I.T.O.2(1)(1), MUMBAI V. SHRI. NANUK RAOJIBHAI PATEL, MUMBAI

ITA 2956/MUM/2009

• Counselvise Citation: 295619914 RSA 2009
• Duration Of Justice: 2 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 01-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Assessee Lawyers: SANJIV SHAH
• Keywords: Capital asset; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 2956/MUM/2009 ASSESSMENT YEAR-2004-05 THE ITO 2(1)(1), AAYAKAR BHAVAN, MUMBAI-400 020 VS. SHRI NANUK RAOJIBHAI PATEL, 19, PARK VIEW, LITTLE GIBBS ROAD, L.D. RUPAREL MARG, MALBAR HILL, MUMBAI-400 006 PAN-AACPP 6742C. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI O.A. MAO RESPONDENT BY: SHRI SANJIV SHAH DATE OF HEARING :01.12.2011 DATE OF PRONOUNCEMENT: O R D E R PER B.R. MITTAL, JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2004-05 AGAINST ORDER OF LD. CIT(A) DT.12.2.2009 ON FOLLOWI NG GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF TO TH E ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1) THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE OF RS. 34,00,000/- ON ACCOUNT OF CONSIDERATION RECEIVED BY THE ASSESSEE ON THE SALE OF PROPERTY TAXED BY AO UNDER THE HEAD BUSINESS INCOME. 2) THE LD. CIT(A) HAS IGNORED THE INTENTION OF THE ASS ESSEE BEHIND THE TRANSACTION AND THE RISK TAKEN BY THE AS SESSEE AT THE TIME OF ACQUIRING THE RIGHTS TO DEMOLISH AND DE VELOP THE ITA NO. 2956/M/09 2 SAID PROPERTY WHICH IS VERY EVIDENT WHILE GETTING I NTO AN AGREEMENT WITH THE ORIGINAL OWNER I.E. THE DEVASTHA N TRUST. THEREFORE IT IS AN ADVENTURE IN THE NATURE OF TRADE BY THE ASSESSEE AND NOT FOR THE PARTY WHO HAS DEVELOPED TH E PROPERTY. 2. THE RELEVANT FACTS ARE THAT ASSESSEE IS AN INDIV IDUAL. THE ASSESSEE WAS THE LESSEE OF A PROPERTY BEING A PLOT OF LAND ALONG WITH BUILDING THEREON OWNED BY A TRUST CALLED DEVASTHAN TRUST SINCE LAST 44 YEARS. UNDER THE AGREEMENT DT. 30 TH OCTOBER, 2000, LEASE WAS RENEWED FOR A PERIOD OF 4 9 YEARS WHICH WAS EXTENDIBLE FOR A FURTHER PERIOD OF 49 YEA RS. THE ASSESSEE ENTERED INTO A LEASE DEED WITH LANDLORD ON 6.11.2000, SO AS TO GET THE RIGHT TO DEVELOP THE SAID PROPERTY AFTER DEMOLISHING THE EXISTING ST RUCTURE AND TO CONSTRUCT A NEW BUILDING BY USING FSI OF EXISTING PROPERTY. FOR THIS RIGHT, ASSESSEE WAS REQUIRED TO PAY AN AMOUNT OF RS. 10,00,000/- TO THE TRUST. IT IS OBSERVED THAT ASSESSEE COULD NOT TAKE STEPS TO DEVELOP THE SAID L AND AND HE ENTERED INTO A DEVELOPMENT AGREEMENT-CUM-MOU DT. 16.12.2003 WITH M /S. VAMA ASSOCIATION I.E. MIDWAY DEVELOPERS, WHEREBY A PART OF RIGHT TO DEVELOP THE PROPERTY WAS ASSIGNED BY HIM FOR A CONSIDERATION OF RS. 44,00,000/-. THE ASSESSING OFFICER AFTER CONSIDERING CLAUSES OF SAID MEMORANDUM OF UNDERSTANDING STATED AT PAGE 2 TO 4 OF ASSESSMENT O RDER, THAT ASSESSEE RECEIVED THE SAID CONSIDERATION FOR THE PURPOSE OF DEVELOPING LEASE LAND AND IT WAS IN THE NATURE OF AN ADVENTURE. ACCORDINGLY, AO TREATED RS. 34,00,000/- AS BUSINESS INCOME DERIVED FROM TRANSACTION OF ADVE NTURE IN THE NATURE OF TRADE AND TAXED ACCORDINGLY. BEING AGGRIEVED, ASSE SSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY. 3. THE LD. CIT(A) CONSIDERING ABOVE FACTS VIDE PARA -6 OF IMPUGNED ORDER HELD THAT CONSIDERATION RECEIVED BY ASSESSEE OF RS. 44,00,000/- ON TRANSFER OF LEASEHOLD RIGHTS IS TO BE TREATED AS TRANSACTION AS LONG TERM CAPITAL GAINS AND IS TO BE ASSESSED ACCORDINGLY. PARA-6 OF LD. C IT(A) READS AS UNDER: THE FACTS OF THE CASE NOT DISPUTED IS THAT THE APP ELLANT IS THE OWNER OF LEASEHOLD RIGHTS IN THE PROPERTY AND HAS A CQUIRED RIGHT TO ITA NO. 2956/M/09 3 TRANSFER ON 30.10.2000. THE RIGHT WAS THEN TRANSFE RRED BY THE APPELLANT ON 16.12.2003 WHICH THUS GIVES RISE TO LO NG TERM CAPITAL GAINS AS THIS RIGHT IN THE PROPERTY IS HELD BY THE APPELLANT FOR MORE THAN 3 YEARS. FURTHER THIS TRANSACTION OF APPELLANT AS CONTENDED BY THE APPELLANT AS NOT BEING IN THE NATU RE OF BUSINESS OR TRADE HAS MERITS BECAUSE THE PROFIT AND THE RISK ASSOCIATED WITH THE DEVELOPMENT OF THE PROPERTY LIES WITH THE DEVEL OPER OF THE PROPERTY WHO IS THE NEW LESSEE VIZ. VAMA ASSOCIATIO N. THUS THE APPELLANT HAS NO PROFIT OR RISK IN THE SAID PROPERT Y ONCE IT SOLD HIS LEASEHOLD RIGHTS ON 16.12.2003. THE AO HAS NOT BRO UGHT ON RECORD ANY FACT TO SHOW THAT THE APPELLANT HAS CARRIED OUT ANY DEVELOPMENT OF PROJECT NOR RECEIVED ANY PROFITS FRO M THE DEVELOPMENT OF THE PROJECT EXCEPT FOR THE FACT THAT THE APPELLANT HAS RECEIVED A CONSIDERATION OF RS. 44 LAKHS ON TRA NSFER OF LEASEHOLD RIGHTS. THE APPEAL OF THE APPELLANT IS T HEREFORE ALLOWED AND THE AO IS DIRECTED TO TREAT THE TRANSACTION AS LONG TERM CAPITAL GAINS AND ASSESS ACCORDINGLY AS PER LAW. HENCE DEPARTMENT IS IN APPEAL BEFORE TRIBUN AL. 4. ON BEHALF OF DEPARTMENT, IT WAS CONTENDED THAT S AID LEASEHOLD LAND WAS ACQUIRED BY ASSESSEE FOR BUSINESS PURPOSES AND TRANSFERRING IT TO DEVELOPER FOR DEVELOPMENT WAS IN THE NATURE OF TRAD E. LD. DEPARTMENTAL REPRESENTATIVE REFERRED DECISION OF HONBLE APEX CO URT IN THE CASE OF G. VENKATASWAMI NAIDU & CO. VS CIT 35 ITR 594. ON THE OTHER HAND LD. AR SUBMITTED THAT ASSESSEE IS A SALARIED EMPLOY AND SA ID LEASEHOLD PLOT WAS IN HIS POSITION FOR THE LAST 44 YEARS. IT WAS USED BY A PARTNERSHIP FIRM AND WAS TREATED AS CAPITAL ASSET. THE LEASE WAS RENEWE D FOR A PERIOD OF 49 YEARS WITH AN EXTENDIBLE FURTHER PERIOD OF 49 YEARS. HE SUBMITTED THAT FIRM WAS DISSOLVED IN 2002 AND THEREAFTER ASSESSEE ENTERED I NTO A DEVELOPMENT AGREEMENT AGAINST CONSIDERATION OF RS. 44 LAKHS. T HE ASSESSEE PAID A SUM OF RS. 10,00,000/- TO TRUST TO ALLOW ASSESSEE TO T RANSFER HIS LEASEHOLD RIGHTS TO DEVELOPER. LD. AR SUBMITTED THAT TRANSFER OF LE ASEHOLD RIGHT GIVES RISE TO CAPITAL GAIN AND REFERRED DECISION OF HONBLE APEX COURT IN THE CASE OF A.R. KRISHNAMURTHY & ANOTHER VS CIT 176 ITR 417. HE SUB MITTED THAT ORDER OF LD. CIT(A) BE CONFIRMED. ITA NO. 2956/M/09 4 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW AS WELL AS CASES CITED BY THEM IN SUPPORT OF THEIR SUBMISSION. 6. AT THE OUTSET WE OBSERVE THAT CASE REFERRED TO B Y LD. DR RELATES TO PURCHASE OF LAND ADJACENT TO MILL OF A COMPANY OF W HICH ASSESSEE WAS THE MANAGING AGENT AND THEREAFTER SOLD SAID LAND TO MIL L. IT WAS FOUND THAT LAND WAS PURCHASED COMPRISING OF 4 PLOTS WITH SOLE INTE NTION OF SELLING THEM TO MILL AT A PROFIT AND IN RESPECT OF THOSE PLOTS IT W AS HOLDING THAT TRANSACTION IN QUESTION WAS AN ADVENTURE IN THE NATURE OF TRADE. HOWEVER, IN THE CASE BEFORE US, WE OBSERVE THAT ASSESSEE WAS IN POSITION OF LEASEHOLD RIGHT IN THE PROPERTY FOR THE LAST 44 YEARS. IT IS NOT DISPUTED T HAT SAID PROPERTY WAS USED BY A PARTNERSHIP FIRM IN WHICH ASSESSEE WAS A PARTN ER HAVING 95% SHARE. THE SAID PARTNERSHIP FIRM WAS DISSOLVED IN 2002 VID E DISSOLUTION DEED DT. 31.5.2002 AND THEREAFTER PROPERTY REMAINED UNUSED B Y ASSESSEE. THERE IS ALSO NO DISPUTE TO THE FACT THAT ASSESSEE GOT LEASE HOLD RIGHT FOR A PERIOD OF 49 YEARS FROM THE TRUST UNDER AGREEMENT DT. 30.10.2 000 AND IT WAS EXTENDIBLE FOR A FURTHER PERIOD OF 49 YEARS. WE OB SERVE THAT ASSESSEE TRANSFERRED THE DEVELOPMENT RIGHT TO MIDWAY DEVELOP ER AGAINST TOTAL CONSIDERATION OF RS. 44,00,000/- AND OUT OF IT ASSE SSEE PAID RS. 10,00,000/- TO TRUST TO ALLOW HIM TO TRANSFER HIS LEASEHOLD RIG HT TO DEVELOPER. LD. CIT(A) HAS STATED THAT ASSESSEE HAD NO RISK ASSOCIATED WI TH DEVELOPMENT OF PROPERTY AND IT WAS WITH DEVELOPER. LD. CIT(A) FUR THER STATES THAT AO HAS NOT BROUGHT ON RECORD ANY FACT TO SHOW THAT ASSESSE E CARRIED OUT ANY DEVELOPMENT OF PROJECT NOR RECEIVED ANY PROFIT FROM DEVELOPMENT OF PROJECT EXCEPT RECEIPT OF CONSIDERATION OF RS. 44 LAKHS ON TRANSFER OF LEASEHOLD RIGHTS. DURING THE COURSE OF HEARING DEPARTMENT HA S NOT CONTROVERTED ABOVE OBSERVATION OF LD. CIT(A). CONSIDERING ABOVE FACTS , WE HOLD THAT TRANSFER OF LEASEHOLD RIGHT BY ASSESSEE COULD NOT BE SAID IN TH E NATURE OF ADVENTURE OF TRADE. THEREFORE, SAID TRANSFER OF LEASEHOLD RIGHT HAS RIGHTLY BEEN HELD BY LD. CIT(A) TRANSFER OF CAPITAL ASSET AND IS TO BE ASSES SED AS CAPITAL GAIN AND NOT ITA NO. 2956/M/09 5 AS BUSINESS INCOME. ACCORDINGLY, WE UPHOLD HIS ORD ER BY REJECTING GROUND OF APPEAL TAKEN BY DEPARTMENT. 7. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED ON THIS 16 TH DAY OF DECEMBER, 2011 SD/- SD/- ( PRAMOD KUMAR) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH DECEMBER,2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 2956/M/09 6 0. DATE INITIALS 1. DRAFT DICTATED ON: 7.12.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 8.12.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: