DEPUTY COMMISSIONER OF INCOME TAX vs.W. RAMANA RAO HYDERABAD TRIBUNAL

 
DEPUTY COMMISSIONER OF INCOME TAX vs.W. RAMANA RAO
HYDERABAD TRIBUNAL
P. MADHAVI DEVI, JM & B. RAMAKOTAIAH, AM
I.T.A. No. 127/HYD/2015
Mar 4, 2016
(2016) 46 cch 0234 HydTrib
Legislation Referred to
Section
Case pertains to
Asst. Year 2009-10
Decision in favour of:
Assessee
Income—Taxability—Relevant assessment year—Adoption of sale consideration as cost of plots—Assessee was partner in ’X’ and Director in ’Y’ company—Assessee had 5% share in ’X’ and 9% shareholding in Y company— Consequent to settlement between parties by agreement, there was settlement among directors by which there was an understanding to pay certain amounts of cash also allot 10,400 Sq. Yds., of land for surrendering interest in company—AO while making computation of capital gain brought to tax entire amount as per his valuation of consideration received/receivable by assessee—Asessee submitted that entire amount was not taxable and even if it was taxable, it would be taxable in AY 2008-09 as agreement was dtd. 11-02-2008—CIT(A) held that in subsequent years plots were sold and income was offered under head business income—Since cost of plots was not debited to profit and loss account in both years i.e. AY 2011-12 and 2012-13 sale consideration adopted for purpose of computing capital gains should be cost of plots and was to be debited to profit and loss account in subsequent years for AY 2011-12 and AY 2012-13—Held, ITAT did not see any reason to interfere with order of CIT(A)—There was no merit in Revenue’s grounds as said settlement was entered on 11-02-2008 which fell in AY. 2008-09 and not in 2009-10—Just because survey was conducted and statement was recorded, amount could not be brought to tax in AY 2009-10—ITAT found no merit in Revenue’s grounds on issue—With reference to valuation also, ITAT was of opinion that CIT(A) had correctly directed value to be adopted which itself became ‘cost for plots’ which were sold subsequently—Orders of CIT(A) was thus confirmed—Revenue’s Appeal dismissed
Held
After considering the rival contentions and perusing the evidence on record, ITAT did not see any reason to interfere with the order of the Ld. CIT(A). There was no merit in Revenue’s grounds as the said settlement was entered on 11-02-2008 which falls in AY. 2008-09 and not in 2009-10. Just because a survey was conducted and statement was recorded, the amount cannot be brought to tax in AY. 2009-10. In view of that, ITAT found no merit in the Revenue’s grounds on the issue. With reference to the valuation also, ITAT were of the opinion that Ld. CIT(A) had correctly directed the value to be adopted which itself becomes ‘cost for the plots’ which were sold subsequently. Consequently, ITAT affirmed the orders of Ld. CIT(A) and dismissed the grounds.
(para 6)
Conclusion
Where impugned settlement was entered on 11-02-2008 which fell in AY 2008-09 and not in 2009-10, just because survey was conducted and statement was recorded, amount could not be brought to tax in AY 2009-10.
In favour of
Assessee
Counsel appeared:
M. Sitaram, DR for the Revenue. : B. Satyanarayana, AR for the Assessee.
B. RAMAKOTAIAH, AM:-
1. This is Revenue appeal against the order of the Commissioner of Income Tax (Appeals)-II, Hyderabad dated 03-11-2014. The issue in this appeal as contested by the Revenue is with reference to taxability of the amount and consideration to be adopted.

2. Briefly stated, assessee is a partner in M/s. Sree Projects and Director in M/s. Swadesh Villas Pvt. Ltd. Assessee has 5% share in M/s. Sree Projects and 9% shareholding in the company. Consequent to settlement between the parties by an agreement dt. 11-02-2008, there was settlement among the directors by which there was an understanding to pay certain amounts of cash and also allot 10,400 Sq. Yds., of land for surrendering the interest in the company. Assessing Officer (AO) brought to tax the entire amount of Rs. 2,25,53,054/- as per his valuation of consideration received/receivable by assessee. It was contended before the Ld. CIT(A) that entire amount is not taxable and even if it is taxable, it is taxable in AY. 2008-09 as the agreement was dt. 11-02-2008. Assessee also contested the valuation of the land assigned to assessee.

3. The detailed submissions by assessee before the Ld. CIT(A) are as under:

“4. During the course of assessment as well as during appeal proceedings, the stand of the assessee/appellant was consistent in stating that the amount of Rs. 34,93,054/ - was not received and therefore, the same was not offered to tax. It was further explained that though 10,400 square yards of land was allotted to the appellant, the same continued to be in the name of the company and was not registered to the appellant. Out of 10,400 sq.yards subsequent sales were made by the company directly to the parties and the sale consideration was offered to tax in the hands of the appellant. The details of sales made out of 10,400 square yards of land are as under:

Year of Sale (F.Y.	Schedule of property Area	Square Yard	Sale amount	SRO Value	Name & Addres s of Purcha -ser	Year of sale offered to tax
2010-11	Gudur Village	2918	23,34,400	11,67,200	--	2011-12
2010-11	Nagulapuram Village	1300	5,20,000	3,90,000	--	2011-12
	Total	4218	28,54,400	15,57,200
2011-12	Gudur Village	3576	25,60,500	14,30,400	--	2012-13
2011-12	Nagulapuram Village	1100	4,40,000	3,30,000	--	2012-13
	Total	4676	30,00,500	17,60,400
	Grand Total	8894	58,54,900	33,17,600

4.1 The appellant submitted copies of income-tax returns and profit and loss account for A.Y.2011-12 and A.Y.2012-13. The details are summarized as under:

Particulars	A.Y. 2011-12	A.Y. 2012-13
Gross Sales	28,54,400	30,00,800
Income returned after claiming certain expenses	19,91,690	21,75,880
Date of filing of income tax return	12.11.2012	14.11.2012

It is pertinent to mention that though the gross receipts realized on sale of plots were credited to profit and loss account, the cost of the plots was not debited to profit and loss account.
The total land allotted to the appellant was 10,400 sq.yds, the land sold was 8894 sq.yds, balance land remaining is 1506 sq.yards. the appellant states that this land is still in the name of M/s.Swadesh Villas Pvt. Ltd. He also submitted a copy of letter dated 16.10.2014 issued by Sri R. Srinivasulu, Managing Director of Swadesh Villas Pvt. Ltd. which read that the land of 1506 square yards is still in the name of the company and plots will be registered in favour of Mr.W.Ramana Rao on request.

4.2 It was submitted by the appellant that they have entered the business during real estate boom and carried out real estate ventures in and around Shadnagar. It was further submitted that after purchasing the land at Gudur Village, Kottur Mandai, Mahaboobnagar district, and after developing layout, they have realized that the land is covered by the G. O. No.111 dated 08.03.1996, according to which no residential layout can be carried out in the 84 specified villages and Gudur is also included in such list. It was explained that due to the G.O.No.111 prohibiting layout in Gudur Village, fall in real estate prices, further due to Telangana State agitation, the plots could not be sold and even some of the purchasers demanded their money back. On account of series of problems certain differences and misunderstanding developed among the partners and ultimately all the partners j directors moved out of M/s. Sree Projects and M/s. Swadesh Villas Pvt. Ltd. and both the entities were retained with Mr. R. Srinivasulu and his wife Smt. R. Sreedevi. Rest of the partners / directors came out after reaching a settlement for payment of certain cash and land. However, due to bad real estate conditions the agreed sum was not paid to the appellant except for an amount of Rs.946,946/ - which was offered as income in A.Y.2008-09.

4.3 The Assessing Officer simply made the addition stating that the assessee failed to demonstrate that he had not received money during the previous year relevant to A.Y.2009-10. It is also pertinent to mention that no information is brought on record by the AO in support that the assessee received any money apart from Rs.946,946/-. Further, the statement of the assessee given during survey proceedings, is categorical that he received only Rs. 946,946/- which would be offered for A.Y.2008-09 and rest of the amounts would be offered on receipt basis. Despite of the categorical statement by the assessee the Assessing Officer made the addition of Rs. 2,25,55,305/- (Rs. 2,35,00,000 - Rs. 9,46,946) on the ground that the assessee failed to prove that he did not receive money”.

4. Ld. CIT(A) after considering the submissions of assessee decided the issue as under:

“5. 1 have carefully considered the factual position of the case. The issues for consideration are :

(i) Whether there is any transfer of shares by the appellant to M/s. Swadesh Villas Pvt. Ltd.

(ii) If there is a transfer of shares, what is the sale consideration to be adopted for computing the capital gains.

5.1 The provisions of section 2(47) defined the term 'transfer' read as under:

"transfer", in relation to a capital asset, includes,-

(i) the sale, exchange or relinquishment of the asset; or

(ii) the extinguishment of any rights therein; or

(iii) the compulsory acquisition thereof under any law ; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;] [or]

[(iva) the maturity or redemption of a zero coupon bond; or]

[(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment o], any immovable property.

[Explanation 1]-For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269 UA.]

[Explanation 2]-For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;) ”
From the preliminary reading of the term 'transfer' as defined in the Act, the appellant is hit by the provisions of section 2(47) (i), (vi) and Explanation 2. Therefore, he received cash and land in lieu of the transfer of shares / for surrendering his interest in the company. Vide the agreement dated 11.02.2008 there was settlement among the Directors by which there was an understanding to pay certain amount of cash and land of 10,400 sq.yds for surrendering his interest in the company. Therefore the gain on transfer of shares has to be brought to tax under the head capital gains. The Assessing Officer brought market value of land to tax. Such value is purely notional, infact, there was tremendous fall in real estate market from 2008 onwards and lands were stated to have been sold at a later date for much lesser price. Therefore, it is appropriate that the sub-registrar value as on 11.02.2008 is to be considered as the sale consideration In summary, the capital gain shall be brought to tax for A.Y.2008-09 by taking sale consideration equivalent of cash component received of Rs.9,46,946/- plus SRO Value of 10,400 sq.yds as on 11.02.2008.

5.2 It is also pertinent to mention that in subsequent years the plots were sold and the income was offered under the head business income. Since the cost of the plots was not debited to the profit and loss account in both the years i.e. A.Y.2011-12 and 2012-13 the sale consideration adopted for the purpose of computing capital gains shall be the cost of the plots and is to be debited to the profit and loss account in subsequent years for A.Y.2011-12 and A.Y.2012-13”.

5. Assessee is not aggrieved, but Revenue is aggrieved and raised the following grounds:

“2. The learned CIT(A) ought not to have held that the consideration should be brought to tax for the AY. 2008-09 instead of AY. 2009-10.

3. The learned CIT(A) ought not have reduced the consideration received while settlement deed clearly specified the amount for which the rights were given up by the assessee.

4. The learned CIT(A) ought not have directed the AO to adopt the SRO value as the entire consideration is required to be considered for taxation”.

6. After considering the rival contentions and perusing the evidence on record, we do not see any reason to interfere with the order of the Ld. CIT(A). There is no merit in Revenue’s grounds as the said settlement was entered on 11-02-2008 which falls in AY. 2008-09 and not in 2009-10. Just because a survey was conducted and statement was recorded, the amount cannot be brought to tax in AY. 2009-10. In view of that, we find no merit in the Revenue’s grounds on the issue. With reference to the valuation also, we are of the opinion that Ld. CIT(A) has correctly directed the value to be adopted which itself becomes ‘cost for the plots’ which were sold subsequently. Consequently, we affirm the orders of Ld. CIT(A) and dismiss the grounds.

7. In the result, Revenue’s appeal is dismissed.
Order pronounced in the open Court on 04th March, 2016.
*****