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TMI Blog2023 (4) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... e said land and it has been let out to M/s. Edutech NTTF Pvt. Ltd and the rental income of said building has been offered for taxation from year to year. On this basis assessee is claiming cost of building as a deduction out of the sale consideration received from M/s. Titan Company Ltd. The assessee ought to have claimed this deduction only if the sale consideration received by the assessee includes the sale value of the said building in the total sale consideration received by the assessee. In the absence of such and there was no transfer of building to M/s. Titan Company Ltd., said deduction could not be allowed. As in the present case on hand, there was no iota of evidence shown by the assessee with regard to the transfer of the building in the sale deed entered by the assessee with M/s. Titan Company Ltd. and also the balance sheet of the assessee as on 31.3.2013 have no reference of building and it shows only the land-electronic city. There was no mentioning of any value of the building in the schedule of the fixed assets and now assessee again says that sale of land also includes the sale of building so as to claim deduction towards cost of building from the sale value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. 2. Ground Nos.1 8 are general in nature, which do not require any adjudication. 3. Ground Nos.2 3 are with regard to allowability of sales expenses at Rs.9,86,52,619/-. 3.1 Facts of the case are that in the assessment year under consideration, assessee has sold the property measuring 254.43 guntas in survey Nos.4, 5, 6, 8/1, 8/2, 9/2, 9/3, 9/4, 10/1, 10/2, 14/1 14/2 at Veerasandra Village, Attibele Hobi, Anekal Taluk, Bangalore District, Bengaluru for a consideration of Rs.51,43,40,778/-. The assessee has claimed following expenses:- a) Sales expenses - Rs.9,86,52,619/- b) Indexed cost of improvement - Rs.26,52,22,757/- c) Details of sales expenses SI. No Particulars of expenses Amount (Rs.) 1 Cancellation of MOU (Memorandum of understanding) dated 25.01.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.10.2017: The assessee firm entered into another sale/purchase agreement with M/s Orlanda Realty Pvt. Ltd on 17.10.2007 and received a refundable deposit of Rs.l,50,00,000/- as per the terms of the agreement. This agreement was also cancelled on 06.09.2013 mutually by the assessee and the purchaser. The assessee firm refunded the amount of Rs.1,50,00,000/- along with the compensation of Rs.1,25,00,000/- to M/s Orlanda Realty Pvt.Ltd as per the cancellation deed dated 06.09.2013. The AO found that the terms of agreement of the JDA and the two sale agreements do not provide for payment of compensation to the builder. Instead, there was the provision of payment of interest @ 15% on the outstanding amount if the agreements are cancelled. The AO found that section 48 provided for allowance of (i) Expenditure incurred wholly and exclusively in connection with the transfer of the property and (ii) The cost of acquisition of the property and the cost of any improvement thereto. Therefore, he disallowed the amount of Rs.7,00,00,000/- (Rs.3,25,00,000/- + Rs.2,50,00,000/- + Rs.1,25,00,000/-) 3.3 Against this assessee went in appeal before ld. CIT(A). The ld. CIT(A) delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;4.5 should there be any problem in progressing the project because of the Authorities and or non receipt of any approval and or consent for the project or any part thereof as envisaged in the Development Agreement then, at the option of the Developers the entire Rs.6,00,00,000/- (Rupees Six Crores Only) or any amount till then paid under the said clauses 3.1(a) (i) and (it) will be refunded by the Owners to the Developers within 45 days of the Developers notifying the problem to the owners in writing, falling which the owners shall pay interest at the rate of 15% per annum on any of the outstanding amounts. In such event on refund to the developers of the total amount paid under clauses 3.1 (a) (i) and (ii) received till such time by the owners the developers shall quit the said property with the construction made thereon without any claim for cost, and in that event this agreement shall automatically stand cancelled with no liability on either side. And this cancellation shall be duly registered before the Sub-Registrar concerned.' Here the JDA speaks about refundable amount received by the owner and payment of the same back to the Builder. Also this agreement shall a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Purchaser as per cancellation deed dated 06.09.2013. In the said cancellation deed it is stated that the owners have agreed to pay the Developers Rs. 1,25,00,000/- by way of monetary compensation for termination of the said purchase Agreement dated 17.10.2007. 3.4 The ld. CIT(A) observed from the order of the AO that he has verified the genuineness of the claim of payment of compensation and there is no doubt that the assessee has indeed made payments to the builder/purchaser. 3.4 According to the ld. CIT(A), the terms of settlement/cancellation deed shows that amount of compensation has been paid by the assessee to the builder/purchaser and it is also a fact that without the cancellation of the deed the assessee would not have been able to sell the property to a third party. The AO has not brought any material on record to show that the payment was made for something else and not for cancellation of the deeds. The ld. A.R. argued before the ld. CIT(A) that the assessee paid compensation to the builder and terminated the JDA/purchase deeds to obtain clear title on the property to sell the same to M/s. Titan Company Ltd. for better price. The ld. CIT(A) observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06.09.2013 2403 50,00,000.00 12,01,50,00,000.00 15.00% 49,37,671.23 07.02.07 01.03.07 06.09.2013 2381 50,00,000.00 11,90,50,00,000.00 15.00% 48,92,465.75 01.03.07 31.08.07 06.09.2013 2198 1,00,00,000.00 21,98,00,00,000.00 15.00% 90,32,876.71 31.08.07 11.01.08 06.09.2013 2065 2,00,00,000.00 41,30,00,00,000.00 15.00% 1,69,72,602.74 11.01.08 08.07.08 06.09,2013 1886 65,00,000.00 12,25,90,00,000.00 15.00% 50,37,945.21 08.07.08 20.03.09 06.09.2013 1631 25,00,000.00 4,07,75,000.00 15.00% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 25/01/2007 (related to JDA dated 17/10/2007) 4.2 The ld. D.R. submitted that the AO found that the terms of agreement of the JDA and the two sale agreements do not provide for payment of compensation to the builder. The AO found that Sec.48 provides for allowance only for the following; i) Expenditure incurred wholly and exclusively in connection with transfer of property and ii) The cost of acquisition of the property and the cost of any improvements thereto And stated that the amount of Rs. 7 Crores claimed by the assessee was not incurred wholly and exclusively in connection with the transfer of property and he disallowed the amount. 4.3 Before heading further the ld. D.R. submitted that it is necessary to make one thing clear that the allegations of the assessee that the Assessing Officer has stated that this payment was related to different business dealings (refer page no.11 para 2.6 of the CIT(A) order) is not true. In the entire assessment order, nowhere the Assessing Officer has observed as such. This false allegation of the assessee was relied by the learned CIT(A) while giving relief to the assessee (refer page no.20 para 5.2.9 of the CIT(A) order). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopers shall quit the said property with the construction made thereon, without any claim for cost and in that event this agreement shall automatically stand cancelled with no liability on either side. And this cancellation shall be duly registered before the Sub-Registrar concerned . 4.7 The ld. D.R. further submitted that though the JDA provide for payment of interest the assessee has not brought anything to prove that the interest was paid only under the circumstances mentioned above. The assessee did not prove that there was any problem in progressing the project because of concerned Authorities are on account of non-receipt of any approval and or consent for the project or any part thereof despite sincere effort by the Developer. In such circumstances, it can be ascertained that the payment of interest is related to the money enjoyed by the assessee which was received under the guise of JDA and sale agreement. This assertion is reinforced by the facts narrated by the ld. CIT(A) in para 5.2.9 of his order, where he stated that the assessee created an encumbrance of the property with M/s. Orlanda Realty. The same is reproduced for the sake of convenience, The A/R brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tgage is not an allowable expenditure u/s.48(l)(i) of the Act. In this regard ld. D.R. placed reliance on the following case laws: 1. Hon'ble High Court of Bombay decision in the case of CIT Vs. Roshanbabu Mohammed Hussein Merchan - (2005) 144 Taxmann.com 720 (Bombay), , 2. Decisions of High Court of Madras in the case of i) Tmt D. Zeenath Vs. ITO, W-l(l), Nagapattinam - (2019) 105 taxmann.com 298 (Madras), ii) Sri Kanniah Photo Studio Vs. ITO, Ward-1 (1) 31, Kumbakonam (2015) 62 taxmann.com 357 (Madras) 4.9 Hence, The ld. D.R. argued that the payment of Rs.7 Crores needs to be disallowed. This argument is further reiterated by the working given in page no.21 para 5.2.11 and observation made by the ld. CIT(A) in page no.22 para 5.2.12. In para 5.2.11 the interest worked out comes to Rs.7.25 Crores and the assessee paid a rounded figure of Rs.7 Crs. But the vital point to be noted is that the interest is not paid for the conditions/situations as envisaged in clause 4.5 of the JDA. This interest at the most can be stated to be paid against the mortgage. The interest paid for mortgage is not eligible expenditure u/s.48(l)(i) of the Act. 5. On the other hand, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue. (iv) In the case of CIT vs. Panipat Woollen . General Mills Co. Ltd., [1976] 103 ITR 66 the Hon'ble Supreme Court held as follows: Before coming to the facts it may be necessary to mention that there can be no dispute with respect to the two important propositions: That in order to full within section 10(2)( xv} of the Act the deduction claimed must amount to an expenditure which was laid out or expended wholly and exclusively for the purpose of the business, profession or vocation. This will naturally depend upon the facts of each case. That in order to determine the question of reasonableness of the expenditure, the test of commercial expediency would have to be adjudged from the point of view of the businessman and not of the income-tax department. (v) In the case of CIT vs. Dalmia Cement P. Ltd., (2002) 254 ITR 377 the Hon'ble Delhi High Court held as follows: The jurisdiction of the revenue is confined to deciding reality of the expenditure, namely, whether the amount claimed as deduction was factually expended o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout removing any encumbrance including the encumbrance of the type involved in this case, sale or transfer could not be effected, the amount paid for removing that encumbrance will fall under clause (i). Accordingly, we agree with the Tribunal that the sale consideration requires to be reduced by the amount of compensation. (vii) In the case of Honda Motor Co Limited A.A.R. No 1200 of 2011, dated 07.02.2018, the authority observed as follows: We have considered the nature of expenses incurred. A perusal of the cases cited and the vision contained in section 48 shows that the words wholly and exclusively do not connote necessarily . If the expenses have been incurred in connection with the transfer, they are to be allowed. The words in connection with are of wide import and if such expenses have an intimate connection with the transfer, they have to be allowed u/s 48. 5.2 On perusal of aforesaid judgement, the ld. CIT(A) observed that these judgements are directly applicable to the facts of the assessee s case. From the order of the AO, he observed that he has verified the genuineness of the claim of payment of compensation and there is no doubt that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- from the total sale consideration of Rs.51,43,40,778/- 5.4 The ld. A.R. relied on following decisions:- i. Sassoon J. David Co. Pvt Ltd. v. CIT (1979) 118 ITR 261 (SC) ii. S.A. Builders Ltd. v. CIT (2007) 288 ITR i (SC) iii. CIT v. Walchand and Co (P.) Ltd. (1967) 65 ITR 381 (SC) iv. CIT v. Panipat Woollen General Mills Co, Ltd. (1976) 103 ITR 66 (SC) v. CIT v. Dalmia Cement (P.) Ltd. (2002) 254 ITR 377 (Del.) vi. CIT v. Shakuntala Kantilal (1991) 190 ITR 56 (Bom.) vii. Trimm Exports (P.) Ltd. v. DCIT (2021) 130 taxmann.com 169 (Kar.) viii. Kaushalya Devi v. CIT (2018) 404 ITR 136 (Del.) ix. Miss Dhun Dadabhoy Kapadia v. CIT (1967) 63 ITR 651 (SC) x. CIT v. Bradford Trading Co. (P.) Ltd. (2003) 261 ITR 222 (Mad.) 5.5 The ld. A.R. submitted that if the compensation was not paid, then the assessee could not have sold the property to M/s. Titan Company Ltd. The compensation paid paved an easy path for the assessee to enable the transfer of the property to its desired purchaser. It was an obligation cast on the assessee to ensure that the property transferred is free of encumbrance and transfer a good title to the purchaser. Therefore, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of any improvement thereto; 6.1 The section contemplates 3 amounts for the purpose of computing the income chargeable under the head Capital gains . The first is full value of consideration for which the capital asset has been transferred. The second is the expenditure incurred wholly and exclusively in connection with such transfer and third and last is the cost of acquisition of capital asset including the cost of any improvement there to. As seen from the facts of the case, the assessee already entered with M/s. Orlanda Reality Pvt. Ltd. with following agreements before the sale of property to M/s. Titan Company Ltd: 1. MOU for development property dated 25.1.2007 2. Copy of purchase agreement dated 25.1.2007 for purchase of 1% developed property. 3. The Joint Development Agreement dated 17.10.2007 for development of property. 6.2 Thereafter, the assessee has also entered into cancellation agreement as follows:- 1. Cancellation of MOU dated 6.9.2013 in respect of Memorandum of Understanding dated 25.1.2007 2. Deed of cancellation of purchase agreement dated 6.9.2013 in respect of purchase agreement dated 25.1.2007. 3. Cancellation of Joint develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the transfer of impugned property to M/s. Titan Company Ltd. At the same time, AO also outrightly rejected the claim of assessee without examining the facts whether it is relating to the transfer of property to M/s. Titan Company Ltd. We noticed that cancellation of Memorandum of Understanding dated 6.9.2013 in respect of Memorandum of Understanding dated 25.1.2007 and cancellation of JDA dated 17.10.2017 vide Cancellation deed dated 6.10.2013 which includes certain properties which are not subject matter of sale deed dated 23.1.2014 with M/s. Titan Company Ltd. Being so, the compensation paid in respect of properties on cancellation of MOU/JDA other than the property sold to M/s. Titan Company Ltd. cannot be granted as a deduction while computing the capital gain arising out of the transfer of the property to M/s. Titan Company Ltd. Hence, the AO should examine these cancellation agreement and compare with sale deed entered with M/s. Titan Company Ltd. and grant the proportionate deduction out of compensation paid in relation to transfer and allow only it is related to the properties sold to M/s. Titan Company Ltd. and not the entire amount of Rs.7 crores, which cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the consideration to be paid/received for the land only as-per Schedule of Property at page nos. from 27 to 34 of sale agreement dated 26.08.2013. Therefore, the assessee cannot claim Improvement Cost i.e. for construction of building on the sale consideration received in respect of land only. iii) The assessee firm entered into Joint Development agreement with the developer M/s. Orlanda Realty Pvt. Ltd on 17.10.2007 to develop the property mentioned above as per Schedule of property at page no.s 35 to 40 of the said JDA, to be developed is also land only. On verification it is found that there is no mention of building in this Joint Development Agreement also. The assessee firm entered into serious of agreements mentioned above for the land portion only and there is no mention of building in all of these agreements. 7(d). The Hon'ble High Court of Madras in the case of CIT v/s Union Co Motors Pvt Ltd (283 ITR 445 (Madras) 2006) has held 'it is therefore, a settled law that even though the transaction involved land and building, once the land of the assets of the undertaking, the transfer is of the entire undertaking as a whole and it is not possible to bifurcat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68,26,761/- towards indexed Cost of Improvement cannot be acceptable and accordingly disallowed and added to the income. 7.2 On the other hand, the assessee submitted that there was a hostel on the land in question from which it received house property income which was duly disclosed to the income-tax Department and taxes were paid on the same. The ld. AR argued that the existence of the building has not been disputed by the AO. In fact, the AO has also found that the building existed at the time of transfer of the property. 7.3 The ld A.R. submitted that the building was in existence is not disputed by the AO. The only grievance of the AO is that the assessee has not transferred the building to the purchaser in the sale deed. Further, the AO has noted that the purchaser has demolished the building and used the land for construction of new residential property, which would amply reiterate that the building was very much transferred along with the land. The assessee submitted that the mere non mentioning of the building in the sale deed cannot lead a conclusion that there was no transfer of the building, which is attached to the land. If possession of land and building was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yd/2007, dt. 25th Jan., 2008. Even otherwise also, as per the TP Act, immovable property would include land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth. Thus, the building being attached to the earth will pass on to the transferee along with the land. It is immaterial that the said building was demolished by the assessee. It was merely taking upon oneself a responsibility. Further, it also makes no difference if the sale proceeds of the scrap are taken by the owner, i.e., the transferor. This fact does not necessarily lead us to the inference that the building is not transferred along with the land. Thus, unless there is a specific agreement to the contrary, when land is transferred, things attached to it or fastened to anything attached to the earth will also get automatically transferred. At the most, if the owner receives the sale proceeds of the scrap, then while computing capital gains on transfer of land, the proceeds so received may be added to the overall consideration received by the assessee. 7.6 On perusal of above submissions of the ld. A.R., the ld. CIT(A) while adjudicating the appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the land below that structure is certainly of value and use to the promoter. This is because, if he has to build a new complex, he will have to make use of that land. Therefore, in order to use the land which is beneath the structure, he Has to acquire the structure also and then he may demolish it. Therefore, there is no gainsaying that the superstructure is not transferred to the promoter. Considering the issue from the view of the transferor, since he is parting with an asset, for which he has incurred cost, t has to be allowed as deduction while computing capital gains. In the light of the g discussion, we hold that the superstructure is also transferred by the assessee to the promoter and the cost of construction thereof may be allowed to the assessee. 7.7 The ld. CIT(A) observed that the case of the assessee is similar to the one mentioned above and the same is squarely applicable to the facts of the case of the assessee. In the case of the assessee the agreement does not mention that the superstructure is not transferred to the purchaser and is retained by it. As per section 2(47) of the Act 'transfer includes: (i) The sale, exchange or relinquishment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cost of Land/ Acquisition Cost 1995-96 Rs. 290800 Improvement cost FY Cost of Land Other Costs Cost of Improvement (A) Rs. (B) Rs. (A) + (B) Rs. 1999-00 1267750 1267750 2000-01 557027 837711 1394738 2001-02 922220 305095 1227315 2002-03 874540 *I 31903486 32778026 2004-05 3868440 *I 409684 4278124 2005-06 * I 20051270 20051270 2006-07 * I 78000890 78000890 Total 138998113 8.1 Joint Development Agreement dated 17.10.2007, agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and it is not possible to bifurcate same, as suggested by the Assessing Officer in the instant case. All the more, in the instant case, the fact remains that the purchaser had applied for the demolition of the building and also demolished the building, which was taken into consideration, by the commission and the tribunal, while arriving at a conclusion that section 50 of the Act, is not attracted, as Under the facts and circumstances of the case, it is that the sale consideration made by the purchase is only for the land, since the building had no value and therefore got demolished. Finding no error in the order of the authorities below, the appeal stands discussed.' 8.4 He further submitted that in the assessee case also, the assessee has not considered any value for the building at the time of entering into JDA with M/s Orlanda Realty Pvt. Ltd. to develop the said land. Similarly, the assessee firm itself has not considered and thought of value for the existing building at the time of agreement for sale and execution of sale deed with M/s Titan Company Ltd,. This is because no value is attached to the building at the time of JDA and also at the time of sale. Hence, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready existing in the said land and it has been let out to M/s. Edutech NTTF Pvt. Ltd and the rental income of said building has been offered for taxation from year to year. On this basis assessee is claiming cost of building as a deduction out of the sale consideration received from M/s. Titan Company Ltd. The assessee ought to have claimed this deduction only if the sale consideration received by the assessee includes the sale value of the said building in the total sale consideration received by the assessee. In the absence of such and there was no transfer of building to M/s. Titan Company Ltd., said deduction could not be allowed. U/s 17 of the Registration Act, 1908, all transactions that involve the sale of an immovable property for a value exceeding Rs.100 should be registered. Admittedly, in the case there was no instrument of any registration of the said building. Thus, there was no transfer of the building vide sale deed dated 23.1.2014 in favour of M/s Titan Company Ltd. According to ld. A.R., the building is situated on the land is also deemed as transferred to M/s. Titan Company Ltd. and he placed reliance on the judgement pf Padmanabha Prakash 22 SOT 58. In that judg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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