HANSALLAYA PROPERTIES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Before we reproduce the questions of law referred for opinion of this Court by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') in compliance with the order passed by this Court under Section 256(2) of the Income Tax Act ('the Act' in short), we deem it appropriate to state the facts leading to the reference.

(2.) The land at 15-Barakhamba Road, New Delhi (leasehold land) was originally leased on 31.5.1932 to a partnership firm M/s. Naraindass Hansraj in which late Shri H.R. Vadera was a partner. On that land stood a building which was occupied by the two daughters of Shri H.R. Vadera, viz., Dr. Miss Lila Raj and Dr. Miss Shanti Raj. The firm M/s. Hansalaya Properties came into existence with effect from 08.8.1970 under a deed of partnership executed on the said date between late Shri H.R. Vadera and Mrs. Pushpa Vadera. Two minor children of Mrs. Pushpa Vadera were also admitted to the benefits of the said partnership. As per the said partnership, the business of the assessee was of a constructing a multi-storeyed commercial building on the land situated at 15-Barakhamba Road, New Delhi after demolishing the existing structure. The firm M/s. Naraindass Hans Raj had been dissolved and the lease-hold land was allotted, to late Shri Hansraj Vadera. On 08.8.1970 (the date on which the assessee firm was constituted) late Shri H.R. Vadera brought in the aforesaid leasehold property and the building situated thereon as his capital contribution in the capital of the said firm. This was done in terms of Clause 3 of the said Partnership Deed. Thereafter on 31.8.1970, the capital account of late Shri H.R. Vadera was credited by 2,01,000 and the same amount was debited in the assessee's books as the value of the said property which had been brought in by Shri H.R. Vadera in the said new firm. The building plans for developing the aforesaid property for the purposes of constructing a multi-storeyed commercial building thereon, were approved by the New Delhi Municipal Corporation in October, 1970.

(3.) In the Estate duty proceedings of late Shri H.R. Vadera, the value of the land was also revised by his son and heir Shri Devraj for determining the interest of late H.R. Vadera in the partnership firm wherein the value was revised to 45,23,800 keeping in view the revision land value as on 08.08.1970 at 36,61,625. The said revision of was finally accepted after appellate proceedings by valuing the said land at 45,23,800 as revised by the legal heir. The Income Tax Officer, in his draft order, rejected the revised figure of the cost of land at 36,61,625 debited by the assessee to its revised consolidated Profit and Loss Account and held that the assessee was entitled only to a deduction of 2,01,000 as the cost of the land in computing its profit from the venture. This was the order for Assessment Years 1972-73 and from 1974-75 to 1977-78. The assessment order was framed to the same effect after obtaining the approval of the Inspecting Assistant Commissioner.