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TMI Blog2011 (1) TMI 1461X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, must be reversed. 2. The CIT[A] erred in law and on facts in confirming the action of the assessing officer in adding u/s.41(1) of the Act a sum of ₹ 1,40,000/- on account security deposits received by the appellant in earlier year and which were never claimed as expenditure any time while computing the assessable income. Thus the addition must be deleted. 3. Ground No.1: Brief facts are that assessee is owner of a piece of land measuring about 7326.14 sq.mts. on which a house was also built. The house has been let out to one Shri Vinod P. Patel and Shri Rajesh P. Patel, his brother, and the tenancy was duly recorded in the revenue records. This property was sold through tripartite agreement to M/s Abhilasha Built-Art. The consideration payable to the assessee by M/s.Abhilasha Built-Art for the property was stated to be ₹ 90 lakhs and the consideration paid to Shri Vinod P. Patel and Shri Rajesh P. Patel, who were the confirming party in this tripartite agreement through which they had agreed to release, relinquish and surrender their rights, title, possession and interest in the property in favour of the developer was stated to be ₹ 30 lakhs plus two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Meghraj Baid vs. ACIT [114 TTJ 841]. 5. The ld. CIT(A) after considering these submissions found that names of the confirming parties had been incorporated in the tripartite agreement and it is recorded that with the confirmation of the parties who were in exclusive uninterrupted physical possession would also hand over their rights. He also noted that fact of tenancy has been recorded in the revenue records. The ld. CIT(A) agreed that what assessee has sold is his encumbered property and, therefore, full value of consideration for unencumbered property could not be adopted because it was a well known fact that tenanted properties fetch subsequently lower prices. He further observed at the same time sec. 50C was mandatory during the relevant period and, therefore, its application could not be totally ignored. He further observed that the entire consideration could not be assessed in the hands of the assessee because there were two sellers of the same property as the assessee has sold the title, whereas the tenants has sold the possession and their rights and, accordingly, he was of the view that proportionate amounts should be assessed which have been worked out vide paras 2.19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee and assessee was concerned with his own consideration. He argued that assessee has sold only title of property for development rights and, therefore, strictly speaking the provisions of sec.50C were not applicable. In any case, the AO was duty bound to refer the matter to the DVO for valuation of the mere title of the property without physical possession and in this regard he submitted that though sec. 50C has used the expression "may" but the same has been interpreted as "shall" by various Benches of the Tribunal and in this regard he mainly relied on the decision of the Jodhpur Bench of the Tribunal in the case of Meghraj Baid vs. ACIT [supra]. 7. On the other hand, Ld.DR submitted that for the purpose of sec. 50C it is only the assessee who has to be treated as the owner and the tenant cannot be called as the owner. He argued that the purpose of sec.50C was to check the cash element involved in the dealing of the property. Since the tenants have been allotted alternative flats by the builder in addition to ₹ 30 lakhs, the rest of consideration must have gone to the assessee only. He also submitted that the decision in the case of Chatrabhuj Dwarkadas Kapadi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifica-tions, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. A plain reading of the above provisions show that wherever a transfer of capital asset, being land and building or both is involved, these provisions would be attracted. In the case before us, assessee has definitely transferred the title of the land and, therefore, section 50C was applicable. It cannot be said that since land was given for development rights, therefore, provisions of sec. 50C are not applicable. In the case before us assessee has himself admitted to the transfer of land, therefore, sec. 50C could be applicable. However, at the same time what assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason given was that assessee has sold only the title and that the possession was not with the assessee, we are of the view that the AO should have referred the matter to the DVO for valuation of the portion of the assessee's rights i.e. valuation of the title of the property without the possession. Therefore, following the above decision, we set aside the order of the ld. CIT[A] and remit the matter back to the file of the AO with a direction to first refer the matter to the DVO and thereafter assess the capital gains. 9. Ground No.2: After hearing both the parties, we find that during the assessment proceedings AO observed that in the balance-sheet a sum of ₹ 1.4 lakhs was being shown as security deposits. He then referred to the statement recorded during survey proceedings which is as under: "As per the return of income filed for AY 2005-06, the deposits from the following quarry lessees are shown as outstanding. S.No. Name of the Party Amount in Rs. 1 A Mahendra & Co. 35,000 2 Bharat Stone & Metal Supply Co. 10,000 3 Gulati Construction Corporation 10,000 4 Patel Quarries 5,000 5 Chandivali Quarries 10,000 6 H.N.Somaiya & Co. 7,000 7 Maharashtra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we set aside the order of the Ld. CIT[A] and remit the matter back to the file of the AO with a direction to verify if this amount has already been offered for tax in A.Y 2006-07, then it should be assessed in A.Y 2006-07, otherwise AO may decide the issue in accordance with the law. 14. In the result, assessee's appeal is allowed for statistical purposes. 15. I.T.A.No.5775/M/08 [Revenue's appeal]: In this appeal, Revenue has raised the following grounds: (A) Capital gain arising out of transfer of immovable property to M/s Abhilasha Built Art: Area: 7326.14 sq.mts. "On the facts and in the circumstances of the case the Ld. CIT[A] failed to appreciate that the AO had correctly worked out the deduction/consideration to be allowed towards "removal of impediment/solving of litigation" regarding transfer of immovable property." (B) Capital gain arising out of transfer of immovable property to M/s Unique Estate Development Co. Ltd: Area: 66984.84 sq.mts. 1) On the facts and in the circumstances of the case the Ld. CIT[A] failed to appreciate the judgment in the case of K. Jeelani Basha 256 ITR 282 (Mad) Agreement to Sell entered for transfer of land in stages, capital gain to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to the DVO and, therefore, this ground has become infructuous and the same is dismissed accordingly. 17. As far as other grounds raised under caption (B) are concerned, they revolve around two disputes, namely, [i] dispute regarding transfer of property and [ii] application of section 50C. 18. Brief facts regarding transfer of property are as under: The assessee has through Memorandum of Understanding [for short MOU] agreed to transfer a land in village Chandivili measuring approximately 66984 sq.mts. to M/s. Unique Estates Development Co. Ltd. [for short Unique]. Vide MOU dated 24-4-1992 the land was agreed to be sold through Development Agreement for sale consideration @ ₹ 185 per sq.ft. of available FSI for a total consideration of ₹ 13.34 crores. There were some encroachments and other disputes on the land and the buyer had agreed to resolve the same at its own cost but for some of the issues for which the cost was to be borne by the assessee. As required u/s.269UL an application for permission from the appropriate authority in form No.37I was made and the appropriate authority granted the No Objection Certificate [NOC] on 16-7-1992. Thereafter an irrevocable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, but same were subject to some other conditions as per Deed of Confirmation and Modifications dated 4-2-2000 which have been extracted at pages 15 & 16 of the assessment order and reads as under: "M/ UEDCL shall atleast 7 days before the commencement of construction of each building inform the owners about the same. Similarly within 7 days of obtaining Occupation Certificate in respect of any building the Developers shall inform the owners of the same and will given to the owners True Copy of such Occupation Certificate [point C of page 5] In respect of any building or buildings construction where of is commenced by Developers within a period of two years from the date hereof, M/ UEDCL shall before commencement of construction of each building pay to the Owners 20% of the consideration [i.e. ₹ 37/- per sq.ft.] in respect of the total FSI to be utilised in such building. [para 6(o) of page 8] M/ UEDCL will nto for a period of two years from the date hereof permit any person to occupy/give possession of premises in any building constructed by them and the said lands as aforesaid untill M/ UEDCL shall have paid to the owners consideration in respect of total FSI utilised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the capital gains for taxation, it was contended that mistaken view adopted by the assessee in offering the capital gains in the return of income was not a determinative factor because sec.45 provides that an amount should be charged under the head capital gains only in the year when transfer of such capital assets take place. It was argued that there cannot be any estoppel against the law and admission of the assessee cannot convert non taxable event into taxable. In this regard reliance was placed on various case laws, especially on the decision of the Bombay Bench of the Tribunal in the case of Srikant G. Shah vs. ITO 300 (AT) 324 (Mum) and in the case of M/s Vascon Engineers Pvt. Ltd. vs. CIT in I.T.A.No.5829/Mum/2002. 21. In respect of the observations that Deed dated 24-4-1992 is only MOU, it was submitted that this was treated all through as a Development Agreement and this fact became clear from the Deed of Confirmation-cum-Modifications dated 4-2-2000 and that is why no Development Agreement was found during the survey. In fact, nothing contrary to the record was found during the survey. However, merely because this MOU was registered on 27-1-1999 no adverse inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment agreement between it and Unique was entered into by way of a MOU dated 24-04-1992 and has been actually acted upon subsequently, though there have been diverse obstacles and disputes during the intervening 13 years. No objection certificate in the Form 37-I of the IT Act was obtained, urban land ceiling authorities approached, encroachment dispute with Mr. Maqbul Dadamia settled, development agreement got registered with payment of the stamp duty amounting to ₹ 7,40,000/-, several power of attorneys executed, declaration cum indemnity & deed of confirmation cum modification etc were executed. It is on record and an undisputed fact that the first application to BMC for development of the land was made by Unique on 18-04-2000 and the first commencement certificate was issued by BMC on 28-04-2000. the developer made payments to the appellant in 1992-93, then 1999-2000, 2000- 01, 2001-02, 2002-03, 2003-04 and finally in 2004-05. as is clear from the payment details given on page 17 of the assessment order that approximately ₹ 10 crores out of the total payable amount of ₹ 13.584 crores were received by the appellant before the impugned assessment year. Nothing ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paper book in which it was stated by M/s. Unique that "The above said project is offered by Unique Estate in A.Y. 2003-04 for taxation". When the developer himself declared this project in A.Y. 03-04 on its completion, then how can the assessee be taxed for the same in the A.Y. 05-06? Factum of the developer offering this project in the A.Y. 2003-04 for taxation itself is the sufficient proof for the claim that the possession was handed over to the developer much earlier, otherwise how can a project be completed without possession. The AO has not brought on record any evidence of any nature to controvert the claim of the appellant on MOU, application to ULC, commencement certificate issued by BMC, date of payments by Unique and claims made by Unique in letter dated 26-12-2007. 3.18 In Dhakeswari Cotton Mills Ltd. Vs. CIT 26 ITR 775 (SC), Omar Salay Mohamed Sait vs. CIT 37 ITR 151 (SC), Lalchand Bhagat Ambica Ram Vs. CIT 37 ITR 288 (SC), Rajesh Mahajan And Others Vs. CIT 257 ITR 577 (P & H), Phulchand Ratanlal Vs. CIT 103 ITR 174 (Gauhati), it was held that there must be something more than the mere suspicion in support of an assessment and the mere suspicion cannot take the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position became further clear from the letter written by M/s. Kapadia Consultants on 5-2-2004 to the assessee, copy of which is available at pages 150 to 151 of the paper book wherein different areas have been mentioned. This only shows that it was not clear as to how much area is being sold through MOU and the deal was finalised only much later. He further submitted that the decision relied on by the assessee in the case of Vascon Enggs. Pvt. Ltd. vs. ACIT [supra], copy of which is available at page 315 of the paper book, is totally distinguishable on facts. 24. On the other hand, Ld. counsel of the assessee mainly reiterated the submissions made before the CIT[A] and also strongly supported the order of the First Appellate Authority. He further emphasised that capital gains tax could not be charged in this year simply because assessee himself has offered the same for tax because during the year transfer of the capital assets never took place. He also urged that there cannot be any estoppel against the law and, if some item of income is not taxable, then a plea can be taken later on and in this regard he particularly relied on the decision in the case of Shrikant G. Shah vs. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own in the MOU dated 24-4-1992 but certain lands were under encroachments and some other portion was meant for roads etc. The area kept on changing after removal of individual obstacles but this will not change the situation because the consideration was determined in terms of per square feet of built up area on the basis of FSI and not in terms of land area. The AO had enquired regarding the area of land from the developer i.e. M/s Unique and they had furnished detailed reply vide letter dated 14-12-2007 which is placed at pages 135 to 139 of the paper book. While concluding he submitted that case law relied before the CIT[A] may also be considered and again strongly relied on the decision of the Hon'ble Bombay High Court in the case of Chatrabhuj Dwarkadas Kapadia [supra] and submitted that all the conditions laid down by the Hon'ble court have been fulfilled and the property sold was transferred much earlier than the year under consideration. 27. We have considered the rival submissions carefully in the light of material on record and the decisions cited by the parties. The most important objection raised by the Revenue is that assessee has himself returned the income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear that even if some item of income is offered for tax and if the same is not taxable, then assessee can still maintain that such item is not taxable. This position further becomes clear from the decision of the Hon'ble High Court in the case of Nirmala L. Mehta vs. CIT [supra]. In that case the facts were as under: The assessee was a resident of Mumbai. In the month of August, 1987, she won a lottery of the Government of Sikkim having a prize money of ₹ 6,30,000. The Government of Sikkim deducted income-tax in the sum of ₹ 62,088 as per Sikkim tax laws from the prize money of ₹ 6,30,000 and the balance amount of ₹ 5,67,912 was paid. In her return claimed deduction of ₹ 62,088 on the ground that the said sum was deducted as income-tax at source while making the payment of ₹ 5,67,912. The Assessing Officer , however, did not give credit for the said sum of ₹ 62,088 as the tax deducted from the prize money of the lottery by the Sikkim State Government was not paid to the Indian treasury and tax was not deducted as per section 199 of the Income Tax Act, 1961. In the revision filed by the assessee before the Commissioner, challenging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the lottery of the Government of Sikkim could have been charged to tax only in accordance with the then existing Income-tax laws in the State of Sikkim and could not be charged to tax under the Income-tax Act, 1961." It would be further pertinent to note that the Hon'ble High Court at page 11 of the report referred to the decision of the Constitution Bench of the Supreme Court in the case of Amalgamated Coalfields Ltd. vs. Janapada Sabha, AIR 1961 Supreme Court in the case of 964 held thus: "The problem arose because the petitioner in her return for the asst. yr. 1988-89 filed on June 30, 1988, offered the prize money of the lottery to tax, rather a fundamental error of law on the part of the assessee, but that error of law once detected by the petitioner, it was urged before the Commissioner of Income-tax that the prize money earned by the petitioner could not be taxed under the Income-tax Act, 1961. It is true that it was at a later stage that such contention was raised by the petitioner, but the said contention was a pure question of law and the Commissioner of Income-tax ought to have considered the said contention on its merits and ought not to have declined to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was fixed at ₹ 185/- per sq.ft. of the built up area which was to be approximately 7,00,000 sq.ft. Since various obstacles were there before starting the project, it was agreed through MOU itself that the developer would remove those obstacles and which were removed over a period of time. Assessee sought approval of the Appropriate Authority u/s.269UL and the same was granted vide sanction letter dated 16-7-1992 and the copy of the same is placed at page 73 of the paper book. The MOU was registered on 27-1-1999 with the Sub Registrar Bombay and stamp duty was paid accordingly. Various power of attorneys were also executed in favour of the developer and in the power of attorney dated 15th September, 1999, even power to execute documents in favour of ultimate purchaser was also granted vide clause [3]. This really shows that the developer had right to sell the property. The project could not commence for sometime because some area was falling in the slum area and this slum area was removed on 8-10-1997. The conversion of land from agricultural to non agricultural was done by the order of the Collector on 10-6-1998. The Addl. Collector who is a Competent Authority exempted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of immovable property is not effective or complete under the general law." The Court further laid down the following tests: 1. There should be a contract for consideration. 2. It should be in writing. 3. It should be signed by the transferee. 4. It should pertain to transfer of immovable property. 5. The transferee should have taken the possession of the property. 6. The transferee should be ready and willing to perform his part of the contract. Thus, from above it is clear that even any transaction into any manner which have the effect of transferring or enabling the enjoyment of any immovable property u/s.269UA (d) would also amount to transfer. In the case before us, the Development Agreement dated 24-4-1992 was made the basis for seeking approval of Appropriate Authority and the sanction was duly given by the Appropriate Authority in form No.37I on 16-7-1993. Thus, on the touchstone of this major test itself the Development Agreement entered into by the assessee on 24-4-1992 would constitute transfer. In any case if we refer to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. The Ld. CIT[A] on appeal was of the view that since the transaction was already registered on 27-1-1999, therefore, sec.50C was not applicable, because same could be applied only when the stamp authorities themselves have valued the property at a higher figure. 34. Before us, Ld. DR strongly relied on the order of the AO. 35. On the other hand, ld. counsel of the assessee did not make much arguments but simply relied on the order of the ld. CIT[A]. 36. We have considered the rival submissions carefully and find that sec.50C cannot be applied in this case because of the following reasons. • Firstly, the MOU dated 24-4-1992 was registered with the Sub Registrar Bombay on 27-1-1999 and this fact becomes clear from page 58 of the paper book [back side] where same has been noted for registration by the Office of Dy. Inspector General of Registration and Dy. Collector of Stamps Bombay and the stamp duty has been shown at ₹ 7,40,000/- on 27-1-1999. • Secondly, sec.50C was introduced into the Statute by Finance Act, 2002, with effect from 1-4-2003 and, therefore, in a case where the document has already been registered before the insertion of this provision, this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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