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TMI Blog2022 (12) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Pvt. Ltd. 1.2. The CIT(A) failed to obtain the copy of the agreement for sale entered between the assessee and M/s. Synergy Mura Realty Private Limited which led to the cancellation of the joint development agreement entered between the assessee and M/s. Ramaniyam Real Estate Pvt. Ltd. 1.3. The CIT(A) ought to have appreciated that the assessee and his family members owned the land in question and were also the partners in the firm M/s. Sri Arvind Enterprises which had occupied the said land on lease. 1.4 The CIT(A) failed to appreciate that the interest payment made due to cancellation of JDA is not an expenditure incurred wholly and exclusively in connection with the transfer of the property to M/s. Synergy Mura Realty Private Limited leading to capital gains and hence cannot qualify for deduction u/s. 48 of the Act. 1.4. The facts and circumstances of the relied upon decision in the case of Gopeenath Paul & Sons Vs. DCIT (278 ITR 240) is distinguishable from that of the case on hand. 2.1 The CIT(A) erred in allowing the compensation paid to Sri Aravind Enterprises and M/s. B. J. Textile Company Ltd. when major portion of the shares in both the entities are he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 5. While computing the capital gain tax, assessee worked out the long term capital gains by taking into consideration his portion of sale consideration and corresponding expenses details of which are tabulated in para 2.3 of the Ld. AO's order and the same is reproduced as under: Sl. No. Description Amount (Rs.) Amount (Rs.) 1. Sale consideration for capital gain purpose 22,11,49,500 Less: Expenses on transfer (i) Commission paid to DTZ International Property Advisors Pvt. Ltd. 24,84,836 (ii) Interest paid on Security Deposit to Ramaniyam Real Estates P. Ltd 2,55,57,417. (iii) Compensation paid to Sri Aravind Enterprise (AY 13-14) 4,74,15,690 (iv) Compensation paid to Sri Aravind Enterprise (AY 14-15) 93,41,618 (v) Compensation paid to Sri Aravind Enterprise (AY 14-15) 1,91,08,554 (vi) Compensation paid to BJ Textiles Company Ltd. (AY 14-15) 2,30,11,920 (vii) Compensation paid to BJ Textiles Company Ltd. in AY 15-16 1,70,11,500 TOTAL 14,38,71,535 Net consideration 7,72,17,965 Less: Indexed cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and claimed that interest paid on security deposit to Ramaniyam for an amount of Rs.2,55,57,417/- was in respect of clearing the encumbrance owing to cancellation of the Joint Development Agreement (in short "JDA") which was entered into with Ramaniyam for the purpose of development of the impugned property. It was claimed by the assessee that the JDA was cancelled owing to specific condition warranted by the purchaser of the impugned land. It was submitted by the assessee that Ramaniyam was the agreementholder and was interested in continuing the development project whereas the land owners including the assessee had to make their obligations and were hard pressed for funds since an enquiry to purchase outright had come before them with good price factor and cancelling the JDA was a pre-requisite for the sale. It was also submitted that the land owners including the assessee were in need of funds to settle the leaseholders i.e. SAE and BJT to vacate the land on the promise for payment of compensation. It was thus submitted that the interest was paid for clearing the encumbrance created in respect of development of the impugned land under the JDA with Ramaniyam. By considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission placed on record along with judicial precedents mentioned therein, strongly submitted that there is diversion of sale proceeds towards redeeming the interest of related parties i.e. SAE and BJT and that of Ramaniyam and, therefore, the amount so diverted is exigible to capital gains tax. Ld. Sr. DR reiterated the facts relating to the compensation of SAE and BJT as also the fact of JDA set up with Ramaniyam. Ld. Sr. DR pointed to the fact that out of total amount of Rs.24.52 Cr. claimed to have been paid to SAE, Rs.20 Cr. had been paid by August, 2012. Similarly, Rs.2.5 Cr. had been paid to BJT by August 2012. He thus, submitted that on the plea of the assessee that minority shareholder may tarnish the image of the management, these amounts were paid much prior to the receipt of letter from the minority shareholder. He also submitted that substantial amounts have already been paid to the two entities wherein the three owners including the assessee hold more than 99% ownership and, therefore, he strongly contended that payments made in the nature of compensation to the two entities namely, SAE and BJT did not qualify as cost of improvement or cost of transfer and thus, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t repaid, the assessee and the other two co-owners consented for sale of the property by Bank to realize its dues. This was purchased by M/s. Royal Park, Tiruchirapalli, for a total consideration of Rs.1,96,18,200/-. The sale was effected during the Assessment Year 1995-1996. The total sale consideration was paid to the Bank by the purchaser M/s. Royal Park, Tiruchirapalli. 27. In the present case, to reiterate the facts, the assessee Smt. D. Zeenath along with two other co-owners, namely, Smt. S. A. Kathija Nachial and Smt. Zubaida had originally purchased land measuring 43,596 sq.ft. at Saram Village, Pondicherry by two sale deeds dated 11.07.1980 and 04.02.1981 for a total consideration of Rs.2,01,000/-. They had offered the said property as collateral security towards the loan of Rs.3.75 Crores obtained by M/s. M.O. Hassan Kuthoos Maricar Pvt. Ltd., with State Bank of India, Pondicherry. Mortgage was by deposit of title deeds. In a mortgage by deposit of title deeds, the mortgagee, in this case, the State Bank of India, Pondicherry, does not acquire title, much less overriding title to the property. The charge created over the property was to the extent of the mortgage amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration on the submissions made before us. Admittedly, it is a fact on record that long term capital gain which is the subject matter of present appeal, SAE and BJT are related parties vis-à-vis the assessee who are conducting their business operations from the land which has given rise to long term capital gains. The three co-owners of the land including assessee, holds substantial and significant share in the two entities controlling the entire affairs of SAE and BJT. It is also an undisputed fact that the share of the assessee in the sale transaction is of 30.93% who has computed the long term capital gain by taking into consideration his proportion of expenses which are claimed to have been incurred wholly and exclusively in connection with the said transaction so also his share of cost of acquisition/cost of improvement (indexed) as contemplated u/s. 48 of the Act. 12.1 The moot points before us are in respect of claim of interest payment on security deposit towards clearance of encumbrance with Ramaniyam and payment of compensation to SAE & BJT for vacating the land and obtaining its peaceful possession for the purpose of completing the sale transaction, as allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced as under: 12.4 From the perusal of the above two charts, we note that prior to the impugned year AY 2015-16, in the two immediately preceding years ending on 31.03.2013 and 31.03.2014, the net profit reported in both the entities is that of a loss scenario. Both the entities had already been gone into losses prior to the date of sale of land in the impugned year and, therefore, the contentions made by the ld. Counsel of the assessee that sale of land by the co-owners including the assessee would lead to suffering of business losses to the two entities does not stand correct on the strength of verifiable facts placed in the two charts reproduced above. 12.5 In respect of claim of interest paid to Ramaniyam, ld. Counsel for the assessee asserted that it is paid for clearance of encumbrance. Before adverting on this issue, we would like to delve on the term 'encumbrance' for its better understanding: (i) An `encumbrance' is a charge or burden created by transfer of any interest in a property. It is a liability attached to the property that runs with the land. [National Textile Corporation v. State of Maharashtra, AIR 1977 SC 1566 explained in Saradamani Kandappan v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y.... Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and tribunals have to judge the evidence before them by applying the test of human probabilities. 13.1 The conclusions flowing from the explanations and evidences furnished by the assessee in the present case are leading us to consider the doctrine of 'preponderance of human probabilities' and the 'surrounding circumstances' in respect of the claims made. Instead of adopting superficial approach, claim of the assessee is to be examined in the light of real life probabilities which have been so done by the ld. AO. In respect of impugned land on which computation of long term capital gain is the subject matter of this appeal, on one hand it has been said to be used under lease arrangement for the business operations of two concerns (SAE and BJT) wherein the co-owners including assessee have substantive holding/controlling interest and on the other hand the same land is said to be developed under a JDA with one party Ramanaiyam. Further, the same land has been sold in the year under consideration giving rise to long term capital gains to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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