9911796707
TMI Blog2010 (5) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... period from 1979 to 1984. It has constructed a commercial complex known as "Al Karim Trade Centre" at M. G. Road, Ranigunj, Secunderabad and has sold the flats/shops/floor spaces, etc. In response to the notices of hearing issued under sections 143(2) and 142(1) of the Income-tax Act, the counsel appeared and filed details called for from time to time. Mr. Syed Ghousuddin, who is supposed to be assisting the assessee-firm, and its auditor in their accounts, was present during the course of hearings. The managing partner of the firm, Sri Ghiasuddin Babukhan on oath stated that Mr. Syed Ghousuddin has prepared the profit and loss account and balance-sheet of the relevant previous year, Mr. Ghousuddin also gave statement on oath. Copies of these statements were made available to the assessee-firm. There was a search and seizure operation under section 132 of the Income-tax Act (for short "the Act"), in the case of the assessee-firm, and its partners. The seized books of account were examined and the assessee was allowed to take extracts of the seized papers, which would find mention later in this order. After examining the evidence and details furnished and evidence produced, and afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karim Trade Centre" is completed and a few portions are remaining to be registered in the name of the purchasers, which are likely to be over by March 31, 1986, and the balancing profit or loss, if any, is worked out in the assessment year 1986-87. If not, they have to wait till June 30, 1987, to file return for declaring profit and loss of the firm for the period ending December 31, 1986, if not changed. Accordingly, the assessee-firm has requested for change of previous year from December 31, 1985 to March 31, 1986. However, the request for change of the accounting year has not been acceded to by the Department. By another letter dated January 4, 1986, the assessee firm has stated that they can register some of the unsold portion before March, 1986, and complete account can be drawn up for the assessment year 1986-87 and the venture can be closed if the change of the previous year from 31st December to 31st March is allowed as requested by them. These two letters show that the venture was completed by March 31, 1986, itself and only a few portions remained to be sold as on that date. As on December 31, 1986, i.e., at the end of the accounting year, relevant for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable under the Act cannot be deduced therefrom. Hence, the provisions of section 145(1) applied basing on the books of account and the evidence available for computation. 9. The assessee-firm is engaged in the construction and sale of flats and it is seen that all the shops/flats/floor spaces are generally sold only for commercial purposes. As the assessee-firm does not maintain records to show the stage or the extent to which the construction work is completed, the construction account and the anticipated profit shown by the assessee- firm have been accepted up to the assessment year 1985-86. But the position is different for the assessment years 1986-87 and 1987-88. In this connection, it would be appropriate to refer to the Accounting Standard AS-7 published by the Institute of Chartered Accountants of India in 1985 describing the accounting for construction contracts. This accounting standard applies for construction contracts undertaken by the contractors, where, the contractor undertakes to do a specific construction work for others on specified terms and conditions. In the case of the assessee-firm, the assessee-firm does a construction work for itself. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived in full for portion 703 and for portion 23-A out of the total consideration of Rs.45,700 receivable (for 235.6 sq ft), Rs. 47,000 was received before December 31, 1986. Therefore, the business activity, i.e., the construction and sale of flats of the assessee firm is completed by December 31, 1986, or it can be definitely said that the contract is substantially completed and the revenue from the business activity should be recognized in the accounting year ended on December 31, 1986, by applying either of the methods, i.e, percentage completion method or completed contract method, as the assessee has completed 99.5 per cent. approximately of its business activity as discussed. The assessee has, thus not only received the income but the income also accrued to the assessee-firm in respect of all the flats sold by December 31, 1986. 14. In the assessee's case, application of either of the above methods of recognizing the revenue will give the same result because 99.5 per cent. completion can also be considered as substantial completion. Hence, the income from the sale of flats up to the end of the accounting year 31st Decembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm for the period January 1, 1985, to November 30, 1985, was computed at Rs. 11,78,283. At page 9, the income for the purpose of advance tax estimate for the accounting year 1985-86 was shown at Rs. 7 lakhs and in fact, an advance tax estimate was filed for the assessment year 1987-88 on September 15, 1986, showing income at Rs. 7 lakhs. This also conforms to the earlier two letters of the assessee dated December 26, 1985, and January 4, 1986 wherein it was mentioned that the project would be completed by March 31, 1986, and the accounts would be drawn up. 18. The above method of computation and the reasons discussed for the same were communicated to the assessee by this office letter dated November 7, 1988, and the assessee was asked to furnish objections for the same. The assessee has furnished its objections by its letter dated Decem- ber 5, 1988. 19. It was claimed that the method of accounting is regularly employed by the assessee-firm. There is no change and the true profits have been and can be deduced therefrom. But the firm wanted to know whether the provisions of section 145(1) or section 145(2) are being invoked. But i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir purchasers, and the situation is the same as on the date of letter also, i.e., December 5, 1988. The assessee-firm was asked to furnish evidence in sup- port of the claim for the deviations made and the alleged demand for refund of amounts from the purchasers, etc., and the assessee-firm has furnished a reply dated January 6, 1989. 20. However, rejecting these objections, it was treated that the assessee's contention that the true profits can be deduced from the method of accounting has no relevance because every year the income is shown by estimating the anticipated profit. However, in the year of completion of the venture the method should be different, i.e., the total income from the venture should be computed by taking the total sale consideration received and deducing therefrom the total cost of the construction plus anticipated profit shown as work-in-progress in the accounts. Hence, section 145(1) is applicable and the income can be determined in a rational manner. 21. The assessee's explanation that they have filed advance tax estimate in anticipation that all the portions were sold by March 31, 1986, and that due to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from house property.-The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be charge- able to income-tax under the head ' Income from house property' . 24. On the reading of the above provision the question revolves as to the incidence of ownership and the income arising therefrom. Though, in the normal parlance, the right, title and ownership are synonymous, however, simultaneously it does involve or simultaneously run with other interests, which, however, do not have any botheration for considering the present situation. It is now well established that in respect of assets movable or immovable there can be association of varied rights incomplete or inchoate, yet it does not take away the incidence of complete ownership or rights. 25. In this connection, the parties relied upon the decision of the Supreme Court in CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore we conclude, we may mention that, during the course of the hearing, we suggested to the standing counsel for the Department that the Central Board should consider various practical aspects of this problem and formulate guidelines which would be equitable to the various classes of persons concerned. Perhaps, as suggested by this court in CIT v. Hans Raj Gupta [1982] 137 ITR 195 (Delhi), the time has even come for legislative amendment, if necessary, possibly with retrospective effect. Serious consideration at the highest administrative level was warranted in view of the recurrent nature of the problem, its magnitude and the conflict of judicial decisions. However, after taking sufficiently long adjournments, counsel informed us that no decision could be taken by the Board and requested that we should decide the reference. We have, therefore, proceeded to do so. May be this is one of the reasons for Parliament to bring in the amendment referred to above to section 27 of the Act. At any rate the admitted position when the amendment was brought in, was that there was divergence of opinion between the High Courts on the issue at hand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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