M/s. kalani Brothers (Indore) Pvt. Ltd., Indore V. THE DCIT 1(1), Indore

CO 37/IND/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1455 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJEEV VARSHNEY
• Keywords: Capital asset; Business income; Depreciation; Search and seizure; Question of law; Cost of acquisition; Competent authority; Block assessment; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 2(14); 142(1); 153A; 133(6); 32; 145; 263; 132; 154

Judgement Text

KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 1 INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER IT(SS)A NOS.71 TO 73/IND/2014 A.YS. 2004-05 TO 2006-07 DCIT-1(1), INDORE ... APPELLANT VS M/S. KALANI BROTHERS (INDORE) PVT. LTD., INDORE PAN AAACK 8204 F ... RESPONDENT CROSS OBJECTION NOS. 24, 36 & 37/IND/2014 (ARISING OUT OF IT(SS)A NOS.71 TO 73/IND/2014) A.YS. 2004-05 TO 2006-07 M/S. KALANI BROTHERS (INDORE) PVT. LTD., INDORE PAN AAACK 8204 F ... OBJECTOR VS DCIT-1(1), INDORE ... RESPONDENT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 2 ITA NO.104/IND/2014 A.Y. 2004-05 DCIT-1(1), INDORE ... APPELLANT VS M/S. KALANI BROTHERS (INDORE) PVT. LTD., INDORE PAN AAACK 8204 F ... RESPONDENT CROSS OBJECTION NO. 27/IND/2014 (ARISING OUT OF ITA NO. 104/IND/2014) A.Y. 2004-05 M/S. KALANI BROTHERS (INDORE) PVT. LTD., INDORE PAN AAACK 8204 F ... OBJECTOR VS DCIT-1(1), INDORE ... RESPONDENT IT(SS)A NOS. 68 TO 70/IND/2014 A.YS. 2004-05 TO 2006-07 DCIT-1(1), INDORE ... APPELLANT VS M/S. PADMA HOMES PVT. LTD., INDORE PAN AQIPB 3154 G ... RESPONDENT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 3 CROSS OBJECTION NOS. 23, 34 & 35/IND/2014 (ARISING OUT OF IT(SS)A NOS.68 TO 70/IND/2014) A.YS. 2004-05 TO 2006-07 M/S. PADMA HOMES PVT. LTD., INDORE PAN AQIPB 3154 G ... OBJECTOR VS DCIT-1(1), INDORE ... RESPONDENT ITA NOS.102 & 103/IND/2014 A.YS. 2004-05 & 2005-06 DCIT-1(1), INDORE ... APPELLANT VS M/S. PADMA HOMES PVT. LTD., INDORE PAN AQIPB 3154 G ... RESPONDENT CROSS OBJECTION NOS. 25 & 26/IND/2014 (ARISING OUT OF ITA NOS. 102 & 103/IND/2014) A.YS. 2004-05 & 2005-06 M/S. PADMA HOMES PVT. LTD., INDORE PAN AQIPB 3154 G ... OBJECTOR VS DCIT-1(1), INDORE ... RESPONDENT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 4 DEPARTMENT BY SHRI RAJEEV VARSHNEY ASSESSEES BY SHRI VIJAY MEHTA & SHRI MANJEET SACHDEVA DATE OF HEARING 15.09.2015 DATE OF PRONOUNCEMENT 6.11.2015 O R D E R PER BENCH THESE APPEALS BY THE REVENUE AND CROSS-OBJECTIONS BY THE ASSESSEES ARE FILED CHALLENGING THE RESPECTIVE ORDE RS OF LEARNED COMMISSIONER OF INCOME TAX(A)-I, INDORE DATED 28.11 .2013. 2. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSE E IN HIS BALANCE-SHEET HAS SHOWN RECEIPTS OF SECURITY DEPOSIT OF RS.2,95,0 7,513. ON EXAMINATION OF RECORDS, IT WAS NOTICED THAT M/S. PADMA HOMES P. LTD. WITH M/S. KALANI BROS. (INDORE) P. LTD HAD ENTERED INTO AN AGREEMENT TO LEASE OUT THEIR PLOTS ADMEASURING 1 LAC SQ.FT. SITUATED AT 11, TUKOGANJ, MAIN ROAD TO M/S ENTERTAINMENT WORLD DEVELOPERS P. LTD., INDORE AS P ER DETAILS GIVEN BELOW: S.NO. PLOT NO. AREA IN SQ. FT. PARTICULARS 1 11 70484.00 KALANI BROS. (INDORE) P. LTD. 2 11/1-11/6 29516.00 PADMA HOMES P. LTD. TOTAL 100000.00 AS PER THE AGREEMENT TO LEASE DATED 21.5.2003, M/S. ENTERTAINMENT WORLD DEVELOPERS P. LTD. (M/S. EWDPL) HAD AGREED TO PAY S ECURITY DEPOSIT OF KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 5 RS.4,42,80,000 AND RS.10,57,20,000 TO THE M/S. PADM A HOMES P. LTD. AND M/S. KALANI BROS.(INDORE) P. LTD., RESPECTIVELY. TH E AGREEMENT TO LEASE IS REPRODUCED IN THE ASSESSMENT ORDER PAGE 2 TO PAGE 5 . AFTER LEASE AGREEMENT, A SUPPLEMENTARY AGREEMENT TO LEASE WAS E XECUTED ON 1 ST MARCH 2006. AS PER THE SUPPLEMENTARY AGREEMENT TO L EASE, M/S. EWDPL HAD FURTHER AGREED TO PAY RS.15 CRORES AS PER THE P ARTICULARS GIVEN BELOW TO THE M/S. PADMA HOMES P. LTD. AND M/S. KALANI BRO S. (INDORE) P. LTD.: S.NO. AMOUNT OF SECURITY DEPOSIT SECURITY DEPOSIT T O BE PAID TO (RS.) 1 M/S. KALANI BROS P. LTD. RS.10,54,92,000 2 M/S. PADMA HOMES P. LTD. RS.4,45,08,000 THE SUPPLEMENTARY AGREEMENT TO LEASE READS AS UNDER : SUPPLEMENTARY AGREEMENT TO LEASE THIS SUPPLEMENTARY AGREEMENT TO THE LEASE AGREEMENT DATED 21 ST DAY OF MAY, 2003, IS EXECUTED ON THIS 1 ST DAY OF MARCH, 2006 BY AND BETWEEN (A) KALANI BROTHERS (INDORE) PVT. LTD. AND (B) M/S PADMA HOMES PVT. LTD. BOTH COMPANIES INCORPORATED UNDER THE COMPANIES ACT , 1956, HAVING THEIR REGISTERED OFFICE AT 11, TUKOGANJ MAIN ROAD, INDORE 452 001, HEREINAFTER CALLED THE LESSOR / FIRST PARTY (WHICH EXPRESSION UNLESS IT IS REPUGNANT TO THE CONTEXT OR MEANING THEREOF, SHALL INCLUDE THEIR SUCCESSORS, ADMINISTRATORS AND ASSIGNEES) OF THE ONE PART. M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD., A COM PANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING THEIR REGISTERED OF FICE AT 11, TUKOGANJ MAIN ROAD, INDORE 452 001, HEREINAFTER CALLED THE LES SEE / SECOND PARTY (WHICH EXPRESSION UNLESS IT IS REPUGNANT TO THE CONTEXT OR MEANING THEREOF, SHALL INCLUDE THEIR SUCCESSORS, ADMINISTRATORS AND ASSIGNEES) OF THE OTHER PART. WHEREAS THE LESSOR OWNS AND POSSESSES A PLOT OF LAN D ADMEASURING 1,00,000 SQ. FT. AT 11, TUKOGANJ MAIN ROAD, INDORE, THE DETA ILS OF WHICH ARE AS UNDER: S.NO. PLOT NO. AREA IN SQ. FT. PARTICULARS KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 6 1. 11 70,484.00 KALANI BROTHERS (INDORE) PVT. LTD. 2. 11/1 11/6 29,516.00 PADMA HOMES PVT. LTD. TOTAL: 1,00,000.00 (HEREINAFTER REFERRED TO AS THE SAID PROPERTY) AND WHEREAS THE LESSOR HAD AGREED TO ENTER INTO AN AGREEMENT TO LEASE THE SAID LAND TO THE LESSEE ON THE TERMS AND CONDITIONS REFERRED TO IN THE AGREEMENT TO LEASE DATED 21.05.2003. AND WHEREAS AT THE TIME THE LAND-USE OF THIS PROPER TY WAS FOR RESIDENTIAL PURPOSES. AND WHEREAS THE SAID LAND-USE OF THE SAID PROPERTY HAS NOW BEEN CHANGED TO COMMERCIAL PURPOSES VIDE NOTIFICATION DATED 2 ND DECEMBER, 2003 PUBLISHED IN THE M.P. GAZETTE DATED 5 TH DECEMBER, 2003. AND WHEREAS CONSEQUENT TO THAT THE FAR FOR THE SAID PLOT OF LAND HAS INCREASED FROM 1.5 TO 2.5. AND WHEREAS THE DEPOSIT OF RS.1,500.00 LACS WAS GIV EN BY THE LESSEE AS FOLLOWS CONSIDERING AN FAR OF 1.5: (A) TO KALANI BROTHERS (INDORE) PVT. LTD. RS.1, 054.92 LACS (B) TO PADMA HOMES PVT. LTD. RS. 445.08 LA CS TOTAL: RS.1,500.00 LACS AND WHEREAS SHOW NOW THE FAR HAS INCREASED FROM 1.5 TO 2.5 ALLOWING THE LESSEE TO EXPLOIT THE PROPERTY IN A MANNER WHICH WI LL FETCH HIM A HIGHER RETURN AND SINCE THE PRESENT COLLECTORS GUIDELINE IS ALSO RS.320/- PER SQ. FT., THE LESSOR AND THE LESSEE HAVE MUTUALLY DECIDED TO INCREASE TH E SECURITY DEPOSIT TO RS.3,000.00 LACS ACCOUNTING FOR HIGHER RETURN WHICH THE LESSEE WILL EARN DUE TO THE FAR HAVING INCREASED FROM 1.5 TO 2.5. AND WHEREAS NOW THAT THE MALL HAS BECOME OPERATIONA L, IT IS AGREED BETWEEN THE LESSOR AND THE LESSEE THAT THE SAID INCREASED S ECURITY DEPOSIT OF RS.3,000.00 LACS WILL BE PAID AS FOLLOWS: - (A) TO KALANI BROTHERS (INDORE) PVT. LTD. RS.2,114 .52 LACS (B) TO PADMA HOMES PVT. LTD. RS. 885.48 LAC S TOTAL RS.3,00 0.00 LACS NOW THIS DEED WITNESSETH AS FOLLOWS: 1. THAT, THE FOLLOWING SECURITY DEPOSIT HAS ALREADY BEEN PAID BY THE LESSEE TO THE LESSOR IN TERMS OF AGREEMENT DATED 21 ST MAY, 2003: (A) TO KALANI BROTHERS (INDORE) P. LTD. RS.1,054.92 LACS (B) TO PADMA HOMES P. LTD. RS. 445.08 LACS TOTAL: RS.1,500.00 LACS THEREFORE, NOW THE BALANCE AMOUNT OF SECURITY DEPOS IT IS PAYABLE AS FOLLOWS: (A) TO KALANI BROTHERS (INDORE) P. LTD. RS.1,050.60 LACS (B) TO PADMA HOMES P. LTD. RS. 440.40 LACS TOTAL: RS.1,500.00 LACS KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 7 THAT, THE SAID ADDITIONAL AMOUNT WILL BE PAID BY TH E LESSEE TO THE LESSOR ON OR BEFORE 31 ST MARCH, 2006. 3. MATTER CARRIED TO LD. CIT(A) AND LD. CIT(A) HAS DELETED THE ADDITIONS BY OBSERVING AS UNDER: 4. BEFORE COMPUTING THE TOTAL INCOME FOLLOWING POINTS ARE DISCUSSED AS UNDER:- 4.1 CAPITAL GAIN ON TRANSFER OF LAND :- 4.1.1 EXAMINATION OF THE BALANCE SHEET REVEALED TH AT THE ASSESSEE HAD SHOWN RECEIPT OF SECURITY DEPOSIT OF RS. 7,04,93,487/- . ON FURTHER EXAMINATION OF RECORDS OF EARLIER ASSESSMENT YEARS, IT WAS NOTICED THAT THE ASSEEE WITH M/S PADMA HOMES PVT. LTD., HAD ENTERED INTO AN AGREEMENT TO LEASE OUT THEIR P LOTS ADMEASURING ONE LAC SQ. FEET SITUATED AT 11, TUKOGANJ MAIN ROAD , INDORE TO M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD., INDORE AS PER PARTICULARS GIVEN BELOW:- S.NO. PLOT NO. AREA IN SQ. FT. PARTICULARS 1. 11 70484.00 KALANI BROTHERS (INDORE) PVT. LTD. (THE ASSESSEE) 2. 11/1-11/6 29516.00 PADMA HOMES PVT. LTD. TOTAL 100000.00 4.1.2 AS PER THE AGREEMENT TO LEASE DATED 21.05.2003, M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD. HAD AGREED TO PAY SECURITY DEPOSIT OF RS. 1057.20 LAC AND RS. 462.80 LAC TO THE ASSESSEE AND M/S PADMA HOMES PVT. LTD. RESPECTIVELY. THE RELEVANT EXTRACT OF THE AGREEMENT AND ITS OBJECT IS REPRODUCED AS UNDER: - AGREEMENT TO LEASE THE AGREEMENT TO LEASE MADE ON THIS 21 ST DAY OF MAY, 2003, BETWEEN: A. M/S PADMA HOMES PVT. LTD. AND B. M/S KALANI BROTHERS (INDORE) PRIVATE LIMITED BOTH COMPANIES INCORPORATED UNDER THE COMPANIES ACT , 1956, HAVING THEIR REGISTERED OFFICE AT 11, TUKOGANJ MAIN ROAD, INDORE -452001, HEREINAFTER CALLED THE LESSOR/FIRST PARTY (WHICH EXPRESSION UNLESS I T IS REPUGNANT TO THE CONTEXT OR MEANING THEREOF, SHALL INCLUDE THEIR SUCCESSORS, AD MINISTRATORS AND ASSIGNEES) OF THE ONE PART AND KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 8 M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD., A COM PANY INCORPORATED UNDER THE INDIAN COMPANIES ACT, 1956 AND HAVING ITS ADMIN ISTRATIVE OFFICE AT 11, TUKOGANJ MAIN ROAD, INDORE, HEREINAFTER CALLED TO A S LESSEE/SECOND PARTY (WHICH EXPRESSION UNLESS IT IS REPUGNANT TO THE CON TEXT OR MEANING THEREOF, SHALL INCLUDE THEIR SUCCESSORS, ADMINISTRATORS AND ASSIGN EES) OF THE OTHER PART. WHEREAS THE LESSORS OWN AND POSSESS A PLOT OF LAND ADMEASURING 1,00,000 SQ. FT. THE DETAILS OF WHICH ARE AS UNDER: - 1. 11 70484 KALANI BROTHERS 2. 11/1-11/6 29516 PADMA HOMES PVT. LTD. TOTAL 100000 AND WHEREAS THE LESEE HAS APPLIED TO MADHYA PRADESH HOUSING BOARD FOR CONSTRUCTION OF A HOUSING-CUM-FAMILY ENTERTAINMENT CENTRE-CUM-MULTIPLEX-CUM- SHOPPING MALL (HEREINAFTER REFERRED TO AS THE PROJE CT ON) THE AFORESAID LAND, OWNED BY THE LESSORS. AND WHEREAS THE LESSORS ARE INTENDING TO GIVE THE A FOREMENTIONED LAND TO THE LESSEE ON LEASE HOLD BASIS AND THE LESSEE IS IN TENDING TO OBTAIN THE AFOREMENTIONED LAND ON LEASE. AS BOTH THE PARTIES A RE IN CONSENT WITH THIS TRANSACTION, THE EXECUTION OF THIS DEED IS BEING EX ECUTED AND PERFORMED WITH THE CONSENT AND COMPLIANCE OF THE CONDITIONS HEREINAFTE R ENUMERATED. 1. THAT IN LIEN AND UNDER THE TRANSACTIONS OF THIS INDENTURE, A SUM OF RS.1,500 LACS IS THE SECURITY DEPOSIT TO BE DEPOSIT ED BY THE LESSEE WITH THE LESSOR AS PER THE FOLLOWING DETAILS: (A) TO BE DEPOSITED WITH KALANI BROTHERS (INDORE) PVT. LTD. RS. 1057.20 LACS (B) TO BE DEPOSITED WITH PADMA HOMES PVT. LTD. RS. 442.80 LACS TOTAL: RS.1500.00 LACS OUT OF THE ABOVE SECURITY DEPOSIT, A SECURITY DEPOS IT OF RS. 1,000 LACS IS PAYABLE IMMEDIATELY ON SIGNING OF THIS AGREEMENT IN THE SAM E PROPORTION AS INDICATED ABOVE. THEREAFTER, RS. 500 LACS IS PAYABLE BEFORE THE START OF THE ACTUAL CONSTRUCTION OF THE COMPLEX. THE LESSEE HAS ALSO INDICATED THAT IF THE FAR PERMI TS, A HOTEL COMPLEX MAY ALSO BE BUILT ON THE LAND. IT IS AGREED THAT AS AND WHE N THE DECISION IS TAKEN OVER AND ABOVE THE SECURITY DEPOSIT OF RS. 1500 LACS AS INDI CATED ABOVE, ADDITIONAL SECURITY DEPOSIT OF RS. 500 LACS WOULD BE PAYABLE B EFORE THE START OF THE CONSTRUCTION OF THE HOTEL COMPLEX. THIS INCREASED SECURITY DEPOSIT OF RS. 500 LACS WILL ALSO BE PAYABLE IN SAME PROPORTION TO THE OWNERS AS INDICATED ABOVE. THIS SECURITY DEPOSIT IS REFUNDABLE BY THE LESSOR T O THE LESSEE AT THE END OF THE LEASE PERIOD STIPULATED HEREIN OR AT THE TERMINATIO N OF THIS LEASE DEED WITH THE MUTUAL CONSENT OF THE LESSOR AND LESSEE, WHICHEVER IS EARLIER. NO INTEREST ON THE SAID SECURITY DEPOSIT WILL BE PAID TO THE LESSOR BY THE LESSEE. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 9 MAHATMA GANDHI ROAD, WITH ALL ITS ADVANTAGES, RIGHT S, EASEMENTS, WHATSOEVER ATTACHED TO THE SAID PLOT WHICH ARE MORE PARTICULAR LY DESCRIBED ABOVE, TO HOLD THE SAID PLOT OF LAND HEREBY DEMISED INTO THE LESSEE FO R A TERM OF 29 YEARS CALCULATED FROM 1 ST OF JULY,2003, ON THE TERMS AND CONDITIONS, MENTION ED HEREIN. 3. THAT, DURING THE PERIOD OF THIS LEASE, THE LESSE E SHALL PAY TO THE LESSORS A SUM OF RS. 1,15, 000/- (RS. ONE LAC FIFTEEN THOUS AND) PER ANNUM AS ANNUAL LEASE RENT FOR THE DEMISED PREMISES IN THE FOLLOWIN G MANNER: I. TO KALANI BROTHERS (INDORE) PVT. LTD. RS . 81,000/- II. TO PADMA HOMES PVT. LTD. RS.34,000/- LESSEE SHALL PAY THE ANNUAL LEASE RENT HEREIN MENTI ONED IN ADVANCE ON 1 ST OF EVERY MONTH STARTING FROM 1 ST OF JULY EACH YEAR AND IF THE SAME IS NOT PAID IN T IME, ON OR BEFORE THE DUE DATE, THE LESSOR SHALL HAVE TH E RIGHT TO CHANGE INTEREST @ 15% PER ANNUM. THE LEASE RENT AND THE INTEREST THEREON SHALL BE CH ARGED ON THE AFORESAID LAND AND THE STRUCTURE ERECTED THEREON. ALL SUCH DUES W ILL BE AS FIRST CHARGE AND ANY ENCUMBRANCE CREATED BY THE LESSEE WOULD NOT AFFECT OR POSTPONE THE SAID CHARGE. 4. THAT, THE LESSEE SHALL DEMOLISH THE EXISTING STR UCTURE FOR THE PURPOSES OF CONSTRUCTION OF THE SAID PROJECT AND DO ALL SUCH AC TS AND DEEDS THAT MAY BE NECESSARY FOR THE CONSTRUCTION OF THE SAID PROJECT ON THE AFORESAID LAND. ALL EXPENSES WITH REGARD TO THE CONSTRUCTION OF THE SAI D PROJECT BY THE LESSEE AND ALL LIABILITIES AND OBLIGATIONS ARISING OUT OF THE DEVE LOPMENT OF THE SAID PROJECT SHALL BE OF THE LESSEE. 5. THAT, ALL THE EXPENSES RELATED TO THE EXECUTION OF THIS DEED, STAMP DUTY, REGISTRATION FEES ETC., SHALL BE BORN BY THE LESSEE . 6. THAT, THE LESSEE SHALL ABIDE BY ALL THE RULES, R EGULATIONS, ORDERS AND BYE- LAWS ETC., AS ARE IN FORCE AT THE PRESENT AND AS MA Y BE LAID DOWN FROM TIME TO TIME BY THE M.P. GOVERNMENT, INDORE MUNICIPAL CORPO RATION, TOWN & COUNTRY PLANNING AND OR ANY OTHER COMPETENT AUTHORITY IN RE SPECT OF THIS PLOT OF LAND. 7. THAT, THE LESSEE SHALL BE RESPONSIBLE TO PAY REG ULARLY TO THE INDORE MUNICIPAL CORPORATION OR LOCAL AUTHORITY, ELECTRICI TY BOARD, THE OTHER AUTHORITIES CONCERNED, ALL LEASE TAXES, FEES, CESS, ETC. AS ARE IN FORCE AT PRESENT AND / OR AS MAY BE LEVIED FROM TIME TO TIME ON THE AFORESAID PL OT OF LAND AND / OR THE BUILDING AND THE APPURTENANCES TO THE CONSTRUCTED THERETO AN D THE LESSOR SHALL NOT BEAR ANY BURDEN OF SUCH CHARGES. 8. THAT, THE LESSEE SHALL HAVE THE RIGHTS TO CONSTR UCT UPON THE PLOT OF LAND, BUILDING OR BUILDINGS IN ACCORDANCE WITH THE RULES AND REGULATIONS AND BYE-LAWS ETC. OF THE M.P. GOVERNMENT, INDORE MUNICIPAL CORPO RATION, TOWN & COUNTRY PLANNING AND OR ANY OTHER COMPETENT AUTHORITY, FOR OBTAINING THE NECESSARY APPROVALS OF THE COMPETENT AUTHORITY AS TO THE PLAN S AND LAYOUTS OF THE BUILDING AND OTHER CONSTRUCTION TO BE DONE ON THE SAID PLOT OF LAND. 9. THAT, THE LESSEE IS FREE AND ENTITLED TO OBTAIN LOANS ETC. BY KEEPING MORTGAGE THE AFORESAID PROPERTY TO ANY FINANCIAL IN STITUTION, BANKS ETC. THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 10 LESSOR SHALL COOPERATE WITH THE LESSEE IN THIS RESP ECT FOR THEIR NECESSARY CONSENT WHEREVER NECESSARY FOR OBTAINING SUCH LOANS BY THE LESSEE BY WAY OF MORTGAGE OF THE SAID PLOT OF LAND. 10. THAT, THIS LEASE IS IRREVOCABLE FOR A PERIOD OF 29 YEARS DURING WHICH AT NO TIME WOULD ANY INCREASE BE PERMITTED FOR THE LEASE RENT. 11. THAT, IN THE EVENT THE LESSEE DECIDES TO SELL A PORTION OF THE PROJECT OR CERTAIN AREAS OF THE PROJECT, SO CONSTRUCTED, THE L ESSOR WILL GIVE CONSENT FOR SALE OF SUCH AREAS AND WILL JOIN IN THE TRANSFER OF THE PROPORTIONATE LAND TO THE BUILT-UP AREA SOLD TO ANY OTHER PARTY AND IN THAT EVENT THE CONSIDERATION OF PROPORTIONATE AREA OF THE LAND SHALL BE PAID TO THE LESSOR. THE C ONSIDERATION FOR THE SAID AREA OF THE LAND SHALL BE PAID TO THE LESSOR. THE CONSID ERATION FOR THE SAID AREA OF THE LAND SHALL BE AT THE RATE OF RS. X PER SQ. FT. WHER E X = VALUE OF THE LAND / FAR PERMITTED. 4.1.3 HERE, IT WOULD BE PERTINENT TO MENTION THAT A SUPPLEMENTARY AGREEMENT TO LEASE WAS EXECUTED ON 1 ST MARCH 2006 . AS PER THIS SUPPLEMENTARY AGREEMENT TO LEASE, M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD., INDO RE HAD FURTHER AGREED TO PAY RS.15,00,00,000/- AS PER THE PARTICULARS GIVEN BELOW TO THE ASSESEE AND M/S PADMA HOMES PVT. LTD. :- S.N. AMOUNT OF SECURITY DEPOSIT SECURITY DEPOSIT TO BE PAID TO (RS.) 1 M/S. KALANI BROTHERS P. LTD.,(I.E. ASSESSEE) RS. 10,54,92,000/- 2 M/S. PADMA HOMES PVT. LTD. RS. 4,42,80,000/- 4.1.4 THE EXTRACT OF THE SUPPLEMENTARY AGREEMENT TO LEASE IS REPRODUCED AS UNDER:- SUPPLEMENTARY AGREEMENT TO LEASE THIS SUPPLEMENTARY AGREEMENT TO THE LEASE AGREEMENT DATED 21 ST DAY OF MAY, 2003, IS EXECUTED ON THIS 1 ST DAY OF MARCH, 2006 BY AND BETWEEN (C) KALANI BROTHERS (INDORE) PVT. LTD. AND (D) M/S PADMA HOMES PVT. LTD. BOTH COMPANIES INCORPORATED UNDER THE COMPANIES ACT , 1956, HAVING THEIR REGISTERED OFFICE AT 11, TUKOGANJ MAIN ROAD, INDORE 452 001, HEREINAFTER CALLED THE LESSOR / FIRST PARTY (WHICH EXPRESSION UNLESS IT IS REPUGNANT TO THE CONTEXT OR MEANING THEREOF, SHALL INCLUDE THEIR SUCCESSORS, ADMINISTRATORS AND ASSIGNEES) OF THE ONE PART. M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD., A COM PANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING THEIR REGISTERED OF FICE AT 11, TUKOGANJ MAIN ROAD, INDORE 452 001, HEREINAFTER CALLED THE LES SEE / SECOND PARTY (WHICH EXPRESSION UNLESS IT IS REPUGNANT TO THE CONTEXT OR MEANING THEREOF, SHALL INCLUDE THEIR SUCCESSORS, ADMINISTRATORS AND ASSIGNEES) OF THE OTHER PART. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 11 WHEREAS THE LESSOR OWNS AND POSSESSES A PLOT OF LAN D ADMEASURING 1,00,000 SQ. FT. AT 11, TUKOGANJ MAIN ROAD, INDORE, THE DETA ILS OF WHICH ARE AS UNDER: S.NO. PLOT NO. AREA IN SQ. FT. PARTICULARS 1. 11 70,484.00 KALANI BROTHERS (INDORE) PVT. LTD. 2. 11/1 11/6 29,516.00 PADMA HOMES PVT. LTD. TOTAL: 1,00,000.00 (HEREINAFTER REFERRED TO AS THE SAID PROPERTY) AND WHEREAS THE LESSOR HAD AGREED TO ENTER INTO AN AGREEMENT TO LEASE THE SAID LAND TO THE LESSEE ON THE TERMS AND CONDITIONS REFERRED TO IN THE AGREEMENT TO LEASE DATED 21.05.2003. AND WHEREAS AT THE TIME THE LAND-USE OF THIS PROPER TY WAS FOR RESIDENTIAL PURPOSES. AND WHEREAS THE SAID LAND-USE OF THE SAID PROPERTY HAS NOW BEEN CHANGED TO COMMERCIAL PURPOSES VIDE NOTIFICATION DATED 2 ND DECEMBER, 2003 PUBLISHED IN THE M.P. GAZETTE DATED 5 TH DECEMBER, 2003. AND WHEREAS CONSEQUENT TO THAT THE FAR FOR THE SAID PLOT OF LAND HAS INCREASED FROM 1.5 TO 2.5. AND WHEREAS THE DEPOSIT OF RS.1,500.00 LACS WAS GIV EN BY THE LESSEE AS FOLLOWS CONSIDERING AN FAR OF 1.5: (A) TO KALANI BROTHERS (INDORE) PVT. LTD. RS.1, 054.92 LACS (B) TO PADMA HOMES PVT. LTD. RS. 445.08 LA CS TOTAL: RS.1,500.00 LACS AND WHEREAS SHOW NOW THE FAR HAS INCREASED FROM 1.5 TO 2.5 ALLOWING THE LESSEE TO EXPLOIT THE PROPERTY IN A MANNER WHICH WI LL FETCH HIM A HIGHER RETURN AND SINCE THE PRESENT COLLECTORS GUIDELINE IS ALSO RS.320/- PER SQ. FT., THE LESSOR AND THE LESSEE HAVE MUTUALLY DECIDED TO INCREASE TH E SECURITY DEPOSIT TO RS.3,000.00 LACS ACCOUNTING FOR HIGHER RETURN WHICH THE LESSEE WILL EARN DUE TO THE FAR HAVING INCREASED FROM 1.5 TO 2.5. AND WHEREAS NOW THAT THE MALL HAS BECOME OPERATIONA L, IT IS AGREED BETWEEN THE LESSOR AND THE LESSEE THAT THE SAID INCREASED S ECURITY DEPOSIT OF RS.3,000.00 LACS WILL BE PAID AS FOLLOWS: - (A) TO KALANI BROTHERS (INDORE) PVT. LTD. RS.2,114 .52 LACS (B) TO PADMA HOMES PVT. LTD. RS. 885.48 LAC S TOTAL RS.3,00 0.00 LACS 4.1.4.1 EXAMINATION OF THE DETAILS REVEALED THAT M /S. EWDPL HAD MADE THE PAYMENT OF SECURITY DEPOSIT TO THE ASSESSEE OF RS.21,05,52,000/- AS PER PARTICULARS GIVEN BELOW: PREVIOUS YEAR AMOUNT OF SECURITY DEPOSIT PAID 2003-04 RS. 7,04,92,487/- 2004-05 RS. 3,41,00,000/- 2005-06 RS.10,59,59,513/- KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 12 4.1.5. FURTHER THE ASSESSEE AND OTHER CONCERN(S) NAMELY M/S. PADMA HOMES PVT. LTD. AND M/S EWDPL HAD GOT REGISTERED THE LEAS E AGREEMENT WITH THE REGISTRAR OF PROPERTIES. THE EXTRACT OF THE LEASE AGREEMENT REGISTERED IS A S UNDER: - THIS LEASE DEED IS MADE ON 5 TH DAY OF JULY, 2003 BETWEEN M/S KALANI BROTHERS (INDORE) PVT. LTD., A COMPANY I NCORPORATED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT 11, TUKO GANJ, MG ROAD, INDORE 452001, HEREINAFTER CALLED THE LESSOR / FIR ST PARTY (WHICH EXPRESSION UNLESS IT IS REPUGNANT TO THE CONTEXT OR MEANING TH EREOF, SHALL INCLUDE THEIR SUCCESSORS, ADMINISTRATORS AND ASSIGNEES) OF THE ON E PART. AND ENTERTAINMENT WORLD DEVELOPERS PVT. LIMITED, A COMP ANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND HAVING ITS ADMINISTRATIVE O FFICE AT 11, TUKO GANJ, MG ROAD, INDORE-452001, HEREINAFTER CALLED TO AS LESS EE/SECOND PARTY (WHICH EXPRESSION UNLESS IT IS REPUGNANT TO THE CONTEXT OR MEANING THEREOF, SHALL INCLUDE THEIR SUCCESSORS, ADMINISTRATORS AND ASSIGNEES) OF THE OTHER PART. WHEREAS THE LESSOR OWN AND POSSESS A PLOT OF LAND A T 11, TUKOGANJ MAIN ROAD, INDORE, WHICH ADMEASURES 70484.00 SQUARE FEET . AND WHEREAS THE LESSORS ARE INTENDING TO GIVE THE A FOREMENTIONED DEMISED PREMISES TO THE LESSEE ON LEASEHOLD BASIS A ND THE LESSEE IS INTENDING TO OBTAIN THE AFOREMENTIONED LAND ON LEAS E. AS BOTH THE PARTIES ARE IN CONSENT WITH THIS TRANSACTION, THE EXECUTION OF THIS DEED IS BEING EXECUTED AND PERFORMED WITH THE CONSENT AND COMPLIA NCE OF THE CONDITIONS HEREINAFTER ENUMERATED. 1. THAT IN CONSIDERATION OF THE LEASE RENT HEREINAF TER RESERVED THE LESSOR HEREBY DEMISES INTO THE LESSEE ALL THAT PLOT OF LAN D, WITH STRUCTURE BEARING NO. 11 AT TUKOGANJ, MAHATMA GANDHI ROAD, WITH ALL ITS ADVA NTAGES, RIGHTS, EASEMENTS WHATSOEVER ATTACHED TO THE SAID PLOT WHICH ARE MORE PARTICULARLY DESCRIBED ABOVE, TO HOLD THE SAID DEMISED PREMISES HEREBY DEM ISED UNTO THE LESSEE FOR A TERM OF TWENTY NINE (29) YEARS COMMENCING FROM 1 ST JULY, 2003, ON THE TERMS AND CONDITIONS MENTIONED HEREIN. 2. THAT DURING THE PERIOD OF THIS LEASE, THE LESSEE SH ALL PAY TO THE LESSOR A SUM OF RS.81000/- (RUPEES EIGHTY ONE THOUSAND ONLY) PER ANNUM AS ANNUAL LEASE RENT FOR THE DEMISED PREMISES. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 13 LESSEE SHALL PAY THE ANNUAL LEASE RENT HEREIN MENTI ONED IN ADVANCE ON 1 ST OF EVERY MONTH STARTING FROM 1 ST OF JULY EACH YEAR IF THE SAME IS NOT PAID IN TIME, ON OR BEFORE THE DUE DATE THE LESSOR SHALL HAVE THE RI GHT TO CHARGE INTEREST @ 15% PER ANNUM. THE LEASE RENT AND THE INTEREST THEREON SHALL BE CH ARGED ON THE AFORESAID LAND AND THE STRUCTURE ERECTED THEREON. ALL SUCH DUES W ILL BE AS FIRST CHARGE AND ANY ENCUMBRANCE CREATED BY THE LESSEE WOULD NOT AFFECT OR POSTPONE THE SAID CHARGE. 3. THAT ALL THE EXPENSES RELATED TO THE EXECUTION O F THIS DEED, STAMP DUTY REGISTRATION FEES ETC. SHALL BE BORNE BY THE LESSEE E. 4. THAT THE LESSEE SHALL ABIDE BY ALL THE RULES, RE GULATIONS, ORDERS AND BYE LAWS ETC. AS ARE IN FORCE AT THE PRESENT AND AS MAY BE L AID DOWN FROM TIME TO TIME BY THE MP GOVERNMENT INDORE MUNICIPAL CORPORATION TOWN & COUNTRY PLANNING AND/OR ANY OTHER COMPETENT AUTHORITY IN RESPECT OF THIS PLOT OF LAND. 5.THAT THE LESSEE SHALL BE RESPONSIBLE TO PAY REGUL ARLY TO THE INDORE MUNICIPAL CORPORATION OR LOCAL AUTHORITY, ELECTRICITY BOARD T HE OTHER AUTHORITIES CONCERNED, ALL LEASE TAXES, FEES, CESS ETC AS ARE IN FORCE AT PRESENT AND/OR AS MAY BE LEVIED FROM TIME TO TIME ON THE AFORESAID PLOT OF LAND AND / OR THE BUILDING AND THE APPURTENANCES TO BE CONSTRUCTED THERETO AND THE LES SOR SHALL NOT BEAR ANY BURDEN OF SUCH CHARGES. 6. THAT THE LESSEE IS FREE AND ENTITLED TO OBTAIN LOANS ETC BY KEEPING MORTGAGE THE AFORESAID DEMISED PREMISES AND STRUCTURES CONST RUCTED THEREON TO ANY FINANCIAL INSTITUTION, BANK ETC. THE LESSOR SHALL C O-OPERATE WITH THE LESSEE IN THIS RESPECT FOR THEIR NECESSARY CONSENT WHEREVER NECESS ARY FOR OBTAINING SUCH LOANS BY THE LESSEE BY WAY OF MORTGAGE OF THE SAID PLOT O F LAND. 7. THAT, THIS LEASE DEED IS IRREVOCABLE FOR A PERI OD OF TWENTY NINE (29) YEARS DURING WHICH AT NO TIME THE LESSOR SHALL INCREASE T HE LEASE RENT. IN WITNESS WHEREOF THE SAID LESSOR AND LESSEE HAVE HERETO SIGNED THIS DEED OF LEASE AT INDORE ON THIS 5 TH DAY OFJULY,2003. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 14 4.1.6 PERUSAL OF THE ABOVE AGREEMENT AND AGREEMENT TO LEASE & SUPPLEMENTARY AGREEMENT TO LEASE SUBMITTED EARLIER CLEARLY INDICATES THAT THE ENTIRE FACTS ESPECIALLY THE AMOUNT OF SECURITY DEPO SIT WAS NOT DISCLOSED TO THE STAMP DUTY AUTHORITIES. IN THIS MATTER CORRESPONDE NCE WAS MADE WITH THE SUB- REGISTRAR AND THE SUB-REGISTRAR VIDE HIS LETTER DAT ED 26/12/2006 HAD INFORMED THIS OFFICE THAT THE COMPLETE FACTS WERE NOT DIVULGED IN THE REGISTERED DEED. THE RELEVANCE AND IMPLICATIONS OF THE SAME ARE DISCUSSE D ELSEWHERE IN THE BODY OF THIS ORDER. THE LETTER OF THE SUB-REGISTRAR IS EXT RACTED ELSEWHERE IN THE BODY OF THIS ORDER. 4.1.7 BEFORE PROCEEDING FURTHER IN THE MATTER, IT W OULD BE NECESSARY TO MENTION THAT AFTER ANALYZING THE FACTS, THE ASSESSING OFFIC ER AS PER ORDER U/S 143(3) DATED 29/12/2006 HELD THAT, THE LEASING OUT OF THE PLOTS WAS A TRANSFER WITHIN THE MEANING OF THE PROVISIONS OF SECTION 2(47) OF THE I . T. ACT AND HENCE, THE SECURITY DEPOSIT OF RS. 7,04,92,487/- AND RS. 3,41,00,000/- RECEIVED IN THE PREVIOUS YEARS 2003-04 AND 2004-05 RESPECTIVELY, WERE CONSIDERED S ALE CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF LONG TERM CAPITAL GAIN. A CCORDINGLY, AFTER INDEXING THE COST OF ACQUISITION U/S 48 OF THE I.T. ACT THE LONG TERM CAPITAL GAIN WAS ASSESSED AT RS. 10,44,46,750/- ON ACTUAL BASIS VIDE AFORESAID ORDER U/S 143(3) OF THE I.T. ACT. 4.1.8 THE RELEVANT EXTRACT OF THE ORDER U/S 143(3) OF I.T. ACT IS REPRODUCED AS UNDER: - FURTHER THE UNDER SIGNED HAS SOUGHT INFORMATION U/S 133(6) FROM THE OFFICE OF THE DISTT. REGISTRAR. THE INFORMATION RECEIVED VIDE LET TER NO. 1340/D.R./2006 DATED 26/12/2006, WHICH IS BEING REPRODUCED IN ITS ORIGIN AL FORM AS BELOW: - DK;KZY; FTYK IATH;D ,OA U;K;KY; DYSDVJ VKWQ LVKEIL] BUNKSJ FTYK BUNKSJ E DK;KZY; FTYK IATH;D ,OA U;K;KY; DYSDVJ VKWQ LVKEIL] BUNKSJ FTYK BUNKSJ E DK;KZY; FTYK IATH;D ,OA U;K;KY; DYSDVJ VKWQ LVKEIL] BUNKSJ FTYK BUNKSJ E DK;KZY; FTYK IATH;D ,OA U;K;KY; DYSDVJ VKWQ LVKEIL] BUNKSJ FTYK BUNKSJ E- -- -IZ IZIZ IZ- -- - DZ@340@FT-IA-@2006 BUNKSJ] FNUAKD 26-12-06 IZFR] IZFR] IZFR] IZFR] VFRFJDR VK;QDR VFRFJDR VK;QDR VFRFJDR VK;QDR VFRFJDR VK;QDR VK;DJ VK;DJ VK;DJ VK;DJ JSAT IZFKE] JSAT IZFKE] JSAT IZFKE] JSAT IZFKE] BUNKSJ] E/;IZNS BUNKSJ] E/;IZNS BUNKSJ] E/;IZNS BUNKSJ] E/;IZNS K KK K KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 15 FO'K FO'KFO'K FO'K;%& ;%&;%& ;%& VK;DJ VF/KFU;E DH /KKJK 1336 DS VARXZR 11] RQDKS XAT ESU JKSM+] BUNKSJ DS VK;DJ VF/KFU;E DH /KKJK 1336 DS VARXZR 11] RQDKSX AT ESU JKSM+] BUNKSJ DS VK;DJ VF/KFU;E DH /KKJK 1336 DS VARXZR 11] RQDKSX AT ESU JKSM+] BUNKSJ DS VK;DJ VF/KFU;E DH /KKJK 1336 DS VARXZR 11] RQDKSX AT ESU JKSM+] BUNKSJ DS IV~VK IV~VK IV~VK IV~VK FOYS[K DS LACA/K ESA LR;KIU CKCN~A FOYS[K DS LACA/K ESA LR;KIU CKCN~A FOYS[K DS LACA/K ESA LR;KIU CKCN~A FOYS[K DS LACA/K ESA LR;KIU CKCN~A LANHKZ%& LANHKZ%& LANHKZ%& LANHKZ%& VKIDK I= DZ VKIDK I= DZ VKIDK I= DZ VKIDK I= DZ- -- - VFR VFRVFR VFR- -- - LHVKBZVH@VKJ LHVKBZVH@VKJ LHVKBZVH@VKJ LHVKBZVH@VKJ IZFKE@DKYKUH XZQI@06&07 FNUAKD 20 IZFKE@DKYKUH XZQI@06&07 FNUAKD 20 IZFKE@DKYKUH XZQI@06&07 FNUAKD 20 IZFKE@DKYKUH XZQI@06&07 FNUAKD 20- -- -12 1212 12- -- -06 0606 06 &&&0&&& MI;QZDR FO'K; ESA YS[K GS FD LANHKKZUQLKJ PKGH XBZ OKANUH; TKUDKJH DS LACA/K ESA VKIDS }KJK IZSF'KR LAYXUKSA DK VOYKSDU FD;K X;KA FNUKAD 21-06- 2003 DKS FU'IKFNR ,XZHESUV VW YHT DK FOYS[K IJ IFJO.KZUKSA DS VUQLKJ HKKJRH; LVKEI VF/KF U;E 1899 DS VUQLWPH 1D DS VUQPNSN 33 DS RGR LVKEI KQYD IZHKK;Z GSA MDR FOYS[K NTZ RF;KSA , OA RN~UQLKJ LKF{K;KSA DS LE{K FU'IKFNR@GLRK{KFJR GKSUS LS OLRQR% ,D FY[KR DH JS.K H ESA VKRK GSA VR% HKKJRH; JFTLVHDJ.K VF/KFU;E 1908 DH /KKJK 17 ,OA LAIFRR VARJ.K VF/KFU; E DS RGR MDR FOYS[K VFUOK;ZR% IATH;U ;KSX; FOYS[K DS JS.KH ESA VKRK GSA QYLO:I MDR FOYS[ K DK IATH;U HKKJRH; LVKEI VF/KFU;E 1899 DS VUQLKJ NS; LVKEI 'KQYD PQDKDJ DJK;K TKUK VUOK;Z FKKA VR% MDR FOYS[K DKS BL DK;KZY; }KJK HKKJRH; LVKEI VF/KFU;E 1899 DH /KKJK 48CH LG IFBR /KKJK 47D DS RGR BL DK;KZY; ESA DHKH EQNZKAD ,OA IATH;U 'KQYD DH OLWYH GSRW FU;EKUQ LKJ IZDJ.K NTZ DJ FY;K X;K GSA ;GKA ;G HKH ;GKA ;G HKH ;GKA ;G HKH ;GKA ;G HKH MYYS[KUH; GS FD MDR FU;EKUQLKJ FU MYYS[KUH; GS FD MDR FU;EKUQLKJ FU MYYS[KUH; GS FD MDR FU;EKUQLKJ FU MYYS[KUH; GS FD MDR FU;EKUQLKJ FU' '' 'IKFNR FDURQ VIATHC) FY[KR ESA RKS I` IKFNR FDURQ VIATHC) FY[KR ESA RKS I` IKFNR FDURQ VIATHC) FY[KR ESA RKS I` IKFNR FDURQ VIATHC) FY[KR ESA RKS I`'B 'B'B 'B DZ DZDZ DZ- -- - 2 IJ FLD;WFJVH 2 IJ FLD;WFJVH 2 IJ FLD;WFJVH 2 IJ FLD;WFJVH FMIKWFTV DS :I ESA 15 DJKSM+ 5 DJKSM+ :I;S DK MYYS[ K FD;K X;K GSA FDURQ MI IATH;D DK;KZY; FMIKWFTV DS :I ESA 15 DJKSM+ 5 DJKSM+ :I;S DK MYYS[ K FD;K X;K GSA FDURQ MI IATH;D DK;KZY; FMIKWFTV DS :I ESA 15 DJKSM+ 5 DJKSM+ :I;S DK MYYS[ K FD;K X;K GSA FDURQ MI IATH;D DK;KZY; FMIKWFTV DS :I ESA 15 DJKSM+ 5 DJKSM+ :I;S DK MYYS[ K FD;K X;K GSA FDURQ MI IATH;D DK;KZY; BUNKSJ ESA IATHC) DJK;S X;S IV~VK FOYS[KKSA ,&1@261 5 ,OA 2617 FNUKAD 28 BUNKSJ ESA IATHC) DJK;S X;S IV~VK FOYS[KKSA ,&1@261 5 ,OA 2617 FNUKAD 28 BUNKSJ ESA IATHC) DJK;S X;S IV~VK FOYS[KKSA ,&1@261 5 ,OA 2617 FNUKAD 28 BUNKSJ ESA IATHC) DJK;S X;S IV~VK FOYS[KKSA ,&1@261 5 ,OA 2617 FNUKAD 28- -- -02 0202 02- -- -2004 ESA MDR EGROIW.KZ 2004 ESA MDR EGROIW.KZ 2004 ESA MDR EGROIW.KZ 2004 ESA MDR EGROIW.KZ JKF JKFJKF JKF K DK MYYS[K U DJUK LAIW.KZ EKEYS DKS LAFNX/K CUKR K DK MYYS[K U DJUK LAIW.KZ EKEYS DKS LAFNX/K CUKR K DK MYYS[K U DJUK LAIW.KZ EKEYS DKS LAFNX/K CUKR K DK MYYS[K U DJUK LAIW.KZ EKEYS DKS LAFNX/K CUKRK GSA VR% IZDJ.K ESA FOLR`R TKAP DH LAHKKOUK K GSA VR% IZDJ.K ESA FOLR`R TKAP DH LAHKKOUK K GSA VR% IZDJ.K ESA FOLR`R TKAP DH LAHKKOUK K GSA VR% IZDJ.K ESA FOLR`R TKAP DH LAHKKOUK LS BADKJ UGHA FD;K TK LDRK GSA RN~UQLKJ BL DK;KZY; ESA IZDJ.K IATHC) FD;K X;K GSA LS BADKJ UGHA FD;K TK LDRK GSA RN~UQLKJ BL DK;KZY; ESA IZDJ.K IATHC) FD;K X;K GSA LS BADKJ UGHA FD;K TK LDRK GSA RN~UQLKJ BL DK;KZY; ESA IZDJ.K IATHC) FD;K X;K GSA LS BADKJ UGHA FD;K TK LDRK GSA RN~UQLKJ BL DK;KZY; ESA IZDJ.K IATHC) FD;K X;K GSA MIJKSDR IZJD.K DS IJH{K.K LS LI'V GKSRK GS FD ' '' 'KM;A=IWOZD LVKEI M~;WVH DH PKSJH DH X;HA KM;A=IWOZD LVKEI M~;WVH DH PKSJH DH X;HA KM;A=IWOZD LVKEI M~;WVH DH PKSJH DH X;HA KM;A=IWOZD LVKEI M~;WVH DH PKSJH DH X;HA BL LACA/K ESA VKILS VUQJKS/K GS FD VKIDS DK;KZY; }K JK IZUK/KHU IZDJ.K ESA DH XBZ FDLH HKH DK;ZOKGH LS BL DK;KZY; DKS V|RU J[KK TKOS RKFD KKLU DKS NS; KQYD OLWYH FU;EKUQLKJ FD;K TKUK LAHKO GKS LDS ,OA JKTLO FGR LQJF{KR J[KK TK LDSA AFTER GOING THROUGH THE REPORT THAT CLEARLY MENTION S ABOUT THE DIFFERENCE BETWEEN AGREEMENT TO LEASE AND THE LEASE DEED AS REGISTERED WITH THE REGISTRAR OFFICE, SHOWS THAT STAMP DUTY ON AN AMOUNT OF 15+5 CRORES H AS BEEN SOUGHT TO BE EVADED AS A RESULT OF A CONSPIRACY DONE. THEREFORE , IT IS FURTHER MADE EVIDENT THAT THE ASSESSEE IN COLLUSION WITH THE SISTER COMP ANIES HAS HATCHED A CONSPIRACY TO EVADE ITS DUES NOT ONLY TOWARDS THE S TATE GOVT. DEPARTMENTS BUT ALSO TOWARDS THE CENTRAL GOVERNMENT DEPARTMENT. THEREFORE NOT BEING DECEIVED BY ITS SUBMISSIONS THE RE IS A CLEAR CASE OF CAPITAL GAINS BEING MADE BY THE ASSESSEE IN ABOVE MENTIONED TRANSACTION. FURTHER AS DISCUSSED BEFORE RIGHT TO ENJOYMENT HAS BEEN CLEARL Y ESTABLISHED. FURTHER CONSIDERATION HAS BEEN PAID AS DISCUSSED ABOVE. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 16 FURTHER AS PER SUBMISSIONS MADE BY THE ASSESSEE CIT ING THE DECISION OF ITAT, JODHPUR BENCH IN THE CASE:- ADDITIONAL COMMISSIONER OF INCOME TAX VS. LAKE PAL ACE HOTELS & MOTELS LTD (2004) 83, ITJ (JD) 1031 IN CASE OF LE ASE OF LAND THE REFUNDABLE DEPOSIT CANNOT BE CONSIDERED AS CONSIDERATION AND N O CAPITAL GAIN CAN BE CHARGED BASED ON SUCH DEPOSIT CAN THE RENT RECEIVAB LE UNDER SUCH LEASE FOR THE PERIOD OF 72 YEARS SHOULD BE TAXED AS NORMAL INCOME . IN THIS CASE IT WAS CLEARLY HELD THAT REFUNDABLE DEPOSIT CANNOT BE CONSIDERED A S CONSIDERATION FOR GRANTING OF THE LEASE. THE ABOVE JUDGMENT OF THE HONBLE ITAT, JODHPUR BEN CH IS NOT RELEVANT TO THE ASSESSEES CASE AS THERE ARE GLARDING DIFFERENCES B ETWEEN THE TWO, WHICH CAN BE LISTED AS FOLLOWS:- (I) THAT IN THE ABOVE MENTIONED CASE OF LAKE PALAC E HOTELS (LPH FOR SHORT FORM) THE LEASE DEED WAS VERY WELL DRAFTED, DULY REGISTERED AND DISCLOSING THE FULL DETAILS ABOUT VARIOUS TRANSACTIONS BETWEEN THE TWO PARTIES. WHEREAS IN THE ASSESSEES CASE THE AGREEMENT TO LEASE HAS DIFF ERENT FACTS AND FIGURES FROM THE CLAIMED LEASE DEED I.E. THE AMOUNT OF RS.15+5 C RORES IS NO WHERE TO BE SEEN IN THE CLAIMED LEASE DEED. (II) FURTHER IN THE CASE OF LPH THE SECURITY DEPOSI T OF RS.2.5 CR WAS MADE FOR LAND ONLY AND MENTIONED IN THE LEASE DEED. WHEREAS IN THE ASSESSEES CASE THE AGREEMENT TO SALE MENTIONS THE SECURITY DEPOSIT TAK EN FOR THE LAND AND THE BUILDING ATTACHED AND NO WHERE DOES THE LEASE DEED MENTION OF THE SECURITY DEPOSIT. (III) FURTHER IN THE CASE OF LPH A CLEAR 9% INTERES T WAS BEING PAID ON THE REFUNDABLE SECURITY DEPOSIT SO MADE. WHEREAS IN THE CASE OF THE ASSESSEE THE SAID REFUNDABLE SECURITY DEPOSIT HAS BEEN MADE WITH OUT ANY INTEREST OF ANY KIND, WHICH RAISES VALID APPREHENSIONS ABOUT THE INTENTIO N OF THE ASSESSEE AND TO TOP IT ALL WHICH TOO WAS NOT MENTIONED IN THE SO CALLED LE ASE DEED. (IV) FURTHER IN THE CASE OF LPH A COMPLETE AND A LO GICAL TIME BASED MECHANISM HAS BEEN DRAWN UP AS TO HOW AND WHEN WHAT AMOUNTS ETC. THE SAID SECURITY DEPOSIT HAS TO BE REFUNDED BACK. WHEREAS IN THE ASSESSEES CASE NO MECHANISM OF THIS SORT HAS BEEN DEFINED OR EVEN MEN TIONED. IN FACT IT SEEMS FROM THE ABOVE REPORT OF THE REGISTRAR THAT IT HAS BEEN DELIBERATELY NOT DONE SO AS TO CONSPIRE AND KEEP THE STATE GOVT. AS WELL AS THE CENTRAL GOVT. DEVOID OF ITS KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 17 DUES. FURTHER STRENGTHENING THE VIEW THAT THE MONEY HAS BEEN HANDED OVER IN A PLATTER IN LIEU OF A TRANSFER AS DISCUSSED ABOVE WI THOUT ANY INTEREST OF ANY KIND IN RETURN. (V) FURTHER IN THE CASE OF LPH ALMOST 10% OF THE FI GURE GIVEN AS SECURITY DEPOSIT IS BEING GIVEN AS YEARLY LEASE RENT. WHEREA S IN THE CASE OF THE ASSESSEE A PETTY AMOUNT WHICH IS NOT EVEN 1% OF THE SECURITY DEPOSIT IS BEING RECEIVED AS SO CALLED ANNUAL LEASE RENT. (VI) FURTHER IN THE CASE OF LPH THE LEASE DEED CLEA RLY MENTIONS OF AN YEAR BY YEAR INCREMENT AFTER A CERTAIN TIME. WHEREAS HERE I N THE ASSESSEES CASE THERE IS NO MENTION OF ANY INCREMENT OF ANY KIND HOW SO EVER . (VII) FURTHER IN CASE OF LPH THERE IS A CLEAR MENTI ON OF ANNUAL LEASE RENT CLAUSES AND ANNUAL INCREMENT CLAUSES. WHEREAS IN TH E CASE OF THE ASSESSEE THE SAME IS EITHER NOT MENTIONED OR NOT MENTIONED AS CL EARLY. THEREFORE THE ABOVE QUOTED FACTS AND CIRCUMSTANCES CLEARLY SPEAKS FOR THEMSELVES AND HENCE THE CASE LAW QUOTED BY THE ASS ESSEE IS IRRELEVANT TO THIS CASE. FURTHER SINCE NO MENTION OF THE ABOVE-MENTION ED POINTS I.E. SECURITY (PREMIUM TO BE CORRECT) ETC. IS MENTIONED IN THE CLAIMED LEASE DEED. FURTHER HOW THE SAID SECURITY DEPOSIT SHALL BE REFUNDED AND HOW AND IN WHAT FORM / SHAPE THE PROPERTY SHALL BE RECEIVED IS ALSO NOT ME NTIONED IN CLAIMED LEASE DEED. THEREFORE LOOKING AT THE ABOVE, VALID APPREHENSIONS ARISE THAT THE ASSESSEE HAS DELIBERATELY USED ALL COLORABLE DEVICE TO DECEIVE THE STATE EXCHEQUER AND THE CENTRAL GOVT. OF ITS LEGAL DUES. IT CAN BE VALIDLY CONCLUDED THAT THE MONEY PAID WAS IN LIEU OF TRANSFER, WHICH IN TURN WAS NOT REVE ALED IN THE CLAIMED LEASE DEED. THEREFORE THE MOOT QUESTION IS THAT FOR THE SAID UN DISCLOSED AMOUNT ON THE TRANSFER SO MADE, WHAT KIND OF TAX TREATMENT SH OULD BE METED OUT? THE LOGICAL ANSWER SHALL BE CAPITAL GAINS FURTHER THE GROUNDS TAKEN BY THE ASSESSEE IN VIEW O F SECTION 269A OF THE IT ACT, 1961 ARE NOT ACCEPTABLE IN VIEW OF THE FACT THAT THE SAID CHAPTER HAS .. CEASED TO OPERATE IN RESPECT OF TRANSFER OF IMMOVAB LE PROPERTY MADE AFTER 30/09/1986. THEREFORE KEEPING THE ABOVE MENTIONED FACTS AND CIRCUMSTANCES IN MIND, THE SUBMISSIONS MADE BY THE ASSESSEE ARE N OT ACCEPTABLE AND HENCE REFUTED . KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 18 THEREFORE KEEPING AND MIND THE ABOVE MENTIONED CIRC UMSTANCES, FACTS OF THE CASE THE FACT THAT CAPITAL GAINS HAS BEEN MADE BY THE ASSESSEE IN VIEW OF THE FACT THAT THE SAME WAS NOT MENTIONED OR TO BE CORRE CTLY PUT AS HIDDEN IN THE LEASE DEED, WHICH HAS BEEN FURTHER ENDORSED BY THE REGISTRAR THROUGH HIS ABOVE- MENTIONED LETTER. THEREFORE, I COME TO THE CONCLUSION THAT THE ABOVE MENTIONED INCOME OF THE ASSESSEE WORTH RS.1057.20 LACS (ACCRUAL BASIS) SHOULD BE HELD AS INCOME OF THE ASSESSEE FROM CAPITAL GAINS MADE U/S 45 OF THE I.T. ACT, 1961 AND HENCE, TAXED ACCORDINGLY. 4.1.9 HAVING TAKEN A NOTE OF ABOVE FACTS AND THE AM OUNT OF THE SECURITY DEPOSIT CLAIMED TO HAVE BEEN RECEIVED IN THE PREVIOUS YEARS 2003-04 TO 2005-06 VIDE THIS OFFICE QUERY LETTER DATED 28/11/2011 ALONGWIT H NOTICE U/S 142(1) OF THE I.T. ACT DULY SERVED UPON THE ASSESSEE ON 30/11/2011, TH E ASSESSEE WAS CATEGORICALLY ASKED TO EXPLAIN AS TO WHY THE ENTIRE AMOUNT OF RS.20,00,00,000/- OF SECURITY DEPOSIT SHOULD NOT BE CONSIDERED SALE C ONSIDERATION RECEIVED ON TRANSFER OF PLOT MENTIONED ABOVE AS LONG TERM CAPIT AL GAIN THE ASSESSEE WAS REQUIRED TO FURNISH ITS EXPLANATION ON 13/12/2011. 4.1.10 THE ASSESSEE VIDE ITS LETTER DATED 13/12/201 1 HAD MADE ITS SUBMISSION. IT WAS SUBMITTED. THE ASSESSEE CO. APART FROM DERIVING RENTAL INCOME FROM PROPERTY SITUATED AT 11, TUKOGANJ MAIN ROAD, INDORE WAS CARRYING ON THE BUSI NESS OF DEALING IN ELECTRODES, AC PRESSURE PIPES, CID, FRINTS RUBBER R INGS ETC. TILL ASSESSMENT YEAR 1999-2000 AND THEREAFTER THERE WERE CONTINUOUS LOSSES TILL THE ASSESSMENT YEAR 2003-04. DURING THE YEAR THE ASSESSEE LEASED OUT ITS OWNERSH IP LAND ADMEASURING 70,784 SQ.FT. SITUATED AT 11, TUKOGANJ MAIN ROAD, INDORE T O A COMPANY NAMELY ENTERTAINMENT WORLD DEVELOPERS PRIVATE LIMITED F OR A PERIOD OF 29 YEARS AS PER LEASE DEED DATED 5 TH JULY,2003.BEFORE THE EXECUTION OF THE LEASE DEED T HE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR LEASE DA TED 02.05.2003. THAT AS PER THE SAID AGREEMENT, THE ASSESSEE RECEIV ED AN AMOUNT OF RS.7,04,92,487/- AS A REFUNDABLE SECURITY DEPOSIT. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 19 THAT AS PER THE AGREEMENT TO LEASE, IT HAS BEEN AGR EED THAT THE SECURITY DEPOSIT SHALL BE REFUNDABLE BY THE LESSOR TO THE LESSEE AT THE END OF THE LEASE PERIOD STIPULATED OR AT THE TERMINATION OF LEASE DEED WITH THE MUTUAL CONSENT, WHICHEVER IS EARLIER. IN RESPECT OF THE QUERY WHY THE PAYMENT RECEIVED FR OM ENTERTAINMENT WORLD DEVELOPERS LTD., INDORE BE NOT TREATED AS CAPITAL G AIN ARISING OUT OF PROPERTY TRANSFERRED, IT IS SUBMITTED THAT A LEASE WITH REFU NDABLE DEPOSIT IS NEITHER A RELINQUISHMENT OF RIGHT AS CONTEMPLATED IN SEC. 2(4 7)(I) OF THE INCOME TAX ACT NOR IT CAN BE CONSIDERED AS ENABLING THE ENJOYMENT AS CONTEMPLATED IN SEC. 2(47)(VI) OF THE INCOME TAX ACT. WITH RESPECT TO RELINQUISHMENT OF RIGHT, IT IS SU BMITTED THAT THE APEX COURT IN CASE OF RASIKLAL MANEKLAL (HUF) 177 ITR 198 HAS CLEARLY HELD THAT A RELINQUISHMENT TAKES PLACE WHEN THE OWNER WITHDRAWS HIMSELF FROM THE PROPERTY AND ABANDONS HIS RIGHTS THERETO. IN THE ASSESSEE CASE ALSO THE RIGHT TO THE PROPERTY HAS NOT BEEN ABANDONED AND IT IS CLEARLY P ROVIDED THAT THE LAND WOULD REVERT BACK AFTER THE LEASE PERIOD . HENCE THERE IS NO RELINQUISHMENT OF ANY ASSET. SO FAR AS ENABLING THE ENJOYMENT AS MENTIONED IN CL AUSE VI OF SUB SECTION 47 OF SECTION OF 2 OF THE INCOME TAX ACT IS CONCERNED, IT IS SUBMITTED THAT THE CLAUSE DOES NOT AND CAN NOT COVER EVERY TYPE OF TRANSACTIO N ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY. HAD IT BEEN SO EVERY TRANSA CTION OF LETTING OUT PROPERTY BY HOUSE OWNER TO A TENANT OR A SIMPLE TRANSACTION OF A HOTEL GIVING ROOM TO A CUSTOMER SHALL GET CAUGHT BY THE TERM ENABLING THE ENJOYMENT OF IMMOVABLE PROPERTY AND SHALL BECOME SUBJECT TO CLUTCHES OF C APITAL GAINS PROVISIONS. THE CLAUSE IS RESTRICTED ONLY TO THOSE TRANSACTIONS AS MENTIONED IN THE CLAUSE ITSELF E.G. BY WAY OF BECOMING A MEMBER OF A COOPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT O R ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER. EVEN THE TERM IN ANY OTH ER MANNER USED IN THE CLAUSE ALSO CANNOT BE EXTENDED TO COVER ANY TYPE OF ENABLING THE ENJOYMENT AS IT IS THE SETTLED RULES OF INTERPRETATION THAT ALL CLAUSES OF A PROVISION SHALL TAKE COLOUR FROM EACH OTHER WHILE INTERPRETING THEM. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 20 THAT IN RESPECT OF TAKING THE REFUNDABLE SECURITY D EPOSIT RECEIVED FROM THE LESSEE FOR GRANTING THE LEASE OF THE LAND AS SALES CONSIDE RATION FOR SALE OF THE LAND, IT IS SUBMITTED THAT :- (A) THE REFUNDABLE SECURITY DEPOSITS UNDER NO CIRCU MSTANCES CAN BE CONSIDERED AS CONSIDERATION RECEIVED OR ACCRUING TO THE APPELLANT FOR SALE OR LEASE OF THE LAND. (B) THE SAID SECURITY DEPOSIT TO BE REFUNDED ON THE TERMINATION OF THE LEASE OF LAND CANNOT BE THE ABSOLUTE PROPERTY OF THE ASSESSE E AND HENCE IT COULD NOT BE TAKEN AS THE CONSIDERATION FOR THE TRANSFER OF CAPI TAL ASSETS. (C) SINCE THE REFUNDABLE SECURITY DEPOSITS IS NOT CONSI DERATION FOR TRANSFER OF LAND AND IN FACT THE LAND IS NOT TRANSFERRED, THE C APITAL GAIN CHARGEABLE TO TAX CANNOT BE WORKED OUT UNDER THE PROVISION OF THE INC OME TAX ACT. FURTHER IT IS SUBMITTED THAT THE TRANSACTION BEING A LEASE AGREEMENT, THERE WAS NO TRANSFER OF AN ASSET AND HENCE THERE IS NO QUESTION OF ATTRACTING PROVISION OF SEC. 45 FOR CAPITAL GAINS. FURTHER IT IS SUBMITTED THAT AS THE SECURITY DEPOSI T IS REFUNDABLE ON THE EXPIRY/TERMINATION OF LEASE, IT IS IN THE NATURE OF A DEBT FOR THE ASSESSEE AND AS SUCH CANNOT BE TREATED AS CONSIDERATION FOR TRANSFE R OF PROPERTY. FURTHER RELIANCE IS PLACED ON THE CASE OF ADDITIONAL COMMISSIONER OF INCOME TAX VS. LAKE PALACE HOTELS & MOTELS LTD (200 4) 83, ITJ 1031 WHERE IN IT IS HELD THAT IN CASE OF LEASE OF LAND T HE REFUNDABLE DEPOSIT CANNOT BE CONSIDERED AS CONSIDERATION AND NO CAPITA L GAIN CAN BE CHARGED BASED ON SUCH DEPOSIT AND THE RENT RECEIVABLE UNDER SUCH LEASE FOR THE PERIOD OF 72 YEARS SHOULD BE TAXED AS NORMAL INCOME. FURTHER, IT IS SUBMITTED THAT HONORABLE HIGH COURT OF RAJASTHAN DISMISSED THE DEPARTMENT APPEAL IN THE CASE OF M/S. THE LAKE PALA CE HOTELS AND MOTELS FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE TRIBUNAL . COMMISSIONER OF INCOME TAX, UDAIPUR V/S. M/S. THE LAKE PALACE HOTELS AND M OTELS 2008-TIOL-312- HC-RAJ-IT. FURTHER IT IS SUBMITTED AS UNDER: KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 21 (I) THAT THE LESSEE, WHO HAS GIVEN A HUGE AMOUNT AS A REFUNDABLE SECURITY DEPOSIT, CANNOT BE EXPECTED TO RETAIN THE PROPERTY IN THE ORIGINAL SHAPE AND PAY LEASE RENT FOR A PERIOD OF 29 YEARS. (II) THAT, IN ANY GIVEN BUSINESS THE ASSESSEE OBTAI NS LOANS FROM FINANCIAL INSTITUTION, BANKS AND OUT SIDE SOURCES. (III) THAT, IN THE CASE OF THE ASSESSEE THE LESSEE HAS BEEN ALLOWED TO OBTAIN LOANS FROM FINANCIAL INSTITUTIONS AND BANKS ONLY. (IV) THAT, AS PER THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT THE PROPERTY HAS TO NECESSARILY REVERT BACK TO THE LESS OR THAT IS THE ASSESSEE. (V) THAT, SUCH A PROVISION AS MENTIONED IN CL. 9 WAS NECESSARY FOR ALLOWING THE LESSOR TO OBTAIN LOANS FOR CONSTRUCTION OWNED B Y THE LESSOR. THAT SECTION 105 OF THE TRANSFER OF PROPERTY ACT, 1 992 DEFINES LEASE AS UNDER: - A LEASE OF IMMOVABLE PROPERTY IS A TRANSFER OF A RI GHT TO ENJOY SUCH PROPERTY, MADE FOR A CERTAIN TIME, EXPRESS OR IMPLIED, OR IN PERPETUITY, IN CONSIDERATION OF A PRICE PAID OR PROMISED, OR OF MONEY, A SHARE OF CRO PS, SERVICE OR ANY OTHER THING OF VALUE, TO BE RENDERED PERIODICALLY OR ON SPECIFI ED OCCASIONS TO THE TRANSFEROR BY THE TRANSFEREE, WHO ACCEPTS THE TRANSFER ON SUCH TERMS. UNQUOTE: THUS IN LEASE IT IS ONLY TRANSFER OF RIGHT TO ENJOY SUCH PROPERTY FOR A CERTAIN TIME. THE TRANSFEROR HAS NOT TRANSFERRED ALL OF HIS RIGHT S, BUT HE HAS HIS RESIDUAL RIGHTS IN THE PROPERTY TRANSFERRED, WHICH ARE LESSORS RIGHT S, AND SUCH A TRANSACTION IS NOT COVERED IN THE DEFINITION OF THE TRANSFER. AS PER SECTION 2(47) OF INCOME TAX ACT, 1961, THE SAID LEASED PROPERTY IS NEITHER A SALE NO R EXCHANGE OR RELINQUISHMENT OF THE ASSET. BY CREATING LEASE FOR 29 YEARS, THE L ESSOR HAS NOT RELINQUISHED HIS RIGHTS ON THE ASSET BUT HAS ONLY GIVEN THE LESSEE T HE RIGHT TO ENJOY PROPERTY FOR A PERIOD OF 29 YEARS. QUOTE: 2(47) [TRANSFER, IN RELATION TO A CAPITAL ASSET, INCLUDES: - (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASS ET; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; OR KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 22 (IV) IN A CASE WHERE THE ASSETS IS CONVERTED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS, STOCK IN TRADE OF A BUSINESS CAR RIED ON BY HIM, SUCH CONVERSION OR TREATMENT;][OR] (V) THE MATURITY OR REDEMPTION OF A ZERO COUPON BON D; OR] (VI) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANC E OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER O F PROPERTY ACT, 1882 (4) OF 1882 ; OR (VII) ANY TRANSACTION ( WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY O THER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING, OR ENABLING T HE ENJOYMENT OF, ANY IMMOVABLE PROPERTY. EXPLANATION: FOR THE PURPOSES OF SUB-CLAUSES (V) A ND (VI), IMMOVABLE PROPERTY SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SEC TION 269UA;] UNQUOTE: A. IN THE INSTANT CASE THE ASSESSEE HAS GIVEN THE P ROPERTY ON LEASE FOR 29 YEARS AND THE SECURITY DEPOSIT IS REFUNDABLE AT THE END OF THE LEASE PERIOD OR ON TERMINATION OF THE LEASE DURING THE LEASE PERIOD, A S PROVIDED IN THE LEASE DEED. BY GIVING THE PROPERTY ON LEASE, THE ASSESSEE HAS NOT RELINQUISHED OF ALL HIS RIGHTS AND HE HAS THE RESIDUAL RIGHTS AS THE LESSOR OF THE PROPERTY AND THE PROPERTY REVERTS BACK TO HIM AFTER 29 YEARS. THEREF ORE, IT IS NOT A SALE, EXCHANGE, OR RELINQUISHMENT OF THE ASSET. B. SINCE BY LEASING THE PROPERTY, THE ASSESSEES RI GHTS THEREIN ARE NOT TOTALLY EXTINGUISHED AND HE HAS THE RESIDUAL RIGHTS AS THE LESSOR IN THE PROPERTY AND LAND REVERTS BACK TO HIM ON TERMINATION OF THE LEAS E DURING THE LEASE PERIOD OR AFTER 29 YEARS, THEREFORE, IT DOES NOT FALL IN THE CATEGORY OF 2(47)(II), C. (III)& SECTION 2(47)(III)AND(IV) ARE NOT APPLICA BLE IN THE CASE OF ASSESSEE. D. THE CASE OF THE ASSESSEE ALSO DOES NOT FALLS UND ER SECTION 2(47)(V) WHERE IT PROVIDES THAT ANY TRANSACTION INVOLVING TH E ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN P ART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRA NSFER OF PROPERTY ACT, 1882 (4 OF 1882) . TO FALL UNDER THIS SECTION THE IMMOVABLE PROPERTY, OF WHICH POSSESSION HAS BEEN GIVEN, HAS TO BE IN PERFORMANCE OF A CONTRACT OF T HE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882. CTR ENCYCLOPAEDIA OF INDIAN TAX LAWS CAPITAL GAINS /DEPRECIATION, ETC.-TAX IMPLICATIONS OF LEASE OF LAND AND CONSTRUCTION OF COMMERCIAL PREMISES THEREON. SECTION 45 SECTION 32 OPINION SOUGHT ONE OF OUR CLIENTS ENTERED INTO AN AGREEMENT WITH A PRIVATE PARTY HAVING VACANT LAND AND THE ENTIRE LAND WAS TAKEN FOR 31 YEARS LEA SE. DURING THE LEASE PERIOD, THE LESSEE WILL CONSTRUCT THE BUILDING AND ENJOY TH E SAME UPTO 31 YEARS AT HIS SOLE DISCRETION AND THEREAFTER ENTIRE BUILDING ALON G WITH LAND WILL REVERT BACK TO KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 23 THE LESSOR. THE LEASE DEED IS SUBJECT TO THE LESSEE MAKING AVAILABLE TWO UNITS (SHOPS) IN THE COMMERCIAL COMPLEX TO BE BUILT IN TH E PREMISES. THE QUERIES IN THIS REGARD ARE:- (1) WHETHER THERE IS ANY CAPITAL GAINS TAX TO THE L ESSOR ON REVERSION OF THE LEASE HOLD RIGHTS ALONG WITH BUILDING? (2) IF THE LESSEE SOLD THE LEASE RIGHTS TO PROSPECT IVE SHOP OWNERS UP TO 31 YEARS, HOW THE INCOME ON SALE OF LEASE HOLD RIGHTS TO THE SHOP OWNERS WILL BE ASSESSED? (3) IS THERE ANY DEPRECIATION THAT CAN BE CLAIMED O N COMMERCIAL COMPLEX BY THE LESSEE? SIR, IN THE OPINION OF THE LEARNED AUTHOR S. RAJARA TNAM, IN RESPECT OF LONG TERM LEASE OF VACANT LAND, THE LESSEE WILL PUT UP SUPER STRUCTURE. THE LEASE DEEDS ORDINARILY CONTAIN A CLAUSE EITHER PROVIDING FOR TH E LESSEE TO LEAVE THE SUPER STRUCTURE INTACT WHILE VACATING THE PREMISES OR PRO VIDE FOR COMPENSATION BY THE LESSOR TO THE LESSEE AT THEIR VALUE. THE NORMAL RUL E IN ABSENCE OF ANY SPECIFIC CLAUSE IS THAT THE LESSEE IS ENTITLED TO DEMOLISH T HE STRUCTURE BEFORE VACATING THE SAME, BUT, IF HE LEAVES THE SUPER STRUCTURE AS SUCH AND THEN IF SUCH SUPER STRUCTURE HAS SUBSTANTIAL VALUE, IT WILL AUTOMATICA LLY BELONG TO LESSOR, WHERE VALUABLE SUPER STRUCTURE IS EXPECTED TO BE BUILT, T HE RENTAL VALUE MAY WELL BE LESS IN VIEW OF EXPECTED ACCRETION TO THE VALUE AT THE E ND OF REVERSIONARY PERIOD WHERE THE OWNER GETS BACK HIS POSSESSION ON REVERSION, TH ERE IS NO LIABILITY FOR THE OWNER BECAUSE HE IS ONLY GETTING BACK HIS PROPERTY WITH ACCRETION WHICH SHOULD CLEARLY BE TAKEN TO BE ENHANCEMENT OF THE VALUE OF THE PROPERTY NOT TAXABLE TILL IT IS REALIZED BY WAY OF SALE. IT IS ON THE ABOVE PRIN CIPLES OF LAW THAT THE ISSUE HAS TO BE DECIDED. PERIOD OF 31 YEARS IS A LONG DURATION FOR LEASE. TH E PROPOSAL OF THE ASSESSEE GETTING A BUILDING 31 YEAS LATER OR ON TERMINATION OF LEASE CANNOT GIVE RISE TO ANY TAX LIABILITY. ALL THAT CAN BE TAXED IS THE ANNUAL VALUE OF RENT AS INCOME. THE QUESTION OF TAXING REVERSIONARY RIGHT OVER THE BUILDING AFTER 31 YEARS DOES NOT ARISE NOW. IN FACT IT IS A MERE ACCRETION TO THE VA LUE OF THE PROPERTY. THE VALUE AS ON DATE IF REVERSION WILL BE HIGHER BECAUSE OF THE THEN PREVAILING PRICES. SUCH INCREASE IN VALUE AND THE ACCRETION ON ACCOUNT OF S UPER STRUCTURE ARE OF THE SAME NATURE. SINCE THE PROPERTY (SUPER STRUCTURE) WILL B E OLD, ONE CANNOT EVEN BE SURE WHETHER IT MAY NOT HAVE A NEGATIVE VALUE REQUIRING THE ASSESSEE TO DEMOLISH THE SAME AT HIS OWN COST TO PUT TO BETTER USE. SINCE TH E LAND ALWAYS BELONGED TO ASSESSEE, THERE IS ALSO NO TRANSFER BY ASSESSEE ON REVERSION, BUILDING BEING A MERE ACCRETION TO SUCH LAND. THERE IS THEREFORE, NO LIABILITY ON REVERSION OF THE LEASE. THAT SINCE THE LESSEE DID NOT ENJOY THE RIGHTS AS O WNER OF THE PROPERTY IN QUESTION AND DID NOT HAVE ANY SALEABLE RIGHTS THEREIN TOO HA S TO BE TAKEN INTO CONSIDERATION BEFORE DECIDING THE TAXABILITY ON THE AMOUNT RECEIVED AS SECURITY DEPOSITS. YOUR HONOURS ATTENTION IS ALSO DRAWN TO 130 CTR (A RTICLES) 163 AUTHORISED BY LEARNED SHRI N M RANKA AT 173 LONG LEASE: IN CERTAIN CASES OF LONG LEASE THE LE SSEE IS ALLOWED TO CONSTRUCT A BUILDING ON THE LAND LEASED OUT OWN THE SAME DURI NG THE PERIOD OF LEASE. THE BUILDING TO BE SURRENDERED TO THE LESSOR FREE OF CO ST ON THE TERMINATION OF THE LEASE AND THE LESSOR HAS THE REVERSIONARY INTEREST TO GET BACK THE BUILDING KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 24 FURTHER YOUR HONOURS ATTENTION IS ALSO DRAWN TO CI T V/S. GULAB RAY & SONS 173 ITR 552 (M.P.), WHEREIN THE ASSESSEE LEASE D OUT A PROPERTY NAMELY JAKSON HOTEL ON MONTHLY RENT OF RS.40,000/- FOR A PERIOD OF 20 YEARS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. TREATED T HE RENTAL INCOME AS BUSINESS INCOME AS AGAINST INCOME FROM PROPERTY. TH E CIT INVOKING PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT DIRECTED TO RE COMPUTED THE INCOME AS PER PROVISIONS OF SECTION 22 AND 23 OF THE INCOME TAX A CT. THE HONORABLE HIGH COURT HELD: THAT A QUESTION OF LAW NAMELY WHETHER THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DERIVED BY THE ASSESSEE LEASING OUT THE PROPERTY WAS INCOME FROM BUSINESS AROSE REFERENCE. THE AFORESAID AUTHORITY IS BEING REFERRED TO BECAUS E, INCOME FROM LEASE OF PROPERTY CAN BE ASSESSED AS EITHER INCOME FROM PROP ERTY OR AS INCOME FROM BUSINESS AND THAT WHEN THERE IS NO EXTINGUISHMENT O F ANY RIGHTS OR THERE BEING NO TRANSFER OF PROPERTY BY THE ASSESSEE THE QUESTIO N OF COMPUTING INCOME FROM CAPITAL GAIN DOES NOT ARISE. SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 P ROVIDES THAT THE TRANSFER SHOULD BE FOR A CONSIDERATION. THE SAID SECTION REA DS AS UNDER: QUOTE: SECTION 53A PART PERFORMANCE. WHERE ANY PERSON CONT RACTS TO TRANSFER FOR CONSIDERATION ANY IMMOVABLE PROPERTY BY WRITING SIG NED BY HIM OR ON HIS BEHALF FROM WHICH THE TERMS NECESSARY TO CONSTITUTE THE TR ANSFER CAN BE ASCERTAINED WITH REASONABLE CERTAINTY. UNQUOTE: THUS, SECTION 53A PROVIDES THAT THERE HAS TO BE CO NSIDERATION FOR TRANSFER OF ANY IMMOVABLE PROPERTY IN TERMS OF THE CONTRACTS. THE ASSESSEE HAS GIVEN THE PROPERTY ON LEASE FOR 29 YEARS FOR A REFUNDABLE DEPOSIT ON A ANNUAL LEASE RENT OF RS. 34,000/- PER ANNUM THEREFORE, IT IS NOT A TRANSFER AS DEFINED IN TRANSFER OF PROPERTY ACT, 19 82 BECAUSE THE ASSESSEE STILL HAS THE RESIDUAL RIGHT AS THE LESSOR. THEREFORE FOR ANY TRANSACTION TO FALL UNDER SECTION 2(47)(VII) SUCH A TRANSACTION HAS TO BE IN THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT 1882 WHICH PROVIDES THAT THERE HAS TO BE CONSIDERA TION FOR SUCH TRANSFERS OF IMMOVABLE PROPERTY. THE CONSIDERATION FOR TRANSFER IS NOT DEFINED IN THE INCOME-TAX ACT. HOWEVER, SINCE IN EXPLANATION OF SECTION 2(47) FOR THE PURPO SES OF IMMOVABLE PROPERTY REFERENCE OF SECTION 269UA HAS BEEN GIVEN, THEREFOR E FOR THE PURPOSES OF CONSIDERATION FOR TRANSFER OF THE IMMOVABLE PROPE RTY BY WAY OF LEASE CAN BE DERIVED FROM SECTION 269UA(B)(III) WHICH IS REPRODU CED HERE BELOW. QUOTE:- (III) IF THE IMMOVABLE PROPERTY IS T O BE TRANSFERRED BY WAY OF LEASE,- (A) IN A CASE WHERE THE CONSIDERATION FOR THE TRANS FER CONSISTS OF PREMIUM ONLY, THE AMOUNT OF PREMIUM AS SPECIFIED IN THE AGR EEMENT FOR TRANSFER; (B) IN A CASE WHERE THE CONSIDERATION FOR THE TRANS FER CONSISTS OF RENT ONLY, THE AGGREGATE OF THE MONEYS (IF ANY) PAYABLE BY WAY OF RENT AND THE AMOUNTS FOR KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 25 THE SERVICE OR THINGS FORMING PART OF OR CONSTITUTI NG THE RENT, AS SPECIFIED IN THE AGREEMENT FOR TRANSFER; (C) IN A CASE WHERE THE CONSIDERATION FOR THE TRANS FER CONSISTS OF PREMIUM AND RENT, THE AGGREGATE OF THE AMOUNT OF THE PREMIU M, THE MONEYS (IF ANY) PAYABLE BY WAY OF RENT AND THE AMOUNTS FOR THE SERV ICE OR THINGS FORMING PART OF OR CONSTITUTING THE RENT, AS SPECIFIED IN THE AGREE MENT FOR TRANSFER, AND WHERE THE WHOLE OR ANY PART OF THE CONSIDERATIO N FOR SUCH TRANSFER IS PAYABLE OR ANY DATE OR DATES FALLING AFTER THE DATE OF SUCH AGREEMENT FOR TRANSFER, THE VALUE OF THE CONSIDERATION PAYABLE AFTER SUCH DATE SHALL BE DEEMED TO BE THE DISCOUNTED VALUE OF SUCH CONSIDERATION AS ON THE DA TE OF SUCH AGREEMENT FOR TRANSFER, DETERMINED BY ADOPTING SUCH RATE OF INTER EST AS MAY BE PRESCRIBED IN THIS BEHALF. UNQUOTE:- SINCE NO PREMIUM HAS BEEN CHARGED FOR GIVING THE SA ID PROPERTY ON LEASE FOR 29 YEARS AND THE SECURITY DEPOSIT IS A REFUNDABLE DEPO SIT AFTER THE EXPIRY OF THE LEASE PERIOD OR ON THE TERMINATION OF THE LEASE AND HENCE , IT IS PREMIUM. ACTUALLY IT IS DEBT IN THE BOOKS OF THE ACCOUNTS OF THE ASSESSEE. THE CONSIDERATION AS FAR AS PREMIUM IS CONSIDERED IS NIL. THE ONLY CONSIDERATIO N FOR TRANSFER AS PER SECTION 269UA (III)(B) IS THE AGGREGATE OF THE MONIES (IF A NY) PAYABLE BY WAY OF RENT AND THE AMOUNTS FOR THE SERVICE OR THINGS FORMING PART OF OR CONSTITUTING THE RENT, AS SPECIFIED IN THE AGREEMENT FOR TRANSFER, WHICH IS A NNUAL LEASE RENT OF RS.34,000/- PER ANNUM A PERIOD OF 29 YEARS. SINCE THE SECURITY DEPOSIT IS REFUNDABLE AFTER THE PERIOD OF 29 YEARS OF LEASE OR ON TERMINATION OF THE LEASE DEED, IT CANNOT BE SAID TO BE A CONSIDERATION, BECAUSE A REFUNDABLE DEPOSIT IS A DEBT AND NOT A C ONSIDERATION RECEIVED. THE ONLY CONSIDERATION THEREFORE WHICH CAN BE CONSIDERE D FOR THE PURPOSES OF SECTION 2(47) READ WITH SECTION 53A, IS THE LEASE RENT AMOU NT OF RS.81,000/- PER YEAR TO BE RECEIVED OVER A PERIOD OF 29 YEARS WHICH IS NOT REFUNDABLE AND THEREFORE, THIS IS THE ONLY CONSIDERATION THAT CAN FALL WITHIN THE AMBIT OF SECTION 2(47) READ WITH SECTION 53A. IN SUCH AN EVENT, THE DISCOUNTED VALU E OF THE LEASE RENT OF RS.81,000/- X 29/23,45,000 FOR ITS PRESENT VALUE WOULD COME TO RS.9,03,833/- (RUPEES NINE LACS THREE THOUSAND EIGHT HUNDRED THIR TY-THREE), WHICH CAN AT THE MOST BE TREATED AS THE CONSIDERATION AND NOT THE SE CURITY DEPOSIT WHICH IS REFUNDABLE DEPOSIT AND HENCE IS A DEBT. HOWEVER SI NCE THE ASSESSEE IS OFFERING THE LEASE RENT AS A REVENUE RECEIPT IN THE RELEVANT YEAR, THE SAME CANNOT BE TAXED A CONSIDERATION RECEIVED FOR LEASING THE PROP ERTY. ASSUMING THAT THE DISCOUNTED VALUE OF THE LEASE REN TALS IS THE CONSIDERATION FOR TRANSFER, THEN ALSO FOR THE PURPOSES OF CAPITAL GAI NS THE ACQUISITION COST OF THE ASSET, WHICH IN THIS CASE THE TRANSFER OF PROPERTY ON LEASE, FOR WHICH THE CONSIDERATION HAS BEEN RECEIVED, HAS TO BE DETERMIN ED AND IF THAT COST IS NOT DETERMINABLE, THEN AS PER THE JUDICIAL DECISION GIV EN BY THE VARIOUS COST INCLUDING THE SUPREME COURT IN THE CASE OF CIT VS B C SRINIVAS SHETTY 128 ITR 294(SC) NO CAPITAL GAINS CAN BE CHARGED. IT MAY BE MENTIONED HERE THAT IF THE ASSESSEE RECEI VES ANY PREMIUM OR SALAMI AS A CONSIDERATION OF THE LEASE, IT MAY BE TREATED AS CONSIDERATION RECEIVED, IN THE CASE OF R K PALSIKAR VS CIT 172 ITR 311, A K KRISHN AMURTHY VS CIT 176 ITR 417. THE LEASE WAS FOR 99 YEARS AND THE LESSOR HAS RECEIVED NON-REFUNDABLE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 26 PREMIUM/SALAMI. IN THE INSTANT CASE, THERE IS NO P REMIUM OR SALAMI RECEIVED BY THE LESSOR AND THE AMOUNT IS RECEIVED BY WAY OF A R EFUNDABLE DEPOSIT ON THE TERMINATION OF THE LEASE AGREEMENT OR ON THE COMPLE TION OF THE LEASE PERIOD OF 29 YEARS. IN THIS MATTER THE ASSESSEE WOULD LIKE TO RE LY ON THE JUDGMENT OF THE HONBLE INCOME-TAX APPELLATE TRIBUNAL, JODHPUR BENC H IN THE CASE ADDL. CIT VS LAKE PALACE HOTEL, 83, TTJ, 103. IN YET ANOTHER CASE REPORTED IN 57 IU TR 422, CIT V S PANBARI TEA CO. LTD. WHEREIN THE HONBLE SUPREME COURT HAS HELD: ON THE FACTS, THAT THE SUM OF RS. 11,250/- WAS A C APITAL RECEIPT: THE REAL TEST OF A SALAMI OR PREMIUM IS WHETHER THE AMOUNT PAID, IN A LUMP SUM OR IN INSTALMENTS IS THE CONSIDERATION PAID BY THE TENANT FOR BEING LET INTO POSSESSION. WHEN THE INTEREST OF THE LESSOR IS PARTED WITH FOR A PRICE, THE PRICE PAID IS PREMIUM OR SALAMI, BUT THE PERIODICAL PAYMENTS MADE FOR THE CO NTINUOUS ENJOYMENT OF THE BENEFITS UNDER THE LEASE ARE IN THE NATURE OF RENT. THE FORMER IS A CAPITAL RECEIPT AND THE LATTER ARE REVENUE RECEIPTS YOUR HONORS ATTENTION IS ALSO DRAWN TO 53DTR 92 DE LHI HIGH COURT CIT VS. C.J. INTERNATIONAL HOTELS LTD. CONCLUSION: ASSESSEE HAVING CONSTRUCTED THE BUILDI NG ON LAND TAKEN ON LEASE FROM NDMC, IT IS THE NDMC WHICH IS OWNER; FURTHER, IN VIEW OF THE PROVISIONS OF S. 27(III), IT IS THE SUB-LICENSEE WHO WOULD BE DEEME D OWNER OF THOSE PREMISES WHICH THE SUB-LICENSEES TRANSFERRED TO THE PRESENT OCCUPIERS AND THOSE OCCUPIERS INTEREST-FREE SECURITY DEPOSITS FROM SUB-LICENSEES AND NO RENT. IN VIEW OF THE ABOVE IT IS SUBMITTED THAT THE AMOUN T RECEIVED AS REFUNDABLE SECURITY DEPOSIT MAY KINDLY BE ACCEPTED AS SUCH AND NO CAPITAL GAIN ARISES ON PROPERTY GIVEN ON LEASE. FURTHER IT IS SUBMITTED THAT THE SECURITY DEPOSIT R ECEIVED BY THE ASSESSEE COMPANY FROM THE LESSEE IN RESPECT OF LAND GIVEN ON LEASE FOR 29 YEARS, WHICH WOULD REVERT BACK TO THE ASSESSEE COMPANY AFTER THE EXPIRY OF LEASE PERIOD WHICH OF 29 YEARS OR TERMINATION OF LEASE DEED WHIC HEVER IS EARLIER, WOULD BE NON TAXABLE CAPITAL RECEIPT IF THE LESSEE REFUSES TO TH E REVERT BACK THE BUILDING AND IN SUCH CASE SECURITY DEPOSIT RECEIVED WILL TANTAMOUNT TO BE NON TAXABLE CAPITAL RECEIPT AND AS SUCH NO TAXABILITY ARISES ON SECURIT Y DEPOSIT RECEIVED. 4.1.11 I HAVE VERY CAREFULLY GONE THROUGH THE ASS ESSEES ABOVE SUBMISSION SUPRA AND NOTICED THAT THE ARGUMENTS PUTFORTH BY THE ASSESSEE WERE ALMOST SIMILAR AND IDENTICAL TO THAT PUTFORTH DURING THE C OURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. STILL FOR THE SAKE OF BREVITY THE SAME MAY BE SUMMARIZED AS UNDER: (I) THERE WAS NO RELINQUISHMENT OF RIGHTS OF THE AS SESSEE IN THE PLOT LEASED OUT TO M/S. EWDPL WITHIN THE MEANING OF THE PROVISI ONS OF SECTION 2 (47)(I) OF THE I.T. ACT NOR THE LEASING OUT OF THE PLOT COULD BE CONSIDERED AS ENABLING THE ENJOYMENT AS CONTEMPLATED IN SECTION 2(47)(VI) . (II) THE SECURITY DEPOSIT IS REFUNDABLE ON THE EXPI RY /TERMINATION OF LEASE AND ACCORDINGLY IT IS DEBT FOR THE ASSESSEE AND NOT A S ALE CONSIDERATION FOR TRANSFER OF PLOT. (III) IN SUPPORT OF ITS CLAIM THE ASSESSEE RELIED U PON VARIOUS CASE LAWS ESPECIALLY RAJASTHAN HIGH COURTS DECISION IN THE CASE CIT VS THE LAKE PALACE HOTELS AND MOTELS REPORT IN 213 ITR 735. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 27 4.1.12 BEFORE COMMENTING UPON THE ASSESSEES ABOVE ARGUMENTS IT WOULD AGAIN BE NECESSARY TO ANALYZE THE FACTS OF THE CASE . 4.1.12.1 EXAMINATION OF DETAILS REVEALED THAT DURIN G THE PREVIOUS YEAR 2003-04 TO 2005-06 THE ASSESSEE (I.E. M/S KALANI BROTHERS ( INDORE) PVT. LTD.) AND M/S PADMA HOMES (P) LTD., HELD MAJOR PORTION OF SHARE H OLDING M/S EWDPL AS PER PARTICULARS GIVEN BELOW: P.Y. A.Y. SHARE HOLDING OF M/S. PADMA HOMES (P) LTD. SHARE HOLDING OF ASSESSEE I.E. M/S KALANI BROTHERS (INDORE) LTD. TOTAL SHARES OF M/S EWDPL 2003-04 2004-05 2,63,691 (26.36%) 6,29,579 (62.95%) 10,00,000 2004-05 2005-06 2,83,360 (25.20%) 6,76,870 (60.20%) 11,24,310 2005-06 2006-07 33,90,036 (242.9%) 79,76,601 (5 71.7%) 13,95,231 4.1.12.2 EXAMINATION OF DETAILS FURTHER REVEALED T HAT SHRI MANISH KALANI AND SMT. PADMA KALANI HELD THE MAJOR PORTION OF SHARES IN THE ASSESSEE COMPANY AND M/S PADMA HOMES (P) LTD., AS PARTICULARS GIVEN BELOW: A. SHARE HOLDING PATTERN OF SHRI MANISH KALANI A.Y. HOLDING OF SHARE IN KALANI BROTHERS (INDORE) PVT. LTD.,(THE ASSESSEE) PADMA HOMES PVT. LTD. 2004-05 27% 6% 2005-06 27% 6% 2006-07 27% 30% B. SHARE HOLDING PATTERN OF SMT. PADMA KALANI A.Y. HOLDING OF SHARE IN KALANI BROTHERS (INDORE) PVT. LTD.,(THE ASSESSEE) PADMA HOMES PVT. LTD. 2004-05 27% 26% 2005-06 27% 26% 2006-07 27% 30% 4.1.12.2.1 EXAMINATION OF THE BANK STATEMENTS OF TH E ABOVE CONCERNS REVEALED THAT THE ASSESSEE AND M/S. PADMA HOMES PVT. LTD. , HAD PAID CONSIDERABLE AMOUNT IN THE SHAPE OF SHARE APPLICATION MONEY TO M/S. EWDPL. IT WAS FURTHER NOTICED THAT IMMEDIATELY AFTER THE RECEIPT OF SHARE APPLICATION MONEY M/S EWDPL HAD RETURNED THE AMOUNT IN THE FORM OF SECURITY DEP OSIT TO THEM IN EACH OF THE PREVIOUS YEAR 2003-04 TO 2005-06 RELEVANT TO A.Y. 2 004-05 TO 2006-07. THE PATTERN OF FLOW OF TRANSACTIONS UPTO THE DATE OF PA YMENT OF SECURITY DEPOSIT BY M/S EWDPL TO THE ASSESSEE AND M/S PADMA HOMES PVT. LTD. , WAS AS UNDER: A.Y. 2004-05 S.N. NAME DATE OF SHARE APPLICATION MONEY AMOUNT OF SHARE APPLICATION DATE OF SECURITY DEPOSITED BY AMOUNT OF SECURITY DEPOSIT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 28 RECEIVED BY EWDPL MONEY EWDPL 1. M/S KALANI BROTHERS (INDORE) PVT. LTD. 03.06.2003 5,46,220/- 20.06.2003 4,20,00,000/- 06.06.2003 4,22,880/- 21.06.2003 2,84,92,487/- 17.06.2003 35,240/- 20.06.2003 3,50,00,000/- 2. M/S PADMA PVT. LTD. 03.06.2003 2,28,780/- 23.06.2003 2,95,07,513/- 05.06.2003 18,000/- 11.06.2003 1,77,000/- 17.06.2003 14,760/- 23.06.2003 2,95,07,513/- A.Y. 2005-06 S.N. NAME DATE OF SHARE APPLICATION MONEY RECEIVED BY EWDPL AMOUNT OF SHARE APPLICATION MONEY DATE OF SECURITY DEPOSITED BY EWDPL AMOUNT OF SECURITY DEPOSIT 1. M/S KALANI BROTHERS (INDORE) PVT. LTD. 16.04.2004 3,50,00,000/- 16.04.2004 3,50,00,000/- 2. M/S PADMA PVT. LTD. 16.04.2004 1,50,00,000/- 16.04.2004 1,50,00,000/- A.Y. 2006-07 S.N. NAME DATE OF SHARE APPLICATION MONEY RECEIVED BY EWDPL AMOUNT OF SHARE APPLICATION MONEY DATE OF SECURITY DEPOSITED BY EWDPL AMOUNT OF SECURITY DEPOSIT 1. M/S KALANI BROTHERS (INDORE) PVT. LTD. 18.10.2005 60,00,000/- 07.03.2006 4,51,07,200/- 31.03.2006 8,06,04,313/- 09.03.2006 1,02,20,000/- 31.03.2006 5,06,32,313/- 2. M/S PADMA PVT. LTD. 31.03.2006 4,22,22,687/- 07.03.2006 1,88,92,800/- 09.03.2006 42,80,000/- 31.03.2006 2,08,67,687/- 4.1.12.3 PROCEEDING FURTHER IN THE MATTER IT WOUL D NOT BE UNNECESSARY TO MENTION THAT M/S. EWDPL DURING THE PREVIOUS YEARS 2 003-04 TO 2007-08 HAD INCURRED HUGE EXPENDITURE OF RS.94,22,91,392/- FOR THE CONSTRUCTION OF THE MALL ON THE LEASE OUT PLOT AS PER PARTICULARS GIVEN BELO W:- S.N. PREVIOUS YEAR ASSESSMENT YEAR AMOUNT OF EXPENDITURE INCURRED UPTO 1. 2003-04 2004-05 RS. 6,02,800/- KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 29 2. 2004-05 2006-07 RS. 54,56,214/- 3. 2005-06 2007-08 RS.66,04,34,272/- 4. 2006-07 2008-09 RS.69,73,76,359/- 5. 2007-08 2009-10 RS.94,22,91,392/- 4.1.13 HAVING TAKEN A NOTE OF ABOVE FACTS I NOW PROCEED TO ADJUDICATE ON THE ASSESSEES ABOVE ARGUMENTS. 4.1.13.1 AS REGARDS THE ASSESSEES FIRST CONTENTION THAT THERE WAS NEITHER THE RELINQUISHMENT OF RIGHT OF THE ASSESSEE IN THE PLOT LEASED OUT NOR THE LEASING OUT OF THE PLOT ENABLED THE LESSEE TO ENJOY RIGHTS AS MENTIONED IN CLAUSE(VI) OF SUB-SECTION (47) OF SECTION (2) OF TH E I.T. ACT, IT WOULD BE NECESSARY TO MENTION THAT THE LEGISLATURE IN THE SCHEME OF CHARGING CAPITAL GAIN ON TRANSFER OF A CAPITAL ASSET HAS CATEGORICALLY L AID DOWN THAT THE ASSET SHOWN BE OWNED BY THE ASSESSEE WITHIN THE MEANING O F THE PROVISIONS OF SECTION 2(14) AND THERE MUST BE A TRANSFER OF THE ASSET WITHIN T HE MEANING SECTION U/S 2(47) OF THE I.T. ACT. 4.1.13.2 IN VIEW OF THE ABOVE IT HAS BECOME NECESS ARY TO ANALYZE THE PROVISIONS OF TRANSFER OF PROPERTY ACT AND RELEVANT PROVISIONS OF THE I.T. ACT WITH REGAR D TO THE MEANING OF EXPRESSION TRANSFER OF ASSETS AND THEIR APPLICABILITY ESPECIALLY IN THE BACKDROP OF FACTS OF THE CASE DISCUSSED IN THE PRECEDING PARAS. 4.1.13.3 THE LEGISLATURE IN SUB-SECTION (47) OF SECTION (2) OF THE I.T. ACT HAS STIPULATED THE MEANING OF TRANSFER FOR THE PURPOSES OF CHARGING CAPITAL GAIN. AS PER THIS SUB-CLAUSE OF SECTION (2) THE EXPRESSION TRANSFER INCLUDES (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASSET; OR THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (II) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; O R (III) IN CASE WHERE THE ASSETS IS CONVERTED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS, STOCK IN TRADE OF A BUSINESS CAR RIED ON BY HIM, SUCH CONVERSION OR TREATMENT;][OR] (IV) THE MATURITY OR REDEMPTION OF A ZERO COUPON BOND; O R] (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSE SSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANC E OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPE RTY ACT, 1882 (4 OF 1882);; OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIR ING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYMENT OF, ANY IMMOVABLE PROPERTY 4.1.13.4 HERE IT WOULD BE NECESSARY TO MENTION THA T THE LEGISLATURE HAS USED WORD OR AT THE END OF EACH OF LIMB OF THE CLAUSE(S) OF SUB-SECTION (47) OF SECTION (2) OF THE I.T. ACT. FROM THIS IT FOLLOWS THAT EACH OF THE CLAUSE IS SEPARATE AND INDEPENDENT CODE IN ITSELF. FROM THIS IT ALSO F OLLOWS THAT THE LEGISLATURE IN THE ABOVE SECTION HAS INTENDED THAT IN THE EVENT OF FULFILLMENT OF ANY OF THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 30 CONDITIONS ENVISAGED IN SECTION, THE TRANSACTION CONSTITUTES TRANSFER FOR THE PURPOSES OF CHARGING CAPITAL GAIN U/S 45 OF THE I.T. ACT. 4.1.13.5 FURTHER AS PER CLAUSE-(I) OF SUB-SECTION (47) OF SECTION 2 OF THE I.T. ACT, ANY TRANSACTION WHICH INVOLVES RELINQUISHMENT OF THE ASSET CONSTITUTES TRANSFER FOR THE PURPOSES OF CHARGING CAPITAL GAI N U/S 45 OF THE I.T. ACT. HERE IT WOULD BE REITERATED THAT THE ASSESSEE CLAIMED THAT THE LEASING OUT OF THE PLOT FOR 29 YEARS WITH THE RECEIPT OF REFUNDABLE DEPOSIT DID NOT CONSTITUTE TRANSFER . IN THIS CONTEXT IT HAS TO BE MENTIONED THAT THE DEFINI TION OF THE TERM LEASE HAS BEEN GIVEN IN SECTION (105) OF THE TRANSFER OF PROPERTY ACT 1992 . AS PER THIS SECTION LEASE OF IMMOVABLE PROPERTY IS A TRANSFER OF A RIGH T TO ENJOY SUCH PROPERTY MADE FOR A CERTAIN TIME EXPRESS TO IMPLICATE OR PERPETUA TING IN CONSIDERATION OF A PRICE PAID OR PROMISED, OR OF A MONEY, A SHARE OF CROPS, SERVICE OR ANY OTHER THING OF VALUE, TO BE RENDERED PERIODICALLY OR ON SPECIFIED OCCASIONS TO THE TRANSFEROR BY THE TRANSFEREE, WHO ACCEPTS THE TRANSFER ON SUCH TE RMS. 4.1.13.6 PROCEEDING FURTHER IN THE MATTER IT IS A SETTLED LAW THAT THE MEANING OF TRANSFER ENVISAGED IN SUB-SECTION (47) OF SECTION 2 OF THE I.T. ACT IS NOT STRICTLY BOUND BY THE DEFINITION OF TRANSFER GIVE N THE TRANSFER OF PROPERTY ACT. IT WOULD BE REITERATED THAT THE DEFINITION OF TR ANSFER IN THE I.T. ACT IS INCLUSIVE ONE AND DOES NOT EXCLUDE THE CONTEXTUAL O R ORDINARY MEANING OF THE WORD TRANSFER. IT INCLUDES THE DEFINITION OF TRA NSFER STIPULATED IN TRANSFER OF PROPERTY ACT. FROM THIS IT FOLLOWS THERE ARE OTHER TRANSACTIONS ALSO WHICH MAY NOT BE CATEGORIZED AS TRANSFER IN THE TRANSFER OF PROPERTY ACT BUT ARE CONSIDERED AS TRANSFER FOR THE PURPOSES OF CAPITA L GAIN IN THE INCOME TAX ACT. 4.1.13.7 STILL PROCEEDING FURTHER AS PER CLAUSE ( VI) OF SUB-SECTION (47) OF SECTION 2 OF I.T. ACT, THE LEGISLATURE EXPRESSED THAT ANY TRANSACTION OR ANY ARRANGEMENT IN ANY OTHER MANNER WHATSOEVER WHICH HAS THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY CONSTITUTES TRANSFER . THE EXPRESSION ANY TRANSACTION AS IT SUGGEST HAS A WIDE PERIPHERALLY. THUS FROM THIS IT IS APPARENT THAT THE MAIN YARDS TICK OF JUDGING ANY TRANSACTION OF TRANSFER FROM THE ANGLE OF CHARGING CAPITAL GAIN, IS TO ASCERTAIN WHETHER THAT TRANSACTION ENABLES THE TRAN SFEREE RIGHTS TO ENJOY OVER THE PROPERTY. FROM THIS IT ALSO FOLLOWS THAT ANY TRANSACTION INCLUSIVE OF TRANSFER OF LAND ON LEASE AS DEFINED IN TRANSFER OF PROPERTY AC T RESULTING INTO RENDERING OF RIGHTS TO ENJOY RIGHTS WOULD TANTAMOUN T TO TRANSFER WITHIN THE DEFINITION OF TRANSFER ENVISAGED IN CLAUSE (VI) O F SUB-SECTION (47) OF SECTION 2 OF THE I.T. ACT FOR THE PURPOSES OF CHARG ING CAPITAL GAIN. 4.1.13.8 MOMENTARILY PARTING FROM THE ISSUE AS REGA RDS THE ASSESSEES CONTENTION THAT THERE WAS NO RELINQUISHMENT OF RIGH T IN THE PLOT LEASED OUT TO M/S. EWDPL IT WOULD SUFFICE TO SAY THAT THE ASSESSEES T HIS TRANSACTION HAD AUTOMATICALLY BEEN CULMINATED INTO RELINQUISHMENT O R EXTINGUISHMENT OF ITS RIGHT IN THE PLOT LEASED OUT AS THE TRANSACTION FALLS IN THE CATEGORY OF TRANSACTION CLASSIFIED IN CLAUSE-(VI) OF SUB-SECTION (47) OF SECTION 2 OF THE I.T. ACT. HENCE, FOR THE SAKE OF CONVENIENCE AND PROPER PERSPECTIVE I FIRST TAKE THE TRANSACTION UNDER CLAUSE- (VI) OF SUB-SECTION (47) OF SECTION 2 OF THE I.T. A CT. 4.1.15 IN THE BACKDROP OF ABOVE FACTS IT HAS TO BE MENTIONED THAT AS PER THE AGREEMENT TO LEASE, THE LESSEE HAD APPLIED TO M.P. HOUSING BOARD FOR CONSTRUCTION OF A HOUSING-CUM-FAMILY ENTERTAINMENT CENTRE CUM KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 31 MULTIPLEX CUM SHOPPING MALL ON THE LEASED OUT P LOTS MUCH PRIOR TO ENTERING INTO AGREEMENT TO LEASE. IN THIS CONTEXT T HE EXTRACT OF THE AGREEMENT TO LEASE GIVEN IN PARA 4.1.2 OF THIS ORDER MAY BE REFERRED TO. FROM THIS IT INE VITABLY FOLLOWS THAT THE ASSESSEE HAD ALREADY RENDERED RIGH TS TO M/S EWDPL TO ENABLE IT TO CONSTRUCT THE AFORESAID PROJECT. NEEDLESS TO SA Y IT CANNOT BE DISPUTED THAT NO ONE WOULD APPLY TO THE STATE GOVERNMENT AUTHORITIES FOR SUCH PERMISSION FOR CONSTRUCTION WITHOUT HAVING RIGHTS OVER THE PLOTS U NLESS AND UNTIL THERE IS A TACIT AGREEMENT OF TRANSFERRING THE PLOT TO SUCH PERSON B Y ENTERING INTO SUCH MAKE BELIEF ARRANGEMENT BENEFICIAL TO THEM. THE SCOPE OF THIS RIGHT WAS FURTHER WIDENED BY THE SUPPLEMENTARY LEASE AGREEMENT. AS PER THIS SUPPLEMENTARY AGREEMENT TO LEASE THE RIGHT TO CONSTRUCT THE HOTEL COMPLEX WAS RENDERED TO M/S. EWDPL. IN THIS CONTEXT EXTRACT OF THE SUPPLEMENTARY LEASE AGREEMENT GIVEN IN PARA 4.1.3 OF THIS ORDER MAY BE REFERRED TO. FROM THIS IT FOLL OWS THAT BY VIRTUE OF THIS TRANSACTION THE ASSESSEE HAD ACTUALL Y RELINQUISHED ITS RIGHT IN THE LEASED OUT PLOT AS WELL AS RENDERED M/S EWDPL THE R IGHT TO ENJOY OVER THE PROPERTY. 4.1.15.1 IN THIS SERIES IT WOULD ALSO NOT BE UNNECE SSARY TO MENTION THAT FURTHER PERUSAL OF BOTH THE AGREEMENT TO LEASE REVEALED THAT FOLLOWING RIGHTS TO ENJOY OVER THE LEASED PLOTS HAVE BEEN RENDERED BY THE ASSESSEE TO M/S EWDPL : (A) AS PER CLAUSE (3) OF THE AGREEMENT THE LESSEE ENJOYS THE FACILITY TO GIVE THE PREMISES ON RENT OR ON THE STRUCTURE ERECTED THEREON. (B) AS PER CLAUSE (4) OF THE AGREEMENT THE LESSEE WAS GIVEN THE RIGHT TO DEMOLISH THE EXISTING STRUCTURE FOR THE PURPOSES OF CONSTRUCTION OF THE PROJECT AND THE LESSEE WAS TO PROCEED FURTHER AS PER THE NORMS FOR CONSTRUCTION OF THE PROJECT. THE RELEVANT CLAUSES 4,5,6,7,8,9,10 & 11 OF THE AGREEMENT TO LEASE GIVEN IN PARA OF THIS ORDER MAY BE REFERRED TO. (C) THE LESSEE WAS RENDERED RIGHT TO OBTAIN LOANS BY KEEPING MORTGAGE THE AFORESAID PROPERTY TO ANY FINANCIAL INSTITUTION, BA NKS ETC. (D) THE LEASE IS IRREVOCABLE FOR A PERIOD OF 29 YEARS DURING WHICH AT NO TIME WOULD ANY INCREASE BE PERMITTED FOR THE LEASE RENT. (E) THE LESSEE CAN SELL A PORTION OF THE PROJECT OR CERTAIN AREAS OF THE PROJECT, SO CONSTRUCTED , THE LESSER WILL GIVE CONSENT FOR SALE OF SUCH ARE AS AND WILL JOIN IN THE TRANSFER OF THE PROPORTIONATE LAND TO THE BUILT-UP AREA SOLD TO ANY OTHER PARTY AND IN THAT EVENT THE CONSIDERATION OF PROPORTIONATE AREA OF THE LAND SHALL BE PAID TO THE LESSER. 4.1.16 FROM THE ABOVE CONDITIONS OUTLINED IN THE AGREEMENT TO LEASE IT IS APPARENT THAT THE LESSEE WAS PRACTICALLY RENDERED ALL THE RIGHTS WHICH AN OWNER OF PROPERTY ENJOYS. THUS IT IS APPARENT THAT WITHOUT TAKING INTO ACCOU NT OTHER FACTUAL ASPECT OF THE CASE, THE PROVISIONS OF CLAUSE (VI) OF SUB SECTION (47) OF SECTION 2 OF THE INCOME TAX ACT ARE SQUAREL Y APPLICABLE IN ITS CASE. 4.1.17 PROCEEDING FURTHER IN THE MATTER THAT AS REG ARDS THE ASSESSEES CONTENTION THAT THE LEASING OUT OF THE PLOT ALSO DO ES NOT FALL WITHIN THE PARAMETERS OF THE DEFINITION OF TRANSACTIONS OUTLINED IN CLAUSE (VI) OF SUB-SECTION (47) OF SECTION (2) OF THE I.T. ACT ON ACCOUNT OF THE FACT THAT THE PR OVISIONS OF THIS CLAUSE ARE MAINLY APPLICABLE IN THE CIRCUMSTANCES WHEREBY A PERSON BY VIRTUE OF BECOMING A MEMBER OF, OR ACQUIRING SHARE IN A CO-OP ERATIVE SOCIETY, COMPANY OR KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 32 OTHER ASSOCIATION OF PERSONS IS ENTITLED TO ENJOY O F ANY IMMOVABLE PROPERTY, IT WOULD SUFFICE TO SAY THAT THE PROVISIONS OF THIS CL AUSE ARE NOT RESTRICTED TO THE AFORESAID CONDITIONS AS DISCUSSED AT PARA 4.13 OF THE ORDER. 4.1.18 STILL PROCEEDING FURTHER IN THE MATTER WITH REGARD TO THE ASSESSEES ARGUMENT THAT EVERY TYPE OF TRANSACTION ENABLING TH E ENJOYMENT OF ANY IMMOVABLE PROPERTY FOR INSTANCE THE LETTING OUT OF HOUSE TO A TENANT OR A SIMPLE TRANSACTION OF A HOTEL GIVING ROOM TO A CUST OMER WOULD ALSO TANTAMOUNT FOR THE PURPOSES OF CAPITAL GAIN U/S 45, IT WOULD AGAIN BE SUFFICE TO SAY THE INSTANCES RELIED UPON BY THE ASSESSEE AR E TOTALLY MISPLACED. IT HAS TO BE MENTIONED THAT THE HOUSE IS PRIMARILY GIVEN ON R ENT FOR ALLOWING THE TENANT TO RESIDE IN THAT HOUSE AND NOT FOR THE PURPOSE OF OTH ER ENJOYMENT OVER THE PROPERTY AS GIVEN BY THE ASSESSEE BY LEASING OUT TO THE LESSEE AS DISCUSSED AT LENGTH IN THE PRECEDING PARAS. SIMILARLY, IN THE CASE OF GIVING A ROOM TO A CUSTOMER IN A HOTEL, THE CUSTOMER IS ENTI TLED ONLY TO STAY IN THE HOTEL ROOM FOR FEW DAYS. HE IS NOT ENTITLED TO CARRY OUT ANY OTHER ACTIVITY SUCH AS MODIFICATION / ALTERATION / RENOVATION IN THE ROOM CONTRARY TO THE VARIOUS AMENITIES / RIGHTS RENDERED BY THE ASSESSEE IN LEAS ING OUT PROPERTY TO THE LESSEE. IN VIEW OF THESE FACTS IT WOULD RATHER BE INCORRE CT BY ANY YARDSTICK ON THE PART OF THE ASSESSEE TO EQUATE THESE TRANSACTIONS W ITH THE TRANSACTION OF LEASING OUT OF THE PLOT TO THE LESSEE. HENCE, I DO NOT FIN D ANY MERIT IN ASSESSEES THIS CONTENTION. 4.1.19 NOW REVERTING BACK TO THE ASSESSEES FIRST C ONTENTION THAT ITS TRANSACTION OF LEASING OUT OF THE PLOT DOES NOT FALL IN THE CATEGO RY OF TRANSACTION SPECIFIED IN CLAUSE (I) OF SUB-SECTION (47) OF SECTION 2 IT HAS TO BE REITERATED THAT AS PER THE SCHEME OF CHARGING CAPITAL GAIN UNDER THE INCOME TA X IT IS NOT NECESSARY THAT ALL THE CONDITIONS LAID DOWN IN SECTION 2(47) ARE INVARIABLY REQUIRED TO BE FULFILLED. THEREFORE, AS HELD IN THE PRECEDING PARAS THAT THE TRANSACTION OF THE ASSESSEE FALLS IN THE CATEGORY OF TRANSACTION SPECIFIED IN C LAUSE (VI) OF SUB-SECTION (47) OF SECTION 2 IT IS NOT NECESSARY TO ADJUDICATE OR OFFE R COMMENTS ON ASSESSEES ARGUMENTS WITH REGARD TO THE APPLICABILITY OF THE P ROVISIONS SPECIFIED IN CLAUSE-(I) OF SUB-SECTION (47) OF SECTION 2 OF THE I.T. ACT. 4.1.19.1 STILL IT WOULD BE REITERATED THAT THE REND ERING OF VARIOUS RIGHTS DEALT ON THE ISSUE OF ENJOYMENT OF RIGHTS IN THE PRECEDING P ARA ITSELF POINTS THAT THERE WAS A RELINQUISHMENT / EXTINGUISHMENT OF RIGHTS OF THE ASSESSEE IN THE PLOT LEASED OUT FOR ALL PRACTICAL PURPOSE. THEREFORE, IT WOULD RATH ER BE INCORRECT ON THE PART OF THE ASSESSEE TO ASSERT THAT MERELY ON THE CONDITION OF EXPIRY OF THE LEASE PERIOD THE SECURITY DEPOSIT WOULD BE REFUNDABLE AND THE LAND L EASED OUT WOULD BE RETURNED, THERE WAS NO RELINQUISHMENT / EXTINGUISHMENT OF RIG HT OF THE ASSESSEE. IN THIS CONTEXT, IT HAS TO BE MENTIONED THAT M/S. EWDPL HAD ALREADY INCURRED HUGE AMOUNT OF EXPENDITURE OF RS. 94,22,91,392/- ON THE CONSTRUCTION OF THE STRUCTURE AT THE LEASED OUT PLOTS OVER A PERIOD RANGING FROM F.Y. 2003-04 TO 2007-08 (PARTICULARS OF EXPENDITURE ARE GIVEN IN PARA 4.1.1 2.3 OF THIS ORDER MAY BE REFERRED TO). NEEDLESS TO SAY M/S. EWDPL HAD ALREAD Y GIVEN THE SHOPS / MULTIPLEX / HOTEL ON LEASE / RENT TO VARIOUS CONCER N(S) / PERSON(S). TAKING INTO ACCOUNT OF THIS FACT AND ALSO OF THE FACT THAT KEEP ING IN MIND THE APPROACH OF A PRUDENT BUSINESS MID THE HUGE STRUCTURE WOULD NOT B E DEMOLISHED MERELY ON THE GROUND THAT AS PER THE TERMS AND CONDITIONS OF THE LEASE AFTER 29 YEARS THE PLOT IS KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 33 TO BE RETURNED TO THE ASSESSEE. ADMITTEDLY, THIS IS IMPOSSIBLE TO DO SO FOR ALL THE PRACTICAL REASONS. THEREFORE IN VIEW OF THIS THE AS SESSEES MERE MENTIONING OF RETURNING OF THE DEPOSIT DOES NOT LEAD TO A CONCLU SION THAT THE ASSESSEE HAD NOT RELINQUISHED / EXTINGUISHED ITS RIGHT IN THE PROPE RTY. 4.1.19.2 BEFORE PARTING FROM THE ISSUE IT WOULD AL SO BE NECESSARY TO MENTION THAT AS PER THE AGREEMENT TO LEASE THE ASSESSEE HAS RENDERED RIGHT TO THE LESSEE TO EVEN SALE THE PROJECT OR A PART OF THE PROJECT S O UNDER TAKEN, A SITUATION OF SELLING OF A SHOP AT A FLOOR ABOVE THE GROUND FLOOR MAY ARISE. THE PURCHASER WOULD HAVE THE ABSOLUTE RIGHT OF OWNERSHIP OVER THA T SHOP. THUS, AT THE EXPIRY OF THE LEASE PERIOD THE FATE OF THE OWNERSHIP OF THE S HOP WOULD ARISE. MOREOVER, IN THAT SITUATION AS PER THE TERMS OF LEASE AGREEMENT THE STRUCTURE WAS TO BE DEMOLISHED. THUS THIS CASTS A SERIOUS DOUBT ON TH ENTIRE TRANSACTION CLAIMED TO HAVE BEEN UNDER TAKEN BY THE ASSESSEE. AS A MATTER OF FACT BY VIRTUE OF THIS TRANSACTION THE ASSESSEE HAD RELINQUISHED ITS RIGHT IN THE AFORESAID PLOT. 4.1.19.3 NOW COMING ON TO THE DECISIONS OF THE COU RTS RELIED UPON BY THE ASSESSEE IN ITS FAVOUR, IT IS NOTICED THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE FOUND TO BE TOTALLY MISPLACED. AS REGARDS THE ASSE SSEES RELIANCE ON THE HONBLE RAJASTHAN HIGH COURTS DECISION IN THE CASE OF COMMISSIONER OF INCOME TAX VS LAKE PALACE HOTEL AND MOTELS LTD. REP ORTED IN 213 ITR 735, IT WOULD BE PERTINENT TO MENTION THAT THE FACTS OF THI S CASE ARE ENTIRELY DEFERENT TO THAT OF THE ASSESSEE AS UNDER: - I. THE SECURITY DEPOSIT WAS 9% INTEREST BEARING IN THE CASE RELIED UPON THE ASSESSEE WHEREAS, IN THE ASSESSEES CASE NO INTEREST WAS PAY ABLE. IN THIS CONTEXT THE AGREEMENT TO LEASE EXTRACTED IN PARA 4.2 OF THIS ORDER BE REFERRED TO. II. THE TRANSACTION IN THE ABOVE REFERRED CASE WAS BETWEEN TWO STRANGE PARTIES AND THE AGREEMENT OF LEASE WAS APPROVED BY THE REGULATING AGENCIES I.E. COMPANY LAW BOARD WHEREAS, IN THE INSTANT CASE THE TRANSACTION WAS BETWEEN TWO RELATED CONCERNS. IN THIS CONTEXT, THE SHARE HO LDING PATTERN OF THE CONCERNED CONCERN HAS BEEN GIVEN IN PARA 4.1.12.1 O F THIS ORDER MAY BE REFERRED TO. III. IN THE CASE REFERRED ABOVE ENTIRE FACTS WERE D ISCLOSED IN THE DEED REGISTERED WITH THE GOVERNMENT AUTHORITIES, WHEREAS IN THE CASE OF THE ASSESSEE FACTS DISCLOSED IN THE AGREEMENT TO LEASE AND THE L EASE REGISTERED WITH THE STATE GOVERNMENT AUTHORITIES WERE QUITE DIFFERENT. AS A M ATTER OF FACT IN THE DEED REGISTERED THERE WAS NO REFERENCE OF THE HUGE AMOUN T OF SECURITY DEPOSIT TRANSFERRED FROM EWDPL TO LESSOR. IN THIS CONTEXT, THE CONTENT OF THE AGREEMENT TO LEASE AND CONTENT OF THE LEASE AGREEMENT REGISTE RED GIVEN IN PARA 4.1.5 OF THIS ORDER MAY BE REFERRED TO. IV. IN THE CASE REFERRED ABOVE A COMPLETE AND A LOG ICAL TIME BASED MECHANISM HAS BEEN DRAWN UP AS TO HOW AND WHEN, IN WHAT AMOUNTS ETC. THE SAID SECURITY DEPOSIT HAS TO BE REFUNDED. CONTRARY TO THIS IN THE ASSESSEES CASE NO MECHANISM OF THIS SORT HAS BEEN DEFINED OR EVEN MENTIONED. IN THIS CONTEXT THE LETTER OF THE SUB-REGISTRAR DATED 26/12/2006 SC ANNED ON PAGE NO. 16 OF THIS ORDER MAY BE REFERRED TO. IT SEEMS FROM THE ABOVE R EPORT OF THE REGISTRAR THAT IT HAS BEEN DELIBERATELY NOT DONE SO AS TO CONSPIRE AND KEEP THE STATE GOVT. AS KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 34 WELL AS THE CENTRAL GOVT. DEVOID OF ITS DUES. FURTHER STRENGTHENING THE VIEW THAT THE MONEY HAS BEEN HANDED OVER IN A PLATTER IN LIEU OF A TRANSFER AS DISCUSSED ABOVE WITHOUT ANY INTEREST OF ANY KIND IN RETURN. V. IN THE CASE REFERRED ABOVE ALMOST 10% OF THE SECURITY DEPOSIT IS BEING GIVEN ANNUAL RENT. CONTRARY TO THIS IN THE CASE OF THE ASSESSEE A PETTY AMOUNT WHICH IS NOT EVEN 1% OF THE SECURITY DEPOSIT IS BEING RECEIVED AS SO CA LLED ANNUAL LEASE RENT. VI. IN THE CASE REFERRED ABOVE THE LEASE DEED CLEAR LY MENTIONED THE INCREASE IN LEASE RENT AFTER CERTAIN TIME ON ANNUAL BASIS. C ONTRARY TO THIS THE LEASE DEED IS SILENT ON THIS ISSUE. VII. IN THE CASE REFERRED ABOVE THERE IS A CLEAR ME NTION OF ANNUAL LEASE RENT CLAUSES AND ANNUAL INCREMENT CLAUSES. WHEREAS IN T HE CASE OF THE ASSESSEE THE SAME IS EITHER NOT MENTIONED OR NOT MENTIONED AS CL EARLY. 4.1.20 AS REGARDS THE ASSESSEES RELIANCE UPON MP HIGH COURTS DECISION IN THE CASE OF CIT VS GULAB RAY & SONS REPORTED IN 173 ITR 552 IT WOULD SUFFICE TO SAY THE FACTS OF THIS CASE ARE ENTIRELY DIFFERENT TO TH AT OF THE ASSESSEE IN AS MUCH AS IN THIS CASE THE ISSUE BEFORE THE HONBLE HIGH COUR T WAS WHETHER THE LEASE RENT RECEIVED WAS TO BE CONSIDERED AS BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY CONTRARY TO THIS IN THE CASE OF THE ASSESSEE THE I SSUE IS WITH REGARD TO THE CHARGING OF SECURITY DEPOSIT AS CAPITAL GAIN. MOREOVER, IN THE CASE RELIED UPON BY THE ASSESSEE THERE WAS NO TRANSACTION OF SE CURITY DEPOSIT ON LEASING OUT OF THE HOTEL. HENCE IT IS APPARENT THAT THE RATIO OF THE DECISION RELIED UPON BY THE ASSESSEE IS FOUND TO BE TOTALLY MISPLACED. 4.1.21 BEFORE PARTING FROM THE ISSUE, IT WOULD NOT BE NECESSARY TO REITERATE THAT ON EXAMINATION OF THE DETAILS IT WAS NOTICED THAT ALL THE THREE CONCERNS VIZ THE ASSESSEE, M/S PADMA HOMES PVT. LTD. AND M/S EWDPL ARE THE ASSOCIATED CONCERNS. AS A MATTER OF FACT, IN ALL THESE CONCERNS THE MAJO R PORTION OF THE SHARE HOLDERS IS COMMON. IN THIS CONTEXT, THE DETAI LS GIVEN IN PARA 4.1.11 OF THIS ORDER MAY BE REFERRED TO. EXAMINATION OF BANK STATEMENTS OF THE ABOVE CONCERNS FURTHER REVEALED THAT JUST PRIOR TO THE GI VING OF THE SECURITY DEPOSIT M/S EWDPL HAD SHOWN THE RECEIPTS OF SHARE APPLICATION M ONEY FROM THE LESSER (THE DETAILS OF SHARE APPLICATION MONEY GIVEN AND SUBSEQ UENT PAYMENT OF SECURITY DEPOSIT ARE GIVEN IN PARA 4.1.11 OF THIS ORDER). FROM THESE FACTS AND THE FACTS DISCUSSED ABOVE, IT IS APPARENT THAT THE LEASE AGRE EMENT WITH A CLAUSE THAT THE SECURITY DEPOSIT RECEIVED WOULD BE REFUNDED TO THE LESSEE ON THE EXPIRY OF THE LEASE OR ITS TERMINATION WAS MERELY A COLOURABLE DEVICE TO EVADE THE ACTUAL NATURE OF THE TRANSACTION PAYMENT OF LEGITIMATE TAXES ON CAPITAL GAIN. HERE IT HAS TO BE REITERATED THAT THE SUB-REGISTRAR OF PROPERTIES VIDE HIS LETTER DATED 26.12.2006 EXTRACTED IN PARA 4.1.7 OF THIS ORDER HAD ALSO NOTICED THAT BY NOT DISCLOSING THE ENTIRE FACTS TO THE STATE GOVT., THE CONCERNED CONCERN(S) VIZ THE ASSESSEE, M/S PADMA HOMES PVT. LTD. AND M/S EWDPL H AD HATCHED A CONSPIRACY TO EVADE THE PAYMENT STATE GOVERNMENTS LEGITIMATE DUES ALSO. NEEDLESS TO REITERATE THAT THERE IS NEITHER ANY ROO M FOR RETURNING OF THE DEPOSIT BY THE LESSER TO THE LESSEE NOR ANY CHANCE OF TERMINATION / EXPIRY OF THE LEASE PERIOD AS ELABORATELY DISCUSSED IN THE PR ECEDING PARAS. AS A MATTER OF FACT THE ABOVE FACTS THEMSELVES LIFT THE CORPORATE VEIL OF THE ACTUAL NATURE OF THE TRANSACTION. HENCE I HOLD THAT THE TRANSACTION OF LEASING OUT W ITH KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 35 THE CONDITION OF RETURNING OF SECURITY DEPOSIT AFTE R THE EXPIRY OF LEASE PERIOD APPARENTLY APPEARS TO BE REAL BUT IN REALITY WAS NO T REAL. 4.1.22 THUS CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE AS EMERGED FROM THE DISCUSSION MADE ABOVE I HOLD THE E NTIRE SECURITY DEPOSIT OF RS.20,00,00,000/- AS SALE CONSIDERATION IN RESPECT OF THE TRANSFER OF THE PLOTS WITHIN THE MEANING OF THE PROVISIONS OF SECTION 2(47) FOR THE PURPOSES OF CHARGING LONG TERM CAPITAL GAIN U/S 45(1) OF THE I.T. ACT. HERE, IT HAS TO BE REITERATED THAT THE ASSESSEE HAD RECEIVED THE SECUR ITY DEPOSIT OF RS.20,00,00,000/- IN THE FOLLOWING PREVIOUS YEARS:- AMOUNT OF SECURITY DEPOSIT RECEIVED IN P.Y. RS. 7,04,92,487/- 2003-04 RS. 3,41,00,000/- 2004-05 RS.10,59,59,513/- 2005-06 4.1.22.1 HERE, IT WOULD AGAIN BE REITERATED THAT THE ASSESSEE HAD TRANSFERRED ITS PLOTS IN THE PREVIOUS YEAR 2003-04 ON ACCOUNT O F AGREEMENT TO LEASE DATED 21.05.2003, THE ENTIRE AMOUNT OF SECURITY DEPOSIT OF RS. 20,00,00,000/- IS CONSIDERED AS SALE CONSIDERATION FOR THE PURPOSE S OF LONG TERM CAPITAL GAIN U/S 45(1) OF THE I.T. ACT IN A.Y. 2004-05 ON SUBSTA NTIVE BASIS, ON ACCRUAL BASIS. HOWEVER, AS THE AMOUNT OF SECURITY DEPOSIT OF RS. 3,41,00,000/- AND RS. 10,59,59,513/- WAS RECEIVED IN THE PREVIOUS YEAR 2004-05 AND 2005- 06 RESPECTIVELY, I HOLD THIS AS CAPITAL GAIN OUT OF T HE AFORESAID AMOUNT TO BE ASSESSED ON PROTECTIVE BASIS IN A. Y. 2005-06 & 2006-07 RESPECT IVELY. THE AMOUNT OF LONG TERM CAPITAL GAIN AFTER INDEXING THE COST OF ACQUISITION OF THE PLOTS U/S 48 OF THE I. T. ACT IS WORKED AS UNDER: - SALE CONSIDERATION - RS.21,05,52,000/- LESS: INDEXED COST OF ACQUISITION - RS. 12,73,250/- TOTAL LTCG - RS.20,92,78,750/- I AM SATISFIED THAT THE ASSESSEE HAD CONCEALED THE CORRECT PARTICULARS OF ITS INCOME AND FURNISHED INACCURATE PARTICULARS OF INCOME. HENCE, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT ARE SEPARATELY BEING INITIATED. 3. THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT A RE REPRODUCED HEREUNDER :- SUBMISSIONS DATED 25.02.2013 UNDER THE INSTRUCTION FROM THE ABOVE MENTIONED ASSE SSEE WE SUBMIT AS UNDER: 1. THE APPELLANT COMPANY IS REGISTERED UNDER COMPAN IES ACT, 1956 WITH THE REGISTERED ADDRESS AT 11, TUKOGANJ MAIN ROAD, INDOR E. THE APPELLANT WAS PRIMARILY ENGAGED IN THE BUSINESS OF DEALING IN GOO DS AND THERE WERE CONTINUOUS LOSSES TILL AY 2003-04. THE ASSESSEE OWNED A PLOT O F LAND WHICH WAS GIVEN ON LEASE IN AY 2004-05. THE SAID TRANSACTION HAS LEAD TO THE SERIES OF TAX LITIGATION WHICH IS CONTESTED IN THE AFORESAID APPEALS. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 36 2. TO PROVIDE BRIEF SUMMARY WISE EVENTS FOR THE IMP UGNED APPEALS, WE WOULD FIRST AND FOREMOST DRAW YOUR HONOURS ATTENTIO N TO AN EVENT CHART AS UNDER SR. NO. DATE PARTICULARS 1. 31.10.2004 RETURN OF INCOME FILED FOR AY 2004-05 DECLARING LOSS OF RS. 42,200/- 2. 29.12.2006 ASSESSMENT FOR AY 2004-05 COMPLETED U/S 143(3) DETERMINING TOTAL INCOME OF RS. 10,44,46,750 AFTER A ADDITION OF CAPITAL GAIN ON LEASE TRANSACTION. 16.04.2009 SEARCH ACTION CONDUCTED U/S 132 ON THE APPELLANTS PREMISES 3. 22.10.2010 PROCEEDINGS U/S 153A INITIATED AGAINS T THE APPELLANT FOR AY 2004-05, 2005-06 AND 2006-07 4. 22.11.2010 RETURN OF INCOME FOR AY 2004-05, 2005 -06 AND 2006-07 FILED U/S 153A DECLARING LOSSES OF RS. 42,200/-, RS . 5,67,420/- AND INCOME OF RS.9,17,049 RESPECTIVELY 5. 29.12.2011 ASSESSMENT FOR AY 2004-05 COMPLETED U /S 143(3) R.W.S. 153A DETERMINING TOTAL INCOME OF RS. 20,92,36,550. THE ADDITION OF CAPITAL GAIN ON LEASE TRANSACTION WAS M ADE ON A SUBSTANTIVE BASIS. 6. 29.12.2011 ASSESSMENT FOR AY 2005-06 COMPLETED U /S 143(3) R.W.S. 153A DETERMINING TOTAL INCOME OF RS.3,40,58,120.THE ADDITION OF CAPITAL GAIN ON LEASE TRANSACTION WAS M ADE ON A SUBSTANTIVE BASIS. 29.12.2011 ASSESSMENT FOR AY 2006-07 COMPLETED U/S 143(3) R.W.S. 153A DETERMINING TOTAL INCOME OF RS.10,68,76,560.TH E ADDITION OF CAPITAL GAIN ON LEASE TRANSACTION WAS M ADE ON A SUBSTANTIVE BASIS. 3. THE PRIMARY ADDITION IN ALL THE ABOVE APPEAL REL ATES TO THE ADDITION OF CAPITAL GAIN ON A LEASE TRANSACTION. AS THE FACTS A ND THE GROUNDS RELATING TO THE SAID ADDITION IS COMMON, WE SEEK TO PRESENT OUR SUB MISSIONS TOGETHER IN THIS SUBMISSION. 4. IN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3 ) COMPLETED ON 29.12.2006 (HEREINAFTER REFERRED AS ORIGINAL ASSES SMENT ORDER FOR EASE OF REFERENCE), THE AO TREATED THE SAID LEASE TRANSACTI ON AS SALE TRANSACTION AND TAXED THE TOTAL SECURITY DEPOSIT RECEIVABLE AS SALE CONSIDERATION OF SALE OF LAND. IT IS TO BE NOTED THAT THE TOTAL SECURITY DEPOSIT RECE IVABLE IN THE ORIGINAL PROCEEDINGS WAS RS. 1054.92 LAKHS. HOWEVER, THE SAME WAS INCREA SED TO RS. 2114.52 LAKHS IN THE INTERVENING COURSE WHICH WAS THE AMOUNT CONS IDERED IN THE SEARCH PROCEEDINGS. 5. IT MAY BE NOTED THAT IN THE FUTURE ASSESSMENT YE ARS AY 2005-06 AND AY 2006-07, NO ADDITION ON ACCOUNT OF THE SAID TRANSAC TION WAS MADE IN THE ORIGINAL SCRUTINY PROCEEDINGS FOR THE SAID YEARS. 6. SUBSEQUENT TO THE ABOVE EVENTS, A SEARCH ACTION U/S 132 WAS CONDUCTED ON THE APPELLANTS BUSINESS PREMISES ON 16.04.2009 AND ACCORDINGLY ASSESSMENT PROCEEDINGS U/S 153A WERE INITIATED. THE SAME WERE CONCLUDED VIDE ORDER U/S KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 37 143(3) R.W.S. 153A ON 29.12.2013 (HERE AFTER REFERR ED ON SEARCH ASSESSMENT ORDER). 7. HEREIN IT IS PERTINENT TO NOTE THAT THE ADDITI ON MADE IN THE ABOVE MENTIONED SEARCH ASSESSMENT ORDER PERTAINED TO THE ISSUE ALREADY DEALT IN THE ORIGINAL ASSESSMENT ORDER I.E. LEASE TRANSACTION CA TEGORIZED AS SALE TRANSACTION. WE DRAW YOUR HONOURS ATTENTION TO THE FACT THAT TH E AFORESAID ISSUE BORES NO RELATION TO THE ANY OF THE MATERIAL / DOCUMENTS / R ECORDS FOUND AND SEIZED DURING THE SEARCH ACTION ON 16.04.2009. THE ISSUE RELATING TO THE LEASE TRANSACTION WAS ALREADY DEALT WITH IN THE ORIGINAL ASSESSMENT ORDER . ACCORDINGLY, WE SUBMIT THAT THE ENTIRE SEARCH ASSESSMENT ORDER IS BAD IN LAW AN D HENCE IS LIABLE TO BE QUASHED. WITH REFERENCE TO THE SAID CONTENTION WE R ELY ON THE CIRCULAR NO. 7 OF 2003 WHICH CLARIFIES THE POSITION OF THE PENDING AP PEALS AS ON THE DATE OF THE SEARCH. THE RELEVANT PORTION IS PRODUCED HEREWITH- THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME OF EACH OF THESE SIX ASSESSMENT YEARS. ASSESSMENT OR REASSESSM ENT, IF ANY, RELATING TO ANY ASSESSMENT YEARS FALLING WITHIN THE PERIOD OF SIX A SSESSMENT YEARS PENDING ON THE DATE OF INITIATION OF THE SEARCH UNDER SECTION 132 OR REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE. IT IS CLARI FIED THAT THE APPEAL, REVISION OR RECTIFICATION PROCEEDINGS PENDING ON THE DATE OF IN ITIATION OF SEARCH UNDER SECTION 132 OR REQUISITION SHALL NOT ABATE. 8. ACCORDINGLY AS FAR AS COMPLETED ASSESSMENTS A RE CONCERNED, THEY DO NOT ABATE AND PENDING APPEALS ETC. IN RESPECT THEREOF C ONTINUE TO EXIST NOTWITHSTANDING THE FACT THAT THE SEARCH HAS BEEN M ADE. THUS A IN THE PRESENT CASE, THE ORIGINAL PENDING APPELLATE PROCEEDINGS WE RE STILL PENDING. THE AO CAN NOT PROCEED TO MAKE THE SAME ADDITION IN THE BLOCK ASSESSMENT WITHOUT ANY INCRIMINATING MATERIAL FOUND IN THE COURSE OF SEARC H. THE SAID VIEW PREVENTS THE AO TO UNDO WHAT HAS ALREADY BEEN COMPLETED AND HAS BECOME FINAL IN THE ORIGINAL ASSESSMENT PROCEEDINGS. 9. WITHOUT PREJUDICE TO THE ABOVE GROUND, WE WOULD FURTHER PROVIDE A DETAILED FACTUAL AND LEGAL SUBMISSION ON THE APPELL ANT CONTENTION THAT THE TRANSACTION ENTERED INTO BY THE APPELLANT IS A LEAS E TRANSACTION AND ACCORDINGLY NO CAPITAL GAIN CONSEQUENCES ARISES. IT IS TO BE NO TED THAT FOR THE PURPOSE OF THIS SUBMISSION, WE WOULD FIRST PUT FORTH THE ARGUMENTS PUT FORTH IN THE ORIGINAL ASSESSMENT ORDER FOR AND NEXT WILL FURTHER ALSO DEA L WITH THE AOS ADDITIONAL CONTENTION IN SEARCH ASSESSMENT ORDER, IF ANY. 10. FIRST AND FOREMOST, WE TAKE YOUR HONOUR TO THE FACTS OF THE ENTIRE TRANSACTION. THE APPELLANT OWNS 70784 SQ. FT. LAND WHICH IS SITUATED AT 11, TUKOGANJ MAIN ROAD, INDORE. THIS LAND WAS GIVEN ON LEASE TO ENTERTAINMENT WORLD DEVELOPERS LIMITED (THE LESSOR) FOR 29 YEAR S UNDER AGREEMENT TO LEASE DEED DTD. 21.05.2003. (PAPER BOOK PAGES 42 45). AS PER THE CLAUSE 1 OF THE SAID LEASE DEED, THE TOTAL SECURITY DEPOSIT RECEIVA BLE BY THE APPELLANT ON THE SAID LEASE WAS RS. 10,57,20,000. IT IS TO BE NOTED HERE IN THAT THE OUT OF TOTAL SECURITY DEPOSIT OF RS.10,57,20,000 RECEIVABLE, THE ASSESSEE HAD RECEIVED A SECURITY DEPOSIT OF RS.7,04,92,487 IN FY 2003-04 IN RESPECT OF THE SAID LEASE. THE OPERATIVE PART RELATING TO THE SECURITY DEPOSIT IS REPRODUCED AS UNDER KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 38 1. THAT IN LIEN AND UNDER THE TRANSACTIONS OF THIS IND ENTURE, A SUM OF RS.1,500 LACS IS THE SECURITY DEPOSIT TO BE DEPOSIT ED BY THE LESSEE WITH THE LESSOR AS PER THE FOLLOWING DETAILS: (C) TO BE DEPOSITED WITH KALANI BROTHERS (IND ORE) PVT. LTD. RS. 1057.20 LACS (D) TO BE DEPOSITED WITH PADMA HOMES PVT. LTD. RS. 442.80 LACS TOTAL RS.1500.00 L ACS OUT OF THE ABOVE SECURITY DEPOSIT, A SECURITY DEPOS IT OF RS. 1,000 LACS IS PAYABLE IMMEDIATELY ON SIGNING OF THIS AGREEMENT IN THE SAM E PROPORTION AS INDICATED ABOVE. THEREAFTER, RS. 500 LACS IS PAYABLE BEFORE THE START OF THE ACTUAL CONSTRUCTION OF THE COMPLEX. THIS SECURITY DEPOSIT IS REFUNDABLE BY THE LESSOR T O THE LESSEE AT THE END OF THE LEASE PERIOD STIPULATED HEREIN OR AT THE TER MINATION OF THIS LEASE DEED WITH THE MUTUAL CONSENT OF THE LESSOR AND LESSEE, W HICHEVER IS EARLIER. NO INTEREST ON THE SAID SECURITY DEPOSIT WILL BE PAID TO THE LESSOR BY THE LESSEE. 11. HEREIN IT IS PERTINENT TO NOTE THAT THE AFORESA ID LEASE DEED WAS NOT A REGISTERED DEED. THE IMPLICATION OF THE SAID STATEM ENT AS WELL AS DISCUSSION ON THE SAME HAS BEEN DONE AT PARAS 14.3.1. OF THE SUBM ISSION. 12. CONTINUING ON THE ABOVE REPRODUCED AGREEMENT, T HE HIGHLIGHTED PORTIONS OF THE ABOVE CLAUSE CLEARLY INDICATE THAT THE DEPOS IT IS ENTIRELY REDUNDABLE. IN FACT, THE SAID CLAUSE ALSO INDICATES THAT THE LEASE DEED CAN ALSO BE TERMINATED PRIOR TO THE EXPIRY OF THE ENTIRE LEASE PERIOD AND IN SUCH A EVENT, THE DEPOSIT WILL BE REFUNDABLE TO THE LESSOR. THE MOOT ISSUE HEREIN IS THAT THE ENTIRE DEPOSIT IS REFUNDABLE AND THE LEASE DEED COSTS A LEGAL OBLIGAT ION ON THE APPELLANT TO REFUND THE SAME. THE SAID ASPECT IS ACCEPTED BY THE AO WHO DOESNT OFFER ANY COMMENTS AS TO WHAT WOULD BE THE CONSEQUENCE IN THE EVENT OF THE REFUND OF THE SECURITY DEPOSIT. THUS ARISES THE FIRST CONTENTION OF THE APPELLANT AS UNDER KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 39 (A) THE REFUNDABLE SECURITY DEPOSITS UNDER NO CIRCU MSTANCES CAN BE CONSIDERED AS CONSIDERATION RECEIVED OR ACCRUING TO THE APPELLANT FOR SALE OR LEASE OF THE LAND. (B) THE SAID SECURITY DEPOSIT TO BE REFUNDED ON THE TERMINATION OF THE LEASE OF LAND CANNOT BE THE ABSOLUTE PROPERTY OF THE ASSESSE E AND HENCE IT COULD NOT BE TAKEN AS THE CONSIDERATION FOR THE TRANSFER OF CAPI TAL ASSETS. (C) SINCE THE REFUNDABLE SECURITY DEPOSITS IS NOT C ONSIDERATION FOR TRANSFER OF LAND AND IN FACT THE LAND IS NOT TRANSFERRED, THE C APITAL GAIN CHARGEABLE TO TAX CANNOT BE WORKED OUT UNDER THE PROVISION OF THE INC OME TAX ACT. 13. IT IS TO BE NOTED THAT THE ABOVE CONTENTION IS MADE WITHOUT PREJUDICE TO ALL THE OTHER VARIOUS CONTENTIONS THEREAFTER AND ESPECI ALLY WITHOUT PREJUDICE TO THE CONTENTION THAT THE ABOVE MENTIONED AGREEMENT TO LE ASE IS NOT A VALID DOCUMENT IN THE LEGAL SENSE AND HENCE NO LEGAL IMPLICATIONS ARISE FROM THE SAME. 14. NEXT WE STATE THAT ON PERUSAL OF THE ORIGINAL A SSESSMENT ORDER AS WELL AS SEARCH ASSESSMENT ORDER, IT IS EVIDENT THAT THE AO RELIES ON THE MULTIPLE ARGUMENTS TO SUGGEST THAT THE TRANSACTION ENTERED I NTO BY APPELLANT IS COLORABLE DEVISE TO DECEIVE THE CENTRAL GOVERNMENT OF ITS LE GAL DUES AND HAS CONCLUDED THAT THE MONEY PAID WAS IN LIEU OF TRANSFER. A POIN T WIDE DEALING OF THE ARGUMENTS PUT FORTH BY THE AO AND OUR SUBMISSION ON THE SAME ARE DEALT AS UNDER - 14.1 THE AO RELIES ON THE DEFINITION OF THE TRANS FER AS PROVIDED IN THE SECTION 2(47)OF THE INCOME TAX ACT, 1961 TO STATE THAT THE LEASE TRANSACTION ENTERED INTO BY THE APPELLANT IS A TRANSFER OF CAPITAL ASSET A S PER INCOME TAX ACT AND HENCE LIABLE TO INCOME TAX. TO JUSTIFY THE SAID STAND, TH E AO IN BOTH THE ORIGINAL ASSESSMENT ORDER AS WELL AS SEARCH ASSESSMENT ORDER RELY ON THE CLAUSES IN THE AGREEMENT TO LEASE DATED 21.05.2003 TO STATE THAT T HE LEASE WAS PRACTICALLY RENDERED ALL THE RIGHTS WHICH ON OWNER OF PROPERTY ENJOYS AND ACCORDINGLY CLAUSE (VI) OF SECTION 2(47) SQUARELY APPLIES. FURTHER ELA BORATION ON THE CLAUSES OF THE AGREEMENT WILL BE DONE IN THE NEXT POINT IN THIS SU BMISSION. PRESENTLY WE SUBMIT COUNTERING THE APPLICATION OF SECTION 2(47)(VI) OF THE INCOME TAX ACT. THE SAID SECTION IS REPRODUCED HERE FOR EASE OF REFERENCE- KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 40 2(47) TRANSFER, IN RELATION TO A CAPITAL ASSET, I NCLUDES :- (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASSET , OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; O R (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS, STOCK-IN-TRADE OF A BUSINESS CAR RIED ON BY HIM, SUCH CONVERSION OR TREATMENT;] [OR] (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPO N BOND; OR] (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSE SSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANC E OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPE RTY ACT, 1882; OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBE R OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY O THER MANNER WHATSOEVER ) WHICH HAS THE EFFECT OF TRANSFERRING OR ENABLING TH E ENJOYMENT OF, ANY IMMOVABLE PROPERTY. 14.1.1 THE FIRST AND FOREMOST VEHEMENT CONTENTION OF THE APPELLANT IS THAT THE SECURITY DEPOSIT IS REFUNDABLE ON THE TERMINATION O F LEASE AND HENCE THE SAME CANNOT BE CONSIDERED AS THE CONSIDERATION FOR LEASE OF LAND, AS IT IS A DEBT APPEARING IN THE BOOKS OF ACCOUNT OF ASSESSEE. THUS , IT IS A LIABILITY TO REFUND TO THE LESSEE ON THE EXPIRY OF THE LEASE PERIOD OR PRI OR TO TERMINATION OF THE LEASE DEED. THIS BEING A LEASE AGREEMENT WITH REFUNDABLE DEPOSIT AFTER A PERIOD OF 29 YEARS AND REVERSION OF THE LEASEHOLD PROPERTY BACK TO THE LESSOR, THERE IS NO TRANSFER OF LAND AND HENCE THERE IS NO QUESTION OF ATTRACTING THE PROVISIONS OF SECTION 45 FOR SALE OF LAND. 14.1.2 LET US LOOK INTO THE APPLICABILITY OF CLAU SE (I) OF THE SECTION 2(47) WHICH DEALS WITH RELINQUISHMENT OF RIGHT. IN THIS REGAR DS, YOUR HONOURS ATTENTION IS DRAWN TO THE APEX COURT DECISION IN CASE OF RASIKLA L MANEKLAL (HUF) 177 ITR 198 WHICH HAS CLEARLY HELD THAT A RELINQUISHMENT T AKES PLACE WHEN THE OWNER WITHDRAW HIMSELF FROM THE PROPERTY AND ABANDONS HIS RIGHTS THERETO. IN THE APPELLANT CASE, THE RIGHT TO THE PROPERTY HAS NOT B EEN ABANDONED AND IT IS CLEARLY PROVIDED THAT THE LAND WOULD REVERT BACK AFTER THE LEASE PERIOD. HENCE THERE IS NO RELINQUISHMENT OF ANY ASSET. THE CONTENTION OF T HE AO THAT THE APPELLANT HAS DRAWN A BLANK CHEQUE IN FAVOUR OF THE LESSEE AND HAS GIVEN ALL THE RIGHTS TO THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 41 LESSOR HAS NO MERITS WHEN ONE SEES THAT ESSENTIALLY THE LAND IS TO BE REVERTED BACK TO THE APPELLANT. 14.1.3 NEXT WE LOOK INTO THE APPLICABILITY OF CL AUSE (VI) OF SUB SECTION 47 OF SECTION 2 OF THE INCOME TAX ACT IT IS SUBMITTED THA T IF THE INTERPRETATION MADE BY THE AO OF THE SAID CLAUSE PREVAILS THEN EVERY TYPE OF TRANSACTION ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY WOULD BE TREATE D AS TRANSFER. HAD IT BEEN SO EVERY TRANSACTION OF A HOTEL GIVING ROOM TO A CU STOMER SHALL GET CAUGHT BY THE TERM ENABLING THE ENJOYMENT OF IMMOVABLE PROPERTY AND SHALL BECOME SUBJECT TO CLUTCHES OF CAPITAL GAINS PROVISIONS. THE CLAUSE IS RESTRICTED ONLY TO THOSE TRANSACTIONS AS MENTIONED IN THE CLAUSE ITSELF E.G. BY WAY OF BECOMING A MEMBER OF A CO-OPERATIVE SOCIETY, COMPANY OTHER ASS OCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY O THER MANNER WHATSOEVER. THE PURPOSE OF THE SAID CLAUSE IS ALSO CRYSTAL CLEA R - IN THE ABOVE MENTIONED TRANSACTIONS, ALTHOUGH IN FACT THERE IS A TRANSFER OF SHARES/ MEMBERSHIP, IN SUBSTANCE THERE IS TRANSFER OF UNDERLYING IMMOVABLE PROPERTY. THUS, THE SAID PROVISION IS A WAY PARTAKES THE CLARIFICATORY NATUR E THAT WHEN A TRANSACTION INVOLVES UNDERLYING TRANSFER OF IMMOVABLE PROPERTY THEN THE SAID TRANSACTION WOULD ALSO BE TREATED AS TRANSFER EXTINGUISHABLE TO CAPITAL GAINS TAX. THERE IS NO SUCH SCENARIO IN THE APPELLANTS TRANSACTION. IT IS A SIMPLE LEASE TRANSACTION WHICH HAS BEEN JUXTAPOSED INTO A TRANSFER TRANSAC TION BY THE AO THROUGH HIS IMAGINED AND EXTENDED INTERPRETATIONS GIVEN TO TERM S OF THE LEASE. EVEN THE TERM IN ANY OTHER MANNER USED IN CLAUSE ALSO CANNOT BE EXTENDED TO COVER ANY TYPE OF ENABLING THE ENJOYMENT AS IT IS THE SETTLED RU LE OF INTERPRETATION THAT ALL CLAUSES OF A PROVISION SHALL TAKE COLOUR FROM EACH OTHER WHILE INTERPRETING THEM. 14.1.4 WE ALSO DRAW YOUR HONOURS ATTENTION TO A VER Y SIGNIFICANT DISTINGUISHING FACTOR IN THE ABOVE CASE IN ALL THE ABOVE CASES T HE MEMBER OR THE SHAREHOLDER (TRANSFEREE) WILL BE THE ULTIMATE OWNER OF THE PROP ERTY ON THE BASIS OF HIS MEMBERSHIP OR OWNERSHIP OF THE SHARES. THERE WILL B E NO REVERSION BACK TO THE ANY OTHER PERSON. NO WHERE THE AO COMMENTS ON OR DI STINGUISHES THE SAID ASPECT. THE FACT REMAINS THAT ON EXPIRY OF THE PERI OD OF 29 YEARS, THE LANDS IS TO BE REVERTED BACK TO THE APPELLANT. IN FACT THE AO DOESNT DEAL WITH THE ABOVE SITUATION AT ALL. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 42 14.2 AS MENTIONED ABOVE, THE AO RELIES ON THE VARIO US CLAUSES IN THE AGREEMENT TO STATE THAT THE AGREEMENT TO LEASE IS IN FACT A TRANSFER OF IMMOVABLE PROPERTY. THE COMMENTS MADE BY THE AO ARE REPRODUCED AS UNDER - IN THIS SERIES IT WOULD ALSO NOT BE UNNECESSARY TO MENTION THAT FURTHER PERUSAL OF BOTH THE AGREEMENTS TO LEASE REVEALED THAT FOLLOWIN G RIGHTS TO ENJOY OVER THE LEASED PLOTS HAVE BEEN RENDERED BY THE ASSESSEE TO M/S EWDPL: (A) AS PER CLAUSE (3) OF THE AGREEMENT THE LESSEE E NJOYS THE FACILITY TO GIVE THE PREMISES ON RENT OR ON THE STRUCTURE ERECTED TH EREON. (B) AS PER CLAUSE (4) OF THE AGREEMENT THE LESSEE WAS G IVEN THE RIGHT TO DEMOLISH THE EXISTING STRUCTURE FOR THE PURPOSE OF CONSTRUCTION OF THE PROJECT AND THE LESSEE WAS TO PROCEED FURTHER AS PER THE NORMS OF CONSTRUCTION OF THE PROJECT. THE RELEVANT CLAUSE 4,5,6,7,8,9,10 & 11 OF THE AGRE EMENT TO LEASE GIVEN IN THE PARA OF THIS ORDER MAY BE REFERRED TO. (C) THE LESSEE WAS RENDERED RIGHT TO OBTAIN LOANS BY KEEPING MORTGAGE THE AFORESAID PROPERTY TO ANY FINANCIAL INSTITUTION, BA NKS ETC. (D) THE LEASE IS IRREVOCABLE FOR A PERIOD OF 29 YEA RS DURING WHICH AT NO TIME WOULD ANY INCREASE BE PERMITTED FOR THE LEASE RENT. (E) THE LESSEE CAN SELL A PORTION OF THE PROJECT OR CERTAIN AREAS OF THE PROJECT, SO CONSTRUCTED, THE LESSER WILL GIVE CONSENT FOR SALE OF SUCH AREAS AND WILL JOIN IN THE TRANSFER OF THE PROPORTIONATE LAND TO THE BUILT -UP AREA SOLD TO ANY OTHER PARTY AND IN THAT EVENT THE CONSIDERATION OF PROPORTIONAT E AREA OF THE LAND SHALL BE PAID TO THE LESSER. FROM THE ABOVE CONDITIONS OUTLINED IN THE AGREEMENT TO LEASE IT IS APPARENT THAT THE LESSEE WAS PRACTICALLY RENDERED ALL THE RIGHTS WHICH AN OWNER OF PROPERTY ENJOYS. 14.2.1 NOW LET US CONSIDER OUR SUBMISSIONS IN THE A BOVE REGARDS. FIRST AND FOREMOST, OUT OF THE ABOVE 5 POINTS ENUMERATED IN (A) TO (E), THE FIRST 4 POINTS ARE ALL THE RIGHTS WHICH ARE INCIDENTAL TO ANY NORMAL L ONG TERM LEASE TRANSACTION. THE AO MENTIONS ALL THE POINTS BUT DOESNT COMMENT AS T O HOW A LESSOR OF VACANT PLOT OF LAND GRANTING RIGHT TO ERECT STRUCTURE THEREON T RANSFERS THE OWNERSHIP RIGHT TO THE LESSEE. FURTHER, THE CLAUSE GRANTING MORTGAGE RIGHTS TO THE LESSEE IS PRESENT IN ALL LONG TERM LEASES. THE CLAUSE CAN BE EFFECTIV ELY USED BY THE LESSEE TO MAXIMIZE ITS RETURNS. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 43 14.2.2 THE ONLY RIGHT WHICH AO REPETITIVELY DELVES ON IS THE RIGHT TO SELL GRANTED TO THE LESSEE. ON THIS ASPECT, WE WOULD LIKE TO STA TE THAT THE REGISTERED LEASE DEED NEVER CONTAINED THE SAID RIGHT. OUR FURTHER S UBMISSIONS ON SAID ASPECT ARE CONTAINED IN PARA 14.3.2 BELOW. 14.3 NEXT WE DRAW YOUR HONOURS ATTENTION TO THE CL AIMS MADE BY THE AO REGARDING APPELLANT DELIBERATELY USING COLOURABLE DEVICES TO DECEIVE THE STATE EXCHEQUER AND THE CENTRAL GOVERNMENT OF ITS LEGAL D UES. THE AO IN ITS ORIGINAL ORDER RELIES ON THE FACT THAT THE REGISTERED LEASE DEED OF THE APPELLANT DOESNT ENUMERATE THE FACT RELATING TO THE SECURITY DEPOSIT . THE RELEVANT COMMENTS OF THE AO IN THE SAID ORDER HAS BEEN REPRODUCED AS UNDER- AFTER GOING THROUGH THE REPORT THAT CLEARLY MENTIO NS ABOUT THE DIFFERENCE BETWEEN AGREEMENT TO LEASE AND THE LEASE DEED AS RE GISTERED WITH THE REGISTRAR OFFICE, SHOWS THAT STAMP DUTY ON AN AMOUNT OF 15+5 CRORES HAS BEEN SOUGHT TO BE EVADED AS A RESULT OF A CONSPIRACY DONE. THEREF ORE, IT IS FURTHER MADE EVIDENT THAT THE ASSESSEE IN COLLUSION WITH THE SISTER COMP ANIES HAS HATCHED A CONSPIRACY TO EVADE ITS DUES NOT ONLY TOWARDS THE S TATE GOVT. DEPARTMENTS BUT ALSO TOWARDS THE CENTRAL GOVERNMENT DEPARTMENT. FURTHER HOW THE SAID SECURITY DEPOSIT SHALL BE REFU NDED AND HOW AND IN WHAT FORM/SHAPE THE PROPERTY SHALL BE RECEIVED IS ALSO N OT MENTIONED IN CLAIMED LEASE DEED. THEREFORE LOOKING AT THE ABOVE, VALID APPREHENSIONS ARISE THAT THE ASSESSEE HAS DELIBERATELY USED ALL COLORABLE DEVICE TO DECEIVE THE STATE EXCHEQUER AND THE CENTRAL GOVT. OF ITS LEGAL DUES. 14.3.1 IN THIS REGARDS, IT IS IMPORTANT TO FIRST PO INT OUT THE FACTS RELATING TO THE CHRONOLOGY OF THE EVENTS LEADING TO THE VARIOUS DEE DS WHICH ARE COLOURABLE DEVICES AS CLAIMED BY THE AO. SR. NO DATE PARTICULARS 1. 21.05.2003 AGREEMENT TO LEASE ENTERED INTO WITH EWDPL WITH THE CLAUSES RELATING TO SECURITY DEPOSIT OF RS. 1500 LA KHS AND GIVING LESSEE THE RIGHT TO SELL (PAPER BOOK PAGES 42 45) 2. 05.07.2003 LEASE AGREEMENT REGISTERED WITH THE REGISTRAR (WITHOUT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 44 THE TERMS REGARDING SECURITY DEPOSIT AS WELL AS LESSEES RIGHT TO SELL) (PAPER BOOK PAGES 46 53) 3. 01.03.2006 SUPPLEMENTARY AGREEMENT TO LEASE INCR EASING THE TOTAL SECURITY DEPOSIT OF RS.1500 LAKHS TO RS.3000 LAKHS (PAPER BOOK PAGES 54 56) 4. 09.10.2006 LEASE AGREEMENT REGISTERED WITH THE R EGISTRAR SUPERSEDING THE EARLIER REGISTERED DEED (WITH THE TERMS REGARDING SECURITY DEPOSIT BUT WITHOUT THE TE RM RELATING TO LESSEES RIGHT TO SELL) (PAPER BOOK PAGES 57 67) 14.3.2 THE MOOT POINT TO NOTE IN THE ABOVE CHRONOLO GY IS THAT BOTH THE REGISTERED AGREEMENTS DO NOT CONTAIN THE TERM PROVIDED RIGHT T O THE LESSEE TO SELL THE LEASED LAND. IT IS VEHEMENTLY SUBMITTED BY THE ASSESSEE THAT TH E REGISTERED DOCUMENT EASILY DEMONSTRATES THE FINAL INTENTION OF THE PART IES TO THE LEGAL RIGHTS AND OBLIGATIONS THEY AGREE TO BIND TO. THE DATE OF THE FIRST REGISTERED DEED I.E. JUST 45 DAYS AFTER THE AGREEMENT TO LEASE EVIDENCES THE ESS ENTIAL POINT THAT THE APPELLANT DID NOT INTEND TO GIVE THE LESSEE THE RIGHT TO SELL . THE DATE SIGNIFIES THAT THE INTENTION WAS NOT AN AFTERTHOUGHT OR AN TAX EVASIVE TACTIC. 14.3.3 IN ABOVE SCENARIO, WE SUBMIT THAT THE AGREEM ENT TO LEASE DATED 21.05.2003 DOESNT PROVIDE ANY PROOF REGARDING THE RIGHTS AND OBLIGATIONS OF THE TRANSACTING PARTIES. THE AO IS COMPLETELY WRONG TAK ING THE SAID DEED AS THE BASIS OF THE CONCLUSION THAT THE LEASE TRANSACTION IS INDEED A TRANSFER TRANSACTION. THE SAID DEED WHICH IN LEGAL TERMS A N ULLITY. A REGISTERED AGREEMENT ALWAYS PROVIDES FOR THE ULTIMATE PROOF OF THE CONTR ACTUAL RIGHTS AND OBLIGATIONS. 14.3.4 IN THIS RELATION, WE ALSO RELY ON SECTION 5 0 OF THE INDIAN REGISTRATION ACT WHICH IN CLEAR TERMS PROVIDES THAT THE REGISTERED D EED WILL PREVAIL OVER THE UNREGISTERED ONES. THE SAID SECTION IS REPRODUCED HEREWITH 1) EVERY DOCUMENT OF THE KINDS MENTIONED IN CLAUS ES (A), (B), (C) AND (D) OF SECTION 17, SUB-SECTION (1) AND CLAUSES (A) AND (B) OF SECTION 18, SHALL, IF DULY REGISTERED, TAKE EFFECT AS REGARDS THE PROPERTY COM PRISED THEREIN, AGAINST EVERY UNREGISTERED DOCUMENT RELATING TO THE SAME PROPERTY , AND NOT BEING A DECREE OR ORDER, WHETHER SUCH UNREGISTERED DOCUMENT BY OF THE SAME NATURE AS THE REGISTERED DOCUMENT OR NOT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 45 14.3.5 BASED ON THE ABOVE LEGAL POSITION, WE SUBMIT THAT THE AO WAS FUNDAMENTALLY WRONG TO CONSIDER THE TERMS OF THE AG REEMENT TO LEASE WHICH IS BASICALLY ON INVALID DOCUMENT IN THE EYES OF LAW. THE REGISTERED DEED DOESNT PROVIDE ANY OPTION TO THE LESSEE TO SELL. BASED ON THE SAID KEY ASPECT, THE AOS CONTENTION STRONGLY RELYING ON THE LESSEE OPTION TO SELL FALLS COMPLETELY AND HAS NO MERITS. 14.3.6 IN THE NUTSHELL, ON THE BASIS OF ABOVE CONTE NTIONS, WE STATE THAT THE AO HAS FAILED TO CONSIDER THE CLAUSES CONTAINED IN THE REGISTERED LEASE DEED WHICH HE OUGHT TO DO AND ACCORDINGLY IN THE ABSENCE OF RI GHT TO SELL GRANTED TO THE LESSEE IN THE SAID AGREEMENT, THE WHOLE ARGUMENT BU ILD UP BY AO FALLS APART. 14.3.7 FURTHER WE ALSO VEHEMENTLY DENY THE ALLEGAT IONS OF THE AO REGARDING APPELLANT NOT PAYING LEGITIMATE DUES TO THE STATE E XCHEQUER ALSO. THE SINGLE POINT TO DRAW YOUR HONOURS ATTENTION IN THIS REGARDS IS T HAT THE REGISTERED LEASE DEED DATED 09.10.2006 CONTAINED THE COMPLETE DETAILS OF REFUNDABLE SECURITY DEPOSIT AND WHOLE OF THE STAMP DUTY LEGALLY PAYABLE WAS PAI D ON THE SAME. NO FURTHER POINT NEEDS TO BE MADE IN THIS REGARDS AS THE SAID ABOVE FACT CLEARLY SUBSTANTIATES THE APPELLANTS COMPLETE BONAFIES. 14.4 TO VALIDATE THE CONTENTION REGARDING THE TRAN SFER OF LAND, THE AO IN ITS SEARCH ASSESSMENT ORDER RELIES ON CERTAIN SCENARIOS AND FUTURE PROBABILITIES AND ASSERTS THAT APPELLANT HAS GIVEN UP ALL ITS RIGHTS OVER THE PROPERTY. LET US EXAMINE THE SAID COMMENTS MADE BY THE AO WHICH ARE REPRODUC ED AS UNDER STILL PROCEEDING FURTHER IN THE MATTER WITH REGARD TO THE ASSESSEES ARGUMENT THAT EVERY TYPE OF TRANSACTION ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY FOR INSTANCE THE LETTING OUT OF HOUSE TO A TENANT OR A SIMPLE TRANSACTION OF A HOTEL GIVING ROOM TO A CUSTOMER WOULD ALSO TANTAMOUNT FOR THE PURPOSES OF CAPITAL GAIN U/S 45, IT WOULD AGAIN BE SUFFICE TO SAY THE INSTAN CES RELIED UPON BY THE ASSESSEE ARE TOTALLY MISPLACED. IT HAS TO BE MENTIONED THAT THE HOUSE IS PRIMARILY GIVEN ON RENT FOR ALLOWING THE TENANT TO RESIDE IN THAT HOUSE AND NOT FOR THE PURP OSE OF OTHER ENJOYMENT OVER THE PROPERTY AS GIVEN BY THE A SSESSEE BY LEASING OUT TO THE LESSEE AS DISCUSSED AT LENGTH IN THE PRECEDING PARA S. SIMILARLY, IN THE CASE OF GIVING A ROOM TO A CUSTOMER IN A HOTEL, THE CUSTOME R IS ENTITLED ONLY TO STAY IN THE HOTEL ROOM FOR FEW DAYS. HE IS NOT ENTITLED TO CARR Y OUT ANY OTHER ACTIVITY SUCH AS MODIFICATION / ALTERATION / RENOVATION IN THE ROOM CONTRARY TO THE VARIOUS AMENITIES / RIGHTS RENDERED BY THE ASSESSEE IN LEASING OUT PR OPERTY TO THE LESSEE. IN VIEW OF KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 46 THESE FACTS IT WOULD RATHER BE INCORRECT BY ANY YAR DSTICK ON THE PART OF THE ASSESSEE TO EQUATE THESE TRANSACTIONS WITH THE TRAN SACTION OF LEASING OUT OF THE PLOT TO THE LESSEE. HENCE, I DO NOT FIND ANY MERIT IN ASSESSEES THIS CONTENTION. BEFORE PARTING FROM THE ISSUE IT WOULD ALSO BE NECE SSARY TO MENTION THAT AS PER THE AGREEMENT TO LEASE THE ASSESSEE HAS RENDERED RI GHT TO THE LESSEE TO EVEN SALE THE PROJECT OR A PART OF THE PROJECT SO UNDER TAKEN, A SITUATION OF SELLING OF A SHOP AT A FLOOR ABOVE THE GROUND FLOOR MAY ARISE. T HE PURCHASER WOULD HAVE THE ABSOLUTE RIGHT OF OWNERSHIP OVER THAT SHOP. THUS, AT THE EXPIRY OF THE LEASE PERIOD THE FATE OF THE OWNERSHIP OF THE SHOP WOULD ARISE. MOREOVER, IN THAT SITUATION AS PER THE TERMS OF LEASE AGREEMENT THE S TRUCTURE WAS TO BE DEMOLISHED. THUS THIS CASTS A SERIOUS DOUBT ON TH ENTIRE TRANSACTION CLAIMED TO HAVE BEEN UNDER TAKEN BY THE ASSESSEE. AS A MATTER OF FACT BY VIRTUE OF THIS TRANSACTION THE ASSESSEE HAD RELINQUISHED ITS RIGHT IN THE AFORESAID PLOT. 14.4.1 ON PERUSAL OF THE FIRST POINT MENTIONED BY THE AO, IT IS CRYSTAL CLEAR THAT AO DISTINGUISHES THE LEASE MADE BY THE APPELLANT WI TH THE LEASE OF BUILDING / HOTEL ROOM BY STATING THAT IN THE LATTER CASE, THE LESSEE CANNOT MODIFY / ALTER / RENOVATE THE BUILDING OR HOTEL ROOM. IN THIS REGAR DS, THE AO COMPLETELY LOSES SIGHT OF THE FACT THAT THE APPELLANT HAS GIVEN PLO T OF LAND ON LEASE. THE INHERENT USE OF THE VACANT PLOT OF LAND WOULD BE TO ALTER IT TO CONSTRUCT A SUPER STRUCTURE. THE VACANT LAND IN ITSELF IS OF NO VALUE WITHOUT TH E SUPERSTRUCTURE. SO WHY WOULD ANY PARTY ENTER INTO A LEASE TRANSACTION OF A VACA NT LAND WITHOUT THE RIGHT TO MODIFY IT? THE AO TWISTS THE SAID FACT AND COMPARES IT WITH THE LEASE OF HOTEL ROOM. 14.4.2 AS REGARDS SECOND ASPECT ABOVE RELATING TO L ESSEE BEING GIVEN OPTION TO SALE THE PROPERTY, WE DRAW YOUR HONOURS ATTENTION T O OUR SUBMISSIONS MADE IN POINT 3 ABOVE. EVEN AT THE COST OF REPLETION IT IS STATED THAT THE REGISTERED LEASE DEED NEVER HAD PROVIDED THE SAID RIGHT TO THE LESSE E. THE FURTHER CONFIRMATION OF THE ABOVE POINT IS THAT AS ON DATE IN FEBRUARY 2013 I.E. INTO THE 10 TH YEAR OF THE LEASE, THERE IS NO SINGLE SALE ENTERED INTO BY THE LESSEE AND THE COMPLETE ARGUMENTS MADE BY THE AO ARE RENDERED INFRUCTUOUS. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 47 14.5 NEXT DRAW YOUR HONOURS ATTENTION TO THE VARIOU S CHARTS PRODUCED BY AO IN THE SEARCH ASSESSMENT ORDER AT PARA 4.1.11. THE SA ID CHARTS HIGHLIGHT THE RELATIONSHIP BETWEEN THE APPELLANT AND THE EWDPL AS IN THE APPELLANTS SHAREHOLDING IN EWDPL. FURTHER IT PROVIDES THE FLOW OF FUND. IN THE NUTSHELL, IT EVIDENCES THAT THE APPELLANT INVESTED INTO EWDPL AN D EWDPL PAID THE SECURITY DEPOSIT OUT OF THE SAID INVESTMENT PROCEEDS. BASED ON THE ABOVE FACTS THE AO PROCEEDS TO HOLD AS UNDER BEFORE PARTING FROM THE ISSUE, IT WOULD NOT BE NEC ESSARY TO REITERATE THAT ON EXAMINATION OF THE DETAILS IT WAS NOTICED THAT ALL THE THREE CONCERNS VIZ THE ASSESSEE, M/S PADMA HOMES PVT. LTD. AND M/S EWDPL ARE THE ASSOCIATED CONCERNS. AS A MATTER OF FACT, IN ALL THESE CONCERN S THE MAJOR PORTION OF THE SHARE HOLDERS IS COMMON. IN THIS CONTEXT, THE DETAILS GIV EN IN PARA 4.1.11 OF THIS ORDER MAY BE REFERRED TO. EXAMINATION OF BANK STATEMENTS OF THE ABOVE CONCERNS FURTHER REVEALED THAT JUST PRIOR TO THE GIVING OF T HE SECURITY DEPOSIT M/S EWDPL HAD SHOWN THE RECEIPTS OF SHARE APPLICATION MONEY F ROM THE LESSER (THE DETAILS OF SHARE APPLICATION MONEY GIVEN AND SUBSEQUENT PAYMEN T OF SECURITY DEPOSIT ARE GIVEN IN PARA 4.1.11 OF THIS ORDER). FROM THESE FACTS AND THE FACTS DISCUSSED ABOVE, IT IS APPARENT THAT THE LEASE AGREEMENT WITH A CLAUSE THAT THE SECURITY DEPOSIT RECEIVED WOULD BE REFUNDED TO THE LESSEE ON THE EXPIRY OF THE LEASE OR ITS TERMINATION WAS MERELY A COLOURABLE DEVICE TO EVADE THE ACTUAL NATURE OF THE TRANSACTION PAYMENT OF LEGITIMATE TAXES ON CAPITAL GAIN. HERE IT HAS TO BE REITERATED THAT THE SUB-REGISTRAR OF PROPERTIES VIDE HIS LETTER DATED 26.12.2006 EXTRACTED IN PARA 4.1.7 OF THIS OR DER HAD ALSO NOTICED THAT BY NOT DISCLOSING THE ENTIRE FACTS TO THE STATE GOVT., THE CONCERNED CONCERN(S) VIZ THE ASSESSEE, M/S PADMA HOMES PVT. LTD. AND M/S EWD PL HAD HATCHED A CONSPIRACY TO EVADE THE PAYMENT STATE GOVERNMENTS LEGITIMATE DUES ALSO. NEEDLESS TO REITERATE THAT THERE IS NEITHER ANY ROO M FOR RETURNING OF THE DEPOSIT BY THE LESSER TO THE LESSEE NOR ANY CHANCE OF TERMINAT ION / EXPIRY OF THE LEASE PERIOD AS ELABORATELY DISCUSSED IN THE PRECEDING PARAS. AS A MATTER OF FACT THE ABOVE FACTS THEMSELVES LIFT THE CORPORATE VEIL OF THE ACT UAL NATURE OF THE TRANSACTION. HENCE I HOLD THAT THE TRANSACTION OF LEASING OUT WI TH THE CONDITION OF RETURNING OF SECURITY DEPOSIT AFTER THE EXPIRY OF LEASE PERIOD A PPARENTLY APPEARS TO BE REAL BUT IN REALITY WAS NOT REAL. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 48 14.5.1 AS THE HIGHLIGHTED PORTION SUGGESTS, THE AO STATES THAT SINCE THE APPELLANT HOLDS SHAREHOLDING IN THE APPELLANT, THE ENTIRE TRA NSACTION IS A COLOURABLE DEVICE. HOWEVER, HOW THE AO ARRIVES AT SUCH A CONC LUSION IS NOT PROVIDED IN THE ORDER. THE APPELLANT SUBMITS THAT MERELY BECAUSE T HE APPELLANT INVESTED IN THE LESSEE, HOW THE GENUINENESS OF THE TRANSACTION GETS AFFECTED IS BEYOND COMPREHENSION. THE APPELLANT HAS VEHEMENTLY STATED THAT THE PURPOSE OF THE INVESTMENT IS TO PROTECT ITS LEASED LAND AND THE EN TIRE ARRANGEMENT IS A COMMON ARRANGEMENT TO SEPARATE THE HOLDING AND THE OPERATI NG ENTITIES OF A SINGLE BUSINESS GROUP. THE AO IN THE AFORESAID PARA STATES THAT THE CORPORATE VEIL SHOULD BE LIFTED TO TAX THE ACTUAL NATURE OF THE TR ANSACTION. THE APPELLANT STATES THAT LIFTING THE CORPORATE VEIL WOULD SUGGEST THAT THE APPELLANT AND EWDPL AREONE AND THE SAME ENTITY. IN SUCH A SCENARIO THE RE IS NO TRANSACTION TO TAX AND THE ENTIRE CASE OF THE AO FALLS FLAT. IT IS INDEED ESTABLISHED PRINCIPLE OF MUTUALITY THAT NO PERSON CAN EARN TAXABLE INCOME OUT OF TRANS ACTION WITH HIMSELF. 15. THE ABOVE PARAS BRING THE END TO THE DISCUS SION RELATING TO THE AOS CONTENTION IN TREATING THE TRANSACTIONS AS LEASE TR ANSACTION. IN THE FURTHER PARAS, WE BRING ABOUT THE OTHER APPELLANT CONTENTIONS RELA TING TO THE WHOLE TRANSACTION. 16. IN THIS REGARDS, FIRST WE DRAW YOUR HONOUR S ATTENTION TO THE CLAUSE RELATING TO THE LEASE RENT. THE SAID CLAUSE CLEARLY INDICATE S THE CONSIDERATION OF RS.81,000 PER ANNUM FOR THE USE OF LAND. THE AO IN ITS BOTH T HE ASSESSMENT ORDERS HAS NOT COMMENTED ANYTHING ON THE SAID LEASE RENT. TAKING FORWARD THE AOS LOGIC OF THE TRANSACTION BEING TRANSFER THE SAID LEASE RENT WO ULD ALSO FORM PART OF THE CONSIDERATION FOR THE APPELLANT. HOWEVER, THE AO DO ESNT TREAT THE LEASE RENT AS CONSIDERATION AND SIMPLY TAXES THE SAME AS BUSINESS INCOME. THE APPELLANT DOESNT COMPREHEND THE LOGIC OF THE SAME. WHEREAS A O TREATS THE ONE PART OF THE AGREEMENT RELATING TO SECURITY DEPOSIT AS COLO URABLE DEVICE, THE OTHER PART OF THE AGREEMENT IS LEFT UNTOUCHED BY THE AO. 17. TAKING THE ABOVE CONTENTION FORWARD, IT IS STATED THAT SINCE THE SECURITY DEPOSIT IS REFUNDABLE AFTER THE PERIOD OF 29 YEARS OF LEASE OR ON TERMINATION OF THE LEASE DEED, IT CANNOT BE SAID TO BE A CONSIDERATIO N, BECAUSE A REFUNDABLE DEPOSIT IS A DEBT AND NOT A CONSIDERATI ON RECEIVED. THE ONLY CONSIDERATION THEREFORE WHICH CAN BE CONSIDERED FOR THE PURPOSES OF SECTION KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 49 2(47) READ WITH SECTION 53A, IS THE LEASE RENT AMOU NT OF RS.81,000/- PER YEAR TO BE RECEIVED OVER A PERIOD OF 29 YEARS WHICH IS NOT REFUNDABLE AND THEREFORE, THIS IS THE ONLY CONSIDERATION THAT CAN FALL WITHIN THE AMBIT OF SECTION 2(47) READ WITH SECTION 53A. IN SUCH AN EVENT, THE DISCOUNTED VALU E OF THE LEASE RENT OF RS.81,000/- X 29/23,45,000 FOR ITS PRESENT VALUE WOULD COME TO RS.9,03,833/- (RUPEES NINE LACS THREE THOUSAND EIGHT HUNDRED THIR TY-THREE), WHICH CAN AT THE MOST BE TREATED AS THE CONSIDERATION AND NOT THE SE CURITY DEPOSIT WHICH IS REFUNDABLE DEPOSIT AND HENCE IS A DEBT. 18. IN VIEW OF THE ABOVE, OUR CONTENTION IS TH AT THE SAID AMOUNT OF RS. 9,03,833 MAY BE CONSIDERED AS CONSIDERATION FOR C APITAL GAIN PURPOSES. IT IS TO BE NOTED THAT THE SAID CONTENTION IS WITHOUT PREJUD ICE TO OUR PRIMARY SUBMISSION THAT THERE IS NO CAPITAL GAIN IMPLICATION BECAUSE T HERE IS NO TRANSFER INVOLVED. 19. THE FIRST LEGAL BACKUP OF THE ABOVE CONTEN TIONS IS PRESENT IN THE OPINION OF NOTED TAX EXPERT AUTHOR MR.S. RAJARATNAM WHICH IS R EPRODUCED FROM CTR ENCYCLOPEDIA OF INDIAN TAX LAWS AS UNDER- IN RESPECT OF LONG TERM LEASE OF VACANT LAND, THE LESSEE WILL PUT UP SUPER STRUCTURE. THE LEASE DEEDS ORDINARILY CONTAIN A CLA USE EITHER PROVIDING FOR THE LESSEE TO LEAVE THE SUPER STRUCTURE INTACT WHILE VA CATING THE PREMISES OR PROVIDE FOR COMPENSATION BY THE LESSOR TO THE LESSEE AT THE IR VALUE. THE NORMAL RULE IN ABSENCE OF ANY SPECIFIC CLAUSE IS THAT THE LESSEE I S ENTITLED TO DEMOLISH THE STRUCTURE BEFORE VACATING THE SAME, BUT, IF HE LEAV ES THE SUPER STRUCTURE AS SUCH AND THEN IF SUCH SUPER STRUCTURE HAS SUBSTANTIAL VA LUE, IT WILL AUTOMATICALLY BELONG TO LESSOR, WHERE VALUABLE SUPER STRUCTURE IS EXPECT ED TO BE BUILT, THE RENTAL VALUE MAY WELL BE LESS IN VIEW OF EXPECTED ACCRETION TO T HE VALUE AT THE END OF REVERSIONARY PERIOD WHERE THE OWNER GETS BACK HIS P OSSESSION ON REVERSION, THERE IS NO LIABILITY FOR THE OWNER BECAUSE HE IS O NLY GETTING BACK HIS PROPERTY WITH ACCRETION WHICH SHOULD CLEARLY BE TAKEN TO BE ENHAN CEMENT OF THE VALUE OF THE PROPERTY NOT TAXABLE TILL IT IS REALIZED BY WAY OF SALE. IT IS ON THE ABOVE PRINCIPLES OF LAW THAT THE ISSUE HAS TO BE DECIDED. PERIOD OF 31 YEARS IS A LONG DURATION FOR LEASE. THE PROPOSAL OF THE ASSESSEE GETTING A BUILDING 31 YEAS LATER OR ON TERMINATION OF LEASE CANNOT GIVE RISE TO ANY TAX LIABILITY. ALL THAT CAN BE TAXED IS THE ANNUAL VALUE OF RENT AS INCOME. (EMPHASIS SUPPLIED BY US) 20. AS THE HIGHLIGHTED PORTION SUGGESTS, THERE ARE NO CAPITAL GAIN IMPLICATIONS ON LONG TERM LEASE. ONLY TAXABLE INCOME WHICH ARISE S IS RENTAL INCOME. ANOTHER KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 50 NOTED AUTHOR SHRI N M RANKA ALSO OPINES AS UNDER AT 130 CTR (ARTICLES) 163 -- LONG LEASE: IN CERTAIN CASES OF LONG LEASE THE LE SSEE IS ALLOWED TO CONSTRUCT A BUILDING ON THE LAND LEASED OUT OWN THE SAME DURI NG THE PERIOD OF LEASE. THE BUILDING TO BE SURRENDERED TO THE LESSOR FREE OF CO ST ON THE TERMINATION OF THE LEASE AND THE LESSOR HAS THE REVERSIONARY INTEREST TO GET BACK THE BUILDING 21. THE ANOTHER LEGAL PRECEDENT CAN BE FOUND IN THE JUDGMENT OF ITAT, JODHPUR BENCH IN THE CASE OF ADDITIONAL CIT VS. LAKE PLACE HOTELS (83 TTJ 1031). THE PRIMARY AND THE BASIC FACT OF THE SAID CASE IS EXACTLY SIMILAR TO THE APPELLANTS CASE. THERE WAS A LONG TERM LEASE WITH A CLAUSE OF REFUNDABLE DEPOSIT. THE AO IN THE SAID CASE ALSO TREATED THE T RANSACTION AS TRANSFER AND TAXED THE SAME UNDER CAPITAL GAINS. THE ITAT DULY C ONSIDERED THE FACTS AND ULTIMATELY CATEGORICALLY HELD THAT THE REFUNDABLE D EPOSIT CAN NOT BE CONSIDERED AS CONSIDERATION AND NO CAPITAL GAIN CAN BE CHARGED. T HE RELEVANT PORTION IS REPRODUCED HEREWITH FOR YOUR HONOURS CONSIDERATION- IT MAY BE POINTED OUT THAT TO CHARGE CAPITAL GAINS UNDER S.45 R/WS. 48, THE FOLLOWING FOUR CONDITIONS ARE REQUIRED TO BE FULFIL LED THAT; (I) THERE SHOULD BE A CAPITAL ASSET; (II) CAPITAL ASSET SHOULD BE TRANSFERRED; (III) CONSIDERATION HAS BEEN RECEIVED IN LIEU OF TR ANSFER; AND (IV) THERE WAS COST OF ACQUISITION AND COST OF IMPR OVEMENT. ALL THE FOUR ARE CONDITIONS PRECEDENT AND IN CASE A NY REQUIREMENT REMAINS UNFULFILLED, THERE IS NO QUESTION OF CHARGING THE C APITAL GAINS. IN THE INSTANT CASE, THE ASSESSEE HAD NOT RECEIVED ANY CONSIDERATION IN LIEU OF THE TRANSFER OF CAPITAL ASSET BECAUSE THE LAND IN QUESTION HAD BEEN GIVEN O N LEASE AND THE ASSESSEE RECEIVED LEASE RENT YEAR AFTER YEAR AND ON THAT LEA SE RENT, TAX HAD BEEN PAID IN ACCORDANCE WITH LAW. 22. IT IS PERTINENT TO NOTE HEREIN THAT THE ABOVE JUDGMENT HAS BEEN AFFIRMED BY THE HONBLE RAJASTHAN HIGH COURT IN DECISION CITED AT 321 ITR 165. THE AO IN ITS SEARCH ASSESSMENT ORDER HAS DISTINGUISHED CERTAIN F ACTS OF THE SAID CASE WITH THE FACTS OF THE APPELLANTS CASE MAINLY SECURITY DEPOSI T BEING INTEREST BEARING IN THE CITED CASE. HEREIN, WE POINT OUT THAT THE AO HAS CO MPLETELY FAILED TO CONSIDER THAT THE TRIBUNAL JUDGMENT HAS NOT GIVEN ITS FINDIN G ON THE SAID FACT. THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 51 JUDGMENT PRIMARILY ESTABLISHES THAT THE REFUNDABLE SECURITY DEPOSIT CANNOT BE CONSIDERED AS CONSIDERATION. 23. THE OTHER JUDICIAL PRECEDENTS IN FAVOUR OF T HE APPELLANTS STAND PERTAIN TO DECISIONS WHICH HOLD THAT ANY PREMIUM / SALAMI RECE IVED AS CONSIDERATION OF LEASE MAY BE TREATED AS CONSIDERATION RECEIVED. IN THE INSTANT APPELLANTS CASE, THERE IS NO PREMIUM OR SALAMI RECEIVED BY THE APPEL LANT AND ACCORDINGLY THERE IS NO CONSIDERATION TO TAX. 24. LASTLY, WE ALSO DRAWN YOUR HONOURS ATTENTIO N TO THE FACTS THAT THE AFORESAID ADDITION HAS BEEN MADE ON PROTECTIVE BASIS IN THE SUBSEQUENT TWO ASSESSMENT YEARS I.E. 2005-06 AND 2006-07. THE AMOUNTS CONSIDE RED IN THE SAID TWO YEARS IS THE AMOUNT OF SECURITY DEPOSIT ACTUALLY RECEIVED VI S--VIS TOTAL SECURITY DEPOSIT RECEIVABLE CONSIDERED IN ADDITION ON SUBSTANTIVE BA SIS IN AY 2004-05. OUR SUBMISSIONS REGARDING THE SAID PROTECTIVE ADDITION IS SAME AS AFORESAID AND WE CONTEND THAT SINCE THE SUBSTANTIVE ADDITION DOESNT SURVIVE, THERE IS NO QUESTION OF THE PROTECTIVE ADDITIONS. 25. THERE ARE TWO ADDITIONAL GROUNDS IN THE APPE AL AGAINST 153A ORDER FOR AY 2005-06 RELATING TO THE ADDITIONS WHICH WERE ALSO M ADE IN THE ORIGINAL ASSESSMENT ORDER U/S 143(A). WE SUBMIT THAT THE SAM E MAY BE CONSIDERED BY YOUR HONOUR WHILE DISPOSING OFF THE APPEAL AGAINST THE SAID ASSESSMENT ORDER WHICH IS NOT PRESENTLY DEALT IN. 26. FROM THE ABOVE FACTS OF THE CASE AND LEGAL PRECEDENTS, IT IS CRYSTAL CLEAR THAT THE TRANSACTION ENTERED INTO BY THE APPELLANT IS OF A LONG TERM LEASE AND IN NO CIRCUMSTANCES THE SAME CAN BE TREATED DAS TRANSFER OF AN IMMOVABLE PROPERTY. THUS WE SUBMIT BEFORE YOUR HONOURS TO DIRECT THE SA ME TO AO AND DELETE THE UNJUST DEMAND RAISED. SUBMISSIONS DATED: 24.09.2013 AS SUBMITTED VIDE THE EARLIER SUBMISSIONS, IT IS HE REBY REITERATED THAT THE APPELLANT COMPANY WAS PRIMARILY ENGAGED IN THE BUSI NESS OF DEALING IN GOODS AND THERE WERE CONTINUOUS LOSSES TILL AY 2003-04. T HE APPELLANTS OWNED A PLOT OF LAND WHICH WAS GIVEN ON LEASE IN AY 2004-05. THE SA ID TRANSACTION HAD LEAD TO THE SERIES OF TAX LITIGATION WHICH IS CONTESTED IN THE AFORESAID APPEALS. A DETAILED SUBMISSION COVERING THE ENTIRE FACTUAL A ND LEGAL CONTENTIONS OF THE APPELLANT WAS PRESENTED VIDE OUR SUBMISSIONS DATED 25.02.2013 FOR THE BOTH THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 52 APPEALLANTS. IN FURTHERANCE TO THE SAID SUBMISSIONS , WE NOW PRESENT LEGAL SUBMISSION COVERING THE ONLY THE LEGAL ASPECTS OF A LL THE APPEALS INCLUDING THE APPEALS ARISING FROM ORIGINAL ASSESSMENT AS WELL AS ASSESSMENT IN PURSUANCE OF SEARCH PROCEEDINGS (UNDER SECTION 153A). THE PRIMARY ADDITION IN ALL THE ABOVE APPEALS RELAT ES TO THE ADDITION OF CAPITAL GAIN BY TREATING THE LEASE TRANSACTION AS A SALE TR ANSACTION. HEREIN IT IS PERTINENT TO NOTE THAT THE ADDITION MADE IN THE ABOVE MENTION ED SEARCH ASSESSMENT ORDER PERTAINED TO THE ISSUE ALREADY DEALT IN THE ORIGINA L ASSESSMENT ORDER I.E. LEASE TRANSACTION CATEGORIZED AS SALE TRANSACTION. 1. ADDITIONS MADE IN SEARCH ASSESSMENT ORDERS U/S 1 53A ARE BAD IN LAW A SEARCH ACTION U/S 132 WAS CONDUCTED ON THE APPELL ANTS BUSINESS PREMISES ON 16.04.2009 AND ACCORDINGLY ASSESSMENT PROCEEDINGS U /S 153A WERE INITIATED. THE SAME WERE CONCLUDED VIDE ORDER U/S 143(3) R.W.S . 153A ON 29.12.2011 FOR ALL THE THREE ASSESSMENT YEARS VIZ. AY 2004-2005, AY 2 005-2006 AND AY 2006- 2007 (HERE AFTER REFERRED AS SEARCH ASSESSMENT ORD ERS_. HEREIN IT IS PERTINENT TO NOTE THAT THE ADDITION MA DE IN THE ABOVE MENTIONED SEARCH ASSESSMENT ORDERS PERTAINED TO THE ISSUE ALR EADY DEALT IN THE ORIGINAL ASSESSMENT ORDER I.E. LEASE TRANSACTION CATEGORIZED AS SALE TRANSACTION. WE DRAW YOUR HONOURS ATTENTION TO THE FACT THAT THE AFORES AID ISSUE BORES NO RELATION TO THE ANY OF THE MATERIAL / DOCUMENTS / RECORDS FOUND AND SEIZED DURING THE SEARCH ACTION ON 16.04.2009. THE SAME FACT IS ALSO EVIDENT FROM THE ASSESSMENT ORDER PASSED FOR THE BLOCK PERIOD. THE ISSUE RELATING TO THE LEASE TRANSACTION WAS ALREADY DEALT WITH IN THE ORIGINAL ASSESSMENT ORDER . ACCORDINGLY, WE SUBMIT THAT THE ENTIRE SEARCH ASSESSMENT ORDER IS BAD IN LAW AN D HENCE IS LIABLE TO BE QUASHED. WITH REFERENCE TO THE SAID CONTENTION WE R ELY ON THE CIRCULAR NO. 7 OF 2003 WHICH CLARIFIES THE POSITION OF THE PENDING AP PEALS AS ON THE DATE OF THE SEARCH. THE COPY OF THE SAME IS ENCLOSED IN THE COM PILATION OF ANNEXURE A. THE RELEVANT PORTION IS PRODUCED HEREWITH - THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME OF EACH OF THESE SIX ASSESSMENT YEARS. ASSESSMENT OR REASSESSM ENT, IF ANY, RELATING TO ANY ASSESSMENT YEARS FALLING WITHIN THE PERIOD OF S IX ASSESSMENT YEARS PENDING ON THE DATE OF INITIATION OF THE SEARCH UND ER SECTION 132 OR KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 53 REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE. IT IS CLARIFIED THAT THE APPEAL, REVISION OR RECTIFICATIO N PROCEEDINGS PENDING ON THE DATE OF INITIATION OF SEARCH UNDER SECTION 132 OR R EQUISITION SHALL NOT ABATE. ACCORDINGLY AS FAR AS COMPLETED ASSESSMENTS ARE CON CERNED, THEY DO NOT ABATE AND PENDING APPEALS ETC. IN RESPECT THEREOF CONTINU E TO EXIST NOTWITHSTANDING THE FACT THAT THE SEARCH HAS BEEN MADE. THUS A IN THE P RESENT CASE, THE ORIGINAL PENDING APPELLATE PROCEEDINGS WERE STILL PENDING. T HE AO CANNOT PROCEED TO MAKE THE SAME ADDITION IN THE BLOCK ASSESSMENT WITH OUT ANY INCRIMINATING MATERIAL FOUND IN THE COURSE OF SEARCH. THE SAID VI EW PREVENTS THE AO TO UNDO WHAT HAS ALREADY BEEN COMPLETED AND HAS BECOME FINA L IN THE ORIGINAL ASSESSMENT PROCEEDINGS. FURTHER RELIANCE CAN BE PLACED ON THE DECISION OF T HE SPECIAL BENCH OF THE MUMBAI ITAT IN THE CASE OF M/S ALL CARGO GLOBAL LOGISTICS LIMITED VS DCIT 137 ITD 287 (MUM)(SB), WHEREIN THE SCOPE OF ASSESSMENT U/S 153A WAS DISCUSSED. THE COPY OF THE SAID JUDGMENT IS ENCLOSE D IN THE COMPILATION AT ANNEXURE B. THE RELEVANT EXTRACT HAS BEEN REPRODUCED AS BELOW (I) IN ASSESSMENTS THAT ARE ABATED, THE AO RETAINS THE ORIGINAL JURISDICTION AS WELL AS THE JURISDICTION CONFERRED ON HIM BY S. 153A FOR WHICH ASSESSMENTS SHALL BE MADE FOR EACH OF THE 6 ASSESSMENT YEARS SEPARATELY; IN OTHER CASES, IN ADDITION TO THE INCOME THAT HAS ALREADY BEEN ASSESSED, THE ASSESSMENT U/S 153A WILL BE MADE ON THE BASIS O F INCRIMINATING MATERIAL I.E. (A)THE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS FOUND IN THE COURSE OF THE SEARCH BUT NOT PRODUCED IN THE COURSE OF ORI GINAL ASSESSMENT AND (B) UNDISCLOSED INCOME OR PROPERTY DISCLOSED IN THE COU RSE OF SEARCH. THE SAID EXTRACT CLEARLY BRINGS OUT THE ESSENCE OF ASSESSMENT TO BE CARRIED OUT U/S 153A, AND MAKES IT CLEAR THAT ONLY INCRIMINATIN G MATERIAL CAN FORM THE BASIS OF ASSESSMENT U/S 153A. IN THE PRESENT CASE OF THE ASS ESSEE, NO INCRIMINATING MATERIAL HAS BEEN FOUND AND ADDITIONS HAVE BEEN MAD E ON THE PURELY ON THE BASIS OF THE FACTS ALREADY CONSIDERED IN THE ORIGIN AL ASSESSMENTS COMPLETED KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 54 U/S 143(3). THUS, THE ASSESSEE CONTENDS THAT SUCH S EARCH ASSESSMENT U/S 153A IS BAD IN LAW AND VOID. THE AFORESAID LAW HAS BEEN CONSISTENTLY FOLLOWED BY VARIOUS BENCHES OF THE TRIBUNAL. THE TWO SUCH DECISIONS ARE REFERRED AS UN DER A. MGF AUTOMOBILES LIMITED VS. ACIT (ITAT DELHI) THE OPERATIVE PORTION OF THE JUDGEMENT - IN THE PRESENT CASE IT IS PERTINE NT THAT ON THE DATE OF SEARCH BE ON 12/09/2007, THE ASSESSMENTS FOR ASSESSMENT YEAR 2004-05 & 2005-06 WERE ALREADY COMPLETED. THERE WAS NO INCRIMINATING MATER IAL FOUND DURING SEARCH FOR THESE YEARS AS IS APPARENT FROM ARGUMENTS OF LD. AR AND FROM RECORDS AND LD. DEPARTMENTAL REPRESENTATIVE DID NOT BRING TO OUR NO TICE REGARDING ANY INCRIMINATING MATERIAL HAVING BEEN FOUND DURING SEA RCH. THEREFORE FOLLOWING THE JUDICIAL PRECEDENTS, WE ARE OF THE OPINION THAT THO UGH ASSESSMENTS FOR THE ABOVE YEAR WERE BOUND TO BE REOPENED BUT ADDITIONS COULD BE MADE ONLY IF SOME INCRIMINATING DOCUMENT WAS FOUND DURING SEARCH B. ACIT VS PRATIBHA INDUSTRIES LTD(ITAT MUMBAI) T HE OPERATIVE PORTION OF THE JUDGMENT THUS, QUESTION NO. 1 BEFORE US IS ANSWE RED AS UNDER(A) IN ASSESSMENTS THAT ARE ABATED, THE A.O. RETAINS THE O RIGINAL JURISDICTION AS WELL AS JURISDICTION CONFERRED ON HIM UNDER S. 153A FOR WHI CH ASSESSMENTS SHALL BE MADE FOR EACH OF THE SIX ASSESSMENT YEARS SEPARATELY; (B) IN OTHER CASES, IN ADDITION TO THE INCOME THAT HAS ALREADY BEEN ASSESSED, THE ASSESSMENT UNDER SECTION 153A WILL BE MADE ON THE BASIS OF INCRIMINATING MATERIAL. IT IS TO BE NOTED THAT THE VIEW HAS ALSO BEEN CONS IDERED AS WELL AS APPROVED BY INDORE ITAT IN THE CASE OF SHRI ARUN SEHLOT, VS ACIT 3(1), BHOPAL (ITAT INDORE). THE SAID DECISION IS THE JURISDICTIONAL ITAT BENCH S DECISION FOR THE APPELLANT. THUS, RELYING ON THE AB OVE MENTIONED JUDICIAL PRECEDENTS, IT IS VEHEMENTLY SUBMITTED THAT THE ADD ITIONS MADE BY THE AO IN THE SEARCH ASSESSMENT ORDERS ARE VOID AS NOT BEING MADE ON THE BASIS OF INCRIMINATING MATERIAL FOUND. 2. TRANSACTION ENTERED INTO BY THE APPELLANT CANNOT BE TREATED AS TRANSFER OF CAPITAL ASSET - THE AO RELIES ON THE DEFINITION OF THE TRANSFER A S PROVIDED IN THE SECTION 2(47) OF THE INCOME TX ACT, 1961 TO STATE THAT THE LEASE TRA NSACTION ENTERED INTO BY THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 55 APPELLANT IS A TRANSFER OF CAPITAL ASSET AS PER I NCOME TAX ACT AND HENCE LIABLE TO INCOME TAX. THE SAID SECTION IS REPRODUCED HERE FOR EASE OF REFERENCDE- 2(47) TRANSFER, IN RELATION TO A CAPITAL ASSET, INCLUDES, -- (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASSET; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; O R (IV) IN A CASE WHERE THE ASSETS IS CONVERTED BY THE OWNE R THEREOF INTO, OR IS TREATED BY HIM AS, STOCK IN TRADE OF A BUSINESS CAR RIED ON BY HIM, SUCH CONVERSION OR TREATMENT;][OR] (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPON B OND; OR] (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSE SSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANC E OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER O F PROPERTY ACT, 1882 (4) OF 1882 ; OR (VI) ANY TRANSACTION ( WHETHER BY WAY OF BECOMING A MEMB ER OF, OR ACQUIRING 1. SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OT HER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEME NT OR IN ANY OTHER MANNER WHATSOEVER ) WHICH HAS THE EFFECT OF TRANSFERRING, OR ENABLING THE ENJOYMENT OF, ANY IMMOVABLE PROPERTY. THE AO RELIES ON TWO LIMBS OF THE AFORESAID DEFINIT ION (I) AND (VI). RELINQUISHMENT OF RIGHT LET US LOOK INTO THE APPLICABILITY OF CLAUSE (I) OF THE SECTION 2(47) WHICH DEALS WITH RELINQUISHMENT OF R IGHT. IN THIS REGARDS, YOUR HONOURS ATTENTION IS DRAWN TO THE APEX COURT DECISI ON IN CASE OF RASIKLAL MANEKLAL (HUF) 177 ITR 198 WHICH HAS CLEARLY HELD THAT A RELINQUISHMENT TAKES PLACE WHEN THE OWNER WITHDRAWS HIMSELF FROM THE PRO PERTY AND ABANDONS HIS RIGHTS THERETO. IN THE APPELLANTS CASE, THE RIGHT TO THE PROPERTY HAS NOT BEEN ABANDONED AND IT IS CLEARLY PROVIDED THAT THE LAND WOULD REVERT BACK AFTER THE LEASE PERIOD . HENCE THERE IS NO RELINQUISHMENT OF ANY ASSET. THE CONTENTION OF THE AO THAT THE APPELLANT HAS DRAWN A BLANK CHEQUE IN FAVOUR OF THE LESSEE AND HAS GIVEN ALL THE RIGHTS TO THE LESSOR HAS NO MERIT S WHEN ONE SEES THAT ESSENTIALLY THE LAND IS TO BE REVERTED BACK TO THE APPELLANT. ANY TRANSACTION WHICH HAS EFFECT OF TRANSFERRING, O R ENABLING THE ENJOYMENT OF, ANY IMMOVABLE PROPERTY - IF THE INTERPRETATION MADE BY THE AO OF THE SAID CLAUSE PREVAILS THEN EVERY TYPE OF TRANSACTION ENAB LING THE ENJOYMENT OF ANY KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 56 IMMOVABLE PROPERTY WOULD BE TREATED AS TRANSFER. HAD IT BEEN SO EVERY TRANSACTION OF A HOTEL GIVING ROOM TO A CUSTOMER SH ALL GET CAUGHT BY THE TERM ENABLING THE ENJOYMENT OF IMMOVABLE PROPERTY AND SHALL BECOME SUBJECT TO CLUTCHES OF CAPITAL GAINS PROVISIONS. THE CLAUSE IS RESTRICTED ONLY TO THOSE TRANSACTIONS AS MENTIONED IN THE CLAUSE ITSELF E.G. BY WAY OF BECOMING A MEMBER OF A CO-OPERATIVE SOCIETY, COMPANY OTHER ASS OCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY O THER MANNER WHATSOEVER. IN REGARDS TO THE SAME, WE RELY ON THE EJUSDEM GEN ERIS PRINCIPLE OF INTERPRETATION. EJUSDEM GENERIS IS A LATIN MXIM W HICH MEANS THAT THERE IS A LIST OF WORDS IN A STATUE FOLLOWED BY SOME GENERAL WORDS , THE GENERAL WORDS ARE LIMITED TO THE SAME SORT OF ITEMS AS ARE MENTIONED IN THE SPECIFIC THINGS SET OUT IN THE LIST. THE DOCTRINE OF EJUSDEM GENERIS ARISES IF A CATCHALL PHRASE ENDS A LIST. THE CATCHALL PHRASE WOULD REFER TO THINGS SIMILAR I N CHARACTER TO THE OTHER ITEMS IN THE LIST. FOR E.G., IF IN A LIST INCLUDED, DOGS CAT S, PARAKEETS AND SIMILAR ANIMALS, THE CATCHALL PHRASE, SIMILAR ANIMALS WOULD MEAN OTHER TYPES OF PETS SINCE THE OTHER ANIMALS IN THE LIST ARE COMMON PETS. THE SAID PRINCIPLE IS ESTABLISHED PRINCIPLE IN THE INCOME TAX LAWS. THE LATEST CASE TO RELY THE SAID PRINCIPLE WAS SUPREME COURT D ECISION IN THE CASE OF CIT VS.SMIFS SECURITIES LIMITED. IN THE SAID SEMINAL RULING, THE HONBLE APEX COUR T HELD THAT DEPRECIATION WAS ALLOWABLE ON GOODWILL BY INVOKING THE PRINCIPLE OF EJUSDEM GENERIS WHICH MEANS TERMS FALLING WITHINTHE SWEEP OF THE GENERAL DEFINITION MUST BE INCLUDED IN IT THOUGH NOT EXPRES SLY NAMED. THE INCOME-TAX LAW GRANTS DEPRECIATION TO KNOW-HOW, PATENTS, COPYR IGHTS, TRADEMARKS, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE. THE SUPREME COURT HAD NO HESITATION IN GRANTING DEPRECIATION TO GOOD WILL AS WELL BECAUSE IT FELL WITHIN THE SWEEP OF THE ELASTIC PHRASE ANY OTHER B USINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE PURPOSE OF THE SID CLAUSE IS ALSO CRYSTAL CLEAR IN THE ABOVE-MENTINOED TRANSACTIONS, ALTHOUGH IN FACT THERE IS A TRANSFER OF SHARES / MEMBERSHIP, IN SUBSTANCE THERE IS TRANSFER OF UNDERLYING IMMOVABLE PROPERTY. THUS, THE SAID PROVISION IS A WAY PARTAKES THE CLARIFICATORY NATUR E THAT WHEN A TRANSACTION INVOLVES UNDERLYING TRANSFER OF IMMOVABLE PROPERTY THEN THE SAID TRANSACTION WOULD ALSO BE TREATED AS TRANSFER EXTINGUISHABLE TO CAPITAL GAINS TAX. THERE IS NO SUCH SCENARIO IN THE APPELLANTS TRANSACTION. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 57 WE ALSO DRAW YOUR HONOURS ATTENTION TO A VERY SIGNI FICANT DISTINGUISHING FACTOR IN THE ABOVE CASE IN ALL THE ABOVE CASES THE MEMBER OR THE SHAREHOLDER (TRANSFEREE) WILL BE THE ULTIMATE OWNER OF THE PROP ERTY ON THE BASIS OF HIS MEMBERSHIP OR OWNERSHIP OF THE SHARES. THERE WILL B E NO REVERSION BACK TO THE ANY OTHER PERSON. NO WHERE THE AO COMMENTS ON OR DI STINGUISHES THE SAID ASPECT. THE FACT REMAINS THAT ON EXPIRY OF THE PERI OD OF 29 YEARS, THE LANDS IS TO BE REVERTED BACK TO THE APPELLANT. IN FACT THE AO DOESNT DEAL WITH THE ABOVE SITUATION AT ALL. 3 . SECURITY DEPOSIT IS NOT CONSIDERATION FOR SALE THE AO HOLDS THAT THE TRANSACTION BEING A TRANSFER THE SECURITY DEPOSIT RECEIVED BY IT FORMS SALE CONSIDERATION. THE APPELLANT DOE SNT COMPREHEND THE LOGIC OF THE SAME. IT IS STATED THAT SINCE THE SECURITY DEPO SIT IS REFUNDABLE AFTER THE PERIOD OF 29 YEARS OF LEASE OR ON TERMINATION OF THE LEASE DEED, IT CANNOT BE SAID TO BE A CONSIDERATION, BECAUSE A REFUNDABLE DEPOSIT IS A DEBT AND NOT A CONSIDERATION RECEIVED. LEGAL PARLANCE FOR THE SAID STAND CAN BE FOUND IN T HE JUDGMENT OF ITAT, JODHPUR BENCH IN THE CASE OF ADDITIONAL CIT VS. LAKE PLACE HOTELS (83 TTJ 1031) .THE PRIMARY AND THE BASIC FACT OF THE SAID CASE IS EXAC TLY SIMILAR TO THE APPELLANTS CASE. THERE WAS A LONG TERM LEASE WITH A CLAUSE OF REFUNDABLE DEPOSIT. THE AO IN THE SAID CASE ALSO TREATED THE TRANSACTION AS T RANSFER AND TAXED THE SAME UNDER CAPITAL GAINS. THE ITAT DULY CONSIDERED THE F ACTS AND ULTIMATELY CATEGORICALLY HELD THAT THE REFUNDABLE DEPOSIT CAN NOT BE CONSIDERED AS CONSIDERATION AND NO CAPITAL GAIN CAN BE CHARGED. T HE RELEVANT PORTION IS REPRODUCED HEREWITH FOR YOUR HONOURS CONSIDERATION- IT MAY BE POINTED OUT THAT TO CHARGE CAPITAL GAINS UNDER S.45 R/WS. 48, THE FOLLOWING FOUR CONDITIONS ARE REQUIRED TO BE FULFIL LED THAT; (I) THERE SHOULD BE A CAPITAL ASSET; (II) CAPITAL ASSET SHOULD BE TRANSFERRED; (III) CONSIDERATION HAS BEEN RECEIVED IN LIEU OF TRANSFER ; AND (IV) THERE WAS COST OF ACQUISITION AND COST OF IMPROVEME NT. ALL THE FOUR ARE CONDITIONS PRECEDENT AND IN CASE A NY REQUIREMENT REMAINS UNFULFILLED, THERE IS NO QUESTION OF CHARGING THE C APITAL GAINS. IN THE INSTANT CASE, KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 58 THE ASSESSEE HAD NOT RECEIVED ANY CONSIDERATION IN LIEU OF THE TRANSFER OF CAPITAL ASSET BECAUSE THE LAND IN QUESTION HAD BEEN GIVEN O N LEASE AND THE ASSESSEE RECEIVED LEASE RENT YEAR AFTER YEAR AND ON THAT LEA SE RENT, TAX HAD BEEN PAID IN ACCORDANCE WITH LAW. AS IN THE ABOVE CASE, THE APPELLANT VEHEMENTLY SUBM ITS THAT THERE IS NO TRANSFER OF THE ASSET AND ACCORDINGLY NO CAPITAL GAIN ARISES. FURTHER, SIMILAR TO THE FACTS OF THE SAID CASE, IN THE APPELLANTS CASE TOO THE LEASE RENT RECEIVED YEAR ON YEAR HAS BEEN TAXED AS BUSINESS RECEIPTS. FURTHER, IT IS PERTINENT TO NOTE HEREIN THAT THE AB OVE JUDGMENT HAS BEEN AFFIRMED BY THE HONBLE RAJASTHAN HIGH COURT IN DECISION CIT ED AT 321 ITR 165. THE AO IN ITS SEARCH ASSESSMENT ORDER HAS DISTINGUISHED CERTA IN FACTS OF THE SAID CASE WITH THE FACTS OF THE APPELLANTS CASE MAINLY SECURITY DE POSIT BEING INTEREST BEARING IN THE CITED CASE. HEREIN, WE POINT OUT THAT THE AO HA S COMPLETELY FAILED TO CONSIDER THAT THE TRIBUNAL JUDGMENT HAS NOT GIVEN ITS FINDIN G ON THE SAID FACT. THE JUDGMENT PRIMARILY ESTABLISHES THAT THE REFUNDABLE SECURITY DEPOSIT CANNOT BE CONSIDERED AS CONSIDERATION. MOREOVER, FURTHER JUSTIFICATION OF THE ABOVE CONTEN TION IS PRESENT IN THE OPINION OF THE NOTED TAX EXPERT MR.S. RAJARATNAM WHICH IS REPR ODUCED FROM CTR ENCYCLOPEDIA OF INDIAN TAX LAWS AS UNDER IN RESPECT OF LONG TERM LEASE OF VACANT LAND, THE LESSEE WILL PUT UP SUPER STRUCTURE. THE LEASE DEEDS ORDINARILY CONTAIN A CLA USE EITHER PROVIDING FOR THE LESSEE TO LEAVE THE SUPER STRUCTURE INTACT WHILE VA CATING THE PREMISES OR PROVIDE FOR COMPENSATION BY THE LESSOR TO THE LESSEE AT THE IR VALUE. THE NORMAL RULE IN ABSENCE OF ANY SPECIFIC CLAUSE IS THAT THE LESSEE I S ENTITLED TO DEMOLISH THE STRUCTURE BEFORE VACATING THE SAME, BUT, IF HE LEAV ES THE SUPER STRUCTURE AS SUCH AND THEN IF SUCH SUPER STRUCTURE HAS SUBSTANTIAL VA LUE, IT WILL AUTOMATICALLY BELONG TO LESSOR, WHERE VALUABLE SUPER STRUCTURE IS EXPECT ED TO BE BUILT, THE RENTAL VALUE MAY WELL BE LESS IN VIEW OF EXPECTED ACCRETION TO T HE VALUE AT THE END OF REVERSIONARY PERIOD WHERE THE OWNER GETS BACK HIS P OSSESSION ON REVERSION, THERE IS NO LIABILITY FOR THE OWNER BECAUSE HE IS O NLY GETTING BACK HIS PROPERTY WITH ACCRETION WHICH SHOULD CLEARLY BE TAKEN TO BE ENHAN CEMENT OF THE VALUE OF THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 59 PROPERTY NOT TAXABLE TILL IT IS REALIZED BY WAY OF SALE. IT IS ON THE ABOVE PRINCIPLES OF LAW THAT THE ISSUE HAS TO BE DECIDED. PERIOD OF 31 YEARS IS A LONG DURATION FOR LEASE. THE PROPOSAL OF THE ASSESSEE GETTING A BUILDING 31 YEAS LATER OR ON TERMINATION OF LEASE CANNOT GIVE RISE TO ANY TAX LIABILITY. ALL THAT CAN BE TAXED IS THE ANNUAL VALUE OF RENT AS INCOME . (EMPHASIS SUPPLIED BY US) AS THE HIGHLIGHTED PORTION SUGGESTS, THERE ARE NO C APITAL GAIN IMPLICATIONS ON LONG TERM LEASE. ONLY TAXABLE INCOME WHICH ARISES IS RE NTAL INCOME. ANOTHER NOTED AUTHOR SHRI N M RANKA ALSO OPINES AS UNDER AT 130 C TR (ARTICLES)163- LONG LEASE: IN CERTAIN CASES OF LONG LEASE THE LE SSEE IS ALLOWED TO CONSTRUCT A BUILDING ON THE LAND LEASED OUT OWN THE SAME DURI NG THE PERIOD OF LEASE. THE BUILDING TO BE SURRENDERED TO THE LESSOR FREE OF CO ST ON THE TERMINATION OF THE LEASE AND THE LESSOR HAS THE REVERSIONARY INTEREST TO GET BACK THE BUILDING 4. LEGALITY OF REGISTERED SALE DEED TO BE PREFERRED OVER THE UNREGISTERED SALE DEED ANOTHER CONTENTION OF THE APPELLANT RELATES TO THE FACT THAT THE REGISTERED AGREEMENTS DO NOT CONTAIN THE TERM PROVIDED RIGHT T O THE LESSEE TO SELL THE LEASED LAND. IN THIS RELATION, THE APPELLANT DRAWS ATTENTI ON TO THE SECTION 50 OF THE INDIAN REGISTRATION ACT WHICH IN CLEAR TERMS PROVIDES THAT THE REGISTERED DEED WILL PREVAIL OVER THE UNREGISTERED ONES. THE SAID SECTION IS REP RODUCED HEREWITH : 1) EVERY DOCUMENT OF THE KINDS MENTIONED IN CLAUSE S (A), (B), (C) AND (D) OF SECTION 17, SUB-SECTION (1) AND CLAUSES (A) AND (B) OF SECTION 18, SHALL, IF DULY REGISTERED, TAKE EFFECT AS REGARDS THE PROPERT Y COMPRISED THEREIN, AGAINST EVERY UNREGISTERED DOCUMENT RELATING TO THE SAME PROPERTY, AND NOT BEING A DECREE OR ORDER, WHETHER SUCH UNREGISTERED DOCUMENT BY OF THE SAME NATURE AS THE REGISTERED DOCUMENT OR NOT RELYING ON THE ABOVE, IT IS SUBMITTED THAT THE REGI STERED LEASE DEED HAS TO BE CONSIDERED GOOD IN THE EYES OF LAW AND ACCORDINGLY THE SAME ONLY CAN BE CONSIDERED BY THE INCOME TAX AUTHORITIES. 5. OTHER CASE LAWS RELIED UPON BY THE AO IN THE OR DER U/S 143(3) R.W.S. 148 OF PADMA HOMES PRIVATE LIMITED DATED 24.12.2007 KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 60 FIRST AND FOREMOST, THE AO PLACES RELIANCE ON THE D ECISION OF THE MADRAS ITAT IN THE CASE OF FRANCIS JOSEPH VS INCOME TAX OFFICER (64 ITD 456) WHEREIN IT WAS HELD THAT DEPOSIT RECEIVED FOR THE DISTRIBUTION R IGHT WAS FOR COMMERCIAL PURPOSES AND ACCORDINGLY TAXED. THE RELEVANT EXTRACT OF THE DECISION IS AS FOLLOWS: WE HAVE LOOKED AT THE CASE OF THE ASSESSEE FROM ANO THER ANGLE ALSO. THE ASSESSEE HAS DEBITED THE ENTIRE COST OF PRODUCTION OF THE FILM 'GENTLEMAN' TO THE PROFIT AND LOSS ACCOUNT BUT ONLY A SUM OF RS. 9,33, 333, HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. WHEN THE ASSESSEE IS CARRY ING ON BUSINESS OF FILM PRODUCTION AND ENTIRE COST OF PRODUCTION OF THE FIL M 'GENTLEMAN' IS DEBITED TO HIS PROFIT AND LOSS ACCOUNT, THEN THERE IS NO JUSTIFICA TION FOR NOT SHOWING THE VALUE OF CLOSING STOCK OF THE SAID FILM IN THE PROFIT AND LO SS ACCOUNT. IT CANNOT BE SAID THAT THE VALUE OF CLOSING STOCK OF THE FILM 'GENTLEMAN' WAS NIL AS ON 31-3-1994, BECAUSE THE ASSESSEE HAS RECEIVED RS. 70 LAKHS FROM THE LESSEES FOR COMMERCIAL EXPLOITATION OF THE SAID FILM. EVEN IF I T IS ASSUMED, WITHOUT ADMITTING, THAT THE ASSESSEE HAS RECEIVED THE SUM OF RS. 70 LA KHS AS DEPOSIT FROM SRI K. T. KUNJUMON, PROPRIETOR OF M/S. RACHANA PICTURES, MADR AS AGAINST COMMERCIAL EXPLOITATION OF THE FILM FOR FIVE YEARS AND THE AMO UNT OF RS. 9,33,333 PERTAINS TO THE ASSESSMENT YEAR 1994-95, THEN THE BALANCE AMOUN T OF RS. 60,66,667 WOULD BE THE VALUE OF THE CLOSING STOCK OF THE FILM AND S HOULD BE CREDITED TO THE PROFIT AND LOSS ACCOUNT. IF THE AMOUNT OF RS. 60,66,667 IS TREATED AS VALUE OF THE CLOSING STOCK OF THE FILM, THEN THE RESULT WOULD BE THE SAME AND THE ASSESSEE'S INCOME WOULD BE ENHANCED BY THE SAID AMOUNT OF RS. 60,66,667 EVEN IF THE RECEIPT IS CONSIDERED AS PER TERMS OF THE AGREEMENT . WHEN THE TERMS OF THE AGREEMENT PROVIDE FOR PAYMENT TO THE ASSESSEE (LESS OR) BY M/S. RACHANA PICTURES (LESSEE) FOR LEASE OF RS. 70 LAKH AND THE ASSESSEE HAS ALREADY RECEIVED THE SAID SUM OF RS. 70 LAKHS (CONSIDERED A S DEPOSIT BY THE ASSESSEE) WHICH IS NOT REFUNDABLE, THEN THERE IS NO OTHER CONCLUSION POSSIBLE EXCEPT THAT THE AMOUNT OF RS. 60,66,667 CONSTITUTES THE VALUE OF CLOSING STOCK OF THE FILM 'GENTLEMAN' BECAUSE, THE WHOLE COST OF PRO DUCTION OF THE FILM HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. THEREFORE, EVEN IF WE LOOK AT THE CASE OF THE ASSESSEE FROM THIS ANGLE, THEN ALSO THE INCOME WOULD BE ENHANCED BY THE AMOUNT OF RS. 60,66,667 AND THERE WOULD BE NO RELIE F TO THE ASSESSEE. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 61 AS THE HIGHLIGHTED PORTION OF THE SAID JUDGMENT EST ABLISHES, THE FACTS OF THE SAID CASE ARE GROSSLY DIFFERENT FROM THE APPELLANTS OWN CASE. THE ASSESSEE IN THE ABOVE CASE HAS RECEIVED A DEPOSIT OF 70 LAKHS FOR L EASING OUT RIGHTS OF A FILM. ACCORDINGLY IT OFFERED ONLY PART OF THE DEPOSIT REC EIVED AS INCOME FOR THE CONCERNED YEAR. THE TRIBUNAL HAD HELD THAT THE ENTI RE DEPOSIT WAS TAXABLE IN THE YEAR IN WHICH THE DEPOSIT WAS RECEIVED AS THE ENTIR E COST OF THE FILM WAS DEBITED TO P&L. FURTHER, THE SAID DEPOSIT WAS NON-REFUNDABL E. HOWEVER, THE LEASING AGREEMENT ENTERED INTO BY THE APPELLANT IN THE PRESENT CASE, CLEARLY STATES THE REFUNDABLE NATURE OF THE D EPOSIT AND HENCE THE SAID CANNOT BE TREATED AS INCOME OF THE ASSESSEE AS DONE IN THE ABOVE MENTIONED CASE LAW BY THE ASSESSEE. THE AO FURTHER RELIES ON THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF BADRI NARAYAN VS COMMISSIONER OF INCOME TAX WHEREIN IT WAS HELD THAT DEPOSIT HAVING PROFIT MAKING CHARACTER WAS TRA DING RECEIPTS. HOWEVER THE MOOT POINT IS THAT THE SAID CASE NO WHERE DISCUSSES WHETHER THE SAID DEPOSITS WERE REFUNDABLE OR NOT. IN FACT THE COURT HAS REMAR KED AS UNDER - THERE IS IN FACT IN THIS CASE NO EVIDENCE, EXCEPT THE STATEMENT OF THE ASSESSEE, TO SHOW THAT HE WAS GOING TO RETURN THE AMOUNT LASTLY, THE AO ALSO RELIES ON THE MADRAS HIGH COURT DECISION IN THE CASE OF CIT VS. SUJATHA JEWELLERS (290 ITR 631). HOWEVER, THE SAID CASE IS ON A COMPLETELY DIFFERENT FOOTING. THE SAIDCASE HOLDS TH AT THE LEASEHOLD RIGHTS ARE A CAPITAL ASSET. THE APPELLANT IN THE PRESENT CASE D OESNT DENY THAT THE LEASEHOLD RIGHTS ARE A CAPITAL ASSET. THE APPELLANT ASSERTS THAT THE SAID RIGHTS IN ITS OWN CASE HAVE NOT BEEN TRANSFERRED BECAUSE OF THE REASO NS SPECIFIED IN THE AFORESAID SUBMISSION. SUBMISSIONS DATED : 13.11.2013 A. BUSINESS MODEL ADOPTED FOR THE LEASE TRANSACTION BETWEEN KALANI BROTHERS/PADMA HOMES AND ENTERTAINMENT WORLD DEVELO PERS LIMITED. THE ASSESSING OFFICER HAS ERRED IN TREATING THE LEA SE TRANSACTION FOR THE LAND OWNED BY THE ASSESSEE GIVEN ON A LEASE FOR A PERIOD OF 29 YEARS TO ENTERTAINMENT WORLD DEVELOPERS LIMITED AS A SALE TR ANSACTION THEREBY TREATING KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 62 THE INCOME AS CAPITAL GAINS IN THE HANDS OF KALANI BROTHERS AND PADMA HOMES (HEREINAFTER REFERRED TO AS APPELLANT) ON THE FOLLOWING GROUNDS: 1. ENTERTAINMENT WORLD DEVELOPERS LIMITED IS A COMP ANY ESTABLISHED FOR OPERATION AND RUNNING OF SHOPPING MALLS IN INDIA. I T IS NOT IN THE REAL ESTATE BUSINESS I.E. EARNING INCOME FROM BUYING AND SALE O F LAND/PROPERTY. THE BUSINESS MODEL FOR ENTERTAINMENT WORLD DEVELOPERS LIMITED IS IN FACT AN ANNUITY INCOME MODEL WHEREBY THE INCOME IS EARNED FROM OPERATING A ND RUNNING OF SHOPPING MALL RATHER THAN SALE OF THE SHOPS. IT IS AKIN TO A HOTEL INDUSTRY MODEL WHEREIN LIKE SHOPPING MALLS THE INCOME IS DERIVED FROM RUNN ING OF THE HOTELS AND GETTING ROOM RENT AND NOT FROM SALE OF REAL ESTATE. AS AN EXAMPLE, TWO HOTELS CAN BE ON THE SAME STREET ADJACENT TO EACH OTHER I.E. CAN BE LOCATED ON LANDS WHICH ARE SIMILARLY PRICED BUT THE INCOME OF BOTH T HE HOTELS CAN VARY GREATLY, DEPENDING UPON THE FACILITIES AND STAR RAT ING OF THE TWO HOTELS. 2. IN AN ANNUITY BUSINESS INCOME MODEL, THE GRAPH O F INCOME VS. THE INTEREST COST IS GREATLY SKEWED. SINCE THE BUSINESS MODEL IS NOT BASED ON SALE INCOME, THE CAPITAL COST OF THE ASSET IS LARGELY FUNDED THR OUGH BANK LOANS AS THERE ARE NO INTERNAL ACCRUALS FROM SALE OF THE INDIVIDUAL SHOPS AND THE UNITS WHICH CAN GO IN CONSTRUCTION COST OF THE PROPERTY. THE ENTIRE CONST RUCTION COST IS FUNDED BY EQUITY AND DEBT. DUE TO THIS REASON, IN THE INITIAL YEARS, THERE IS NO SURPLUS/PROFIT AS THE INTEREST COST IS VERY HIGH. OVER THE YEARS, THE INT EREST COST COMES DOWN DUE TO REPAYMENT OF LOANS WHERE AS THE LEASE RENTS/ANNUITY INCOME KEEP ON RISING AS PER THE ESCALATION CLAUSE OF THE CONTRACTS OR THE R EVENUE SHARE MODEL FROM THE TOTAL BUSINESS DONE IN THE SHOPPING MALL. 3. THE INCOME OF SHOPPING MALL COME FROM LEASE RENT OR PERCENTAGE OF THE TOTAL REVENUES /SHOPPING DONE BY THE SHOP WHICHEVER IS HIGHER. AS THE TURNOVER OF THE SHOP INCREASES, THE INCOME OF THE SHOPPING M ALL ALSO INCREASES WHEREAS THE INTEREST COST REDUCES DUE TO REPAYMENTS OF THE LOAN. 4. HENCE, THE PROFIT/SURPLUS IS REAR ENDED IN THE T OTAL BUSINESS PLAN PERIOD OR IT COMES OUT OF INCREASE IN THE EQUITY VALUE ARRIVE D BY WAY OF LISTING IN A PUBLIC STOCK EXCHANGE. FOR EXAMPLE, IF A SHOPPING MALL IS FUNDED WITH AN EQUITY OF RS. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 63 30 AND DEBT OF RS. 70 FOR A TOTAL CAPITAL EXPENDITU RE OF RS. 100 THEN THE BUSINESS MODEL WORKS IN THE FOLLOWING MANNER: I. IN THE INITIAL YEARS THE INTEREST COST IS ON RS. 70 SAY AT THE RATE OF 14% WHICH COMES TO RS. 9.8 PER ANNUM WHEREAS THE LEASE RENTAL INCOME IN THE INITIAL YEARS MAY VARY FROM RS. 8 10 PER ANNUM LEAVING NO SURPLUS OR PROFIT IN THE INITIAL YEARS. II. AS THE YEARS GO BY, THE INTEREST WILL REDUCE TO RS.5 (WHEN 50% OF THE LOAN IS REPAID IN 6 YEARS) WHEREAS THE RENTAL INCOME WIL L GO UP TO RS. 14 -15 DUE TO THE ESCALATION CLAUSE IN THE AGREEMENT OR INCREASE IN T HE REVENUES / SHOPPING OF THE SHOPPING MALL OVER THE PERIOD THEREBY LEAVING A SUR PLUS OF RS. 5-6 AS PROFIT/TAXABLE INCOME. III. HENCE, IN SUCH CASES IN THE INITIAL YEARS SINC E THERE IS NO SURPLUS/PROFITS TO PAY TOWARDS THE LEASE RENT OF THE LAND, THE COMMERC IAL TRANSACTION ONLY BECOMES VIABLE IF IT IS BASED ON A SECURITY DEPOSIT MODEL W ITH NOMINAL LEASE RENT. THIS WORKS OUT FOR BOTH PARTIES AS DURING THE LEASE PERI OD, THE LESSEE (ENTERTAINMENT WORLD DEVELOPERS LIMITED IN THE PRESENT CASE) EARNS PROFIT IN THE LATTER HALF OF THE LEASE PERIOD (IN THE FIRST HALF THERE IS NO/LITTLE PROFIT DUE TO THE HIGH INTEREST COST AS EXPLAINED ABOVE) AND THE LESSORS, INTEREST IS THAT HE HAS RECEIVED THE INTEREST- FREE SECURITY DEPOSIT, WHICH HE CAN INVEST IN ANY B USINESS, INCLUDING THE INVESTMENT IN SHARES OF PROMISING COMPANIES FOR FUT URE PROFIT. HOW THE INVESTMENT OF THE INTEREST-FREE DEPOSIT IS TO BE DO NE IS A BUSINESS DECISION TO BE DECIDED BY THE BOARD OF DIRECTORS ONLY OF TH AT COMPANY. 5. HENCE, THE ABOVE ANNUITY BUSINESS MODEL IS A WEA LTH CREATION MODEL WHEREIN THE PROFIT/SURPLUS WILL COME IN THE SUBSEQU ENT PERIOD WHEN THE LEASE RENTS ARE INCREASING AND THE INTEREST COST IS DECRE ASING. 6. IT DID NOT MAKE SENSE FOR ENTERTAINMENT WORLD DE VELOPERS LIMITED TO BUY THE ASSETS AS THEY NEVER WANTED TO SELL THE SHOPS AND HENCE WANTED TO REDUCE THEIR CAPITAL EXPENDITURE BY TAKING THE LAND ON LEA SE FOR A LONG PERIOD DURING WHICH THEY WILL EARN PROFITS AFTER THE LOAN IS SUBS TANTIALLY/FULLY REPAID. IN THEIR KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 64 BUSINESS MODEL, IT WAS ESTIMATED THAT LOAN WILL BE FULLY REPAID BY THE YEAR 2018- 19 AND THE LEASE PERIOD OF 29 YEARS IS TILL THE YEA R JUNE 2032. 7. THERE IS NO INCOME BEING EARNED BY ENTERTAINMENT WO RLD DEVELOPERS LIMITED BY SALE OF PROPERTY AND HENCE, THE LEASE TR ANSACTION CANNOT BE TREATED AS A SALE TRANSACTION AS HAS BEEN DONE BY THE LD. AO. 8. ENTERTAINMENT WORLD DEVELOPERS LTD. HAD PLANNED TO DEVELOP 10 MALLS ACROSS THE COUNTRY AND HAD PLANS TO GO PUBLIC BY TH E YEAR 2008/09 AND IT WAS EXPECTED THAT WHEN THEY GO PUBLIC, THEIR SHARES WIL L BE QUOTED AT A HIGHER PREMIUM. 9. IN VIEW OF THIS, THE APPELLANT INVESTED THE AMOU NT RECEIVED AS INTEREST- FREE SECURITY DEPOSIT IN THE SHARE CAPITAL OF ENTER TAINMENT WORLD DEVELOPERS LTD. IN THE EXPECTATION OF SUBSTANTIAL FUTURE PROFIT, WH EN THE ENTERTAINMENT WORLD DEVELOPERS LTD GOES PUBLIC AND ITS SHARES ARE QUOTE D AT PREMIUM. 10. FURTHER, AT THE END OF LEASE PERIOD OF 29 YEARS , THE LAND WITH OR WITHOUT STRUCTURE (AS THE STRUCTURE BELONGS TO THE LESSEE) WILL REVERT BACK, BY WHICH TIME, THE LAND VALUE WILL FURTHER INCREASE AND THE APPELL ANT WILL GAIN. 11. THUS, THE APPELLANTS MODEL WAS THE SAME AS THA T OF OTHER INVESTORS IN ENTERTAINMENT WORLD DEVELOPERS LTD I.E. ICICI VENTU RES AND PHOENIX MILLS LTD WHO ALSO INVESTED SUBSTANTIAL AMOUNT ON THE ASSUMPT ION OF ENTERTAINMENT WORLD DEVELOPERS LTD, WILL BE COMPLETING ITS PROJECTS AND GOING PUBLIC, WHERE THEIR SHARES WILL BE QUOTED AT A HIGH PREMIUM AND THEIR I NVESTMENT WAS ALSO BASED ON FUTURE PROFITS. 12. HENCE, IT WAS NEVER THE INTENTION OF THE APPELL ANT TO SELL THE LAND, AND THE INTENTION WAS TO GAIN FROM THE PROJECTS THAT ENTERT AINMENT WORLD DEVELOPERS LTD. WANTED TO SET UP INCLUDING THE PROJECT BUILT ON THE SUBJECT LAND, BY INVESTING THE INTEREST-FREE SECURITY DEPOSIT IN THE SHARE CAPITAL OF ENTERTAINMENT WORLD DEVELOPERS LTD. 13. IT IS ALSO A SETTLED LAW THAT, A TAXING STATUTE HAS TO BE READ AS IT IS AND NO WORDS CAN BE ADDED OR SUBSTITUTED OR INFERENCE COULD BE DRAWN, AS IS HELD IN THE FOLLOWING JUDGMENTS: - KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 65 (I) IN THE SUPREME COURT OF INDIA IN THE MATTER OF ORIS SA STATE WAREHOUSING CORPORATION VS. COMMISSIONER OF INCOME TAX, MANU/ SC / 0234 / 1999, AIR 1999 SC 1388, WHERE IN PARA NO. 29 & 30, IT IS OBSERVED AS FOLLOWS: - QUOTE : - 29. THE OFT-QUOTED OBSERVATIONS OF ROWLATT, J. IN THE CASE OF CAPE BRANDY SYNDICATE V. INLAND REVENUE COMMISSIONERS,(1921) 1 KB 64 OUGHT ALSO TO BE NOTICED AT THIS JUNCTURE. THE LEARNED JUDGE OBSERVE D: IN A TAXING STATUTE ONE HAS TO LOOK AT WHAT IS CLEA RLY SAID. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO INTENDM ENT. THERE IS NO PRESUMPTION AS TO A TAX. NOTHING IS TO BE RE AD IN, NOTHING IS TO BE IMPLIED . ONE CAN ONLY LOOK FAIRLY ON THE LANGUAGE USED. 30. THE OBSERVATIONS OF ROWLATT, J AS AB OVE STAND ACCEPTED AND APPROVED BY THE HOUSE OF LORDS IN A LATER DECISION, IN THE C ASE OF CANADIAN EAGLE OIL COMPANY LIMITED V. THE KING, (1946) AC 119, LORD TH ANKERTON ALSO IN A MANNER SIMILAR IN INLAND REVENUE COMMISSIONER V. ROSS & CO ULTER AND ORS. BLADNOCH DISTILLERY CO. LTD. (1948) 1 ALL ER 616 OBSERVED: IF THE MEANING OF THE PROVISION IS REASONABLY CLEAR , THE COURTS HAVE NO JURISDICTION TO MITIGATE SUCH HARSHNESS. UNQUOTE : - (II) IN THE HIGH COURT OF RAJASTHAN IN THE MATTER OF POP ULAR PACKINGS PVT. LTD. AND ANR. VS. UNION OF INDIA (UO) AND ORS., MANU/RH/0135/2004 , IN PARA NO.19, IT IS HELD AS FOLLOWS: - QUOTE : - 19. THUS THE EXIGIBILITY OF LEVY DEPENDS UPON THE LANGUAGE OF THE FISCAL STATUTE. NOTHING CAN BE ADDED TO OR SUBTRACTED FROM THE WORD S OF THE TAXING STATUTE. NOTHING CAN BE IMPLIED IN THE TAXING STATUTE. IT I S THE EXPRESS WORDS OF THE TAXING STATUTE WHICH DETERMINE THE FIELD OF ITS OPE RATION. THERE IS NEITHER INTENDMENT NOR EQUITY IN A TAXING STATUTE. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 66 UNQUOTE : - EMPHASIS LAID BY THE APPELLANT. (III) IN THE SUPREME COURT OF INDIA IN THE MATTER OF MATH URAM AGRAWAL VS. STATE OF MADHYA PRADESH MANU/SC/0692/ 1999, AIR 2000 SC 109 , WHERE IN THE LAST LINES OF PARA NO. 11, IT IS HEL D AS FOLLOWS: - QUOTE : - 11. . WORDS CANNOT BE ADDED TO OR SUBSTITUTED SO AS TO GIVE A MEANING TO THE STATUTE WHICH WILL SERVE THE SPIRIT AND INTENTION OF THE LEGISLATURE. THE STATUTE SHOULD CLEARLY AND UNAMBIG UOUSLY CONVEY THE THREE COMPONENTS OF THE TAX LAW I.E., TH E SUBJECT OF THE TAX, THE PERSON WHO IS LIABLE TO PAY THE TAX AND THE RATE AT WHICH THE TAX IS TO BE PAID. IF THERE IS A NY AMBIGUITY REGARDING ANY OF THESE INGREDIENTS IN A TAXATION ST ATUTE THEN THERE IS NO TAX IN LAW. THEN IT IS FOR THE LEG ISLATURE TO DO THE NEEDFUL IN THE MATTER. UNQUOTE : - 14. THE APPELLANT HAD RECEIVED INTEREST-FREE S ECURITY DEPOSIT AND IT WAS UP TO THE APPELLANT AS TO HOW TO INVEST THE MONEY GAINFUL LY, THAT IS, WHETHER TO EARN INTEREST OUT OF IT OR WHETHER TO INVEST IN SHARES O R WHETHER TO DO ANY OTHER BUSINESS. THE DECISION OF THE APPELLANT WAS TO INVE ST IN THE SHARES OF ENTERTAINMENT WORLD DEVELOPERS LTD. FOR FUTURE ESTI MATED GAIN, AS STATED ABOVE. 15. WITHOUT PREJUDICE TO ABOVE, IT IS A SETTLED LAW THAT ONLY REAL INCOME EARNED CAN BE TAXED AND NO TAX CAN BE LEVIED ON THE BASIS OF NOTIONAL INCOME. 16. AS PER PROVISION OF SECTION 5 OF THE INCOME TAX ACT, IT IS ONLY REAL INCOME THAT CAN BE TAXED AND NOT NOTIONAL INCOME. FOR THI S THE APPELLANT RELIES ON THE FOLLOWING JUDGMENTS:- (I) IN THE THE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD VS. CIT REPORTED IN 225 ITR 746 , WHEREIN IT WAS HELD THAT UNDER THE INCOME TAX ACT , 1961 INCOME CHARGEABLE TO TAX IS THE INCOME THAT IS RECEIVED OR WHICH HAS ACCRUED DURING THE PREVIOUS YEAR AND NOT HYPOTHETIC AL INCOME. THE RELEVANT EXTRACT OF WHICH IS REPRODUCED HEREUNDER: KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 67 QUOTE: - .THE APPELLATE ASSISTANT COMMISSIONER WAS RIGHT IN DELETING THE SAID ADDITION MADE BY THE INCOME TAX OFFICER AND THE TRI BUNAL HAD RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RATES AS MADE BY TH E ASSESSEE-COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE R EPRESENTED ONLY HYPOTHETICAL INCOME AND THE IMPUGNED AMOUNTS AS BRO UGHT TO TAX BY THE INCOME TAX OFFICER DID NOT REPRESENT THE INCOME WHI CH HAD REALLY ACCRUED TO THE ASSESSEE-COMPANY DURING THE RELEVANT PREVIOU S YEAR.. UNQUOTE : - (II) IN THE SUPREME COURT OF INDIA IN THE MATTER OF COMMISSIONER OF INCOME TAX, BOMBAY CITY I VS. SHOORJI VALLABHDHAS A ND CO. [1962] 46 ITR 144 (SC), MANU/SC/0228/1962, WHERE IT WAS HELD AS PER T HE CASE NOTE, AS FOLLOWS:- (I) QUOTE : - CASE NOTE : DIRECT TAXATION ASSESSMENT SECTION4 OF THE INCO ME TAX ACT ASSESSEE FIRM MANAGING AGENTS OF SEVERAL SHIPPING COMPANIES RESPONDENT FIRM ENTITLED TO RECEIVE COMMISSION OF 10 PERCENT OF FREIGHT CHARGE UNDER AGREEMENT BETWEEN THOSE COMPANIES SUBSEQUENTLY COMMISSION REDUCED TO 2 PER CENT WHETHER LARGER COMMISSION ALREADY ACCRUED DURING THE PREVIOUS YEAR AND THUS ASSESSABLE TRIBUNAL DECIDE QUESTION IN FAVOUR OF ASSESSEE ONBA SIS THAT EVEN THOUGH ACTUAL REDUCTION TOOK PLACE AFTER YEAR OF ACCOUNT WAS OVER AGREEMENT TO REDUCE COMMISSION WAS ALREADY THEIR DURING CURRENCY OF ACCOUNT YEAR LARGER INCOME NEITHER ACCRUED NOR RECEIVED BY ASSES SEE FIRM TRIBUNALS DECISION UPHELD BY BOTH HIGH COURT AND SUPREME COUR T, APPEAL DISMISSED' . UNQUOTE : - (II) FURTHER, IN PARA NO.10, IT IS CLEARLY HELD A S FOLLOWS: - QUOTE : - 10. .INCOME TAX IS A LEVY ON INCOME. NO DOU BT, THE INCOME- TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WH ICHTHE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS R ECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME, IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME WHICH DOES NOT MATERIALIZE. . UNQUOTE : - KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 68 (III) IN THE SUPREME COURT OF INDIA IN THE MATTER OF COMMISSIONER OF INCOME TAX, WEST BENGAL II VS. BIRLA GWALIOR (P) LT D. AIR (1973) SC 2486, MANU/SC/0220/1973, WHERE CASE NOTE GIVES A REFERENC E TO SHORT FACTS AND THE FINAL JUDGMENT, AS FOLLOWS: - QUOTE: - (I) CASE NOTE: DIRECT TAXATION COMMISSION WHETHER SUM OF RS.1 11779 SAID TO HAVE BEEN FORGONE BY ASSESSEE AS MANAGING AGENCY COMMISS ION WAS ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 1 (2) (XV) FOR YE AR 1954-55 WHETHER SUM OF RS.30000 SAID TO HAVE BEEN FORGONE BY ASSESSEE AS OFFICE ALLOWANCE RECEIVABLE FROM GWALIOR RAYON AND SILK MANUFACTURING CO. LTD. WAS ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION10 (2) (XV) OF ACT, FOR AS SESSMENT YEARS 1955-56 AND1956-57 NO DUE DATE WAS FIXED FOR PAYMENT OF C OMMISSION UNDER MANAGING AGENCY AGREEMENT - COMMISSION RECEIVABLE COULD HAV E BEEN ASCERTAINED ONLY AFTER MANAGED COMPANY MADE UP ITS ACCOUNTS ASSESS EE COMPANY WAS MAINTAINING ITS ACCOUNTS ON BASIS OF MERCANTILE SYS TEM DID NOT LEAD TO CONCLUSION THAT COMMISSION HAD ACCRUED TO ITS BY END OF RELEVA NT ACCOUNTING YEAR - OFFICE ALLOWANCE WAS PAID TO MEET CERTAIN EXPENSES INCURRE D BY ASSESSEE-COMPANY HELD, COMMISSION GIVEN UP BY ASSESSEE CANNOT BE CONSIDERE D AS ITS REAL INCOME. UNQUOTE : - (II) FURTHER, IT IS HELD IN PARA NO.10, AS FOLLOWS: - QUOTE : - 10. IN ARRIVING AT THE CONCLUSION T HAT THE INCOME IN QUESTION ACCRUED ON THE 31 ST DECEMBER, 1955 AND 31 ST DECEMBER,1956, THIS COURT PRIMARILY TOOK INTO CONSIDERATION THE TERMS O F THE AGREEMENT. UNQUOTE : - APPELLANT S SUBMISSION: THUS, BASICALLY WHETHER THE INCOME HAS ACCRUED OR N OT WILL DEPEND ON THE TERMS OF AGREEMENT AND THE AGREEMENT BETWEEN ENTERTAINMEN T WORLD DEVELOPERS LTD. AND THE APPELLANT, DOES NOT PROVIDE A PROVISION FOR CHARGING INTEREST AND THEREFORE, INTEREST HAS NEITHER ACCRUED NOR RECEIVE D. THEREFORE, IT CANNOT BE TAXED. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 69 (III) FURTHER, IN THIS JUDGMENT, THE HONBLE SUPREM E COURT HAS RELIED ON THE JUDGMENT OF COMMISSIONER OF INCOME TAX, BOMBAY CIT Y I VS. SHOORJI VALLABHDHAS AND CO. [1962] 46 ITR 144 (SC), MANU/ SC/0228/1962, WHICH IS THE ABOVE JUDGMENT AND HAS AGAIN QUOTED IN PARA NO. 11, AS FOLLOWS: - QUOTE : - 11. INCOME-TAX IS A LEVY ON INCOME. THOUGH THE INC OME-TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY T O TAX IS ATTRACTED, VIZ , THE ACCRUAL OF THE INCOME OR ITS RECEIPT, YET THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TA X, EVEN THOUGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCO ME WHICH DOES NOT MATERIALISE. WHERE INCOME HAS, IN FACT, BEEN RECEIV ED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAYBE PAYABLE. WHERE, HOWEVER, TH E INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER AC CRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CI RCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT (EMPHASIS SUPPLIED). HENCE I T IS CLEAR THAT THIS COURT IN MORVI INDUSTRIES CASE DID EMPHASISE THE FACT THAT THE REAL QUESTION FOR DECISION WAS WHETHER THE INCOME HAD REALLY ACCRUED OR NOT. I T IS NOT A HYPOTHETICAL ACCRUAL OF INCOME THAT HAS GOT TO BE TAKEN INTO CONSIDERATI ON BUT THE REAL ACCRUAL OF THE INCOME. UNQUOTE: - (IV) IN THE SUPREME COURT OF INDIA IN THE MATTER OF STATE BANK OF TRAVANCORE, KERALA VS. COMMISSIONER OF INCOME TAX, MANU/SC/0282/1986, AIR (1986) SC 757, WHERE IN THE CASENOTE IT IS HELD AS FOLLOWS: - QUOTE: - ..THUS, THEORY OF REAL INCOME COULD BE A ND SHOULD BE EXTENDED TO INTEREST ON STICKY LOANS AND THAT ON PR INCIPLE SUCH INTEREST BEING HYPOTHETICAL COULD NOT BE BROUGHT TO TAX THEREFORE , SUMS REPRESENTING INTEREST ON STICKY ADVANCES IN INSTANT CASE BEING HYPOTHETIC AL AND NOT REAL INCOME OF ASSESSEE COULD NOT BE BROUGHT TO TAX FOR THREE CONC ERNED ASSESSMENT YEARS APPEAL ALLOWED. UNQUOTE : - APPELLANTS SUBMISSION IN VIEW OF THE ABOVE JUDGMENTS, IT IS CLEAR THAT I F THE INCOME HAS NOT ACCRUED OR NOT RECEIVED I.E. NOTIONAL INCOME CANNOT BE TAXED AND AS PER SECTION 5 OF THE INCOME TAX ACT, IT IS THE REAL INCOME THAT CAN BE BROUGHT TO TAX. FOR THIS, THE APPELLANT RELIES ON THE FOLLOWING JUDGMENTS: KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 70 (V) ITAT, MUMBAI BENCH F IN THE CASE OF DCIT, SPECIAL RANGE 18, MUMBAI VS. RELIANCE PETROLEUM LTD. (2006) 5 SOT 165 (MUM), WHERE IT IS HELD AS FOLLOWS: - QUOTE : - SECTION 5 OF THE INCOME-TAX ACT, 1961 INCOME A CCRUAL OF ASSESSMENT YEAR 1994-95 ASSESSEE-COMPANY HAD SHOW N CERTAIN AMOUNT AS INTEREST ACCRUED ON DEPOSITS GIVEN TO RIL, RIIL AND L COMPANY ASSESSEE LATER REVERSED SAID CLAIM IN SPITE OF FACT THAT ITS ACCOU NTSWERE FINALIZED, AUDITED BY STATUTORY AUDITORS AND APPROVED BY ITS BOARD OF DIR ECTORS ACCORDING TO REVENUE, THIS WAS AN AFTER-THOUGHT SO AS TO DEFRAUD REVENUE OF TAX DUE; ONCE INCOME ACCRUED, ASSESSEE HAD NO RIGHT TO REVERSE IT AND T O SAY THAT NO INCOME ACCRUED ACCORDING TO ASSESSEE, HOWEVER, BY VIRTUE OF AN A GREEMENT BETWEEN PARTIES, NO INTEREST WAS TO ACCRUE OR PAYABLE BY RIL TO ASS ESSEE ON SUCH ADVANCES WHETHER IN VIEW OF FACT THAT RIL FINALIZED ITS ACCO UNTS PRIOR TO FINALIZATION OF ACCOUNTS BY ASSESSEE AND THAT IN ITS AUDIT REPORT, IT HAD MADE NO PROVISION FOR INTEREST AS PAYABLE TO ASSESSEE, ASSESSEES CLAIM T HAT INTEREST HAD NOT ACCRUED ON ADVANCES, WAS TO BE ACCEPTED AS ANY UNILATERAL S TEPS WOULD NOT GIVE ASSESSEE A LEGALLY ENFORCEABLE RIGHT TO RECEIVE INT EREST HELD, YES WHETHER UNILATERAL CLAIM OF ASSESSEE, WITHOUT OTHER PARTY A CKNOWLEDGING IT, AMOUNTED TO ACCRUAL IN REALITY HELD, NO WHETHER, THEREFORE, THERE WAS NO ACCRUAL OF INTEREST INCOME ON ADVANCES GIVEN TO RIL, L COMPANY AND RI IL AND ASSESSEE HAD NO RIGHT TO CHARGE INTEREST ON SUCH ADVANCES. IX) HO NBLE SUPREME COURT IN THE CASE OF UCO BANK VS. CIT (1999) 04 TAXMANN 547 (SC) . SECTION 5, READ AND SECTIONS 199 AND 145, OF THE I NCOME-TAX ACT, 1961 INCOME ACCRUAL OF ASSESSMENT YEAR 1981-82 WHE THER IN VIEW OF CBDT CIRCULAR, DATED 9-10-1984, INTEREST ON A LOAN WHOSE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVERED BY ASSESSEE-BANK FOR L AST THREE YEARS BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BR OUGHT TO PROFIT AND LOSS ACCOUNT OF ASSESSEE, CANNOT BE INCLUDED IN INCOME O F ASSESSEE HELD, YES WHETHER CBDT CIRCULAR DATED 9-10-1984 IS IN CONFLIC T WITH PROVISIONS OF SECTION 145 HELD, NO. UNQUOTE : - (VI) THE SUPREME COURT IN CIT V. CHAMANLAL MANGALDAS & CO. REPORTED IN 39 ITR 8 HAS HELD THAT THE INCOME TAX ACT ONLY TAXES THE REA L INCOME AND THERE IS NO PROVISION UNDER THE ACT TO TAX THE HYPOTHETICAL INCOME WHICH HAS NEVER ARISEN OR ACCRUED TO THE ASSESSEE. (VII) THE BOMBAY HIGH COURT IN FGP LTD. VS. CIT REPORTED IN 177 TAXMAN 147 HAS HELD THAT WHAT COULD BE ASSESSED WAS REAL INC OME AS INCOME TAX IS TAX ON INCOME. THE TEST THEREFORE, BEFORE INCOME CAN BE TAXED IS WHETHER THERE IS KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 71 REAL ACCRUAL OF INCOME. AS IN THE ASSESSEES CASE T HERE IS NO ACCRUAL OF INCOME, THERE CANNOT BE ANY TAX ON HYPOTHETICAL BASIS. (VIII) IN THE HIGH COURT OF ALLAHABAD IN THE MATTER OF CO MMISSION OF INCOME TAX VS. GOVIND PRASAD PRABHU NATH (1988 ) 172 CTR (ALL)62, MANU/UP/0231/1987, WHERE IN PARA NO.7, 8, 10, 11, 1 4 & 16, IT IS HELD AS FOLLOWS: - QUOTE: - 7. LET US NOW ADVERT TO THE RELEVANT PROVISIONS OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). SECTION 4 O F THE ACT IS THE CHARGING SECTION. UNDER THIS SECTION, INCOME TAX IS CHARGEABLE FOR AN Y ASSESSMENT YEAR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT IN RESPEC T OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. THE RELEVANT PORTION OF SECTION 5 OF THE ACT READS AS FOLLOWS : '5. SCOPE OF TOTAL INCOME,--(1) SUBJECT TO THE PROV ISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RE SIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH- (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN IND IA IN SUCH YEAR BY ... SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR AR ISE TO HIM IN INDIA DURING SUCH YEAR ... ' 8. AS HELD BY THE DELHI HIGH COURT IN THE CASE OF ADDL. CIT V. NETAR KRISHNA SAHGALS PVT. LTD. MANU/DE/0064/1982 : [1983]141ITR6 81(DELHI), ALL RECEIPTS DO NOT CONSTITUTE INCOME AND DO NOT COME WITHIN THE AM BIT OF THE ACT. TO THE SAME EFFECT ARE ALSO THE OBSERVATIONS OF THE SUPREME COU RT IN THE CASE OF KESHAV MILLS LTD. V. CIT MANU/SC/0038/1953 : [1953]23ITR230(SC) , WHEREIN IT HAD BEEN OBSERVED THAT MERE RECEIPT OF INCOME IS NOT THE SOL E TEST OF CHARGEABILITY. SECTION 4(1)(A) OF THE INDIAN INCOME TAX ACT, 1922 (NOW SEC TION 5(1)(A) OF THE ACT), IS CONCERNED WITH CASES OF ACTUAL RECEIPT AND NOT WITH CASES OF PAPER RECEIPT. WHAT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 72 HAS GOT TO BE EXAMINED IS THAT SUCH RECEIPT OF INCO ME REFERS TO THE FIRST OCCASION WHEN THE RECIPIENT GETS THE MONEY UNDER HIS OWN CON TROL. 10. NEITHER THE WORD ' INCOME ' NOR THE WORDS ' IS RECEIVED ', ' ACCRUES ' AND ' ARISES ' HAVE BEEN DEFINED IN THE ACT. THE PRIVY CO UNCIL IN THE CASE OF CIT V. SHAW WALLACE & CO. ILR [1932] CAL 1343, ATTEMPTED A DEFINITION OF THE TERM ' INCOME ' IN THE FOLLOWING WORDS : 'INCOME, THEIR LORDSHIPS THINK......CONNOTES A PERI ODICAL MONETARY RETURN ' COMING IN ' WITH SOME SORT OF REGULARITY OR EXPECTED REGUL ARITY FROM DEFINITE SOURCES.' 11. MUKERJI J. HAS DEFINED THESE TERMS IN ROGERS P YATT SHELLAC & CO. V. SECRETARY OF STATE FOR INDIA [1925] 1 ITC 363 AS FO LLOWS : 'NOW WHAT IS INCOME ? THE TERM IS NOWHERE DEFINED I N THE ACT...... IN THE ABSENCE OF A STATUTORY DEFINITION, WE MUST TAKE ITS ORDINAR Y DICTIONARY MEANING...... THE POLICY OF THE ACT IS TO MAKE THE AMOUNT TAXABLE WHE N IT IS PAID OR RECEIVED EITHER ACTUALLY OR CONSTRUCTIVELY. ' ACCRUES ', ' ARISES ' AND ' IS RECEIVED ' ARE THREE DISTINCT TERMS. SO FAR AS RECEIVING OF INCOME IS CONCERNED, THERE CAN BE NO DIFFICULTY ; IT CONVEYS A CLEAR AND DEFINITE MEANING AND I CAN THIN K OF NO EXPRESSION WHICH MAKES ITS MEANING PLAINER THAN THE WORD ' RECEIVING ' ITSELF. THE WORDS ' ACCRUE ' AND ' ARISE ' ALSO ARE NOT DEFINED IN THE ACT...' A CCRUING ' IS SYNONYMOUS WITH ' ARISING ' IN THE SENSE OF SPRINGING AS A NATURAL GR OWTH OR RESULT. THE THREE EXPRESSIONS ' ACCRUES ' ' ARISES ' AND ' IS RECEIVE D ' HAVING BEEN USED IN THE SECTION, STRICTLY SPEAKING ' ACCRUES' SHOULD NOT BE TAKEN AS SYNONYMOUS WITH ' ARISES ' BUT IN THE DISTINCT SENSE OF GROWING UP BY WAY OF ADDITION OR INCREASE OR AS AN ACCESSION OR ADVANTAGE ; WHILE THE WORD ' ARI SES' MEANS COMES INTO EXISTENCE OR NOTICE OR PRESENTS ITSELF. THE FORMER CONNOTES THE IDEA OF GROWTH OR ACCUMULATION AND THE LATTER OF THE GROWTH OR ACCUMU LATION WITH A TANGIBLE SHAPE AS TO BE RECEIVABLE. ' 14. LATER, SHAH J., SPEAKING FOR THEIR LORDSHIPS O F THE SUPREME COURT IN CIT V. ASHOKBHAI CHIMANBHAI MANU/SC/0140/1964 : [1965]5 6ITR42(SC) , HAS STATED THE PROPOSITION THUS : KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 73 ' UNDER THE INCOME TAX ACT, INCOME IS TAXABLE WHEN IT ACCRUES, ARISES OR IS RECEIVED, OR WHEN IT IS BY FICTION DEEMED TO ACCRUE , ARISE OR IS DEEMED TO BE RECEIVED. RECEIPT IS NOT THE ONLY TEST OF CHARGEABI LITY TO TAX ; IF INCOME ACCRUES OR ARISES IT MAY BECOME LIABLE TO TAX. FOR THE PURPOSE OF THIS CASE, IT IS UNNECESSARY TO DILATE UPON THE DISTINCTION BETWEEN INCOME ' ACC RUING ' AND ' ARISING '. BUT THERE IS NO DOUBT THAT THE TWO WORDS ARE USED TO CONTRADI STINGUISH THE WORD ' RECEIVE '. INCOME IS SAID TO BE RECEIVED WHEN IT REACHES THE A SSESSEE : WHEN THE RIGHT TO RECEIVE THE INCOME BECOMES AVERTED IN THE ASSESSEE, IT IS SAID TO ACCRUE OR ARISE. ' (EMPHASIS* SUPPLIED). 16. IT IS, THEREFORE, ALSO CLEAR THAT INCOME MAY A CCRUE TO AN ASSESSEE WITHOUT THE ACTUAL RECEIPT OF THE SAME. THE SAID INCOME CAN BE RECEIVED LATER ON PROVIDED THE ASSESSEE HAS GOT A RIGHT TO RECEIVE TH E SAID INCOME. IN THE AFORESAID CASE OF E. D. SASSOON AND COMPANY LTD. MANU/SC/0088 /1954 : [1954]26ITR27(SC) OF THE REPORT, THE SUPREME COURT HAS EMPHASISED THIS ASPECT OF THE MATTER BY SAYING : ' THE BASIC CONCEPTION IS THAT HE MUST HAVE ACQUIRE D A RIGHT TO RECEIVE THE INCOME. THERE MUST BE A DEBT OWED TO HIM BY SOMEBOD Y. THERE MUST BE AS IS OTHERWISE EXPRESSED DEBITUM IN PRESENT, SOLVENDUM I N FUTURE (EMPHASIS* SUPPLIED): SEE W. S. TRY LTD. V. JOHNSON (INSPECTOR OF TAXES) [1946] 1 ALL ER 532 AND WEBB V. STENTON AND ORS., GARNI-SHEES [1883] 11 QBD 518. UNLESS AND UNTIL THERE IS CREATED IN FAVOUR OF THE ASSESSEE A DEBT D UE BY SOMEBODY, IT CANNOT BE SAID THAT HE HAS ACQUIRED A RIGHT TO RECEIVE THE IN COME OR THAT INCOME HAS ACCRUED TO HIM. ' UNQUOTE: - 17. FROM THE ABOVE JUDICIAL PRONOUNCEMENTS, IT CAN BE OBSERVED THAT, THERE IS NO PROVISION UNDER THE INCOME TAX ACT, 1961, WHICH PROVIDES FOR TAXABILITY OF THE NOTIONAL INCOME, WHICH HAS NOT BEEN RECEIVED AND NO T ACCRUED TO THE ASSESSEE IN TERMS OF THE AGREEMENT OR OTHERWISE. IN THE LIGH T OF THE ABOVE JUDICIAL PRONOUNCEMENTS IT IS SUBMITTED THAT NO NOTIONAL INT EREST ON INTEREST FREE SECURITY DEPOSIT CAN BE TAXED IN THE HANDS OF THE ASSESSEE. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 74 18. THAT THE APPELLANT HAS INVESTED THE SECURITY DE POSIT RECEIVED BY THEM, AS EQUITY, IN THE COMPANY I.E. ENTERTAINMENT WORLD DEVELOPERS LTD., WHICH IS IN BUSINESS OF OPERATION AND RUNNING OF SH OPPING MALLS. THEIR BUSINESS MODEL WAS THE SAME AS THAT OF OTHER INVEST ORS IN ENTERTAINMENT WORLD DEVELOPERS PRIVATE LIMITED I.E. ICICI VENTURE S PVT LTD AND PHOENIX MILLS LTD. IT WAS INTENDED THAT ONCE ENTERTAINMENT WORLD DEVELOPERS LIMITED SETS UP A SERIES OF SHOPPING MALLS (THE BUS INESS PLAN HAD CONTEMPLATED SETTING UP OF 10 SHOPPING MALLS IN DIF FERENT CITIES OF INDIA), THEY WOULD LIST THEIR STOCK IN A PUBLIC EXCHANGE. I T WAS EXPECTED THAT IF THE BUSINESS PLAN HAD SUCCEEDED AS ANTICIPATED AND TEN SHOPPING MALLS WOULD HAVE BEEN ESTABLISHED, THEN THE SHARES OF ENTERTAIN MENT WORLD DEVELOPERS LTD. WOULD HAVE BEEN QUOTED AT FAIRLY GOOD PREMIUM IN THE STOCK EXCHANGE. THE APPELLANT THEN WOULD HAVE MADE LARGE GAIN, IF A PPELLANT AT THAT TIME WOULD HAVE TAKEN A DECISION TO EXIT. 19. HENCE, IT WAS NEVER INTENDED EITHER BY THE APPE LLANT TO SELL THEIR LAND AND IT WAS NEVER THE INTENTION OF ENTERTAINMENT WORLD D EVELOPERS LIMITED TO PURCHASE THE LAND. THE BUSINESS MODEL AS EXPLAINED ABOVE WAS TO EARN INCOME FROM OPERATION AND RUNNING OF SHOPPING MALLS BY ENTERTAI NMENT WORLD DEVELOPERS LIMITED AND THE INTENTION OF APPELLANT WAS TO GIVE THEIR LAND ON A LONG LEASE AND INVEST INTEREST-FREE SECURITY DEPOSIT IN EQUITY IN THE MANNER EXPLAINED ABOVE TO GAIN FROM THE SHARE PRICE OF ENTERTAINMENT WORLD DE VELOPERS LTD. WHEN IT IS LISTED AT SUBSTANTIAL PRMIUM AS WAS EXPECTED.. IT WAS A LO NG TERM BUSINESS VENTURE YIELDING IN REAR ENDED PROFITS FOR ALL PARTIES. 20. CONCLUSION : (I) THUS, AS PER THE ABOVE SUBMISSION AND RELIED UP ON JUDGMENTS, IT IS ESTABLISHED THAT WHETHER THE INCOME HAS ACCRUED OR NOT WILL DEPEND ON THE AGREEMENT ENTERED BETWEEN THE PARTIES. (II) ASSUMING, THOUGH NOT CORRECT, IF ENTERTAINMENT WORLD DEVELOPERS LTD. WOULD HAVE GIVEN SECURITY DEPOSIT WITH CHARGEABLE I NTEREST, THEN AS FAR AS THE APPELLANT IS CONCERNED IT WOULD HAVE TO PAY THE INT EREST TO ENTERTAINMENT WORLD KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 75 DEVELOPERS LTD. THUS, IT WOULD BE EXPENDITURE IN T HE HANDS OF THE APPELLANT AND NOT AN INCOME. (III) THE APPELLANT HAS RECEIVED INTEREST-FREE DEPO SIT AND HOW TO UTILIZE THE INTEREST-FREE DEPOSIT IS THE BUSINESS DECISION OF T HE APPELLANT AND REVENUE CANNOT CONSIDER THE HYPOTHETICAL OR NOTIONAL INCOME BY ASSUMING SOME DIFFERENT UTILIZATION OF SUCH DEPOSIT. THE APPELLANT BUSINESS DECISION WAS TO INVEST THE INTEREST FREE DEPOSIT AS AN INVESTOR IN THE COMPANY, WHICH WAS GOING TO DEVE LOP, WHICH HAS AN ATTRACTIVE BUSINESS PLAN AND FOR THE REASON AS DISCUSSED ABOVE . (IV) AS PER SECTION 5 OF THE INCOME TAX ACT ALSO TH E NOTIONAL INCOME CANNOT BE TAXED AS DISCUSSED SUPRA. IT IS REQUESTED TO KINDLY CONSIDER THE ABOVE AND DE LETE THE ADDITION WRONGLY MADE BY THE LD. A.O. SUBMISSION OF APPELLANT DATED 25.11.2013: WITH REFERENCE TO THE ABOVE, MOST RESPECTFULLY, THE ADDITIONAL GROUNDS OF APPEAL BEING RAISED NOW WERE INADVERTENTLY LEFT OUT TO BE RAISED WHILE FILING THE APPEAL BEFORE YOUR HONOUR. COPY OF THE ADDITIONAL GROUNDS OF APPEAL IS ENCLOSED HEREWITH. THAT SINCE THE FOLLOWING ADDITIONAL GROUNDS GOES TO THE ROOT OF THE MATTER AND ARE LEGAL IN NATURE THE SAME MAY KINDLY BE ADMITTED SIN CE THE OMISSION OF THE GROUND WAS NOT WILLFUL AND RAISING OF THE GROUNDS MAY KIND LY BE PERMITTED IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF NTPC VS.C IT 229 ITR 383. HELD APPEAL TO APPELLATE TRIBUNAL-POWERS OF TRIBUNAL-QUE STION OF LAW ARISING FROM FACTS FOUND BY INCOME TAX AUTHO RITIES AND HAVING A BEARING ON TAX LIABILITY OF ASSESEE-QU ESTIONS RAISED FOR FIRST TIME BEFORE TRIBUNAL-TRIBUNAL HAS KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 76 JURISDICTION TO DECIDE SUCH QUESTION-INCOME TAX ACT , 1961, S.254 4. I HAVE SEEN THE ASSESSMENT ORDER, THE GROUNDS OF APPEAL AND SUBMISSIONS OF APPELLANT. 5. THE SIX APPEALS OF THE APPELLANT PERTAINING TO AY 2004-05 (THREE), AY 2005- 06 (TWO) AND AY 2006-07 (ONE) ARE TAKEN TOGETHER BE CAUSE OF THE REASONS AS MENTIONED IN THE TABLE REPRODUCED BELOW :- S.NO . APPEAL NO. A.Y. GROUNDS OF APPEAL REMARKS 1. IT-916/2011-12 2004-05 U/S 153A ADDITION MADE ON ACCOUNT OF LONG GERM GAIN ON ACCRUAL BASIS OF REFUNDABLE INTEREST FREE SECURITY DEPOSIT TO BE RECEIVED AGAINST LEASE OF LAND TREATING IT AS SALE CONSIDERATION FOR TRANSFER OF LAND OF RS. 20,92,78,750/- AS AGAINST AMOUNT OF RS. 7,04,92,487/- RECEIVED DURING THE YEAR. THE ADDITION MADE OF RS. 20,92,78,750/- ON ACCRUAL BASIS ALSO INCLUDES AMOUNT OF REFUNDABLE SECURITY FREE DEPOSIT RECEIVED IN SUBSEQUENT YEARS, I.E. RS. 3,41,00,000/- RECEIVED IN THE AY 2005-06 AND RS. 10,59,59,513/- RECEIVED IN THE AY 2006-07. 2 IT-917/2011-12 2005-06 I) ADDITION MADE ON RS. 4,35,398/- TO THE INCOME OF ASSESSEE TREATING IT AS COST OF DEMOLITION CHARGES.. II) ADDITION MADE ON PROTECTIVE BASIS OF REFUNDABLE INTEREST FREE SECURITY DEPOSIT TO BE RECEIVED AGAINST LEASE OF LAND TREATED AS SALE CONSIDERATION OF TRANSFER OF LAND RS. 4,41,00,000/- ON ACCOUNT OF LONG TERM CAPITAL GAIN. AMOUNT OF RS. 3,41,00,000/- RECEIVED DURING THE YEAR HAS ALREADY BEEN CONSIDERED ON ACCRUAL BASIS IN ADDITION MADE FOR THE ASSESSMENT YEAR 2004-05. 3 IT-918/2011-12 2006-07 ADDITION MADE ON PROTECTIVE BASIS OF REFUNDABLE INTEREST FREE SECURITY DEPOSIT TO BE RECEIVED AGAINST LEASE OF LAND TREATED AS SALE CONSIDERATION OF TRANSFER OF LAND RS. 10,59,59,513/- ON ACCOUNT OF LONG TERM CAPITAL GAIN AMOUNT OF RS. 10,59,59,513/- RECEIVED DURING THE YEAR HAS ALREADY BEEN CONSIDERED ON ACCRUAL BASIS IN ADDITION MADE FOR THE ASSESSMENT YEAR 2004- 05. 4 IT-761/2006-07 2004-05 U/S ADDITION MADE ON ACCOUNT OF LONG GERM GAIN ON ACCRUAL THIS ADDITION OF RS.10,44,46,950/- MADE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 77 143(3) BASIS OF REFUNDABLE INTEREST FREE SECURITY DEPOSIT TO BE RECEIVED AGAINST LEASE OF LAND TREATING IT AS SALE CONSIDERATION FOR TRANSFER OF LAND OF RS. 10,44,46,750/- AS AGAINST AMOUNT OF RS. 7,04,92,487/- RECEIVED DURING THE YEAR. U/S. 143(3) IS INCLUDED IN ADDITION OF RS.20,92,78,750/- MADE IN THE ASSESSMENT U/S 153A FOR THE ASSESSMENT YEAR 2004-05. 5 IT-630/2007-08 2005-06 U/S. 143(3) I) ADDITION MADE ON RS. 4,35,398/- TO THE INCOME OF ASSESSEE TREATING IT AS COST OF DEMOLITION CHARGES. THE ADDITION MADE FOR RS.4,35,398/- TREATING IT AS COST OF DEMOLITION IS COVERED BY THE SAME GROUND FOR THE ASSESSMENT MADE U/S. 153A 6. IT-21/2007-08 2004-05 U/S. 154 ADDITION OF RS. 10,44,46,750/- TOWARDS AMOUNT OF REFUNDABLE INTEREST FREE SECURITY WAS CONFIRMED U/S. 154 ON ACCRUAL BASIS. THIS ADDITION OF RS.10,44,46,950/- MADE U/S. 143(3) IS INCLUDED IN ADDITION OF RS.20,92,78,750/- MADE IN THE ASSESSMENT U/S 153A FOR THE ASSESSMENT YEAR 2004-05. AS CAN BE SEEN FROM THIS TABLE THE FIVE APPEALS HAV E COMMON GROUNDS, HENCE, THEY ARE COVERED IN ONE SINGLE ORDER IN SUCCEEDING PARAGRAPHS. 6. IN THIS CASE, APPELLANT AND ANOTHER COMPANY M/ S KALANI BROTHERS PVT. LTD. HAVE GIVEN A TOTAL 1 LAKH SQ. FT. LAND SITUATED AT 11, TUKOGANJ MAIN ROAD, INDORE TO M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD. THR OUGH A LEASE AGREEMENT DATED 21.05.2003. OUT OF THIS 70484 SQ. FT. BELONG TO M/S KALANI BROTHER PVT. LTD. AND 29516 SQ. FT. BELONG TO APPELLANT. IN LIEU OF T HIS LEASE AGREEMENT THE APPELLANT GETS A FIXED LEASE RENT ON ANNUAL BASIS A ND A NON INTEREST BEARING REFUNDABLE DEPOSIT TO BE RETURNED BACK AFTER THE LE ASE PERIOD OF 29 YEARS. 7. THE APPELLANT HAS LATER ENTERED INTO ANOTHER LE ASE AGREEMENT WITH ENHANCED REFUNDABLE DEPOSIT AS THE LAND USE HAS CHANGED FROM RESIDENTIAL TO COMMERCIAL AND FAR OF THE SAID LAND HAS INCREASED FROM 1.5 TO 2.5. WHEN SUCH LEASE AGREEMENTS WERE GOT REGISTERED, THE REFUNDABLE DEPO SIT WAS NOT SHOWN IN THE SUCH AGREEMENT. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 78 8. ON THIS LAND A SHOPPING MALL WAS CONSTRUCTED BY M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD. KNOWN AS TREASURE ISLAND (TI , INDORE) IN WHICH VARIOUS SHOPS WERE GIVEN ON LEASE RENT BY THAT COMPANY. 9. THE APPELLANT HAS REINVESTED SUCH REFUNDABLE ADV ANCE BACK IN SHARES OF M/S ENTERTAINMENT WORLD DEVELOPERS PVT. LTD. WHICH WAS CONSTRUCTING 10 SHOPPING MALLS AND WHICH WAS BRINGING ITS PUBLIC ISSUE, WITH AN INTENTION TO SALE SHARES WHEN SUCH SHOPPING MALLS WOULD HAVE COME IN RUNNING CONDITION, UNLOCKING HUGE VALUE ADDITION TO SUCH SHARES. IT IS CHANCE ON LY THAT SUCH AMBITIOUS PLAN OF SIMULTANEOUS CONSTRUCTION OF 10 MALLS GOT STUCK BEC AUSE OF OVER EXPOSURE AND SHORTAGE OF FUNDS. YET THAT WAS A BUSINESS DECISION WHICH COULD ONLY BE TAKEN BY APPELLANT AND DEPARTMENT CANNOT FORCE THE APPELLANT TO INVEST SUCH MONEY IN A PARTICULAR MANNER NEITHER IT CAN BE ASSUMED THAT EV ERY INVESTMENT WILL LEAD TO PROFITS AND TAXABLE INCOME. IN THIS REGARD APPELLAN T HAS CORRECTLY RELIED ON THE DECISION IN CASE OF GODHRA ELECTRICITY COMPANY LTD. (SC) 225 ITR 746 WHEREIN THE APEX COURT HELD THAT THE INCOME CHARGEABLE TO T AX IS THE INCOME THAT IS RECEIVED OR ACCRUED AND NOT HYPOTHETICAL INCOME. 10. THE AO DISCUSSED THE FACTS AND OBSERVED THAT IN THE REGISTERED LEASE DEED THE APPELLANT DID NOT MENTION THE REFUNDABLE SECURI TY DEPOSIT WHICH GOES TO PROVE THAT APPELLANT WANTS TO AVOID TAX OF STATE AND CENT RAL GOVERNMENT. IN APPELLANTS CASE NO MECHANISM IS DRAWN UP AS TO WHEN AND HOW SU CH SECURITY DEPOSIT WILL BE REFUNDED. THE AO FURTHER OBSERVED THAT LEASE AMO UNT WAS SMALL AND NO INTEREST WAS BEING PAID ON REFUNDABLE SECURITY DEPO SIT. HE THEREFORE CAME TO THE VIEW THAT LEASE DEED WAS A COLOURABLE DEVICE AND IT WAS NOT IN FACT A LEASE TRANSACTION BUT WAS A TRANSFER OF LAND. HE ALSO DIF FERENTIATED THE CASE LAW CITED BY APPELLANT IN CASE OF LAKE HOTELS AND MOTELS LTD. (2 004)83 ITJ (ITAT, JODHPUR) 1031 ON THE BASIS OF POINTS LISTED ABOVE IN THIS PA RA. AS A RESULT AO CHARGED THE RECEIPTS SHOWN AS REFUNDABLE SECURITY DEPOSIT AS AM OUNT RECEIVED TOWARDS TRANSFER OF LAND AND TAXED THE ENTIRE SECURITY DEPO SIT OF RS. 20,92,78,750/-AS CAPITAL GAIN, ON SUBSTANTIVE IN AY 2004-05, WHILE T HE AMOUNTS OF SUCH SECURITY DEPOSITS RECEIVED IN TWO SUBSEQUENT YEAR, I.E.AY 20 05-06 & AY 2006-07 I.E. RS. 4,41,00,000/- AND RS. 10,59,59,513/- WERE ADDED IN THOSE TWO YEARS ALSO ON PROTECTIVE BASIS, IN ASSESSMENT DONE U/S 153A. BESI DES THIS AN AMOUNT OF RS.10,44,46,750/- OF SUCH SECURITY DEPOSIT WAS ALSO ADDED IN AY 2004-05 IN KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 79 ASSESSMENT DONE U/S 143(3) AND SAME ADDITION WAS CO NFIRMED IN APPLICATION FILED BY APPELLANT BEFORE AO U/S 154 OF THE INCOME TAX ACT.. 11. THE AOS APPREHENSION AND RELIANCE ON THE FINDI NG THAT THE LEASE DEED WAS NOT WELL DRAFTED OR THERE WAS DIFFERENCE IN REGISTE RED AND UNREGISTERED LEASE DEED OR ANY SUCH POINT WILL NOT HELP TO PROVE THAT THERE WAS ANY TRANSFER OF SUCH LAND, UNLESS IT IS PROVED THAT HANDING OVER OF SUCH LAND WAS IRREVOCABLE. BY NOT SHOWING SECURITY DEPOSIT APPELLANT DID AVOID PAYMEN T OF DUES OF STATE GOVERNMENT PERTAINING TO STAMP DUTY VALUATION AUTHO RITY FOR WHICH NECESSARY INFORMATION WAS ALREADY PASSED ON TO THAT DEPARTMEN T BY AO. HOWEVER, AO FAILED TO STATE HOW APPELLANT IS AVOIDING PAYMENT O F TAX TO CENTRAL GOVERNMENT WHEN SECTION 45 R.W.S. 48 OF THE INCOME TAX ACT DOE S NOT MAKE SUCH LEASE TRANSACTIONS TAXABLE. 12. THIS AGREEMENT COULD BE TERMED AS COLORABLE DEV ICE ONLY WHEN IT CAN BE SHOWN THAT THOUGH IT IS LEASE AGREEMENT BUT CONDITI ONS MENTIONED ARE SUCH WHICH ACTUALLY TANTAMOUNT TO TRANSFER OF LAND. BUT AO FAILED TO SHOW WHICH CONDITIONS OF THE AGREEMENT PROVE THAT IT IS A TRAN SFER OF LAND WHEN LEASE IS REVOCABLE ON COMPLETION OF 29 YEARS WHEREBY LAND WI LL COME BACK TO APPELLANT AND SECURITY DEPOSIT WILL BE REFUNDED BACK. 13. AO ALSO FAILED TO DISTINGUISH THE CASE LAW REFE RRED BY APPELLANT IN CASE OF LAKE PALACE HOTELS & MOTELS PVT. LTD. (2004) 83 ITJ (ITAT JODHPUR) 1031, FACTS OF WHICH ARE EXACTLY SIMILAR TO APPELLANTS CASE AS IN THAT CASE ALSO LAND WAS GIVEN ON LEASE FOR 72 YEARS TO A HOTEL AGAINST WHIC H LEASE RENT AND SECURITY DEPOSIT WAS RECEIVED. IN THAT CASE IT WAS HELD THAT TO CHARGE CAPITAL GAIN UNDER SECTION 45 R.W.S. 48 OF INCOME TAX ACT THERE SHOULD BE CAPITAL ASSET AND THE SAME SHOULD BE TRANSFERRED, CONSIDERATION SHOULD BE RECEIVED IN LIEU OF SUCH TRANSFER AND THERE SHOULD BE COST ACQUISITION AND C OST OF TRANSFER. ALL THESE FOUR ARE CONDITIONS PRECEDENT AND IN CASE ANY CONDITIONS REMAIN UNFULFILLED, THERE IS NO QUESTION OF CHARGING OF CAPITAL GAINS. IN THE IN STANT CASE, THE ASSESSEE HAS NOT RECEIVED ANY CONSIDERATION IN LIEU OF THE TRANS FER OF THE CAPITAL ASSET BECAUSE THE LAND IN QUESTION HAD BEEN GIVEN ON LEASE AND AS SESSEE RECEIVED LEASE RENT YEAR AFTER YEAR AND NON THAT LEASE RENT TAX HAS BEE N PAID IN ACCORDANCE WITH LAW. THE AO CONSIDERED THE SECURITY DEPOSIT AS THE VALUE OF CONSIDERATION. HOWEVER, KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 80 THE DEPOSIT IN QUESTION WAS REFUNDABLE. THAT FINDIN G OF ITAT, JODHPUR WAS AFFIRMED BY THE HONBLE RAJASTHAN HIGH COURT IN THE DECISION CITED AT 321 ITR 165. IN THIS DECISION HONBLE RAJASTHAN HIGH COURT IN LAST PARA ON PAGE 4 OBSERVED AS UNDER:- TO BE VERY SPECIFIC, WHAT IS SIGNIFICANT TO NOTE I S, THAT EVEN A COMBINED READING OF THE TWO SECTIONS (SECTION 45 & SECTION 48), NOWH ERE PROVIDES FOR ANY DEEMED PROFIT OR DEEMED GAIN OR ANY HYPOTHETICAL BENEFIT D EEMED TO HAVE BEEN RECEIVED OR TO BE ACCURING TO THE TRANSFEROR, AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. WE MAY REFER TO A JUDGMENT OF THE HONBLE APEX COUR T, IN CIT VS. INFOSYS TECHNOLOGIES LTD. [2008] 279 ITR 167 (SC), WHICH HA S BEEN RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE, WHEREIN IT HAS BEEN HELD THAT UNLESS THE BENEFIT IS MADE TAXABLE, IT CANNOT BE RECORDED AS INCOME. THE FACTS OF THE CASE REFERRED ABOVE BEING SIMILAR TO THAT PRESENT CASE AND AO FAILED TO INDICATE ANY DIFFERENTIATION ON THE KEY I SSUES, FINDING OF AO CANNOT BE SUSTAINED. THE REFUNDABLE SECURITY DEPOSIT COULD NO T BE HELD AS VALUE OF CONSIDERATION IN VIEW OF THE FACT THAT LAND WAS LEA SED FOR 29 YEARS AND AO COULD NOT PROVE FROM THE TERMS OF AGREEMENT THAT LAND TRA NSFER WAS IRREVOCABLE OR THAT THE SECURITY DEPOSIT WAS NOT REFUNDABLE. BESIDES AS HELD BY THE HONBLE RAJASTHAN HIGH COURT IN AFORESAID CASE THAT EVEN CO MBINED READING OF SECTION 45 AND SECTION 48 OF THE INCOME TAX ACT NOWHERE PROVID E FOR ANY DEEMED PROFIT. HENCE, THE ADDITION MADE IN THE SEARCH ASSESSMENTS U/S 153A OF INCOME TAX ACT ON ACCOUNT OF SUCH DEEMED LONG TERM CAPITAL GAI N OF RS. 20,92,75,750/- IS HEREBY DELETED IN AY 2004-05 AND SIMILAR ADDITION M ADE IN AY 2005-06 AND AY 2006-07 IS ALSO DELETED. THE SIMILAR ADDITION MADE IN THE NORMAL ASSESSMENT U/S 143(3) IN AY 2004-05 OF RS. 10,44,46,750/- IS ALSO DELETED AND AS A RESULT, THE ORDER PASSED BY AO U/S 153A OF THE INCOME TAX ACT U PHOLDING SUCH ADDITION IS ALSO CANCELLED. 14. THE ANOTHER GROUND RAISED IN NORMAL SCRUTINY ASSESSMENT U/S 143(3) FOR AY 2005-06 IS AGAINST DISALLOWANCE OF RS. 4,35,398/- A S COST OF DEMOLITION CHARGES OF BUILDING. APPELLANT ARGUED THAT THIS IS NOT THE COST OF DEMOLITION CHARGE OF BUILDING, BUT IT REPRESENTS THE WDV OF BUILDING WRI TTEN OFF. EVEN THAT CANNOT BE ALLOWED TO APPELLANT BECAUSE THERE WAS NO BUSINESS DONE BY APPELLANT AND THE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 81 ONLY SOURCE OF INCOME IS LEASE RENT FROM LEASING OU T OF THE LAND. HENCE DISALLOWANCE OF RS. 4,35,398/- BY AO WAS CORRECT AN D SAME IS CONFIRMED. IN AY 2005-06 IN ORDER U/S 143(3) OF THE INCOME TAX ACT, ANOTHER DISALLOWANCE OF RS. 50,000/- OF OFFICE AND ADMINISTRATIVE EXPENSE IS AL SO JUSTIFIED AS THERE WAS NO BUSINESS OF APPELLANT DURING THE YEAR EXCEPT LEASIN G OF LAND. BESIDES NO PROOF OF ANY SUCH EXPENSES WAS FURNISHED EITHER BEFORE AO OR BEFORE UNDERSIGNED. HENCE, THAT DISALLOWANCE OF RS. 50,000/- IS ALSO UP HELD. THE THIRD DISALLOWANCE OF RS. 40,137/- AS INTEREST PAYMENT ON UNSECURED LOANS IS ALSO CONFIRMED BECAUSE THIS INTEREST EXPENSE IS NOT IN ANY WAY LINKED TO T HE LEASE INCOME. SUCH LOAN IS SPENT TOWARDS NON-BUSINESS PURPOSE FOR PURCHASE OF SHARES. SHARES WILL GIVE RISE TO DIVIDEND WHICH IS EXEMPT AND HENCE SUCH INTEREST EXPENSE WAS CORRECTLY DISALLOWED BY AO. AS A RESULT THE APPEAL FILED AGAI NST ASSESSMENT MADE U/S 143(3) OF THE INCOME TAX ACT FOR AY 2005-06 IS DISM ISSED. 15. DURING APPEAL PROCEEDINGS, APPELLANT HAS TAKEN ADDITIONAL GROUND OF APPEAL IN THE APPEALS IN THREE SEARCH ASSESSMENTS, WHICH I S A LEGAL GROUND RAISED AGAINST ASSESSMENT DONE U/S 153A. THIS GROUND IS TW O FOLD. FIRST GROUND IS THAT NO INCRIMINATING EVIDENCE WAS FOUND DURING SEARCH. SECOND GROUND IS THAT IN THE ORDER PASSED U/S 143(3) OF INCOME TAX ACT. HENCE AS SESSMENT PASSED U/S 153A IS BAD IN LAW. SINCE THIS IS A LEGAL GROUND WHICH GOES TO THE ROOT OF THE MATTER, THE SAME IS HEREBY ADMITTED FOLLOWING THE DECISION IN CASE OF NATIONAL THERMAL POWER CORPORATION (SC) 229 ITR 383 AND SHILPA ASSOC IATES (RAJ) 263 ITR 317. 16. IT IS NOT POSSIBLE TO INVOKE PROVISION OF SECTI ON 153A OF THE INCOME TAX ACT, WHEN SCRUTINY ASSESSMENT ORDER WAS ALREADY PASSED I N THIS CASE U/S 143(3) OF THE INCOME TAX ACT. FOR AY 2004-05 AND AY 2005-06 A ND NO INCRIMINATING DOCUMENTS WERE FOUND DURING SEARCH WHICH COULD ESTA BLISH THAT SUCH LEASE AGREEMENT WAS BOGUS. WHEN NORMAL ASSESSMENT WAS MAD E U/S 143(3) AND NO INCRIMINATING MATERIAL BEING FOUND IN SEARCH, THE A SSESSMENT DO NOT ABATE AFTER SEARCH U/S 153A OF INCOME TAX ACT AS HELD IN CASE O F M/S AL CARGO GLOBAL LOGISTICS LTD. 137 ITD 287 (MUM.) (SB). 17. AS A RESULT APPEAL NO. IT-916/11-12 IS ALLOWED ON BOTH THE ISSUE IN SEARCH OF ASSESSMENT FOR AY 2004-05 , THAT ASSESSMENT U/S 153A WAS NOT VALID AND THAT AMOUNT OF SECURITY DEPOSIT RECEIVED ON THE BASIS OF LEASE AGREEMENT COULD NOT BE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 82 TAXED AS CAPITAL GAIN. APPEAL NO. IT-761/06-07 FOR AY 2004-05 AGAINST ASSESSMENT U/S 143(3) IS ALSO ALLOWED AS THE ONLY ADDITION OF SECURITY DEPOSIT AS PER LEASE AGREEMENT BEING HELD AS DEEMED SALE CONSI DERATION IS DELETED. ON THAT SAME BASIS APPEAL NO. IT-21/07-08 FOR AY 2004- 05 AGAINST ORDER PASSED BY AO U/S 154 OF THE INCOME TAX ACT IS ALSO ALLOWED. APPEAL NO. IT-917/11/12 RELATED TO SEARCH ASSESSMENT FOR AY 2005-06 IS ALLOWED, AS THE ADDITION OF SECURITY DEPOSIT OF RS. 4,41,00, 000/- IS DELETED AND ADDITION OF RS. 4,35,398/- UNDER THE HEAD BUILDING WRITTEN OFF AND DISALLOWANCE OUT OF VARIOUS EXPENSES OF RS. 90,137/- IS DELETED FROM SEARCH ASSESSMENT, AS THOSE ADDITIONS WERE CONFIRMED IN REGULAR ASSESSMEN T. APPEAL NO. IT-630/2007-08 FOR AY 2005-06 IS DISMISS ED AS ALL THREE DISALLOWANCES OF RS. 4,35,398/-, RS. 50,000/- AND R S. 40,137/- ARE CONFIRMED. APPEAL NO. IT-918/2011-12 FOR AY 2006-07 IS PARTLY ALLOWED AS WHILE ADDITION OF SECURITY DEPOSIT OF RS. 10,59,59,513/- IS DELETED, THE LEGAL GROUND RAISED AGAINST INVOKING OF SECTION 153A IS REJECTED AS NO PROOF IS ADDUCED TO SHOW THAT ORDER U/S 143(3) WAS PASSED IN THAT CASE AND HENCE SEARCH ASS ESSMENT WILL ABATE. 4. LD. AR FILED WRITTEN SUBMISSION, WHICH READS AS UNDER: AT THE OUTSET, IT WAS SUBMITTED THAT NO CAPITAL GA INS ARISES IN THE INSTANT CASE DUE TO VARIOUS REASONS WHICH ARE DISCUSSED HEREUNDER AND W HICH ARE WITHOUT PREJUDICE TO EACH OTHER. IT MAY BE POINTED OUT THAT TO CHARGE CAPITAL GAINS U NDER S. 45 R/W S. 48, THE FOLLOWING FOUR CONDITIONS ARE REQUIRED TO BE FULFILLED THAT; (I) THERE SHOULD BE A CAPITAL ASSET; (II) CAPITAL ASSET SHOULD BE TRANSFERRED; (III) CONSIDERATION HAS BEEN RECEIVED IN LIEU OF TRAN SFER; AND (IV) THERE WAS COST OF ACQUISITION AND COST OF IMPROVEM ENT. ALL THE FOUR ARE CONDITIONS PRECEDENT AND IN CASE ANY REQUIREMENT REMAINS UNFULFILLED, THERE IS NO QUESTION OF CHARGING THE CAPITAL GAINS. IN THE INSTANT CASE, THE ASSESSEE HAD NOT RECEIVED ANY CONSIDERATION IN LIEU OF GRANTING OF LEASE AND THE ASSESSEE RECEIVED LEASE RENT YEAR AFTER Y EAR AND ON THAT LEASE RENT, TAX HAD BEEN PAID IN ACCORDANCE WITH LAW. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 83 I. SECURITY DEPOSIT IS NOT CONSIDERATION FOR SALE AOS CONTENTIONS: - THE AO HOLDS THAT THE TRANSACTION BEING A TRANSFER THE SECURITY DEPOSIT RECEIVED BY IT FORMS SALE CONSIDERATION - THE AO WAS OF THE VIEW THAT THE ASSESSEES RELIANCE ON DECISION OF THE JODHPUR BENCH OF THE ITAT IN CASE OF ACIT VS LAKE PALACE HO TELS (83 TTJ 1031) WAS MISPLACED VIEWS OF CIT(A): THE CIT(A) HELD THAT THE AO FAILED TO DISTINGUISH T HE CASE LAW REFERRED BY THE ASSESSEE IN THE CASE OF JODHPUR BENCH OF THE ITAT IN CASE OF ACIT VS LAKE PALACE HOTELS. FURTHER, THE FINDING OF THE JODHPUR ITAT WA S AFFIRMED BY THE HBLE RAJASTHAN HIGH COURT. THUS, THE CIT(A) HELD THAT THE FACTS OF THE CASE REFERRED WERE SIMILAR TO THE PRESENT CASE AND THE AO FAILED TO INDICATE ANY DIFFERENTIATION ON THE KEY ISSUES. ACCORDINGLY, THE REFUNDABLE SECURITY DEPOSIT COULD NOT BE HELD AS VALUE OF CONSIDERATION IN VIEW OF THE FACT THAT THE LAND WAS LEASED FOR 29 YEARS AND THE AO COULD NOT PROVE FROM THE TERMS OF AGREEMENT THAT LA ND TRANSFER WAS IRREVOCABLE OR THAT THE SECURITY DEPOSIT WAS NOT REFUNDABLE. ARS ARGUMENTS: - IT WAS SUBMITTED THAT SINCE THE SECURITY DEPOSIT WA S REFUNDABLE AFTER THE PERIOD OF 29 YEARS OF LEASE OR ON EARLY TERMINATION OF THE LEASE DEED, IT CANNOT BE SAID TO BE A CONSIDERATION BECAUSE A REFUNDABLE DEPOSIT I S A DEBT AND NOT A CONSIDERATION RECEIVED. THUS, IN ABSENCE OF CONSIDERATION, CAPITAL GAINS CANNOT BE COMPUTED U/S 48. - FURTHER, IT WAS CATEGORICALLY POINTED OUT THAT THE LEASE DEEDS DO NOT MENTION OF CONSIDERATION. FINANCIALS OF THE ASSESSEES DOES N OT MENTION OF CONSIDERATION. - BOTH THE PARTIES TO THE LEASE DEED HAVE ACTED ON TH E BASIS THAT THE AMOUNT GIVEN IS REFUNDABLE SECURITY DEPOSIT - BOTH THE PARTIES HAVE ACTED ON THE BASIS THAT THE A MOUNT GIVEN IS REFUNDABLE SECURITY DEPOSIT. BOTH THE PARTIES HAVE UNDERSTOOD AND AGREED UPON THAT BASIS. - EACH OF THE AGREEMENT STATES THAT THE SECURITY DEPO SIT IS REFUNDABLE. REFER AGREEMENT DATED 21.05.2003 PLACED IN PAPER BOOK AT PAGE 3 LAST PARA. ALSO REFER AGREEMENT DATED 09.10.2006 PLACED IN PAPER BOOK AT PAGE 37 AT PARA 7. - THE AR HEAVILY RELIED ON THE DECISION OF THE JODHPU R BENCH OF THE ITAT IN CASE OF ACIT VS LAKE PALACE HOTELS. THE PRIMARY AND THE BAS IC FACTS OF THE SAID CASE ARE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 84 EXACTLY SIMILAR TO THE ASSESSEES CASE. THERE WAS A LONG TERM LEASE WITH A CLAUSE OF REFUNDABLE DEPOSIT. THE AO IN THE SAID CASE ALSO TR EATED THE TRANSACTION AS TRANSFER AND TAXED THE SAME UNDER CAPITAL GAINS. THE ITAT DU LY CONSIDERED THE FACTS AND ULTIMATELY CATEGORICALLY HELD THAT THE REFUNDABLE D EPOSIT CANNOT BE CONSIDERED AS CONSIDERATION AND NO CAPITAL GAIN CAN BE CHARGED. T HE RELEVANT PORTION IS REPRODUCED HEREWITH FOR YOUR HONOURS CONSIDERATION - IT MAY BE POINTED OUT THAT TO CHARGE CAPITAL GAINS UNDER S. 45 R/W S. 48, THE FOLLOWING FOUR CONDITIONS ARE REQUIRED TO BE FULFIL LED THAT; (I) THERE SHOULD BE A CAPITAL ASSET; (II) CAPITAL ASSET SHOULD BE TRANSFERRED; (III) CONSIDERATION HAS BEEN RECEIVED IN LIEU OF TR ANSFER; AND (IV) THERE WAS COST OF ACQUISITION AND COST OF IMPR OVEMENT. ALL THE FOUR ARE CONDITIONS PRECEDENT AND IN CASE A NY REQUIREMENT REMAINS UNFULFILLED, THERE IS NO QUESTION OF CHARGING THE C APITAL GAINS. IN THE INSTANT CASE, THE ASSESSEE HAD NOT RECEIVED ANY CONSIDERATION IN LIEU OF THE TRANSFER OF CAPITAL ASSET BECAUSE THE LAND IN QUESTION HAD BEEN GIVEN O N LEASE AND THE ASSESSEE RECEIVED LEASE RENT YEAR AFTER YEAR AND ON THAT LEA SE RENT, TAX HAD BEEN PAID IN ACCORDANCE WITH LAW. - THE AR FURTHER RELIED ON THE DECISION OF THE HBLE AHMEDABAD ITAT IN THE CASE OF RAJESHBHAI N PATEL, WHEREIN IT WAS HELD THAT CONSIDERATION IS ESSENT IAL FOR LEVY OF CAPITAL GAIN TAX AND REFUNDABLE SECURITY DEPOSIT CA NNOT BE TREATED AS SALE CONSIDERATION. - THE AR RAISED A QUESTION THAT, IF FOR THE TIME BEIN G, THE SAID TRANSACTION IS TREATED AS CAPITAL GAINS THEN, WHAT WOULD BE THE TR EATMENT IN CASE THE SECURITY DEPOSIT WOULD GET REFUNDED? SIMILARLY, THE LESSOR C OULD AT A LATER DATE SELL THE SAID PLOT OF LAND. HOW WOULD THE CONSIDERATION BE ACCOUN TED FOR AND OFFERED FOR TAX AT THAT POINT IN TIME? - IT WAS ALSO ARGUED THAT, EVEN IF THE TRANSACTION IS HELD TO BE A COLORABLE DEVICE AS ELABORATELY EXPLAINED HEREIN BELOW, CONSIDERATION C ANNOT BE ASSUMED. AO DOES NOT GET ABSOLUTE POWER TO SUBSTITUTE HIS OWN TERMS INTO THE AGREEMENT. HE CANNOT MODIFY THE TRANSACTION TO SUIT HIS STAND. - THE LEARNED AR HAD FURTHER SUBMITTED THAT IN FACT P RESENTLY THE LEASE DEED ENTERED INTO BY THE ASSESSES WITH EWDPL HAS BEEN CA NCELLED. - THE ASSESSES HAVE ENTERED INTO FRESH LEASE DEED WIT H INDORE TREASURE ISLAND PVT LTD (HEREINAFTER KNOWN AS ITIPL) FOR A PERIOD OF 4 YEARS AND 11 MONTHS, WHEREIN THE SECURITY DEPOSIT AMOUNT IS SAME. IT MAY BE NOTED TH AT ITIPL IS OWNED BY OUTSIDER ALTHOUGH THE FAMILY MEMBERS OF KALANI HAVE STAKE IN IT. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 85 - THE ABOVE FACT CLEARLY SUGGESTS THAT THE TRANSACTIO N ENTERED INTO WAS THAT OF LEASE AND NOT TRANSFER AND HENCE QUESTION OF CAPITA L GAIN DOES NOT ARISE. - IT WAS ALSO POINTED OUT BY THE LEARNED AR THAT, THE RENTAL INCOME OFFERED TO TAX BY THE ASSESSEES WAS NOT DISPUTED BY THE AO NEITHER IN THE ASSESSMENT U/S 143(3) NOR U/S 153A. FURTHER, THE LEASE EXPENSES IN THE HA NDS OF THE LESSEE WAS NOT BEEN DISPUTED BY THE REVENUE NEITHER IN THE ASSESSMENT U /S 143(3) NOR U/S 153A FOR ALL THE YEARS. II. TRANSACTION ENTERED INTO BY THE ASSESSEE IS NOT A COLOURABLE DEVICE ARS ARGUMENTS: THE AR SUBMITTED THAT THE PREREQUISITES FOR TERMING A TRANSACTION AS A COLOURABLE DEVICE ARE THAT IT IS NOT A NORMAL COMMERCIAL TRANS ACTION, WHEREIN THE APPARENT IS NOT REAL AND THE TRANSACTION RESULTS IN A TAX ADVAN TAGE HOWEVER, IN THE CURRENT CASE UNDER CONSIDERATION NO NE OF THE ABOVE CONDITIONS ARE SATISFIED WHICH IS EXPLAINED HEREUNDER: A) THE ASSESSEE WAS MERELY AN INVESTOR WHO OWNED A PIE CE OF LAND WITH AN INTENT TO LEASE OUT THE SAME. THE ASSESSEE WAS LOOKING AT CAPITAL APPRECIATION WITHOUT PARTING WITH THE ASSET. THUS, THE ASSESSEE WAS LOOK ING AT LEASING THE SAID PROPERTY. FURTHER, TRANSACTING WITH A RELATED PARTY ENSURED S AFETY OF THE ASSESSEE. THEREFORE, THE TRANSACTION WAS BENEFICIAL FOR THE LESSOR. ON THE OTHER HAND, THE TRANSACTION ENABLED EWDPL TO OBTAIN THE BENEFIT OF LONG TERM LEASE WHO WERE INTO THE BUSINESS OF DEVELOPMEN T OF MALLS ALL OVER THE COUNTRY. THE TRANSACTION ENABLED THEM TO MORTGAGE THE LAND A ND HENCE OBTAIN THE BENEFIT OF LEVERAGING. THE LESSEE COULD LEASE OUT PREMISES AT FAR HIGHER LEASE RENT OVER A LONG PERIOD OF TIME. THUS, THE SAID TRANSACTION WAS A WIN WIN FOR BOTH T HE PARTIES. IT WAS A PURE COMMERCIAL TRANSACTION. IT MAY FURTHER BE NOTED THAT THE RATIONALE FOR ENTE RING INTO THE SAID TRANSACTION IS EXPLAINED IN DETAIL ON PAGES 39, 40, 46 AND 47 OF T HE HONBLE CITA ORDER, WHICH CLEARLY INDICATES THAT THE SAID TRANSACTION WAS PUR ELY A COMMERCIAL TRANSACTION. B) NOTHING WAS BROUGHT ON RECORD TO SHOW THAT REFUNDAB LE DEPOSIT WAS NOT A DEPOSIT OR NOT REFUNDABLE OR IT IS A CONSIDERATION. FURTHER, THERE IS ONUS ON THE AO TO KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 86 SHOW THAT THE APPARENT IS NOT REAL. THIS ONUS IS HE AVY AND CANNOT BE DISCHARGED WITHOUT COGENT EVIDENCE. C) IT WAS VEHEMENTLY ARGUED THAT, THE ASSESSEE WAS NOT BARRED BY LAW TO TRANSACT WITH RELATED PARTIES. TRANSACTING WITH ENTITES WITH IN THE GROUP IS NOT PROHIBITED BY LAW. D) THERE IS NO TAX ADVANTAGE AS THE LAND HAS REMAINED WITHIN THE GROUP. EVEN IF THE CORPORATE VEIL IS LIFTED, THEN THERE IS NO TRANSFER AS EVERYTHING REMAINS IN THE GROUP E) IT WAS ALSO ARGUED THAT, THE INVESTMENT MADE BY THE LESSOR IN THE BUSINESS OF THE LESSEE WAS DONE, SO AS TO TAKE BENEFIT OF THE HIGHE R LEASE RENTALS WHICH WOULD BE EARNED BY THE LESSEE FROM THE TENANTS IN THE MALL. IT WAS SUBMITTED THAT MERELY BECAUSE THE ASSESSEE INVESTED IN THE LESSEE, THE GE NUINENESS OF THE TRANSACTION CANNOT GET AFFECTED. IT WAS ALSO STATED THAT THE PU RPOSE OF THE INVESTMENT BY THE ASSESSEE WAS TO PROTECT ITS LEASED LAND THEREFORE, THE AR SUBMITTED THAT THE SAID TRANSACTI ON WAS A COMMERCIAL TRANSACTION ENTERED INTO BETWEEN KALANI BROTHERS, PADMA HOMES A ND EWDPL AND BY NO STRETCH OF IMAGINATION WAS IT A COLOURABLE DEVICE. III. TRANSACTION ENTERED INTO BY THE ASSESSEE CANNOT BE TREATED AS TRANSFER ARS ARGUMENTS: A) THE AR ARGUED THAT LEASE IS NOT A TRANSFER BUT MERE LY A PERMISSION TO USE. TRANSFER WOULD ALWAYS IMPLY PERMANENCY AS WELL AS W HOLE OR SUBSTANTIAL RIGHTS OF OWNERSHIP PASSING ONTO THE TRANSFEREE. FURTHER, THE AR SUBMITTED THE FOLLOWING IN RESPECT OF VARIOUS CLAUSES IN THE LEASE DEED DATED 21.5.2003: RIGHT TO USE THIS IS NATURAL REQUIREMENT OF ANY LEASE AGREEME NT AND THUS THIS CANNOT BE EQUATED WITH TRANSFER RIGHT TO CONSTRUCT - THE ASSESSEE OWNS A VACANT PLOT OF LAND, WHICH WAS GIVEN ON LEASE FOR 29 YEARS. THE INHERENT USE OF THE VACANT PLOT OF LAND WOULD BE TO ALTER IT TO CONSTRUCT A SUPER STRUCTURE. THE VACANT LAND IN ITS ELF IS OF NO VALUE WITHOUT THE SUPERSTRUCTURE. SO WHY WOULD ANY PARTY ENTER INTO A LEASE TRANSACTION OF A VACANT LAND WITHOUT THE RIGHT TO MODIFY IT? THIS IS NATUR AL USE OF LAND AND THE LAND WOULD HARDLY BE OF ANY USE IF CONSTRUCTION IS NOT PERMITT ED. THUS, IT IS NATURAL TO GIVE SUCH A RIGHT TO THE LESSEE TO CONSTRUCT. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 87 RIGHT TO SELL FURTHER, EVEN THE CLAUSE ON RIGHT TO SELL IN THE LEASE DEED DATED 21.5.2003 STATED THAT SALE CONSIDERATION IN RESPECT OF SALE OF LAND WOULD FLOW TO THE LESSOR. THE RELEVANT CLAUSE OF THE SAID LEASE DEED IN REPRODUCED AS UNDER: (11) THAT, IN THE EVENT THE LESSEE DECIDES TO SELL A PORTION OF THE PROJECT OR CERTAIN AREAS OF THE PROJECT, SO CONSTRUCTED, THE LESSOR WILL GIV E CONSENT FOR SALE OF SUCH AREAS AND WILL JOIN IN THE TRANSFER OF THE PROPORTIONATE LAND TO T HE BUILT UP AREA SOLD TO ANY OTHER PARTY AND IN THAT EVENT THE CONSIDERATION OF PROPORTIONAT E AREA OF LAND SHALL BE PAID TO THE LESSER. THE CONSIDERATION FOR THE SAID AREA OF THE LAND SHA LL BE AT THE RATE OF RS. X PS FT WHERE X = VALUE OF LAND / FAR PERMITTED. THE ABOVE CLEARLY REFLECTS THAT NO SALE HAS FACTUAL LY TAKEN PLACE AT THE TIME OF ENTERING INTO THE LEASE DEED DATED 21.05.2003. EVEN IF IT IS ASSUMED (FOR THE SAKE OF ARGUMENT) THAT SALE HAS ALREADY TAKEN PLACE PURSUAN T TO THE LEASE DEED THAN HOW CAN THE ASSESSE RECEIVE ANY FURTHER CONSIDERATION W HEN THE ACTUAL SALE TAKES PLACE. ALSO, IT IS NOT OUT OF PLACE TO MENTION THAT NO SAL E WAS MADE BY THE LESSEE TILL DATE. ALSO, THE DATE OF THE FIRST REGISTERED DEED I.E. JU ST 45 DAYS AFTER THE AGREEMENT TO LEASE EVIDENCES THE ESSENTIAL POINT THAT THE ASSESS EE DID NOT INTEND TO GIVE THE LESSEE THE RIGHT TO SELL. THE DATE SIGNIFIES THAT T HE INTENTION WAS NOT AN AFTERTHOUGHT OR A TAX EVASION TACTIC. RIGHT TO MORTGAGE MORTGAGE IS MERELY A SECURITY. IT IS IMPORTANT TO NOTE THAT THE LESSEE WAS ABLE TO MORTGAGE ONLY ON CONSENT OF THE LESSOR. IN FACT THE MORTGAGE HAS TAKEN PLACE BUT THE MORTGAGE DEED IS ENTERED BY THE ASSESSES AND NOT BY THE LESSEE AND THIS ASPECT CLEARLY PROVES THAT THE ASSESSE IS STILL THE OWNER OF THE PROPERTY. B) THE AR FURTHER SUBMITTED THAT IN THE ASSESSEES CASE , THE RIGHT TO THE PROPERTY HAS NOT BEEN RELINQUISHED AND IT IS CLEARLY PROVIDE D THAT THE LAND WOULD REVERT BACK AFTER THE LEASE PERIOD. HENCE, THERE IS NO RELINQUI SHMENT OF ANY ASSET. APEX COURT DECISION IN CASE OF RASIKLAL MANEKLAL (HUF) 177 ITR 198 HAS HELD THAT A RELINQUISHMENT TAKES PLACE WHEN THE OWNER WITHDRAWS HIMSELF FROM THE PROPERTY AND ABANDONS HIS RIGHTS THERETO. THE CURRENT CASE CLEARLY DOES NOT FALL IN THE DEFINITION OF RELINQUISHMENT AND ACCORDINGLY, IT IS NOT A TRANSFER BY VIRTUE OF CLAUSE (I) OF SECTION 2(47). C) IF THE INTERPRETATION MADE BY THE AO OF THE CLAUSE (VII) OF SECTION 2(47) PREVAILS THEN EVERY TYPE OF TRANSACTION ENABLING THE ENJOYME NT OF ANY IMMOVABLE PROPERTY WOULD BE TREATED AS TRANSFER. HAD IT BEEN SO EVE RY TRANSACTION OF A HOTEL GIVING ROOM TO A COSTUMER SHALL GET CAUGHT BY THE TERM EN ABLING THE ENJOYMENT OF IMMOVABLE PROPERTY AND SHALL BECOME SUBJECT TO CLU TCHES OF CAPITAL GAINS PROVISIONS. THE CLAUSE IS RESTRICTED ONLY TO THOSE TRANSACTIONS AS MENTIONED IN THE CLAUSE ITSELF E.G. BY WAY OF BECOMING A MEMBER OF A CO-OPERATIVE SOCIETY, COMPANY OR OTHER KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 88 ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT O R ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER. THE PURPOSE OF THE SAID CLAUSE IS ALSO CRYSTAL CLEA R IN THE ABOVE-MENTIONED TRANSACTIONS, ALTHOUGH IN FACT THERE IS A TRANSFER OF SHARES / MEMBERSHIP, IN SUBSTANCE THERE IS TRANSFER OF UNDERLYING IMMOVABLE PROPERTY. THERE IS NO SUCH SCENARIO IN THE ASSESSEES TRANSACTION. D) IT MAY FURTHER BE NOTED THAT THE REGISTERED DEED DI D NOT CONTAIN ANY CLAUSE FOR RIGHT TO SELL. SECTION 50 OF THE INDIAN REGISTRATIO N ACT STATES IN CLEAR TERMS THAT THE REGISTERED DEED WILL PREVAIL OVER THE UNREGISTERED ONES. . THUS, THE AR ARGUED THAT THESE RIGHTS ARE INCIDENTA L TO ANY NORMAL LONG TERM LEASE TRANSACTIONS. THE LEGAL SUBMISSION OF THE ASSESSEE IS AS FOLLOWS: ADDITIONS MADE IN SEARCH ASSESSMENT ORDERS U/S 153A ARE BAD IN LAW IT IS PERTINENT TO NOTE THAT, THE ORIGINAL ASSESSME NT PROCEEDINGS U/S 143(3) WAS COMPLETED ON 29.12.2006 (HEREINAFTER REFERRED AS O RIGINAL ASSESSMENT ORDER FOR EASE OF REFERENCE). THE AO TREATED THE SAID LEASE T RANSACTION AS SALE TRANSACTION AND TAXED THE TOTAL SECURITY DEPOSIT RECEIVABLE AS SALE CONSIDERATION OF SALE OF LAND. THE ADDITION MADE IN THE SEARCH ASSESSMENT ORDER PE RTAINED TO THE ISSUE ALREADY DEALT IN THE ORIGINAL ASSESSMENT ORDER I.E. LEASE T RANSACTION CATEGORIZED AS SALE TRANSACTION. WE DRAW YOUR HONOURS ATTENTION TO THE FACT THAT THE AFORESAID ISSUE BEARS NO RELATION TO THE ANY OF THE MATERIAL / DOCU MENTS / RECORDS FOUND AND SEIZED DURING THE SEARCH ACTION ON 16.04.2009. ACCORDINGLY, WE SUBMIT THAT THE ENTIRE SEARCH ASSES SMENT ORDER IS BAD IN LAW AND HENCE IS LIABLE TO BE QUASHED. WITH REFERENCE TO TH E SAID CONTENTION, WE RELY ON THE CIRCULAR NO. 7 OF 2003 WHICH CLARIFIES THE POSITION OF THE PENDING APPEALS AS ON THE DATE OF THE SEARCH. THE RELEVANT PORTION IS PRODUCE D HEREWITH 'THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME OF EACH OF THESE SIX ASSESSMENT YEARS. ASSESSMENT OR REASSESSMENT, IF ANY, RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX AS SESSMENT YEARS PENDING ON THE DATE OF INITIATION OF THE SEARCH UNDER SECTION 132 OR REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE. IT IS CLARIF IED THAT THE APPEAL, REVISION OR RECTIFICATION PROCEEDINGS PENDING ON THE DATE OF IN ITIATION OF SEARCH UNDER SECTION 132 OR REQUISITION SHALL NOT ABATE..' ACCORDINGLY, AS FAR AS COMPLETED ASSESSMENTS ARE CO NCERNED, THEY DO NOT ABATE. KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 89 THE AO CANNOT PROCEED TO MAKE THE SAME ADDITION IN THE BLOCK ASSESSMENT WITHOUT ANY INCRIMINATING MATERIAL FOUND IN THE COURSE OF S EARCH. THE SAID VIEW PREVENTS THE AO TO UNDO WHAT HAS ALREADY BEEN COMPLETED AND HAS BECOME FINAL IN THE ORIGINAL ASSESSMENT PROCEEDINGS. FURTHER, RELIANCE CAN BE PLACED ON THE DECISION OF THE SPECIAL BENCH OF THE MUMBAI ITAT IN THE CASE OF M/S ALL CARGO GLOBAL LOGISTICS LIMITED VS DCIT 137 ITD 287 (MUM)(SB) , WHEREIN THE SCOPE OF ASSESSMENT U/S 153A WAS DISC USSED. THE RELEVANT EXTRACT HAS BEEN REPRODUCED AS BELOW (I) IN ASSESSMENTS THAT ARE ABATED, THE AO RETAINS THE ORIGINAL JURISDICTION AS WELL AS THE JURISDICTION CONFERRED ON HIM BY S. 153A FOR WHICH ASSESSMENTS SHALL BE MADE FOR EACH OF THE 6 A SSESSMENT YEARS SEPARATELY ; IN OTHER CASES, IN ADDITION TO THE INCOME THAT HAS ALREADY BEEN ASSESSED, THE ASSESSMENT U/S 153A WILL BE MADE ON T HE BASIS OF INCRIMINATING MATERIAL I.E . (A) THE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS FOUND IN THE COURSE OF THE SEARCH BUT NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT AND (B) UNDISCLOSED I NCOME OR PROPERTY DISCLOSED IN THE COURSE OF SEARCH. THE SAID EXTRACT CLEARLY BRINGS OUT THE ESSENCE OF ASSESSMENT TO BE CARRIED OUT U/S 153A, AND MAKES IT CLEAR THAT ONLY INCRIMINATING MA TERIAL CAN FORM THE BASIS OF ASSESSMENT U/S 153A. IN THE PRESENT CASE OF THE ASS ESSEE, NO INCRIMINATING MATERIAL HAS BEEN FOUND AND ADDITIONS HAVE BEEN MADE ON THE PURELY ON THE BASIS OF THE FACTS ALREADY CONSIDERED IN THE ORIGINAL ASSESSMENT COMPLETED U/S 143(3). THUS, THE ASSESSEE CONTENDS THAT SUCH SEARCH ASSESSMENT U/S 1 53A IS BAD IN LAW AND VOID. ON A SIMILAR SUBJECT, THE ASSESSEE WOULD ALSO LIKE TO PLACE RELIANCE ON THE FOLLOWING DECISIONS: 1. ACIT VS PACL INDIA LTD (DELHI ITAT) ITA NO. 2637/ DEL/ 2010 (THE ORIGINAL ASSESSMENT WAS MADE U/S. 143(1)) 2. CIT VS KABUL CHAWLA (DELHI HC) 3. JAI STEEL (INDIA) VS ACIT (RAJASTHAN HC) REPORTED I N 259 CTR 281 4. CIT VS CONTINENTAL WAREHOUSING CORPORATION (NAVA SH EVA) LTD (BOMBAY HC) REPORTED IN 374 ITR 645 5. GURINDER SINGH BAWA VS. DCIT (MUMBAI ITAT) ITA 20 75/MUM/2010 (THE ORIGINAL ASSESSMENT WAS MADE U/S. 143(1)) 6. ATITHI N PATEL VS. ACIT (MUMBAI ITAT) ITA NO. 43/ MUM/2010 7. RAKSHA CHHADWA VS. ACIT (MUMBAI ITAT) ITA NO. 857 6/MUM/2010 8. BR MACHINE TOOLS PVT. LIMITED VS. ACIT (MUMBAI ITAT ) ITA NO. 4174/MUM/2013 KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 90 9. MGF AUTOMOBILES LTD. VS. ACIT (DELHI ITAT) ITA NO . 4212/DEL/2011 10. ACIT VS. SUDHIR MAHESHWARI (INDORE ITAT) ITA NO. 373/IND/ 2011 11. ARUN SEHLOT VS. ACIT (INDORE ITAT) ITA NO. 186/IN D/ 2012 NOW, TO PROVIDE BRIEF SUMMARY WISE EVENTS FOR THE I MPUGNED APPEALS IN CASE OF PADMA HOMES PVT. LTD., WE WOULD FIRST AND FOREMOST DRAW YOUR HONOURS ATTENTION TO AN EVENT CHART AS UNDER WITH RESPECT TO THE MERITS AND LEGAL SUBMISSIONS WITH R ESPECT TO IMPUGNED APPEALS IN CASE OF PADMA HOMES PVT. LTD. IS CONCERNED, WE HEREBY SUBMI T THAT THE FACTS AND CIRCUMSTANCES PREVAILING IN THE INSTANT CASE IDENTICAL TO THAT IN K ALANI BROTHERS (INDORE) PVT. LTD. AND THUS WE SUBMIT THAT ALL THE ARGUMENTS TAKEN IN SAID CASE S QUARELY APPLIES TO THIS CASE AS WELL. DRS ARGUMENTS: THE DR RELIED ON THE FINDINGS OF THE AO AND ARGUED THAT THE FACTS OF THE CASE OF LAKE PALACE HOTELS WERE DISTINCT FROM THAT OF THE ASSESS EE. HENCE, THE SECURITY DEPOSIT OUGHT TO BE TREATED AS SALE CONSIDERATION. DRS ARGUMENTS: ON THE SAID ISSUE, THE DEPARTMENT REPRESENTATIVE HE AVILY RELIED ON THE ARGUMENTS OF THE AO STATED IN THE ASSESSMENT ORDER U/S 153A. FUR THER, HE ALSO CONTENDED THAT THE SECURITY DEPOSIT HAS A BEARING AND NEXUS WITH RENT. THE AMOUNT OF SECURITY DEPOSIT WAS VERY HIGH VIZ-A-VIZ RENT CHARGED. THUS, THIS RE FLECTS THAT THE CONSIDERATION WAS GIVEN IN THE FORM OF SECURITY DEPOSIT. THE LEARNED DR RELIED ON THE FOLLOWING DECISIONS ON LIFTING THE CORPORATE VEIL AND SUBSTANCE OVER FORM: A) MC. DOWELL & CO. LTD VS COMMERCIAL TAX OFFICER (SUP REME COURT) B) SMT. NAYANTARA G. AGRAWAL VS CIT (BOMBAY HIGH COURT ) C) UNION OF INDIA AND OTHERS VS PLAYWORLD ELECTRONICS PVT LTD (SUPREME COURT) D) CIT VS PANIPAT WOOLEN AND GENERAL MILLS CO. LTD (SU PREME COURT) E) WORKMEN EMPLOYED IN ASSOCIATED VS ASSOCIATED RUBBER INDUSTRY LTD (SUPREME COURT) DRS ARGUMENTS: THE DR HEAVILY RELIED ON THE VARIOUS CLAUSES OF THE LEASE DEED DATED 21.5.2003 WHEREIN VARIOUS RIGHTS WERE GIVEN TO THE LESSEE WHI CH IMPLIED SUBSTANTIAL RIGHTS OF OWNERSHIP PASSING ON TO TRANSFEREE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS. THE KALANI BROS P. LTD. ALONG WITH PADMA HOMES P. LTD. OWNS 1 LAC SQ. FT. LAND WH ICH WAS SITUATED AT KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 91 TUKOGANJ MAIN ROAD, INDORE. THIS LAND WAS GIVEN ON LEASE TO ENTERTAINMENT WORLD DEVELOPERS P. LTD. FOR 29 YEARS UNDER AGREEMENT TO LEASE DATED 21.5.2003. ON 21.5.2003, AGREEMENT TO L EASE ENTERED WITH ENTERTAINMENT WORLD DEVELOPERS P. LTD. (EWDPL) RELA TING TO SECURITY DEPOSIT OF RS.15 CRORES AND GIVEN LEASE TO RIGHT TO SELL. ON 5.7.2003, THE LEASE AGREEMENT WAS REGISTERED WITH REGISTRAR AND O N 1.3.2006, SUPPLEMENTARY AGREEMENT TO LEASE INCREASED BY TOTAL DEPOSIT OF RS.15 CRORES TO 30 CRORES. THE DETAIL OF THE SECURITY PAI D AS UNDER: AMT IN RS ASSESSMENT YEAR AMOUNT OF SECURITY DEPOSIT RECEIVED BY KALANI BROTHERS FROM EWDPL AMOUNT OF SECURITY DEPOSIT RECEIVED BY PADMA HOMES FROM EWDPL TOTAL SECURITY DEPOSIT RECEIVED 2004-05 7,04,92,487 2,95,07,513 10,00,00,000 2005-06 3,50,00,000 1,50,00,000 5,00,00,000 2006-07 10,59,59,513 4,40,40,487 15,00,00,000 TOTAL 21,14,52,000 8,85,48,000 30,00,00,000 WE FIND FROM THE LD. CIT(A)S ORDER THAT THE SIMILA R CASE TO THE ASSESSEES CASE, IN THAT CASE, LAND WAS GIVEN FOR 72 YEARS TO A HOTEL AGAINST THE LEASE RENT AND SECURITY DEPOSIT WAS RECEIVED. IN THAT CAS E, IT WAS HELD THAT NO CHARGE CAPITAL GAIN U/S 45 R.W.S. 48 OF THE I.T. AC T THERE SHOULD BE A CAPITAL ASSET AND SAME SHOULD HAVE BEEN TRANSFERRED, CONSID ERATION SHOULD HAVE RECEIVED IN LIEU OF SUCH TRANSFER AND THERE SHOULD BE COST OF ACQUISITION AND KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 92 COST OF TRANSFER. ALL THESE FOUR CONDITIONS/PRECEDE NCE AND IN ANY CASE IN ANY CONDITION REMAINED UNFILLED, THERE IS NO QUESTI ON OF CHARGING OF CAPITAL GAIN. IN THE INSTANT CASE, ASSESSEE DID NOT RECEIVE ANY CONSIDERATION IN LIEU OF TRANSFER OF CAPITAL ASSET BECAUSE LAND IN QUESTI ON HAS BEEN GIVEN ON LEASE AND ASSESSEE RECEIVED LEASE RENT YEAR AFTER Y EAR AND LEASE RENT TAX HAS BEEN PAID IN ACCORDANCE WITH LAW. THE SAID ITAT DECISION WAS AFFIRMED BY HON'BLE HIGH COURT IN THE DECISION OF 321 ITR 16 5 (CIT VS. LAKE PALACE HOTELS AND MOTELS LTD.) AND FOLLOWING THE JUDGMENT, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. WE HAVE GONE THR OUGH THE ORDER OF HON'BLE HIGH COURT AND WE HAVE ALSO GONE THROUGH TH E QUESTION FRAMED BY THE HON'BLE HIGH COURT WHICH ARE REPRODUCED IN THE WORDS OF HON'BLE HIGH COURT WHICH READ AS UNDER: THE APPEAL WAS ADMITTED ON NOVEMBER 7, 2005, BY FRA MING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: WHETHER CAPITAL VALUE OF SUCH DEEMED INTEREST TO TH E EXTENT IT HAS BEEN CHARGED LESSER THAN THE MARKET R ATE CAN BE CONSIDERED AS CONSIDERATION FOR GRANT OF LEA SE IN RESPECT OF WHICH THE CAPITAL GAINS HAS TO BE COMPUT ED ? 6. FROM THE ABOVE QUESTION OF LAW ADMITTED BY HONB LE RAJASTHAN HIGH COURT, NOWHERE IT IS STATED THAT IF THE ASSESSEE HA S RECEIVED ANY SECURITY KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 93 DEPOSIT AGAINST THE LEASE RENT OF SECURITY DEPOSIT, IT IS NOT CHARGEABLE TO CAPITAL GAIN U/S 45 R.W.S. SEC. 48 OF I.T. ACT. THE REFORE, LD. CIT(A) IS NOT JUSTIFIED IN RELYING UPON THE DECISION OF HONBLE R AJASTHAN HIGH COURT. WE THEREFORE ARE OF THE VIEW THAT THE ISSUE IN CONTROV ERSY IS COVERED BY THE JODHPUR ITAT BENCH BUT IT IS NOT DECIDED BY HONBLE RAJASTHAN HIGH COURT. 7. WE FIND THAT IN THE INSTANT CASE, ASSESSEE HAS T RANSFERRED THE LAND AND RECEIVED SECURITY DEPOSIT AND THAT SECURITY DEP OSIT WAS AGAIN REINVESTED IN MAKING THE CONSTRUCTION OF THE MALLS. WE FIND THAT THE SAID TRANSACTION IS NOT A SALE TRANSACTION. THE ASSESSIN G OFFICER HAS HELD THAT THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH K ALANI BROS AND PADMA HOMES ARE COLOURABLE DEVICE ON THE GROUND THAT THE LEASE AGREEMENT IS STAGE MANAGED AFFAIRS OF THE ASSESSEE. NO INTEREST WAS CHARGED ON THE SECURITY DEPOSIT. WE FIND THAT THE ASSESSING OFFIC ER HAS ALSO REFERRED THIS MATTER TO DISTRICT REGISTRAR AND HE WAS OF THE VIEW THAT IT IS A COLOURABLE DEVICE. AS WE HAVE ALREADY HELD THAT TRANSACTION IS NOT AVOIDING THE TAX AND ASSESSEE HAS MADE REGISTERED AGREEMENT, THEREFORE, UNLESS AND UNTIL, ASSESSING OFFICER PROVES THAT ASSESSEE HAS MADE THI S COLOURABLE DEVICE TO AVOID THE TAX. WE FIND THAT IN THE INSTANT CASE, DU RING THE COURSE OF HEARING, LD. AR HAS SPECIFICALLY SUBMITTED BEFORE US THAT TH E SAME TRANSACTION IS ALREADY OVER AND ASSESSEE HAS ALREADY TRANSFERRED I TS LAND TO SOME OTHER KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 94 PERSON, THEREFORE, THIS TRANSACTION IS ALREADY OVER AND WHEN THIS TRANSACTION IS ALREADY OVER, WE ARE OF THE VIEW THAT AS PER THE DECISION OF JODHPUR BENCH (SUPRA), THE ASSESSEE IS NOT LIABLE FOR CAPIT AL GAIN AND LD. CIT(A) IS JUSTIFIED IN HIS ACTION. DURING THE COURSE OF HEARI NG, THE LD. DR COULD NOT BRING ANY CONTRARY DECISION AGAINST THE JODHPUR BEN CH. WE DO NOT FIND ANY CONTRARY DECISION, THEREFORE, WE ENDORSE THE ACTION OF THE LD. CIT(A). WE STATE THAT THE LD. CIT(A) HAS WITHOUT LOOKING TO TH E FACTS OF THE RAJASTHAN HIGH COURT JUDGMENT RELIED THE JUDGMENT. WE FIND TH AT THIS JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IS NOT APPLICABLE TO T HE FACTS OF THE ASSESSEES CASE. WE, THEREFORE, REVERSE THE FINDING OF THE LD. CIT(A) BUT WE AGREE ON THE DECISION OF LD. CIT(A) ON THE BASIS OF JODHPUR ITAT DECISION. 8. IN RESPECT OF 153A BAD IN LAW ON THE GROUND THAT ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) WAS COMPLETED ON 29.12.2006 (HEREINAFTER REFERRED AS ORIGINAL ASSESSMENT ORDER FOR EASE OF REFERENCE ), THE AO TREATED THE SAID LEASE TRANSACTION AS SALE TRANSACTION AND TAXE D THE TOTAL SECURITY DEPOSIT RECEIVABLE AS SALE CONSIDERATION OF SALE OF LAND. THE ADDITION MADE IN THE SEARCH ASSESSMENT ORDER PERTAINED TO THE ISS UE ALREADY DEALT IN THE ORIGINAL ASSESSMENT ORDER I.E. LEASE TRANSACTION CA TEGORIZED AS SALE TRANSACTION. THE FACT THAT THE AFORESAID ISSUE BEAR S NO RELATION TO THE ANY OF THE MATERIAL / DOCUMENTS / RECORDS FOUND AND SEIZED DURING THE SEARCH KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 95 ACTION ON 16.04.2009. LD. CIT(A) HAS RELIED UPON TH E CIRCULAR NO. 7 OF 2003 WHICH CLARIFIES THE POSITION OF THE PENDING APPEALS AS ON THE DATE OF THE SEARCH. THE RELEVANT PORTION IS PRODUCED HEREWITH 'THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME OF EACH OF THESE SIX ASSESSMENT YEARS. ASSE SSMENT OR REASSESSMENT, IF ANY, RELATING TO ANY ASSESSMENT YE AR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS PENDING O N THE DATE OF INITIATION OF THE SEARCH UNDER SECTION 132 OR R EQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE. IT I S CLARIFIED THAT THE APPEAL, REVISION OR RECTIFICATION PROCEEDINGS P ENDING ON THE DATE OF INITIATION OF SEARCH UNDER SECTION 132 OR R EQUISITION SHALL NOT ABATE..' ACCORDINGLY, AS FAR AS COMPLETED ASSESSMENTS ARE CO NCERNED, THEY DO NOT ABATE. THE AO CANNOT PROCEED TO MAKE THE SAME ADDIT ION IN THE BLOCK ASSESSMENT WITHOUT ANY INCRIMINATING MATERIAL FOUND IN THE COURSE OF SEARCH. THE SAID VIEW PREVENTS THE AO TO UNDO WHAT HAS ALREADY BEEN COMPLETED AND HAS BECOME FINAL IN THE ORIGINAL ASSE SSMENT PROCEEDINGS. 9. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY BOTH THE SIDES. WE HAVE AL SO CONSIDERED VARIOUS RELEVANT FACTS OF THE CASE. IT IS A SETTLED LEGAL P OSITION THAT ONCE A SEARCH AND SEIZURE ACTION HAS TAKEN PLACE U/S 132 OF THE A CT OR A REQUISITION HAS BEEN MADE U/S 132A, THE PROVISIONS OF SECTION 153A TRIGGED AND ASSESSING OFFICER IS BOUND TO ISSUE NOTICE U/S 153A OF THE AC T. ONCE NOTICES ARE KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 96 ISSUED U/S 153A OF THE ACT THEN ASSESSEE IS LEGALLY OBLIGED TO FILE RETURN OF INCOME FOR SIX YEARS. THE ASSESSMENT AND REASSESSME NT FOR SIX YEARS SHALL BE FINALISED BY THE ASSESSING OFFICER. IT IS ALSO HELD BY VARIOUS COURTS THAT ONCE NOTICE U/S 153A OF THE ACT ISSUED, THEN ASSESS MENT FOR SIX YEARS SHALL BE AT LARGE BOTH FOR ASSESSING OFFICER AND ASSESSEE HAVE NO WARRANT OF LAW. IT HAS BEEN ALSO HELD THAT IN THE ASSESSMENT Y EARS WHERE ASSESSMENTS HAVE BEEN ABATED IN TERMS OF SECOND PROVISO TO SECT ION 153A THEN ASSESSING OFFICER ACTS UNDER ORIGINAL JURISDICTION AND ONE ASSESSMENT IS MADE FOR TOTAL INCOME INCLUDING THE ADDITION MADE O N THE BASIS OF SEIZED MATERIAL. BUT WHERE THERE IS NO ABATEMENT OF ASSESS MENTS AND ASSESSMENTS WERE COMPLETED ON THE DATE OF SEARCH TH EN ADDITION CAN BE MADE ONLY ON THE BASIS OF INCRIMINATING DOCUMENTS O R UNDISCLOSED ASSETS, ETC. IN THESE CASES THERE WAS NO INCRIMINATING DOCU MENT FOUND AND SEIZED. NO ASSESSMENT PROCEEDINGS WERE ABATED IN THESE ASSE SSEES. THUS ASSESSMENTS FOR THESE ASSESSMENT YEARS WERE COMPLET ED ON THE DATE OF SEARCH. THE ASSESSMENTS WERE COMPLETED U/S 143(3) O F THE ACT READ WITH SECTION 153A/153C OF THE ACT AFTER THE SEARCH. THER E WAS NO ABATEMENT OF ANY PROCEEDINGS IN THESE CASES FOR THESE ASSESSMENT YEARS IN TERMS OF SECOND PROVISO TO SECTION 153A OF THE ACT. THERE IS NO SEIZED MATERIAL BELONGING TO THE ASSESSEE WHICH WAS FOUND AND SEIZE D IN RELATION TO KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 97 ADDITIONS MADE. IN A RECENT DECISION, HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KABUL CHAWLA (SUPRA) HAS HELD THAT COMPL ETED ASSESSMENTS CAN BE INTERFERED WITH BY THE ASSESSING OFFICER WHILE M AKING ASSESSMENT U/S 153A OF THE ACT, ONLY ON THE BASIS OF SOME INCRIMIN ATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OR REQUISITION OF DOCUM ENTS OR UNDISCLOSED INCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEAR CH WHICH WAS NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. IN ALL THESE CASES NO ASSESSMENTS WERE PENDING ON THE DATE OF SEARCH FOR THESE ASSESSMENT YEARS. NO ASSESSMENT S WERE ABATED IN TERMS OF SECOND PROVISO TO SECTION 153A OF THE ACT. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KABUL CHAWLA (SUPRA) H AS CONSIDERED VARIOUS HIGH COURT DECISIONS RELIED UPON BY THE LEARNED DR. THE HON'BLE DELHI HIGH COURT HAS CONSIDERED THE CASES OF CANARA HOUSI NG DEVELOPMENT CO. VS. DCIT; MADUGULA VS. DCIT; CIT VS. CHETANDAS LAXM ANDAS AND CIT VS. ANIL KUMAR BHATIA (SUPRA). THE ONLY DECISION OF TH E HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR ARORA; 367 ITR 517 RELIED ON BY THE LEARNED DR WAS NOT CONSIDERED BY HON'BLE DEL HI HIGH COURT WHILE DECIDING THE ISSUE IN THE CASE OF KABUL CHAWLA. THE HON'BLE ALLAHABAD HIGH COURT HAS REVERSED THE ORDER OF THE TRIBUNAL A ND REMANDED THE ISSUE TO THE TRIBUNAL TO CONSIDER THE APPEAL OF THE DEPAR TMENT ON MERITS. IT IS A KALANI BROS AND PADMA HOMES (SS) 68, 71 OF 2014 AND OTHERS 98 SETTLED LEGAL POSITION THAT WHEN TWO VIEWS ARE POSS IBLE ON A PARTICULAR ISSUE THEN THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE FOLLOWED AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS; 88 ITR 192. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE APEX COURT, WE DISMISS THE GROUND OF APPEALS OF THE REVENUE. DEPARTMENTAL APPEALS ARE DISPOSED ACCORDINGLY. 10 SO FAR AS CROSS-OBJECTIONS FILED BY THE ASSESSEE S ARE CONCERNED, WE FIND THAT SAME ARE FILED SUPPORTIVE IN NATURE, THER EFORE, DO NOT REQUIRE SEPARATE ADJUDICATION. SAME ARE DISMISSED. 11 FINALLY, DEPARTMENTAL APPEALS ARE DECIDED IN TER MS AS INDICATED ABOVE WHEREAS CROSS-OBJECTIONS ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 6 .11.2015. SD/- SD/- (B.C.MEENA) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 6.11.2015 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYS!