TMI Blog2011 (9) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... first Appellate Authority and the AO were justified in holding that principle of mutuality cannot be invoked. Amount received towards transfer of units at terrace with lawn rights - business income or capital gain - Revenue contended that said units at terrace were not in the construction approved under the original scheme and which was also without the permission of the competent authority and in view of the above said facts constituted short term capital income - Held that:- Material on record would clearly show that rights of T1 and T2 and lawn area do not stand on the same footing as other shareholders in whose favour premises were allotted as construction T1 and T2 and lawn area, was not included in the original scheme and it was in favour of the Directors initially as a lease deed and thereafter it has been treated as perpetual lease deed. Therefore, same has to be treated as capital gains - Decided in favor of Revenue. Maintenance deposit - Held that:- AO and the appellate authority have referred to the submission made by the assesses before them to the effect that the surplus income from the said deposit shall also be shown as income from business and accordingly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, company although constructed a huge commercial complex on the land owned by it the same was not duty reflected in the profit and loss account and hence the taxable income ascertainment is avoided. To examine these issues, the case was re-opened and notice u/s 148. 143 (2) and 142 (1) were issued to the assessee as it falls under compulsory scrutiny. In response to these notices, the assessee represented by its Directors appeared and offered clarification and filed details, for the queries raised in the course of hearing. Books of accounts and connected details were produced and have been checked by the Assessing Officer. The Assessing Officer held that the assessee company was incorporated with the object of real estate agency and the assessee company developed a complex for the benefit of its shareholders for which it required the shareholders to deposit funds. The floor area in the complex were allotted to the share holders in proportion to the number of shares held by them in the assessee company and deposits were collected from them in proportion to the floor area allotted to each of them. The shareholder member on allotment of the floor area of the complex was entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the building from the shareholders be treated as the business income and they are entitled to admissible deduction towards the expenses of construction and other expenses. However, the Appellate Tribunal held that Rs.49,60,000/- incurred towards construction deposit and Rs.47,50,000/- towards lawn area and Rs.26,666/- towards lift are to be treated as business income as against the short term capital gains as ordered by the Assessing Officer as on the other allottees of shares and deposits were made under the same terms and conditions. Further, the Tribunal deleted the additions made by the Assessing Officer which was confirmed in appeal by the first appellate authority. Being aggrieved by the said finding of the Tribunal allowing the appeal in favour of the assessee by deleting the above said additions which were made by the Assessing Officer and which was confirmed by the first appellate authority, the revenue has preferred ITA No.16/2003 and being aggrieved by the finding that the principle of mutuality is not applicable, the assessee has filed cross objection 1/2009. 4. Both the appeal and cross objections have been admitted for consideration of the following substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record, was not justified in holding that the said income should not be converted as short term capital gain and should be treated as business income only as held in respect of other shareholders. Learned counsel further submitted that T1 and T2 was leased in favour of two Directors of the company and the said construction was not put up in accordance with law as per the original scheme. There was no provision for putting up construction as per T1 and T2 lawn area and therefore the order passed by the Tribunal cannot be sustained and me order passed by the Commissioner of Income Tax upholding the order of the Assessing Officer treating the said income towards deposit and allotment of T1 and T2 for lawn area as short term capital gain may be restored. Learned counsel further submitted that maintenance deposit of Rs.22,92,000/- had to be made with the company for the purpose of maintenance and upkeep of the building and that they were also obliging to pay the said amount for the amenities provided by the company. The Tribunal failed to note that the said amount of Rs.22,92,000/- also formed part of the consideration for allotment of the floor area though it was styled as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9. Points No.2 and 5 are taken up for consideration together since they are interconnected. It is clear from the scrutiny of the material on record that admittedly the respondent/assessee company was incorporated as per fresh certificate of incorporation on 17.01.1995. The Memorandum of Association of the respondent/company would clearly show that the main object of the company was real estate and it is maintaining mercantile system of accounting. It was contended by the assessee that the income derived from deposits from the shareholders towards the value of the floor area allotted to them proportionately and other deposits should be treated as income from the property and not as business income. However, so far as the said contention of the assessee is concerned, the same has been rejected by the Assessing Officer and the appellate authority and the Tribunal also observed that the income received by deposits towards allotment of flats and units in the nature of capital receipt cannot be treated as a business income having regard to the objects of the respondent/assessee that is doing real estate business by putting up construction and selling the same. The concurrent findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits had to be treated as trading receipts." 10. The said decision has been reiterated by the Bombay High Court in the case of Shree Nirmal Commercial Ltd. vs. Commissioner of Income Tax (213 ITR 361). The ITAT, the first appellate authority and the Assessing Officer have rightly held that the decisions relied upon by the learned counsel appearing for the assessee in the cases of Commissioner of Income Tax vs. Bankipur Club Ltd., (226 ITR 97) and Chelmsford Club vs. Commissioner of Income Tax (243 ITR 89) is not applicable to the present case as rightly held by the authorities below in view of the fact that the agreement would transfer ownership to the occupants, the shareholders for consideration of deposit made with the company and the right of ownership that is retained by the company is only dubious or negligible and having regard to the contents of the agreement, the authorities below have held that in order to constitute mutuality what is required to be proved is identity between contributor and the beneficiary, absence of private motive and the entire concept of mutuality is based upon the principle that when a property is held by the members, they cannot be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee submitted that the principles laid down in Shree Nirmal's case cited supra followed by the ITAT, first appellate authority and the Assessing Officer cannot be applied to the present case as in the said case, the deposit taken was not refundable and it was non-refundable and in the present case, the deposit is refundable on the principles of easing to the shareholders of the company or alienating the property. However, the agreement entered into by the assessee with the shareholders would clearly show that the assessee cannot voluntarily cancel right conferred upon the shareholders under the agreement and after returning the deposit received by the company and therefore mere fact that the deposit is refundable in the present case would not in any way help the finding regarding the principle of mutuality and having regard to the concurrent finding arrived at by the ITAT, first appellate authority and the Assessing Officer that the principle of mutuality is not applicable in the facts and circumstances of the case is justified. We do not find any ground to interfere with the said finding arrived at by the lower authorities. Accordingly, we answer substantial question Nos.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right of the floor area of 4000 sq. ft (T1 and T2) and 10,000 sq. ft of lawn area to its own Directors namely Jitendra Virwani and A.L.Sanghvi, by 6 identical agreements on 20.11.1995 15.03.1996 together with un-irrevocable, perpetual, uninterrupted, absolute and exclusive right to use and enjoy the same and appropriate the income, usufruct and other benefits therefrom as per the salient features in the agreements wherein a person on becoming a member of the company and holding a specified number of shares and the contents of the agreement are different. The details of the rent received pursuant to the lease are as follows: "a) Mr. Jitendra Virwani i) For built up space of 2000 Sq. ft. Rs.24.80 lakhs ii) For lawn area of 4000 Sq.ft. Rs.23.75 lakhs b) Mr. A.L. Sanghvi i) For build up space of 2000 Sq.ft. Rs.24.80 lakhs ii) For lawn area of 4000 Sq.ft. Rs.23.75 lakhs Rs.97.10 lakhs 16. The details of rent received in respect of T1 and T2 are as follows: Details of Rent Received in Respect of T1 and T2 Particulars Deposits Received Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sor (company) for the schedule premises. 18. The Assessing Officer held that the income received by the company as consideration for allotment of T1 and T2 which was not the construction approved under the original scheme and which was also without the permission of the competent authority and in view of the above said facts constituted short term capital income and accordingly the Assessing Officer held that the amount of Rs.99,75,666/- was to be treated as short term capital gain since no cost of the right is taken and the cost of right is taken as nil since the company retained the stock-in-trade and completed assessment accordingly by treating the income of Rs.99,76,666/- as the short term capital gain. However, the appellate authority confirmed the finding that the income received by the assessee from the rights of T1 and T2 and lawn area would attract tax was rightly held to be short term capital gain. However, the appellate authority held that out of the amount of Rs.99,42,666/-, an estimated cost of leasehold right or right of exploit at Rs.34,000/- had to be deducted and the short term capital gain accordingly worked out to Rs.99,42,666/-. In arriving at the said concl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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