Wednesday, November 26, 2014

[aaykarbhavan] Judgment and Infomration Guidance Note on Internal Financial Control Recent attached, [5 Attachments]





In the case of BUILT OPERATE and TRANFER PROJECTS ('BOT'), Under the concessionaire agreement between the Government and the developer, the developer is required to constructdevelop and maintain the infrastructural facility of roads, highways etc. at its own cost and its utilization for a specified period. The developer collects toll from the user of such facility as consideration.
In such BOT arrangements, as a matter of general practice, possession of land is handed over to the developer by the Government/notified authority for project without any actual transfer of ownership and such taxpayer has only a right to develop and maintain such asset. At the end of the specified period, the developer may generally be required to hand over the infrastructure facility to the government at free of cost.
It is a matter of debate before courts/tribunals about the eligibility of depreciation on toll road. This issue has been dealt in number of Tribunal and courts. The CBDT vide its circular No. 9 Dated 23rd April, 2014 has clarified that the cost of construction on development of infrastructure facility of roads/highways under BOT basis may be amortized evenly over the period of the concessionaire agreement after excluding the time taken for creation of such facility. However, different decision has been taken in courts/Tribunal which can be elaborated as further:
  1. The entire cost of construction and development of the infrastructure facility had to be amortized evenly over the period of the concessionaire agreement and allowed as business expenditure under section 37(1) of the Act.
  2. The cost incurred for the development and construction of the infrastructure facility on BOT basis was treated as 'License/right to collect toll' and hence the same was intangible asset entitled for depreciation. (ACIT v. Ashoka Buildcon Ltd. (ITA No. 2317/PN/2012). Ashoka Info (P.) Ltd v. ACIT [2010] 35 SOT 50 (Pune).
  3. The toll road is eligible for depreciation even through the taxpayer is not the legal owner of the road. In some of the cases, it has been held that told road would fall under the head of 'building and is eligible for depreciation at 10%. CIT v. Noida Toll Bridge Co. Ltd. ITA No. 2 of 2012, November 8, 2012
  4. The Supreme Court in the case of Mysore Minerals Ltd. v. CIT [1999] 239ITR775 (SC) has held that the term 'owned' as occurring in Section 32(1) of the Act must be assigned a wider meaning. The tax benefit on account of depreciation legitimately belongs to one who has invested in the Capital asset and there cannot be two owners of the property simultaneously. The depreciation is allowable to the person in whom for the time-being vests and who has the dominion over the building and who is entitled to use it in his own right.
Recently, in the case of North Karnataka Expressway Ltd. v. CIT (ITA No. 499 of 2012), the Bombay High Court has held that depreciation is not allowable on toll road constructed under the BOT basis since the toll road belongs to the Government and the assessee want not the owner of the said road. The ownership of the National Highway, being that of the Government, it can never be said to be divested of that absolute right by engagement of any person or by entrusting any of the functions of the authority to him.
However, the Bombay High Court in this case has not considered the ownership criteria on the basis of Income Tax Act, 1961 but on the basis of National Highways Act, 1956 or the National Highways Authority of India Act, 1988. The High Court has held that as per these Acts the assessee is not the owner of toll road which was constructed and maintained by it and therefore, depreciation cannot be allowed on the same. Further, it is to be mentioned that the CBDT circular as mentioned above has not been considered in this decision.
After going through the above decision, it can be opined that even Bombay High Court has held that depreciation is not allowable on toll road constructed under the BOT basis though after the clarification by the CBDT and the decision of other Courts and Tribunal the cost of construction on development should be amortized evenly over the period of the concessionaire agreement after excluding the time taken for creation of such facility.

NEW DELHI, NOV 26, 2014: THE issue before the Apex Court is - Whether when the Revenue has issued restraint order against goods seized u/s 132(1), the High Court is right in directing a particular Revenue official to make inventory of goods and then quash the search proceedings on the basis of the report submitted by the official. NO is the answer.
Facts of the case
The assessee is engaged in the manufacture of C.I. pipes, fittings and manholes and had obtained the licence under the Central Excise Act. The assessee had been filing income-tax returns regularly. On 16.2.2000 the Income Tax Department conducted a search & seizure operation on the residential and business premises of the assessee. The assessee filed a writ against the action of the Revenue and contended that there was no information in possession of the officer which could have persuaded any reasonable person to form an opinion about the existence of undisclosed assets of the assessee. It was further urged that the warrant of authorization was issued mechanically, arbitrarily and there was total non-application of mind and moreover there was no formation of opinion about the existence of undisclosed assets as contemplated under Section 132(1) of the Act. On this foundation, the search and seizure were sought to be quashed.
Countering the assessee the counsel for the Revenue alleged that the productions declared by the assessee in the official record was not even 1/5th of the actual production revealed by the seized documents.
The High Court directed an official to prepare an inventory of the goods in question in respect of which the restraint order was passed. The said official submitted a report which was taken on record. The HC finally held that:
"From the aforesaid reply it is clear that there is no specific denial of the averments made in Para 40 of the writ petition. Order 8 Rule 5 of the Code of Civil Procedure provides that every allegation of fact in the plaint if not denied specifically or by necessary implication or stated to be not admitted in the pleading of the defendant shall be taken to be admitted except against the person under disability. In view of this provision in absence of a specific denial in the counter affidavit to the assertions made in the writ petition, it can safely be concluded that there is no denial of the facts stated in the writ petition. We are aware that the explanation to Section 141 of the Code of Civil Procedure provides that the provisions of Code of Civil Procedure shall not be applicable to the writ petition. However, the principles as stated in the Code of Civil Procedure are also applicable to the writ proceedings."
On appeal, the Supreme Court held that,
++ we have no hesitation in opining that the reasons ascribed in the aforesaid paragraphs, leaves us absolutely unimpressed. We really cannot comprehend how an Assistant Commissioner was appointed to take inventory of the goods in respect of which the restraint order was passed by the revenue under the Act. That apart, it is difficult to appreciate how the denial in the counter affidavit filed by the revenue could be treated as an admission by implication to come to a conclusion that no reason was ascribed for search and seizure and, therefore, action taken under Section 132 of the Act was illegal. The relevant confidential file, if required and necessary could have been called for and examined. Revenue in the counter affidavit was not required to elucidate and reproduce the information and details that formed the foundation;
++ in this context, we may profitably refer to the decision in Pooran Mal V. The Director of Inspection (Investigation), New Delhi and others 2002-TIOL-907-SC-IT, wherein the Constitution Bench, while upholding the constitutional validity of Section 132 of the Act opined thus:
"Search and seizure are not a new weapon in the armoury of those whose duty is to maintain social security in its broadest sense. The process is widely recognized in all civilized countries. Our own Criminal Law accepted its necessity and usefulness in Sections 96 to 103 and Section 165 of the Criminal Procedure Code. In M.P. Sharma v. Satish Chandra AIR 1954 SC 300 the challenge to the power of issuing a search warrant under Section 96(1) as violative of Article 19(1)(f) was repelled on the ground that a power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. As pointed out in that case a search by itself is not a restriction on the right to hold and enjoy property though a seizure is a restriction on the right of possession and enjoyment of the property seized. That, however, is only temporary and for the limited purpose of investigation".
++ thereafter, proceeding with the ratiocination, the Court ruled that the provision has inbuilt spheres;
++ the provision contained in Section 132(1) of the Act enables the competent authority to direct for issue of search and seizure on the basis of formation of an opinion which a reasonable and prudent man would form for arriving at a conclusion to issue a warrant. It is done by way of an interim measure. The search and seizure is not confiscation. The articles that are seized are the subject of enquiry by the competent authority after affording an opportunity of being heard to the person whose custody it has been seized. The terms used are 'reason to believe'. Whether the competent authority had formed the opinion on the basis of any acceptable material or not, as is clear as crystal, the High Court has not even remotely tried to see the reasons. Reasons, needless to say, can be recorded on the file and the Court can scrutinize the file and find out whether the authority has appropriately recorded the reasons for forming of an opinion that there are reasons to believe to conduct search and seizure. As is evincible, the High Court has totally misdirected itself in quashing the search and seizure on the basis of the principles of non-traverse.
++ in our considered opinion, the High Court would have been well advised to peruse the file to see whether reasons have been recorded or not and whether the same meet the requirement of law;
++ in view of our foregoing analysis, we allow the appeals, set aside the impugned order passed by the High Court and remand the matter to the High Court for fresh disposal in accordance with law. The revenue shall produce the file before the High Court, whereafter the High Court shall proceed to adjudicate the lis. There shall be no order as to costs.

The dispute is regarding allowability of exemption under section 54 of the Act and computation of long term capital gain in respect of exchange of old flat with a new flat and cash compensation under development agreement with the builder. The revenue authorities have held that since assessee had neither purchased a new flat or constructed a new flat, the provisions of section 54 are not applicable. We, however, do not subscribe with the view taken by revenue authorities. The exemption under section 54 is allowable in case the assessee transfers a residential house and within a period of 1 year before or 2 years after the date of transfer, purchases a new residential house or constructs a new residential house within a period of 3 years from the date of transfer. In this case, the assessee had exchanged old flat with new flat to be constructed by the builder under development agreement which amounts to transfer under section 2(47) of the Act. Thus, the only other condition which is required to be satisfied is that assessee either purchases a new residential flat within the prescribed limit or constructs a new residential flat within a period of 3 years from the date of transfer. The acquisition of a new flat under a development agreement in exchange of the old flat amounts to construction of new flat. This view is supported by the decision of the Tribunal in the case of another co-owner in the case of 3. K. Madan (supra). Therefore, the provisions of section 54 are applicable and assessee is entitled to exemption if the new flat had been constructed within a period of 3 years from the date of transfer.
The AR has also argued that entire cash compensation received by the assessee amounting to Rs. 11,25,800/- cannot be taxed as capital gain as assessee had invested a sum of Rs. 8,00,000/- lacs in NABARD bonds under section 54EC. Since cash compensation was part of consideration for transfer of the old flat and the assessee had invested the money in NABARD bonds, the exemption under section 54EC will be available. As regards the completion of new flat within a period of 3 years, assessee has filed a copy of letter dated 30.05.2007 of the builder in which it has been mentioned that the builder had applied for occupation certificate and possession was to be given on 14.6.2007, which in fact was given the very next day, i.e. 15-06-2007. We, therefore, allow the claim of exemption under section 54, and set aside the order of CIT(A) and direct the AO to allow the claim of the assessee.
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH 'F', MUMBAI
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER &
SHRI VIVEK VARMA, JUDICIAL MEMBER
I.T.A. NO. 7159/Mum/2010 Assessment Year: 2006-07
Smt. Veena Gope Shroff, Vs. The Income Tax Officer
Date of Pronouncement: 04-07-2012.
ORDER
Per VIVEK VARMA, JM:
This appeal by the assessee is directed against the order dated 16-07-20 10 of CIT(A) for the assessment year 2006-07. The assessee in this appeal has raised basically one issue of computation of LTCG .
2. The dispute is regarding computation of Rs. 61,87,271/- as against Rs. 3,25,800/- as long term capital gain on account of surrender of flat, as declared by the assessee.
3. The facts in brief are that the assessee vide development agreement dated 08.07.2005, had surrendered her own flat of carpet  area 866 sq.ft. to the builder and in lieu of the surrender of the flat, the assessee had been allotted new flat of carpet area 1040 sq.ft. and also given cash compensation of Rs. 11,25,800/-. Rs. 8,00,000/- out of the cash compensation received by the assessee, had been invested in NABARD bonds which was claimed as exempt under section 54EC and the balance Rs. 3,25,800 was shown as LTGC. Since the assessee had acquired the new flat in lieu of the old flat, capital gain arising on account of the transfer of the old flat was treated as exempt under section 54 of the Income tax Act, 1961 (the Act).
4. The AO however, observed that for applicability of provisions of section 54, the assessee should have purchased a house property within one year before or two years after the date of transfer or constructed a new residential house within a period of 3 years from the date of transfer. In this case, the assessee had neither purchased nor constructed the house property. The AO, therefore, held that the assessee was not entitled for exemption under section 54 of the Act. He, therefore, did not allow the claim of deduction under section 54. The AO arrived at the sale consideration in respect of transfer of the old flat and computed the same at Rs. 86,89,960/- consisting of sum of Rs. 75,64,160/- being market value of the new flat and Rs. 11,25,800/- being cash compensation and thus, long term capital gain was computed at Rs. 61,87,271/- after deducting the indexed cost of acquisition from the sale consideration.
5. In appeal, CIT(A) agreed with the AO that exchange of old flat with new flat constituted transfer and the capital gain was therefore taxable. He also agreed with the AO that the assessee had not fulfilled the conditions of section 54 for allowing exemption under the said section. He therefore, confirmed the disallowance made by AO.
6. Aggrieved by which the assessee is in appeal before the Tribunal.
7. Before us, the AR for the assessee submitted that the provisions of section 54 are applicable in case the assessee transfers a residential house and purchases a new house within a period of one year before or after 2 years after date of transfer or constructs a residential house within a period of 3 years from the date of transfer. In this case, the assessee had exchanged the old flat with a new flat which amounted to transfer, which was also admitted by the revenue authorities. Thereafter, the new flat had been built by the builder and possession handed over to the assessee which amounted to construction of a new flat which had been done within a period of 3 years from the date of transfer as the construction of the new flat was completed on 14.6.2007. In this connection, he referred to the letter dated 30.5.2007, by the builder, addressed to society in which it was mentioned that possession of the flat would be given on 14.06.2007, and which was actually given on 15-06-2007 (letter of possession on record). The AR also referred to the decision of the Tribunal in the case of Jatinder Kumar Madan v/s ITO in I.T.A. No. 6921/Mum/2010 (where one of us was a party) wherein another occupant i.e. Mr. 3. K. Madan was one of the signatories of the same agreement as that of the assessee, in which it was held that acquisition of new flat under a development agreement with a builder in exchange of old flat amounted to construction of new flat and therefore, the time period of 3 years from the date of transfer as mentioned in section 54 would apply for the acquisition of new flat.
8. The DR on the other hand supported the order of authorities below and argued that provisions of section 54 were not applicable as the assessee had neither purchased a new residential house nor constructed a new residential house.
9. We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of exemption under section 54 of the Act and computation of long term capital gain in respect of exchange of old flat with a new flat and cash compensation under development agreement with the builder. The revenue authorities have held that since assessee had neither purchased a new flat or constructed a new flat, the provisions of section 54 are not applicable. We, however, do not subscribe with the view taken by revenue authorities. The exemption under section 54 is allowable in case the assessee transfers a residential house and within a period of 1 year before or 2 years after the date of transfer, purchases a new residential house or constructs a new residential house within a period of 3 years from the date of transfer. In this case, the assessee had exchanged old flat with new flat to be constructed by the builder under development agreement which amounts to transfer under section 2(47) of the Act. Thus, the only other condition which is required to be satisfied is that assessee either purchases a new residential flat within the prescribed limit or constructs a new residential flat within a period of 3 years from the date of transfer. The acquisition of a new flat under a development agreement in exchange of the old flat amounts to construction of new flat. This view is supported by the decision of the Tribunal in the case of another co-owner in the case of 3. K. Madan (supra). Therefore, the provisions of section 54 are applicable and assessee is entitled to exemption if the new flat had been constructed within a period of 3 years from the date of transfer. The AR has also argued that entire cash compensation received by the assessee amounting to Rs. 11,25,800/- cannot be taxed as capital gain as assessee had invested a sum of Rs. 8,00,000/- lacs in NABARD bonds under section 54EC. Since cash compensation was part of consideration for transfer of the old flat and the assessee had invested the money in NABARD bonds, the exemption under section 54EC will be available. As regards the completion of new flat within a period of 3 years, assessee has filed a copy of letter dated 30.05.2007 of the builder in which it has been mentioned that the builder had applied for occupation certificate and possession was to be given on 14.6.2007, which in fact was given the very next day, i.e. 15-06-2007. We, therefore, allow the claim of exemption under section 54, and set aside the order of CIT(A) and direct the AO to allow the claim of the assessee.
10. In the result, appeal is allowed.
Order pronounced in the open Court on this day of 04/07/2012.



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Posted by: Dipak Shah <djshah1944@yahoo.com>


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