ACIT, Coimbatore V. M/s. P.N.R.Property Developers Pvt. Ltd., Coimbatore

ITA 1570/CHNY/1994

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64573 (ITAT-CHENNAI)
• Duration Of Justice: 18 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-11-2012
• Assessment Year: 1991-1992
• Appeal Filed On: 20-06-1994
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Keywords: Revenue expenditure
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 1570/MDS/1994 (ASSESSMENT YEAR : 1991-92) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I(1), COIMBATORE. (APPELLANT) V. M/S PNR PROPERTY DEVELOPERS PVT. LTD., 112, EAST SAMBANDAM ROAD, RS PURAM, COIMBATORE 2. (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : DATE OF HEARING : 07.11.2012 DATE OF PRONOUNCEMENT : 22.11.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : ORIGINALLY, THIS APPEAL WAS DISPOSED OF BY THIS T RIBUNAL VIDE ITS ORDER DATED 17 TH MAY, 2002, WHICH WAS CARRIED IN APPEAL BY THE REVENUE BEFORE THE JURISDICTIONAL HIGH COURT UNDER SECTION 260A OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). HONBLE JURISDICTIONAL HIGH COURT, VIDE THEIR JUDGMENT DATED 4.6.2012 IN TAX CA SE (APPEAL) NO.600 OF 2005, HAS REMITTED ONE OF THE ISSUES BACK TO THIS TRIBUNAL I.T.A. NO. 1570/MDS/94 2 FOR DECIDING AFRESH. THE ISSUE IS REGARDING A PAYM ENT OF ` 3 LAKHS MADE BY THE ASSESSEE TO THE OWNER OF THE PROPERTY P URSUANT TO A JOINT VENTURE AGREEMENT, WHICH WAS CLAIMED AS REVENUE OUT GO BY THE ASSESSEE AND NOT ALLOWED BY THE LOWER AUTHORITIES. 2. FACTS AS COULD BE CULLED OUT FROM THE ASSESSMENT ORDER ARE THAT ASSESSEE, A CLOSELY HELD COMPANY, ENGAGED IN THE BU SINESS OF PROPERTY DEVELOPMENT AND SALE, HAD DURING THE RELEV ANT PREVIOUS YEAR, ENTERED INTO A JOINT VENTURE AGREEMENT WITH C ERTAIN LAND OWNERS, AND THEREAFTER, ON SUCH PROPERTY, A BUILDING NAMED SRINIVASA TRADE CENTRE WAS CONSTRUCTED. AS PER THE A.O., ASSESSEE WAS REQUIRED TO PAY ` 3 LAKHS TO THE OWNERS OF THE LAND AS CONSIDERATION FOR ENTERING INTO THE JOINT VENTURE AGREEMENT. IT SEEMS THERE W ERE FIVE OWNERS OF THE LAND AND THE AMOUNT TO BE PAID TO EACH OF THEM WAS ` 60,000/- EACH. IN ADDITION, ASSESSEE WAS TO PAY ` 18,75,000/- TOWARDS COST OF THE LAND. THUS THE TOTAL CONSIDERATION PAYABLE AS PER THE JOINT VENTURE AGREEMENT WAS ` 21,75,000/-. ASSESSEE CLAIMED THE ENTIRE AMOUNT AS REVENUE EXPENDITURE, DURING THE RELEVANT PREVIOUS YEAR. CONSIDERING THE ACTUAL BUILDING AREA SOLD BY THE AS SESSEE DURING THE RELEVANT PREVIOUS YEAR, ASSESSING OFFICER WAS OF TH E OPINION THAT OUT OF ` 18,75,000/- PAID FOR THE LAND, ONLY A SUM OF ` 10,93,650/- WOULD I.T.A. NO. 1570/MDS/94 3 BE ALLOWED AND THE BALANCE OF ` 7,81,350/- HAD TO BE CONSIDERED AS PART OF THE CLOSING STOCK. INSOFAR AS THE PAYMENT OF ` 3 LAKHS WAS CONSIDERED, ASSESSING OFFICER WAS OF THE OPINION TH AT THIS WAS CONSIDERATION PAID FOR ENTERING INTO THE JOINT VENT URE AGREEMENT. AS PER THE A.O., SUCH AN AGREEMENT BEING FUNDAMENTAL T O THE BUSINESS OPERATION OF THE ASSESSEE, RELATED OUTGO COULD ONLY BE CONSIDERED AS CAPITAL IN NATURE. HE THUS MADE A DISALLOWANCE OF ` 3 LAKHS. 3. ASSESSEES APPEAL BEFORE CIT(APPEALS) WITH REGAR D TO BOTH THESE DISALLOWANCES WERE ACCEPTED. AS PER THE CIT( APPEALS), THE LAND WAS GIVEN BY THE OWNER TO THE ASSESSEE FOR DEV ELOPMENT AND CONSTRUCTION OF FLATS/SHOPS AND THE OWNERS HAD TO R EGISTER THE UNDIVIDED SHARE IN THEIR PROPERTY TO THE ULTIMATE B UYERS. AS PER THE CIT(APPEALS), THERE WAS NO LAND WITH THE ASSESSEE W HICH COULD BE CONSIDERED AS A PART OF ITS CLOSING STOCK. AS FOR THE SUM OF ` 3 LAKHS PAID, CIT(APPEALS) WAS OF THE OPINION THAT ASSESSIN G OFFICER DID NOT APPROACH THE ISSUE IN A COMPREHENSIVE MANNER. ACCO RDING TO HIM, ASSESSEE WAS A REAL ESTATE DEVELOPER. FURTHER, ACC ORDING TO HIM, THE PAYMENT OF ` 3 LAKHS ONLY ENABLED THE COMPANY TO CARRY OUT ITS BUSINESS AND IT WAS NOT FOR ACQUISITION OF ANY INVE STMENT OR FIXED ASSETS. HE THUS DELETED THE DISALLOWANCE OF ` 3 LAKHS AS WELL. I.T.A. NO. 1570/MDS/94 4 4. THE TRIBUNAL IN FURTHER APPEAL FILED BY THE REVE NUE UPHELD THE ORDER OF CIT(APPEALS). REVENUE MOVED IN FURTHER AP PEAL BEFORE HONBLE JURISDICTIONAL HIGH COURT. INSOFAR AS THE ISSUE RELATING TO VALUE OF THE LAND BEING CONSIDERED AS CLOSING STOCK , JURISDICTIONAL HIGH COURT DISMISSED THE APPEAL OF THE REVENUE. HO WEVER, INSOFAR AS THE ISSUE RELATING TO THE SUM OF ` 3 LAKHS PAID BY THE ASSESSEE FOR JOINT VENTURE AGREEMENT, THE MATTER HAS BEEN REMITT ED BACK. 5. NOW BEFORE US, LEARNED D.R. STRONGLY ASSAILING T HE ORDER OF CIT(APPEALS), SUBMITTED THAT THE CIT(APPEALS) HAD F AILED TO PROPERLY VERIFY THE JOINT VENTURE AGREEMENT BEFORE COMING TO A CONCLUSION THAT THE NATURE OF OUTGO WAS REVENUE. ACCORDING TO HIM, ASSESSEE HAD OBTAINED A RIGHT, WHICH WAS VALUABLE IN NATURE BY V IRTUE OF PAYMENT OF ` 3 LAKHS PURSUANT TO THE JOINT VENTURE AGREEMENT AN D THEREFORE, IT COULD ONLY BE CONSIDERED AS CAPITAL OUTGO. 6. PER CONTRA, LEARNED A.R. SUBMITTED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF LAND AND BUILDING OF FLATS, AND THEREFORE, THE PAYMENT MADE FOR FACILITATING CONSTR UCTION OF FLATS AND BUILDING WAS NOTHING BUT NECESSARY EXPENSES INCURRE D IN THE ORDINARY COURSE OF ITS BUSINESS. ACCORDING TO LEARNED A.R., BY ENTERING INTO A I.T.A. NO. 1570/MDS/94 5 JOINT VENTURE AGREEMENT, ASSESSEE DID NOT ACQUIRE A NY ASSET OF ENDURING NATURE, BUT SUCH PAYMENT ENABLED THE ASSES SEE TO CONSTRUCT FLATS/SHOPS IN THE LAND. ONLY THE FLATS/ SHOPS WHICH REMAINED UNSOLD FORMED PART OF STOCK OF THE ASSESSE E. ASSESSEE DID NOT ACQUIRE ANY ASSET BY VIRTUE OF THE PAYMENT OF ` 3 LAKHS. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS NOT DISPUTED THAT THE SUM OF ` 3 LAKHS WAS PAID BY THE ASSESSEE PURSUANT TO A JOINT VENTURE AGREEMENT. BY VIRTUE O F SUCH JOINT VENTURE AGREEMENT, ASSESSEE GOT A RIGHT TO CONSTRUCT FLATS/ BUILDING IN A PIECE OF LAND. PARA 2.1 OF THE ASSESSMENT ORDER CLEARLY STATES THAT THE OWNERS OF THE LAND WERE TO HAND OVER PHYSICAL POSSE SSION OF THE PROPERTY TO THE ASSESSEE FOR DEVELOPMENT AND CONSTR UCTION OF A BUSINESS COMPLEX CALLED SRINIVASA TRADE CENTRE. SU CH BUSINESS COMPLEX WAS TO BE SOLD TO VARIOUS PARTIES AND ASSES SEE WAS TO RECEIVE THE SALE CONSIDERATION. IT IS ALSO MENTION ED BY THE ASSESSING OFFICER THAT WHEN FLATS WERE SOLD, CONVEYANCE FOR T HE LAND WAS TO BE EXECUTED BY THE OWNERS OF THE LAND TO THE RESPECTIV E BUYERS AND CAPITAL GAINS ARISING ON ACCOUNT OF THIS, WAS TO BE BORNE BY SUCH LAND OWNERS. THUS, IT IS CLEAR THAT BY VIRTUE OF JOINT VENTURE AGREEMENT, WHAT THE ASSESSEE RECEIVED WAS A RIGHT TO CONSTRUCT A BUILDING OVER I.T.A. NO. 1570/MDS/94 6 THE PROPERTY. BY VIRTUE OF SUCH RIGHT OF CONSTRUCT ION, ASSESSEE HAD GONE AHEAD WITH THE PROJECT AND CONSTRUCTED FLATS/S HOPS. ADMITTEDLY, A PART OF SUCH FLATS/SHOPS WERE SOLD AS WELL. THE PAYMENT OF ` 3 LAKHS TO THE JOINT OWNERS THUS DID NOT GIVE TO THE ASSESSEE ANY ENDURING BENEFIT BUT, ONLY ENABLED IT TO CARRY ON I TS BUSINESS. BUT FOR SUCH PROPERTY, ASSESSEE WOULD NOT HAVE RECEIVED THE RIGHT TO DO CONSTRUCTION WORK IN THE LAND. SO, IT WAS A PAYMEN T NECESSARILY INCURRED BY THE ASSESSEE FOR CARRYING ON ITS BUSINE SS. ASSESSEE DID NOT GET ANY ENDURING BENEFIT. WE CANNOT SAY THAT T HE PAYMENT RESULTED IN ACQUISITION OF ANY ASSETS. IT IS ALSO TO BE NOTED THAT PRIOR TO SECTION 32(1) BEING SUBSTITUTED BY FINANCE (NO.2 ) ACT, 1998, INTANGIBLE ASSETS WERE NOT ELIGIBLE FOR GRANT OF DE PRECIATION GENERALLY. SUCH INTANGIBLE ASSETS WOULD BE AN ASSET ONLY IF IT GAVE RISE TO AN ENDURING BENEFIT. THUS, EVEN IF WE CONSIDER THAT T HE PAYMENT OF ` 3 LAKHS HAD GIVEN TO THE ASSESSEE, A RIGHT OF COMMERC IAL NATURE, IT COULD STILL NOT BE CONSIDERED AS A CAPITAL OUTGO, S INCE SUCH A COMMERCIAL RIGHT DID NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE. IN THIS VIEW OF THE MATTER, WE ARE OF THE OPINION T HAT THE CIT(APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF ` 3 LAKHS MADE BY THE A.O. NO INTERFERENCE IS REQUIRED. I.T.A. NO. 1570/MDS/94 7 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 22 ND OF NOVEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 22 ND NOVEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), COIMBATORE (4) CIT, COIMBATORE (5) D.R. (6) GUARD FILE