ITO 19(2)(3), MUMBAI V. KARAMVEER PREMNARAYAN, MUMBAI

ITA 5113/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9002 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 01-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASUTOSH RAJHANS
• Keywords: Capital asset; Business income
• Section: 45(2)

Judgement Text

1IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO.5113/MUM/2011 ASSESSMENT YEAR: 2004-05 ITO 19(2)(3), R.NO.305, 3 RD FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI-12. MR KARAMVEER PREMNARAYAN, 7 TH FLOOR, INDRAPRASTHA PREMNARAYAN CHOWK, LINKING ROAD, SANTACRUZ(E), MUMBAI-54 PA NO.AGRPP 6501 G (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI ASUTOSH RAJHANS RESPONDENT BY: NONE DATE OF HEARING: 29 .8.2012 DATE OF PRONOUNCEMENT: 14.9.2012 ORDER PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2004-05 AGAINST ORDER DATED 5.5.2011 OF LD CIT(A) -35, MUMBAI. 2. THE ONLY ISSUE RAISED BY DEPARTMENT IS AS TO WHE THER LD CIT(A) IS JUSTIFIED TO ACCEPT THE CLAIM OF THE ASSESSEE THAT CONSIDERATION RECEIVED BY ASSESSEE IN RESPECT OF PROPERTY INDRAPRASTHA IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS A ND NOT BUSINESS INCOME. 3. NONE APPEARED ON BEHALF OF ASSESSEE IN SPITE OF NOTICE. HENCE, WE PROCEED TO DISPOSE OF THE APPEAL OF DEPARTMENT ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND CONSIDERING THE SUBMISSIONS OF LD D.R. 4. LD D.R. RELIED ON ORDER OF AO. HOWEVER, LD D.R. CONCEDED THAT THE ISSUE IS COVERED BY THE DECISION DT. 11.1.2010 OF THE ITAT I N THE CASE OF CO-OWNER NAMELY, MR KRISHAN PREMANARAYEN FOR ASSESSMENT YEAR 2004-05 IN ASSESSEES FAVOUR IN I.T.A.NO.6293/M/2007 IN APPEAL FILED BY DEPARTMENT AND I.T.A. NO.6133/M/2007 FILED BY ITA NO.5112/MUM/2011 ASSESSMENT YEAR: 2004-05 2 ASSESSEE BY HOLDING THAT THE TRANSACTIONS IS NOT AN ADVENTURE IN THE NATURE OF TRADE AND THE ENTIRE INCOME EARNED BY THE ASSESSEE AS WELL AS OTHER FAMILY MEMBERS IS TAXABLE AS CAPITAL GAINS. IT IS RELEVANT TO STATE THAT ASSESS EE IS CO-OWNER OF THE PROPERTY INDRAPRASTHA BEING 6.25% SHARE. THE SAID PROPER TY WAS INHERITED BY THE CO-OWNERS IN THE YEAR 1938. THE FAMILY ENTERED INTO AN MEMORAND UM OF UNDERSTANDING WITH GODREJ PROPERTIES & INVESTMENT LTD (GPIL) TO CONSTRUCT THE SAID PROPERTY FOR RESIDENTIAL PURPOSES AFTER DEMOLISH THE OLD BUNGALOW VIDE AGREE MENT DATED 12.1.2000. THEY RECEIVED RS.88.30 LAKHS UNDER THE ABOVE ARRANGEMENT . OUT OF THAT AMOUNT, RS.80 LAKHS WAS RECEIVED IN THE ASSESSMENT YEAR 2003-04 AND SAM E WAS TREATED AS CAPITAL GAINS. THE BALANCE AMOUNT OF RS.8.30 LAKHS WAS RECEIVED BY THE CO-OWNERS IN THE ACCOUNTING YEAR I.E. RELEVANT TO ASSESSMENT YEAR 2004-05. THE AMOUNT AGGREGATING TO RS.88.30 LAKHS WAS DISCLOSED AS CAPITAL GAINS BY ALL THE CO- OWNERS IN ACCORDANCE WITH THEIR SHARE OF THE PROPERTY IN RESPECTIVE ASSESSMENT YEARS. TH E AO WHILE MAKING ASSESSMENT FOR ASSESSMENT YEAR 2004-05 CONSIDERED THE SAID ARRANGE MENT AS ADVENTURE IN THE NATURE OF TRADE AND NOT TREATED THE AMOUNT RECEIVED AS LON G TERM CAPITAL GAIN. THE AO STATED THAT THE FAMILY MEMBERS CONVERTED CAPITAL ASSETS IN TO STOCK-IN-TRADE AND, ACCORDINGLY, HE COMPUTED THE INCOME OF THE CO-OWNERS AS CAPITAL GAIN U/S.45(2) OF THE ACT. THE AO BIFURCATED THE PROFIT FROM CONSTRUCTION ACTIVITY AN D CAPITAL GAIN ON CONVERSIONS OF CAPITAL ASSETS AS PER SECTION 45(2) OF THE ACT. HOWEVER, L D CIT(A) ALLOWED THE APPEAL OF ASSESSEE BY FOLLOWING ORDER PASSED BY HIM IN THE CA SE OF CO-OWNER KRISHNAN PREMNARAYAN BY HOLDING THAT THE TRANSACTION IS NOT AN ADVENTURE IN THE NATURE OF TRADE AND ENTIRE INCOME EARNED BY ASSESSEE AS WELL AS CO- OWNERS IS TAXABLE AS CAPITAL GAINS. IT IS RELEVANT TO STATE THAT THE TRIBUNAL BY ITS O RDER DATED 11.1.2010 (SUPRA) CONFIRMED THE FINDINGS OF LD CIT(A) VIDE PARA 10 WHICH READS AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD INCLUDING THE MOU ENTERED INTO BETWEEN THE ASSESSEE AND OTHER SHAREHOLDERS WITH GPIL, WE FIND THAT A MEMORANDUM O F TOTAL PARTITION DATED 31.8.1995 WAS PREPARED. EACH OF THE CO-OWNER S HAS UNDIVIDED SHARE, RIGHT TITLE AND INTEREST IN THE PROPERTY, I. E. PIECE OR PARCEL OF LAND WITH BUNGALOW CONSISTING OF GROUND AND ONE UPPER FL OOR AND SEPARATE STRUCTURE BEING GARAGE WITH SERVANT QUARTERS ON THE UPPER FLOOR STANDING THEREON, SITUATE, LYING AND BEING AT PREM NARAYAN C HOWK, LINKING ROAD, SANTACRUZ (W), MUMBAI. THE ASSESSEE, MRS KAILASH P REM NARAYEN, WAS HAVING 25% UNDIVIDED SHARE AND THE REMAINING COWERS WERE HAVING 6.25% EACH AS UNDIVIDED SHARE. GPIL WAS APPOINTED AS PROJECT MANAGER WHO AGREED TO EXECUTE AND COMPLETE THE CONSTRUCTION OF PROPOSED BUILDING ON THE SAID PROPERTY AND ON BEHALF OF THE OWNERS BY DEPLANING THE PROPER BUILDING, CARRYING OUT CONSTRUCTION OF T HE SAME MARKETING THE ITA NO.5112/MUM/2011 ASSESSMENT YEAR: 2004-05 3 SAME AND IF SO REQUIRED, RAISING FINANCE FOR CARRYI NG OUT THE SAID CONSTRUCTION ON THE TERMS AND CONDITIONS AGREED BY AND BETWEEN THE PARTIES. THEREAFTER, THE CONSTRUCTION WAS MADE AFT ER AVAILING FINANCE FROM MARKET ON BEHALF OF THESE CO-OWNERS BY GPIL. AS PER AGREEMENT, THE LOAN AMOUNT WAS PAYABLE TO THE PROJECT MANAGER FROM THE SHARE OF NET REALIZATION/SURPLUS FROM THE PROPERTY CONSTRUCT ED BY GPIL AS PER CLAUSE 12 OF THE AGREEMENT ENTERED INTO. AS STATED ABOVE, THE BUILDING WAS CONSTRUCTED AND ALL THE CO-OWNERS WERE POSSESSE D WITH ONE FLAT EACH. THOSE FLATS WERE USED FOR THEIR RESIDENTIAL PURPOSES. THREE FLATS WERE SOLD BY THESE CO-OWNERS FOR THE PURPOSE OF PAY ING COST OF CONSTRUCTION INCLUDING LOANS TAKEN BY GPIL ON BEHAL F OF THESE CO-OWNERS. ACCORDINGLY THESE CO-OWNERS COMPUTED CAPITAL GAINS ON SALE OF THESE THREE FLATS. FOR THE PURPOSE OF CLARIFICATION, IT MAY BE MENTIONED HERE THAT THESE THREE FLATS SOLD WERE BELONGING TO ALL T HE CO-OWNERS AS IN THE ENTIRE BUILDING THE CO-OWNERS WERE HAVING UNDIVIDED INTEREST. ACCORDINGLY, THE ASSESSEE COMPUTED LONG TERM CAPITA L GAINS AT 25% AS HER SHARE AND HAS SHOWN THE SAME IN THE RETURN OF I NCOME. THE AO IS ALSO NOT DISPUTING THE SHAREHOLDING PATTERN OF THES E CO-OWNERS. HOWEVER, THE AO TREATED THE SALE CONSIDERATION AS A N ADVENTURE IN THE NATURE OF TRADE. IN OUR CONSIDERED VIEW, THE ARRAN GEMENT BETWEEN THESE CO-OWNERS AND GPIL CANNOT BE TERMED AS COMMERCIAL A RRANGEMENT FOR THE SIMPLE REASON THAT THE PIECE OF LAND INCLUDING THE BUNGALOW INHERITED BY THESE CO-OWNERS WAS A CAPITAL ASSET. THESE CO-O WNERS GOT CONSTRUCTED THE BUILDING COMPRISING OF MANY FLATS F OR THEIR RESIDENTIAL PURPOSES. THEREFORE, AN AGREEMENT WAS ENTERED INTO WITH GPIL. GPIL CONSTRUCTED THE BUILDING AS PER AGREED TERMS. THRE E FLATS WERE SOLD FOR PAYING THE COST OF CONSTRUCTION TO GPIL. THEREFORE , NO DOUBT REMAINS THAT THE CHARACTER OF THESE ASSET, WHICH WAS CAPITA L IN NATURE, REMAINED THE SAME EVEN AFTER CONSTRUCTION. THE PREDECESSOR OF THE LD CIT(A) HAS GIVEN A CATEGORICAL FINDING IN HIS ORDER FOR THE AS SESSMENT YEAR 2003-04 THAT THE ASSET IS CAPITAL IN NATURE. THE OPERATIVE PART OF THAT ORDER HAS BEEN RECORDED BY THE CIT(A) IN HIS ORDER, WHICH ALS O FORMS PART OF THIS ORDER. THE FINDINGS CONTAINED THEREIN ARE VERY CLE AR WHICH PROVE THAT THE SALE CONSIDERATION RECEIVED BY THESE CO-OWNERS WAS ON ACCOUNT OF SALE OF CAPITAL ASSET. IN VIEW OF THESE FACTS AND CIRCUMST ANCES, WE HAVE NO HESITATION IN CONFIRMING THE ACTION OF THE LD CIT(A ). ACCORDINGLY, WE CONFIRM THE FINDINGS OF THE LD CIT(A). THE GROUNDS OF THE DEPARTMENT FAIL AND ARE REJECTED. 5. IT IS OBSERVED THAT DEPARTMENT FILED APPEAL BEF ORE THE HONBLE JURISDICTIONAL HIGH COURT AND HONBLE HIGH COURT VIDE ITS ORDER DATED 2 8.9.2011 CONFIRMED THE ORDER OF THE TRIBUNAL THAT SALE CONSIDERATION RECEIVED BY THE AS SESSEE AS WELL AS BY CO-OWNERS WAS ON ACCOUNT OF SALE OF CAPITAL ASSETS. 6. IN VIEW OF ABOVE FACTS AND FOLLOWING THE ORDER O F THE TRIBUNAL WHICH HAS BEEN CONFIRMED BY HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF KRISHAN PREMNARAYAN (SUPRA), WE UPHOLD THE ORDER OF LD CIT(A) THAT THE CONSIDERATION RECEIVED BY THE ITA NO.5112/MUM/2011 ASSESSMENT YEAR: 2004-05 4 ASSESSEE FROM REDEVELOPMENT OF THE PROPERTY IS TO B E TAXED UNDER THE HEAD CAPITAL GAINS AND NOT BUSINESS INCOME. IT IS RELEVANT T O STATE THAT DEPARTMENT HAS NOT DISPUTED THAT THE FACTS OF THE ASSESSEE ARE IDENTIC AL TO THE FACTS IN RESPECT OF CO-OWNER OF THE SAME PROPERTY. HENCE, WE UPHOLD THE ORDER O F LD CIT(A) BY REJECTING GROUNDS OF APPEAL TAKEN BY DEPARTMENT. 7. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER, 2012 SD/- (B.RAMAKOTAIAH ) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 14 TH SEPTEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),35, MUMBAI 4. COMMISSIONER OF INCOME TAX, 19 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI