2015 (12) TMI 39 - AT - Income Tax

Sale of land treated as Long Term Capital by CIT(A) - as per revenue the land was never shown in the block of assets - Held that - Treatment of the assets in the purchaser s account, does not have any material bearing on taxability of the receipt in the hands of the assessee, since purchaser s treatment of the transaction in its accounts is not determinative of the true nature of the transaction. Further, with regard to contention of the AO that assessee had never shown the land in its fixed assets schedule, we find force in argument of the assessee that as it had not paid any sum by way of premium for acquisition of land, there was no question of reflecting the land as an asset in the balancesheet. Important point to be noted is that the land was held by the assessee on lease, on payment of monthly rent. There was no purchase price paid. Thus we concur with the findings of Ld CIT(A) that the assessee had transferred independent interests in two different assets and therefore the Capital Gains arising on the assignment of leasehold interest in the land being a capital asset was rightly offered for tax as Long Term Capital Gains and the consideration attributable to the transfer of the building was rightly offered for tax as Short Term Capital Gains - Decided against revenue. Addition to the sales consideration of the factory building by holding that compensation of ₹ 1.5 crores paid to M/s. Writer Jesia family trust be taxed in the hands of assessee firm as arising out of sale of factory buildings - CIT(A) deleted the addition - Held that - The Agreement of sale dated 09.05.2002 was a tripartite Agreement between the three parties and this was the basis of the sale the consideration paid to the Trust and the other conditions related to it. The consideration of ₹ 1.50 crores was payable to the Trust by virtue of this Agreement and, as a result it cannot be said that this was not based on any legal obligation. Thus, we find that Ld CIT(A) has rightly rejected the contentions of the AO on this issue. It cannot be held, only on the basis of presumptions, that the transaction was a colorable device. The circumstances highlighted by the Assessing Officer to show that the transaction as a colorable device cannot take precedence over earlier judicial scrutiny and a specific tripartite Agreement. Besides, the circumstances highlighted by the Assessing Officer cannot be treated as very unusual or improbable. In any case, the Trust has offered the consideration as income, in its return of income. In our opinion, Ld CIT(A) has rightly rejected the stand of the AO on this issue also. It has been rightly argued by Ld Counsel that even if the entire sum of ₹ 4,95,00,000/- is viewed as the sale consideration accruing to the assessee, deduction of ₹ 1.50 crores is available to the assessee as an expenditure incurred wholly and exclusively in connection with the transfer.CIT(A) has rightly held that the Assessing Officer was not justified in taxing the sum of ₹ 1.50 crores in the hands of the assessee and treating it as part of short term capital gain - Decided against revenue. Brought forward unabsorbed depreciation adjustment against any income of the assesee of the current year - Held that - Ld. CIT(A) considered submissions of the assessee and held that brought forward depreciation stands on the same footing as the current year s depreciation and, therefore, unabsorbed depreciation of past years can be set-off against income chargeable under any head. Section 32(2) makes it clear. This also finds judicial support from the decision given by the Hon ble Supreme Court in the case of CIT vs. Jaipuria China Clay Mines (P) Ltd. 1965 (11) TMI 32 - SUPREME Court and Garden Silks vs. CIT 1991 (3) TMI 1 - SUPREME Court . Accordingly, Ld CIT(A) accepted submissions of the assessee and allowed this ground of appeal. We find that this issue is covered in favour of the assessee, and therefore Ld CIT(A) has rightly decided the same in favour of the assessee. Nothing wrong therein could be pointed out by Ld DR, nor found by us, and therefore the same is upheld - Decided against revenue.

Issues Involved:
1. Classification of Rs. 1,50,00,000/- received on the sale of land as Long Term Capital Gain.
2. Taxability of Rs. 1,50,00,000/- paid to the Trust as part of the sale consideration.
3. Adjustment of brought forward unabsorbed depreciation against current year's income.

Detailed Analysis of the Judgment:

Issue 1: Classification of Rs. 1,50,00,000/- Received on Sale of Land as Long Term Capital Gain
Facts and Arguments:
- The Revenue challenged the Ld. CIT(A)'s decision that Rs. 1.50 crores received on the sale of land should be treated as Long Term Capital Gain. The AO argued that the land was not shown in the block of assets and should be treated as Short Term Capital Gains under Section 50 of the Act.
- The assessee contended that the land was a leasehold right and not a depreciable asset, thus not attracting Section 50. They relied on various judicial decisions to support the classification as Long Term Capital Gain.

Tribunal's Findings:
- The Tribunal upheld the Ld. CIT(A)'s decision, noting that the assessee had transferred two independent interests: leasehold rights in the land and the factory building. The leasehold right was a capital asset and was rightly offered as Long Term Capital Gain, while the building was offered as Short Term Capital Gain.
- The Tribunal emphasized that the treatment of assets in the purchaser's account does not affect the taxability in the hands of the assessee and that the land was held on lease without any premium paid, justifying its exclusion from the fixed assets schedule.

Issue 2: Taxability of Rs. 1,50,00,000/- Paid to the Trust
Facts and Arguments:
- The AO treated Rs. 1.50 crores paid to the Trust as taxable in the hands of the assessee, arguing it was a colorable device to reduce tax liability.
- The assessee argued that the Trust was a legitimate entity, and the payment was made as per a legal obligation under a tripartite agreement with the purchaser, Sun Pharmaceuticals Industries Ltd. The amount was offered for tax by the Trust.

Tribunal's Findings:
- The Tribunal upheld the Ld. CIT(A)'s decision that the payment to the Trust was a diversion of income by overriding title, not an application of income. The payment was made directly by the purchaser to the Trust, which was a condition for the sale.
- The Tribunal rejected the AO's view that the transaction was a colorable device, noting that the Trust had been previously recognized as a separate entity by the Tribunal, and the payment was based on a legal obligation.
- Additionally, even if the entire sale consideration was viewed as accruing to the assessee, the Rs. 1.50 crores paid to the Trust would be deductible as an expenditure incurred wholly and exclusively in connection with the transfer, as supported by various judicial decisions.

Issue 3: Adjustment of Brought Forward Unabsorbed Depreciation
Facts and Arguments:
- The AO did not allow the set-off of unabsorbed depreciation against capital gains, arguing it could only be set off against business income.
- The assessee contended that brought forward depreciation should be treated as current year's depreciation and allowed to be set off against any income.

Tribunal's Findings:
- The Tribunal upheld the Ld. CIT(A)'s decision, noting that brought forward unabsorbed depreciation stands on the same footing as current year's depreciation and can be set off against income under any head. This is supported by Section 32(2) and judicial precedents.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decisions on all grounds. The Rs. 1.50 crores received on the sale of land was rightly classified as Long Term Capital Gain, the payment to the Trust was not taxable in the hands of the assessee, and the brought forward unabsorbed depreciation was correctly set off against the current year's income.

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