G.Chandra, Trichy V. ACIT Circle 3(1), Trichy

CO 128/CHNY/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9236 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-12-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 09-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V S JAYAKUMAR
• Assessee Lawyers: AR V SREENIVASANJCITD R
• Keywords: Capital asset

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER & S HRI INTURI RAMA RAO , ACCOUNTANT MEMBER ./ I.T.A.NO.2256/CHNY/2018 & C.O. NO.128/CHNY/2018 / ASSESSMENT YEAR : 2013-14 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), TIRUCHIRAPALLI. VS. SMT.G.CHANDRA , 71 & 72,DEVAR COLONY, THILLAI NAGAR, TRICHY 620018. [PAN AAFPC 0702 C ] ( / APPELLANT) ( /RESPONDENT / CROSS OBJECTOR) !' # $ / APPELLANT BY : MR.AR.V.SREENIVASAN,JCIT,D.R %&!' # $ /RESPONDENT BY : MR.V.S.JAYAKUMAR,ADVOCATE ' ( # ) / DATE OF HEARING : 17 - 12 - 201 8 *+ # ) / DATE OF PRONOUNCEMENT : 17 - 12 - 201 8 / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER THE APPEAL FILED BY THE REVENUE IS AGAINST THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, TIRUCHIRAPA LLI IN ITA NOS.148 /2016-17/CIT(A)-1/TRY DATED 22.05.2018 FOR ASSESSME NT YEAR 2013-14 ITA NO.2256/CHNY/2018 :- 2 -: AND CORRESPONDINGLY, THE ASSESSEE FILED A CROSS OBJ ECTIONS IN SUPPORT OF THE ORDER OF LD.CIT(A), INVOLVING IDENTICAL ISSU ES, THEREFORE, THE APPEALS AND CROSS-OBJECTIONS ARE TAKEN UP TOGETHER FOR ADJUDICATION. 2. MR.AR.V.SREENIVASAN,JCIT,D.R REPRESENTED ON BEH ALF OF THE REVENUE AND MR.V.S.JAYLAKUMAR, ADVOCATE REPRESENTE D ON BEHALF OF THE ASSESSEE. 3. IT WAS SUBMITTED BY LD.D.R THAT THE ASSESSEE IS AN INDIVIDUAL, WHO IS RUNNING A PHARMACY. IT WAS A SUBMISSION THAT THE ASSESSEE HAD PURCHASED A PROPERTY OF 2.78 ACRES AT NAGAMANGALAM VIDE DOCUMENT REGISTERED ON 04.11.1992 FOR CONSIDERATION OF ` 80,935/-. THE SAID PROPERTY WAS PROVIDED AS COLLATERAL SECURITY TO STA TE BANK OF INDIA AGAINST LOANS RAISED BY M/S.NOVEL DRUGS (P) LTD., W HERE THE ASSESSEES HUSBAND WAS A DIRECTOR. IT WAS A SUBMISSION THAT A S THE COMPANY FAILED TO REPAY THE LOAN, THE BANK BROUGHT THE PROP ERTY FOR AUCTION. IN THE MEANTIME, ONE MR.BALAMURUGAN UNDERTOOK TO PAY ` 1.11 CRORES TO THE BANK AND ON PAYMENT THEREOF, THE ASSESSEE EXECU TED POWER OF ATTORNEY IN FAVOUR OF MR.BALAMURUGAN VIDE DOCUMENT NO.246/ 2012 DATED 17.05.2012. THE ASSESSEE TOOK THE STAND THAT THE LAND WAS AN AGRICULTURAL LAND SITUATED 08 KM FROM THE CITY LIMI T AND THE POPULATION OF NAGAMANGALAM IS LESS THAN 10,000 AND HENCE THE P ROPERTY TRANSFERRED WAS NOT A CAPITAL ASSET AND ALSO NOT LI ABLE FOR CAPITAL GAINS. IT WAS A SUBMISSION THAT WHEN MR.BALAMURUGAN WAS EX AMINED, HE ITA NO.2256/CHNY/2018 :- 3 -: CONFIRMED THAT HE HAD PURCHASED 58 CENTS OF LAND AT MANIKANDAM, TRICHY IN NOVEMBER, 2009 FOR A CONSIDERATION OF ` 12.64 LAKHS FROM THE ASSESSEE AND DURING THE SAME PERIOD HAD GIVEN A N ADVANCE OF ` 65 LAKHS FOR PURCHASE OF ADJACENT LAND MEASURING 2.73 ACRES TO THE ASSESSEE. IT WAS SUBMITTED BY MR.BALAMURUGAN THAT HOWEVER THE BANK ADJUSTED THE AMOUNT OF ` 65 LAKHS AGAINST THE DUES AGAINST ASSESSEE AND FAILED TO RELEASE THE DOCUMENTS AND AG AIN MARCH,2012, THE SAID MR.BALAMURUGAN PAID AN AMOUNT OF ` 2 CRORES IN FAVOUR OF M/S.NOVEL DRUGS (P) LTD., TO SETTLE THE BANK DUES A ND THEREAFTER THE DOCUMENTS WERE RELEASED FOR THE PROPERTY FROM THE B ANK AND THEREAFTER POWER OF ATTORNEY IS EXECUTED IN HIS FAV OUR. IT WAS STATED BY MR.BALAMURUGAN THAT THE SAID PROPERTY WAS CONVERTED INTO 35 PLOTS AND HE HAD ADVANCED ` 2.65 CRORES TO THE ASSESSEE AGAINST THE PROPERTY. IT WAS A SUBMISSION THAT CONSEQUENTLY THE LD. ASSESSING OFFICER HAD BROUGHT TO TAX THE CAPITAL GAINS ARISIN G ON THE TRANSFER OF THE IMMOVABLE PROPERTY OF 2.7 ACRES. ON APPEAL, LD .CIT(A) HAD DELETED THE ADDITION BY HOLDING THAT THERE WAS A DI VERSION OF INCOME AT SOURCE IN SO FAR AS THE ASSESSEE HAD MORTGAGED THE PROPERTY TO STATE BANK OF INDIA FOR THE LOAN DUES FROM THE PRINCIPAL DEBTOR AND UPON THE PRINCIPAL DEBTOR DEFAULTING FOR REPAYMENT, THE BANK INSTEAD OF SELLING PROPERTY IN PUBLIC AUCTION, ARRANGED THE BU YER, WHO PAID THE CONSIDERATION FOR THE PROPERTIES MORTGAGED DIRECTLY TO THE BANK AND ITA NO.2256/CHNY/2018 :- 4 -: THE BANK APPROPRIATED THE ENTIRE CONSIDERATION TOWA RDS THE LOAN DUE. IT WAS A SUBMISSION THAT LD.CIT(A) HELD THAT THE AS SESSEE HAD LOST HER RIGHT TO RECEIVE THE SALE CONSIDERATION ALREADY VES TED WITH THE BANK BY OPERATION OF LAW, OVERRIDING THE TITLE OF THE ASSES SEE. IT WAS A SUBMISSION THAT THIS FINDING OF THE LD.CIT(A) WAS E RRONEOUS IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF SRI KANNIAH PHOTO STUDIO VS. I.T.O, KUMBAKONAM IN [2015 ] 62 TAXMANN.COM 357(MAD.) WHEREIN THE HONBLE MADRAS HI GH COURT HAS CATEGORICALLY HELD AMOUNT PAID BY ASSESSEE IN DISC HARGE OF MORTGAGE CREATED AFTER ACQUIRING PROPERTY WOULD NOT BE DEDUC TIBLE AS EXPENSE WHILE COMPUTING CAPITAL GAINS U/S.48(1)(I) OF THE A CT. THE LD.D.R ALSO PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENC H OF THIS TRIBUNAL IN THE CASE OF I.T.O VS. SHRI V.S.CHANDRAKUMAR IN ITA NO.2736/CHNY/2016 FOR ASSESSMENT YEAR 2010-11 VIDE ORDER DATED 28.03.2018 WHEREIN IT HAS BEEN HELD AS FOLLOWS:- 6. TRANSFER, ADMITTEDLY, IS DEFINED IN SEC.2(47) O F THE ACT, IT IS AN INCLUSIVE DEFINITION. CAPITAL GAINS ON TRANSFER OF A CAPITAL ASSET IS LEVIABLE AS PER SEC.45 OF THE ACT. THE CAPITAL GAI NS ARISES IN THE PREVIOUS YEAR, IN WHICH, THE TRANSFER OF THE CAPITA L ASSET TOOK PLACE. THE EXCLUSION FROM THE LEVY OF CAPITAL GAINS IS PRO VIDED IN SEC.47 OF THE ACT. A MORTGAGE IS DEFINED AS A LEGAL AGREEMEN T BY WHICH A BANK, BUILDING, SOCIETY, ETC., LENDS MONEY AT INTER EST IN EXCHANGE FOR TAKING TITLE OF THE DEBTORS PROPERTY, WITH THE CON DITION THAT THE ITA NO.2256/CHNY/2018 :- 5 -: CONVEYANCE OF TITLE BECOMES VOID UPON THE PAYMENT O F THE DEBT. A PERUSAL OF THE PROVISIONS OF SEC.2(47) WHICH IS AN INCLUSIVE DEFINITION CLEARLY SHOWS THAT A MORTGAGE IS NOT CONSIDERED AS A TRANSFER IN SO FAR AS THERE IS NO EXTINGUISHMENT OF ANY RIGHT OF THE A SSESSEE IN THE PROPERTY MORTGAGED. IN A TRANSACTION OF MORTGAGE, T HE MORTGAGER HAS THE RIGHT TO REDEEM HIS PROPERTY AFTER PAYING THE D EBT AMOUNT. IN THE PRESENT CASE, IT IS TRUE THAT THE ASSESSEE HAS STOO D AS A GUARANTOR FOR THE LOANS TAKEN BY THE FIRM, IN WHICH, HIS CLOSE RE LATIVES ARE PARTNERS AND FOR SUCH PURPOSE AS STANDING GUARANTOR, HE HAS MORTGAGED HIS PROPERTY AGAINST THE LOANS. THUS, WHAT HAS HAPPENE D HERE IS THAT THE ASSESSEE HAVING STOOD AS A GUARANTOR, HE STEPS INTO THE SHOES OF THE LENDER, THE MINUTE LENDER SELLS THE PROPERTY MORTGA GED AGAINST THE LOANS TAKEN BY THE CLOSE RELATIVES. THUS, THE ASSE SSEE TAKES THE PLACE OF LENDER, CITY UNION BANK, IN RESPECT OF THE LOANS TAKEN BY THE FIRMS WHOSE LOANS THE ASSESSEE HAS STOOD GUARANTEE FOR. THUS, WHEN THE MORTGAGE WAS DONE BY THE ASSESSEE, THOUGH SOME INTE REST IN THE PROPERTY IS TRANSFERRED, IN SO FAR AS THE OWNER OF THE MORTGAGE PROPERTY BECOMES A LIMITED OWNER, SUCH MORTGAGE DOE S NOT FALL WITHIN THE AMBIT OF THE TERM TRANSFER U/S.2(47) OF THE ACT . IT MUST BE REMEMBERED THAT THERE IS NO EXTINGUISHMENT OF ANY R IGHTS IN THE PROPERTY AND WHATEVER RIGHTS THAT HAVE BEEN MORTGAG ED ON ACCOUNT OF THE MORTGAGE IS A REDEEMABLE RIGHT. U/S.73 OF T HE TRANSFER PROPERTIES ACT, WHERE A MORTGAGE PROPERTY IS SOLD, THE MORTGAGEE HAS A PRIOR CLAIM OVER THE OTHER CREDITORS AND THE MORT GAGEE IS ENTITLED TO RECEIVE PAYMENT DIRECTLY IN DISCHARGE OF THE DEBTS WHEN A PROPERTY IS SOLD. IN THE PRESENT CASE, THE ASSESSEE HAD MORTGAG ED THE PROPERTY WHEN HE STOOD AS A GUARANTOR. WHEN THE MORTGAGE WA S ENCASHED BY THE SALE OF THE PROPERTY, THE TRANSFER OF THE CAPIT AL ASSET HAS TAKEN PLACE FROM THE HANDS OF THE ASSESSEE TO THE PURCHAS ER IN THE AUCTION. THOUGH, THE AUCTION HAS BEEN DONE BY THE CITY UNION BANK, THE TRANSFER HAS BEEN DONE FROM THE HANDS OF THE ASSESS EE. THEREFORE, AS ITA NO.2256/CHNY/2018 :- 6 -: PER THE PROVISIONS OF SEC.45 THE CAPITAL GAINS THAT MAY ARISE, IS LIABLE TO BE ASSESSED ONLY IN THE HANDS OF THE ASSESSEE. 7. NOW COMING TO THE ISSUE AS TO WHETHER CAPITAL GA INS CAN BE LEVIED WHEN THE ASSESSEE HAS NOT RECEIVED ANY CONSIDERATIO N ON ACCOUNT OF THE TRANSFER. HERE, IT MUST BE REMEMBERED THAT WHE N THE MORTGAGED PROPERTY OF THE GUARANTOR IS SOLD FOR DISCHARGE OF A LOAN TAKEN BY THE FIRM FOR WHOM THE ASSESSEE HAS STOOD GUARANTEE THEN THE ASSESSEE STEPS INTO THE SHOES OF THE LENDER WHO HAS WITHDRAW N HIS LOAN BY ENCASHMENT OF THE MORTGAGED PROPERTY AND THE FIRM W OULD BE LIABLE TO TREAT THE ASSESSEE AS A LENDER FOR THE CONSIDERA TION REPRESENTING THE SALE VALUE OF THE MORTGAGED PROPERTY. THUS, WH EN THE ASSESSEE BEING THE GUARANTOR, STEPS INTO THE SHOES OF THE LE NDER, WHO HAS ENCASHED THE MORTGAGE PROPERTY, IT IS DEEMED THAT T HE ASSESSEE HAS GIVEN THE LOAN TO THE FIRM REPRESENTING THE SALE CO NSIDERATION OF THE MORTGAGE PROPERTY. THUS, EVEN THOUGH, THE ASSESSEE HAS NOT RECEIVED ANY PORTION OF THE SALE CONSIDERATION, THE CAPITAL GAINS IS LIABLE TO BE ASSESSED IN THE HANDS OF THE ASSESSEE TREATING THE AUCTION AMOUNT AS THE SALE CONSIDERATION. 8. A PERUSAL OF THE DECISION OF THE CO-ORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF M/S.GLAD INVESTMENTS (P) LTD., SHOWS THAT THE FACTS IN THAT CASE WAS ENTIRELY DIFFERENT IN SO FAR AS WHAT HAS BEEN SOLD THERE WAS SHARES AND THE TRANSFER OF THE SHARES IN QUESTI ON WAS COMPLETED WHEN THE SHARES WERE PLEDGED AS THE ASSESSEE THEREI N HAD COMPLETED THE REQUISITE FORMALITIES FOR THE TRANSFER AT THAT STAGE ITSELF. IN THE PRESENT CASE, THERE WAS NO TRANSFER NOR WERE THE RE QUISITE FORMALITIES FOR THE TRANSFER COMPLETED AT THE STAGE OF THE MORT GAGE. THE DECISION RELIED UPON BY THE LD.AR IN THE CASE OF SMT.THRESSI AMMA ABRAHAM ALSO HAS NO APPLICABILITY IN THE PRESENT FACTS IN S O FAR AS THE DECISION WAS IN RELATION TO A CLAIM U/S.54E OF THE ACT. FUR THER, THIS VIEW OF OURS THAT CAPITAL GAINS IS LEVIABLE ON THE SALE OF THE MORTGAGED PROPERTY IS SUPPORTED BY THE HONBLE SUPREME COURT IN THE CASE OF ITA NO.2256/CHNY/2018 :- 7 -: SHRI ATTILI N. RAO REPORTED IN 252 ITR 880 (SC). THUS, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT RECEIVED ANY CONSIDE RATION ON ACCOUNT OF THE SALE OF THE MORTGAGE PROPERTY AS THE ASSESSE E HAS STEPS INTO THE SHOES OF THE LENDER WHEN THE MORTGAGE PROPERTY WAS SOLD AND THE SALE CONSIDERATION APPROPRIATED. IT WAS A PRAYER THAT THE ORDER OF THE CIT(APPEALS) WAS LIABLE TO BE REVERSED. 4. IN REPLY, LD.A.R SUBMITTED THAT THE CROSS OBJEC TIONS FILED BY THE ASSESSEE WAS BELATED. IT WAS A SUBMISSION THAT LD.CIT(A) HAS NOT ADJUDICATED THE GROUNDS AS HAS BEEN RAISED BEFORE T HE LD.CIT(A) IN GROUND NOS.2,3 ,4, 5, 6 & 7, BUT HAS ONLY ADJUDICAT ED THE ADDITIONAL GROUNDS OF THE APPEAL, WHICH HAS BEEN RAISED BEFORE HIM. IT WAS FAIRLY AGREED BY LD.A.R THAT ADMITTEDLY EVEN ADDITIONAL GR OUND NOS. 2 & 3 HAS NOT BEEN ADJUDICATED. IT WAS A SUBMISSION THAT THOUGH ADMITTEDLY THE ISSUE IS DECIDED BY LD.CIT(A), NOW STANDS COVER ED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF SRI KANNIAH PHOTO STUDIO VS. I.T.O, KUMBAKONAM REFERRED TO SUPR A, ALSO THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF I.T.O VS. SHRI V.S.CHANDRAKUMAR REFERRED TO SUPRA, THE L D.A.R WAS PRAYING FOR THE APPLICATION OF RULE-27 OF ITAT RULES FOR GI VING DIRECTION TO THE LD.CIT(A) TO ADJUDICATE THE OTHER GROUNDS AS RAISED BEFORE HIM. ITA NO.2256/CHNY/2018 :- 8 -: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMI TTEDLY, THE CROSS OBJECTION FILED BY THE ASSESSEE IS BELATED. T HE ASSESSEE HAS NOT FILED ANY APPLICATION FOR CONDONATION OF DELAY. CON SEQUENTLY, THE CROSS OBJECTIONS FILED BY THE ASSESSEE STANDS DISMISSED I N LIMINIE. 5.1 IN RESPECT OF REVENUES APPEAL, IT IS NOTICED THAT THE ISSUE IS NOW SQUARELY COVERED BY THE DECISION OF HONBLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF SRI KANNIAH PHOTO STUDIO VS. I .T.O, KUMBAKONAM REFERRED TO SUPRA, ALSO DECISION OF CO-ORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF I.T.O VS. SHRI V.S.CHANDRAKUMAR REFERRE D TO SUPRA. CONSEQUENTLY, RESPECTFULLY FOLLOWING THE DECISION O F HONBLE JURISDICTIONAL HIGH COURT IN SRI KANNIAH PHOTO STUD IO (SUPRA), AS ALSO THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN SHRI V.S.CHANDRAKUMAR(SUPRA), THE FINDINGS OF THE LD.CIT (A) ON THIS ISSUE STANDS REVERSED. HOWEVER, ADMITTING THE PRAYER OF THE LD.A.R ON BEHALF OF THE ASSESSEE IN RESPECT OF INVOKING OF RU LE-27 OF THE ITAT RULES, AS IT IS NOTICED THAT OTHER GROUNDS WHICH HA VE BEEN RAISED BEFORE THE LD.CIT(A) IN FORM NO.35, HAVE NOT BEEN A DJUDICATED BY THE LD.CIT(A), THE ORDER OF THE CIT(APPEALS) IS SET AS IDE AND ISSUE OF THE LEVY AND COMPUTATION OF CAPITAL GAINS IS RESTORED T O THE FILE OF LD.CIT(A) FOR RE-ADJUDICATION IN RESPECT OF ALL OTH ER GROUNDS BEING GROUND NOS. 2, 3, 4, 5, 6 & 7 OF GROUNDS OF APPEAL FILED BEFORE THE ITA NO.2256/CHNY/2018 :- 9 -: LD.CIT(A), AS ALSO GROUNDS NOS.2 & 3 OF THE ADDITIO NAL GROUNDS RAISED BEFORE THE LD.CIT(A). 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 17 TH DECEMBER, 2018, AT CHENNAI. SD/ - SD/ - ( INTURI RAMA RAO ) ( , ) ! '# /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) $ '# / JUDICIAL MEMBER , ( / CHENNAI - / DATED: 17 TH DECEMBER, 2018. K S SUNDARAM . # %)/0 1 0 ) / COPY TO: 1 . !' / APPELLANT 4. ' 2) / CIT 2. %&!' / RESPONDENT 5. 034 %)5 / DR 3. ' 2) () / CIT(A) 6. 48 9( / GF