ACIT CIR 19(2), MUMBAI V. KRISHAN PREMNARYAN, MUMBAI

ITA 7674/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8217 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 09-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANU KRISHNA
• Keywords: Capital asset; Business income; Question of law
• Section: 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , . . , . . BEFORE SHRI P.M.JAGTAP, AM & SHRI AMIT SHUKLA, JM ./ ITA NO.7674/MUM/2010 ( / ASSESSMENT YEAR :2003-2004) ACIT, 19(2), MUMBAI VS. SHRI KRISHAN PREMNARAYAN, ROOM NO.315, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400 012. ./ ./PAN NO.AABPP 8827 D ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : MS. ANU KRISHNA / RESPONDENT BY : MR. SUNIL CHOPRA / DATE OF HEARING : 30 TH JULY, 2012 / DATE OF PRONOUNCEMENT : 3 RD AUGUST, 2012 / O R D E R PER AMIT SHUKLA (J.M.) : THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST THE ORDER DATED 31-8-2010, PASSED BY THE CIT(A )-30, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143( 3) FOR THE ASSESSMENT YEAR 2005-2006 ON THE FOLLOWING GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT IT CANNOT BE SAID THAT THE ASSESSEE AND ITS FAMILY MEMBERS EMBARKED UPON ANY ADVENTURE IN NATURE OF TRADE BY CONCERTING CAPITAL ASSET INTO STOCK-IN-TRADE AND THEREFORE ITA NO : 7674/M/10 2 INCOME IS TO BE TAXED UNDER THE HEAD CAPITAL GAIN AND NOT BUSINESS INCOME. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT AT NO STAGE AN OLD BUNGALOW WHICH WAS BEING USED FOR RESIDENTIAL PURPOSE BY THE FAMILY AND THEREFORE, TREATED AS CAPITAL ASSET, WAS EVER CONVERTED INTO STOCK-IN-TRADE AS NO RESOLUTION WAS PASSED BY CO-OWNERS, NO AGREEMENT WAS ENTERED INTO, NO ENTRY WAS MADE IN THE BOOKS OF ACCOUNTS TO CONVERT PROPERTY INTO STOCK-IN-TRADE. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT SINCE THIS WAS A CASE OF ONLY AN ISOLATED TRANSACTION ENTERED INTO BY THE FAMILY MEMBERS AND FAMILY WAS NOT A HABITUAL REAL ESTATE DEVELOPER, INCO ME EARNED WOULD BE TAXABLE UNDER THE HEAD CAPITAL GAIN AND CANNOT BE TAXED UNDER THE HEAD BUSINESS INCOME BEING ADVENTURE-IN-NATURE OF TRADE. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS FAILED TO APPRECIATE THAT IN ORIGINAL AGREEMENT ENTERED INTO WITH GODREJ PROPERTIES AND INVESTMENT LTD. (GPIL) DATED 12/01/2000, AFTER RETAINING FOUR UPPER FLOORS FOR SELF USE, THE BALANCE AREA WAS TREATED AS SALEABLE AREA AND NET CONSIDERATION RECEIVED OF THIS SALEABLE AREA WHICH IS CLEARLY DENIED IN THE AGREEMENT, WAS TO BE SHARED WITH GPIL IN THE RATION 62.38 AND IRREVOCABLE POWER OF ATTORNEY WAS EXECUTED IN FAVOUR OF GPIL FOR THE SAME THEREBY, TRANSACTION QUALIFIES AS A COMMERCIAL TRANSACTION. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS FAILED TO APPRECIATE THAT THE FAMILY HAD EXPLOITED L AND FOR MAXIMUM BENEFIT BY ITA NO : 7674/M/10 3 LOADING/INCORPORATING TDR, TH EREBY HAVING COMMERCIAL AS WELL AS RESIDENTIAL PREMISES AND WHAT WAS SOLD IS TOTALLY DIFFERENT THAN WHAT WAS INHERITED/OWNED, THE ORIGINAL PROPERTY HAD LOST ITS IDENTITY. 6. THE DECISION OF THE ITAT IN THE ASSESSEES CO-PARTNERS CASE VIZ. SMT. KAILASH PREMNARAYAN, IN HER FAVOUR FOR THE AY 2004-2005, ITA NO.6293/MUM/2007 DATED 11-01-2010 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 7. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2 . AT THE OUTSET, LEARNED C OUNSEL ON BEHALF OF THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE HAS COME UP FOR CONSIDERATION IN THE CASE OF CO-OWNER IN ITA NO.6293/MUM/2007 IN THE CASE OF DCIT VS. KAILASH PREMNARAYAN , VIDE ORDER DATED 11-1-2010 , WHEREIN THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE. HE ALSO SUBMITTED THAT THE DEPARTMENTS APPEAL FILED BEFORE THE HONBLE JURISDICTIONAL HIGH COURT, AGAINST THIS ORDER HAS ALSO BEEN DISMISSED BY THE HIGH COURT IN INCOME TAX APPEAL NO.4607/2010, VIDE ORDER DATED 28-9-2011 . LEARNED SENIOR DR DID NOT DISPUTE THIS FACT AND FAIRLY ADMITTED THAT THE ISSUE STANDS COVERED BY THE AFORES AID DECISION OF THE HONBLE HIGH COURT OF BOMBAY. 3. THE ISSUE INVOLVED IN THIS APPEAL RELATES TO TAXABILITY OF INCOME RECEIVED IN RESPECT OF PROPERTY AS BUS INESS INCOME AS AGAINST CAPITAL GAIN SHOWN BY THE ASSESSEE. THE ASSESSING OFFICER HAS TREATED THE ACTIVITY UNDERTAKEN BY THE ASSESSE E ALONG WITH OTHER CO-OWNERS AS ITA NO : 7674/M/10 4 ADVENTURE-IN-NATURE OF TRADE. THE PROPERTY IN QUESTION WAS PURCHASED IN 1938 AND WAS INHERITED BY THE CO-OWNERS. IT WAS SOLELY USED FOR RESIDENTIAL PURPOSES AND WAS NOT CONVERTED INTO STOCK IN TRADE. THE CO-OWNERS JOINTLY APPOINTED M/S GODREJ PROPERTIES & INVESTMENT LTD. AS PROJECT MANAGER TO CONSTRUCT A NEW BUILDING ON THIS PROPERTY AFTER DEMOLISHING THE OLD BUNGALOW, VIDE AGREEMENT ENTERED INTO ON 12.01.2000. THE CO-OWNERS IN ALL RECEIVED 7 RESIDENTIAL FLATS IN THE NEW BUILDING KNOWN AS INDRAPRASTHA. THEY ALSO RECEIVED A SUM OF ` .88.30 LAKHS FROM THIS TRANSACTION, OUT OF THIS, ` .80 LAKHS WAS RECEIVED IN THE ACCOUNTING YEAR RELEVANT TO AY 2003-2004 AND THE SAME WAS TREATED AS CAPITAL GAINS BY ALL THE CO-OWNERS IN ACCORDANCE WITH THEIR SHARE IN THE PROPERTY. 4 . LEARNED CIT(A) AFTER FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF CO-OWNER MS. KAILASH PREMNARAYAN (SUPRA), ALLOWED THE ASSESSEES APPEAL AFTER OBSERV ING AND HOLDING AS UNDER :- 4.5 I HAVE PERUSED THE ASSESSMENT ORDER, SUBMISSION MADE BY THE APPELLANT AND THE ORDER OF HONBLE ITAT IN THE CASE OF MS. KAILASH PREMNARAYAN FOR A.Y.2004-2005 AND ORDER OF CIT(A)-XIX NO.CIT(A)-XIX/IT-121/06-07 DATED 23.01.2007 MENTIONED ABOVE. THE FACTS OF THE CASE ARE THE SAME AS IN ALL THE CASES OF CO-OWNERS. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF HONBLE ITAT AND IN AGRE EMENT WITH THE ORDER OF CIT(A) AGAINST ORIGINAL ORDER, I HOLD THAT THE CONSIDERATION RECEIVED FROM THE REDEVELOPMENT OF THE PR OPERTY IS TO BE TAXED UNDER THE HEAD CAPITAL GAINS AND NOT AS BUSINESS INCOME . AS REGARD TO THE CLAIM OF THE APPELLANT U/S. 54 IT MAY BE STATED THAT ITA NO : 7674/M/10 5 THE APPELLANT HAD NOT MADE ANY CLAIM U/S. 54 IN THE ORIGINAL RETURN FILED. NO CLAIM WAS MADE DURING THE ASSESSMENT PROCEEDINGS EITHER. I DO NOT FIND ANY MERIT IN ADMITTING THE CLAIM OF THE APPELLANT FOR DEDUCTION U/S. 54 AT THIS STAGE. THEREFORE, THE CLAIM MADE U/S. 54 IS REJECTED. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED . 5. AFTER GOING THROUGH THE FINDINGS OF THE CIT(A) AND ALSO THE ITAT ORDER IN THE CASE OF CO-OWNERS, WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, WHEREIN THE ITAT HAS OBSERVED AND HELD AS UNDER :- 10. WE HAVE HEARD THE RIVAL SUBMISSION AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING T HE 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 OF TOTAL PARTI TION DATED 31-8-1995 WAS PREPARED. EACH OF THE CO-OWNERS HAS UNDI VIDED SHARE, RIGHT TITLE AND INTEREST IN THE PROPERTY I.E. PI ECE OR PARCEL OF LAND WITH BUNGALOW CONSISTING OF GROUND AND ONE UPPER FLOOR AND SEPARATE STRUCTURE BEING GARAGE WITH SERVANT QUARTERS ON THE UPPER FLOOR STANDING THEREON, SITUATE, LYING AND BEING AT PREM NARAYAN CHOWK, LINKING ROAD, SANTACRUZ (W), MUMBAI. THE ASSESSEE, MRS. KAILASH PREM NARAYAN, WAS HAVING 25% UNDIVIDED SHARE AND THE REMAINING CO-OWNERS WERE HAVING 6.25% EACH AS UNDIVIDED SHARE. GPIL APPOINTED AS PROJECT MANAGER WHO AGREED TO EXECUTE AND COMPLETE THE CONSTRUCTION OF PROPOSED BUILDING ON THE SAID PROPERTY FOR AND ON BEHAL F OF THE OWNERS BY RE-PLANNING THE PROPOSED BUILDING, CARRYING OUT CONSTRUCTION OF THE SAME, MARKETING THE SAME AND IF SO REQUIRED, RAISING FINANCE FOR CARRYING OUT THE SAID CONSTRUC TION ON THE TERMS AND CONDITIONS AGREED BY AND BETWEEN THE PARTIES. T HEREAFTER, THE CONSTRUCTION ITA NO : 7674/M/10 6 WAS MADE AFTER 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 PROPER TY CONSTRUCTED BY GPIL AS PER CLAUSE 12 OF THE AGREEMENT ENTER ED INTO. AS STATED ABOVE, THE BUILDING WAS CONSTRUCTED AND ALL THE CO-OWNERS WERE POSSESSED WITH ONE FLAT EACH. THOSE FLATS WERE USED FOR THEIR RESIDENTIAL PURPOSES. THREE FLATS WERE SOLD BY THESE CO-OWNERS FOR THE PURPOSE OF PAYING COST OF CONSTRUCTION INCLUDING LOANS TAKEN BY GPIL ON BEHALF OF THESE CO-OWNERS. ACCORDINGLY, THESE CO- OWNERS COMPUTED CAPITAL GAINS ON SALE OF THESE THREE FLATS. FRO THE PURPOSE OF CLARIFICATION, IT MAY BE MENTIONED HERE THAT THESE THREE FLATS SOLD WERE BELONGING TO ALL THE CO-OWNERS AS IN 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 DIS PUTING THE SHAREHOLDING PATTERN OF THESE CO-OWNERS. HOWEVER, THE AO TREATED THE SALE CONSIDERATION AS AN ADVENTURE IN THE NATURE OF TRADE. IN OUR CONSIDERED VIEW, THE ARRANGEMENT BETWEEN THESE CO-OWNERS AND GPIL CANNOT BE TERMED AS COMMERCIAL ARRANGEMENT FOR THE SIMPLE REASON THAT THE PIECE OF LAND INCLUDING THE BUNGALOW INHERITED BY THESE CO-OWNERS WAS A CAPITAL ASSET. THESE CO- OWNERS GOT CONSTRUCTED THE BUILDI NG COMPRISING OF MANY FLATS FOR THEIR RESIDENTIAL PURPOSES. THER EFORE, AN AGREEMENT WAS ENTERED INTO WITH GPIL, GPIL CONSTRUCTED THE BUILDING AS PER AGREED TERMS. THREE FLATS WERE SOLD FOR PAYING THE COST OF CONSTRUCTION TO GPIL. THEREFORE, NO DOUBT REMAINS THAT THE CHARACTER OF THE ASSET WHICH WAS CAPITAL 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 ASST. YEAR 2003-2004 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 ITA NO : 7674/M/10 7 OF THIS ORDER. THE FINDINGS CONTAI NED THEREIN ARE VERY CLEAR 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 CIRCUMSTANCES, WE HAVE NO HESITATION IN CONFIRMING THE ACTION OF THE LD. CIT(A). ACCORDINGLY, WE CONFIRM THE FINDING OF THE LD. CIT(A). THE GROUNDS OF THE ASSESSEE FAIL AND ARE REJECTED. 6 . THIS ORDER PASSED BY THE IT AT NOW STANDS AFFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN DEPARTMENTS APPEAL AGAINST, WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER :- 8. THE INCOME APPELLATE TRIBUNAL IN PARA-10 OF ITS ORDER AFTER RECORDING DETAILED REASONS HAS HELD THAT THE ARRANGEMENT BETWEEN THE CO-OWNERS AND GPIL CANNOT BE HOLD AS COMMERCIAL ARRANGEMENT, FOR THE SIMPLE REASON THAT THE PIECE OF LAND INCLUDING THE BUNGALOW INHERITED BY THE CO-OWNERS WAS A CAPITAL ASSET AND THE NATURE OF THE CAPITAL ASSET REMAINED THE SAME EVEN AFTER CONSTRUCTION. THE TRIBUNAL FURTHER HELD THAT THE SALE CONSIDERATION RECEIVED BY THE CO-OWNERS WAS ON ACCOUNT OF SALE OF CAPITAL ASSET. 9. IN OUR OPINION, THE DECISION OF THE TRIBUNAL IS BASED ON FINDING OF FACT. NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER OF THE TRIBUNAL. THE APPEAL IS ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS. 7 . THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE FIND NO SUBSTANCE IN THE GROUNDS RAISED BY THE DEPARTMENT, ESPECIALLY IN VIEW OF GROUND NO.6, WHEREIN THE CONTENTIO N OF THE DEPARTMENT IS THAT THE ORDER OF THE ITAT HAS NOT BEEN ACCEPTED AS THE MATTER IS PENDING BEFORE THE HONBLE HIGH COURT. SINC E THIS ISSUE HAS BEEN CONCLUDED BY ITA NO : 7674/M/10 8 THE HONBLE HIGH COURT, AND THE ISS UE INVOLVED HAS BEEN SET AT REST QUA THE ASSESSEE, THEREFORE, GR OUNDS RAISED BY DEPARTMENT DO NOT SURVIVE. 8 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2012 . 3 RD AUGUST, 2012 SD/- SD/- ( . . ) ( ) ( P.M.JAGTAP) ( AMIT SHUKLA) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED 3 RD / AUGUST/2012 . . / PKM. . ./PS / COPY OF THE ORDER FORWARDED T O : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI