2014 (4) TMI 1100 - AT - Income Tax

Deduction u/s 54EC denied - transfer - Held that - It is also not in dispute that the condition was to pay full and final consideration before carrying out the development activity and the transferee developer did not pay the complete consideration. In any case the fact that the possession envisaged in the agreement dated 13.09.2007 was a conditional possession is not disputed. Therefore in such a situation it could not be said that the development agreement of such type would be an agreement which is envisaged to trigger the operation of section 53A of the Transfer of Property Act. On this count itself we find that there is no justification for the Revenue to establish the date of transfer on the strength of section 2(47)(v) of the Act. Hence we are unable to uphold the stand of the Revenue on this count also. On the contrary since there is no dispute to the assertions of the assessee that actual possession of the property was given in March 2008 as confirmed by the developer in its co1n4firmation letter dated 19.11.2010 we deem it fit and proper to hold that the date of transfer has to be understood as 01.03.2008 and accordingly the period available with the assessee to make the investment qualifying for deduction u/s 54EC has to be calculated accordingly. In this view of the matter the investments in the bonds of REC Ltd. made by the assessee on 22.08.2008 is within the period of six months from the date of transfer as prescribed in section 54EC of the Act and accordingly the assessee is eligible for deduction u/s 54EC of the Act also - Decided in favour of assessee Addition to taxable income - addition on account of the land development agreement entered by the assessee with Rudra Buildcon Pvt. Ltd. apart from the cash consideration the developer also offered to the assessee a separate tenement which was to be constructed by the developer on its own cost - Held that - In the present case assessee was owner of land at 799/A Bhandarkar Road Pune and assigned the development rights in such land to a builder M/s Rudra Buildcon Pvt. Ltd. vide agreement dated 13.09.2007. Apart from receiving the consideration price in cash assessee was also entitled to receive from the developer a tenement constructed over a portion of land and such construction was to be undertaken by the developer at his own cost. While undertaking development and construction the developer was to provide an alternative accommodation to the assessee for his use and the Assessing Officer has pointed out that a sum of 2, 55, 000/- was spent by the developer on account of such alternative accommodation. In our considered opinion the taxability of the aforesaid sum has to be seen as a part and parcel of the transaction resulting in assessee getting possession of the constructed tenement from the developer. Ostensibly there is no justification for the Revenue to say that it is a revenue receipt because it is nobody s case that the arrangement with the developer undertaken by the assessee is in the course of any business activity. Therefore, the Assessing Officer shall re-work the total income of the assessee on the impugned aspect in the aforesaid light. - Decided in favour of assessee for statistical purposes. Addition invoking section 14A - Held that - the proposition advanced by the learned counsel for the assessee cannot be disputed so however we do not find that the assessment order in the present case suffers from the vice that is sought to be made out by the assessee. In-fact the Assessing Officer has noted that assessee has incurred expenses on account of telephone printing stationery vehicle running account writing charges etc. and he rightly concluded that certain expenses have been incurred for earning of excepted income. Having regard to the facts and circumstances of the present case and the discussion in the order in our view the requisite satisfaction mandated in section 14A(2) of the Act stands fulfilled in the present case and the action of the Assessing Officer in invoking section 14A of the Act is hereby affirmed. - Decided against assessee

Summary

Issues Involved:
1. Date of transfer of property under Section 2(47) of the Income-tax Act, 1961.
2. Consideration of rent paid by Rudra Buildcon Pvt. Ltd. towards alternate accommodation.
3. Disallowance under Section 14A of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Date of Transfer of Property under Section 2(47) of the Income-tax Act, 1961:
The primary dispute revolves around the date of transfer of the property, which affects the eligibility for deduction under Section 54EC of the Act. The assessee contended that the transfer occurred on 01.03.2008, the date when physical possession was handed over, making the investment in REC Ltd. bonds on 22.08.2008 within the six-month period. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] determined the transfer date as 13.09.2007, the date of the development agreement, based on Section 2(47)(v) read with Section 45(1) of the Act, and Section 53A of the Transfer of Property Act, 1882. The Tribunal examined the clauses of the development agreement, which indicated that the possession given was conditional on the payment of the full consideration. Since the full consideration was not paid by the date of the agreement, the Tribunal concluded that the transfer date should be 01.03.2008, when physical possession was actually handed over. Consequently, the investment in REC Ltd. bonds was within the prescribed period, and the assessee was eligible for the deduction under Section 54EC.

2. Consideration of Rent Paid by Rudra Buildcon Pvt. Ltd. towards Alternate Accommodation:
The second issue involved the addition of Rs. 2,55,000/- to the taxable income, representing rent paid by the developer for alternate accommodation for the assessee. The AO treated this amount as part of the consideration for the transfer or alternatively as a revenue receipt. The Tribunal noted that this expense was part of the cost of constructing the tenement to be provided to the assessee and was not related to the property transferred for development. The Tribunal ruled that the amount could not be treated as a revenue receipt since the transaction was not part of any business activity. Hence, the AO was directed to rework the total income of the assessee accordingly.

3. Disallowance under Section 14A of the Income-tax Act, 1961:
The third issue pertained to the disallowance of Rs. 36,024/- under Section 14A of the Act. The AO invoked Section 14A, noting that the assessee had made substantial investments in shares and incurred expenses on bank charges, telephone, vehicle, petrol, and salary, which were attributable to earning exempt income. Applying Rule 8D of the Income Tax Rules, 1962, the AO disallowed Rs. 41,389/-, which was reduced to Rs. 36,024/- by the CIT(A). The assessee argued that the mandatory satisfaction under Section 14A(2) was not recorded by the AO. The Tribunal found that the AO had noted the expenses incurred and rightly concluded that certain expenses were related to earning exempt income. Thus, the requisite satisfaction mandated in Section 14A(2) was fulfilled, and the disallowance was upheld.

Conclusion:
The appeal was partly allowed. The Tribunal ruled in favor of the assessee on the first issue, determining the transfer date as 01.03.2008, allowing the deduction under Section 54EC. On the second issue, the Tribunal directed the AO to rework the total income, treating the rent paid for alternate accommodation as part of the construction cost. On the third issue, the Tribunal upheld the disallowance under Section 14A.