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Shivram Co-Operative Housing Society Ltd. Versus Deputy Commissioner of Income-Tax

IT Appeal No. 1490 (Mum.) of 1998 - Dated:- 17-8-1998 - I. S. Verma (Judicial Member) And M. V. R. Prasad (Accountant Member) For the Appellant : Anil Harish For the Respondent : Krishna Murari ORDER M. V. R. Prasad (Accountant Member) This appeal is directed against the order of the Commissioner of Income-tax (Appeals) dated 22-12-1997 for the assessment year 1993-94. Various objections are taken, but the gist of the main objection is that the CIT(Appeals) erred in taking the sale proceeds of a .....

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mbine price 71,79,720 Less : Cost of plot purchased as per valuation report of Mr. Namavati Roshan attached 11,83,159 Legal fees payable : M/s Soloman & Co. 1,00,000 H.P. Ranina 6,750 Mr. Namavati 1,500 D.M. Harish 4,000 M.R. Deshpande 10,000 M.K.S. Chave 500 Other legal provision 35,000 1,57,750 Paid to compound wall 16,750 Demolition of office shatter & temporary office construction (as per statement) 47,775 Security salary & other expenses (as per statement) 60,000 14,65,434 Long- .....

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and the developer agreed to acquire from the owner development rights of the above-mentioned plot i.e., Plot No. 1087. The rest of the relevant clauses are reproduced below: 1. The owner doth hereby agree to grant to the Developers and the Developers doth hereby agree to acquire from the owner all the development rights of all that piece or parcel of land bearing Plot No. 1087 City Survey No. 1051 admeasuring about 1,672 square metres (One Thousand Six Hundred Seventy Two square metres only) si .....

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s and by way of earnest money and in part payment of the consideration (the payment and receipt whereof the owner doth hereby admit and acknowledge). 3. The Agreement is subject to the permission of the Appropriate Authority under Chapter XX-C of the Income-tax Act, 1961. 4. The parties hereto shall within ten days from the date of execution of this Agreement jointly submit to the Appropriate Authority a Statement in Form No. 37-I under section 269AB of the Income-tax Act, 1961 duly signed by th .....

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deration of ₹ 1,01,92,500 as follows: i. ₹ 33,97,500 (Rupees Thirty Three lacs ninety seven thousand five hundred only) within 6 months from the date of execution of this Agreement. The Owners shall be entitled to make time as the essence in this respect by giving 15 days notice in writing to the Developers on expiry of such 6 months. ii. ₹ 56, 62,500 (Rupees Fifty Six lacs sixty two thousand five hundred only) within 9 months from the date of execution of this Agreement. The O .....

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expiry of such period. 7. Upon payment of the full consideration by the Developers to the owners as provided in this Agreement the owners shall grant a licence to the Developers to enter upon the said Property with rights: a. To put up and/or erect sign boards upon the said property as also issue advertisements including the advertisements in newspapers as may be deemed fit by the Developers in respect of the said property and the sale by the Developers of the premises thereon on ownership basi .....

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er into their own name and on their account agreement for sale of the premises on the said property; e. To apply for and obtain in the name of the owners building completion certificate; 8. ** ** ** 9. ** ** ** 10. The consideration of ₹ 1,13,25,000 (One crore thirteen lacs twenty five thousand only) fixed as above is on the best that the estimated FSI available for construction of premises on the said property shall be 1,672 square metres. If the FSI available on sanction of the building .....

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greement by giving to the other notice in writing of their intention to do so and in case of such termination the owner shall forthwith return to the Developers all amounts paid by the Developers to the owner in pursuance of the Agreement with interest earned by the owner thereon the thereupon neither party shall have any other claim against the other. ** ** ** 15. On the Developers paying to the owner the consideration in full as provided herein the owner shall deliver to the Developers charge .....

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which the appropriate stamp duty payable in that case shall be paid by the Developers. 17. ** ** ** 18. ** ** ** 19. ** ** ** 20. Within 12 months of the completion of construction of new building on the said property as provided herein the developers shall form a Co-operative Housing Society of holding of premises therein and on completion of registration of such Co-operative Housing Society the owner shall executate a conveyance on the said property alongwith buildings thereon in favour of su .....

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SI available for construction of the premises on the said plot would be 1,672 sq. mtrs and the clause at 10 extracted hereinabove provided for reduction of the consideration in case the FSI available should be less than 1,672 sq. mtrs. Further, the agreement also provided that if the FSI should be less than 836 sq. mtrs (half of 1,672 sq. mtrs.) either of the parties had the option of terminating the agreement. In effect, the Society agreed to dispose of the development rights of plot No. 1087 f .....

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After further pursuing the matter with the Corporation, the developer could obtain a further FSI of 104 sq. mtrs. in the year of account relevant for the assessment year 1995-96. Thus, in all, it obtained FSI of 1,253 sq. mtrs. The balance FSI of 419 sq. mtrs (1,672-1,253) was not obtained till date. The assessee received the consideration from the developer on the basis of the FSI obtained in each year. Accordingly, it worked out the capital gains on the basis of consideration relatable to 1,25 .....

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assessment year 1993-94, ₹ 6,69,037 in the assessment year 1994-95 and ₹ 7,07,695 in the assessment year 1995-96. As the plot was acquired in 1968, the appellant opted for the substitution of its value as on 1-4-1981 as permitted under the Act and for this purpose, it got the plot valued by an approved valuer and the approved valuer, Dr. Roshan H. Namavate, determined the value of the plot as on 1-4-1981 at ₹ 11.83 lakhs after taking into account the cost inflation index multip .....

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87 of 1,672 sq. mtrs. had been transferred. He also mentioned that the assessee obtained the necessary No Objection Certificate under section 269UL(3) of the I.T. Act from the Appropriate Authority and such a certificate is issued on the basis of the representation made before the Authority by the appellant that the entire plot was sought to be transferred. He was of the view that, if the assessee sought to transfer the plot in different stages, it was incumbent upon it to approach the Appropria .....

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eds as per NOS of Appropriate Authority 1,13,25,000 Less : (1) Indexed cost of the plot as per valuation report 11,83,159 (2) Demolition of old structure expenses 4,500 11,87,659 Long term capital gain 1,01,37,341" The CIT (Appeals) upheld the finding of the Assessing Officer that capital gains cannot be charged in bits and pieces. He did not dispute the appellant s claim that the entire consideration of ₹ 1,13,25,000 was not received by it, but however, he upheld the order of the Ass .....

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3,25,000. This amount was never received and it was stipulated only on the basis of an optimistic estimate that the FSI that would be available was of the order of 1,672 sq. mtrs. The FSI of 1,672 sq. mtrs. was not allowed and so there was no question of receiving consideration of ₹ 1,13,25,000. The learned counsel for the assessee invited our attention to clause 10 of the agreement which we have extracted hereinbefore and pleaded that in terms of this clause, the consideration had to be s .....

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lot area of 1,672 sq. mtrs. The said Plot No. 1087 is an amalgamated plot with Plot No. 1088, and thus total plot area of both the plots in BMC records is 3,154.60 sq. mtrs., out of which internal road (access) area is 75 sq. mtrs. and Recreation Garden area is 473.19 sq. mtrs. (for both these items FSI is not permitted to be consumed as per BMC rules) and hence net area for consumption available remains 2,606.14 sq. mtrs. and out of which on plot No. 1088, the consumed FSI (for Anupama & An .....

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lause No. 10 of the agreement dated 26-6-1992, that If the FSI available on sanction of the building Plan in respect of the property is less than 1,672 sq. mtrs., the consideration fixed as above shall proportionately reduce. Accordingly as per amended agreement by letter exchanged between Solicitors of Society and Developer i.e., dated 21-10-1992 and 29-10-1992, the consideration was reduced and only for 1,060 sq. mtrs. first payment was made. Subsequently Developer made efforts to get more FSI .....

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a of 419 sq. mtrs. shall remain vested with Society as its Plot. 7. In the light of the above clarification, it is also pleaded that the method adopted by the assessee for offering the capital gains in respect of the transfers involved under the agreement is quite correct and required no disturbance. In other words, the plea taken is that there was not a single transfer under the agreement but there were transfers of development rights in stages as per the FSI that became available in different .....

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agreement as per which the consideration of ₹ 1,13,25,000 was only an assumed figure and clause 10 of the agreement made it clear that the assessee would be entitled only for a reduced consideration in case the FSI was less than 1,672 sq. mtrs. 8. The learned departmental representative on the other hand supported the stand of the Assessing Officer and pleaded that the approval of the Appropriate Authority was obtained on the representation that the consideration was ₹ 1,13,25,000 an .....

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that the assessee deserves to succeed. Firstly, the sale consideration cannot be taken at ₹ 1,13,25,000 for the simple reason that this amount was never received. The terms of the agreement make it very clear that this amount was only a hypothetical figure and as per clause 10 of the agreement it is evident that the assessee would be entitled only for a reduced consideration if the FSI obtained is less than 1,672 sq. mtrs. So clearly, the assessee cannot be taxed on an amount that was not .....

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s executed in favour of the proposed co-operative society to be formed by the Developer, there is no transfer of any rights in the plot in question. However, that issue is not before us as the appellant had itself offered the capital gains in the three years in question. Another point also may be made, that is, even though, the preamble of the deed describes that only development rights are transferred, what remains after their transfer is only a shell and the appellant is not entitled for any c .....

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rom this correspondence which is in the appellant s paper book, it appears to us that the possession of entire 1,672 sq. mtrs. was never given to the developers and what was given was given only in stages. In a letter dated 21-10-1992 addressed by M/s. Solomon & Co., Advocates of the appellant, the former categorically mentioned that his clients, i.e., Marathon Combines would be entitled for only to possession of conveyance of 1,060 sq. mtrs. of land which has been arrived at after excluding .....

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to all the rights of an absolute owner to the portion admeasuring 1,060 sq. mtrs. of the above plot including right available on account of relaxation of building regulations or otherwise. This letter may be seen at pages 52 and 53 of the appellant s paper book. In the letter dated 13-11-1992 addressed by the appellant to M/s. Marathon Combines and which may be seen at page 54 of the applicant s paper book, it is made clear that the former have granted a licence to enter upon and charge of a por .....

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Meeting, your offer for payment of ₹ 6,48,037 for utilisation of additional 89 square metres of FSI was accepted, and the Managing Committee has been authorised to finalise the terms in connection therewith. Accordingly after discussions in our Managing Committee, we confirm that we are prepared to grant you the right to utilise 89 square metres of additional FSI in carrying out construction on our plot admeasuring 1,060 square metres granted to your under the above agreement on the follow .....

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d plan of the scheme for amalgamation of our plot Nos. 1087 and 1088 by shifting the location of the internal road from the site shown red on the sketch hereto annexed to the site shown yellow on the sketch hereto annexed. The area of plot on which your building is under construction is enhanced from 1,060 square metres to 1,149 square metres and you are permitted to carry out construction of a building with FSI of 1,149 square metres on the aforesaid plot denoted with letter B on the sketch her .....

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nt we wish to inform you that M.C.G.B. has approved the plans for additional F.S.I. to the extent of 104 sq. mtrs. The payment for this area works out as follows: Rs. 104 sq.mtrs. x 8,611/20 sq.mtrs. 8,95,565 Less : Expenses 1,87,870 Payable 7,07,695 Cheque for the above amount is enclosed herewith. (enclosed is one set of approved plans duly approved by the architects) Marathon Combines Sd/- 11. The above correspondence corroborates the clarification of the assessee contained in its letter date .....

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on construction was granted to the developer and the possession of the plot was not allowed. However, the question whether such granting of licence amounts to granting possession or even if it does not amount to granting possession, whether it, under specified circumstances, amounts to transfer in terms of section 2(47)(v) of the I.T. Act need not detain us here as the assessee himself had offered capital gains on the basis of the area in respect of which the developer was allowed the licence to .....

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x on the basis of a position that is not only not conceded but specifically denied by an assessee. In the present case, the assessee has denied that the possession of 1,672 sq. mtrs. was granted in the year of account relevant for the assessment year 1993-94 and there is no evidence with the revenue that such possession of 1,672 sq. mtrs. was allowed. It is also an undisputed fact that the total consideration of ₹ 1,13,25,000 was not received by the appellant either in the assessment year .....

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