BHARAT KAHTIWALA, MUMBAI V. ITO 2(3)(2), MUMBAI

ITA 8711/MUM/2010

• Counselvise Citation: 871119914 RSA 2010
• Duration Of Justice: 4 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 14-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Capital asset; Business income; Cost of acquisition; Revised return
• Section: 143(3); 133A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , , BEFORE S/SH. JOGINDER SINGH ,JUDICI AL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 8711 & 8712 /MUM/201 0 , / ASSESSMENT YEAR - 200 5 - 06 & 2006 - 07 BHARAT KHATIWALA JAYSHREE 28, J.N. ROAD VAKOLA, SANTACRUZ (E) , MUMBAI. PAN: AA BPK 8303 K VS INCOME TAX OFFICER - 2(3)(2) MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : MS. RITIKA AGARWAL / REVENUE BY :SHRI JEETENDRA KUMAR - DR / DATE OF HEARING : 2 1 - 0 8 - 2015 / DATE OF PRONOUNCEMENT : 28 - 0 8 - 2015 , 1961 254 ( 1 ) ORDER U/S.2 54(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 1.11.10 OF THE CIT(A) - 6 , MUMBAI , THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL FOR THE ABOVE MENTIONED TOW AYS. : ITA NO.871 1 /MUM/2010 THE APPELLANT INDIVIDUAL IS AGGRIEVED BY THE ORDER PASSED BY ID. CIT(A) - VI. MUMBAI U/S 143(3) R.W.S.147 AND 143(3) OF THE INCOME - TAX ACT. 1961 AND IS IN APPEAL: 1 . BECAUSE. LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DECISION OF THE LD. AO IN TREATI NG THE BUILT - UP AREA AS STOCK IN TRADE AND REJECTING THE APPELLANT'S CONTENTION THAT HE NEVER CARRIED OUT ANY BUSINESS ACTIVITY A ND THE BUILT UP AREA RECEIVED FROM M.S ROMELL DEVELOPERS BEING PART OF THE COMPENSATION FOR TRANSFER OF PAR T LAND WAS IN THE NATURE OF CAPITAL ASSET. 2. BECAUSE LD. CIT(A) ERRED IN LAW AND FACTS IN UPHOLDING THE OBSERVATION OF THE AO AND REJECTING THE CONTENTION OF THE APPELLANT THAT AS A RESULT OF TRANSFER OF LAND TO M/S ROMELL DEVELOPERS THE 'NATURE' OF CAPITAL ASSET CHAN GED FROM LAND TO BUILTUP AREA SINCE THERE WAS NO SUCH ACTIVITY OR INTENTION ON THE PART OF THE APPELLANT, TO CARRY OUT THE BUSINESS OF CONSTRUCTION. 3. BECAUSE. LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DECISION OF THE L D. AO THAT THE SALE OF BUILT UP AREA RECEIVED FROM M/S ROMELL DEVELOPERS HAS RESULTED IN 'BUSINESS INCOME' AND NOT 'LONG TERM CAPITAL GAIN' THEREBY DISALLOWING THE CLAIM FOR INDEXATION AND BENEFICIAL RATE OF TAX. THE APPELLANT CRAVES LEAVE TO ADD. A LTER. AMEND. MODIFY. DELETE OR WITHDRAW ANY OF THE GROUND. ITA NO.8712/MUM/2010 THE APPELLANT INDIVIDUAL IS AGGRIEVED BY THE ORDER PASSED BY LD. CIT(A) - VI, MUMBAI U/S 143(3) R.W.S.147 AND 143(3) OF THE INCOME - TAX ACT, 1961 AND IS IN APPEAL: 1. BECAUSE, LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DECISION OF THE LD. AO THAT THE SALE OF BUILT UP AREA RECEIVED FROM M/S ROMELL DEVELOPERS HAS RESULTED IN 'BUSINESS INCOME' AND NOT 'LONG TERM CAPITAL GAIN' THEREBY DISALLOWING THE CLAIM FOR INDEXATION AND BENEFICIAL RATE OF TAX. 2. BECAUSE, LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DECISION OF THE LD. AO IN TREATING THE BUILT - UP AREA AS STOCK IN TRADE AND REJECTING THE APPELLANT'S CONTENTION THAT HE NEVER ITA/ 8711 & 8712 /MUM/201 0 ,AY. 0 5 - 06 & 06 - 07 - BHARAT K. 2 CARRIED OUT AN Y BUSINESS ACTIVITY AND THE BUILTUP AREA RECEIVED FROM M/S ROMELL DEVELOPERS BEING PART OF THE COMPENSATION FOR TRANSFER OF PART LAND WAS IN THE NATURE OF CAPITAL ASSET. 3. BECAUSE LD. CIT(A) ERRED IN LAW AND FACTS IN UPHOLDING THE OBSERVATION OF THE A O AND REJECTING THE CONTENTION OF THE APPELLANT THAT AS A RESULT OF TRANSFER OF LAND TO M/S ROMELL DEVELOPERS THE 'NATURE' OF CAPITAL ASSET CHANGED FROM LAND TO BUILTUP AREA SINCE THERE WAS NO SUCH ACTIVITY OR INTENTION ON THE PART OF THE APPELLANT, TO CARRY OUT THE BUSINESS OF CONSTRUCTION. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY, DELETE OR WITHDRAW ANY OF THE GROUND. ASSESSEE,AN INDIVIDUAL, FILED HIS RETURN OF INCOME ON 20.1.06 DECLARING TOTAL INCOME OF RS.6.25 LACS . THE ASSESSIN G OFFICER ( AO ) COMPLETED THE ASS ESSMENT O N 28.12.07 U/S. 143(3) OF THE A CT , DETERMINING THE INCOME OF THE ASSESSEE AT RS.1,26,94,959/ - . 2. EFFECTIVE GROUND OF APPEAL IS ABOUT TREATING THE BUILT UP AREA OF A PROPERTY AS STOCK - IN - TRADE INSTEAD OF PART OF TH E CAPITAL ASSET AND DISALLOWING BENEFIT OF INDEXATION ON CAPITAL GAINS . BREIF FACTS OF THE CASE ARE THAT A SURVEY ACTION U/S. 133A OF THE ACT WAS CARRIED OUT AT THE P REMISES OF ASHA KHATIWALA (AK), THE SISER - IN - LAW OF THE ASSESSEE ON 2.2. 20 06, WHEREIN SOME D OCUMENTS RELATING TO TRANSACTION OF SALE OF PROPERTY BY ASSESSEE J OINTLY HELD WITH AK WERE FOUND. DURING THE COURSE OF SURVEY IT WAS FOUND THAT ASSESSEE ALONGWITH AK WAS OWNING LAND AT VAKOLA , SANTACRU Z , THAT BOTH WER E HAVING 50% SHARE, THAT THE PROPERTY WA S PURCHASED BY H I RALAL K ATHIWAL ON 25.1.54, THAT BY AN INDENTURE D ATED 1.9. 19 97 THE SAID PROPERTY W AS TRANSFERRED IN F A V OUR OF HIR ALAL K ATHIWAL (HUF), THAT ON 11 .2. 20 00 THE ME M BERS AND CO - PARTNERS OF SAID PROPERTY BY MUTUAL AGREEMENT DT.11.2. 20 00 DISSOLVE D THE HUF, THAT EIGHT MEMBERS B ECOME CO - OWNERS OF THE PROPERTY, THAT ON 18.2. 20 00 SHARE OF P RAKASH K ATHIWAL WAS PURCHASED BY AK FOR RS. 17.10 LACS, THAT ON 21.3.00 SEVEN ( 7 ) CO - OWNERS EXCEPT BHARAT KHATIW ALA SIGNED THE DEED OF RELEASE, THAT THROUGH THE RELEASE / RELINQUISH - MENT AGREEMENT ALL THE CO - OWNERS RELEASED THEIR RIGHTS IN FAV OU R OF AK AND THE ASSESSEE , THAT BOTH OF THEM BECAME 50% SHARE HOLDER IN PROPERTY AT VAKOL A ON 21.11. 20 00 , THAT AN MOU WAS SIGNED BETWEEN THE M AND ROMMEL P ROPERTY PVT. LTD. (RPPL) ,T HAT AN AM OUN T OF RS.25 LACS WAS TO BE PAID TO EACH OF THE OWNERS FOR TRANSFER OF DEVELOPMENT RIGHTS , T HAT VIDE AGREEM EN T DATED 28.8. 20 01 BETWEEN THE OWNERS AND RPPL IT WAS DECIDED THAT THE OWNER WOULD SURRENDER 55% OF THE PROPERTY, THAT THE DEVELOPER WOULD HAND OVER 45% OF THE CONSTRUCTED AREA TO THE OWNERS, THAT THEY WOULD IN TURN DIVIDE THE CONSTRUCTED AREA IN EQUA L SHARES, IT WAS ALSO DECIDED THAT RS.50 LACS WAS TO BE TAKEN AS SHARE FOR TRANSFER OF DEVELOPMENT RIGHTS. THE AO W AS OF THE OPINION THAT CAPITAL GAIN AM OUNTING TO RS. 25 LACS HAD ACCRUED TO THE ASSESSEE FOR TRANSFER OF DEVELOPMENT RIGHTS IN THE PREV IOUS Y EA R RELATING TO AY 20 02 - 03, THAT HE HAD NOT OFFERED THE ABOVE AM OUN T FOR TAXATION FOR THAT Y EA R, THAT HE HAD SUBSEQUENTLY OFFERED THE INCOME AS C APITAL GAIN IN THE AY 20 05 - 06 , THAT ENTIRE TRANSACTI O N OF SALE OF PROPERTY WAS NOT DECLARED BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME, THAT SUBSEQUENT TO THE SURVEY ACTION IT FILED REVISED RETURN AND HAD DECLARED ABOVE TRANSACTION FOR AY 20 05 - 06. HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY CAPITAL GAIN SHOULD NOT BE CALCULATED IN THE PREV IOUS Y EA R RELATING TO THE Y EA R 20 01 - 02. VIDE HIS LETTER 27.1 2 . 200 0, HE REPLIED THAT HE HAD REC EIVED A TOKEN AMOUNT IN THE Y EA R 20 00 AND 2001, THAT THE F LATS WERE ABO UT TO BE CONSTRUCTED, THAT THE COST OF CONSTRUCTION W A S NOT KNOWN IN THAT YEAR,THAT IT WAS NOT POSSIBLE TO ASCERTAIN THE AM OUNT WHICH WAS GOING TO BE REC EIVED BY THE ASSESSEE IN TERMS OF FLATS, THAT NOTIONAL INCOME C OU LD NOT BE BROUGHT TO TAX UNDER THE HEA D CAPITAL GAINS, THAT THE ENTIRE CONSIDERATION IN THE FORM OF CONST RUC T ED FLATS WAS NOT REC EIVE D BY THE ASSESSEE TILL THE DATE O F SURVEY. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT ITA/ 8711 & 8712 /MUM/201 0 ,AY. 0 5 - 06 & 06 - 07 - BHARAT K. 3 ASSESSEE HIMSELF HAD SOLD TWO FLATS IN THE YEAR 20 0 2 , THAT HE HAD SHOWN CAPITAL GAIN ARISING OUT OF TRANSACTION IN THE RETURN OF INCOME FILED FOR AY 20 03 - 04, THAT HE WAS AWARE OF THE VALUE OF COST OF CON STRUCTION ,T HAT HE SHOULD HAVE OFFERED CAPITAL GAIN FOR SURRENDER OF 55% OF LAND IN THE AY 20 03 - 04, THAT HE HAD RECE I VED MULTIPLE DWELLING UNITS FROM RPPL, THAT THE SALE OF DWELLING UNITS WAS ADVENTURE IN THE N ATURE OF TRADE, THAT 22.5% OF LAND HELD BY HIM ON WHICH THE B UILDING WA S CONSTRUCTED WOULD PARTAKE THE COLOUR OF INVESTMENT CONVERTED INTO STOCK IN TRA DE, THAT LONG TERM CAPITAL GAIN ( LTCG ) WAS ATTRACTED. THE AO CALCULATED LTCG AT RS. 10.26 LACS. HE FUR THER HELD THAT ASSESSEE HAD SOLD TWO FLATS IN THE Y EA R UNDER APPEAL. VIDE HIS ORDER SHEET NOTING DT.18. 12. 20 07, HE ASKED THE ASSESSEE AS TO WHY SALE OF F LATS SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE FILED THE DETAILED SUBMISSION IN THAT REGARD BUT THE AO DID NOT AGREE WITH HIM. HE HELD THAT THE TRANSACTION COULD NOT BE CONSIDERED AS CAPITAL GAIN , THAT THE ASSESSEE H A D SOLD THE F LAT TO BUYERS AS THE F IRST SELLER, THAT THE ASSESSEE S INTENTION WAS TO EARN PROFITS, THAT THE ACTIVITY WAS NOT AN ISOLATED ACTIVITY, THAT HE HAD BEEN SELLING THE FLATS IN EARLIER Y EARS ALSO , THAT THE ENTIRE EXERCISE TAKEN UP BY THE ASSESSEE WAS ADVENTURE IN THE NATURE OF TRADE AND WAS FOR REALIZATION OF SALES VALUE OF FLAT. HE CALCULATED THE BUSINESS INCOME OF THE ASSESSEE AT RS.24.74 LACS. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY( FAA ). AFTER CONSIDERING T HE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THE AO HAD TAKEN CONTRARY STAND IN VARIOUS ASS ESSMENT YEARS , THAT HE HAD BROUGHT TO TAX RPPL INTO TWO ASSESSMENT YEARS 20 02 - 03 AND 20 03 - 04, THAT IN THE AY 20 02 - 03 HE HAD TAXED CASH T RANSACTION OF RS. 25 .00 LACS AS BUSINESS RE CEI PTS WHICH WAS INCIDENTALLY REC EIVED O VER TWO ASSESSMENT YEAR S I.E. 20 01 - 02 AND 20 02 - 03, THAT HE HAD TAXED THE BUILT UP AREA AS CAPITAL GAINS THAT WAS RECE IVED B Y THE ASSESSEE IN 20 03 - 04, THAT IN 20 05 - 06 THE AO ONCE AGAIN BROUGH T TO TAX IT AS BUSINESS INCOME , THAT SAID TRANSACTION WAS PART OF DISPUTED TRANSACTION ,T HAT THE THREE LIMBS OF SAME TRASACTION WERE TAXED IN THREE DIFFERENT AY . S . UNDER TWO DIFFERENT HEADS OF INCOME, THAT VAKOLA LAND WAS TO BE TREATED AS CAPITAL ASSET, THAT INCOME AR I SING ON ITS TRANSFER TO BE TREATED AS BUSINESS GAIN .H E DIRE C TED THE AO TO SUITABLY MODIFY THE ORDER. HE FUR THER HELD THAT THE DEVEL O - PMENT AGREEMENT AS ENTERED INTO ON 28. 0 1. 20 01 ACHIEVED CERTAINTY AND FINALITY IN PURSUANCE O F CONCILIATION DEED DATED 0 5. 0 4. 20 04, THAT IT WAS FINALLY EXECUTED DURING AY 20 05 - 06, THA T THE AMOUNT OF RS. 25 .00 LACS SHOULD NOT BE BROUGHT TO TAX ON A STAND A LONE BASIS IN THAT YEAR . 4. DURING THE COURSE OF HEARING B EFORE US AUTHORISED REPRESENTATIVE (AR) C ONTENDED THAT THERE WAS NO CONVERSION OF CAP ITAL ASSETS TO BUSINESS ASSETS, THAT THE ASSESSEE HAD GOT ONLY 9 FLATS, THAT HE HAD SOLD ONLY 5 FLATS AND HAD RETAINED 4 FLATS, THAT IN JUHU THE A SSESSEE HAD RETAINED 2 FLATS,THAT THE FLATS WERE RENTED OUT, THAT THE CASE WAS OF CONVERTING ONE ASSET INTO ANOTHER ASSET, THA T THERE WAS NO BUSINESS INCOME. THE AR RELIED UPON THE CASES OF JAITRIKANAND RAO (60 SOT 189); SMT.VASAV I PRATAP CHAN D (90 TTJ 217) . DEPARTMENTAL REPRESENTATIVE ( DR ) SUPPORTED THE ORDER OF FAA AND C ONTENDED THAT THE A SSESSEE WAS CARRYING ON SYSTEMATIC ACTIVITY. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE OWNED 50% OF PLOT OF LAND IN VILLAGE LOE KALYAN, VAKOLA MUMBAI AND 50% BELONGED TO HIS SISTE R IN LAW, THAT THE LAND WAS ORIGINALLY PURCHASED BY FATHER OF THE ASSESSEE IN 1954 WHICH WAS LATER ON TRANSFERRED TO HIS HUF IN 1970, THAT THE HUF WAS DISSOLVED IN THE YEAR 2000 AND THE VAKOLA PROPERTY WAS ALLOTTED TO VARIOUS MEMBERS OF THE FAMILY, THAT HI S BROTHER SOLD HIS 17. 10% SHARE TO HIS WIFE ON 18.2.2000, THAT THE REMAINING CO - OWNERS OF VAKOLA PROPERTY RELEASED/ RELINQUISHED THEIR RIGHTS IN FAVOUR OF THE ASSESSEE AND AK, VIDE RELEASE DEED 21.3. 2000, THAT ITA/ 8711 & 8712 /MUM/201 0 ,AY. 0 5 - 06 & 06 - 07 - BHARAT K. 4 BOTH THE CO - OWNERES ENTERED INTO MOU WITH RPPL ON 21.11.2000, THAT THEY RECEIVED AN AMOUNT OF R S .25 LACS EACH FROM RPPL IN INSTALMENTS AS DEPOSIT AGAINST FINAL CONSIDERATION FOR TRANSFER OF LAND FOR THE PURPOSE OF REDEVELOPMENT , THAT O N 28.8.01 THE Y ENTERED INTO A D EVELOPMENT AGREEMENT WITH RPPL, THAT IT WAS AGREED BY BOTH THE SIDES THAT THE OWNERS WOULD SURRENDER 55% OF THE LAND THROUGH RPPL AND WOULD RECEIVED BUILT UP AREA AS SET OUT IN THE AGREEMENT APART FROM RS.25 LACS CASH CONSIDERATION, THAT DUE TO DISPUTES BETWEEN THE CO - OWNERS AND THE DEVELOPER A CONCILIATOR THEY APPOINTED ,T HAT VIDE DEED DATED 5.4.2004 THE PARTIES SIGNED NEW FRESH DEVELOPMENT AGREEMENT , THAT AS PER THE NEW DEED THE ASSESSEE AND AK WERE TO RECEIVE RS.70. LACS, THAT AK GAVE UP HER CLAIM ON 9 FLATS IN LIEU OF ENHANCEMENT O F CASH CONSIDE RATION BY 2.20 CRORES, THAT THE ASSESSEE ULTIMATELY RECEIVED 9 UNITS FROM THE DEVELOPER, THAT A SURVEY U/S. 133 A OF THE ACT TOOK PLACE AT THE PREMISES OF AK ,THAT THE AO RE - OPENED THE ASSESSMENTS FOR THE AY.S. 2002 - 03 AND 2003 - 04, THAT THE AO TREATED THE BUIL T - UP AREA AS STOCK IN TRADE AND HELD THAT THE ASSESSEE HAD CARRIED OUT BUSINESS ACTIVITY AND THE BUILT UP AREA RECEIVED FROM RRPL WAS NOT PART OF CAPITAL ASSET, T HAT THE FAA UPHELD THE BOTH THE FINDINGS OF THE AO ,THAT THE FAA DISALLOW ED THE CLAIM FOR INDE XATION AND BENEFICIAL RATE TO THE ASSESSEE WITH REGARD TO THE TRANSACTION IN QUESTION ,THAT HE HELD THAT INCOME WAS TO BE TAXED IN THE AY.2005 - 06. AS FAR AS YEAR OF TAXABILITY IS CONCERNED,WE ARE OF THE OPINION THAT THE FAA HAD RIGHTLY HELD THAT INCOME WAS TO BE ASSESSED IN THE AY.2005 - 06,AS THERE WAS NO BASIS FOR TAXING IT IN EARLIER ASSESSMENTS. THE FAA HAS GIVEN A CATE GORICAL FINDING OF FACT THAT THE FLATS WERE NOT COMPLETE IN THE EARLIER AY.S.AND THAT SAME WERE RECEIVED BY THE ASSESSEE IN THE AY.2005 - 06 O NLY.WE DO NOT FIND ANY LEGAL INFIRMITY IN HIS ORDER. BUT,WE ARE OF THE OPINION THAT THE AO AND THE FAA HAD WRONGLY HELD THAT THE ASSESSEE WAS CARRYING OUT BUSINESS ACTIVITIES.THE BUILT UP AREA RECEIVED BY THE ASSESSEE FROM THE DEVELOPER SHOULD NOT HAVE BEEN TREATED AS STOCK IN TRADE.THE COMPENSATION RECEIVED BY THE ASSESSEE I N CASH OR IN FORM OF FLATS WAS PART OF THE COMPENSATION FOR TRANSFER OF THE PLOT OF LAND.IN SHORT,THE BASIC INGREDIENTS OF BUSINESS WE RE MISSING IN THE TRANSACTION BEFORE US. HERE, WE WOULD LIKE TO REFER TO THE CASE OF VAS AV I PRATAP CHAND(SUPRA) .IN THAT MATTER A PROPERTY COMPRISING OF A HOUSE AND AN OPEN LAND AROUND IT TOTALLING 2.85 ACRES WAS PURCHASED BY SUMER CHAND AROUND 1947.AFTER HIS DEATH IN 1951,PRATAP CHAND SUCCEEDED TO THE PRO PERTY AND BY 1953 - 54, IT WAS CONVERTED INTO HUF PROPERTY COMPRISING OF PRATAP CHAND,HIS WIFE VASAVI PRATAP CHAND AND HIS SON SIDHARTH PRATAP CHAND. WHEN SIDHARTH PRATAP CHAND BECAME ADULT IN 1969 - 70, A PARTIAL PARTITION WAS DONE THEREBY DIVIDING THIS PROPE RTY EQUALLY AMONG THE THREE AND WAS ACCORDINGLY SHOWN IN THE INCOME - TAX RETURNS. SIDHARTH PRATAP CHAND AFTER HIS MARRIAGE IN 1977 STARTED SHOWING THE PROPERTY IN HIS RETURN IN THE HUF CAPACITY.THE TOTAL VALUE OF THE PROPERTY WAS SHOWN AT RS. 6 LAKHS APPROX IMATELY IN ALL.THE THREE CO - OWNERS MADE A COLLABORATION AGREEMENT WITH ANSAL PROPERTIES AND INDUSTRIES LTD. FOR DEVELOPING THE LAND AND GETTING FLATS BUILT ON IT. AS PER THE AGREEMENT, THE ASSESSEE ALONG WITH OTHER CO - OWNERS GOT BUILT UP AREA OF 89136 SQ. FT. WHICH WAS 56% OF THE TOTAL BUILT UP AREA AS THEIR SHARE. THEREAFTER, THE THREE CO - OWNERS ENTERED INTO AGREEMENTS WITH VARIOUS BUYERS AND SOLD THE FLATS DURING THE PREVIOUS YEAR RELEVANT TO AY.S. 1993 - 94 TO 1995 - 96. DURING THE AY.1995 - 96 THE THREE CO - OWN ERS SOLD 18631 SQ. FT. OF BUILT UP ARE AGA INST TOTAL CONSIDERATION OF RS. 4,72,98,075 AND DECLARED CAPITAL LOSS AT RS. 31,30,663 EACH AFTER CONSIDERING THE INFLATION INDEX.IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE AO WAS OF THE VIEW THAT DEVELOPMENT OF PL OT, CONSTRUCTION OF FLATS AND SALE THEREOF AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. MATTER TRAVELLED UP TO THE TRIBUNAL,WHO HELD THAT IT WAS NOT A CASE OF AN ADVENTURE IN THE NATURE OF TRADE AND ACCORDINGLY, DIRECTED THE AO TO COMPUTE THE COST ITA/ 8711 & 8712 /MUM/201 0 ,AY. 0 5 - 06 & 06 - 07 - BHARAT K. 5 OF A CQUISITION AS WELL AS THE INCOME UNDER THE HEAD 'CAPITAL GAINS'.IN THE FRESH ASSESSMENT PROCEEDINGS,THE AO REJECTED THE COST OF ACQUISITION @ RS. 1,450 PER SQ. FT. ADOPTED BY ASSESSEE.HE ADOPTED THE COST OF ACQUISITION OF THE ENTIRE PROPERTY AT RS. 6,10,00 0 AS PER THE WEALTH - TAX RECORD.THE THE INDEXED COST OF ACQUISITION WAS WORKED OUT TO RS. 3,30,060.HE WORKED OUT THE SHARE OF THE ASSESSEE AT RS. 1,56,56,005 UNDER THE HEAD CAPITAL GAIN.MATTER WAS AGAIN AGITATED BEFORE THE TRIBUNAL BY THE AO AND THE ASSES SEE .DECIDING THE ISSUE THE TRIBUNAL HELD AS UNDER: 9.AS FAR AS CONSIDERATION PART IS CONCERNED, WE ARE OF THE VIEW THAT VALUE OF 44 PER CENT OF LAND WAS EQUAL TO THE COST OF CONSTRUCTION OF 56 PER CENT BUILT UP AREA. THE SALE CONSIDERATION TO THE SELLER A ND COST OF ACQUISITION TO THE BUYER ARE TWO SIDES OF THE SAME COIN. BOTH THE PARTIES TO THE AGREEMENT KNEW AS TO WHAT WAS BEING TRANSFERRED AND WHAT WAS BEING RECEIVED. IN THE CASE OF EXCHANGE, THE PRICE OF BOTH THE ASSETS WOULD BE THE SAME. SO, WHEN THE A SSESSEES HAD AGREED TO TRANSFER 44 PER CENT OF LAND, IT MUST HAVE KEPT IN MIND THE VALUE OF CONSTRUCTION OF 56 PER CENT OF BUILT UP AREA. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT CONSIDERATION FOR THE TRANSFER OF 44 PER CENT LAND WAS THE COST OF CO NSTRUCTION OF 56 PER CENT BUILT UP AREA WHICH WAS TO BE INCURRED BY THE BUILDER. THIS VERY SUM WOULD ALSO AMOUNT TO INVESTMENT BY ASSESSEE IN THE CONSTRUCTION OF FLATS AND, THEREFORE, THE COST OF CONSTRUCTION OF THE FLATS BY THE BUILDER WOULD ALSO AMOUNT T O THE COST OF ACQUISITION OF THE FLATS BY ASSESSEES. 10.IN VIEW OF THE ABOVE DISCUSSION, IT IS CLEAR THAT IN THE YEAR UNDER CONSIDERATION, THERE WAS TRANSFER OF NOT ONLY THE FLATS AS SUPERSTRUCTURE BUT ALSO THE PROPORTIONATE LAND INASMUCH AS 56 PER CENT O F THE LAND WAS RETAINED BY THE ASSESSEE UNDER THE COLLABORATION AGREEMENT. SO WE ARE IN AGREEMENT WITH THE ALTERNATE CONTENTION OF THE ASSESSEE'S COUNSEL THAT IT WAS A SALE OF IMPROVED ASSET AND CONSEQUENTLY, COST OF ACQUISITION WOULD INCLUDE THE COST OF F LATS AS WELL AS COST OF LAND. AS FAR AS COST OF FLAT IS CONCERNED, WE HAVE ALREADY OBSERVED THAT IT WOULD BE EQUAL TO THE COST OF CONSTRUCTION OF 56 PER CENT OF THE BUILT UP AREA. THE REASON IS OBVIOUS. THE SALE CONSIDERATION OF 44 PER CENT LAND WAS IN KIN D AND, THEREFORE, IT ALSO AMOUNTED TO INVESTMENT IN THE CONSTRUCTION OF BUILT UP AREA. HENCE, THE SAME WILL BE TAKEN AS COST OF ACQUISITION OF FLATS AFTER EXAMINING THE RECORD OF THE BUILDER. 11.AS FAR AS COST OF ACQUISITION OF LAND IS CONCERNED, WE ARE O F THE CONSIDERED VIEW THAT IT SHALL BE THE VALUE OF THE LAND AS ON 1ST APRIL, 1981. ADMITTEDLY, THIS PROPERTY WAS PURCHASED BY THE ANCESTORS OF THE CO - OWNERS IN 1947, AND THE CO - OWNERS INHERITED THE SAME. THEREFORE, THE VALUE OF LAND HAS TO BE TAKEN AS ON 1ST APRIL, 1981. 13.REGARDING THE INDEXED COST OF ACQUISITION, WE MAY POINT OUT THAT INDEXING IS ALLOWED ONLY WITH REFERENCE TO LONG - TERM CAPITAL ASSETS. WE ARE CONCERNED WITH THE PROPERTY COMPRISING OF TWO DIFFERENT CAPITAL ASSETS ACQUIRED AT DIFFERENT P OINT OF TIME. AS FAR AS LAND IS CONCERNED, ADMITTEDLY, IT IS LONG - TERM CAPITAL ASSET AND CONSEQUENTLY, COST OF ACQUISITION WHICH MAY BE DETERMINED BY THE AO AS PER OUR DIRECTION WOULD FURTHER BE ENHANCED AS PER THE RULE OF INDEXATION. HOWEVER THERE IS SOME CONFUSION REGARDING THE DATE OF ACQUISITION OF 56 PER CENT BUILT UP AREA. AS POINTED OUT EARLIER, WE ARE INFORMED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT POSSESSION OF FLATS WERE TAKEN IN FINANCIAL YEAR 1991 - 92 BUT THERE IS NO MATERIAL BEFORE US IN S UPPORT OF THE SAME. THIS WILL BE VERIFIED BY THE AO AND THEN DETERMINE THE PERIOD OF HOLDING. IF IT IS FOUND THAT IT IS LONG - TERM CAPITAL ASSET THEN INDEXED COST WOULD ALSO BE DETERMINED OTHERWISE NO INDEXATION WOULD BE ALLOWED. 14. IN VIEW OF THE ABOVE D ISCUSSION, THE ORDERS OF THE CIT(A) ARE MODIFIED AND THE MATTER IS RESTORED TO THE FILE OF AO FOR DETERMINATION OF THE COST OF ACQUISITION/INDEXED COST OF ACQUISITION AND ALSO THE CAPITAL GAIN ASSESSABLE TO TAX IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY US . WE WOULD ALSO LIKE TO REFER TO THE MATTER OF JAITRIKANAND RAO ( SUPRA) . IN THAT MATTER THE ASSESSEE HAD ENTERE D INTO A DEVELOPMENT AGREEMENT,VIDE WHICH, THE DEVELOPER HAD TO BEAR THE COST OF DEMOLISHING THE OLD STRUCTURE AND HAD TO CONSTRUCT THE BUILD ING WITHOUT CHARGING ANY AMOUNT ITA/ 8711 & 8712 /MUM/201 0 ,AY. 0 5 - 06 & 06 - 07 - BHARAT K. 6 FROM THE ASSESSEE . N LIEU OF THAT THE DEVELOPER GOT RIGHT TO SELL 50% OF THE CONSTRUCTED AREA IN THE SAID BUILDING. THE CONSTRUCTION WAS ACCORDINGLY MADE AND OUT OF HIS SHARE OF CONSTRUCTED AREA THE ASSESSEE SOLD TWO FLATS. H E DECLARED THE INCOME ON SUCH SALE UNDER THE HEAD LTCG. HOWEVER , HE AO TREATED THE SAME AS BUSINESS INCOME OBSERVING THAT THE DEVELOPER HAD NOT PAID ANY AMOUNT FOR LAND AND THAT THE ASSESSEE GOT HIS PREMISES CONSTRUCTED WITHOUT PAYING ANY MONEY TO THE B UILDER , THAT THERE WAS NO TRANSFER OF LAND, THAT THE ASSESSEE WAS CARRYING OUT BUSINESS ACTIVITIES.ON APPEAL, THE FAA HELD THAT THE INCOME DERIVED BY THE SALE OF FLAT WAS CAPITAL GAIN, THAT THE COST OF CONSTRUCTION IN THE HANDS OF THE ASSESSEE WAS THE AMOUNT F OR WHICH HE HA D TRANSFERRED THE TDR RIGHTS.H E ALSO ALLOWED THE BENEFIT OF INDEXATION AT THE COST OF ACQUISITION PROPORTIONATELY OF LAND.DECIDING THE APPEAL FILED BY THE AO, THE TRIBUNAL HELD THAT THE ASSESSEE HAD NOT SOLD ANY PART OF THE PROPERTY EXCEPT THE ABOVE MENTIONED TWO FLATS, THAT HE HAD RENTED OUT HIS SHARE OF PROPERTY TO HAVE CONSTANT RENTAL INCOME,THAT THE INCOME EARNED BY THE ASSESSEE WAS CAPITAL GAINS AND NOT INCOME FROM BUSINESS OR TRADE , THAT THE ASSESSEE HAD PARTED HIS RIGHT TO THE EXTENT OF 50% OF THE LAND, THAT BILDING COULD NOT HAVE BEEN CONSTRUCTED SEPARATELY WITHOUT ITS BASE ON THE LAND , THAT THE LAND UNDER THE BUILDING COULD NOT BE USED SEPARATELY, THE COST OF CONSTR U - CTION OF THE AREA WOULD BE EQUAL TO 50% OF THE MARKET VALUE OF THE LAN D PLUS VALUE OF ADDITIONAL FSI IF ANY ,THAT HE WAS ENTITLED TO PROPORTIONATE CLAIM OF DEDUCTION FOR COST OF CONSTRUCTION , THAT ASSESSEE WAS ALSO ELIGIBLE FOR INDEXATION AS PER THE PROVISIONS OF THE ACT. WE FIND THAT IN THE CASE UNDER CONSIDERATION THE ASSESS EE HAD SOLD TWO UNITS AND WAS HAVING RENTAL INCOME FROM THE REMAINING FLATS.HE WAS OFFEREING THE RENTAL INCOME UNDER THE HEAD HOUSE PROPERTY INCOME. WE ARE OF THE OPINION THAT THE FACTS OF BOTH THE CASES ARE QUITE SIMILAR TO THE FACTS OF THE CASE UNDER A PPEAL.THEREFORE,FOLLOWING THE SAME AND CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE ASSESSEE WAS NOT CARRYING OUT ANY BUSINESS,THAT THE BUILT UP AREA WAS NOT STOCK IN TRADE AND THAT HE WAS ENTITLED TO THE BENEFIT OF INFLATI ON INDEX.GROUNDS NO.1 - 3 ARE DECIDED IN FAVOUR OF THE ASSESSEE . ITA NO.8712/MUM/2010 - AY.2006 - 07: FOLLOWING OUR ORDER FOR THE EARLIER YEAR,WE DECIDE GROUNDS NO.1 - 3 IN FAVOUR OF THE ASSESSEE . AS A RESULT,APPEAL FILED BY THE ASSES SEE FOR BOTH THE AY.S.STAND ALLOWED. . . . ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST ,2015. 28 TH , 2015 S D/ - S D/ - ( / JOGINDER SINGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 28 . 0 8 . 2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / ITA/ 8711 & 8712 /MUM/201 0 ,AY. 0 5 - 06 & 06 - 07 - BHARAT K. 7 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGIS TRAR , / ITAT, MUMBAI.