ITO 25(2)(1), MUMBAI V. JAWAHAR N. GHIA & OTHERS (AOP) , DR RANE ( MRS. HEMA SUNIL), MUMBAI

ITA 4665/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71669 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 29-10-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 11-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Additional evidence; Valuation report
• Section: 143(3); 54F; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 4665/MUM/2012 ASSESSMENT YEAR: 2004-05 ITO 25(2)(1), C-11 BLDG, R. NO. 107, P.K. BHAVAN BKC BANDRA(E) MUMBAI-51 VS. M/S. JAWAHAR N. GHIA & OTHERS (AOP), DR. RANE (MRS. HEMA SUNIL), D-61, TILAK COMPLEX, DEVKI NAGAR, EKSAR ROAD, BORIVALI (W) MUMBAI-400 103 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MIHIR NANIWADEKAR REVENUE BY : SHRI TUSHAR DHAWAL SINGH DATE OF HEARING : 29.10.2013 DATE OF PRONOUNCEMENT : 19.11.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A) -35, MUMBAI DATED 30.04.2012 FOR THE ASSESSMENT YEAR 20 04-05. 2. IN THIS APPEAL, THE REVENUE HAS RAISED VARIOUS G ROUNDS WHICH ARE RELATED TO DECISION OF THE LD.CIT(A) ON THE ISSUES OF TAXABILI TY OF CAPITAL GAINS IN THE HANDS OF AOP VIS-A-VIS INDIVIDUALS, ELIGIBILITY OF THE ASSESSEE FOR DEDUC TION U/S 54/54F AND THE ELIGIBILITY OF THE ASSESSEE FOR 54 EC DEDUCTIONS. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS THE REPRESENTATIVE OF AN AOP CONSTITUTED FOR THE PURPOSE OF RECEIVING RENT AND INTEREST INCO ME. THE REPRESENTATIVE OF THE AOP ALONG WITH OTHER CO-OWNERS SOLD THE DEVELOPMENT RIG HTS IN THE PROPERTY BEARING NUMBER 37A, TPS-III, SANTA CRUZ (E) IN ANDHERI KNOWN AS KR ISHNA KUNJ TO M/S. STEAMLINE BUILDERS. THE MEMBERS OF THE AOP/CO-OWNERS RECEIVED 6358 SQ.F T SUPER BUILT UP AREA IN KIND AS PART CONSIDERATION FOR THE SALE OF PROPERTY AND A F URTHER CASH AMOUNTING TO RS.12,50,000/- EACH AS THEIR SHARE OF COMPENSATION IN THE FORM OF SALE CONSIDERATION. AS REGARDS THE ITA NO. 4665/MUM/2012 M/S. JAWAHAR N. GHIA & OTHERS ASSESSMENT YEAR: 2004-05 2 6358 SQ.FT SUPER BUILT UP AREA RECEIVED IN KIND AS PART CONSIDERATION FOR THE SALE OF PROPERTY, ACCORDING TO THE ASSESSEE, SINCE THE ASSE SSEE HAD RECEIVED RESIDENTIAL PREMISES IN EXCHANGE OF AND IN LIEU OF EXISTING RESIDENTIAL PREMISES, NO CAPITAL GAIN ACCRUED IN TERMS OF SECTION 54F OF THE ACT. ACCORDINGLY, THE A SSESSEE HAD NOT OFFERED ANY INCOME BY WAY OF LONG TERM CAPITAL GAIN IN RESPECT OF THE SAL E CONSIDERATION RECEIVED IN THE FORM OF 6,358 SQUARE FEET IN THE NEW BUILDING. THE ASSESSEE HAS OFFERED HIS SHARE OF COMPENSATION OF RS.12,50,000/- AS LONG TERM CAPITAL GAIN AND IN PURSUANCE OF THE SAME INVESTED IN NHB CAPITAL GAINS BOND, CLAIMED A DEDUC TION U/S 54EC OF THE ACT. 3.1 IN THE ASSESSMENT FRAMED U/S 143(3) READ WITH S ECTION 147 OF THE ACT, THE AO WORKED OUT THE AREA ALLOTTED IN NEWLY CONSTRUCTED B UILDING AS AGAINST THE EXISTING AREA IN POSSESSION OF THE MEMBERS OF THE AOP/CO-OWNERS, THE DIFFERENCE BEING 6358 SQ.FT VALUED @ RS 5000/- PER SQ.FT AS PER THE MUNICIPAL INDEX. T HE AO DID NOT ALLOW THE COST OF THE PREMISES AS ON 1/4/1981 ON THE GROUND THAT THE ASSE SSEE HAD NOT SUBMITTED THE VALUATION REPORT AND ACCORDINGLY COMPUTED LONG TERM CAPITAL G AIN AT RS.3,30,40,000/- AND THEREBY TAXED THE CAPITAL GAINS OF RS.3,17,90,000/- IN THE HANDS OF THE AOP. FURTHER, ACCORDING TO THE AO, THE ASSESSEE HAD NOT PURCHASED ANY NEW RESI DENTIAL PROPERTY BUT WHAT WAS RECEIVED BY THE ASSESSEE WAS ONLY IN THE FORM OF SA LE CONSIDERATION AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 54 OF THE ACT. IN ADDITION, THE A O DISALLOWED THE CLAIM OF DEDUCTION OF RS.12,50,000/-U/S 54EC OF THE ACT ON THE GROUND THA T THE SAID BONDS WERE NOT ACQUIRED WITHIN SIX MONTHS AS REQUIRED UNDER SECTION 54EC OF THE ACT. 3.2 ON APPEAL, THE LD.CIT(A) HELD THAT THE CAPI TAL GAINS SHOULD BE TAXED IN THE HANDS OF THE INDIVIDUAL AND NOT IN THE HANDS OF THE AOP A ND THE ASSESSEE IS ELIGIBLE FOR DEDUCTIONS RESPECTIVELY U/S 54/54F AND 54EC OF THE ACT. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE US. 4. BEFORE US, THE LD.DR HAS CONTENDED THAT THE LD.CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE CAPITAL GAINS SHOULD BE TAXED IN THE HANDS OF T HE INDIVIDUALS AS THE SHARES OF THE CO- OWNERS ARE NOT DETERMINED AND THE MEMBERS OF AOP AR E NOW UNDER ONE TITLE THEREBY ENGAGING THE STATUS OF AOP. AS THERE IS NO INVESTME NT IN NEW ASSET, THE LD.CIT(A) OUGHT NOT TO HAVE ALLOWED THE ASSESSEE FOR GETTING BENEFI T U/S 54/54F OF THE ACT. THE LD.DR HAS FURTHER STATED THAT SINCE THE ASSESSEE HAS FAILED T O PROVE THAT THE INVESTMENT IN NHB ITA NO. 4665/MUM/2012 M/S. JAWAHAR N. GHIA & OTHERS ASSESSMENT YEAR: 2004-05 3 BONDS WERE WITHIN SIX MONTHS FROM THE TRANSFER OF D EVELOPMENT RIGHT, THE LD.CIT(A) HAS ERRED IN ALLOWING THE BENEFIT U/S 54EC. 4.1 ON THE OTHER HAND, THE LD.AR HAS COUNTER ARGUED THAT THE JOINT OWNERS, IN THEIR INDIVIDUAL CAPACITY ONLY EXECUTED THE DEVELOPMENT A GREEMENT AND NOT IN THE CAPACITY OF MEMBERS OF THE AOP. THE RELEVANT AGREEMENT DOES NOT REFER TO AOP AT ALL AND HENCE THE CAPITAL GAIN IS TO BE CONSIDERED AS RECEIVED BY THE CO-OWNERS. THE AOP HAS BEEN CONSTITUTED ONLY FOR THE LIMITED PURPOSE OF RECEIVI NG ONLY RENT AND INTEREST WHICH IS NOTHING TO DO WITH THE CAPITAL GAINS. THE LD.AR HAS ALSO RELIED ON THE DECISIONS OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. DEGHAMWAK ESTATES AND PUNJAB & HARYANA HIGH COURT IN THE CASE OF SUDHIR NAGPAL AND OTHERS VS. ITO 349 ITR 636 (P&H) IN SUPPORT OF THE PROPOSITION THAT THE IMPUGNED CAPITAL GAINS IS TO TREATED AS RECEIVED IN THE HANDS OF THE INDIVIDUALS/CO-OWNERS AND NOT IN THE HANDS OF T HE AOP. THE LD.AR HAS ALSO ARGUED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTIONS RESPEC TIVELY U/S 54/54F AND 54EC OF THE ACT. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED T HE MATERIAL ON RECORD. FIRSTLY , ON THE ISSUE WHETHER THE CAPITAL GAINS IS TO BE TAXED IN T HE HANDS OF THE INDIVIDUALS OR AOP, THE PERUSAL OF THE DEVELOPMENT AGREEMENT ENTERED INTO W ITH M/S. STREAMLINE BUILDERS INDICATES THAT THE SAID AGREEMENT IS SIGNED AND EXE CUTED BY ALL THE MEMBERS OF THE AOP IN THEIR INDIVIDUAL CAPACITY AND NOT AS MEMBERS OF THE AOP AND THE SAID AGREEMENT DOES NOT HAVE ANY REFERENCE TO THE AOP. THE FACT THAT TH E PAYMENTS MADE IN THE NAME OF DR. HEMA SUNIL RANE, THE THEN REPRESENTATIVE OF ALL THE MEMBERS OF THE AOP CLEARLY ESTABLISHES THAT THE AOP HAS BEEN CONSTITUTED WITH THE LIMITED PURPOSE OF RECEIVING THE INCOME FROM RENT AND INTEREST ON FIXED DEPOSITS. IT IS PERTINENT MENTION THAT THE MADRAS HIGH COURT IN THE CASE OF CIT VS DEGHAMWALS ESTATES HAS HELD THAT THE TENANTS IN COMMON EXECUTING A SALE DEED WOULD NOT CONSTITUTE B ODY OF INDIVIDUALS. THERE MUST BE SOMETHING MORE THAN JOINING TOGETHER AND EXECUTING A DOCUMENT TO BRING THE CO-OWNERS TOGETHER AS A BODY OF INDIVIDUALS. THE PUNJAB HARYA NA HIGH COURT IN THE CASE OF SUDHIR NAGPAL AND OTHERS VS ITO [2012] 349 ITR 636 (P&H) HAS HELD THAT TO ASSESS INDIVIDUALS TO BE FORMING ASSOCIATION OF PERSONS, THE INDIVIDUAL CO-OWNERS SHOULD HAVE JOINED THEIR RESOURCES AND THEREAFTER ACQUIRED PROPERTY IN THE N AME OF ASSOCIATION OF PERSONS AND THE PROPERTY SHOULD HAVE BEEN COMMONLY MANAGED, ONLY TH EN IT COULD BE ASSESSED IN THE HANDS OF ASSOCIATION OF PERSONS. CONVERSELY, THE MERE ACCRUING OF INCOME JOINTLY TO MORE ITA NO. 4665/MUM/2012 M/S. JAWAHAR N. GHIA & OTHERS ASSESSMENT YEAR: 2004-05 4 PERSONS THAN ONE WOULD NOT CONSTITUTE THEREON AN AS SOCIATION OF PERSONS IN RESPECT OF SUCH INCOME. IN OTHER WORDS, UNLESS THE ASSOCIATES HAVE DONE SOME ACTS OR PERFORMED SOME OPERATIONS TOGETHER, WHICH HAVE HELPED TO PROD UCE THE INCOME IN QUESTION AND HAVE RESULTED IN THAT INCOME, THEY CANNOT BE TERMED AS A SSOCIATION OF PERSONS. UNLESS THE MEMBERS COMBINE OR JOIN IN A COMMON PURPOSE, IT CAN NOT BE HELD THAT THEY HAVE FORMED THEMSELVES INTO AN ASSOCIATION OF PERSON. IN THE PR ESENT CASE ALSO, THE CO-OWNERS HAD INHERITED PROPERTY FROM THEIR ANCESTORS AND THERE I S NOTHING TO SHOW THAT THEY HAD ACTED AS ASSOCIATION OF PERSONS WHILE ACQUIRING OR TRANSF ERRING THE PROPERTY. THE INCOME IS, THUS, TO BE ASSESSED IN THE HANDS OF THE INDIVIDUAL CO-OW NERS. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD.CIT(A) HOLDING THAT THE CAPITAL GAINS SHOULD BE TAXED IN THE HANDS OF THE INDIVIDUALS AND NOT IN TH E HANDS OF THE AOP. ACCORDINGLY, GROUNDS NO. 1 & 2 ARE DISMISSED. 5.1 SECONDLY, ON THE ISSUE OF ALLOWABILITY OF EXEMPTION U/S 54/5 4F, THE AO HAS DENIED THE EXEMPTION U/S 54/54F ON THE GROUND THAT ASSESSE E HAS NOT PURCHASED NEW RESIDENTIAL PROPERTY FOR ABSORBING THIS LONG TERM CAPITAL GAINS ARISES OUT OF TRANSFER OF PROPERTY IN QUESTION. IT IS RELEVANT TO NOTE THAT THE DEVELOPME NT AGREEMENT ITSELF EMPHASISES ON THE AREA WHICH SHALL BE ALLOTTED TO THE BENEFICIARIES I N A NEWLY CONSTRUCTED BUILDING AS AGAINST THEIR EXISTING AREAS. THE SAID DEVELOPMENT AGREEMEN T CLEARLY INDICATES THE AFORESAID STATISTICS IN RESPECT OF ALLOTMENT OF AREAS. THIS S UGGESTS THAT THE ALLOTMENT IN NEWLY CONSTRUCTED BUILDING UNDER THE DEVELOPMENT AGREEMEN T IS AN ADJUSTMENT OF DEBTS IN RESPECT OF TRANSFER OF PROPERTY WITHIN THE MEANING OF DEVELOPMENT AGREEMENT DATED 9 TH NOVEMBER 2003. CONSIDERING THIS FACT IN THE LIGHT O F THE PROVISIONS OF SECTION 54, THE WORD PURCHASED IN SECTION 54 MUST BE INTERPRETED IN ITS ORDINARY MEANING AS BUYING FOR A PRICE OR EQUIVALENT OF A PRICE BY PAYMENT IN KIND OR ADJU STMENT TOWARDS OLD DEBTS OR FOR OTHER MONETARY CONSIDERATION. THE SAID PROPOSITION IS SUP PORTED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. V. T.N. ARAVINDA REDDY [120 ITR 46 (SC)] WHEREIN IT HAS BEEN HELD THAT THERE IS NO REASON TO DIVORCE THE OR DINARY MEANING OF THE WORD PURCHASE AS BUYING FOR A PRICE OR EQUIVALENT OF PRICE BY PAY MENT IN KIND OR ADJUSTMENT TOWARDS AN OLD DEBT OR FOR OTHER MONETARY CONSIDERATION FROM I TS LEGAL MEANING IN SECTION 54(1). UNDOUBTEDLY, EACH RELEASE IN THE CASE IS A TRANSFER OF THE RELEASOR'S SHARE FOR CONSIDERATION TO THE RELEASE. IN VIEW OF THE AFOREM ENTIONED DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR T HE DEDUCTION U/S 54/54F AND HENCE WE ITA NO. 4665/MUM/2012 M/S. JAWAHAR N. GHIA & OTHERS ASSESSMENT YEAR: 2004-05 5 DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WIT H THE ORDER OF THE LD.CIT(A) ON THIS COUNT. RESULTANTLY, THE ISSUE OF ALLOWABILITY OF EX EMPTION U/S 54/54F IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. GROUND NO. 3 IS DISMISSED. 5.2 THIRDLY, ON THE ISSUE OF ELIGIBILITY OF DEDUCTION U/S 54EC, THE AO DENIED THE CLAIM OF DEDUCTION ON THE INVESTMENT IN NHB U/S 54 EC ASS UMING THAT THE SAID INVESTMENT HAS BEEN MADE BEYOND THE STIPULATED PERIOD OF SIX MONTH S. THE AO CONSIDERED THE DATE OF INVESTMENTS AS 5 TH MAY 2004. ON APPEAL, THE LD.CIT(A) AFTER VERIFICAT ION OF THE ORIGINAL RECEIPTS ARRIVED AT A CONCLUSION THAT THE INVESTMEN T IN THE SAID BONDS HAS BEEN MADE BETWEEN 24 TH OF APRIL AND 26 TH OF APRIL. THE LD.CIT(A) HAS ALSO OBSERVED THAT IT HAS BEEN EXPLAINED THAT THE DIFFERENCE OF DAYS BETWEEN CHEQU E ISSUE DATE AND PRESENTING AND REPRESENTING THE SAME FOR CHEQUE CLEARANCE, CANT B E ATTRIBUTED TO THE ASSESSEE. IT IS OBSERVED THAT THE LD.CIT(A) WHILE DECIDING THIS ISS UE HAS RELIED ON THE ORIGINAL RECEIPTS ON THE INVESTMENT AND THE BANK DETAILS FOR ARRIVING AT THE CONCLUSION THAT THE ASSESSEE IS ELIGIBLE FOR THE BENEFIT U/S 54EC WHEREAS THE SAID ORIGINAL RECEIPTS AND THE BANK DETAILS HAVE NOT BEEN PRODUCED BEFORE THE AO DURING THE ASS ESSMENT PROCEEDINGS. IN FACT, WHILE RELYING SUCH ADDITIONAL EVIDENCE, THE LD.CIT(A) OUG HT TO HAVE GIVEN OPPORTUNITY TO THE AO TO EXPRESS HIS VIEWS AS REQUIRED UNDER RULE 46A OF THE INCOME TAX RULES. IN VIEW OF THAT MATTER, WE ARE OF THE VIEW THAT IT IS JUST AND PROP ER TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE WHETHER THE INVESTMENT HAS BEEN MADE WITHIN A PERIOD OF SIX MONTHS AND THEREBY DECIDE THE ALLOWAB ILITY OF THE DEDUCTION CLAIMED. NEEDLESS TO EMPHASIS FURTHER THAT THE AO SHALL GRAN T PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE TO PRODUCE ALL THE MATERIALS IN SUPPOR T OF THE SAID CLAIM OF DEDUCTION CLAIM. WE DIRECT AND ORDER ACCORDINGLY. GROUND NOS. 4 & 5 ARE ALLOWED FOR STATISTICAL PURPOSE. 6. IN THE RESULT, THE APPEAL FILED BY THE REV ENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF NOVEMBER, 2013. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.11.2013. *SRIVASTAVA ITA NO. 4665/MUM/2012 M/S. JAWAHAR N. GHIA & OTHERS ASSESSMENT YEAR: 2004-05 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR J BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.