Andhra Networks Limited, Hyderabad V. Dy.CIT, Circle-1(1), Hyderabad

ITA 966/HYD/2013

• Counselvise Citation: 96622514 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Capital asset; Principle of natural justice; Question of law; Cost of acquisition
• Section: 54F; 133A; 148; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.966/HYD/2013 ASSESSMENT YEAR 2005-2006 M/S. ANDHRA NETWORKS LIMITED, HYDERABAD. PAN AAECA0302L VS. THE DCIT, CIRCLE 1(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. ANANTHAN FOR REVENUE : MR. YVST SAI DATE OF HEARING : 25.09.2014 DATE OF PRONOUNCEMENT : 26.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS AGAINST THE ORDE R OF LD. CIT(A)-V, HYDERABAD DATED 27.02.2013. ASSESSEE IN T HE COURSE OF PRESENT APPEAL FILED CONCISE REVISED GROUNDS WHI CH ARE AS UNDER : 1. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS BAD IN LAW AND AGAINST THE FACTS OF THE CASE. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.7,98,69,745/- UNDER THE HEAD SHORT TERM CAPITAL GAINS. 3. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APPRECIATE THE FACT THAT THERE WAS NO TRANSFER OF A CAPITAL ASSET U/S 2(47) OR U/S 45(3) OF THE INCOME TAX ACT, 1961. 3.1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLDING THAT THERE WAS A TRANSFER OF CAPITAL ASSET WITHIN THE MEANING OF SEC 45(3), WHEN 2 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. THERE WAS NO TRANSFER U/ 2(47) OF THE INCOME TAX ACT, 1961. 3.2. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE DID NOT POSSESS ANY CAPITAL ASSET WHICH IT WAS CAPABLE OF TRANSFERRING. 3.3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN RELYING ON THE GENERAL COVENANTS IN THE AGREEMENT WHICH DO NOT DETERMINE THE TRANSFER. 4. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APPRECIATE THE FACT THAT THE BOOKS OF ACCOUNTS AND THE BALANCE SHEET RELIED ON BY HIM ARE NOT THE APPROVED BOOKS OF ACCOUNTS OF M/S. EMBASSY-ANL CONSORTIUM. 4.1. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APPRECIATE THE FACT THAT THE BALANCE SHEET RELIED ON BY THE LEARNED ASSESSING OFFICER WAS. ONLY A PROVISIONAL BALANCE SHEET AND NOT AN AUDITED BALANCE SHEET. 4.2. THE LEARNED COMMISSIONER (APPEALS) FAILED .TO APPRECIATE THE FACT THAT THERE WAS NO CREDIT IN THE CAPITAL ACCOUNT OF THE ASSESSEE. 4.3. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED ASSESSING OFFICER FAILED IN RELYING ON THE ACCOUNTS AND BALANCE SHEET PERTAINING TO THE FINANCIAL YEAR 2005-06 FOR COMPLETING THE ASSESSMENT FOR THE FINANCIAL YEAR 2004-05 AND AS SUCH NO CAPITAL GAINS CAN BE TAXED FOR THE A Y 2005-06. 5. THE LEARNED COMMISSIONER (APPEALS) FAILED TO APPRECIATE THE FACT THAT THE LEARNED ASSESSING OFFI CER VIOLATED THE PRINCIPLE OF NATURAL JUSTICE IN AS MUC H AS NOT GIVING THE COPIES OF THE BALANCE SHEET RELIE D ON BY HIM TO THE ASSESSEE AND NOT PROVIDING AN OPPORTUNITY OF CROSS EXAMINING THE PERSONS ON WHOSE STATEMENT THE RELIANCE HAS BEEN PLACED BY HIM. 6. WITHOUT PREJUDICE, THE LEARNED ASSESSING OFFICER FAILED TO APPRECIATE THE FACT THAT IF AT ALL THERE WAS ANY CAPITAL GAINS, THEN THE SAME SHOULD HAVE BEEN 3 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. TREATED AS LONG TERM AND THE DATE OF ACQUISITION SHOULD HAVE BEEN TREATED AS 8TH JAN 2001. 7. THE ASSESSMENT ORDER AND DEMAND NOTICE ARE NOT SUSTAINABLE SINCE THE ASSESSMENT YEAR MENTIONED IN THE ORDER IS 2007-08 WHEREAS THE DEMAND NOTICE PERTAINS TO THE ASSESSMENT YEAR 2005-06. FOR THE ABOVE GROUNDS OR ANY OTHER GROUNDS THAT MAY BE SUBMITTED AT THE TIME OF HEARING, THE ASSESSEE PRAYS THAT THE APPEAL ALLOWED AND THE ADDITION OF CAPITAL GAINS MADE BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS) BE DELETED WITH CONSEQUENTIAL RELIEF. 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSI NESS OF PROVIDING TELECOM NET WORK SERVICES. ASSESSEE FI LED ITS RETURN OF INCOME FOR A.Y. 2005-06 ON 25.10.2005 DECLARING TOTAL INCOME OF RS.2,06,27,320. NOTICE UNDER SECTION 148 OF THE I.T. ACT WAS ISSUED IN PURSUANCE OF MATERIAL GATHERED AT THE TIME OF SURVEY UNDER SECTION 133A CONDUCTED IN THE CASE OF M/S. EMBASSY BUILDERS ON 23.09.2008. ONE OF THE DOCUMENT S IMPOUNDED WAS A CONSORTIUM AGREEMENT DATED 10.12.20 04 ENTERED INTO BY ASSESSEE WITH M/S. DYNASTY DEVELOPE RS P. LTD., AND THE NEW ENTITY WAS CALLED EMBASSY-ANL CONSORTIU M. BASED ON THE DOCUMENTS, ASSESSMENT WAS REOPENED. TH E ISSUE IN APPEAL IS WITH REFERENCE TO DEVELOPMENT AGREEMEN T ENTERED BY ASSESSEE WITH THE SAID M/S. DYNASTY DEVELOPERS P. LTD., (DDPL). ASSESSEE HAS BEEN ALLOTTED AC.6.00 OF LAN D ON LEASE CUM- SALE BASIS BY KARNATAKA INDUSTRIAL AREA DEVELO PMENT BOARD (IN SHORT KIADB) VIDE LETTER OF ALLOTMENT D ATED 10.01.2001. SUBSEQUENTLY, ASSESSEE ENTERED INTO LEA SE CUM- SALE DEED ON 02.09.2003 WITH KIADB. ON 10.1202004, ASSESSEE ENTERED INTO THE CONSORTIUM AGREEMENT REFE RRED ABOVE. AS PER THE CONSORTIUM AGREEMENT, ASSESSEE AG REED TO 4 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. TRANSFER THE RIGHTS IN THE PROPERTY. SINCE, THERE A RE DIFFERENCES AMONG THE PARTIES, ASSESSEE DID NOT ACKNOWLEDGE THE RECEIPTS IN ITS AUDITED ACCOUNTS AND CONTINUED TO SHOW THE L EASE HOLD RIGHTS ON THE LAND AS FIXED ASSETS IN THE BOOKS OF ACCOUNTS. AO INITIATED PROCEEDINGS AS CAPITAL GAINS ON TRANSFER OF PROPERTY WAS NOT DECLARED. PURSUANT TO NOTICE UNDER SECTION 148, ASSESSEE SUBMITTED TO THE A.O. THAT IT WAS NOT LIAB LE TO CAPITAL GAINS AS THERE WAS NO CAPITAL ASSET AND ALSO THE FACT THAT THERE IS NO TRANSFER AS CONTEMPLATED UNDER SECTIO N 2(47) OF THE I.T. ACT. ASSESSING OFFICER, HOWEVER, RELYING O N THE TERMS OF CONSORTIUM AGREEMENT, SET ASIDE THE OBJECTIONS OF A SSESSEE TO HOLD THAT THE TRANSACTION ENTERED INTO BY ASSESSEE COMES WITHIN THE PURVIEW OF SECTION 2(47) AND IN SUPPORT DISCUSSED AT LENGTH THE DEFINITION OF CAPITAL ASSET, PROPERTY, L EASE RIGHTS, TRANSFER OF PROPERTY ETC., ASSESSING OFFICER ALSO S PECIFICALLY DISCUSSED THE PROVISIONS OF SECTION 2(47) (VI) INSE RTED BY FINANCE ACT, 1987 WITH EFFECT FROM 01.04.1988 AS PE R WHICH TRANSFER IN RELATION TO A CAPITAL ASSET INCLUDES A TRANSACTION WHICH HAS THE EFFECT OF TRANSFERRING OR ENABLING TH E ENJOYMENT OF ANY IMMOVABLE PROPERTY. ASSESSING OFFICER ALSO BROUGHT OUT THE INTENTION OF BRINGING OUT THIS PARTICULAR CLAUS E (VI) TO SECTION 2(47) TO HOLD THAT IN THE INSTANT CASE ASSESSEE BY ENTERING INTO CONSORTIUM AGREEMENT HAS TRANSFERRED ITS RIGHTS OVER THE LAND TO M/S. DDPL AND ACCORDINGLY, THERE I S TRANSFER OF CAPITAL ASSET WITHIN THE MEANING OF SECTION 45(3 ) OF THE I.T. ACT. HOLDING SO, HE BROUGHT THE VALUE OF CONSIDERA TION RECORDED IN THE BOOKS OF CONSORTIUM AT RS.10,76,61, 044 AS FULL VALUE OF CONSIDERATION AND CONSIDERING THE FACT TH AT ASSESSEE ENTERED INTO THE AGREEMENT IMMEDIATELY ON GETTING T HE OWNERSHIP HELD THAT THE PERIOD OF HOLDING IS LESS T HAN 12 MONTHS AND ACCORDINGLY, CONSIDERED THE GAINS AS SHO RT TERM 5 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. CAPITAL GAIN. HE BROUGHT AN AMOUNT OF RS.7,98,69,74 5 TO TAX AS SHORT TERM CAPITAL GAIN. 3. BEING AGGRIEVED, ASSESSEE CONTESTED BEFORE THE LD. CIT(A) THAT ASSESSEE DID NOT POSSESS ANY CAPITAL ASSET AND THE LAND ALLOTTED BY KIADB AS PER LEASE CUM- SALE AGREEMENT DOES NOT GIVE OWNERSHIP RIGHTS AND IT CAN NOT BE CO NSIDERED AS IMMOVABLE PROPERTY AND THEREFORE, A CAPITAL ASSET. WITHOUT PREJUDICE TO THE ABOVE, ASSESSEE ALSO CONTENDED THA T IT DID NOT OBTAIN ANY TRANSFERABLE LEASE HOLD RIGHTS OVER THE LAND AND AS PER CLAUSE-8 OF THE ALLOTMENT ANY FAILURE TO FULFIL L ANY OF THE STANDARD TERMS AND CONDITIONS SHALL RESULT IN CANCE LLATION OF THE ALLOTMENT. IT WAS SUBMITTED THAT CLAUSE-12 OF T HE TERMS AND CONDITIONS STIPULATES THAT NO PERMISSION WILL B E GRANTED TO LEASE OUT ANY PORTION OF THE BUILDING OR ANY PORTIO N OF THE LAND IN FAVOUR OF OTHER ENTREPRENEURS DURING THE EXISTEN CE OF LEASE PERIOD. REFERRING TO THE OTHER CLAUSES OF THE ALLOT MENT LETTER, IT CONTENDED THAT ASSESSEE DID NOT POSSESS ANY TRANSFE RRABLE LEASE HOLD RIGHTS AND THEREFORE, THE LAND IN QUESTI ON IS NOT A CAPITAL ASSET. FURTHER, IT ALSO CONTENDED THAT PROV ISION OF SECTION 2(47) ARE NOT APPLICABLE AS THE PROPERTY IS NOT AN IMMOVABLE PROPERTY, AS WAS GIVEN IN CLAUSE (D) OF S ECTION 269UA OF THE I.T. ACT. IT WAS CONTENDED THAT ASSESS EE HAS ONLY LEASE HOLD RIGHTS AND IT DID NOT FALL INTO THE DEFI NITION OF IMMOVABLE PROPERTY. IT FURTHER CONTENDED THAT THE RE WAS NO TRANSFER UNDER SECTION 45(3) OF THE ACT AS IT WAS O NLY A LEGAL FICTION. IT WAS SUBMITTED THAT AS THERE IS NO ASSIG NMENT OF RIGHTS EXECUTED, THERE IS NO TRANSFER, CONSEQUENTLY , NO CAPITAL GAINS CAN BE ASSESSED IN THE HANDS OF ASSESSEE BY I NVOKING THE PROVISIONS OF SECTION 45(3). LD. CIT(A) DID NOT AGR EE AND 6 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. CONFIRMED THE CAPITAL GAINS IN THE HANDS OF ASSESSE E. THE RELEVANT OBSERVATIONS OF LD. CIT(A) ARE AS UNDER : 7. I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMISSIONS OF THE ASSESSEE, EVIDENCES FILED BY THE ASSESSEE AND CASE LAWS RELIED UPON BY BOTH THE PARTIES. THE BASIC CONTENTION OF THE ASSESSEE IS TH AT THEY DO NOT POSSESS TRANSFERABLE RIGHT OVER THE LAN D ALLOTTED TO THEM BY KIADB AND THEREFORE THE LAND IN QUESTION IS NOT A CAPITAL ASSET AND CONSEQUENTLY THERE IS NO CAPITAL GAIN. THIS SUBMISSION OF THE ASSESSEE IS CONTRARY TO WHAT IT HAS DISCLOSED ON IT S OWN IN THE PARA Q OF NOTES TO ACCOUNT IN ANNUAL REPORT FOR FINANCIAL YEAR 2005-06. THE ASSESSEE DISCLOSES THAT IT HAD ENTERED INTO A CONSORTIUM AGREEMENT AND THAT IT HAD CONTRIBUTED ALL ITS RIGHT S IN THE PROPERTY (ACQUIRED THROUGH LEASE-CUM-SALE AGREEMENT) TO THE CONSORTIUM AS ITS CONTRIBUTION TOWARDS CAPITAL. RELEVANT PORTION OF THE ANNUAL REPORT IS AS FOLLOWS: Q : THE COMPANY HAS ENTERED INTO A CONSORTIUM AGREEMENT DATED 10 TH DEC 2004 WITH M/S. DYNASTY DEVELOPERS P LTD TO PROMOTE AND DEVELOPMENT OF LAND APPEARING IN THE BOOKS OF ACCOUNT AT RS.2,77,91,299/- AT NO.5 EPIP AREA, PHASE-I, WHITE FIELD, BANGALORE. AS PER THE TERMS OF THE AGREEMENT THE COMPANY IS FIFTY PERCENT ASSOCIATE / MEMBERS OF CONSORTIUM CREATED THEREBY AND HAS CONTRIBUTED ALL ITS RIGHTS WITH REGARDS TO SCHEDULED PROPERTY AS IT S CONTRIBUTION TOWARDS THE CAPITAL OF THE CONSORTIUM, FURTHER A CHARGE HAS BEEN CREATED ON THE LANDED PROPERTY BY WAY OF EQUITABLE MORTGAGE IN FAVOUR OF' ING-VSYA BANK LTD TO THE EXTENT OF 36 CRORES PLUS INTEREST AND OTHER CHARGES, FOR ADVANCES MADE TO DYNASTY DEVELOPERS P LTD.' 7.1 GOING BY THE ABOVE NOTES TO THE ACCOUNTS, THE COMPANY IS ADMITTING THAT IT HAS SOME RIGHTS OVER THE PROPERTY WHICH IT HAD ACQUIRED THROUGH LEASE- CUM-SALE AGREEMENT. ON THE CONTRARY, DURING THE COURSE OF APPEAL PROCEEDINGS, THE ASSESSEE CLAIMS THAT THE LEASE-CUM-SALE AGREEMENT CAN ONLY BE TREATED AS A RIGHT TO OBTAIN AN IMMOVABLE PROPERTY AND CANNOT BE TREATED AS CAPITAL ASSET. OF THESE TW O - THE ADMISSION MADE BY THE ASSESSEE IN THE NOTES T O 7 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. ACCOUNTS AND THE CLAIM MADE DURING APPEAL PROCEEDINGS - TO ME, THE NOTES TO ACCOUNTS CARRY MUCH CREDENCE SINCE THE SAME WAS A RESULT OF CONSENSUS IN THE BOARD MEETINGS OF THE COMPANY AND FINALLY APPROVED BY THE BOARD OF DIRECTORS. THEREFORE, THE FIRST ARGUMENT PUT FORTH BY THE ASSESSEE IS REJECTED. WHEN THE FACTS OF THE CASE PROVE OTHERWISE. THE CASE LAWS RELIED UPON BY THE ASSESSEE BECOME DISTINGUISHABLE AND THE ASSESSEE CANNOT TAKE ANY STRENGTH FROM THESE DECISIONS. 7.2. THE NEXT ARGUMENT OF THE ASSESSEE IS THAT THERE IS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT. REFERRING CLAUSE (VI) OF SECTION 2(47), THE ASSESSEE INSISTED ON THE TERM IMMOVABLE PROPERTY AND ITS DEFINITION, ITS APPLICATION TO THE IR OWN CASE. HERE, IT IS THE ARGUMENT OF THE ASSESSEE THAT SINCE THEY DO NOT HOLD ANY RIGHT OVER THE PROPERTY AND THEY HAVE ONLY A RIGHT TO PURCHASE THE PROPERTY (BY VIRTUE OF LEASE-CUM- SALE AGREEMENT ENTERED INTO WITH KIADB), THE LAND IN QUESTION CANN OT BE TREATED AS AN IMMOVABLE PROPERTY IN THE HANDS OF THE ASSESSEE. IN THIS REGARD, IT IS PERTINENT TO RE FER: TO PARA 8 OF THE CONSORTIUM AGREEMENT BETWEEN THE ASSESSEE COMPANY AND M/S. DDPL. RELEVANT PORTION OF THE CONSORTIUM AGREEMENT IS AS UNDER : '8.1 ANL ASSURES THE UNDERTAKING AND THE DYNASTY AS UNDER: 8.1.1 THE SCHEDULED PROPERTY HAS BEEN ALLOTTED TO ANL AND THE POSSESSION OF THE SCHEDULED PROPERTY HAS ALSO BEEN GIVEN TO ANL AND ANL IS ENTITLED TO DEVELOP THE SCHEDULED. PROPERTY AS AN INFRASTRUCTURE/COMMERCIAL DEVELOPMENT WITHIN THE EXISTING RULES OF KIADB. 8.1.2 ANL HAS FURTHER ASSURED THAT THERE IS NO AND THERE WOULD BE NO IMPEDIMENT UNDER ANY LAW, ORDER, DECREE OR CONTRACT FOR THE DEVELOPMENT OF TH E SCHEDULED PROPERTY AND SUBSEQUENT THERETO FOR THE DEVELOPMENT OF THE SCHEDULED PROPERTY AND SUBSEQUENT THERETO FOR THE SALE OR LEASE OF SUCH DEVELOPMENT SUBJECT TO CONFORMITY TO KIADB RULES AN D REGULATIONS. 8 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 8.1.3 ANL ASSURES AND CONFIRMS THAT THE TITLE OF T HE SCHEDULED PROPERTY IS GOOD, MARKETABLE AND SUBSISTING AND NOT SUBJECT TO ANY ENCUMBRANCES, ATTACHMENTS, COURT ORDERS, MINOR CLAIMS OR ANY REQUISITION OR: ACQUISITION PROCEEDINGS OR MORTGAGE , CHARGES, LIEN OF ANY KIND AND THAT THE SAME WILL BE KEPT LEASEABLE AND MARKETABLE SAVE AND EXCEPT THE BORROWING TAKEN BY THE PROJECT BASED ON THE TERMS HEREIN SUBJECT TO KIADB NOC 8.1.4 ANL ASSURES AND CONFIRMS THAT THEY SHALL SECURE THE SALE DEED FROM KIADB AS PER THE PREVAILI NG NORMS WITHIN 180 DAYS OF EXECUTION OF THIS AGREEMENT AND OBTAIN PERMISSION FOR DEVELOPMENT OF THE PROPERTY BASED ON- MINIMUM FAR OF 1.75 WITHIN 30 DAYS OF EXECUTION OF THIS AGREEMENT. ' 7.3 IN PARA 8.1.1 ABOVE, THE ASSESSEE STATES THAT THE PROPERTY HAS BEEN ALLOTTED TO ANL, POSSESSION H AS BEEN GIVEN TO ANL AND THEY ARE ENTITLED TO DEVELOP THE SCHEDULE PROPERTY AS AN INFRASTRUCTURE / COMMERCIAL DEVELOPMENT WITHIN THE EXISTING RULES OF KIADB. ADDING STRENGTH TO THIS CLAIM, THE ASSESSEE FURTHER ASSURES THAT THERE WOULD BE NO IMPEDIMENT UNDER ANY LAW, ORDER, DECREE OR CONTRACT FOR THE DEVELOPM ENT OF SCHEDULED PROPERTY. IT IS HARD TO GO BY THE ARGUMENT OF THE ASSESSEE THAT ON ONE HAND IT CLAIMS THAT THEY HAVE NO RIGHT OVER THE PROPERTY SINCE THEY POSSESS ONLY A RIGHT TO PURCHASE THE PROPERTY AND NOT A RIG HT OVER THE PROPERTY, AND ON THE OTHER HAND, GOING BY THE ASSURANCES GIVEN IN THE CONSORTIUM AGREEMENT THE ASSESSEE ASSURES THAT THERE IS NO IMPEDIMENT UNDER ANY LAW, ORDER, DECREE OR CONTRACT FOR THE DEVELOPM ENT OF SCHEDULE PROPERTY. HERE AGAIN THE INCONSISTENCIE S BETWEEN THE CONTENTS OF THE CONSORTIUM AGREEMENT AND THE ARGUMENTS MADE DURING THE COURSE OF ASSESSMENT AND PRESENT APPEAL PROCEEDINGS LEADS TO A JUSTIFIABLE CONCLUSION THAT THE ASSESSEE IS MAKIN G CONTRARY CLAIMS TO SUIT ITS NEEDS. IN THE COURSE OF ASSURING M/S. DDPL, THE ASSESSEE GOES TO SHOW THAT THERE WILL NOT BE ANY IMPEDIMENT UNDER ANY LAW IN DEVELOPING THE LAND IN QUESTION. WHEN IT COMES TO T HE QUESTION OF IMMOVABLE PROPERTY, IT SAYS THAT IT HAS LIMITED RIGHT TO PURCHASE THE PROPERTY AND NOT A RI GHT OVER THE PROPERTY. IF THE CLAIM OF THE ASSESSEE THA T IT HAD NO RIGHT OVER THE PROPERTY IS TO BE ACCEPTED, T HEN THE QUESTION THAT ARISES IS IN WHAT CAPACITY THE 9 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. ASSESSEE HAD ASSURED ITS CONSORTIUM CONSTITUENT OVE R THE PROPERTY ? CERTAINLY THE ASSESSEE HAD SEEN A RI GHT OVER THE LAND ALLOTTED' TO IT BY KIADB AND ACCORDIN GLY THEY ENTERED INTO AN AGREEMENT FOR DEVELOPMENT OF PROPERTY WITH M/S. DDPL. 7.4. IT IS ALSO PERTINENT TO MENTION HERE THAT THE ASSESSEE GOT THE LAND REGISTERED IN ITS NAME ON 27.08.2007 BY KIADB. HERE, ONE MAY BRING OUT A LOGI C THAT SINCE THE ASSESSEE GOT A FULL RIGHT OVER THE PROPERTY BY VIRTUE OF SALE AGREEMENT REGISTERED IN ITS NAME ONLY IN THE YEAR 2007 AND THEREFORE, THE TREATMENT GIVEN BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER BASING ON THE FACTS AS STOOD FOR T HE FY 2004-05 DO NOT HOLD GOOD. IN THIS CONTEXT. IT IS PERTINENT TO REFER TO THE BOOKS OF ACCOUNT OF THE CONSORTIUM JV. IN THE BOOKS OF ACCOUNT OF CONSORTIU M JV AS ON 3L.03.2006, FIXED ASSETS (LAND) IS DEBITED WITH RS.10,76,61,044/- AND M/S. ANDHRA NETWORKS LTD CAPITAL ACCOUNT IS CREDITED WITH RS.10,76,61,04 4/- . THESE BOOKS OF THE JV WERE AUDITED BY A STATUTORY AUDITOR AND THIS CREDIT RECORDED IN. THE BOOKS OF J V IS IN TUNE WITH PARA 9 OF THE CONSORTIUM AGREEMENT DEALING WITH CAPITAL. UNDER PARA 9 OF CONSORTIUM AGREEMENT, IT WAS MENTIONED AS UNDER : '9) CAPITAL 9.1) ANL WOULD CONTRIBUTE, AS ITS SHARE TO THE CONSORTIUM, ALL ITS RIGHTS WITH REGARD TO THE SCHED ULED PROPERTY TO THE PROJECTS. 9.2) DYNASTY AS ITS CAPITAL WILL IN THE FIRST INST ANCE PAY TOWARDS THE COST OF CONSTRUCTION ON THE SCHEDUL ED PROPERTY TO THE EXTENT OF RS.10,76,61,044/-. ' 7.5 . GOING BY THE ENTRIES IN THE BOOKS OF JV, IT C AN BE SEEN THAT THE ACCOUNT OF ASSESSEE WAS CREDITED WITH THE VALUE OF LAND IT CONTRIBUTED TOWARDS CAPITAL. THOUGH DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE CONTENDED THAT THE BOOKS OF JV ARE NOT UNDER ITS CONTROL AND M/S. DDPL HAD UNILATERALLY PASSED ENTRIES IN THE BOOKS OF JV, IT IS PERTINENT TO NOTE THAT WHILE ENTERING INTO CONSORTIUM AGREEMENT, THE ASSESSEE ON ITS OWN CONTRIBUTED THE VALUE OF TH E LAND AS ITS CAPITAL TO JV. FOR THIS ACT OF CONTRIBU TION, THE ASSESSEE CANNOT THROW THE BURDEN ON ANYBODY 10 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. ELSE AND THIS CLEARLY PROVES THE ASSESSEE HAD A RIG HT OVER THE LAND TO DEVELOP THE PROPERTY UNLESS IT IS CONTRARY TO THE TERMS AND CONDITIONS SET FORTH BY KIADB. SINCE THIS JV IS NOT CONTRARY TO ITS TERMS, THE KIADB HAD ACCORDINGLY REGISTERED THE LAND IN THE NAME OF THE ASSESSEE IN THE YEAR 2007. THEREFORE. GOING BY THE ABOVE FACTUAL MATRIX. THE ASSESSEE IS CHANGING ITS STANCES OVER THE LAND IN QUESTION TO SUIT ITS NEEDS AND THE ARGUMENT OF THE ASSESSEE THAT IT HAS ONLY A RIGHT TO PURCHASE THE L AND AND NOT A RIGHT OVER THE LAND FAILS MISERABLY. 7.6 THE THIRD AND FINAL ARGUMENT TAKEN BY THE ASSESSEE IS THAT THERE IS NO TRANSFER UNDER SECTION 45(3) OF THE ACT. IN THIS REGARD. THE ASSESSEE CONTENDED THAT THE 'CONSORTIUM AGREEMENT CANNOT BE TREATED AS AN AOP SINCE CLAUSE 18 OF THE AGREEMENT CLEARLY STIPULATES THAT EACH PARTY SHALL PAY THEIR RESPECTIVE TAXES ON THE INCOME DISTRIBUTED. THE NEX T ASPECT THE ASSESSEE BROUGHT OUT IS THAT THEY DO NOT POSSESS ANY CAPITAL ASSET AND THERE WAS NO TRANSFER OF THE SAME. IT WAS ALSO BROUGHT OUT THAT THERE IS NO ASSIGNMENT AGREEMENT OTHER THAN THE CONSORTIUM AGREEMENT AND CLAUSE 9.1 UNDER WHICH THE ASSESSEE AGREED TO TRANSFER THE RIGHT CANNOT BE TREATED AS TRANSFER OF RIGHTS. THOUGH THE ASSESSEE CLAIMED THAT THE CONTENTS OF CLAUSE 9.1, WHEREIN THE ASSESSEE AGREED TO TRANSFER THE RIGHTS CANNOT BE TREATED AS TRANSFER, NO .REASO NS WERE ADDUCED FOR SUCH CLAIM. HOWEVER, THE SAID CLAUSE HAS ALREADY BEEN DISCUSSED ABOVE AND IT WAS HELD THAT THE ASSESSEE BY VIRTUE OF THE !EASE-CUM-S ALE AGREEMENT ENTERED INTO WITH KIADB CONTRIBUTED THE VALUE OF THIS LAND AS ITS CAPITAL. THEREFORE, THE L AND IN QUESTION IS TREATED AS CAPITAL ASSET AND THE SAME WAS AGREED TO BE TRANSFERRED TO M/S. DDPL, THE DEVELOPER. 7.7. SINCE ALL THE ARGUMENTS PUT FORTH BY THE ASSESSEE WERE PROVED TO BE FACTUALLY INCORRECT, THE LAND IN QUESTION IS TREATED CAPITAL ASSET IN THE HA NDS. OF THE ASSESSEE AND THERE IS TRANSFER OF SUCH ASSET WITHIN THE MEANING OF SECTION 2(47)(VI) OF THE ACT. ACCORDINGLY, I SEE NO REASON TO DEVIATE FROM THE TREATMENT GIVEN BY THE ASSESSING OFFICER TO THIS 11 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. TRANSACTION AND I UPHOLD THE ACTION OF THE ASSESSIN G OFFICER IN TAXING THE CONSIDERATION CONTRIBUTED AS CAPITAL TO THE JV, AS CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. 4. LD. COUNSEL MADE ELABORATE ARGUMENTS AND ALSO FILED WRITTEN ARGUMENTS WHICH CAN BE SUMMARIZED AS UNDER : 4.1. THE FIRST CONTENTION WAS THAT THERE WAS NO TR ANSFER U/S. 2(47) AND NO CAPITAL GAIN ACCRUED TO ASSESSEE U/S. 45(3) OF THE ACT. RELYING ON THE PROVISIONS OF SECTION 2( 47)(VI) OF THE INCOME TAX ACT, 1961, A.O. WAS OF THE VIEW THAT THE RE WAS A TRANSFER OF CAPITAL ASSET BY ASSESSEE. THE RELEVANT PORTION OF THE SECTION READS AS FOLLOWS: '(VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE S OCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY O F ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING, O R ENABLING THE ENJOYMENT OF, ANY IMMOVABLE PROPERTY. EXPLANATION - FOR THE PURPOSES OF SUB-CLAUSES (V) A ND (VI), 'IMMOVABLE PROPERTY' SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SECTION 269UA.' THE ABOVE SUB CLAUSE COVERS ANY TRANSACTION WHICH H AS THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY. THEREFORE, THE PRE-REQUISITE IS THAT THE ASSET TRANSFERRED SHOULD BE AN IMMOVABLE PROPERTY. IF THE ASSET TRANSFERRED IS NOT AN IMMOVABLE PROPERTY, THE N THE TRANSACTION DOES NOT FALL WITHIN THE SUB CLAUSE. 4.1.1. THE EXPLANATION TO THE ABOVE SUB CLAUSE STA TES THAT THE TERM IMMOVABLE PROPERTY SHALL HAVE THE MEA NING AS IN CLAUSE (D) OF SECTION 269UA, THE SAME READS AS FOLL OWS : 12 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 'IMMOVABLE PROPERTY' MEANS (I) ANY LAND OR ANY BUILDING OR PART OF A BUILDING, AND INCLUDES, WHERE ANY LAND OR ANY BUILDING OR PART OF A BUILDING IS TO BE TRANSFERRED TOGETHER WITH ANY MACHINERY, PLANT, FURNITURE, FITTINGS OR OTHER THIN GS, SUCH MACHINERY, PLANT, FURNITURE, FITTINGS OR OTHER THINGS ALSO. EXPLANATION.-FOR THE PURPOSES OF THIS SUB-CLAUSE, 'LAND, BUILDING, PART OF A BUILDING, MACHINERY, PLANT, FUR NITURE, FITTINGS AND OTHER THINGS' INCLUDE ANY RIGHTS THERE IN ; (IL) ANY RIGHTS IN OR WITH RESPECT TO ANY LAND OR ANY BUILDING OR A PART OF A BUILDING (WHETHER OR NOT IN CLUDING ANY MACHINERY, PLANT, FURNITURE, FITTINGS OR OTHER THINGS THEREIN) WHICH HAS BEEN CONSTRUCTED OR WHICH IS TO BE CONSTRUCTED, ACCRUING OR ARISING FROM ANY TRANSACTI ON (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRI NG SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT O R ANY ARRANGEMENT OF WHATEVER NATURE), NOT BEING A TRANSA CTION BY WAY OF SALE, EXCHANGE OR LEASE OF SUCH LAND, BUI LDING OR PART OF A BUILDING ;' FROM THE ABOVE DEFINITION IT CAN BE SEEN THAT THE T ERM IMMOVABLE PROPERTY MEANS ANY LAND OR BUILDING OR AN Y RIGHTS IN IT. THEREFORE, IT HAS TO BE SEEN WHETHER THE LEA SEHOLD RIGHTS OF ASSESSEE FALLS WITHIN THE DEFINITION OF THE IMMO VABLE PROPERTY. 4.1.2. THE LEASEHOLD RIGHTS IS CERTAINLY NOT LAND OR BUILDING AND AS SUCH, IS NOT COVERED BY ITEM (I) OF THE DEFINITION. THE ITEM (II) OF THE DEFINITION REFERS TO RIGHTS IN A LAND OR A BUILDING ACCRUING OR ARISING OTHER THAN B Y WAY OF LEASE. THEREFORE, THE RIGHT ARISING FROM THE LEASE TRANSACTION IS NOT INCLUDED IN THIS ITEM. SINCE THE RIGHT OF ASSES SEE IS NOT AN IMMOVABLE PROPERTY AS PER THE SECTION 269UA OF THE IT ACT, THERE IS NO TRANSFER. 13 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 4.1.3. IT WAS FURTHER SUBMITTED THAT LEASEHOLD RIG HT CANNOT BE TREATED AS A RIGHT IN THE PROPERTY. RELYI NG ON THE DECISION OF THE SUPREME COURT, IN SWAMI MOTOR TRANSPORTS (P) LTD. V. SRI SANKARASWAMIGAL MUTT AIR 1963 SC 864, IT IS SUBMITTED THAT THE RIGHT OF ASSESSEE UNDER THE CONT RACT FOR SALE OF IMMOVABLE PROPERTY WAS NOT IN THE NATURE OF PROP ERTY IN THAT ASSESSEE WAS HAVING NO INTEREST IN OR RIGHT OF PROPERTY. THE SUPREME COURT WAS CONCERNED WITH THE QUESTION O F RIGHT TO PURCHASE PROPERTY BY A TENANT UNDER THE MADRAS C ITY TENANTS PROTECTION ACT, 1922, WITH REFERENCE TO ART ICLE 19(1)(F ) OF THE CONSTITUTION OF INDIA. RELIANCE IS PLACED ON THE FOLLOWING PASSAGE OF THE JUDGMENT: ' ... THE LAW OF INDIA DOES NOT RECOGNISE EQUITABLE ESTATES. NO AUTHORITY HAS BEEN CITED IN SUPPORT OF THE CONTE NTION THAT A STATUTORY RIGHT TO PURCHASE LAND IS, OR CONF ERS, AN INTEREST OR A RIGHT IN PROPERTY. THE FACT THAT THE RIGHT IS CREATED NOT BY CONTRACT BUT BY A STATUTE CANNOT MAK E A DIFFERENCE IN THE CONTENT OR THE INCIDENTS OF THE R IGHT: THAT DEPENDS UPON THE NATURE AND THE SCOPE OF THE RIGHT CONFERRED. THE RIGHT CONFERRED IS A RIGHT TO PURCHA SE LAND. IF SUCH A RIGHT CONFERRED UNDER A CONTRACT IS NOT A RIGHT OF PROPERTY * , THE FACT THAT SUCH A RIGHT STEMS FROM A STATUTE CANNOT OBVIOUSLY EXPAND ITS CONTENT OR MAKE IT ANY THE LESS A NON-PROPRIETARY RIGHT. IN OUR VIEW, A STATUT ORY RIGHT TO APPLY FOR THE PURCHASE OF LAND IS NOT A RIGHT OF PROPERTY. IT IS SETTLED LAW THAT A CONTRACT TO PURCHASE A PRO PERTY DOES NOT CREATE AN INTEREST IN IMMOVABLE PROPERTY . ... ' (P. 874) (* EMPHASIS SUPPLIED) BASED ON THE ABOVE DECISION OF HON'BLE SUPREME COUR T IT CAN BE SAID THAT THE RIGHT ACQUIRED BY ASSESSEE IN THIS CASE WAS ONLY A RESTRICTIVE NON TRANSFERABLE RIGHT TO PURCHA SE THE PROPERTY AND IS NOT A RIGHT IN THE PROPERTY. THEREF ORE, THIS IS NOT COVERED BY THE DEFINITION U/S. 269UA OF IT ACT. 4.1.4. IT IS SUBMITTED THAT THERE WAS NO IMMOVABLE PROPERTY HELD BY ASSESSEE AND AS SUCH, THE TRANSACT ION IS NOT 14 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. COVERED BY SECTION 2(47)(VI) OF THE INCOME TAX ACT, 1961. 4.2. THE MAIN CONTENTION OF ASSESSEE WAS THAT IT D ID NOT HOLD ANY CAPITAL ASSET WHICH WAS CAPABLE OF B EING TRANSFERRED. IT WAS CONTENDED THAT ASSESSEE HAD ONL Y LEASE HOLD RIGHTS. THE LEASE HOLD RIGHTS ARE NOT TRANSFER ABLE. ASSESSEE WAS ALLOTTED THE LAND BY KIADB UNDER VARIO US STANDARD TERMS AND CONDITIONS. PARA 8 OF THE LETTER OF ALLOTMENT CLEARLY STIPULATES THAT FAILURE TO FULFIL THE STAND ARD TERMS AND CONDITIONS SHALL RESULT IN CANCELLATION OF THE AGRE EMENT. PARA 12 OF THE STANDARD TERMS AND CONDITIONS ATTACHED TO THE LETTER OF ALLOTMENT CLEARLY STIPULATES THAT NO PERMISSION WILL BE GRANTED TO LEASE OUT ANY PORTION OF THE BUILDING OR ANY PORTION OF THE LAND IN FAVOUR OF OTHER ENTREPRENEURS DURING THE EXISTENCE OF THE LEASE PERIOD. PARA 2(Q) OF THE LEA SE AGREEMENT CLEARLY STIPULATES THAT LESSEE SHALL NOT ALIENATE T HE DEMISED PREMISES OR ANY PART THEREOF OR THE BUILDING THAT M AY BE CONSTRUCTED THERE ON DURING THE PERIOD OF LEASE. PA RA 2(P)(3) OF THE LEASE AGREEMENT STATES THAT THE LESSOR ALWAYS R ESERVES THE RIGHT TO RESUME THE WHOLE OF THE DEMISED PREMISES F OR THE BREACH OF ANY OF THE COVENANTS STIPULATED IN THE LE ASE DEED. PARA 2(R)(I) STIPULATES THAT THE ORIGINAL APPLICANT /PARTNERS/ DIRECTORS/SHAREHOLDERS SHALL CONTINUE TO HOLD MINIM UM OF 51% OF INTEREST IN THE SHAREHOLDING OF THE LESSEE COMPA NY. PARA 2(R)(I) STIPULATES THAT THE LESSEE SHALL NOT CHANGE CONSTITUTION OR ITS STATUS WITHOUT THE PREVIOUS WRITTEN CONSENT OF THE LESSOR. IT FURTHER STATES EVEN IF SUCH CONSENT IS GIVEN, TH E ORIGINAL APPLICANT SHALL CONTINUE TO HOLD 51% INTEREST IN TH E NEWLY CONSTITUTED ENTITY. PARA 6 OF THE LEASE AGREEMENT S TIPULATES THAT THE LESSOR MAY AT ITS DISCRETION, CONSIDER THE REQUEST OF THE LESSEE TO TRANSFER THE LEASE HOLD RIGHTS IN FAV OUR OF THE NEW ENTREPRENEUR BY IMPOSING CERTAIN TERMS AND CONDITIO NS. 15 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 4.2.1. RELYING ON THE VARIOUS CONDITIONS STIPULATE D IN THE LETTER OF ALLOTMENT AND THE LEASE AGREEMENT, IT WAS SUBMITTED THAT IT WAS A NON-TRANSFERABLE LEASE AGREEMENT, THE ENJOYMENT OF THE SAME WAS RESTRICTED TO ASSESSEE. SINCE THE L EASE DEED WAS NOT A TRANSFERABLE ONE, THERE WAS NO CAPITAL AS SET CAPABLE OF BEING TRANSFERRED BY ASSESSEE. 4.2.2. IT WAS SUBMITTED, THE DECISIONS RELIED ON B Y THE LEARNED ASSESSING OFFICER ARE TOTALLY DISTINGUISHAB LE FROM THE FACTS OF ASSESSEES CASE. IN ALL THE DECISIONS RELI ED ON, ASSESSEE HAD TRANSFERABLE LEASEHOLD RIGHTS. IN THIS CASE, TH ERE WAS NO TRANSFERABLE LEASEHOLD RIGHTS AVAILABLE TO ASSESSEE . THEREFORE, THOSE DECISIONS CANNOT BE RELIED ON. FURTHER, IN TH OSE DECISIONS, THE LEASEHOLD RIGHTS WERE RELATING TO MI NES WHICH WERE BUSINESS ASSETS OF THE ASSESSEE. IN THIS CASE, IT IS ONLY A RIGHT TO BUY THE LAND AND AS SUCH, THE FACTS OF THI S CASE IS DIFFERENT FROM THE CASES RELATING TO LEASE RIGHTS 4.3. IT WAS SUBMITTED THAT IT IS N OT A TRANSFERABLE RIGHT UNDER TRANSFER OF PROPERTY ACT. 1882 (T.P. ACT). IT WAS SUBMITTED THAT T HE COVENANTS OF THE LEASE DEED AND THE TERMS AND CONDITIONS OF THE LETTER OF ALLOTMENT, CLEARLY DEMONSTRATE THAT THE PROPERTY HAS TO BE ENJOYED BY THE ALLOTTEE S. EVEN ASSUMING BUT NOT ADMITTING THAT THE LEASE DEED HAS CREATED AN INTEREST IN THE PROPERTY IN FAVOUR OF ASSESSEE, THI S IS RESTRICTED IN ENJOYMENT TO ASSESSEE. THEREFORE, THIS CANNOT BE TRANSFERRED AS PER SECTION 6(D) OF THE TP ACT. THOUGH FOR THE P URPOSE OF TRANSFER A REGISTERED DEED IS NOT REQUIRED UNDER TH E DEEMING PROVISIONS OF THE IT ACT, STILL A TRANSFER WHICH IS NOT LEGALLY PERMITTED CANNOT BE A VALID TRANSFER. SINCE THE TP ACT SPECIFICALLY PROHIBITS THIS KIND OF RIGHT FROM BEIN G TRANSFERRED, THE CONTEMPLATED TRANSFER IN VIOLATION OF THE TP AC T, CANNOT BE 16 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. CONSIDERED AS TRANSFER AND AS SUCH, NO CAPITAL GAIN S WOULD ARISE. RELIANCE IN THIS REGARD IS PLACED ON THE DEC ISIONS OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. J. DALMIA (1984) 149 1TR 215 (DEL). 4.4. ANOTHER ARGUMENT RAISED WAS THAT THERE IS N O TRANSFER WITHOUT A REGISTERED DOCUMENT. IN THIS CASE, IT WAS SUBMITTED THAT THERE WAS NO REGISTERED DOCUMENT OTH ER THAN THE CONSORTIUM AGREEMENT. SINCE THERE IS NO REGISTE RED DOCUMENT, THERE CANNOT BE ANY TRANSFER. IN THIS REG ARD, RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE U TTARAKHAND HIGH COURT IN THE CASE RAJESH KUMAR AGARWAL VS ITO REPORTED IN 213-TIOL-532-HC-UKHAND-IT. THE FACTS OF THAT CAS E AND ASSESSEES CASE ARE SIMILAR. THEREFORE, BASED ON TH E SAME, IT IS SUBMITTED THAT THERE IS NO TRANSFER. 4.5. FURTHER, IT WAS CONTENDED THAT THERE IS N O TRANSFER EVEN BASED ON THE TERMS OF CONSORTIUM AGREEMENT. WITHOUT PREJUDICE TO THE VARIOUS OTHER ARGUMENTS, IT IS SUBMITTED THAT THERE WAS NO TRANSF ER OF ANY CAPITAL ASSET BASED ON THE PROVISIONS OF CONSORTIUM AGREEMENT DATED 10.12.2004. IT WAS SUBMITTED THAT THE ENTIRE ASSESSMENT HAS BEEN MADE ON THE BASIS OF THE CONSOR TIUM AGREEMENT DATED 10.12.2004 ENTERED INTO BY ASSESSEE . THEREFORE, IT IS NECESSARY TO SEE, IS THERE A TRANS FER AS PER THE AGREEMENT. IN PARA 9 OF THE AGREEMENT, ASSESSEE AGREED TO CON TRIBUTE ALL RIGHTS WITH REGARD TO THE LANDED PROPERTY TO TH E CONSORTIUM. IT IS BASED ON THIS CLAUSE, THE LOWER A UTHORITIES HAVE COME TO THE CONCLUSION THAT THERE WAS A TRANSF ER OF CAPITAL ASSET. PARA 9.1 OF THE AGREEMENT READS AS F OLLOWS; '9.1 ANL WOULD CONTRIBUTE *, AS ITS SHARE TO THE CONSORTIUM, ALL ITS RIGHTS WITH REGARDS TO THE SCHE DULE 17 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. PROPERTY TO THE PROJECT.' (* EMPHASIS SUPPLIED) FROM THE READING OF THE ABOVE CLAUSE IT CAN BE SEEN THAT THERE WAS NO TRANSFER PER SE, BUT IT WAS ONLY AN AG REEMENT TO TRANSFER THE RIGHTS. BASED ON THIS ITSELF, IT CA N BE SAID THAT THERE WAS NO TRANSFER OF ANY RIGHTS BY ASSESSEE. IT IS ALSO PERTINENT TO NOTE THAT AS PER CLAUSE 8 O F THE AGREEMENT, ASSESSEE UNDERTOOK TO OBTAIN SALE DEED F ROM KIADB WITHIN 180 DAYS OF THE EXECUTION OF THE AGREE MENT AND OBTAIN PERMISSION FOR DEVELOPMENT OF THE PROPER TY. THEREFORE, WITHOUT FULFILLING THESE CONDITIONS, IT WAS ONLY AN AGREEMENT TO TRANSFER THE RIGHTS AND NOT AN ABSOLUT E TRANSFER OF RIGHTS. SINCE IT WAS ONLY AN AGREEMENT TO TRANSF ER THE RIGHTS, THERE WAS NO ACTUAL TRANSFER OF RIGHTS. FURTHER, AS PER CLAUSE 16(D) OF THE CONSORTIUM AGRE EMENT, ASSESSEE SHOULD WITHIN 60 DAYS OF THE AGREEMENT SEC URE PERMISSION FROM KIADB TO EFFECT LEASE/SUB-LEASE OF THE PROPERTY. THIS ITSELF WOULD INDICATE THAT TILL THE PERMISSION IS GRANTED, THERE WAS NO TRANSFER. AS PER CLAUSE 20.6 OF THE AGREEMENT (REFER PAGE 43 OF THE PAPER BOOK), IF ANY TERM, CONDITION OR PROVISION OF THE AGREEMENT IS HELD TO BE A VIOLATION OF ANY APPLICAB LE LAW, STATUTE OR REGULATION, THE SAME SHALL BE DEEMED TO BE DELETED FROM THE AGREEMENT AND SHALL BE OF NO FORCE AND EFFECT. 4.5.2. IT WAS SUBMITTED THAT THE LEASEHOLD RIGHTS OBTAINED BY ASSESSEE ARE NOT TRANSFERABLE WITHOUT T HE APPROVAL OF THE LESSOR. FURTHER, THEY ARE ALSO NOT TRANSFERA BLE AS PER SECTION 6(D) OF THE TP ACT. THEREFORE, IF CLAUSE 9 OF THE CONSORTIUM AGREEMENT IS READ IN SUCH A MANNER THAT THERE IS A TRANSFER ON ENTERING INTO AN AGREEMENT, THEN, THE SAME IS VIOLATING THE PROVISIONS OF THE TP ACT AND ALSO THE TERMS AND CONDITIONS OF THE LEASE CUM SALE AGREEMENT. IN VIEW OF THE SAME, CLAUSE 9 OF THE CONSORTIUM AGREEMENT HAS TO B E TREATED AS NON-EXISTENT AND HAVING NO FORCE BASED ON THE PR OVISIONS OF CLAUSE 20.6 OF THE CONSORTIUM AGREEMENT. THEREFORE, IT WAS SUBMITTED THAT THERE IS NO TRANSFER EVEN BASED ON T HE 18 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. PROVISIONS OF THE CONSORTIUM AGREEMENT. SINCE THE A GREEMENT DOES NOT GIVE EFFECT TO ANY TRANSFER, THERE CAN NEV ER BE A TRANSFER EVEN AS PER THE PROVISIONS OF SECTION 2(47 ) OF THE INCOME TAX ACT, 1961. 4.6. ANOTHER ARGUMENT MADE WAS THAT THERE IS NO CAPITAL GAINS U/S 45(3) OF THE IT ACT. THE CAPITAL GAINS IN THIS CASE HAS BEEN ASSESSED BY INVOKING THE PROVISIONS O F SECTION 45(3) OF THE INCOME TAX ACT, 1961. IT IS AN ACCEPTE D FACT THAT SECTION 45(3) CREATES A LEGAL FICTION WHERE BY IN C ERTAIN CASES OF TRANSFERS, THE CAPITAL GAINS ARE DEEMED TO ACCRUE W ITHOUT RECEIPT OF ACTUAL CONSIDERATION. SINCE IT IS A LEGA L FICTION, THE SECTION HAS TO BE INTERPRETED STRICTLY AND NOT LIBE RALLY. THE CONSORTIUM AGREEMENT DATED 10.12.2004, CANNOT BE TR EATED AS AN AOP. CLAUSE 18 OF THE AGREEMENT CLEARLY STIPULAT ES THAT EACH PARTIES SHALL PAY THEIR RESPECTIVE TAXES ON TH E INCOME DISTRIBUTED. THERE IS NOTHING IN THE AGREEMENT TO S UGGEST THAT THE PARTIES INTENDED TO TREAT THE ARRANGEMENT AS AN AOP AS PER THE PROVISIONS OF INCOME TAX ACT, 1961. THEREFORE, NO CAPITAL GAINS CAN BE ASSESSED BY INVOKING THE PROVISIONS OF SECTION 45(3) OF THE INCOME TAX ACT, 1961. FURTHER, FROM TH E BALANCE SHEET AND THE SCHEDULES OF THE CONSORTIUM AGREEMENT ATTACHED TO THE ASSESSMENT ORDER, IT CAN BE SEEN TH AT ASSESSEE WAS ONLY SHOWN AS A SUNDRY CREDITORS AS ON 31.03.20 06. 4.7. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITT ED THAT AS EXPLAINED IN THE PRECEDING PARAGRAPHS, ASSE SSEE DID NOT POSSESS ANY CAPITAL ASSET AND THERE WAS NO TRAN SFER OF THE SAME. THEREFORE, THERE CANNOT BE ANY CAPITAL GAINS U/S 45(3) OF THE INCOME TAX ACT, 1961. 19 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 4.8. WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, IT IS SUBMITTED THAT THE RIGHT TO ACQUIRE AN IMMOVABLE PR OPERTY CANNOT BE TRANSFERRED WITHOUT AN ASSIGNMENT AGREEME NT. IN THIS CASE, THERE IS NO ASSIGNMENT AGREEMENT OTHER T HAN THE CONSORTIUM AGREEMENT. IN THE CONSORTIUM AGREEMENT, THERE IS NO CLAUSE ASSIGNING THE RIGHTS. CLAUSE 9.1 OF THE C ONSORTIUM AGREEMENT UNDER WHICH ASSESSEE AGREED TO TRANSFER T HE RIGHTS CANNOT BE TREATED AS TRANSFER OF RIGHTS. SINCE THER E ARE NO DOCUMENTS ASSIGNING THE RIGHTS EXECUTED BY ASSESSEE , THERE IS NO TRANSFER. THEREFORE, NO CAPITAL GAINS CAN BE ASS ESSED IN THE HANDS OF ASSESSEE INVOKING THE PROVISIONS OF SECTIO N 45(3) OF THE INCOME TAX ACT, 1961. 4.9. IT WAS FURTHER CONTENDED THAT THE ASSESSMENT IS FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSMENT HAS BEEN MADE BASED ON THE ENTRIES IN THE BOOKS AND THE ALLE GED BALANCE SHEET OF THE CONSORTIUM. ALL THE DOCUMENTS ARE ANNEXED TO THE ASSESSMENT ORDER. FROM THE COPY OF T HE DAY BOOK OF THE CONSORTIUM ATTACHED TO THE ASSESSMENT O RDER, IT CAN BE SEEN THAT THE ENTRY RELATING TO THE LAND WAS PASSED ON 31-03-2006. FURTHER, ASSESSEE HAS BEEN SHOWN AS A S UNDRY CREDITOR AS ON 31-03-2006. THIS WOULD INDICATE THE FACT THAT EVEN IF THERE WAS A TRANSFER, IT TOOK PLACE ONLY DU RING THE FINANCIAL YEAR 2005-06 RELEVANT TO THE ASSESSMENT Y EAR 2006- 07 AND AS SUCH, NO CAPITAL GAINS CAN BE TAXED FOR T HE ASSESSMENT YEAR 2005-06. 5. IN REPLY, LEARNED D.R. ALSO MADE ELABORATE ARGUMENTS AND REFUTED THE OBJECTIONS OF ASSESSEE BY STATING AS UNDER : 20 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 5.1. IT WAS SUBMITTED THAT AT CLAUSE VI AT PAGE 2 OF THE CONSORTIUM AGREEMENT, IT IS CLEARLY MENTIONED THAT 'ANL HAS REPRESENTED THAT THE SCHEDULE PROPERTY HAS GOOD CLEAR AND MARKETABLE TITLE FREE FROM ALL ENCUMBRANCES, ATTACHMENTS, LIEN S, LIS PENDENS, CHARGES, MORTGAGES, LIEN OR ANY OTHER CLAIMS WHATSOEVER AND THE PROPOSED DEVELOPMENT BEING THE DEVELOPMENT OF THE SCHEDULED PROPERTY INT O SOFTWARE/BUSINESS PARK WITHIN THE FRAMEWORK OF RULES DEFINED BY KIADB'. AT CLAUSE 8.1.1 TO 8.1.4 O F THE CONSORTIUM AGREEMENT, IT WAS CLEARLY DECLARED THAT THERE IS NO IMPEDIMENT UNDER ANY LAW, ORDER OR DECREE OR CONTRACT FOR DEVELOPMENT OF THE PROPERTY AND ALSO THE ASSESSEE WOULD SECURE THE SALE DEED FROM KIADB. AT CLAUSE 3 OF THE AGREEMENT, IT WAS CLEARLY SPECIFIED THAT THE PROJECT CAME INTO EFFECT ON 10-12-04. IT IS THEREFORE SUBMITTED THAT THE ARGUME NT OF THE ASSESSEE THAT THERE WAS NO TRANSFER OF THE L AND IN F.Y 2004-05 IS INCORRECT AND CONTRARY TO THE FAC TS ON RECORD. IT IS ALSO SUBMITTED THAT CLEARANCES, IF ANY REQUIRED FROM KIADB TO LEASE OUT SPACE IN THE COMPLETED SOFTWARE PARK WOULD NOT IN ANY WAY BE RELEVANT FOR TRANSFER OF LAND BY THE ASSESSEE TO TH E CONSORTIUM IN WHICH IT IS A 50% MEMBER. 5.2. ATTENTION WAS DRAWN TO THE FACT THAT AT CLAUSE 17(D) OF THE CONSORTIUM AGREEMENT, THE RESPONSIBILITY OF MAINTENANCE OF ACCOUNTS OF THE CONSORTIUM WAS ASSIGNED TO M/S. DYNASTY DEVELOPERS PVT LTD AND HENCE, IT IS INCORRECT ON THE PART OF T HE ASSESSEE TO ARGUE THAT UNILATERAL ENTRIES WERE PASS ED BY THE OTHER MEMBER OF THE CONSORTIUM. THESE 21 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. ACCOUNTS ARE ALSO DULY AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT. A SUPPLEMENTAL AGREEMENT WAS ALSO ENTERED INTO BY THE CONSORTIUM MEMBERS ON 01.03.2005. THROUGH THIS SUPPLEMENTAL AGREEMENT NO CHANGES TO THE ORIGINAL AGREEMENT ARE MADE EXCEPT FOR THE FACT THAT THE FIRST OF PURCHASE OF S HARE OF A MEMBER, IN CASE HE WANTS TO DISPOSE OFF HIS CONSTRUCTED AREA SHALL VEST WITH THE OTHER MEMBER UPON PAYMENT OF MARKET VALUE. 5.3. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE NOT ONLY TRANSFERRED THE LAND OWNED BY IT ON 10-12- 04 TO THE CONSORTIUM BUT ALSO ACTIVELY PARTICIPATED IN THE EXECUTION OF THE PROJECT BY SECURING LOANS FOR M/S. DYNASTY DEVELOPERS LTD, THE OTHER MEMBER OF THE CONSORTIUM FROM ING VYSYA BANK LTD BY PERMITTING MORTGAGE OF THE LAND OF THE CONSORTIUM. 5.4. IT WAS SUBMITTED THAT THE ASSESSEE DID NOT DISCLOSE THE TRANSFER OF LAND DURING A.Y 2005-06 (F .Y 2004-05) IN ITS RETURN OF INCOME. EVEN IN THE ANNUA L REPORT THE FACT THAT CONSORTIUM AGREEMENT WAS ENTERED INTO DURING F.Y 04-05 WAS NOT DISCLOSED. TH E TRANSACTION WAS DISCOVERED BY THE DEPARTMENT ON 23- 09-08, DURING A SURVEY U/S 133A CONDUCTED BY ITO, WARD-8(1) ON THE EMBASSY-ANL CONSORTIUM. INSPECTION DURING THE SURVEY PROCEEDINGS REVEALED THAT THE PROJECT ON THE LAND CONSISTED OF TWO MULTI - STORIED TOWERS AND ONE OF THE TOWERS WAS 95% COMPLETE AND THE BARE SHELL WAS COMPLETE ON THE OTHER. THE TOTAL CARPET AREA OF THE PROJECT WAS ABO UT 3.5 LAKH SFT. THE TRANSACTION WAS BROUGHT TO TAX ON LY 22 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. AFTER INITIATION OF REOPENING OF THE ASSESSMENT PROCEEDINGS. 5.6. IT WAS SUBMITTED EVEN IF THE ARGUMENTS OF THE ASSESSEE THAT THE PROJECT WAS UNDER DISPUTE WER E TO BE ACCEPTED FOR A MOMENT AS TRUE, SUCH A DISPUTE WOULD NOT IN ANY WAY AFFECT THE FACT THAT THE LAND WAS ALREADY TRANSFERRED BY THE ASSESSEE TO THE CONSORTIUM. ANY SUBSEQUENT RELINQUISHMENT OF RIGHTS BY ONE MEMBER OF THE CONSORTIUM IN FAVOUR OF THE OTHER MEMBER WOULD NOT AFFECT THE TRANSFER OF LAND FROM THE ASSESSEE TO THE CONSORTIUM. 5.7. IN LIGHT OF THE ABOVE FACTS, IT WAS SUBMITTED THAT THE PRESENT CASE IS A CLEAR CASE OF TRANSFER O F LAND FROM ONE OF THE MEMBERS TO THE AOP ON 10-12- 04. THE CONSORTIUM-AOP OBTAINED NECESSARY APPROVALS AND CONSTRUCTED THE 'SOFTWARE PARK' ALSO IMMEDIATELY THEREAFTER. THEREFORE, CAPITAL GAINS ON TRANSFER OF THE LAND AROSE (ON THE VALUE OF CONSIDERATION RECORDED IN THE BOOKS OF THE AOP) FOR A.Y 2005-06 IN THE PRESENT CASE U/S 45(3). 5.8. IT WAS ALSO SUBMITTED THAT FOR TRANSFER OF A PROPERTY, THERE IS NO NEED THAT THE TRANSFEROR MUST HAVE FULL AND ABSOLUTE TITLE. IT IS SETTLED LAW THA T PROPERTY IS A BUNDLE OF RIGHTS AND WHATEVER RIGHTS ARE WITH THE ASSESSEE, THEY WERE TRANSFERRED TO THE CONSORTIUM-AOP ON 10.12.2004. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF AHMED G ARIFF (76 ITR 471), WHEREIN IT WAS HELD THAT THE TERM PROPERTY IS OF 23 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 'WIDEST IMPORT'. 5.9. RELIANCE IS ALSO PLACED ON THE DECISION OF THE JURISDICTION HIGH COURT IN THE CASE OF POTLA NAGESWARA RAO (365 ITR 249), WHEREIN IT WAS HELD THAT 'AGREEMENT FOR SALE HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ASSESSMENT OF INCO ME FOR THE ASSESSMENT YEAR WHEN THE AGREEMENT WAS ENTERED INTO AND POSSESSION WAS GIVEN'. IN THE PRES ENT CASE, BOTH THESE ACTIONS OCCURRED ON 10-12-04. RELIANCE IS ALSO PLACED ON THE DECISION OF KARNATAK A HIGH COURT IN THE CASE OF DR T K OAYALU (202 TAXMANN 531), DECISION OF THIS HON'BLE BENCH IN CAS E OF DURDANA KHATOON (2013-TIOL-523- ITAT-HYD). ATTENTION OF THE HON'BLE BENCH IS ALSO DRAWN TO THE DECISION OF AAR IN THE CASE OF JASBIR SINGH SARKARI A (164 TAXMANN 108 (AAR - NEW DELHI)). 5.10. REGARDING THE PERIOD OF HOLDING, IT WAS SUBMITTED THAT THE ASSESSEE ACQUIRED RIGHTS OF OWNERSHIP IN THE PROPERTY ONLY ON 02-09-03, WHEN THE LEASE CUM SALE AGREEMENT WAS EXECUTED BY KIADB. THE ARGUMENT THAT DATE OF ALLOTMENT SHALL BE TAKEN AS THE DATE OF ACQUISITION OF THE PROPERTY IS INCORRECT. IN THIS REGARD, IT WAS SUBMITTED THAT ON 08- 01-2001, THE ASSESSEE ONLY ACQUIRED THE RIGHT OF ALLOTMENT TO THE EXCLUSION OF OTHERS. HOWEVER, THE ALLOTMENT IS CONTINGENT AND THE ACQUISITION OF THE PROPERTY FRUCTIFIED ONLY ON PAYMENT OF THE COST OF THE LAND AND ON EXECUTION OF THE SALE CUM LEASE AGREEMENT. ONCE THE SALE CUM LEASE AGREEMENT WAS EXECUTED, THE RIGHT FOR ALLOTMENT AUTOMATICALLY CEA SED 24 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. TO EXIST. IF THE RIGHT OF ALLOTMENT WERE TRANSFERRE D BY THE ASSESSEE, THE DATE OF ACQUISITION WOULD HAVE BE EN 08-01-2001, WHICH IS NOT THE PRESENT CASE. WHAT WAS TRANSFERRED BY THE ASSESSEE TO THE CONSORTIUM WAS T HE 'OWNERSHIP' IN THE LAND AND IN FACT THE POSSESSION ITSELF WAS HANDED OVER. SUCH A RIGHT WAS ACQUIRED B Y THE ASSESSEE ONLY ON 02-09-03 AND HENCE THE TRANSACTION IS IN THE NATURE OF SHORT TERM CAPITAL GAINS. 5.11. IT WAS ALSO SUBMITTED THAT RELIANCE OF THE ASSESSEE ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF SURAJ LAMP & INDUSTRIES PVT. LTD IS MISPLACED BECAUSE THE SAID DECISION IS DELIVERED IN A DIFFERENT CONTEXT OF 'SALE' THROUGH GPAS/SALE AGREEMENTS UNDER SECTION 54 OF THE TRANSFER OF PROPERTY ACT WITH REFERENCE TO CONVEYANCE OF TITLE. IT MAY BE SUBMITTED THAT IN THE SAID JUDGMENT ITSELF, THE HON'BLE COURT OBSERVED THAT RIGHTS GRANTED UNDER SECTION 53A OF TRANSFER OF PROPERTY ACT ARE EXCLUDE D. IT IS SETTLED LAW THAT 'TRANSFER' UNDER THE INCOME TAX ACT OPERATES ON THE PRINCIPLE OF 'BENEFICIAL OWNERS HIP' AND NOT ON 'LEGAL OWNERSHIP'. SIMILARLY, RELIANCE O N THE DECISION OF DELHI HIGH COURT IN THE CASE OF J. DALMIA IS NOT CORRECT BECAUSE THE FACTS ARE DIFFERE NT AND THE ISSUE WAS RELATED TO ASSESSABILITY OF DAMAG ES RECEIVED IN A SUIT FOR SPECIFIC PERFORMANCE. RELIAN CE ON THE DECISION OF UTTARAKHAND HIGH COURT IN THE CASE OF RAJESH KUMAR AGARWAL IS ALSO INCORRECT BECAUSE IN THE SAID CASE, THERE WAS NO EVIDENCE OF TRANSFER TO AOP NOR THERE WAS AN AGREEMENT WITH THE AOP. IN THE PRESENT CASE, THERE IS A CONSORTIUM 25 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. AGREEMENT FOR CONSTITUTION OF THE AOP AND LAND WAS TRANSFERRED ON 10-12-04 AS PER THE AGREEMENT. IN TH E CASE OF DECISION OF THE JURISDICTION BENCH IN THE C ASE OF FIBRAS INFRATECH PVT LTD ALSO, THE FACTS ARE TOT ALLY DIFFERENT. IN THE SAID CASE, THE TRANSFEREE WAS NOT WILLING TO PERFORM ITS OBLIGATIONS. IN THE PRESENT CASE ALSO, IN LIGHT OF THE DECISION OF JURISDICTIONAL HI GH COURT IN THE CASE OF POTLA NAGAESWARA RAO (CITED ABOVE), THE DECISION OF ITAT AND DECISIONS OF OTHER HIGH COURTS GET OVERRULED IN CASE OF IDENTICAL ISSU E. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE DOCUMENTS PLACED ON RECORD AND THE ORDE RS OF THE AUTHORITIES. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE WAS ALLOTTED PROPERTY BY KIADB WAY BACK VI DE LETTER OF ALLOTMENT DATED 10.01.2001. IT IS ALSO NOT DISPU TED THAT SUBSEQUENTLY, ASSESSEE HAS PAID AMOUNTS AND LEASE C UM SALE DEED WAS ALSO REGISTERED ON 02.09.2003. IT IS ALSO NOT DISPUTED WITH REFERENCE TO CONSORTIUM AGREEMENT ENTERED WITH M/S. DYNASTY DEVELOPERS P. LTD., ON 10.12.2004 AND THE C ONSORTIUM WAS STYLED AS EMBASSY ANL CONSORTIUM. IT IS ALSO A FACT THAT CONSORTIUM IS FILING RETURNS AND AT THE TIME OF SUR VEY, PROPERTY WAS ALREADY CONSTRUCTED TO A LARGE EXTENT. IT IS AL SO A FACT THAT ASSESSEE HAS NOT REPRESENTED THIS TRANSACTION IN TH E BOOKS OF ACCOUNTS IN THE RELEVANT YEAR AND CONSEQUENT TO THE SURVEY OPERATIONS CONDUCTED UNDER SECTION 133A OF THE ACT IN THE CASE OF CONSORTIUM ON 23.09.2008 IN THE TRANSACTION ENTERED BY ASSESSEE HAS COME INTO PICTURE. THERE IS NO NEED TO REPRODUCE THE TERMS OF CONSORTIUM AGREEMENT AND VAR IOUS CLAUSES OF ALLOTMENT RELIED ON BY BOTH THE PARTIES AS THEY ARE ALREADY PART OF ORDERS OF A.O. AND LD. CIT(A) AND A LSO EXTRACTED IN THE EARLIER PART OF THIS ORDER. AS CAN BE SEEN F ROM THE 26 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. CONSORTIUM AGREEMENT IT IS ALSO NOT IN DISPUTE THAT ASSESSEE HAS INTRODUCED THE SAID PROPERTY AS A CAPITAL IN TH E CONSORTIUM AND THE PRICE SO ARRIVED AT AS CAPITAL CONSIDERATIO N WAS AT RS.10,76,61,044, BEING 50% OF THE SHARE IN CONSORTI UM. 6.1. IT WAS THE A.OS CONTENTION THAT THERE IS TR ANSFER OF ASSESSEES RIGHTS IN THE PROPERTY TO THE SAID CO NSORTIUM AND THEREFORE, CAPITAL GAIN ARISES. HE HAS DISCUSSED AT LENGTH VARIOUS PROVISIONS IN THE ORDER TO ARRIVE AT THE CO NCLUSION THAT THE TRANSACTION IS ONE OF TRANSFER GIVING RISE TO C APITAL GAINS. HE HAS ALSO CONSIDERED THE DATE OF REGISTRATION, LE ASE CUM- SALE DEED BY KIDAB AND ARRIVED AT SHORT TERM CAPITA L GAINS STATING THAT THE HOLDING PERIOD IS LESS THAN 3 YEAR S. 6.2. IT WAS ASSESSEES CONTENTION THAT FIRST OF AL L, THERE IS NO CAPITAL ASSET, THERE IS NO TRANSFER, THERE IS NO CAPITAL GAINS TO BE TAXED UNDER SECTION 45(3). IN THE ALTER NATE, ASSESSEE SUBMITS THAT EVEN IF CAPITAL GAIN IS TO BE TAXED, IT WILL NOT BE LONG TERM CAPITAL GAINS AND NOT SHORT TERM C APITAL GAINS. 6.3. AFTER CONSIDERING THE ISSUE, WE ARE OF THE OP INION THAT THE ORDERS OF LD. CIT(A) ON THE ISSUE OF TAXIN G CAPITAL GAINS ARE TO BE UPHELD. AS RIGHTLY POINTED OUT BY THE LD. CIT(A), THE PROPERTY UNDER CONSIDERATION NEED NOT BE IMMOVABLE PROPERTY. ASSESSEE IS HAVING CERTAIN RIGHTS AND THE BUNDLE OF RIGHTS ARE TRANSFERRED. EVEN THOUGH ASSESSEE RELIED ON PROVISI ONS OF SECTION 2(47)(VI) OF THE I.T. ACT, THE PROVISION IS VERY CLEAR THAT ANY TRANSACTION WHICH HAS THE EFFECT OF TRANSFERRIN G OR ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY IS COVERED BY THE DEFINITION OF TRANSFER EVEN THOUGH ASSESSEE HAS A RGUED THAT THERE IS NO IMMOVABLE PROPERTY, WHAT THE PROVISION ENTITLES IS THAT OF A TRANSACTION WHICH HAS THE EFFECT OF TRANS FERRING OR 27 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY. T HEREFORE, THE CONTENTION THAT ASSESSEE HAS NOT TRANSFERRED IM MOVABLE PROPERTY DOES NOT HOLD GOOD, AS ASSESSEE HAS ENTERE D INTO CONSORTIUM AGREEMENT WHICH IS THE EFFECT OF TRANSFE RRING THE RIGHTS IN AN IMMOVABLE PROPERTY. THE ARGUMENT THAT ASSESSEE HAS NO TRANSFERABLE RIGHT AND THE AGREEMENT WITH KI ADB DOES NOT GIVE RISE TO ANY TRANSFERABLE RIGHTS IS NOT COR RECT IN THE SENSE THAT ASSESSEE IS ENJOYING THE PROPERTY BY VIR TUE OF ALLOTMENT LETTER GRANTED BY THE INDUSTRIAL AREA DEV ELOPMENT BOARD ON 10.01.2001 AND ASSESSEE BY WAY OF CONSORTI UM AGREEMENT PASSED ON THE BUNDLE OF RIGHTS TO THE CON SORTIUM. IN FACT, AS RIGHTLY POINTED OUT BY LD. CIT(A) AND ALSO BY A.O. ASSESSEE HAS IN FACT PERMITTED MORTGAGE OF THE SAID PROPERTY BY WAY OF EQUITABLE MORTGAGE IN FAVOUR OF ING VYSYA BA NK LTD., TO AN EXTENT OF RS.36 CRORES FOR ADVANCE MADE TO DYNAS TY DEVELOPERS P. LTD., CONSIDERING THESE FACTS, IT CAN NOT BE SATED THAT ASSESSEE HAS NO RIGHT ON THE PROPERTY WHEN IT ADMITS AND ENTERS INTO AGREEMENT AND EVEN PERMITS THE BANK FOR AN EQUITABLE MORTGAGE OF THE SAID PROPERTY. THEREFORE, ALL THE CONTENTIONS RAISED BY ASSESSEE THAT IT DOES NOT HOL D ANY CAPITAL ASSET, THERE ARE NO TRANSFERABLE RIGHTS UNDER THE T RANSFER OF PROPERTY ACT AND NOT TRANSFERRED WITHOUT REGISTERED DOCUMENT CANNOT BE ACCEPTED. IN FACT, ASSESSEE HAS RELIED ON THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. A. SURESH RAO ITA.NO.417 OF 2013 DATED 28 TH OCTOBER, 2013 WITH REFERENCE TO CONSIDERATION OF PERIOD OF H OLDING OF LONG TERM CAPITAL GAINS. AS BRIEFLY STATED ABOVE, A .O. HAS TREATED THE PROPERTY AS ONE OF THE SHORT TERM CAPIT AL ASSET AND LEVIED SHORT TERM CAPITAL GAIN, WHEREAS, ASSESSEE I S CONTENDING THAT IT IS A LONG TERM CAPITAL ASSET. THIS ISSUE WI LL BE DISCUSSED AT A LATER POINT OF TIME BUT WHAT WE ARE RELYING IS , ON THE 28 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. INTERPRETATION OF THE PROVISIONS OF THE ACT BY THE HONBLE KARNATAKA HIGH COURT ON THE CAPITAL ASSETS TRANSFER RED AND COMPUTATION OF CAPITAL GAINS WHICH ARE AS UNDER : 12. THE DEFINITION AS CONTAINED IN SECTION 2(42A) OF THE ACT, THOUGH USES THE WORDS, 'A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRE CEDING THE DATE OF ITS TRANSFER', FOR THE PURPOSE OF HOLDI NG AN ASSET, IT IS NOT NECESSARY THAT, HE SHOULD BE THE OWNER OF THE ASSET, WITH A REGISTERED DEED OF CONVEYANCE CONFERRING TIT LE ON HIM. IN THE LIGHT OF THE EXPANDED DEFINITION AS CONTAINE D IN SECTION 2(47), EVEN WHEN A SALE, EXCHANGE, OR RELINQUISHMENT OR EXTINGUISHMENT OF ANY RIGHT, UNDE R A TRANSACTION THE ASSESSEE IS PUT IN POSSESSION OF AN IMMOVABLE PROPERTY OR HE RETAINED THE SAME IN PART PERFORMANCE OF THE CONTRACT UNDER SECTION 53-A OF T HE TRANSFER OF PROPERTY ACT, IT AMOUNTS TO TRANSFER. N O REGISTERED DEED OF SALE IS REQUIRED TO CONSTITUTE A TRANSFER. SIMILARLY, ANY TRANSACTION WHETHER BY WAY OF BECOMING A MEMBER OF OR ACQUIRING SHARES IN A CO- OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER, WHICH HAS THE EFFECT OF TRANSFERRING, OR ENABLING T HE ENJOYMENT OF ANY IMMOVABLE PROPERTY, ALSO CONSTITUT ES TRANSFER AND THE ASSESSEE IS SAID TO HOLD THE SAID PROPERTY FOR THE PURPOSE OF THE DEFINITION OF 'SHOR T- TERM CAPITAL GAIN. IN FACT, THE CIRCULAR NO.495 MAK ES IT CLEAR THAT TRANSACTIONS OF THE NATURE REFERRED T O ABOVE ARE NOT REQUIRED TO BE REGISTERED UNDER THE REGISTRATION ACT, 1908. SUCH ARRANGEMENTS CONFER TH E PRIVILEGES OF OWNERSHIP WITHOUT TRANSFER OF TITLE I N THE BUILDING AND ARE COMMON MODE OF ACQUIRING FLATS PARTICULARLY IN MULTISTORIED CONSTRUCTIONS IN BIG C ITIES. THE AFORESAID NEW SUB-CLAUSES (V) AND (VI) HAVE BEE N INSERTED IN SECTION 2(47) TO PREVENT AVOIDANCE OF CAPITAL GAINS LIABILITY BY RECOURSE TO TRANSFER OF RIGHTS IN THE MANNER REFERRED TO ABOVE. A PERSON HOLDING T HE POWER OF ATTORNEY IS AUTHORIZED THE POWERS OF OWNER , INCLUDING THAT OF MAKING CONSTRUCTION THOUGH THE LEGAL OWNERSHIP IN SUCH CASES CONTINUES TO BE WITH THE TRANSFEROR. THE INTENTION OF LEGISLATURE IS TO TREA T EVEN SUCH TRANSACTIONS AS TRANSFERS AND THE CAPITAL GAIN ARISING OUT OF SUCH TRANSACTIONS ARE BROUGHT TO TAX . FURTHER, THE CIRCULAR NO.471 GOES TO THE EXTENT OF CLARIFYING 29 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. THAT FOR THE PURPOSE OF INCOME TAX ACT, THE ALLOTTE E GETS TITLE TO THE PROPERTY ON THE ISSUANCE OF THE ALLOTMENT LE TTER AND THE PAYMENT OF INSTALMENTS IS ONLY A FOLLOW-UP ACTI ON AND TAKING THE DELIVERY OF POSSESSION IS ONLY A FORMALI TY. IN CASE OF CONSTRUCTION AGREEMENTS, THE TENTATIVE COST OF C ONSTRUCTION IS ALREADY DETERMINED AND THE AGREEMENT PROVIDES FO R PAYMENT OF COST OF CONSTRUCTION IN INSTALMENTS SUBJ ECT TO THE CONDITION THAT THE ALLOTTEE HAS TO BEAR THE INCREAS E, IF ANY, IN THE COST OF CONSTRUCTION. THEREFORE, FOR THE PURPOS E OF CAPITAL GAINS TAX THE COST OF THE NEW ASSET IS THE TENTATIV E COST OF CONSTRUCTION AND THE FACT THAT THE AMOUNT WAS ALLOW ED TO BE PAID IN INSTALMENTS DOES NOT AFFECT THE LEGAL POSIT ION. THEREFORE, IN CONSTRUING SUCH TAXATION PROVISIONS, WHAT SHOULD BE THE APPROACH OF THE COURTS AND THE INTERP RETATION TO BE PLACED IS CLEARLY SET OUT BY THE APEX COURT I N THE CASE OF SMT.SAROJ AGGARWAL -VS- COMMISSIONER OF INCOME-T AX REPORTED IN (1985) 156 ITR 497 (SC) WHEREIN IT IS H ELD AS UNDER: 'FACTS SHOULD BE VIEWED IN NATURAL PERSPECTIVE, HAV ING REGARD TO THE COMPULSION OF THE CIRCUMSTANCES OF A CASE. WHERE IT IS POSSIBLE TO DRAW TWO INFERENCES FROM TH E FACTS AND WHERE THERE IS NO EVIDENCE OF ANY DISHONEST OR IMPROPER MOTIVE ON THE PART OF THE ASSESSEE, IT WOU LD BE JUST AND EQUITABLE TO DRAW SUCH INFERENCE IN SUCH A MANNER THAT WOULD LEAD TO EQUITY AND JUSTICE. TOO H YPER TECHNICAL OR LEGALISTIC APPROACH SHOULD BE AVOIDED IN LOOKING AT A PROVISION WHICH MUST BE EQUITABLY INTE RPRETED AND JUSTLY ADMINISTERED............ COURTS SHOULD, WHENEVER POSSIBLE UNLESS PREVENTED BY THE EXPRESS LANGUAGE O F ANY SECTION OR COMPELLING CIRCUMSTANCES OF ANY PARTICUL AR CASE, MAKE A BENEVOLENT AND JUSTICE ORIENTED INFERE NCE. FACTS MUST BE VIEWED IN THE SOCIAL MILIEU OF A COUN TRY.' THEREFORE, KEEPING THE AFORESAID PRINCIPLES IN MIND , WHEN WE LOOK AT SECTION 48, THE LANGUAGE EMPLOYED IS UNAMBIGUOUS. THE INTENTION IS VERY CLEAR. WHEN A CA PITAL ASSET IS TRANSFERRED, IN ORDER TO DETERMINE THE CAP ITAL GAIN FROM SUCH TRANSFER, WHAT IS TO BE SEEN IS, OUT OF F ULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING, THE COST OF ACQUISITION OF THE ASSET, THE COST OF IMPROVEMENT AND ANY EXPEN DITURE WHOLLY OR EXCLUSIVELY INCURRED IN CONNECTION WITH S UCH TRANSFER IS TO BE DEDUCTED. WHAT REMAINS THEREAFTER IS THE CAPITAL GAIN. IT IS NOT NECESSARY THAT AFTER PAYMEN T OF COST OF ACQUISITION, A TITLE DEED IS TO BE EXECUTED IN FAVO UR OF THE ASSESSEE. EVEN IN THE ABSENCE OF A TITLE DEED, THE ASSESSEE HOLDS THAT PROPERTY AND THEREFORE, IT IS THE POINT OF TIME AT 30 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. WHICH HE HOLDS THE PROPERTY, WHICH IS TO BE TAKEN I NTO CONSIDERATION IN DETERMINING THE PERIOD BETWEEN THE DATE OF ACQUISITION AND DATE OF TRANSFER OF SUCH CAPITAL GA IN IN ORDER TO DECIDE WHETHER IT IS A SHORT-TERM CAPITAL GAIN O R A LONG- TERM CAPITAL GAIN. 6.4. IN THE LIGHT OF THE ABOVE, THE EXTENDED DEFIN ITION AS CONTAINED IN SECTION 2(47) EVEN WHEN A SALE EXCHANG E OR RELINQUISHMENT OR EXTINGUISHMENT OF ANY RIGHT UNDER A TRANSACTION, ASSESSEE IS TO BE IN POSSESSION OF ANY IMMOVABLE PROPERTY OR RETAINED THE SAME IN PART, PERFORMANCE OF CONTRACT UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT, IT AMOUNTS TO TRANSFER. THEREFORE, IN THE GIVEN TRANSACTION, SINCE ASSESSEE HAS GIVEN ALL RIGHTS IN IMMOVABLE PROPERTY OF WHICH , CONSORTIUM HAS TAKEN APPROVALS AND CONSTRUCTED BUIL DINGS, THE CONTENTION THAT THERE IS NO CAPITAL ASSET NO TR ANSFER CANNOT BE ACCEPTED. WE ENDORSE THE VIEWS EXPRESSED BY A.O. AND LD. CIT(A) ON THIS ISSUE. 7. SINCE, WE HAVE UPHELD THE CONTENTION OF THE REVENUE THAT ASSESSEE OWNS THE CAPITAL ASSET IN THE FORM OF PROPERTY WHICH IT HAS TRANSFERRED TO THE CONSORTIUM , THE OTHER CONTENTIONS OF ASSESSEE DOES NOT SURVIVE. ACCORDING LY, THEY ARE REJECTED. 8. ONE OF THE ARGUMENTS RAISED BY ASSESSEE IS THAT ENTRIES HAVE BEEN PASSED AS ON 31.03.2006 AND THERE FORE, THE TRANSACTION CANNOT BE BROUGHT TO TAX IN THE GIVEN A SSESSMENT YEAR. THIS ARGUMENT CANNOT BE ACCEPTED AS THE CONSO RTIUM AGREEMENT IS ENTERED INTO ON 10.12.2004 AND SUPPLEM ENTAL AGREEMENT ALSO WAS ENTERED INTO BY CONSORTIUM MEMBE RS ON 01.03.2005. THEREFORE, THE POSSESSION OF THE PROPER TY IS ALSO STATED TO HAVE BEEN GRANTED AT THAT POINT OF TIME. AS CAN BE 31 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. SEEN FROM THE FACTS, ASSESSEE ALSO SUBSEQUENTLY GAV E PERMISSION FOR EQUITABLE MORTGAGE OF PROPERTY AND L ICENSES FROM THE AUTHORITIES AND ALSO OBTAINED NO OBJECTION CERTIFICATE FROM KIDAB SINCE AGREEMENT ENTERED INTO ON 10.12.20 04 WAS IMPLEMENTED BY ASSESSEE WITHOUT ANY FAILURE, THE PR INCIPLES LAID DOWN BY THE HONBLE A.P. HIGH COURT IN THE CAS E OF POTLA NAGESWARA RAO 365 ITR 249 THE CAPITAL GAINS IS LIAB LE TO BE TAXED IN THE YEAR WHEN THE DEVELOPMENT AGREEMENT WA S ENTERED INTO APPLIES. THERE MAY BE DISPUTES BETWEEN THE CONSORTIUM MEMBERS WHICH DOES NOT AFFECT THE YEAR O F TAXABILITY OF CAPITAL GAINS. IN VIEW OF THIS, WE AR E OF THE OPINION THAT CAPITAL GAINS IS RIGHTLY ASSESSED IN THE IMPUG NED ASSESSMENT YEAR. OTHER CASES RELIED ON BY LD. D.R. IN HIS SUBMISSIONS ALSO SUPPORT THE ABOVE, WHICH WE DO NOT INTEND TO EXTRACT HERE. SUFFICE TO SAY, THAT THE AGREEMENT FO R DEVELOPMENT HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ASSESSMENT OF INCOME, IN THE YEAR IN WHICH THE A GREEMENT WAS ENTERED INTO AND POSSESSION WAS GIVEN. SINCE, T HERE IS NO DISPUTE ABOUT THE ENTERING INTO THE AGREEMENT AND P OSSESSION BEING GIVEN CAPITAL GAINS WAS RIGHTLY TAXED IN THE IMPUGNED ASSESSMENT YEAR CORRECTLY. THEREFORE, THE ARGUMENTS OF ASSESSEE ON THIS ARE REJECTED. 9. COMING TO THE ISSUE WHETHER THE CAPITAL GAINS ARISING IN THE TRANSACTION IS THAT OF SHORT CAPITAL GAIN OR LONG TERM CAPITAL GAIN, WE ARE OF THE OPINION THAT THE G AIN HAS TO BE CONSIDERED AS LONG TERM CAPITAL GAIN. THERE IS NO D ISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE WAS ALLOTTED TH E PROPERTY ON 10.01.2001. EVEN THOUGH THE LEASE DEED WAS REGISTER ED ON 02.09.2003, ASSESSEE HAS HELD IT FOR MORE THAN THRE E YEARS BY THE TIME HE HAS ENTERED INTO AN AGREEMENT ON 10.12. 2004. THE 32 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. A. SURESH RAO (SUPRA) HAS CONSIDERED THE ISSUE AND HELD AS FO LLOWS : 15. ALL THE AFORESAID JUDGMENTS RELIED ON BY THE REVENUE ARE CASES ARISING PRIOR TO THE AMENDMENT TO SECTION 2(47) OF THE ACT. THE VERY SAME JUDGMENTS S HOW, IN PARTICULAR THE JUDGMENT OF THE FULL BENCH OF THE GU JARAT HIGH COURT, THE REASONS FOR AMENDMENT I.E., EVEN IN THE ABSENCE OF A REGISTERED DEED OF TRANSFER, IF THE TR ANSACTION IN QUESTION DEMONSTRATES THE INTENTION OF THE PARTI ES AND AFTER PAYING THE ENTIRE CONSIDERATION AGREED UPON, THE PURCHASER ENJOYS THE PROPERTY. THE FACT THAT THE TR ANSACTION IS NOT COMPLETED BY EXECUTION OF THE REGISTERED SAL E DEED MAKES NO DIFFERENCE IN THE EYE OF LAW FOR THE PURPO SE OF TAXES. IF THE REVENUE IS ENTITLED TO COLLECT TAX ON SUCH CAPITAL GAINS, EVEN IN THE ABSENCE OF A REGISTERED DOCUMENT, ON THE SAME ANALOGY, THE ASSESSEE, WHO IS LIABLE TO PAY THE CAPITAL GAINS, IS ALSO ENTITLED T O THE EXEMPTION GRANTED UNDER THE VERY ACT ON SUCH CAPITA L GAINS. THAT IS PRECISELY WHAT THE APEX COURT HAS SA ID IN SMT.SAROJ AGGARWAL'S CASE (SUPRA) THAT FACTS SHOULD BE VIEWED IN NATURAL PERSPECTIVE, HAVING REGARD TO THE COMPULSION OF THE CIRCUMSTANCES OF A CASE. TOO HYPE R TECHNICAL OR LEGALISTIC APPROACH SHOULD BE AVOIDED IN LOOKING AT A PROVISION WHICH MUST BE EQUITABLY INTE RPRETED AND JUSTLY ADMINISTERED. THE COURTS SHOULD PLACE AN INTERPRETATION MAKING A BENEVOLENT AND JUSTICE ORIE NTED INFERENCE AND THE FACTS MUST BE VIEWED IN THE SOCIA L MILIEU OF A COUNTRY. NOW IN THIS BACKGROUND, LET US SEE TH E FACTS OF THIS CASE. 16. THE ASSESSEE WAS ALLOTTED A SITE ON 21.9.1988 IN R.M.V. EXTENSION, BANGALORE. THE ASSESSEE PAID A SU M OF RS.1,11,480/- ON SUCH ALLOTMENT. HE WAS ALSO PUT IN POSSESSION OF THE PROPERTY AND POSSESSION CERTIFICA TE WAS ISSUED. ON COMPLIANCE WITH OTHER LEGAL REQUIREMENT, A REGISTERED SALE DEED CAME TO BE EXECUTED ON 6.10.20 05 IN HIS NAME. HOWEVER, THE SAID SITE WAS THE SUBJECT MA TTER OF LITIGATION AND THEREFORE, WHEN THE ASSESSEE WAS NOT ALLOWED TO ENJOY THE SAID PROPERTY IN OBEDIENCE OF THE ORDERS PASSED BY THE COURTS, THE BDA CANCELLED THE SALE DEED DATED 6.10.2005 BY EXECUTING A DEED OF CANCELL ATION DATED 18.9.2007. THEREAFTER IN LIEU OF THE SITE, WH ICH WAS CANCELLED, A FRESH ALLOTMENT WAS MADE IN HENNUR- BANASWADI ROAD. WHEN THE ASSESSEE AFTER THE SITE BE ING ALLOTTED, WENT TO THE SPOT, HE FOUND THAT THERE WAS A 33 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. CONSTRUCTION, WHICH WAS ALSO INVOLVED IN A LEGAL DI SPUTE. INSPITE OF THE ORDERS OF THE COURT TO DEMOLISH THE STRUCTURE, IT HAS NOT BEEN DONE. WHEN HE REPORTED THE MATTER T O THE AUTHORITIES, THE ALLOTMENT OF SITE IN HENNUR-BANASW ADI ROAD WAS CANCELLED ON 9.1.2008 AND IN LIEU OF THE SAME, THE PRESENT SITE WAS ALLOTTED ON 15.2.2008. A REGISTERE D SALE DEED CAME TO BE EXECUTED ON 27.2.2008. NO CONSIDERA TION WAS PAID UNDER THE SAID SALE DEED. THE CONSIDERATIO N PAID ON 21.9.1988, WHICH WAS ACKNOWLEDGED IN THE SALE DE ED DATED 6.10.2005, WAS TREATED AS A CONSIDERATION FOR THE SAME ON 27.2.2008. IT IS THEREAFTER THE ASSESSEE TR ANSFERR ED THE SITE BY WAY OF A REGISTERED SALE DEED IN FAV OUR OF A PURCHASER ON 29.5.2008 AND RECEIVED A CONSIDERATION OF RS.1 CRORE 13 LAKHS. THIS SITE, WHICH WAS TRANSFERR ED, HE WAS HOLDING IT FROM 21.9.1988, WHEN HE PAID THE CONSIDERATION ON INTIMATION OF ALLOTMENT. MERELY BE CAUSE THE ORIGINAL SITE WHICH WAS ALLOTTED WAS CANCELLED, YET ANOTHER SITE WAS ALLOTTED AND THE SAID SITE WAS ALS O CANCELLED AND THEREAFTER THE PRESENT SITE WAS ALLOT TED, IN LAW WOULD MAKE NO DIFFERENCE. ADMITTEDLY, THE CONSIDERATION PAID ON 21.9.1988 IS TREATED AS THE CONSIDERATION FOR THE SALE DATED 27.2.2008. IN OTHE R WORDS, THE COST OF ACQUISITION OF THE ASSET WAS PAID ON 21 .9.1988 AND NO COST WAS PAID EITHER ON THE DATE OF ALLOTMEN T I.E., ON 15.2.2008 OR ON THE DATE OF REGISTERED SALE DEED ON 27.2.2008. FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS UNDER SECTION 48 OF THE ACT, IT IS THE DATE OF ACQU ISITION OF THE ASSET, WHICH IS TO BE TAKEN INTO CONSIDERATION AND THE SAID COST OF ACQUISITION IS TO BE CONVERTED AS THE INDEXED COST OF ACQUISITION AS DEFINED IN THE EXPLANATION T O SECTION 48 OF THE ACT AND, THE SAID AMOUNT IS TO BE DEDUCTE D OUT OF THE SALE CONSIDERATION TO ARRIVE AT THE CAPITAL GAI N. ACCORDINGLY, AFTER DEDUCTING THE COST OF ACQUISITIO N AND THE REGISTRATION FEE, THE CAPITAL GAIN AFTER THE TRANSF ER OF THE SAID ASSET WAS RS.1,08,73,892/- AS IT WAS A LONG-TE RM CAPITAL GAIN. HE INVESTED AN AMOUNT OF RS.28 LAKHS IN RURAL ELECTRIFICATION CORPORATION LIMITED AND AN AM OUNT OF RS.22 LAKHS IN THE NATIONAL HIGHWAYS AUTHORITY OF I NDIA IN TERMS OF SECTION 54EC OF THE ACT. SIMILARLY HE PURC HASED AN APARTMENT AT HEBBAL, BANGALORE, FOR A SUM OF RS.56,03,590/- IN TERMS OF SECTION 54F OF THE ACT A ND SOUGHT AN EXEMPTION. FOR THE BALANCE OF RS.2,70,296 /-, HE HAS PAID THE LONG-TERM CAPITAL GAIN. THEREFORE, THE ASSESSEE HAS RIGHTLY CLAIMED THE BENEFIT OF EXEMPTI ON UNDER SECTION 54EC AND 54F OF THE ACT. 34 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. 17. IN THAT VIEW OF THE MATTER, IF WE LOOK AT THE FACTS IN A NATURAL PERSPECTIVE, THERE IS NO DISHONEST OR IMP ROPER MOTIVE ON THE PART OF THE ASSESSEE IN CLAIMING SAID EXEMPTION. THE FACTS SEEN FROM THE SOCIAL MILIEU OF OUR SOCIETY, IT IS IN NATURAL COURSE OF CONDUCT OF ANY LAW ABIDING CITIZEN. WHEN CAPITAL GAIN IS ACCRUED IN HIM INSTEA D OF PAYING TAX TO THE GOVERNMENT, HE HAS INVESTED THE M ONEY IN THE AFORESAID MANNER, WHICH GIVES HIM THE BENEFI T OF EXEMPTION FROM PAYMENT OF CAPITAL GAINS. HE SATISFI ES THE REQUIREMENT OF THE LAW. BY HYPERTECHNICAL OR LEGALI STIC APPROACH, SUCH BENEFIT CONFERRED ON AN ASSESSEE CAN NOT BE DENIED. VERY FACT THAT THE LAW ENCOURAGES AN ASSESS EE TO MAKE SUCH INVESTMENTS TO AVOID PAYMENT OF TAX, SUCH BENEVOLENT PROVISION WHICH IS MEANT FOR SUCH ASSESS ES HAS TO BE EQUITABLY INTERPRETED AND JUSTLY ADMINISTERED . 18. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY INFIRMITY COMMITTED BY THE TRIBUNAL IN PASSING THE IMPUGNED ORDER EXTENDING THE BENEFIT WHICH THE LAW HAS EXTENDED TO AN ASSESSEE. THEREFORE, THERE IS NO MER IT IN THIS APPEAL. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN IN THE ABOVE SAID CASE AND ALS O CONSIDERING THE BOARD CIRCULAR ISSUED IN THIS REGAR D PARTICULARLY, CIRCULAR NO. 471 AND 474 OF CBDT, WE ARE OF THE OPINION THAT THE CAPITAL ASSET HAS TO BE CONSIDERED AS LONG TERM ASSET AND CAPITAL GAINS THEREON HAS TO BE ASSE SSED ONLY UNDER THE HEAD LONG TERM CAPITAL GAINS AND A.O. I S DIRECTED TO MODIFY THE COMPUTATION ACCORDINGLY. GROUND NOS. 3 TO 9 ON THE ISSUE OF TAXABILITY OF CAPITAL GAINS ARE REJECT ED AND GROUND NO.10 PERTAINING TO TAXABILITY AS LONG TERM CAPITAL GAIN IS ALLOWED. 11. GROUND NO.11 PERTAINS TO ISSUE IN WHICH ASSESS EE IS CONTESTING THAT THE ASSESSMENT YEAR IN THE ORDER AND DEMAND NOTICE ARE WRONGLY MENTIONED. ON THE FIRST P AGE OF THE ORDER INDICATE THAT ASSESSMENT WAS MADE FOR A.Y. 20 07-08 35 ITA.NO.966/HYD/2013 M/S. ANDHRA NETWORKS LTD., HYDERABAD. WHEREAS THE DEMAND WAS RAISED FOR A.Y. 2005-06. EVE N THOUGH THERE WAS AN ERROR ON THE BODY OF THE ORDER MENTION ING A.Y. AS 2007-08, THE PROCEEDINGS UNDER SECTION 148 ARE INCI DENTALLY INITIATED FOR A.Y. 2005-06 ONLY AND THE EVERY PAGE OF ORDER (ON THE TOP OF IT), THE A.Y. IS MENTIONED AS 2005-06. I N FACT, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) FOR A.Y. 2005- 06 ONLY AND THE DEMAND NOTICE WAS ALSO ISSUED FOR A .Y. 2005- 06. IF THE ERROR IN FIRST PAGE OF THE ASSESSMENT OR DER IS NOT CORRECTED BY A.O. BY THIS TIME, SINCE, IT IS A CURA BLE DEFECT, THE A.O. IS DIRECTED TO MODIFY THE A.Y. FROM 2007-08 TO A.Y. 2005- 06. HOWEVER, THERE IS NO NEED TO CONSIDER ASSESSEE S OBJECTIONS ON THIS AS THE ASSESSMENT ORDER WAS PASSED FOR A.Y. 2005-06 AND DEMAND NOTICE WAS ALSO ISSUED FOR A.Y. 2005-06 AND ASSESSEE ALSO PREFERRED APPEALS MENTIONING THE A.Y. 2005-06 ONLY. IN VIEW OF THIS, GROUND NO.11 OF THE ASSESSEE IS REJECTED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.201 4. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 26 TH NOVEMBER, 2014 VBP/- COPY TO 1. ANDHRA NETWORKS LIMITED, 6-3-652, DHRUVA TARA COMPLEX, SOMAJIGUDA, HYDERABAD. 2. THE DCIT, CIRCLE 1(1), HYDERABAD. 3. CIT(A)-V, HYDERABAD. 4. CIT-I, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.