Shavo Norgren (P.) Ltd. v. Dy. CIT

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2013 TaxPub(DT) 0647 (Mum-Trib) : (2013) 051 (II) ITCL 0071 : (2013) 152 TTJ 0482 : (2013) 058 SOT 0023 : (2013) 081 DTR 0434 INCOME TAX ACT, 1961 --Capital gainsComputation Applicability of section 50C--Assessee had taken a plot of land on lease from Maharashtra Industrial Development Corporation (MIDC) in the year 1967 for a lease of 95 years. Assessee had also paid premium to MIDC as per their less prevalent at that time. In the relevant previous year assessee entered into a mou for transfer of part of some land and applied MIDC for their consent. MIDC gave their consent for two different plots sub dividend from the original on and accordingly the transfer of lease was effect according to agreement. At the time of entering into MoU an advance was obtained and subsequently the two plots together with building was transfer for a certain sums. Assessee worked out capital gains of Rs. 1,60,38,687 after deducting the value of building at Rs. 14,30,220 and the market vale as an 1-4-1981 increased by indexation cost to Rs. 26,88,699. Assessing officer applied section 50C and considered the market value of the plot of land at Rs. 2,39,91,000 and considered this as long-term capital gain for the purpose of computation of income. While taking this view the assessing officer did not allow any cost as deduction and also did not exclude the value of building standing on the plots of land which was valued at Rs. 14,30,220 and adjusted in the block of assets while computing depreciation under the income-tax. Assessee's contention was that since this plot of land was a leasehold right only, it was neither a land nor a building and therefore section 50C would not be applicable to such transaction. *Held:* Matter is remanded back to the assessing officer to obtain complete information and examine whether the assessee had only leasehold rights or complete rights over the property and whether assessee has transferred the plot or only leasehold rights therein order to determine the applicability of section 50C. As regards to cost of acquisition, the statutory obligation of deducting cost of acquisition cannot be brushed aside. Even though the deed is held as lease agreement, the perusal of the terms indicates that substantial rights were transferred to assessee including the rights to construct building. In fact, vide para 2q of the agreement assessee was assigned limited powers of assignment of the demised premises or any part thereof or any interest thereof with the previous written consent of the Chief Executive Officer of MIDC. The registered deed dated 17-3-2008 indeed mentions that vide order dated 25-1-2008 the MIDC, i.e., lessee (sicÃ¢â‚¬â€lessor) has inter alia further divided the larger property into three separate plots namely 14/1 admeasuring 4,115.34 sq. mtrs. plot No. 14/1A admeasuring 1,515.45 sq. mtrs. and plot No. 14B admeasuring 1,122.21 sq. mtrs. and further the lessor inter alia has granted permission to assign and transfer the land at plot No. 14/IB in favour of the transferee. Likewise plot No. 14/1A sub-plot was assigned to the said company. There are two deeds for transfer of respective properties. Assessee has substantial right in the property as can be seen from the MoU entered with M/s UT (P) Ltd. vide agreement dated 9-4-2007. [Para 16] In the recitals, it is also clearly mentioned that vide order dated 22-1-1982 under section 20 of the Urban Land (Ceiling & Regulation Act), 1976 (ULC) the competent authority has granted exemption to the assignor to hold the excess vacant land admeasuring 10,536.53 sq. mtrs. on the terms and conditions therein. Further MIDC is not even a confirming party in the transaction of assignment. This indicates that assessee has substantial and absolute powers as far as the property in question is concerned and the fact that the property has got exemption from ULC and was sub-divided as per the request of assessee do indicate that the MIDC has only limited powers whereas assessee has absolute powers over the property. Moreover as seen from the recitals from the MoU, assessee also has developmental rights which it had intended to utilize. This also indicates that the development rights which are attached to the property are with assessee. [Para 17] Not only the above, as seen from deeds of assignment, assessee transferred the rights in the plots as well as rights in the building; since there is building involved in this assignment, we are of the opinion that the transfer of property in question do attract provisions of section 50C and therefore, assessee's contention on this cannot be accepted. As seen from the marking given in the 'scheduled property' in the deed of transfer substantial portion was covered by the building thereon and as seen from the MoU, assessee seems to be developing the property by utilizing the development rights. In view of this, since both land and building were assigned by these deeds, we are of the opinion that provisions of section 50C are attracted in this case. As seen from the report of the valuation placed on record from page Nos. 95 to 99 the valuation report also indicates that the valuation was undertaken as plot of land and not as 'leasehold rights'. This also supports our opinion that assessee has more than leasehold rights on the plot of land. [Para 18] However, this Tribunal cannot completely come to a conclusion whether assessee had complete rights over the land and to what extent the valuation has to be determined under section 50C, in the absence of complete details like the application made to ULC, the copy of the ULC order and further the agreements entered by M/s UT subsequent to construction of building with third parties if any, for sale or assignment of rights therein. Nothing was brought on record either by assessee or by the Revenue to examine whether the said M/s UT has only constructed the building for development or has transferred further rights to some other parties. As pointed out by the Departmental Representative even after entering into MoU, assessee has further developed the building and, therefore, to what extent the rights in the buildings were transferred and whether the cost attributed by assessee is correct or not cannot be examined. Therefore, without coming to a conclusion on the above issue, assessing officer is directed to obtain the complete information and examine whether assessee has only leasehold rights or complete rights over the property so that provisions of section 50C are attracted. After examining the relevant documents and establishing the rights over the plot, assessing officer is free to determine whether assessee has transferred the plot of land or only leasehold rights. Since assessee had also transferred the building, provisions of section 50C may attract to that extent. Since this requires examination of facts and also to make further inquiries to establish assessee's rights over the properties, This Tribunal in the interest of justice, restore the matter to the file of assessing officer for fresh examination of the issues with reference to application of provisions of section 50C. [Para 19] Coming to the other issue of reduction of value of the building and adjusting it in the block of assets, Assessing officer was not correct in excluding the value altogether. He has not examined the issue in its entirety. Since the building was also transferred, it is necessary for assessing officer to examine how much property was transferred and whether the same has to be adjusted under the provisions of section 50 or under section 43(6) in the block of assets. As pointed out by Departmental Representative there seems to be construction after the agreement, the details of which are not on record. Since this aspect of valuation of building was not examined by assessing officer, this Tribunal in the interest of justice restore the matter to the file of assessing officer to examine this and do accordingly. [Para 20] As seen from the record, assessing officer has not taken into consideration the objections of assessee, while invoking the provisions of section 50C. Under section 50C(2), assessing officer has to give an opportunity to assessee to make submissions. This exercise has not been done by assessing officer. Assessing officer has to follow the provisions of section 50C(2) when the provisions of section 50C are made applicable. In order to fulfill this legal requirement also, Tribunal set aside the order of assessing officer and the Commissioner (Appeals) on this issue. [Para 21] The contention of cost of acquisition is also restored to the file of assessing officer. Just because assessee has not claimed at the time of filing the return, statutory obligation of deducting the cost of acquisition cannot be brushed aside. There is information on record that assessee did pay premium at the time of acquiring property by way of lease and assessee has filed a valuation report before the assessing officer claiming the value as on 1-4-1981 and subsequent indexation as per the provisions of law. [Para 22] With these directions, the matters are restored to the file of assessing officer for fresh adjudication on computation of long-term capital gain. Assessee should be given due opportunity in the proceedings to furnish the documents and make submissions. [Para 22] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0647 (Mum-Trib) : (2013) 051 (II) ITCL 0071 : (2013) 152 TTJ 0482 : (2013) 058 SOT 0023 : (2013) 081 DTR 0434

INCOME TAX ACT, 1961

--Capital gainsComputation Applicability of section 50C--Assessee had taken a plot of land on lease from Maharashtra Industrial Development Corporation (MIDC) in the year 1967 for a lease of 95 years. Assessee had also paid premium to MIDC as per their less prevalent at that time. In the relevant previous year assessee entered into a mou for transfer of part of some land and applied MIDC for their consent. MIDC gave their consent for two different plots sub dividend from the original on and accordingly the transfer of lease was effect according to agreement. At the time of entering into MoU an advance was obtained and subsequently the two plots together with building was transfer for a certain sums. Assessee worked out capital gains of Rs. 1,60,38,687 after deducting the value of building at Rs. 14,30,220 and the market vale as an 1-4-1981 increased by indexation cost to Rs. 26,88,699. Assessing officer applied section 50C and considered the market value of the plot of land at Rs. 2,39,91,000 and considered this as long-term capital gain for the purpose of computation of income. While taking this view the assessing officer did not allow any cost as deduction and also did not exclude the value of building standing on the plots of land which was valued at Rs. 14,30,220 and adjusted in the block of assets while computing depreciation under the income-tax. Assessee's contention was that since this plot of land was a leasehold right only, it was neither a land nor a building and therefore section 50C would not be applicable to such transaction. Held: Matter is remanded back to the assessing officer to obtain complete information and examine whether the assessee had only leasehold rights or complete rights over the property and whether assessee has transferred the plot or only leasehold rights therein order to determine the applicability of section 50C. As regards to cost of acquisition, the statutory obligation of deducting cost of acquisition cannot be brushed aside.

Even though the deed is held as lease agreement, the perusal of the terms indicates that substantial rights were transferred to assessee including the rights to construct building. In fact, vide para 2q of the agreement assessee was assigned limited powers of assignment of the demised premises or any part thereof or any interest thereof with the previous written consent of the Chief Executive Officer of MIDC. The registered deed dated 17-3-2008 indeed mentions that vide order dated 25-1-2008 the MIDC, i.e., lessee (sicÃ¢â‚¬â€lessor) has inter alia further divided the larger property into three separate plots namely 14/1 admeasuring 4,115.34 sq. mtrs. plot No. 14/1A admeasuring 1,515.45 sq. mtrs. and plot No. 14B admeasuring 1,122.21 sq. mtrs. and further the lessor inter alia has granted permission to assign and transfer the land at plot No. 14/IB in favour of the transferee. Likewise plot No. 14/1A sub-plot was assigned to the said company. There are two deeds for transfer of respective properties. Assessee has substantial right in the property as can be seen from the MoU entered with M/s UT (P) Ltd. vide agreement dated 9-4-2007. [Para 16] In the recitals, it is also clearly mentioned that vide order dated 22-1-1982 under section 20 of the Urban Land (Ceiling & Regulation Act), 1976 (ULC) the competent authority has granted exemption to the assignor to hold the excess vacant land admeasuring 10,536.53 sq. mtrs. on the terms and conditions therein. Further MIDC is not even a confirming party in the transaction of assignment. This indicates that assessee has substantial and absolute powers as far as the property in question is concerned and the fact that the property has got exemption from ULC and was sub-divided as per the request of assessee do indicate that the MIDC has only limited powers whereas assessee has absolute powers over the property. Moreover as seen from the recitals from the MoU, assessee also has developmental rights which it had intended to utilize. This also indicates that the development rights which are attached to the property are with assessee. [Para 17] Not only the above, as seen from deeds of assignment, assessee transferred the rights in the plots as well as rights in the building; since there is building involved in this assignment, we are of the opinion that the transfer of property in question do attract provisions of section 50C and therefore, assessee's contention on this cannot be accepted. As seen from the marking given in the 'scheduled property' in the deed of transfer substantial portion was covered by the building thereon and as seen from the MoU, assessee seems to be developing the property by utilizing the development rights. In view of this, since both land and building were assigned by these deeds, we are of the opinion that provisions of section 50C are attracted in this case. As seen from the report of the valuation placed on record from page Nos. 95 to 99 the valuation report also indicates that the valuation was undertaken as plot of land and not as 'leasehold rights'. This also supports our opinion that assessee has more than leasehold rights on the plot of land. [Para 18] However, this Tribunal cannot completely come to a conclusion whether assessee had complete rights over the land and to what extent the valuation has to be determined under section 50C, in the absence of complete details like the application made to ULC, the copy of the ULC order and further the agreements entered by M/s UT subsequent to construction of building with third parties if any, for sale or assignment of rights therein. Nothing was brought on record either by assessee or by the Revenue to examine whether the said M/s UT has only constructed the building for development or has transferred further rights to some other parties. As pointed out by the Departmental Representative even after entering into MoU, assessee has further developed the building and, therefore, to what extent the rights in the buildings were transferred and whether the cost attributed by assessee is correct or not cannot be examined. Therefore, without coming to a conclusion on the above issue, assessing officer is directed to obtain the complete information and examine whether assessee has only leasehold rights or complete rights over the property so that provisions of section 50C are attracted. After examining the relevant documents and establishing the rights over the plot, assessing officer is free to determine whether assessee has transferred the plot of land or only leasehold rights. Since assessee had also transferred the building, provisions of section 50C may attract to that extent. Since this requires examination of facts and also to make further inquiries to establish assessee's rights over the properties, This Tribunal in the interest of justice, restore the matter to the file of assessing officer for fresh examination of the issues with reference to application of provisions of section 50C. [Para 19] Coming to the other issue of reduction of value of the building and adjusting it in the block of assets, Assessing officer was not correct in excluding the value altogether. He has not examined the issue in its entirety. Since the building was also transferred, it is necessary for assessing officer to examine how much property was transferred and whether the same has to be adjusted under the provisions of section 50 or under section 43(6) in the block of assets. As pointed out by Departmental Representative there seems to be construction after the agreement, the details of which are not on record. Since this aspect of valuation of building was not examined by assessing officer, this Tribunal in the interest of justice restore the matter to the file of assessing officer to examine this and do accordingly. [Para 20] As seen from the record, assessing officer has not taken into consideration the objections of assessee, while invoking the provisions of section 50C. Under section 50C(2), assessing officer has to give an opportunity to assessee to make submissions. This exercise has not been done by assessing officer. Assessing officer has to follow the provisions of section 50C(2) when the provisions of section 50C are made applicable. In order to fulfill this legal requirement also, Tribunal set aside the order of assessing officer and the Commissioner (Appeals) on this issue. [Para 21] The contention of cost of acquisition is also restored to the file of assessing officer. Just because assessee has not claimed at the time of filing the return, statutory obligation of deducting the cost of acquisition cannot be brushed aside. There is information on record that assessee did pay premium at the time of acquiring property by way of lease and assessee has filed a valuation report before the assessing officer claiming the value as on 1-4-1981 and subsequent indexation as per the provisions of law. [Para 22] With these directions, the matters are restored to the file of assessing officer for fresh adjudication on computation of long-term capital gain. Assessee should be given due opportunity in the proceedings to furnish the documents and make submissions. [Para 22]