Income Tax Appellate Tribunal - Mumbai
Nanuk Raojibhai Patel, Mumbai vs Department Of Income Tax on 1 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'I' MUMBAI
BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND
SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER)
ITA No. 2956/Mum/2009
Assessment Year-2004-05
The ITO 2(1)(1), Shri Nanuk Raojibhai Patel,
Aayakar Bhavan, 19, Park View, Little Gibbs Road,
Mumbai-400 020 L.D. Ruparel Marg,
Vs. Malbar Hill,
Mumbai-400 006
PAN-AACPP 6742C.
(Appellant) (Respondent)
Appellant by: Shri O.A. Mao
Respondent by: Shri Sanjiv Shah
Date of Hearing :01.12.2011
Date of pronouncement:
ORDER
PER B.R. MITTAL, JM :
The Department has filed this appeal for assessment year 2004-05 against order of Ld. CIT(A) dt.12.2.2009 on following grounds:
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:
1) The Ld. CIT(A) erred in deleting the addition made of Rs.
34,00,000/- on account of consideration received by the assessee on the sale of property taxed by AO under the head 'Business Income'.
2) The Ld. CIT(A) has ignored the intention of the assessee behind the transaction and the risk taken by the assessee at the time of acquiring the rights to demolish and develop the 2 ITA No. 2956/M/09 said property which is very evident while getting into an agreement with the original owner i.e. the Devasthan Trust. Therefore it is an adventure in the nature of trade by the assessee and not for the party who has developed the property."
2. The relevant facts are that assessee is an individual. The assessee was the lessee of a property being a plot of land alongwith building thereon owned by a trust called Devasthan Trust since last 44 years. Under the agreement dt. 30th October, 2000, lease was renewed for a period of 49 years which was extendible for a further period of 49 years. The assessee entered into a lease deed with landlord on 6.11.2000, so as to get the right to develop the said property after demolishing the existing structure and to construct a new building by using FSI of existing property. For this right, assessee was required to pay an amount of Rs. 10,00,000/- to the trust. It is observed that assessee could not take steps to develop the said land and he entered into a Development Agreement-cum-MOU dt. 16.12.2003 with M/s. Vama Association i.e. Midway Developers, whereby a part of right to develop the property was assigned by him for a consideration of Rs. 44,00,000/-. The Assessing Officer after considering clauses of said Memorandum of Understanding stated at page 2 to 4 of assessment order, that assessee received the said consideration for the purpose of developing lease land and it was in the nature of an adventure. Accordingly, AO treated Rs. 34,00,000/- as business income derived from transaction of adventure in the nature of trade and taxed accordingly. Being aggrieved, assessee filed appeal before First Appellate Authority.
3. The Ld. CIT(A) considering above facts vide para-6 of impugned order held that consideration received by assessee of Rs. 44,00,000/- on transfer of leasehold rights is to be treated as transaction as Long Term Capital Gains and is to be assessed accordingly. Para-6 of Ld. CIT(A) reads as under:
"The facts of the case not disputed is that the appellant is the owner of leasehold rights in the property and has acquired right to 3 ITA No. 2956/M/09 transfer on 30.10.2000. The right was then transferred by the appellant on 16.12.2003 which thus gives rise to Long Term Capital Gains as this right in the property is held by the appellant for more than 3 years. Further this transaction of appellant as contended by the appellant as not being in the nature of business or trade has merits because the profit and the risk associated with the development of the property lies with the developer of the property who is the new lessee viz. Vama Association. Thus the appellant has no profit or risk in the said property once it sold his leasehold rights on 16.12.2003. The AO has not brought on record any fact to show that the appellant has carried out any development of project nor received any profits from the Development of the project except for the fact that the appellant has received a consideration of Rs. 44 lakhs on transfer of leasehold rights. The appeal of the appellant is therefore allowed and the AO is directed to treat the transaction as Long Term Capital Gains and assess accordingly as per law."
Hence Department is in appeal before Tribunal.
4. On behalf of department, it was contended that said leasehold land was acquired by assessee for business purposes and transferring it to developer for development was in the nature of trade. Ld. Departmental Representative referred decision of Hon'ble Apex Court in the case of G. Venkataswami Naidu & Co. Vs CIT 35 ITR 594. On the other hand Ld. AR submitted that assessee is a salaried employ and said leasehold plot was in his position for the last 44 years. It was used by a partnership firm and was treated as capital asset. The lease was renewed for a period of 49 years with an extendible further period of 49 years. He submitted that firm was dissolved in 2002 and thereafter assessee entered into a Development Agreement against consideration of Rs. 44 lakhs. The assessee paid a sum of Rs. 10,00,000/- to Trust to allow assessee to transfer his leasehold rights to Developer. Ld. AR submitted that transfer of leasehold right gives rise to capital gain and referred decision of Hon'ble Apex Court in the case of A.R. Krishnamurthy & Another Vs CIT 176 ITR 417. He submitted that order of Ld. CIT(A) be confirmed.
4 ITA No. 2956/M/095. We have carefully considered the submissions of Ld. Representatives of parties and orders of authorities below as well as cases cited by them in support of their submission.
6. At the outset we observe that case referred to by Ld. DR relates to purchase of land adjacent to mill of a company of which assessee was the Managing agent and thereafter sold said land to mill. It was found that land was purchased comprising of 4 plots with sole intention of selling them to mill at a profit and in respect of those plots it was holding that transaction in question was an adventure in the nature of trade. However, in the case before us, we observe that assessee was in position of leasehold right in the property for the last 44 years. It is not disputed that said property was used by a partnership firm in which assessee was a partner having 95% share. The said partnership firm was dissolved in 2002 vide dissolution deed dt. 31.5.2002 and thereafter property remained unused by assessee. There is also no dispute to the fact that assessee got leasehold right for a period of 49 years from the Trust under Agreement dt. 30.10.2000 and it was extendible for a further period of 49 years. We observe that assessee transferred the development right to Midway Developer against total consideration of Rs. 44,00,000/- and out of it assessee paid Rs. 10,00,000/- to Trust to allow him to transfer his leasehold right to Developer. Ld. CIT(A) has stated that assessee had no risk associated with development of property and it was with Developer. Ld. CIT(A) further states that AO has not brought on record any fact to show that assessee carried out any development of project nor received any profit from development of project except receipt of consideration of Rs. 44 lakhs on transfer of leasehold rights. During the course of hearing department has not controverted above observation of Ld. CIT(A). Considering above facts, we hold that transfer of leasehold right by assessee could not be said in the nature of adventure of trade. Therefore, said transfer of leasehold right has rightly been held by Ld. CIT(A) transfer of capital asset and is to be assessed as capital gain and not 5 ITA No. 2956/M/09 as business income. Accordingly, we uphold his order by rejecting ground of appeal taken by department.
7. In the result, appeal filed by department is dismissed.
Order pronounced on this 16th day of December, 2011 Sd/- Sd/-
( PRAMOD KUMAR) (B.R. MITTAL )
Accountant Member Judicial Member
Mumbai, Dated 16th December,2011
Rj
Copy to :
1. The Appellant
2. The Respondent
3. The CIT-concerned
4. The CIT(A)-concerned
5. The DR 'I' Bench
True Copy
By Order
Asstt. Registrar, I.T.A.T, Mumbai
6 ITA No. 2956/M/09
0.
Date Initials
1. Draft dictated on: 7.12.2011 Sr.
PS/PS
2. Draft placed before author: 8.12.2011 Sr.
PS/PS
3. Draft proposed & placed before JM/AM
the second member:
4. Draft discussed/approved by JM/AM
Second Member:
5. Approved Draft comes to the Sr. Sr.
PS/PS: PS/PS
6. Order pronounced on: Sr.
PS/PS
7. File sent to the Bench Clerk:
8. Date on which file goes to the Sr.
Head Clerk: PS/PS
9. Date on which file goes to AR
10. Date of dispatch of Order: