DCIT, Pune V. Shrikrishna V. Vinchurkar, Pune

ITA 1610/PUN/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3173 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 22-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Assessee Lawyers: P D KUDWA
• Keywords: Capital asset; Business income; Cost of acquisition
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO.1610 & 1611/PN/08 (ASSTT. YEAR 2004-05 & 200 5-06) DCIT CIRCLE 7, PUNE .... APPELLANT VS. SHRIKRISHNA V. VINCHURKAR KARMAYOG, 16, KARVENAGAR SOCIETY, PUNE 411004 PAN NO. AAKPV0513B . RESPONDENT APPELLANT BY : SHRI ABHAY DAMLE RESPONDENT BY : SHRI P.D. KUDWA ORDER PER D. KARUNAKARA RAO AM THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-III, PUNE DATED 15-09-2008 AND 30-09-2008 FO R THE A.Y 2004-05 & 2005- 06 RESPECTIVELY. GROUNDS ARE IDENTICAL FOR BOTH THE APP EALS AND THE GROUNDS RAISED IN THE APPEAL FOR AY 2004-05 ARE AS UNDER:- 1. THE HONBLE CIT(A) HAS ERRED IN HOLDING THAT T HE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE ASSESSEES CLAIM O F ASSESSING THE INCOME FROM SALE OF DEVELOPMENT RIGHTS UNDER THE HEAD OF C APITAL GAINS AND IN ASSESSING THE SAME AS INCOME FROM BUSINESS O R PROFESSION , THEREBY ALLOWING THE ASSESSEES CLAIM OF INCOME FRO M SALE OF DEVELOPMENT RIGHTS AS ASSESSABLE UNDER THE HEAD CAPITAL GAINS. 2. THE HONBLE CIT(A) HAS ERRED IN DIRECTING THE AS SESSING OFFICER TO VERIFY THE ASSESSEES CLAIM REGARDING INDEXATION OF COST OF ACQUISITION AFTER HOLDING THAT THE INCOME FROM SALE OF DEVELOPM ENT RIGHTS IS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN . 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING INCOME UNDER VARIOUS HEADS OF INCOME. SO FAR AS THE INCOME FURNISHED ITA NO. 1610 & 1611/PN/08 A.Y: 2004-05 & 2005-06 PAGE 2 OF 5 UNDER THE HEAD CAPITAL GAINS IS CONCERNED, ASSESSEE REPORTED THE SALE OF DEVELOPMENT RIGHTS ON SALE OF THE LAND AND EARNING OF LONG TERM CAPITAL GAINS OF RS. 97,52,740/-. ASSESSEE REINVESTED OF THE SAME IN NABARAD SHARES AND FINALLY DISCLOSED NIL TAXABLE GAINS UNDER THIS HEAD. DURING T HE SCRUTINY ASSESSMENT, A.O HELD THE SALE OF DEVELOPMENT RIGHTS OF THE SALE OF L AND CONSTITUTED AN ADVENTURE IN THE NATURE OF TRADE AND CONSEQUENTLY, AO DENIED THE BENEFITS OF THE EXEMPTION U/S 54EC OF THE ACT IN RESPECT OF THE REIN VESTMENT OF THE IMPUGNED GAINS IN THE NABARD BONDS. 3. THE FACTS RELATING TO THIS SALE ARE GIVEN IN PARA 4 OF THE IMPUGNED ORDER WHICH READS AS FOLLOWS:- 4. THE FACTS OF THE CASE, AS SUBMITTED BY THE APP ELLANT, ARE AS FOLLOWS:- DATE FACTS 05.01.2002 SHRI RAGHUNATH SHANKAR POTNIS (ASSESSEES PATERNAL UNCLE) ENTERED INTO AGREEMENT FOR SALE OF DEVELOPMENT RIGHTS IN S. NO . 29, HISSA NO.2, VILLAGE HINGNE BUDRUK, PUNE WITH M/S. KUMAR & P OTNIS PVT. LTD. THE AGREEMENT ENVISAGED TRANSFER OF DEVELOPMENT RI GHTS TOTALING TO 7209 SQ. MTRS. FOR A CONSIDERATION OF RS. 5.21 CRORES IN PHASES OVER A THREE YEAR PERIOD ON TERMS AND CONDITIONS STATED IN THE AGREEMENT. 11.01.2002 SHRI R.S. POTNIS ISSUED POWER OF ATTORNEY IN FAVOUR 0F SHRI V.K. JAIN AND THE ASSESSEE. 01.03.2002 SHRI R.S. POTNIS EXECUTED AND REGISTERED HI S WILL WHEREIN INTERALIA, HE BEQUEATHED THE SUBJECT LAND TO THE APPELLANT. 09.08.2002 A.Y. 2002-03 I.T. RETURN OF SHRI R.S. POT NIS CAPITAL GAINS OF RS. 9700000 ON TRANSFER OF DEVELOPMENT RIGHTS IN 1447 SQ. MTS. FSI CORRESPONDING BUILDING NO. A-2 IN THE SUBJECT PROPERTY DECLARED SUBJECT TO EXEMPTION U/S. 54EC FOR INVESTMENT IN NAB ARD BONDS RS. 11700000. 11.11.2002 SHRI R.S POTNIS DIED. 18.07.2003 A.Y 2003-04 I.T. RETURN OF SHRI R.S. POTN IS CAPITAL GAINS OF RS. 17269335 ON TRANSFER OF DEVELOP MENT RIGHT IN 2578 SQ. MTS. FSI CORRESPONDING TO BUILDING NOS. A-5 , A-6, A-3 IN THE SUBJECT PROPERTY DECLARED SUBJECT TO EXEMPTION U/ S. 54F FOR INVESTMENT IN HOUSE PROPERTY RS. 3064981 & U/S 54 EC FOR INVESTMENT IN NABARD BONDS RS. 14700000. 20.01.2003 THE APPELLANT SHRI S.V. VINCHURKAR SIGNED D EED OF CONFIRMATION WITH M/S. KUMAR & PROPERTIES PVT. LTD. CONFIRMING TERMS AND CONDITIONS IN DEVELOPMENT AGREEMENT DATED 05.01.2002 EXECUTED BY LATE SHRI R.S. POTNIS. 21.10/2004 A.Y. 2004-05 I.T. RETURN OF SHRI S.V. VIN CHURKAR CAPITAL GAINS OF RS. 9752740 ON TRANSFER OF DEVELOP MENT RIGHTS IN 1545 SQ. MTS. FSI CORRESPONDING TO BUILDING NOS. A-2 IN THE SUBJECT PROPERTY DECLARED SUBJECT TO EXEMPTION U/S. 54EC FOR IN VESTMENT IN NABARD BONDS RS. 11700000. 01.08.2005 A.Y 2005-06 I.T. RETURN OF SHRI S.V. VIN CHURKAR ITA NO. 1610 & 1611/PN/08 A.Y: 2004-05 & 2005-06 PAGE 3 OF 5 CAPITAL GAINS OF RS. 11758549 ON TRANSFER OF DEVELOP MENT RIGHTS IN 1639 SQ. MTS. FSI CORRESPONDING TO BUILDING NOS. A-1 IN THE SUBJECT PROPERTY DECLARED SUBJECT TO EXEMPTION U/S. 54EC FOR IN VESTMENT IN NABARD BONDS RS. 12900000. 4. THE AO HAS COMPLETED ASSESSMENT IN THE APPELLANT S CASE BY HOLDING AS FOLLOWS: I) THAT ON THE DATE OF THE DEVELOPMENT AGREEMENT I.E . 05.01.2002, TRANSFER OF THE ENTIRE FSI OF 7209 SQ. MTS. HAS TAKEN PLACE AND THE ENTIRE CAPITAL GAINS SHOULD HAVE BEEN ASSESSED IN TH E HANDS OF SHRI R.S. POTNIS IN A.Y. 2002-03, RATHER THAN IN PHASES OV ER FOUR ASSESSMENT YEARS IN THE HANDS OF R.S.P AND S.V.V. AS OUTLINED ABOVE. II) THAT SHRI R.S. POTNIS ENTERED INTO AN ADVENTURE IN THE NATURE OF TRADE ON 05.01.02 BY EXECUTING THE DEVELOPMENT AGREEM ENT WITH M/S. KPPL AND THAT THE AMOUNTS ACCRUED IN EACH YEAR O VER THE TERM OF THE AGREEMENT WAS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. III) THAT THE FINAL DECISION IS TO BE TAKEN IN THE CASE OF SHRI R.S POTNIS IN A.Y 2002-03. IF INCOME IS CHARGED UNDER THE HEAD CAPITAL GAINS IN SUCH ASSESSMENT, THEN NO INCOME IS CHARGEABLE IN A.Y 2004-05 IN THE APPELLANTS CASE. THE A.O HAS THEREFORE ASSESS ED INCOME UNDER THE HEAD CAPITAL GAINS PROTECTIVELY CONSIDERING THIS CONTINGENCY. IV) THAT THE ASSESSEE CARRIED ON AN ADVENTURE IN THE NATURE OF TRADE WITH REGARD TO 1545 SQ. MTS. FSI IN THE SUBJECT LAND WHICH IS CHARGEABLE TO TAX IN A.Y. 2004-05 UNDER THE HEAD PROF ITS & GAINS OF BUSINESS. THE A.O HAS THEREFORE ASSESSED SALE PROCE EDS OF RS. 11166175 SUBSEQUENTLY AS INCOME IN THE ASSESSEES H ANDS FOR A.Y 2004-05. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE AD MITTED TO DEMONSTRATE THAT THE SALE IN QUESTION IS NOT AN ADVENTURE IN THE NATURE OF TRADE AND WHICH IS ACTUALLY A SALE OF CAPITAL ASSET AND THE PROCEEDS OF THE SAME ARE TAXABLE UNDER THE HEAD LONG TERM CAPITAL GAIN. IN THIS REGARD ASSESS EE RELIED ON DEVELOPMENTAL AGREEMENT AND VARIOUS CLAUSES SUCH AS CLAUSE 2 SUB CL AUSE 2(D), 2(G) CLAUSE 3, 7,9,12 DETAILS OF WHICH ARE DISCUSSED IN PARA 2 OF TH E IMPUGNED ORDER. FINALLY AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE CIT(A) ELABORATED ON THE MEANING OF THE EXPRESSION ADVENTUROUS NATURE OF TRADE I N THE LIGHT OF SUPREME COURT JUDGEMENT IN THE CASE OF G. VENKATASWAMI NAIDU AND CO. VS. CIT, 35 ITR 594 WHICH PROVIDED CERTAIN CHARACTERISTICS OF THE ADVEN TURES WHICH MAY FALL IN SUCH EXPRESSION. AT THE END THE CIT(A) CAME TO THE C ONCLUSION THAT, TRANSACTIONS OF SALE OF DEVELOPMENT RIGHT IS NOT IN NATURE OF ADVE NTURE IN THE NATURE OF TRADE. ACCORDINGLY, THE CIT(A) ALLOWED THE APPEAL OF THE AS SESSEE ON THIS ISSUE. FURTHER THE CIT(A) REGARDING THE INDEXATION COST OF AC QUISITION OF THE SAID PROPERTY, THE AO WAS DIRECTED TO VERIFY CLAIM OF ASSESS EE AND COMPUTE THE ITA NO. 1610 & 1611/PN/08 A.Y: 2004-05 & 2005-06 PAGE 4 OF 5 INCOME OF THE ASSESSEE FROM THE CAPITAL GAINS HEAD A S PER PROVISIONS OF LAW. AGGRIEVED WITH THE SAME REVENUE FILED AN APPEAL BEFO RE THE TRIBUNAL WITH THE ABOVE REFERRED GROUNDS. 5. AGGRIEVED WITH THE SAME, THE REVENUE FILED THE PRES ENT APPEALS. DURING THE PROCEEDINGS, LD DR FOR THE ASSESSEE SUPPORTED THE ORDER OF THE AO AND IS CRITICAL OF THE DECISION OF THE CIT(A), WHO GAVE RELI EF TO THE ASSESSEE. LD DR RELIED ON THE SUPREME COURT ORDER IN THE CASE OF CHATURBH UJ DWARKADAS KAPADIA (260 ITR 491) IN SUPPORT OF THE AOS DECISION. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE MADE V ARIOUS ARGUMENTS AND THEY ARE: (I) THE DEVELOPMENT AGREEMENT AND ITS C LAUSES VOUCH FOR THE GRANT OF RIGHT TO POSSESSION OF THE ASSET IN A STAGGERED MA NNER SUBJECTED TO VARIOUS CONDITIONS; (II) AFTER THE DEMISE OF THE ORIGINAL OWN ER OF THE LAND, THE SAID DEVELOPMENT AGREEMENT IS CONFIRMED IN TOTO BY THE ASSESSEE, THE LEGAL HEIR; (III) THE DECISION OF THE AO TO TAX THE WHOLE OF THE INCO ME IN THE YEAR IN WHICH THE DEVELOPMENT AGREEMENT WAS DRAWN IS NOT IMPLEMENTABLE IN VIEW OF THE ORDER OF THE AO IN THE CASE OF THE ORIGINAL OWNER; IN THE REASS ESSMENT PROCEEDINGS IN THE CASE OF SRI R S POTNIS, THE AO CONFIRMED THE ORIGINAL STAND OF THE AO; (IV) AO CANNOT HOLD THAT THE TRANSACTIONS IN QUESTION ARE T HE ADVENTURE IN THE NATURE OF TRADE MERELY BASED ON THE TRANSACTIONS STAGGERED OVER TH E YEARS, WHICH SUCH TRANSACTIONS YEIDED CAPITAL GAINS AS OFFERED BY THE A SSESSEE; (V) RELYING ON THE JUDGMENT OF THE HIGH COURT OF PUNJAB AND HARYANA IN T HE CASE OF SUSHILA DEVI JAIN (259ITR 671), THE COUNSEL ARGUED STATING THAT T HE LAND INHERITED WHEN SOLD IN PARCELS IS NOT AN ADVENTURE IN THE NATURE OF TRADE. TAKING THE ANALOGY OF THE FACTS OF THE INSTANT CASE, THE COUNSEL MENTIONED TH AT THE LAND AND THE RIGHTS ATTACHED THERETO WHEN SOLD IN PHASES YIELD CAPITAL G AINS ONLY AND NOT THE BUSINESS INCOME. 6. WE HAVE HEARD THE DIVERGENT ARGUMENTS OF THE RIVAL P ARTIES AND PERUSED THE ORDERS AND THE MATERIAL PLACED BEFORE US. PRIMA FACI E, THERE IS DIVERGENCE IN THE APPROACH OF THE AO ON THE SAME ISSUES AS DETAILE D ABOVE. ONE AO SAYS THAT THE TRANSACTION IN QUESTION IS AN ADVENTURE IN THE NA TURE OF TRADE AND THE OTHER AO CONFIRMS THAT THE SAME CONSTITUTES A CAPITAL GAIN S TRANSACTION. ON PERUSAL OF THE SCS JUDGMENT RELIED UPON BY THE LD DR, WE FIND THAT THE SAME IS NOT APPLICABLE AS THERE ARE GRANT OF IRREVOCABLE LICENCE TO THE TRANSFEREE; WHEREAS IN THE INSTANT CASE THE SUCH RIGHT TO POSSESSION WAS GRA NTED IN PHASED MANNER AS EVIDENT FROM VARIOUS CLAUSES OF THE DEVELOPMENTAL AGRE EMENT PLACED AT PAGE 3 ITA NO. 1610 & 1611/PN/08 A.Y: 2004-05 & 2005-06 PAGE 5 OF 5 OF THE PAPER BOOK. WE HAVE ALSO PERUSED THE ORDER OF TH E CIT(A) WHO ANALYSED THE GUIDELINES FOR CONSIDERING CERTAIN TRANSACTION AS T HE ADVENTURE IN THE NATURE OF TRADE IN THE GIVEN FACTS OF THIS CASE. REGARDING G ROUND 2, IT IS NOTICED THAT CIT(A) MERELY ISSUED A DIRECTION TO THE A.O. NOTHING ADVERSE WAS DEMONSTRATED BY THE DR BEFORE US. CONSIDERING THE ABOVE, WE ARE OF THE OPINION, THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDIN GLY, THE GROUNDS RAISED IN BOTH THE APPEALS OF THE REVENUE ARE DISMISSED . 7. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED . ORDER PRONOUNCED ON 24 TH NOVEMBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 24 TH NOVEMBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. DCIT, CIRCLE-10, PUNE 2. ASSESSEE 3. CIT(A)-III, PUNE 4. CIT-I, PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE