Sh. Joginder Singh Nijjar, United Kingdom V. DCIT, (International Taxation), Circle, Chandigarh

ITA 1575/CHANDI/2019

AI Insights

The case involves Shri Joginder Singh Nijjar, a non-resident, who appealed against the consolidated order of the CIT(A) for the assessment years 2007-08 to 2012-13. The primary issues revolved around the validity of the assessments made under sections 143(3) and 153A of the Income Tax Act without a proper warrant of authorization under section 132, the alleged non-service of notice under section 153A, and the treatment of assured returns from M/s Omaxe Ltd. as income from other sources. The Tribunal considered precedents from similar cases and the specific provisions of the India-UK DTAA to arrive at its decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127519 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 05-01-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 10-12-2019
• Other Referred Cases: Shri Mohinder Singh Sanghera Vs. Astt. DIT, Shri Karnial Singh Vs. Astt. DIT, M/s Omaxe Ltd. Vs. Vikas Malhotra and others
• Laws Referred To: Income Tax Act, Indo-UK DTAA
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Double taxation relief; Additional evidence; Capital receipt; TDS
• Section: 132; 90; 143(3); 153A; 192; 13

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ ए ” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “ A ”, CHANDIGARH ी स ु धांश ु ीवा तव, या यक सद य, एवं ी "व#म %संह यादव, लेखा सद य BEFORE: SHRI. SUDHANSHU SRIVASTAVA, JM & SHRI. VIKRAM SINGH YADAV, AM ./ ITA Nos. 1573 to 1578/Chd/2019 / Assessment Year : 2007-08 to 2012-13 Shri Joginder Singh Nijjar 2-A, Gorway Road Walsall West Midlands, WSI 3BB, United Kingdom The Dy. CIT International Taxation, Circle- Chandigarh ./PAN NO: AIHPN7432J Appellant /Respondent /Assessee by : Shri Tej Mohan Singh, Advocate ! / Revenue by : Shri Vivek Nangia, CIT DR " # $ /Date of Hearing : 06/01/2023 %&'( $ /Date of Pronouncement : 30/01/2023 आदेश/Order PER SUDHANSHU SRIVASTAVA, JM: All these appeals have been filed by the assessee against the consolidated order passed by the Ld. Commissioner of Income Tax(Appeals)-43, New Delhi [hereinafter referred to as ‘CIT(A)’] pertaining to A.Y. 2007-08 to A.Y. 2012-13. Since the issues involved in all the appeals were similar, they were heard together and are being disposed off by this common and consolidated order for the purpose of convenience. 2. With the consent of both the parties, the case of the Assessee in ITA No. 1573/Chd/2019 pertaining to Assessment Year 2007-08 is taken as the lead case wherein the grounds of appeal read as under: 2 1. That the Ld. Commissioner of Income Tax(Appeals) has erred in law in upholding the framing of assessment under section 143(3) read with 153A in as much as there has been no warrant of authorization under section 132 of the Act as mentioned in the assessment order which is arbitrary and unjustified and as such the assessment merits annulment. 2. That the Ld. Commissioner of Income tax(Appeals) has further erred in holding that notice was validly served when in fact no notice under section 153A was ever served on the assessee and as such the assessment framed and upheld is time barred, illegal and as such merits annulment. 3. Without prejudice to the above, the Ld. Commissioner of Income Tax(Appeals) has erred in upholding the addition of Rs.3.21.375/- treating alleged income received from M/s Omaxe Limited to be income from other sources when in fact no amount has been received by the assessee and as such the addition made is arbitrary and unjustified. 4. That the Ld. Assessing Officer has further erred in holding that the alleged assured return paid to the assessee is not covered under definition of interest as per Article 12 of Indo-UK DTAA and Section 2(28A) of the Income tax Act thereby denying the benefit of Article 12 of the DTAA which is arbitrary and unjustified. 5. That the Ld. Commissioner of Income Tax(Appeals) has further erred in upholding an addition of Rs.43,48,630/- (50% of Rs.86,97,259/-) as alleged unexplained cash credits which is arbitrary and unjustified. 6. That the assessee has all along been stating that the amounts appearing as credits do not pertain to the assessee and as such the addition made is arbitrary and unjustified. 7. That the Ld. Commissioner of Income Tax (Appeals) has erred in not considering the additional evidence placed before him to explain the additions made and observing incorrectly that the source of credits was not explained which is arbitrary and unjustified. 8. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 9. That the order of the Ld. Asstt. Commissioner of Income Tax passed under Section 143(3) read with Section 153A of the Act is erroneous, arbitrary, opposed to law and facts of the case and is, thus, untenable.” 3. Briefly the facts of the case are that the assessee is a non-resident and during the financial year relevant to the impugned Assessment Year, the assessee had booked certain units in M/s Omaxe Ltd. Novelty Mall, Amritsar. The assessee had made payment of 95% of the basic sale price at the time of booking the said units and was provisionally allotted these units and in lieu of 95% payment of the basis sale price, M/s Omaxe Ltd. was to pay monthly 3 assured return to the assessee till the time of possession of these units were handed over to the assessee. 3.1 As per information available with the AO, the assessee has received assured return of Rs 321,375/- on which TDS @ 15% has been deducted by M/s Omaxe Ltd. as per Article-12 of India and U.K DTAA r/w Section 90 of the Act. As per the AO, as per the provisions of Article 12 of Indo-UK DTAA as well as definition of interest as per Section 2(28A) of the Act, the money paid by the assessee to M/s Omaxe Ltd. is a capital investment for purchase of the property, the assessee will get back the capital asset and not the money. There is no money borrowed by M/s Omaxe Ltd. which is returnable within a specified time period. There was no debt or deposit taken by the Omaxe Ltd. from the tax payer and it does not have any character of debt or payment of interest. It was accordingly held by the AO that the assured return paid to the assessee is not covered under the definition of interest as per Article-12 of Indo-UK DTAA as well as Section 2(28A) of the Act. Further referring to the allotment letter, the AO held that the agreement does not intend to treat assured return as interest as nowhere in the allotment letter, it has been stated that M/s Omaxe Ltd. shall pay any interest to the assessee otherwise it would have been worded as interest which is absent in the instant case. It was accordingly held by the AO that assured return received by the assessee can only be classified under the head “income from other source” under section 56(1) of the Act and the same was accordingly brought to tax in the hands of the assessee and assessment was completed u/s 143(3) r/w 153A of the Act. 4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). It was submitted that the assessee has not received any assured return from M/s Omaxe Limited. The assured return, if any has been received and misappropriated by Shri A.K Uppal in connivance with bankers and the assessee has initiated legal action against Shri A. K Uppal and the bankers. It was further 4 submitted that the TDS has already been deducted at Rs 49,172/-. It was accordingly submitted that the addition so made be directed to be deleted. 4.1 The Ld. CIT considered the submissions of the assessee however the same were not found acceptable. As per the Ld. CIT(A), the payments are in the nature of return on investment as held by the Hon’ble Delhi High Court in case of M/s Omaxe Ltd. Vs. Vikas Malhotra and others vide order dt. 28/07/2014 in ITA FAO(OS) 191/2014. It was further held by the Ld. CIT(A) that payment from M/s Omaxe Ltd. are not in the nature of damages for late delivery of the asset. The payments were merely assured returns of a fixed amount per month. The word “interest” has not been used in the agreement. It was accordingly held that the payments are not interest and Article 12 of India-UK DTAA are not applicable in the instant case. The contention of the assessee that the amount has not been received was also not accepted holding that income from other sources has to be taxed on accrual basis, however, the AO was directed to allow credit for TDS. 5. Being aggrieved with the said findings and the order of the Ld. CIT(A), the assessee is in appeal before us. During the course of hearing, various contentions have been raised by the Ld. AR assailing the order of the Ld. CIT(A). One of the contentions which have been raised relates to applicability of Article12 of the India –UK DTAA. It was submitted that an identical matter has come up before the Coordinate Chandigarh Benches in case of Shri Mohinder Singh Sanghera Vs. Astt. DIT (ITA No. 369 to 371/Chd/2016 vide order dt. 17/09/2018) where the Coordinate Benches has clearly held that the assessee had a claim of debt against M/s Omaxe Ltd. till the proposed property is constructed and possession handed over to the assessee and conveyance deed executed and registered. It was accordingly held in that case that the assured return received by the assessee was in the nature of interest and has been rightly brought to tax as per Indo-UK DTAA. It was further submitted that 5 the said decision has since been followed in subsequent Chandigarh Benches decision in case of Shri Karnial Singh Vs. Astt. DIT (ITA No. 469 to 474/Chd/2016 vide order dt. 07/11/2022). It was submitted that the facts and circumstances of the case are exactly identical and ratio laid down therein squarely applies in the instant case. 6. Per contra, the Ld. DR relied on the findings of the lower authorities. 7. We have heard the rival contentions and purused the material available on record. We find that under the identical set of facts and circumstances of the case, the matter has been decided by the Coordinate Chandigarh Benches in case of Shri Mohinder Singh Sanghera Vs. Astt. DIT (Supra) and the relevant findings of the Coordinate Bench are contained at para 9 to 13 of its order which read as under: “9. Now, coming to the merits of the case, the Assessing officer while making the impugned additions has relied upon the definition of ‘interest’ as provided under article 12 of the India –U.K. DTAA, which read as under:- “The term interest as used in Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtors profits, and in particular, income from Government Securities and income from bonds and debentures, including premiums and prizes attaching to such securities, bonds or debentures but, subject to the provisions of paragraph 9 of this Article, shall not include any item which is treated as a distribution under the provisions of Article 11 (Dividends) of this convention.” 10. The Assessing officer has also referred to the clause 23 of the allotment letter issued by the Omaxe Ltd to the assessee, which reads as under- “23. Unless a conveyance deed is executed and registered, the company shall continue to have full authority over the said Unit and all amounts paid by the Allottee (s) under this allotment shall merely be a token payment for purchase of the allotted unit and shall not give him any lien or interest in the said Unit until he has complied with all the terms and conditions of this Allotment and Conveyance of the said Unit has been executed and registered in his favour.” A perusal of the above clause 23 of the Allotment letter reveals that as per the terms and conditions of the allotment letter, unless and until the Conveyance deed is executed and registered, the company i.e. Omaxe Ltd will continue to have full authority over the proposed Unit and all the amounts paid by the allottee shall merely be a token payment and shall not give any lien or interest in the said unit to the allottee. Hence, as per the above clause (23), even after payment of 95% of the sale consideration, in advance, the assessee did not get any lien or interest in the proposed unit to be constructed by Omaxe Ltd. However, in lieu of the 95% of the total sale consideration settled, the Omaxe Ltd. agreed to pay a certain fixed monthly amount to the assessee in the name of assured 6 return. Now the question arises what is the nature of the advance payment made by the assessee to the Omaxe Ltd and what is the nature of the amount received by the assessee as assured return. The facts and circumstances on the file reveal that the property for which the assessee had paid the money was not in existence at the time of making payment and even subsequently was not capable of yielding any income in the shape of rent, lease money and even otherwise was not capable to be commercially exploited. 11. Under the circumstances, it cannot be said that the assured return was any return from the property in respect of which the assessee had paid the amount. Even as per the clause 23 of the allotment letter as discussed above, even for making the investment, the payment of the advance money at the rate of 95% of the agreed price, the assessee did not get right of lien in the proposed property. The assessee, under the circumstances, had a claim of debt against the Omaxe Ltd, which means the assessee had advanced money to the Omaxe Ltd. which was nothing but a debt claim till the proposed property is constructed, possession handed over to the assessee and the conveyance deed executed and registered. In our view, it was a financial transaction and the assured money return received by the assessee was nothing else than the interest received by the assessee on the finances made by the assessee to the Omaxe Ltd to be used for the construction of the property. Therefore, the Omaxe Ltd had rightly deducted the tax @ 15% of the interest / assured return paid to the assessee. Even the assessee on being asked to file the return has also treated the said receipts as interest income. However, subsequently, the assessee changed his stand and come with a plea that the assured return is only in the nature of capital receipt. The assessee in this respect has placed reliance on several decisions of the High Courts and Supreme Court. Without referring to each of the decision, we may point out that the decisions referred to by the assessee are not applicable to the facts and circumstances of the case e.g. in the case of ‘CIT Vs. Saurashtra Cement Ltd (2010) 325 ITR 042 (SC) : 192 taxman 300 (SC), the assessee in that case had received liquidated damages for delay in supply of plant and machinery. The Hon'ble Supreme Court held that the damages were directly and intrinsically linked with the procurement of the capital assets i.e. cement plant. 12. Similarly in the other case laws relied upon by the Ld. Counsel for the assessee, it was held that if any expenditure is incurred such as interest paid for acquiring assets, the same will be added to the cost of the assets. However, none of the case laws relied upon by the assessee as discussed above, are applicable to the facts and circumstances of this case. Neither any damages were paid by the Omaxe Ltd. to the assessee for late delivery of the possession of the commercial floors in question nor any advance money was paid by the assessee to get the commercial floors at some concessional rate or on an early date rather as discussed above, as per the clause of the agreement, even after payment of 95% of the price, the assessee did not get right or lien in the property and as discussed above, this was a financial transaction between the assessee and Omaxe Ltd. In view of this, we hold that the assured return received by the assessee was in the nature of interest and the assessee has rightly returned / offered the same as interest income. 13. In view of this, we do not find any justification on the part of the lower authorities in treating the receipts of the assessee as ‘income from other sources’. We, accordingly, set aside the impugned order and direct that the assessee in this case has rightly paid the taxes as India – U.K. DTAA. No further addition is warranted. However, the claim of the assessee that it is a capital receipt not liable for taxation is rejected. The appeal of the assessee is, therefore, treated as allowed.” 8. The aforesaid decision has since been followed in subsequent decision in case of Shri Karnial Singh Vs. Astt. DIT (supra). Nothing has been brought on record to the effect that the aforesaid decisions of the Coordinate Benches 7 have either been stayed or reversed by the Higher Courts. Further, no contrary decision of any Higher authority has been brought to our notice. Therefore, we see no reason to deviate from the view already taken by the Coordinate Benches and following the same, the assured return from M/s Omaxe is in the nature of interest taxable @ 15% under Article 12 of India-UK DTAA. In the result, ground no. 4 of the assessee’s appeal is allowed in favour of the assessee and against the Revenue. 9. Regarding Grounds of Appeal 5-7 in respect of an addition of Rs.43,48,630/-, it was submitted by the ld AR that during the course of appellate proceedings before the CIT(A), the assessee placed on record additional evidence available at Pages 1-270 of the Paper Book. The same has been referred to at Page 10 of the appellate order passed by CIT(A) in the submissions duly incorporated in respect of Grounds 7 and 8 raised before the CIT(A). But while adjudicating these grounds, the CIT(A) at Page 21 of his order mentions that "the appellant in the appeal proceedings also, has not been able to explain what the source of these credits is. In the absence of any explanation, the finding of the Assessing officer to treat the said amount as income is totally valid. " The Commissioner of Income Tax (Appeals) has failed to consider the additional evidence in spite of a remand report provided by Assessing officer and rejoinder placed on record by assessee having been received by the C1T(A) which is placed at Pages 271-276 of the Paper Book. 10. It was submitted that the credits for which the addition has been made are duly explainable on the basis of the additional evidence. As such, it is prayed that the addition be deleted on the basis of explanations already on record or in the alternative, the CIT(A) be directed to consider the additional evidence and decide the issue afresh. 8 11. The ld DR is heard who has not raised any objections where the matter is referred to the file of the ld CIT(A) to consider the additional evidence. 12. After hearing both the parties and considering the material available on record, we deem it appropriate that the additional evidence so submitted by the assessee be considered and specific finding be recorded in this regard after examining the additional evidence. In view of the same, the matter is set-aside to the file of the ld CIT(A) who shall examine the additional evidence and shall decide the matter a fresh as per law after providing reasonable opportunity to the assessee. In the results, the grounds no. 5-7 are allowed for statistical purposes. 13. In view of the above, the other grounds of appeals namely grounds no. 1, 2 and 3 have become academic in nature and the same are dismissed as infructious. 14. In the result, the appeal of the assessee is partly allowed for statistical purposes ITA No. 1574/Chd/2019 For the A.Y. 2008-10 15. Both the parties fairly submitted that the facts and circumstances of the case are exactly identical as in ITA No. 1573/CHD/2019 except for the difference in the amount of assured return involved. Therefore, our findings and directions contained in ITA No. 1573/Chd/2019 shall apply mutatis mutandis to this appeal also and the appeal is partly allowed for statistical purposes. ITA No. 1575-1578/Chd/2019 For the A.Y. 2009-10 to A.Y 2012-13 16. Both the parties fairly submitted that the facts and circumstances of the case are exactly identical except for the difference in the amount of assured return involved and the fact that there are no additions towards cash credits. 9 Therefore, our findings and directions contained in ITA No. 1573/Chd/2019 shall apply mutatis mutandis to this appeal also and these appeals are partly allowed for statistical purposes. Order pronounced in the Open Court on 30 th January 2023 Sd/- Sd/- "व#म %संह यादव स ु धांश ु ीवा तव (VIKRAM SINGH YADAV) (SUDHANSHU SRIVASTAVA) लेखा सद य/ ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER AG Date: 30/01/2023 & )* * + , * - , Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. * " . CIT 4. * " . */ 0 The CIT(A) 5. , 1 ग ** 3 4* * $ * 3 4*567 ग8 DR, ITAT, CHANDIGARH 6. ग 7 *9 # Guard File & ) " By order, : * ! Assistant Registrar