Shri.Suresh Nagaraja Rao Kestur , Bangalore V. The Income Tax Officer Ward-5(3)(3), Bangalore

MA 5/BANG/2021

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6888 (ITAT-BANGALORE)
• Duration Of Justice: 22 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 07-01-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: LIKITH R PRAKASH
• Keywords: Capital asset; Business income; Cost of acquisition; Date of conversion
• Section: 54F; 201; 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. N. V. VASUDEVAN, VICE PRESIDENT AND SHRI. B. R. BASKARAN , ACCOUNTANT MEMBER MP NO.5/BANG/2021 (IN ITA NO. 367/BANG/2018) ASSESSMENT Y EAR : 201 3 - 1 4 SHRI. SURESH NAGARAJA RAO KESTUR, #670/5/2/, 11 TH D MAIN JAYANAGAR, BENGALURU 560 041. PAN : AJJPK 1231 F VS. THE INCOME TAX OFFICER, WARD 5(3)(3), 6 TH FLOOR, HMT BHAVAN, NO.59, BELLARY ROAD, BENGALURU 5 60 032. APPELLANT RESPONDENT ASSESSEE BY : SHRI. LIKITH R. PRAKASH, ADVOCATE REVENUE BY : SHRI. KANNAN NARAYANAN, ADDL.CIT (DR)(ITAT), BENGALURU DATE OF HEARING : 2 9 .0 1 .20 21 DATE OF PRONOUNCEMENT : 29 . 01 .20 21 O R D E R PER N. V. VASUDEVAN, VICE PRESIDENT: THIS IS A MISCELLANEOUS PETITION (MP) FILED BY THE ASSESSEE UNDER SECTION 254(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT), PRAYING FOR RECALL OF THE ORDER DATED 16.10.2020 PASSED BY THIS TRIBUNAL IN THE AFORESAID APPEAL OR GRANT ANY OTHER RELIEF AS THE TRIBUNAL MAY DEEM FIT. 2. THE ISSUE THAT AROSE FOR CONSIDERATION IN THE AFORESAID APPEAL IS AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN TREATING THE GAIN ON SALE OF MP NO.5/BANG/2021 (IN ITA NO.367/BANG/2018) PAGE 2 OF 7 PROPERTIES BY THE ASSESSEE WHICH WAS CONSIDERED BY THE ASSESSEE AS A LONG TERM CAPITAL GAIN, AS GIVING RISE TO BUSINESS INCOME/SHORT TERM CAPITAL GAIN. 3. THE ASSESSEE IS A SALARIED EMPLOYEE, WORKING FOR IBM INDIA PVT. LTD. THE ASSESSEE ALONG WITH ONE MR. SRINIVASAN AND MR. K. N. RAMESH ENTERED INTO CO-OWNERSHIP AGREEMENT DATED 15.06.2002. AS PER THE TERMS OF THE CO- OWNERSHIP AGREEMENT, THE ASSESSEE AND THE TWO OTHER PERSONS AGREED THAT THEY WILL DO BUSINESS BY JOINTLY PURCHASING LANDS. 3. ON 17.09.2005, THE ASSESSEE AND THE TWO OTHERS I.E., MR. SRINIVASAN AND MR. K. N. RAMESH PURCHASED LAND MEASURING 6.20 ACRES AT MEDAMARANAHALLI, HEROHALLIOBLI, KANAKAPURA TALUK, BANGALORE RURAL. AFTER PURCHASE OF THE AFORESAID PROPERTY, THEY WERE CONVERTED FROM AGRICULTURAL USE TO NON- AGRICULTURAL PURPOSE. THE SAID REQUEST WAS GRANTED BY THE DISTRICT COMMISSIONER, RAMNAGAR DISTRICT, BY A CONVERSION ORDER DATED 11.08.2010. 4. THE ASSESSEE AND THE OTHER TWO CO-OWNERS SOLD THE PROPERTY ACQUIRED BY THEM ON 17.09.2005 UNDER THREE DIFFERENT SALE DEEDS AS PER THE FOLLOWING DETAILS: (A) SY NO. 126, MEASURING 3.29 ACRES IN FAVOUR OF SRI. D. VENKATANARAYANASWAMY FOR A SALE CONSIDERATION OF RS. 31,50,000/-. SALE DEED DATED 25.07.2012. (B) SY. NO. 126, MEASURING 1.20 ACRES IN FAVOUR OF SRI. JOHN BAPTIST CARNELIO FOR A SALE CONSIDERATION OF RS. 1,05,62,500/-. SALE DEED DATED 07.08.2012. (C) SY. NO. 126, MEASURING 39.5 GUNTAS AND SY. NO.127/2 MEASURING 23.5 GUNTAS IN FAVOUR OF M/S SRI MANJUNATHA WAREHOUSING PVT. LTD., FOR A SALE CONSIDERATION OF RS. 60,00,000/-. SALE DEED DATED 17.11.2012. MP NO.5/BANG/2021 (IN ITA NO.367/BANG/2018) PAGE 3 OF 7 AFTER REDUCING THE INDEXED COST OF ACQUISITION, COST OF IMPROVEMENT, FROM SALE CONSIDERATION. THE CAPITAL GAIN INCOME THUS EARNED WAS CLAIMED AS DEDUCTION U/S 54F IN ENTIRELY, AS INVESTMENT MADE IN A RESIDENTIAL APARTMENT. 5. THE AO FIRSTLY CAME TO THE CONCLUSION THAT THE GAIN ON SALE OF THE PROPERTY BY THE ASSESSEE GIVE RISE TO INCOME FROM BUSINESS BUT NEVERTHELESS, THE AO AGREED TO TREAT THE GAIN IN QUESTION AS THE CAPITAL GAIN. THE AO, HOWEVER, CAME TO THE CONCLUSION THAT THE GAIN ON SALE OF LAND WAS SHORT TERM CAPITAL GAIN FOR THE FOLLOWING REASONS: 8. IT IS ABUNDANTLY CLEAR THAT THE INCOME EARNED TO THE TUNE OF RS. 1,97,12,500/-( TO BE ASSESSED IN THE HANDS OF THREE CO-OWNERS) HAS TO BE BUSINESS INCOME. HOWEVER, CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT THE ASSET SHOULD BE TREATED AS CAPITAL ASSET, IT HAS TO BE MENTIONED HERE THAT THE ASSET BECAME A CAPITAL ASSET ONLY AFTER CONVERSION FROM AGRICULTURAL TO INDUSTRIAL LAND AS PER THE PROVISIONS OF SEC.2(47)(IV), THE RELEVANT PORTION OF THE I.T.ACT IS REPRODUCED AS UNDER: 'IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO OR IS TREATED BY HIM AS, STOCK-IN-TRADE OR BUSINESS CARRIED ON BY HIM, SUCH CONVERSION OR TREATMENT-'. THUS, IT IS CLEAR THAT THE ASSET HAS BECOME CAPITAL ASSET AS PER THE CONVERSION ORDER OF THE DEPUTY COMMISSIONER DATED 11.8.2010 AND THE PERIOD OF HOLDING OF THE ASSET FROM DATE OF CONVERSION TO THE DATE OF SALES MADE ON 25.7.2012, 07.08.2012 AND 17.08.2012 IS LESS THAN 3 YEARS AND ACCORDINGLY THE ASSET SOLD IS A 'SHORT TERM CAPITAL ASSET' AND THE GAIN IS TO BE TREATED AS SHORT TERM CAPITAL GAIN AND THEREBY THE ASSESSEE IS NOT ENTITLED FOR CLAIMING DEDUCTION U/S 54F. 6. HOWEVER IN THE COMPUTATION OF TOTAL INCOME THE AO HAS TREATED THE GAIN ON SALE OF LAND AS BUSINESS INCOME. THUS THERE IS CONTRADICTION IN THE ORDER OF THE AO. THE COMPUTATION OF GAIN HAS AGAIN BEEN MADE BY THE AO IN THE MANNER ONE WOULD COMPUTE CAPITAL GAIN. THE RATE OF TAX IS SAME FOR BOTH BUSINESS INCOME AND SHORT TERM CAPITAL GAIN AND THEREFORE IT IS NOT DISCERNIBLE MP NO.5/BANG/2021 (IN ITA NO.367/BANG/2018) PAGE 4 OF 7 FROM THE ORDER OF ASSESSMENT AS TO WHETHER THE AO HAS TREATED THE GAIN IN QUESTION AS GIVING RAISE TO BUSINESS INCOME OR SHORT TERM CAPITAL GAIN. 7. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO. IN THE APPEAL BEFORE THE TRIBUNAL, THE PRIMARY CONTENTION OF THE ASSESSEE WAS THAT THE GAIN IN QUESTION CANNOT BE REGARDED AS BUSINESS INCOME. WITHOUT PREJUDICE TO THE AFORESAID CONTENTION, THE ASSESSEE ALSO CHALLENGED THE ACTION OF THE AO IN CONSIDERING THE GAIN IN QUESTION AS GIVING RAISE TO SHORT TERM CAPITAL GAIN IN GROUND NOS.5 AND 6 WHICH READS AS FOLLOWS: 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT, THE APPELLANT IS NOT ELIGIBLE FOR EXEMPTION U/S.54F OF THE ACT. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT, THE ASSET BECAME A CAPITAL ASSET ONLY AFTER CONVERSION AND THE PERIOD OF HOLDING FOR THE PURPOSE OF DETERMINING THE PERIOD OF THREE YEARS, THE DATE OF CONVERSION SHOULD BE CONSIDERED AS DATE OF ACQUISITION AND ON THE CONTRARY THIS IS NOT THE POSITION OF LAW, ORIGINAL DATE OF ACQUISITION CONTINUES TO BE THE DATE OF ACQUISITION 8. THE TRIBUNAL IN ITS ORDER DID NOT DEAL THE GROUNDS 5 AND 6 AS EXTRACTED ABOVE BUT ONLY DEALT WITH THE ISSUE AS TO WHETHER THE GAIN IN QUESTION WOULD GIVE RISE TO INCOME FROM BUSINESS OR INCOME UNDER THE CAPITAL GAIN. PARA 3 OF THE ORDER OF THE TRIBUNAL IN THIS REGARD READS AS FOLLOWS: 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IN THE PAPER BOOK FROM PAGES 1 TO 9, THE LEARNED AR OF THE ASSESSEE HAS ALSO SUBMITTED WRITTEN SUBMISSIONS BEFORE THE TRIBUNAL AND ON PAGE 5 OF HE SAID WRITTEN SUBMISSION, IT IS SUBMITTED THAT THE INTENTION OF THE CO-OWNERSHIP AGREEMENT MADE BETWEEN THE ASSESSEES BROTHER AND RELATIVE IS ONLY FOR THE PURPOSE OF BETTER FUTURE UNDERSTANDING TO DIVIDE THE SHARE OF LAND, THE RIGHTS ON PROPERTY OR GAIN/LOSSES AND HENCE, IT IS SEEN THIS IS NOT THE CONTENTION OF THE ASSESSEE THAT THIS LAND WAS NOT PURCHASED IN PURSUANCE TO THE CO-OWNERSHIP AGREEMENT DATED 15.06.2002. HENCE, WE PROCEED ON THIS BASIS THAT THE LAND IN QUESTION WAS PURCHASED BY THE ASSESSEE ALONG WITH CO-OWNERS IN MP NO.5/BANG/2021 (IN ITA NO.367/BANG/2018) PAGE 5 OF 7 PURSUANCE TO THE DEED OF CO-OWNERSHIP ENTERED INTO BY THE ASSESSEE WITH OTHER 2 CO-OWNERS SHRI. N. SRINIVASAN AND K. N. RAMESH. COPY OF THIS CO- OWNERSHIP AGREEMENT IS AVAILABLE ON PAGES 15 TO 17 OF THE PAPER BOOK AND IN CLAUSE 4 OF THIS AGREEMENT, IT IS STATED THAT THE NATURE OF BUSINESS WILL BE JOINT PURCHASE OF THE LAND. IN PARA 6 OF THIS CO-OWNERSHIP AGREEMENT, IT IS ALSO STATED THAT THE NET INCOME OF THE CO-OWNERSHIP AFTER DEDUCTION OF ALL EXPENSES SHALL BE SHARED BY THE CO-OWNERS IN ACCORDANCE WITH THIS DEED OF CO-OWNERSHIP. IN OUR CONSIDERED OPINION, WHEN THIS IS ADMITTED POSITION THAT THE PURCHASE OF THE LAND IN QUESTION IN THE MONTH OF SEPTEMBER 2005 WAS IN PURSUANCE TO THIS COOWNERSHIP AGREEMENT ENTERED INTO IN JUNE 2002 AND AS PER THIS CO-OWNERSHIP AGREEMENT, THIS IS THE BUSINESS OF THIS CO- OWNERSHIP TO HAVE JOINT PURCHASE OF LAND AND THE NET INCOME OF THE CO- OWNERSHIP AFTER DEDUCTION OF ALL EXPENSES IS TO BE SHARED BY THE CO-OWNERS IN ACCORDANCE WITH THE MANNER PROVIDED IN THE CO-OWNERSHIP AGREEMENT, NOTHING FURTHER IS REQUIRED TO BE SEEN AND IT CAN CONCLUDED WITHOUT ANY HESITATION THAT THE INCOME ARISING ON PURCHASE AND SALE OF LAND IN PURSUANCE TO THIS CO-OWNERSHIP AGREEMENT IS TAXABLE AS BUSINESS INCOME AND THIS IS NOT RELEVANT AS TO WHETHER ANY OTHER ACTIVITY WAS DONE BY THE CO-OWNERS ON THE LAND PURCHASED OR IN ANY OTHER MANNER. WE CONCLUDE ACCORDINGLY. 9. IN THIS MP, THE ASSESSEE HAS SUBMITTED THERE ARE SOME ERRONEOUS ASSUMPTIONS REGARDING THE CO-OWNERSHIP AGREEMENT WHICH FORMED THE BASIS FOR CONCLUSIONS THAT THE GAIN ON SALE OF PROPERTY WAS BUSINESS INCOME. IT HAS BEEN SUBMITTED THAT SAID DOCUMENT WAS INCOMPLETE AND NEVER ACTED UPON. THE LEARNED COUNSEL IN THE COURSE OF ARGUMENT, APART FROM REITERATING WHAT IS STATED IN THE MP ALSO SUBMITTED THAT THE MAIN ISSUE WHICH WAS RAISED BY THE ASSESSEE IN GROUND NOS.5 AND 6 HAD NOT BEEN DECIDED AND THEREFORE THE ORDER OF THE TRIBUNAL SHOULD BE RECALLED. LEARNED DR SUBMITTED THAT THERE IS NO MISTAKE OR MISTAKE APPARENT FROM THE FACE OF THE ORDER OF THE TRIBUNAL. 10. WE HAVE GIVEN A CAREFULLY CONSIDERATION TO THE RIVAL SUBMISSIONS AND WE FIND THAT THE TRIBUNAL HAS NOT ADJUDICATED THE MAIN GRIEVANCE OF THE ASSESSEE REGARDING CONCLUSIONS OF THE AO THAT THE GAIN ON SALE OF PROPERTY WAS SHORT TERM CAPITAL GAIN AND HAS ADJUDICATED ON THE ISSUE WHETHER THE INCOME MP NO.5/BANG/2021 (IN ITA NO.367/BANG/2018) PAGE 6 OF 7 IN QUESTION GIVE RAISE TO CAPITAL GAIN OR BUSINESS INCOME. THE FINDINGS OF THE AO ARE CONTRADICTORY AS ALREADY POINTED OUT ABOVE AND THE CIT(A) HAS ALSO NOT RENDERED ANY CLEAR FINDING ON THE ISSUE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ORDER OF THE TRIBUNAL SUFFERS FROM MISTAKE APPARENT FROM THE FACE OF THE RECORD IN AS MUCH AS GROUND NO.5 AND 6 RAISED BY THE ASSESSEE REMAINS UNDECIDED. HENCE, THE PROPER COURSE WOULD BE TO RECALL THE ENTIRE ORDER RATHER THAN DECIDING THE OTHER GROUNDS AS THESE GROUNDS ARE INTERCONNECTED OR INTERLINKED. THE ORDER OF THE TRIBUNAL IS RECALLED AND REGISTRY IS DIRECTED TO FIX THE APPEAL FOR HEARING AFRESH IN DUE COURSE AFTER NOTICE TO PARTIES. 10. IN THE RESULT, ASSESSEES MISCELLANEOUS PETITION IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (B. R. BASKARAN) (N. V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED: 29.01.2021. /NS/* MP NO.5/BANG/2021 (IN ITA NO.367/BANG/2018) PAGE 7 OF 7 COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.