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TMI Blog2014 (2) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... effecting the full transfer of the plots by Shri. Rahimtulla Abdul Hamid Mukri and others to M/s Sea Queen Developers. The transfer of the said plots were further formalized by CIDCO by transfer order dt. 19.09.2005. Subsequently, the said plots held as Long Term Capital Asset and shown as such in the balance sheets of respective years were transferred under an Agreement of Sale dt. 01.08.2008 to M/s Ravechi Properties on consideration of ₹ 10,55,00,00 and the capital gains of ₹ 8,26,04,800 after deducting the indexed cost of ₹ 2,28,95,200 was offered for taxation by the assessee firm. All these important factual aspects and documentary evidences have not been properly appreciated by lower authorities which resulted into wrong conclusion of holding that profit arising on sale of plots held as investment is liable to tax as business income rather capital gains. We set aside the orders of lower authorities and restore the matter back to the file of the AO for examining these documents in detail and for deciding afresh the taxability of profit arose on sale of plot as capital gains or as business income - Decided in favour of assessee for statistical purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) rejected the additional evidence by stating that some of these documents were already filed before the AO and some of the documents were in public domain. The CIT(A) upheld the conclusion of the AO to the effect that profit arising from sale of plot of land was correctly assessed by the AO as income from business. 6. Against this order of the CIT(A), the assessee is in further appeal before us. 7. Learned AR drawn our attention to the audited balance sheet of earlier years filed before the lower authorities, wherein the assessee had shown the plot as investment. It was further submitted that even though the assessee is a builder and developer, it was maintaining two different accounts in its books. One as investment and the other as trading asset. The trading assets are directly transferred to the work in progress account. It was further submitted that the CBDT in its Circular No.4/2007 dated 15.06.2007 has accepted the fact that there can be two assets i.e. Investment (Capital Asset) and stock in trade (Trading asset) and there are number of decisions of the court such as CIT (Central) Vs. Associated Industrial Development Company (P) Ltd., 82 ITR 586 (SC), supporting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has shown sales from project Sea Queen Heritage of ₹ 32,03,41,361/- and offered net profit of ₹ 4,32,35,542/-. The assessee has also shown long term capital gain of ₹ 26,56,79,937/- on sale of plots No.256 257 and plots No.23B C as against total sale consideration of ₹ 32,55,00,000/-. In computation of income assessee has offered the profit derived from sale of above plots as long term capital gain and offered tax @ 20% after claiming indexation benefits. 9.1 We had verified audited balance sheet of the assessee as placed on record, wherein we found that as on 31st March, 2004, the assessee had shown advance for plot as per Schedule F‟ amounting to ₹ 9,44,01,940/-. We had also verified Schedule G‟, which clearly indicate the advance given for plot no. 23B C and Plot Nos. 256 257. Audited balance sheet for the year ending on 31st March, 2006, also indicate Schedule L with respect to advance given for plot No.23-B C and 256 257. Similarly, audited balance sheet for the year ending on 31st March, 2007, indicate Schedule M‟ of investment made by the assessee amounting to ₹ 16,37,76,441/-, which includes the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assets into or its treatment by him as stock-in-trade of a business carried on by him. In this view of the matter, merely because some other plots were used by assessee in its business, cannot be made the reasons for declining the nature of other plots held as investment and sold after holding the same for more than three years. 9.2 From the record, we further found that the said plots of land were intended to be capital assets and have been so acquired, held and shown as advance investments in the audited books of account since many years in the past and the position that such plots of land represented investments was accepted by Department in earlier assessment years. It is not the case of revenue authorities that the said plots at the year end were valued on the principle of cost or market value, whichever is lower as applicable to a stock in trade held by a businessman. On the contrary, we found that plots were value at cost only. The assessee firm had offered separately profit of business of development and construction of housing projects under head profits and gains from business and paid taxes on the same. Merely because some of plots acquired and used for const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dated 24/3/08 for giving rights to appellant for procurement of plot. 4 6-6 5. Copy of ledger as a proof of refund of money to Sunny Housing (India) Pvt. Ltd. 5 7-9 6. Copy of share certificates of Sunny Housing India Private Limited 6 10- 11 7. Copies of all correspondences as a proof for the efforts made by appellant for purchase of plot 7 12- 17 9.3 However, the CIT(A) did not accept above document and the same were rejected by him after giving the reasons as stated below :- Sl. No. Type of Evidence CIT(A)‟s reasons and comments for rejection of A.E. 1. Copy of Scheme of Government It is in public domain and the AO is already in knowledge. The AO was aware and he considered the same while arriving at his decision. Therefore, rejected. 2. Ledger accounts of land for different ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was unable to negate the balance sheets filed in earlier years, wherein they were shown as Sea Queen Developers stock and other plots and, hence, the plots under construction fall under the same basket. 9.6 As per the AO, Schedule F of Balance sheet for A. Y. 2004-05 placed the plots along with other plots which are Sea Queen Heritage, Sea Queen Horizon, Plots, Sea Queen Paradise, National Avenue , Plot no.263 and a plot at Kharghar. For A.Y.2005-06. Schedule G of the Balance sheet showed the same treatment as above for A.Y.2006-07. Schedule L National Avenue and plot at Kharghar were sold and offered as Business income‟. These plots coming from the same basket could not be given different treatment defeating the assesse‟s claim of maintaining two different portfolios, one as investment and other as stock. The plots which were held as the investments of the 2 individuals Mr. M C Sunny and Mr. B.MShah did not automatically make the plots as investments of the firm unless two separate portfolios were maintained. Ledger account of the appellant firm showing the treatment of the plot as an asset in the books of individuals becoming partners later, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B and 23C as they were introduced as capital. This proposition is supported by the decision of Special Bench in the case of DLF Universal Ltd 123 lTD 1 (Del.) (SB). 9.8 In this regard, we also found that the assessee had not used any borrowed fund for the acquisition of said plots, nor it had obtained any approval for development of the said plots. The assessee had never put the said plots for construction of any buildings thereon and had maintained separate accounts for its investments and business activities and had shown the investment in plot of land under consideration consistently as investments. However, both the lower authorities had brushed aside all these Sea Queen Developers factual aspects which goes to the root of the issue for holding the plots by assessee firm as investment. 9.9 From the record, we found that for the year ending on 1.03.2007 and 3 1.03.2008 plot no. 23B and 23 C and 256 and 257 were shown in separate Schedule of investments namely Sch M of and E respectively. The said plots under consideration in appeal at the year end were always valued at at cost and never on the principle of cost or market value, whichever is lower as applicable to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot No.s 23B C from CIDCO‟s confirmation of the allotment of the said plot and handing over of the possession on 10.12.2003 by the said Tandels who simultaneously handed over the same to the assessee firm and for plot No.s 256 257 vide Letter of allotment dt. 12.07.2004, Agreement to Lease dt.15.04.2005 confirmed the leasehold rights of the said plots and the assessee firm received the possession of the said plots on 17.03.2005. However, both the lower authorities have erred in ignoring the vital facts and evidences of holding of an asset and instead relied on the dates of such documents that were executed plainly to formalize the transactions that have already taken place. The assessee firm had no role to play neither had any control over the government authority CIDCO which practiced the execution of tri-partite deed. Plots no. 23B and 23C were held for more than 5 years. Even if we count the period of holding from the date of constitution, it is more than 5 years and 1 month. Plots No.256 and 257 were held for more than 3 years 5 months. Period commenced from date of allotment or possession, which is supported by the decisions of the court reported in Tata Consultanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,863 and same was offered for taxation by the assessee firm 9.12 In respect of Plot Nos.256 257, we found that the assessee firm acquired the rights in the leasehold plots of land under an Agreement dt.15.06.2003 for consideration of ₹ 1,75,84,458 from Shri. Rahimtulla Abdul Hamid Mukri and others. CIDCO issued an allotment letter dt.12.07.2004 and vide an Agreement to Lease dt.15.04.2005 confirmed the leasehold rights Sea Queen Developers of the said plots and the assessee firm received the possession of the said plots on 17.03.2005. Vide Tripatite Deed dt.03.08.2005 CIDCO formally transferred the said plots in favor of the assessee firm effecting the full transfer of the plots by Shri. Rahimtulla Abdul Hamid Mukri and others to M/s Sea Queen Developers. The transfer of the said plots were further formalized by CIDCO by transfer order dt. 19.09.2005. Subsequently, the said plots held as Long Term Capital Asset and shown as such in the balance sheets of respective years were transferred under an Agreement of Sale dt. 01.08.2008 to M/s Ravechi Properties on consideration of ₹ 10,55,00,00 and the capital gains of ₹ 8,26,04,800 after deducting the indexed cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r : The transactions between the Company and M/s Sunny Housing (India) Private Limited is only business transactions. And it is not in the nature of Loan or in nature of advance. Again, M/s Sea Queen Developers is not a share holder of M/s Sunny Housing (India) Private Limited. We request you to kindly note that the transactions with M/s Sunny Housing (India) Pvt. Ltd. is mutual, open and current in nature, Therefore, no part of that running account could be treated as loans or advances as the account is a continuously moving one and the a balances reflected in that running account are momentary in nature and subject to frequent changes. It is submitted that the running account maintained by two concerns even if they are related concerns u/s 2(22)(e) in the normal course of business and cannot be treated as loans or advances even though a nomenclature is stated as loans and advances. Besides, the Special Bench of the Income Tax Appellate Tribunal in the case of ACIT Vs. Bhaumik Colour Pvt. Ltd., reported in 313 ITR (AT) 146 (SB) held that even loan account between two sister concerns cannot be taxed in the hand of recipients as the assessee company is not a share holder o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said company. It was further contended that the provisions of s. 2(22)(e) did not apply to the case of the assessee since: i) It was not a shareholder of Sunny Housing (India) Pvt. Ltd.; ii) the loan was received by the assessee in the ordinary course of business from Sunny Housing (India) Pvt. Ltd.; and iii) the said amount did not represent any loan or an advance received by the assessee. However, the AO did not agree with assessee‟s contention and made addition u/s.2(22)(e). By the impugned order CIT(A) had confirmed the order of AO, against which assessee is in further appeal before us. 11. We have considered the observations made by the lower authorities in their respective orders vis- -vis the contention of the learned AR and learned DR before us. We have also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as judicial pronouncements cited at bar by ld. Authorized Representative and ld. Senior DR in the context of factual matrix of the case. From the record, we found that the assessee partnership firm, M/s. See Queen Developers ( in short SQD) is comprising of 3 partners namely Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for procurement of a plot. Since the assessee firm could not succeed in locating suitable plot at Kharghar Node for the said company and thus the money received from the said company was returned to them. 11.2 As per our considered view, the deeming provisions of s. 2(22)(e) are applicable when a company makes a loan or an advance to a shareholder. The provisions of s.2(22)(e) apply only to shareholder of the company. This position is duly supported by various case laws holding that the provisions of s.2(22)(e) has application limited to the shareholders of the company and its application does not extend to partnership firm or other entities wherein shareholders of the company are partners or members. It Sea Queen Developers is also a settled position that the provisions of S.2(22)(e) apply only in case of a shareholder who is a beneficial as well as a registered shareholder. The assessee firm (does not hold any shares of SHIPL) and has no shareholding in the capital of the said SHIPL. This fact was brought to the attention of the said AO who chose to ignore a very vital fact essential for attracting the provisions of Sec.2(22)(e). 11.3 There is a judicial pronouncement by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned the condition under the 1922 Act and the 1961 Act regarding the payee being a shareholder remains the same and it is the condition under that such shareholder should be beneficial owner of the shares and the percentage of voting power that such shareholder should hold that has been prescribed as an additional condition under the 1961 Act. The word Shareholder alone existed in the definition of dividend in the 1922 Act. The expression Shareholder has been interpreted under the 1922 Act to mean a registered shareholder. This expression Shareholder found in the 1961 Act has to be therefore construed as applying only to registered shareholder. It is a principle of interpretation of statutes that where once certain words in an Act have received a judicial construction in one of the Superior Courts, and the legislature has repeated them in a subsequent statute, the legislature must be taken to have used them according to the meaning which a Court of competent jurisdiction has given them. Page 156 para 23: In the 1961 Act, the word shareholder is followed by the following words being a person who is the beneficial owner of shares . This expression used in Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s enjoying benefits from the holding and this admittedly was not the assessee in so far as the transferred shares were concerned. In our opinion, the decision of Special Bench of this Tribunal in Bhaumik Colour (P) Ltd. (supra) is very relevant in this regard. The question raised before the Special Bench was as under:- (1) Whether deemed dividend under s. 2(22)(e) of the I.T. Act, 1961 can be assessed in the hands of a person other than a shareholder of the lender? (2) Whether the words such shareholder occurring in s. 2(22)(e) refer to a shareholder who is both registered‟ shareholder and the beneficial shareholder? The answer given is clear from para 24 thereof which is reproduced hereunder:- 24. The expression shareholder being a person who is the beneficial owner of shares referred to in the first limb of s.2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial then the provision of s. 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of s.2(22)(e) will not apply. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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