TMI Blog2006 (3) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year 1995-96 for a consideration of Rs. 20 lakhs. Simultaneously in this very previous year it had purchased TDR from one Shri Sadashiv Dhandu for Rs. 74,37,500. When assessee started its construction activity it estimated the cost on construction of the project at Rs. 4.75 crores approximately and it was decided that company would construct the property out of the contri-bution from the shareholders and the bank loans. However, after some time it was felt that sooner or later the borrowing from the banks would be required to be repaid, therefore, it was decided that such repayment would be made from the funds collected from its members and in lieu of that company would amend its Articles of Association, thereby authorizing a shareholder holding particular number of shares to use the premises. In this connection the assessee had amended its Articles of Association specifically Article Nos. 5, 8 and 9 to 16 and Appendix-1 of Articles of Association Accordingly it has allowed the shareholders to use the premises and filed its return of income for assessment year 2000-01 declaring a total income at Rs. 32,600 as per the audited profit and loss account. Ld. Assessing Officer was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect completion method. In that year, the company purchased land from one of its Directors, Sh. Vikas R. Oberoi for Rs. 20 lakhs and TDR for starting construction of the abovesaid project. During the course of assessment proceedings for the assessment year 1996-97, the assessee submitted, vide its letter dated 25-2-1999, that it was engaged in construction and development of real estate and the only project carried on by the assessee was in respect of the aforesaid commercial building at "Oberoi Chambers". It was also stated that the assessee had not yet completed the project and had not been able to sell a single unit therein. (4) That, during the assessment proceedings for assessment year 1998-99 also, similar averments were made by the assessee. It was also inter alia stated that, as on 31-3-1998, the said building was under construction and that the assessee had not sold any of the units therein. It was further stated that the construction of the building was completed in the financial year 1999-2000 at a total cost of about Rs. 4.80 crores. (5) That, in the return for the assessment year 1999-2000 filed on 31st December, 1999, it was inter alia stated that the proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Thus it was only during the year under consideration, when the said project was completed, that the assessee changed its stand and the method of accounting by not offering profit on the project and by transferring the property to the alleged occupants adopting a colourable device. (7) That the funds for construction of the project had been sourced from the original members/promoters/directors of the company namely Shri Ranvir V. Oberoi, Smt. Santosh R. Oberoi and Sh. Vikas R. Oberoi in the form of shareholdings and unsecured loans, secured loans of Rs. 2 crores were also taken from Karnataka Bank Ltd. for construction of the project, which nullified the contention of the assessee that the construction cost were met from the members contribution, who were the occupants of the premises, as the present occupants never contributed before the completion of the project and the total cost contributed by the present occupants was only Rs. 3,99,15,000 as against the capitalized value of Rs. 4,77,77,985. (8) That the construction of the project was started in the assessment year 1996-97, when the land and TDR was purchased. Till the end of assessment year 1999-2000, the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of the premises and doing business of construction allowed it to be occupied and used by others for their own business purposes, even though they may be shareholders, without taking any compensation, which was the declared object of the assessee-company as per its Memorandum of Association. The assessee-company had given away all its rights in the premises for exploitation by the others in violation of its object clause as declared in the Memorandum of Association. ** ** ** (18) That the value paid to the shareholders was on account of investments made by them and their beneficial rights in the assets of the assessee-company and they had, in turn, paid taxes on their respective income arising on the sale of their sales. (19) That a company is a separate and distinct legal entity from its shareholders. Sub-clause ( iii ) of section 2(31) of the Act defines, "company" as a separate taxable unit. Income of a company is, therefore, required to be computed separately and assessed in the hands of the company itself. The shareholders have no rights in the assets of the company, except when dividends are declared or when the assets of the company ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion ( i.e., Rs. 4,77,77,985) for estimating the net profits of the assessee, which worked out to Rs. 55,33,358." 3. Dissatisfied with the addition assessee carried the matter in appeal before ld. CIT(A). It has challenged the order of the Assessing Officer on the ground that Assessing Officer has no jurisdiction to frame the assessment order under section 143(3) read with section 144 because both these provisions operate in different fields and assessee has duly complied with all the notices and submitted all the required details, therefore, Assessing Officer ought to have not framed the assessment by applying section 144 of the Act. On merit it was contended that assessee has amended the Articles of Association within the parameter of law provided in the Companies Act and Assessing Officer failed to point out as to how the amendment of Articles of Association is illegal which can indicate that device adopted by the assessee is a colourable device. Ld. first appellate authority has gone through all the contentions of the assessee and briefly noticed the reasons assigned by the Assessing Officer for estimating income of assessee and rejected the contentions of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a share capital of Rs. 300. Only three persons were in the company. From the very start of the business till the completion of the project the assessee has been showing project completion method as its accounting policy for declaring the profit and, therefore, till 1998-99 it has not declared any income. If for a moment we ignore the amendment of Articles of Association then it would indicate that it was a commercial project which would have resulted income to the assessee and by amending the Articles of Association it has diverted its income, thus it is a colourable device to avoid the tax and the Assessing Officer has rightly taxed the income. 7. We heard both sides, in detail and considered the issue. There is no prohibition in the Income-tax Act for a company permitting its members on conditions and considerations agreed upon to exercise the right of de facto ownership of a property legally owned by the company. The common medium of ownership of residential apartments is co-operative societies. But there is no hitch if the same activity is carried out by a company either. Section 27 ( iii ) provides that a member of a co-operative society, company or other association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company might have analysed the existing market conditions and other financial parameters and found that it would be more appropriate and beneficial for the promoters and members of the company to retain the legal ownership of the building with the company and allot the right to use to the members. It might have been again true that by this scheme, the company and its members might have managed their financial affairs as well as tax obligations in a more fruitful manner. But nobody can stop the company from changing the strategies from time to time because it is its own domain to decide how it should proceed with a project. In the present case, the change over made by the assessee-company was strictly in accordance with law of the land. The assessee-company has amended its Articles of Association enabling it to change over within the enabling provisions of the Companies Act. The members of the company, who have let out their allotted flats have offered rental income in their hands. Whenever they sell those properties in future those allottee members are liable for capital gains, if any. The assessee-company has paid off the bank loans from the contributions received from the member ..... X X X X Extracts X X X X X X X X Extracts X X X X
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