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September 2009

S. 28, S. 45 — Gain arising on transfer of land held by the assessee as its capital asset in lieu of 50% of the constructed areas to be constructed by the developer at his own cost without any construction activity to be carried on by the assessee is char

By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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56.    2009 TIOL 477 ITAT (Mum.)

ACIT v. Shree Dhootapapeshwar Ltd.

A.Ys. : 2001-02 and 2002-03.

Dated : 30-3-2009

S. 28, S. 45 — Gain arising on transfer of land held by the assessee as its capital asset in lieu of 50% of the constructed areas to be constructed by the developer at his own cost without any construction activity to be carried on by the assessee is chargeable to tax as capital gains.

Facts :

The assessee company was engaged in the business of manufacturing and trading in ayurvedic medicines. It was owner of land acquired by it in 1936 on which it had constructed a factory for manufacturing ayurvedic products. The land was held by it as a fixed asset and was consistently shown as fixed asset in its accounts. The assessee had not converted this land into its stock-in-trade. The development agreement entered into by the assessee recorded that the assessee did not have the requisite expertise and know-how to undertake the development of the said land. As per the agreement, the assessee was to part with the land and in lieu thereof was entitled to receive 50% of the constructed area without carrying out any task of development. The assessee was not required to meet any of the expenses towards construction of the buildings.

The AO noted that — (i) the agreement described the assessee as the owner and the developer as the licensee; and (ii) under the agreement the assessee was given absolute rights to sell all the residential as well as commercial property developed and handed over by the developers at whatever rate as per the prevalent market conditions. Considering these, the AO charged the profit arising on transfer of land under the head ‘Income from Business’.

The CIT(A) allowed the assessee’s appeal.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held :

The Tribunal noted that CIT(A) has observed that (a) the constructed area was to be shared amongst the parties; (b) the parties were free to deal with their respective areas in the manner they thought fit; (c) this was not a case where the parties by virtue of the agreement have decided to share the profit from the project; (d) the assessee was to receive 50% of the constructed area, irrespective of the cost of development incurred by the developer.

On facts and having noted the observations of the CIT(A), the Tribunal held that the agreement could not be regarded as a joint venture and the constructed area received by the assessee was consideration for transfer of land. The Tribunal agreed with the conclusion of the CIT(A) and noted that the conclusion of the CIT(A) is supported by the following judicial decisions :

(a) CIT v. Smt. Radha Bai, (272 ITR 265) (Del.)

(b) CIT v. B. K. Bhaumik, (245 ITR 614) (Del.)

(c) CIT v. Mohakampur Ice and Cold Storage, (281 ITR 354) (All.)

The appeal filed by the Revenue was dismissed.

 

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