Gujarat High Court
The Principal Commissioner Of Income ... vs M/S Shree Ami Office Owners Association on 28 November, 2023
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/294/2023 ORDER DATED: 28/11/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 294 of 2023
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 1
Versus
M/S SHREE AMI OFFICE OWNERS ASSOCIATION
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Appearance:
MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 28/11/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. By this Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short "the Act"), the Revenue has proposed following substantial question of law, arising out of the order of the Income Tax Appellate Tribunal, D Bench Ahmedabad in ITA No.636/Ahd/2017 for the Assessment Year 2007-08:
"2(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition of Page 1 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined Rs.3,39,60,960/- by holding that the income earned by the sale of the property i.e. Vision House is taxable in the hands of the members of the assessee and not in the hands of the Assessee without appreciating the fact that the assessee was the real owner of the property and the assessee had complete control over the entire venture from the start to the end?
(b) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred inholding that the income earned by the sale of the property, Vision Hour is taxable under the head of Capital Gain and not under the head of income from Business or Profession without appreciating the fact that the entire chain of events shows that there was no intention of holding the property as investment from the very beginning but it was an adventure in nature and in the form of business activity?
(c) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred inholding that the income earned by the sale of the property, Vision Page 2 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined House, is taxable in A.Y. 2008-09 and not in A.Y. 2007-08 without appreciating the fact that the agreement to sale of the said property was made on 10th January, 2007 and part payment/consideration was also received in F. Y.2006-07, relevant to A. Y. 2007-08?"
2. The brief facts of the case are that the respondent-assessee who is an Association of Persons (AOP) was registered under the provisions of the Bombay Non-Trading Corporation Act (for short "NTC"). The respondent-assessee purchased the property in auction carried out by the Office of the Chief Commissioner of Income Tax, Gujarat, Ahmedabad for a total consideration of Rs.57,00,000/- and the possession of the property was handed over to the respondent-assessee on 19.01.1994.
2.1. The respondent-assessee thereafter issued the allotment letter dated 21.06.1999 and 27.10.1999 in the names of its members by allotting the portion of the land purchased by it in the auction.
Page 3 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined It appears that the final conveyance deed was executed by the Income Tax Department on 14.09.2005 and thereafter the members of the AOP started construction on the property by getting a permission from the Ahmedabad Municipal Corporation on 05.06.2006. The respondent-assessee also entered into the agreement for construction with Shri Ami Infrastructure for the construction of the Office building on 31.10.2006 and thereafter agreement for sale was executed on 10.01.2007 between the members of the AOP as vendors and M/s CMS Computer Limited as buyer for the sale of the property for total consideration of Rs.5,87,00,000/-.
2.2. It also appears that the respondent- assessee was a confirming party in the agreement to sale. The final conveyance deed was executed on 22.05.2007 between the members of the AOP as vendors and the assessee as a confirming party and M/s CMS Computer Ltd as buyers.
2.3. The members of the AOP offered the Page 4 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined sale of property as capital gains in their respective hands in proportion to their holdings in the return of income for the financial year 2007-08 relevant to assessment year 2008-09.
2.4. During the course of the assessment, the Assessing Officer observed that since the AOP was restrained from carrying out any commercial activity which rendered profit, the said activity was done by the AOP through its members by allotting shares to its members and entering into construction agreement and thereafter on completion of the agreement the sale of the constructed property was made by the members of the AOP. According to the Assessing Officer, the AOP was the real owner of the property and the members of the AOP were not the owners in reality as they had no legally sustainable identity dehors the AOP. The Assessing Officer therefore held that the members of the AOP had merely acted on behalf of the AOP and actual title of the property was in name of the AOP and accordingly made addition Page 5 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined of the balance amount of Rs.3,39,60,960/- in the hands of the respondent AOP.
2.5. Being aggrieved, the respondent-AOP preferred appeal before the CIT (Appeals) who allowed the appeal by observing as under:
"With regard to the question of taxability in the hands of NTC or the members of the NTC, the AO is of the opinion that as the entire transaction is done by the NTC, the real owner of the property is NTC only. On the other hand the case of the appellant is that all the funds for the purchase of land and construction of building are given by the members and the NTC has issued shares as well allotment certificate to the members, therefore the members are the real owner of the property. The appellant NTC was fully funded by the members of the NTC and the NTC has allowed the rights in the land and issued an allotment certificate on 27"
October, 1999. By this allotment certificate the members of the NTC got rights in the land to the extent of their share in the funds. On 10/1/2007 the allotee members entered into the sale agreement with Page 6 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined the proposed purchaser to sale the land and building apparent thereto and the appellant NTC was confirming party to it because the appellant NTC had already allotted their rights on the sub plot and in the construction of the commercial house. In the development permission issued by AMC. the members have been shown as the owner of the property and. the BU permission is also issued in the name of members of the NTC. The members of the appellant NTC are also shown as owners of the property by the Registrar of stamps, Gujarat. Considering all these facts and evidences, I am of the opinion that the ownership of the property is with the members of the NTC and not with the appellant NTC as held by the A.U. The view of the A.O. is based simply on the fact that entire transaction is done by the NTC and no further evidences were brought out by the A.O. to show that the actual owner is NTC not the members of the NTC."
2.6. The CIT (Appeal) also held with regard to the taxability of income as business income or capital gain, in favour of the assessee holding that the AOP failed to establish any positive evidence that the purchase and sale of the property Page 7 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined was with a view to make profits to trading transaction. It was also found by the CIT as a matter of fact that the assessee was not in the activity of purchasing and selling the property and it is not an organized business activity of the AOP. With regard to the question of year of taxability also, the CIT (Appeal) observed that the members of the AOP had entered into sale deed on 22.05.2007 and at that time full sale consideration was received and the possession was also given to the buyer and therefore, the transfer had taken place with the execution of the sale deed by handing over the possession on 22.05.2007 relevant to the Assessment Year 2008-09. Therefore the CIT (Appeal) held that the transaction was rightly offered to capital gains by the members of the AOP for the Assessment Year 2008-09.
2.7. Being aggrieved by the order passed by the CIT (Appeal), the Revenue preferred the appeal before the Tribunal. The Tribunal after considering the finding of fact arrived at by the CIT (Appeal) and Page 8 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined the rival contentions raised held as under:
"9. We have heard the rival contentions and perused the material on record. The first issue for consideration before us is whether the property is taxable in the hands of the assessee AOP or in the respective hands of the members of AOP. From the facts placed before us, we observe that all the funds for the purchase of land and construction of building are given by the members and the assessee AOP has accordingly issued shares to the members, in proportion to their contribution. The assessee AOP was fully funded by its members and the assessee allowed the right in the land and issued allotment certificate on 27th October, 1999 in favour of its members. By this allotment certificate, the members of the assessee AOP got rights in the land to the extent of their share in the funds contributed by them. It was further observed that on 10-01-2007, the respective allottee members entered into sale agreement with the proposed purchaser to sell the land and building appurtenant thereto, as owners of the said property. It is further observed that in the Page 9 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined development permission issued by AMC, the respective members of assessee have been shown as "owners"
of the property. It is also observed that the BU (building use) permission is also issued in the name members of the assessee AOP. It was further observed that members of the assessee shown as "owners" of the property by the Registrar of Stamps Gujarat. In the case of Monarch Citadel (P.) Ltd.[2014] 45 taxamann.com(Karnataka), the Karnataka High Court held that where assessee-com owned a landed property and it had constructed commercial building on said land and later on it allotted specific portion of building to shareholders and thereafter it leased entire building to a tenant and distributed rental amount/monthly rent after deducting tax and maintenance to shareholders proportionately, in given situation shareholders were owners of specific portion of building allotted to them and it could not be said that assessee deemed to have derived income from rental. In the case of Ranka Construction (P.) Ltd.[1995] 52 ITD 122 (Cochin)119-09-1994] the assessee-company constructed apartments on land purchased by it, receiving money for construction thereof from its members to whom apartments were allotted. The Page 10 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined Members were in possession and enjoyment of flats and paid no rent to company. The FIAT held that assessee company could not be held to be owner of flats on ground that title to land remained with assessee and, hence, it could be assessed on notional annual letting value of flats. While holding so, the ITAT made the following observations:
From the memorandum of association of the company and other documents, it could be found that the owners/purchasers of the apartments became members of the company. In other words, the flats or the space in the multi- storeyed building stood allotted to the members only and not to any outsiders. The members of the company had acquired the flats or apartments or space on payment of proportionate cost to the builders under instructions from the assessee. In fact, one of the members, who had acquired the flat by paying up the construction cost, had in turn sold the same to another by agreeing to transfer his membership and shares in the assessee- company to and in favour of the vendee. The memorandum of association of the assessee- company authorised the assessee to enable its members to acquire flats or apartments through it. So, if regard Page 11 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined was had to the substance of the transaction rather than its form, the person coming into possession and enjoyment of a flat or apartment on payment of the proportionate cost of construction to the developers, was the real owner in respect of the flat or apartment that fell to his share."
2.8. The Tribunal considering the above facts of the case, as well as the decision cited before it, upheld the order passed by the CIT (Appeal), holding that the members of the AOP were the real owners of the property in question and therefore, the income was liable to be taxed in the hands of the respective members in proportion of their holdings which was already offered by them for the Assessment Year 2008-09. The Tribunal also held in favour of the assessee holding that as the possession of the property was taken in the year 1994 and was sold in the year 2007-08, the entire transaction was not for any trading purpose and accordingly, the CIT (Appeal) has rightly held the same to be liable for capital gains as offered Page 12 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined by the members of the AOP for the Assessment Year 2008-09. Even with regard to the transaction in question with regard to the year in taxability though the same was not required to be decided by the Tribunal or the CIT (Appeal) when it was held sofaras the respondent-assessee AOP was concerned that the transaction was rightly taxed in the hands of the members of the AOP as capital gains, both the authorities below have after considering the facts of the case come to the conclusion that as the conveyance deed was executed on 22.05.2007 and the possession of the property in question was handed over to the buyer on the same day, the transactions were rightly considered for the purpose of the capital gains for the Assessment Year 2008-09. The Tribunal in that regard held as under:
"11.The third issue for consideration is the year of taxability of the aforementioned property. We observe that in the instant case, both the registered sale deed as well as the possession Page 13 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined of the property was transferred in the subsequent financial year i.e. financial year 2007-08. The complete payment was also made in the subsequent year. During the year under consideration, only the agreement to sell was entered into and part consideration was paid. In the case of Ratna Trayi Reality Services (P.) Ltd. [2013] 34 taxmann.com 122 (Gujarat), the Gujarat High Court held that an agreement to sell cannot be equated with transfer of property without there being anything more. In the case of Ushaben Jayantilal Sodhan [2018] 93 taxmann.com 453 (Gujarat), the Gujarat High Court held that transfer of immovable property takes place on execution of sale deed and, therefore, to hold that upon mere execution of agreement to sell, immovable property gets transferred to purchaser, even within extended definition of section 2(47), would be incorrect. In the case of Godha Realtors (P.) Ltd. [2022] 135 taxmann.com 24 (Bangalore Trib.), ITAT held that where assessee merely entered into an agreement to sell immovable property without giving possession to buyer, there was no extinguishment of rights in capital asset by assessee, and thus, agreement to sell would not result in transfer of asset, under section Page 14 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined 2(47). In the case of Abdul Wahab[2015] 57 taxmann.com 27 (Bangalore - Trib.), the ITAT held that where there was nothing to show that possession was ever delivered by assessee to purchaser in part performance of agreement for sale, there was no transfer within meaning of section 2(47)(v) of the Act.
11.1 Accordingly, in light of the facts before us and the judicial precedents on the subject, we find no infirmity in the order of Ld. CIT(Appeals) wherein the held that the year of taxability of the impugned property sold was financial year 2007-08 relevant to assessment year 2008-09."
3. Considering the concurrent findings of the fact arrived at by the CIT (Appeal) and the Tribunal with regard to the issue as to whether the respondent-assessee- members of the AOP were taxed in their respective hands and not the respondent- AOP with regard to the sale of property in question in the year 2007 relevant to the assessment year 2008-09 as capital gains is concerned, the facts are clear in as much as though it is true that the Page 15 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined respondent-AOP purchased the property in auction from the Income Tax Department in the year 1994 and the conveyance deed was executed in the year 2005 but in the meanwhile the respondent-assessee allotted the share in the property in question to its members for the contribution made by it in the year 1999. This fact is not disputed by the appellant-Revenue and accordingly, the members of the AOP became the owner of the property in question qua their respective shares in which the allotment was done by the AOP. Therefore it cannot be said that the AOP continued to be the owner of the property as Association of Person is formed by the members for their joint interest in the property and accordingly, once the share of the respective member is allotted by the AOP then the AOP cease to be the owner of the property in question from the year 1999 with respect to the shares which were allotted by issuing the allotment letter.
4. In view of the concurrent findings of fact arrived at by both the authorities Page 16 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023 NEUTRAL CITATION C/TAXAP/294/2023 ORDER DATED: 28/11/2023 undefined below, we do not find any substantial question of law arising out of the impugned order passed by the Tribunal. The appeal is accordingly dismissed. No order as to costs.
(BHARGAV D. KARIA, J) (NIRAL R. MEHTA,J) URIL RANA Page 17 of 17 Downloaded on : Mon Dec 04 20:31:52 IST 2023