Asst. Dit(Exemptions)-Iii, Hyderabad vs Assessee

Asst. Director of Income-tax, Sayanna Goud Memorial (Exemptions) - III, Hyderabad Educational Society, R.R. District. PAN - AADTS8039A (Appellant) (Respondent)

C.O. No. 24/Hyd/2013 (in ITA No. 270/Hyd/2013 Assessment Year: 2009-10)

Sayanna Goud Memorial Asst. Director of Income-tax, Educational Society, R.R. (Exemptions) - III, District. Hyderabad. PAN - AADT58039A (Cross Objector) (Respondent)

Revenue by : Shri D. Sudhakar Rao Assessee by : Shri S. Venkatesan

Date of hearing 18-02-2015 Date of pronouncement 20-02-2015

OR D ER

PER SAKTIJIT DEY, J.M.:

This appeal of the department and C.O. of the assessee are directed against order dated 24/12/2012 passed by ld. CIT(A)-IV, Hyderabad for A.Y. 2009-10.

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ITA No. 270/Hyd/2013

2. The first issue raised by department is with regard to finding of ld. CIT(A) that the amount received of Rs. 16,36,15,000 on sale of land to M/s Ramky Estates and Farms Pvt. Ltd. is taxable in A.Y. 2008-09.

3. Briefly, the facts relating to the aforesaid issue in dispute are, assessee, a society, is registered under section 12A of the Act. For the AY under consideration, assessee filed its return of income on 30/09/09 declaring 'Nil' income after claiming exemption u/s 11 of the Act. In course of assessment proceeding, it was noticed by AO that during the relevant PY, assessee had received an amount of Rs. 16,36,15,000 as consideration towards sale of a plot of land. To a query raised by AO, it was stated by assessee that society purchased five acres of land in Srinagar Village in the year 1988. It also received 59 acres of agricultural land at Srinigar Village in the year 2002-03 as donation from Members of society and their family members. The society donated 10 acres of land to Govt. of AP in 2005. Assessee entered into an agreement of sale on 08/02/06 with M/s Ramky Estates and Farms Pvt. Ltd. for sale of land to the extent of 54 acres @ 44.80 lakh per acre. It was stated, assessee received an amount of Rs. 18,90,000 as advance during the PY 2005-06. The A.P. Govt. in April, 2006 issued a notification to acquire land in Srinigar Village including assessee's land. M/s Ramky Estates and Farms Pvt. Ltd. entered into joint agreement with Govt. of AP and Hyderabad Urban Development Authority for development of an integrated township. In this process, M/s Ramky proposed to purchase the entire area under acquisition. As per the survey conducted by M/s Ramky and assessee, land belonging to assessee was found to be 36.38 acres only. Accordingly, assessee 3 ITA No. 270 /Hyd/2013 & C.O. No. 24/H/13 Sayanna Goud Memorial Educational Society

entered into an irrevocable GPA on 24/08/07 with M/s Ramky for purchase of balance land for a total consideration of Rs. 16,55,05,000. AO noticed that out of the total consideration of Rs. 16,55,05,000, assessee received a part as advance in the earlier year. However, during the relevant PY assessee received balance amount of Rs. 16,36,15,000. He further observed that assessee has made payment of Rs. 16,30,00,000 to M/s All Time Projects Ltd. towards purchase of a plot of land through an unregistered agreement. Assessee, however, did not offer any capital gain by claiming the payment to M/s All Time Projects Ltd. as application of income. AO, however, observed that M/s All Time Projects Ltd. is a company wherein Smt. M. Radhika, wife of the secretary of assessee society is one of the director. The Secretary himself is also one of the directors of the company. AO held that payments made attracts the provisions of section 13 of the Act, accordingly, assessee is not eligible for exemption u/s 11 of the Act. Further, AO also rejected assessee's claim that land sold being agricultural land is not a capital asset u/s 2(14) of the Act. Accordingly, AO completed the assessment by determining the total income at Rs. 16,41,82,943. Being aggrieved, assessee preferred an appeal before ld. CIT(A).

4. Before ld. CIT(A), assessee reiterated the submissions made before AO. In addition, it was submitted by assessee that provisions u/s 11 & 12 relating to application, accumulation and investment are not applicable to an income, which is otherwise exempt. It was also submitted by assessee that as possession over the land was handed over to M/s Ramky under GPA during FY 2007-08, capital gain, if any, is not taxable in the impugned AY, but in the AY 2008-09.

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5. Ld. CIT(A) after considering the submissions of assessee, though did not accept assessee's claim with regard to the nature of land as agricultural and also application of sale proceeds, however, she accepted assessee's claim that possession over the land having been handed over to the purchaser during AY 2008-09 in terms of section 2(47)(v), capital gain, if any, has to be assessed in the AY 2008-09. Accordingly, ld. CIT(A) directed AO to bring the capital gain to tax for AY 2008-09 by taking remedial measures as per the provisions of the Act. Being aggrieved of the aforesaid decision of ld. CIT(A), department is in appeal before us.

6. Ld. DR submitted that as assessee itself has shown the receipt as application of income for the impugned AY, ld. CIT(A) was not correct in holding that capital gain arising from sale of land is to be taxed in the AY 2008-09 and not in the impugned AY.

7. Ld. AR, however, supporting the order of ld. CIT(A) on this aspect, submitted that when the possession over the land was handed over to the developer in terms with the GPA in FY 2007-08, there was a transfer in terms with section 2(47)(v) of the Act. Ld. AR submitted that only because assessee under a mistaken impression, has shown the amount as application of income in the impugned AY, department cannot be allowed to take advantage of such mistake committed by assessee. Ld. AR submitted that in pursuance to direction of ld. CIT(A), AO in the meantime, has reopened assessment u/s 147 of the Act for AY 2008-09 and has also passed assessment order on 31/03/14 by bringing to tax on substantive basis the amount of Rs. 16,41,82,943 received towards sale consideration from M/s Ramky. Ld. AR, thus, submitted that when the amount received by assessee on sale of land has been brought to tax in AY 2008-09, the same amount cannot be taxed again in the impugned AY. Therefore, the department should not 5 ITA No. 270 /Hyd/2013 & C.O. No. 24/H/13 Sayanna Goud Memorial Educational Society

have any grievance against the impugned order of ld. CIT(A) on this issue.

8. We have considered the submissions of the parties and perused the materials on record as well as orders of revenue authorities on this issue. There is no dispute to the fact that assessee on 24/08/07 has entered into GPA with M/s Ramky for development of land and in pursuance to the terms of the said GPA has handed over possession of the property to M/s Ramky. This fact is also evident from the entries made in the books of account for AY 2008-09. As observed by ld. CIT(A) in para 6.3 of her order, AO also in his remand report dated 28/08/12 has admitted that sale has taken placed in AY 2008-09. Therefore, since assessee has handed over possession over the property to the developer on execution of GPA on 05/05/07, there is a transfer of the asset in terms with section 2(47)(v) during the FY 2007-08 relevant to AY 2008-09. This view is also supported by the decision of the Hon'ble Jurisidictional High Court in case of Potla Nagreswara Rao Vs. DCIT, [2014] 365 ITR 249. Moreover, it is a fact on record that on the basis of the impugned order of ld. CIT(A), AO not only reopened the assessment for AY 2008-09 by taking recourse to section 147 of the Act, but has also completed the assessment for AY 2008-09 by bringing to tax the amount of Rs. 16,41,82,943 received from M/s Ramky towards development of land. This fact is very much evident from the assessment order passed for AY 2008- 09 u/s 143(3) read with section 147 of the Act for AY 2008-09. To a query raised by the Bench, ld. AR of assessee asserted that assessee has not challenged the year of taxability in the appeal preferred before ld. CIT(A) against the assessment order passed u/s 143(3) read with section 147 for AY 2008-09. Ld. AR assured that assessee accepts the fact that if at all capital gain has to be assessed, then, it is to be in the AY 2008-09. On perusal of the 6 ITA No. 270 /Hyd/2013 & C.O. No. 24/H/13 Sayanna Goud Memorial Educational Society

grounds raised by assessee before ld. CIT(A) in appeal preferred for AY 2008-09, a copy of which is placed before us, also reveals that assessee has not challenged the year of taxability. Therefore, once it is accepted that assessee has handed over possession of the land to the developer in FY 2007-08, in terms with an agreement transfer takes place during that FY, not only as per the provisions of section 2(47)(v) but also as per the ratio laid down by Hon'ble Jurisdictional High Court in case of Potla Nageswara Rao (supra). In the aforesaid view of the matter, we do not find any infirmity in the order of ld. CIT(A) in holding that capital gain, if any, from the sale of land has to be assessed in AY 2008-09 and not in the impugned AY. Accordingly, we uphold the order of ld. CIT(A) by dismissing the ground raised by department on this issue.

9. The next issue is with regard to ld. CIT(A) upholding assessee's claim of exemption u/s 10(23C)(iiiad) of the Act.

10. Briefly, the facts relating to the aforesaid issue while completing assessment, AO treated the excess of income over expenditure amounting to Rs. 5,67,943 as income of assessee for the impugned AY. In an appeal preferred before ld. CIT(A), assessee objected to such disallowance on the ground that as receipts of two educational institutions run by assessee is not exceeding the specified amount of Rs. 1 crore, surplus of Rs. 5,67,943 is exempt u/s 10(23)(iiiad). Ld. CIT(A) after considering the submissions of assessee in the context of the ratio laid down in the decisions placed before her, allowed assessee's claim of exemption u/s 10(23)(iiiad) being convinced of the fact that the receipts of each of the educational institutions did not exceed the specified limit of Rs. 1 crore during the relevant FY.

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11. We have heard the submissions of the parties as well as the materials on record and the orders of revenue authorities. Ld. DR submitted before us that the receipts of assessee during the year having exceeded Rs. 1 crore, assessee is not eligible for exemption u/s 10(23)(iiiad), hence, the surplus of income over expenditure was correctly taxed by AO. Ld. AR, however, submitted that as the receipts of each educational institution run by assessee, which have distinct identity did not exceed the prescribed limit of Rs. 1 crore as provided 10(23C)(iiiad), assessee is eligible for claim of deduction u/s 10(23C)(iiiad). In support of such contention, ld. AR relied upon a decision of the Hon'ble Karnataka High Court in case of CIT Vs. Children Educational Society, 358 ITR 373.

12. Having considered the submissions of the parties and perused the materials on record, we do not find any infirmity in the order of ld. CIT(A) in allowing exemption u/s 10(23)(iiiad). On perusal of facts and materials on record, it is evident that the individual receipts of the two educational institutions run by assessee do not exceed the prescribed limit of Rs. 1 crore as provided u/s 10(23C)(iiiad). Therefore, we do not find any basis in department's contention that assessee is not eligible for deduction u/s 10(23C)(iiiad). Further, the amount received from sale of land having already been held to be taxable in AY 2008-09, the same cannot be considered in the impugned A.Y. That being the case, there is no reason to disturb the finding of ld. CIT(A). Accordingly, we confirm her decision with regard to assessee's claim of exemption u/s 10(23C)(iiiad). This ground is dismissed.

13. In the result, department's appeal is dismissed.

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C.O. No. 24/Hyd/2013 by assessee

10. The first issue as raised in C.O. is with regard to finding of ld. CIT(A) that the land sold by assessee is not an agricultural land, but, a capital asset within the meaning of section 2(14) of the Act. As can be seen, during the assessment proceeding as well as before the ld. CIT(A), it was submitted by assessee that the land sold by assessee to the developer being recorded as agricultural land and situated beyond eight kilometers from the limit of a notified municipality, is not a capital asset u/s 2(14) of the Act. However, neither the AO nor ld. CIT(A) accepted such claim of assessee and held that the land sold by assessee is a capital asset.

11. Ld. AR submitted before us, CIT(A) having held that consideration received by assessee from sale of land is not taxable in the impugned AY was not justified or legally correct in giving her finding with regard to nature of land. Ld. AR submitted that once ld. CIT(A) holds a particular income not to be taxable in the particular assessment year, she has no jurisdiction to decide any other issue related to such income. Therefore, finding of CIT(A) with regard to nature of land needs to be expunged.

12. Ld. DR, on the other hand, supported the order of ld. CIT(A).

13. We have considered the submissions of the parties and perused the materials on record. In principle, we agree with the ld. AR that ld. CIT(A) should not have commented upon the nature of land, once, she held the income arising out of sale of land not to be taxable in the impugned AY but, A.Y. 2008-09. Therefore, once ld. CIT(A) was of the view that income is not taxable in the impugned AY it would have been better if she had not commented upon the nature of land and left it to be decided by authorities concerned while deciding the issue relating to taxability of the said 9 ITA No. 270 /Hyd/2013 & C.O. No. 24/H/13 Sayanna Goud Memorial Educational Society

income in the A.Y. 2008-09. The finding of ld. CIT(A), in our view, has caused serious prejudice to assessee as he has been precluded from raising the issue of nature of land in the appropriate assessment year. Accordingly, we expunge the observations of ld. CIT(A) with regard to nature of land and observe that the authorities concerned while deciding the issue relating to nature of land in A.Y. 2008-09 should not get influenced with the observations made by ld. CIT(A) in the impugned A.Y. and decide the issue independently on the basis of evidences on record and in accordance with law.

14. The next issue as raised in C.O. is against the observations made by ld. CIT(A) with regard to the allowability to claim deduction u/s 11 of the Act. However, considering the fact that we have upheld the order of ld. CIT(A) both on the issue of year of taxability of capital gain as well as claim of exemption u/s 10(23C)(iiiad), this issue more or less has become infructuous. Ld. AR also accepts this position. In view of the aforesaid, there is no need to adjudicate this issue.

15. In the result, C.O. filed by assessee is partly allowed.

16. To sum up, department's appeal is dismissed and C.O. of assessee is partly allowed.

Pronounced in the open court on 20/02/2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 20 th February, 2015 kv 10 ITA No. 270 /Hyd/2013 & C.O. No. 24/H/13 Sayanna Goud Memorial Educational Society

Copy to:-

1) Asst. Director of Income-tax (Exemptions)-III, 3 rd Floor, Aayakar Bhavan, Basheerbagh, Hyd - 04.

2) Sayanna Goud Memorial Educational Society, 3-42, Tukkuguda Village, Maheswaram Mandal, RR Dist.

3) CIT(A)-IV, Hyderabad

4) DIT(Exemptions), Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.