DCIT, Circle - 12, Kolkata, Kolkata V. M/s. Elite Commercial Pvt. Ltd., Kolkata

ITA 793/KOL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2553 (ITAT-KOLKATA)
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 21-04-2010
• Court: TRIBUNAL
• Department Lawyers: K HARIPRASAD; K K TRIPATHI
• Assessee Lawyers: M SATNALIWALA
• Keywords: Capital asset; Business income
• Section: 45(2)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : A BENC H : KOLKATA [ BEFORE SHRI B.R.MITTAL, HONBLE J.M. & SHRI C. D. RAO, HONBLE A.M .] I.T.A.NO. 793 (KOL) OF 2010 : ASSESSMENT YEA R 2006-07 D.C.I.T., CIRCLE-12, KOLKATA VS- M/S. ELITE COMMERCIAL PVT. LTD.,KOL. [APPELLANT] (PAN: AA ACE 6036F) [RESPONDENT] APPELLANT BY : S/SHRI K. HARIPRASAD & K.K.TRIP ATHI RESPONDENT BY : SHRI M. SATNALIWALA O R D E R O R D E R O R D E R O R D E R PER SHRI C.D.RAO, A.M . THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE CIT(A)-XII, KOLKATA DATED 22.01.2010 FOR THE ASSESSMENT YEAR 20 06-07. 2. THE ONLY ISSUE RAISED BY THE REVENUE IN THIS APP EAL READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HONBLE CIT(A) ERRED IN TREATING THE BUSINESS INCOME OF RS.69,98,1 15/- AS CAPITAL GAIN VIOLATING THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF (1) SMTP, INDRAMANI BAI VS- CIT (200 ITR 594), (2) DAL MIA CEMENT LTD. VS- CIT (105 ITR 633), (3) P.M. MOHAMMED MEERAKHA N VS- CIT (73 ITR 735), (4) G. VENKATASWAMI NAIDU & CO. VS- CIT (35 ITR 594) & (5) RAJA BAHADUR KAMKHYA NARAIN SINGH VS- CIT (77 ITR 253). 2. FACTS OF THIS CASE ARE THAT DURING THE YEAR THE ASSESSEE EARNED INCOME OF RS.71,80,376/- OUT OF SALE OF PROPERTY AT 29, BALLY GUGE PARK ROAD, KOLKATA WHICH WAS CLAIMED AS LONG TERM CAPITAL GAIN. THE ASSESSEE HA D PURCHASED THE SAID PROPERTY MEASURING ABOUT 3 BIGHAS 5 COTTAHS AND 8 CHITTAKS V IDE DEED OF CONVEYANCE DT. 20.8.1985, THE SAID PROPERTY WAS UNDER THE OCCUPATI ON OF THE LESSEE M/S. SARVESHWAR CONSTRUCTION PVT. LTD. AT THE TIME OF PURCHASE. TH E ASSESSEE HAD MADE SOME ARRANGEMENT WITH THE LESSEE TO SHARE THE SALE CONSI DERATION OF THE SAID PROPERTY. THE PROPERTY WAS SOLD PARTLY IN THE YEAR 1989-90 AND PA RTLY IN THE RELEVANT ASSESSMENT YEAR THROUGH JOINT VENTURE AGREEMENT. THE FIRST AGREEME NT WAS MADE WITH M/S. AFFCON PROPERTIES PVT. LTD. ON 20.5.85 AND BLOCK A WAS C OMPLETED AND SOLD IN THE F.Y. 1989-90 AND SALE CONSIDERATION RECEIVED AGAINST BLO CK A WAS ASSESSED AS LONG TERM 2 CAPITAL GAIN. SECOND JOINT VENTURE AGREEMENT FOR T HE CONSTRUCTION OF BLOCK B: ON THE REMAINING LAND WAS MADE WITH M/S. SHUBHAM PROMO TERS PVT. LTD. NOW NAME CHANGED TO M/S. ORBIT PROJECTS PVT. LTD. ON 28 TH JULY, 1998 ON THE CONDITION THAT 53% OF THE CONSTRUCTED AREA WAS TO BE RECEIVED BY THE A SSESSEE AND THE LESSEE M/S. SARVESHWAR CONSTRUCTION PVT. LTD. THE ASSESSEE HAD TO RECEIVE SALE CONSIDERATION OF 53% OF THE CONSTRUCTED AREA, OUT OF WHICH 2/3 RD SALE CONSIDERATION WAS PAYABLE TO THE LESSEE M/S. SARVESHWAR CONSTRUCTION PVT. LTD. AS PE R AGREEMENT DT. 22.8.91 BETWEEN THE ASSESSEE AND THE LESSEE. THE ASSESSEE HAS SHOW N THE INCOME ON SALE OF FLATS AS LONG TERM CAPITAL GAIN AFTER DEDUCTING INDEXED COST . THE AO HAS TREATED THE ASSESSEE COMPANY AS INVESTOR IN THE PROPERTY UPTO 22.08.91, I.E. THE DATE OF AGREEMENT BETWEEN THE ASSESEE AND THE LESSEE AND ESTIMATED THE FAIR M ARKET VALUE AS DOUBLE OF THE COST SHOWN BY THE ASSESSEE FOR THE COST OF AREA SOLD AND ASSESSED THE SAME AS LONG TERM CAPITAL GAIN AFTER DEDUCTING INDEXED COST. THEREA FTER, APPLYING THE PROVISIONS OF SECTION 45(2) OF THE ACT, HE TREATED AS IF THE SAID LAND WAS CONVERTED INTO STOCK IN TRADE ON 22.8.2001, I.E. THE DATE ON WHICH THE ASSE SSEE ENTERED INTO AGREEMENT WITH THE LESSEE FOR DEVELOPMENT OF PROPERTY AND DERIVE PROFI T OUT OF IT OF COMMERCIAL NATURE. HE ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAWS IN SUPPORT OF HIS FINDING : I) SMT. INDRAMANI BAI VS- CIT 200 ITR 594 (SC), II) DALMIA CEMENT LTD. VS. CIT 105 ITR 633 (SC), III) P. M. MOHAMEED MEERA KHAN VS- CIT 73 ITR 735 (SC), IV) G. VENKATASWAMI NAIDU & CO. VS- CIT 35 ITR 594 (SC),. V) RAJA BAHADUR KANKHAYA NARAVISINGH VS- CIT 77 IT R 253 (SC) AND VI) CIT VS- S. P. BALASUBRAMANIUM 250 ITR 127 (MAD RAS) THE AO HAS TAKEN RS.40,365/- AS LONG TERM CAPITAL G AIN AND RS.68,58,945/- AS BUSINESS INCOME AS PER ASSESSMENT ORDER ON SALE OF THE SAID PROPERTY DURING THE YEAR AGAINST RS.69,98,115/- SHOWN AS LONG TERM CAPITAL G AIN BY THE ASSESSEE. AGAINST THIS, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) . IN APPEAL THE LD. CIT(A) IN ALLOWING THE ASSESSEES APPEAL HELD THAT THE PROFIT FROM THE SALE OF PROPERTY SHALL BE TREATED AS CAPITAL GAIN. AGGRIEVED BY THE SAID ORD ER, NOW THE REVENUE IS IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. R ELIED ON THE ORDER OF THE AO. HE ALSO SUBMITTED THAT THE LD. CIT(A) ERRED IN TREA TING THE BUSINESS INCOME OF THE 3 ASSESSEE AS CAPITAL GAIN VIOLATING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF G. VENKATASWAMI NAIDU & CO. VS- CIT 35 ITR 594 (SC ). THEREFORE, HE URGED BEFORE THE BENCH TO REVERSE THE ORDER OF THE LD. CI T(A) AND RESTORE THAT OF THE AO. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING Y EAR IN ITA NO.620/KOL/2009. THE LD. COUNSEL ALSO SUBMITTED THE SAME SUBMISSIONS AS MADE BEFORE THE REVENUE AUTHORITIES. THEREFORE, HE SUPPORTED THE ORDER OF T HE LD. CIT(A) AND REQUESTED TO DISMISS THE APPEAL OF THE REVENUE BY UPHOLDING THE ORDER OF THE LD. CIT(A). 5. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, WE ARE OF THE CONSIDERED OPINI ON THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR IN ITA NO.620/KOL/09 WHEREIN THE TRIBUNAL AS HELD A S UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND FORCE IN THE SUBMISSIONS OF THE ASS ESSEE THAT THE ASSESSEE COMPANY IS NOT A DEALER IN PROPERTY AND IN REAL EST ATE. THE ASSESSEE COMPANY PURCHASED THE LEASEHOLD PROPERTY IN THE YEAR 1985 A ND SOLD THE SAME AFTER 20 YEARS. WE ALSO FIND THAT THE REGULAR SOURCE OF INC OME OF THE ASSESEE IS FROM SALE OF SHARES, DIVIDEND INTEREST ETC. WE ALSO FIN D THAT THE SAID PROPERTY WAS PURCHASED AND HELD AS INVESTMENT AND SHOWN IN THE B ALANCE SHEET AS FIXED ASSETS AND THERE WAS NO CHANGE IN THE NATURE OF PRO PERTY AND IT WAS NEVER CHANGED FROM FIXED ASSETS TO STOCK IN TRADE IN THE BALANCE SHEET. WE FURTHER FIND THAT PART OF THIS PROPERTY WAS SOLD IN THE ASS ESSMENT YEAR 1990-91 AND THE SALE PROCEEDS WERE TREATED AS INCOME FROM CAPITAL G AINS AND NOT FROM BUSINESS AND THE SAME WERE ACCEPTED BY THE DEPARTMENT. THE RATIO OF THE SUPREME COURT DECISION IN THE CASE OF G. VENKATASWAMI NAIDU & CO. VS- ITO 35 ITR 594 (SC) RELIED ON BY THE DEPARTMENT IS NOT APPLICA BLE TO THE FACTS OF THIS CASE AS IN THAT CASE THE ASSESSEE FIRM WHICH ACTED AS MA NAGING AGENTS PURCHASED, FOR A TOTAL CONSIDERATION OF RS. 8,.7I3, FOUR CONTIGUOUS PLOTS OF LAND ADJACENT TO THE PLACE WHERE THE MILLS OF THE COMPANY MANAGED BY IT WERE SITUATED . THE FIRST PURCHASE WAS MADE IN OCTOBER, I94I, IN THE NAME OF A BENAMIDAR COVERING LAND MEASURING ABOUT 28 CENTS AND THE SECOND AND SUBSEQUENT PURCHASES WERE MADE IN NOVEMBER, 1941, JUNE, 1942, AND NOVEMBER, 1 942, THE PLOTS OF LAND MEASURING ABOUT 2 ACRES 79 CENTS, 28 CENTS AN 1 ACRE AND 90 CENTS, RESPECTIVELY. AS LONG AS THE APPELLANT WAS IN POSSE SSION OF THE N LANDS IT MADE NO EFFORT TO CULTIVATE THEM OR ERECT ANY SUPERSTRUC TURE ON THEMT BUT ALLOWED THEM TO REMAIN UNUTILISED EXCEPT FOR THE RENT RECEI VED FROM THE HOUSE WHICH 4 EXISTED ON ONE OF THE PLOTS. THE APPELLANT SOLD THE COMPANY MANAGED BY IT IN TWO LOTS IN SEPTEMBER AND NOVEMBER, 1947, FOR A TOT AL CONSIDERATION OF RS. 52,600. THE QUESTION WAS WHETHER THE SUM OF RS. 43, 887 BEING THE EXCESS REALISED BY THE APPELLANT BY THE TWO SALES OVER ITS PURCHASE PRICE WAS ASSESSABLE TO INCOME-TAX. THE APPELLATE TRIBUNAL RE JECTED THE CONTENTIONS OF / THE APPELLANT THAT THE PROPERTIES WERE BOUGHT AS AN INVESTMENT AND THAT THE PLOTS WERE ACQUIRED FOR BUILDING TENEMENTS FOR THE LABOURERS OF THE MILLS AS WELL AS THE ALTERNATIVE CONTENTION THAT THE MANAGED COMPANY DESIRED TO PURCHASE THE PLOTS ON ACCOUNT OF AN AWARD OF AN IND USTRIAL TRIBUNAL RECOMMENDING THAT THE COMPANY SHOULD PROVIDE TENEME NTS FOR ITS LABOURERS, AND HELD THAT SINCE THE APPELLANT WAS IN A POSITION TO INFLUENCE THE DECISION OF THE MANAGED COMPANY TO PURCHASE THE PROPERTIES, THE PLOTS WERE PURCHASED BY THE APPELLANT WHOLLY AND SOLELY WITH THE IDEA OF SE LLING THEM AT A PROFIT TO THE COMPANY. THE TRIBUNAL, THEREFORE, CAME TO THE CONCL USION THAT THE AMOUNT WAS NOT A CAPITAL ACCRETION BUT WAS A GAIN MADE IN AN A DVENTURE IN THE NATURE OF BUSINESS AND WAS THEREFORE TAXABLE. ON A REFERENCE, THE HIGH COURT HELD THAT THE TRANSACTION WAS AN ADVENTURE IN THE NATURE OF T RADE AND THAT THE DEPARTMENT WAS JUSTIFIED IN TAXING THE AMOUNT. ON A PPEAL TO THE SUPREME COURT: HELD, ON THE FACTS, THAT THE APPELLATE TRIBUNAL WAS RIGHT IN INFERRING THAT THE APPELLANT KNEW THAT IT WOULD BE ABLE TO SELL TH E LANDS TO THE MANAGED COMPANY WHENEVER IT THOUGHT IT PROFITABLE SO TO DO, . THAT THE APPELLANT PURCHASED THE FOUR PLOTS OF LAND WITH THE SOLE INTE NTION OF SELLING THEM TO THE MILLS AT A PROFIT WHICH INTENTION RAISED A S TRONG PRESUMPTION IN FAVOUR OF THE VIEW TAKEN BY THE TRIBUNAL; AND THAT THE HIGH COURT WAS RIGHT IN HOLDING THAT THE TRANSACTION IN QUESTION W AS AN ADVENTURE IN THE NATURE OF TRADE. IT IS CLEAR FROM THE ABOVE THAT THE FACTS OF THE IN STANT FASE ARE NO WHERE NEAR TO THE CASE DECIDED BY THE HONBLE SUPREME COURT CITED SUPRA. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) TO TREAT THE PROFIT FROM THE SALE OF PROPERTY AS CAPITAL GAIN. FOR THE SAKE OF BREVI TY, WE REPRODUCE THE RELEVANT PORTION OF HIS ORDER AS UNDER : THE ORDER OF THE AO, THE GROUND OF APPEALS, THE SU BMISSION MADE AT THE TIME OF APPEAL HEARING AND THE DETAILS FILED H AVE BEEN CONSIDERED. IT IS SEEN THAT THE APPELLANT PURCHASED THE ENCUMBERED PROPERTY IN 1985 AND DECLARED THE SAME AS A CAPITAL ASSET IN ITS BOO KS OF ACCOUNTS AND SINCE THEN IT HAS CONTINUOUSLY TREATED IT AS A FI XED ASSET AND NEVER CONVERTED IT INTO STOCK-IN-TRADE. A PART OF THE SA ID PROPERTY WAS DEVELOPED IN EARLIER YEAR AS BLOCK A, ALSO THROUG H THE JOINT VENTURE AGREEMENT AND WAS SOLD IN THE YEAR 1989-90. THE IN COME THEREFROM WAS ACCEPTED AND ASSESSED AS LONG TERM CAPITAL GAIN BY THE AO EVEN AFTER THAT THERE WAS NO CHANGE IN THE NATURE OF PRO PERTY AND IT WAS NEVER CHANGED FROM FIXED ASSETS TO STOCK-IN-TRADE IN THE BALANCE SHEET. BLOCK 5 B, INCOME FROM WHICH IS THE SUBJECT MATTER OF THE PRESENT APPEAL WAS ALSO SOLD UNDER THE SIMILAR MODE OF JOINT VENTURE A GREEMENT. SECTION 45(2) OF THE ACT PROVIDES FOR A SITUATION W HERE THE OWNER OF A CAPITAL ASSET CONVERTS THE SAME INTO HIS STOCK IN T RADE. IT DOES NOT PROVIDE FOR ANY PRESUMPTION OF AUTOMATIC CONVERSION OF AN ASSET INTO STOCK IN TRADE. WHAT IT REQUIRES IS CONVERSION OF A CAPITAL ASSET BY THAT PERSON INTO HIS STOCK IN TRADE. IN THE INSTANT CASE, THERE IS NOTHING TO SUGGEST TH AT AT ANY STAGE THE ASSESSEE CONVERTED THE PROPERTY UNDER CONSIDERATION INTO ITS STOCK IN TRADE. THROUGH THE COPIES OF BALANCE SHEETS AS ON 31.3.2001, 31.3.2002, 31.3.2003, 31.3.2004 AND 31.3.2005 OF THE ASSESSEE, THE AR HAS SHOWN THAT ALL ALONG THE SAID PROPERTY HAS BEEN HELD BY T HE ASSESEE AS ITS CAPITAL ASSET AND AT NO STAGE IT WAS CONVERTED INTO ITS STOCK IN TRADE. THEREFORE, IN MY OPINION, THE APPLICATION OF THE PR OVISIONS OF SECTION 45(2) OF THE ACT, BY THE AO IN THIS CASE IS MISPLAC ED. HERE, I WOULD ALSO LIKE TO MENTION THAT ON SIMILAR SET OF FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1990-91, HAD ASSESSED THE PROFIT FR OM SIMILAR ACTIVITY AS CAPITAL GAINS. IN THE LIGHT OF THE ABOVE FACTS I HOLD THAT THE PRO FIT FROM THE SALE OF PROPERTY, IN THIS SHALL BE TREATED AS CAPITAL GAIN. THEREFORE, THE ORDER OF THE LD. CIT(A) IS HEREBY UP HELD. THE APPEAL OF THE REVENUE IS DISMISSED. 5.1 THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DEC ISION OF THE TRIBUNAL, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 6 IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER IS PRONOUNCED IN THE COURT ON 18.06.2010. SD/- SD/- [B.R.MITTAL] [C.D.RAO] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18-06-2010 COPY FORWARDED TO : 1) M/S. ELITE COMMERCIAL PVT. LTD., 29, BALLYGUNGE PAR K, KOLKATA 700 019. 2) D.C.I.T., CIRCLE-12, KOLKATA 3) CIT(APPEAL), ASANSOL 4) CIT, ASANSOL 5. D.R., ITAT, KOLKATA. TRUE COPY, BY OR DER DY. /ASST.REGISTRAR, ITAT, KOLKATA MST