V.S.Chandrakumar, Tiruppur V. ITO, Tiruppur

CO 178/CHNY/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3550 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 14-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , ! , ! & BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.2736/CHNY/2016 /ASSESSMENT YEAR: 2010-11 THE INCOME TAX OFFICER, WARD-2(1), NO.121, AADAMS BUILDING, 60 FEET ROAD, P.N.ROAD, TIRUPUR-641 602. VS. SHRI V.S.CHANDRAKUMAR, NO.10, M.G.PUDUR, 2 ND STREET, TIRUPUR-641 604. [PAN: ACOPC 7601 D] ( ( /APPELLANT) ( )*( /RESPONDENT) CROSS OBJECTION NO. 178 / CHNY /20 16 /ASSESSMENT YEAR: 2010-11 SHRI V.S.CHANDRAKUMAR, NO.10, M.G.PUDUR, 2 ND STREET, TIRUPUR-641 604. [PAN: ACOPC 7601 D] VS. THE INCOME TAX OFFICER, WARD-2(1), NO.121, AADAMS BUILDING, 60 FEET ROAD, P.N.ROAD, TIRUPUR-641 602. ( ( /APPELLANT) ( )*( /RESPONDENT) DEPARTMENT BY : MS.VIJAYAPRABHA, JCIT ASSESSEE BY : MR.T. BANUSEKAR, CA , /DATE OF HEARING : 28.03.2018 , / DATE OF PRONOUNCEMENT : 28.03.2018 ITA NO.2736/CHNY/2016 & CO NO.178/CHNY/2016 :- 2 -: / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.2736/CHNY/2016 IS AN APPEAL FILED BY THE RE VENUE & CO NO.178/CHNY/2016 IS A CROSS-OBJECTION FILED BY THE ASSESSEE IN THE REVENUES APPEAL, AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, COIMBATORE, IN IT APPEAL NO.144/15-16 DATED 29.06.2016 FOR THE AY 2010-11. 2. MS. VIJAYAPRABHA, JCIT REPRESENTED ON BEHALF OF THE REVENUE AND SHRI T. BANUSEKAR, CA, REPRESENTED ON BEHALF OF THE ASSESSEE. 3. IT WAS SUBMITTED BY THE LD.DR THAT THE ASSESSEE IS AN INDIVIDUAL WHO IS THE OWNER OF AN IMMOVABLE PROPERTY REPRESENT ING A PLOT OF LAND WHICH WAS MORTGAGED TO THE CITY UNION BANK AS THE A SSESSEE STOOD AS A GUARANTOR IN RESPECT OF A LOAN TAKEN BY WET TREE, I N WHICH, THE ASSESSEES CLOSE FAMILY MEMBERS WERE PARTNERS. AS THE SAID FI RM WAS UNABLE TO RE- PAY ITS LOANS, THE CITY UNION BANK AUCTIONED THE PR OPERTY FOR A SALE CONSIDERATION OF RS.2.55 CRS. AND HAD APPROPRIATED THE ENTIRE SALE CONSIDERATION. IT WAS A SUBMISSION THAT THE AO ON THE GROUND THAT THE TRANSFER HAD TAKEN PLACE IN RESPECT OF THE PROPERTY OWNED BY THE ASSESSEE, BROUGHT TO TAX THE LONG TERM CAPITAL GAIN S. IT WAS A SUBMISSION THAT ON APPEAL, THE LD.CIT(A) HAD DELETE D THE LEVY OF LONG TERM CAPITAL GAINS BY HOLDING THAT NO CONSIDERATION HAD BEEN RECEIVED OR ACCRUED TO THE ASSESSEE AND THE SAME CANNOT BE COUN TED FOR COMPUTING ITA NO.2736/CHNY/2016 & CO NO.178/CHNY/2016 :- 3 -: CAPITAL GAINS. FURTHER, THE LD.CIT(A) HAD HELD THA T THERE WAS NO PROFITS AND GAINS ARISING FROM THE TRANSFER OF THE CAPITAL ASSET TO THE ASSESSEE AND THAT THE TITLE ALSO DID NOT VEST WITH THE ASSESSEE AS IT WAS MORTGAGED WITH THE BANK, WHICH WOULD SELL IT AND REALIZE THE DUES. IT WAS A SUBMISSION THAT THIS FINDING OF THE LD.CIT(A) WAS ERRONEOUS AN D LIABLE TO BE REVERSED. 4. IN REPLY, THE LD.AR PLACED RELIANCE UPON THE DEC ISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. GLAD INVESTMENTS (P) LTD., REPORTED IN 102 ITD 0227 AS ALSO THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF SMT.THRESSIAMMA ABRAHAM R EPORTED IN 227 ITR 0802. IT WAS A SUBMISSION THAT AS PER THE SAID TWO DECISIONS, WHEN THE SALE OF THE PROPERTY IS DONE IN VIEW OF THE MORTGAG E, THE ENTIRE CONSIDERATION HAS BEEN APPROPRIATED BY THE LENDER, NO CAPITAL GAINS CAN BE ASSESSED IN THE HANDS OF THE ASSESSEE IN SO FAR AS THERE WAS A DIVERSION OF THE ENTIRE CONSIDERATION AT SOURCE BEF ORE IT BECAME INCOME IN THE HANDS OF THE ASSESSEE. IT WAS A SUBMISSION THA T THE ORDER OF THE LD.CIT(A) WAS LIABLE TO BE CONFIRMED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 6. TRANSFER, ADMITTEDLY, IS DEFINED IN SEC.2(47) OF 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 GAINS ARISES IN THE PREVIOUS YEAR, IN WHICH, THE TRANSFER OF THE CAPITAL ASSET TOOK PLACE . THE EXCLUSION FROM THE ITA NO.2736/CHNY/2016 & CO NO.178/CHNY/2016 :- 4 -: LEVY OF CAPITAL GAINS IS PROVIDED IN SEC.47 OF THE ACT. A MORTGAGE IS DEFINED AS A LEGAL AGREEMENT BY WHICH A BANK, BUILD ING, SOCIETY, ETC., LENDS MONEY AT INTEREST IN EXCHANGE FOR TAKING TITL E OF THE DEBTORS PROPERTY, WITH THE CONDITION THAT THE CONVEYANCE OF TITLE BECOMES VOID UPON THE PAYMENT OF THE DEBT. A PERUSAL OF THE PRO VISIONS 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 E XTINGUISHMENT OF ANY RIGHT OF THE ASSESSEE IN THE PROPERTY MORTGAGED. IN A TRANSACTION OF MORTGAGE, THE MORTGAGER HAS THE RIGHT TO REDEEM HIS PROPERTY AFTER PAYING THE DEBT AMOUNT. IN THE PRESENT CASE, IT IS TRUE THAT THE ASSESSEE HAS STOOD AS A GUARANTOR FOR THE LOANS TAKEN BY THE FIRM, IN WHICH, HIS CLOSE RELATIVES ARE PARTNERS AND FOR SUCH PURPOSE A S STANDING GUARANTOR, HE HAS MORTGAGED HIS PROPERTY AGAINST THE LOANS. T HUS, WHAT HAS HAPPENED HERE IS THAT THE ASSESSEE HAVING STOOD AS A GUARANTOR, HE STEPS INTO THE SHOES OF THE LENDER, THE MINUTE LENDER SEL LS THE PROPERTY MORTGAGED AGAINST THE LOANS TAKEN BY THE CLOSE RELA TIVES. THUS, THE ASSESSEE TAKES THE PLACE OF LENDER, CITY UNION BANK , IN RESPECT OF THE LOANS TAKEN BY THE FIRMS WHOSE LOANS THE ASSESSEE H AS STOOD GUARANTEE FOR. THUS, WHEN THE MORTGAGE WAS DONE BY THE ASSES SEE, THOUGH SOME INTEREST IN THE PROPERTY IS TRANSFERRED, IN SO FAR AS THE OWNER OF THE MORTGAGE PROPERTY BECOMES A LIMITED OWNER, SUCH MOR TGAGE DOES 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 MORTGAGED ON ACC OUNT OF THE ITA NO.2736/CHNY/2016 & CO NO.178/CHNY/2016 :- 5 -: MORTGAGE IS A REDEEMABLE RIGHT. U/S.73 OF THE TRAN SFER PROPERTIES ACT, WHERE A MORTGAGE PROPERTY IS SOLD, THE MORTGAGEE HA S A PRIOR CLAIM OVER THE OTHER CREDITORS AND THE MORTGAGEE IS ENTITLED T O RECEIVE PAYMENT DIRECTLY IN DISCHARGE OF THE DEBTS WHEN A PROPERTY IS SOLD. IN THE PRESENT CASE, THE ASSESSEE HAD MORTGAGED THE PROPERTY WHEN HE STOOD AS A GUARANTOR. WHEN THE MORTGAGE WAS ENCASHED BY THE S ALE OF THE PROPERTY, THE TRANSFER OF THE CAPITAL ASSET HAS TAKEN PLACE F ROM THE HANDS OF THE ASSESSEE TO THE PURCHASER IN THE AUCTION. THOUGH, THE AUCTION HAS BEEN DONE BY THE CITY UNION BANK, THE TRANSFER HAS BEEN DONE FROM THE HANDS OF THE ASSESSEE. THEREFORE, AS PER THE PROVISIONS O F 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 WHEN TH E MORTGAGED PROPERTY OF THE GUARANTOR IS SOLD FOR DISCHARGE OF A LOAN TA KEN BY THE FIRM FOR WHOM THE ASSESSEE HAS STOOD GUARANTEE THEN THE ASSESSEE STEPS INTO THE SHOES OF THE LENDER WHO HAS WITHDRAWN HIS LOAN BY ENCASHM ENT OF THE MORTGAGED PROPERTY AND THE FIRM WOULD BE LIABLE TO TREAT THE ASSESSEE AS A LENDER FOR THE CONSIDERATION REPRESENTING THE SAL E VALUE OF THE MORTGAGED PROPERTY. THUS, WHEN THE ASSESSEE BEING THE GUARANTOR, STEPS INTO THE SHOES OF THE LENDER, WHO HAS ENCASHED THE MORTGAGE PROPERTY, IT IS DEEMED THAT THE ASSESSEE HAS GIVEN THE LOAN TO T HE FIRM REPRESENTING ITA NO.2736/CHNY/2016 & CO NO.178/CHNY/2016 :- 6 -: THE SALE CONSIDERATION OF THE MORTGAGE PROPERTY. T HUS, EVEN THOUGH, THE ASSESSEE HAS NOT RECEIVED ANY PORTION OF THE SALE C ONSIDERATION, 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 TH AT THE FACTS IN THAT CASE WAS ENTIRELY DIFFERENT IN SO FAR AS WHAT HAS B EEN SOLD THERE WAS SHARES AND THE TRANSFER OF THE SHARES IN QUESTION W AS COMPLETED WHEN THE SHARES WERE PLEDGED AS THE ASSESSEE THEREIN HAD COM PLETED THE REQUISITE FORMALITIES FOR THE TRANSFER AT THAT STAGE ITSELF. IN THE PRESENT CASE, THERE WAS NO TRANSFER NOR WERE THE REQUISITE FORMALITIES FOR THE TRANSFER COMPLETED AT THE STAGE OF THE MORTGAGE. THE DECISI ON RELIED UPON BY THE LD.AR IN THE CASE OF SMT.THRESSIAMMA ABRAHAM ALSO H AS NO APPLICABILITY IN THE PRESENT FACTS IN SO FAR AS THE DECISION WAS IN RELATION TO A CLAIM U/S.54E OF THE ACT. FURTHER, THIS VIEW OF OURS THA T CAPITAL GAINS IS LEVIABLE ON THE SALE OF THE MORTGAGED PROPERTY IS SUPPORTED BY THE HONBLE SUPREME COURT IN THE CASE OF SHRI ATTILI N. RAO R EPORTED IN 252 ITR 880 (SC). THUS, IT CANNOT BE SAID THAT THE ASSESSEE HA S NOT RECEIVED ANY CONSIDERATION ON ACCOUNT OF THE SALE OF THE MORTGAG E PROPERTY AS THE ASSESSEE HAS STEPS INTO THE SHOES OF THE LENDER WHE N THE MORTGAGE PROPERTY WAS SOLD AND THE SALE CONSIDERATION APPROP RIATED. ITA NO.2736/CHNY/2016 & CO NO.178/CHNY/2016 :- 7 -: 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS ALLOWED AND THE ORDER OF THE LD.CIT(A) STANDS REVERSED AND THAT OF THE AO RESTORED. 10. AT THE TIME OF HEARING, THE LD.AR DID NOT WISH TO PRESS THE CROSS- OBJECTION AND CONSEQUENTLY, THE CROSS-OBJECTION FIL ED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 28, 20 18, AT CHENNAI. SD/- SD/- ( ) ( S. JAYARAMAN ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER /CHENNAI, 1 /DATED: MARCH 28, 2018. TLN , )23 43 /COPY TO: 1. ( /APPELLANT 4. 5 /CIT 2. )*( /RESPONDENT 5. 3 ) /DR 3. 5 ( ) /CIT(A) 6. /GF