Shri Hatlage Baban alias Laxman Baburao, Kolhapur V. ITO, Ward 1,Ichalkarnji, Ichalkaranji

ITA 647/PUN/2006

• Counselvise Citation: 64724514 RSA 2006
• Duration Of Justice: 7 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-10-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 29-05-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Capital asset; Business income; Cost of acquisition
• Section: 54F; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JM AND SHRI R.K. PANDA, AM I.T.A. NO. 647/PN/2006: A.Y. 2002-03 SHRI BABAN ALIAS LAXMAN B. HATLAGE 12 TH LANE, JAISINGPUR, DIST. KOLHAPUR PAN ABCPH 7681 R APPELLANT VS. I.T.O. WARD 1, ICHALKARANJI RESPONDENT APPELLANT BY : SHRI M.K. KULKARNI RESPONDENT BY: SMT. ANN KAPTHUA MA DATE OF HEARING: 19-6-2013 DATE OF PRONOUNCEMENT: 26-6-2013 ORDER PER SHAILENDRA KUMAR YADAV JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A) KOLHAPUR DATED 2-5-2006 FOR A.Y. 2002 -03 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONF IRMING THE STATUS OF THE ASSESSEE AS INDIVIDUAL WHEN IN FA CT IT WAS HUF PROPERTY AND SHOULD HAVE BEEN SO ASSESSED I N THE STATUS OF THE HUF THOUGH THE DECLARATION OF STA TUS AS INDIVIDUAL IN THE RETURN DOES NOT CHARGE THE REAL STATUS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW AND IN VIEW OF GROUND NO. 1 ABOVE THE NO TICE U/S 148 SERVED IN THE STATUS OF INDIVIDUAL WAS BAD IN LAW AND THE CONSEQUENTIAL PROCEEDINGS WERE VITIATED IN LAW. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW AND IN VIEW OF THE FACT THAT THE TRANSAC TION OF DEMOLITION OF HUF BUILDING TOOK PLACE IN APRIL 2000 RELEVANT TO A.Y. 2001-02 THE ASSESSMENT IN A.Y. 200 2-03 IS VITIATED IN LAW AND IT BE CANCELLED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRE CTING THE AO TO ASSESS THE SALE OF CONSTRUCTION AS SHORT TERM CAPITAL GAIN. ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 2 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE PORTION OF LAND WAS SOLD ALONG WITH CONSTRUCTION THE SALE PRICE FETCHED WAS COST OF LAN D AND THE CONSTRUCTION ON THE SAME BEING IMPROVEMENT OF L AND COST AS THE SALE OF CONSTRUCTION WAS RIGHTLY HELD A S NOT A BUSINESS INCOME. THE ENTIRE SALE OF CONSTRUCTION A LONG WITH PROPORTIONATE LAND THEREUNDER WAS LONG TERM CA PITAL GAIN AND IT BE HELD ACCORDINGLY. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LONG TERM CAPITAL GAIN IS NOT ASSESS ABLE TO INCOME-TAX IN THE ABSENCE OF ANY COST OF ACQUISITIO N AS THE ASSET WAS ACQUIRED AS A CONQUEST AND COST OF ACQUISITION WAS INCURRED. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONF IRMING THE LEVY OF INTEREST U/S 234A/234B/234C OF THE ACT. 2. THE FACTS OF THE CASE ARE THAT A PIECE OF LAND BELONGING TO THE ASSESSEES FATHER BECAME THE PROPERTY OF THE FA THER AND HIS FOUR SONS BY WAY OF MUTUAL PARTITION DATED 27-6-198 4. THE ASSESSEE DEMOLISHED THE PROPERTY AND CONSTRUCTED A NEW BUILDING. THE TOTAL COST OF CONSTRUCTION WAS RS. 6 7,71,815/- OUT OF WHICH RS. 38,31,078/- WAS CONTRIBUTED BY THE ASSESSEE. THE COST PER SQ.FT. FOR THE ASSESSEE WORKED OUT TO RS. 714.20. A TOTAL NUMBER OF SIX SHOPS AND SIX RESIDENTIAL FLA TS WERE BUILT OUT OF WHICH FIVE SHOPS AND TWO RESIDENTIAL FLATS W ERE SOLD, LEAVING A BALANCE OF ONE SHOP AND FOUR RESIDENTIAL FLATS. OUT OF THE FOUR RESIDENTIAL FLATS, TWO WERE RENTED AND TWO WERE OCCUPIED BY THE ASSESSEE. THE TOTAL SALE CONSIDERA TION FOR FIVE SHOPS AND TWO RESIDENTIAL FLATS WAS RS 26,27,840/-. IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE LONG TE RM CAPITAL GAIN WAS WORKED OUT BY REDUCING COST OF CONSTRUCTIO N OF RS. 1,73,899/- FROM THE TOTAL SALE PROCEEDS OF RS. 26,2 7,840/-. THE ASSESSEE CLAIMED THAT THE ENTIRE SALE CONSIDERA TION OF RS. ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 3 8.88 LAKHS WAS REINVESTED IN THE CONSTRUCTION OF R ESIDENTIAL FLATS AND, THEREFORE, EXEMPT U/S 54F OF THE ACT TH E COST OF INVESTMENT IN THE RESIDENTIAL FLATS WAS RS. 10.10 L AKHS WHICH WAS MORE THAN THE AMOUNT OF CAPITAL GAIN. THE ASSE SSEE OFFERED RENTAL INCOME FROM TWO FLATS RENTED OUT UND ER THE HEAD INCOME FROM HOUSE PROPERTY. 3. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE I NCOME FROM SALE WAS IN THE NATURE OF BUSINESS INCOME. HE ADOPTED THE CURRENT VALUE OF THE LAND AT RS. 3,000/- PER SQ . FT. BASED ON THE REPORT OF THE APPROVED VALUER AND, WORKED OU T LONG TERM CAPITAL GAIN ON THE LAND AS UNDER:- CURRENT VALUE RS. 8,03,700/- LESS: VALUE AS ON 1-4-1981 RS. 32,148/- LONG TERM CAPITAL GAIN RS. 7,71,552/- ---------------- THE ABOVE CAPITAL GAIN WAS HOWEVER, NOT TAXED ON TH E GROUND THAT THE RESIDENTIAL BUILDING IN THE HANDS OF THE A SSESSEE WAS VALUED AT RS. 8,23,597/- WHICH WAS HIGHER THAN THE ABOVE FIGURE OF THE CAPITAL GAIN ON SALE OF LAND. HE TH EN PROCEEDED TO TAX THE INCOME FROM SALE OF FLATS AND SHOPS AS U NDER: SALE CONSIDERATION RS. 26,27,840/- LESS: COST OF CONSTRUCTION RS. 13,96,623/- AS PER VALUERS REPORT ------------------ BUSINESS INCOME RS. 12,31,217/- ------------------ 4. IT WAS THE STAND OF THE ASSESSEE THAT THE DEVELO PMENT AGREEMENT WAS SIGNED ON 16-4-2000 BETWEEN THE ASSES SEE AND HIS BROTHERS WITH THE DEVELOPERS. THE DEVELOPERS W ERE TO BE PAID RS. 5,50,000/- AS FEES OVER AND ABOVE THE CONS TRUCTION COST. THE AMOUNT PAID BY THE ASSESSEE WAS RS. 3,06 ,967/-. THE PROPERTY WAS ACQUIRED BY NOTIONAL PARTITION AND WAS, ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 4 THEREFORE, A CAPITAL ASSET IN THE HANDS OF THE FAMI LY MEMBERS. THE DEVELOPMENT OF THE PROPERTY WAS THE ONLY ACTIVI TY OF CONSTRUCTION/DEVELOPMENT UNDERTAKEN BY THEM. THE P ROPERTY WAS NOT HELD WITH THE INTENTION TO TRADE IT FOR PRO FIT. THE ASSESSEE HAD NOT DONE ANY SALE/PURCHASE TRANSACTION IN PROPERTY EARLIER. THE ASSESSING OFFICER, WHILE REJ ECTING THE CLAIM OF THE ASSESSEE HAS NOT GIVEN ANY REASON WHY THE PROFIT SHOULD BE TAKEN AS BUSINESS INCOME AND NOT UNDER TH E HEAD CAPITAL GAINS. 5. THE OTHER ISSUE WHICH WAS RAISED BY THE ASSESSEE WAS THAT THE TRANSFER OF THE PROPERTY U/S 2(47) OF THE ACT WOULD BE SAID TO HAVE BEEN MADE ON THE EXECUTION OF THE DEVE LOPMENT AGREEMENT ON 16-4-2000. THEREFORE, THE YEAR OF ASS ESSMENT WAS 2001-02 AND NOT 2002-03. 6. ON THE OTHER ISSUE OF WHETHER THE TRANSACTION SH OULD BE TAKEN AS A BUSINESS, THE STAND OF THE ASSESSEE WAS THAT IT WAS A SINGLE TRANSACTION OF PURCHASE AND SALE OF LAND A ND IT SHOULD NOT BE TREATED AS ADVENTURE IN THE NATURE OF TRADE. THE CIT(A) ON THE ISSUE OF WHETHER THE TRANSFER OF PROPERTY WA S IN THE NATURE OF BUSINESS INCOME OR CAPITAL GAIN, OBSERVED THAT THE CAPITAL GAIN AROSE ON THE TRANSFER OF A CAPITAL ASS ET. THE ASSESSEE HAS RECEIVED THE ASSET BY INHERITANCE. TH E ASSET HAS NEVER BEEN USED FOR THE PURPOSE OF BUSINESS. WITH A VIEW TO GET MAXIMUM PROFIT OUT OF THE PROPERTY, THE DEVELOP MENT AGREEMENT WAS ENTERED INTO AND CONSTRUCTION WAS MAD E ON THE LAND, WHICH WAS PARTLY SOLD. THIS WAS A ONETIME AC TIVITY. FURTHER, A PART OF THE ASSET IS STILL RETAINED BY T HE ASSESSEE FOR ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 5 HIS OWN RESIDENTIAL PURPOSES. AS STATED ABOVE, THE TWO FLATS WERE BEING USED AS CAPITAL ASSET TO EARN INCOME BY WAY OF RENT. THE SO-CALLED DEVELOPMENT AGREEMENT WAS ACTU ALLY IN THE NATURE OF CONTRACT GIVEN FOR CONSTRUCTION OF SH OPS AND FLATS. NORMALLY IN A DEVELOPMENT AGREEMENT, THE D EVELOPER INVESTS HIS OWN CAPITAL TO DEVELOP THE PROPERTY. T HE OWNER OF THE LAND GETS A PART OF THE CONSTRUCTED PROPERTY EQ UIVALENT TO THE VALUE OF LAND THAT HE OWNED. IN THIS CASE, THE SO-CALLED DEVELOPER WAS PAID A PARTICULAR FEE OF RS. 5.5 LAKH S. THE ENTIRE COST OF CONSTRUCTION WAS BORNE BY THE ASSESS EE AND HIS BROTHERS. THE TRANSACTION IS SIMILAR TO THAT OF GE TTING A BUILDING CONSTRUCTED ON CONTRACT. AS SUBMITTED BY THE ASSESSEE, THE QUESTION WHETHER RECEIPTS AROSE OUT O F BUSINESS OR FROM A TRANSFER OF A CAPITAL ASSET HAS TO BE DET ERMINED IN THE TOTALITY OF CIRCUMSTANCES. THE FACTS REVEAL T HAT THE TRANSFER WAS THAT OF A CAPITAL ASSET AND THEREFORE, THE INCOME WAS IN THE NATURE OF CAPITAL GAIN. IF ASSESSEES P ROPOSITION IS ACCEPTED THEN A PERSON DOING BUSINESS GETS THE CONS TRUCTION DONE FROM THE CONTRACTOR. SO, THE CIT(A) HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE INCOME AS BUSINESS INCOME. FROM THE ABOVE DECISION, THE ISSU E REMAINS WHETHER THE CAPITAL ASSET TRANSFERRED WAS SHORT TER M CAPITAL GAIN OR LONG TERM CAPITAL ASSET AND WHETHER THE INC OME WAS IN THE NATURE OF LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. THIS WAS THE ISSUE OF PRIMARY IMPORTANCE IN VIEW OF THE FACT THAT THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 54E AND 54F WAS APPLICABLE ONLY TO TRANSFER OF LONG TERM CAPITA L ASSET. ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 6 ACCORDING TO THE ASSESSEE, THE ASSESSEE SUCCEEDED T O THE PROPERTY ON HIS FATHERS DEATH IN 1993. THE OLD HO USE INHERITED BY THE ASSESSEE WAS DEMOLISHED IN 2000. THUS, THE ASSESSEE HELD THE PROPERTY AS THE OWNER FROM 1993 T ILL THE OLD CONSTRUCTION WAS DEMOLISHED IN 2000. THE LAND ON W HICH THE OLD CONSTRUCTION STOOD WAS THEREFORE, IN THE NATURE OF LONG TERM CAPITAL ASSET. AS REGARDS THE BUILDING, THE C ONSTRUCTION STARTED IN THE YEAR 2000 AND IMMEDIATELY AFTER THE COMPLETION, THE PART OF THE PROPERTY WAS SOLD. THE NEW BUILDIN G WHICH WAS TRANSFERRED, WAS IN THE NATURE OF A SHORT TERM CAPI TAL ASSET. THE INCOME BY WAY OF CAPITAL GAIN WHICH WAS ATTRIBU TABLE TO THE SALE OF LAND ALONG WITH THE FLAT OR THE SHOP WO ULD THEREFORE, BE IN THE NATURE OF LONG TERM CAPITAL GAIN WHEREAS THE INCOME ATTRIBUTABLE TO THE SHOPS AND THE RESIDENTIAL FLATS WOULD BE OF A SHORT TERM NATURE. WHEN THE FLATS WERE SOLD ON O WNERSHIP BASIS, A PROPORTIONATE PART OF THE LAND ON WHICH TH E BUILDING STOOD WAS ALSO NOTIONALLY TRANSFERRED TO THE BUYER. IN A WAY, THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE SALE OF LAND AS LONG TERM CAPITAL GAIN AND IN ALLOWING DEDUCTION U/S 54E IN RESPECT OF CAPITAL GAINS ARISING OUT OF THE TRAN SFER. HOWEVER, WHEN IT COMES TO THE COMPUTATION OF INCOME FROM THE SALE OF BUILDING, THE ENTIRE SALE CONSIDERATION HAS BEEN AD OPTED WITHOUT REDUCING THE PART, WHICH IS ATTRIBUTABLE TO THE SALE OF LAND. THE CORRECT METHOD WOULD BE TO ALLOCATE THE SALE CONSIDERATION TO THE LAND AND SO THE CONSTRUCTED PO RTION. THE PROPORTIONATE COST OF THE LAND TRANSFERRED AND THE COST OF THE CONSTRUCTED PORTION SHOULD BE DEDUCTED FROM THE ABO VE SALE ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 7 CONSIDERATION TO ARRIVE AT THE CAPITAL GAINS. THE CAPITAL GAIN AS STATED ABOVE, WOULD BE LONG TERM IN THE CASE OF SALE OF THE LAND AND SHORT TERM IN THE CASE OF SALE OF THE CONS TRUCTION PORTION. 7. SINCE SALE OF THE CONSTRUCTED PORTION WAS OF A S HORT TERM NATURE, DEDUCTION U/S 54E OR 54F WAS NOT ALLOWABLE WITH RESPECT TO CAPITAL GAIN. THE PROVISIONS OF SECTION 54F WOULD BE APPLICABLE AND SHOULD BE ALLOWED TO THE CAPITAL GAI NS OF LONG TERM NATURE ON THE SALE OF LAND. THE ASSESSING OFF ICER WAS DIRECTED TO DETERMINE THE PROPORTIONATE AMOUNT ATTR IBUTABLE TO THE LAND AND THE CONSTRUCTED PORTION OUT OF THE TOT AL SALE CONSIDERATION AND TO WORK OUT THE RESPECTIVE AMOUNT S OF CAPITAL GAIN SEPARATELY. THE DEDUCTION U/S 54E SH OULD BE ALLOWED IN RESPECT OF LONG TERM CAPITAL GAINS. THE TOTAL CONSTRUCTED AREA WAS AS UNDER: AREA SOLD 2390.668 VACANT 148.500 FLATS USED FOR RESIDENCE 2825.00 ----------- 5364.168 SFT. THE PROPORTION OF AREA SOLD TO TOTAL AREA IS 2390.668 = 44.50% 5364.168 AREA OF LAND = 267.90 SQ.MT. OR 2883.651 SQ.FT. 44.56% OF 2883.651 = 1285 SQ.FT. = 119.38 SQ.MT. VALUE OF 119.38 SQ. MT. @ 3000 358.140 THE SALE CONSIDERATION ATTRIBUTABLE TO LAND PORTION WAS RS. 3,58,140/-. THE PROPORTIONATE COST WOULD WORK OUT TO RS. ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 8 14,325/-. THE CAPITAL GAINS ON SALE OF LAND WAS RS . 3,43,815/-. 8. AS REGARDS THE ASSESSMENT OF INCOME IN THE HANDS OF THE KARTA OF THE HUF, THE ASSESSEE WAS ASKED TO PRODUCE COPIES OF EARLIER RETURNS FILED BY THE ASSESSEE AND HIS BROTH ERS TO EXAMINE WHETHER THE RETURNS HAVE BEEN FILED IN THE STATUS OF HUF. THE ASSESSEE FILED COPIES OF THE RETURNS OF I NCOME OF HIS TWO BROTHERS. THESE RETURNS HAVE BEEN FILED IN THE STATUS OF INDIVIDUAL. NOWHERE IN THE PARTITION DEED OR OTHER DOCUMENTS THERE WAS ANY INDICATION THAT THE AGREEMENTS HAVE B EEN ENTERED INTO BY THE ASSESSEE AS KARTA OF THE HUF. SINCE ALL THE TRANSACTIONS HAVE BEEN DONE BY THE ASSESSEE AS AN I NDIVIDUAL, THE INCOME ALSO HAS TO BE ASSESSED IN HIS HANDS AS INDIVIDUAL, HELD BY THE CIT(A). THIS REASONED FINDING OF THE C IT(A) NEEDS NO INTERFERENCE FROM OUR SIDE, BECAUSE IRRESPECTIVE OF LEGAL POSITION WITH REGARDS TO SUCCESSION OF THE PROPERTY IN QUESTION IN THE CAPACITY OF KARTA OF HUF OR INDIVIDUAL THE F ACTS REMAIN THAT THE ASSESSEE HAS RIGHTLY BEEN TREATED AS INDIV IDUAL ON THE BASIS OF ASSESSEES OWN CONDUCT. NOW, HE IS NOT AL LOWED TO DEVIATE FROM HIS ADMITTED POSITION APPLYING THE PRI NCIPLES OF ESTOPPEL, THE ASSESSEE CANNOT TAKE ADVANTAGE CONTRA RY TO THE STAND TAKEN BY HIM. ACCORDINGLY, ORDER OF THE CIT(A ) NEEDS NO INTERFERENCE. ACCORDINGLY, THE ORDER OF THE CIT(A) ON THE SAID ISSUE IS UPHELD. 9. THE LAST ISSUE IS WITH REGARDS TO THE LEVY OF IN TEREST U/S 234A/234B AND 234V OF THE ACT. THE LEVY OF INTERES T U/S 234A/234B AND 234C IS MANDATORY WITHOUT ANY DIRECTI ON ON ITA 647/PN/2006 HATLAGE BABAN A.Y. 2002-03 9 THE PART OF THE ASSESSING OFFICER TO LEVY THE SAME. THE INTEREST HAS TO BE CALCULATED AS PER LAW AND THE FINDINGS OF THE CIT(A) ON THIS ISSUE NEED NO INTERFERENCE FROM OUR SIDE. THE SAME IS UPHELD. THE LEARNED AUTHORISED REPRESENTATIVE HAS N OT PRESSED GROUND NO. 2 WITH REGARDS TO VALIDITY OF PROCEEDING S U/S 148 OF THE ACT. THE SAME IS ACCORDINGLY DISMISSED AS N OT PRESSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE 2013. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED THE 26 TH JUNE 2013 ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT(A) KOLHAPUR (4) CIT- KOLHAPUR (5) THE D.R. PUNE BENCH A PUNE BY ORDER SENIOR PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCHES, PUNE