ANDHRA NETWORKS LIMITED Vs. THE DCIT

JUDGEMENT

(1.) THIS appeal by assessee is against the order of Ld. CIT(A) -V, Hyderabad dated 27.02.2013. Assessee in the course of present appeal filed concise revised grounds which are as under:

(2.) Briefly stated, assessee is engaged in the business of providing telecom net work services. Assessee filed its return of income for A.Y. 2005 -06 on 25.10.2005 declaring total income of Rs. 2,06,27,320. Notice under section 148 of the I.T. Act was issued in pursuance of material gathered at the time of survey under section 133A conducted in the case of M/s. Embassy Builders on 23.09.2008. One of the documents impounded was a consortium agreement dated 10.12.2004 entered into by assessee with M/s. Dynasty Developers P. Ltd., and the new entity was called Embassy -ANL Consortium. Based on the documents, assessment was reopened. The issue in appeal is with reference to development agreement entered by assessee with the said M/s. Dynasty Developers P. Ltd., ("DDPL"). Assessee has been allotted ac.6.00 of land on lease -cum -sale basis by Karnataka Industrial Area Development Board (in short "KIADB") vide letter of allotment dated 10.01.2001. Subsequently, assessee entered into lease -cum -sale deed on 02.09.2003 with KIADB. On 10.12.2004, Assessee entered into the consortium agreement referred above. As per the consortium agreement, assessee agreed to transfer the rights in the property. Since, there are differences among the parties, assessee did not acknowledge the receipts in its audited accounts and continued to show the lease hold rights on the land as fixed assets in the books of accounts. AO initiated proceedings as Capital gains on transfer of property was not declared. Pursuant to notice under section 148, assessee submitted to the A.O. that it was not liable to capital gains as there was no 'capital asset' and also the fact that there is no 'transfer' as contemplated under section 2(47) of the I.T. Act. Assessing Officer, however, relying on the terms of consortium agreement, set aside the objections of assessee to hold that the transaction entered into by assessee comes within the purview of section 2(47) and in support discussed at length the definition of capital asset, property, lease rights, transfer of property etc., Assessing Officer also specifically discussed the provisions of section 2(47)(vi) inserted by Finance Act, 1987 with effect from 01.04.1988 as per which 'transfer in relation to a capital asset includes a transaction which has the effect of transferring or enabling the enjoyment of any immovable property'. Assessing Officer also brought out the intention of bringing out this particular clause (vi) to section 2(47) to hold that in the instant case assessee by entering into Consortium Agreement has transferred its rights over the land to M/s. DDPL and accordingly, there is transfer of capital asset within the meaning of section 45(3) of the I.T. Act. Holding so, he brought the value of consideration recorded in the books of consortium at Rs. 10,76,61,044 as 'full value of consideration' and considering the fact that assessee entered into the agreement immediately on getting the ownership held that the period of holding is less than 12 months and accordingly, considered the gains as short term capital gain. He brought an amount of Rs. 7,98,69,745 to tax as short term capital gain.

(3.) Being aggrieved, assessee contested before the Ld. CIT(A) that assessee did not possess any 'capital asset' and the land allotted by KIADB as per lease -cum - sale agreement does not give ownership rights and it can not be considered as immovable property and therefore, a capital asset. Without prejudice to the above, assessee also contended that it did not obtain any transferable lease hold rights over the land and as per clause -8 of the allotment any failure to fulfill any of the standard terms and conditions shall result in cancellation of the allotment. It was submitted that clause -12 of the terms and conditions stipulates that no permission will be granted to lease out any portion of the building or any portion of the land in favour of other entrepreneurs during the existence of lease period. Referring to the other clauses of the allotment letter, it contended that assessee did not possess any transferable lease hold rights and therefore, the land in question is not a capital asset. Further, it also contended that provision of section 2(47) are not applicable as the property is not an immovable property, as was given in clause (d) of section 269UA of the I.T. Act. It was contended that assessee has only lease hold rights and it did not fall into the definition of 'immovable property'. It further contended that there was no transfer under section 45(3) of the Act as it was only a legal fiction. It was submitted that as there is no assignment of rights executed, there is no transfer, consequently, no capital gains can be assessed in the hands of assessee by invoking the provisions of section 45(3). Ld. CIT(A) did not agree and confirmed the capital gains in the hands of assessee. The relevant observations of Ld. CIT(A) are as under: