Income Tax Appellate Tribunal - Hyderabad
Acit, Circle-3(2), Hyd, Hyderabad vs Parbati Agro Farms (P) Ltd, Hyderabad on 27 September, 2017
ITA Nos. 287 and others Parbati Agro Farms P Ltd and others Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' B ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
Appeal No. Appellant Respondent A.Y
287/Hyd/2015 A.C.I.T. Circle 3(2) M/s. Parbati Agro 2008-09
Hyderabad Farms Pvt. Ltd
Hyderabad
C.O. No. M/s. Parbati Agro A.C.I.T. Circle 3(2) 2008-09
18/Hyd/2015 Farms Pvt. Ltd Hyderabad
Hyderabad
299/Hyd/2015 D.C.I.T. Central Gomati Agro Farms -do-
Circle 3(1) Pvt Ltd Hyderabad
Hyderabad
C.O. No. Gomati Agro D.C.I.T. Central -do-
19/Hyd/2015 Farms Pvt Ltd Circle 3(1)
Hyderabad Hyderabad
301/Hyd/2015 D.C.I.T. Central Nallamala Agro -do-
Circle 3(1) Farms Private Ltd
Hyderabad Hyderabad
C.O. No. Nallamala Agro D.C.I.T. Central -do-
30/Hyd/2015 Farms Private Ltd Circle 3(1)
Hyderabad Hyderabad
300/Hyd/2015 D.C.I.T. Central Kanchenjunga -do-
Circle 3(1) Greenlands Pvt. Ltd
Hyderabad Hyderabad
CO No. Kanchenjunga D.C.I.T. Central -do-
20/Hyd/2015 Greenlands Pvt. Circle 3(1)
Ltd Hyderabad Hyderabad
For Revenue: Shri D. Srinivas, CIT (DR)
For Assessee : Shri K.C. Devdas
Date of Hearing: 26.09.2017
Date of Pronouncement: 29.09.2017
ORDER
Per Bench:
All these appeals are against the respective orders of the CIT (A)-12, Hyderabad, dated 31.12.2014 for the A.Y 2008-09.Page 1 of 6
ITA Nos. 287 and others Parbati Agro Farms P Ltd and others Hyderabad The only effective ground of appeal raised by the assessee is as under:
"2. The CIT (A) ought to have appreciated the fact that the AO has dealt with the issue at length and has concluded that the transaction is "adventure in nature of business and trade" as against the claim taken by the assessee that the same falls under the ambit of "Capital Gains".
2. Brief facts of the case are that the respective assessees are the companies which are engaged in the business of purchase and sale of land. They filed their returns of income for the A.Y 2008-09 declaring total income under the I.T. Act at "Nil" and book profit u/s 115JB of the Act. Since the book profit was more than the profit under the normal provisions of the I. T. Act, the assessee paid tax thereon. During the assessment proceedings u/s 143(3) of the Act, the AO noticed that the respective assessees have acquired lands from various persons in A.Ys 2000-01 to 2002-03 and have sold their land during the financial year 2007- 08 but has claimed that the "transactions are not to be treated as transfer" as per section 47 of the I.T. Act and claimed it as an exempted transfer under the I.T. Act on the ground that the land was sold only to their 100% subsidiary companies.
3. The AO however, observed that all the above assessee companies were floated by the family members of Mr. Rama Linga Raju of M/s. Satyam Computer Services and have acquired lands at Bachupally Village of R.R. District and have incurred some expenditure on the development of the land and subsequently the assessee companies floated 100% subsidiary companies and sold the lands to them in the financial year 2007-08 vide separate sale Page 2 of 6 ITA Nos. 287 and others Parbati Agro Farms P Ltd and others Hyderabad deeds. The AO was of the opinion that the purchase and sale of land by the assessees was in such a way that they are in close vicinity and if pooled can form a single continuous land that can be used on a future date without any hindrance. That subsequently, some of the companies entered into a common development agreement with M/s Maytas Properties Pvt. Ltd and though the assessees are not part of this development agreement, but the lands owned by these companies are in the vicinity of the said venture. He observed the assessee's have sold majority of their landholdings to their subsidiaries in a planned way to make profit and though, the lands were claimed to be agricultural lands and no agricultural activity was carried on in these lands, therefore, the transaction has to be treated as "an adventure in the nature of trade" and the income from the sale has to be brought to tax as business income. Aggrieved, the respective assessees filed their appeals before the CIT (A), who allowed the same by holding the transaction as exempt u/s 47(iv) of the I.T. Act. Against this finding of the CIT (A), the Revenue is in appeal before us and the assessees are in cross objection supporting the findings of the CIT (A).
4. The undisputed facts are that the assessees are holding companies and the companies to whom the lands are transferred are 100% subsidiaries of the respective assessee companies. The question before us is whether the cl.(iv) of section 47 applies to these transactions. For the sake of clarity and ready reference, clause (iv) of section 47 is reproduced hereunder:
"Transaction not regarded as transfer:Page 3 of 6
ITA Nos. 287 and others Parbati Agro Farms P Ltd and others Hyderabad Section 47. Nothing contained in section 45 shall apply to the following transfers :--
(i) any distribution of capital assets on the total or partial partition of a Hindu undivided family;
(ii) ............
(iii)..........
(iv) any transfer of a capital asset by a company to its subsidiary company, if--
(a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and
(b) the subsidiary company is an Indian company;"
(v).....................
Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in- trade".
5. From the above, it is clear that where there is a transfer of any capital asset by a company to its 100% subsidiary company and such subsidiary company is an Indian company, then such a transaction shall not be considered as a transfer. However, as per the proviso, the clauses (iv) & (iv) shall not apply to the transfer of a capital asset, as stock-in-trade after 29th February, 1988. In view of the above proviso, it is to be seen, if the transfer is of a capital asset as "stock-in-trade". AO appears to have considered the land as "stock-in-trade" as the intention of the assessee companies was to make profit ultimately. But, the intention of the parties is to be inferred also from the entries in their books of the A/c. The respective assessees before us have filed copies of their Wealth Tax Returns for the A.Ys 2005-06 & 2006-07, wherein the lands owned by them are reflected as agricultural lands and thus exempted assets u/s 2(ea) of W.T. Act. The assessing authorities have accepted the claims of the respective assessees. From the annual reports of the respective assessees also, we find that these assets are reflected as fixed assets and not as stock-in-trade. The Hon'ble Calcutta High Court in the case of CIT vs. Coats of India Ltd in I.T. Appeal No. 119 of 2005 vide orders dated 8.9.2008 has considered Page 4 of 6 ITA Nos. 287 and others Parbati Agro Farms P Ltd and others Hyderabad the applicability of proviso to section 47(iv) of the I.T. Act and has confirmed the view of the Tribunal that the proviso to section 47 (iv) and (v) is applicable, only if, in the hands of the "transferee" the capital asset on its transfer constitutes "stock-in-trade". There is nothing on record brought in by the Revenue that in the hands of the transferee subsidiary companies, the lands transferred are treated as "stock-in-trade". The learned Counsel for the assessee, when enquired as to the treatment of these assets in the hands of the transferee companies, has filed before us the copies of the Balance Sheets of the transferee companies for the relevant A.Y and the subsequent A.Ys to prove that they were treated as capital assets in the hands of the transferee companies as well. However, this Tribunal being the final fact finding authority deem it fit and proper to remand this issue to the file of the AO for the limited purpose of verifying the treatment given to these assets in the hands of the subsidiary companies and only if they are treated as "stock-in-trade", the AO shall apply the proviso to section 47(iv) of the Act. Otherwise, the order of the CIT (A) shall stand unaltered.
6. In the result, both the Revenue's appeals as well as Cross objections of the assessees are treated as allowed for statistical purposes.
Order pronounced in the Open Court on 27th September, 2017.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 27th September, 2017.
Vinodan/sps
Page 5 of 6
ITA Nos. 287 and others Parbati Agro Farms P Ltd and others Hyderabad Copy to:
1 Asstt/Dy.Commissioner of Income Tax, Central Circle 3(2), 3rd Floor, Posnett Bhavan, Tilak Road, Hyderabad 2 M/s. Parbati Agro Farms P Ltd H.No.8-3-222/B/7/35, 36. D-92 & 93, Flat No.304, Sriramana Enclave, Madhuranagar, Hyderabad 3 M/s.Gomati Agro Farms P Ltd 2-13/31, S.S. Nagar, Opp:
Hydernagar, Hyderabad 4 M/s. Nallamala Agro Farms P Ltd. Flat No.102, Dhanunjaya Nest, Rajiv Nagar, Yousufguda, Hyderabad 5 M/s. Kanchenjunga Greenlands Pvt. Ltd, H.No.B-55, Flat No.202, Sai Vaishnavi Vihar, Vengalrao Nagar, SR Nagar Post, Hyderabad 6 CIT (A)-12 Hyderabad 7 CIT - Central, Hyderabad 8 The DR, ITAT Hyderabad 9 Guard File By Order Page 6 of 6