TMI Blog2008 (7) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... by Rs. 1,31,73,537." Mr. H. P. Mahajani, learned counsel appeared for the assessee and Smt. Amrita Misra, Departmental representative appeared for the Revenue and put forward their contentions. The only issue raised in the present appeal is against the treatment of long-term capital gains of Rs. 1,31,73,537. The brief facts of the case are that in the return of income filed by the assessee, it had offered for taxation a sum of Rs. 1,48,05,537 under the head "Long-term capital gains" on transfer of leasehold rights. During the course of assessment proceedings, the assessee vide its letter dated February 28, 2004, sought to exclude or withdraw the long-term capital gains to the extent of Rs, 1,31,73,537 being the capital gains in respect of the transfer of leasehold right which had subsequently been abrogated. During the year under consideration, the assessee had transferred leasehold rights in 1000 sq. meter of area to M/s. Micromatic Machine Tools Pvt. Ltd. for a consideration of Rs. 18,35,000 after adjustment of indexed cost of acquisition. The said transfer resulted in capital gains of Rs. 16,32,000 which was offered for taxation in the return of income filed. The assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act read with section 53A of the Transfer of Property Act has already taken place as in covenants of the agreement between the assessee and its sister-concern certain advance payments towards consideration has been received and being an associate concern the transferee was already in occupation of the subject property and in view thereof the assessee` s claim that the said long-term capital gain to be not considered as part of income was rejected. The assessee further submitted before the Assessing Officer that the transferee had to make the payment within a period of 3 years from the date of agreement and in the event of non-payment of the balance consideration within the stipulated time, the transferor reserve the right to terminate the memorandum of understanding. As the full payment being the consideration for the sale of the plot was not received from the transferee, the assessee sought to claim before the Assessing Officer during the assessment proceedings that no capital gain had arisen in the above transaction. This plea of the assessee was rejected. Page No: 0402 Before the Commissioner of Income-tax (Appeals) it was contended by the assessee that the memor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement with various parties in respect of the same land which is sought to be assigned to its sister concern. The assessee further stated that the assessee had not offered any capital gains in respect of the above said transactions in the subsequent years as the same had already been offered for the assessment year 2001-02. The amount received from the parties against booking of 24 flats has been shown to have been received on behalf of the Page No: 0403 sister concern in its books of account. It was further explained by the learned authorised representative for the assessee that in the year 2001-02, the assessee-company had shown its sister concern as debtor for the amount to be received from it and the amount received in respect of this reassignment had been adjusted from the above debtors outstanding. Similarly, in the books of sister-concern the value of the above assignment right has been shown as acquisition of leasehold right in land as a current asset and the assessee had been shown as a sundry creditor in respect of the amount to be paid and the amount has been received from the various buyers, the liability of the assessee-company in the books of its sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also receipt of balance consideration is also provided in both the memorandum of understandings. The Commissioner of Income-tax (Appeals) further observed that " inspite of the above conditions, the assessee has considered the transfer in respect of the above leasehold right in the assessment year 2001-02 and original return has been filed. It may be noted that payment to MIDC has been made on June 19, 2001, by the Micromatic Indian Tools Pvt. Ltd. and the balance consideration has also been paid after March 31, 2001. As already mentioned payment to MIDC by way of transfer fees/differential premium is required to be paid by the purchaser only. Accordingly, it may be seen that as per the MOU, the assignor has assigned the right over this lease land to the assignee in the year itself and the capital gain has arose in this year itself in respect of both the MOU entered by the appellant. The above is also fortified from the development subsequent to the date of entering MOU and the various entries passed in the books of account of the appellant as well as its sister concern" . The Commissioner of Income-tax (Appeals) further observed that the permission in respect of sub-division of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orandum of understanding. On March 31, 2004, the assessee has received Rs. 1,37,01,924 from the 24 parties which has been accounted for as received on account of amount due from the sister concern. The Commissioner of Income-tax (Appeals) thus held that the subsequent assignment of 24 plots is on behalf of its sister concern and the above assignment has no bearing to the chargeability of capital gain in respect of the first assignment done as per the memorandum of understanding entered on February 26, 2001. The Commissioner of Income-tax (Appeals) in deciding the issue of year of chargeability observed that from the perusal of accounts it transpires that as on March 31, 2001, the land cost in respect of the plot of land which was assigned to the two concerns had been reduced from the block of assets. Similarly, the further assignment had been entered with the full understanding and knowledge of the sister concern and the same cannot be done unless the possession is with the sister concern. The Commissioner of Income-tax (Appeals) thus held that considering the facts that the reassignment has been done on behalf of the sister concern for which both the parties have agreed and the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is factually incorrect statement that the possession was given to M/s. Sky Blue Trading and Investment Pvt. Ltd. in line with the agreement dated February 26, 2001. Our attention was drawn to the application dated December 26, 2000 made before the MIDC for sub-dividing the plot and the approval granted on May 2, 2001, for the said sub-dividing. The learned authorised representative further drew our attention to the terms and conditions of the memorandum of understanding entered into on February 26, 2001, by the assessee with M/s. Sky Blue Trading and Investment Pvt. Ltd. and on March 26, 2001, with M/s. Micromatic Machine Tools Pvt. Ltd., copies of which are filed at pages 39 to 46 of the paper book. The learned authorised representative further submitted that for the transfer of plot in question to M/s. Sky Blue Trading and Investment Pvt. Ltd. no application whatsoever was made to MIDC and the purchaser i.e., M/s. Sky Blue Trading and Investment Pvt. Ltd. was required to move the said application to MIDC. Page No: 0407 The learned authorised representative further clarified that the total area available with the assessee is 38,573 sq. meters, out of which it is agreed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an understanding that the said plot transfer to M/s. Sky Blue Trading and Investment Pvt. Ltd. is further reassigned to 24 different parties on sub\x7f division of the plot. We have heard the rival submissions and perused the records. During the year under consideration, the assessee has entered into two separate Page No: 0408 memorandum of understanding, i.e., dated February 26, 2001, with M/s. Sky Blue Trading and Investment Pvt. Ltd. and the other dated March 26, 2001, with M/s. Micromatic Machine Tools Pvt. Ltd. The copies of memorandum of understanding dated February 26, 2001, is enclosed at pages 39 to 42 of the paper book and the copy of memorandum of understanding dated February 26, 2001, enclosed at pages 43 to 46 of the paper book. The perusal of the two memorandum of understanding reveals that the same covenants have been agreed upon between the parties, in respect of transfer of leasehold rights in the land i.e., approx. 8072 sq. meters to M/s. Sky Blue Trading and Investment Pvt. Ltd. and approx. 999.96 sq. meters to M/s. Micromatic Machine Tools Pvt. Ltd. Both the agreements provided that the assessee has been granted the leasehold rights as per lease deed dated F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is enclosed at pages 49 and 50 of the paper book. MIDC vide its letter dated May 2, 2001 had allowed sub-division of plots into 18 sub-plots which was later to be sub-divided to 24 plots. Copy of the said sanctioned letter is enclosed at page 51 of the paper book. As per the memorandum of understanding entered into between the assessee and M/s. Sky Blue Trading and Investment Pvt. Ltd. the total consideration to be received was Rs. 1,48,12,157. The assessee further claims to have entered into separate memorandum of understandings with 24 parties ranging from July 23, 2001 to March 10, 2003, for different considerations as enumerated at page 124 of the paper book. The total amount to be received on reassignment of the leasehold rights to different parties on account of 24 plots was agreed to be Rs. 1,46,80,958. The assessee has received advances starting from the year 2001-02 and also in the years 2002-03 and 2003-04. The respective advances received on reassignment of leasehold rights in the said sub-plots of land has on its receipt been debited to the account of M/s. Sky Blue Trading and Investment Pvt. Ltd. in the books of account of the assessee in which the amount due from M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the date of memorandum of understanding or on the date of receipt of approval of MIDC, whichever is earlier. The assignor had reserved the right to terminate the memorandum on our company` s failure to comply with conditions precedent. In the meantime, Atlas Automotive Components Pvt. Ltd. had been able to locate buyers for some of the sub\x7f plots and the sale with these buyers were also concluded. Such sale proceeds were appropriated in the books against money due to Atlas Automotive Components Pvt. Ltd. Since by this arrangements our company could pay a sum of Rs. 1,37,01,924 only to the assignors within a period of 3 years from the date of the memorandum of understanding, the assignor invoked the right to terminate the transaction and the transaction stands terminated. Consequent to the termination of the memorandum of understanding, all the accounting entries hitherto passed have been approximately reversed. As a result the company has to receive a sum of Rs. 5,00,000 paid to the assignors during the year 2000-01. "Coming to the transaction by the assessee with M/s. Micromatic Machine Tools Pvt. Ltd. it is noteworthy to note that a memorandum of understanding dated M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the area of land to be transferred. Admittedly, the assessee and M/s. Sky Blue Trading and Investment Pvt. Ltd. are group companies and the entire share capital of M/s. Sky Blue Trading and Investment Pvt. Ltd. is jointly held by Mr. Shailendrajit Rai and Mrs. Pamela Rai, who hold over 12 per cent. stake in the assessee-company. The said fact is mentioned in the submissions made before the Commissioner of Income-tax (Appeals) by the assessee vide its letter dated December 3, 2004, copy of which is placed at pages 12 to 16 of the paper book. In view of the fact that the assessee and M/s. Sky Blue Trading and Investment Pvt. Ltd. are sister concerns the transactions between the two has to be considered in detail. Both the Commissioner of Income-tax (Appeals) and the Assessing Officer in the Page No: 0412 respective orders have observed that M/s. Sky Blue Trading and Investment Pvt. Ltd. is operating from the portions which were assigned to be transferred to them though the assessee has repeatedly maintained that the possession of the said portions are in his possession and the said possessions are not handed over to M/s. Sky Blue Trading and Investment Pvt. Ltd. The second aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred to the said parties on the payment of the consideration. The assignment in the Page No: 0413 case was completed on March 25, 2004, by which date the assessee had already entered into the reassignment agreements for the transfer of leasehold rights in the entire plot of land contracted to be earlier sold to M/s. Sky Blue Trading and Investment Pvt. Ltd. but later to be sold to 24 different parties. The Commissioner of Income-tax (Appeals) requisitioned the assessee in respect of the fate of different parties vis-a-vis the sanction to be obtained from MIDC and it has been submitted by the assessee vide its letter dated December 29, 2004, that only in respect of 9 contracts against which balance consideration of Rs. 9,79,422 was due as on March 31, 2004, the parties had not received the MIDC approval. The total sale consideration of the said 9 contracts was Rs. 55,23,206. The assessee fairly admitted that out of the balance due Rs. 9,79,422 Rs. 5,07,806 was received in the financial year 2004-05 leaving a balance of Rs. 4,17,616. In the said letter dated December 29, 2004 it has been stated as under : "In the previous hearing it was stated that this very same property wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee were in connivance with M/s. Sky Blue Trading and Investment Pvt. Ltd. which is the sister concern of the assessee and the subsequent reassignment did not talk of any earlier agreement in favour of M/s. Sky Blue Trading and Investment Pvt. Ltd. as the understanding between the assessee and M/s. Sky Blue Trading and Investment Pvt. Ltd. was clear on this aspect of transfer of said plots to different persons. The assessee in its written submission dated September 3, 2004 filed before the Commissioner of Income-tax (Appeals)-VI annexed at pages 12 to 16 of the paper book, in reply to the information called for by the Commissioner of Income-tax (Appeals) have admitted that the bona fide intention of both the parties i.e., assessee and M/s. Sky Blue Trading and Investment Pvt. Ltd. was as manifested in the memorandum of understanding was to assign the leasehold interest in respect of 8072 sq. meters. It has been further admitted that " since Sky Blue intended to do business of selling smaller plots out of this 8072 sq. meters, it immediately started scouting for buyers" . Thereafter, the assessee fairly admits that " since the acquisition of leasehold rights from the appellant was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contentions of the assessee that the transaction between the assessee and M/s. Sky Blue Trading and Investment Pvt. Ltd. fell through because of the non-compliance of the conditions stipulated in the memorandum of understanding dated February 26, 2001. Admittedly, the assessee had entered into the assignment agreement for the transfer of leasehold rights in piece of land measuring 8072 sq. meters to M/s. Sky Blue Trading and Investment Pvt. Ltd. on February 26, 2001, against which it had received earnest money of Rs. 5.00 lakhs. The memorandum of understanding stipulates the seeking of permission from MIDC for the transfer of the said plot of land to M/s. Sky Blue Trading and Investment Pvt. Ltd. but no such permission was either sought by the assessee or M/s. Sky Blue Trading and Investment Pvt. Ltd., i.e., its group company. The covenants of memorandum of understanding dated February 26, 2001, does not stipulate the person who has to apply for the said sanction from MIDC though in the case of the transaction with M/s. Micromatic Machine Tools Pvt. Ltd. the said approval was received on June 19, 2001. The assessee fairly admits in its written submission filed before the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trading and Investment Pvt. Ltd. were reassigned to 24 different parties in respect of 24 sub-plots in the full knowledge of M/s. Sky Blue Trading and Investment Pvt. Ltd., establishes the conclusion of agreement on the date when the memorandum of understanding was entered. The MIDC approval in respect of different plots has been obtained by the assessee and admittedly the assessee has not offered any capital gain in respect of those reassignment transactions for the sale of 24 sub-plots establishes the case of the Revenue that the transaction in question was completed in the year under appeal. The long-term capital gains arising on the sale of the aforesaid piece of land which was subdivided into 24 plots and was reassigned to 24 different persons does not require the permission under Chapter XXC of the Income-tax Act as the transaction in each agreement was less than Rs. 20.00 lakhs. The assessee by its own motion had included the long-term capital gains on a similar transaction being entered into with M/s. Micromatic Machine Tools Pvt. Ltd. as income for the year under consideration and following the principles of consistency the similar long-term capital gain arising on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses (v) and (vi) with effect from April 1, 1988, had been considered and it has been held that " transfer" includes (i) any transaction which allows possession to be taken/ retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. It has been further held " Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law" . The conditions to be fulfilled under section 53A of the Transfer of Property Act, 1882, are also provided and it was held as under (headnote) : "in order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration ; it should be in writing ; it should be signed by the transferor ; it should pertain to transfer of immovable property ; the transferee should have taken possession of the property ; lastly, the transferee should be ready and willing to perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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