SH R B MATHUR V. PR COMMISSIONER OF INCOME TAX

ITA/346/2017

AI Insights

The case involves an appeal by Sh. R.B. Mathur against the judgment and order of the Income Tax Appellate Tribunal (ITAT), which had partly allowed his appeal but sustained the addition of Rs. 45 lacs as capital gain. The primary legal contention was whether the agreement dated 24.07.1994 should be considered a transfer agreement, which would trigger capital gains tax. The appellant argued that the agreement was not a sale agreement as it contained specific conditions and no consideration was received at the time of execution. The respondent, represented by the Pr. Commissioner Of Income Tax, Central Circle-2, argued that the agreement constituted a transfer under the relevant sections of the Income Tax Act and the Transfer of Property Act. The court examined the documents and arguments presented, including previous rulings and legal interpretations, and concluded that the agreement was indeed a transfer agreement, thus upholding the capital gains tax assessment.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 760212 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 25-07-2018
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs. Poddar Cement (P.) Ltd. Etc., (1997) 226 ITR 0626
• Laws Referred To: Income Tax Act, 1961, Transfer of Property Act 1882
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: SIDDHARTH BAPNA; ANIL MEHTA
• Assessee Lawyers: S L PODDAR; N L AGARWAL
• Keywords: Capital Gain; Development agreement; Double taxation; Income tax appeal; Transfer agreement
• Section: 22; 45(2); 27; 53A; 2(47)(v)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 346/2017 Sh. R.B. Mathur , A-8, Shyam Nagar, Jaipur. ----Appellant Versus Pr. Commissioner Of Income Tax, Central Circle-2 , Central Revenue Building, Department Of Income Tax, Statue Circle, C- Scheme, Jaipur. ----Respondent For Appellant(s) : Mr. S.L. Poddar with Mr. N.L.Agarwal For Respondent(s) : Mr. Siddharth Bapna for Mr. Anil Mehta HON'BLE MR. JUSTICE KALPESH SATYENDRA JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 25/07/2018 By way of this appeal, the appellant has challenged the judgment and order of Tribunal whereby learned Tribunal has partly allowed the appeal of the assessee. This Court while admitting the appeal on 20.02.2018 framed following substantial question/s of law: “Whether the Ld. ITAT was justified under law while treating the agreement dated 24.07.1994 as a transfer agreement by applying the provisions of Section2(47) (v) of the Income Tax Act, 1961 and Section 53A of the Transfer of Property Act 1882 while the said document is not a sale agreement in view of the express condition mentioned in clause 2 of said agreement and no consideration have been received by the assessee-appellant from the developer-party at the time of execution of the said agreement?” (2 of 5) [ITA-346/2017] “Whether the Ld. ITAT was justified under law while sustaining the addition of Rs. 45 lacs in the hands of the assesseeappellant on account of capital gain and ignoring the material fact that the capital gain in respect of the property have been disclosed in the returns of income of Mrs. Prem Kumari Mathur wife of the Assessee- Appellant and S/Sri Ravi Mathur and Anuj Mathur both sons of the Assessee- Appellant in the Assessment Year relevant to the previous years in which the flats constructed on the property were sold?” Counsel for the appellant has taken us to the order of the Tribunal as well as documents tendered by him by Paper-book which reads as under: 1. Development Agreement Dated 11.07.1994 7.That since huge sum of money is required to complete the project, the first party shall have no objection in mortgaging the property to any bank, semi govt. or govt. or private agency if required for the arrangement of finances. That after deducting all the expenses in constructing the said complex and interest paid to any financial agency in case finance is taken from them, the net profit/loss shall be divided in the ratio of 50:50 between the two parties. 2. ITAT, Jaipur, order dated 28.01.1999. 54. Shri R.B. Mathur applied for grant of term loan of Rs.50 lacs on collateral security of the above land to the Oriental Bank of commerce, Ajmer Road, Jaipur, when agreement between him and Smt. Prem Kumari Mathur, his wife and proprietor of M/s. DHD & C was executed on 24.7.94 for constructing multi-storied residential complex on the above plot. In the above agreement, the market value of the above plot vas taken at Rs. 45,00,000/. The AO considered and treated the property as individual property of Shri R.B. Mathur against tho assessee's claim mentioned above. the AO has alleged that the purchase deed, application for higher electricity load and application for term loan do not indicate that the property was purchased in HUF capacity. The AO treated the property to be converted (3 of 5) [ITA-346/2017] into stock-in-trade on the date when assessee applied for term loan. In this regard statement of Shri Ravi Mathur was recorded wherein he offered to pay capital gains tax to be apportioned between three members. Capital gains was calculated by taking the consideration of property at Rs.45,00,000/- being the estimated market value shown in application for term loan. The capital gains was added in the hands of Shri R.B. Mathur on substantive basis and 1/3rd each on protective basis in the hands of Shri Ravi Mathur, Shri Anuj Mathur and Smt. Prem Kumari. 3. Assessment order dated 05.01.1999 ANNEXURE -B {A}. CALCULATION OF LONG TERM CAPITAL GAIN [a]. Fair market value of land in 1981 = 2.71 lacs. Add - Cost of stamp paper = 0.11 lacs. Add -Cost of strip of land = 0.83 lacs. 330 sq.m. @ 250/sq.m. ------------ 3.65 lacs. [b]. Indexed cost = 3.05 X 3.65 = 11.13 lacs. [c]. Long term capital gain = 50 – 11.13 = 38.86 lacs. [d]. Long term gain / sft. = 38.86 / 31745 = 122.04 /sft. [e]. Long term gain on sale of 4890 sft.(as per annexure-C) =122.04 X 4890 = 5.96 lacs. [f]. Long term gain / owner = 5.96 lacs / 3 = 199577 say 199580 [g]. Tax @ 20% = 39915/- per owner (Total three owners) The contention of the counsel for the appellant is that the partition had already been taken place in 1986 and they are showing income tax in individual capacity and also in HUF. However, the property was in the name of Shri R.B. Mathur and agreement was entered into between coparceners. However, in view of earlier partition which was not reflected in the revenue record but in view of the decision of Hon’ble Supreme Court in Commissioner of Income Tax vs. Poddar Cement (P.) Ltd. (4 of 5) [ITA-346/2017] Etc., (1997) 226 ITR 0626, wherein it has been observed as under: “The liability under s. 22 is on a person who receives or is entitled to receive the income from the property in his own right. The requirement of registration of the sale-deed in the context of the s. 22 is not warranted. Assuming that there are two possible interpretations on s. 22, which is akin to a charging section, it is well settled, that the one which is favourable to the assessee has to be preferred. This view is strengthened/supported by a subsequent amendment to s. 27. The said amendment was introduced to s. 27 by the Finance Act, 1987 by substituting cls. (iii), (iiia) and (iiib) in the place of old cl. (iii) w.e.f. 1st April, 1988. From the circumstances narrated and from the memorandum explaining the Finance Bill, 1987, it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word \"owner” in s. 22. In the light of the clear exposition of the position of a declaratory/clarificatory Act it is not necessary to multiply the authorities on this point. There is, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1988 was declaratory/clarificatory in nature so far as it relates to s. 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation. In the context of s. 22 having regard to the ground realities and further having regard to the object of the IT Act, namely, ‘to tax the income’, owner is a person who is entitled to receive income from the property in his own right.” If contrary two views are possible then view should be taken in favour of assessee. The counsel for respondents has taken us to the para 46 of the Tribunal’s judgment, reads as under: “46. Before parting, we may add that once the apartment complex is fully constructed, sale of residential units in such apartment complex would be a subsequent sale and the assessee (5 of 5) [ITA-346/2017] would be at liberty to claim cost of acquisition against such sale, the full value of consideration deemed as accruing as a result of the transfer of the capital asset under Section 45 (2) of the Act with a view to avoid any double tax.” and contended that though the Tribunal has taken into consideration the question of double taxation however, it is for two transactions; one for development agreement and other as capital gain. In our considered opinion, if there is double taxation in the form of sale, on appropriate application being moved by the HUF, the same will be considered. If the property is in the name of HUF or individual, double taxation is not permitted for the same property or there cannot be any capital gain. Both the issues are answered in favour of department. The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J Chauhan/143 "