DCIT 24(3), MUMBAI V. S.C. BROTHERS, MUMBAI

ITA 2677/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101092 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 22-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARSHAD VENGURLEKAR
• Assessee Lawyers: DR K SHIVARAM; NEELAM C JADHAV
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER ITA NO. 2677/MUM/2011 (ASSESSMENT YEAR: 2007 - 08 ) DEPUTY COMMISSIONER OF INCOME - TAX 24(3), MUMBAI. APPELLANT VS. M/S. S.C.BROTHERS , PO BOX 9005, WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI - 63. RESPONDENT PAN: AARFS6197F APPELLANT BY : SHRI HARSHAD VENGURLEKAR (DR) RESPONDENT BY: DR.K.SHIVARAM & MS.NEELAM C.JADHAV. DATE OF HEARING: 11 /08/2015 . DATE OF PRONOUNCEMENT : : 16 / 0 9 /2015 O R D E R PER VIJAY PAL RAO, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 2 8 / 0 1/2011 OF THE CIT(A) - 34 , MUMBAI, FOR THE ASSESSMENT YEAR 2007 - 08 . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. 'ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INCOME, FROM TRANSFER OF THE PROPERTY BY WAY OF DISTRIBUTION OF ASSETS ON RETIREMENT OF TWO PARTNERS, AS LONG TERM CAPITAL GAIN U/S 45(4) INSTEAD OF SHORT TERM CAPITAL GAIN AS TREATED BY THE ASSESSING OFFICER W . ITHOUT APPRECIATING THE FACT THAT THE DEVELOPMENT AGREEMENT WAS ENTERED ON ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 2 OF 9 28/11/2005 AND PARTNERS WERE RETIRED ON 31 - 12 - 2006 AND THUS THE HOLDING PERIOD IS LESS THAN THREE YEARS.' 2. 'ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT COMPUTATION TO THE DISCLOSED AREA OF LAND AND PROPERTY UNDER TRANSFER, WITHOUT CONSIDERING THE CLAUSE OF SUPPLEMENTARY AGREEMENT BETWEEN THE ASSESSEE AND M/S K.RAHEJA UNIVERSAL PVT. LTD. WHICH CLEARLY STATES THAT THE OWNERS HAVE BEEN ALLOTTED ONE OF THE TWO UNITS ON THE GROUND FLOOR AND ENTIRE 1 ST , 2 ND AND 3 RD FLOORS OF THE NEW BUILDING CONSTITUTING 50% OF TOTAL SUPER BUILT UP AREA. FURTHER, IN THE DEVELOPMENT AGREEMENT ALSO IT IS MENTIONED THAT THE DEVELOPER SHALL CONSTRUCT AND HAND OVER TO THE OWNERS, FREE OF COST COMMERCIAL UNITS HAVING 50% OF THE SUPER BUILT UP AREA.' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND MATTER MAY BE DECIDED ACCORDING TO LAW. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY. 3. THE ASSESSEE IS A PARTNERSHIP FIRM HAVING A PLOT OF LAND AT JOGESWARI WHICH WAS ACQUIRED IN THE YEAR 1960 FOR RS.70,000/ - . DURING THE FINANCIAL YEAR 2005 - 06 RELEVANT TO THE ASSESSMENT YEAR 2006 - 07, THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT DATED 28/11/2005 WITH M/S. K.RAHEJA UNIVERSAL PVT. LTD., FOR DEVELOPMENT OF THE SAID LAND. AS PER THE TERMS OF DEVELOPMENT AGREEMENT (DA), ASSESSEE WAS ENTITLED TO RECEIVE 50% OF THE DEVELOPED PROPERTY + RS.4 . 80 CRORES. THE SAID DA WAS REGISTERED WITH THE STAMP AUTHORITY WHICH VALUED THE SAME AT RS.10,62,50,000/ - FOR THE PURPOSE OF STAMP DUTY. THE ASSESSEE OFFERED CAPITAL GAINS FOR TAX ON THE SAID AMOUNT OF RS.10,62,50,000/ - AFTER DEDUCTING INDEXED COST OF 50% OF LAND FOR THE ASSESSMENT YEAR 2006 - 07. AFTER TRANSFER OF THE LAND UNDER THE DA, ASSESSEE REMAINED THE OWNER OF 50% OF LAND AND ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 3 OF 9 FSI AND ALSO HAVE A RIGHT TO CLAIM 50% OF DEVELOPED PROPERTY FROM M/S. K.RAHEJA UNIVERSA L PVT. LTD.. SUBSEQUENTLY ON 31 /12/2006, TWO PARTNERS VIZ. S/SHRI YOGENDRA DHIRAJLAL SANG H AVI (YDS) AND SOMIN YOGEN DRA SANGHAVI (SYS) H AVING 34% AND 16% SHARE IN THE PROFITS OF THE FIRM RETIRED VIDE RETIREMENT DEED OF EVEN DATED. THESE TWO PARTNERS WERE ALSO ENTITLED TO RECEIVE SHARE IN THEIR PROFIT SHARING RATIO IN THE PROPERTY OF THE FIRM I.E. LAND AND FSI PRESENT AS WELL AS FUTURE. ACCORDINGLY, THE FIRM GAVE 50% OF LAND AND FSI AND RIGHT TO GET THE DEVELOPED PROPERTY FROM M/S. K.RAHEJA UNIVERSAL PVT. LTD. , T O THE RETIRING PARTNERS. THUS AS PER THE PROVISIONS OF SEC.45(2), ASSESSEE OFFERED LONG - TERM CAPITAL GAINS ( LTCG) TO TAX ON ACCOUNT OF DISTRIBUTION OF ASSET TO RETIRING PARTNERS BY CONSIDERING 50% OF THE LAND AND FSI AS WELL AS 50% SHARE IN THE DEVELOPED PROPERTY TO BE RECEIVED FROM M/S. K.RAHEJA UNIVERSAL PVT. LTD. THE AO RECOMPUTED THE LTCG BY TAKING INTO CONS IDERATION SUPER BUILT UP AREA AND NOT THE BUILT UP AREA AND FURTHER AO TREATED THE CAPITAL GAIN ON ACCOUNT OF 50% OF THE FUTURE FSI AS SHORT - TERM CAPITAL GAIN (STCG) AS AGAINST LTCG OFFERED BY THE ASSESSEE - FIRM. APART FROM THIS, THE AO ALSO COMPUTED CAPIT AL GAIN BY CONSIDERING THE FSI ON THE ENTIRE LAND AND NOT ON THE 50% RETAINED BY THE FIRM SUBSEQUENT TO THE DA. 4. AGGRIEVED BY THE ACTION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT VIDE DA DATED 28/11/2005, THE ASSESSEE TRANSFERRED 50% OF THE LAND FOR ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 4 OF 9 DEVELOPMENT AGAINST CONSIDERATION. THE SAID DA WAS VALUED BY THE STAMP AUTHORITY AT RS. 10,62,50,000/ - WHICH WAS OFFERED TO TAX FOR THE ASSESSMENT YEAR 2006 - 07. THEREFORE, THE ASSESSEE REMAINED WITH ONLY 50% OF THE LAND ALONG WITH FSI AS WELL AS RIGHT TO RECEIVE 50% OF THE DEVELOPED PROPERTY FROM M/S. K.RAHEJA UNIVERSAL PVT. LTD. UNDER THE D A. THE AO, FOR THE ASSESSMENT YEAR 2006 - 07, ACCEPTED LTCG WHILE PASSING THE ORDER UNDER SECTION 143(3) ON 17/12/2008. THUS THE ASSESSEE CONTENDED THAT WHAT HAS BEEN TRANSFERRED TO THE RETIRING PARTNER IS 50% OF THE FSI RETAINED BY THE ASSESSEE FIRM WHICH WOULD NATURALLY RESULT INTO A LTCG TO THE FIRM. THE CIT(A) HAS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THERE IS NO CONVERSION OF THE WHOLE LAND ALONG WITH FSI AVAILABLE THEREUPON TO BE DEVELOPED V IDE DA DATED 28/11/2005. THUS, THE CIT(A) HAS OBSERVED THAT WHAT WAS TRANSFERRED BY WAY OF DISTRIBUTION ON RETIREMENT OF PARTNERS IS ONLY THE ASSET BEING 50% OF THE LAND ALONG WITH FSI RETAINED BY THE ASSESSEE - FIRM AND THE SAME IS LTCG UNDER SECTION 45(4). THE CIT(A) ALSO ALLOWED THE INDEXATION OF COST OF AC QUISITION FOR THE PURPOSE OF COMPUTING LTCG, AS IT WAS DONE BY THE AO IN THE EARLIER ASSESSMENT YEAR WHILE ACCEPTING LTCG ON TRANSFER OF LAND UNDER THE DA. ACCORDINGLY, HE DIRECTED THE AO TO RE - COMPUTE THE CAPITAL GAIN BY ALLOWING INDEXATION ON THE COST W .E.F. 1/4/1981. THE CIT(A) FOUND THAT THE AO WAS NOT JUSTIFIED IN INCREASING AREA BY 25% ON THE GROUND THAT SUPER BUILT UP SHOULD BE CONSIDERED FOR THE VALUATION AS THERE WAS NO PROVISION ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 5 OF 9 IN THE IT ACT TO PRESUME SUCH PERCENTAGE OF AREA TO BE INCREASED. T HUS, THE ADDITION MADE BY THE AO WAS DELETED. 5. AGGRIEVED BY THE IMPUGNED ORDER OF THE CIT(A) THE REVENUE HAS FILED THIS APPEAL. 6. BEFORE US, THE LEARNED DR HAS SUBMITTED THAT AFTER THE DA ENTERED INTO BETWEEN THE PARTIES, THE ASSESSEE WAS NO MORE THE OWNER OF THE LAND BUT ONLY HAVING RIGHT TO RECEIVE THE SUPER BUILT UP AREA UPON THE LAND TRANSFERRED TO THE DEVELOPER M/S.K.RAHEJA UNIVERSAL PVT. LTD., THUS, THE LEARNED DR HAS SUBMITTED THAT THE ASSET REMAINED WITH THE ASSESSEE WAS ONLY TO RECEI VE THE DEVELOPED PROPERTY WHICH WAS RIGHTLY TREATED BY THE AO AS STCG SUBSEQUENT TO THE DA DATED 28/11/2005. HE HAS FURTHER CONTENDED THAT THE AO HAS RIGHTY TAKEN INTO ACCOUNT FSI ON THE ENTIRE LAND IN STEAD OF 50% OF THE LAND. 6.1 ON THE OTHER H AND, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT WHAT WAS GIVEN FOR DEVELOPMENT IS ONLY 50% OF THE LAND AND THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS PART IN CASH OF RS.4.85CRORE AND PART IN THE SHARE OF DEVELOPED PROPERTY TO THE EXTENT OF 50% ON THE LAND WHICH WAS TRANSFERRED TO THE DEVELOPER. THUS, THE ASSESSEE WAS HAVING 50% OF THE LAND ALONG WITH FSI ON THE SAID PORTION OF 50% OF THE LAND RETAINED BY THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE H AS FURTHER SUBMITTED THAT AS FAR AS THE TRANSFER OF LAND VIDE DA DATED 28/11/2005, THE ENTIRE CAPITAL GAIN ARISING FROM THE SAID TRANSFER HAS ALREADY BEEN ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 6 OF 9 OFFERED TO TAX FOR THE ASSESSMENT YEAR 2006 - 07 WHICH WAS ACCEPTED BY THE AO WHILE PASSING THE ASSESSM ENT ORDER UNDER SECTION 143(3) THEREFORE, THE SAID 50% OF THE LAND WHICH WAS TRANSFERRED TO THE DEVELOPER CANNOT BE CONSIDERED AS THE ASSET OF THE ASSESSEE FOR THE PURPOSE OF DISTRIBUTION TO THE RETIRING PARTNER. THE LEARNED AUTHORISED REPRESENTATIVE OF T HE ASSESSEE HAS SUBMITTED THAT THE CIT(A) HAS TAKEN A CORRECT VIEW BY ALLOWING THE CLAIM OF THE ASSESSEE IN COMPUTATION OF LTCG IN RESPECT OF THE LAND RETAINED BY THE ASSESSEE ALONG WITH FSI. HE HAS SPECIFICALLY POINTED OUT T HAT ONLY 50% OF THE LAND WAS T RANSFERRED FOR DEVELOPMENT AS PER THE DA DATED 28/11/2005 AND THEREFORE, THE AO WAS NOT JUSTIFIED IN TAKING INTO CONSIDERATION FSI OVER THE ENTIRE LAND WHILE COMPUTING THE CAPITAL GAIN. HE HAS RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. HINDUSTAN HOTELS LTD. (335 ITR 60) AND CIT VS. CITIBANK (261 ITR 570) AS WELL AS THE DECISION OF THIS TRIBUNAL IN THE CASE OF A CIT VS. JAIMAL K SHAH ( 137 ITD 376 ) (MUM). THUS, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSE E HAS SUBMITTED THAT ONLY PORTION OF THE LAND WAS RETAINED BY THE ASSESSEE AFTER THE DA WHICH IS TO BE DISTRIBUTED TO THE RETIRING PARTNERS. THE FSI HAS NO VALUE WITHOUT THE LAND ON WHICH CONSTRUCTION IS TO BE CARRIED OUT. THEREFORE, THE VALUE IS ONLY TOWARDS THE LAND. THUS, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ENTIRE CAPITAL GAINS IS LTCG AND THE CIT(A) HAS RIGHTLY DECIDED THIS ISSUE. ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 7 OF 9 6.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MAT ERIAL ON RECORD. WE FIND THAT AS PER THE DA DATED 28/11/2005, THE PARTNERSHIP FIRM TRANSFERRED TO THE DEVELOPER HIS 50% OF THE LAND ALONG WITH FSI AVAILABLE ON THE SAID 50% OF THE LAND. THOUGH THE CONSIDERATION AGREED BETWEEN THE PARTIES AS PER THE DA WAS TO RECEIVED BY THE ASSESSEE PARTLY IN CASH AND PARTLY IN THE SHAPE OF DEVELOPED PROPERTY, HOWEVER, THE ASSESSEE OFFERED CAPITAL GAINS ARISING FROM THE TRANSFER OF THE LAND ALONG WITH FSI UNDER THE DA ON THE BASIS OF THE FULL VALUE CONSIDERATION AS PER THE STAMP VALUE AT RS.10,62,50,000/ - . WE FIND THAT THE AO, FOR THE ASSESSMENT YEAR 2006 - 07 ACCEPTED THE LTCG OFFERED BY THE ASSESSEE ARISING FROM THE DA DATED 28/11/2005. AFTER TRANSFER OF 50% OF THE LAND ALONG WITH FSI AVAILABLE ON THE SAID LAND , THE ASSE SSEE WAS REMAINED WITH 50% LAND ALONG WITH AVAILABLE FSI ON THE SAID RETAINED PORTION OF 50%. THUS IT IS APPARENT THAT AT THE TIME OF RETIREMENT OF TWO PARTNERS WHAT WAS TO BE DISTRIBUTED IS THE ASSET WHICH WAS RETAINED BY THE ASSESSEE SUBSEQUENT TO THE D A AND THEREFORE, THE VALUE OF 50% OF LAND RETAINED BY THE ASSESSEE ALONG WITH AVAILABLE FSI WAS TAKEN INTO CONSIDERATION FOR THE PURPOSE OF CAPITAL GAIN AS PER THE PROVISIONS OF SEC.45(4). THUS, IT IS MANIFEST FROM THE RECORD THAT WHAT WAS AVAILABLE WITH THE ASSESSEE AFTER TRANSFER OF LAND UNDER DA IS ONLY 50% OF THE LAND ALONG WITH FSI AVAILABLE ON THE SAID 50% OF THE LAND. ACCORDINGLY, WE FIND THAT THE AO WAS NOT JUSTIFIED IN CONSIDERING FSI AVAILABLE ON THE ENTIRE LAND COMPRISING OF 50% PORTION WHICH W AS ALREADY TRANSFERRED UNDER THE DA AND HAS ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 8 OF 9 ALREADY BEEN SUBJECTED TO CAPITAL GAINS FOR THE ASSESSMENT YEAR 2006 - 07. 6.3 THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CITI B ANK (SUPRA) HAS HELD THAT THE LAND IS AN INDEPENDENT AND IDENTIFIABLE AS SET AND IT CONTINUES TO REMAIN SO EVEN AFTER CONSTRUCTION OF THE BUILDING THEREUPON. THEREFORE, THE LAND EVEN IF IT IS OWNED BY THE ASSESSEE FOR MORE THAN 36 MONTHS, IT WILL BE A LONG TERM CAPITAL ASSET AND THE GAIN ARISING THERE - FROM IT WILL BE A LTCG. THUS, THE HON BLE HIGH COURT HAS HELD THAT IF THERE IS A CONSTRUCTION ON THE LAND WHICH IS A DEPRECIABLE ASSET THEN THE LAND AND BUILDING HAS TO BE BIFURCATED AND THE SUPER STRUCTURE HAS TO BE TREATED AS STCG AND THE LAND WILL BE TREATED AS LTCG. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF HINDUSTAN HOTEL LTD. (SUPRA). ACCORDINGLY, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AS WELL AS THE JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE REGARDING CAPITAL GAIN ARISING FROM THE LAND RETAINED BY THE ASSESSEE WHICH WAS PURCHASED IN THE YEAR 1960. 7 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER , 2015. SD/ - SD/ - (N.K.BILLAIYA) (VIJAY PAL RAO) ACCOUNANT MEMBER JUDICIAL MEMBER EKSRINIVASULU, SR.PS ITA NO . 2677/MUM/2011 M/S.S.C.BROTHERS PAGE 9 OF 9 COPY TO: 1. A PPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, MUMBAI. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL MUMBAI