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Unitech Hospitality Services Limited Versus Assistant Commissioner Of Income Tax

2017 (2) TMI 495 - DELHI HIGH COURT

Deduction towards license fee, external development charges and conversion charges - computation of sale consideration - Held that:- Clauses (1) and (2) of MOU clearly state that the transfer of expenses shall include all expenses such as, license fee, external development charges, conversion charges. Instead the expenses made towards conversion and development of the commercial complex were to be transferred to the books of accounts of UHSL the appellant Significantly, it does not stipulate rei .....

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e appellant on 25.03.2008, however, in the absence of any obligation under any agreement between the appellant, the UBPL and UDHPL to pay monies of any sort to the original allottee, the appellant could not claim the sum of ₹ 6.75 crores towards deduction from income. The AO had further disallowed and disputed the addition of such costs on the ground that no such expenses had at all been incurred by the assessee and the perusal of the Sale Deed showed that the sale consideration was inclus .....

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ect to all just exceptions. The application stands disposed off. ITA No.710/2016 1. The appellant has impugned the order of the Income Tax Appellate Tribunal (hereinafter referred to as the ITAT ) dated 07.03.2016, which confirmed the order of the Assessment Officer (AO) and of the Commissioner of Income Tax (Appeals) [CIT(A)] disallowing deduction of ₹ 6,73,76,070/- towards license fee, external development charges and conversion charges. The following question of law was framed for consi .....

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wood Industries Ltd., the original allottees . On 30.03.2006, UBPL entered into an Agreement to Sell (ATS) with M/s. Unitech Developers & Hotels Pvt. Ltd. (hereinafter referred to as the "UDHPL") for sale of the said land and it was agreed that all the approvals for construction shall be obtained by the purchaser. However, since the purchaser was unable to pay the monies, it sought cancellation of the ATS. 3. By a Memorandum of Understanding (hereinafter referred to as the MoU ) ex .....

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7,23,723/- to the Department of Town and Country Planning, Government of Haryana (hereinafter referred to as the "DTCP, Haryana") towards license fees, external development charges and conversion charges of the aforesaid land. 5. The DTCP, Haryana gave necessary approval for the development of the said land vide letter dated 18.04.2007. UBPL executed a Sale Deed in favour of the appellant on 25.03.2008 for a consideration of ₹ 7.16 crores. A week later i.e. on 31.03.2008, the app .....

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ost. Both, in the appeal before the CIT(A) and ITAT, the said disallowance was upheld. The Tribunal examined the MoU dated 01.04.2007 executed between UBPL, UDHPL and the appellant and did not find any such monies or consideration payable by the assessee to either the Seller UBPL or to the original allottee. It reasoned inter alia:- 6.............According to this agreement it is stated that united business park ltd is the owner of the licensed land which was purchased by it from Unitech Ltd on .....

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nt of mutually agreed consideration. On reading of the said MOU we could not find any consideration to be paid by the assessee to the owner of the land agreed based on this MOU. Therefore for the exact consideration and cost of land the only relevant documents required to be seen is the sale deed executed between the assessee and Unitech business parks ltd. This sale deed dated 25.03.2008 which is filed in the PB 89-91. According to that sale deed the total consideration for 3.398 acre of land w .....

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acres situated in Block-B at Greenwoods City, Gurgaon, Haryana, unto the VENDEE together with all its rights, liberties, privileges, liens, easements, advantages, passages, pathways, permission grants whatsoever attached or annexed to the said land. 2. That the VENDEE has paid the aforesaid total consideration of ₹ 7,16,00,000/ -(Rupees Seven Crore Sixteen Lac Only) vide cheque No.856317 dated 25.03.2008 drawn on Canara Bank, Nehru Place, New Delhi to the VENDOR, the receipt whereof the V .....

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d in respect of the said plot of Land upto the date of execution of this Deed of Sale are paid by the VENDOR. However, the said assessment, charges, rates etc., which may be levied in future shall be borne and paid by the VENDEE. 6. That all expenses, incurred on registration of this SaleDeed including Stamp Duty and other charges have been borne and paid by the Vendee." 7. According to paragraph No.5 of that sale deed of taxlevies assessment demand or charges which are levied in respect of .....

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d CIT (A) both have perused these documents and based on that have disallowed these costs to the assessee. Therefore in our opinion merely because the assessee has recorded the cost of external development charges and license fees in the books of account by crediting it to some other parties account and showing it as work in progress i.e. opening stock, it cannot be granted as deduction from the sales price of the land when (1) the cost has been incurred by the other party, (2) the sales deed pr .....

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TR 204. At the first instances the argument looks attractive but on examination of the facts before the Supreme Court and the facts of the case of the assessee, this argument deserves to be dismissed. Fact before the Supreme Court in case cited before us is quite different. The Hon'ble Supreme Court has held that according to the principle of accountancy that the figure of the closing stock of the earlier years does form the opening stock of the next year and it cannot be questioned in the s .....

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assessee. On probing amount of the work in progress the AO has come to know that these expenses have not all been incurred by the assessee and on perusal of the sale deed AO has stated that sale consideration is inclusive of all rights. Therefore in this case AO is disputing the closing stock of the earlier years also. In view of the above facts and circumstances of the case we are of the view that learned Commissioner of Income-tax (Appeals) has rightly confirmed that disallowance of ₹ 6, .....

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to convey, sell, transfer and assign all their rights and interest in the aforesaid plot of land to the Vendee i.e. UBPL alongwith all its rights, liberties etc. in the said plot of land. It further recorded that the Vendors are left with no right, lien or claim of any nature whatsoever in the said land. Clauses (5) and (6) of the said Agreement record that all the external development charges up to the date of the said Conveyance Deed had been paid by the Vendee to the original allottees and n .....

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nd conversion charges, it may be out of benevolence or whatever other considerations, but the amount of ₹ 13,67,23,723/- paid by it could not be fastened either upon the Vendee, UBPL or upon the subsequent Vendee the appellant for reimbursement. The agreement between UBPL and UDHPL dated 30.03.2006 does not stipulate any such liability or reimbursement to the original allottee. In any case, such monies before reimbursement or transfer to the original allottee would be subject to tax in the .....

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s to be executed, if any, pursuant to this agreement, including stamp duty and the registration charges of the Sale Deed, shall be borne and paid solely by the Vendee. (7) That all rates, taxed, levies, etc. in respect of the said Plot of Land upto the date of registration of Conveyance Deed shall be paid by the Company and thereafter such rates, taxes and charges shall be paid by the Vendee. 9. The MoU dated 01.04.2007, recorded that UBPL had purchased the land by Registered Conveyance Deed dat .....

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complex on the said land. The assessee agreed to the above terms. The MoU recorded inter alia as under:- 1. That all the expenditure incurred and spent on the construction and development of Commercial Complex on the Said Land shall be transferred and accounted for in the books of accounts of 'UHSL'. 2. That the transfer of expenses, as mentioned hereinabove shall include expenses, such as, License fee, Architect's fee, EDC, IDC, conversion charges, construction cost including mater .....

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is expressly agreed in between the Parties that they shall remain bound by this Understanding and shall take all consequential steps in accordance with the provisions of this MOU. 5. That in the event of any controversy or ambiguitypertaining to or arising out of this MOU, the same shall be referred to the Chairman of the Holding Company i.e. Unitech Limited and the decision of the Chairman of the Holding Company shall be binding on all the Parties. 10. Aforesaid clauses (1) and (2) clearly stat .....

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ts payment of ₹ 13.67 crores to the latter on 29.09.2007 is of its free volition and under no legal obligation under any of the documents relied upon by the appellant. The said amount could not be claimed as against the costs etc. for development of the said land. The Sale Deed was executed between the UBPL and the appellant on 25.03.2008, however, in the absence of any obligation under any agreement between the appellant, the UBPL and UDHPL to pay monies of any sort to the original allott .....

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