SANJAY KANAKIA, MUMBAI V. ITO 2(2)(3), MUMBAI

CO 32/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 3157 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 18-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 12-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: V V SHASTRI
• Keywords: Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI B. RAMAKOTAIAH (AM) AND SHRI S.S. GODAR A (JM) ITA NO.5929/M/2010 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER 2(2)(3), 542, AAYAKAR BHAVAN, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020. VS. SANJAY ISHVERLAL KANAKIA, 8, AASHIRWAD, NS ROAD, NO.4, JVPD SCHEME, VILE PARLE(W), MUMBAI 400 056. PAN: AACPK3301L (APPELLANT) (RESPONDENT) C.O.NO.32/M/2012 (AY: 2007-08) (ARISING OUT OF ITA NO.5929/M/2010) SANJAY ISHVERLAL KANAKIA, 8, AASHIRWAD, NS ROAD, NO.4, JVPD SCHEME, VILE PARLE(W), MUMBAI 400 056. PAN: AACPK3301L VS. INCOME TAX OFFICER 2(2)(3), 542, AAYAKAR BHAVAN, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020. (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY : SHRI V.V. SHASTRI REVENUE BY : SHRI VIJAY MEHTA DATE OF HEARING: 18.4.2012 DATE OF PRONOUNCEMENT:4.5.2012 O R D E R PER S.S. GODARA, J.M: ITA NO.5929/M/2010 (AY: 2007-08) THE REVENUE HAS FILED THE INSTANT APPEAL AGAINST TH E ORDER PASSED BY LD. CIT (A) DATED 17.5.2010. 2. IN THE PRESENT APPEAL, THERE ARE THREE GROUNDS. GROUND NO.1 AND 3 ARE GENERAL IN NATURE. GROUND NO.2 CHALLENGES ORDER OF LD. CIT (A ) IN DELETING THE ADDITION MADE BY THE 2 ITA NO.5929/M/2010 AO ON ACCOUNT OF ALLEGED CAPITAL GAIN OF RS. 24,28, 925/-. SO WE ARE ONLY DECIDING GROUND NO.2. 3. BRIEF FACTS OF THE INSTANT CASE ARE THAT THE ASS ESSEE FILED RETURN ON 7.11.2007 DECLARING TOTAL INCOME OF RS. 2,72,826/- UNDER THE HEADS AS INCOME FROM SALARY, HOUSE PROPERTY AND BUSINESS AS WELL. 4. THE ASSESSEE ALONG WITH TWO OTHER PERSONS NAMELY SHRI MAHESH I KANAKIA AND SHAILESH I KANAKIA WAS CO-OWNER OF THE RESIDENTIAL PROPERTY IN QUESTION. IT CONSISTED OF GROUND PLUS TWO FLOORS. TWO PREMISES ON EACH FLOOR . TOTAL SIX PREMISES. FIVE OF THE PREMISES ARE OCCUPIED BY TENANTS. REST OF THE AREA MEASURED TO 1700 SQ.FT. WAS UNDER ASSESSEES OCCUPATION. 5. DURING THE YEAR UNDER CONSIDERATION I.E. ON 28.4 .2006, THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT WITH THE DEVELOPERS. AS PER THE TERMS OF AGREEMENT, THE DEVELOPERS HAD AGREED TO A) PROVIDE 1400 SQ.FT. TO EACH OF THE CO-OWNERS AND 6700 SQ.FT. TO THE TENANTS. B) CONSIDERATION FOR TRANSFER OF DEVELOPMENT RIGHTS OF RS. 34,24,000/-. C) PAYABLE TO OWNERS AS CORPUS RS. 18,00,000/- D) RENT PAYABLE FOR PROVIDING ALTERNATIVE ACCOMMODA TION RS. 48,62,000/-. 6. THE ASSESSEE / OWNER DETERMINED THE VALUE OF THE ABOVE FACILITIES AS RS. 1,93,51,000/-. HE ALSO GAVE BREAKUP OF THE ENTIRE AMOUNT. 7. BUT, THE AO RELYING ON THE CASE LAW OF HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF SHRI CHATURBHUJ DWARKADAS KPADIA (260 ITR 491), EX-FACIE CAME TO THE CONCLUSION THAT THE INCOME EARNED OUT OF THE AGREEMENT HAD TO BE TAXED IN THE AY IN HAND BEING CAPITAL GAIN. 3 ITA NO.5929/M/2010 8. THE ASSESSEE FILED NECESSARY DETAILS. TOOK ALL PLEAS IN DENIAL OF THE REASONS STATED IN SHOW CAUSE NOTICE BY THE AO. HOWEVER, THE AO AFTER ANALYZING THE FACTS OF THE CASE AS WELL AS THE VARIOUS CLAUSES OF THE AGREEMENT HELD THAT T HE OWNERS / ASSESSEE ETC. HAD GIVEN TOTAL CONTROL OF THE PROPERTY THEREBY BARRING THEMSELVES FROM CREATING NEW TENANCIES. THEY HAD ALSO AGREED TO HAND OVER ALL THE RIGHTS TO THE DEVE LOPERS IN QUESTION. THE OWNER AGREED TO PASS ON ENTIRE DEVELOPMENT RIGHTS QUA THE PREMISES IN QUESTION BY WAY OF TDRS ETC. ALSO OBSERVED THAT THE ASSESSEE HAD TRANSFERRED ALL HIS RIGHTS OVER THE TENANTS TO THE DEVELOPERS TO NEGOTIATE AND ENTER INTO AGREEMENT WITH THEM. 9. THE AO BY ANALYZING THE TERMS AND CONDITIONS OF THE AGREEMENT ALSO HELD THAT THE DEVELOPERS HAD ALSO BEEN GRANTED LICENSE TO ENTER T HE PREMISES WITHOUT ANY HINDRANCE. ACCORDINGLY, ADJUSTED THE REAL NATURE OF TRANSACTIO N AND EXTENT OF RIGHTS IN THE PROPERTY IN QUESTION VESTED WITH DEVELOPERS. ACCORDINGLY, AO R ETURNED A FINDING THAT TRANSFER OF RIGHTS AGREED BY THE OWNER WERE IRREVOCABLE IN NATURE WHIC H AMOUNTED TO DILUTION / RESTRICTION OF THE TITLE OF THE ASSESSEE. ACCORDINGLY, THE AO HEL D THAT ENTIRE RIGHT IN THE PROPERTY AND TENANCY HAD BEEN TRANSFERRED TO THE DEVELOPERS. NO PART OF THE AGREEMENT REMAINED UN- COMPLIED AND UN-EXECUTED. 10. IN THE LIGHT THEREOF, VIDE ASSESSMENT ORDER DAT ED 29.12.2009, THE AO COMPUTED THE LONG TERM CAPITAL GAIN AS RS. 72,86,777/-. SINCE, THE ASSESSEE WAS THE OWNER OF 1/3 RD SHARE, HIS SHARE WAS COMPUTED AS RS. 24,28,925/-. 11. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE PREFE RRED APPEAL BEFORE THE LD. CIT (A). VIDE IMPUGNED ORDER, LD. CIT (A) HAS ACCEPTED THE A PPEAL BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND HA VE ALSO GONE THROUGH THE CASE LAWS UNDER CONSIDERATION AND REFERRED ABOVE. IT IS NOTICED THAT THE AO HAS COMPLETELY IGNORED TWO VITAL ASPECTS OF THE CAS E RELATING TO HANDING OVER ACTUAL POSSESSION OF THE PROPERTY UNDER CONSIDERATI ON AND NON RECEIPT OF THE ACTUAL SALE CONSIDERATION. IT WAS CLEARLY STATED B EFORE HIM BY THE APPELLANT 4 ITA NO.5929/M/2010 THAT EVEN DURING ASSESSMENT PROCEEDINGS, COMPLETE P OSSESSION OF THE PROPERTY WAS NOT HANDED OVER TO THE TRANSFEREE ON A CCOUNT OF PROTRACTED LITIGATION WITH CERTAIN TENANTS AND WORK COULD NOT BE STARTED. MOREOVER, EVEN THE AGREED SALE CONSIDERATION WAS NOT PAID FULLY AN D ONLY A NEGLIGIBLE PART THEREOF CHANGED HANDS. IN SUCH A SITUATION, IT CAN BE VERY WELL CONCLUDED THAT EVEN IF AGREEMENT WAS ENTERED INTO AND WAS DULY REG ISTERED, ITS TERMS AND CONDITIONS WERE NOT MATERIALIZED AND NO TRANSFER DI D TAKE PLACE IN THE YEAR UNDER CONSIDERATION, AS VACANT POSSESSION OF THE BU ILDING WAS NOT HANDED OVER TO THE DEVELOPER NOR ANY AMOUNT OF CONSIDERATI ON AS MENTIONED IN THE AGREEMENT HAD BEEN FLOWED FROM THE DEVELOPER TO THE APPELLANT. 5.1. THE AO HAS HEAVILY RELIED ON THE DECISION IN T HE CASE OF SHRI CHATURBHUJ DWARKADAS KAPADIA (SUPRA) BUT HAS FILED TO NOTICE THE DISTINGUISHING FEATURES, THE MAIN BEING HANDING OVE R POSSESSION OF THE PROPERTY. HE HAS PICKED UP ONLY CERTAIN CLAUSES OF THE AGREEMENT, WITHOUT REALIZXING THAT ANY AGREEMENT SHOULD ALWAYS BE READ AS A WHOLE AND SOME OF THE CLAUSES CANNOT BE EXECLUDED FROM THE REST OF TH E CLAUSES. IN THE SAID DECISION, ONE OF THE MOST IMPORTANT CRITERIA LAID D OWN BY THE HONBLE COURT WAS TAKING OVER OF POSSESSION BY THE TRANSFEREE WHI CH IS NOT THE CASE HERE. MOREOVER, IN THE PRESENT CASE, AS CLAUSE 43A OF THE AGREEMENT, CONSIDERATION OF RS. 34,24,000/- WAS PAYABLE IN TWO INSTALLMENTS. RS. 12 LAKH, ON FINALIZATION OF AGREEMENT BETWEEN DEVELOPERS AND TE NANTS, AND BALANCE RS. 22,24,000/- ON HANDING OVER VACANT POSSESSION. THU S, DUE TO ONGOING DISPUTE WITH TENANTS, NONE OF THE ABOVE INSTALLMENT S WERE RECEIVED. ANOTHER IMPORTANT CLAUSE WHICH HAS BEEN GLOSSED OVER BY THE AO IS REGARDING REVOCABILITY OF THE AGREEMENT FOR NON FULFILLMENT O F THE TERMS OF AGREEMENT AS PER CLAUSE (7) ACCORDING TO THE LICENSE GRANTED TO THE DEVELOPER WOULD BE REVOCABLE ANYTIME EVEN IF WORK PERTAINING TO REDEVE LOPMENT HAS STARTED, UNLESS ENTIRE CONSIDERATION AS CONTEMPLATED IN THE AGREEMENT, IS PAID TO THE OWNED AND TENANTS. THE AO HAS ALSO IGNORED THE DEC ISION IN THE CASE OF ACIT VS. GEETADEVI PASARI, 104 TTJ 375 (MUM) WHICH IS DI RECTLY APPLICABLE TO THE FACTS OF THE CASE. N THE SAID DECISION HONBLE ITA T HELD AFTER DISTINGUISHING THE SAID BOMBAY HIGH COURT JUDGMENT IN SHRI CHATURB HUJ DWARAKADAS KAPADIA (SUPRA) THAT IN ORDER TO TREAT THE TRANSACTION AS T RANSFER U/S 2(47)(V), HANDING OVER OF POSSESSION OF THE PROPERTY IS MUST. IN THE SAID DECISION ALSO, NEITHER THE POSSESSION WAS HANDED OVER NOR FULL CONSIDERATI ON WAS PAID IN TERMS OF SALE CUM DEVELOPMENT AGREEMENT. IT WAS FOUND THAT SINCE LESS THAN 10% OF CASH CONSIDERATION WAS PAID AS PER TERMS OF AGREEME NT, IT COULD NOT BE SAID THAT THE DEVELOPER HAD COMPLETE CONTROL OVER THE PR OPERTY. THEREFORE, THE DATE OF AGREEMENT WAS NOT RELEVANT TO DECIDE THE YE AR OF CHARGEABILITY OF CAPITAL GAINS. IN THIS CONNECTION, REFERENCE COULD ALSO BE MADE TO THE DECISION IN THE CASE OF GENERAL GLASS CO. P. LTD. VS. DCIT ( 2007) 108 TTJ 854 (MUM) IN WHICH IT WAS LIKEWISE, HELD THAT WHERE PAYMENT OF T HE CONSIDERATION WITHIN THE STIPULATED TIME IS ESSENCE OF THE AGREEMENT OF SALE AND SUCH PAYMENTS WERE NOT MADE BY THE TRANSFEREE IN TIME, SUCH A CONTRACT DOES NOT CONFER ANY RIGHT ON THE TRANSFEREE AS ENVISAGED U/S 53A OF TRANSFER OF PROPERTY ACT, 1882 AND PROVISIONS OF SECTION 2(47)(V) COULD NOT BE APPLIED IN SUCH A SITUATION. 5.2. IN VIEW OF ABOVE DISCUSSION AND THE POSITION O F LAW EMERGING FROM THE CITED DECISION, IT IS HELD THAT IN THE ABSENCE OF N ON FULFILLMENT OF MAIN TERMS OF 5 ITA NO.5929/M/2010 AGREEMENT REGARDING HANDING OVER OF POSSESSION AND SALE CONSIDERATION, NO CAPITAL GAINS AROSE N THE YEAR UNDER CONSIDERATION. THERE WAS NO TRANSFER IN TERMS OF SECTION 2(47). THE ADDITION MADE IS THERE FORE DELETED. 12. IT IS IN THIS VIEW OF FACTUAL POSITION THAT REV ENUE IS AGGRIEVED AGAINST THE FINDING OF LD. CIT (A). SIMILARLY, IN CROSS OBJECTION IN QUES TION, THE ASSESSEE HAS RAISED A SOLITARY GROUND STATING THEREIN THAT THE LD. CIT (A) HAS ERR ED IN TREATING THE TRANSACTION OF TRANSFER OF DEVELOPMENT RIGHT AS TAXABLE U/S 45 OF THE INCOM E TAX ACT WHEREAS IT SHOULD HAVE BEEN HELD THAT THERE IS NO AGREEMENT ATTACHED TO THE TRA NSFER, NO CAPITAL GAIN WOULD ARISE. 13. ARGUING IN SUPPORT OF THE GROUND RAISED, THE LE ARNED DR APPEARING FOR REVENUE HAS CONTENDED THAT LD. CIT (A) HAS ERRED IN SETTING ASI DE THE ASSESSMENT ORDER. REFERRED TO THE ASSESSMENT ORDER AND FINDINGS CONTAINED THEREIN. S TATED THAT THE CASE IN HAND IS A CLEAR CUT INSTANCE OF CAPITAL GAIN . HENCE, THE ASSESSEE CANNOT BE ALLOWED TO BY BYPA SS THE PROVISIONS OF THE ACT. HENCE, PRAYED FOR ACCEPTANC E OF THE GROUNDS. 14. LEARNED AR ON THE OTHER HAND REFERRED TO SEC. 5 4F OF THE ACT. ALSO SUBMITTED THAT THE AGREEMENT IN QUESTION (TRIPARTITE CONTRACT BETW EEN OWNERS/ASSESSEE, DEVELOPER AND TENANTS) HAD NOT BEEN ABLE TO BE PERFORMED IN THE A SSESSMENT YEAR IN HAND AS SOME LITIGATIONS WERE PENDING QUA THE SAME VERY PROPERTY BEFORE THE HONBLE SMALL CAUSES COURT, MUMBAI. IN THIS REGARD, TO PROVE HIS CONTENTION R EGARDING PENDENCY OF LITIGATION, HE HAS ALSO REFERRED TO PAPER BOOK. 15. PER LEARNED AR, IT DULY TRANSPIRES FROM THE PAP ER BOOK THAT THE DISPUTES IN QUESTION BETWEEN THE OWNERS AND TENANTS (SUPRA) COULD ONLY A TTAIN FINALITY ON 26.4.2010. IN SUPPORT OF THE CONTENTION, HE HAS ALSO MADE US TO PERUSE TH E VOLUMINOUS PAPER BOOK. 16. IN ADDITION TO THIS, LEARNED AR HAS ALSO REFERR ED TO PAPER BOOK PAGES 2 & 3 I.E. COMPUTATION OF INCOME IN THE RETURN OF ASSESSMENT Y EAR 2011-2012. ACCORDINGLY ARGUED 6 ITA NO.5929/M/2010 THAT THE ASSESSEE HAD SOLD HIS SHARE (1/3 RD OF THE PREMISES IN QUESTION) IN THE AY 2011-2012 ON 31.3.2011. TAKING CUE FROM THE SAID RECORD, THE LEARNED AR HAS SUBMITTED THAT IN VIEW OF THE SAID FACTUAL POSITION, THE ASSESSEE COULD NOT H AVE SOLD THE SAME VERY PREMISES IN THE AY IN HAND I.E. 2007-08. HE ALSO RELIED ON THE ORDER OF LD. CIT (A). PRAYED FOR REJECTION OF THE GROUND. 17. WE HAVE HEARD BOTH THE LEARNED REPRESENTATIVES. WITH THEIR ABLE ASSISTANCE, THE RECORD REFERRED TO HAS ALSO BEEN PERUSED. IN OUR CO NSIDERED OPINION, IT IS EVIDENT FROM THE PAPER BOOK THAT THE AGREEMENT IN QUESTION AMONGST L AND LORD / ASSESSEE, DEVELOPER AND TENANTS COULD NOT HAVE BEEN PERFORMED IN THE AY IN HAND IN VIEW OF THE PENDING LITIGATION ETC. THEREFORE, MERELY ON ASSUMPTION, NO CAPITAL GA IN COULD HAVE BEEN COMPUTED BY THE AO. IT IS ALSO CLEAR FROM THE RECORD THAT THE ASSESSEE HAS SOLD THE SAME VERY PREMISES IN THE AY 2011-2012 (SUPRA). ACCORDINGLY, WE ASSUMED THAT TH ERE CANNOT BE TWO TRANSFERS OF OWNER ONE IN THE AY 2007-08 ANOTHER IN THE AY 2011-2012. BE THAT IT MAY, ONCE IT TRANSPIRES FROM THE RECORD AND THAT TOO WITHOUT ANY CONTRARY MATERI AL PRODUCED BY THE REVENUE, WE ARE CONSTRAINED TO HOLD THAT THE AGREEMENT WAS NOT PERF ORMED IN THE AY IN HAND AND THE ASSESSEE HAS SOLD THE PROPERTY ONLY IN AY 2011-2012 . 17.1. FURTHER, WE ALSO CANNOT IGNORE THE FACT THAT ON THE BASIS OF SALE DEED EXECUTED IN THE AY 2011-2012, THE ASSESSEE HAS DULY COMPUTED LONG T ERM CAPITAL GAIN AS IS CLEAR FROM PAPER BOOK PAGES 2 & 3 (SUPRA). 18. THEREFORE, WE HAVE NO HESITATION TO CALL THAT T HE LD. CIT (A) HAS RIGHTLY ACCEPTED THE ASSESSEE APPEAL THEREBY DELETING THE ADDITION IN QU ESTION MADE BY THE AO. HENCE, WE REJECT THE GROUND IN HAND. C.O.NO.32/M/2012 (AY:2007-08) 7 ITA NO.5929/M/2010 19. AFTER MAKING SUBMISSIONS FOR SOME TIME, THE LEA RNED AR HAS PRAYED THAT THE CROSS OBJECTION IN HAND BE DISMISSED AS NOT PRESSED. 20. WE ORDER ACCORDINGLY. 21. IN VIEW OF OUR ABOVE DISCUSSION, THE REVENUES APPEAL IS REJECTED. CROSS OBJECTIONS OF THE ASSESSEE ARE ALSO DISMISSED AS NOT PRESSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF MAY, 2012. SD/- SD/- (B. RAMAKOTAIAH) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL ME MBER DATE : 4/5/2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CONCERNED 5. THE DR H BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI.