JAYESH B. SETH, MUMBAI V. CIT (A)-XIII, MUMBAI

ITA 6926/MUM/2008

• Counselvise Citation: 692619914 RSA 2008
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 18-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: K GOPAL
• Keywords: Capital asset; Cost of acquisition; Set aside; Capital Gains
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 6926/MUM./2008 (ASSESSMENT YEAR : 2005-06 ) DATE OF HEARING: 18.5.2011 MR. JAYESH B. SETH HAJI CASSUM BUILDING 282, A.R. STREET MUMBAI 400 003 PAN AOBPS1187D .. APPELLANT V/S INCOME TAX OFFICER WARD-13(1)(1) MUMBAI .... RESPONDENT ASSESSEE BY : MR. K. GOPAL REVENUE BY : MR. S.K. SINGH O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 17 TH SEPTEMBER 2008, PASSED BY THE COMMISSIONER (APPEALS)-XIII, MUMBAI, FOR ASSESSMENT YEAR 2005-06 . 2. FACTS IN BRIEF ARE THAT, THE ASSESSEE IS AN INDIVID UAL AND IS ENGAGED IN THE BUSINESS OF TRADING IN DRAWING MATERIALS, PAPER S, FILMS, ETC. THE ASSESSEE WAS A MEMBER OF AUROVILLE CO-OPERATIVE HOUSING SOCI ETY LTD., WHICH WAS INCORPORATED IN THE YEAR 1971. PRIOR TO THE FORMATI ON OF THE SOCIETY, THE INTENDING MEMBERS HAD PAID A PRICE TO THE DEVELOPER OF THE LAND FOR MR. JAYESH B. SETH ITA NO. 6926/MUM./2008 2 PURCHASE OF UNDIVIDED INTEREST IN LAND AND HAD ALSO CONTRIBUTED TO THE COST OF CONSTRUCTION. 3. ON 15 TH FEBRUARY 2004, AN AGREEMENT WAS ENTERED INTO BY TH E SOCIETY ON ONE PART, THE MEMBER OF THE SOCIETY ON THE SECON D PART, WITH THE DEVELOPER BY NAME M/S. SARANGA ESTATE PVT. LTD., WH EREIN THE DEVELOPER WAS ALLOWED TO CONSTRUCT AN ADDITIONAL AREA AGGREGA TING TO 30,000 SQ.FT. (APPROX.) FOR A CONSIDERATION OF ` 10,41,00,000. OUT OF THIS TOTAL CONSIDERA- TION OF ` 10,41,00,000, AN AMOUNT OF ` 15,00,000, WAS RETAINED BY THE SOCIETY AND THE BALANCE AMOUNT WAS DISTRIBUTED AMON GST THE MEMBERS OF THE SOCIETY. THE ASSESSEE HAD RECEIVED HIS SHARE AM OUNTING TO ` 11,10,620, FROM THE SOCIETY FOR RELINQUISHMENT OF HIS SHARE OF TRANSFER OF DEVELOPMENT RIGHTS (FOR SHORT TDRS ). THE ASSESSEE, ON THE GROUND THAT HE WAS HOLDING THE PROPERTY FOR SO MANY YEARS, HAS TREATED THE COM PENSATION RECEIVED ON ACCOUNT OF TDRS AS LONG TERM CAPITAL GAINS AND FILE D HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 30 TH OCTOBER 2005. IN THE RETURN OF INCOME, HE CLAIMED EXEMPTION FROM LONG TERM CAPITAL GAINS O N THE GROUND THAT THE SAME WAS INVESTED IN PURCHASE OF A FLAT. THE ASSESS ING OFFICER, IN HIS ORDER DATED 24 TH DECEMBER 2007, PASSED UNDER SECTION 143(3), AT PAG E-2, HELD AS FOLLOWS:- ON PERUSAL OF CAPITAL ACCOUNT AND STATEMENT OF INCO ME ANNEXED TO THE RETURN OF INCOME, IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CREDITED AN AMOUNT O F ` 11,10,620 TO THE CAPITAL ACCOUNT ON ACCOUNT OF CAPITAL GAIN AND THIS CAPITAL GAIN IS CLAIMED AS EXEMPT AS PER THE FOOT NOTE ANNEXED TO T HE COMPUTATION OF INCOME, BEING CAPITAL GAIN INVESTED IN PURCHASE OF FLAT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVIDE THE SOURCE OF THIS CREDIT TO CAPITAL ACCOUN T AND JUSTIFY THE CLAIM OF EXEMPTION, IN THIS REGARD. IN RESPONSE TO THE SA ME, THE ASSESSEE EXPLAINED THAT THE ASSESSEE JOINTLY OWNS HIS FLAT I N THE CO-OPERATIVE SOCIETY NAMELY, AURO VILLE CO-OPERATIVE HOUSING SOC IETY LTD. THIS CO- OPERATIVE HSG. SOCIETY HAS SOLD PREMISES OWNED AND PART OF CONSIDERATION WAS DISTRIBUTED TO ITS MEMBERS. THE A SSESSEE BEING OUT OF THE MEMBER, HE RECEIVED IMPUGNED AMOUNT OF ` 11,10,620. THIS IMPUGNED AMOUNT HAS BEEN INVESTED BY THE ASSESSEE F OR PURCHASE OF NEW FLAT IN MAHESHWAR DARSHAN CO.OP. HSG. SOCIETY, PLOT NO.4, S.V. ROAD, SANTACRUZ (W), MUMBAI, AND ACCORDINGLY CLAIME D EXEMPTION. MR. JAYESH B. SETH ITA NO. 6926/MUM./2008 3 NOW CONSIDERING THE FACTS OF THE CASE IN TOTALITY AND HAVING REGARD TO LEGAL POSITION IT NEEDS TO BE MENTIONED T HAT THE INCOME WHICH ASSESSEE HAS RECEIVED CANNOT BE BROUGHT TO TA X UNDER THE HEAD CAPITAL GAIN AS THE ASSESSEE HAS NOT TRANSFERRED AN Y CAPITAL ASSET TO ACCRUE INCOME UNDER THE HEAD CAPITAL GAIN. AS A M ATTER OF FACT THIS CONSIDERATION IS NOTHING BUT THE DIVIDEND RECEIVED BY THE ASSESSEE FROM THE CO-OPERATIVE SOCIETY THOUGH RECEIVED FROM THE BUILDER AND IT WAS TOTALLY AT THE INSTANCE OF SOCIETY. THEREFORE, THE ASSESSEES CLAIM OF HAVING EARNED INCOME UNDER CAPITAL GAINS DOES NO T FIT WITHIN THE FOUR CORNERS OF THE STATUTORY PROVISIONS. THIS INCO ME REQUIRED TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES BE ING DIVIDEND, RECEIVED FROM THE SOCIETY AND FOR THIS THE ASSESSEE IS NOT ENTITLED TO ANY EXEMPTIONS. IN VIEW OF THE ABOVE, ` 11,10,620 IS TREATED AS INCOME FROM OTHER SOURCES AND ADDED TO THE INCOME O F THE ASSESSEE ACCORDINGLY. I AM FULLY CONVINCED AND SATISFIED THAT THE ASSESS EE HAS DELIBERATELY FURNISHED INACCURATE PARTICULARS OF IN COME CAUSING THEREBY DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. ACCORDINGLY PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT ARE INITIATED. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL, WHEREIN THE FIRST APPELLATE AUTHORITY, AT PARA-3.10 AND 3.11, HELD AS FOLLOWS:- 3.10 I HAVE CAREFULLY CONSIDERED THE FACTS AND I FI ND THAT THE SAID SUM OF ` 10.41 CRORES WAS ALSO TAXED AS CAPITAL GAINS IN TH E HANDS OF AURO VILLA CO.OP. HSG. SOC. LTD. THE SAID SOCIETY RETAIN ED ` 15 LAKHS AND BALANCE AMOUNT WAS DISTRIBUTED AMONGST ITS MEMBERS IN PROPORTION TO AREA OF FLAT. SUCH DISTRIBUTION OF PROPERTY PARTAKE S THE CHARACTER OF DIVIDEND, IN THE HANDS OF INDIVIDUAL FLAT OWNERS WH O ARE ALSO THE MEMBERS OF THE SAID SOCIETY. 3.11 NO MATERIAL OR EVIDENCE WAS PLACED BEFORE ME T O PROVE THAT THE APPELLANT WAS RIGHTFUL, LAWFUL OWNER OF THE SAID LA ND OR TDR / FSI IN THE HANDS OF THE PRESENT APPELLANT. UNDER THE CIRCUMSTA NCES, THE ACTION OF THE A.O. IN TAXING THE SAID SUM OF ` 11,10,600 AS INCOME FROM OTHER SOURCES IS CONFIRMED. 5. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL RAISING FOLLOWING GROUNDS OF APPEAL:- THE LEARNED CIT(A) ERRED IN DISMISSING THE APPEAL F ILED BY YOUR APPELLANT AND CONFIRMING THE ACTION OF THE A.O. IN TAXING THE SUM OF ` 11,10,600 AS INCOME FROM OTHER SOURCES INSTEAD OF T REATING THE SAME AS LONG TERM CAPITAL GAIN AS CLAIMED BY YOUR APPELL ANT. MR. JAYESH B. SETH ITA NO. 6926/MUM./2008 4 6. LEARNED COUNSEL, MR. K. GOPAL, APPEARING ON BEHALF OF THE ASSESSEE, SUBMITS THAT THE ASSESSEE HAS RECEIVED CERTAIN AMOU NTS FOR ASSIGNING TO THE DEVELOPER THE RIGHTS TO APPLY AND RECEIVE TDRS. HE SUBMITS THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF SALE / T RANSFER OF TDR / FSI WHICH RIGHT BELONGED TO THE ASSESSEE. HENCE, HE SUB MITS THAT THE REVENUE AUTHORITIES WERE WRONG IN HOLDING THAT THE INCOME I N QUESTION IS INCOME FROM OTHER SOURCES. HE FURTHER SUBMITS THAT THE ASSESSEE HAS NOT TRANSFERRED THE PLOT OR BUILDING, BUT HAD TRANSFERRED THE RIGHT WHI CH DOES NOT RESULT IN PARTING WITH LAND OR BUILDING. HE SUBMITS THAT THE TRANSFER OF TDR HAS NO COST OF ACQUISITION AND, HENCE, IT CANNOT ALSO BE T AXED UNDER THE HEAD CAPITAL GAINS . HE RELIED ON THE FOLLOWING CASE LAWS:- A) JETHALAL D. MEHTA V/S DCIT, (2005) 2 STO 422 (MUM.) ; B) ITO V/S SHRI RAM KUMAR MALHOTRA, ITA NO.4843/MUM./2 009, ORDER DATED 14 TH MAY 2010; AND C) DEEPAK S. SHAH VS ITO, (2009) 29 SOT 26 (MUM.). 7. ON A QUERY FROM THE BENCH, LEARNED COUNSEL, SUBMITS THAT THE ASSESSEE HAS OFFERED TO TAX THE ABOVE INCOME UNDER THE HEAD CAPITAL GAINS AND, HENCE, HE WOULD NOT PRESS THE ISSUE WHETHER CA PITAL GAINS CAN BE COMPUTED IN THE ABSENCE OF COST OF ACQUISITION. 8. HE FURTHER SUBMITS THAT IN THE CASE OF SOCIETY, THE MUMBAI H BENCH IN ITA NO.570/MUM./2008, ORDER DATED 31 ST MARCH 2010, GAVE A FINDING THAT THE BENEFIT OF ADDITION TDR WAS DERIVED AND ENJOYED BY THE MEMBERS OF THE SOCIETY AND NO INCOME ACCRUED TO THE SOCIETY. HE SU BMITS THAT IN VIEW OF THE ABOVE, IT CANNOT BE HELD THAT THE INCOME IN QUESTIO N IS INCOME FROM OTHER SOURCES. 9. ON A QUERY FROM THE BENCH, THE LEARNED COUNSEL FILE D A COPY OF AN AGREEMENT ENTERED INTO ON 15 TH FEBRUARY 2004, BETWEEN AUROVILLE CO- OPERATIVE HOUSING SOCIETY LTD., THE MEMBERS OF AURO VILLE CO-OPERATIVE HOUSING SOCIETY LTD., AND THE DEVELOPERS. MR. JAYESH B. SETH ITA NO. 6926/MUM./2008 5 10. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. S.K. SINGH , ON THE OTHER HAND, RELIED ON THE ORDER OF THE REVENUE AUTHORITIE S AND SUBMITS THAT THE ASSESSEE HAS RECEIVED THE AMOUNTS FROM THE SOCIETY. HE ARGUED THAT SUCH DISTRIBUTION PARTAKES THE CHARACTER OF THE DIVIDEND IN THE HANDS OF THE NEW OWNERS AND, HENCE, TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . 11. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF PAPERS O N RECORD AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS:- I) H BENCH OF THE TRIBUNAL IN THE CASE OF A SOCIETY I.E., AUROVILLE CO- OPERATIVE HOUSING SOCIETY LTD., IN ITA NO.570/MUM./ 2008, ORDER DATED 31 ST MARCH 2010, AT PARA-10 / PAGE-5, HELD AS FOLLOWS:- 10. ACCORDING TO CBDT CIRCULAR NO.9 DTD. 25.3.1969, THE LEGAL OWNERSHIP IN FLATS IS VESTED IN INDIVIDUAL MEMBER A ND NOT IN THE CO. OP. SOC. FURTHER, THE FLAT OWNERS HAVE PROPORTIONAT E INTEREST IN THE LAND AND BUILDING. THE SOCIETY IS ONLY OSTENSIBLE O WNER AND REALITY & TRUTH, THE FLAT OWNERS OWNS THE LAND AND BUILDING F OR WHICH THEY HAVE PAID FULL CONSIDERATION AND AMOUNT RECEIVED FROM TH E DEVELOPER BY THE FLAT OWNER IN THEIR INDIVIDUAL CAPACITY IS THE INCO ME OF THE INDIVIDUAL FLAT OWNER. THE FLAT OWNERS HAVE RELINQUISHED THEIR INTEREST IN THE PROPERTY. THE SOCIETY HAS NO RIGHT OR CONTROL OVER SUCH INCOME OF THE INDIVIDUAL OWNERS. II) IN VIEW OF THE ABOVE FINDINGS, WE HAVE TO NECESSARI LY UPHOLD THE CONTENTIONS OF THE ASSESSEE THAT WHAT IS TRANSFERRE D IS A RIGHT OF THE ASSESSEE. IT CANNOT BE SAID THAT THE SOCIETY HAD RE CEIVED SOME SURPLUS AND HAS DISTRIBUTED THE SAME AMONGST ITS MEMBERS AS DIV IDEND. THIS IS A CASE WHERE THE ASSESSEE HAS, AS AN OWNER OF A FLAT, HAD A RIGHT TO RECEIVE TRANSFERABLE DEVELOPMENT RIGHTS AND IT IS THIS RIGH T WHICH HE HAD ASSIGNED TO THE DEVELOPERS FOR A CONSIDERATION. THUS, IN OUR CO NSIDERED OPINION, THE ASSESSEE HAS RIGHTLY OFFERED THE SAME TO TAX UNDER THE HEAD INCOME FROM CAPITAL GAINS . CONSEQUENTLY, WE SET ASIDE THE ORDER OF THE COMMI SSIONER (APPEALS) AND ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE. MR. JAYESH B. SETH ITA NO. 6926/MUM./2008 6 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY 2011 SD/- N.V. VASUDEVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH MAY 2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, J BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI