TMI Blog2015 (4) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... s a virtue to be followed both by the assessee and the Revenue and applying the ratio of the this decision & taking into consideration that the shops have been reflected in the books of accounts from the very beginning, we are of the opinion that the income generated on the sale of the same should be treated as capital gain and not as business income. We confirm the order of the CIT (A) in deleting the addition. Ground Nos. 3 & 4 of appeal of the Revenue are dismissed. Additions on account of sale of ground floor below market rates - According to this agreement, Directors of the assessee company exchanged some properties and in the process the ground floor is to be given to Shri Ahok Kumar Malpani and 2nd, 3rd and 4th floors were to be handed over to Shri Girish Malpani, Shri Manish Malpani and Shri Ashish Malpani respectively. The CIT (A) has held that when an arrangement is made between the family members, being Directors of the company, the rate so adopted for this purpose cannot be compared to prevailing market rate and the difference in rate cannot be adopted for the purpose of capital gains. In fact, the CIT (A) relied on the decision of the Hon’ble Madras High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate in the project. Therefore, the AO is correct in holding that the actual sale rate was much higher than what was shown by the appellant. However, instead of sale rate of ₹ 2,250/- sq.foot the AO is directed to apply a sale rate 2,000. As already discussed the AO is also directed to verify whether there is any duplicate addition with respect to ground Nos. 4, 5, 6 7 of the appeal . 4. Against the decision of the ld CIT (A), both the Department and the assessee preferred appeal before the ITAT. During appellate proceedings before the Tribunal, the assessee preferred an additional ground pleading that the transactions of sale made during the year by the company relevant to the subject A.Y are part of family agreement and no capital gains arose out of the sales made. The Tribunal after going through the same, vide order in ITA No.571/Hyd/2010 remanded the matter back to the file of the AO with the following observations: 5. We have considered the rival submissions on either side and also perused the materials available on record. The assessee now claims before this Tribunal that the transfer was made due to family arrangement in order to settle the family disputes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A r.w. Rule 8D and also of the decision of the Hon'ble ITAT in the case of this appellant in its order dated 31 October, 2011 in ITA No.1705/Hyd/2008 for the A.Y 2005-06. He ought to have allowed the interest claimed in terms of section 36(I)(iii) . 7. With respect to ground No.3 on disallowance of interest of ₹ 45,01,777/- paid on borrowed capital u/s 14A r.w.s. Rule 8D, AO observed that the assessee, out of interest bearing funds, had invested ₹ 4.00 crores towards share application money in its sister concern M/s Maheshwari Mega Ventures Ltd and also had given loans/advances of about 60% to the family members and relatives of the Directors of the assessee company out of the total advances of ₹ 10.11 crores without charging any interest, AO disallowed interest of ₹ 45,01,777/-. In doing so the AO relied on the observations of the predecessor CIT(A) in the appellate order for the A.Y 2005-06 wherein the disallowance so made for A.Y 2005-06 was confimed in the appellate order. As there was no change in the facts of the case for the present year, the AO disallowed interest of ₹ 45,01,777/-. 8. In this connection, the ld CIT (A) held as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment towards share application money and decide the issue in accordance with law, after giving an opportunity to the assessee to present its case. 76. As for the balance amount of interest free advance of ₹ 4.37 crores advanced by the assessee, we find that the assessee company, which is having experience and expertise in running a star hotel is interested in the new venture in as much as it was felt that the assessee would be benefitted maximum by being a part of a hotel chain. The running of a chain of hotels belonging to a group is quite in vogue and the advance has been prompted on the principles of business prudence and commercial expediency. Hence, in the light of the decision of the Apex Court in the case of SA Builders (supra), interest is deductible as the amount is advanced to a subsidiary company/sister concern, as a measure of commercial expediency. In Atherton V/s. British Insulated and Helsby Cables Ltd. (1925) 10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expedie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pantaloon Retail India Ltd and M/s Bennet Coloman Co. Ltd with the said intention of earning rentals. The intention the company is further witnesses in the balance sheet as the same was presented as an investment in building, as capital asset since that year. Hence the income generated on the sale of the same should be treated as capital gain and not as a business income. An amount of ₹ 1,34,83,600/- is shown under the head investments capitalized. 12. On this the AO observed just because an entry is made in its books of accounts to show the property as investment in building, it cannot impress that it is a capital asset . He further observed that the assessee is in the business of construction and held the transaction as business transaction and brought the sale consideration to tax as business income. Assessee reiterated during the appellate proceedings that the shops so let out by the company were shown as investments in their books and since the investment was sold, the same was offered as capital gains. Assessee brought out the position of shops reflected in their books of accounts from the very beginning and claimed that long term gains are correctly admitted. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be viewed from a family settlement angle. According to the assessee, members of Malpani family had come to an understanding of settling their properties and it is in pursuance of this settlement of assets between members of family and they had some transactions/exchange of properties and those arrangements should be viewed from this angle and not as a general transaction. Hence, during the appellate proceedings, the assessee along with an aide memoire, filed a copy of deed of family arrangement evidencing the arrangement entered into by the family members of Malpani. According to this agreement, Directors of the assessee company exchanged some properties and in the process, the ground floor is to be given to Sri Ashok Kumar Malpani, 2nd, 3rd and 4th floors were to be handed over to Sri Girish Malpani, Manish Malpany and Ashish Malpani. It was the contention of the assessee that the AO had overlooked this arrangement and wrongly relied on the case of Mumbai Bench in the case of Rupee Finance and Management (P) Ltd vs. ACIT rendered by ITAT (120 ITD 539) Contradicting the above, the assessee placed reliance on the Hon'ble Madras High Court in the case of CIT vs. KAY ARR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the difference in rates cannot be adopted for the purpose of capital gains. Therefore, the comparable rates of the adjacent shops sold by the appellant cannot be criteria to the sale transactions effected within the members of family of the Directors, as part of arrangement between themselves. Accordingly, I direct the AO to adopt the rates as admitted by the appellant in the computation and delete the additions so made . 17. We heard both the parties. We have perused the copy of the deed of family arrangement filed by the assessee evidencing the arrangement entered into by the family members of Malpani family. According to this agreement, Directors of the assessee company exchanged some properties and in the process the ground floor is to be given to Shri Ahok Kumar Malpani and 2nd, 3rd and 4th floors were to be handed over to Shri Girish Malpani, Shri Manish Malpani and Shri Ashish Malpani respectively. The CIT (A) has held that when an arrangement is made between the family members, being Directors of the company, the rate so adopted for this purpose cannot be compared to prevailing market rate and the difference in rate cannot be adopted for the purpose of capital gains. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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