Commissioner of Income Tax vs Calico Dyeing and Printing Mills Pvt. Ltd.

This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated 5th June, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal)for the Assessment Year 2006-07.

The Revenue urges the following questions of law for our consideration:

"(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in law in holding that profit from the sale of residential units were not assessable in the hands of the assessee without appreciating the fact that the assessee was the owner of the land (along with all benefits by way of FSI etc attached thereto) on which such residential units were constructed which were sold out during the impugned financial year?

(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in holding that profit from the sale of residential units were not assessable in the hands of the assessee without appreciating the fact that construction of the residential units on its land was possible only by utilising the FSI which meant "impairment of asset" of the assessee company?".

The respondent assessee is engaged in the business of construction of building. It also owns land on which it constructed the building. Respondent assessee is a nonprofit making company, working on the principle of mutuality. It entitles its shareholders to occupy flats in building constructed by it on only recovering the cost of construction. During the year under consideration, one of the respondent assessee''s major shareholder � M/s. Calico Associates sold its shares to a third party. This sale would entitle the new shareholder a right to occupy 67 flats in the building constructed by respondent assessee. The transfer of shares by its shareholder viz: M/s. Calico Associates was subjected to tax in the hands of M/s. Calico Associates under the head ''capital gains''. The respondent asseseee did not sell any asset. Consequent to the sale of shares by its shareholders only its shareholder was chargeable to tax. Thus, no income was declared by respondent assessee. However, the Assessing Officer was of the view that the flats were owned by the respondent asseseee and the principle of mutuality would not apply to the facts of the present case as it is a colourable device to avoid payment of tax. Moreover, the Assessing Officer held that as the land was owned by the respondent asseseee and its FSI was utilized, the land was impaired and profits on sale of flats is compensation for the above. Therefore, the Assessing Officer in his order dated 31st December, 2008 passed under Section 143(3) of the Act holding that 67 flats were to sold were valued at Rs. 20.60 Crores. However, after reducing the costs of construction etc., computed the profit at Rs. 10.72 Crores.

Being aggrieved, the respondent assessee carried the issues in the appeal to the CIT(A). By the order dated 22nd May, 2009, the CIT(A) held that in terms of Section 27(iii) of the Act, the shareholder was the owner of the flat. It found that in fact what had been sold were its shares held by its shareholder one M/s.Calico Associates. The sale of shares by its shareholder � M/s. Calico Associates was brought to tax under the head ''capital gain'' in the hands of the shareholder for the subject Assessment Year. It also held that there is no sale of the land by the respondent asseseee nor any sale of FSI available on the land which continues to be owned by the respondent asseseee. In these circumstances, it allowed the respondent asseseee''s appeal.

Being aggrieved, the Revenue agitated the issue before the Tribunal. The Tribunal by the impugned order held that the occupancy rights in the building constructed by the respondent assessee were attached to the shares of the company for the benefit of the shareholders. In the present case, the shareholder M/s. Calico Associates had, in fact, transferred its shares and the consideration received by it had been taxed in its hands as a ''capital gains'' on sale of shares. It confirmed the finding of the CIT(A) that no asset of the respondent asseseee had been sold in the subject Assessment Year to attract tax on income. Thus, the impugned order and the Tribunal dismissed the revenue''s appeal.

We find that both the CIT(A) as well as the impugned order have found that the shares of the respondent assessee company carry with it right to occupy the premises in the building constructed by the respondent assessee. In this case, M/s. Calico Associates one of its shareholders had right to occupy 67 flats in the building constructed by the respondent asseseee in subject assessment year in its capacity as its shareholder. Both the CIT(A) and the Tribunal have rendered a finding of fact that during the subject Assessment Year, the respondent asseseee had not sold any asset including any flat. The only sale which took place was of its shares by M/s. Calico Associates i.e. it shareholder. Thus, shares which carry its right to occupy the flats has already been subjected to tax in the hands of the shareholder.

Thus, the concurrent findings of fact rendered by the CIT(A) and the Tribunal not being shown to be perverse and/or arbitrary, no interference is called for.

Further, we find that the questions as raised before us in respect of impairment of land (use of FSI) was not canvassed before the Tribunal. Therefore, the question as raised does not arise out of the Tribunal''s order. In any case, the finding of fact rendered by the CIT(A) that land continues to be owned by the respondent assessee and there is no transfer of any FSI attached to the land is not shown to be perverse and/or arbitrary.

Accordingly, questions as framed do not give rise to any substantial questions of law.

Accordingly, Appeal dismissed. No order as to costs.