Income Tax Appellate Tribunal - Bangalore
Asha Housing Enterprises , Bangalore vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA No. 810/Bang/2009
Assessment year : 2003-04
Asha Housing Enterprises,
No.221, Nagarthpet,
Bangalore - 560 002. : APPELLANT
Vs.
The Dy. Commissioner of
Income-tax,
Central Circle 1(1),
Bangalore. : RESPONDENT
Appellant by : Shri H.N. Khincha, C.A.
Respondent by : Smt. Swati S. Patil, CIT(DR)
ORDER
Per A. Mohan Alankamony, Accountant Member
This appeal of the assessee firm is directed against the order of the Ld. CIT (A)-VI, Bangalore, in ITA No.91/ACIT CC1(1)/Blre/CIT(A)-VI/08-09 dated: 6.7.2009 for the assessment year 2003-04.
2. In the grounds of appeal, the assessee firm ('the assessee' in short) has raised eight grounds which are in the nature of exhaustive and illustrative. On a careful perusal, the cruxes of the grievances involved are ITA No.810/Bang/09 Page 2 of 27 on twin issues which, for the sake of clarity, are reformulated, in a concise manner, as under:
(i) the AO had erred in assuming jurisdiction for issuance of a Notice u/s 148 of the Act and that the Ld. CIT(A) also erred in confirming the same; &
(ii) the AO had erred in holding that the income was assessable as income from business for the asst. year under dispute and that the CIT(A) also erred in confirming the same;
- on a proper appreciation of evidence, the assessee had rightly offered the income as CG in the AY 2005-06 which requires to be accepted.
Brief facts:
3. There was an action u/s 132 of the Act in respect of Mantri Group of cases on 8/2/2006 in which a number of incriminating documents were said to have been unearthed, some of which, according to the AO, pertaining to transaction between Mantri group of cases and the assessee. Subsequently, notices u/s 153C of the Act was issued for the AYs 2000-01 to 2005-06. In response, the assessee had questioned the jurisdiction of the AO u/s 153C of the Act on the ground that the documents unearthed by the Revenue did not pertain to the assessee etc. Consequent upon the thorough examination of the seized materials found during the search proceedings in Mantri group of cases, the proceedings initiated u/s 153C of the Act against the assessee for the AYs 00-01 to 05-06 were shelved.
4. However, according to the Revenue, the contents of the documents and evidences gathered in the search proceedings of Mantri group of cases and on the basis of which, after recording the reasons for re-opening of the assessments for the AYs 2003-04, 04-05 and 05-06, notices u/s 148 of the Act were issued, calling upon the assessee to furnish its returns of income ITA No.810/Bang/09 Page 3 of 27 for the said AYs. In compliance, the assessee had furnished its returns of income, declaring 'nil' income for the AYS 2003-04 and 2004-05 and Rs.118536691/- for the AY 2005-06, as admitted in the original returns. While furnishing the returns of income, the assessee vide its letter dt.16.7.2007 sought the reasons recorded for reopening of the assessments in question and subsequently, in its letter dated 25.9.2007 had objected to the reopening of the assessments u/s 147 of the Act. 4.1. According to the impugned order of the AO, the objections raised by the assessee have been disposed off vide Order sheet noting of the file dt.26.6.2008, the extract of which was that -
"While reopening of assessment u/s 147 of the IT Act for the A.Y 2003- 04 to 2005-06, detailed reasons are given for such reopening of assessments u/s 147 of the IT Act and the copy of the same was furnished to the AR of the assessee firm. Thus, the reasons cited thereon for reopening the assessment u/s 147 squarely dispose off the objections raised by the AR of the assessee regarding reopening of the assessment. Therefore, objections raised stand disposed off in this regard."
4.2. After analyzing the facts of the issues at length and also considering the forceful contentions put-forth by the assessee, the AO, for the reasons set-out in the impugned assessment order, had held that -
"30. In the instant case, the assessee firm is entrusted to carry on the business of real estate which includes long term real estate investments. Therefore, the sale of land by the assessee firm is in line with its business activity for which it was created and therefore income arising thereon is held as business income and taxed under the head of income namely 'Profits and gains of business or profession' and the same is computed as under:
Sale consideration received Rs.122500000 Less: cost of land and improvement 2591228 Net income 119908772 ITA No.810/Bang/09 Page 4 of 27 Add: disallowance as discussed in asst.order dt:3.8.06 152480 Net receipts (Business income) 120061252"
5. Aggrieved, the assessee went before the CIT (A) with twin issues, namely -
(i) challenging the issuance of Notice u/s 148 of the Act without jurisdiction;
- when the reasons recorded for the issuance of notice and reopening of the assessment was objected to; the AO had failed to pass a speaking order; &
(ii) the AO had erred in taxing the income under consideration for the AY under appeal.
5.1. After due consideration of the spirited arguments put-forth by the Ld. A.R coupled with lengthy written submissions and also the remand report of the AO, the Ld. CIT(A) had observed thus -
"9................Thus, in all the cases cited by the authorized representative, no order has been passed at all on objections raised separately whereas in this case an order had been passed and objections have been considered and disposed off. The Authorized representative pleads that the order is not speaking. But, I find it otherwise. The order is quoted below:
'While reopening of assessment u/s 147 of the IT Act for the A.Y 2003-04 to 2005-06, detailed reasons are given for such reopening of assessments u/s 147 of the IT Act and the copy of the same was furnished to the AR of the assessee firm. Thus, the reasons cited thereon for reopening the assessment u/s 147 squarely dispose off the objections raised by the AR of the assessee regarding reopening of the assessment. Therefore, objections raised stand disposed off in this regard.'
10. No doubt, the order is brief but it contains the reasons of rejection of the objections. It highlights that the reasons recorded are so elaborate that it cover all issues raised in the objection and, therefore, it is not necessary to repeat it. The reasons for re-opening has been made part of the assessment order vide para 8 (pages 2, 3 &
4) of AY 2003-04. It spells out the reasons explicitly. The main objections were (1) there was no rational connection between the ITA No.810/Bang/09 Page 5 of 27 reasons recorded and the formation of the belief that the income has escaped assessment and (2) secondly, the reopening was the result of change of opinion only. I find both these objections have been taken care of, if one analyzes the reasons recorded. Original assessment was completed u/s 143(3) of I.T.Act on 3.8.2006. In that assessment, the AO accepted the head of income shown by the appellant i.e., 'capital gains' because profit from sale of land was shown. Whereas search conducted on 8.2.2006 in Mantri group revealed that they had been given general power of attorney by the appellant to develop the land to construct flats thereon vide Seizure Memo No.A-2/MDIL/07 page 39 to 46) and subsequent enquiry conducted on the seized paper led the AO to form a belief that the assessee is earning substantial income from the business of real estate and not from capital gains resulting in escapement of income. I find had there been no seizure of the general power of attorney at the place of Mantri Group, the escapement of income would not have come to light. Thus, new information brought out through search in other's premises and deep investigation conducted thereon justifies that there was no mere change of opinion but a rational connection between reasons and the belief as to escapement of income. Hence, I hold that the order rejecting the objections is speaking one. It is often quoted that brevity is the soul of wit and knowledge while elaboration is the mother of confusion. The AO by being brief has hit the bull's eye by pointing out that the recorded reasons disposes of all the issues of objections.
Hence, I dismiss this ground of appeal and deny to annual the assessment order."
5.2. In respect of the second issue, after giving due weight-age to the submissions of the assessee and also due consideration of the remand report of the AO, the Ld. CIT (A) had observed thus -
"13..............................In my view, so far as the head of income is concerned the AO is justified in taxing the receipts under the head 'business' rejecting the claim of the appellant. I stand by the side of the AO when he concludes that the very constitution of the firm was for doing business in land i.e. to purchase and sell it or sell it after developing and constructing complexes thereon. A perusal of partnership deed justifies such a stand. This factum of nature of business mentioned in the partnership deed of the appellant firm distinguishes it from the facts of the case law of Sohan Khan (304 ITR
194) cited supra. The revenue in that case could not prove that Sohan Khan was dealing in real estate and therefore even if the land were sold through a series of transactions, the Court held the income arising there-from as 'capital gains' because in the absence of such proof it ITA No.810/Bang/09 Page 6 of 27 was concluded that the parcels of lands were not stock-in-trade but capital asset. Such is not the case here. The intention as reflected partnership deed is glaringly to deal in real estates. That is why the moment it was formed in September, 1992, it purchased urban land in November 1992 and also sold a part of it. In other words, the land was never purchased with an intention to use it as investment and derive benefit there-from. I conclude that from the very beginning it was kept as stock-in-trade. Groundwork was continued as well as market studies by which these prudent partners of the appellant firm could visualize that the heyday of real estate business was on the anvil and, therefore, they patiently waited up-to 2001. In 2002, it was decided to sell the property for Rs.12.25 crores to M/s. Abhishek Developers receiving Rs.5.25 crores forthwith on 24.6.2002. On 22.6.2002, an agreement for sale had already been executed before receiving the first installment of Rs.5.25 crores and the terms and conditions therein had already stipulated the mode and date of payment etc. But a general power of attorney executed on 21.9.02 gave unfettered powers to the persons of mantra Group also interested in Abhishek Developers viz., Sushil Mantri and Smt.Snehal Mantri giving unfettered powers to utilize the land without obtaining any further no objection from the appellant. If that be not equated with 'transfer' I wonder what else would mean transfer. I conclude that there was virtually absolute transfer of the property on the date of execution of the GPA. The conditions narrated in this POA was such that nothing less than ownership could be ascribed to the purchasers?
I do not consider here to repeat the terms of the GPA because such has been done in para 22 of (page 7 & 8) of the assessment order of AY 03-
04. Ownership in common parlance means the enjoyment of a property in its own right to the exclusion of others even barring the power and right to alienate such property with or without consideration. The analysis of terms of the GPA states unequivocally that the purchases would not only have the right to enjoy or utilize the property, they have also been assigned the power to convey by way of sale. Hen one may question what was the necessity of registration of a sale deed in AY 06-07 i.e., 20.6.05 and what is its legal implication? The registration was only a ratification of what had been stated in the POA and it was a legal necessity because thereby the State gets revenue in the shape of stamp duty and it is necessary to register a sale of purchase of an immovable property of value of more than Rs.100/- as per s.17 of the Indian Registration Act. Thus, a sale deed registered in no way proves the privilege of ownership or otherwise or makes the transfer complete. It only symbolizes the fact of complete transfer in the absence of other documents. Here is not such case. However, let it be so, but this has been done in AY 06-07 but the AR has pleaded that the ownership got transferred only in AY 05-06 and that is why the appellant showed the income in AY 05-06. Thus, there is equivocation ITA No.810/Bang/09 Page 7 of 27 and paradox in the argument of the AR as to transfer of ownership. In one place it was argued that transfer of ownership was completed only on the date of registration of sale deed and in other place, it was argued that such transfer of ownership took place only on the date of receipt of last installment of sale price. I, therefore, conclude that the date of first GPA i.e., 21.9.02 was the date of real transfer of ownership. I have, beside the reasons elaborated above, another strong reason to draw such inference. It is often stated possession is 9/10 of ownership. Through the GPA complete possession over the property was admittedly handed over to the purchasers and that is why they started developing the land itself in 2002 and construction of a complex named Mantri Classics in 2003. Had there been an iota of doubt as to their ownership, the purchasers would not have started such adventure of massive construction a few months after the execution of POA but would have waited till the execution of sale through a registered deed. Besides, I note that the deed of sale agreement, upon which the AR relies too much to argue that clauses therein stipulate the transfer of ownership and possession after full and final payment by the purchasers and, therefore, the ownership was transferred only in AY 05-06, is dated 22.6.02. Whereas the GPA in favour of the purchasers giving that unfettered and absolute ownership and possession to deal with the property in whatsoever manner they liked had been executed on 21.9.06. What is being pointed out by me is that when there are more than one document dealing with same or similar subject, the latest one is normally taken cognizance unless the same is proved o be forged one or executed with mala-fide intention. In this case the last one was the GPA dated: 21.9.02 because I have held above that the sale deed registered on 20.6.05 was executed with mala-fide intention and an after thought. Thus, ownership, I conclude, had been transferred in the AY 03-04 through the absolute terms of GPA and thus hold the action of the AO justified in assessing the income in the AY 03-04 substantively under the head 'business income'. While coming to such conclusion, I disregard the argument of the AR that for each receipt of an installment, as per the terms of the agreement of sale, a separate POA was executed and, therefore, the POA executed on 24.5.04 should be considered insomuch as such powers of attorney dt.21.9.02 could be seized by the search party while conducting search in the premises of Mantri group, the truthfulness of which has statutory support. Thus, the protective assessment of AY 2005-06 goes and grounds of appeals of AY 2003-04 are dismissed.
6. Agitated, the assessee has come up with the present appeal. During the course of hearing, the Ld. A R had argued at length with regard to the manner in which the objections raised by the assessee ITA No.810/Bang/09 Page 8 of 27 for re-opening of the assessment u/s 147 of the Act has been dealt with by the assessing officer. The substances of the arguments of the Ld. AR are summarized as under:
(i) the order of the AO was bad, without jurisdiction and against the provisions of law and even against the dictum of the Apex Court;
- the AO had erred in assuming jurisdiction and issuance of notice u/s 148 of the Act;
- the CIT(A) had also erred in confirming the same as the conditions precedent for the issuance of notice u/s 148 of the Act being absent, the issue of notice and consequent all connected proceedings have become void-ab-initio and were liable to be quashed
- the AO having not passed a speaking order against the objections raised for re-opening of the order became bad in law and that the Ld.CIT(A)had miserably erred in holding that the order of the AO consequent to the objection raised was a speaking order;
- there being no speaking order, the finding of the CIT(A) was wrong and his impugned order is liable to be quashed;
- relies on the case laws:
(a) GKN Driveshafts (India) ltd. v. ITO 259 ITR 19 (SC)
(b) Kamlesh Sharma v. ITP 281 ITR 377 (Delhi)
(c) Allana Cold Storage ltd. v. ITO 287 ITR 1 (Bom)
(d) Arvind Mills Ltd. v. ACIT 270 ITR 469 (Bom)
(e) Delhi Tourism & Transport Dev. Corporation Ltd.
v. ACIT 141 Taxman 361 6.2. On the other hand, the Ld. D R was very vehement in her stand that the AO had in fact recorded the reasons in an exhaustive and an illustrative manner which was duly communicated to the assessee and consequent upon the assessee's objections, the AO had duly disposed off of the said objections in the Order Sheet noting of the file dt: 26/6/2008 which had also been made as a part of the assessment order, which, in her ITA No.810/Bang/09 Page 9 of 27 view, should be construed as a speaking order. It was, further, pleaded that the CIT (A) had indeed dwelt with the issue elaborately and came to a conclusion which requires no further consideration at this stage.
7. On a perusal of the assessment order, we find that the AO has stated that -
"14. Vide letter dated: 25/9/07, assessee firm filed a detailed letter raising objections to the reopening of assessments u/s 147 of the I.T. Act. The objections raised by the assessee firm have been disposed off vide order sheet noting of the file dated: 26/6/08. the extract of the noting is given as under:
"While reopening of assessment u/s 147 of the IT Act for the AY 2003-04 to 2005-06, detailed reasons are given for such reopening of assessments u/s 147 of the IT Act and the copy of the same was furnished to the AR of the assessee firm. Thus, the reasons cited thereon for reopening the assessment us 147 squarely dispose off the objections raised by the AR of the assessee regarding reopening of the assessment. Therefore, objections raised stand disposed off in this regard."
7.1. On a plain reading of the above, we find that a vital issue has been dealt with by the AO in a lacklustre and slip-shod manner which is quite contrary to the spirit of the ruling of the highest judiciary of the country in the case of GKN Driveshafts (India) Ltd. v. Income-tax Officer and Others reported in (2003) 259 ITR 19 wherein the Hon'ble Court in its wisdom has held that -
"When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order."ITA No.810/Bang/09 Page 10 of 27
7.2. Turning to the reasoning of the Ld. CIT (A), we find that the CIT (A) had stated that "9. The issue raised at (1) above is crucial to the life of assessment order and that was decided at first during the course of appellate hearing and it was informed to the authorized representative that the order, though a brief one, caters to all conditions of a speaking order and therefore he was called upon to argue the case on merits...." This has been done precisely without going into the merits of the issue. He, further, went on to add that -
"9.................The authorized representative pleads that the order is not speaking. But I find it otherwise. The order is quoted below:
"While...........................Therefore objections raised stand disposed off in this regard."
10. No doubt the order is brief but it contains the reasons of rejection of the objections. It highlights that the reasons recorded are so elaborate that it covers all issues raised in the objection and therefore it is not necessary to repeat it. The reasons for re-opening has been mad part of the assessment order vide para 8 (pages 2, 3 & 4) of AY 2003-04. it spells out the reasons explicitly. The main objections were (1) there was no rational connection between the reasons recorded and the formation of the belief that the income has escaped assessment and
(ii) secondly the reopening was the result of change of opinion only. I find both these objections have been taken care of, if one analyses the reasons recorded....."
7.3. According to The Law Lexicon, 'speaking order' means 'an order which contains matter which is explanatory or illustrative of the mere direction which is given by it is sometimes thus called'. Thus, the Revenue cannot legitimize the wayward manner in which the issue has been dealt with.
ITA No.810/Bang/09Page 11 of 27 7.4. Considering pros and cons of the issue, the Bench was of the firm view that the objections raised by the assessee for the issuance of Notice u/s 148 of the Act for reopening of the assessment has not been disposed off by passing a speaking order by the AO in conformity with the ruling of the Hon'ble Supreme Court in the case GKN Driveshafts (India) Ltd. referred supra and thus the issue requires to be remitted back on the file of the AO for fresh consideration and sought the comments of the rival parties present during the course of hearing. The ld. AR immediately came up with a submission that he was not pressing this ground and passionately pleaded that the other ground raised be decided on merits. 7.5. In view of the submission of the Ld. A.R, the first ground raised by the assessee - the objection for issuance of Notice u/s 148 of the Act for reopening of the assessment u/s 147 has not been disposed off by a speaking order - is dismissed as not pressed.
8. Let us now proceed to consider the assessee's other grievance that the AO was not justified in bringing to tax the sale consideration of Rs.12.25 crores under the head "profits and gains of business or profession" for the assessment year under dispute. 8.1. The issue, in brief, is that the assessee had purchased the lands situated at Shinvagulu village, Bangalore on 12.11.1992. The assessee had entered into an agreement of sale on 22.6.2002 with M/s. Abhishek Developers for a sale consideration of Rs.12.25 crores and on the date of agreement, the assessee was in receipt of Rs.5.25 crores as ITA No.810/Bang/09 Page 12 of 27 part of sale consideration. The year-wise break up of the entire consideration paid as per the terms of the agreement is as under:
Financial year Amount
2002-03 Rs.8.25 crores
2003-04 Rs.2.00 crores
2004-05 Rs.2.00 crores
8.2. The assessee furnished its ROI u/s 139 of the Act on 23.3.06 for the AY 2005-06 admitting the above transactions and offered the income arising out of the above mentioned transaction as LTCG for the AY 05-06.
8.3. Consequent to the inquiries, the Revenue was of the view that the assessee had not disclosed the income accruing during the FY relevant to the AY 03-04 and that even the income admitted in the ROI for the AY 05-06 was wrong as the same was disclosed as LTCG instead of business income.
8.4. After examining the contentions of the assessee and also analyzing the material evidences, the AO had arrived at a conclusion that -
(i) the property in question was deemed to have been transferred to Abhishek Developers during the FY 02-03 and, thus, income on the said transfer of the property accrues in the FY 02-03 only;
(ii) the income accrued in view of the above transaction was business income - not LTCG declared by the assessee in the ROI for AY 05- 06 - as the asset in question was a business asset.
8.5. For the detailed analyzes made and narrated in the assessment order, the AO had come to the conclusion that - ITA No.810/Bang/09 Page 13 of 27
"25. On the very land regarding which power of attorney was executed by the assessee firm as mentioned above, M/s. Abhishek Developers commenced construction of residential project namely 'Mantri Classic' during the month of August, 2003 and completed the project during the Month of March, 2005.
26. Therefore, it is clear that the property has been transferred or deemed to have transferred during the financial year 2002-03 as all risks, rewards and possession was transferred to the power of attorney holders in the financial year 2002-03. Therefore the income arises/accrues to the assessee firm on account of transfer of the said property is required to be offered to tax in the year 2002-03 and therefore accordingly assessed to tax .........
...................................................................................................... ...................................................................................................... ...........................................................
30. in the instant case, the assessee firm is entrusted to carry on the business of real estate which includes long term real estate investments. Therefore, the sale of land by the assessee firm is in line with its business activity for which it was created and therefore income arising thereon is held as business income and taxed under the head of income namely 'profits and gains of business or profession...."
8.6. Accordingly, the AO had computed the taxable income at Rs.120061250/- after allowing cost of land and improvement etc.
9. On appeal, the Ld. CIT (A), after giving due weight-age to the contention of the assessee, perusal of relevant records and discussing the issue in an elaborate manner, has observed thus -
"13...............................Through the general power of attorney complete possession over the property was admittedly handed over to the purchasers and that is why they started developing the land itself in 2002 and construction of a complex named Mantri Classics in 2003. Had there been an iota of doubt as to their ownership, the purchasers would not have started such adventure of massive construction a few months after the execution of power of attorney but would have waited till the execution of sale through a registered deed. Besides, I note that the deed of sale agreement, upon which the authorized representative relies too much to argue that clauses therein stipulate the transfer of ownership and possession after full and final payment by the ITA No.810/Bang/09 Page 14 of 27 purchasers giving the unfettered and absolute ownership and possession to deal with the property in whatsomanner they liked had been executed on 21.9.06. what is being pointed out by me is that when there are more than one document dealing with same or similar subject, the latest one is normally taken cognizance unless the same is proved to be forged one or executed with malafide intention. In this case the last one was the GPA dated 21.9.02 because I have held above that the sale deed registered on 20.6.05 was executed with mala-fide intention and an after thought. Thus ownership, I conclude, had been transferred in the AY 03-04 through the absolute terms of GPA and thus hold the action of AO justified in assessing the income in the AY 03-04 substantively under the head 'business income'. While coming to such conclusion, I disregard the argument of the AR that for each receipt of an instalment, as per the terms of the agreement of sale, a separate power of attorney was executed and therefore the POA executed on 24.5.04 should be considered insomuch as such POA were not found in the course of search, but only one GPA dt: 21.9.02 could be seized by the search party while conducting search in the premises of Mantri Group, the truthfulness of which was statutory support.........."
10. Before us, the Ld. AR reiterated more or less what has been contended before the first appellate authority. In furtherance, it was vehemently argued that -
(i) as per the agreement, the sale was to be completed within 24 months from 22.6.2002;
(ii) as per clause 5.1., the original documents of title deed were kept in 'escrow' who was required to hand over the original documents to the purchaser only on the receipt of the entire sale consideration;
(iii) clause 6 clearly provides that 'the vendor shall deliver the vacant possession of the schedule property to the purchaser on the date of sale and against the payment of the entire sale consideration;
(iv) the last and final instalment of sale consideration was received during the FY 04-05 relevant to the AY 05-06;
(v) the transfer having taken place only in the previous year relevant to the AY 05-06, the assessee had offered the income from this transaction for the AY 05-06;
(vi) The assessee had executed POA in favour of the purchasers only for the purpose of ensuring the safety of the amounts received from the purchasers. The POA did not have any ITA No.810/Bang/09 Page 15 of 27 material effect of transferring any portion of land to the buyer or in any way concluding the sale. The very fact that the POA executed shows that the ownership remained with the assessee only;
(vii) The POA executed on 24.4.05 was in relation to the entire land of 137976 sft. None of the PsOA were in favour of the purchasers - Abhishek Developers - but, were in favour of Sushil Mantri, Snehal Mantri and H.S.Girish Gupta who were acting on behalf of the assessee;
(viii) The recital in the POA dt: 24.4.04 goes to prove explicitly that "Whereas we are the absolute owners of all that piece and parcel of converted land............"
(ix) Supplemental agreement executed on 24.6.2002, makes it unambiguously clear that -
'IV. Now this supplemental agreement witnesses as follows:
(1) The vendors at the request of the purchasers, have permitted by way of a licence to enter upon the schedule property and to do work of construction in the portion thereof set out in green outline in the plan annexed hereto being the portion of the Schedule "A" property entirely at their risk as to cost and consequences without any right of reimbursement of the cost of construction.
................................................................................. (2) The license hereby granted to the purchasers by the vendors is on the specific condition, assurance and undertaking by the purchasers that the same shall not be construed or deemed to be possession or claim to be possession under section 53A of the Transfer of Property Act by the purchasers under any agreement for sale with regards to the portion in which the licence is granted for construction; (3) The licence hereby granted to the purchasers by the vendors is on the specific assurance that all acts, deeds and things done by the purchasers pursuant to this licence shall be the responsibility of the purchasers and shall be done entirely at the risk as to cost and consequences of the purchasers and that the purchasers shall keep the vendors fully indemnified against any cost, claim, actions, proceedings etc., in terms of the separate indemnity executed by the purchasers in favour of the vendors.
(x) The AO had relied only on the POA executed by the assessee to conclude that the transfer of land took place in the previous ITA No.810/Bang/09 Page 16 of 27 year relevant to the AY 03-04. However, he had failed to consider the fact that -
- the agreement was entered into with Abhishek Builders;
- the POA was in favour Sushil Mantri, Smt.Snehal Mantri and Gupta
- as per the POA, the agent had acted as agent of the assessee as was clear from the wording 'our agents' at many places in the POA. The POA was issued for on behalf of the assessee and NOT for the benefits/advantage of the proposed buyer
(xi) the mere execution of GPA does not mean that there was a transfer of property which needs conveyance or handing over the possession of the property; &
(xii) the AO had used the word 'deemed' to have been transferred.
There can be no question of deeming any transfer, but, the transfer has to be actual transfer and in terms of law. 10.1 During the course of hearing, the Ld. A.R furnished a paper book containing 1 - 176 pages which consists of, inter alia, copies of
(i) financial statement, (ii) written submission made before the CIT(A), (iii) rejoinder to remand report etc., Subsequently, the Ld.A.R came up with a paper book-II which contained copies of (i) Balance sheets for the AYs 93- 94 - 05-06; & (ii) sale agreements with Abhishek Developers and other correspondences.
10.2. On the other hand, the Ld. D R was more emphatic in her resolve that the AO had, in fact, dealt with the issue in an investigation angle and brought on record with evidence to thwart the assessee's claim which has been sustained by the first appellate authority in a judicious manner. It was, therefore, pleaded that the stand of the authorities below requires to be upheld.
ITA No.810/Bang/09Page 17 of 27
11. We have duly considered the rival submissions, perused the relevant records and also documentary evidence produced by the Ld. A.R during the course of hearing.
11.1. The AO, after analyzing all the material evidenced gathered and considering the assessee's submission, came to a conclusion that -
"21................The property in question is deemed to have been transferred to M/s. Abhishek Developers during the financial year 2002-03 itself. Therefore, income on the said transfer of the property accrues to the assessee in the financial year 2002-03 only."
11.2. On a careful reading of the wording of the AO, we find that the AO was of the view that The property in question is deemed to have been transferred to M/s. Abhishek Developers during the financial year 2002-03 itself. Perhaps, he was not very emphatic in his resolve that the property in question has been transferred to Abhishek Developers during the FY 2002-03, that was the reason why, the AO had in a suave way used the word deemed to drive home his point. 11.3. Deemed - its various meanings are - To deem is to hold in belief, estimation, or opinion; to judge, adjudge, decide, consider to be; to have or to be of an opinion etc., 11.4. On a perusal of the Agreement of Sale executed on 22.6.2002 between Asha Housing Enterprises and Abhishek Developers, the following significant features were emerged:
(i) the vendors are in possession and enjoyment and personal occupation of the schedule property;ITA No.810/Bang/09 Page 18 of 27
(ii) the schedule of payment of consideration of Rs.12.25 crores was earmarked in the following manner:
Rs.5.25 crores on 22.6 .2002 Rs.1.00 crore on 24.9 .2002 Rs.1.00 crore on 24.12.2002 Rs.1.00 crore on 24.3 .2003 Rs.1.00 crore on 24.4 .2003 Rs.1.00 crore on 24.5 .2003 Rs.1.00 crore on 24.4 .2004 Rs.1.00 crore on 24.5 .2004 Thus, the sale shall be completed within 23 (twenty three) months from this date, subject to the terms of this agreement;
(iii) The vendors shall bear and pay all rates, taxes and cesses in regard to the schedule property up-to the date of sale and registration or up-to the date of payment of the entire sale consideration. The securing of the khata from the Corporation of City of Bangalore shall also be done by the vendors at their own cost. However, the purchaser will arrange to complete the formalities to secure the khata for the vendors;
(iv) Possession:
The vendors shall deliver the vacant possession of the schedule property to the purchaser on the date of sale and against the payment of the entire sale consideration;
(v) In its supplemental agreement executed on 24.6.2002, it was resolved that -
'IV.Now this supplemental agreement witnesses as follows:
1) the vendors at the request of the purchasers, have permitted by way of a licence to enter upon the schedule property and to do work of construction in the portion thereof set out in green outline in the plan annexed hereto being the portion of the schedule 'A' property entirely at their risk as to cost and consequences without any right of reimbursement of the cost and consequences without any right of reimbursement of the cost of construction. The said area marked in green outline is set out in schedule 'B' hereto;
2) the Licence hereby granted to the purchasers by the vendors is on he specific condition, assurance and undertaking by the purchasers that the same shall not be construed or deemed to be possession or claim to be possession under section 53A of the Transfer of Property Act by the purchasers under any agreement for sale with regards to the portion in which the licence is granted for construction;ITA No.810/Bang/09 Page 19 of 27
3) The licence hereby granted to the purchasers by the vendors is on the specific assurance that all acts, deeds and things done by the purchasers pursuant to this licence shall be the responsibility of the purchasers and shall be done entirely at the risk as to cost and consequences of the purchasers and that the purchasers shall keep the vendors fully indemnified against any cost, claim, actions, proceedings etc., in terms of the separate indemnity executed by the purchasers in favour of the vendors;
As per The Law Lexicon:
'Licence' means an authority to do something which would otherwise be inoperative, wrongful or illegal; a formal permission from a constituted authority to do something 'License' Permission or authority to do a particular thing. "A license in respect to real estate is defined to be an authority to do a particular act or series of acts on another's land without possessing any estate therein."
A 'license' is described by Jones in his book on Easements as a personal and revocable privilege to do some act or series of acts upon the lands of another without possessing any estate therein. It gives immunity to the licensee while acting under the privilege but confers not vested right by which he can rightfully enjoy it contrary to the will of the grantor.
11.5. As rightly argued by the Ld.A.R, Clause 6 explicitly avers that "the vendor shall deliver the vacant possession of the schedule property to the purchaser on the date of sale and against the payment of the entire sale consideration". Even in Supplemental agreement executed on 24.6.2002, it was stated that "The vendors at the request of the purchasers, have permitted by way of a licence to enter upon the schedule property and to do work of construction in the portion thereof set out in green outline in the plan..." and that "The licence hereby granted to the purchasers by the vendors is on specific condition, assurance and undertaking by the purchasers that the same shall not be construed or deemed to be possession or claim to be possession under section 53A of ITA No.810/Bang/09 Page 20 of 27 the Transfer of Property Act by the purchasers under any agreement for sale with regards to the portion in which the licence is granted for construction."
11.6. For ready reference, we shall reproduce extract of s.53A of Transfer of Property Act, 1882:
"Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."
11.7. This gives a clear indication that the assessee was physical possession of the property in question.
11.8. The following vital issues have been overlooked by the AO while deciding the issue:
(i) the assessee had entered into agreement of sale with M/s.Abhishek Builders for the sale of land in question;
(ii) the power of attorney given by the assessee was in favour of Sushil Mantri, Mrs.Snehal Mantri and Gupta to act as agents on ITA No.810/Bang/09 Page 21 of 27 behalf of the assessee. They were not the partners of M/s.Abhishek Builders who were the purchasers of the land;
(iii) the execution of a GPA can not be construed that there was a transfer of property;
11.9. The AO was not having any conclusive evidence to show that the possession of the property was indeed handed over to Abhishek Builders during the previous year relevant to the assessment year under dispute and therefore, taxing of income from the transaction in land assessed for the A.Y under appeal cannot be sustained; 11.10. Since the Revenue has not come up with any discreet documentary evidence to suggest that the assessee had earned income from the transaction of land during the AY 2003-04, we are unable to agree with the contention of the Revenue;
11.11 The following facts emerges on perusing the financial statements submitted by the assessee on 4.2.2010.
(i) During the previous year ending 31.3.93, the assessee has disclosed in its balance sheet the land under the head "property" as an asset, amounting to Rs.11,62,779. For the subsequent years the assessee has disclosed the same on a similar manner and they are listed out as follows:
Year ended Amount
31.3.1994 12,62,775
31.3.1995 12,64,275
31.3.1996 12,68,590
31.3.1997 12,68,795
31.3.1998 12,69,100
ITA No.810/Bang/09
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31.3.1999 12,69,200
31.3.2000 12,69,360
31.3.2001 9,35,425
31.3.2002 10,90,450
31.3.2003 11,02,136
31.3.2004 11,01,336
During the period
1.4.04 to 31.3.05 Property was sold
(ii) During the period 1.4.2000 to 31.3.2001, the assessee had sold a
portion of the property for Rs.24,04,178. The cost attributed for this portion of the land was Rs.3,33,935 and the same was excluded from the total investment of Rs.12,69,200 as it stood on 31.3.2000. Thus, for the year ended 31.3.2001, the value of the landed property was reduced to Rs.9,35,425 in the balance sheet.
(iii) As a result for the A.Y. 2001-02, the assessee had computed in its return of income long term capital gains of Rs.11,80,196 after giving effect to indexed cost of acquisition as per the provisions of the Act and the due tax was paid on 28.9.2001 (page 15 of the paperbook dated 4.2.2010).
(iv) This return of income for the A.Y. 2001-02 was accepted by the revenue and not disputed.
(v) The balance portion of the land was sold for Rs.12.25 crores and the income arising out of such transfer is now held by the AO as business income and thereby taking a contrary view.
(vi) The firm appears to have not conducted any other activity other than holding the land of investment, borrowings and lending. ITA No.810/Bang/09 Page 23 of 27 11.12 On perusing the above facts, it is clear that the firm had purchased the landed property and held it as investment way back from 1994 and beyond until the year it was sold. Two portions of the same land is sold on two assessment years, one during the A.Y. 2001-02. For the A.Y. 2001-02, the revenue has not disputed that the income arising out of sale of property does not fall under the head long term capital gains. Being so, it is not appropriate for the revenue to hold the income arising out of the sale of the other portion of the same property as business income, when all the facts remain the same. A firm involved in real estate business can hold land as investment and/or as stock in trade. This decision has to be taken only by the firm and its management and not by the Assessing Officer. The AO is not right to deem the asset of the firm to be stock in trade according to his whims and fancies. The firm would have various business plans and propositions by which it would have thought proper to hold the land as investments. This view is further fortified by the decision of Mumbai Tribunal in the case of Paresh D .Shah v. Joint Commissioner of Income- tax 2 ITR (Trib) 311 (Mum) the gist of the same is reproduced herebelow.
"The assessee showed surplus earned on sale of investments as short-term capital gains. The assessee explained that he was carrying on the business of trading in shares and securities and that the main trading was of securities and bonds with Co-operative bank. The assessee had also made investment in mutual funds, fixed deposits, shares etc. During the accounting year 2003-04, the Reserve Bank of India banned the trading of individuals with Co- operative bank and as such he had stopped trading in securities. The Assessing Officer observed that the investment was not for the ITA No.810/Bang/09 Page 24 of 27 purpose of earning dividend but for realizing quick profits through sale of shares. It was also observed that the nature and scale of activity remained the same as in earlier years. Therefore he treated the gain as business income of the assessee. The Commissioner (Appeals) confirmed the order of the Assessing Officer. On further appeal:
Held, allowing the appeal, that the assessee was carrying on the business of trading in shares as well as the investment in shares. Both these activities were done in the past and the profit on account of trading was shown as business income and profit on account of investment was shown as short-term capital gains or long-term capital gains. During the year the assessee had stopped trading activity and a major portion of the stock was sold during the year under consideration and the business profit was offered for taxation. The stock transferred to investment account was sold in the subsequent year. There was no ban on carrying out both the activities, trading in shares and investment in shares together. Whatever sales were made that were on account of investment, the details were placed on record. Therefore, the capital gains offered on account of sale of investment was correct and the Assessing Officer should have accepted it. The Assessing Officer was to consider the profit shown on account of sale of investment as short- term capital gains or long-term capital gains as the case may be."
11.13. In view of the foregoing facts and circumstances of the issue, we are of the considered view that the assessee had held the land as investment only and that the entire transaction was in the nature of investment only. To support its view, the assessee has placed strong reliance on the finding of the Hon'ble Rajasthan High Court in the case of CIT v. Sohan Khan and Mohan Khan reported in (2008) 304 ITR 194. In ITA No.810/Bang/09 Page 25 of 27 that case, the assessee purchased a large extent of land in 1970 under a valid document. The land was under the cloud of ceiling laws and after it got cleared there-from, the assessee prepared a site plan showing the land to be divided into different plots and plots were accordingly sold. The assessee file his ROI declaring the particular income as capital gains. The AO found that the profits from the sale were not to be taxed as CG but that the transaction was in the nature of trade on the ground that the land surrounding the original land was owned by his near relatives and family members and that the purchasers were impressed by the fact that all the land belonged to the same family and was being planned and sold together and at no stage the huge property was used for personal purposes, the intention being to gain profit only. The CIT(A) as well as the Tribunal held that the sale proceeds were to be considered as CG. On appeals, the Hon'ble Court dismissing the appeals held that "the most significant consideration to conclude whether the transaction gave rise to capital gains or nor would be the regularity of transactions of purchase and sale. The mere fact that there was a series of transactions of sale only by selling part of the land, purchase in one go, or purchased once upon a time, piecemeal, would not render the activity of sale an 'adventure in the nature of trade'. There was nothing to show that the land was purchased with the intention to sell it at a profit, or with requisite intention, to bring it within the parameters of 'stock-in-trade'. It was also not shown that the assessee was a regular dealer in real estate. The transaction was of a capital asset only ITA No.810/Bang/09 Page 26 of 27 and not a transaction of any 'stock-in-trade'. Therefore, the sale proceeds were liable to be taxed as capital gains."
With due regards, we would like to point out that ratio laid down by the Hon'ble Court referred supra is directly applicable to the facts of the issue on hand.
12. In an over all consideration of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs, we are of the unanimous view that the AO was not justified in treating the income as 'business income' in the assessment year under dispute and that the income so offered as capital gains by the assessee is to be assessed in the assessment year 2005-06. it is ordered accordingly.
13. In the result, the assessee's appeal is partly allowed.
Pronounced in the open court on this 31st day of March, 2010.
Sd/- Sd/-
( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY )
Judicial Member Accountant Member
Bangalore,
Dated, the 31st March, 2010.
Ds/-
ITA No.810/Bang/09
Page 27 of 27
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file (1+1)
By order
Assistant Registrar
ITAT, Bangalore.