TMI Blog1994 (10) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year was under two heads, viz. business loss and the profit under the head capital gains. The net taxable income worked out by the assessee-firm was at Rs. 26,16,299. 4. Before the Assessing Officer, two questions were raised for his consideration : "(i) Whether the assessee's claim that the land in question disposed of by the assessee is a capital asset and not a business asset, i.e., stock in trade? (ii) If the answer to Issue No. 1 is in the affirmative (it is the capital asset), then whether the assessee could bifurcate this sale consideration In respect of the capital asset into two parts--one in the nature of a capital receipt and the other in the nature of business receipts, thereby claiming deduction under section 48(2) and also business loss?" 5. The Assessing Officer treated the entire receipt as a one composite receipt in respect of transfer of capital asset. Being aggrieved, the assessee preferred appeal before the CIT (Appeals). The CIT (Appeals) examined the nature of right in property by applying the various legal tenets and found that the receipt in question cannot be construed to be a "capital receipt", since it is not emanating out of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Shroff, Miss Swati Shri Palraballa, the learned counsels for the assessee appeared before us. Relevant documents and papers were filed at the time of hearing. It was submitted by Shri Harish that the assessee had acquired certain rights including the right to obtain conveyance, subject to the proceedings under various laws and these rights were confirmed and acted upon by the BMRDA and other authorities. Our attention was invited on agreement dated 18-1-1964. It was contended that by virtue of this agreement, the assessee acquired right to execute conveyance. This right ,was stated to be of the nature of capital asset. To support this contention, Shri Harish relied on the ratio laid down in the case of CIT v. Tata Services Ltd. [1980] 122 ITR 594 (Bom.). It was further stated that the agreement was made perfectly in con sonance with the canons of law and there is absolutely no illegality as to it. It was stated that the Bombay High Court was held in the case of Gopal C. Shamia v. CIT [1994] 116 CTR 377 that when a property is subject to the acquisition proceedings the consideration received on the acquisition is to be taxed under the head 'capital gains'. 10. Assuming, withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of MTNL as Transferee. Shri C.B. Sharma by letter dated 15-8-1988, addressed to the assessee renewed the original agreement dated 28-1-1984 and confirmed that the assessee was entitled to the rights and benefits arising under the said tripartite agreement and that thereafter an agreement dated 6-3-1989 was entered into and the assessee and Shri C. B. Sharma have handed over to MTNL the possession of the land. The assessee was not released from its liabilities for development of infrastructure. 13. The learned counsel submitted that it is apparent from the perusal of the agreement dated 6-3-1989 and the Lease Deed dated 27-4-1989 that BMRDA was fully aware of all the facts. BMRDA was the authority to administer the law under the BMRD Act and ULCR Act. It has not taken into account any illegality in the transaction. No adverse comments were made. It recognizes the status of the assessee. The assessee was held to be entitled for the consideration. Therefore, the legal rights of the assessee were duly recognized by the authorities in question. In these circumstances no question can be raised as to the validity of the agreement dated 28-1-1984. 14. The learned counsel place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he development work began thereafter. The expenditure incurred was not for improvement of the asset but for the work to be done after the date of transfer. Shri Harish also relied on the decision of the Tribunal rendered in the case of Bombay Dyeing Mfg. Co. Ltd. [ ] 3 ITD 512 (sic), a copy of which was given at page 246 of the paper book. 17. Without prejudice to the aforesaid contention, Shri Harish submitted that the CIT (Appeals) has erred in questioning the justification and the validity of the expenses of Rs. 47,28,554 claimed by the assessee. The CIT (Appeals) held that these expenses need not be fully allowed. The assessee furnished the details of the expenditure. These were incurred on construction, security, etc. The CIT (Appeals) observed that these expenses, prima facie, not admissible because these were not incurred during the relevant accounting year. There is nothing in record to show that liability for incurring such expenditure arose during the relevant period. According to Shri Harish, the CIT (Appeals) should have accepted this expenditure as cost of the improvement of asset. 18. Shri Tilakchand, learned Senior Departmental Representative and Shri D.K. Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all continue to be contributed by the partners according to the requirements of the partnership business in such proportion as may be mutually agreed upon by and between the partners from time to time. 19. Coming to the aspect of capital contribution, it was pointed out that none of the partner introduced any capital in the beginning. As per balance sheet dated 30-6-1984, a sum of Rs. 11 lacs was advanced to Shri C.B. Sharma. This was reflected in the balance sheet with narration towards the purchase of property. In the liability side two loan accounts appear which are as under: Rs. 1. Hiranandani Builders ... 9,00,000 2. Apex Constructions ... 2,00,000 ------------------------ Total ... 11,00,000 ------------------------ 20. Transfer in respect of the said property was not possible. Attention was invited on the provisions of Urban Land Ceiling Act, BMRD Act. Legally, it was not possible to acquire the ownership right or any ancillary right connected with the ownership of the property. The assessee was appointed to develop the property. His status was akin to that of a licencee. He was allowed right to possession for developing the property only. The learned Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome valuable rights in the property were alienated to the assessee-firm. The mere fact that the property was acquired by the Government is not enough to put a total clog on the rights of the transferor. In order to effect a transfer of capital asset under the Income-tax Act, 1961, it is not necessary that only the ownership rights be transferred. The connotation of the words 'capital asset' is wide enough to include within its ambit, possessory rights and other residuary rights also which Shri Sharma transferred to the assessee. These rights were acquired for a consideration. Assessee bifurcated the nature of rights. Some were connected with the capital asset. Others were in relation to the business activities. These activities include development work on the said property. 24. Apparently, notification apropos the acquisition put a clog on the rights of Shri Sharma. There was a legal mandate as to the transfer of rights. In jurisprudence the ownership is understood as right over a determinate thing indefinite in point of user, unlimited point of duration and unrestricted in point and disposition. There are certain other rights also which in legal parlance are known by the name--' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. The very fact that partnership was formed goes to show that partners had intent to carry business. In business, firm can no doubt hold capital asset. We now propose to discuss the meaning of word 'capital asset'. Section 2(14) defines 'capital asset' as under: "Capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include-- (i) any stock-in-trade consumable stores or raw-materials held for the purpose of his business or profession; (ii) ..................... " 26. The property is a bundle of rights which the owner can lawfully exercise to the exclusion of all others. He is entitled to use and enjoy it as he pleases provided he does not infringe any law of the State. In its normal connotation "property" means the highest right a man have to anything, being that right which one has to lands or tenements, goods or chattels which does not depend on another's courtesy; it includes ownership, estates and interests in corporeal things and also rights such as trade-marks, copy-rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down in the lease deed. Therefore, the only thing possible for Shri Sharma was to transfer the right to develop the said land which he did. Vide the Sale Agreement dated 6-3-1989 between the assessee, Shri Sharma, BMRDA and MTNL, the rights in the said property were transferred by the assessee to MTNL for a total consideration of Rs. 1,300 per sq. metre as fixed by the Director of Town Planning, Government of Maharashtra. As a result thereof, the assessee received Rs. 4,66,56,233 from MTNL. 27. In the case of J. Dalmia it was held that the right to acquire an agreement to sell is not a proprietary right and hence, it is not a capital asset. Consequently, the receipts attributable to such right is not assessable to capital asset. This decision was followed by the Delhi High Court in the case of R. Dalmia . 28. In the present case, we find that the assessee got the right only to develop the property. The other rights, such as right to possession, etc., were all incidental, and object of the conferment of those rights were to facilitate the performance of developmental activities. Only right to develop the property gets due cognizance in the agreement by virtue of which asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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