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2011 (10) TMI 491 - AT - Income TaxLong term Capital gain - Transfer of Capital asset - JV between assessee company and other company PEPL for the purpose of property development - Revenue contended such transactions to come within definition of transfer attracting long term capital gains - Held that - In present case nothing has happened other than the execution of the agreements and bringing a small initial amount by PEPL and initiating the commencement of the project activities. As far as the land is concerned there is only an agreement. Assessee is not transferring any right or any property to PEPL instead it is assigning its landed property in favour of the SPV contemplated by the joint venture. Also assessee is not selling its land to the proposed JV. It is to be seen that the newly formulated JV is nothing but an extension of the existing company. There cannot be a sale to oneself. Nothing is exchanged and no right is relinquished by the assessee in the impugned previous year. Therefore execution of the development agreement shareholders agreement and the power of attorney do not bring into existence any tangible asset that could be transferred between the parties. Hence no transfer of capital asset took place and addition made towards long-term capital gains is directed to be deleted. Expectations and contemplations incorporated in the agreements are the business propositions made by the concerned parties which have been deduced into enforceable agreements. Even though the agreements are enforceable they themselves do not take the character of immovable properties. Lease rent received form Hotel - Business income or Income from other sources - Held that - Since there is vacuum in the assessment order in this respect. Hence matter should go back to the Assessing Officer for deciding the issue afresh in accordance with law - Decided partly in favor of assessee.
Issues Involved:
1. Addition of Rs. 231,99,11,568/- as capital gains. 2. Treatment of Rs. 2,28,52,471/- as income from other sources. 3. Disallowance of depreciation on roads. Detailed Analysis: 1. Addition of Rs. 231,99,11,568/- as Capital Gains: The primary issue revolves around whether the joint development agreement (JDA) between the assessee and PEPL constituted a "transfer" under Section 2(47) of the Income-tax Act, 1961, thereby attracting capital gains tax. - Assessing Officer's View: The AO concluded that the JDA resulted in a transfer of 6.29 acres of land, treating it as a relinquishment of rights over the land. The consideration was deemed to be 50% of the undivided share in the land and 50% of the built-up area, valued at Rs. 231,99,11,568/-. - Assessee's Argument: The assessee contended that there was no transfer of a capital asset during the relevant year as the JDA was merely for development purposes, and no possession was handed over to PEPL. The assessee also highlighted that the JDA was not a sale or exchange but a mutual agreement for future development. - Judicial Member's View: The JM upheld the AO's view, stating that the JDA and the subsequent actions constituted a transfer under Section 2(47), thus attracting capital gains tax. - Accountant Member's Dissent: The AM disagreed, emphasizing that no transfer occurred as the property remained with the assessee, and PEPL did not take possession. The AM argued that the JDA was an inchoate agreement with no immediate transfer of rights or assets. - Third Member's Decision: The TM agreed with the AM, concluding that the JDA did not result in a transfer of a capital asset in the relevant year. The TM highlighted that the JDA was a business arrangement for future development, with no immediate transfer of possession or rights. Consequently, the addition of Rs. 231,99,11,568/- as capital gains was deleted. 2. Treatment of Rs. 2,28,52,471/- as Income from Other Sources: The issue pertains to whether the lease rental income received from Diana Hotels should be treated as business income or income from other sources. - Assessing Officer's View: The AO treated the lease rental income as income from other sources, without providing detailed reasoning. - Assessee's Argument: The assessee argued that the lease rental income should be treated as business income, as it was derived from a revenue-sharing agreement. - Judicial Member's View: The JM upheld the AO's treatment, agreeing that the lease rental income should be classified as income from other sources. - Accountant Member's Dissent: The AM noted that the AO did not provide adequate reasoning or give the assessee an opportunity to explain. The AM suggested remitting the issue back to the AO for reconsideration. - Third Member's Decision: The TM agreed with the AM, finding a lack of discussion and reasoning by the AO. The TM set aside the issue to the AO for fresh consideration, allowing the assessee an opportunity to present its case. 3. Disallowance of Depreciation on Roads: This issue was not pressed by the assessee during the hearing, and thus, it was dismissed as not pressed. Final Outcome: Based on the majority view: - The addition of Rs. 231,99,11,568/- as capital gains was deleted. - The treatment of Rs. 2,28,52,471/- as income from other sources was set aside for fresh consideration by the AO. - The disallowance of depreciation on roads was dismissed as not pressed. Result: The appeal of the assessee was partly allowed.
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