TMI Blog2018 (10) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... ir rent determinable as above, then the actual rent shall constitute the annual value under Section (23)(1)(b) of the Act. Now, applying the above test to the facts of this case, we find a categorical finding of fact recorded by the Tribunal that the actual rent received by the assessee was more than the fair rent. Under the above circumstances, in view of the said finding of fact, we do not see any reason to interfere. - decided in favour of assessee. Addition of long-term capital gain and short-term capital gain arising from transfer of leasing rights of the land located at Silliguri and Darjeeling - CIT(A) held the leasing of the land as in the nature of ‘transfer’ in terms of provisions of section 2(47) of the Act and treated the prevailing market value of the property (deemed consideration under section 50C of the Act) as ‘consideration’ liable to capital gain tax - substantial interest - transfer of rights of enjoyment in property - Held that:- In the instant case, though the initial period of lease has been mentioned for 30 years but same is further extendable. The company to whom, the properties have been leased, has borrowed funds from financial institutions and has con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 2(22)(e) for deemed dividend - beneficial owner of the shares - Held that:- According to the provisions of the law the assessee must be the beneficial owner of the shares of 10% or more. In this case ld AO has not established whether the assessee is holding shares as the beneficial shareholder of 10% or more. No such finding in the assessment order. Merely because the shares are held by the minor son of the assessee and the loan is received by the assessee it cannot be established that assessee is the beneficial shareholder of 10% or more and therefore such loan amount is not chargeable to tax in the hands of the assessee. AO has also not categorically stated that this amount is not advance rent and not adjusted subsequently against the rent payable by the company to the assessee. According to us if it is an advance rent then it becomes a business transaction and the provisions of deemed dividend cannot apply to such transactions. The deposits received by the assessee has already been held by us as sale consideration received on transfer of rights in the property and, thus, in our opinion, it is not in the nature of advance or deposits, which could be held as liable for deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the Stamp Duty Valuation made by the Stamp Valuation Authority. 6. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition made by the AO of short term capital gain of ₹ 18,60,33,515/- arising from transfer of land at Darjeeling after considering the non interest bearing security of ₹ 20 crore as full value of consideration as per Stamp Duty Valuation made by the Stamp Valuation Authority. 7. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition of ₹ 2,51,00,871/- made by the AO under section 2(22)(e) of the Income tax Act, 1961. 8. On the facts and in the circumstances of the case, the CIT (A) has erred in holding that the interest free deposit was advanced during the course of the business, hence, section 2(22)(e) of the Income Tax Act, 1961. 9. The order of the CIT (A) is erroneous and is not tenable on facts and in law. 10. The appellant craves leave to add, alter or amend any/ all of the grounds of appeal before or during the course of the hearing of the appeal. 2.1 The grounds of appeal raised by the assessee in ITA No. 3982/Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64.80 lakhs. The Ld. Assessing Officer referred to by-laws of the Municipal Corporation of the Delhi and submitted that where the value of interest-free security deposit or advance is in excess of six-month rent, an amount equal to 12.5% of the amount, depending on prevailing bank rate shall be added to the amount of rent received by the landlord to determine the lettable value of the premises. The Assessing Officer, thereafter referred to past history of the issue in dispute and following decision of his predecessor in assessment year 2003-04, observed that the Assessing Officer has a mandate to assess fair rent under section 23 of the Act in the light of the decisions in the case of M/s Sheila Kaushik Vs. CIT 131 ITR 435 (SC) and CIT Vs. Satya Co. Ltd. 75 Taxman 193 (Kolkatta). The Assessing Officer observed that the Municipal Authorities were required to take into consideration the interest-free deposit while working out the standard rent, however, in the case of the assessee, same was not brought to the knowledge of the Municipal Authorities and accordingly effect of the interest-free security deposit was not considered while working out the standard rent. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, on the other hand, submitted that issue in dispute involved is covered by the decision of the Hon ble Delhi High Court in the assessee s own case for assessment year 2001-02 to 2003-04, which is reported in 333 ITR 38. The Ld. counsel submitted that issue of rental income from the very same properties and the same security deposits was before the Hon ble Delhi High Court and the Hon ble High Court confirmed the finding of the Tribunal setting aside the addition of notional interest on interest-free security deposit for arriving at Annual Letting Value (ALV). He also submitted that the Tribunal in ITA No. 2107/Del/2014 for assessment year 2009-10, following the decision of the Hon ble Delhi High Court deleted addition of notional interest on interest-free security deposit for determining Annual Lettable Value of the properties. 4.4 We have heard the rival submissions and perused the relevant material on record. We find that Hon ble Delhi High Court in the assessee s own case (supra) for assessment year 2001-02 to 2003-04 has reproduced the facts of the case and according to those facts the issue of Annual Lettable Value of the very same properties and notional interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for the purpose of income from house property as under: 21. We would like to remark that still the question remains as to how to determine the reasonable/fair rent. It has been indicated by the Supreme Court that extraneous circumstances may inflate/deflate the fair rent ‟ . The question would, therefore, be as to what would be circumstances which can be taken into consideration by the AO while determining the fair rent. It is not necessary for us to give any opinion in this behalf, as we are not called upon to do so in these appeals. However, we may observe that no particular test can be laid down and it would depend on facts of each case. We would do nothing more than to extract the following passage from the Supreme Court judgment in the case of Motichand Hirachand Vs. Bombay Municipal Corporation, AIR 1968 SC 441: It is well-recognized principle in rating that both gross value and net annual value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year, Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessment year 2003-04 and in the assessment year consideration, the Assessing Officer has followed finding of his predecessor in assessment year 2003-04. The issue in dispute in assessment year 2003-04 has been decided by the Hon ble Delhi High Court in favour of the assessee. In view of the above, respectfully following the judgment of the Hon ble Delhi High Court and the decision of the Tribunal (supra) in the case of the assessee, we uphold the finding of the Ld. CIT(A) on the issue in dispute. Accordingly, the grounds No. 1 to 4 of the appeal of the Revenue are dismissed. 5. The Grounds No. 5 and 6 of the appeal of the Revenue and grounds No. 1 and 2 of the appeal of the assessee relates to addition of long-term capital gain and short-term capital gain arising from transfer of leasing rights of the land located at Silliguri and Darjeeling. The Ld. CIT(A) held the leasing of the land as in the nature of transfer in terms of provisions of section 2(47) of the Act and treated the prevailing market value of the property ( deemed consideration under section 50C of the Act) as consideration liable to capital gain tax. The Revenue is aggrieved by the value of considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration of the hotel on the said land and similar rights were given however the lease in case of Darjeeling land was irrevocable without any interference from the lessor during the period of the lease. The assessee was given interest-free refundable security of ₹ 20 crore for handing over actual and vacant possession of the said land. 5.5 According to the Assessing Officer, the transaction of the lease was not a lease simpliciter and it was in reality a transfer of immovable property or rights therein. The Ld. Assessing Officer was of the view that leasehold rights in the property amounted to capital asset within the meaning of section 2(14) of the Act and the transaction between the assessee and M/s. SML amounted to sale of legal rights giving rise to capital gain on account of such transfer. The Assessing Officer also observed that the transaction would amount to transfer within the inclusive definition of transfer given in section 2(47) of the Act, wherein the word extinguishment of any right therein would include every possible transaction result in destruction, annihilation, extinction, termination, cessation or cancellation by satisfaction or otherwise of all o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding thereon, right to mortgage and right to transfer the property have been sought to be transferred for a hefty consideration that has been disguised as interest free security. Considering that in both the cases i.e. for self and for M/s Subba Micro Systems, the assessee Sh. Moni Kumar Subba is the controlling person, he has the ability and the flexibility to design the transaction as per his sweet wishes to avoid payment of legitimate taxes. It is quite clear that the transaction is safely covered under the provisions of Section 2(47) of the Income tax Act, 1961 and therefore the same is held to be a transfer of Capital asset by the assessee. The assessee has only made an attempt to give it a colour of genuineness in the garb of lease agreements whereas the same should have been offered for tax under the head Capital gains .. The decision of Hon ble Apex' Court in the case Mcdowell and Co. Ltd. Vs Commercial Tax Office (154 ITR148) is worth mentioning here. In this case, the Apex Court has held as under: Tax planning may be legitimate provided it is within the framework of law.. Colourable devices cannot be part of tax planning and it is wrong to encourage or enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 18,60,33,515/- Total Short Term Capital Gain Rs.32,28,00,894/- 5.7 The Ld. CIT(A) after considering the submissions and argument of the learned Authorised Representative, upheld the transaction as transfer liable to capital gain, however, as far as consideration for transfer of the right is concerned was held to be equal to stamp duty valuation of the properties. The relevant finding of the Ld. CIT(A) is reproduced as under: 5.3 Findings :- I have considered the assessment order, written submissions with paper book and arguments of Ld. AR. The appellant has leased the land to its associate concern M/s Subba Microsystem Ltd. for 30 years extendable with mutual consent of lessor and lessee. The appellant has received refundable deposit of ₹ 35 crores from lessee. The appellant has surrendered following right of the land to the lessee:- 1. Possession 2. Use of land by constructing building for hotel. 3. To mortgage the land to the lenders. 4. To authorize the lender to sale the property in case of default of payment of loan. First two right i.e. posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain. Now coming to the consideration for such transfer, I do not agree to the Assessing Officer to take refundable deposit of ₹ 35 crores as consideration. As per the terms of lease agreement, this deposit is refundable in clear terms. The lease agreement has been executed into-to. I do not approve the findings of the assessing officer that the agreement is shame and reliance placed on various judicial pronouncement, namely, Macdowell Co. Ltd Vs. Commercial Tax Officer or Union of India Vs Azadi Bachchao Andolan and other judicial pronouncements is misplaced on facts. This kind of long lease does not make the transaction sham as similar lease of 72 years in the case of Lake Hotels Motels Ltd. with security deposit has not been held as sham. In view of the above position of facts, the market value of the property is an indicator for determining the consideration for the transfer of bundle of rights under section 2(47) of I.T.Act. Guideline value of the land is set by the Government for registration purpose, the same may be considered as market value of the land in respect of which right is transferred. Majority of the land was purchased by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is partly allowed. 5.8 Before us, the assessee has challenged holding of transaction as transfer and without prejudice, also challenged the amount of consideration taken at value as per stamp duty valuation. 5.9 The Ld. counsel relied on the submission filed before the Ld. CIT(A) and submitted that assessee has received only refundable security against least of land for a period of 30 years in addition to the lease rent received by the assessee from month-to-month basis. The Ld. counsel referred to page 20 of the order of Ld. CIT(A), wherein the terms of lease have been reproduced. The Ld. counsel referred that in clause 5 it has been specifically mentioned that the security deposit would be refundable by the lessor to the lessee at the time of handing over of the actual physical vacant possession of the demised premises by the lessee to the lessor. According to the Ld. counsel, the right to mortgage was allowed to the lessee for facilitating in obtaining loan for construction of the hotel on the said land and the mortgage allowed cannot be a ground for holding the transaction as transfer under section 2(47) of the Act. The Ld. counsel in support of the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal housing complex reported in 56 DTR 255, wherein the security deposit which was reflected as lease premium, was taken as sale consideration for the purpose of computation of capital gains. 5.14 In the rejoinder, the Ld. counsel distinguished the decision of the RK Palshikar (supra) and submitted that in the said case lease was for 99 years. 5.15 We have heard the rival submissions and perused the relevant material on record. The main issue in dispute is in respect of the land at Drajeeling and Suiliguri leased for a period of 30 years, to the company in which assessee is having substantial interest. The company has been given right to mortgage these properties to financial institution for availing loans and those financial institutions have been given right to take over the properties in case of default by the company in repayment of the loans. In background of the facts narrated in aforesaid paras in respect of the transaction of lease of the properties, according to the Revenue the transaction is in the nature of transfer of rights in property through lease agreement. The assessee in support of his contention stated that said transaction is merely lease and not tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 per cent, or was at any amount above 9 per cent, could not render the assessee liable for being taxed on the difference amount as capital gain. 5.17 The Ld. CIT(A) has distinguished the above decision relied upon by the assessee. It has been pointed out by the Ld. CIT(A) that in said case the security deposit was bearing interest and land was expressly not hypothecated to the lender on the terms that same can be sold in case of default. Moreover we find that the issue whether transfer of rights in property in the entire process of leasing of land has not been came up for discussion before the Hon ble High Court. In view of the above, we concur with the Ld. CIT(A) that ratio of the said decision of the Hon ble High Court is not applicable over the facts of the instant case. 5.18 In the case of Balweer Singh Maini (supra) relied upon by the counsel of the assessee, Joint Development Agreement (JDA) fell through for want of permissions and, thus, it was held that there would be no profit or gain, which would arose from transfer of the capital asset. Thus, the ratio of the above decision is also not applicable over the fact of the instant case. The Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase has been mentioned for 30 years but same is further extendable. The company to whom, the properties have been leased, has borrowed funds from financial institutions and has constructed hotel buildings. The financial institutions have been given right to sale the land in case of default in payment by the company. In such circumstances, it can safely be said that the assessee has transferred all his rights of enjoyment in property to the company. 5.21 In view of the aforesaid discussion, we do not find any infirmity in the finding of the Ld. CIT(A) of holding the transaction as transfer liable for capital gains under section 45 of the Act. 5.22 The next question, which arises in the case, is the amount of sale consideration liable for capital gains. According to Assessing Officer, the amount of security deposit received of ₹ 35 crore is sale consideration received and he apportioned the sale consideration for computation of short-term capital gain and long-term capital gain. In case of Siliguri land, the Assessing Officer computed long-term capital gain of ₹ 78,81,841/- and short-term capital gains of ₹ 13,67,67,379/-. In case of Darjiling land, the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, for the purpose of computation of the capital gain as laid down in section 48 of the Act, the security deposit received has been rightly treated by the Assessing Officer as full value consideration received as a result of transfer of the capital asset. We, accordingly, set aside the capital gain worked out by the Ld. CIT(A) and restore that of the Assessing Officer. The ground no. 5 and 6 of appeal of the Revenue are accordingly allowed and the grounds No. 1 2 of the appeal of the assessee are dismissed. 6. The grounds No. 7 8 of the appeal of the Revenue relates to addition of ₹ 2,51,00,871/- made by the Assessing Officer under section 2(22)(e) of the Act. 6.1 The addition in question was proposed by the Assessing Officer alternatively. According to the Assessing Officer, the assessee held 17.6% shares of M/s. Suba Microsystem Limited and, thus, the payment received to the extent of accumulated profit of ₹ 2,51,00, 871/- was liable to be taxed as deemed dividend in terms of section 2(22)(e) of the Act. But no separate addition was made in the final computation of the order on this account as amount of advance received by way of security deposit was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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