Principal Commissioner Of Income Tax-I, New Central Revenuebuilding, Statue Circle, Jaipur (Raj v. Jadav Devi Dangayach

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 172 / 2015 Principal Commissioner of Income Tax-I, New Central RevenueBuilding, Statue Circle, Jaipur (Raj.) ----Appellant Versus Jadav Devi Dangayach, 903, Baba Harish Chandra Marg, Jaipur. ----Respondent/Assessee _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay & Mr. N.S. Bhati For Respondent(s) : Mr. Gunjan Pathak with Mr. Aditya Bohra _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 12/12/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of assessee reversing the view taken by A.O. 2.This Court while admitting the appeal on 27.09.2016 framed following substantial question of law: “1. Whether the Tribunal was right and justifiedin holding that the amount of Rs.2,42,44,000/-should not be treated as income of the assesseeunder Section 28(va) (a) of the Act being noncompete fees received by it, ignoring theassessee’s own submission and the fact that thevaluation of the property under question rosefrom Rs.7,56,000/- to Rs.2,50,00,000/- within 9months.” and subsequently on 07.12.2017 following additional substantial question of law was framed: “Whether the tribunal was justified in passingthe impugned order without application of mindand recording findings which are contrary tofacts on records?” 3.Counsel for appellant has taken us to the findingarrived at by the AO which reads as under:- “ iii. Reg. Non compete fee So far as contention that Rs.2,42,44,000/-was paid as non compete fee, hence same ischargeable under Section 28(va) of the Act, it issubmitted that the said amount along with Rs.7,56,000/- initially credited to assessee’s accontis nothing but only sale consideration of land. Inthe partnership deed, colour was given to thetransaction of non compete fees whereas insubstance the payment was made for sale ofland. This fact is clear from the following points: i) Assessee is 90 year old lady and not havingany experience of real estate business. Theassessee has not conducted any real estatebusiness or any such activity through out herlife. Further how a person of aged 90 yearwithout having any experience becomecompetitor to the business and such hugeamount is given to her for not doing anycompetition. Thus transaction was given onlycolour of non compete fee whereas insubstance transaction is of sale of land. ii) Assessee was admitted in partnership onlyfor contribution of land and this fact is clearfrom the various conditions mentioned inpartnership deed. She is not the workingpartner, she is not having any experience ofreal estate business, not participating inbusiness, not contributing any capital inmonetary terms not operating bank account,etc. Thus it is clear that transaction of sale ofland was routed through the name ofpartnership to save the stamp duty. Factuallyassessee is not having any connection withdevelopment business or any activity of thefirm. As soon as the land got converted, shewas retired from the partnership. Thus totalityof circumstances suggests that transaction isonly sale transaction. iii) The partnership firm was constituted on10.05.2006 and reconstituted by retiringassessee on 15.03.2007 and between thisperiod there is no business activity in thepartnership firm except that application ismoved for change of land use and land gotconverted. Since there is no business activityin the partnership firm between this periodand prior to this period, hence there is noquestion of any reputation or good will orcompetitative business. Thus, payment somade to assessee is nothing but payment forsale of agriculture land. iii) The partnership firm was constituted on10.05.2006 and reconstituted by retiringassessee on 15.03.2007 and between thisperiod there is no business activity in thepartnership firm except that application ismoved for change of land use and land gotconverted. Since there is no business activityin the partnership firm between this periodand prior to this period, hence there is noquestion of any reputation or good will orcompetitative business. Thus, payment somade to assessee is nothing but payment forsale of agriculture land. iv) As per the partnership deed the assesseehas contributed her agriculture landmeasuring 5 bigha at nominal cost ofRs.7,56,000/- and thereafter payment ofRs.2,42,44,000/- was made on account of noncompete fee to a person a aged 90 year andhaving no experience of such type ofbusiness. The DLC rate of the said land is alsoof Rs.2.50 crore which is the real paymentmade to assessee by firm. Thus that paymentof Rs.2.50 crore is nothing but paymenttowards sale of agriculture land by assessee. In view of above facts, it is clear thatsubstance of the transaction is sale ofagriculture land, hence the income arising ontransfer of agriculture land is liable for tax u/s45 of the Act.” which was affirmed by the CIT (A) which reads as under: “iv. Thereafter,thepartnershipwasreconstituted on 8.3.2007 whereby the appellantexist the firm. It is pertinent to note that onpage 2 of this partnership deed it was mentionedthat Smt. Jadav Devi wanted to exit the firm onaccount of personal profits. On page 5 of thepartnership deed in paras 8 & 9 it has beenmentioned as follows:- 8- **;g fd tMko nsoh Maxk;p ds iwath [kkrs ds orZeku 'ks"k lkr yk[kNIiu gtkj :i;s dk Hkqxrku pSd la[;k 109430 fnaukd 15-03-2007 ,p-Mh-,Q-lh- caSd t;iqj ds }kjk Hkqxrku fd;k tk jgk gSA** 9- **;g fd tMko nsoh Maxk;p }kjk Hkqfe ,oa QeZ ls lEcfU/kr lHkh izdkjds vf/kdkj NksMus] QeZ esa gksus okys ykHkks esa vius fgLls dks NksMus] QeZ dsdk;Z ls izfrLi/kk u djus ,oa Hkqfe lEcU/kh fdlh Hkh izdkj dk iz’ku vkusij viuk lg;ksx djus ds izfrQyLo:i ,d eq’r jkf’k nks djksM fc;kfylyk[k pOokyhl gtkj :i;s dk pSd la[;k 109429 fnuakd 15-03-2007 ,p-Mh-,Q-lh- cSad t;iqj ds }kjk Hkqxrku fd;k tk jgk gSA ** v) The submission of the AR during theassessment proceedings and subsequently during the appellate proceedings that the intention of theappellant was to save the payment of stamp dutyon transfer of this land is also not supported bythe evidence on record. To verify the submissionsmade by the appellant from time to time andassessment records of M/s Sequin Real State werecalled for. On perusal of these records it was seenthat the appellant had presented the sale deedbefore the stamp and Registration Deptt. in theoffice of Sub-Registrar SR-4 (Annexure-4) forregistration of the transfer of land by her to M/sSequin Real Estate on 11/5/2007. The value ofland had been evaluated at Rs. 58,39,703/- andthe stamp duty payable had been determined atRs. 4,03,840/-. It was 15 ITA 302 & 162/JP/2012_ITO Vs. Jadav Devi Dangayach mentioned in thisdeed that a payment of Rs. 7,56,000/- had beenmade to her for the transfer of this land to thefirm. vi) Moreover, on perusal of the accounts of thefirm it is seen that the firm has been sown landintroduced as capital by Smt. Jadav DeviDangayach at Rs. 7,56,000/- in its books ofaccounts and this is shown at the same value inits closing stock. vi) Moreover, on perusal of the accounts of thefirm it is seen that the firm has been sown landintroduced as capital by Smt. Jadav DeviDangayach at Rs. 7,56,000/- in its books ofaccounts and this is shown at the same value inits closing stock. vii) On perusal of the file of M/s Sequin RealEstate Pvt. Ltd. it is seen that during theassessment proceedings they have filed a letterdt. 18/11/2009 wherein they have submitted thatgiven the over whelming response to the housingproject launched by the firm, the brand of thefirm got established very quickly. Thereaftersome differences arose between Jadav Devi andthe other partners of the firm and she threatenedto withdraw her portion of land and also wantedto start a competing project of the said portion ofland. The action threatened by the appellant waslikely to disturb the existing residential housingproject of the firm. Since it had already receivedan amount of Rs. 415.44 lacs against the bookingof 233 flats. So it took a conscious decision tonegotiate terms of settlement with Smt. JadavDevi for her peaceful exit and to pay a noncompeting fee of Rs. 2,42,44,000/-. viii) The most damaging evidence against theappellant is that the fact that on the one had shehas been stating all along that she signed thereconstituted partnership deed transferring herrights in the land to the firm to save on StampDuty and on the other hand has subsequently got the sale deed/conveyance deed registered withthe Sub-Registrar as per annexure-A. Moreover,as per this document it is seen that the DLC rateof the land was Rs. 58,39,703/- so it is notunderstood why such a hefty payment of Rs.2,42,44,000/- was paid/received by her over andabove the DLC rate of the land determined by theStamp Valuation Authority. ix) I have carefully perused all the case lawsrelied on by the AR and find that the facts ofthese cases are distinct from the facts of the caseof the assessee. In fact the findings of theHon'ble High Courts & Tribunal in all these ordersgo against the contention made on behalf of theappellant. In all these judicial pronouncement,the Hon'ble High Courts and Tribunals haveconsistently held that as per section 45(3)for thepurpose of section 48the amount recorded in thebooks of the firm is to be deemed to be the fullvalue of consideration received or accrued. In thecase of the appellant, the full value of the land asrecorded in the books of account of the firm isonly Rs. 7,56,000/-. In fact, as per the registeredsale deed it has been mentioned in para 12 thatRs. 7,56,000/- has been paid to the appellantvide 17 ITA 302 & 162/JP/2012_ ITO Vs. JadavDevi Dangayach cheque No. 109430 dtd.15/3/2007. Therefore, as per the case laws reliedon by the AR the capital gains that accrued to theappellant were only of Rs. 7,56,000/-. x) Regarding the reliance of the AR on the findingof the Hon'ble Delhi Tribunal in the case of DLFUniversal Ltd., wherein it was held thatsubsequently if the asset is revalued or any otheramount is credited in the account of the partner,it is to be considered as the amount recorded inthe books of account for the purpose of capitalgains tax on contribution of assets in partnershipfirm. The facts of the case are distinct in so farthat the firm did not revalue the asset that island contributed by the appellant in its books ofaccount; the payment made was much morethan the DLC rate determined by the stampvaluation authority; finally, the payment wasmade for severance of the partnership where itwas clearly noted that the amount was paid tothe appellant for not competing in business. xi) Regarding repeated submissions by the ARthat the appellant was not competent to competeby virtue of her age and lack of experience it isheld that she had given a general power of 4. under:- xi) Regarding repeated submissions by the ARthat the appellant was not competent to competeby virtue of her age and lack of experience it isheld that she had given a general power of 4. under:- attorney to her son Sh. Jugal Kishore Dangayachaged 58 years and had authorized him to lookafter her business interest. She was exercisingher right of safeguard here 18 ITA 302 &162/JP/2012_ ITO Vs. Jadav Devi Dangayachbusiness interest through her son who wascompeted to do so. xii) Regarding the submission of the AR that thecase of the assessee was covered under theproviso to Section 28(va)it is held to be nottenable. The proviso clarifies that clause (a) ofSection 28(va)shall not apply to any sumreceived on account of transfer of any right tocarry on any business which is chargeable underthe head capital gains. In the case of theappellant, the right to carry on any businesschargeable to tax U/s 45(3) has been specified atRs. 7,56,000/- as per discussion above. Anypayment made over and above this amountwould not be covered by the proviso and wouldfall with the provisions of section 28(va)(a). Inview of the above discussion, it is held that theimpugned income of Rs. 2,42,44,000/- is to betreated as income under section 28(va)(a)andthe addition is confirmed." The Tribunal while considering the matter observed as 10. We have heard the rival contentions of boththe parties and perused the material on record.The assessee is a 90 years old lady. There is nopast and subsequent experience in the line ofconstruction/real estate business. She onlyowned land which was taken in the firm's accountas a capital contribution made by her at Rs.7,56,000/-, which was increased by Rs.2,42,44,000/- and treated the same as a capitalcontribution. The assessee firm has deductedTDS by treating this amount as non compete feesbut real nature of transaction was that theassessee's land was got transferred to thepartnership firm i.e. M/s Sequine Real Estate andshe was paid in total, amount of Rs. 2.5 croresthrough this partnership deed. The purpose ofthis transfer through partnership deed was not topay stamp duty on transfer of immovableproperty on DLC rate. The assessee had disclosedthese receipts as capital receipts at Rs. 2.5crores and after claiming of indexation, the total capital gain had worked out at Rs. 2,42,05,334/-claimed deduction U/s 54F, 54EC, U/s 54B at Rs.2,42,05,334/- and had shown net taxable capitalgain NIL, which has not been verified by the ldAssessing Officer at the time of assessmentproceedings. We hold that the nature oftransaction is covered U/s 54(3) of the Act,therefore, the Assessing Officer is directed toverify the deduction made by the AssessingOfficer from the capital gain disclosed by theassessee in her return. The assessee's appeal onthis ground is partly allowed. 11. The sole ground of revenue's appeal isagainst deleting the addition of Rs. 13,60,081/-.The ld Assessing Officer observed that M/sSequine Real Estate had deducted TDS of Rs.13,60,081/- on payment of Rs. 2,42,44,000/-being non compete fees and the said paymentwas deposited in the government account on19/10/2007. The assessee had not claimeddeduction of same. The same was added in theincome of the assessee. The assessee challenged this issue before the ldCIT(A), who had allowed the appeal by observingthat in fact credit has to be allowed to theappellant of this TDS after due verification afterdetermining the tax liability of the appellant. The ld DR supported the order of the AssessingOfficer. 11. The sole ground of revenue's appeal isagainst deleting the addition of Rs. 13,60,081/-.The ld Assessing Officer observed that M/sSequine Real Estate had deducted TDS of Rs.13,60,081/- on payment of Rs. 2,42,44,000/-being non compete fees and the said paymentwas deposited in the government account on19/10/2007. The assessee had not claimeddeduction of same. The same was added in theincome of the assessee. The assessee challenged this issue before the ldCIT(A), who had allowed the appeal by observingthat in fact credit has to be allowed to theappellant of this TDS after due verification afterdetermining the tax liability of the appellant. The ld DR supported the order of the AssessingOfficer. At the outset, the ld AR for the assesseesubmitted that the fact of this ground is that M/sSequin Real Estate suo moto deducted anddeposited Rs.13,60,088/- on 29-10-2007 with ainterest of Rs.97,083/- on the payment ofRs.2,42,42,000/- by alleging such amount aspayment towards non compete fees. At the timeof payment no tax was deducted at source. Eventhe TDS certificate was not issued. The AOobserved that the firm deducted a sum ofRs.13,60,088/- as TDS on the payment ofRS.2,42,44,000/- being non compete fees. Theassessee has not claimed the deduction of thesame hence, no credit for TDS is allowed. Hefurther made an addition of this amount byholding that the same is the income of theassessee. CIT(A) held that tax is deducted on thepayment of the non compete fees which isassessed to tax and therefore the amount of TDScannot be added to the income of the assesseeand credit of TDS be allowed to her after due verification. At the time of payment no tax wasdeducted at source, and therefore no TDScertificate was issued. Subsequently as anafterthought the firm directly deposited theamount of tax deducted at source. No certificatewas issued to the assessee. The ld AO on thebasis of this had assessed this amount asbusiness income u/s 28(va). Therefore, the AO isallowed to credit for the same. After considering the facts of the case, theAssessing Officer is directed tom verify theparticulars of TDS and give the credit of taxdeducted to the assessee after verification. Thus,the appeal filed by the revenue is dismissed. 5.However, counsel for the appellant has contended that the view which has been taken by the Tribunal has not consideredthe finding which has been affirmed by CIT(A) and Tribunal beingfact finding authority has not given proper finding while reversingthe view of two authorities and more particularly when the TDShas been deducted for claiming as non compete fee. 6.Counsel for respondent contended that the assessee(Jadav Devi) is now 94 years of age and the person who wasmanaging the affairs has expired. In that view of the matter andlooking to the age, no remand is required. However, looking to thefact that the original company has claimed non compete fee, andthe same was withdrawn but once the TDS is deducted, thefinding is required to be given by the Tribunal. 7.He contended that the aforesaid relief is to beconsidered reserving the finding given by the Tribunal andthereafter it will be open for the Tribunal to come to the sameconclusion but after considering these two clauses, it will give itsopinion in accordance with law. 8.In that view of the matter, order of the Tribunal isquashed and set aside and we remit matter back to the Tribunalwith a view to consider the two clauses which are required to beinterpreted and after considering the fact on record arrived by AOas well as CIT (A). 9.We make it clear that we are of the opinion thatTribunal being last fact finding authority should have consideredfacts also. The order of remit back will not prejudice the Tribunalin considering the matter again. 108.The appeal stands allowed. 8.In that view of the matter, order of the Tribunal isquashed and set aside and we remit matter back to the Tribunalwith a view to consider the two clauses which are required to beinterpreted and after considering the fact on record arrived by AOas well as CIT (A). 9.We make it clear that we are of the opinion thatTribunal being last fact finding authority should have consideredfacts also. The order of remit back will not prejudice the Tribunalin considering the matter again. 108.The appeal stands allowed. (VIJAY KUMAR VYAS) J. (K.S. JHAVERI)J. Chouhan/49