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TMI Blog2018 (6) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... s we held that right as a capital asset created by MOU duly registered and the allotment letter, within the meaning of section 2(14) therefore when this right got relinquished the consideration received thereof will be consideration for transfer of capital asset as relinquishment falls within the definition of 'transfer' u/s 2(47) and is, therefore, chargeable to tax u/s 45 as capita gain. The capital gain has to be computed in accordance with the provisions of section 48 - The full value of consideration has to be taken to be ₹ 50 crores received by the assessee for relinquishment of right in the capital asset. The cost of acquisition of right in the capital asset in this case is ₹ 40 cr. We therefore set aside order of CIT(A) on both the issues and direct AO to recompute LTCG/Loss by reducing from total consideration of ₹ 50 cr the indexed cost of acquisition amounting to ₹ 40 cr in accordance with the provisions of section 48. MAT - Book adjustments u/s 115JB - Held that:- book profit disclosed by the assessee company in audited P & L a/c for impugned assessment year cannot be altered by adding back Capital Reserve. - AO directed for not to take the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for acquiring right, title and interest in 213,000 sq.ft. in an upcoming IT project on Plot no. IT-5, Airoli Knowledge Part of Trans Thane Creek industrial Area, Airoli, Taluka Thane for a total consideration of ₹ 40 crores which was paid. It obtained Allotment letter from the Builder for the transfer of all the rights, title and interest in 213,000 sq.ft. to be constructed (hereinafter referred to as Allotted area ). The assessee company paid ₹ 40 crores vide cheque no. 773058 dated 03/04/2007 to the Builder in respect of acquisition of right, title and interest acquired in above plot. As per the terms of MOU read along with Allotment letter, the Builder was obliged to give the possession of the allotted area within a period of 13 months from the date of execution of the Agreement to Lease with Maharashtra Industrial Development Corporation Ltd (MIDC). However, the Builder defaulted in timely delivery of allotted area. Thus, a dispute arose as to fulfilment of the obligations by the Builder as per MOU read along with Allotment letter. Therefore, the assessee company claimed damages for loss of source of income . Various letters and legal notices were exchanged betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Gain and thereby calculating MAT u/s. 115JBof the Act; iii) Disallowed expenses amounting to ₹ 587,400/-claimed u/s. 35D of the Act. 5. By the impugned order, CIT(A) confirmed all the three additions against which assessee is in further appeal before us. 6. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the factual matrix of the case. From the record we found that assessee has acquired the right to acquire property got created by the MOU dated 26/03/2007 followed up by allotment letter dated 03/04/2007 in pursuance to which the assessee company paid an amount of ₹ 40 crores for acquiring the constructed property from the Builder in allotted area at Airoli, Navi Mumbai. Thus, the right to acquire the property was acquired on 26/03/2007. The said right was relinquished / got extinguished vide MOU doted 27/10/2010. As this right in property was with assessee for more than 36 months the assessee company calculated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 19 of Transfer of Properly Act, 1882 , such rights are Capital Asset u/s. 2(14) of the Act. 10. Thus in the present case, the assessee company has acquired rights in the allotted area by virtue of MOU duly registered read along with Allotment letter. On perusal of the Allotment letter it can be noted that there is a specific clause which states that This allotment letter shall be governed by the provisions of Maharashtra Ownership Fiat Act (MOFA) . In order to support this contention, reliance can be placed on the decision of Harshal Developers Pvt. Ltd. v. Manohar Gopal Bavdekar bearing Second Appeal No. 18 of 2012 and Civil Application No. 347 of 201 2, Order dated 26.11.2012 wherein it has been held by the jurisdictional High Court that allotment letter is binding under MOFA. Even the Punjab and Haryana High Court in the case of Mrs. Madhu Kaul v. CIT 2014 (2) TMl 1117 has held that the allottee gets title to the property on the issuance of an allotment letter and the payment of instalments is only a consequential action upon which the delivery of possession flows. 11. Reliance can also be placed on the decision of Apex Court in the case of Sanjeev Lot v. CIT (2014) 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relinquishment of any right in a capital asset fails within the definition of the term transfer of capita! asset. Therefore, there is transfer of capital asset and hence the long term capital loss calculated is ought to be allowed. 13. As per record, the assessee company in terms of separate settlement deed dated 27/10/2010 further received Liquidated damages to the tune of ₹ 10 crores. It was contention of assessee before the AO that due to the fact that assessee could not get the possession of said premises there was loss of source of income by assessee company due to non-fulfillment of terms of MOU read with Allotment letter by the Builder since the assessee company could not start the business activity from the allotted area within the stipulated time. Accordingly, it was contention of assessee that liquidated damage so received was not liable to tax. It was contention of assessee that the profit earning apparatus of the assessee company was eroded due to non-receipt of possession of constructed area. Thus damages received for the relinquishment of source of income is capital receipt no liable for tax under the Act. We do not find any merit in this contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building no. 1 as per the plans annexed to the MEMORANDUM OF UNDERSTANDING. The copy of MEMORANDUM OF UNDERSTANDING is at Pb pgs 53 to 61 copy of allotment letter at pgs 62 to 66 which were referred during the course of the hearing. As per terms of MEMORANDUM OF UNDERSTANDING read with allotment letter, Builder was obliged to give the possession of allotted area to the assessee within a period of 18 months from the date of execution of the agreement to lease with Maharashtra Industrial Development Corporation Ltd. The assessee vide his letter dt 18.12.2007 called the builder to hand over physical possession and parking spaces to the assessee within 18 months from the agreement to lease Executed by builder with MIDC and a grace period of 6 months is also given in case of delay. Ultimately, assessee on 12.1.2010 issued legal notice to the builder referring to the MEMORANDUM OF UNDERSTANDING and allotment letter asking the builder to perform terms and conditions of the said MEMORANDUM OF UNDERSTANDING hand over immediate vacant and peaceful possession of the said area alongwith damages for loss of source of income caused due to delay in possession from 18.10.2009 till the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Act, 1908 , alongwith allotment letter dt 3.4.2007 acquired the area yet to be constructed measuring 213000 sq ft in Building no 1 of IT project on Plot no IT-5 in Airoli Knowledge Park for which attention was drawn towards copy of MEMORANDUM OF UNDERSTANDING allotment letter dt 3.4.2007. Attention was also drawn towards the fact that allotment was made by builder of the said area on receipt of consideration of ₹ 40 crs. The said consideration was paid through cheque. This fact has not been denied by the Revenue. Allotment letter is governed by Maharashtra Ownership Flat Act and hence an enforceable right got created in favour of the assessee. Reliance was placed in this regard on decision of Mumbai High Court in the case of Bina Indra Kumar 370 ITR 552 (Mumbai). It was further submitted that MEMORANDUM OF UNDERSTANDING, allotment letter and cancellation deed are to be read in context of Section 19 54 of Transfer of Property Act 1882 S.10 of Specific Relief Act 1963. From these provisions, it is apparent that a vested right in the nature of capital assets u/s 2{14) of the income Tax Act, 1961 was created on 3.4.2007 when the assessee paid the consideration amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was drawn towards the main object of the assessee company as per Memorandum of Association of the company. 19. The assessee intended to acquire allotted area for ₹ 40 Crores as in IT project of builder for the purpose of carrying on the business, however, since builder could not give possession of allotted area, therefore the assessee has to enter into cancellation Deed as well as Settlement Deed by which the assessee received refund of ₹ 40 cr and ₹ 10 cr liquidated damages. 20. It was also contention of learned AR that there is contradiction in the stand of revenue. On the one hand, assessing officer is not ready to appreciate the fact that the payment of 40 Crs is for acquisition of right in allotted area is a capital asset but on the other hand Assessing officer taxed said sum of 10Cr being 'liquidated damages' as short term capital gain. The A R in this regard relied on the following decisions:- (i) CIT vs. Parle soft Drinks(Banglore) (P) Ltd. (2018J61DTR (Bom)86. (ii) Kettlewel Bullen co. Ltd. 1964(5) TMI 4 (SC). (Hi) Oberoi Hotel Pvt. Ltd. (1999)236 ITR 422 (SC). (iv) Saurastra Cement Ltd. (2010) 325 ITR 422 (SC). (v) BG S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder and claimed damages for the delay in possession of the area as well as loss of 'source of income'. The matter ultimately was referred to Arbitrator and Mumbai High Court appointed Ex Chief Justice of India J. S.P Bharucha as arbitrator in the said matter. Mumbai High Court in arbitration No.89 of 2010 in assessee's own case upheld the binding nature of the said Memorandum of Understanding and allotment letter and allowed relief to the assessee by holding as under:- The letter of allotment that was issued by the developer to the appellant was in implementation of the terms and conditions spelt out in the Memorandum of Understanding. In fact, the letter of allotment dated April 2007 states that it is pursuant to the Memorandum of Understanding that the developer was unconditionally and absolutely allotting and handing over to the applicant right, title and interest in the office premises admeasuring 213000 sq. ft. since the applicant had paid the full consideration of ₹ 40 crores. The letter of allotment states that the other terms and conditions of allotment as set out in the Memorandum of Understandings shall continue to be binding on the parties thereto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question. However, in the instant case MOU so entered was duly registered. Even Bombay High Court has also upheld the binding nature of said MOU and allotment letter after having detailed observation as mentioned above. In case of the assessee, documents are duly registered and refers to specific property being building no 1 and area in annexure forcing part of the registered document. Now coming to the claim of the assessee in respect of long term capital loss, we noted that the builder could not give the possession to the assessee of the said capital asset in terms of the MEMORANDUM OF UNDERSTANDING within the specified period. The time was the essence of the contract. The assessee therefore took legal action and ultimately matter was referred to the Sole Arbitrator to Retd Chief Justice of India J. S P Bharucha and ultimately a Cancellation Deed was executed on 27.10.2010 and registered under the Indian Registration Act, by which the assessee relinquished his right in the said capital asset i.e. area allotted to the assessee vide letter dt 3.4.2007 and the assessee received back the amount paid by him at the time of booking amounting to ₹ 40 crores. Simultaneously, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art parcel of the consideration received by the assessee towards the relinquishment of right by the assessee in the capital asset. Therefore in our view the said sum of ₹ 10 crores should also be part of total consideration received by the assessee for transfer of capital asset i.e. relinquishment of right for allotted area in IT project of the builder. We have already held that right as a capital asset created by MOU duly registered and the allotment letter, within the meaning of section 2(14) of the Income Tax Act, 1961, therefore when this right got relinquished the consideration received thereof will be consideration for transfer of capital asset as relinquishment falls within the definition of 'transfer' under section 2 (47) and is, therefore, chargeable to tax u/s 45 of Income Tax Act as capita! gain. The capital gain has to be computed in accordance with the provisions of section 48 of the Income Tax Act. The full value of consideration has to be taken to be ₹ 50 crores received by the assessee for relinquishment of right in the capital asset. The cost of acquisition of right in the capital asset in this case is ₹ 40 cr. We therefore set aside ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. The undisputed facts relating to this issue are that the assessee has written off l/5th of the total expenses in respect of share issue expenses and preliminary expenses amounting to ₹ 5,87,400/- which were incurred by the assessee in AY 2007-08. The assessee incurred preliminary expenses amounting to ₹ 18,795/- during AY 2006-07 for the formation of the company which is apparent from details of such expenses at Exhibit L-l. Further, during AY 2007-08, the assessee company increased share capital from ₹ 1 lakh to ₹ 40,10,00,000/-. In this regard, the assessee company incurred ₹ 21,27,000/- towards ROC fees and ₹ 8,10,000/- towards stamp duty. These total expenses of 29,37,000/- were debited to preliminary expenses. The share capital was increased for acquiring right in getting 213000 sq ft in upcoming IT project at Airoli to be constructed by B Raheja Builders Pvt Ltd. Thus the assessee claims that these expenses were incurred after the commencement of the business in connection with the extension of its business of industrial undertaking. Since all these expenses are incurred in the formation of the company and extension of the business, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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