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TMI Blog2011 (9) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... /- which was inclusive of deternmination of long term capital gsains of ₹ 1,44,94,439/- as against ₹ 1,32,59,986/- declared by the assessee by adopting the cost of acquisition at ₹ 92,000/- as against ₹ 10 lakhs claimed by the assessee. In the assessment order, the interest claimed by the assessee in computing the income from other sources was also disallowed. The matter was taken up in appeal in ITA No. 214/CC-1/98-99 dated 8-6-1999 whilr confirming the issue relating to disallowance of interest. Set aside the issue of computatioj of capital gains with a direction to re-do the same in accordance with the guidelines set out by him in the order. Pursuant to the said ordr Section 143(3) r/w Section 250 of the Act on 27-3-2002 re-computing the loing term capital gains at ₹ 1,32,03,153/- as against ₹ 1,32,59,786/-shown by the appellant. Being aggrieved by the same, asssessee filed an appeal in ITA No. 203/DCIT.CC-1(1)/CIT (A)-V/2002-03 before the commissioner of the wealth tax (Appeals)-VI, Banglore. The first appellate authority, by order dated 25-11-2002 dismissed the appeal confirming the order passed by the assessing officer. Being aggrieved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now forming part of Bangalore city corporation and being a portion of 12/3, 105 and 105/2 of I main, Seshadripuram, Bangalore; the total area of the plot is 4,054 sq.yards i.e, 36,486 sq.ft. along with all structures therein, As per the development agreement the title of the owner is narrated in the agreement the title of the owner is narrated in the agreement. It is aaverred that the assessee became owner of the property being in continuous possession of the schedule property free from any encumbrances, liens, charges and thre property has been acquired under the sale deed dated 31-10-1967. Whereas the developers approached the owner to purchase 52.5% of undivided share, right, title and interest in the schedule property on certain terms and conditions to which the owner has agreed. Thereafter the agreement recites that it is mutually agreed that the owner does hereby agreed to sell to the developers or theor nominees 52.5% of the undivided share, interest, right and title of the schedule property as a whole or in part of the undivided share and interest together with a right to the developers to develop a Multi Storeyed Residential Complex on the schedule property to the extent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the schedule property to the builder, subject to the options given to the owner and according to the assessee first option was not exercised and therefore, assessee is deemed to have accepted the second option as referred to above and therefore, there is no conveyance of inmovvable property to attract the provisions of section 45(1) of the Act. 9.It is also contended by the revenue that as the assessee has permitted the developer to enter the premises to put up construction on the entire property, to the extent of 52.5% by the developer in his own right as per the development agreement as also 47.5% on behalf of the owner, though there is no recital that possession has been handed over, it must be deemed that possession was handed over on the date of development agreement as the developer has gained access to the property without being disturbed by the owner to put up construction on the entire property. Therefore the possession must be deemed to have been handed over on the date of development agreement dated 25-1-1993 and the apital gain has rightly been shown by the assessee and it cannot be withdrawn by the assessee as the transaction would attract the capital gain. 10. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S KAPADIA Versus COMMISSIONER OF INCOME TAX ((2003) 260 ITR 491) in support of her contention that Section 45 of the Act and clauses (v) and (vi) introduced in Section 2(47) of the Income tax Act, 1961 would cover the said transaction as held by the Bombay High Court and the date of transfer should be taken as from the date of development agreement; when developer gained possession of the property and the said explanation have been added to Section 2(47) of the Act only to scotch the method followed by the developers of postponing the actual execution of the sale deed and payment of capital gain and in view of the said decidion, the order passed by the ITAT Cannot at all be sustained. She also submitted that the reasoning assigned by the ITAT that it is not possible to compute the capital gain under Section 45 of the Act and Section 45 (1) of the Act is not attracted to the development agreement in the present case dated 25-1-1993 and the capital gain would not arise during the assessment year 1995-96 is clearly erroneous and substantial question of law may be answered in favour of the Revenue. 12. The learned counsel appearing for the respondent assessee submitted that in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 156 ITR 509) wherein it is held that when the assessee has transferred hia shares to the partnership firm, he received no consideration within the meaning of Section 48 of the Act nor did any profit or gain accures to him for the purpose of section 45 of the Act. Where a partner of a firm makes over capital asset to the firm as contribution towards capital, there is no capital gain within the terms Section 45(1) of the Act. This is because exclusive interest of the partners in the asset is reduced on their entry into the firm into a shared interest. 15.The learned counsel has also relied on a decision of the Hon'ble Supreme Court in MANISH MAHESHWARI vs ASST.COMMISSIONER OF INCOME- TAX AND ANOTHER ((2007) 289 ITR 341) wherein the Hon'ble Supreme Court has observed that a taxing statue is well known, must be constued strictly. While dealing with a taxing provision, the principle of strict interpretation should be applied. The Court shall not interpret the statutory provision in such a manner which would create an additional fiscal burden on a person.It is also trite law that while two interpretations are possible, the court ordinarily would interpret the provision in favour of a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that the assessee owned a landed property measuring 36486 SQ.FT AREA AT Guttahalli, Bangalore which was acquired on 31-10-1967 for a consideration of ₹ 92,000/-. The assessee entered into the joint development agreement with M/s. Alpine Housing Corporation (Developers) on 25-1-1993 according to which the assessee would transfer 52.5% of his undivided share, interest, right and title in the land to the developers or to their nominees for developing a multi storeyed residential complex. As a consideration for the transfer, the assessee was entitled to either monetary consideration of ₹ 1,34,00,000/- as the first option or 47.5% share in the built-up area of the proposed to be constructed residential complex on the said land as second option. The assessee exercised the second option of receiving 47.5% share in the total built up area as the consideration for the transfer of 52.5% share of his undivided interest in the land. Subsequently a tripartite agreement of sale and construction was made on 29-12-1993 with the assessee, the developer and SIDBI - purchaser as the three parties to the agreement. As per this agreement, it was agreed that 52.5% of the total built-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see became entitled as a result of the transfer can be calculated on the basis of cost for acquiring similar units by SIDBI (Excluding the cost for share in interest in land) and the same would represent the full value of consideration due to the assessee arising from the transfer of assessee's 52.5% share in the property. The cost of improvement claimed by the assessee as a deduction in the computation of long term capital gains consists of the payments made during the financial years 1993-94 towards electricity charges, corporation taxes and betterment charges paid by the asseessee towards the property transferred by him. However, as per the joint development agreement entered into between the assessee and the developer on 25-1-1993, the assessee did not have any obligation to bear the expenses for development of the property after the date of agreement. Normally, whatever expenses were to be incurred for development of thew 52.5% of the developer's share in the subject property transferred had to be borne by the developer only. Morever, the assessee has not furnished the necessary details during the appellate proceedings to show that the payment made towards improvement is from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,48,71,655/-. So far as the determination of cost of improvement, the assessee was given an opportunity to furnish documents as observed by the first appellate authority while setting aside the order of the assessing officer. Notice was issued and the books of accounts for the financial years 1993-94 and 1994-95 were also produced for verification of the sources for incurring expenditure towards of improvement. The break up of items of expenditure which are claimed as cost of improvement, as furnished by the assessee are as follows: Financial Year Date Amount Nature of expenditure 1993-94 21-5-1993 29,130 Payment of electricity charges to KEB 12-07-1993 5-54-039 Payment of betterment charges to BDA 22-10-1992 15,380 Payment of corporation tax Total: 5,98,549 1994-95 15-9-1994 1,39,419 Payment of electricity charges to KEB Total: 1,39,419 Grand total 7,37,968 The assessing officer held that so far as the payment of betterment charges to BDA, the same can be considered as cost of improvement as it was an obligation of the owner to pay betterment charges. However, so far as the payment of electricity charges to KEB and payment od electricity charges to KEB and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurrent findings by the first appellate authority and the assessing officer regarding actual sale price and cost of improvement and indexation and about the amount which would attract tax on capital gain under Section 45(1) read with 46 of the Act. 21. However, the ITAT has proceeded on the basis that the effect of transaction of development agreement entered into between the assessee and the developer was only siminution of the ownership right of the assessee and in view of the conditions of the development agreement, it was clear that total ownership right in the property of 100% came to be reduced to 45.5% and there is dimunition in the ownership right to that extent; but the assessee is still the owner of the entire property and that he is in possession of the entire property, only the exclusive interest of the property has been converted to shared interest. Further, consideration received for such transfer got diverted by overriding title and became the consideration of the developer, who factually received the same and was aolso entitled to receive the same under law, No matter, the developer was obliged to give a constructed portion to the assessee, but the consideration s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit(s) arising from transfer of caital asset is made chargeable to income tax under section 45(1) of the 1961 Act. From the scheme of Section 45, it is cler that capital gains is not an income which accured from day-to -day during a specific period but it arises at a fixed point of time namely on the date of the transfer. In short,Section 45 defines 'capital gains', it makes them chargeable to tax and it allots the appropriate year for such charge. It also enacts a deeming provision. Section 48 lays down the mode of computation of capital gains and deductions thereform," 24. Section 2(47) of the act defines as follows: "transfer" in relation to a capital asset, includes,--- * The sale, exchange or relinquishment of the asset; or * The extinguishment of any rights therein; or * The compulsory acquisition thereof under any law; or * In a case where the asset is converted by the owner thereof into, or is trated by him as, stock- in- trade of a business carried on by him, such conversion or treatment; (iva) the maturity or redemption of a zero coupon bond;or Clauses (v) and (vi) were inserted by finance Act, 1987 with effect from 1-4-1988 which read as follows: Any transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is evident that such a case was not intended to fall within the charging section. Having regard to the facts and the concept of partnership frim, the Hon'ble Supreme Court has also held that the consideration received by the assessee on the transfer his shares to the partnership firm does not fall within the contemplation of Section 48 of the Act and further no profit or gain can be said to srise for the purposes of the act and accordingly held that the case fall outside the scope of Section 45 of the Act. The Hon'ble Supreme court has held that (1) there was a transfer of the shares when the assessee made them over to the partnership[ firm as his capital contributions; and (2) when the assessee transferred his shares to the partnership firm, he received no nor did any part or gain accure to him for the purpose of section 45 of the Act and it was specially observed that those observations are given by them subject to the reservations made by them in the preceeding paragraph that they decided the appeals on the assumptions that the partnership firm in question is a genuine firm and not the result of a sham or unreal transaction and that the transfer by the partner of his personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding sale constructuin put up on 52.5% of the property which was agreed to be conveyed to the purchaser by accepting the consideration and therefore, there was transfer of caital asset for consideration and the relevant date on which the possession was handed over would be the date on which possession of the assessee and the assessee had also accepted the General Power of Attorney by the developer and was restrained from interfering with the possession of the property of the developer in putting up construction and therefore under the said circumstances, it is clear that there was transfer of capital assest for consideration in view of clauses (v) and (vi) of Section 2(47) of the Act defining transfer of capital asset and therefore, the same amounted to consideration amount which was calculable in this case with reference to the material on record, constituted capital gain which attracted tax under Section 45(1) read with section 48 of the act. Under similar circumstances, the effect of insertion of clauses (v) and (vi) in section 2(47) of the Act and as to why the said clauses were inserted into the provisions of the Act has been narrated by the Bombay High Court in CHATURBHUJ's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted irrevocable licence to the developer to enter in to possession of the property and power of attorney had been executed to deal woth the property and irrevocable licence to enter upon the property after the developer obtains requiaite approvals of various authorities. The Bombay High Court held that the said transaction would amount to capital gain and attracted tax under Section 45(1) of the Act. Accordingly we hold that the ITAT was not at all justified in holding that 'transfer' in the present case do not attract capital gain and was not exigible to tax under section 45(1) and 48 of the Act. Therefore, the substantial questions of law have to be answered in favour of the revenue and against the assessee and the order passed by the first appellate authority confirming the orders of the assessing officer has to be restored by setting aside the order of the ITAT. 27.The ITAT had disposed of ITA NO. 147/Bang/2003 on the ground that since the finding is given in ITA NO. 534/Bang/1999 that transaction did not attract capital gain and it was unnecessary to go into the contentions raised in the appeal in ITA No. 147/Bang/2003 and therefore, it had become infructuous. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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