Sridhar B. Kathare, V. ACIT,

ITA 1648/BANG/2013

• Counselvise Citation: 164821114 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-11-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 29-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSAIN QURESHI
• Assessee Lawyers: NAGINCHAND KHINCHA
• Keywords: Capital asset
• Section: 143(3); 2(14); 153A; 234B; 263; 132; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO S . 1648 TO 1650 / BANG /20 1 3 ( ASSESSMENT YEAR S : 200 2 - 03, 2004 - 05 & 2005 - 06 ) SHRI SR I DHAR B KATHERE, NO.2041, HIGH POINT - II, PLACE ROAD, BANGALORE. PAN ACRPK 3110E . APPELLANT VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 8(1), BA NGALORE . .. RESPONDENT. APPELLANT BY : SHRI NAGINCHAND KHINCHA, C.A. RESPONDENT BY : S HRI FARHAT HUSAIN QURESHI, CIT (D.R) DATE OF H EARING : 11.11.2014. DATE OF P RONOUNCEMENT : 23.1. 201 5 . O R D E R PER S HRI JASON P. BOAZ : THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS) V, BANGALORE DT.3.10.2013 FOR ASSESSMENT YEAR S 200 2 - 03, 2004 - 05 & 2005 - 06. AS THE ISSUES INVOLVED AND THE GROUNDS OF APPEAL RAISED ARE COMMON IN ALL THESE THREE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - ITA NO S . 1648 TO 1650 /BANG/ 2013 2 2.1 THE ASSESSEE WAS THE S ECRETARY OF THE KARNATAKA AGRICULTURE FOUNDATION, HUBLI, A SOCIETY R E GISTER E D UNDER THE KARNATAKA SOCIETIES REGISTRATION AC T, 1960. A VAST TRACT OF LAND OF ABOUT 1.70 LAKH SQ. FT. AT STATION ROAD, HUBLI THAT BELONGED TO KARNATAKA AGRICULTURE FOUNDATION WAS LEASED FOR A LONG PERIOD TO 13 PERSONS; COMPRISING OF 8 MEMBERS OF THE R/K. CHHATNI GROUP CONSISTING OF (1) RAMAKRISHNA CHHATNI, (2) KASHINATH CHHATNI, (3) GYANOBA CH H ATNI, (4) JAGANNATH CHHATNI, (5) AMARNATH CHHATNI, (6) SMT. JAYALAKSHMI (7) SMT. LAXMI AND (8) SHEKAR AND THE 5 OTHER MEMBERS WERE (9) PARESH D. GANJEWALA, (10) SHYAM SUNDAR KAR MOKAR, MUMBAI, (11) SURESH BHUTE , BELGAUM, (12) J. BALAJI SINGH, BANGALORE AND (13) SUM A N PATIL, HUBLI BELONGING TO THE SRIDHAR B KATHARE GROUP. THE ASSESSEE, BEING THE SECRETARY OF THE KARNATAKA AGRICULTURAL FOUNDATION SIGNED THE DEED ON BEHALF OF THE LESSOR I.E. ;KARNATAKA AGRICULTURE FOUNDATION. 2.2 THE 13 LESSEES (LISTED OUT ABOVE IN PARA 2.1 OF THIS ORDER) IN TURN ENTERED INTO A DEVELOPMENT AGREEMENT DT.20.2.1998 WITH M/S. LAXMINARAYAN ESTATE DEVELOPERS (P) LTD., HUBLI. THE GAINS ARISING / ACCRUING ON THESE DEVELOPMENT TRANSA CTIONS WAS OFFERED TO TAX BY THE FIRST 8 PERSONS, LISTED AS THE RAMAKRISHNA KASHINATH CHHATNI GROUP IN THEIR RESPECTIVE RETURN OF INCOME AS CAPITAL GAINS. THE REMAINING FIVE PERSONS OF THE SRIDHAR B KATHARE GROUP LISTED AT S.NOS.9 TO 13 IN PARA 2.1 OF THI S ORDER DID NOT OFFER TO TAX THEIR SHARE OF CAPITAL GAINS THAT AROSE / ACCRUED TO THEM IN RESPECT OF THE DEVELOPMENT TRANSACTIONS PURSUANT TO THE DEVELOPMENT AGREEMENT WITH LAXMINARAYAN ESTATE DEVELOPERS (P) LTD. THE ASSESSEE ADMITTEDLY RECEIVED THE SUM O F R S.45,89,250 ON BEHALF OF THE FIVE LESSEES OF HIS GROUP, THE RECEIPTS OF WHICH WERE STAGGERED IN THE PERIODS RELEVANT TO ASSESSMENT YEAR S 200 2 - 03, 2004 - ITA NO S . 1648 TO 1650 /BANG/ 2013 3 05 & 2005 - 06. SINCE THE FIVE PERSONS OF HIS GROUP DID NOT OFFER TO TAX THEIR SHARE OF CAPITAL GAINS A RISING ON THE DEVELOPMENT TRANSACTIONS IN THE RESPECTIVE YEARS, THE SAME CAPITAL GAINS WAS BROUGHT TO TAX IN THE ASSESSEE'S HANDS BY THE ASSESSING OFFICER IN THE THREE IMPUGNED ASSESSMENT YEARS. THE ASSESSING OFFICER RECORDED THAT THIS ACTION WAS ACCEPTE D BY THE ASSESSEE VIDE LETTER DT.24.11.2006, WHICH WAS POST SEARCH ACTION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') CONDUCTED AT THE ASSESSEE'S PREMISES ON 30.3.2005. THE ASSESSING OFFICER IN HIS ORDERS OF ASSESSMENT , PASSED POST THE SEARCH ACTION UNDER SECTION 143(3) RWS 153A OF THE ACT FOR ASSESSMENT YEAR S : 200 2 - 03, 2004 - 05 & 2005 - 06 ALL DT.22.12.2006, HAD ASSESSED THIS INCOME AS INCOME FROM LONG TERM CAPITAL GAINS (LTCG), AS RECORDED AT PARAS 3 AND 4 OF THOSE ORDERS WHICH IS E XTRACTED HEREUNDER : - 3. IT WAS FOUND THAT SHRI SHRIDHAR B KATHARE WAS A SECRETARY OF M/S. KARNATAKA AGRICULTURAL FOUNDATION, A SOCIETY REGISTERED UNDER KARNATAKA SOCIETIES REGISTRATION ACT. THE SOCIETY THROUGH ITS SECRETARY HAD LEASED OUT ABOUT 1.70 LAKH SQ. FT. OF LAND TO 13 LESSEES I.E. (1) RAMAKRISHNA CHHATNI, (2) KASHINATH CHHATNI, (3) GYANOBA CHHATNI, (4) JAGANNATH CHHATNI, (5) AMARNATH CHHATNI, (6) SMT. JAYALAKSHMI (7) SMT. LAXMI AND (8) SHEKAR (9) PARESH D. GANJEWALA, (10) SHYAM SUNDAR KAIMOKA R, (11) SURESH BHUTE, (12) J. BALAJI SINGH AND (13) SUMAN. THE FIRST 8 LESSEES BELONG TO CHATNI GROUP AND THE OTHER 5 LESSEES BELONG TO SRIDHAR B KATHARE GROUP. THE 13 LESSEES IN TURN ENTERED INTO AN AGREEMENT DT.20.2.1998 WITH M/S. LAXMINARAYAN ESTATE D EVELOPERS (P) LTD., HUBLI. THE FIVE LESSEES BELONGING TO KATHARE GROUP HAVE FAILED TO FILE THE RETURN OF INCOME DECLARING THE AMOUNTS RECEIVED IN THEIR HANDS. 4. SRIDHAR B KATHARE HAS RECEIVED THE SUM ON BEHALF OF THIS 5 LESSEES THE ENTIRE RECEIPT OF RS.45,89,250 STAGGERED BETWEEN ASST. YEARS 2002 - 03, 2004 - 05 AND 2005 - 06 THE SAME HAS TO BE TAXED IN THE HANDS OF 5 LESSEES BELONGING TO KATHARE GROUP. IN THE ASSESSMENT YEAR 2005 - 06 SRIDHAR B KATHARE HAS RECEIVED RS.11,92,650. SINCE THE 5 LESSEES HAVE F AILED TO FILE THE RETURNS DECLARING THE INCOME THE SAME IS BEING TAXED IN THE HANDS OF SHRI SHRIDHAR B KATHARE. THE SAME STAND HAS BEEN ACCEPTED BY SHRI SHRIDHAR B KATHARE VIDE LETTER DT.24.11.2006. ITA NO S . 1648 TO 1650 /BANG/ 2013 4 2.3 SUBSEQUENTLY, THE CIT, KARNATAKA (CENTRAL), BANGALORE PASSED ORDERS UNDER SECTION 263 OF THE ACT VIDE ORDER DT.31.3.2009, INTER ALIA, SET TING ASIDE THE ORDERS OF ASSESSMENT PASSED UNDER SECTION 143(3) R.W.S. 153A OF THE ACT DT.22.12.2006 FOR ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06 HOLDING THE M TO BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE, WITH THE FOLLOWING DIRECTI ON S AT PARA 6 THEREOF : - 6. FOR THE ASSESSMENT YEARS 2002 - 03, 2004 - 05 & 2005 - 06, THE A.O. IS DIRECTED TO EXAMINE THE NATURE OF LEASE RIGHT EXISTING FOR THE ASSESSEE AND IN THE EVENT OF THERE BEING NO OWNERSHIP RIGHT, THEN THE INCOME RECEIVED THROUGH DEVELOPMENT AGREEMENT SHOULD BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES .. 2.4 AGGRIEVED BY THE ORDERS PASSED UNDER SECTION 263 OF THE ACT ON 31.3.2009, INTER ALIA, FOR THE ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06, BY THE CIT, BANGALORE, THE ASSESSEE PREFERRED APPEALS BEFORE THIS TRIBUNAL. A CO - ORDINATE BENCH OF THIS TRIBUNAL VIDE ORDER IN ITA NOS.371 TO 376/BANG/2009 DT.9.10.2009 U PHELD THE JURISDICTION OF THE CIT UNDER SECTION 263 OF THE ACT AND DISMISSED THE ASSESSEE'S APPEAL. 2.4 CONSEQUENT TO THE ORDER UNDER SECTION 263 OF THE ACT DT.30.3.2009, THE ASSESSING OFFICER PASSED ORDERS OF ASSESSMENT FOR THE RESPECTIVE ASSESSMENT Y EARS 2002 - 03, 2004 - 05 AND 2005 - 06 VIDE ORDERS DT.21.12.2009, NOT TAXING THE INCOME AS OFFERED IN THE ASSESSEE'S HANDS UNDER THE HEAD CAPITAL GAINS BUT AS INCOME FROM OTHER SOURCES . AGGRIEVED BY THE ORDERS OF ASSESSMENT DT.21.12.2009 FOR ASSESSMENT Y EARS 2002 - 03, 2004 - 05 AND 2005 - 06, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT (APPEALS) V, BANGALORE. THE LEARNED CIT (APPEALS) VIDE A COMMON ORDER DT.21.8.2013 DISMISSED THE ASSESSEE'S APPEAL FOR ALL THE ABOVE THREE YEARS HOLDING THAT SINCE THE LEAR NED CIT (APPEALS) IN HIS ORDER UNDER SECTION 263 OF THE ITA NO S . 1648 TO 1650 /BANG/ 2013 5 ACT HAD RENDERED A CATEGORICAL FINDING ON THE ISSUE, IT IS NOT OPEN TO AGITATE THE ISSUE IN APPEAL UNDER SECTION 246A OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) V, BANGALORE DT.2 1.8.2013 FOR ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING COMMON GROUNDS OF APPEAL. FOR THE SAKE OF CONVENIENCE, THE GROUNDS RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2002 - 03 ARE EXTRA CTED HEREUNDER : - 1. THE IMPUGNED ORDER AS PASSED BY THE ASSESSING OFFICER IS BAD IN LAW AND IS LIABLE TO BE QUASHED AND THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING THE SAME. 2. WITHOUT PREJUDICE THE APPELLANT SUBMITS THAT HE HAVING NEVER RECEIVE D THE INCOME AND THE INCOME HAVING NEVER ACCRUED TO HIM, THE TAXING OF RS.20,50,400, IN HIS HANDS IS BAD IN LAW AND ON FACTS AND IS REQUIRED TO BE DELETED IN ENTIRETY. 3. IN ANY CASE AND WITHOUT PREJUDICES THE ASSESSING OFFICER HAS ERRED IN TAXING THE S UM UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING THE SAME. IF AT ALL THE INCOME IS TAXABLE IN THE HANDS OF APPELLANT, THE SAME IS ASSESSABLE ONLY AS LONG TERM CAPITAL GAIN. 4. THE APPELLANT DENIES LIABI LITY TO PAY INTEREST. THE INTEREST HAVING BEEN LEVIED WRONGLY IS TO BE DELETED IN FULL. 5. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE IMPUGNED ORDER PASSED BE QUASHED OR ATLEAST THE SUM OF R S.20,50,400 ADDED TO THE INCOME BE DELETED OR ATLEAST WITHOUT PREJUDICE THE INCOME BE ASSESSED UNDER THE HEAD LONG TERM CAPITAL GAIN AND INTEREST LEVIED BE DELETED. 4. THE G ROUNDS AT S.NOS.1 AND 5 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5. IN GROUND NO.4 OF THIS APPEAL, THE ASSESSEE DENIES THAT HE IS LIABLE TO BE CHARGED INTEREST UNDER SECTION 234B OF THE ACT. THE CHARGING OF INTEREST IS CONSEQUENTIAL AND MANDATORY AND THE ASSESSING OFFICER HAS NO DISCRETION IN THE MATTER , AS HAS BEEN HELD BY THE HON'BLE APEX COURT IN TH E CASE OF ANJUM M H GHASWALA (25 2 ITR 1). WE, THEREFORE, UPHOLD HIS ACTION IN ITA NO S . 1648 TO 1650 /BANG/ 2013 6 CHARGING THE ASSESSEE THE SAID INTEREST. THE ASSESSING OFFICER IS, HOWEVER, DIRECTED TO RECOMPUTE THE INTEREST CHARG EABLE UNDER SECTION 234B OF THE ACT WHILE GIVING EFFECT TO THIS ORDER. 6.1 IN THE GROUND AT S.NO.2 , THE ASSESSEE ASSAILS THE ACTION OF THE ASSESSING OFFICER IN ASSESSING THE INCOME IN HIS HANDS, WHEN HE HAD NEITHER RECEIVED THE INCOME NOR HAD THE INCO ME ACCRUED TO HIM. IN GROUND NO. 3 , THE ASSESSEE CHALLENGES THE ACTION OF THE ASSESSING OFFICER IN TAXING THE INCOME IN HIS HANDS AS INCOME FROM OTHER SOURCES RATHER THAN AS CAPITAL GAINS (LTCG) AS ACCEPTED BY THE ASSESSEE. THE G ROUNDS AT S.NOS.2 AND 3 ARE THE ONLY MATERIAL GROUNDS FOR CONSIDERATION BEFORE US IN THIS APPEAL. 6.2.1 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AND BEFORE THE AS SESSING OFFICER IN REMAND PROCEEDINGS. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS NEVER THE OWNER OF THE PROPERTY IN QUESTION AND ALSO THAT THE SUMS BROUGHT TO TAX IN HIS HANDS IN THIS REGARD; I.E. RS.20,50,400 FOR ASSESSMENT YE AR 2002 - 03; RS.13,46,200 FOR ASSESSMENT YEAR 2004 - 05 AND RS.11,92,650 FOR ASSESSMENT YEAR 2005 - 06; ARE NOT AT ALL THE INCOMES OF THE ASSESSEE. THE LEARNED A. R. DREW OUR ATTENTION TO PAGE 2 OF THE ASSESSMENT ORDER TO ILLUSTRATE THAT THE OBSERVATIONS OF THE ASSESSING OFFICER THEREIN CONCUR WITH THE ASSESSEE S CONTENTION THAT HE WAS NEVER THE OWNER OF THE PROPERTY AND THAT THEREFORE THESE AMOUNTS BROUGHT TO TAX IN HIS HANDS WERE NEITHER INCOME THAT HE HAD RECEIVED OR INCOME THAT ITA NO S . 1648 TO 1650 /BANG/ 2013 7 AROSE OR ACCRUED TO HIM. THES E PORTIONS REFERRED TO ARE EXTRACTED FROM PAGE 2 OF THE ORDERS OF ASSESSMENT. ON THE FACTS APPEARING ON RECORD, THE ASSESSEE IS ONLY A LESSEE OF THE SAID PROPERTY, HENCE DOES NOT ENJOY THE ABSOLUTE RIGHT OVER THE LAND BUT A VERY LIMITED ONE. THE ASSESS EE HAS COLLECTED THE AMOUNTS ON ACCOUNT OF THE FIVE PERSONS OF HIS LANDS AND OFFERED THE SAME AS CAPITAL GAINS. SINCE THE RIGHT OVER THE LANDS ENJOYED BY THE ASSESSEE IS A LIMITED ONE, AS DISCUSSED ABOVE, THE AMOUNT RECEIVED BY THE ASSESSEE CONSEQUENT TO TRANSFER OF THE PROPERTY FOR DEVELOPMENT CAN BE TREATED AS INCOME FROM OTHER SOURCES..... 6.2.2 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT FOR ANY RECEIPT OF MONEY TO CONSTITUTE INCOME, THERE MUST BE A SOURCE FROM WHICH THE RECEI PT HAS ARISEN AND THAT THERE CANNOT BE ANY INCOME WITHOUT A SOURCE. THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT SINCE THE ASSESSEE WAS NEVER THE OWNER OF THE ASSET, HE HAD NO RIGHT TO TRANSFER THE SAME AND THEREFORE THERE WAS NO SOURCE ATTRIBUTAB LE TO THE ASSESSEE FOR INCOME TO BE TAXED IN HIS HANDS. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAD ERRONEOUSLY OFFERED THE SAID RECEIPTS OF THE OTHER FIVE PERSONS AS HIS INCOME UNDER THE HEAD CAPITAL GAINS IN THE RELEVANT ASSE SSMENT YEARS, IN SPITE OF THE FACTS BEING THAT THE AMOUNT BROUGHT TO TAX IN THE ASSESSEE'S HANDS WAS NEVER HIS INCOME. 6.2.3 ALTERNATIVELY, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT EVEN IF THE AMOUNTS IN QUESTION WERE TO BE BROUGHT TO TAX IN THE ASSESSEE'S HANDS, THEN THE SAME HAS TO BE TAXED UNDER THE HEAD CAPITAL GAINS ONLY AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES AS DONE BY THE ASSESSING OFFICER. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE REITERATED THE OBSERVAT IONS OF THE ASSESSING OFFICER AT PAGE 2 OF THE ORDER OF ASSESSMENT; WHICH HAS BEEN EXTRACTED AT PARA 6.2.1 OF THIS ORDER (SUPRA). IT WAS ARGUED BY ITA NO S . 1648 TO 1650 /BANG/ 2013 8 THE LEARNED AUTHORISED REPRESENTATIVE THAT IF THE INCOME OF ANY OTHER PERSON IS TO BE ASSESSED IN THE HAND S OF THE A SSESSEE THEN BOTH FOR THE PURPOSES OF CHARGING OF TAXES AND COMPUTATION OF INCOME, THE ASSESSEE WOULD BE DEEMED TO HAVE STEPPED INTO THE SHOES OF THE OTHER PERSON. CONSEQUENTLY, THE ASSESSEE BEING THE LESSEE OF THE PROPERTY, THE AMOUNT THAT WAS SUPPOSED TO HAVE BEEN RECEIVED BY THE ASSESSEE CONSEQUENT TO THE TRANSFER OF THE LEASED PROPERTY, IS ASSESSABLE TO TAX ONLY UNDER THE HEAD INCOME FROM CAPITAL GAINS AND SINCE ALL THE CONDITIONS OF SECTION 45(1) OF THE ACT WERE SATISFIED, THE INCOME WAS RIGHTLY OFFERED TO TAX UNDER THE HEAD CAPITAL GAINS AND ALSO WERE SO ASSESSED. IN SUPPORT OF THIS PROPOSITION, THE LEARNED AUTHORISED REPRESENTATIVE, HAS INTER ALIA, PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS : - (I) RAJENDRA MINING SYND ICATE V CIT (43 ITR 460) (A.P) (II) A. GASPER V CIT (192 ITR 382) (SC) (III) CIT V PYRAMID ENGG. (P) LTD. (202 ITR 298) (CAL) 6.2.4 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE LEARNED CIT AT PARA 6 OF THE ORDERS UNDER SECTION 263 , IN RESPECT OF THE LEASED PROPERTY TRANSACTIONS, DIRECTED THAT IN THE ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE NATURE OF LEASE RIGHT EXISTING FOR THE ASSESSEE AND IN THE EVENT OF THERE BEING NO OWNERS HIP RIGHT, THEN THE INCOME RECEIVED THROUGH DEVELOPMENT AGREEMENT SHOULD BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES . THE LEARNED AUTHORISED REPRESENTATIVE REPEATED THE FINDING OF THE ASSESSING OFFICER CONSEQUENTIAL ORDERS OF ASSESSMENT ON THIS ASPECT WHICH HAS BEEN EXTRACTED AT PARA 6.2.1 OF THIS ORDER (SUPRA). IN ITA NO S . 1648 TO 1650 /BANG/ 2013 9 THIS CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT A LEASEHOLD RIGHT IS ALSO A CAPITAL ASSET AND THEREFORE THE GAINS ARISING ON TRANSFER OF SUCH LEASEHOLD RIGH TS ARE CAPITAL GAINS AND EVEN IF ANY TAX IS TO BE CHARGED IN THE ASSESSEE'S CASE, IT HAS TO BE UNDER THE HEAD CAPITAL GAINS ONLY. THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THE ASSESSING OFFICER HIMSELF HAD ACCEPTED THAT THE ASSESSEE HAD ONL Y A LIMITED RIGHT AND NOT ABSOLUTE RIGHT OVER THE LEASED PROPERTY. THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, THAT EVEN IF THESE AMOUNTS ARE TO BE BROUGHT TO TAX IN THE ASSESSEE'S HAND AT ALL, IT SHOULD BE UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD OTHER SOURCES AS HELD BY THE AUTHORITIES BELOW. 6.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED ON THE ORDERS OF THE ASSESSING OFFICER THAT THE INCOME FROM TRANSFER OF LEASED PROPERTY HAS BEEN CORRECTLY BROUGHT TO TA X UNDER THE HEAD INCOME FROM OTHER SOURCES . IT WAS PRAYED THAT THE APPEALS OF THE ASSESSEE BE DISMISSED. 6.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL DECISIONS CITED. I T IS THE CONTENTION OF THE AS SESSEE THAT THE IMPUGNED INCOMES, FOR ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06, DID NOT BELONG TO H IM AND THEREFORE COULD NOT BE ASSESSED IN HIS HANDS. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS NOT THE OWNER OF THE PROPER TY IN QUESTION SITUATED AT NO.1 STATION ROAD, HUBLI. THE OWNER OF THE PROPERTY IS KARNATAKA AGRICULTURAL FOUNDATION. AS SECRETARY OF THE KARNATAKA AGRICULTURAL FOUNDATION, THE ASSESSEE ENTERED INTO A LEASE AGREEMENT WITH 13 PERSONS, WHO IN TURN ENTERED IN TO A DEVELOPMENT AGREEMENT DT.20.2.1998 WITH A DEVELOPER, M/S. LAXMINARAYANA ESTATE DEVELOPERS (P) LTD. THE INCOME ARISING OUT OF THE DEVELOPMENT AGREEMENT IN RESPECT OF 5 ITA NO S . 1648 TO 1650 /BANG/ 2013 10 PERSONS (LESSEES); LISTED AT S.NOS.9 TO 13 AT PARA 2.1 OF THIS ORDER, WAS ADMITTEDL Y RECEIVED BY THE ASSESSEE ON THEIR BEHALF. SINCE THESE FI VE PERSONS COULD NOT BE TRACED AND THE ASSESSEE COULD NOT ESTABLISH THEIR EXISTENCE, THE ASSESSEE OFFERED THIS AMOUNT SO RECEIVED AS INCOME IN HIS OWN HANDS AS INCOME FROM CAPITAL GAINS IN THE R ESPECTIVE ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06. 6.4.2 THE ASSESSEE HAS HIMSELF OFFERED THE INCOME, ARISING OUT OF THE TRANSACTIONS OF THE DEVELOPMENT AGREEMENT, IN HIS OWN HANDS SINCE HE WAS UNABLE TO ESTABLISH THE IDENTITY OF THE 5 PERSONS (LES SEES) IN RESPECT OF WHOM HE HAD ADMITTEDLY RECEIVED THE MONEY FROM THE DEVELOPER. ON AN APPRECIATION OF THE FACTS ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT AFTER HAVING ACCEPTED THE INCOME RECEIVED FROM THE DEVELOPER ON BEHALF OF THE AFORESAID 5 PERSO NS (LESSEES) IN HIS OWN HANDS, AND HAVING FAILED TO DISCHARGE THE ONUS OF ESTABLISHING THE IDENTITY AND EXISTENCE OF THE AFORESAID FIVE PERSONS, THE ASSESSEE CANNOT NOW CLAIM THAT THE SAID INCOME DOES NOT PERTAIN TO HIM. WE, THEREFORE, FINDING NO MERIT IN THE ASSESSEE'S ARGUMENTS, DISMISS GROUND NO.2 OF THIS APPEAL. 6.5.1 WE NOW PROCEED TO EXAMINE THE ALTERNATE GROUND RAISED GROUND NO.3 OF THIS APPEAL; THAT THE INCOME FROM DEVELOPMENT AGREEMENT ON ACCOUNT OF TRANSFER OF LEASEHOLD RIGHTS IN THE LAND, PERTAINING TO ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06 HAS TO BE ASSESSED AS INCOME FROM CAPITAL GAINS AS ADMITTED BY THE ASSESSEE AND NOT AS INCOME FROM OTHER SOURCES AS HELD BY THE ASSESSING OFFICER. 6.5.2 ADMITTEDLY, THE INCOME IN QUESTION RELATES TO THE TRANSFER OF LEASEHOLD RIGHTS IN THE LAND TO THE DEVELOPER. IT IS NOT DISPUTED THAT OUT OF THE 13 LESSEES, 8 OF THEM (LISTED AT ITA NO S . 1648 TO 1650 /BANG/ 2013 11 S.NOS.1 TO 8 AT PARA 2.1 OF THIS ORDER) HAVE OFFERED THE INCOME RECEIVED BY THEM ON ACCOUNT OF THE DEVELOPMENT AGREEMENT ON THE TRANSFER OF LEASEHOLD RIGHTS IN THE SAID PROPERTY UNDER THE HEAD INCOME FROM CAPITAL GAINS . IN THIS CONTEXT THE SUBMISSIONS OF THE ASSESSING OFFICER IN HIS REMAND REPORT DT.23.5.2012 TO THE CIT (APPEALS), AT PAGE 2 THEREOF, ARE RELEVANT : - .... THE GAINS ARISING ON THESE TRANSACTIONS WERE OFFERED BY THE FIRST GROUP OF EIGHT PERSONS IN THEIR RESPECTIVE RETURNS AS CAPITAL GAINS. THE REMAINING FIVE PERSONS DID NOT OFFER THE GAINS TO TAX ALTHOUGH THEY HAD OWNERSHIP RIGHTS OVER THE TRAN SFERRED LAND. THERE IS ABSOLUTELY NO DOUBT ABOUT THE FACT THAT THOSE PEOPLE SHOULD HAVE OFFERED THE INCOME UNDER THE HEAD CAPITAL GAINS..... AS STATED BY THE ASSESSING OFFICER IN HIS REMAND REPORT (SUPRA), IF THE OTHER FIVE PERSONS PERTAINING TO THE KATHARE GROUP HAD OFFERED THE INCOME, THEY SHOULD HAVE OFFERED THE SAME UNDER THE HEAD CAPITAL GAINS. JUST BECAUSE THE ASSESSEE HAS OFFERED THE INCOME OF THESE FIVE PERSONS IN HIS HANDS, FOR THE REASON THAT HE COULD NOT DISCHARGE THE ONUS TO ESTABLISH THEIR EXISTENCE OR IDENTITY, THE NATURE AND CHARACTER OF THE INCOME DOES NOT CHANGE. THE SAID INCOMES CONTINUE TO BE INCOME ARISING ON ACCOUNT OF TRANSFER OF THE LEASEHOLD RIGHTS IN THE SAID PROPERTY TO THE DEVELOPER VIDE DEVELOPMENT AGREEMENT DT.20.2.19 98. 6.5.3 ADMITTEDLY, THE INCOME THAT IS SOUGHT TO BE ASSESSED FOR ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06 IS EARNED ON ACCOUNT OF THE TRANSFER OF LEASEHOLD RIGHTS IN LAND TO M/S. LAXMINARAYAN ESTATE DEVELOPERS (P) LTD, HUBLI, VIDE DEVELOPMENT AG REEMENT DT.20.2.1998. THE TERM CAPITAL ASSET AS DEFINED IN SECTION 2(14) OF THE ACT, IN SO FAR AS IT IS RELEVANT TO THE CASE ON HAND, READS AS UNDER : - 2(14) 'CAPITAL ASSET' MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ITA NO S . 1648 TO 1650 /BANG/ 2013 12 ( I) ANY STOCK - IN - TRADE , CONSUMABLE STORES OR RAW MATERIALS HELD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION ; ( II ) PERSONAL EFFECTS, THAT IS TO SAY, MOVABLE PROPERTY (INCLUDING WEARING APPAREL AND FURNI TURE) HELD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMBER OF HIS FAMILY DEPENDENT ON HIM, BUT EXCLUDES ( A ) JEWELLERY; ( B ) ARCHAEOLOGICAL COLLECTIONS; ( C ) DRAWINGS; ( D ) PAINTINGS; ( E ) SCULPTURES; OR ( F ) ANY WORK OF ART. THE CRUCIAL WORDS IN THIS SU B - SECTION 2(14) OF THE ACT, IN THE CONTEXT OF THE CASE IN HAND, ARE ...PROPERTY OF ANY KIND HELD BY THE ASSESSEE..... THE WORDS PROPERTY OF ANY KIND ARE OF WIDE IMPORT AND WOULD INCLUDE ALL TYPES OF RIGHTS IN ANY PROPERTY, WHETHER WHOLLY OR PARTIALLY , SO LONG AS THAT RIGHT GIVES RISE TO AN ATTRIBUTE THAT COULD BE CALLED A PROPERTY. 6.5.4 A LEASE OF LAND IS TRANSFER OF RIGHT IN THE LAND AND CREATES A RIGHT IN REM ; I.E. A TRANSFER OF TITLE IN FAVOUR OF THE LESSEE, THOUGH THE LESSOR HAS THE RIGHT OF REVERSION AFTER THE PERIOD OF LEASE TERMINATES. THE HON'BLE APEX COURT IN THE CASE OF A.R. KRISHNAMURTHY V CIT (1989) 176 ITR 417 HELD THAT ON GRANT OF LEASEHOLD RIGHTS, THERE IS A TRANSFER OF CAPITAL ASSET EXIGIBLE TO TAX UNDER THE HEAD CAPITAL GAINS . THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V SUJATHA JEWELLERS REPORTED IN (2007) (290 ITR 631), WHILE DEALING WITH THE ISSUE OF CAPITAL GAINS ON TRANSFER OF LEASEHOLD RIGHTS INLAND BY SUB - LEASE; HELD THAT THE TRANSFER OF LEASEHOLD RIGHTS IN LAND B Y A PERSON THROUGH SUB - LEASE AMOUNTED TO TRANSFER OF CAPITAL ASSET AND THE CONSIDERATION RECEIVED AS A RESULT OF SUCH TRANSFER IS EXIGIBLE TO TAX UNDER THE HEAD ITA NO S . 1648 TO 1650 /BANG/ 2013 13 CAPITAL GAINS IN THE HANDS OF THE CONCERNED ASSESSEE. THE OPERATIVE PORTION OF THIS JUDGEMENT AT PARA 5 THEREOF IS EXTRACTED HEREUNDER : - 5. .. IT IS NEEDLESS TO STATE THAT TRANSFERRING AN IMMOVABLE PROPERTY BY WAY OF A LEASE CREATES AN INTEREST IN THE LAND. ACCORDING TO SECTION 2(14) OF THE INCOME TAX ACT, THE WORD CAPITAL ASSET MEANS, PROPERTY OF ANY KIND HELD BY AN ASSESSEE . THEREFORE IT DOES NOT NECESSARILY MEAN THAT THE PROPERTY, WHICH THE ASSESSEE HOLDS, MUST BE HIS OWN. AS PER THE ABOVE REFERRED TO DEFINITION, ANY KIND OF PROPERTY HELD BY AN ASSESSEE WOULD COME WITHIN THE DEFINIT ION OF CAPITAL ASSET . IT IS NOT POSSIBLE TO READ THE DEFINITION OF CAPITAL ASSET IN A RESTRICTIVE MANNER TO MEAN THAT THE PROPERTY WHICH THE ASSESSEE OWNED BY HIMSELF ALONE WOULD COME WITHIN THE MEANING OF CAPITAL ASSET . IN 133 ITR (MAD.) PG. 922 RE FERRED TO ABOVE, A POINT AROSE BEFORE THIS COURT AT THE INSTANCE OF THE ASSESSEE AS TO WHETHER TRANSFER BY WAY OF A LEASE WOULD AMOUNT TO TRANSFER OF A CAPITAL ASSET ? IN THAT CASE, THE ASSESSEE WAS A BODY OF INDIVIDUALS, WHO HAD PURCHASED VARIOUS EXTEN TS OF PROPERTIES IN THE YEAR 1966 FOR A STATED CONSIDERATION. THEREAFTER, THE ASSESSEE, BY AN INSTRUMENT DT.10.9.1970 STYLED AS LEASE - CUM - LICENSE, GRANTED A MINING LEASE IN FAVOUR OF A COMPANY. A QUESTION AROSE WHETHER SUCH A TRANSACTION WOULD AMOUNT TO TRANSFERRING A CAPITAL ASSET THEREBY ATTRACTING CAPITAL GAINS ? THE POINT ARGUED BY THE ASSESSEE BEFORE THE COURT WAS THAT THE TRANSFER BY WAY OF LEASE MUST STAND EXCLUDED FROM THE TRANSFER AS DEFINED UNDER SUB - SECTION (47) OF SECTION 2 OF THE INCOME TAX ACT. A DIVISION BENCH OF THIS COURT NEGATIVE THE POINT RAISED BY THE ASSESSEE. THIS COURT HELD THAT THE RIGHT CONFERRED ON A LESSEE UNDER A LEASE DEED IS A CAPITAL ASSET IN THE HANDS OF THE LESSOR. IN 117 ITR PG. 581 REFERRED TO ABOVE, THE ASSESSEE WA S A TENANT, WHOSE RIGHTS WERE PROTECTED UNDER THE WEST BENGAL TENANCY ACT, 1956. HOWEVER, DUE TO A TRIPARTITE AGREEMENT ENTERED INTO BY HIM, THE LESSOR AND THE PROPOSED SUB - LESSEE, HE HAD EXTINGUISHED HIS RIGHTS, AS A RESULT OF WHICH, THE PROPOSED PARTY BECAME THE LESSEE OF THE PROPERTY. THE CALCUTTA HIGH COURT HELD THAT SURRENDER OF RIGHTS OF THE ASSESSEE REFERRED TO ABOVE WOULD AMOUNT TO EXTINGUISHMENT OF HIS RIGHTS IN THE LAND / CAPITAL ASSET AND THEREFORE IT ATTRACTS CAPITAL GAINS. THIS JUDGMENT WAS AFFIRMED BY THE SUPREME COURT IN 192 ITR PG. 382. IN 172 ITR PG. 311, A HINDU UNDIVIDED FAMILY WAS THE ASSESSEE; THEY HAD AGRICULTURAL LANDS BELONGING TO AN ANCESTOR; LATER ON, THE PROPERTY WAS DEVELOPED INTO A RESIDENTIAL ZONE; VARIOUS EXTENTS OF PROPE RTIES WERE LEASED FOR A PERIOD OF 99 YEARS AND THE LEASE DOCUMENT PROVIDED FOR TERMINATION OF LEASE ON STATED FAILURES BY THE LESSEE. FOR THE ASSESSMENT YEARS MENTIONED THEREIN, A LARGE SUM OF MONEY WAS RECEIVED AS SALAMI. A QUESTION AROSE AS TO WHETHE R THE TRANSACTION EFFECTED BY THE ITA NO S . 1648 TO 1650 /BANG/ 2013 14 ASSESSEE WOULD AMOUNT TO TRANSFERRING A CAPITAL ASSET WARRANTING CAPITAL GAINS TAX ? THE SUPREME COURT HELD THAT TRANSFER BY WAY OF LEASE WOULD AMOUNT TO TRANSFER OF A CAPITAL ASSET AND THEREFORE TAX IS LEVIABLE AS CAPITA L GAINS. FROM A READING OF THE ABOVE REFERRED TO JUDGMENT, IT IS CLEAR THAT TRANSFER BY WAY OF LEASE IS TREATED AS TRANSFER OF A CAPITAL ASSET ON THE PRINCIPLE THAT THE LEASE CREATES AN INTEREST IN THE LAND AND THEREFORE TO THAT EXTENT, IT EXTINGUISHES T HE RIGHT OF THE TRANSFEROR. IF THE FACTS OF THE PRESENT CASE ARE ANALYSED IN THE CONTEXT OF THE LAW LAID DOWN BY THE SUPREME COURT AND THE VARIOUS SECTIONS OF THE INCOME TAX ACT, WE HAVE NO DIFFICULTY AT ALL IN HOLDING THAT WHEN THE ASSESSEE TRANSFERS HIS LEASEHOLD RIGHTS IN THE LAND IN HIS OCCUPATION BY WAY OF A SUB - LEASE TO ANOTHER PERSON, IT AMOUNTS TO EXTINGUISHING HIS RIGHTS IN THE PROPERTY AND SINCE HIS LEASEHOLD RIGHTS HAD CREATED AN INTEREST IN THE LAND, I.E. ENJOYMENT AND POSSESSION AND THEREFORE IT WOULD DEFINITELY COME WITHIN THE DEFINITION OF CAPITAL ASSET AS DEFINED UNDER SECTION 2(14) OF THE INCOME TAX ACT. WHETHER THE OWNER HIMSELF TRANSFERS BY WAY OF A LEASE OR A LESSEE TRANSFERS BY WAY OF SUB - LEASE, THE PRINCIPLE REMAINS THE SAME, NAME LY, IN EITHER ACTION, THERE IS EXTINGUISHMENT OF RIGHTS. 6.5.5 RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE APEX COURT IN THE CASE OF A.R. KRISHNAMURTHY (SUPRA) AND OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SUJATHA JEWELLERS (SUPRA) , WE HOLD THAT THE TRANSFER OF A RIGHT IN LEASEHOLD LAND / PROPERTY, EVEN BY WAY OF LEASE OR SUB - LEASE, IS A TRANSFER OF A CAPITAL ASSET AS PER THE DEFINITION OF SECTION 2(14) OF THE ACT AND THE GAINS ARISING OF SUCH TRANSFER ARE EXIGIBLE TO TAX UNDER THE HEAD CAPITAL GAINS . IN THIS VIEW OF THE FACTUAL AND LEGAL MATRIX OF THE CASE, AS DISCUSSED IN PARAS 6.1 TO 6.5.4 OF THIS ORDER, WE REVERSE THE FINDING OF THE ASSESSING OFFICER IN TREATING SUCH INCOME AS INCOME FROM OTHER SOURCES AND DIR ECT THAT THE SAID INCOMES OF RS. 20,50,400 FOR ASSESSMENT YEARS 2002 - 03; RS.13,46,200 FOR ASSESSMENT YEAR 2004 - 05 AND RS.11,92,650 FOR ASSESSMENT YEAR 2005 - 06 ARE TO BE BROUGHT TO TAX IN THE HANDS OF THE AS SESSEE AS INCOME FROM CAPITAL GAINS . IT IS ORDERED ACCORDINGLY. CO NSEQUENTLY, GROUND NO.3 OF THE ASSESSEE'S APPEAL IS ALLOWED. ITA NO S . 1648 TO 1650 /BANG/ 2013 15 7. IN THE RESULT, THE ASSESSEE'S APPEALS FOR ASSESSMENT YEARS 2002 - 03, 2004 - 05 AND 2005 - 06 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JAN., 201 5 . SD/ - SD/ - ( RAJPAL YADAV ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE