Income Tax Appellate Tribunal - Bangalore
Vemanna Reddy (Huf) vs Ito on 7 December, 2007
ORDER
P. Mohanarajan, J.M.
1. This appeal is by the assessee directed against the order of the learned Commissioner (Appeals)-IV, Bangalore dated 25-10-2004.
2. We have heard both sides and perused the records. The assessee had raised the following effective grounds in their appeal:
That the Commissioner (Appeals) erred in law and on facts in failing to annul the impugned assessment made on non-existing HUF.
That the Commissioner (Appeals) failed to note that notice under Section 148 issued on 19-4-2000 did not specify the status as HUF.
That the Commissioner (Appeals) failed to note that the joint family ceased to exist even before notice under Section 148 was issued. The assessing officer was made aware of this during assessment proceedings and original shown to him on 30-5-2000.
That the Commissioner (Appeals) should not have dismissed the additional ground moved in this regard (copy enclosed) without due notice to the assessee. The innocent failure to file a petition under Section 46A by an illiterate agriculturist not exposed to income-tax should not have been used to deny relief.
That the assessment order made for the assessment year 1998-99 is illegal. It should have been made for the assessment year 1995-96 when the joint development was entered into.
The computation of capital gains and exemption granted under Section 54 are not correct and opposed to law and decisions of the Hon'ble Tribunal, Bangalore Bench reported in:
(i) D. Anond Bosoppa v. ITO (2005) 92 TTJ (Bang) 597 : (2004) 91 ITD 53 (Bang);
(ii) R. Devaraj (ITA No. 982/Bang/2002 dated 5-11-2003);
(iii) Dy. CIT v. Late Sarojama (ITA No. 613/Bang/100-1993-94);
(iv) CBDT Circular No. 346, dated 30th June, 1982 (1982) 138 ITR (St) 10)
3. The only issue involved in this appeal is in respect of capital gains and exemption in respect of a property given to a builder for development against which cash and a few flats were received by the assessee. The assessing officer did not agree with the contention of the assessee and computed the income as under:
Income from house property Rs.
18,880 Long term capital gains Rs.
55,39,603 Income from other sources Rs.202
Gross total income Rs.
55,58,685 Less : Deduction under Section 80L Rs.202
Total income Rs.
55,58,483 The aforesaid income was assessed in the status of HUF.
4. The assessee challenged the entire assessment order before the learned Commissioner (Appeals), wherein the learned Commissioner (Appeals) had given part relief. Still aggrieved, the assessee is in appeal before this Tribunal.
5. The first ground of the assessee is that no notice was issued under Section 148 to the assessee in the status of an HUF. Therefore, the assessment isdevoid of merits. It was further contended that what remains to be assessed is only the status of individual and not the status of HUF. The learned Counsel relied on the various decisions and also put forth and reiterated the submissions before the learned Commissioner (Appeals) and the assessing officer.
6. On the other hand, the learned Departmental Representative narrated the facts and argued that the property in question was inherited by the assessee from his father and he also pointed out that the assessee himself had filed returns before the assessing officer only in the status of an HUF and therefore, the present argument of the assessee is that there was no HUF to be assessed, will not stand for scrutiny. He pointed out that for the assessment years 2000-01, 2001-02, 2003-04 and 2004-05, the assessee had filed returns in the status of an HUF under the PAN : ABRPV7534J and accordingly paid the tax due thereon. The assessee cannot now take a stand that the assessment made in the status of an HUF is incorrect.
7. We have heard the rival submissions and perused the records. It is pertinent to note that in all the aforesaid returns filed, the learned Departmental Representative pointed out that the assessee had offered income from house property namely flats received by him from the developer and the same has been accepted by the department. Therefore, the assessee cannot now take a stand that the assessment is made in the status of an HUF and hence this ground fails.
8. The next point for consideration is whether the capital gains arise in the present case for the assessment year 1995-96 or 1998-99 in which 34 per cent of the constructed portion received by the assessee and filed the relevant copy of the memorandum of understanding between the assessee and M/s Skylark Mansion (P) Ltd., who accepted to develop the property. As per this agreement, the assessee had agreed to transfer an undivided 66 per cent share of the schedule property including the super built up area therein to the builder and the developer agreed to construct and deliver 34 per cent of the super built up area in the apartment building to be constructed on the schedule property for the absolute use or benefit and ownership of the assessee. On such agreed proposition, the assessee entered into a development agreement and received refundable deposit of Rs. 2 lakhs as non-refundable. Further, the developer has agreed to pay a sum of Rs. 1 lakh as non-refundable for incidental expenses. Further, as per the agreement it was also agreed that on the day of executing the memorandum of understanding the balance amount of Rs. 95,000 would be paid at the time of signing the joint development agreement. The details of the property are mentioned are the schedule as under:
All that property consisting of land with building situated at site No. 12 formed in former survey No. 1332/2 and now bearing HASB Katha No. 452/1 in Kodihalli, Varthur Hobli, Bangalore South Taluk, Bangalore admeasuring East to West 80 ft. and North to South 104 ft., measuring in all about 8,320 sq. ft. and bounded as follows:
East by -Road West by -Private property North by -Private property South by -Road
9. The only dispute in this issue is that the transfer has taken place in the assessment year 1998-99 or in the assessment year 1995-96, as claimed by the assessee. The learned Counsel for the assessee submitted that the memorandum of agreement was entered into on 4-11-1994.Subsequently, based on the aforesaid memorandum of agreement, a joint development agreement was entered into between the assessee and the builder on 1-3-1995. The learned Counsel for the assessee taking us to the joint development agreement relied on the terms in relation to permission to construction'. He submitted that the assessee has to arrange for getting vacant possession of the tenanted portion from the tenants and deliver vacant possession of the entire schedule property to the developer for the purpose of development within August, 1995 and in that event, if the assessee fails to get vacant possession on or before 31-8-1995, the assessee has to pay interest thereon at 21 per cent per annum till the date of handing over possession. He further pointed out that the assessee had made the arrangement to make the possession vacant and deliver the vacant possession to the developer within the time stipulated under the joint development agreement and the assessee was paid certain advance amount towards this transaction. Therefore, he pointed out that since the transfer has taken place in the assessment year 1995-96, even if any capital gains has to be charged that will arise only in that year transfer and not in the present assessment year i.e. 1998-99 as claimed by the revenue.
10. On the other hand, the learned Departmental Representative submitted that the capital gains tax is chargeable only in the assessment years 1998-99. Since the assessee was handed over the possession of the constructed flats in the month of January, 1998 the capital gains therefore, was clearly attracted in the assessment year 1998-99. He further relied on the assessment order and submitted that the assessing officer had rightly concluded.
11. We have heard the rival submissions and perused the records. The fact that the assessee entered into memorandum of understanding is not in dispute. So also the fact that the assessee entered into joint development agreement is also not in dispute. The authorities below were completely put on notice about these two deeds for their consideration. In the second page of the joint development agreement the following recital is very important for considering the actual transactions which reads as under:
The first party is in possession of a major portion of the schedule property but the remaining portion is tenanted;
The first party shall arrange for getting vacant possession of the tenanted portion from the tenants and deliver vacant possession of the entire schedule property of the second party for the purpose of development within August. In the event of the first party failing to get such vacant possession from the tenants on or before 31-8-1995 the first party will pay interest thereon at 21 per cent per annum till the date of handing over the possession.
On such delivery, the first party permits and authorises the second party to enter upon the schedule property and develop the same by constructing an apartment building thereon; and the first party shall not revoke the permission so granted.
The second party shall demolish the old structures and remove the debris and clear the site and the second party shall be entitled to any retrievable building materials retrieved from the debris.
12. A cursory perusal of which shows that the assessee has to pay the developer interest at: 21 per cent on the advance received by the assessee in the event of the assessee failed to put the developer in possession on or before 31-8-1995. This fact is not disputed by both sides. Further, the plain reading of the aforesaid recital shows that the developer has to get the necessary plans/drawings for construction of a multi-storeyed building and submit the same to the authorities for approval, besides the entire cost of the apartment has to be borne out by the developer on the schedule property including the area falling in the share of the assessee. According to the aforesaid agreement, in consideration, the assessee had agreed to transfer an undivided 66 per cent share of the property including the super built up area to the developer. The developer agreed to construct and deliver to the assessee 34 per cent of the super built, up area in the apartment building to be constructed on the schedule property for the absolute use and benefit of the assessee free from all encumbrances. Furcher, the recital No. 5.2 clearly states that in consideration of the developer agreeing to deliver the assessee the constructed area as per para 5.1, the assessee had agreed to transfer/convey to the developer an undivided 66 per cent share in the schedule property. Therefore, from the aforesaid recital, it is apparent that the assessee had transferred 66 per cent undivided share of the schedule property mentioned together with his share for the purpose of constructing a super built multi-storeyed building. This transaction had taken place in the year 1995-96.
13. In the assessment order at para 4.1, the assessing officer had observed as under:
However, on scrutiny of details filed by the assessee, it is observed that what assessee has transferred is the vacant land and not the house property and land appurtenant thereto. The inclusion that assessee transferred only vacant land and not house property and land appurtenant thereto is arrived at on the basis of following facts.
Further on scrutiny of details filed by the assessee, it is observed that what was transferred is the vacant land and not the house property. This observation made by the assessing officer clearly reveals that the transfer of the vacant land has taken place only in the assessment year 1995-96. Therefore, in our view, charging of capital gains tax in the year under consideration is not justified as the transfer of the vacant land had taken place in the assessment year 1995-96 towards part performance of the contract on the basis of the joint development agreement. At this juncture, we may refer to the relevant provision of Section 45(1) which reads as under:
Any profits or gains arising from the transfer of a capital asset effected in the previous year shall save as otherwise provided in Sections 54, 54B, 54D, 54E, 54EA, 54F, 54G and 54H be chargeable to income-tax under the head 'Capital gains' and shall be deemed to be the income of the previous year in which the transfer took place.
14. A cursory perusal of the aforesaid provision would show that for charging capital gains tax, the income to the previous year in which the transfer takes place is the most crucial. In the present case, admittedly, the transfer has taken place only in the assessment year 1995-96 and not in the assessment year 1998-99. Our view is also fortified by the decision relied on by the learned Counsel for the assessee and also decision of this Tribunal in the case of D.L. Nandagopdala Reddy (Indl.) v. ITO in ITA Nos. 1256, 1257, 1258 & 1259/Bang/2003 dated 25th June, 2006 to which one of us is a signatory, wherein para 4(v) it has been held as under:
The rival contentions in regard to the above have been very carefully considered. The fact that there was agreement with the developer followed by a supplementary agreement and the builder agreeing to give in return 40 per cent of the constructed area to the assessee i.e. equivalent to 15 flats, which was handed over to the assessee on 22-8-1994. The agreement was to transfer the interest and the right of the assessee in the land to the extent of 60 per cent. The transfer of the right and handing over the possession of the land to the builder is an act done by the assessee to extinguish his interest in the said land to the extent of 60 per cent. The word transfer includes extinguishment of interest of a property. The occupancy certificate was apparently given on 20-10-1993 and the salary certificate was given in the year 25-3-1994. The occupancy certificate was issued by the authorities of the Bangalore Municipal Corporation in recognition of the fact that the land is being developed to certain extent in 1993. The certificate that is issued invariably shows that the construction of the super structure was perhaps completed earlier to 1993 or at best in 1993. Therefore, it is apparently clear that the transfer of interest was effected earlier, based on which only the developer could have carried on the construction and could have obtained the occupancy certificate in 1993, Hence, it has to be concluded that the transfer took place much earlier and is not relatable to assessment year 1995-96 at all. We are, therefore, inclined to accept the claim of the assessee that taxability of capital gains in regard to transfer of land in assessment year 1995 etc. is clearly a wrong proceeding initiated by the assessing officer. On pure appreciation of law, the assessment framed of the capital gains on the transfer with reference to this portion only is clearly bad in law and is accordingly quashed.
The aforesaid ratio is squarely applicable to the facts of this case. Therefore, applying the same;, we hold that if at all there is any capital gains arise, it is only in the year of transfer i.e. 1995-96 and not in the assessment year 1998-99. It is ordered accordingly.
15. In the result, the appeal filed by the assessee is partly allowed to the extent stated above.