MR. JAYANT H. JOSHI, MUMBAI V. DCIT, 24(3), MUMBAI

ITA 818/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7359 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 15-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MADHUK
• Assessee Lawyers: D P BAPAT
• Keywords: Capital asset converted into stock in trade; Capital asset; Gift; Business income; Proportionate interest; Question of law; Set aside; Capital Gains
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI R.V. EASWAR, SR. VICE PRESIDENT & SHRI R.K.PANDA, AM I.T.A. NO. 818/MUM/2009 (ASSESSMENT YEAR 2005-06) MR. JAYANT H. JOSHI C/O. BHARAT JYOTI, BHARAT JYOTI COMPOUND, 1, B PATEL ROAD, GOREGAON (E), MUMBAI-63 PAN: AAFPJ1841F VS. DCIT-24(3) C-11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, MUMBAI-400 051 APPELLANT RESPONDENT APPELLANT BY : SHRI D.P. BAPAT RESPONDENT BY : SHRI S.K. MADHUK ORDER DATE OF HEARING: 15.03.2010 DATE OF ORDER: 18.03.2010 PER R.K.PANDA, AM , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 20.11.2008 OF THE CIT(A)-XXIV, MUMBAI RELATIN G TO ASSESSMENT YEAR 2005-06. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN REJECTING YOUR APPELLANTS CLAIM AND CONTENTION THAT GAINS ARISING FROM SALE OF PROPERTIES AS PER AGREEMENTS DATED 13 TH FEBRUARY, 2005 AROSE FROM TRANSFER OF LONG TERM CAPITAL ASSET AND WERE WHOLLY ASSESSABLE AS CAPITAL GAINS U/S. 45 OF THE INCOME-TAX ACT. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER THAT THE GAINS SO ARISING WERE PROFITS FROM ADVENTURE IN THE NATURE OF TRADE AND ASSESSABLE AS INCOME FROM BUSINESS. ITA NO. 818/MUM/2009 SHRI JAYANT H. JOSHI ==================== 2 3. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSEE ALONG WITH HIS BROTHER MR. PRADEEP H. JOSHI DEVELOPED A 5 STOR EY BUILDING HAVING ONE FLOOR AT EACH STOREY AFTER DEMOLISHING T HE BUNGALOW IN WHICH HE WAS RESIDING. THEY RETAINED 4 TH AND 5 TH FLOORS FOR THEIR RESIDENCE AND SOLD SECOND AND THIRD FLOORS IN THE A .Y. 2003-04. THE REMAINING FLOOR WAS SOLD DURING THE YEAR AND THEY C LAIMED LONG TERM CAPITAL GAIN ON ACCOUNT OF ALL THE SALE THEREO F. THE CIT(A) IN THE APPEAL ORDER FOR THE A.Y. 2003-04 HELD THAT THE DEVELOPMENT AND SALE OF THE PROPERTY WAS BUSINESS ACTIVITY OF THE A SSESSEE AND THE INCOME FROM SALE OF THREE FLATS WOULD BE TAXABLE AS BUSINESS INCOME. HE FURTHER HELD THAT THE ASSESSEES WERE THE OWNER O F THE INTEREST IN LAND AND IT WAS THEIR CAPITAL ASSET PRIOR TO THE DE VELOPMENT OF THE PROJECT, THE CAPITAL ASSET WAS TREATED AS STOCK-IN- TRADE ON 18/09/1996 AND ACCORDINGLY DIRECTED THE ASSESSING O FFICER TO COMPUTE AND ASSESS THE CAPITAL GAIN ON THE TREATMEN T OF THE PROPORTIONATE INTEREST IN LAND AS STOCK-IN-TRADE ON 18/09/1996 AS PER SECTION 2(47)(IV)AND 45(2) OF THE I.T. ACT. AC CORDINGLY THE ASSESSING OFFICER WAS ASKED TO RECOMPUTE AND ASSESS THE BUSINESS INCOME AS WELL AS CAPITAL GAINS ON THE SALE OF FLAT S. 4. THE ASSESSING OFFICER FOLLOWING THE ORDER OF THE CI T(A) FOR THE A.Y. 2003-04 TREATED THE INCOME FROM SALE OF FL AT AS BUSINESS INCOME AS WELL AS CAPITAL GAIN WHICH WAS UPHELD BY THE CIT(A). AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBUNAL VIDE I.T.A. NO. 6979/MUM/2007 & 6980/MUM/2007 AND 817/MUM/2009 ORDER DATED 10 TH FEBRUARY, 2010 IN THE CASE OF THE ASSESSEE AS WELL AS HIS BROTHER FOR THE A.Y. 2003-04 AND A.Y. 2005-0 6 HAS DECIDED THE ISSUE AT PARA 8 OF THE ORDER WHERE THE ORDER OF THE CIT(A) FOR THE A.Y. 2003-04 HAS BEEN SET ASIDE AND THE ASSESSING OFFICE R HAS BEEN DIRECTED TO ASSESS THE RECEIPT UNDER THE HEAD CAPIT AL GAIN. RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL AT PARA 8 READ S AS UNDER: ITA NO. 818/MUM/2009 SHRI JAYANT H. JOSHI ==================== 3 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. ADMITTEDLY THE PLOT WAS ORIGINALLY ACQUIRED BY THE FATHER OF THE ASSESSEES AND THE LEASEHOLD RIGHTS, DOCUMENTS ETC., WERE EXECUTED IN THE NAME OF LATE SHRI H.M. JOSHI IN 1974 WITH LEASE RIGHTS BEING TAKEN OVER FROM 1958 ONWARDS. 2/3 RD OF THE RIGHTS IN THE LEASEHOLD PROPERTY WERE GIFTED TO BOTH THE BROTHERS IN THE YEAR 1975 AND A BUNGALOW WAS CONSTRUCTED WITH TWO FLOORS IN 1981, WHICH WEE OCCUPIED BY BOTH THE BROTHERS. THESE FACTS CLEARLY SHOWS THAT BOTH THE BROTHERS WHO WERE ENGAGED IN TH E CHEMICAL BUSINESS CONSTRUCTED A HOUSE ON THE PLOT G IFTED TO THEM BY THEIR FATHER AND STAYED THERE PEACEFULLY FOR ALMOST 20 YEARS. LATER ON THERE WAS SOME DAMAGE CAUSED BECAUSE OF THE CORROSION AS WELL AS FLOODING TO THE BUNGALOW AND SOME UNUTILISED FSI WAS ALSO AVAILABLE, THEREFORE, THE BROTHERS DECIDED TO DEMOL ISH THE BUNGALOW AND CONSTRUCT A FIVE STOREYED BUILDING WITH STILT. OUT OF THIS TWO FLOORS I.E., 4 & 5 TH FLOORS WERE RETAINED BY THEM FOR SELF OCCUPATION AND REST OF TH E FLATS WERE SOLD. THE ASSESSEE HAS NEVER INDULGED IN CONSTRUCTION ACTIVITY OF ANY OTHER PLOT BEFORE THE CONSTRUCTION UNDER CONSIDERATION BEFORE US. THEREF ORE, IT CANNOT BE SAID THAT THERE WAS AN INTENTION TO EN GAGE IN THE ADVENTURE IN THE NATURE OF TRADE OR BUSINESS . MERELY BECAUSE SOME FLATS WERE CONSTRUCTED ON AN ANCESTRAL PROPERTY BY DEMOLISHING THE BUNGALOW IN WHICH ASSESSEE HAD STAYED FOR 20 YEARS IT CANNOT BE SAID THAT ASSESSEE HAD INTENTION TO CARRY ON THE BUSINES S OF DEVELOPER. WE ARE OF THE VIEW THAT MERE DESCRIPTIO N OF THE ASSESSEE IN THE SALE AGREEMENT AS DEVELOPMENT W ILL NOT ALTER THE SITUATION MUCH. IN ANY CASE THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. R.V. GUPTA (SUPRA) THE COURT WAS CONCERNED WITH A CASE WHERE A N IAS OFFICER WAS ALLOTTED A PLOT OF LAND BY DELHI DEVELOPMENT AUTHORITY IN A GROUP HOUSING SOCIETY. THERE WAS A CONDITION THAT ASSESSEE SHOULD CONSTRUC T A RESIDENTIAL HOUSE IN THE SAID PLOT WITHIN TWO YEARS . HOWEVER, ASSESSEE COULD NOT MAKE SUCH CONSTRUCTION AND GOT EXTENSION FROM TIME TO TIME. ULTIMATELY IN THE YEAR 1989 ASSESSEE DECIDED TO CONSTRUCT SIX FLATS A ND JUST TO ARRANGE FUNDS FOUR FLATS WERE SOLD. ON THE BASIS OF THESE FACTS THE AO TOOK THE VIEW THAT TRANSACTIO N IN QUESTION WAS AN ADVENTURE IN THE NATURE OF TRADE AN D ACCORDINGLY THE PROFITS FROM SUCH CONSTRUCTION WAS ASSESSED AS INCOME FROM BUSINESS AND PROFESSION. O N APPEAL LD. CIT(A) NOTICED THAT THE PLOT WAS RETAINE D BY THE ASSESSEE FOR 18 YEARS AND WAS ALSO SHOWN IN THE ITA NO. 818/MUM/2009 SHRI JAYANT H. JOSHI ==================== 4 WEALTH TAX RETURN AND IF JUST TO MEET THE COST OF CONSTRUCTION THE ASSESSEE DECIDED TO SELL THE FLATS THEN SUCH RECEIPTS CANNOT BE TREATED AS BUSINESS RECEIPT S. THE ORDER OF THE LD. CIT(A) WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL IT WAS HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT BOTH THE AUTHORI TIES HAD FOUND THAT THE ASSESSEE WAS IN SERVICE; THAT NO CHANGE IN THE CHARACTER OF THE SAID PLOT HAD BEEN EFFECTED FROM THE YEAR 1971 TO 1989, THAT THERE WAS NO MATERIAL ON RECORD FROM WHICH IT COULD BE SAID T HAT THE ASSESSEE EVER HAD THE INTENTION TO EXPLOIT THE PLOT AS A COMMERCIAL VENTURE. THERE WAS NO GROUND TO INTERFERE WITH THE CONCURRENT FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW AROSE FRO M THE ORDER OF THE TRIBUNAL. THEREFORE, KEEPING THE RATIO OF ABOVE NOTED DECISIO N WE ARE OF THE VIEW THAT IN THE CASE BEFORE US THE RECE IPTS HAVE TO BE ASSESSED AS CAPITAL GAIN BECAUSE THE SOL E TRANSACTION CARRIED OUT BY THE ASSESSEE CANNOT BE TERMED AS ADVENTURE IN THE NATURE OF TRADE. IN THE SE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ASSESS THE RECEIPTS UNDER THE HEAD CAPITAL GAIN. 6. SINCE THE CIT(A) HAS FOLLOWED HIS ORDER FOR THE A.Y . 2003-04 AND SINCE THE TRIBUNAL HAS SET ASIDE THE ORDER OF T HE CIT(A) FOR THE A.Y. 2003-04, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2003-0 4, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OF FICER TO ASSESS THE RECEIPTS UNDER THE HEAD CAPITAL GAIN ONLY. THE GRO UNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ON 18 TH MARCH, 2010 SD/- (R.V. EASWAR) SR. VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 18 TH MARCH, 2010 ITA NO. 818/MUM/2009 SHRI JAYANT H. JOSHI ==================== 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-XXIV, MUMBAI 4. THE CIT-24, MUMBAI 5. THE DR J BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO