ITO 22(3)-3, NAVI MUMBAI V. NANDLAL P RAJPAL, NAVI MUMBAI

ITA 187/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49038 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: DR P DANIEL
• Keywords: Capital asset; Business income
• Section: 2(14); 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.187/MUM/2010 A.Y 2006-07 INCOME TAX OFFICER, WARD 22 (3)-3, MUMBAI. VS. SHRI NANDLAL P. RAJPAL, O/O. NO.202, BIG SPLASH, SECTOR 17, VASHI, NAVI MUMBAI. PAN: AAFPR 3605 M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.SINGH. RESPONDENT BY : DR. P. DANIEL. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED, B UT AT THE TIME OF HEARING LD. DR SUBMITTED THAT THE ONLY TWO DISPU TES ARE INVOLVED WHICH ARE AS UNDER: 1. WHETHER SALE OF BUILDING RIGHTS WOULD MAKE THE ASSE SSEE ELIGIBLE FOR DEDUCTION U/S.54. 2. WHETHER PURCHASE OF FLAT IN A BUILDING WHICH WAS NO T COMPLETE WOULD ENTITLE THE ASSESSEE TO CLAIM DEDUCTION U/S.5 4. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE YEAR ASSESSEE HAS SOLD SOME BUILDING RIGHTS IN A PLOT IN TUKOGUNJ, INDORE FOR ` `` ` .41,16,400/-. AGAINST THIS ASSESSEE HAD CLAIMED THA T NET TAXABLE CAPITAL GAIN WAS ` `` ` .15,22,801/- AND ASSESSEE HAD FURTHER INVESTED THE SUM IN PURCHASE OF A FLAT ON WHICH CAPITAL GAIN WAS CLAIMED EXEMPT U/S.54. THIS CLAIM WAS REJECTED BY THE AO BY OBSERV ING THAT ASSESSEE HAD SOLD ONLY DEVELOPMENT RIGHTS, AND, THEREFORE, T HIS WOULD CONSTITUTE BUSINESS ASSET AND WOULD NOT BE AVAILABLE FOR EXEMP TION U/S.54. 2 3. ON APPEAL, LD. CIT[A] DECIDED THE ISSUE VIDE PAR AS 2.5 TO 2.6.1 AS UNDER: 2.5 HAVE CAREFULLY CONSIDERED THE ORDER OF THE ASSE SSING OFFICER AND THE SUBMISSIONS AND CASE LAWS RELIED UPON BY THE AP PELLANT. IN THIS CASE, ONE OF THE ISSUES IS WHETHER THE INCOME FROM SALE OF DEVELOPMENT RIGHTS RECEIVED BY THE APPELLANT WOULD QUALIFY AS B USINESS INCOME OR CAPITAL GAINS, THE ASSESSING OFFICER IS OF THE OPIN ION THAT DEVELOPMENT RIGHTS PER SE ARE THE BUSINESS ASSETS AND THEREFORE , SALE OF DEVELOPMENT RIGHTS WILL GIVE RISE TO BUSINESS INCOME AND NO CAP ITAL GAINS. THE APPELLANT ON THE OTHER HAND CONTENDED ON THIS ISSUE . HAVE CAREFULLY CONSIDERED THIS AND I FIND THAT THE CASE OF THE APP ELLANT IS COVERED BY THE JUDGMENT DELIVERED BY THE HONBLE MUMBAI HIGH C OURT IN THE CASE OF CIT VS TATA SERVICES U (1980) 122 TR 594 (BORN) AND CIT VS VIJAY FLEXIBLE CONTAINERS (1990) 186 ITR 693 (BORN), WHER EIN THE HONBLE COURTS HAVE HELD THAT THE RIGHT TO OBTAIN CONVEYANC E OF IMMOVABLE PROPERTY IS A CAPITAL ASSET AND ON E SAME PRINCIPLE , THE DEVELOPMENT RIGHTS ARE THE CAPITAL ASSETS. THE SAME OBSERVATION HAS BEEN REITERATED IN THE CASE OF SHAKTI INSULATED WIRES LTD VS JCIT ( 2003) 87 ITD 56 (MUM). IN VIEW OF THESE SPECIFIC CASES AND ALSO KEE PING IN FERN D THE PRONOUNCEMENT OF THE HONBLE COURTS AND OTHER CASES LIKE THAT OF JETHALAL D MEHTA VS DCIT (2005) 2 SOT 422 (MUM), CH HEDA HOUSING DEVELOPMENT CORP. VS BEBEJAN SHAIKH FARID AND OTHER S (2007) (3) MMLJ 402(BORN), CIT VS B C SRINIVASA SHETTY (1981) 128 FIR 294 (SC) AND THE PROVISIONS OF SECTION 2(14) OF THE INC OME TAX ACT, 1961, WHEREIN CAPITAL ASSETS ARE DEFINED, I FIND THAT THE CONTENTION OF THE ASSESSING OFFICER CANNOT BE ACCEPTED. OF IT, WOULD GIVE RAISE TO CAPITAL GAINS OR LOSS ACCORDING TO THE CIRCUMSTANCES, IN VI EW OF THIS, AND FOLLOWING THE OBSERVATION OF THE HONBLE COURTS, TH E ASSESSING OFFICER IS DIRECTED TO TREAT THE DEVELOPMENT RIGHTS AS CAPI TAL ASSETS WITHIN THE MEANING OF SECTION 2(14) OF THE INCOME TAX ACT, 196 1 AND COMPUTE THE CAPITAL GAINS ARISEN FROM THEIR SALE TAKING THE M TO BE LONG TERM CAPITAL GAINS AS DECLARED BY THE APPELLANT. 2.6 THE SECOND ISSUE OF THE CASE IS THE ALLOWABILIT Y OF SECTION 54 OF THE INCOME TAX ACT, 1961 TO THE APPELLANT. DETAILED OBS ERVATION OF THE ASSESSING OFFICER AND THE SUBMISSIONS MADE BY THE A PPELLANT HAVE ALREADY BEEN REPRODUCED EARLIER. I FIND, ON THIS GR OUND! I AM NOT IN AGREEMENT WITH THE ASSESSING OFFICER FIND THAT THE CASE OF THE APPELLANT S SQUARELY COVERED BY THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS MRS HULA J S WADLA 216 ITR 376 (BOMBAY HIGH COON) WHEREIN IT HAS BEEN CONCLUDED BY THE HONBLE COWL HAT AS59SSOS WAS ENTITLED TO RELIEF U/S 54 WHERE SHE EN TERED INTO AN AGREEMENT WIT COOPERATIVE HOUSING SOCIETY FOR PURCH ASE OF RESIDENTIAL FIATS AND PAID ALMOST ENTIRE CONSIDERATION WITHIN T WO YEARS OF CONVEYANCE OF HER RESIDENTIAL PROPERTY. 2.6.1 IN VIEW OF THE ABOVE! AND KEEPING IN MIND THA T THE APPELLANT BAD EXECUTED PURCHASE DEED WITH THE SELLER AS REQUIRED U/S 54 OF THE IT ACT, FIND THAT THE CLAIM OF DEDUCTION U/S 64 MADE BY THE APPELLANT CANNOT BE REJECTED, AS REQUIREMENTS FOR APPLICABILITY OF SECT ION 54 HAVE BEEN FULFILLED BY THE APPELLANT- IN VIEW OF THIS THE ASS ESSING OFFICER IS 3 DIRECTED TO GRANT BENEFIT OF SECTION 54 TO THE APPE LLANT AS CLAIMED AND CALCULATE THE INCOME OF THE APPELLANT ACCORDINGLY. 4. BEFORE US, LD. DR REFERRED TO PAGE 40 WHICH IS A PART OF THE RECEIPT FOR SALE OF THE PLOT AND CONTAIN SCHEDULE I WHICH DESCRIBES THE PROPERTY SOLD BY THE ASSESSEE. THE DESCRIPTION CLEA RLY SHOWS THAT THERE WAS NO HOUSE AVAILABLE AND ONLY ONE KUTCHA ROOM WAS THERE AND THAT TOO OF 125 SQ.FT. AND, THEREFORE, IT CANNOT BE CALL ED SALE OF A RESIDENTIAL HOUSE. THEN HE REFERRED TO SEC.54 WHEREIN IT IS CLE ARLY PRESCRIBED THAT EXEMPTION IS AVAILABLE ONLY WHEN INCOME FROM SUCH H OUSE IS CHARGEABLE TO INCOME FROM HOUSE PROPERTY. 5. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE S TRONGLY SUPPORTED THE ORDER OF THE CIT[A] AND SUBMITTED THA T THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA SERVI CES LTD. [122 ITR 594] HAS CLEARLY HELD THAT EVEN A RIGHT TO PROPERTY IS TO BE CONSTRUED AS CAPITAL ASSET. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT SEC.54 READS AS UNDER: SEC.54. [(1)] [SUBJECT TO THE PROVISIONS OF SUB-SECTION ( 2), WHERE, IN THE CASE OF AN ASSESSEE BEING AN INDIVIDUAL OR A HI NDU UNDIVIDED FAMILY], THE CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, BEING BUILDINGS OR LANDS APPURTENANT THERETO , AND BEING A RESIDENTIAL HOUSE, THE INCOME OF WHICH IS CHARGEABL E UNDER THE HEAD INCOME FROM HOUSE PROPERTY (HEREAFTER IN THIS SEC TION REFERRED TO AS THE ORIGINAL ASSET), AND THE ASSESSEE HAS WITHIN A PERIOD OF [ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRA NSFER TOOK PLACE PURCHASED], OR HAS WITHIN A PERIOD OF THREE YEARS A FTER THAT DATE CONSTRUCTED, A RESIDENTIAL HOUSE, THEN], INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME-TAX AS INCOME OF THE PREVIOUS YEA R IN WHICH THE TRANSFER TOOK PLACE, IT SHALL BE DEALT WITH IN ACCO RDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SA Y, THE ABOVE CLEARLY SHOWS THAT EXEMPTION U/S.54 IS AV AILABLE IF ASSESSEE SELLS HIS RESIDENTIAL HOUSE, INCOME OF WHICH WAS CH ARGEABLE UNDER THE 4 HEAD INCOME FROM HOUSE PROPERTY. THE DESCRIPTION GIVEN IN THE SALE DOCUMENT AT PAGE-40 DESCRIBES THE PROPERTY AS UNDER : PARTICULARS : ONE PORTION OF HOUSE WITH PLOT NO.6/2, STREET NO.2 , SOUTH TUKOGANJ, INDORE (PART) (NEW NO.6/4 SOUTH TUKOGANJ, INDORE), AREA OF THE PLOT OF THE SAID PORTION IS 3902 SQ.FT. AND ONE KUTCHA ROOM IN 125 SQ.FT. AREA CONSTRUCTED ON THE SAID PORTION. THE SA ID PORTION IS SITUATED ON INTERIOR TO ROAD. THE SAID PROPERTY IS IN A VERY BAD SHAPE. THE SAID PORTION IS MARKED BY YELLOW INK IN THE ENCLOSED MAP OF THIS RECEIPT, WHICH IS PIECE AND PARCEL OF THIS RECEIPT. THE ABOVE CLEARLY SHOWS THAT IT WAS MERELY A PLOT W ITH A SMALL KUTCHA ROOM. THEREFORE, FIRST OF ALL IT HAS TO BE ASCERTAI NED WHETHER INCOME FROM THIS KUTCHA ROOM WAS CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR NOT. SINCE THIS ASPECT HAS NOT B EEN EXAMINED IN DETAIL BY THE AO OR CIT[A], THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER TO THE FILE OF THE AO T O FIRST DETERMINE THE NATURE OF THE PROPERTY SOLD AND WHETHER SAME IS ELI GIBLE FOR EXEMPTION U/S.54. 7. GROUND NO.2: AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSESSEE HAD CLAIMED EXEMPTION U/S.54 BY SELLING TH E PROPERTY, WHICH HAS BEEN ALREADY DISCUSSED BY US WHILE ADJUDICATION THE FIRST ISSUE, BY PURCHASING A FLAT FROM M/S SAI DEEP CONSTRUCTION. D URING ASSESSMENT PROCEEDINGS AO NOTICED THAT IN THE POSSESSION LETTE R IT WAS MENTIONED THAT THE FLAT IS BEING GIVEN IN THE PROPOSED BUILDI NG WHICH MEANS THE BUILDING WAS NOT COMPLETE. SOME ENQUIRIES WERE MADE THROUGH THE INSPECTOR AND IT WAS FOUND THAT NO SUCH BUILDING HA D BEEN CONSTRUCTED AND, ACCORDINGLY, EXEMPTION U/S.54 WAS DENIED. 5 8. THE LD. CIT[A] HAS ALLOWED THE RELIEF BUT THESE ASPECTS HAVE NOT BEEN EXAMINED. 9. BEFORE US, LD. DR SUBMITTED THAT EXEMPTION COULD NOT BE GRANTED SINCE THE BUILDING WAS NOT CONSTRUCTED. 10. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE ARGUED THAT THE BUILDING HAD BEEN COMPLETED AND, IN ANY CASE, THE R EPORT OF THE INSPECTOR WAS NEVER CONFRONTED TO THE ASSESSEE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT INSPECTORS REPORT WAS NEVER CONFRONTED TO THE ASSE SSEE. AT THE SAME TIME, EVEN LD. CIT[A] HAS NOT EXAMINED THIS ASPECT WHETHER ASSESSEE HAS REALLY PURCHASED THE FLAT AND THE ISSUE HAS BEE N DECIDED MERELY BY CITING SOME CASE LAW. THEREFORE, EVEN THIS ASPECT N EEDS FURTHER INVESTIGATION AND, ACCORDINGLY, WE SET ASIDE THE OR DER OF THE CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO RE-EXAMINE THE ISSUE. THE ASSESSEE MAY FILE FRESH PROOF THAT SUCH BUILDIN G WAS REALLY CONSTRUCTED AND AO SHOULD CONSIDER SUCH EVIDENCE BY GIVING A PROPER OPPORTUNITY TO THE ASSESSEE AND THEN DECIDE THE SAM E IN ACCORDANCE WITH THE LAW. 12. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 0/5/2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 20/5/2011. P/-*