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2015 (12) TMI 39 - ITAT MUMBAI

2015 (12) TMI 39 - ITAT MUMBAI - TMI - Sale of land treated as Long Term Capital by CIT(A) - as per revenue the land was never shown in the block of assets - Held that:- Treatment of the assets in the purchaser's account, does not have any material bearing on taxability of the receipt in the hands of the assessee, since purchaser's treatment of the transaction in its accounts is not determinative of the true nature of the transaction. Further, with regard to contention of the AO that assessee ha .....

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ifferent assets and therefore the Capital Gains arising on the assignment of leasehold interest in the land being a capital asset was rightly offered for tax as Long Term Capital Gains and the consideration attributable to the transfer of the building was rightly offered for tax as Short Term Capital Gains - Decided against revenue.

Addition to the sales consideration of the factory building by holding that compensation of ₹ 1.5 crores paid to M/s. Writer Jesia family trust be t .....

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on. Thus, we find that Ld CIT(A) has rightly rejected the contentions of the AO on this issue. It cannot be held, only on the basis of presumptions, that the transaction was a colorable device. The circumstances highlighted by the Assessing Officer to show that the transaction as a colorable device cannot take precedence over earlier judicial scrutiny and a specific tripartite Agreement. Besides, the circumstances highlighted by the Assessing Officer cannot be treated as very unusual or improbab .....

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eld that the Assessing Officer was not justified in taxing the sum of ₹ 1.50 crores in the hands of the assessee and treating it as part of short term capital gain - Decided against revenue.

Brought forward unabsorbed depreciation adjustment against any income of the assesee of the current year - Held that:- Ld. CIT(A) considered submissions of the assessee and held that brought forward depreciation stands on the same footing as the current year's depreciation and, therefore, un .....

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r of the assessee, and therefore Ld CIT(A) has rightly decided the same in favour of the assessee. Nothing wrong therein could be pointed out by Ld DR, nor found by us, and therefore the same is upheld - Decided against revenue. - ITA No. 616/Mum/2007 - Dated:- 30-10-2015 - Amit Shukla, JM And Ashwani Taneja, AM For the Appellant : Shri S S Kumaran (DR) For the Respondent : Mr Percy Pardiwalla, Sr. Adv. & Ms Vasanti B Patel ORDER Per Ashwani Taneja ( Accountant Member ) This appeal has been .....

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without appreciating the fact that the land was never shown In Block of assets. 2. The learned CIT(A) has erred on facts and in law and in the circumstances of the case erred in holding that, ₹ 1,50,00,000/- is not assessed in the hands of the assessee as Trust has offered the same for tax, without appreciating the fact that actually it was a colourable device and trust was not having any legal right. 2.1 The learned CIT(A) has erred on facts and in law and in the circumstances of the case .....

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walla, Senior Advocate & Ms. Vasanti B. Patel, on behalf of the assessee. 3. Ground No.1: In this ground, the revenue has challenged the action of Ld. CIT in holding that a sum of ₹ 1.50 crores received on sale of land as Long Term Capital Gain, without appreciating the fact that the land was never shown in the block of assets. 3.1. The brief facts, as culled out from the assessment order, are that during the course of assessment proceedings it was found by the AO that main source of i .....

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l Gains. Details were called for by the Assessing Officer. In the details submitted it was brought to notice that by an Indenture dt.7.5.1972, the assessee had taken a plot of land on lease from M/s Bombay Xaverian Corporation Limited for a period of 98 years at a monthly rent of ₹ 350/- per month, and that the assessee had constructed a factory building on the land taken on lease, which it was using for the purpose of its business. It was further stated that the assessee granted a lease o .....

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he assessee entered into an Agreement with a company namely M/s Sun Pharmaceuticals Industries Ltd., to which the Trust was also a party. Pursuant to this Agreement, the assessee agreed to transfer to the said company, the factory building, which the assessee had constructed on the land as well as assigned the benefits of their lease hold interest for the unexpired period of the lease for an aggregate consideration of ₹ 4,95,00,000/-. In terms of the Agreement, the assessee was obliged to .....

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apital Gains. b) ₹ 1,50,00,000/- paid to the Trust was held as taxable in the hands of the trust. c) ₹ 1 ,95,00,000/- was reduced from the block of assets in respect of the building. In the back ground of the above facts, the Assessing Officer found that the assessee had never shown the land in the fixed assets schedule in its books of account. In this context, it was pointed out that although the assessee has claimed only lease rights over the land, for the purpose of working of cap .....

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ot a depreciable asset, it cannot attract Section 50. Reliance was placed in this regard on the decision in the case of Teletube Electronics Ltd. vs. JCIT 80 ITD 251 (Delhi). Further, it was also submitted that land is a capital asset in terms of section 2(14) of the I.T. Act, 1961. In this context, placing reliance on the decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Vimal Chand Golecha 201 ITR 442, it was argued that for the purpose of section 32, building which is en .....

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valuation report had been obtained to apportion the composite sale consideration into consideration for factory building and consideration for leasehold rights. Placing reliance once again on the decision of CIT vs Vimal Chand Golecha, supra, wherein it was held that if price of capital assets has been charged as one consolidated figure, the assessee is entitled to bifurcate the same and determine the nature of the capital gains viz., Short Term or Long Term independently, it was submitted that .....

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part on which the factory building was existing. The Assessing Officer was, therefore, of the view that the entire profit arising on account of sale of Depreciable asset, i.e., the factory building on which depreciation has been claimed by the assessee is taxable u/s 50 of the I.T. Act. 1961. It was also pointed out by the Assessing Officer that the purchaser i.e. M/s Sun Pharmaceutical Industries Ltd., has also taken the entire proceeds to be arising out of purchase of building. The AO also fou .....

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circumstances, the Assessing Officer treated the entire consideration of ₹ 4,95,00,000/- as arising out of sale of factory building and held the entire sale consideration as Short Term Capital Gains in terms of Section 50(1) of the I.T. Act, 1961. 3.2. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A). In appeal, the submissions made before the Assessing Officer were reiterated. It was further submitted that when a lessee constructs a building on a leased premis .....

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y of premium for acquisition of land, and there was no question of reflecting the land as an asset in the balance-sheet. Reference in this regard was made to Accounting Standard- 10 which clarifies that an asset is recorded in the books when some consideration in money or monies worth has been paid for it. It was also submitted that the treatment given to the transaction in the accounts by M/s Sun Pharmaceuticals Industries Ltd. is not determinative of the true nature of the transaction as the s .....

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f the building was rightly offered for tax as short term capital gains. Thus the claim of the assessee was allowed by him. 3.4. Being aggrieved, the revenue filed the appeal before the Tribunal. It has been argued by Ld. Department Representative (in short DR) that only lease rent was being paid by the assessee and that land was not shown as part of the block of assets. He read relevant portion of the assessment order before us and relied upon the same. 3.5 On the other hand, Ld. Counsel of the .....

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on of showing this asset as part to block of assets, since no cost in the form of any premium was paid by the assessee to the lesser. It was further submitted that in 1974 building was constructed by the assessee. It has been further submitted that land and building were two separate assets and were sold as such by the assessee, and that different amount of consideration have been decided between the assessee and the purchaser, and therefore, these should be assessed accordingly in the hands of .....

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lower authorities while deciding this issue which were reiterated before us. It is noted that the AO's decision on the issue mainly hinges on his view that land was an integral part of the asset, on which the factory building existed. Accordingly, he held that the entire consideration was on account of sale of a depreciable asset i.e. the factory building. One further reason that prompted him to this decision was the fact that the land was not shown in the fixed asset schedule of the balance .....

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llant had transferred two assets (i) the building and (ii) Lease hold rights on the land on which the building was constructed. Relevant Clause of this agreement (on page 5) laying out scope of the transaction is reproduced as under: "The vendors have agreed to sell to the Purchaser and the Purchaser has agreed to purchase form the vendor all right, title and interest of the vendors in the said immovable property and in the said building with vacant possession of the said property and the s .....

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here were in fact two transactions couched in this Agreement. It is further noted that this is indicated in many other parts of the Agreement also namely, on pages-8 & 9, where it has been specifically mentioned that what is being transferred includes "all that piece or parcel of land ....." and "entire commercial industrial building comprising ground plus two floors......". It has been further noted by Ld CIT(A), and shown to us also by the Ld Counsel from various pages .....

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dated 12-04-2002. On the basis of this, it was argued that the Appropriate Authority also has, therefore, recognised that the transaction in the Agreement included transfer of two independent properties. It has been noted by Ld CIT(A) that the leasehold right was originally granted to the assessee for a period of 98 years by an Indenture dated 07-05-1972 by the Bombay Xavarian Corporation Pvt. Ltd. at a monthly rent of ₹ 350/-. The fact that the lease right did not merge with the factory .....

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t, therefore, transpires that the lease right continues to exist even after the transfer. It never merges with the building as argued by the Assessing Officer. In addition to analysing the facts of this case, Ld CIT(A) also analysed position of law on the basis of judicial decisions. In the case of CIT vs Vimal Chand Golecha, supra, Hon'ble Rajasthan High Court has clearly held that the land is a capital asset in terms of section 2(14) of the I.T. Act, 1961 and it treated as a separate asset .....

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xpiry of three years. It is further noted that decision of the Honourable Bombay High Court in the case CIT vs City bank NA 261 ITR 570 also supports the assessee's stand. It is further noted by us that this view has been reiterated by Hon'ble Bombay High Court in the case of Hindustan Hospitals 335 ITR 60 at pages 62 and 67. 3.7. Thus, analysis of facts of this case, when compared with the judicial position as clarified by various courts, make it clear that the assessee had transferred .....

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ver shown the land in its fixed assets schedule, we find force in argument of the assessee that as it had not paid any sum by way of premium for acquisition of land, there was no question of reflecting the land as an asset in the balancesheet. Important point to be noted is that the land was held by the assessee on lease, on payment of monthly rent. There was no purchase price paid. In the light of the above facts and circumstances, we concur with the findings of Ld CIT(A) that the assessee had .....

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ground revenue is aggrieved against action of Ld. CIT(A) in reversing the action of Ld. AO in making addition of ₹ 1.5 crores to the sales consideration of the factory building by holding that compensation of ₹ 1.5 crores paid to M/s. Writer Jesia family trust be taxed in the hands of assessee firm as arising out of sale of factory buildings. 4.1. Brief facts as culled out from the assessment order are that during the course of assessment proceedings the AO decided the issue with re .....

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a on ownership basis to the Trust. According to him, this is a dubious method developed by the assessee so that the income arising out of the sale can be transferred to the Trust and tax concessions could be availed by treating the assets as Long Term Capital Asset. According to him, this was merely an application and not diversion of income. He also found that the entire exercise was a colorable device used by the assessee to reduce tax burden. It was also his observation that in several judici .....

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ncurred for making provision for any other accommodation for running the Trust. The AO also held that merely because the Trust had offered the income for taxation as Long Term Capital Gains, it does not mean that the amount is not taxable in the hands of the assessee. Attention was also invited to the fact that the assessee had been claiming depreciation on the entire factory building notwithstanding its claim that one floor has been used by the Trust. Reference was also made to the income and e .....

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ber Industry Ltd vs Associated Rubber Industry Ltd 157 ITR 77 and CIT vs Durga Prasad More 82 ITR 540 and on the decision of the Mumbai bench of ITAT in the case of Bombay Oil Industries Ltd vs DCIT 82 ITD 626, to support his view that the transaction was a colorable device. In light of the above, the sum of Rs, 1,50,00,000/- was also held as taxable in the hands of assessee firm as arising out of sale of factory building and was reduced from the amount shown under the head buildings held by the .....

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s genuine. It has been assessed in respect of income that it has earned from subletting the premises taken by it on lease since 1984. Attention was also drawn to the fact that initially the Department sought to assess the income earned by the Trust as the income of the assessee. This contention of the Department was rejected by the Tribunal in its order dated 23.04.1996 in ITA. No.8226-8227/Bom/92. It was also argued that the amount of consideration which has accrued to the Trust has been offere .....

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usively in connection with the transfer. Reliance was in this regard, placed on the decision of Hon'ble Bombay high Court in the case CIT vs Shakuntala Kantilal 190 ITR 56, wherein it was held that any expenditure incurred by an assessee to effect the transfer will be expenditure incurred wholly and exclusively in connection with the transfer. Reliance was also placed on the decisions in the cases CIT vs Venkatraman 137 ITR 846 (Mad), CIT vs Naozar Chenoy 234 ITR 95 (AP), CIT vs Abrar Alvi 2 .....

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him, in nutshell, that this was a colorable device used by the assessee to reduce its tax liability. It was requested by him that Ld. CIT(A) has wrongly deleted the addition made by the AO and therefore, his action should be reversed and addition made by the Ld. AO should be restored. 4.4. On the other hand, Ld. Counsel has supported the order of Ld. CIT(A). It was submitted by him that in the year 1984 the lease was granted by the assessee to the family trust on yearly renewable basis. Althoug .....

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liance of the copy of the order of the Tribunal in ITA No.8226-8227/Bom/dated 23rd April, 1996. Our attention was drawn on Form no. 37I filed with the appropriate authority u/s 269UC of the Income Tax 1961, being the statement of agreement for transfer of immovable property, in pursuance to rule 48 of the Income Tax Rules, wherein it was shown that impugned transferred property was encumbered in the sense that first floor of the said property was given on lease to M/s Writer Jesia Family Trust, .....

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irmation of the aforesaid trust for which a sum of ₹ 1.50 crores was payable to the trust in capacity of confirming party. The Ld. Counsel relied upon the detailed findings of the Ld. CIT(A), as well as various cases relied upon by the Ld. CIT(A) in its order while deciding this issue in favour of the assessee. Reliance was also placed on the judgment of CIT vs Shakuntala Kantilal 190 ITR 57 (Bom), in support of the proposition that expenses incurred for transfer of property would be deduc .....

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ed as income of the trust in its hands. Our attention was drawn on the copy of the return filed by the trust showing that a sum of ₹ 1.50 crores has been included by the trust in its return, which has been accepted by the revenue. In nutshell, he requested for upholding the order of Ld. CIT(A) on this issue. 4.5. We have gone through the submissions made by both the sides, the orders of lower authorities, material placed before us for our consideration as well as judgments relied upon by a .....

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mises on which the Assessing Officer has taken his decision, and both of these have been aptly dealt with by Ld CIT(A), while adjudicating first appeal, and we also deal with observations of the AO and findings of Ld CIT(A) as under: (i) With regard to the first issue, on the basis of analysis of the Agreement of sale dated 09.05.2002, it was found by Ld CIT(A) that the payment to the Trust was a 'diversion of income'. He made a specific reference to Clause-P of the said Agreement in whi .....

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by the assessee. It is further worth noting that by virtue of this tripartite Agreement between the assessee, the Trust and M/s Sun Pharmaceutical Industries Ltd, the consideration of ₹ 1.50 crores was directly paid to the Trust for handing over vacant possession of the building to the assessee. This amount was never received by the assessee. In view of these facts and circumstances, we do not find substance in the contention of the AO that this was application of income. It has been furth .....

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legal obligation. Thus, we find that Ld CIT(A) has rightly rejected the contentions of the AO on this issue. (ii) With regard to the second issue i.e. whether the transaction was a colorable device or not, it was held by Ld CIT(A) that the Assessing Officer's findings in this context were based on presumptions. It was noted that in the past , the income earned by the Trust was held as the assessee's income. However, the Hon'ble ITAT vide its order dated 23.04.1996, supra, had reject .....

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or improbable. In any case, the Trust has offered the consideration as income, in its return of income. In our opinion, Ld CIT(A) has rightly rejected the stand of the AO on this issue also. (iii) Further, in addition to the above, there is one more angle to resolve this issue. It has been rightly argued by Ld Counsel that even if the entire sum of ₹ 4,95,00,000/- is viewed as the sale consideration accruing to the assessee, deduction of ₹ 1.50 crores is available to the assessee as .....

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ed by the Assessing officer is not material and inconsequential in effect, particularly when seen against the fact the trust has offered the said consideration as income. Thus, in view of the above discussion, we find that Ld CIT(A) has rightly held that the Assessing Officer was not justified in taxing the sum of ₹ 1.50 crores in the hands of the assessee and treating it as part of short term capital gain, and therefore no interference is called for in the well reasoned and detailed findi .....

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ad income of capital gain. 5.2. Brief facts, as culled out from the assessment order, are that in assessment proceedings, it was found that the assessee had adjusted total depreciation of ₹ 5,92,524/- pertaining to assessment years 2001-02 and 2002-03 against the Capital Gains. This treatment by the assessee was rejected by the Assessing Officer on the ground that unabsorbed depreciation can be claimed only against business income and not against capital gains in terms of section 29 of the .....

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