TMI Blog2023 (5) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... f DLF Universal Ltd.[supra] we hold that the transaction of impugned land introduced by the assessee as his share of capital in the AOP is taxable u/s.45(3) of the Act. The AO shall consider the value of Rs.5,00,00,000/- which is credited in the books of accounts, as value of land shall be deemed to be the full value of consideration as a result of transfer of land as provided in Section 45(3) of the Act. The AO shall accordingly calculate the Capital gain. - ITA No.820/PUN/2018 - - - Dated:- 5-4-2023 - Shri S.S.Viswanethra Ravi Judicial Member And Dr. Dipak P. Ripote, Accountant Member For the Assessee : Shri Krishna Gujarathi AR For the Revenue : Shri B.S.Rajpurohit DR ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Revenue is directed against the order of ld.Commissioner of Income Tax(Appeals)-6, Pune dated 08.01.2018 emanating from order under section 143(3) of the Income Tax Act, 1961 for the A.Y.2013-14 dated 29.03.2016. The Revenue has raised the following grounds of appeal: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the transfer of stock in trade as capital contribution by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-6(ii) is reproduced here as under : ii. For making available the rights as per clause (i) above the Joint Venture the value of such contribution of the land shall be Rs.5,00,00,000/- (Rupees five crore only) and the said amount shall be credited to the capital account of the First party. 2.1 Thus, Rs.5 crores was credited to the capital account of the assessee. 2.2 Similarly, JKG Associates contributed its undivided title and rights in the impugned land at Survey No.72/2d, Hissa No.2 to 7, Hadapsar, Pune as their capital contribution. For making available the rights, the value of such contribution of the land was taken at Rs.5 crores and credited to the capital account of the JKG Associates. 2.3 It is also mentioned at Article-32 that AOP shall file a separate Income Tax Return and other Tax Returns. It is further mentioned in Article-32 that the AOP shall be responsible for making payment of Income Tax. Accordingly the AOP has filed separate Income Tax Return. 3. The AO taxed Rs.5 crore as business income of the assessee. Aggrieved by the assessment order, assessee filed appeal before ld.CIT(A). The ld.CIT(A) vide his order dated 08.01.2018 allowed the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umed any liability towards the execution of the project but are entitled to certain fixed .. me gross sale proceeds for each is nothing but the consideration for the surrendering the rights in the land by them and not for assuming any business risks. This only leads to conclusion that the land price, has not been determined on the date of the agreement, though it is stated the cost of the land to be adopted is Rs.10 crores while drawing up the P L account at the end of the project. It is also seen that there is no capital contribution brought in by the third party. All the expenditures for the completion of the project were to be borne by the third party. This agreement is not truly in the nature of an association of persons though stated so, as the responsibilities and the risks are not borne in the proportionate ratio of the capital brought in by the members. It is more in the nature of joint venture agreement wherein the appellant and the second party introduced their land for development and the construction to be undertaken by the third party along with the risks associated with such construction business. In the light of the various clauses cited above, it is clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 15% of gross sales. The ld.AR further stated that the land was not transferred and it was merely given for development, hence, there was no transfer as envisaged in section 2(47) of the Act. Findings Discussions : 6. We have heard both the parties and perused the records. On perusal of the profit and loss account for A.Y. 2012-13 and 2013-14, it is observed that following was closing stock : Opening Stock as on 01.04.2011 - Rs.96,13,000/- Closing Stock as on 31.03.2012 - Rs.59,96,431/- Opening Stock as on 01.04.2012 - Rs.59,96,431/- Closing Stock as on 31.03.2013 - Rs.54,93,215/- The Balance Sheet entries were as under : As on 31.03.2012 As on 31.03.2013 Current Assets Closing Stock Rs.59,96,431/- Rs.54,93,215/- Land at various sites Rs.4,01, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As a capital contribution the party of the First Part have contributed their respective fifty percent undivided title and rights in the said property as their capital contribution and have made available their respective one half i.e. fifty percent undivided share of the the said property to this AOP and the AOP shall be entitled to exploit the rights obtained therein for the purpose of its business. ii. For making available the rights as per clause(i) above the Joint Venture the value of such contribution of the land shall be Rs.5,00,00,000/- (Rupees five crore only) and the said amount shall be credited to the capital account of the First party. iii. If at any stage it is required to make any payments to the previous Owners of the said property or any person connected therewith on any account, it would be the liability of the party of the First Part only and the AOP and the party of the Third Part will not be responsible for the payment of any such liability. B. SECOND PARTY : i. As a capital contribution the party of the Second Part has contributed their one half i.e. fifty percent undivided title and rights in the said property as their capital contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partnership firm, irrespective of its nature it partakes the character of capital asset. 7.5 In the case under consideration, the assessee contributed his land as Capital in the AOP. The assessee is liable to receive share of profit of AOP as mentioned in the Article 11 of the Articles of Agreement vide which the AOP was formed. Therefore, the facts of the present case are identical to the facts of the case of DLF Universal Ltd (supra). Therefore, respectfully following the ITAT Special Bench (supra) it is held that the land which was introduced as Capital by the assessee in the AOP and has been duly credited to his capital account of AOP, partakes the character of Capital Assets. 7.6 The Section 45(3) of the Act applicable for the year under consideration is reproduced here as under for ready reference : Quote, Capital gains. 45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H,be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. (2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996, and for the purposes of (i) section 48; and (ii) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method. Explanation. For the purposes of this sub-section, the expressions beneficial owner , depository and security shall have the meanings respectively assigned to them in clauses (a), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided in Section 45(3) of the Act. The AO shall accordingly calculate the Capital gain. 10. We will like to mention here that the Ld.CIT(A) failed to appreciate the Article 6 of the Article of Agreement vide which the AOP was formed. The Ld.CIT(A) treated the said transaction as Joint Venture Agreement for development of land. In the Joint Venture Agreement for development of land the persons do not for an AOP and they do not introduce land as Capital contribution. In the case under consideration the three persons formed an AOP by a registered Agreement. In the said agreement specific share of profit of each person is mentioned and specific capital is mentioned. Once the assessee introduced the land as capital contribution to the AOP, the assessee no longer has any right over the impugned land. The assessee has transferred his rights in the impugned land, the moment the impugned land was introduced as Capital contribution of the assessee in the AOP. The impugned land became property of the AOP. It is also mentioned in the Agreement that AOP shall file its return of income and pay taxes. These facts were not considered by the Ld.CIT(A). The AOP had filed return of Income fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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