Income Tax Appellate Tribunal - Mumbai
Bharat Homes Ltd., Mumbai vs Assessee on 27 May, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" Bench, Mumbai
Before S/Shri B.R. Baskaran (AM) & Amit Shukla (JM)
I.T.A. No. 6792/Mum/2011
(Assessment Year 2008-09)
M/s. Bharat Homes Ltd. Asst.CI T 9(1)
1 s t Floor, A.N. House Vs. Mumbai
31 s t Road, TPS III
Bandra West
MUMBAI-400 050.
(Appellant) (Respondent)
PAN No.AAACB3564H
Assessee by Shri Hariom Tulsyan
Department by Smt. Rajeshwari Motwani
Date of Hearing 3.5.2016
Date of Pronouncement 27.5.2016
ORDER
Per B.R. Baskaran, AM :-
The appeal filed by the assessee is directed against the order dated 30.08.2011 passed by Ld CIT(A)-19, Mumbai for assessment year 2008-09, wherein the Ld CIT(A) has confirmed the disallowance of depreciation made by the AO.
2. The facts relating to thereto are set out in brief. The assessee is engaged in the business as builders and developers of real estate. The assessee had purchased two flats, viz., one at 3rd floor, Aman Chambers admeasuring 8977 Sq.ft. super built up area for Rs.8.977 crores and another one in 5th floor admeasuring 6793 Sq.ft. super built up area for Rs.6.703 crores. Both the properties were purchased on 23.11.2005. The assessee claimed depreciation on the above said values in AY 2006-07 onwards. The depreciation claimed in AY 2006-07 was disallowed by the AO on the reasoning that these properties were not put to use in that year, but the same was allowed by Ld CIT(A). In AY 2 M / s. B hara t H o me s L td .
2007-08, the assessing officer has allowed the claim of depreciation. Thus, the depreciation came to be allowed both in AY 2006-07 and 2007-08.
3. In the year under consideration, the AO examined the claim of depreciation afresh and took the view that the cost of purchase of above said properties would include cost of land also. Accordingly he took the view that the depreciation claimed on the value relating to land is not allowable under the Act. The assessee submitted that such kind of segregation is not possible, as it has purchased flats only and not land, but the same was not acceptable to the AO. Accordingly he proceeded to arrive at the cost of construction on the basis of Ready Reckoner rate-2007 prescribed by the Stamp duty authorities under the Registration Act and determined the cost of construction of flats at Rs.75.28 lakhs for both the properties. Consequently it was held that the balance portion of the cost of purchase represents land cost. Accordingly, the AO held that the depreciation is allowable on the above said amount of Rs.75.28 lakhs only, since the remaining portion of the purchase value represents land cost.
4. The AO computed the total income by adopting the profit shown in the profit and loss account. He added depreciation claimed in the books of account and other disallowable expenses to the profit. Then he should have reduced only the depreciation allowable under the Income tax Act, i.e., Rs.7,89,205/- in order to arrive at the total income. However, the AO disallowed the excess claim of depreciation Rs.106.62 lakhs (Rs.114.51 lakhs claimed by the assessee (less) Rs. 7.89 lakhs determined by AO as allowable), which is apparently not correct. The assessee has also failed to note this mistake at the time of prosecuting appeal before Ld CIT(A) and hence it has filed an additional ground seeking rectification of this mistake.
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5. In the appeal filed before Ld CIT(A), the assessee submitted that the land has not been transferred to it and it is still owned by the builder. Further it was submitted that, in any case, the land shall be transferred to the co-operative society that shall be formed in future. Accordingly it was contended that the assessee shall not become owner of the land at any point of time. The Ld CIT(A), however, expressed the view that the undivided share in the land in respect of flats constructed in high rise buildings is well defined and determinable. The Ld CIT(A) referred to the definitions given in sec.6 of Maharashtra Apartment Ownership Act 1970 to the terms viz., "Common Areas and Facilities" and "apartment owner" and held that the above said Act provides that the assessee is having undivided interest in the common areas and facilities. He further held that the undivided share in the land could be allocated to the individual flat's super built up area in the ratio of Individual flat's area to the Aggregate built up area. The Ld CIT(A) agreed with the view taken by the AO that the co-operative society is a creation of the flat owners and even if the land is owned by the co-operative society, the undivided share in land could be ascertained on the basis of shareholding. The Ld CIT(A) further observed that, since the land has not been transferred, in the instant case, to the co-operative society and it is still being held by the builder, the Undivided share in land should be allocated to the flats purchased by the assessee. The Ld CIT(A) referred to the decision rendered by Hon'ble Supreme Court in the case of Mc Dowell & Co. Ltd Vs. CTO (1985)(22 Taxman 11) and held that the avoidance of tax by colourable devices should be discouraged. He further held that the true nature of transaction should be taken into consideration for income tax purposes and the transfer of land to the name of the assessee by way of registration is not a precondition to determine the ownership of the land. With regard to the contention that the depreciation has been allowed in AY 2006-07 and 2007-08, the Ld CIT(A) placed reliance on the decision rendered by Hon'ble Supreme 4 M / s. B hara t H o me s L td .
Court in the case of Karnani Properties Ltd (1971)(82 ITR 547 @ 554) and held that the principle of res-judicata shall not apply to income tax proceedings. The Ld CIT(A) placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Saharanpur Electric Supply Company Ltd Vs. CIT (1992)(194 ITR
294), wherein it was held that the definition of Written Down Value in section 43(6) envisages computation of actual cost in every assessment year. Original figure of actual cost can be altered for a current year on the basis of subsequent factual or legal information and that there is no vested right to depreciation on the basis of actual cost originally determined. Accordingly the first appellate authority concurred with the view taken by the AO.
6. However, the Ld CIT(A) did not agree with the method adopted by the AO to determine the value of land. We have earlier noticed that the AO ascertained the construction cost of flats from the Ready Reckoner rate prescribed by the Stamp duty authorities. Apparently, the sale consideration paid over and above the cost of construction as determined by the AO, was taken as the value attributable to the land. The Ld CIT(A) held that the value of undivided share of land should be ascertained on the basis of stamp duty valuation prescribed for ascertaining the value of land. Accordingly he directed the AO to work out the depreciation allowable on the value of flats.
7. The Ld A.R submitted that the tax authorities have failed to examine the conveyance deeds which clearly state that the assessee has purchased only the super structure and not the land. He further submitted that the conveyance deeds are very clear in stating that the land belongs to the vendor only. He further submitted that the co-operative society has not been formed till the end of the year under consideration and hence the land has remained with the builder only. Accordingly he submitted that the observations made by the tax 5 M / s. B hara t H o me s L td .
authorities about the co-operative society, constructive possession etc., are not applicable to the year under consideration. Even if the land is transferred to co- operative society, the ownership shall remain with it and the assessee cannot be considered to be one of the deemed owners, since co-operative society is a separate legal entity. He further submitted that the case laws relied upon by Ld CIT(A) has been rendered on different set of facts and hence they cannot be applied to the assessee's case.
8. The Ld A.R further submitted that the assessee has been allowed depreciation in AY 2006-07 and 2007-08 and under the principles of consistency, the AO should not have disturbed the depreciation schedule. He further submitted that these flats have lost their individual identity after entering into the block and hence the AO should not have disturbed the WDV of the block of asset. He further submitted that the Bangalore bench of ITAT has also considered an identical issue and it has held in the case of JCIT Vs. Rajesh Exports (9 SOT 28)(Bang.) as under:-
"Under section 32(1) of the Act, the word "building" is to be interpreted as the superstructure and not land. Where the assessee purchases building and the purchase price (as per sale deed) is a composite one (sale deed does not indicate the prices of land and building separately), then no distinction at least in the consideration paid to the vendor can be made. However, if there is a clear cut identity in respect of price paid to the land and building (i.e., sale deed indicates price of land and building separately), then the Assessing Officer is right in allowing depreciation only on the building."
The Ld A.R submitted that the above said ratio has been followed by the Delhi bench of Tribunal in the case of ITO Vs. Millennium Spire India Management (P) Ltd (ITA No.3297/Del/2013 dated 23.12.2014).
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9. On the contrary, the ld D.R placed strong reliance on the decision rendered by the Ld CIT(A). He submitted that the costs of flats are not identical in all the areas and they would normally differ depending upon the area where it is located. He submitted that the difference mainly arises due to difference in the prices of land. Accordingly he submitted that the Ld CIT(A) was justified in holding that the cost of flats include the price of land also. He further referred to the CBDT Circular No.9 dated 25.03.1968 [F.No.8/2/69-IT(AI)] and submitted that the CBDT has held that the legal ownership of the flats can be said to vest in the individual members, even if the co-operative society gives the tenancy rights to its members.
10. We have heard rival contentions and perused the record. The depreciation is allowed u/s 32 of the Act, which states that the depreciation shall be allowed on the building owned, wholly or partly, by the assessee and used for the purposes of business or profession. In the instant case, there is no dispute with regard to the fact that the two flats, referred above, are owned by the assessee and they are used for its business also. It is also an undisputed fact that the AO has allowed depreciation on these two flats in AY 2006-07 and 2007-08 on the value declared by the assessee accepting the cost declared by the assessee.
11. The controversy is with regard to the value of flats purchased by the assessee. The tax authorities have taken the view that the sale consideration paid for purchase of flats should be bifurcated between the land and the building, since the depreciation is not admissible on the value of land. We notice that the tax authorities have arrived at this conclusion on presumptions, since we notice that the averments made in the conveyance deed supports the case of the assessee. The second schedule of the conveyance deed describes the 7 M / s. B hara t H o me s L td .
nature of property that is being conveyed to the assessee and the same reads as under:-
THE SECOND SCHEDULE ABOVE REFERRED TO (Description of the premises) ALL THAT the said premises admeasuring 8977 sq. feet super built-up area (5811 sq. feet carpet area) situate on the 3"1 floor of the building known as `Aman Chambers' (formerly known as Kodak House) alongwith three (3) car parkings in the compound of the building `Aman Chambers' having ground plus five floors constructed on the land bearing C.S.No.1098, Final Plot No.1121, Mahim Division.
With regard to the property described in the Second Schedule, the vendor has stated as under in the conveyance deed.
"The Vendor doth hereby absolutely grant, convey and transfer by way of sale and the Confirming Party hereby confirms unto the Purchaser on OWNERSHIP basis ALL that the said premises admeasuring 8977 sq. feet super built-up area (5811 sq. feet carpet area) on the 3rd Floor of the building known as 'Aman Chambers' (previously known as Kodak House) together with three (3) open car parkings in the compound of the building 'Aman Chambers' and amore particularly described in the Second Schedule hereunder written and hereinafter collectively referred to as "the said Premises", constructed on all that piece or parcel of land or ground bearing C.S. No. 1098 of Mahim Division, Final Plot No. 1121 of Town Planning Scheme, Bombay City No. IV and which 3rd floor premises are shown delineated on floor plan "A" thereof hereto annexed, surrounded by a red coloured boundary line TOGETHER WITH ALL AND SINGULAR the benefit of open parking spaces in the building compound, the benefit and access to common areas and facilities including high speed lifts, staircase and lobby, passages as also water, power, sewerages and all privileges, easements, advantages, rights members and appurtenances, whatsoever to and into the said premises or any part there of belonging to or any wise appertaining to or with the same or any part thereof now or at any time heretofore usually held, used, occupied and enjoyed therewith or reputed or known as part or members thereof to belong or be appurtenant thereto."
A careful perusal of the Second Schedule would show that the property that was transferred or intended to be transferred was only the super structure. With regard to the land, it has been stated as under:-
"AND THAT the Vendor hereby covenants that they shall cause to be executed the Deed of Conveyance or any other such document/documents of Transfer in respect of the said property along with the said building 8 M / s. B hara t H o me s L td .
constructed thereon, which Conveyance shall be in favour of Co-operative Society and/or Limited Company and/or any Association and/or Condominium of Apartment Owners or any other body corporate or other form of organization (hereinafter referred to as "the said body corporate") as the Vendor may decide and the Purchaser shall not dispute or challenge the right of the vendor in that behalf."
It has been made clear in the agreement that the land (described as said property) shall be not be conveyed to the assessee, but it shall be conveyed in favour of co-operative society and/or limited company and/or any association of person and/or condominium of apartment owners etc. It is further made clear that the assessee shall not dispute or challenge the right of the vendor in that behalf, meaning thereby, the assessee does not any right to either dispute or to challenge the same and the decision of the vendor is binding upon the assessee.
12. A careful perusal of the clauses extracted above from the Sale deed would make it clear that the vendor has conveyed only the super structure of flats on "ownership" basis. With regard to the land, it is made clear by the vendor that the same shall be transferred to a society or any other form of organization and it is further made clear that the assessee does not have any right to dispute or challenge the decision of the vendor in this regard.
13. We notice that the Ld CIT(A) has referred to the definitions given in Maharashtra Apartments Act. A careful perusal of the same shows that the said Act only states that each apartment owner shall be entitled to an interest in the common areas and facilities available in the apartment in the percentage expressed in the declaration. It does not declare anything about the value of land embedded in the cost of flat.
14. We notice that the Ld CIT(A) has referred to the decision rendered by Hon'ble Supreme Court in the case of Mc Dowell and Co. (supra). But we find that the assessee has not adopted any colourable device in this matter. The 9 M / s. B hara t H o me s L td .
sale deed makes it clear that what was conveyed to the assessee was a flat and not land. Hence, in our view, the above said decision of Hon'ble Supreme Court shall not have any application to the facts of the present case.
15. In view of the above, we are of the view that there is no material available with the tax authorities to support their view. In our view, the decisions rendered by the Bangalore bench of tribunal in the case of Rajesh Exports and Delhi bench of Tribunal in the case of Millennium Spire India Management (P) Ltd (referred above) are applicable to the facts prevailing in the instant case. In the instant case, the assessee has paid the purchase price for purchase of flats and it is not discernible from the sale deed that it has paid anything separately for land. On the contrary, the sale deed makes it very clear that what was conveyed was only the super structure of the flats. On the contrary, it is an undisputed fact that the ownership of the land has remained with the vendor till the end of the year under consideration. The conveyance deed also makes it very clear that the land shall be transferred by the vendor to a co-operative society or any other form of organization. The assessee does not have any right or say in the matter of conveyance of land. These clauses coupled with the provisions of Maharashtra Apartments Act makes it clear that the assessee shall have only right of interest in the common area and facilities. Hence we are of the view that the tax authorities are not justified in bifurcating the selling price between the land and building without bringing any material to support their view.
16. It is an undisputed fact that the assessing officer has allowed depreciation on the flats in AY 2006-07 and 2007-08. Hence, we are of the view that it may not be proper on his part to draw adverse inferences during the instant year, on the basis of certain presumptions entertained by him, that too without bringing any material on record to support his views. On the contrary, as stated earlier 10 M / s. B hara t H o me s L td .
the recitals made in the conveyance deed actually supports the contentions of the assessee.
17. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was not justified in confirming the action of the AO. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to allow the depreciation as computed by the assessee taking the price paid for purchase of flat as the cost of flats.
18. With regard to the additional ground, we have already noticed that the assessing officer has committed a mistake in adding the difference of depreciation. Since we have directed the AO to allow the depreciation claimed by the assessee, the above said mistake shall also get automatically rectified.
19. In the result, the appeal filed by the assessee is allowed.
Order has been pronounced in the Open Court on 27.5.2016.
Sd/- Sd/-
(AMIT SHUKLA) (B.R.BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 27/5/2016
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)
4. CIT
5. DR, ITAT, Mumbai
6. Guard File.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
ITAT, Mumbai
PS