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TMI Blog2022 (10) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect either on facts or in law. We uphold the order of CIT(A) on this ground and hold that the Assessee has rightly offered the gain on sale of Nagpur land under the head Capital Gain . Long Term v. Short Term Capital gain - HELD THAT:- We are of the opinion that the date of finality of contract is the date of this AGM resolution dated 24/09/2007 passed by the Vendor Company and not the date of MOU as submitted by Assessee. Although as stated by CIT(A) in his order, the MOU grants right of termination only to the Assessee, yet a company operates through resolutions and hence, the date when the AGM resolution was passed, the contract became binding on the Vendor Company giving unfettered rights to the Assessee here to purchase the property. Hence, we direct the AO to take the said date of resolution being 24.09.2007 as the date of when the property can be said to be held by the Assessee for the purpose of section 2(42A) of the Act and compute the long term capital gain accordingly. To that extent, the order of the CIT(A) stands modified. This ground is partly allowed. Project Completion Method Vs Percentage Completion Method - CIT(A) allowed the appeal of the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur for a total consideration of Rs. 25 crores vide Sale Deed dated 31.12.2007. Prior to execution of the said Sale Deed, the Assessee had entered into an Memorandum of Understanding ( MOU ) dated 14.07.2006 with M/s. Commercial Explosives (India Ltd.), the Original Vendor along with which an advance amount of Rs.5.00 crores was paid. A copy of the said MOU appears at Page pages 27 to 33 of PB. 3. As per the prior Resolution dated 01.06.2006 passed by the Assessee appearing at page 227of PB, the said land was acquired for the purpose of development of a project which it proposed to lease out for earning rental income. However, due to various impediments the said land could not be developed. The said impediments are listed at pages 19 to 22 of the CIT (A)'s order and enlisted hereunder for sake of brevity: a. Delay in Mutation of the Name in Revenue Records; b. Reservation on the said Land for DP roads on certain portion of the land, c. Existence of Natural Nalla withSize, Shape and position of Natural NALLA which was passing through the said land did not tally with the City Survey Plans; d. Outstanding Property Tax for the period from 01.04.2000 to 01.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance sheet of the Assessee; b. The Assessee is engaged in the business of development of real estate and without land no development can start. Hence, the argument of Assessee that it is not dealing in buying and selling of land is incorrect; c. As per partnership deed, the Assessee is in the business of developing real estate (Copy of Partnership Deed is at Page 208 211 of PB). d. Intention at the time of acquisition of land is more important than subsequent non utilization of said land, e. The Assessee was aware of the various problems and difficulties which lay ahead and hence, it cannot be accepted that the said land was not developable 8. Before the CIT (A), the Assessee made detailed submissions which form part of paper book filed before us and appear at page 01 to 25 of the PB. The Assessee's submission are summarised hereunder: a. The Assessee is a partnership firm engaged in the activity of construction and development of real estate. For this purpose, the Assessee acquired a parcel of land at Nagpur for a total consideration of Rs.25 crores as evidenced by Sale Deed executed on 31.12.2007.The Assessee could not develop the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, the purpose for which it was acquired having failed. e. The simplest method of determining whether an item of property is stock-in-trade or a capital asset is by applying the functional test. If the property is an item which is traded by the assessee, it would be stock-in-trade but if the property constitutes the 'means' through which he carries on his business, the same cannot be his stock-in-trade and hence, by default, it would constitute his capital asset Reliance is placed on the decision of Hon'ble Gujarat High Court in the case of H Mohmed Co v. CIT (1977) 107 ITR 637(Guj) wherein it has been held that what an assessee deals in is his stock-in-trade and what he deals with is capital asset . f. The contention of the AO that the land was a business asset and hence, the gain on its sale is taxable under the head Business income is contrary to the decision of Hon'ble Supreme Court in the case of CIT vs. Express Newspapers Ltd. (SC) [1964] 53 ITR 260. It has been held by Apex Court that: .The fact that the capital gains are connected within the capital assets of the business cannot make them the profit of the business. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, allowed the claim of the Assessee as per reasoning provided in para 6.5 of the appeal order being impugned before us which are stated hereunder: a. The provisions of section 2(14) of the Act defines the term capital asset . It states that property whether connected to business or not is capital asset . Hence, even if an asset is connected to business, the gain on the sale is capital gain . Even section 50 of the Income Tax Act lay down that the gain on the sale of depreciable asset used for the purpose of business is to be taxed under the head capital gain Therefore, according to the CIT(A), the AO had taken a myopic view of the matter by holding that merely because an asset is a business asset, the gain on its sale will be taxed as business income. b. The AO has himself recorded a finding that the said land was classified as stock in trade in the books of the Assesseein the earlier years. The question is whether such classification in books is be all and end all of the matter. Supreme Court in the case of G. Venkataswami Naidu Co. vs. CIT (1959 35 ITR 594 (SC) held that all attendant facts and circumstances of the case is to be seen to determine whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all fours with the facts of the Assessee's case. 10. Before us, the ld. DR challenged the action of the CIT(A) and relied on the order of the AO. He reiterated what is stated by the AO in the order. His main contention is that since the Assessee is a real estate developer, any purchase and sale of land is a business. transaction and hence, liable to be taxed under the head business income. 11. In her counter the Ld AR for the Assessee submitted that a businessman can have same asset as a trading asset and also as an investment The Id AR further submitted that the sale of land by the Assessee as an isolated transaction which was triggered as multiple impediments arose and hence, the Assessee had to shelve the idea of developing the said land Thus, the asset acquired by the Assessee became sterile She stated that even if the intention at the time of acquisition is to be seen, then too the assessee never intended to sell the said land after development but retain the same for earning rental income Hence, the purpose of acquiring the said land was always to hold the said land as investment . She further relied upon the Resolution dated 01.06.2007 appearing on page 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing before us that the Assesse being a firm the income was required to be brought to tax under the head Profits and gains of business or profession and not under the head capital gains . The thrust of the arguments in this respect is that the firm is essentially constituted to carry on business and, therefore, any asset acquired by the firm cannot be anything but business assets. This argument overlooks the basic fact that business asset held by a firm can be in the form of a capital asset as well. For example, if a firm acquires plant and machinery for the purpose of its manufacturing activity such plant and machinery would be capital asset in the hands of the firm and any subsequent sale of such plant and machinery by the firm would only amount to transfer of a capital asset. The fallacy in the arguments of revenue in this respect lies in the fact that it is assumed that a business asset has to be a trading asset only which is not the correct position under the well established principles of accountancy. A business asset whether in the hands of the firm or an individual or a company or any other entity carrying on business can comprise of capital assets as well as trading asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 01.04.2010 which is accepted by the AO. Thus, we do not find any reason to differ from the view taken by the CIT(A). The assessee has used its capital to purchase the said land and what is recovered is the said capital. The transaction cannot be treated to be an adventure in the nature of trade since the transaction of sale was forced upon the assessee due to circumstances which are enlisted hereinabove. This transaction cannot be classified as an adventure in the nature of trade. It was not a transaction which was actively intended at the time of acquisition of land. 17. The judgments of courts relied upon by the ld. AR for the Assessee is squarely applicable to the facts of the case on hand. The Ld. DR of the Assessee has not brought on record any contra decision or shown that the decisions relied upon by the Assessee and as relied upon by the CIT (A) are over ruled. Further, the ld. DR has neither raised any additional argument other than what the AO has stated and already dealt with by the CIT (A) in an elaborate order nor stated as to why the findings and reasoning of CIT(A) is incorrect either on facts or in law. Hence, we uphold the order of CIT(A) on this grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on page 34 of the PB. She further showed that part payment of Rs.5.00 crores was made. She argued that the said MOU created an enforceable right of the Assessee and hence, it's a property as covered in the definition of Capital Asset u/s. 2(14) of the Act and hence, the date of acquisition would be the date of MOU She relied upon the decision of SC in the case of Sanjeev Lal [2014] 306 ITR389 (SC) for this proposition. 22. She further relied upon para no.8.3 on pages 33 onwards of the CIT(A)'s order where the clear undisputed findings of facts and law are given by the CIT(A) while upholding the applicability of Long Term Capital Gain . In particular in para (iii) page 31,the CIT(A) has observed that the MOU granted right of termination of contract only to the Assessee and not to the Vendor Company and therefore, the said Contract was specifically enforceable at the behest of the assessee only. This is a valuable right and hence, a property . The ld. AR has relied upon following decisions, synopsis of which was filed during the course of hearing: a. Sanjeev Lal vs CIT (2014) 105 DTR (SC) 305 b CIT vs. Ramkrishnan (2014) 48 Taxmann.com 55 (Delhi) c. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be computed from the date of allotment of the property as per section 2(42A). In support of his claim, reliance was placed on the following judgments: 1. Madhu Kaul v. CIT (2014) 363 ITR 54 (P H HC) 2 CIT v. K Ramakrishnan (2014) 363 ITR 59 (Del HC) 3. CIT v. SR Jeyashankar (2015) 373 ITR120 9Mad HC) 4. CIT v. A Suresh Rao (2014) 223 Taxmann 228 (Kar HC) 5. Vinod Kumar Jain v. CIT (2012) 344 ITR 501 (P H_HC) 6. CIT v. Jitendra Mohan (2007) 165 Taxman 524 (Del HC) 7 CIT v. Panchand Gandhi (2005) 279 ITR52 (Guj HC) 8. CIT v. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj) 9. Lahar Singh Siroya v. ACIT (2016) 138 DTR 331 (Kar-HC) 10. Vijay Harmilapurkar v. DCIT ITA No.6048/M/2013 11. ACIT v. Vandana Rana Roy ITA No.6173/M12011 12. Meena Hernani vs ITO ITA No.5998/M/2010 13. Sneha Bimal Parekh v. CIT ITA No.5489/M/2015 14. Surnatichand TolamalGoutiu. DCIT ITA No.2009/M/2013 15.Circular No. 471, dated 15-10-1986 162 ITR(St)41 16. Circular: No. 672, dated 16-12-1993 205 ITR(St) 47 8. We have gone through the facts and circumstances of the case, orders passed by the lower authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during which the asset was held by the assessee for all practical purposes on de facto basis. The legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, we have to ascertain the point of time from which it can be said that assessee started holding the asset on de facto basis. 10. It is noted that the letter of allotment was issued to the assesse on 11-04-2005, the letter of allotment makes a mention of the identity of the flat as office unit No.107, located at First Floor of Everest Grande. It also makes a mention that total consideration of the said property is a sum of Rs.29,64,000/- out of which a sum of Rs.5 lakhs was paid by the assesse on 04-04-2005 by cheque No.539104 as part payment against the said office unit. It is further noted by us that Hon'ble Karnataka High Court in the case of CIT us A Suresh Rao 223 Taxmann 228 (Kar) dealt with similar issue wherein the significance of the expression 'held' used by the legislature has been analysed and explained at length. Hon'ble High Court analysed various provisions of the Act pertaining to computation of capital gain under various sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that for the purpose of Income-tax Act, the allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position. Therefore, in construing such taxation provisions, what should be the approach of the courts and the interpretation to be placed is clearly set out by the Apex Court in the case of Smt. Saroj Aggarwal vs CIT 156 ITR 497 wherein it is held as under:- Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequential acts that relate back to and arise from the rights conferred by the allotment letter upon the assessee. 13. In the case of Vinod Kumar Jain vs CIT 344 ITR 501 it was held by Hon'ble Punjab Haryana High Court that conjoined reading of section 2(14), 2(29A) and 2(42A) clarifies that holding period of the assessee starts from the date of issuance of allotment letter. Since allottee gets title of the property on the issuance of allotment letter and payment of first installment is only a consequential action upon which delivery of possession flows. Even if the sale deed or agreement to sell is executed or registered subsequently but the assessee always had a right in the property since the date of issuance of allotment letter. Therefore, it can be said that assessee held the property immediately from the date of allotment letter. 14. In the case of CIT vs K Ramakrishnan (supra), Hon'ble Delhi High Court analysed the provisions of the Act and held that date of allotment is relevant for the purpose of computing holding period and not the date of registration of conveyance deed. Similarly in the case of CIT us S.R. Jeyashankar(supra), Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under section 53A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. 26. The above decision of Mumbai ITAT in the case of Anita D Kanjani (supra) has been followed in the case of ACIT vs. Kiran G Gadhia ITA No. 4021/Mum/2015where too it is held that the decision of SC in Suraj Lamps (supra) is inapplicable when it comes to determining the period of holding for computing the capital gain under the Income Tax Act. In the said decision this ITAT had held as under: 9... We find that an identical issue has been considered by the Coordinate Bench of this Tribunal in the case of Anita D Kanjani Vs. ACIT in ITA No.2291/Mum/2015 dated 13.02.2017, wherein the Coordinate Bench after analyzing va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 interalia declaring income under the project completion method for its project named Amarante at Kalaomboli, Navi Mumbai which had commenced on 09.03.2010. During the course of assessment, the AO rejected the project completion method followed by the Assessee and substituted the said method with percentage completion method thereby, making an addition of Rs.2,08,36,527/-. 30. Before the CIT(A), the Assessee challenged the said rejection of project completion method and consequential addition to income The CIT(A) allowed the appeal of the Assessee upholding the validity of the Project Completion Method. 31. Before us, the Revenue has challenged the relief given by the CIT(A). The ld DR relied upon the order of the AO to submit that project completion method is not a valid method for computation of income as it defers the income for the year. On the other hand, the Id. AR supported the order of the CIT(A) and placed reliance on the authorities mentioned on page nos. 37 and 39 of the CIT(A)'s order to submit that the project completion method was an acceptable method. She also submitted that the Assessee and its sister concerns have been following project completi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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