Income Tax Appellate Tribunal - Mumbai
Moti Ramananad Sagar, Mumbai vs Asst Cit Rg 16(1), Mumbai on 28 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D" MUMBAI
BEFORE SHRI PAWAN SINGH (JUDICIAL MEMBER) AND
SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)
ITA No. 2049/MUM/2017
Assessment Year: 2012-13
Assistant Commissioner Moti Ramanand Sagar, Office
of Income Tax-Range Vs. No. 6, New Shantivan
16(1), Room No. 439, Building, SAB TV Lane,
Aayakar Bhavan, M.K. Andheri (West), Mumbai-
Road, Mumbai-400020. 400053, Maharashtra
PAN No. AAPPS2468F
Appellant Respondent
&
ITA No. 1690/MUM/2017
Assessment Year: 2012-13
Moti Ramanand Sagar, Assistant Commissioner of
Office No. 6, New Vs. Income Tax-Range 16(1), R.
Shantivan Building, SAB No. 439, Aayakar Bhavan,
TV Lane, Andheri M.K. Road, Mumbai-400020.
(West), Mumbai-
400053, Maharashtra
PAN No. AAPPS2468F
Appellant Respondent
Revenue by : Mr. Chaitanya Anjaria, CIT DR
Assessee by : Mr. Prakash Jhunjhunwala, AR
Date of Hearing : 24/12/2018
Date of pronouncement: 28/02/2019
Moti Ramanand Sagar 2
ITA No. 2049 & 1690/Mum/2017
ORDER
PER N.K. PRADHAN, AM
The captioned cross appeals- one by the Revenue and the other by the assessee - are directed against the order of the Commissioner of Income Tax (Appeals)-4, Mumbai [ in short 'CIT(A)'] and arise out of the assessment completed u/s 143(3) of the Income Tax Act 1961 (the 'Act'). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience.
ITA No. 2049/MUM/2017Assessment Year: 2012-13
2. The grounds of appeal filed by the Revenue read as under:
1. On the facts and circumstances of the case and in law, whether the CIT(A) has erred in directing to delete the value of the land as determined by the AO by taking the market value of land as required u/s. 50C of the Act and thereby upholding the value of consideration as derived by the assessee u/s, 45(3) of the Act, despite the fact that provisions of Section 50C, being Special Provisions override the general provisions of Section 45(3) of the Act.
2. On the facts and circumstances of the case and in law, whether the CIT(A) has erred in holding that provisions of Section 50C cannot be invoked when Section 45(3) is in force without realizing that Provisions of Section 45(3) are general provisions for determining the full value of consideration to be taken for computation as per Section 48 of the Act, whereas Provisions of Section 50C are special Provisions and needs to be imported specifically for arriving at the null value of consideration as per Section 48 of the Act.
Moti Ramanand Sagar 3 ITA No. 2049 & 1690/Mum/2017
3. On the facts and circumstances of the case and in law, whether the CIT(A) has erred in relying on the decision of Hon'ble Mumbai 1TAT in the case of ITO vs Chiraayu Estate Developers Pvt. Ltd. (ITA No. 263/Mum/2010) without appreciating that in that particular case the issue of application Section 50C was not even discussed since the cost at which the capital asset was brought in, was the same as that recorded in the books of the Joint Venture and as such there was no capital gain at first place which is not the issue in this case.
4. On the facts and in circumstances of the case and in law- whether the Ld. CIT(A) has erred in not following the ratio laid down in the case of Carlton Hotels (P) Ltd, Vs. ACIT (2009) (122 TTJ 515) (Lucknow), which clearly states that Provisions of section 50C being special provisions, would override provisions of Section 45(3) of the Act.
5. On the facts and circumstances of the case and in law, whether the CIT(A) has erred in not appreciating the importance of the insertion of world "assessable" in Section 50C, which says market value has be adopted as deemed full value of consideration in Section 48 of the IT Act.
6. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
3. Briefly stated, the facts are that the assessee filed his return of income for the assessment year (AY) 2012-13 on 29.09.2012 declaring total loss of Rs.3,90,88,792/-. During the course of assessment proceedings, the AO noticed that the assessee had transferred land at Baroda by way of introduction in partnership firm M/s Mansagar Infrastructure and M/s Maa Shakti Infrastructure and computed the Long Term Capital Gains (LTCG) at Rs.93,74,480/- and Rs.87,61,195/- respectively before claiming deduction u/s 54F of the Act. In response to a query raised by the AO vide order sheet entry dated 07.01.2015 to Moti Ramanand Sagar 4 ITA No. 2049 & 1690/Mum/2017 show cause as to why the provisions of section 50C should not be invoked in this case, the assessee filed a reply which has been extracted by the AO at page 2-3 of the assessment order dated 30.01.2015. As per the AO, the assessee submitted a copy of the capital account in the books of the firm for introduction of capital, but did not submit the supporting document such as agreements for purchase of lands and transfer of lands to the partnership firm, which have given rise to said LTCG. The assessee has contended before the AO that section 45(3) explicitly provides to deem the full value of consideration as amount recorded in the books of account of the firm and section 50C does not start with the phrase "notwithstanding anything contained" or the like. The assessee thus argued before the AO that section 50C is not applicable in a case of section 45(3) of the Act. However, the AO was not convinced with the said explanation of the assessee for the reason that the plain reading of section 50C makes it clear that it applies to all cases of transfer of land or building or both, wherever the full value of consideration received or accruing as a result of such transfer is less than the stamp valuation and transfer covered u/s 45(3) is not an exception to the said section. The AO thus held that in present case, first section 45(3) is to be applied to the full value of consideration as recorded in the firm's books and thereafter, such full value of consideration is to be compared with the stamp valuation as per section 50C of the Act. Relying on decision in case of Carlton Hotel (P.) Ltd. v. ACIT (2009) 122 TTJ 515 (Lucknow), the AO held that the provisions of section 50C are applicable in the present case. Thus he calculated LTCG of Rs.5,26,67,677/- and brought the differential amount of Rs.3,45,32,002/- [Rs.5,26,67,677/- minus Moti Ramanand Sagar 5 ITA No. 2049 & 1690/Mum/2017 Rs.1,81,35,675/-]. The assessee had already computed LTCG (before exemption u/s 54F) on transfer of the said lands at Rs.1,81,35,675/- (Rs.93,74,480/- plus Rs.87,61,195/-).
4. In appeal, the Ld. CIT(A), following the order of the ITAT, Mumbai in the case of ITO v. Chirag Estate Developers Pvt. Ltd. (ITA No. 263/Mum/2010), directed the AO to adopt the value of consideration of Rs.1,97,06,403/- as shown by the assessee.
5. Before us, the Ld. DR relies on the order of the ITAT Lucknow in the case of Carlton Hotels (P.) Ltd. (supra) and submits that the provisions of section 50C being special provisions, would over-ride provisions of section 45(3) of the Act. Thus he supports the order passed by the AO.
6. On the other hand, the Ld. counsel of the assessee files (i) a copy of the purchase agreement for purchase of a residential house at Lokhandwala Complex on 30.06.2011, (ii) joint ownership flat at Poorna Apartment (old flat), (iii) capital account of the assessee in books of account of M/s Maa Shakti Infrastructure and M/s Mansagar Infrastructure, (iv) partnership deed of M/s Maa Shakti Infrastructure and M/s Mansagar Infrastructure.
It is clarified by him that the above documents were filed before the AO as well as Ld. CIT(A).
Further, the Ld. counsel relies on the decision in DCIT v. Amartara Pvt. Ltd. (ITA No. 6050/Mum/2016), ITO v. Chiraayu Estate & Dev. Pvt.
Moti Ramanand Sagar 6 ITA No. 2049 & 1690/Mum/2017 Ltd. (ITA No. 263/Mum/2010) and ITO v. Sheila Sen (ITA No. 554/Kol/2016).
7. We have heard the rival submissions and perused the relevant materials on record. We begin with the decision relied on by the Ld. DR. In the decision in Carlton Hotels (P.) Ltd. (supra), the assessee continued to possess certain leasehold nazul land despite expiry of the lease. Later, the State Government converted the said land into free hold land on payment of freehold charges. The assessee made the entire payment including stamp duty charges and recorded the same in the books under the head 'Land'. A portion of the said land was subsequently sold to SICC on which long-term capital gain was offered by the assessee, adopting fair market value as on 1-4-1981 as the cost of acquisition. The revenue, however, disputed this and adopted nil value as cost of acquisition on the ground that the assessee had shown nil value in the books.
Later, the assessee entered into a partnership with SICC and 'A' as partner and contributed a large portion of its remaining land to the partnership as its capital contribution, and its value was recorded in the books of the partnership. In the partnership firm, the assessee was given 5 per cent shares whereas SICC and 'A' were given 90 per cent and 5 per cent shares respectively. For the purpose of computing capital gains on transfer of land to partnership firm, the Assessing Officer by invoking the provisions of section 50C and applying DM circle rates, computed the total consideration for the transfer and calculated long-term capital gains. The Assessing Officer while applying the provisions of section 50C mentioned that considering the terms and conditions of the partnership, Moti Ramanand Sagar 7 ITA No. 2049 & 1690/Mum/2017 transfer of land to the firm was only a sale, and that section 50C would be applicable even in a situation covered by section 45(3). On appeal, the Commissioner (Appeals) upheld the Assessing Officer's orders. The Tribunal held as under:
"One of the relevant ingredients for invoking section 50C is that there is a payment of stamp duty in respect of transfer of capital asset being land or building or both. The event which precedes adoption of valuation done by stamp valuation authority is the registration of a sale recording transfer of capital asset for which there is a payment of stamp duty. Payment of stamp duty is required only when transfer of capital asset is registered under the Registration Act. If payment of stamp duty for the purposes of the transfer is not required, then there is no occasion to look into other conditions as mentioned in section 50C. Therefore, in those cases of transfer where agreement or sale deed is not registered and stamp duty is not paid, or capital gain is simply charged by deeming certain transaction as transfer as per other provisions of the Act or some transactions of transfer are not registered or are not legally required to be registered under the Registration Act, section 50C cannot be put into operation.
Section 45(3) is a deeming fiction and it treats a particular type of transaction as transfer and the capital gain is directed to be charged by treating book entry in the books of the firm as sale consideration, being the value of the asset transferred from individual partner to the firm without getting it registered under the Registration Act. Section 45(3) clearly creates a fiction by deeming the value of a capital asset recorded in the books of the firm being a transfer by the individual partner/member to the firm/AOP by way of capital contribution or otherwise as full value of consideration received or accruing as a result of the transfer. According to the Court's decisions, firm being a compendium of individuals, transfer of capital asset from partner to the firm would be equal to transfer of asset from self to self which would not Moti Ramanand Sagar 8 ITA No. 2049 & 1690/Mum/2017 be really a transfer. To overcome this difficulty, sub-sections (3) and (4) in section 45 were enacted by deeming such transactions as transfer and value recorded in the books as full value of consideration for calculating capital gains. It is well-settled law that legal fictions operate in the area for which they are created and they cannot be applied to situations which are not covered by the fiction.
Thus, for the purposes of section 45(3), full value of consideration could not be a different figure than what was recorded by the firm in its books by crediting the partner who had contributed the capital asset as his capital contribution. The Assessing Officer was not empowered to take a different figure as full value of consideration other than what the firm had recorded in the books. It was immaterial as to whether the value so recorded by the firm in its books by crediting the capital bringing partner was less than the fair market value of the capital asset which was contributed to the firm. Section 45(3), section 50C and section 55A operate in different spheres and they can be invoked when conditions laid down in those sections are satisfied. Invoking of power contained in one of these sections does not come into conflict with one another. As mentioned above, provisions of section 50C can be invoked when there is a registration of transfer under the Registration Act and stamp duty is paid for the purposes of registering the sale. If the transfer by way of sale is not registered under the Registration Act and no stamp duty is paid then section 50C cannot be invoked. Section 55A, on the other hand, empowers the Assessing Officer to refer the property under transfer to a DVO if he has material on record on the basis of which he forms an opinion that value declared by the assessee as per estimate of the registered valuer is less than its fair market value or fair market value is more by certain percentage to what is declared by the assessee as sale consideration, or if there are other relevant factors which necessitate the Assessing Officer to refer the capital asset under transfer to the DVO. Section 55A can be invoked for the purpose of this chapter.
Moti Ramanand Sagar 9 ITA No. 2049 & 1690/Mum/2017 Thus, where a sale transaction is registered by paying stamp duty then it is only section 50C which can operate. In that situation, section 50C will override section 45(3). Section 45(3) is a general provision and section 50C is a special provision which will override section 45(3) if the sale deed is sought to be registered by paying stamp duty. But where such registration does not take place by paying stamp duty that case would only be covered under section 45(3) and, therefore, value recorded by the firm in its books would only be the full value of consideration for the purposes of computing capital gains.
In the instant case, there was admittedly no registration of the transfer under the Registration Act and no stamp duty had been paid. Therefore, provisions of section 50C could not be invoked. The case was, therefore, covered only under section 45(3)."
7.1 Now we turn to the decisions relied on by the Ld. counsel. In the case of M/s Amartara Pvt. Ltd. (supra), the ITAT 'A' Bench, Mumbai vide order dated 29.12.2017 held :
"9. Having heard both the sides, we find merit in the argument of the assessee for the reason that the provisions of section 45(3) deals with special cases of transfer of capital asset where the profits or gains arising from the transfer of capital asset by way of capital contribution or otherwise shall be chargeable to tax in the previous year in which such transfer takes place and for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be the full value of consideration received or accruing as a result of transfer. A plain reading of provisions of section 45(3) makes it clear that it comes into operation only in special cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as full value of consideration. Though the provisions of section Moti Ramanand Sagar 10 ITA No. 2049 & 1690/Mum/2017 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer. The purpose of insertion of section 45(3) is to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for computation mechanism of capital gain and also provides for consideration to be adopted for the purpose of determination of full value of consideration. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset. This legal proposition is further supported by the decision of Hon'ble Supreme Court in the case of CIT vs Moon Mills Ltd (supra) wherein it was observed that one deeming fiction cannot be extended by importing another deeming fiction. Therefore, we are of the considered view that the profits or gains arising from the transfer of a capital asset by a partner to a firm in which he is or becomes a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be full value of consideration received or accruing as a result of transfer of a capital asset. The AO cannot import another deeming fiction created for the purpose of determination of full value of consideration as a result of transfer of a capital asset by importing the provisions of section 50C of the Act."
7.1.1 In Chiraayu Estate & Dev. Pvt. Ltd. (supra), the ITAT 'C' Bench Mumbai vide order dated 24.08.2011 has held that the profits or gains would arise only when the transfer has been made at a price which is more than the cost price and the difference between the cost price and amount at which the transfer has taken place can be charged u/s 45(3). It further held that as per provisions of section 45(3), price of land Moti Ramanand Sagar 11 ITA No. 2049 & 1690/Mum/2017 recorded in the books of joint venture is required to be considered as receipt of full value of consideration received or accrued as a result of transfer of capital assets. Once the price recorded in the joint venture's books is treated as full value of consideration, the provisions do not permit substitution of any value so as to make the addition u/s 45(3).
7.1.2 In Sheila Sen (supra), the ITAT 'B' Bench Kolkata has followed the decision in M/s Amartara Pvt. Ltd. (supra) and held that the wording of section 45(3) is specific.
7.2 We are of the considered view that the majority decisions in Amartara Pvt. Ltd. (supra), Chiraayu Estate & Dev. Pvt. Ltd. (supra) and Sheila Sen (supra), narrated above have laid down the correct position of law. Following the majority decisions and respectfully disagreeing with the single order of the Tribunal in Carlton Hotels (P.) Ltd. (supra), we uphold the order of the Ld. CIT(A).
8. In the result, the appeal filed by the revenue is dismissed.
ITA No. 1690/MUM/2017Assessment Year: 2012-13
9. The grounds of appeal filed by the assessee read as under:
1. The ACIT erred in making disallowance of exemption claimed of Rs.1,81,35,675/- u/s 54F of the Income Tax Act, 1961. The ACIT has erred in disallowing the claim made u/s 54F of the Income Tax Act, 1961, without appreciating the fact that the appellant on the date of transfer, held only one residential house property in his individual capacity viz., Flat 502 at Sagar Bhavan. He did not own any other property in status of an individual. He was holding undivided share in another property viz., at Poorna Apartment, Moti Ramanand Sagar 12 ITA No. 2049 & 1690/Mum/2017 which he held jointly with daughter. The addition made on account of disallowance of exemption claimed of Rs.1,81,35,675/- u/s 54F of the Income Tax Act, 1961 may please be deleted.
2. The ACIT has erred in disallowing 15% of Conveyance, Motor Car Expenses and Office Expenses of Rs.5,74,917/- which amounts to Rs.8,21,238/- as ad hoc disallowances on account of personal element. The ad-hoc disallowance be confined to 10%.
10. In the computation of income the assessee has claimed the entire LTCG computed at Rs.93,74,480/- + Rs.87,61,195/- as exempt u/s 54F of the Act. The AO noted that in the AY 2011-12, the assessee's claim u/s 54F was disallowed observing that he had more than one house property i.e. (i) a residential house at 502, Sagar Bhavan, JVPD and (ii) undivided share in another residential house viz. Poorna Apartment. In addition a new house property was purchased at Rs.6,82,76,081/- against which exemption claimed by the assessee was denied in AY 2011-12. In view of the above facts, the AO asked the assessee vide order sheet noting dated 05.10.2014 to explain why exemption u/s 54F should not be disallowed, since the assessee had more than one house property. In response to it, the assessee filed a reply vide letter dated 22.12.2014 stating that he had invested Rs.6,82,76,081/- within the stipulated period in the new residential house and claimed exemption u/s 54F of the Act. It was stated that on the date of transfer of land, the assessee had one residential house in the individual capacity viz. flat No. 502, Sagar Bhavan, JVPD. Besides the above house, he also had undivided share in another residential house viz. Poorna Apartment, which is jointly held with his daughter Ms. Meenakshi Sagar. It was the contention of Moti Ramanand Sagar 13 ITA No. 2049 & 1690/Mum/2017 the assessee that he should not be denied the benefits of section 54F just because he held undivided share in another residential property.
However, the AO was not convinced to the above reply of the assessee on the ground that in the previous assessment year i.e. AY 2011-12 the exemption u/s 54F was denied to the assessee on the ground that the assessee had more than one residential house. The assessee still held the said residential properties on the date of transfer of lands in the impugned assessment year, in which he has earned taxable LTCG. Thus the AO denied the claim of exemption made by the assessee u/s 54F of the Act.
11. In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and held that sub-section 1 to section 54F shall not apply where such assessee owns more than one residential house, other than the new asset on date of transfer of original asset.
12. Before us, the Ld. counsel of the assessee submits that the assessee on the date of transfer, held only one residential house property in his individual capacity viz. flat 502 at Sagar Bhavan and he did not own any other property in the status of an individual; he was holding undivided share in another property viz., at Poorna Apartment, which was held jointly with his daughter. Reliance is placed by him on the order of the Tribunal in assessee's own case for AY 2011-12.
On the other hand, the Ld. DR supports the order passed by Ld. CIT(A).
Moti Ramanand Sagar 14 ITA No. 2049 & 1690/Mum/2017
13. We have heard the rival submissions and perused the relevant materials on record. The same issue arose before the ITAT "B" Bench, Mumbai in assessee's own case for A.Y. 2011-12 (ITA No. 1880/Mum/2015). The Tribunal, following the order of the Hon'ble Madras High Court in Dr. Smt. P.K.Vasanthi Rangarajan v. CIT 252 ITR 336 , wherein it is held that joint ownership of a property could not be held to stand in assessee's way of claiming exemption u/s 54F of the Act, dismissed the appeal filed by the revenue.
Facts being identical, we follow the above order of the Co-ordinate Bench and allow the 1st ground of appeal.
Regarding the 2nd ground of appeal, we find that at para 3 of the assessment order dated 30.01.2015, the AO has mentioned that in response to notice u/s 143(2) and 142(1), the AR of the assessee attended and filed the requisite details. However, at para 7.2, mentioning that certain details were filed by the assessee and those were not found to be complete and satisfactory, the AO makes a disallowance of 15% of expenses of Rs.54,74,917/- which comes to Rs.8,21,238/-.
In appeal, the Ld. CIT(A) has confirmed the above ad-hoc disallowance following the order of his predecessor-in-office for AY 2010-11 and 2011-12.
We find that the above disallowance has been made on ad-hoc basis without any specific finding. Such being the case, we delete the disallowance of Rs.8,21,238/- made by the AO. Thus the 2nd ground of appeal is allowed.
Moti Ramanand Sagar 15 ITA No. 2049 & 1690/Mum/2017 13.1 In the result, the appeal filed by the assessee is allowed.
14. To sum up, the appeal filed by the Revenue is dismissed, whereas the appeal filed by the assessee is allowed.
Order pronounced in the open Court 28/02/2019.
Sd/- Sd/-
(PAWAN SINGH) (N.K. PRADHAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 28/02/2019
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Sr. Private Secretary)
ITAT, Mumbai