ADDL. CIT, SPECIAL RANGE- 4, NEW DELHI V. GLOBAL HEALTH PVT. LTD., NEW DELHI

ITA 4871/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2229 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 31-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition; Capital Gains
• Section: 45(2); 43; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.4237/DEL/2017 (ASSESSMENT YEAR 2011-12) M/S GLOBAL HEALTH PRIVATE LIMITED E-18, DEFENCE COLONY, NEW DELHI-110 024 PAN AACCG 2681C VS. DY. CIT, CIRCLE-10(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.4871/DEL/2017 (ASSESSMENT YEAR 2011-12) ADDL. CIT, SPECIAL RANGE-4 NEW DELHI. VS. M/S GLOBAL HEALTH PRIVATE LIMITED E-18, DEFENCE COLONY, NEW DELHI-110 024 PAN AACCG 2681C (APPELLANT) (RESPONDENT) APPELLANT BY SH. RAHUL KHARE, CA RESPONDENT BY MS. SUNITA SINGH, CIT-DR DATE OF HEARING 05.04.2021 DATE OF PRONOUNCEMENT 30.06.2021 2 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT ORDER PER SUDHANSHU SRIVASTAVA, JM: THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER PASSED BY THE LD. COM MISSIONER OF INCOME TAX (APPEALS)-4, NEW DELHI {CIT (A)} VIDE ORD ER DATED 22/05/2017 AND ARE RELATING TO ASSESSMENT YEAR (AY ) 2011-12. THE ISSUE INVOLVED IN THESE APPEALS IS RELATED TO C OMPUTATION OF LONG TERM CAPITAL GAIN ARISING FROM TRANSACTION OF SALE OF RIGHTS AS PER JOINT DEVELOPMENT AGREEMENT (JDA). 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS THE OWNER OF 43 ACRES OF LAND SITUATED IN SECTOR 38, GUR GAON, HARYANA ALLOTTED BY HUDA. THE ASSESSEE ENTERED INTO A JOINT DEVELOPMENT AGREEMENT DATED 02/08/2007 WITH M/S. SAS INFOETECH P . LTD. FOR DEVELOPMENT OF 5 ACRES OF LAND OF THE AFORESAID 43 ACRES OF LAND. THE SAID DEVELOPMENT WAS TO BE CARRIED OUT WHOLLY BY M/S. SAS INFOETECH P. LTD FROM ITS OWN RESOURCES ON OR BEFORE THE COMPLETION DATE OF 1 ST SEPTEMBER, 2010. IT WAS FURTHER AGREED IN THE AGRE EMENT THAT UPON THE COMPLETION OF THE SAID DEVELOPMENT, T HE ASSESSEE WILL HAVE THE RIGHT TO EITHER TAKE POSSESSION OF 30,000 SQ. FT. OF BUILT UP 3 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT SUPER AREAS OR RELEASE THE SAME IN FAVOUR OF THE BU ILDER M/S. SAS INFOETECH P. LTD. FOR A CONSIDERATION OF RS. 33 CRO RES. AS RECORDED BY THE LD. CIT (A), THE UNDERLYING LAND WAS GIVEN ON LE ASE FOR A PERIOD OF 90 YEARS. IN THE ASSESSMENT YEAR UNDER REFERENCE , THE PROJECT GOT COMPLETED AND THE ASSESSEE CHOSE THE OPTION TO TAKE RS. 33 CRORES IN LIEU OF 30,000 SQ. FT. BUILT-UP SUPER AREA AND O FFERED THE SAME AS LONG TERM CAPITAL GAIN AFTER ADJUSTING THE INDEXED COST OF ACQUISITION OF PROPORTIONATE COST OF 5 ACRES OF LAND. THE ASSES SING OFFICER (AO) DISALLOWED THE CLAIM OF COST OF ACQUISITION ON THE GROUND THAT SINCE THE LAND WAS STILL APPEARING IN THE BALANCE SHEET O F THE ASSESSEE, THE BENEFIT OF COST CANNOT BE GIVEN. ACCORDINGLY, A DDITION OF LONG TERM CAPITAL GAIN WAS MADE TO THE EXTENT OF RS.12,24 ,33,236/-. THE LD. CIT (A) ALLOWED THE BENEFIT OF COST OF ACQUISIT ION. HE, HOWEVER, RESTRICTED THE INDEXATION TILL AY 2008-09 AS AGAINS T AY 2011-12 ON THE REASONING THAT INDEXATION CAN ONLY BE ALLOWED T ILL THE DATE OF SIGNING OF THE JOINT DEVELOPMENT AGREEMENT. THE LD. CIT (A) FURTHER HELD THAT LAND WAS DEEMED TO HAVE BEEN CONVERTED TO STOCK-IN-TRADE IN AY 2008-09 AT THE MARKET VALUE OF RS. 33 CRORES AS THE JOINT DEVELOPMENT AGREEMENT WAS ADVENTURE IN THE NATURE O F BUSINESS 4 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT AND, ACCORDINGLY, THE INDEXATION WAS TO BE ALLOWED O NLY TILL AY 2008-09. 2.1 NOW, BOTH THE ASSESSEE AS WELL AS THE DEPARTMEN T, ARE IN APPEAL BEFORE THIS TRIBUNAL AND HAVE RAISED THE FOL LOWING GROUNDS OF APPEAL RESPECTIVELY: GROUNDS OF APPEAL IN ITA NO.4237/DEL/2017 (ASSESSEE APPEAL): THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN AL LOWING INDEXATION COST OF ACQUISITION TILL A.Y.2008-09 INS TEAD OF A.Y. 2011-12 AS CLAIMED IN THE RETURN. GROUNDS OF APPEAL IN ITA NO.4871/DEL/2017 (DEPARTM ENTS APPEAL): 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT (A) HAS ERRED IN DIRECTING TO TAKE THE INDEXED COST OF ACQUISITION TO BE WORKED ON PROPORTIONATE BASIS WHILE COMPUTING TH E CAPITAL GAINS BY IGNORING THE FACT THAT THE ASSESSEE DID NO T REDUCE THE SAID PROPORTIONATE COST FROM THE COST OF LAND IN IT S BOOKS OF ACCOUNTS. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G. 5 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT 3.0 ON THE ISSUE OF COST OF ACQUISITION, THE LD. C OUNSEL APPEARING FOR THE ASSESSEE SUPPORTED THE ORDER OF T HE LD. CIT (A) AND SUBMITTED THAT SINCE THERE WAS TRANSFER OF RIGHT S IN LAND ON ACCOUNT OF 90 YEARS LEASE, THE PROPORTIONATE COST OF SUCH LAND WAS ELIGIBLE TO BE CLAIMED AS COST OF ACQUISITION WHILE COMPUTING THE LONG TERM CAPITAL GAIN. IT WAS FURTHER ARGUED THAT L EASING OF LAND FOR A SUBSTANTIAL PERIOD RESULTS IN TRANSFER OF RIGHTS IN THE LAND AND AS SUCH THE BENEFIT OF COST INDEXATION WAS RIGHTLY AVAI LABLE. IN RESPECT TO THE OF ACTION OF THE LD. CIT (A) IN TREATING THE EXECUTION OF JOINT DEVELOPMENT AGREEMENT AS CONVERSION OF CAPITAL ASSE T TO STOCK-IN- TRADE IN TERMS OF SECTION 45(2) OF THE INCOME TAX A CT, 1961 (HEREINAFTER CALLED THE ACT) AND THEREBY RESTRICT ING THE INDEXATION BENEFIT TILL AY 2008-09, IT WAS SUBMITTED THAT EXECU TION OF JOINT DEVELOPMENT AGREEMENT CANNOT BE TREATED AS ADVENTUR E IN NATURE OF BUSINESS. IT WAS FURTHER ARGUED THAT THE CONVERS ION OF CAPITAL ASSET TO STOCK WAS THE PREROGATIVE OF THE ASSESSEE AND IT WAS NOT OPEN FOR THE LD. CIT (A) TO MAKE A NOTIONAL CONVERS ION. THE LD. COUNSEL VEHEMENTLY ARGUED THAT THE LAND WAS CONTINU ED TO BE SHOWN AS CAPITAL ASSET UNDER THE FIXED ASSET SCHEDUL E OF THE 6 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT BALANCE SHEET AND THAT THERE WAS NO INTENT TO ENTER INTO BUSINESS OR TRADE SO AS TO INVOKE THE PROVISIONS OF SECTION 45(2) OF THE ACT. IT WAS, ACCORDINGLY, SUBMITTED THAT SINCE THE TAXABLE E VENT AROSE IN AY 2011-12, THE BENEFIT OF INDEXATION WAS ALSO TO BE MA DE AVAILABLE TILL AY 2011-12, I.E. YEAR UNDER REFERENCE. 4.0 ON THE OTHER HAND, THE LD. CIT DR ARGUED THAT BENEFIT OF COST OF ACQUISITION WAS NOT AVAILABLE AS THE ASSESSE E CONTINUED TO BE THE OWNER OF THE LAND. OUR ATTENTION WAS DRAWN TO THE FIXED ASSET SCHEDULE OF THE BALANCE SHEET AND IT WAS POINTED OUT THAT THERE WAS NO REDUCTION IN THE VALUE OF THE LAND APPEARING THEREIN. THE LD. CIT DR, WHILE PLACING RELIANCE ON THE ASSESSMENT ORD ER, ARGUED THAT THE ENTIRE AMOUNT OF RS. 33 CRORES WAS TAXABLE AS LO NG TERM CAPITAL GAIN AND THAT THERE WAS NO QUESTION OF ANY ADJUSTME NT OF COST OR INDEXATION OF THE SAME. 5.0 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE ASSESSMENT ORDER AS WELL AS THE IMPUGNED APPELL ATE ORDER. WE HAVE ALSO GONE THROUGH THE JOINT DEVELOPMENT AGREEM ENT AND COMPUTATION OF LONG TERM CAPITAL GAIN AS RETURNED B Y THE ASSESSEE. THE FACTUAL POSITION AS NOTED ABOVE HAS NOT BEEN DI SPUTED BY EITHER 7 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT OF THE PARTIES AND THE LIMITED ISSUE BEFORE US IS R EGARDING ALLOWABILITY OF COST OF ACQUISITION AND INDEXATION T HEREON. IN THIS REGARD, WE NOTE THAT THE ASSESSEE IS THE OWNER OF 5 ACRES OF LAND WHICH WAS SUBSEQUENTLY LEASED IN FAVOUR OF M/S. SAS I NFOETECH P. LTD. PURSUANT TO THE JOINT DEVELOPMENT AGREEMENT. F URTHER, THE ASSESSEE HAS PARTED WITH THE POSSESSION OF THE AFORE SAID 5 ACRES OF LAND IN FAVOUR OF M/S. SAS INFOETECH P. LTD. ON LON G TERM LEASE HAVING A TERM OF 90 YEARS. THE ESSENCE OF A JOINT D EVELOPMENT AGREEMENT IS A BARTER WHERE THE PERSON HANDS OVER TH E LAND AND RECEIVES CONSTRUCTED PORTION IN RETURN. FURTHER, TH E COMPUTATION OF GAIN ARISING FROM JOINT DEVELOPMENT AGREEMENT IS TO BE MADE AFTER TAKING INTO ACCOUNT COST OF LAND TRANSFERRED TO THE BUILDER UNDER THE AGREEMENT WHEREON THE BUILDING IS CONSTRUCTED. TO PU T IT SIMPLY, IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED CONSIDE RATION OF RS. 33 CRORES BY ASSIGNING RIGHTS OVER 5 ACRES LAND IN FAV OUR OF THE BUILDER M/S. SAS INFOETECH P. LTD. AND AS SUCH WE FIND NO J USTIFICATION IN THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING T HE CLAIM OF COST OF ACQUISITION. IN ANY CASE, MERELY BECAUSE THE LAND I S CONTINUED TO BE REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE WOULD NOT HAVE ANY 8 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT ADVERSE IMPLICATION ON THE COMPUTATION OF LONG TERM CAPITAL GAIN AS THE ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUNT CA NNOT OVERRIDE THE DETERMINATION OF REAL INCOME UNDER THE PROVISIO NS OF INCOME TAX ACT, 1961. IN VIEW OF THE ABOVE, WE FIND NO MERI T IN THE GROUND RAISED IN THE REVENUES APPEAL AND SAME IS DISMISSE D. 5.1 ON THE ISSUE OF INDEXATION OF COST, IT IS OBSE RVED THAT THE LD. CIT (A) HAS RESTRICTED THE INDEXATION ON THE GR OUND THAT THERE WAS CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE IN TERMS OF SECTION 45(2) OF THE ACT IN AY 2008-09 I.E. UPON EX ECUTION OF THE JOINT DEVELOPMENT AGREEMENT AND AS SUCH THE BENEFIT OF INDEXATION WAS ALLOWED ONLY TILL AY 2008-09. FIRSTLY, WE WILL DE AL WITH THE OBSERVATION OF THE LD. CIT (A) WHILE INVOKING PROVIS ION OF SECTION 45(2) OF THE ACT. WE FIND THAT THE ASSESSSEE COMPAN Y IS IN THE BUSINESS OF PROVIDING HEALTHCARE SERVICES. FURTHER, THE ASSESSEE WAS THE OWNER OF THE SUBJECT LAND SINCE THE YEAR 2004 AN D SAME HAS BEEN CONTINUOUSLY REFLECTED/HELD AS CAPITAL ASSET I N THE BALANCE SHEET. FURTHER, ON PERUSAL OF THE JOINT DEVELOPMENT AGREEMENT, THERE IS NO INDICATION WHATSOEVER THAT THE SAME HAS BEEN ENTERED FOR EXPLOITING THE LAND ON COMMERCIAL LINES. IN FAC T, THE ASSESSEE 9 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT COMPANY IS ALREADY RUNNING HEALTHCARE FACILITIES IN CONNECTED PIECE OF LAND AND DERIVING SUBSTANTIAL REVENUE THERE FROM . WE ALSO FIND THAT THE LD. CIT (A) HAS NOT GIVEN ANY CONCRETE REA SONING FOR ASSUMING CONVERSION OF CAPITAL ASSET TO STOCK-IN-TR ADE IN TERMS OF SECTION 45(2) OF THE ACT AND OSTENSIBLY THE SAME HA S BEEN DONE BECAUSE THE ASSESSEE OPTED FOR TAKING CONSIDERATION OF RS. 33 CRORES IN PLACE OF BUILT-UP STRUCTURE UPON COMPLETION OF T HE PROJECT. WE FIND IT DIFFICULT TO COMPREHEND THAT MERELY BECAUSE THE JOINT DEVELOPMENT AGREEMENT CONTAINED A CLAUSE GIVING OPT ION TO THE ASSESSEE TO EITHER TAKE THE BUILT-UP SPACE OR TRANS FER THE SAME TO THE BUILDER FOR CONSIDERATION, IT WOULD AFFECT THE PRINCIPAL NATURE OF THE TRANSACTION WHICH WAS ON CAPITAL ACCOUNT. FURTHER , THE OPTION GIVEN TO THE ASSESSEE UNDER THE JOINT DEVELOPMENT A GREEMENT WAS NOT SUBJECT TO THE MARKET PRICE OF THE FINAL BUILT- UP AREA AND AS SUCH, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN IMPUTING A COMMERCIAL ANGEL TO THE WHO LE TRANSACTION FOR THE PURPOSE OF INVOKING SECTION 45(2) OF THE AC T. 5.2 AT THIS JUNCTURE WOULD BE RELEVANT TO MAKE A RE FERENCE TO THE BARE PROVISION OF SECTION 45(2): 10 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT SECTION 45 - CAPITAL GAINS 2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTIO N (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY O F CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATM ENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM SHAL L BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVI OUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRAN SFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAIR M ARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATME NT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. 5.3 A PLAIN READING OF SECTION 45(2) MAKES IT AMPL Y CLEAR THAT IT IS THE PREROGATIVE OF THE ASSESSEE TO COVERT THE CAPITAL ASSET TO STOCK. FURTHER, THE TERM BUSINESS CARRIED ON BY HI M NECESSARILY MEANS THAT THE CAPITAL ASSET SO CONVERTED MUST FORM PART OF STOCK- IN-TRADE OF THE BUSINESS CARRIED ON BY THE ASSESSEE . IN THE PRESENT CASE, THE ASSESSEE COMPANY IS IN THE HEALTHCARE BUS INESS AND NOT IN BUSINESS RELATED TO REAL ESTATE AND AS SUCH IT C ANNOT BE SAID THAT ASSESSEE, BY ENTERING INTO THE JOINT DEVELOPMENT AG REEMENT, HAS CONVERTED THE LAND INTO ITS STOCK-IN-TRADE. THEREFO RE, WE HAVE NO HESITATION IN HOLDING THAT THERE IS NO SCOPE OF APP LICABILITY OF SECTION 45(2) OF THE ACT TO THE FACTS OF THE PRESEN T CASE. THEREFORE, WE ARE UNABLE TO FIND ANY JUSTIFICATION IN THE ACTIO N OF THE LD. CIT (A) IN INVOKING PROVISIONS OF SECTION 45(2) OF THE ACT. THE UPSHOT OF 11 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT THIS DISCUSSION IS THAT ONCE WE HAVE DENOUNCED THE APPLICATION OF SECTION 45(2), THERE REMAINS NO BASIS FOR RESTRICTI NG THE INDEXATION TO AY 2008-09 PARTICULARLY WHEN THE TAXABLE EVENT AR OSE IN AY 2011-12 WHEN THE CONSTRUCTION GOT COMPLETE AND THE A SSESSEE OPTED TO PART WITH 5 ACRES OF LAND FOR A CONSIDERATI ON OF RS. 33 CRORES. ACCORDINGLY, IN VIEW OF OUR REACHING THIS C ONSIDERED OPINION, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE BENEF IT OF INDEXATION OF COST OF ACQUISITION TILL AY 2011-12 I.E. THE YEAR O F ASSESSMENT OF CAPITAL GAIN. 6.0 IN THE FINAL RESULT, THE APPEAL OF T HE DEPARTMENT IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON 30 TH JUNE, 2021. SD/- SD/- (N.K. BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/06/2021 *DRAGON* 12 ITA NOS.4237 & 4871/DEL/2017 GLOB AL HEALTH PVT. LTD VS. DCIT COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI