Income Tax Appellate Tribunal - Hyderabad
M/S Gulf Oils Corporation Limited,, ... vs Department Of Income Tax on 30 November, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 11/Hyd/2014
Assessment Year: 2005-06
Gulf Oil Corporation Ltd., vs. Addl. Commissioner of
Hyderabad. Income-tax, Range - 2,
Hyderabad.
PAN - AABCG8433B
(Appellant) (Respondent)
ITA No. 23/Hyd/2014
Assessment Year: 2005-06
Dy. Commissioner of Income- vs. Gulf Oil Corporation Ltd.,
tax, Circle - 2(3), Hyderabad. Hyderabad.
PAN - AABCG8433B
(Appellant) (Respondent)
Assessee by : Shri Y. Ratnakar
Revenue by : Shri Mohan Singh Singhania
Date of hearing : 29 -10-2015
Date of pronouncement : 30 -11-2015
O RDE R
PER S. RIFAUR RAHAMAN, A.M.:
These two cross appeals are filed by Assessee and Revenue against the order of CIT(A) - III Hyderabad dated 29/10/2013. Since the grounds of appeal are same, we are adjudicating the same in one order.
2. The Assessee is a company engaged in the business of manufacturing of Lubricant Oil. The Assessee filed its return of 2 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
income for the AY 2005-06 on 30.10.2006, admitting loss from Business Rs.274,03,615/- and Long term capital gain on sale of Land at Rs. 16,56,29,605/-. The book profit under section 115JB was declared at Rs. 17,77,38,422/-. The case was selected for scrutiny and AO completed the assessment u/s 143(3) of the Income Tax Act, 1961 (in short Act), determined the total income at Rs. 48,96,74,233/-
3. Brief facts of the case are:
3.1 Assessee declared loss of Rs. 20,17,814/-, which was derived from running Floriculture unit. The income derived from this unit is exempt u/s 10 of the Act. Considering the exempted income under this Act, AO disallowed notional interest estimated at Rs. 10 lakhs relating to this activity u/s 14A, as per the opinion of the AO, the Assessee had not maintained any books of account separately for this operation.
3.2 Assessee declared dividend income of Rs. 89,61,467/- from the investment portfolio of Rs. 33.35 crores, AO disallowed u/s 14A, estimated expenses for earning the exempted income relating to dividend and management of investment portfolio, disallowed Rs. 10 lakhs.
3.3 AO noticed that Assessee had invested Rs. 23.22 crores in IndusInd Bank towards shares, AO presumed that the above investments were made out of capital gains of Rs. 20.20 crores earned during the year under consideration. For the balance investment of 3 crores, he considered the same as unexplained investment and charged interest attributable to the unexplained investment @ 9% per annum, which worked out to Rs. 27,00,000/-, disallowed under section 14A of the Act.3
ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
Long Term Capital Gains:
3.4 AO disallowed commission payment of Rs. 37,00,000/- towards sale of Land and he observed that the commission agreement was made on 01.10.2003 whereas the agreement of sale was entered with M/s Abhishek Developers on 28.06.2003. The date of entering the commission agreement beyond the date of entering agreement with M/s Abhishek Developers, which according to him are after thought.
3.5 AO also disallowed payment of Rs. 71,53,348/- to M/s Udhyaman Investment P Ltd as compensation towards cancellation of deed entered with them for development and sale of land. AO observed that this payment was unwarranted as in the normal business parlance, the person who defaults has to compensate the other, where in the present case, the defaulters were developer M/s Udhyaman Investment but not the Assessee. Also there was no legal obligation on the part of Assessee to pay such amount. AO rejected the cancellation agreement dated 16.03.2003, which was submitted by the Assessee for the payment of above said compensation to facilitate the sale of land to Abhishek Developers.
3.6 Assessee had total land of 29015.77 sq. meters and out of which it sold 14507.885 sq.mts on 28.06.2003, which was identified as 'A' and Balance of land as 'B'. The balance land was sold again in two parts, which was identified as 'B1' - 10012.483 sq.mts and 'B2' -
4495.372 sq.mts. During the current year under consideration, Assessee had sold and registered only 7551.2 sq.mts for the consideration of Rs. 18.50 crores and balance of B1 land was sold and registered following year. Assessee offered as sales consideration for computing capital gain for AY 2005-06 Rs. 18.50 crores and in AY 2006-07 Rs. 6.03 crores accordingly after completing the due process of registration of documents . Whereas the AO observed from the sale agreement that all the land identified as 'B' i.e., both B1 and B2, agreed to sell by the Assessee to the 4 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
developer but process of document registration was completed subsequently. Since the agreement to sell was entered for whole land, it amounts to transfer even though the registration was completed later after the agreement date. AO also observed that the possession was handed over as part performance of the agreement. According to AO, It is immaterial when the consideration received or registration process completed. Accordingly AO brought to assessment the whole land comprising of B1 and B2.
3.7 AO observed that as per sec 50C, market value as per Stamp valuation Authorities was required to be adopted as full value of consideration. AO sought the information from SRO and based on the information, AO adopted Rs. 3400/- per sft for commercial area and Rs. 2800/- per sft for residential area. Based on the plan of development, which was acquired by AO from SRO office, in the ratio of 80:20 for commercial area and residential area development respectively. AO calculated the average rate of Rs.3280/- per sft as market value under section 50C. Accordingly calculated the income under Capital Gains for the AY 2005-06 taking the above rate as fair market value.
3.8 Assessee had entered into International transaction during the year under consideration. Since the aggregate value of international transaction exceeds Rs. 5 crores, case was referred to TPO. Based on the advice of TPO, an amount of Rs. 2,76,92,523/- were disallowed towards Royalty payment, which was paid to its AE , Gulf Oil International (Mauritius) Incorporated (GOIMI) as the short fall in the Arms Length Price.
4. Aggrieved with the above order, Assessee filed appeal before CIT(A). CIT(A) had given following relief to the Assessee:
i) CIT(A) reduced the disallowance made by the AO from Rs. 47 lakhs to 7 lakhs by observing as below:5
ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
"6.4 In view of the above facts and circumstances and also respectfully following the order of the honourable ITAT Hyderabad referred to supra, I am of the view that the interest attributable to earning of exempt income amounting to Rs. 47 lakhs does not deserve to be added. On the other hand, it is extremely improbable to say that for making huge amounts of investments towards the earning of dividends et cetera, no expenditure has been made at all. The top management as well as the employees of the company definitely spend man-hours to not only decide on the investments but to fill the relevant forms, to conclude the statutory obligations and to follow up regularly on the investments. The appellant has not shown any expense on this account, which is not correct. Therefore, I hold that an amount of Rs. 7 lakhs be added back on account of the expenses incurred for earning of exempt income is on securities et cetera. The appellant gets relief accordingly through the deletion of Rs. 47 lakhs and instead making the addition of only Rs. 7 lakhs."
ii) Computation of ALP: CIT(A) had given direction to AO by following the Assessee's own case in order of coordinate bench of this ITAT, Hyderabad on this issue relating to previous AY 2007-08, by observing as below:
"7.7 Since the facts are the same as in the aforementioned case and I have also examined all the issues thoroughly, I'm in agreement with the order of the honourable DRP as above. I also hold that on domestic sales, no addition is to be made with regard to royalty. Whereas, on international sales royalty is to be restricted to 1% as per the aforementioned order. The appellant will get relief accordingly and these grounds are decided partly in favour of the appellant."
iii) CIT(A) agreed with the argument of the Assessee and directed the AO to consider the sale of land only to the extent of the land which was transferred and registered during the year under consideration i.e., to the extent of 7551.2 sq.mts but directed the AO to consider the SRO value as adopted by him under section 50C in the assessment order.
5. Aggrieved with the above order of CIT(A), revenue filed the below grounds of appeal:
"1. The learned ClT(A) erred on facts and in law in granting relief on account of disallowance u/s 14A despite the fact that there is apparent diversion of borrowed funds for use by floriculture division, purchase of mutual fund units and shares, the income from whom is exempt form taxation.
2. The learned ClT(Appeals) erred on facts and in law in restricting the disallowance u/s 14A without mentioning cogent reasons.
3. The learned ClT(Appeals) erred on facts and in law in granting relief w.r.t. Adjustment to ALP on account of royalty to Mauritius company 6 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
though the assessee has strong brand value, there is no need for the assessee to pay royalty, the details of technical assistance are not known.
4. The learned ClT(Appeals) erred on facts and in law in holding that sale consideration with reference to Block BI has to be apportioned as per the claim of the assessee despite the fact that the entire sale consideration accrued to the assessee in the current year as per the agreement with he developer.
5. The learned ClT(Appeals) erred on facts and in law in holding that sale consideration with reference to Block B2 had to be assessed in another year despite the fact that the entire sale consideration accrued to the assessee in the current year as per the agreement with the developer, the developer took possession of the land and the developer did not question the title to the land."
14A Disallowances:
Revenue ground 1 and 2(supra) and Assessee ground 2 and 3
6. Ld DR relied on the assessment order. He submitted that section 14A disallowance was attracted in the assessee's case as huge investment is required to run the Floriculture business and made investment in shares. He vehemently argued that there was huge diversion of funds and 14A disallowance made by the AO was justified.
7. As regards ground Nos. 1 & 2 regarding disallowance u/s 14A, the Ld AR submitted that except making generalized allegations that borrowed funds were utilized for floriculture division and purchasing mutual fund units and shares, the revenue had not brought any evidence to show that there was any such diversion at all of loans borrowed. On the contrary, Assessee had produced proof that the floriculture division and shares of mutual funds were acquired out of own funds. The floriculture division and the shares were purchased earlier year and not in the year under consideration. He submitted that upto assessment year 2002-03, there was no such disallowance. Ld. AR contended that the disallowance was made on the basis of assumptions that some expenditure may have been incurred. He 7 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
submitted that the Hon'ble Tribunal deleted the disallowance made u/s.14A for asst. years 2003-04 and 2004-05.
7.1 The ld. AR, therefore submitted that it has not incurred any interest liability for use of any borrowed funds towards floriculture division or for purchasing the shares. The expenditure on floriculture has been segregated, a separate account is drawn up and is dealt with separately in the computation of income filed along with I.T. return. The income and expenses of the floriculture has been segregated and separate accounting is made for this division . As regards shares, there was no interest liability because the shares were acquired out of own funds. There were also no administrative expenses incurred for collection of dividend.
7.2 As regards the disallowance of floriculture expenses of Rs. 10,00,000/-, the ld. AR submitted that similar disallowance made for AY 2004-05 of Rs. 10,00,000/- was deleted by the Tribunal in ITA No. 1364/Hyd/2008, dated 18/12/2009. He also submitted that even for AY 2003-04, the disallowance of Rs. 10,00,000 was deleted by the tribunal in ITA No. 535/Hyd/07, dt. 08/06/12.
7.3 As regards the interest/administrative expenses attributable to dividend income of Rs. 10,00,000/-, the ld. AR submitted that the shares on which dividends declared were acquired out of own funds and there was no administrative expenses incurred for collection on dividends. He submitted that a similar disallowance of Rs. 3,00,000 was made by the AO for AY 2004-05, which was reduced to Rs. 1,00,000 by CIT(A) and the same was entirely deleted by the Tribunal in ITA No. 1364/hyd/2008 dt, 18/12/2009.
7.4 As regards the Disallowance u/s.14A on investments made in IndusInd Bank Rs.27 Iakhs, ld. AR submitted that the assessing officer presumed that a sum of Rs.3 crores out of borrowed funds were utilized for investment in shares of IndusInd Bank and taking the rate of interest at 9%.
8ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
7.5 Ld. AR contended that assessee had its own funds to invest in the business in the form of share capital and reserves. In addition business had generated sufficient income during the year and therefore it cannot be said that any loans were borrowed for investment in these shares. Ld AR submitted that only Rs.14.28 crores was invested during the year out of which 10 crores were invested in shares out of which the company has not earned any dividend income. The balance investment also made by the company only out of its own funds. He submitted that the company had at that point of time Rs. 13.82 crores in Share capital and Rs. 112.46 crores in reserves. This shows that the company had enough own funds to carry out the above investments. He also submitted that the company had received sales proceed of Rs. 18.50 crores out of sale of land. There was no necessity to borrow any funds for investment separately. He submitted that no disallowance was made in the past years.
8. Considering the submissions of both the parties and facts on record, we are of the view that the assessee had maintained separate books of accounts for floriculture division and submitted the profit and loss of its division. The revenue also had accepted this until AY 2002-
03. Subsequently revenue made disallowance, which were struck down by the co ordinate bench of this tribunal upto AY2004-05. Respectfully following the co ordinate bench on this count, we are dismissing the ground of the revenue.
8.1 As for the other disallowance under sec 14A of the Act, considering the findings of the co ordinate bench of this tribunal in the earlier adjudication, the assessee had sufficient own funds to make investment in the shares and mutual funds. There was no necessity to borrow loan funds for making investment. We are inclined to cancel the part disallowance sustained by the CIT(A). In the result, grounds of the assessee is allowed and dismissed the grounds of the revenue.
9ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
Transfer pricing adjustment of Royalty:
9. Ld DR relied on the assessment order and submitted that there is strong brand value exists and does not warrant payment of Royalty to its AE.
10. As regards ground No. 3 of revenue on transfer pricing, the ld. AR submitted that an agreement was entered into by the assessee with Gulf Oil International Mauritius (Inc.) (GOIMI) dt. 1-8-2003. GOIMI is an associated enterprise. Under the agreement dt. 1-8-2003 the royalty payable on the entire turnover of lubricants including domestic and export sales is 5.5% (net of taxes). It is submitted that an application was made to the Government of India for approval of agreement. The Government of India approved the agreement with changes relating to the rate of royalty and the period of royalty. The royalty rates which were approved by the Government of India are as under:
a) Royalty on internal sales 5.5 (net of taxes)
b) Royalty on export sales 8% (net of taxes)
c) Royalty payable for a period of 7 years from the commencement of commercial production.
10.1 Ld AR submitted that a supplemental agreement dt. 10-11-2013 was entered into with GOIMI incorporating the above amendments as required by the Government of India in its approval letter. Since the royalty payable was net of taxes and the tax rate of 15%, as per the DTA agreement the royalty rate inclusive of taxes as approved by the Government of India is as under:
a) Domestic sales 5.88% (inclusive of taxes)
b) Export sales 9.41 % (inclusive of taxes) 10 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
10.2. Ld AR submitted that the royalty agreement entered into relates to the use of product formation propriety of Gulf Oil International Mauritius (Inc.) and the relevant trade mark 'Gulf' in India and for providing technical information, compounding, testing, packaging and application of products and license to use the trade mark and design Indicia on products. It is submitted that the RBI permitted the royalty at 5% and 8% on domestic and export sales respectively, the assessee company had actually paid 1.05% and 2.63% on domestic and export sales respectively which is much lesser than the approved rate.
10.3 Ld AR submitted that similar disallowance came up for the assessment year 2006-07 connected with the payment of royalty under the very same agreement to the very same AE. On domestic sales the entire royalty payment was allowed as deduction and on export sales the royalty was restricted to 1%. He submitted that this issue was upheld by the Hon'ble Tribunal in ITA No.1450/Hyd./2010 dt. 22-1-2014. The said order confirmed the entire royalty on the entire domestic sales and restricting the royalty to 1 % on export.
10.4 Ld AR submitted that for the assessment year 2007-08 similar disallowance was made. The appellant company filed its objections before the DRP. The DRP by its order dt. 20-9-2011 allowed the payment of royalty on domestic sales in full and restricted the royalty on export sales to 1%.
10.5 Ld AR submitted that coming to the assessment year 2008-09 the TPO himself by his order dt. 28-10-2011 followed the orders of the DRP for the assessment year 2007-08, allowed the entire royalty payment on domestic sales and restricted the royalty to 1 % on export sales 10.6 Ld AR submitted that the learned Commissioner of Income tax in his impugned order discussed the issue of transfer pricing at paras 7 to 7.7 (at pages 9 to 15) of his order. Following the orders of the 11 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
Hon'ble I.T.A.T and the DRP for later years, he held that on domestic sales no addition is to be made and on export sales, the royalty is to be restricted to 1%.
11. Considering the submissions of both counsels and material facts on record, we are of the view that the payment of the royalty was approved by the government and also following the views of the co ordinate bench of this tribunal, we are inclined to mention here that this issue is already settled considering the fact that DRP/AO had already accepted the view of the co ordinate bench of this tribunal for later years. Considering the above facts, we are allowing the ground of assessee and dismissing the ground of the revenue.
Capital Gains - Land transfer:
Revenue Grounds 4 and 5: (Assessee's grounds 8 and 9)
12. Ld DR relied on the assessment order and submitted that Agreement for sale was made together to sell the whole land identified as B1 and B2, the lands were also handed over to the developer and registration as well as the payments were received subsequently. The consideration for whole land must be considered for calculation of capital gain.
13 As regards ground Nos. 8 & 9 regarding assessment of B1 (Part II) and B2 lands to capital gain, the ld. AR submitted that the assessee owned land admeasuring 29015.770 sq.mts. at Sankey Road, Bangalore, which was transferred and there was no sale deed as such but merely agreements were entered into. The sale proceeds were received upon transfer of the land from time to time and same is set out at page 4.6 of paper book Vo.II.
13.1 Ld.AR submitted that the sale consideration for B1 (part II) lands were received in the financial year 2005-06 relevant to asst. year 2006-07. The possession of B 1 (Part II) lands was handed over on 16/9/2005, when the first installment of 4.5 crores was received, 12 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
which falls in the asst. year 2006-07.The assessee company has also declared the capital gain for asst. year 2006-07 and was taxed.
13.2. As regards B2 land admeasuring 4,495.402 sq.mts., Ld.AR submitted that the relevant agreement with M/s Hinduja Realty Ventures Ltd. was dated. 31/3/2008. The entire amount of Rs.11,50,00,000 was received on 31st March, 2008 .The possession of the property was delivered on 31st March, 2008. The capital gain was declared and was assessed in A.Y.2008-09.
14. Considering the submissions of both the counsels and perused material facts on record. The assessee had made merely supplementary agreement to sell on 15.10.2004. Wherein it had agreed to split the land identified as B into two parts as B1 and B2 and accepted the revised payment schedule from the developer. The actual registration for sale were made only after receipt of funds as per schedule agreed with the developer. In the current year under consideration, it had received payments only for B1 part I of the land and accordingly made arrangement to register the sale deed. Accordingly it had offered the same for capital gains. It was not disputed by the revenue. The other portions in the above said agreement were in dispute. The original development agreement was made on 28.06.2003. We cannot follow the line of argument of the revenue that since the agreement was made on 15.10.2004, the whole part of B should be considered as agreement to sale and considered for calculation of capital gains. We are inclined to question ourselves, what happens when the parties cancels the agreement subsequently in case of any disputes arises in the later period. In the real estate development, subsequent to the agreement for development, the developer will take the possession of the land and proceed with the development activities. It doesn't mean that the ownership had passed, it is only part performance. As and when the payment and development activities are completed by mutual consent, the ownership passed on to the developer by completing the 13 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
formalities by making the actual sale registration. In the present case, the development activities and payments were received only to the extent of land identified as B1 part I. The same was rightly offered for tax by the Assessee in the AY 2005-06. The same was confirmed by the ld CIT(A) and we do not infer to modify the findings of the ld CIT(A) and dismiss the grounds of the revenue.
Capital Gains - Commission disallowance:
13. As regards Ground No. 4 of assessee regarding disallowance of payment of commission in computing the capital gains Rs.37,00,000, ld. AR submitted that a total sum of Rs.1 ,24,66,573 was in toto paid as commission to M/s Aasia Management & Consultancy (P) Ltd.
towards services rendered for transfer of entire extent of land. A sum of Rs.37 lakhs which corresponds to the extent of area of land which was transferred under the agreement for the assessment year 2005- 06 was claimed as deduction as relatable to expenses for transfer. Ld AR submitted that the same issue viz. whether the commission could be allowed as deduction while computing the capital gains came up for consideration for assessment year 2004-05 before this co ordinate bench of this tribunal in the assessee's own case. The hon'ble bench in its order in ITA No. 1776/Hyd./2013 dt. 25-9-2014, directed that the amount of commission paid to M/s Aasia Management & Consultancy (P) Ltd. cannot be disallowed outright and a direction was given to examine its chief executive Mr. V.G.Gurnani, who worked in M/s Aasia Management & Consultancy (P) Ltd., was involved in the transaction. The direction was also to consider the written confirmation filed by M/s Aasia Management & Consultancy (P) Ltd. for payment of commission, as expenditure while computing the capital gains.
14. Considering the direction of this co ordinate bench, we find it appropriate to remit this back to the file of the assessing officer to investigate the matter as per the direction of the earlier bench in this 14 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
matter. AO is directed to consider all the relevant aspect of this transaction and do according to the law. It is needless to mention that proper opportunity be given to the assessee of being heard. In the result, ground of the assessee is allowed.
Capital Gains - Disallowance of termination charges
15. As regards Ground No.5 of the Assessee regarding disallowance of Rs.71,53,340 paid to Udhyaman Investments (P) Ltd., the ld. AR submitted that the said issue came up for consideration for AY 2004-05 before the Tribunal in assessee's own case. The Hon'ble Tribunal vide its order dated 18/12/2009 in ITA No. 1364/Hyd/2008 held that the amount paid to Udhyaman Investments (P) Ltd. for termination of agreement entered into with it cannot be allowed as deduction treating it either as cost of the land or as expenditure connected with the transfer for computation of capital gains. He submitted that an appeal was filed against the said order u/s 260A of the IT Act and the same is pending before the Hon'ble High Court.
16. Considering the submissions of the Ld.AR and decision of the co ordinate bench of this tribunal, respectfully following the view expressed by the earlier bench, we find it appropriate to dismiss this ground of appeal of the Assessee.
Application of Sec. 50C of the Act:
17 Coming to the land transferred admeasuring 7551.200 sq.mts., ld. AR submitted that the land is transferred for a sale consideration of Rs. 18.50 crores and the capital gains should be calculated on the said amount. The AO made some enquiries and according to him the value of land as per the information obtained from the Stamps & Registration Dept. Bangalore, works out to Rs.3280 per sq.ft. Even Rs.3280 per sq. ft. is a figure calculated by the Assessing Officer himself based on material received by him from SRO office. He calculated the sale consideration for 7551.200 sq.mts. at 15 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
Rs.26,65,05,521 on the above basis and substituted the same in the place of Rs.18.50 crores actually received by the appellant under the document.
17.1 The ld. AR submitted that both agreement to sell and supplementary agreements were unregistered documents. None of these agreements were stamped with the required amount of stamp duty or registered. The sale consideration was received on the basis of price agreed in the main agreement dt 28-6-2003 which was also an unregistered document. The Ld AR submitted that the provisions of Section 50C of the IT Act then in vogue for the assessment year 2005-06 are applicable only for those transactions under documents which are registered by the Sub Registrar under the Stamps & Registration Act and are inapplicable for unregistered documents.
17.2 Ld.AR submitted that section 50C of the IT Act was inapplicable to unregistered documents, which were not registered with the Stamps & Registration Authority. Moreover, clause-25 of the Finance (No.2) Act has brought about this amendment applicable prospectively for agreements entered into after 1-10-2009. The attention is invited to the memorandum explaining the provisions of the Finance (No.2) Bill, 2009 reported in 314 ITR (Statues).
17.3 Ld.AR submitted that section 50C of the IT Act did not apply to the transactions relating to the transfer of land by the Assessee. He also submitted that the property was agreed to be transferred at the correct market value as per the agreement dated 28-6-2003.
17.4 Ld.AR submitted that the transaction entered was a bonafide transaction. The assessee received the sale consideration mentioned in the agreement and it was not held by the revenue that the assessee received sale consideration more than what is specified in the document. Section 5OC of the IT Act is applicable only when there was evidence that the assessee had received more funds than what was stipulated in the document. If there is any such evidence 16 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
available, but the actual amount is not known, then it may be open to the Assessing officer to invoke section 50C of the IT Act. In the present case, the transaction entered had been accepted as genuine and bonafide. Ld AR relied on the decision of the Hon'ble Supreme Court in K.P.Varghese Vs. I.T.O reported in 131 ITR 597. The said decision though rendered in respect of section 52(2) of the I.T Act, under identical circumstances, will also be applicable to section 50C of the I.T Act. He also relied on the decision of the Punjab & Harayana High Court in CIT Vs. Chandani Bhochar reported in 323 ITR 510. The Hon'ble Court held that in the absence of any admissible evidence that more money had been received by the seller than what was recorded in the sale deed, the provisions of section 50C of the I.T Act cannot be invoked. The Hon'ble Court further held that the valuation done by a state agency for the purpose of stamp duty would not ipso facto substitute the actual sale consideration.
17.5 Ld.AR submitted that the learned Commissioner of Income tax at para 10.4 of his order directed that the capital gains for the subsequent years should also be assessed invoking section 50C of the I.T Act, which is not correct interpretation of the act.
18. We have heard the arguments of both the parties and perused the facts and other materials on record. The main issue before us is, whether the AO can adopt the value arrived on the basis of information from SRO on the sale of land for the purpose of section 50C of the Act, when the document was unregistered on the date of agreement to sell.
18.1. From the submissions of the counsels, the facts on this issue are as below:
1. There is no dispute on the fact that the value received and value in the agreement to sell are same, this aspect was not controverted by the revenue.17
ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
2. There is no dispute that the agreement to sell and subsequent supplemental agreements were all unregistered.
3. The assessee received the consideration based on the agreement to sell and handed over the possession of land to the developer.
18.2 The section 50C will get attracted only when there exist difference on the sale consideration and assessed value for the purpose of stamp duty by the authority of a state government. In the present case under consideration, the assessee entered into developmental agreement with M/s Abhishek Developers on 28/06/2003 for development of land of 29015.77 sq.mts. at Sankey Road, Malleswaram, Bengaluru. The assessee agreed to develop this land with sale consideration as set out in the development agreement dtd. 28/06/2003 (refer paper book). For convenience, we reproduce the relevant part of the agreement as under:
"Consideration:
The consideration payable by the developer to the owner in respect of the development rights hereby granted shall consist of two components, as set out hereunder:
a) Fixed component towards cost of land
b) Variable component for developmental rights These are detailed below:
a) Fixed Component: The fixed component shall be at the rate of Rs. 21,023/- per sq.m. for Block - A, admeasuring 14,507.885 sq.mts. and for Block - B at the rate of Rs. 24,359 per sq.mts. for area admeasuring about 14,507.885 sq.mts. This shall be paid by the Developer by Cheques. It is however, agreed that while the total area of the said property is 29,015 sq.mts. in the event that there is found any minor difference in the area, i.e., within 2% more or less, such minor difference shall be ignored.
b) Variable component:
In addition to the above payment for cost of land, the developer shall pay to the owner towards developmental rights 25% (or in some cases as defined separately in this MoU 30%) of the average selling price realized over and above Rs. 2500/- per sq.ft. of super built up area."18
ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
18.3 From the above, it can be seen that the assessee receives sale consideration in two parts. First part as fixed components towards cost of land and as variable components in the form of developmental rights. There is no dispute that the assessee had offered to tax the fixed component for capital gains tax. There is no material evidence that the assessee had received more than the fixed component from the developer. Since the value agreed to be exchanged for transfer of land was determined on the basis of development agreement, it becomes the final sale consideration unless contrary is produced by the revenue. In the present case, revenue has not brought any evidence to show that the assessee had received more than the agreed value as in the developmental agreement. In such a situation, whether section 50C will get attracted or not has to be decided based on the plain reading of the section.
18.4 For the sake of convenience, we are reproducing the section 50C of the Act as stood on the AY 2005-06 under consideration.
(1) W here the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.
From the above definition, it is clear that the value adopted or assessed by authority of a state government will be compared with the consideration received or accruing on transfer of a capital asset. In the present case, both these are same i.e., the value of land handed over to the developer was 7551.20 sq.mts. and consideration received during the AY were Rs.18.50 crores. In the case of K.P.Varghese Vs. I.T.O reported in 131 ITR 597, the Hon'ble Supreme Court has held as under:
19ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
"18. We must, therefore, hold that sub-s. (2) of s. 52 can be invoked only where the consideration for the transfer has been understated by the assessee or, in other words, the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the Revenue. This burden may be discharged by the Revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is an understatement or concealment of the consideration in respect of the transfer. Sub- s. (2) has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there is no concealment or suppression of the consideration. We find that in the present case, it was not the contention of the Revenue that the property was sold by the assessee to his daughter-in-law and five of his children for a consideration which was more than the sum of Rs. 16,500 shown to be the consideration for the property in the instrument of transfer and there was an understatement or concealment of the consideration in respect of the transfer. It was common ground between the parties and that was a finding of fact reached by the IT authorities that the transfer of the property by the assessee was a perfectly honest and bona fide transaction where the full value of the consideration received by the assessee was correctly disclosed at the figure of Rs. 16,500. Therefore, on the construction placed by us, sub-s. (2) had no application to the present case and the ITO could have no reason to believe that any part of the income of the assessee had escaped assessment so as to justify the issue of a notice under s. 148. The order of reassessment made by the ITO pursuant to the notice issued under s. 148 was accordingly without jurisdiction and the majority judges of the Full Bench were in error in refusing to quash it.
19. We, accordingly, allow the appeal, set aside the order passed by the Full Bench and restore the order of Isaac J., allowing the writ petition and quashing the order of reassessment made by the ITO. The Revenue will pay the costs of the assessee throughout."
18.5 The Hon'ble Punjab & Harayana High Court in CIT Vs. Chandini Bhuchar reported in 323 ITR 510 has held as under:
"In the absence of any admissible evidence, valuation done by stamp duty authorities could not be taken as actual sale consideration and the value shown in the sale deed had to be accepted."
It is clear that there has to be excess money should have passed on to the seller or the value cannot be determined, then only the section 50C will get attracted. In absence of such variation or finding, section 50C will have no jurisdiction.
18.6 Moreover, the assessee entered into development of land and not simple land transfer, where the assessee will get consideration 20 ITA No. 11 & 23 /Hyd/2014 Gulf Oil Corporation Ltd., Hyd.
only for transfer right over land. In the present case, the consideration received by the assessee had two components. The fixed component is towards transfer of land and the variable component as developmental rights. It will get the variable components once the development of the property is over. At that time, assessee will show these components as income as short term capital. As such there is no loss to the revenue.
18.6 In our considered view, the assessee had received only the sale consideration what is agreed with the developer and offered the same. There is no material evidence, which shows that the assessee had received more than the value agreed as per the development agreement. The same has to be adopted as sale consideration and since there is no evidence for receipt of higher consideration and it is bonafide transaction, section 50C has no jurisdiction over this transaction.
18.7 Considering the above conclusion, we allow the assessee's grounds of appeal.
19. In the result, the ground of the assess is allowed.
20. In the result, appeal of the revenue is dismissed and appeal of the assessee is partly allowed.
Pronounced in the open court on 30 th November, 2015 Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 30 th November, 2015
kv
21
ITA No. 11 & 23 /Hyd/2014
Gulf Oil Corporation Ltd., Hyd.
Copy to:-
1) Gulf Oil Corporation Ltd., P.B. No. 1, Sanath Nagar (I.E.), Kukatpalli., Hyderabad - 500 018
2) Addl. CIT, Range - 2, Hyderabad
3) DCIT, Circle - 2(3), Hyderabad
4) CIT(A)-III, Hyderabad
5) CIT-II, Hyderabad
6) The Departmental Representative, I.T.A.T., Hyderabad.