IT : There was no occasion for section 2(47) to apply where no possession of factory land was given by assessee under Joint Development Agreement and further, no construction activity had commenced during year under consideration
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[2013] 38 taxmann.com 68 (Bombay)
HIGH COURT OF BOMBAY
Commissioner of Income-tax -9
v.
Eastern Ceramics Ltd.*
MOHIT S. SHAH, CJ.
AND M.S. SANKLECHA, J.
AND M.S. SANKLECHA, J.
IT APPEAL NO. 68 OF 2010†
JULY 1, 2013
I. Section 2(47) of the Income-tax Act, 1961 - Capital gains - Transfer [Land dealings] - Assessment year 2000-01 - Assessee was owner of land and factory building thereon - It entered into a joint development agreement with one 'S' - Assessing Officer took a view that under said agreement, land had been transferred to 'S' and, thus, subjected consideration received to capital gain tax - Commissioner (Appeals) held that there was no occasion for section 2(47) to apply as no possession of factory land could be given by assessee under said agreement - Further, no construction activity had commenced during year under consideration - Thus, assessee was not liable to capital gain tax - Tribunal upheld order of Commissioner (Appeals) - Tribunal also found that amount received by assessee was only an advance requiring fulfilment of certain obligations - Whether Commissioner (Appeals) and Tribunal had rendered a finding of fact that no transfer of land took place in concerned assessment year and same was not shown to be perverse - Held, yes [Para 3] [In favour of assessee]
II. Section 2(47) of the Income-tax Act, 1961 - Capital gains - Transfer [Land dealings] - Assessment year 2000-01 - In year 1992, assessee decided to convert its factory land at Goregaon into stock-in-trade for purpose of engaging in business of real estate development - Assessee in furtherance of its objective, sought permission to shift its factory as well as to convert factory land from industrial zone land to residential zone land - It also obtained an NOC from BMC for change of user of factory land in October, 1993 - It also made various efforts with Urban Land Ceiling (ULC) authorities, seeking permission for development under section 22 of ULC Act, 1976 - Necessary permission was obtained in October 1999 - However, Assessing Officer on basis that there was no activity on factory land since 1992 to 1999 concluded that factory land had not been converted into stock-in-trade - Commissioner (Appeals) and Tribunal arrived at finding of fact that factory land was converted into stock-in-trade during assessment year 1992-93 - Whether since revenue had not been able to point out in what manner finding of facts arrived at by Commissioner (Appeals) and Tribunal that conversion of land into stock-in-trade during assessment year 1992-93 was perverse, there was no reason to interfere with finding of fact arrived at by Tribunal - Held, yes [Para 4] [In favour of assessee]
FACTS
| ■ | The assessee was owner of land and factory building thereon. The High Court by an interim order had restrained the assessee from selling/transferring the factory land till the final disposal of the suit. Thereafter, on 19-11-1999, the assessee entered into a joint Development Agreement with one 'S'. | |
| ■ | The Assessing Officer took a view that under the above agreement the land had been transferred in terms of section 2(47) to 'S' during the assessment year and, thus, subjected the consideration received to capital gain tax. | |
| ■ | The Commissioner (Appeals) held that there was no occasion for section 2(47) to apply as no possession of the factory land could be given by the assessee under the said agreement. Further, no construction activity had commenced during the year under consideration. Thus, the assessee was not liable to capital gain tax. | |
| ■ | The Tribunal upheld the order of the Commissioner (Appeals) and further held that the amount received from 'S' was only in the nature of advance subject to settlement of labour and other disputes so as to make the factory land free from encumbrances. |
HELD
| ■ | The Commissioner (Appeals) as well as the Tribunal had held that during the relevant assessment year, no transfer of capital assets by sale of land at Goregaon had taken place. This was not only for the reason that the assessee was restrained from disposing the factory land in question but also as observed by the Commissioner (Appeals) and the Tribunal that during subject assessment year, no construction activity took place and even commencement certificate was issued in a subsequent assessment year. | |
| ■ | The amount received by the assessee was only an advance requiring fulfilment of certain obligations. The agreement itself provides that in case the assessee is not able to fulfil its obligation, then it was required to refund the amount to the developer. | |
| ■ | Thus, there was no transfer of land during the relevant assessment year. | |
| ■ | Two authorities viz: Commissioner (Appeals) and Tribunal have rendered a finding of fact that no transfer of land took place in the concerned assessment year is not shown to be perverse. [Para 3] |
Arvind Pinto for the Appellant. M.N. Shah for the Respondent.
ORDER
1. This appeal by the revenue under Section 260-A of the Income Tax Act, 1961 (in short "the Act"), challenges the order dated 26 February 2009 of the Income Tax Appellate Tribunal (in short "the ITAT") relating to the assessment year 2000-01.
2. The following questions have been raised by the revenue for our consideration:-
| "(a) | Whether on the facts and circumstance of the case and in law, the ITAT justified in holding that no capital gain will arise in the concerned assessment year i.e. 2000-01 as the assessee was restrained by Industrial Court as well as this Court from disposing the factory land in question? | |
| (b) | Whether on the facts and circumstance of the case and in law, the ITAT justified in upholding the findings of the CIT(A) that there was conversion of the land into the stock-in-trade during the Financial Year 1991-92 and therefore the expenditure incurred during Financial Year 1999-2000 was work-in-progress without appreciating that there was no conversion in the Financial Year 1991-92 and there being transfer within the purview u/s. 2(47)(v) of the ITAT during the Financial Year 1999-2000, the capital gain was chargeable during the assessment year 2000-01?" |
3. Regarding Question (a)
| (i) | The respondent-assessee was owner of land and factory building thereon at Goregaon, Mumbai engaged in Manufacturing of Ceramic tiles. As the respondent-assessee suffered losses, a lock out was declared in December 1989. On 21 June 1990, an Industrial Court passed an order restraining the respondent-assessee from selling and/or dealing with the factory land. Further, certain disputes had arisen in respect of the factory land with one M/s. Sterling Construction resulting in a suit being filed against the respondent-assessee. On 11 July 1994, this Court by interim order restrained the respondent-assessee from selling/transferring the factory land till the final disposal of the suit. Thereafter, on 19 November 1999, the respondent-assessee entered into a joint Development Agreement with one M/s. Sheth Developers Ltd. | |
| (ii) | The Assessing Officer in his assessment order for assessment year 2000-01 took a view that the land had been transferred to M/s. Sheth Developers Ltd, during the assessment year and subjected the consideration received to capital gain tax. This was on the ground that under the above agreement, transfer of the land could be said to have taken place under Section 2(47)(v) of the Act. | |
| (iii) | In appeal, the CIT(A) held that there was no occasion for Section 2(47) of the Act to apply as no possession of the factory land could be given by the respondent-assessee under the agreement dated 19 November 1999 to M/s. Sheth Developers Ltd. Further no construction activity had commenced during the year under consideration. Thus, the respondent-assessee is not liable to capital gain tax for the assessment year 2000-01. | |
| (iv) | On appeal by the revenue, the Tribunal upheld the order of the CIT(A) and further held that the amounts received by the respondent-assessee from M/s. Sheth Developers Ltd. was only in the nature of advance subject to settlement of labour and other disputes so as to make the factory land free from encumbrances. If for some reason, the respondent-assessee is unable to fulfil its obligations as above, then it is required to refund the amounts to M/s. Sheth Developers Ltd. | |
| (v) | The grievance of the revenue is that notwithstanding the order of the Industrial Court and this Court restraining the creation of third party rights in respect of the factory land, in fact transfer had taken place in terms of Section 2(47) of the Act during the assessment year under consideration. Therefore, capital gain tax is payable during the assessment year under consideration. | |
| (vi) | We find that the CIT(A) as well as the Tribunal had held that during the assessment year 2000-01, no transfer of capital assets by sale of land at Goregaon had taken place. This was not only for the reason that the respondent-assessee was restrained from disposing the factory land in question but also as observed by the CIT(A) and the Tribunal that during subject assessment year, no construction activity took place and even commencement certificate was issued in a subsequent assessment year. The amount received by the respondent-assessee was only an advance requiring fulfilment of certain obligations. The agreement itself provides that in case the respondent-assessee is not able to fulfil its obligation, then it was required to refund the amount to the developer. Thus, there was no transfer of land during the assessment year 2000-01. The revenue has not challenged the second part of the order of the Tribunal. Moreover, the Assessing Officer has interfered without any evidence that possession of factory land was given to respondent-assessee in the subject assessment year on the basis that construction activity had started. This is erroneous as the commencement certificate was only received from BMC on 7 November 2000 i.e. in the next assessment year. We find that two authorities viz: CIT(A) and Tribunal have rendered a finding of fact that no transfer of land took place in the concerned assessment year is not shown to be perverse. In this view of the matter, we see no reason to entertain question (a). |
4. Regarding Question (b)
| (i) | In the year 1992 itself, the respondent-assessee decided to convert its factory land at Goregaon into stock-in-trade for the purpose of engaging in the business of real estate development. For that purpose, the respondent-assessee inducted on 12 March 1992 three new directors, having experience in real estate business. Immediately thereafter, on 14 March 1992, the board of directors of the respondent-assessee decided to commence the business of real estate development and by extra ordinary general meeting held on 31 March 1992, the respondent-assessee took consent from the shareholders to enter into business of real estate development and for that purpose converting its factory land into stock-in-trade. Thereafter, the respondent-assessee in furtherance of its objective of developing the factory land at Goregaon, sought permission to shift its factory from Goregaon to Taloja as well as to convert the factory land from industrial zone land to residential zone land. The respondent-assessee also obtained an NOC from the BMC for change of user of the factory land in October, 1993. The respondent-assessee also made various efforts with the Urban Land Ceiling (ULC) authorities, seeking permission for development under Section 22 of the ULC Act, 1976. The necessary permission was obtained in October 1999. | |
| (ii) | However, the Assessing Officer by the assessment order did not accept the case of respondent-assessee that the factory land had been converted into stock-in-trade in 1992. This was on the basis that there was no activity on the factory land since 1992 to 1999. Accordingly he concluded that the factory land had not been converted into stock-in-trade. | |
| (iii) | In appeal, the CIT(A) takes into account the facts stated in (i) hereinabove, concluded that the respondent-assessee had converted its factory land into stock-in-trade in 1992. | |
| (iv) | On an appeal by the revenue, the Tribunal upheld the finding of fact arrived at by CIT(A) that the factory land was converted into stock-in-trade in 1992. | |
| (v) | The grievance of the revenue is that the resolution passed in 1992 were mere paper entries and does not establish conversion of factory land into stock-in-trade. | |
| (vi) | We find that both the CIT(A) and the Tribunal have arrived at finding of fact that the factory land at Goregaon was converted into stock-in-trade during assessment year 1992-93. This finding was arrived on the basis of the facts stated in (i) herein above. The revenue has not been able to points out in what manner the finding of facts arrived at by the CIT(A) and the Tribunal that conversion of land into stock-in-trade during assessment year 1992-93 was perverse. In these circumstances, we see no reason to interfere with the finding of fact arrived at by the Tribunal. Therefore, we see no reason to entertain Question (b) as proposed by the revenue. |
5. Accordingly, appeal is dismissed with no order as to costs.
Regards
Prarthana Jalan
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