TMI Blog2010 (12) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's contention that it should be assessed under the head "capital gains" with all the allowable deductions is upheld – Appeal is partly allowed - IT APPEAL NO. 6667 (MUM.) of 2010 - - - Dated:- 15-12-2010 - R.V. EASWAR, PRESIDENT J, AND PRAMOD KUMAR, ACCOUNTANT MEMBER J, D.V. Lakhani for the Appellant. Ms. Ashima Gupta for the Respondent. ORDER Per R.V. Easwar, President : This is an appeal filed by the assessee and it relates to the assessment year 2007-08. The assessee is an individual deriving salary from companies, business income, consultancy income, car rentals and income from other sources. He is a director in Abhijit Housing Pvt. Ltd. 2. In the return of income filed for the year under consideration, the assessee declared capital gains of Rs.l,12,15,345(after adjustment of long term capital loss) which included capital gains of Rs. 1,63,81,464 from sale of a property referred to as "Nigam property". The net sale consideration was shown at Rs. 2,24,43,857 against which deduction of Rs. 60,62,393 as indexed cost of acquisition was claimed and the capital gains were declared at Rs. 1,63,81,464. When this was enquired into by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of the case and the compensation is assessable as "income from other sources" and not as capital gains. Accordingly he brought the amount of Rs. 1,83,43,857, being the difference between the net consideration of Rs. 2,24,43,857 and the amount of Rs. 41,00,000 (without the benefit of indexation) paid by the assessee as the assessee's "income from other sources" and completed the assessment accordingly. 5. The assessee appealed to the CIT(A) who examined all the relevant documents and held as under: ( a ) The MoU dated3-2-1998 was signed by the assessee in his capacity as director of Small Success. The MoU spoke of construction of residential houses over an FSI of 15000 s.ft. in the plot over and above the FSI of 15000 that was available in respect of the plot which was of the size of 1267.5 sq.mt. (roughly equal to 15000 s.ft.). The construction on the additional FSI was to be done by Small Success and the flats were to be sold by it for its own benefit or profit. There was thus a business motive of constructing residential apartments and selling them for profit. ( b ) In an agreement entered into on15-1-1998 between the assessee and Small Success there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into between the assessee and Small Success Finance Trading Private Limited (in which he was a director) on stamp paper of Rs. 20 purchased by the assessee on 13-12-1997. In the agreement it is averred that the assessee and Small Success had agreed to own and construct a residential bungalow jointly as co-owners, that the assessee had identified a plot in No. 17, Estate of the New India CHS Ltd., N.S. Road No. 12, JVPD scheme, Mumbai for the purpose, that the assessee was desirous of constructing a residential bungalow for himself in the area of the plot belonging to him, that Small Success will exploit the area belonging to it by constructing a multi-storied building, that the assessee will be physically entitled to 75% and Small Success will be entitled to 25% of the plot, that the total consideration payable to the owner of the property (Nigams) was Rs.3500 per s.ft. for the 15000 s.ft. of FSI available to the plot and that the purchase price would be contributed in the ratio of 75% to 25% by the assessee and Small Success respectively. Though this agreement is said to have been executed on 15-1-1998, the notary's signature carries the date of 13-2-1998. On 3-2-1998 (r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 15000 s.ft. Rs. 3500 per s.ft. = Rs. 5,25,00,000 which was payable by the developers (Small Success) and the assessee in the ratio of 25% : 75% respectively. The mode of payment of the amount was also provided for in clauses ( i ) to ( vi ) of the sub-clause ( c ). These sub-clauses, inter alia , provided that the amount will be paid partly in cash and partly by way of adjustment of the construction cost of the structure to be put up for the benefit of the Nigams by using 15000 s.ft. of FSI available, in addition to the 15000 s.ft. of FSI which was proposed to be sold by them to the assessee and Small Success. That is to say, Small Success was to act as builder or constructor for the Nigams in respect of the 15000 s.ft. on which they wanted to put up a structure for their benefit out of the total of 30,000 s.ft. of FSI available for the plot on the basis of 2 FSI for the 15000 s.ft. plot. For such construction, Small Success would be paid at the rate of Rs. 1350 per s.ft. under clause ( v ) "in respect of area retained by the owners in such multi-storeyed building and a further amount of Rs. 1500 per square feet in respect of row houses". This amount was to be adjusted against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the fact that a total amount of Rs. 51,60,523 had been paid to the owners of the property, that since the property was situated within the limits of Coastal Regulation Zone (CRZ) construction by bringing in TDS was not permissible and therefore development of the plot in the manner originally contemplated became financially unviable, that the owners had agreed to sell the property to Mrs. Vibha Dilip Shanghvi and to transfer and to assign her all their rights in the property for the consideration agreed between them and that with a view to clear the claims of the assessee and Small Success under the MoU the plot owners had negotiated with them and they have agreed to release, relinquish, cancel and irrevocably surrender all the rights they claimed under the MoU and all subsequent agreements. Clause 7 of the preamble refers to payment of Rs.3 crores to the assessee and the Small Success for giving up their rights in the MoU. Clause 1 of the terms and conditions records and reaffirms the arrangement. 12. On 2-4-2007, an "agreement to assign" was executed to which the assessee was a confirming party. The other parties to the agreement are the three Nigams, five confirming part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under which it is taxable, to be precise - that is the question that arises in the appeal before us. While the assessee has taken a ground (Ground No. 1) that the amount is a capital receipt not taxable at all, it was withdrawn in the course of the arguments. The only controversy which survives is whether the amount is taxable under the head "capital gains" as contended by the assessee or under the head "business" as held by the CIT(A). 14. We are of the view that the amount is taxable as "capital gains" as contended by the assessee. The assessee had obtained a right to have a conveyance executed by the Nigams in respect of the plot admeasuring 1267 sq. mts. It is true that the assessee initially was not a party to the MoU executed on 3-2-1998 but by the document titled "declaration cum confirmation" executed on 16-2-1998 he became party to the transaction between Small Success and the Nigams. The assessee had earlier entered into an agreement with Small Success which sets out the arrangement between them inter se . This was on15-1-1998. It narrated the terms of the MoU in substance without actually referring to the MoU. This has given rise to the suspicion, which was air ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including Nandlal Kela and the tenants. We have earlier referred to the terms of this agreement and the circumstances under which the assessee had to surrender his rights for a consideration. On these facts, the judgment of the Hon'ble Bombay High Court in CIT v. Tata Services Ltd. (1980) 122 ITR 594 is applicable. It was held that the word "property" in section 2(14) is of widest amplitude and the definition has re-emphasised it using the words "of any kind" and any right which can be called property will be included in the definition of "capital asset". It was observed that a contract for sale of land was capable of being enforced by way of specific performance and was also assignable. Therefore, a right to obtain conveyance of the property is clearly property within the meaning of section 2(14). A similar view was taken by the High Court in CIT v Vijay Flexible Containers (1990) 186 ITR 693. In the present case the assessee had a right to enforce the MoU and obtain specific performance of the agreement to sell and insist on the Nigams executing a deed of conveyance in respect of the plot. The assessee had also paid an amount of Rs. 23,00,000 over a period of time to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e developer on the FSI retained by the owners is to be adjusted against the price payable by the purchasers of the plot as per sub-clause ( vi ) of clause 2( c ). This clause would have been unnecessary if the other FSI of 15000 s.ft. is also to belong to the developer as claimed by the department. Clause 2( c ) provides for the payment of consideration for the plot measuring 15000 s.ft. at the rate of Rs.3500 per s.ft. which amounts to Rs. 5,25,00,000. In this clause, there is clear reference to "15000 sq. ft. of FSI agreed to be given to the developers". A power of attorney is to be given to the developer only for enabling him to enter the premises for development and to enter into agreement with the purchasers of the flats for area to be retained by the developers. Thus a perusal of the terms of the MoU as a whole shows that it is only with reference to the additional FSI of 15000 s.ft. that Small Success is to construct the structure which will belong to the owners and for such construction Small Success will charge the owners at the agreed rate which will be adjusted against the price payable by Small Success for the plot. The CIT(A), with respect, appears to have thought that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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