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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 ..... 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. Kumaran, Senior DR, on behalf of the Revenue and by Mr. Percy Pardiwalla, Senior Advocate & Ms. Vasanti B. Patel, on behalf of the assessee. 3. Ground No.1: In this ground, the revenue has challenged the action of Ld. CIT in holding that a sum of Rs. 1.50 crores received on sale of land as Long Term Capital Gain, without appreciating the fact that the land was never shown in the block of assets. 3.1. The brief facts, as culled out from the assessment order, are that during the course of assessment proceedings it was found by the AO that main source of income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale consideration for the land and was offered as Long Term Capital Gains. b) Rs. 1,50,00,000/- paid to the Trust was held as taxable in the hands of the trust. c) Rs. 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 value of land has been taken as per a valuation report. Considering all these facts and circumstances, the Assessing Officer asked the assessee to show-cause that why the entire sale consideration should not be computed as Short Term Capital Gains as per the provisions of Section 50 of the Act. In response, it was submitted by the assessee that the Section 50 is applicable only where the property transferred is depreciable asset. It was accordingly argued that land being not a depreciable asset, it cannot attract Section 50. Reliance was placed in this regard on the decision in the case of Teletube Electronics L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, 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 Rs. 4,95,00,000/- as arising out of sale of factory building and held the entire sale consideration as Short Term Capital Gains in terms of Section 50(1) of the I.T. Act, 1961. 3.2. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A). In appeal, the submissions made before the Assessing Officer were reiterated. It was further submitted that when a lessee constructs a building on a leased premises there is no merger of his interest as a lessee into his interest as an owner of the building. It was submitted that in a situation like this, there are two independent interests in two different assets. Accordingly, it was submitted that leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther 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. Counsel vehemently relied upon the detailed finding of Ld. CIT(A) and requested for upholding same. 3.6. We have heard both parties very carefully, and gone through orders of the lower authorities, as well as material placed before us for our consideration and also the judgments relied by the lower authorities while deciding this issue which were reiterated before us. It is noted that the AO's decision on the issue mainly hinges on his view that land was an integral part of the asset, on which the factory building existed. Accordingly, he held that the entire consideration was on account of sale of a depreciable asset i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 dated 07-05-1972 by the Bombay Xavarian Corporation Pvt. Ltd. at a monthly rent of Rs. 350/-. The fact that the lease right did not merge with the factory building and remained an independent interest, is evident from the fact that this lease right continued to exist even after its transfer to M/s Sun Pharmaceuticals Industries Ltd. In fact, by virtue of the Agreement, all obligations attached to the lease right were to be fulfilled by Sun Pharmaceuticals Ltd after the transfer. In page-9 of the Agreement, it has been clearly mentioned that the purchaser has to observe and perform all that is contained in the Indenture of Lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1 of Revenue's appeal is dismissed. 4. Ground No.2: In this ground revenue is aggrieved against action of Ld. CIT(A) in reversing the action of Ld. AO in making addition of Rs. 1.5 crores to the sales consideration of the factory building by holding that compensation of Rs. 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. 4.1. Brief facts as culled out from the assessment order are that during the course of assessment proceedings the AO decided the issue with reference to the question whether the payment of Rs. 1,50,00,000/- is an application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 was treated as Short Term Capital Gain. 4.2. Being aggrieved, the revenue contested the matter before Ld. CIT(A). In the first appeal before Ld CIT(A), it was submitted by the assessee that the Assessing Officer's stand that the transaction was a colorable device is neither factually correct nor justified in given facts and circumstances of the case. Attention was drawn in this context to the fact that the Trust was created in 1984 and has been accepted as genuine. It has been assessed in respect of income that it has earned from subletting the premises taken by it on lease since 1984. Attention was also drawn to the fact that initially the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 37I filed with the appropriate authority u/s 269UC of the Income Tax 1961, being the statement of agreement for transfer of immovable property, in pursuance to rule 48 of the Income Tax Rules, wherein it was shown that impugned transferred property was encumbered in the sense that first floor of the said property was given on lease to M/s Writer Jesia Family Trust, and our attention was also drawn on Column no. 13 of Form 37I, to show that amount payable to said trust was separately year marked. Our attention was further drawn upon the indenture dated 9th May, 2002 between the assessee firm, the said trust and purchaser namely M/s. Sun Pharmaceutical Ltd., to show that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 1.50 crores to the Confirming Parties, i.e. the Trust and that the Confirming Parties have agreed to hand over vacant and peaceful possession of the first floor premises of the building to the vendors, i.e. the assessee firm, which made it clear that right at the inception the payment was made to the Trust by M/s. Sun Pharmaceutical Industries Ltd, and that at no stage, the consideration was received or receivable by the assessee. It is further worth noting that by virtue of this tripartite Agreement between the assessee, the Trust and M/s Sun Pharmaceutical Industries Ltd, the consideration of Rs. 1.50 crores was directly paid to the Trust for handing over vacant possession of the building to the assessee. This amount was never received by the assessee. In view of these facts and circumstances, we do not find substance in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of Rs. 1.50 crores in the hands of the assessee and treating it as part of short term capital gain, and therefore no interference is called for in the well reasoned and detailed findings of Ld CIT(A), and therefore these are upheld. Thus, Ground No 2 of appeal of the revenue is dismissed. 5. Ground No. 3: In this ground, revenue has challenged the action of Ld. CIT(A) in holding that brought forward unabsorbed depreciation is to be adjusted against any income of the assesee of the current year. 5.1. In the assessment order, the AO failed to allow set off of unabsorbed depreciation of preceding years, aggregating to Rs. 5,92,524/-, against the income assessed under the head income of capital gain. 5.2. Brief fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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