been able to utilise the plot of land, there were several reminders from CIDCO to handover the possession of the above plot allotted to the assessee and at that stage the assessee company replied that it was prepared for construction of the office building on the said plot but it could not get approval of the final plan prepared unless the plot is given. It was stated in its letter dated 07.09.1996 that the assessee company is an industrial concern carrying on textile business and it cannot afford to block its large funds for a vacant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Management Pvt. Ltd. to hold that Rule 8D, which was introduced in the year 2008 is applicable retrospectively to the preceding year and therefore directed the AO to apply Rule 8D for computing disallowance under section 14A. 16. Aggrieved, assessee is in appeal before us. The learned counsel for the assessee submitted that the Hon'ble Bombay High Court has now reversed the decision of the ITAT Special Bench, Mumbai and hence Rule 8D cannot be applied to the assessment year under consideration. He, therefore, submitted that only reasonable expenditure attributable to earning of dividend income should be disallowed. Since the learned CIT(A) applied Rule 8D, we set aside the order of the learned CIT(A) and uphold the order of the AO. In our opinion computation of disallowance under section 14A, as determined by the AO, is reasonable. 17. Vide ground No. 4 levy of interest under sections 234B and 234C of the Act is challenged. At the time of hearing the learned counsel for the assessee admitted that this is purely consequential in nature. AO is directed accordingly. 18. In the result, appeal filed by the assessee company is partly allowed. Order pronounced in the open court o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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