TMI Blog1993 (6) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombaymeasuring 17,907.6 sq. mts. In part of this plot, it had its factory, where soft drinks were manufactured and on the other part, it had residential flats for its employees. The assessee-company approached the authorities for allowing it to re-develop the land measuring 13,049.45 sq. mts. and allow it to construct residential flats on it and submitted plans. The concerned authority agreed subject to the demolition of the existing structure and finally on10th June, 1981issued the commencement certificate. By this certificate, the assessee was permitted to re-develop the land and construct a total FSI of 1,82,473 sq. ft.. During the pendancy of the approval of the plans with the authorities, the appellant-company, had negotiations with M/s P.S.B. Constructions Co. Ltd. (hereinafter referred to as PSBCCL) and Mr. Yusuf Patel of M/s Mohiuddin of Patel Construction Company, for construction, for which, it had received some advance. Consequent to the authorities granting permission to construct the multi-storyed flats, the appellant-company drew up contracts on12th Aug., 1981, with PSBCCL, for allowing it to develop the land and to construct the flats thereon. According to this cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the asst. yr. 1982-83, had included the receipt of Rs. 2.32 crores under 'Other liabilities' and showed it in the balance sheet. The Revenue, on realising that, the agreements were effected during the previous year relevant to the asst. yr. 1982-83, commenced reassessment proceedings, for bringing into tax the capital gains arising on account of the above transactions on the land. 3. Shri C.S. Agarwal, the learned counsel for the appellant-company, to begin with addressed us on the reopening of the assessment. He submitted that, the adequacy of disclosure of primary information, has to be examined with reference to the original return and the details as were placed on the record of the Assessing Officer. He submitted that, the return of income required indication of various sources of income and not all of its receipts. He submitted that, the assessee could not be compelled to indicate receipts of money, which at a later point of income would get converted into income. He submitted that, the return of income as was filed by the appellant-company on3rd June, 1983, had several enclosures, viz., the annual accounts and other details, relevant for the assessment of income. He s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer', has been amended w.e.f. 1st April, 1988 to include part performance related to s. 53A of the Transfer of Property Act. He contended that the amendment as stated above, is not effective for the asst. yrs. 1982-83 and 1985-86 and, therefore, it cannot be applied. 5. He made reference to the agreement with PSBCCL (the developer), that is placed at pages 50 to 60 of paper book II and submitted that, the party is allowed to develop the land, carry out construction of multi-storeyed residential flats on an area of 1,00,000 sq. ft. and for this consideration was agreed at Rs. 300 per sq. ft., i.e., an aggregate of Rs. 3 crores. The developer was allowed to sell the 1,00,000 sq. ft. of constructed area of different flats to any one he pleases at the price that he may deem it proper. The developer was to construct the basement at an agreed rate of Rs. 125 per sq. ft., which would be exclusive property of the appellant-company. The other two parties were to pay Rs. 2.4741 crores, for the developmental work, on similar lines. He submitted that, the other party entered into separate agreements with PSBCCL, on their own and surrendered its share in favour of PSBCCL and thus, the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l question of any transfer arising on collaborations, such as the one in the instant case, had come up before the Tribunal and the conclusion was that, there was no transfer and there did not arise any capital gain. He supported his contention by referring to the orders of the Tribunal in ITA No. 3703/Del/1987, for asst. yr. 1983-84, in Smt. Radha Bai vs. ITO, Distt. V(9),New Delhidt. 7th Dec., 1987 and two, common order in ITA No. 2559/Del/1986 for asst. yr. 1983-84 in M/s Atam Prakash Sons vs. ITO D-IIID(7), New Delhi and ITA No. 2557/Del/1986 for asst. yr. 1982-83 in Om Prakash vs. ITO, Distt. IIID(3),New Delhidt.22nd Sept., 1987, copies of which orders have been provided and placed on our record. 8. He pleaded that the disclosure that is required of the assessee is of those items, which have the character of income, whether they are taxable. He contended that the details as furnished by the assessee was complete, from which it could be easily derived that there was an agreement for development of land, which might ultimately get transferred at a future point of time. He submitted that, since there was no transfer of ownership by a registered document, there did not arise an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery basis of reopening had been taken on facts and it must, therefore, be held as irregular and improper and quashed. 11. Mr. Home Rai Khan, the learned Departmental Representative submitted by referring to the reasons recorded that, the belief of income escaping assessment, had been formed as a consequence of the agreement for transfer of the land, resulting in capital gain. He submitted that, the filing of the annual accounts, that gave the details of the other liabilities, could not give any indication to any one, much less to the Assessing Officer, that, it included items of receipt, which may have some bearing as income. He contended that, disclosure of the primary facts, fully and truly, implies that, the assessee discloses all the receipt, as in the instant case, the agreements entered into, the amounts received against the agreement, explaining the nature of the agreement, giving reasons that, they are in the nature of advance only. He pleaded that, the assessee is having exclusive knowledge of all its transaction, be it business or any other and it becomes its primary duty to confront the Assessing Officer with all the facts. The examination and applying the mind on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 152 : (1979) 116 ITR 131 (SC). He raised and alternative submission that the receipt could also be treated as income from other sources, as of casual and non-recurring nature. He pleaded that the transfer though may not be of the land, it is a transfer of some rights on the land, such as carrying on construction thereon, which may not require any registration. He contended that the assessee, by means of this kind of agreements, may not transfer the land at all and thus the amounts received, may never get taxed. He accordingly contended that, the proper view in the matter is that, there did arise income from transfer of capital asset, resulting in capital gain. 12. Shri Agarwal took a strong objection to the alternative submission raised by the Departmental Representative because, it was never the case of the Assessing Officer. He submitted that, at this late stage of second appeal, the Department could not be allowed to make a totally new case and he supported his objection by placing reliance on the ratio laid down by the Delhi High Court in CIT vs. Anand Prakash Ors. (1981) 128 ITR 388 (Del). 13. The contentions of both the parties on the reopening and on the merits have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed factors, had resulted in the escapement of income of Rs. 3,27,94,867. It is in this connection, the details of other liabilities as are stated to have been furnished, during the original assessment proceedings, need to be examined, for answering the following questions. One, whether they are sufficient disclosure, from which it could be gathered, as to the nature of the transaction, and two, whether, any opinion was possible as to the resultant feature of there arising any income that would get attracted to taxation. The Departmental Representative Mr. Rai Khan had not objected to the claim of the appellant company, that it had placed the details of other liabilities, giving the narration as had been brought out in the earlier paragraphs. Accordingly, we proceed on the basis that these were on record and limit our findings to, whether they are sufficient for drawing up of a conclusion as to the nature of the transaction. The transaction or remark as is contained in the detail of other liabilities, are reproduced hereunder once again for facility: "the above amount and Rs. 20 lakhs received from PCC by way of earnest money under an agreement to sell dt.12th Aug., 1981. Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Spg. Wvg. Mills, it is clearly a case of the third stage not having been reached at all. The prescribed form of return of income, does not contain any column for making disclosure of transactions, that do not result in any income, whether taxable or exempt or that would become taxable at a future point of time. The Supreme Court in Indo-Aden Salt Mfg. Trading Co. Pvt. Ltd., was concerned with the situation of disclosure from the point of view of works, where the assessee, did not either file the detailed break up of the cost of construction on earth work, masonry work or filed the valuation report. In the instant case, the assessee had provided the break up of the other liabilities, giving narration against each item, which gives information to the effect that, consequent upon an agreement to sell land, the assessee had received as advance from the parties, together with the information that registration has not been yet effected. Therefore, the ratio of the Supreme Court in Indo-Aden Salt Mfg. Trading Co. Pvt. Ltd. relied by the Department would not be applicable to the facts of the present case before us. The non-filing of the agreement to sell, would not deter the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to a colossal figure of Rs. 5.43 crores in a later year. It is this receipt, which is in question, as to whether it results in any capital gains and thus attracting capital gains tax or not. 18. It is well known that, the provisions of capital gains tax are directly related to the satisfaction of the provisions contained in s. 2(47) of the Act, which had defined the meaning of the term 'transfer', with reference to capital assets. Sec. 2(47) of the IT Act provides "transfer, in relation to the capital asset, includes sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law". The land in question, is a capital asset and this fact is not in dispute. There is no sale, exchange, or relinquishment of the asset because, for all these, there must be a contract between the two parties, for sale, exchange or relinquishment of the asset, which in the instant case is absent. In so far as the extinguishment of any rights therein, this is as a consequence of an external act of law, or natural calamity, or other factors, without any action on the part of the owner. The ownership rights of the land is a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the nature of receipt of Rs. 20 lakhs. In this case, the assessee went on declaring the land as her wealth. The Tribunal had held that, no capital gains tax was leviable, because, there was no transfer of the land. The Tribunal had observed that "the assessee had no role whatsoever to play in the development of the land or the construction of the flats. The agreement in question represented an agreement to sell, executed in respect of the plot in question, the gain wherefrom could be liable to capital gains tax only in the year in which a transfer or transfers within the meaning of s. 2(47) of the Act took place". In the second case, the co-owners of a landed property in a prime location, initially made an agreement to sell the land, but, subsequently converted it into a collaboration agreement with a builder and promoter. The builder were to provide co-owners 6,000 sq. ft. 4,000 sq. ft. of constructed area and three garages in the multi-storeyed building, to be constructed at its own cost and another sum of Rs. 7.50 lakhs as security. The question that was raised in this case was whether, there was any barter of receipt of constructed area for permission to construct on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y sort of the land, the receipt of Rs. 2.32 crores, in the asst. yr. 1982-83, could not be brought to tax as income from capital gains. The addition is accordingly quashed. Asst. yr. 1982-83 Appeal by the Department 21. The Revenue has challenged the allowing of depreciation at hundred per cent on bottles, wooden shells, treating them as plants. This issue has been cropping up year after year, and the Tribunal had consistently taken the view in the case of the assessee that, bottles and shells are plants and since each bottle, shell are plants themselves, and their individual value being meagre, they were allowed depreciation at hundred per cent of their cost. Respectfully following the earlier decisions, we uphold the order of CIT(A). 22. The Revenue also has challenged the allowing of deduction of payment of commission to wholesalers by excluding it from the connotation of sales promotion expenditure. The finding of the CIT(A) was that the wholesalers were allowed discount on their purchase price, based on the quantity lifted by them and, therefore, not in the nature of sales promotion. Since the bulk discount is allowed, only when a particular quantity is lifted and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, when it was not taxable as income of that assessment year, it could not be taxed. The concept of income, clearly implies that, unless, the item in question bears the character of income and that too for a particular assessment year, it could not be brought to tax, because, it travels right to the root of the matter, i.e., the statutory sanction for taxation. The Supreme Court had held in CIT vs. India Discount Co. Ltd. (1970) 75 ITR 191 (SC), that, a receipt which in law cannot be regarded as income cannot become so merely because the assessee erroneously credited it to the profit and loss account. Therefore, the Department cannot capitalise on the wrong committed by the assessee, since the amount received does not bear the character of income, because, to get the colour of income, the land in question must have undergone a transaction, which could be classified as a transfer within the meaning of s. 2(47) of the Act. We accordingly quash the inclusion of the income from capital gain of Rs. 3.12 crores. 25. The disallowance of unpaid sales-tax by applying the provisions of s. 43B of the Act, has been challenged by the assessee, by the contention that, jurisdiction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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