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TMI Blog2014 (2) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... ing these two persons - any agreement of these persons with two other persons for share of profit on sale of the land in question can be only out of post tax profit and not pre-tax profit - when the property is jointly owned by these five persons and sold by these five persons, profit on such sale has to be assessed equally in the hands of these five persons and after paying tax thereon as per law they can deal with the money remaining with them after such payment of tax in the manner they like but for the purpose of taxation of the profit on sale of the property - no deduction can be allowed on account of any payment to outsider because for the purpose of computing capital gain, only allowable deduction is cost of the property and cost of improvement and cost of transfer and no other deduction is allowable - Even if such profit is assessable is business income, then also from the sale proceeds, one can get deduction on account of cost of purchase and expenses incurred for that business and no deduction is allowable in respect of any payment which is given to outsiders as share of profit – the order of the CIT(A) set aside and the matter remitted back to the AO – Decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored." 3.1 Brief facts till the assessment stage are noted by the ld. CIT(A) in paragraph Nos.3.1.1 to 3.1.5 of his order. These are reproduced below for the sake of convenience. "3.1.1. During the course of assessment proceedings the Assessing Officer noted that a land situated at R.S.No.607/A of Sayajipura Village of Baroda District was acquired on 15th May, 2006 by the following assessees: 1. Shri Dharamsinh Narsinbhai Prajapati 2. Shri Jivarajbhai Narsinbhai Turkhiya 3. Shri Mohanbhai narsinbhai Turkhiya 4. Shri Kishor Dharamsinh Prajapati 5. Shri Harjivanbhai Ramjibhai Mistry 6. Shri Rameshbhai Pitambarbhai 7. Shri Vinodbhai Pitambarbhai 3.1.2. As per the purchase deed the said land was acquired for a total consideration of Rs.18,00,000/- without specifying the ratio of consideration paid by each of the above purchasers. The parties mentioned at Sr.No.1 to 5 made amendment in the purchase deed on 15.07.2006 in which the names of parties mentioned at Sr.No.6 & 7 were removed since these two parties were not farmers. On 16th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther observed that the parties mentioned at Sr.No.6 and 7 viz. Shri Rameshbhai Turkhiya and Shri Vinodbhai Turkhiya were farmers as both these assessees had shown agriculture income of Rs.90,540/- and Rs.96,000/- respectively. Names of these assessees were removed from the Deed for the reason that they were not farmers but in fact they were. The ratio of their share was also not mentioned in the purchase deed and subsequently at the time of removing names, their ratios were fixed without any basis. When the asset was sold the purchaser PACL India Ltd. has issued cheques of equal amounts, which establishes that these five assessees were holding equal share in the asset. The assessee has shown cost of acquisition of Rs.3,88,200/- which was equal to ratio of 1/5th (Rs.18,00,000 purchase value of asset + Rs.1,05,000 stamp = 19,05,000 / 5 is Rs.3,81,600/-). Therefore the Assessing Officer held that original asset was acquired by the first 5 assessees and they are equally liable for capital gain which is worked out as under:- Sale value of asset Rs.8,56,89700/- Less : Purchase value Rs. 18,00,000/- Rs.8,38,89,700/- Share of assessee being 1/5th Rs.1,67,77940/- 3.1.5. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to non-agricultural and the land was ultimately sold within less than 2½ years. He has noted that although the co-owners have shown the agricultural income from the said land, the quick application for conversion to non-agricultural and sale within a short period of 2½ years indicate strongly to the fact that the land was not purchased for the purpose of investment or holding for a long time and earning agricultural or other incomes. It is also stated by him that three of the seven persons have offered the income on sale of the land as short-term capital gain and four have offered the same as business income in the returns filed by them. He has also observed that these two assessees have offered income from sale of lands as business income in the returns filed for AYs 2006-07 to 2008-09. He has also noted that as per balance-sheet of the assessees, it was stated that these lands were held by them and were shown as 'business assets' and not as 'investments' as alleged in the assessment orders. Now we examine the facts from the balance-sheet and P&L account of these two assessees available in the paper-book. The P&L account of Shri Jivrajbhai N. Turkhiya for AY 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four lands were more than the declared sale price and still the AO did not make any addition by assessing the same profit as short-term capital gain and by invoking the section 50C of the Act. Therefore, this is also not helping the assessee. This was also a submission of the assessee before the authorities below that Shri Jivrajbhai N. Turakhiya is engaged in the business of dealing in real estate and also engaged in the development and construction of housing schemes as a partner of various firms. We do not find any merit in the same because the person who is doing business as a partner in various firms can also hold land as investment. It cannot be said that a jeweller cannot have jewellery as investment and similarly a share-broker cannot have shares as investment. From the above discussion, we find that basis adopted by ld.CIT(A) is not valid. We also find that the profit in respect of all the five lands sold by Shri Jivrajbhai N. Turakhiya was assessed by the AO as short-term capital gain and it is not correct as has been submitted by the ld.AR of the assessee that in respect of four other properties, the AO had accepted business income. Admittedly, no adjustment was made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, this heading given by the assessee in the balance-sheet for showing the land value cannot be decisive factor. The basis adopted by the ld.CIT(A) in both these cases is this that immediately after purchase of land in question, a request was made by the co-owners for conversion of land into non-agricultural and land was ultimately sold within 2½ years and, therefore, this land is for business purpose. We do not find any merit in the stand taken by the ld.CIT(A) because in case of investment in land also, the assessee can make request for conversion into N.A. and if profit is available, then capital asset can also be sold below three years and if no such sale of capital asset below three years is possible, then there should not have been any concept of short-term capital gain. The very fact that in the Act itself, a concept is there for assessee's profit on sale of investment before three years is to be assessed as short-term capital gain, it is enough to indicate that merely because a property was sold before three years, it cannot be said that the property was not held as investment but as a business asset. 5.4 From the above discussion, we have seen that the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo persons whose names were omitted, total seven persons and it was stated in the MOU that these two persons were eligible for share in the sale value of this property to the extent of 14% and 12% respectively. Now the question is as to whether these five co-owners can pay part of sale proceeds to two other persons before paying tax on the sale transaction or whether they can pay such share to any outsider only after paying tax on the sale transactions. In our considered opinion, from the combined reading of the purchase-deed and rectification-deed it has to be held that the property in question was jointly held by five persons including these two persons who are before us and any agreement of these persons with two other persons for share of profit on sale of the land in question can be only out of post tax profit and not pre-tax profit because when the property is jointly owned by these five persons and sold by these five persons, profit on such sale has to be assessed equally in the hands of these five persons and after paying tax thereon as per law they can deal with the money remaining with them after such payment of tax in the manner they like but for the purpose of taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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