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TMI Blog2015 (12) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2003-04, on the following grounds: 1. The learned CIT(A) has erred on facts and in law and in the circumstances of the case erred in holding that ₹ 1,50,00,000/- received on sale of land as Long Term Capital Gain without appreciating the fact that the land was never shown In Block of assets. 2. The learned CIT(A) has erred on facts and in law and in the circumstances of the case erred in holding that, ₹ 1,50,00,000/- is not assessed in the hands of the assessee as Trust has offered the same for tax, without appreciating the fact that actually it was a colourable device and trust was not having any legal right. 2.1 The learned CIT(A) has erred on facts and in law and in the circumstances of the case erred in holding that brought forward unabsorbed depreciating to be set-off against any income of the current year. 3. The appellant prays that the order of the CIT-(Appeals) on the above grounds be set aside and that of the AO be restored. 4. The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary. 2. During the course of hearing, arguments were made by Shri S. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hold interest for the unexpired period of the lease for an aggregate consideration of ₹ 4,95,00,000/-. In terms of the Agreement, the assessee was obliged to hand over vacant possession of the entire building including the area in occupation of the Trust. The Trust had agreed to vacate the premises on suitable alternative accommodation being provided to them or failing which, on a payment of ₹ 1,50,00,000/-, being made. The total sales consideration of ₹ 4,95,00,000/- was given the following tax treatment by the assessee in its return: a) ₹ 1,50,00,000/- was taken as the sale consideration for the land and was offered as Long Term Capital Gains. b) ₹ 1,50,00,000/- paid to the Trust was held as taxable in the hands of the trust. c) ₹ 1 ,95,00,000/- was reduced from the block of assets in respect of the building. In the back ground of the above facts, the Assessing Officer found that the assessee had never shown the land in the fixed assets schedule in its books of account. In this context, it was pointed out that although the assessee has claimed only lease rights over the land, for the purpose of working of capital gains, the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd had not been shown in the fixed asset schedule and that it was an integral part on which the factory building was existing. The Assessing Officer was, therefore, of the view that the entire profit arising on account of sale of Depreciable asset, i.e., the factory building on which depreciation has been claimed by the assessee is taxable u/s 50 of the I.T. Act. 1961. It was also pointed out by the Assessing Officer that the purchaser i.e. M/s Sun Pharmaceutical Industries Ltd., has also taken the entire proceeds to be arising out of purchase of building. The AO also found that the decision of Vimal Chand Golecha, supra, pertains to a case where the assessee had purchased the land in 1962 and construction of building had taken place later on. The Assessing Officer further found that the ratio of the decision in the case of CIT vs Estate of Omprakash Jhunjhunwala is not applicable to the assessee's case since in this case the issue to be decided was whether the income ought to be taxed as income from business or capital gains. Considering all these facts and circumstances, the Assessing Officer treated the entire consideration of ₹ 4,95,00,000/- as arising out of sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade detailed arguments in support of the order of Ld. CIT(A). Our attention has been drawn on the lease agreement entered into by the assessee as lessee, to show that period of the lease was for 98 years and therefore, in a view there was clear intention of the lesser to transfer the ownership, and that it was clear from the perusal of this agreement that only lease rent was to be paid by the assessee, and no premium was paid and therefore, under these circumstances there was no question of showing this asset as part to block of assets, since no cost in the form of any premium was paid by the assessee to the lesser. It was further submitted that in 1974 building was constructed by the assessee. It has been further submitted that land and building were two separate assets and were sold as such by the assessee, and that different amount of consideration have been decided between the assessee and the purchaser, and therefore, these should be assessed accordingly in the hands of the assessee. In support of his arguments Ld. Counsel has placed reliance upon the judgments which have been taken note of by the Ld. CIT(A) while deciding this issue in favour of the assessee. Lastly, Ld. Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er parts of the Agreement also namely, on pages-8 9, where it has been specifically mentioned that what is being transferred includes all that piece or parcel of land ..... and entire commercial industrial building comprising ground plus two floors...... . It has been further noted by Ld CIT(A), and shown to us also by the Ld Counsel from various pages of the Paper Book that in the application in Form No.37-I submitted by the assessee before Appropriate Authority under, Chapter-XXC of the I.T. Act, 1961 for transfer of this property, the assessee had disclosed that the property that was sought to be conveyed was the leasehold interest in the land as well as ownership interest in the building. The Appropriate authority also approved the Agreement and issued its 'No Objection Certificate' to the proposed transferee of assets by its order dated 12-04-2002. On the basis of this, it was argued that the Appropriate Authority also has, therefore, recognised that the transaction in the Agreement included transfer of two independent properties. It has been noted by Ld CIT(A) that the leasehold right was originally granted to the assessee for a period of 98 years by an Indenture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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. In the light of the above facts and circumstances, 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. No interference is called for therein, and therefore same are upheld. Thus, Ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming depreciation on the entire factory building notwithstanding its claim that one floor has been used by the Trust. Reference was also made to the income and expenditure account and Balance sheet of the Trust to indicate that the Trust does not have any substantial activities. It was also observed that the assessee has paid an inflated consideration to the Trust merely to reduce the tax liability by converting the maximum gain as Long Term Capital Gains. The Assessing Officer also relied on the decisions of the Hon'ble Supreme Court in the cases of Mcdowell Co. Ltd 154 ITR 148, CIT vs Meenakshi Mills Ltd 63 ITR 609, Workman of Associated Rubber Industry Ltd vs Associated Rubber Industry Ltd 157 ITR 77 and CIT vs Durga Prasad More 82 ITR 540 and on the decision of the Mumbai bench of ITAT in the case of Bombay Oil Industries Ltd vs DCIT 82 ITD 626, to support his view that the transaction was a colorable device. In light of the above, the sum of Rs, 1,50,00,000/- was also held as taxable in the hands of assessee firm as arising out of sale of factory building and was reduced from the amount shown under the head buildings held by the assessee, and the resulting surplus wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust is nothing but family members only. It has been argued by him, in nutshell, that this was a colorable device used by the assessee to reduce its tax liability. It was requested by him that Ld. CIT(A) has wrongly deleted the addition made by the AO and therefore, his action should be reversed and addition made by the Ld. AO should be restored. 4.4. On the other hand, Ld. Counsel has supported the order of Ld. CIT(A). It was submitted by him that in the year 1984 the lease was granted by the assessee to the family trust on yearly renewable basis. Although, the trusts, in turn, leased out the same to the third parties, but trust only used to pay lease rent to the assessee firm. It was further submitted that in 1984-85, the revenue assessed rental income of the trust in the hands of the assessee firm. This matter reached upto Tribunal, wherein action of the AO was reversed by the Hon'ble Tribunal and it was held that trust was a separate assessee, and therefore, income of the trust cannot be included in the hands of the assessee. He placed reliance of the copy of the order of the Tribunal in ITA No.8226-8227/Bom/dated 23rd April, 1996. Our attention was drawn on Form no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Ld. CIT(A) has passed a detailed and well reasoned order and gave detailed findings, while allowing claim of the assessee firm. We find that he has rightly held that there were two issues which were to be examined for deciding this ground i.e. (i) whether the payment of ₹ 1,50,00,000/- to the Trust was an application of income or diversion of income by overriding title, and (ii) whether the transaction was a colorable device. In fact, these were the two premises on which the Assessing Officer has taken his decision, and both of these have been aptly dealt with by Ld CIT(A), while adjudicating first appeal, and we also deal with observations of the AO and findings of Ld CIT(A) as under: (i) With regard to the first issue, on the basis of analysis of the Agreement of sale dated 09.05.2002, it was found by Ld CIT(A) that the payment to the Trust was a 'diversion of income'. He made a specific reference to Clause-P of the said Agreement in which it was clearly mentioned that the purchaser had agreed to pay a sum of ₹ 1.50 crores to the Confirming Parties, i.e. the Trust and that the Confirming Parties have agreed to hand over vacant and peaceful possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, Ld CIT(A) has rightly rejected the stand of the AO on this issue also. (iii) Further, in addition to the above, there is one more angle to resolve this issue. 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. The assessee's reliance on the decision in the case of CIT vs. Shakuntala Kantilal and other cases is correct on this issue. Further reference can be made on this issue upon the judgment of Hon'ble Bombay High Court in the case of Abrar Albi 247 ITR 312, holding that expenses incurred on transfer can be deducted from the amount of sales consideration. Accordingly, from this point of view also, the issue raised by the Assessing officer is not material and inconsequential in effect, particularly when seen against the fact the trust has offered the said consideration as income. Thus, in view of the above discussion, we find that Ld CIT(A) has rightly held that the Assessing Officer was not justified in taxing the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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