The Commissioner Of Income Tax – 21, Mumbai v. M/S.aakar Estate Developers

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.5569 OF 2010 The Commissioner of Income Tax – 21, Mumbai..Appellant. Versus M/s.Aakar Estate Developers ..Respondent. Mr.Suresh Kumar for the appellant.Mr.Prakash Shah with Mr.Jas Sanghavi i/by PDS Legal for the respondent. CORAM : J.P. Devadhar &M.S. Sanklecha, JJ. DATE : 16[th] January 2013 P.C. : 1.In this appeal filed by the Revenue for assessment year 2004- 2005, following question of law has been proposed for our consideration. “Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in confirming the order of CIT (A) in holding that the amount received by the assessee was assessable under the head “capital gains” ?” 2.The respondent – assessee is a partnership firm engaged in the business of purchase, development of land and construction of building. The respondent – assessee were owners of a leasehold plot of land at Bandra. On 23[rd] July 1994, they entered into an agreement to develop the plot of land at itxa5569-10 Bandra with one M/s.Mamalwala Industries Limited. One Ami Corporation also claimed to be the purchaser of same leasehold plot at Bandra, which according to the respondent – assessee, belonged to them. Consequently, a Suit was filed by the respondent – assessee in the High Court for specific performance of the agreement against the original lessees and one Nipun Thakkar, the Proprietor of Ami Corporation was also made a party to the Suit. Ultimately said Suit was compromised and a consent decree was entered into. As per the consent decree, said Nipun Thakkar had agreed to pay a sum of Rs.9 crores to the respondent – assessee and M/s.Mamalwala Industries Limited in consideration of they giving up their right, title and interest in respect of the leasehold plot at Bandra. The share of the respondent – assessee in Rs.9 crores was Rs.4.50 crores. 3.The assessing officer by order dated 31[st] August 2006 held that the amount of Rs.4.50 crores received in consideration of respondent – assessee relinquishing its right over the leasehold property at Bandra was chargeable to tax under the head 'income from other sources'. 4.On appeal, the Commissioner of Income Tax (A) by order dated 24[th] November 2006 allowed the respondent – assessee's appeal holding that the rights of the respondent – assessee over the leasehold property at Bandra was a capital asset. Therefore, the extinguishment of that right would amount to a transfer of capital asset chargeable under the head 'capital gains' and not under the head 'income from other sources' as held by the assessing officer. 3.The assessing officer by order dated 31[st] August 2006 held that the amount of Rs.4.50 crores received in consideration of respondent – assessee relinquishing its right over the leasehold property at Bandra was chargeable to tax under the head 'income from other sources'. 4.On appeal, the Commissioner of Income Tax (A) by order dated 24[th] November 2006 allowed the respondent – assessee's appeal holding that the rights of the respondent – assessee over the leasehold property at Bandra was a capital asset. Therefore, the extinguishment of that right would amount to a transfer of capital asset chargeable under the head 'capital gains' and not under the head 'income from other sources' as held by the assessing officer. 5.Both the Revenue as well as the respondent – assessee carried the matter to the Tribunal. The Tribunal by the impugned order dated 10[th ]August 2009 held that the receipt of Rs.4.50 crores by the respondent – assessee was in consideration of relinquishment of its right, title and interest over the leasehold property at Bandra which is a capital asset and such receipt was chargeable as capital gains under Section 45 of the Act. The Tribunal negatived the stand of the department that since the business of the assessee had not commenced, the amount of Rs.4.50 crores should be brought to tax under the head 'income from other sources'. The Tribunal held that the leasehold plot was a capital asset notwithstanding the fact whether the respondent – assessee had commenced its business of real estate and development, or not. This is so as the business of the respondent – assessee is not of trading in land. Consequently, transfer of such capital asset would be chargeable under the head 'capital gains'. The Tribunal also referred to the fact that the leasehold plot of land was never treated by the respondent – assessee as stock-in-trade and even the assessing officer had not held the same to be respondent – assessee's stock-in-trade. In these circumstances, the Tribunal held the leasehold plot can only be considered as capital asset of the firm and any amount received on transfer of the same was assessable under the head 'capital gains'. 6.We note that the Commissioner of Income Tax (A) as well as the Tribunal have come to a finding of fact that the leasehold plot of land at Bandra was not stock-in-trade of the assessee but is a capital asset. Consequently, any consideration received for transfer of capital asset could only be assessable to tax under the head 'capital gains'. 7.In view of the above, we find no fault with the order of the Tribunal and thus do not entertain the question raised. Accordingly, the appeal is dismissed with no order as to costs. (M.S. Sanklecha, J.) (J.P. Devadhar, J.)