ORDER
Satish Chandra, AM
1. These appeals one by the revenue and the other by the assessee, arise out of order dated 19.10.94 of the CIT (A) XIX, Bombay, pertaining to the assessment year 1992-93.
2. The revenue has taken the following two grounds in its appeal in ITA No. 295/Bom/95:-
“1. On the facts and in the circumstances of the case, the CIT (A) has erred in directing to tax discounted amount of interest received in the previous year itself from National housing Bank on accrual basis in stead of on receipt basis.”
3. The assessee has taken one ground only which reads as under:-
“On the facts and the circumstances of the case and in law, the learned Commissioner of Income tax (Appeals) has erred in confirming the disallowance of Breberage of Rs. 1,50,000 paid to the Brokers for sale of the rights in Fiat.
4. The learned representatives of the parties have been heard, their arguments considered and records persued.
5. We first take up the appeal of the revenue.
6. Apropos Ground No. 1 above. The relevant facts are these. The assessee is an individual. She derives share of profit from M/s. associated Chemical Corporation as a partner. She filed her return for the assessment year 1992-93 on 22.10.92, declaring total income at Rs. 8,68,290. After initial processing of the return under Section 143 (1) (c), the case was taken up for regular assessment. the Assessing Officer found that the assessee had booked a flat of 2511 square feet built up area in a Housing Society namely, Jeevan Villa Co-operative Housing Society Ltd., somewhere in June, 1981 for a total cost of Rs. 6,50,000. However, before completion of the building and naturally before taking the possession of the flat, the assessee sold her right to occupy that flat under construction to Shri Mural Manehar Agarwal, his wife and his HUF by an agreement dated 31st May, 1991. Besides, the right to occupy the flat, the assessee has sold the right for two car parking areas in the premises of the building. All, this is for a total consideration of Rs. 1,13,02,111. Out of the sale proceeds, she claimed brokerage of Rs. 1,50,000, and transfer fees of Rs. 1,15,000, and thus declared the net sale proceeds at Rs. 1,10,36,111. Out of the said sale proceeds, the assessee deducted the cost at Rs. 17,00,251, and declared long term capital gains at Rs. 93,35,860. She deposited Rs. 1,00,00,000, in the National Housing Bank and claimed deduction Under Section 54E. Accordingly, the assessee offered Rs. 4,30,743, as capital gain. during assessment proceedings, the assessee relied on various decisions to say that the sale should not be taken as a business adventure out it should be taken as long term capital gain for which, specific reliance was placed on the decision of “CIT” v. Vimal Lalchand Mutha”, 187 ITR 613 (Bom). It was also stated that as per Section 2 (47) (vi) the transaction of sale of shares in co-operative housing society for the purpose of acquiring the flat amounts to “transfer”. The explanation was not acceptable to the Assessing Officer, who was of the view that a mere booking of a flat and surrendering the same to someone-else in stead of to the Co-operative Housing Society itself cannot be termed as transfer of capital asset. He noted the background of introduction of Sub-clause (vi) to Section 2 (47) and observed that the assessee has sold mere share certificate before the completion of flat and therefore, the difference between the cost of acquisition of the shares along with later payments if any to certain the same and the sale price should be treated as income of the assessee from other sources and should be taxed accordingly. According to him, the transfer of share in Co-operative Society as envisaged in Section 2 (47) (vi) pre-supposes the existence of la fully constructed flat which is in possession or occupation of a seller which enables the purchasers to enjoy the same. He further observed that since the flat was sold before its coming into existence and its occupation, the transaction cannot be treated as long term capital gain. He was of the view that the decision in “Mrs. Vimal Lalchand Mutha” (supra) was distinguishable on facts. In that case, the assessee had obtained possession of a flat in June, 1981 and sold the same in April, 1983 and claimed the transaction as long term capital gain but in the case of the assessee there was no flat in existence and what was transferred is a share in a Co-operative Housing Society. With these observations, he brought to tax Rs. 94,85,860 (Rs. 1,13,01,111 – cost of Rs. 17,00,251 – transfer fee of Rs. 1,15,000) as income from other sources/short term capital gain on sale of right of acquiring a flat, denying the assessee’s claim of exemption under Section 54E.
7. On appeal, the assessee contended as follows:
(1) The right in the flat was held by the assessee from 1980-81 to 1990-91, i.e. more than 10 years. The right in that flat was a long term capital asset and liable to long term capital gain.
(2) The assessee was not a dealer in flats. She had purchased the above flat for her own residence. The question of considering the same as an adventure in the nature of trade did not arise.
(3) The assessee never claimed to have sold a house property nor claimed any exemption under Section 53 or Section 54.
(4) The question whether the assessee sold a flat or a right in the flat was immaterial so long as the same asset held by the assessee for more than 3 years.
(5) The Assessing Officer has not given any specific reason as to how the interest in that flat held by the assessee from 1981 to 1991 could be considered as short term capital gain or income from other source.
(6) Section 2(47)(v) was in favour of the assessee when read with Section 269UA (d).
8. The submissions of the assessee found favour with the CIT (A), who held that the impugned transaction resulted in long term capital gain, observing thus:-
“However, one small detail has been over-looked. The appellant also owned 5 shares in the co-op. housing society which owned the “Land”. Land is undeniably a capital asset. It is to this immovable property to which the 5 shares and the right of enjoyment of occupation were also attached. It is well known that the rise in the cost of flats is not because of the appreciation in the construction value of the flat, on the contrary it is mainly on account of rise in the value of land. The appellant’s interest in this property was not by way of right of occupation of the flat No. X on 15th floor. But also included the limited ownership of the land on which it was to come into existence. This right was enjoyed by the appellant from 1981 to 1991. Therefore, the transfer of such a right gave rise to a long term capital gain.”
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“It needs to be appreciated that anything cost viz Rs. 17,00,000 in 1981 would not sell for Rs. 1,20,00,000 in 1991 if it was not worth it. A non existent flat could not have been the basis of such appreciation. I have gone through Section 2 (47) Sub-clause (v) & (vi) as also Section 269UA (d) and I am satisfied that the transfer contemplated by the appellant was within frame work of the transfer eligible for capital gain treatment as the immovable property in form of land was in existence all times. On this stand point I direct the A.O. to give long term capital gains treatment to the receipt as above.”
9. The revenue is aggrieved by the above findings and ground No. 1 relates thereto.
10. The learned D.R. carried us through the allotment letter issued by the Society to the assessee, jointly with Shri Janakrai R. Parekh (copy at PP 18-20 of the assessee’s compilation), the copy of agreement dated 31.5.91, between the assessee vendor and the purchaser available at PP 22-31 of the said compilation, details of payments appearing at page 50 thereof and argued that admittance of the assessee as Member of the Society and allotment of a flat on the 4th floor of the new building and two car parking spaces were subject to fulfillment of conditions enumerated in para 1 (a) (b) (c) of the said allotment letter. According to the above terms and conditions, Rs. 1,25,000, was payable on or before September, 1981, Rs. 5,04,000, in installments and the balance of Rs. 21,000, on possession of the flat. Thus, as per the allotment letter, the assessee was required to pay an aggregate amount of Rs. 6,50,000, towards the cost of the flat and two car parking spaces. According to the learned D>R. by 30.11.89, the assessee had paid Rs. 6,45,000, in installments. A further sum of Rs. 4,50,000, was paid by the assessee by 23.11.90 in installments. The total payment by the assessee to the Society as per the allotment letter by 23.11.90, aggregated Rs. 10,95,000. The cost of the flat had increased to Rs. 17,00,000. The learned D.R. therefore, argued that the assessee had not made full payment towards the cost of the flat by 31.5.91, the date on which sale agreement was entered into. The society therefore, continued to have all the rights in the flat till 31.5.91 and by the date, the right of the assessee in the flat had not accrued. The learned D.R. further argued that on 4.9.91, an amount of Rs. 6,05,000, was paid by the purchaser Shri Mural Manohar Agarwal to the Society. If the date 4.9.91 is considered as the date of final payment towards the flat in question, the transaction resulted only in short term capital gain and in that event, the A.O. was justified in denial of assessee’s claim of exemption under Section 54E.
11. The learned counsel for the assessee took us through the assessee’s submission dated 10.7.92, (PP 5-7 of the assessee’s P.B), dated 24.7.93 ()at PP 8-14 of the compilation), dated 20.9.93, (at PP 15-17 of the compilation) filed before the A.O. during assessment proceedings. He pointed out that in its submission dated, 10.7.92, it was brought to the notice of the Assessing Officer that the Society was the owner of the land as it had taken on lease property bearing City Survey No. 351 for 999 years from one, Shri Surendra Kumar Vijaykumar Pannalal & Others. Excalation of the cost to Rs. 17,00,000, as against initial cost of Rs. 6.29 lakhs was also brought to the A.O.’s notice. It was also stated in the said letter that for reasons stated therein, there was delay in construction of the building and consequent thereto, escalation in the cost. Vide the assessee’s letter dated 24.7.93, it was stated before the A.O. that it was not possible for the assessee to meet the increased cost of construction and therefore, the assessee decided to sell her interest in the flat. The assessee never intended to enter into any venture in the nature of trade or business of dealing in flat. She decided to transfer her interest in the flat on finding that the cost has increased substantially and there was likely-hood of further complication in getting the possession of the flat from the Society. It was also stated therein that the intention of the assessee being to occupy the flat and to hold it as capital asset, the impugned transaction cannot be treated as business venture in view of number of decisions quoted therein. In support of the claim that the impugned transaction resulted in long term capital gain, it was stated in this letter that the assessee had acquired the interest in shares and flat in the Society on allotment of the same to her in June, 1981 and September, 1981, respectively. The aforesaid interest was a capital asset in the hands of the assessee. As per the definition of the capital asset, even interest in shares in Co-operative Society or in a flat of the Co-operative Housing Society is capital asset. It was also stated therein that the date of acquisition of the interest is the date on which interest is acquired by the assessee by way of allotment to the assessee or by way of agreement which is in September, 1981 when she was allotted the flat on payment of Rs. 1,25,000 and the balance amount being payable in installments as stated in the letter of allotment. It was stated herein that the assessee had not received the possession of the flat up to 31.5.91, the date of sale. She was not in legal and physical possession of the impugned premises. The assessee held the right to possession for occupation of the flat since September, 1981 and accordingly, the said interest is held by her for more than 3 years. The transaction therefore, resulted in long term capital gain. Reliance was placed on the decision in CIT v. Vimal Lalchand Mutha (supra). The learned Counsel for the assessee submitted that in letter dated, 20.9.93, the assessee enumerated the sequence of dates since inception and reiterated the same contentions as in the earlier two letters. The learned Counsel for the assessee further submitted that the assessee had complied with all the terms and conditions as given in the allotment letter. There is nothing on record to show that the assessee was penalised for any default in payments. The learned Counsel for the assessee further submitted that there is no contradiction between the sale agreement dated, 31.5.91 and the agreement to purchase by the assessee. The agreement has to be read as a whole. What is material is to consider as to how the agreement has been understood by the concerned parties. The department cannot interpret the agreement in the manner it likes.
12. The learned Counsel for the assessee argued that as per Section 2 (14) which defines the term capital asset, right in shares of the Co-operative Society and an agreement to purchase flat from the Co-operative Society is capital asset, as held in CIT v. Vimal Lalchand Mutha, 187 ITR 613 (Bom). In support of his argument that right to occupy a flat is a capital asset, reference was made to Special Bench report, it has been held that right in share of the Co-operative society is right in land of the Society as well. He further argued that “transfer” as per the provisions of Section 2 (47) (v) and/or 2 (47) (vi) includes surrender of right in an immovable property. In support of his argument that right in the agreement to purchase a flat is a capital asset, reliance was placed on the decision in CIT v. Tata Services Ltd., 122 ITR 594 (Bom), CIT v. Sterlling Industries Ltd., 123 ITR 441 (Bom), CIT v. Vijay Flexible Container, 186 ITR 693 and Jagdish Chander Malhotra v. ITO, 64 ITD 251 (Del). Reliance was also placed on the decision of the Hon’ble Bombay High Court in CIT v. Ms. Rashmi S.Desai reported in BCAJ November, 1985. The learned Counsel for the assessee thus strongly supported the findings reached by the CIT (A).
13. We have given our careful thought to the submissions of the parties. The facts are not in dispute. The assessee jointly with Shri C.R. Parekh had applied for membership of the Jeevan Villa Co. Op. Society Ltd. and paid Rs. 251/- as entrance fee and for 5 shares on 17.7.80 consequent thereto the Society admitted them as member of the Society. The assessee had also desired for allotment of flat/car parking space in the new building to be constructed by the Society. The Society agreed to allot them a flat on the 4th floor and two car parking spaces. This was done vide Society’s allotment letter No. Jv/Allot/4/80 dated Sept. 1981. However, the allotment was subject to payment of Rs. 1,25,000 before September, 1981 which the assessee did. The assessee was required under the allotment letter to pay another sum of Rs. 5,04,000, in installments and the balance Rs. 21.000, on delivery of possession of the flat. The assessee paid Rs. 6,45,000, represented the part of escalation towards cost of the property as per para-4 of the allotment letter. The assessee decided to sell her right, title & interest in the shares and rights incidental thereto as per the allotment letter. As a sequel, entered into an agreement on 31.5.91 with the purchasers subject to the purchasers paying a sum of Rs. 6,05,000 to the Society so as to meet the entire cost of the property by the assessee. The sales consideration was decided at Rs. 1,13,01,111. The assessee treated the sale proceeds after deduction the cost of acquisition of Rs. 17,00,251, brokerage of Rs. 1,50,000, and transfer fees of Rs. 1,15,000, as long term capital gain and claimed deduction Under Section 54E by depositing a sum of Rs. 1 crore in National Housing Bank. In the light of the argument advanced by the learned D.R., the question for consideration before us is whether the impugned sale transaction resulted in short term capital gain as held by the Assessing Officer or in long term capita gain as held by the CIT (A). The expression “long term capital gain” has been defined in Section 2(29B), according to which long term capital gains means capital gain arising from the transfer of a long term capital asset. As per Section 2(29A), “long term capital asset” menas a capital asset which is not a short term capital asset. Section 2(42A) defines “short term capital asset” to mean a capital asset held by an assessee for not more than 36 (thirty six) months immediately preceding the date of its transfer. Section 2(42B) defines “short term capital gain” to mean capital gain arising from the transfer to a short term capital asset. Under Section 2(14) “capital asset” menas property of any kind held by an assessee whether or not connected with his business or profession. The word ‘property’ used in Section 2 (14) of the Act is a word of the widest amplitude as held in the case of Tata Services Ltd. (supra). Thus, any right which could be called property has been brought within the ambit of the definition of “capital asset”. If any right which could be called property and hence a capital asset is held by an assessee for not more than 36 months immediately preceding the date of its transfer it will be a short term capital asset and capital gain arising from the transfer of a short term capital asset will result in short term capital gain. However, if a capital asset is held by an assessee for more than 36 months immediately preceding the date of its transfer, it will be a long term capital asset and capital gain arising from transfer of a long term capital asset will result in ling term capital gains.
14. It is an admitted position that the assessee jointly with Shri C.R. Parekh had held 5 equity shares of Rs. 50/- each in the capital of the Society as revealed by share certificate No. 9 Dt. 8.5.81. Admittedly, the assessee is member of the Society which vide letter of allotment No. JV/Allot/4/80 dt. No. l, allotted to the assessee, a flat on the 4th floor of the Society’s building under construction measuring about 2511 sqf. along-with two car parking spaces. The CIT (A) has taken note of the fact that the assessee held 5 shares in the Co-operative Housing Society which owned the land which is undeniably a capital asset. The CIT (A) has further observed that it is to this immovable property to which the 5 shares and the right of enjoyment of occupation were also attached. In other words, the interest of the assessee in the property was not by way of right of occupation of the flat but it also included the limited ownership of the land on which the flat was to come into existence. The CIT (A) on the basis of holding by the assessee of 5 equity shares in the Co-operative Housing Society since 8.5.81, and letter of allotment of a flat in the new building under construction and two car parking spaces in September, 1981 on payment by the assessee of the initial amount of Rs. 1,25,000, recorded the finding that the assessee enjoyed the right of limited ownership of the land of the Society as also right of occupation in the flat since 1981. This finding of the CIT (A) has been assailed by the learned D.R. on the sole ground that the installments towards cost of the flat continued to be paid by the assessee till 23.11.90 and therefore, the capital asset held by the assessee was for less than 36 months on the date of sale in the year 1991. We are unable to agree with the above argument of the learned D.R. As stated earlier, the assessee held 5 equity shares in the Society since 8.5.81, and had been allotted a flat in the new building and two car parking spaces in September, 1991 on payment of initial amount of Rs. 1,25,000. The right of limited ownership of the land of the Society and the right of occupation of the flat allotted to the assessee by the Society are undoubtedly right which could be called property within the definition of the expression “capital asset” defined under Section 2(14) of the Act. The aforesaid right accrued to the assessee since 1981. The right to occupy a flat flows from the right to hold shares as hold by the Hon’ble Supreme Court in the case of “Ramesh himmtalal Shah v. Harsukh Jadhavji Joshi AIR 1975 (SC) 1470. In Ninth Income Tax Officer v. Smt S.J. Framji, 1 ITD 390 (Bom) (SB), it has been held that the right to occupy a flat is a right in land and building. In “Tata Service Ltd.” (supra), their lordships have held that a right to obtain conveyance of immovable property is clearly property as contemplated by Section 2(14) of the Act. In the case of “Vimal Lalchand Mutha” (supra), the assessee had entered into an agreement for the purchase of a flat in November, 1977 and had executed formal agreement in December, 1978. She transferred her right title and interest in the flat by an agreement in April, 1983. On these facts, the Tribunal recorded the finding that the rights under the said two agreements of November, 1977/December, 1978 had been held for more that 36 months and that the gains arising from the transfer of her rights under the agreement in April 1983 constituted long term capital gains. When the matter was brought by the revenue before the Hon’ble Bombay High Court, the Court endorsed the above findings of the Tribunal and the held that no question of law arose out of the order of the Tribunal. The decisions (supra) fully support the view taken by the CIT (A). Similar view has been taken by the Hon’ble Bombay High Court in “CIT v. Ms. Rashmi S. Deshai”, reported in BCAJ November, 1985. We therefore, endorse his findings that the gains arising from the transfer of assessee’s rights referred to above under the agreement in May, 1991 constituted long term capital gains and consequently reject this ground of the revenue.
15. Apropos ground No. 2 above. The assessee deposited Rs. 1 crore in the National Housing Bank on 10.9.91 for a period of 3 years i.e. up to 9.9.94. As per the scheme, the principal amount also with interest of Rs. 24 lakhs was to be received by the assessee after 9.9.94. However, the assessee discounted the said interest and received Rs. 23,50,000, during the accounting year relevant to the assessment year 1992-93. The Assessing Officer found that the assessee offered only an amount of interest of Rs. 4,37,808, for tax in the return. On query, it was stated before the A.O. that the assessee offered the interest on accrual basis. Rejecting the assessee’s explanation, the Assessing Officer had reasons recorded by him, brought to tax the entire interest receipt of Rs. 23,50,000, in A.Y. 1992-93. On appeal, the CIT (A) deleted the impugned addition. This has brought the revenue before us.
16. On consideration of the arguments advanced by the parties, we are of the view that the issue is squarely covered in favour of the revenue by the decision of Hon’ble Kerala High Court in “CIT v. Varghese Mani”, 252 ITR 735 (KER), wherein, their lordships considered the decision in “M.P. Finance Corporation v. CIT“. 165 ITR 765 (MP) and Madras Industrial Investment Corporation Ltd. v. CIT“, 225 ITR 802 (SC) relied upon by the CIT (A) and held that were an assessee exercises an option to receive interest for three years period at a discount rule in a lump sum in accounting year, the entire interest accrued in the accounting year itself. Following the decision (supra), we set aside the order of the CIT (A) on the point and restore that of the A.O. The A.O. as however, directed that if interest has been taxed on accrual basis as well in subsequent year (s), necessary rectification be carried out after due verification. It is ordered and directed accordingly.
17. In the result, the appeal of the revenue is partly allowed.
18. Now, we take up the assessee’s appeal. The relevant facts are these. The Assessing Officer found that the assessee claimed brokerage of Rs. 1,50,000. It was claimed that the brokerage was paid to two persons namely, S/Shri J.R. Parikh and Prakash Parikh residing at 9189/1057. Nava Vadaj, Ahmedabad. During assessment proceedings, a common confirmation was filed stating therein that the brokers had jointly received a sum of Rs. 1,50,000, as brokerage. On a query, as to why two persons were paid brokerage it was stated that they were working jointly for selling the interest in flat and therefore, they were paid brokerage jointly as per their requirements. The explanation was not acceptable to the Assessing Officer, as the GIR NO. or PAN No. of the recipients of the brokerage could not be given. Despite opportunity allowed to the assessee, they were not produced. Further, no explanation was given as to how the brokers staying at Ahmedabed could settle the deal for transfer of right to occupy a flat in Bombay and that to when both the purchaser and seller were staying in Bombay. The Assessing Officer therefore, disallowed the assessee’s claim of impugned brokerage.
19. On appeal, it was contended before the CIT (A) that at the time of sale, the brokers were staying at Borivali but thereafter, they left Bombay and settled in Ahmedabad. The Assessing Officer required the brokers to be present before him, but in spite of repeated reminders, the brokers did not respond possibly because it might have been costly for them to attend unless summons were issued. The submissions of the assessee did not find favour with the CIT (A) as well, who sustained the disallowance observing that the address given was sketchy and no one was traced at that therefore, there was no question of issuing summons. Aggrieved, the assessee is in appeal before us.
20. On consideration of the arguments advanced by the parties, we are of the view that the assessee will not succeed. Since the assessee claimed deduction of payment of the impugned brokerage, the onus lay on the assessee to substantiate her claim. Persual of the assessment order would go to reveal that the assessee filed before the A.O. a common confirmation from the joint alleged recipients of the brokerage. Since the recipients were not income tax payers, the A.O. required the assessee to produce them for examination by him. This was not done despite opportunity given. The confirmatory letter did not mention even the mode of payment of the alleged brokerage. On query by the Bench, it was fairly admitted by the learned Counsel for the assessee that the payment was made in cash. It is therefore, obvious that cash payment if any, did not admit verification. There is no material on record brought by the assessee to probe the nature of services if any rendered by the recipients of the brokerage. Existence of the payee alone is not sufficient. Genuineness of payment is an important and relevant factor. On appraisal of the material on record, we have come to the conclusion that the assessee’s claim of payment of alleged brokerage is non genuine and revenue authorities were perfectly justified in making the impugned disallowance.
21. In the result, the appeal of the assessee is dismissed.
22. In fine, the appeal of the revenue is partly allowed and that of the assessee is dismissed.