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The Commissioner of Income Tax, The Assistant Commissioner of Income Tax Versus Sri Dinesh D. Ranka

2015 (7) TMI 482 - KARNATAKA HIGH COURT

Computation of capital gain - Whether the Tribunal was correct in holding that the amount received by the assessee from L & T, the developer of the adjoining land in respect of the transfer of 7575.37 square meters of FAR in assessee's residential plot measuring 1.6 acres is not transferable as the same is not a capital asset and consequently no capital gains can be levied? - Held that:- The search came to be conducted on 4.2.2004 wherein number of vital documents were found against the assessee .....

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he balance area of 1 acre 6 guntas will be shared between the L & T and assessee as per the ratio defined in the joint development agreement dated 19.10.1995, which clearly means that the assessee is entitled to 25% of the profit earned by utilizing 7575.37 square meters of FAR relatable to 1 acre 6 guntas of land. However, curiously another letter came to be issued by the L & T on 4.7.2005 mentioning that the amount of ₹ 3.15 crores paid to the assessee is in the nature of advance. Such l .....

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rs in respect of 1 acre 6 guntas exclusively held by him in favour of the L & T and has earned ₹ 3.15 crores as advance in that regard. We have already clarified that surrendering of the said FAR by the assessee in favour of the L & T amounts to transfer within the definition of Section 2(47) of the Act. All these aspects are considered in detail by the Appellate Commissioner as well as the Assessing Officer. ITAT is not justified in concluding that there is no transfer of FAR relating to .....

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Appellant : Sri K V Aravind, Standing Counsel For the Respondent : Sri S Parthasarathi, Adv JUDGMENT This appeal is filed by the Revenue against the order passed by the Income Tax Appellate Tribunal, Bangalore Bench in ITA No.1163/ Bang/07 (Assessment year 1999- 2000). The appellant has sought confirmation of the orders passed by the Commissioner of Income Tax (Appeals)-VI {'Appellate Commissioner' for short} as well as the Assistant Commissioner of Income Tax, Central Circle - 2(3), Ba .....

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case are as under: The respondent - assessee is carrying on the business in real estate. Admittedly, he owned 35 acres 6 guntas of land at Kothanur Village. The entire land was converted from agriculture to housing purposes in the year 1992. The Bangalore Development Authority approved the plan for residential group housing scheme over the said land. Subsequently, the plan was renewed on 19.2.1998. The plan covered entire area of 35 acres 6 guntas and the same was signed by the respondent as th .....

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ning extent of 1 acre 6 guntas of land was not covered under the Joint Development Agreement entered into between the parties. Admittedly, the said area of 1 acre 6 guntas of land was kept by the respondent for his personal use i.e., for construction of his residential house. In respect of the assessment year 1999-2000, the assessee filed return of income on 14.2.2000 declaring total income of ₹ 4,90,000/-. The assessment under Section 143(3) of the Income Tax Act ('the Act' for sh .....

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sonal purposes and though the total FAR which was available for the assessee in respect of an area of 1 acre 6 guntas retained by him was 8589.53 square meters, the assessee gave up 7575.37 square meters in favour of L & T (which is the developer of remaining adjoining property measuring 34 acres) and consequently, the assessee retained FAR relating to 1,014.16 square meters only. This was detected from the seized document vide A/DDR-1/5 at pages 46 and 64 under the head '1.6 Account' .....

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1.2006 under Section 143(3) r/w Section 153A of the Act. The Assessing Officer held, on facts that the FAR of 7575.37 square meters out of total extent of FAR of 8589.53 square meters relating to 1.6 acres of land retained by the assessee is taken over by the L & T for utilizing the same in its adjoining project (which was coming up in 34 acres of land, which is the subject matter of Joint Development Agreement between L & T and the assessee) for a advance consideration of ₹ 3.15 c .....

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proceedings under Section 271(1)(c) was initiated. 5. The assessment order passed by the Assessing Authority against the assessee was questioned by the assessee before the Commissioner of Income Tax (Appeals) {'Appellate Commissioner' for short} in Appeal No. ITA 315/ACIT.Cen.Cir.2(3)/CIT(A)-VI/2005-06/BLR vide Annexure-B. The Appellate Commissioner on reappreciation of the entire material on record concluded that the relinquishment of FAR of 7575.37 square meters by the assessee in favo .....

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galore Bench in ITA No.1163/Bang/07. The Tribunal allowed the appeal filed by the assessee and set aside the orders passed by the Assessing Officer as well as the Appellate Commissioner by its order dated 10.10.2008 on the ground that area of 1 acre 6 guntas retained by the assessee is not a capital asset and it was not transferred by the assessee in favour of Developer and there was no transfer of immovable property as defined under Section 2(47) of the Act. Hence, the Revenue has filed this ap .....

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ement dated 19.10.1995 between the assessee and the L & T (Developer). It is also relevant to note that the assessee, who had paucity of funds, approached one Mr. Udhav H Buxani who provided financial assistance to the assessee and in the agreement dated 20.9.1993, it was decided that the profits will have to be shared between the assessee and Udhav H Buxani equally. As aforementioned, the assessee entered into joint development agreement with L & T for developing 34 acres of land. The p .....

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o of 25% and 75% respectively. Out of such 25% of the profit earned by the assessee, Udhav H. Buxani would be entitled to 50% of the said profit i.e., 12 ½ % of the total built up area/profit. It was further agreed that as and when the proceeds with regard to the sale of built up area were collected, proportionate amount would be credited to the assessee's account. Subsequently on 25.3.1996, on Udhav H. Buxani staking his claim, a four party agreement was entered into i.e., between th .....

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for himself. 8. The income arising from 34 acres which was the subject matter of the joint development agreement has been shown under the head "income from business" in assessment year after assessment year. However the income earned out of the rest of 1 acre 6 guntas of land had not been shown at all by the assessee in any of the assessment years. According to the assessee, there is no need to show such income as it was a non-taxable capital asset. Admittedly, 1 acre 6 guntas of land .....

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cer. 9. We have carefully perused the relevant portions as depicted in the orders passed by the Appellate Tribunal, Appellate Commissioner and the Assessing Officer. On plain reading of the contents of such documents, it is clear that the details are found relating to consolidated statements of amount to be paid to the assessee towards the joint development agreement. The seized documents clearly show that the assessee has entered into joint development agreement with the L & T in respect of .....

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& 96/1 part. It is noticed from the Joint Development Agreement dated 19th October 1995 that only 34 acres have to be developed. However, the available approved FAR area is for 35 acres 6 guntas. FAR accrued on account of 34 acres only, in South City project, is to be shared amongst M/s. Larsen & Toubro Limited, M/s. Dinesh Ranka & Associates and M/s. Buxani, as per ratios defined in the supplemental agreement dated 22nd July 1999. The FAR area accrued on the balance area of 1 acre .....

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6 guntas of land also owned by the assessee and the accounts of the above have been made in pages 46 and 64 of the seizure memo No.A/DDR-1/5 respectively by the L & T and the assessee separately under the head "1.6 Accounts". The said letter and other documents seized also prove that there was transfer of right (FAR) in favour of L & T in respect of 1 acre 6 guntas of land for the development. What has been transferred in favour of the L & T by the assessee is FAR to an ex .....

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square meters for his residence and surrendered the balance of 7575.37 square meters in favour of developer (L & T) for construction of flats. Therefore there is a transfer within the meaning of Section 2(47) of the Act since the assessee has surrendered FAR of 7575.37 square meters. The word, 'transfer' as defined under Section 2(47) of the Act in relation to a capital asset includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein. In th .....

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omplete on the day when the plan was sanctioned and the building of the apartment complex started since there is no way of the assessee either getting back the FAR or using the same. Even if such a situation arises, it would be another transfer on that day with L & T as the transferor. The argument of the assessee that the said amount of ₹ 3.15 crores is to be adjusted out of the proceeds of the built up area relatable to FAR of 1 acre 6 guntas which according to them could be construc .....

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quishment of the asset. A 'capital asset' means property of any kind held by an assessee whether or not connected with his business or profession but does not include what is defined under sub-clause(i) and (ii) of Section 2(14) namely the definition clause of capital asset. A right to construct additional stories on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt. However, where no consideration is paid and s .....

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tion would squarely fall within the definition of 'transfer' as defined under section 2(47) of the Act inasmuch as the words employed in sub-clause(1) is "sale", "exchange", or "relinquishment" and under subclause ( 2) the words employed is "extinguishment of any rights therein". The said definition is an inclusive definition. The expression must be read widely and not narrowly. It denotes extension and cannot be treated as restricted. A transactio .....

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se of section 2(47) of the Act. 14. The search as aforementioned came to be conducted on 4.2.2004 wherein number of vital documents were found against the assessee and L & T. Even thereafter a letter dated 7.6.2005 as mentioned supra came to be written to the assessee (wherein they have enclosed a letter dated 23.9.1999) confirming the terms on which the amount in respect of the FAR surrendered to be paid. It is clearly mentioned in the said letter that the available approved FAR area is for .....

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land. However, curiously another letter came to be issued by the L & T on 4.7.2005 mentioning that the amount of ₹ 3.15 crores paid to the assessee is in the nature of advance. Such letter is clearly an after thought inasmuch as, the search was made in the year 2004 and this self-serving letter written by the L & T to protect the assessee from tax liability by any stretch of imagination cannot be said to be reliable. Thus, the explanation of the L & T deserves to be rejected a .....

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