Padma, L/H of S.Shanmugam (Late), CHENNAI V. ITO, CHENNAI

ITA 1104/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6052 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SRINIVASAN
• Assessee Lawyers: G BASKAR
• Keywords: Recovery proceedings; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . , ' , % & BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.1104/MDS/2017 %' ' /ASSESSMENT YEAR: 2013-14 MRS.PADMA, L/H OF S.SHANMUGAM (LATE), FLAT NO.3D, YESES SQUARE, NO.84, GREENWAYS ROAD, R.A.PURAM, CHENNAI-600 028. VS. THE INCOME TAX OFFICER, CORPORATE WARD-3(3), CHENNAI-600 034. [PAN: AACPP 2749 R ] ( ( /APPELLANT) ( )*( /RESPONDENT) ./ ITA NO.1105/MDS/2017 %' ' /ASSESSMENT YEAR: 2013-14 MRS.KAVITHA, L/H OF S.SHANMUGAM (LATE), NO.113, DR.ALAGAPPA ROAD, PURASAWALKKAM, CHENNAI-600 084. VS. THE INCOME TAX OFFICER, CORPORATE WARD-3(3), CHENNAI-600 034. [PAN: AACPK 5957 K ] ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR.G.BASKAR, ADV. )*( + /RESPONDENT BY : MR.A.SRINIVASAN, JCIT + /DATE OF HEARING : 25.09.2017 + /DATE OF PRONOUNCEMENT : 26.09.2017 ITA NOS.1104 & 1105/MDS/2017 :- 2 -: / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.1104/MDS/2017 IS AN APPEAL FILED BY MRS.PAD MA & ITA NO.1105/MDS/2017 IS AN APPEAL FILED BY MRS.KAVITHA AGAINST THE CONSOLIDATED ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS)-11, CHENNAI, IN ITA NOS.295 & 301/2015-16/CIT(A)-11 DAT ED 27.02.2017 FOR THE AY 2013-14. 2. MR.A.SRINIVASAN, JCIT, REPRESENTED ON BEHALF OF THE REVENUE AND MR.G.BASKAR, ADV., REPRESENTED ON BEHALF OF THE ASS ESSEE. 3. IT WAS SUBMITTED BY THE LD.AR THAT THE ISSUES IN THESE APPEAL WERE IDENTICAL. IT WAS A SUBMISSION THAT THE ASSESSEES ALONG WITH THEIR MOTHER HAD TRANSFERRED THE IMMOVABLE PROPERTIES OF SHRI S. SHANMUGAM, THE DECEASED FATHER OF THE ASSESSEE. TWO PROPERTIES WER E SOLD ONE AT JANAKI NAGAR AND OTHER AT RANGANATHAN AVENUE. JANAKI NAGA R PROPERTY WAS SOLD ON 03.05.2012 FOR RS.2.00 CR. AND THE RANGANATHAN A VENUE PROPERTY WAS SOLD ON 11.03.2013 FOR RS.5.00 CR. IT WAS A SUBMIS SION THAT THE ASSESSEE HAD INHERITED THE PROPERTIES FROM THEIR FATHER, SHR I S.SHANMUGAM WHO HAD DIED INTESTATE ON 23.01.2011. IT WAS A SUBMISS ION THAT SHRI S.SHANMUGAM WAS DOING BUSINESS AND HAD ACQUIRED THE PROPERTIES OUT OF HIS OWN RESOURCES AND THEY WERE OFFERED AS SECURITY WITH M/S.LAKSHMI VILAS BANK LTD., DURING 1995 FOR THE LOANS TAKEN BY HIM FOR BUSINESS ITA NOS.1104 & 1105/MDS/2017 :- 3 -: PURPOSE BY DEPOSIT OF TITLE DEEDS. AS THESE LOANS REMAIN UNPAID, THE BANK HAD INITIATED RECOVERY PROCEEDINGS AGAINST SHRI S.S HANMUGAM AND RECOVERY PROCEEDINGS WERE FILED BEFORE DEBT RECOVER Y TRIBUNAL-III, CHENNAI, DURING 2007. THE PROPERTIES WERE UNDER A TTACHMENT OF THE SAID BANKS FROM 1995 ONWARDS. AS A CONSEQUENCE OF SEARC H OPERATION ON THE SAID SHRI S.SHANMUGAM AND OTHER FAMILY MEMBERS ON 13.02.2009 THE ASSESSMENTD FOR THE AYS 2003-04 TO 2009-10 WERE RE- OPENED AND COMPLETED AGAINST THE ASSESSEES FATHER WHICH ARE R ESULTED IN DEMAND OF RS.13,39,17,742/-. THE TRO HAD ALSO ATTACHED TO TH E SAID PROPERTIES. AFTER THE DEATH OF THE SHRI S.SHANMUGAM, THE LEGAL HEIRS BEING THE TWO ASSESSEES AND THEIR MOTHER WITH A VIEW TO EARNESTLY SETTLE THE BANK LOAN AND ARREARS OF THE FATHER, APPROACHED THE BANKS FOR ONE TIME SETTLEMENT OF THE LOANS AND HAD ALSO MADE A REQUEST WITH THE I NCOME TAX DEPARTMENT FOR THE PRIVATE SALE OF THE ATTACHED PRO PERTIES TO SETTLE TAX ARREARS. PURSUANT TO THE SETTLEMENT WITH THE BANK A ND AFTER OBTAINING NECESSARY CLEARANCE FROM THE TRO, THE PROPERTIES WE RE SOLD AND THE ENTIRE CONSIDERATION WAS PAID DIRECTLY BY THE VENDEES TO T HE BANK AND THE INCOME TAX DEPARTMENT IN PARTIAL SETTLEMENT OF SHRI S.SHANMUGAM DUES. IT WAS A SUBMISSION THAT AS THE PROPERTIES WERE UND ER ATTACHMENT BY THE BANKS AND INCOME TAX DEPARTMENT, THE DIVERSION OF T HE ENTIRE CONSIDERATION TO THE BANK AND INCOME TAX DEPARTMENT WAS IN EFFECT A DIVERSION BY OVERRIDING THE TITLE AND NOTHING HAS C OME TO THE HANDS OF THE ASSESSEES OR THE LEGAL HEIRS, NO INCOME BY WAY OF CAPITAL GAINS AROSE FOR TAXATION. CONSEQUENTLY, NO CAPITAL GAINS INCOME WA S OFFERED IN THE RETURN ITA NOS.1104 & 1105/MDS/2017 :- 4 -: FILED BY THE ASSESSEES. IT WAS A SUBMISSION THAT T HE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HAD BROUGHT TO TAX, THE CAPITAL GAINS ARISING ON THE TRANSFER OF THE PROPERTIES WITHOUT T AKING INTO CONSIDERATION, THE CHARGE CREATED BY SHRI S.SHANMUGAM ON THE PROPE RTIES WITH THE BANK AS ALSO WITH THE INCOME TAX DEPARTMENT. IT WAS A S UBMISSION THAT LD.CIT(A) HAD ALSO UPHELD THE ORDER OF THE AO. IT WAS A SUBMISSION THAT THE CHARGE ON THE PROPERTIES HAVING BEEN CREATED BY SHRI S.SHANMUGAM WHEN HE WAS ALIVE AND THE ASSESSEES HAVING INHERIT ED THE PROPERTIES ALONG WITH THE CHARGE, THE SETTLEMENT OF THE CHARGE IN RESPECT OF THE SAID PROPERTIES WAS IN EFFECT AN IMPROVEMENT TO THE COST OF ACQUISITION OF THE PROPERTY AND THE SAME WAS LIABLE TO BE CONSIDERED W HEN COMPUTING THE CAPITAL GAINS IN RESPECT OF THE SAID PROPERTIES. I T WAS A SUBMISSION THAT IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT IN T HE CASE OF SHRI R.M.ARUNACHALAM REPORTED IN 227 ITR 222 THE PAYMENT MADE FOR THE PURPOSE OF CLEARING OF THE MORTGAGE CREATED BY THE ASSESSEES FATHER ON THE SAID PROPERTIES WERE TO BE CONSIDERED AS A COST OF IMPROVEMENT IN RESPECT OF THE SAID PROPERTIES SO AS TO PERFECT THE TITLE OF THE PROPERTY INHERITED BY THE ASSESSEE. IT WAS A SUBMISSION THA T CONSEQUENTLY THE ORDER OF THE AO & THE LD.CIT(A) WAS LIABLE TO BE RE VERSED. 4. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE ORD ER OF THE AO & LD.CIT(A). IT WAS A SUBMISSION THAT THE CHARGE CRE ATED ON THE PROPERTIES IN RESPECT OF THE LOANS TAKEN BY SHRI S.SHANMUGAM F ROM THE BANK COULD BE CONSIDERED AS A CHARGE ON THE PROPERTY. HOWEVER , IT WAS NOT SO IN ITA NOS.1104 & 1105/MDS/2017 :- 5 -: RESPECT OF INCOME TAX DUES OF SHRI S.SHANMUGAM. IT WAS A SUBMISSION THAT THE INCOME TAX DUES COULD NOT BE CONSIDERED AS A CHARGE ON THE PROPERTY CREATED BY THE DECEASED. IT WAS A SUBMISS ION THAT INCOME TAX DUES WERE A PERSONAL TAX LIABILITY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMIT TEDLY, THE ASSESSEES DECEASED FATHER, SHRI S.SHANMUGAM HAD CR EATED THE CHARGE ON THE SAID TWO PROPERTIES WITH THE M/S.LAKSHMI VILAS BANK LTD., AS EARLY AS IN 1995. THIS CHARGE ADMITTEDLY IS PROPERTY SPECIF IC AND THE DISCHARGE OF THE SAID CHARGE RAISED BY THE BANK AND THE SETTLEME NT THEREOF WOULD BE COST OF IMPROVEMENT IN RESPECT OF THE SAID PROPERTI ES IN THE HANDS OF THE ASSESSEES WHO HAVE INHERITED THE SAID PROPERTIES. THIS VIEW OF OURS FIND SUPPORT FROM THE PRINCIPLES LAID DOWN IN THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF SHRI R.M.ARUNACHALAM R EFERRED TO SUPRA. THOUGH, IT HAS BEEN ARGUED THAT THE INCOME TAX LIAB ILITY OF THE DECEASED FATHER, SHRI S.SHANMUGAM IS A CHARGE ON ALL THE ASS ETS OF THE DECEASED FATHER WHICH HAS BEEN INHERITED BY THE ASSESSEES, W E ARE UNABLE TO SUBSCRIBE THIS VIEW THAT THE SAID INCOME TAX LIABIL ITY WOULD BE A CHARGE ON THE INHERITED PROPERTY SO AS TO BE TREATED AS COST OF IMPROVEMENT WHEN THE SAME IS SETTLED BY SALE OF THE SAID PROPERTIES, AS WE ARE OF THE VIEW THAT THE INCOME TAX LIABILITIES ARE THE PERSONAL LI ABILITY OF THE ASSESSEE MORE SO, THE DECEASED ASSESSEE, SHRI S.SHANMUGAM. N O CHARGE ON THE SAID CHARGE HAD BEEN CREATED BY SHRI S.SHANMUGAM ON THE SAID PROPERTIES IN RESPECT OF THE INCOME TAX LIABILITY. IN VIEW OF THIS, WE ARE OF ITA NOS.1104 & 1105/MDS/2017 :- 6 -: THE VIEW THAT THE PAYMENT MADE BY THE ASSESSEES TO THE INCOME TAX DEPARTMENT FOR SETTLEMENT OF THE TAX LIABILITY OF S HRI S.SHANMUGAM, THE DECEASED FATHER OF THE ASSESSEE FROM THE SALE CONSI DERATION OF THE PROPERTIES INHERITED BY THE ASSESSEE FROM SHRI S.SH ANMUGAM CANNOT BE CONSIDERED AS COST OF IMPROVEMENT FOR THE PURPOSE O F COMPUTING THE CAPITAL GAINS. THE FINDINGS OF THE AO AND THE FINDI NGS OF THE LD.CIT(A) TO THIS EXTENT STANDS CONFIRMED AND THE AO IS DIRECTED TO GRANT THE BENEFIT OF THE COST OF IMPROVEMENT REPRESENTING THE SETTLEMENT OF THE BANK LIABILITY THROUGH ONE TIME SETTLEMENT WHEN COMPUTING LONG TER M CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. 6. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE S ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 2 6, 2017, AT CHENNAI. SD/- SD/- ( . ) ( ABRAHAM P GEORGE, ) /ACCOUNTANT MEMBER ( ' ) (GEORGE MATHAN) % /JUDICIAL MEMBER /CHENNAI, 2 /DATED: SEPTEMBER 26, 2017. TLN + )%34 54 /COPY TO: 1. ( /APPELLANT 4. 6 /CIT 2. )*( /RESPONDENT 5. 4 )%% /DR 3. 6 ( ) /CIT(A) 6. ' /GF