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TMI Blog2011 (9) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... eternmination of long term capital gsains of ₹ 1,44,94,439/- as against ₹ 1,32,59,986/- declared by the assessee by adopting the cost of acquisition at ₹ 92,000/- as against ₹ 10 lakhs claimed by the assessee. In the assessment order, the interest claimed by the assessee in computing the income from other sources was also disallowed. The matter was taken up in appeal in ITA No. 214/CC-1/98-99 dated 8-6-1999 whilr confirming the issue relating to disallowance of interest. Set aside the issue of computatioj of capital gains with a direction to re-do the same in accordance with the guidelines set out by him in the order. Pursuant to the said ordr Section 143(3) r/w Section 250 of the Act on 27-3-2002 re-computing the loing term capital gains at ₹ 1,32,03,153/- as against ₹ 1,32,59,786/-shown by the appellant. Being aggrieved by the same, asssessee filed an appeal in ITA No. 203/DCIT.CC-1(1)/CIT (A)-V/2002-03 before the commissioner of the wealth tax (Appeals)-VI, Banglore. The first appellate authority, by order dated 25-11-2002 dismissed the appeal confirming the order passed by the assessing officer. Being aggrieved by the same, the assessee pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Bangalore city corporation and being a portion of 12/3, 105 and 105/2 of I main, Seshadripuram, Bangalore; the total area of the plot is 4,054 sq.yards i.e, 36,486 sq.ft. along with all structures therein, As per the development agreement the title of the owner is narrated in the agreement the title of the owner is narrated in the agreement. It is aaverred that the assessee became owner of the property being in continuous possession of the schedule property free from any encumbrances, liens, charges and thre property has been acquired under the sale deed dated 31-10-1967. Whereas the developers approached the owner to purchase 52.5% of undivided share, right, title and interest in the schedule property on certain terms and conditions to which the owner has agreed. Thereafter the agreement recites that it is mutually agreed that the owner does hereby agreed to sell to the developers or theor nominees 52.5% of the undivided share, interest, right and title of the schedule property as a whole or in part of the undivided share and interest together with a right to the developers to develop a Multi Storeyed Residential Complex on the schedule property to the extent of 52.5% super ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interest in the schedule property to the builder, subject to the options given to the owner and according to the assessee first option was not exercised and therefore, assessee is deemed to have accepted the second option as referred to above and therefore, there is no conveyance of inmovvable property to attract the provisions of section 45(1) of the Act. 9.It is also contended by the revenue that as the assessee has permitted the developer to enter the premises to put up construction on the entire property, to the extent of 52.5% by the developer in his own right as per the development agreement as also 47.5% on behalf of the owner, though there is no recital that possession has been handed over, it must be deemed that possession was handed over on the date of development agreement as the developer has gained access to the property without being disturbed by the owner to put up construction on the entire property. Therefore the possession must be deemed to have been handed over on the date of development agreement dated 25-1-1993 and the apital gain has rightly been shown by the assessee and it cannot be withdrawn by the assessee as the transaction would attract the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RKADAS KAPADIA Versus COMMISSIONER OF INCOME TAX ((2003) 260 ITR 491) in support of her contention that Section 45 of the Act and clauses (v) and (vi) introduced in Section 2(47) of the Income tax Act, 1961 would cover the said transaction as held by the Bombay High Court and the date of transfer should be taken as from the date of development agreement; when developer gained possession of the property and the said explanation have been added to Section 2(47) of the Act only to scotch the method followed by the developers of postponing the actual execution of the sale deed and payment of capital gain and in view of the said decidion, the order passed by the ITAT Cannot at all be sustained. She also submitted that the reasoning assigned by the ITAT that it is not possible to compute the capital gain under Section 45 of the Act and Section 45 (1) of the Act is not attracted to the development agreement in the present case dated 25-1-1993 and the capital gain would not arise during the assessment year 1995-96 is clearly erroneous and substantial question of law may be answered in favour of the Revenue. 12. The learned counsel appearing for the respondent assessee submitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AD ((1985) 156 ITR 509) wherein it is held that when the assessee has transferred hia shares to the partnership firm, he received no consideration within the meaning of Section 48 of the Act nor did any profit or gain accures to him for the purpose of section 45 of the Act. Where a partner of a firm makes over capital asset to the firm as contribution towards capital, there is no capital gain within the terms Section 45(1) of the Act. This is because exclusive interest of the partners in the asset is reduced on their entry into the firm into a shared interest. 15.The learned counsel has also relied on a decision of the Hon ble Supreme Court in MANISH MAHESHWARI vs ASST.COMMISSIONER OF INCOME- TAX AND ANOTHER ((2007) 289 ITR 341) wherein the Hon ble Supreme Court has observed that a taxing statue is well known, must be constued strictly. While dealing with a taxing provision, the principle of strict interpretation should be applied. The Court shall not interpret the statutory provision in such a manner which would create an additional fiscal burden on a person.It is also trite law that while two interpretations are possible, the court ordinarily would interpret the provision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate authority observed that the assessee owned a landed property measuring 36486 SQ.FT AREA AT Guttahalli, Bangalore which was acquired on 31-10-1967 for a consideration of ₹ 92,000/-. The assessee entered into the joint development agreement with M/s. Alpine Housing Corporation (Developers) on 25-1-1993 according to which the assessee would transfer 52.5% of his undivided share, interest, right and title in the land to the developers or to their nominees for developing a multi storeyed residential complex. As a consideration for the transfer, the assessee was entitled to either monetary consideration of ₹ 1,34,00,000/- as the first option or 47.5% share in the built-up area of the proposed to be constructed residential complex on the said land as second option. The assessee exercised the second option of receiving 47.5% share in the total built up area as the consideration for the transfer of 52.5% share of his undivided interest in the land. Subsequently a tripartite agreement of sale and construction was made on 29-12-1993 with the assessee, the developer and SIDBI purchaser as the three parties to the agreement. As per this agreement, it was agreed that 52.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets to which the assessee became entitled as a result of the transfer can be calculated on the basis of cost for acquiring similar units by SIDBI (Excluding the cost for share in interest in land) and the same would represent the full value of consideration due to the assessee arising from the transfer of assessee s 52.5% share in the property. The cost of improvement claimed by the assessee as a deduction in the computation of long term capital gains consists of the payments made during the financial years 1993-94 towards electricity charges, corporation taxes and betterment charges paid by the asseessee towards the property transferred by him. However, as per the joint development agreement entered into between the assessee and the developer on 25-1-1993, the assessee did not have any obligation to bear the expenses for development of the property after the date of agreement. Normally, whatever expenses were to be incurred for development of thew 52.5% of the developer s share in the subject property transferred had to be borne by the developer only. Morever, the assessee has not furnished the necessary details during the appellate proceedings to show that the payment made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le consideration of ₹ 1,48,71,655/-. So far as the determination of cost of improvement, the assessee was given an opportunity to furnish documents as observed by the first appellate authority while setting aside the order of the assessing officer. Notice was issued and the books of accounts for the financial years 1993-94 and 1994-95 were also produced for verification of the sources for incurring expenditure towards of improvement. The break up of items of expenditure which are claimed as cost of improvement, as furnished by the assessee are as follows: Financial Year Date Amount Nature of expenditure 1993-94 21-5-1993 29,130 Payment of electricity charges to KEB 12-07-1993 5-54-039 Payment of betterment charges to BDA 22-10-1992 15,380 Payment of corporation tax Total: 5,98,549 1994-95 15-9-1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on the part of the assessee to p[ay the corporation tax and electricity charges and therefore,payment of the said amounts doi not amount to cost of improvement and therefore, assessing officer has rightly excleded the amount paid towards development charges towards cost of improvement and confirmed the findings of the assessing officer to that effect and the first appellate authority further held that since payment of interest is not compensatory in nature, Payment Of interest is mandatory and upheld imposition of interest and dismissed the appeal. Therefore, there is concurrent findings by the first appellate authority and the assessing officer regarding actual sale price and cost of improvement and indexation and about the amount which would attract tax on capital gain under Section 45(1) read with 46 of the Act. 21. However, the ITAT has proceeded on the basis that the effect of transaction of development agreement entered into between the assessee and the developer was only siminution of the ownership right of the assessee and in view of the conditions of the development agreement, it was clear that total ownership right in the property of 100% came to be reduced to 45. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th legal provisions (like Section 54-F). 17.Section 45(1) of the 1961 Act speaks about capital gains arising out of transfer of a capital asset. The definition of the expression transfer is contained in section 2(47) of the 1961 Act. It has very wide meaning. What is taxable under Setion 2(47) of the 1961 Act is profits and gains arising from a transfer of a capital asset and the charge of income tax on the caital gains is a charge on the income of the previous year in which the transfer took place. 18. Capital gain(s) is an artificial income. It is created by the 1961 Act. Profit(s) arising from transfer of caital asset is made chargeable to income tax under section 45(1) of the 1961 Act. From the scheme of Section 45, it is cler that capital gains is not an income which accured from day-to day during a specific period but it arises at a fixed point of time namely on the date of the transfer. In short,Section 45 defines capital gains , it makes them chargeable to tax and it allots the appropriate year for such charge. It also enacts a deeming provision. Section 48 lays down the mode of computation of capital gains and deductions thereform, 24. Section 2(47) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm as his contribution to its capital, there was transfer of a capital asset within the meaning of the terms of section 45 of the Act. However, in regard to the question whether assessee had received any consideration as that expression is understood in the scheme of capital gain under the Act, the hon ble Supreme has referred to the observations made in B.C. SRINIVASA SETTY s case cited supra, wherein it was hwld that charging section and the computation provisions under each head of income constitute an intergrated code and when there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Having regard to the facts and the concept of partnership frim, the Hon ble Supreme Court has also held that the consideration received by the assessee on the transfer his shares to the partnership firm does not fall within the contemplation of Section 48 of the Act and further no profit or gain can be said to srise for the purposes of the act and accordingly held that the case fall outside the scope of Section 45 of the Act. The Hon ble Supreme court has held that (1) there was a transfer of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss in the development agreement contained in clauses 8,9,10,11,12,13,15,21 and 22 would clearly show that form the date of the said agreement, developer came in to possession of the property and for the purpose of construction, the assessee ahs accepted power of attorney as per the clause to enable the developer and his nominee entering into possession of the property and putting up constructiom in the entire area of the property belonging to the assessee. Thereafter, a tripartite agreement has been entered into between the owner, developer and the purchaser Small Industries Development Bank of India regarding sale constructuin put up on 52.5% of the property which was agreed to be conveyed to the purchaser by accepting the consideration and therefore, there was transfer of caital asset for consideration and the relevant date on which the possession was handed over would be the date on which possession of the assessee and the assessee had also accepted the General Power of Attorney by the developer and was restrained from interfering with the possession of the property of the developer in putting up construction and therefore under the said circumstances, it is clear that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l under section 2(47)(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89 because prior therto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Consequently the assessee used to enter into agreement for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, section 2(47)(v) came to be introduced into the Act. In the said case also, having regard to the fact that the development agreement granted irrevocable licence to the developer to enter in to possession of the property and power of attorney had been executed to deal woth the property and irrevocable licence to enter upon the property after the developer obtains requiaite approvals of various authorities. The Bombay High Court held that the said transaction would amount to capital gain and attracted tax under Section 45(1) of the Act. Accordingly we hold that the ITAT was not at all justified in holding that transfer in the present case do not attract capital gain and was not exigible to tax under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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