CALICO DYEING & PRINTING MILLS P. LTD, MUMBAI V. ITO 6(2)(1), MUMBAI

CO 28/MUM/2010

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8779 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K. BILLAI YA, AM ./I.T.A. NO.4297/MUM/2009 ( / ASSESSMENT YEAR : 2006-07 THE ITO 6(2)(1), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. CALICO DYEING & PRINTING MILLS PVT. LTD., 113/114, MITTAL TOWER, A WING, NARIMAN POINT, MUMBAI-400 021 C.O. NO. 28/MUM/2010 ARISING OUT OF I.T.A. NO.4297/MUM/2009 ( / ASSESSMENT YEAR : 2006-07 M/S. CALICO DYEING & PRINTING MILLS PVT. LTD., MUMBAI-400 021 / VS. THE ITO 6(2)(1), AAYAKAR BHAVAN, MUMBAI-400 020 ./ ./PAN/GIR NO. : AAACC 3621J ( ! /APPELLANT ) .. ( '#! / RESPONDENT ) ! $ / REVENUE BY: SHRI A.C. TEJPAL '#! % $ / ASSESSEE BY : SHRI DHARMESH SHAH % &' / DATE OF HEARING : 15.5.2013 () % &' / DATE OF PRONOUNCEMENT : 05.06.2013 *+ / O R D E R PER N.K. BILLAIYA, AM THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJ ECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-VI, MUMBAI DT. 22.5.2009 PERTAINING TO ASSESSMENT YEAR 2006-07 . SINCE THE APPEAL AND THE CROSS OBJECTION WERE HEARD TOGETHER, THEY ARE D ISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. ITA NO. 4297/MUM/2009 REVENUES APPEAL 2. THE REVENUE HAS RAISED FOLLOWING SUBSTANTIVE GRO UNDS OF APPEAL: ITA NO. 4297/M/09 C.O. NO. 28/M/2010 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT INCOME FROM SALE OF SHARES AND THE OCCUPANCY RIGHTS CANNOT BE ASSESSED IN THE HANDS OF THE APPELLANT COMPANY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT TH E ASSESSEE COMPANY ACTIVELY MANIPULATED THE SCHEME OF THINGS IN GARB OF LEGAL PROVISIONS TO AVOID THE INCIDENCE OF TAX LIABILITY (MC DOWELL & CO. LTD. V S CTO (154 ITR 148). 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONST RUCTION AND STARTED CONSTRUCTION OF 15 STORIED BUILDING CONSISTING OF 85 DWELLINGS UNITS IN THE YEAR 2002-03. THE ASSESSEE HAS FINISHED MAJOR CONSTRUCTION ACTIVITY IN EARLY 2005 AND HAS RECEIVED THE OCCUPATION CERT IFICATE FROM BMC AUTHORITIES UPTO THE 13 TH FLOOR ON 31 ST MAY, 2005. AS PER THE DETAILS, THE FIRST FLAT WAS SOLD IN FEBRUARY, 2004, THEREAFTER Y EAR WISE SALES ARE AS FOLLOWS: FINANCIAL YEAR NO. OF FLATS SOLD 2003-04 1 2004-05 43 2005-06 23 ---- TOTAL 67 3. IT IS THE CLAIM OF THE ASSESSEE THAT IT IS A MUT UAL BENEFIT COMPANY THEREFORE IT HAS NOT MADE ANY PROFIT FROM THE CONS TRUCTION ACTIVITY AS IT HAS ONLY COLLECTED THE CONSTRUCTION COST FROM THE F LAT OWNER. THE COMPANY HAS ENTERED INTO A TRIPARTITE AGREEMENT WIT H THE FLAT OWNERS. THE PARTIES TO THE SALE AGREEMENT BEING THE FLAT PURCHA SER, THE ASSESSEE COMPANY AND A PARTNERSHIP FIRM VIZ., M/S. CALICO AS SOCIATES WHO HELD 12,100 SHARES OF THE ASSESSEE COMPANY. ITA NO. 4297/M/09 C.O. NO. 28/M/2010 3 4. AFTER CONSIDERING THESE FACTS, THE AO ISSUED SHO W CAUSE ASKING THE ASSESSEE WHY THE ACTIVITY OF CONSTRUCTION AND SALE OF RESIDENTIAL UNITS SHOULD NOT BE CONSIDERED AS A BUSINESS OF THE ASSES SEE COMPANY AND THE PROFITS ARISING OUT OF THE SAME NOT BE TAXED IN ITS HANDS AS BUSINESS INCOME. THE ASSESSEE EXPLAINED TO THE AO THAT THE ACTIVITY OF CONSTRUCTION AND ALLOTMENT OF RESIDENTIAL FLAT CANN OT BE TREATED AS BUSINESS VENTURE BECAUSE IT IS A NON TRADING COMPANY DOING A CTIVITIES OF CONSTRUCTION OF RESIDENTIAL BUILDINGS FOR THE BENEF IT OF ITS MEMBERS. THEREFORE, THERE IS NO MOTIVE OF EARNING ANY PROFIT S OR GAINS FROM THE ACTIVITY. IT WAS EXPLAINED THAT THE ASSESSEE IS WO RKING SOLELY FOR THE BENEFIT OF ITS MEMBERS/SHARE HOLDERS. THE AO DID N OT ACCEPT THE CONTENTION OF THE ASSESSEE AND WAS OF THE FIRM BELI EF THAT THE FLAT OWNERS AT THE TIME OF BOOKING OF THE PREMISES WERE NOT SHA RE HOLDERS OF THE COMPANY. THE AO FURTHER OBSERVED THAT THE FLAT OWN ERS HAVE NO RIGHT OTHER THAN THE FLATS OCCUPIED BY THEM. THE AO FURT HER OBSERVED THAT PRINCIPLE OF MUTUALITY DOES NOT APPLY ON THE FACTS OF THE CASE BECAUSE THERE IS NO RECIPROCITY OR MUTUAL DEPENDENCE WHICH IS NECESSARY CONDITIONS IN THE CASE OF MUTUALITY. THE AO WAS OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS NOTHING BUT A SHAM AND A C OLOURABLE DEVICE USED BY IT TO DIVERT AND AVOID TAXABLE INCOME IN ITS OWN HANDS. 4.1. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS CONSTRUCTED BUILDING ON PLOT NO. 5. HOWEVER, A PART OF THE SAID PLOT WA S TRANSFERRED TO M/S. CREATIVE ENTERPRISES ON WHICH A PROFIT OF RS. 59,97 ,873/- HAS ACCRUED TO THE ASSESSEE BUT AT THE SAME TIME THE SHAREHOLDERS/ FLAT OWNERS DID NOT SHARED THIS PROFIT EARNED. THE AO WENT ON TO RELY UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF JANATA BAZAR & STORES P VT. LTD. IN ITA NOS. 3849 TO 3855/MUM/2003 DT. 17 TH OCTOBER, 2006 AND CONCLUDED THAT THERE CAN BE NO DIVISION OF PROPERTY OF THE COMPANY BY ME TES AND BOUNDS ITA NO. 4297/M/09 C.O. NO. 28/M/2010 4 UNLESS IT IS A CASE OF LIQUIDATION. THE AO ALSO RE JECTED THE PLEA OF THE ASSESSEE THAT IT HAS RECOVERED THE COST OF CONSTRUC TION AND THE PROPERTY REMAINS WITH THE COMPANY. THE AO WAS OF THE VIEW T HAT THE FSI AVAILABLE ON THE LEASEHOLD LAND HAS BEEN CONSUMED B Y WAY OF CONSTRUCTION OF THE BUILDING. THUS THE PROPERTY OF THE ASSESSEE COMPANY BEING THE LEASE HOLD RIGHTS HAVE BEEN IMPAIRED BY THE ACTIONS TAKEN AND NO RECOMPENSE FOR THE SAME HAS BEEN RECEIVED BY THE ASSESSEE COMPANY. 4.2. AFTER ANALYZING THE TRANSFER OF SHARES VIS--V IS FLAT, THE AO OBSERVED THAT THE ALLOTMENT OF SHARES WAS AN INCIDE NTAL EVENT WHICH WAS FORCED BY THE ASSESSEE COMPANY. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE COMPANY HAS TRIED TO AVOID PAYING TAXES BY PUTTING FORWARD ARGUMENTS OF MUTUALITY, CLAIM OF NO MATERIAL LOSS T O THE ASSETS OF THE COMPANY. THE ASSESSEE COMPANY HAS FURTHER TRIED TO EVADE TAX BY SPLITTING THE COST OF THE FLAT BETWEEN ITSELF AND I TS SISTER CONCERN M/S. CALICO ASSOCIATES. HENCE THE CLAIM OF THE ASSESSEE COMPANY THAT IT IS IN RECEIPT OF ONLY CONSTRUCTION COST CANNOT BE ACCEPTE D AND THE SALE VALUE FOR THE FLAT HAS TO BE CONSIDERED. 4.3. THE AO NOTED THAT THE ASSESSEE HAS SOLD TOTAL 67 FLATS UPTO 31.3.2006 AND COMPUTED THE TOTAL SALE VALUE OF THE 67 FLATS AT RS. 13,11,89,500/-. HOWEVER, ADOPTING THE MARKET VALUE OF THE STAMP DUTY OFFICE, THE TOTAL SALE VALUE COMES TO RS. 20,60,19, 625/-. AFTER DEDUCTING THE COST OF CONSTRUCTION RS. 6,28,20,000/- AND COST OF LAND RS. 3,59,97,590/-, THE AO COMPUTED THE NET TAXABLE PROF IT FOR THE YEAR AT RS. 10,72,02,035/-. 5. BEING AGGRIEVED BY THIS FINDING OF THE AO, THE A SSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A ), THE ASSESSEE EXPLAINED THE ENTIRE NATURE OF TRANSACTION AND CO NTENDED THAT ONLY THE ITA NO. 4297/M/09 C.O. NO. 28/M/2010 5 SHARE HOLDERS ARE LIABLE TO TAX ON THE INCOME ARIS ING FROM SUCH TRANSFER AND THE SHARE HOLDERS HAVE ALREADY OFFERED THE INC OME TO TAX IN ITS RETURNS FOR A.Y. 2006-07. IF THE INCOME IS TAXED I N THE HANDS OF THE ASSESSEE, IT WOULD AMOUNT TO DOUBLE TAXATION IN THE HANDS OF TWO ASSESSEE I.E. ASSESSEE-COMPANY AS WELL AS THE SHARE HOLDER. THE LD. CIT(A) WAS CONVINCED THAT WHAT WAS ATTACHED TO THE SHARES AND SUBJECT MATTER OF TRANSFER WERE THE OCCUPANCY RIGHTS OF THE CONSTRUC TED FLATS IN THE BUILDING KAMAL DARSHAN AND NOT THE LAND. SUCH RIG HTS DID NOT BELONG TO THE ASSESSEE SINCE BEFORE RIGHTS CAME INTO EXISTENC E, THEY WERE ATTACHED TO THE SHARES OF THE COMPANY. THE LD. CIT(A) ALSO DISC ARDED THE OBSERVATION OF THE AO THAT THE TRANSFER OF SHARES W AS IN NO WAY CONNECTED TO THE CONSTRUCTION OF BUILDING AND THE ASSESSEE CO MPANY COULD HAVE TRANSFERRED THE SHARES IMMEDIATELY AND WOULD NOT HA VE WAITED FOR THE CONSTRUCTION TO BE COMPLETED. THE LD. CIT(A) THUS CONCLUDED AS UNDER: MOREOVER ASSESSING OFFICER HAS ALSO NOT BROUGHT ANY EVIDENCE TO PROVE THAT THE ENTIRE TRANSACTION WAS A PLANNING TO AVOID THE TAX LIABILITY AND HENCE THE SAME WAS SHAM ALTHOUGH THE DEPARTMENT HAD CARRIED OUT SURVEY ACTION U/S. 1 33A OF THE IT ACT ON 11 .03.2008. NO INCRIMINATING DOCUMENTS ARE FOUN D AND REFERRED TO BY THE ASSESSING OFFICER TO PROVE THAT THE SAID TRANSACTION WAS SHAM AND A COLOURABLE DEVICE TO AVO ID TAX. IN FACT, IN MY OPINION, SINCE THE TAX SOUGHT TO BE COLLECTED BY THE ASSESSING OFFICER FROM THE APPELLANT WAS PAID BY THE SHAREHOL DERS, M/S. CALICO ASSOCIATES. MOREOVER, THE TRANSACTIONS HAVE BEEN DULY SUPPORTED BY THE AGREEMENTS BETWEEN VARIOUS PARTIES AND DULY REGISTERED WITH THE RESPECTIVE AUTHORITIES. NO DEFE CT OR DEFAULT IN THE SAID TRANSACTIONS HAVE BEEN NOTED BY THE ASSESS ING OFFICER. THE TRANSACTION OF ACQUISITION OF THE SHARES BY M/S. CA LICO ASSOCIATES FROM THE ERSTWHILE MANAGEMENT WAS SUBJECTED TO VERI FICATION U/S. 269UL BY THE APPROPRIATE AUTHORITIES AND THE ORDER WAS ALSO OBTAINED THEREFROM. IN SUCH CIRCUMSTANCES, THE ASSE SSING OFFICER COULD NOT HAVE SAID THAT THE SAID TRANSACTION WAS S HAM AND THAT THE SHAREHOLDERS WERE PART OF THE CHARADE TO AVOID THE TAXABILITY OF INCOME IN THE HANDS OF THE APPELLANT. THE NATURE OF THE TRANSACTIONS FINDS THE JUDICIAL SUPPORT BY VIRTUE O F S. 269UA, ITA NO. 4297/M/09 C.O. NO. 28/M/2010 6 27(IIIB) AND ALSO BY VIRTUE OF THE DECISIONS AS REF ERRED TO ABOVE. I THEREFORE FIND THAT THE SAID OBJECTIONS OF THE ASSE SSING OFFICER ARE UNTENABLE IN LAW. IN LIGHT OF THE ABOVE DISCUSSION AND CONTENTIONS, I HOLD THAT THE INCOME FROM SALE OF SHARES AND THE OCCUPANCY RI GHTS CANNOT BE ASSESSED IN THE HANDS OF THE APPELLANT COMPANY. THI S GROUND OF APPEAL IS THEREFORE ALLOWED. 6. AGGRIEVED BY THIS FINDING OF THE LD. CIT(A), REV ENUE IS BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUB MITTED THAT THE ASSESSEE WAS THE OWNER OF THE PROPERTY WHICH HAS BE EN TRANSFERRED AND THEREFORE LIABLE TO TAX. THE LD. DR STRONGLY RELIE D UPON THE FINDINGS OF THE AO. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCE BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. LET US FIRST SEE HOW THE A SSESSEE COMPANY CAME INTO POSSESSION OF THE IMPUGNED LAND. VIDE AN AGREEMENT DATED 14.04.1950, THE TRUSTEES O F N. M. PETIT CHARITY FUND DEMISED UNTO 7 PARTIES INCLUDING M/S. CALICO DYEING AND PRINTING WORKS AND OTHERS; A PIECE AND P ARCEL OF LAND ADMEASURING 1,02,242 SQ. YARDS SITUATED AT LALBAUG, PAREL ON TERMS AND CONDITIONS AS AGREED UPON IN AGREEMENT DA TED 03.01.1948. BY A SUBSEQUENT AGREEMENT DATED 20.04.1 950. IT WAS AGREED TO DIVIDE THE SAID PLOTS INTO 14 PLOTS OF SM ALLER SIZE. UNDER THE AGREEMENT, THE 7 LESSEES WERE ENTITLED TO ONE P LOT EACH (PLOT NOS. 1 TO 7) AND THEY, TOGETHER, RETAINED THE OTHER 7 PLOTS (PLOT NO. 8 TO 14) AS JOINT LESSEES. THE .SAID PLOT NOS. 8 TO 14 WERE HELD IN THE NAME OF M/S. INDUSTRIAL ESTATES LTD., A COMPANY FOR MED FOR THE PURPOSE. IT WAS VIDE THE SAID ARRANGEMENT WHEREBY T HE M/S. CALICO DYEING AND PRINTING WORKS CAME TO BE POSSESSED WITH PLOT NO. 5 ITA NO. 4297/M/09 C.O. NO. 28/M/2010 7 OF THE SAID LAND AT LALBAUG, PAREL AS WELL AS UNDIV IDED RIGHT IN THE PLOT NO. 8 TO 14. B. SUBSEQUENTLY. BY AN AGREEMENT DATED 01.06.1955 A ND SUBSEQUENT DEED OF ASSIGNMENT DATED 29.1 2.1955, M/ S. CALICO DYEING AND PRINTING WORKS SOLD THE SPECIFIED ASSETS AND LIABILITIES OF THE FIRM INCLUDING THE PLOT OF LAND BEARING NO. 5 OCCUPIED BY IT TO THE APPELLANT. ALL THESE YEARS THEREAFTER, THE LAND WAS HELD BY THE APPELLANT. LATER, THE APPELLANT HAD SUB-LEASED PART OF THE PLOT NO. 5 ADMEASURING 7784.87 SQ. MTS. TO M/ VARDHMAN ESTAT ES UNDER AN AGREEMENT DATED 20.11.1998. THE BALANCE PORTION OF THE LAND WAS IN THE POSSESSION OF THE APPELLANT. C. M/S. CALICO ASSOCIATES UNDER AN AGREEMENT DATED 30.10.2001 ACQUIRED THE SHARES OF THE APPELLANT COM PANY FROM THE EARLIER OWNERS FOR AN AGGREGATE CONSIDERATION OF RS . 6,87,12,000/- WITH THE DECLARATION OF INTENTION THAT THE SHAREHOL DERS WERE INTENDING TO ACQUIRE THE PROPERTY THROUGH PURCHASE OF SHARES OF THE COMPANY. THE APPROVAL U/S. 269UL WAS ALSO SOUGHT AN D GRANTED ON 28.01.2002 BY THE APPROPRIATE AUTHORITY. ACCORDI NGLY, THE ARTICLES OF ASSOCIATION OF THE APPELLANT COMPANY WE RE AMENDED TO ATTACH OCCUPANCY RIGHTS WITH RESPECT TO THE PREMISE S TO BE CONSTRUCTED ON THE LAND HELD BY THE APPELLANT TO T HE SHARES HELD BY THE SHAREHOLDERS. OUT OF 12,100 SHARES, 9,980 SHARE S WERE ATTACHED WITH THE PROPERTY (WHICH WAS TO BE CONSTRUCTED) AND ONLY THE BALANCE SHARES WERE CONVERTED INTO B TYPE SHARES WH ICH DID NOT HAVE ANY VOTING AS WELL AS OCCUPANCY RIGHTS. LATER , OUT OF THE BALANCE PLOT NO. 5, ANOTHER PART OF PLOT OF LAND AD MEASURING 1,846.25 SQ. MTS. WAS TRANSFERRED TO M/S. CREATIVE ENTERPRISES VIDE AGREEMENT DATED 12.07.2004. SINCE THE ASSET BELONGI NG TO THE APPELLANT, I.E. LAND, WAS TRANSFERRED, THE SAID INC OME FROM TRANSFER OF PLOT WAS OFFERED TO TAX IN A.Y. 2005-06 BY THE A PPELLANT AND DULY ACCEPTED BY THE DEPARTMENT. THE APPELLANT COMPANY W AS LEFT WITH THE POSSESSION OF THE PLOT OF LAND ADMEASURING 4.29 6.87 SQ. MTS. 9.1. THE ASSESSEE STARTED CONSTRUCTION ON THIS PLOT OF LAND ADMEASURING 4296.87 SQ. MTRS. THE OCCUPANCY RIGHTS IN RESPECT OF PREMISES TO BE CONSTRUCTED WERE ATTACHED TO THE SHARES. OUT OF 12 100 SHARES, 9980 SHARES WERE ATTACHED WITH THE PROPERTY. THE SHAREH OLDERS SOLD SUCH ITA NO. 4297/M/09 C.O. NO. 28/M/2010 8 SHARES ARE INCLUDED THE OCCUPANCY RIGHTS AND PROFIT S THEREON WAS DULY OFFERED TO TAX BY THEM IN THE RETURN OF INCOME FOR A.Y. 2006-07 WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. OCCUPANCY RIG HTS BEING ATTACHED TO THE SHARES CAN ALSO BE FOUND FROM THE FOLLOWING CLA USES OF ARTICLES OF ASSOCIATION OF THE COMPANY. A) UPON ANY PERSON ACQUITTING OR HOLDING THE REQUIRED NUMBER OF SHARES SUCH SHARE HOLDER SHALL HAVE A RIGHT OF USE AND OCCUPATION OF UNDIVIDED INTEREST ON THE PROPERTY OF THE COMPANY ( HEREINAFTER REFERRED AS THE PREMISES) ( WHICH EXPRESSION, WHERE VER THE CONTEXT ADMITS, SHALL BE READ IN SINGULAR OR PLURAL, INDIVI DUALLY OR COLLECTIVELY AND SPECIFICALLY OR GENERALLY TO EACH /ALL OF THE PREMISES OF COMPANY) AS MAY BE DETERMINED BY THE D IRECTORS ON SUCH TERMS AND CONDITIONS AS MAY BE PRESCRIBED BY T HEM. SUCH TERMS AND CONDITIONS SHALL BE CONTAINED IN ON AGREE MENT TO BE ENTERED INTO BETWEEN THE COMPANY AND THE APPLICANT/ SHAREHOLDER IN SUCH FORM AS MAY BE DETERMINED BY THE BOARD. PROV IDED THAT SUCH OCCUPATION RIGHT SHALL BE SUBJECT TO DISCHARGE OF T HE FULL LIABILITY TOWARDS THE CONSTRUCTION COST AND OTHER LIABILITIES UNDERTAKEN UNDER THE AGREEMENT/AGREEMENTS AND ALL CALL MONEYS BEING PAID UP IN FULL AND ALSO SUBJECT TO THE OBSERVANCE AND PERFORMANCE OF THE OTHER TERMS AND CONDITIONS CONTAINED IN THESE ARTICLES AN D INTERNAL RULES AND REGULATIONS / BY LAWS MADE BY THE COMPANY. B) THE COMPANY SHALL CONSTRUCT ON THE PLOT OF LAND BEI NG OWNED AT LAL BAUG, MUMBAI A COMMERCIAL /RESIDENTIAL BUILDING (S) TO BE KNOWN AS KAMAL DARSHAN FOR AND ON BEHALF OF ITS S HAREHOLDERS. THE SHAREHOLDERS FOR THE TIME BEING OF THE COMPANY SHALL BE BOUND ITA NO. 4297/M/09 C.O. NO. 28/M/2010 9 TO CONTRIBUTE SUCH AMOUNTS AS MAY BE REQUIRED PROR ATA FOR THE PURPOSE OF THE SAID CONSTRUCTION AT SUCH PHASES AND UPON SUCH TERMS AND CONDITIONS AS MAY BE DECIDED BY THE BOAR D OF DIRECTORS. C) SUCH SHAREHOLDERS SHALL HAVE NO CLAIM SAVE AND EXCE PT OCCUPANCY RIGHTS OF THE PREMISES SPECIFIED BY THEM SUBJECT HO WEVER, SUCH RIGHTS SHALL ONLY ACCRUE ON THE SHARES BEING FULLY PAID UP AND THE LIABILITY TOWARDS PROPORTIONATE CONSTRUCTION COST O F THE PREMISES BEING DISCHARGED IN FULL TO THE SATISFACTION OF THE BOARD OF DIRECTORS OF THE COMPANY. 9.2. THESE ARTICLES OF ASSOCIATION WERE AMENDED IN FINANCIAL YEAR 2001-02. THE LD. DR IN HIS SUBMISSIONS HAS OBJECTE D TO THE TRIPARTITE SALE AGREEMENT AND HAS VEHEMENTLY SUBMITTED THAT IT IS A CONTRACT IN VIOLATION OF LAW AND THEREFORE VOID AB-INITIO. THI S CONTENTION OF THE LD. DR CANNOT BE ACCEPTED BECAUSE THE AGREEMENT IS IN L INE WITH THE PROVISIONS OF ARTICLES OF ASSOCIATION OF THE COMPAN Y. THE ARTICLES OF ASSOCIATION OF THE COMPANY HAS BEEN ACCEPTED BY REG ISTRAR OF COMPANIES THEREFORE IT CANNOT BE SAID THAT THE AGREEMENT DEFI ES ANY EXISTING LAW. RELIANCE ON THE DECISION IN THE CASE OF JANATA BAZA R & STORES PVT. LTD. IN ITA NOS. 3849 TO 3855/MUM/2003 WOULD ALSO NOT HELP THE REVENUE IN AS MUCH AS IN THAT CASE THE COMPANY HAD ENTERED INT O THE LEASE AGREEMENT WITH THE MEMBERS FOR THE LEASE RENT OF RS. 1/-. TH E MEMBERS WERE THEREAFTER COLLECTING LEASE RENT OF RS. 7/- FROM AH MEDNAGAR SAHAKAR CO. OP. BANK LTD, AND WERE PAYING RS. 1/- TO THE ASSESS EE. ON THESE FACTS, THE TRIBUNAL HELD THAT ONLY THE LEGAL OWNER CAN BE ASSESSED TO RENTAL INCOME. THE FACTS IN THE PRESENT CASE ARE DIFFEREN T AND THEREFORE THE RATIO OF THE DECISION OF THE TRIBUNAL CANNOT BE APPLIED. ITA NO. 4297/M/09 C.O. NO. 28/M/2010 10 9.3. CONSIDERING THE ENTIRE FACTS INTO TOTALITY ALO NG WITH THE ARTICLES OF ASSOCIATION OF THE COMPANY, IN OUR CONSIDERATE VIEW , THERE IS NO DOUBT THAT OCCUPANCY RIGHTS WERE ATTACHED TO THE SHARES O F THE COMPANY, THE SHARE HOLDERS HAVE TRANSFERRED THEIR SHARES, THE AS SESSEE HAS ONLY RECEIVED THE COST OF CONSTRUCTION WHEREAS THE ENTIRE GAIN FR OM SUCH TRANSFER AROSE TO THE SHARE HOLDER WHO HAVE RIGHTLY DECLARED THE I NCOME OF THEIR RESPECTIVE HANDS AND HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT IN THE HANDS OF THE SHARE HOLDERS. THE DUAL OWNERSHIP OF THE PROPERTY I.E. LEGALLY OWNED BY THE COMPANY AND DEFACTO BY THE MEM BERS IS AN ACCEPTED POSITION IN THE INCOME TAX LAW. FOR THIS PROPOSI TION WE RELY UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF WESTWIND RE ALTORS (P) LTD. VS DCIT 9 SOT 572 (MUM). WE HAVE ALSO THE BENEFIT OF GOING THROUGH THE ASSESSMENT ORDER OF M/S. CALICO ASSOCIATES (SHAREHO LDER OF THE ASSESSEE COMPANY) FOR A.Y. 2007-08. A PERUSAL OF THE ASSESS MENT ORDER SHOWS THAT THE SHAREHOLDER HAS SHOWN LONG TERM CAPITAL LO SS ON SALE OF SHARES AT RS. 1,08,64,687/-. THE AO HAS OBSERVED IN HIS ASSE SSMENT ORDER THAT THE ASSET UNDER TRANSFER IS THE SHARES OF M/S. CALICO D YEING & PRINTING MILLS LTD. (PRESENT ASSESSEE) ALONGWITH THE RIGHT TO OCCU PY AND USE THE IMMOVEABLE PROPERTY WHICH ARE ACCRUE TO THE BUYER O N PAYMENT OF THE CONSTRUCTION COST TO M/S. CALICO PRINTING AND DYEIN G (PRESENT ASSESSEE), SINCE THE CONSTRUCTION WAS CARRIED OUT BY THE SAID COMPANY AS STIPULATED IN THE AGREEMENT. AFTER MAKING MINOR ADJUSTMENTS T O THE PROPORTIONATE VALUE OF MARKET SHARES, THE AO HAS ACCEPTED THE ENT IRE SALE TRANSACTION IN THE HANDS OF THE SHAREHOLDER I.E. M/S. CALICO ASSOC IATES. THIS ALSO PROVES THAT THE REVENUE HAS COLLECTED TAX FROM THE HANDS O F THE SHAREHOLDERS. THEREFORE CONSIDERING ALL THESE FACTS IN TOTALITY, WE DO NOT FIND ANY REASON TO TAMPER WITH THE FINDINGS OF THE LD. CIT(A). APP EAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSED. ITA NO. 4297/M/09 C.O. NO. 28/M/2010 11 C.O. NO. 28/MUM/2010 10. IN THIS CROSS OBJECTION THE ASSESSEE HAS CHALL ENGED THE ORDER OF THE LD. CIT(A) ON THE POINTS WHICH HAVE NOT BEEN DECIDE D BY THE LD. CIT(A) ON MERITS. A PERUSAL OF THE ORDER OF THE LD. CIT(A ) SHOWS THAT THE LD. CIT(A) HAS NOT DECIDED THE GRIEVANCE OF THE ASSESSE E RAISED VIDE GROUND NO. 5 TO 11. SINCE THE LD. CIT(A) HAS DECIDED GROU ND OF APPEAL NO. 3 & 4 IN FAVOUR OF THE ASSESSEE, A PERUSAL OF THE ORDER OF THE LD. CIT(A) SHOWS THAT HE WAS OF THE OPINION THAT NO ADJUDICATI ON IS REQUIRED IN RESPECT OF THE SAID GROUNDS OF APPEAL. SIMILARLY F OR GROUND NO. 12 ALSO, THE LD. CIT(A) DID NOT ALLOW THE SET OFF OF THE TAX ES PAID BY THE SHARE HOLDERS AGAINST THE LIABILITY OF THE ASSESSEE COMPA NY SINCE HE HAS ALREADY HELD THAT THE SAID INCOME IS NOT LIABLE IN THE HAND S OF THE ASSESSEE COMPANY. AS WE HAVE CONFIRMED THE FINDINGS OF THE L D. CIT(A), WE FIND THAT THE CROSS OBJECTIONS RAISED BY THE ASSESS EE ARE OTIOSE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5.6.2013 . *+ % ) , -*. 05.06.2013 ) % / SD/- SD/- (VIJAY PAL RAO ) ( N.K. BILLAIYA ) * /JUDICIAL MEMBER * / ACCOUNTANT MEMBER MUMBAI; -* DATED 05/06/2013 . . ./ RJ , SR. PS ITA NO. 4297/M/09 C.O. NO. 28/M/2010 12 *+ *+ *+ *+ % %% % '&0 '&0 '&0 '&0 10& 10& 10& 10& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. 2 ( ) / THE CIT(A)- 4. 2 / CIT 5. 03/ '& , , / DR, ITAT, MUMBAI 6. /4 5 / GUARD FILE. *+ *+ *+ *+ / BY ORDER, #0& '& //TRUE COPY// 6 66 6 / 7 7 7 7 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI