Raju Tejumal Jethwani, CHENNAI V. ITO, CHENNAI

ITA 1124/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3896 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Capital asset; Cost of acquisition
• Section: 143(3); 2(14)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , . , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1124/MDS/2016 ( / ASSESSMENT YEAR: 2012-13) MR. RAJU TEJUMAL JETHWANI, 108, OLD NO.101, VELACHERY MAIN ROAD, GUINDY, CHENNAI-600 042. VS THE INCOME TAX OFFICER, INTERNATIONAL TAXATION 2(1), CHENNAI-34. PAN:ADFPR1095Q ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. M.KARUNAKARAN, ADVOCATE /RESPONDENT BY : MR. P.RADHAKRISHNAN, JCIT /DATE OF HEARING : 30 TH JUNE,2016 /DATE OF PRONOUNCEMENT : 8 TH SEPTEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 16, CHENNAI DATED 09.02.2016 IN ITA NO.66/CIT(A)- 16/AY.2012-13 PASSED UNDER SECTION 143(3) R.W.S. 2 50(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN HIS A PPEAL, HOWEVER THE CRUX OF THE ISSUES IS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFIC ER WHO HAS HELD THAT COMPENSATION RECEIVED FOR RELINQUISHM ENT OF 2 ITA NO.1124/MDS/2016 RIGHT IN PROPERTY IS LIABLE TO TAXED AS SHORT TERM CAPITAL GAIN SINCE THE ASSET WAS NEVER HELD BY THE ASSESSEE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL NON-RESIDENT FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 16.07.2012 ADMITTING TOT AL INCOME OF RS.2,15,49,013/-. THE CASE WAS TAKEN UP F OR SCRUTINY AND ASSESSMENT WAS COMPLETED THEREAFTER ON 22.12.2014 WHEREIN THE LEARNED ASSESSING OFFICER MA DE ADDITION OF RS.7,25,00,000/- UNDER THE HEAD SHORT T ERM CAPITAL GAIN WITH RESPECT TO COMPENSATION OF RS.8,25,00,000 /- RECEIVED BY THE ASSESSEE BY VIRTUE OF THE DIRECTION S OF HONBLE HIGH COURT OF BOMBAY FROM THE PROMOTER OF RESIDENTIAL FLAT AT RENISULA TECHNO PARK, KURLA, MU MBAI DUE TO NON-EXECUTION OF THE PROJECT IN WHICH THE ASSES SEE HAD PAID AN ADVANCE OF RS.1.00 CRORES ON 21.07.2005 FOR THE PURCHASE OF A FLAT FOR SALE CONSIDERATION OF RS.62. 00 CRORES. 4. THE ASSESSEE IN HIS RETURN OF INCOME HAD TREATE D THE COMPENSATION RECEIVED AS INCOME FROM LONG TERM CAPI TAL GAIN AND AFTER CLAIMING INDEXATION FOR THE ADVANCE PAID OF RS.1.00 3 ITA NO.1124/MDS/2016 CRORE WORKED OUT THE LONG TERM CAPITAL GAIN AS RS.5,67,65,231/- . 5. THE LEARNED ASSESSING OFFICER WAS OF THE VIEW T HAT THE GAIN ARISING OUT OF THE RELINQUISHMENT OF RIGHT IN THE PROPERTY OF THE ASSESSEE HAS TO BE TAXED UNDER THE HEAD SHO RT TERM CAPITAL GAIN BECAUSE AS PER SECTION 2(47) TRANSFE R INCLUDES RELINQUISHMENT OF ANY RIGHTS IN THE ASSET OF TH E ASSESSEE, AND SECTION 45(1) OF THE ACT PROVIDES FOR ANY PROFI T OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET TO B E CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS, AND SECTION 2(42A) STATES THAT SHORT TERM CAPITAL ASSET MEANS A CA PITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN 36 MONTHS IMMEDIATELY PRECEDING ITS DATE OF TRANSFER, AND IN THE CASE OF THE ASSESSEE THE ASSET WAS NOT HELD BY THE ASSESSEE EXCEEDING 36 MONTHS OR RATHER NEVER WAS HELD BY THE ASSESSEE. 6. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER ACCEPTING WITH HIS VIEWS. 4 ITA NO.1124/MDS/2016 7. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED BEFORE US THAT THE RIGHT IN THE ASSET ITSELF IS A CAPITAL ASSET AND THEREFORE THE PERIOD OF HOLDING SHOULD BE COMPU TED FROM THE DATE ON WHICH SUCH RIGHT IS ASSIGNED TO THE ASS ESSEE FOR THE PURPOSE OF ARRIVING AT THE LONG TERM/SHORT TERM CAPITAL GAINS. THE LEARNED AUTHORIZED REPRESENTATIVE RELIED IN THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF NILA V.SHAH VS. CIT REPORTED IN 51 SOT 461 (BOM) AN D IN THE CASE OF MR. PRAVEEN GUPTA VS. ACIT REPORTED IN 052 DTR 334 AND THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF K.R.SRINATH VS. ACIT REPORTED IN 268 ITR 436. SINCE IN THE CASE OF THE ASSESSEE, THE EXTINGUISHME NT OF THE RIGHT IN THE ASSET ASSIGNED TO THE ASSESSEE WAS BEY OND THE PERIOD OF 36 MONTHS FROM THE DATE OF ASSIGNMENT OF SUCH RIGHT TO THE ASSESSEE IT WAS PLEADED THAT THE CAPITAL GAI N ARISING OUT OF THE TRANSACTION SHOULD BE TREATED AS LONG TE RM CAPITAL GAIN. 5 ITA NO.1124/MDS/2016 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND RELIED IN THE ORDERS OF THE REVENUE AND ARGUED IN SUPPORT OF THE SAME. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND MERIT IN THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTA TIVE. IN THE DECISION CITED BY THE LEARNED AUTHORIZED REPRES ENTATIVE IN THE CASE OF K.R.SRINATH VS. ACIT (SUPRA) WHER EIN IT IS HELD AS FOLLOWS: THE ASSESSEE HAD PAID RS.40,000/- AT THE TIME OF T HE AGREEMENT FOR SALE AND THEREBY ACQUIRED THE RIGHT T O GET THE SALE DEED EXECUTED IN HIS FAVOUR. THE ASSESSEE HAD A RIGHT TO CLAIM SPECIFIC PERFORMANCE OF THE AGREEM ENT AND HE READILY GAVE UP THAT RIGHT FOR A CONSIDERATI ON. THERE COULD BE NO DOUBT THAT BY TERMINATION OF THE EARLIER AGREEMENT AND BY ALLOWING THE VENDOR TO SEL L THE SAID PROPERTY TO ANY PERSON AT ANY PRICE, THE ASSES SEE HAD GIVEN UP OR RELINQUISHED HIS RIGHT TO SEEK SPEC IFIC PERFORMANCE AND AS CONSIDERATION FOR RELINQUISHING THAT RIGHT THE ASSESSEE WAS PAID A SUM OF RS.6 LAKHS. TH E RIGHT TITLE AND INTEREST ACQUIRED UNDER THE AGREEME NT OF SALE CLEARLY FELL WITHIN THE DEFINITION OF CAPITAL ASSET IN SECTION 2(14). INSTEAD OF ASSIGNING THE RIGHT TO A THIRD PARTY, THE ASSESSEE RELINQUISHED THOSE RIGHTS. THUS THE AMOUNT OF RS 6 LAKHS RECEIVED BY THE ASSESSEE FROM THE VENDOR COULD BE TREATED AS CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. 6 ITA NO.1124/MDS/2016 10. FROM THE ABOVE, IT IS CRYSTAL CLEAR THAT THE HO NBLE JURISDICTIONAL MADRAS HIGH COURT HAS HELD THAT AN A GREEMENT ENTERED FOR PURCHASE OF AN IMMOVABLE PROPERTY BY PA YING AN ADVANCE WOULD AMOUNT TO CREATION OF A RIGHT IN THE PROPERTY AND WOULD FALL WITHIN THE DEFINITION OF CAPITAL ASS ET AS PROVIDED IN SECTION 2(14) OF THE ACT. THUS, HOLDING OF A RI GHT IN THE TITLE OF A PROPERTY WOULD AMOUNT TO HOLDING OF A CAPITAL ASSET. IN THE CASE OF THE ASSESSEE, AN ADVANCE OF RS.1.00 CRO RES WAS PAID FOR PURCHASE OF FLAT FOR RS.62 CRORES ON 21.07 .2005. THEREFORE, THIS WOULD AMOUNT TO BE A LEGAL RIGHT AC QUIRED BY THE ASSESSEE ON 21.07.2005 AND A CAPITAL ASSET HELD BY THE ASSESSEE IN TERMS OF SECTION 2(14) OF THE ACT AND AS PER THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT CITED SUPRA. THEREAFTER, AS PER THE CONSENT OF ALL THE P ARTIES, THE HONBLE BOMBAY HIGH COURT DISPOSED OF THE CIVIL SUI T ON 8.6.2011 WHEREIN THE ASSESSEE WAS AWARDED COMPENSAT ION OF RS.8,25,00,000/- FOR EXTINGUISHING HIS RIGHT IN THE ASSET. HENCE, THE ASSESSEE HAD HELD THE ASSET FROM 21.07.2 005 TO 08.06.2011 THEREBY EXCEEDING A PERIOD OF 36 MONTHS. THEREFORE, THE CAPITAL GAIN OF THE ASSESSEE SHOULD BE TREATED AS LONG TERM CAPITAL GAIN AND NOT SHORT TERM CAPITA L GAIN AS 7 ITA NO.1124/MDS/2016 HELD BY THE REVENUE. FURTHER, THE ASSESSEE WOULD BE ENTITLED TO CLAIM THE BENEFIT OF INDEXATION WHICH IS IN ACCO RDANCE WITH THE PROVISIONS OF THE ACT. ACCORDINGLY, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO COMPUTE THE CAPITAL GA IN TAX BY TREATING THE GAIN ARISING OUT OF THE TRANSFER OF TH E ASSET OF THE ASSESSEE AS LONG TERM CAPITAL GAIN AND AFTER GRAN TING THE BENEFIT OF INDEXATION ON THE COST OF ACQUISITION. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN HIS FAVOUR. ORDER PRONOUNCED IN THE OPEN COURT ON THE 8 TH SEPTEMBER, 2016 SD/- SD/- ( . ) ( . ) (G.PAVAN KUMAR) ( A.MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 8 TH SEPTEMBER, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF