Income Tax Appellate Tribunal - Mumbai
Praksah J Jayakar, Mumbai vs Ito Wd 19(2)(4), Mumbai on 28 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " C" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No.2770/Mum/2014
(A.Y:2009-10)
ITA No.1897/Mum/2015
(A.Y:2009-10)
Shri Pramod J Ja yakar Asst. Commissioner of
Shri Pradeep J Jayakar Income Tax Range -19(2),
Room No.301, 201, 2 n d Floor, Piramal Chambers, 3 r d
Jay Apartment Linking Road, Floor, Lalbaug,
Vs.
Santacruz (W est) Mumbai-400 012
Mumbai-400 054
P AN No. AABPJ2143A
P AN No. AABPJ2141C
Appellant .. Respondent
ITA No.1199/Mum/2015
(A.Y:2009-10)
Shri Prakash J Jayakar Asst. Commissioner of
71/72, Shailesh Bldg., Linking Income Tax Range -19(2),
Rd, Santacruz (W ), Vs. Piramal Chambers, 3 r d
Floor, Lalbaug,
Mumbai-400 055
Mumbai-400 012
P AN No. ADMPJ8901G
Appellant .. Respondent
Assessee by .. Shri V.G. Ginde, AR
Revenue by .. Shri Rajat Mittal, DR
Date of hearing .. 21-06-2017
Date of pronouncement .. 28-07-2017
ORDER
PER MAHAVIR SINGH, JM:
These three appeals by the different assessee are arising out of the different order of CIT(A)-30, Mumbai, in appeal No. CIT(A)-30/ACIT- 19(2)/IT-358/11-12, CIT(A)-34/CIT-19(2)/IT-51/13-14, CIT(A)-34/ITO- 19(2)(4)/IT-313/13-14 dated 12-02-2014, 14-01-2015, 27-01-2015. The Assessment Orders were framed by the ACIT Circle-19(2), Mumbai for the A.Y. 2009-10 vide orders dated 29-12-2011, 25-03-2013,17-12-2013 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The first common issue in all the three appeals is against the order of CIT(A) confirming the AO in assessing the amount received from M/s Riddhi Developers under development agreement for 'JK Vila' as windfall gains under the head 'income from other sources' as against declared by assessee as 'long term capital gain' under the head "capital gains".
3. Briefly stated facts are that during the year under consideration assessee, along with other three co-owners, entered into a Development Agreement with M/s. Riddhi Developers dated 30.04.2008 for the property 'JK Vila' at Chembur. The assessee's father, Sh. J.M. Jayakar vide deed dated 31.08.1966 purchased this plot of land at village Borla, Taluka, Kurla, Mumbai, bearing C.T.S. No. 4550 Survey No..93, Hissa No. 1/7 (part) admeasuring about 630.05 sq. yards. Sh. JM Jayakar constructed a building consisting of Ground plus one upper floor known as JK Vila on this land consisting of six flats and sold those fiats to different persons on ownership basis. However, there did not exist Deed of Declaration of Apartment Owners Associated executed by Sh. J.M. Jayakar, and the property was not conveyed to the Flat owners. Thus the said land and the building J.K Villa continued to be shown in the name of Late Mr. J.M. Jayakar as the owner in the revenue records. Late Mr. J.M. Jayakar died at Mumbai on 20.02.1993 leaving behind his widow and three sons as his legal hews ["Owners of land"]. The assessee is one of the four legal heirs, and accordingly, inherited ¼th share in the Chembur property. Subsequently, the six Flat-owners decided to redevelop the Chembur property by demolishing the existing building and constructing a new building by consuming the available FSI and using TDR as permissible under the DC Rules, for which they approached the Developer. Since the ownership of land was with the Owners of land, the Developer approached them for their permission to redevelop the Chembur properly. Accordingly, a Tri-party Development Agreement was Page 2 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 executed on 30.04.2008 between the Owners of land, the Flat-owners and the Developer stipulating therein the terms and conditions of the redevelopment of the Chembur property. The consideration payable by the Developers to the Flat-owners and the Owners of land, was as under:
-
Based on the above facts, the assessee declared in the return of income the above transaction under the head long term capital gains, which resulted in a loss because of claiming deduction for the indexed cost calculated with referred to the FMV of the Chembur property as at 01.04.1981. During the assessment proceedings u/s 147 r.w.s. 143(3) of the Act, the AO took a view that the consideration received by the assessee was in the nature of a windfall gain since there was no cost of acquisition by the assessee. The AO relied on the assessment order in the case of the brother Shri Pramod J. Jayakar another co-owner of the Chembur properly, wherein this sum of Rs.12,75,000/- was treated as windfall gain. The AO, therefore, assessed the entire consideration as a windfall gain as "Income from Other Sources" without giving any deduction for the cost of acquisition. Besides, the AO also added the ¼ share of the assessee in the value of the 350 sq. ft. area Rs.6,00,000/-, being 1/4th of Rs.24,00,000/- that the assessee received along with other co-owners. Aggrieved, the assessee filed appeal before CIT(A). He also confirmed the action of the AO by observing as under: -
"5.1 All the grounds of appeal taken by the appellant pertain to rejection of his claim of Long Page 3 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 Term Capital loss of Rs. (-) 2,09,100/- and taxability of the consideration amount of Rs. 12,75,000/- and Rs.6,00,000/- (1/4th of Rs.24,00,000/-) being the surrender value of the appellant's share in the area of the flat being 350 sq.ft surrendered vide deed of release entered with the developer on 29.09.2010, that is, total of Rs. 18,75,000/- assessed as windfall gain and taxed by the AO under the head 'income from other sources' and rejection of appellant's alternate claim for exemption u/ s 54F made in the return of income. The grounds of appeal viz. 1.1 to 1.5 are therefore, clubbed together for the purpose of discussion and disposal.
5.2 The fact, in the issue involved, in the appellant's case, is that the appellant's father Late Shri J.M Jaykar had vide indenture deed dated 31.8.1966, purchased a plot of land admeasuring 630.05 sq. yards and constructed a building consisting of ground plus one upper floor known as 'J.K.Villa' on the said land. The villa had six flats, which were sold to different persons on ownership basis. However, the land was not conveyed to the flat owners and, therefore, in the revenue records, the above property was continued to be shown in the name of Late Shri J.M Jaykar, as owner in the revenue records. Shri Jaykar died intestate on 20.02.1993 leaving behind him his widow and three sons as his legal heirs. The appellant is one of the 4 legal heirs, and accordingly, under the law had 1/4th share in the land of the Chembur property. Subsequently, the six flats owners decided to re- develop the property by demolishing the existing building and constructing a new building by consuming the available FSI and using TDR as Page 4 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 permissible under the DC Rules, for which they approached the developers. Since the ownership of the land in revenue records was with the owners of the land, the developer approached for their permission to re-develop the above property.
Accordingly, a development agreement was executed on 30.4.2008 between the owners of the land, the flat owners and developers and the consideration paid to the owners of the land was Rs. 12,75,000/- to each of the 4 co- owners and 350 sq.ft of carpet area free of cost in the proposed project. The 6 flat owners got Rs. 12,50,000/- plus existing carpet area of flat + 25% extra area. The appellant has declared the above amount under Long Term Capital Gain and after taking FMV of the property at 1.4.81 and indexation cost, returned loss under the head Capital Gains.
5.3 The above facts, therefore, clearly bring out that "J.K Villa" had 6 flats on ownership basis, that is. all the 6 flats had been sold to the flat owners, who were persons other than the process of re- development of "J. the flat owners, whose names are mentioned in the 'Development Agreement" dtd. 30.4.2008, being "Second Part" in the agreement. It was only when the developer initiated the process of re-development by referring to the title of the land in the land records of the revenue that he found that name of late Shri Jaykar was appearing there. The same could be because Late Shri Jaykar did not form any society to transfer the land to the society and simply sold 6 flats in "J.K Villa" he constructed to persons whose names are appearing in the "Second Part" of the development agreement on ownership basis. So long "J.K Villa" was there, issue Page 5 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 of ownership of land was never 'in question. It is only when the 6 flat owners of the entire "J.K. Villa"
decided to re-develop the plot of land by using the available FSI and brining in TDR that the issue of title of the land came in. The developers in order to clear the title of the property and start the re-
development 76rk located the legal heir of Late Shri J.M. Jaykar and they were brought in to sign the Development Agreement as "First Part" in the agreement. These Legal heirs were offered amount of Rs. 12,75,000/- per person plus area of 350 sq. ft.
free of cost in the proposed project as a consideration amount to obtain title over the property. 5.4 The appellant has treated the above amount
of consideration and equivalent value of carpet area free of cost received in the proposed project, as consideration amount towards his interests in the land, therefore, capital amount and taxable under the head capital gain and that without prejudice, the amount received by him is also eligible for deduction u/s. 54F of the Act.
5.5 Upon due consideration of all the above facts, I am of the view that the above amount received by the appellant vide the development agreement I including value of the carpet area free of cost in the proposed project, subsequently surrendered vide deed of release, is not towards any capital amount, but to remove the hindrances the developer faced because of name of Late Shri J.M. Jaykar appearing in the revenue records, as the owner of the land.
This amount is nothing, but windfall gains in the hands of the appellant and the AO has rightly brought it to tax under the head. 'Income from other Page 6 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 sources'. I, therefore, confirm the addition of the above amount of Rs 18,75,000/- and uphold the assessment order. Grounds of appeal are thus dismissed."
4. We have heard rival contentions and gone through facts and circumstances of the case. The assessee argued that lower authorities erred in considering this transaction under the head 'income from Other Sources' instead of 'Capital Gains'. It was claimed that the assessee along with other three co-owners had certain residual rights in the Chembur property and that was the reason why the Developers had to approach the assessee and other three co-owners for their permission for redevelopment; if there was no such legal right then there would have been no necessity for any such permission. Therefore, the consideration that accrued to the assessee was on account of relinquishment of those residual rights in the Chembur property held by the assessee, and, consequently gain that arose from the same was assessable under the head of capital gains. The lower authorities did not appreciate the nature of the assessee's rights and, therefore, erred in characterizing the gains as "windfall' gain assessable under the head "Income from other sources".
5. We have considered the argument of the assessee and are of the view that It is only elementary that an income can be assessed under the residual head, viz. "income from other sources; if the same is not assessable under any of the preceding heads of income; the heads of income being mutually exclusive. Capital gains arise only on transfer of a capital asset' which is defined in Section 2(14) of the Act. As per the said definition, it refers to property of any kind held by an assessee unless specifically excluded from the scope of the said definition. In CIT vs. Tata Services Ltd. (1980) 122 ITR 594 (Bom) Hon'ble Bombay High Court has held that the word 'Property", used in section 2(14) of the Act is a word of the widest aptitude and the definition has re-emphasized this by use of Page 7 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 the words "of any kind". Thus, any right which cart he called property will be included in the definition of capital asset. It was further held that a right to obtain conveyance of immovable property was clearly "property" as contemplated by section 2(14) of the Act. In Late Nawab Sir Mir Osman AU Khan vs. CWT (1986)162 ITR 888 (SC), the facts were that the assessee was the Nizam of Hyderabad. He received certain sum representing the market value of certain immovable properties, even though he had not executed any registered sale deeds in favour of the vendees. The WTO held that the assessee still owned those properties, and consequently, the value of the same was included in his net wealth. On appeal, the Tribunal held that the assessee had ceased to be the owner of the properties, as in its view, the assessee having received the consideration money from the purchasers and the purchasers having been put into possession were protected in terms of Section 53A of the Transfer of Property Act, 1882 and the term 'owner' not only included the legal ownership but also the beneficial ownership. However, on reference, the High Court upheld the AO's order. On further appeal the Supreme Court held that section 53A of the TP Act gives the party in possession the right to retain possession. Where a contract has been executed and full consideration has been paid by the purchasers to the vendor and were and where the purchasers have been put in the possession by the vendor, the venders have right to retain that possession and resist eviction from the property by the vendor. The purchaser can also enforce suit for specific performance for execution of formal registered deed of the vendor was unwilling to do so., but in the eye of law, the purchasers cannot and are not treated as legal owners of the property in question.
6. In the instant case those lands were not legally the properties of the vendees and the assessee was the lawful owner of those properties, even though he had a mere husk of title and as against the vendee no reality of title, as against the world he was still the legal owner and the real owner. The vendees were, however, in rightful possession of the Page 8 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 properties as against the vendor in view of the provisions of section 53A of the TP Act. In view of the possession that legal title still vested with the assessee, the courts were preponderantly in favor of the view that the property should be treated as belonging to the assessee. In this backdrop, one needs to examine the nature of the assessee's right in the Chembur property that he inherited from his late father. The assessee's late father was the legal owner of the land on which a building of ground plus one upper floor having 6 tenements was constructed and those six tenements were sold by him on ownership basis. But there is no deed of apartment, nor any conveyance in respect of the land underneath the said building. As a result, the legal ownership of the said land, though as far the flats were concerned, the same belonged to the flat owners. Therefore, though the superstructure belonged to the flat-owners, the ownership right, title and interest in the land always vested in the assessee's late father. In this context, it is important to note that in India dual ownership is legally recognized where it is lawful that the building belongs to one person while the land on which it is built belongs to another person's. In CIT vs. Dr. D. L. Ranichandra Rao (1999) 236 ITR 51, the Hon'ble Madras High Court has observed as under: -
"......The decision of this court in Park View Enterprises case (1991) 189 ITR 192 makes it clear that the Indian law recognize dual ownership of the land & building. The privy council in Marayan Das Khetty vs. Jatindra Math Roy Chowdhary, AIR 1927 PC 135, has also taken the view that having regard to the law in India is possible to have separation of ownership of the building from the ownership of the land. This view of the Privy Council was approved by the Supreme Court in Bishom Das vs. State of Punjab, AIR 1961 SC 1570."Page 9 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10
A careful perusal of the Development Agreement would show that there was balance FSI relating to this property and further, under the Development Control Regulations, TDR can be loaded on this land. The right to exploit the balance FSI as well to load the permissible TDR on the land is the rights that are fasten to the land, and therefore, those valuable rights exclusively belong to the land owner. In this case, these rights are clearly vested in the assessee and other three co-owners. In view of these facts, we are of the view that though the assessee's late father sold the constructed flats way back, still the residual valuable rights in the land continued to vest in him as he was the legal owner of the said land. All these valuable rights constitute 'property' and therefore, capital asset u/s 2(14) of the Act, transfer of which resulted in taxable capital gains.
7. Further, as per clause (VI)(b) of the Development Agreement, the owners of land have agreed to convey the property to in favour of the organization of the purchasers, i.e. Society or a company of new tenements to be constructed by the Developers, as per the Bombay High Court judgment in Tata Services Ltd. (supra), a right to obtain conveyance of land is a property and therefore, a capital asset. Therefore, what the owners of land agree to part with should also be construed as a properly, and therefore, a capital asset. In view of the above facts and the law, the gains, if any, was clearly assessable to tax as capital gains, and not as income from other sources.
8. Further, we are of the view that the AO erred in not allowing a deducting for the cost of acquisition of the Chembur property i.e. a deduction based on the FMV of this property as on 01.04.1981 after the same was appropriately indexed. Admittedly, this property was acquired by the assessee's father way back in 1966. i.e. prior to 01.04.1981. Therefore, the assessee had an option u/s 55 (2)(b) of the Act to take the FMV as on 01.04.1981 as the cost of acquisition of the same, and thereafter, index it further. Accordingly, we direct the AO to allow Page 10 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 deduction for the indexed cost of acquisition relating to the residual rights of this property.
9. Another issue in these appeals is as regards to the order of lower authorities is that they erred in considering the sum of Rs.24,00,000/- (assessee's 1/4th share at Rs.6,00,000/-) being the value of the 350 sq.ft. was agreed to be allotted to the assessee and other co-owners free of cost as a part of the consideration. On the same reasoning this is to be assessed as Capital Gains and further in the event the computation under the head 'capital gains' arising from this transaction results in any positive figure, then the assessee is entitled to claim exemption u/s 54 F of the Act if any investment is made by assessee.
10. One more issue is there in the appeal of assessee in ITA No. 1897/Mum/2015 in the case of Shri Pradeep Jayasen Jayakar is as regards assessment of deemed rent from Flat No. 302 at Rs. 42,000/-, from Flat No. 202 and 301 at Rs. 2,10,000/- and Rs. 1,47,000/-. For this assessee has raised following grounds: -
"II. Income from 'Jay Apartment 2.1 On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in confirming the assessment of rental income of Rs.42,000/- in respect of Flat No.302 at 'Jay Apartment' at Linking Road, merely because it was erroneously offered as income by the appellant even though the CIT(A) has held that annual value of this flat was not assessable in the hands of the appellant. Your appellant, therefore, prays that the income from house property assessed for this flat be deleted.
2.2 On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in confirming the assessment of rental income of Rs.2,1 0,000/ - in respect of Flat No.202 and 301 at 'Jay Apartment' at Linking Road, by wrongly assuming that these flats are occupied by the ap1e1Iant, whereas the same are Page 11 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 occupied by his brother, Shri Pramod j. Jayakar, in term of the Will of the appellant's father. Your appellant, therefore, prays that the income from house property assessed for these two flats be deleted.
2.3 On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in confirming the assessment of rental income of Rs.1,47,000 in respect of Flat No.301, 202 and the first floor at 'Jay Apartment' at Linking Road, merely because it was erroneously offered as income by the appellant even though the CIT(A) has held that annual value of this flat was not assessable in the hands of the appellant. Your appellant, therefore, prays that the income from house property assessed for these flats be deleted."
11. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) has categorically recorded the finding that the rental income from Flat No. 302 cannot be assessed in the hands of the assessee for the reason that this flat is being used by Shri Prakash J Jayakar as per the will which is probated and registered before the Hon'ble Bombay High Court on 24-06-1996, wherein it is mentioned by the testator that this will be occupied by Shri Prakash J Jayakar during his lifetime and this being so no rent can be assessed in the hands of the assessee and CIT(A) has rightly held so. But he restricted the income offered by the assessee at Rs.42,000/- in his hand on this account of deemed rent. We find the findings of the CIT(A) without any basis and delete the addition.
12. In respect to assessment of rental income of Rs. 202 and Rs. 301, the right of exclusive use, occupation and possession of these flats have been granted to Shri Prakash J jayakar and Shri Pradeep J Jayakar in terms of the will which is probated and registered before the Hon'ble Bombay High Court on 24-06-1996, wherein it is mentioned by the testator that this will be occupied by Shri Prakash J Jayakar during his Page 12 of 13 ITA No.2770/Mum/2014 & ITA No.1199, 1897/Mum/2015 ; AY 09- 10 lifetime and this being so no rent can be assessed in the hands of the assessee. According to us, the CIT(A) has erred in assessing the income of Rs. 2,10,000/- and Rs. 1,47,000/- in the hands of the assessee. We delete the same and allowed this ground of the assessee's appeal.
13. In the result, all the three appeals of assessee's are allowed.
Order pronounced in the open court on 28-07-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated:28-07-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI
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