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ITO 25(2)(1), C-11 Bldg, R. No. 107, P.K. Bhavan BKC Bandra(E) Mumbai-51 Vs. M/s. Jawahar N. Ghia & Others (AOP), Dr. Rane (Mrs. Hema Sunil), D-61, Tilak Complex, Devki Nagar, Eksar Road, Borivali (W) Mumbai-400 103
November, 22nd 2013
                     IN THE INCOME TAX APPELLATE TRIBUNAL,
                           MUMBAI BENCH "J", MUMBAI

             BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND
                   DR. S.T.M. PAVALAN, JUDICIAL MEMBER

                                 ITA No. 4665/Mum/2012
                                 Assessment Year: 2004-05

             ITO 25(2)(1), C-11 Bldg,            M/s. Jawahar N. Ghia &
             R. No. 107, P.K. Bhavan BKC         Others (AOP), Dr. Rane
             Bandra(E) Mumbai-51                 (Mrs. Hema Sunil), D-61,
                                             Vs.
                                                 Tilak Complex, Devki Nagar,
                                                 Eksar Road, Borivali (W)
                                                 Mumbai-400 103

                   (Appellant)                                (Respondent)

                               Assessee by     :   Shri Mihir Naniwadekar
                                Revenue by     :   Shri Tushar Dhawal Singh

                         Date of hearing  : 29.10.2013
                    Date of Pronouncement : 19.11.2013

                                         ORDER

PER DR. S.T.M. PAVALAN, JM:

       This appeal filed by the Revenue is directed against the order of the Ld.CIT(A) -35,
Mumbai dated 30.04.2012 for the Assessment Year 2004-05.

2.     In this appeal, the Revenue has raised various grounds which are related to
decision of the Ld.CIT(A) on the issues of taxability of capital gains in the hands of AOP
vis-a-vis individuals, eligibility of the assessee for deduction u/s 54/54F and the eligibility
of the assessee for 54 EC deductions.

3.     The relevant facts are that the assessee is the representative of an AOP constituted
for the purpose of receiving rent and interest income. The representative of the AOP
along with other co-owners sold the development rights in the property bearing number
37A, TPS-III, Santa Cruz (E) in Andheri known as Krishna Kunj to M/s. Steamline Builders.
The members of the AOP/co-owners received 6358 sq.ft super built up area in kind as
part consideration for the sale of property and a further cash amounting to Rs.12,50,000/-
each as their share of compensation in the form of sale consideration. As regards the
                                             2                              ITA No. 4665/Mum/2012
                                                                       M/s. Jawahar N. Ghia & Others
                                                                          Assessment Year: 2004-05






6358 sq.ft super built up area received in kind as part consideration for the sale of
property, according to the assessee, since the assessee had received residential premises
in exchange of and in lieu of existing residential premises, no capital gain accrued in
terms of section 54F of the Act. Accordingly, the assessee had not offered any income by
way of long term capital gain in respect of the sale consideration received in the form of
6,358 square feet in the new building. The assessee has offered his share of
compensation of Rs.12,50,000/- as long term capital gain and in pursuance of the same
invested in NHB capital gains bond, claimed a deduction u/s 54EC of the Act.

3.1    In the assessment framed u/s 143(3) read with section 147 of the Act, the AO
worked out the area allotted in newly constructed building as against the existing area in
possession of the members of the AOP/co-owners, the difference being 6358 sq.ft valued
@ Rs 5000/- per sq.ft as per the municipal index. The AO did not allow the cost of the
premises as on 1/4/1981 on the ground that the assessee had not submitted the valuation
report and accordingly computed long term capital gain at Rs.3,30,40,000/- and thereby
taxed the capital gains of Rs.3,17,90,000/- in the hands of the AOP. Further, according to
the AO, the assessee had not purchased any new residential property but what was
received by the assessee was only in the form of sale consideration and hence not eligible
for deduction u/s 54 of the Act. In addition, the AO disallowed the claim of deduction of
Rs.12,50,000/-u/s 54EC of the Act on the ground that the said bonds were not acquired
within six months as required under section 54EC of the Act.

3.2    On appeal, the Ld.CIT(A) held that the capital gains should be taxed in the hands
of the individual and not in the hands of the AOP and the assessee is eligible for
deductions respectively u/s 54/54F and 54EC of the Act. Aggrieved by the impugned
order, the Revenue has preferred this appeal before us.

4.    Before us, the Ld.DR has contended that the Ld.CIT(A) is not justified in holding that
the capital gains should be taxed in the hands of the individuals as the shares of the co-
owners are not determined and the members of AOP are now under one title thereby
engaging the status of AOP. As there is no investment in new asset, the Ld.CIT(A) ought
not to have allowed the assessee for getting benefit u/s 54/54F of the Act. The Ld.DR has
further stated that since the assessee has failed to prove that the investment in NHB
                                             3                              ITA No. 4665/Mum/2012
                                                                       M/s. Jawahar N. Ghia & Others
                                                                          Assessment Year: 2004-05



Bonds were within six months from the transfer of development right, the Ld.CIT(A) has
erred in allowing the benefit u/s 54EC.

4.1      On the other hand, the Ld.AR has counter argued that the joint owners, in their
individual capacity only executed the development agreement and not in the capacity of
members of the AOP. The relevant agreement does not refer to AOP at all and hence the
capital gain is to be considered as received by the co-owners. The AOP has been
constituted only for the limited purpose of receiving only rent and interest which is
nothing to do with the capital gains. The Ld.AR has also relied on the decisions of the
Madras High Court in the case of CIT Vs. Deghamwak Estates and Punjab & Haryana High
Court in the case of Sudhir Nagpal and others Vs. ITO 349 ITR 636 (P&H) in support of
the proposition that the impugned capital gains is to treated as received in the hands of
the individuals/co-owners and not in the hands of the AOP. The Ld.AR has also argued
that the assessee is eligible for deductions respectively u/s 54/54F and 54EC of the Act.

5.     We have heard both the sides and perused the material on record. Firstly, on the
issue whether the capital gains is to be taxed in the hands of the individuals or AOP, the
perusal of the development agreement entered into with M/s. Streamline Builders
indicates that the said agreement is signed and executed by all the members of the AOP
in their individual capacity and not as members of the AOP and the said agreement does
not have any reference to the AOP. The fact that the payments made in the name of Dr.
Hema Sunil Rane, the then representative of all the members of the AOP clearly
establishes that the AOP has been constituted with the limited purpose of receiving the
income from rent and interest on fixed deposits. It is pertinent mention that the Madras
High Court in the case of CIT Vs Deghamwals Estates has held that the tenants in
common executing a sale deed would not constitute body of individuals. There must be
something more than joining together and executing a document to bring the co-owners
together as a body of individuals. The Punjab Haryana High Court in the case of Sudhir
Nagpal and others Vs ITO [2012] 349 ITR 636 (P&H) has held that to assess individuals to
be forming `association of persons', the individual co-owners should have joined their
resources and thereafter acquired property in the name of association of persons and the
property should have been commonly managed, only then it could be assessed in the
hands of `association of persons'. Conversely, the mere accruing of income jointly to more
                                             4                              ITA No. 4665/Mum/2012
                                                                       M/s. Jawahar N. Ghia & Others
                                                                          Assessment Year: 2004-05



persons than one would not constitute thereon an association of persons in respect of
such income. In other words, unless the associates have done some acts or performed
some operations together, which have helped to produce the income in question and have
resulted in that income, they cannot be termed as association of persons. Unless the
members combine or join in a common purpose, it cannot be held that they have formed
themselves into an association of person. In the present case also, the co-owners had
inherited property from their ancestors and there is nothing to show that they had acted
as association of persons while acquiring or transferring the property. The income is, thus,
to be assessed in the hands of the individual co-owners. In view of that matter, we do not
find any infirmity in the decision of the Ld.CIT(A) holding that the capital gains should be
taxed in the hands of the individuals and not in the hands of the AOP. Accordingly,
Grounds no. 1 & 2 are dismissed.

5.1   Secondly, on the issue of allowability of exemption u/s 54/54F, the AO has denied
the exemption u/s 54/54F on the ground that assessee has not purchased new residential
property for absorbing this long term capital gains arises out of transfer of property in
question. It is relevant to note that the development agreement itself emphasises on the
area which shall be allotted to the beneficiaries in a newly constructed building as against
their existing areas. The said development agreement clearly indicates the aforesaid
statistics in respect of allotment of areas. This suggests that the allotment in newly
constructed building under the development agreement is an adjustment of debts in
respect of transfer of property within the meaning of development agreement dated 9th
November 2003. Considering this fact in the light of the provisions of section 54, the word
purchased in section 54 must be interpreted in its ordinary meaning as buying for a price
or equivalent of a price by payment in kind or adjustment towards old debts or for other
monetary consideration. The said proposition is supported by the decision of the Hon'ble
Apex court in the case of CIT Vs. V. T.N. Aravinda Reddy [120 ITR 46 (SC)] wherein it has
been held that there is no reason to divorce the ordinary meaning of the word `purchase'
as buying for a price or equivalent of price by payment in kind or adjustment towards an
old debt or for other monetary consideration from its legal meaning in section 54(1).
Undoubtedly, each release in the case is a transfer of the releasor's share for
consideration to the release. In view of the aforementioned discussion, we are of the
considered view that the assessee is entitled for the deduction u/s 54/54F and hence we
                                               5                               ITA No. 4665/Mum/2012
                                                                          M/s. Jawahar N. Ghia & Others
                                                                             Assessment Year: 2004-05



do not find any justifiable reason to interfere with the order of the Ld.CIT(A) on this
count. Resultantly, the issue of allowability of exemption u/s 54/54F is decided in favour
of the assessee and against the Revenue. Ground no. 3 is dismissed.




5.2      Thirdly, on the issue of eligibility of deduction u/s 54EC, the AO denied the claim
of deduction on the investment in NHB u/s 54 EC assuming that the said investment has
been made beyond the stipulated period of six months. The AO considered the date of
investments as 5th May 2004. On appeal, the Ld.CIT(A) after verification of the original
receipts arrived at a conclusion that the investment in the said bonds has been made
between 24th of April and 26th of April. The Ld.CIT(A) has also observed that it has been
explained that the difference of days between cheque issue date and presenting and
representing the same for cheque clearance, can't be attributed to the assessee. It is
observed that the Ld.CIT(A) while deciding this issue has relied on the original receipts on
the investment and the bank details for arriving at the conclusion that the assessee is
eligible for the benefit u/s 54EC whereas the said original receipts and the bank details
have not been produced before the AO during the assessment proceedings. In fact, while
relying such additional evidence, the Ld.CIT(A) ought to have given opportunity to the AO
to express his views as required under Rule 46A of the Income Tax Rules. In view of that
matter, we are of the view that it is just and proper to set aside this issue to the file of the
AO to verify the claim of the assessee whether the investment has been made within a
period of six months and thereby decide the allowability of the deduction claimed.
Needless to emphasis further that the AO shall grant proper opportunity of being heard to
the assessee to produce all the materials in support of the said claim of deduction claim.
We direct and order accordingly. Ground nos. 4 & 5 are allowed for statistical purpose.

6.         In the result, the appeal filed by the Revenue is partly allowed for statistical
purpose.

      Order pronounced in the open court on this 19th day of November, 2013.


             Sd/-                                                     Sd/-
        (P.M. JAGTAP)                                        (Dr. S.T.M. PAVALAN)
      ACCOUNTANT MEMBER                                       JUDICIAL MEMBER

Mumbai, Dated: 19.11.2013.
*Srivastava
                                        6                            ITA No. 4665/Mum/2012
                                                                M/s. Jawahar N. Ghia & Others
                                                                   Assessment Year: 2004-05




Copy to: The Appellant
         The Respondent
         The CIT, Concerned, Mumbai
         The CIT(A) Concerned, Mumbai
         The DR "J" Bench

                                //True Copy//



                                                By Order

                                    Dy/Asstt. Registrar, ITAT, Mumbai.

 
 
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