ITO 19(2)(3), MUMBAI V. KANIKA ATUL PREMNARAYAN, MUMBAI

ITA 7652/MUM/2010

• Counselvise Citation: 765219914 RSA 2010
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-11-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 04-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA KUMAR
• Assessee Lawyers: SUNIL CHOPRA
• Keywords: Capital asset; Business income
• Section: 45(2)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , , ./I.T.A. NO.7652/MUM/2010 ( / ASSESSMENT YEAR : 2003-04) INCOME TAX OFFICER 19(2) (3), ROOM NO.305, 3RD H FLOOR, PIRAMAL CHAMBERS, PAREL MUMBAI-400012 / VS. M S . KANIKA ATUL PREMNARAYAN, 7 TH FLOOR, INDRAPRASHTA, PREMANARAYAN CHOWK, LINKING ROAD, SANTACRUZ (E), MUMBAI-400054 ( & / APPELLANT) .. ( ' & / RESPONDENT) ./I.T.A. NO.8180/MUM/2010 ( / ASSESSMENT YEAR : 2003-04) MR. KANIKA ATUL PREMNARAYAN, 7 TH FLOOR, INDRAPRASHTA, PREMANARAYAN CHOWK, LINKING ROAD, SANTACRUZ (E), MUBMAI-400054 / VS. INCOME TAX OFFICER 19(2) (3), ROOM NO.305, 3RD H FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI-400012 ( & / APPELLANT) .. ( ' & / RESPONDENT) ./ ./PAN/GIR NO. : AGRPP6500H & /: REVENUE BY SHRI SURENDRA KUMAR ' & * / ASSESSEE BY SHRI SUNIL CHOPRA * - / DATE OF HEARING : 7.11.2013 * - /DATE OF PRONOUNCEMENT : 13 .11.2013 / O R D E R PER BENCH: THESE CROSS-APPEALS ARE FILED BY DEPARTMENT AND TH E ASSESSEE AGAINST ORDER OF LD. CIT(A) DATED 31.8.2010 FOR ASSESSMENT YEAR 2003 -04. 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. I.T.A. NO.7652/MUM/2010 I.T.A. NO.8180/MUM/2010 2 3. LD D.R. RELIED ON ORDER OF AO. HOWEVER, LD A.R. SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT DATED 11.1.2010 IN THE CASE OF CO-OWNER NAMELY MRS. KAILASH PREMNARAYAN FOR ASSESSMENT YEAR 2004-05 IN ITA NO.6293/MUM/2007 IN THE APPEAL FILED BY THE DEPARTM ENT AND IN ITA NO.6133/MUM/2007 APPEAL FILED BY THE ASSESSEE, WHER EIN IT WAS HELD THAT TRANSACTION IS NOT AN ADVENTURE IN THE NATURE OF TRADE AND THE EN TIRE INCOME EARNED BY THE ASSESSEE AS WELL AS OTHER FAMILY MEMBERS IS TAXABLE AS CAPIT AL GAINS. A COPY OF THE SAID ORDER IS PLACED ON RECORD. LD. DR HAS NOT DISPUTED THE ABO VE CONTENTION OF LD.AR THAT THE ISSUE ON SIMILAR FACTS IN THE CASE OF CO-OWNER OF THE SA ME PROPERTY IS COVERED BY THE DECISION OF ITAT, DATED 11.1.2010 (SUPRA) IN FAVOUR OF THE ASSESSEE. WE ALSO STATE THAT WE HEARD ALONGWITH THESE APPEALS THE APPEALS OF ANOTH ER CO-OWNER MR. KARAMVEER PREMNARAYAN FOR THE SAME ASSESSMENT YEAR VIZ ASSESS MENT YEAR 2003-04 FILED BY THE DEPARTMENT BEING ITA NO.7639/MUM/2010 AND THE APPE AL OF THE ASSESSEE BEING ITA NO.8177/MUM/2010 ON SIMILAR GROUNDS. THE TRIBUNAL BY A SEPARATE ORDER BY FOLLOWING THE DECISION IN THE CASE OF CO-OWNER DATED 11.1.2 010 (SUPRA) HAS DISMISSED THE APPEAL OF THE DEPARTMENT BY CONFIRMING THE ORDER OF LD. CI T(A). IN THIS REGARD, IT IS RELEVANT TO STATE THAT ASSESSEE IS CO-OWNER OF THE PROPERTY INDRAPRASTHA BEING 6.25% SHARE. THE SAID PROPERTY WAS INHERITED BY THE CO-OWNERS IN THE YEAR 1938. THE FAMILY ENTERED INTO AN MEMORANDUM OF UNDERSTANDING WITH GODREJ PRO PERTIES & INVESTMENT LTD (GPIL) TO CONSTRUCT THE SAID PROPERTY FOR RESIDENTIAL PURP OSES AFTER DEMOLISH THE OLD BUNGALOW VIDE AGREEMENT DATED 12.1.2000. THEY RECEIVED RS. 88.30 LAKHS UNDER THE ABOVE ARRANGEMENT. OUT OF THAT AMOUNT, RS.80 LAKHS WAS R ECEIVED IN THE ASSESSMENT YEAR 2003-04 AND SAME WAS TREATED AS CAPITAL GAINS. TH E BALANCE AMOUNT OF RS.8.30 LAKHS WAS RECEIVED BY THE CO-OWNERS IN THE ACCOUNTING YEA R 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. THE AO WHILE MAKING ASSESSMENT F OR ASSESSMENT YEAR 2004-05 CONSIDERED THE SAID ARRANGEMENT AS ADVENTURE IN THE NATURE OF TRADE AND NOT TREATED THE AMOUNT RECEIVED AS LONG TERM CAPITAL GAIN. THE AO STATED THAT THE FAMILY MEMBERS CONVERTED CAPITAL ASSETS INTO STOCK-IN-TRADE AND, A CCORDINGLY, 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 AND CAPITAL GAIN ON CONVERSIO NS OF CAPITAL ASSETS AS PER SECTION 45(2) OF THE ACT. HOWEVER, LD CIT(A) ALLOWED THE A PPEAL OF ASSESSEE BY FOLLOWING ORDER PASSED BY HIM IN THE CASE OF CO-OWNER MRS.KAILASH P REMNARAYAN BY HOLDING THAT THE TRANSACTION IS NOT AN ADVENTURE IN THE NATURE OF TR ADE AND ENTIRE INCOME EARNED BY ASSESSEE AS WELL AS CO-OWNERS IS TAXABLE AS CAPITAL GAINS. IT IS RELEVANT TO STATE THAT THE I.T.A. NO.7652/MUM/2010 I.T.A. NO.8180/MUM/2010 3 TRIBUNAL BY ITS ORDER DATED 11.1.2010 (SUPRA) CONF IRMED 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 P ERUSING THE MATERIAL ON RECORD INCLUDING THE MOU ENTERED IN TO BETWEEN THE ASSESSEE AND OTHER SHAREHOLDERS WITH GP IL, WE FIND THAT A MEMORANDUM OF TOTAL PARTITION DATED 31.8.1995 WAS PREPARED. EACH OF THE CO-OWNERS HAS UNDIVIDED SHARE, RIGHT TITLE AND INTEREST IN THE PR OPERTY, I.E. PIECE OR PARCEL OF LAND WITH BUNGALOW CONSISTING OF GROUND AND ONE UPPER FLOOR AND SEPARATE STRUCTURE BEING GA RAGE WITH SERVANT QUARTERS ON THE UPPER FLOOR STANDING T HEREON, SITUATE, LYING AND BEING AT PREM NARAYAN CHOWK, LIN KING ROAD, SANTACRUZ (W), MUMBAI. THE ASSESSEE, MRS KAI LASH PREM NARAYEN, WAS HAVING 25% UNDIVIDED SHARE AND TH E REMAINING COWERS WERE HAVING 6.25% EACH AS UNDIVIDE D SHARE. GPIL WAS APPOINTED AS PROJECT MANAGER WHO AGREED TO EXECUTE AND COMPLETE THE CONSTRUCTION OF PROPOSED BUILDING ON THE SAID PROPERTY AND ON BEHAL F OF THE OWNERS BY DEPLANING THE PROPER BUILDING, CARRYI NG OUT CONSTRUCTION OF THE SAME MARKETING THE SAME AND IF SO REQUIRED, RAISING FINANCE FOR CARRYING OUT THE SAID CONSTRUCTION ON THE TERMS AND CONDITIONS AGREED BY AND BETWEEN THE PARTIES. THEREAFTER, THE CONSTRUCTION WAS MADE AFTER AVAILING FINANCE FROM MARKET ON BEHALF O F THESE CO-OWNERS BY GPIL. AS PER AGREEMENT, THE LOAN AMOU NT WAS PAYABLE TO THE PROJECT MANAGER FROM THE SHARE O F NET REALIZATION/SURPLUS FROM THE PROPERTY CONSTRUCTED B Y GPIL AS PER CLAUSE 12 OF THE AGREEMENT ENTERED INTO. AS STATED ABOVE, THE BUILDING WAS CONSTRUCTED AND ALL THE CO- OWNERS WERE POSSESSED WITH ONE FLAT EACH. THOSE FLATS WER E USED FOR THEIR RESIDENTIAL PURPOSES. THREE FLATS WERE S OLD BY THESE CO-OWNERS FOR THE PURPOSE OF PAYING COST OF CONSTRUCTION INCLUDING LOANS TAKEN BY GPIL ON BEHAL F OF THESE CO-OWNERS. ACCORDINGLY THESE CO-OWNERS COMPU TED CAPITAL GAINS ON SALE OF THESE THREE FLATS. FOR TH E PURPOSE OF CLARIFICATION, IT MAY BE MENTIONED HERE THAT THE SE THREE FLATS SOLD WERE BELONGING TO ALL THE CO-OWNERS AS I N THE ENTIRE BUILDING THE CO-OWNERS WERE HAVING UNDIVIDED INTEREST. ACCORDINGLY, THE ASSESSEE COMPUTED LONG TERM CAPITAL GAINS AT 25% AS HER SHARE AND HAS SHOWN THE SAME IN THE RETURN OF INCOME. THE AO IS ALSO NOT DISPUT ING THE SHAREHOLDING PATTERN OF THESE CO-OWNERS. HOWEVER, THE AO TREATED THE SALE CONSIDERATION AS AN ADVENTURE I N THE NATURE OF TRADE. IN OUR CONSIDERED VIEW, THE ARRAN GEMENT BETWEEN THESE CO-OWNERS AND GPIL CANNOT BE TERMED A S COMMERCIAL ARRANGEMENT FOR THE SIMPLE REASON THAT T HE PIECE OF LAND INCLUDING THE BUNGALOW INHERITED BY T HESE CO- OWNERS WAS A CAPITAL ASSET. THESE CO-OWNERS GOT CONSTRUCTED THE BUILDING COMPRISING OF MANY FLATS F OR THEIR RESIDENTIAL PURPOSES. THEREFORE, AN AGREEMENT WAS ENTERED INTO WITH GPIL. GPIL CONSTRUCTED THE BUILD ING AS I.T.A. NO.7652/MUM/2010 I.T.A. NO.8180/MUM/2010 4 PER AGREED TERMS. THREE 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 CATEGORICA L FINDING IN HIS ORDER FOR THE ASSESSMENT YEAR 2003-0 4 THAT THE ASSET IS CAPITAL IN NATURE. THE OPERATIVE PART OF THAT ORDER HAS BEEN RECORDED BY THE CIT(A) IN HIS ORDER, WHICH ALSO FORMS PART OF THIS ORDER. THE FINDINGS CONTAI NED THEREIN ARE VERY CLEAR WHICH PROVE THAT THE SALE CONSIDERATION RECEIVED BY THESE CO-OWNERS WAS ON AC COUNT OF SALE OF CAPITAL ASSET. IN VIEW OF THESE FACTS A ND CIRCUMSTANCES, WE HAVE NO HESITATION IN CONFIRMING THE ACTION OF THE LD CIT(A). ACCORDINGLY, WE CONFIRM T HE FINDINGS OF THE LD CIT(A). THE GROUNDS OF THE DEPA RTMENT FAIL AND ARE REJECTED. 4. IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE RAISED IN THE APPEAL OF THE DEPARTMENT IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. HENCE, GROUNDS TAK EN BY DEPARTMENT ARE DISMISSED. 5. IT IS RELEVANT TO STATE THAT AT THE TIME OF HEA RING LD. AR FAIRLY STATED THAT IF THE APPEAL OF THE DEPARTMENT IS DISMISSED, THEN THE AP PEAL OF THE ASSESSEE WILL BECOME INFRUCTUOUS AND MAY BE DISMISSED ACCORDINGLY. 6. SINCE WE HAVE DISMISSED THE APPEAL OF THE DEPART MENT, THE APPEAL OF THE ASSESSEE, IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E APPEAL FILED BY ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 13 TH NOVEMBER, 2013 * 1 2 13 TH NOVEMBER, 2013 * SD SD ( / RAJENDRA) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 13/11/2013 I.T.A. NO.7652/MUM/2010 I.T.A. NO.8180/MUM/2010 5 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. & / THE APPELLANT 2. ' & / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- CONCERNED 4. 6 / CIT CONCERNED 5. 7 '9 , - 9 , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - 9 , /ITAT, MUMBAI