South India Corporation Ltd, Cochin V. ACIT, Ernakulam

ITA 17/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64784 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 14-01-2011
• Court: TRIBUNAL
• Department Lawyers: VANI RAJ
• Assessee Lawyers: V JAYARAMAN
• Keywords: Sale consideration of property below Jantri Value; Gift; Charitable institution
• Section: 143(3); 50C; 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 80/COCH/2011 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-4(1), ERNAKULAM. VS. SOUTH INDIA CORPORATION LTD., RANI MEYYAMMAI BLDG., KPK MENON ROAD, WELLINGTON ISLAND, KOCHI-682 003. [PAN: AADCS 3193C] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT) I.T.A. NO. 17/COCH/2011 ASSESSMENT YEAR: 2005-06 SOUTH INDIA CORPORATION LTD., RANI MEYYAMMAI BLDG., KPK MENON ROAD, WELLINGTON ISLAND, KOCHI-682 003. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE-2, ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) REVENUE BY MS. VANI RAJ, JR. DR ASSESSEE BY SHRI V. JAYARAMAN, CA DATE OF HEARING 07/08/2012 DATE OF PRONOUNCEMENT 14/09/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER DATED 25-10-2010 PASSED BY THE LD. CIT(A)-II, KOCHI AGAINST THE PROCEEDINGS OF THE ADDL. CIT U/S 115VP OF THE ACT FOR THE ASSESSMENT YEAR 2005-06. THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.10.2010 PASSED BY THE LD CIT(A)-II A GAINST THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT FOR THE VERY SAME ASSE SSMENT YEAR. SINCE BOTH THE I.T.A. NOS. 80 & 17/COCH/2011 2 APPEALS WERE HEARD TOGETHER, THEY ARE BEING DISPOSE D OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN THE APPEAL FILED BY THE REVENUE, THE SOLITARY ISSUE URGED RELATES TO THE DECISION OF THE LD. CIT(A) IN HOLDING THAT THE ASSESSEE IS E NTITLED TO OPT FOR TONNAGE TAX SCHEME. IN THE APPEAL FILED BY THE ASSESSEE, THE ONLY ISSUE URGED RELATES TO THE APPLICABILITY OF PROVISIONS OF SEC. 50C OF THE ACT TO THE TRANSACTIO N OF SALE OF THE PROPERTY EFFECTED BY THE ASSESSEE. 3. WE SHALL FIRST TAKE UP THE APPEAL OF THE REVENUE . THE FACTS RELATING TO THE SAID ISSUE ARE STATED IN BRIEF. THE ASSESSEE IS A PUBLI C LIMITED COMPANY INCORPORATED IN THE YEAR 1935 AND IT IS ENGAGED IN VARIOUS TYPES OF BUS INESS ACTIVITIES INCLUDING BUSINESS OF OPERATING OF SHIPS. THE FINANCE (NO.2) ACT, 2004 I NSERTED CHAPTER XII-G CONSISTING OF SECTIONS 115V TO 115VZC IN THE INCOME TAX ACT, AS P ER WHICH A QUALIFYING SHIPPING COMPANY CAN OPT FOR TONNAGE TAX SCHEME FOR ASSESS MENT ITS INCOME FROM OPERATING SHIPS. THE SAID SCHEME BECAME EFFECTIVE FROM THE A SSESSMENT YEAR 2005-06. THE OPTION HAS TO BE EXERCISED BY THE QUALIFYING COMPAN IES BY FILING AN APPLICATION TO THE JOINT COMMISSIONER OF INCOME-TAX WHO SHALL PASS THE ORDER IN WRITING APPROVING THE OPTION FOR TONNAGE TAX SCHEME AFTER SATISFYING HIMS ELF ABOUT THE ELIGIBILITY OF THE APPLICANT-COMPANY. THE ASSESSEE-COMPANY DECIDED TO OPT FOR TONNAGE TAX SCHEME FOR ITS INCOME FROM OPERATING SHIPS AND ACCORDINGLY FIL ED AN APPLICATION DATED 01-12-2004 IN THE PRESCRIBED FORM NO. 65 WITH THE ADDITIONAL C OMMISSIONER OF INCOME-TAX, RANGE- 2, KOCHI ON 3.12.2004. FOR OPTING THE TONNAGE TAX SCHEME, A COMPANY SHOULD BE A QUALIFYING COMPANY AS DEFINED IN SEC. 115VC OF TH E ACT. ACCORDING TO SEC. 115VC, ONE OF THE CONDITIONS IS THAT THE MAIN OBJECT OF CO MPANY SHOULD BE TO CARRY ON THE BUSINESS OF OPERATING SHIPS. THE ADDL. COMMISSIONER OF INCOME-TAX TOOK THE VIEW THAT THE MAIN OBJECT OF THE ASSESSEE COMPANY IS NOT THE BUSINESS OF OPERATING SHIPS AND ACCORDINGLY, VIDE HIS ORDER DATED 28-01-2005, HE RE JECTED THE APPLICATION FILED BY THE I.T.A. NOS. 80 & 17/COCH/2011 3 ASSESSEE. THE ADDL. CIT CAME TO THE SAID CONCLUSIO N FOR THE FOLLOWING TWO REASONS:- (A) THE MEMORANDUM AND ARTICLES OF ASSOCIATION CON TAINS 73 OBJECTIVES OUT OF WHICH BUSINESS AS SHIPPERS, SHIPPING AGENTS ETC. I S ONLY ONE OF THE SEVERAL OBJECTIVES AND IS NOT THE MAIN OBJECTIVE. (B) THE SHIP CHARTER RECEIPTS (TURNOVER) FORMS ONLY A SMALL PORTION OUT OF THE GROSS RECEIPTS(TURNOVER) OF THE COMPANY FROM VARIO US DIVISIONS. 4. THE ASSESSEE CHALLENGED THE SAID DECISION BY FIL ING A WRIT PETITION BEFORE THE HONBLE KERALA HIGH COURT. THE ASSESSEE ALSO FILED APPEAL BEFORE THE LD CIT(A) IN THE REGULAR COURSE. THE JURISDICTIONAL HIGH COURT HELD THAT THE ORDER OF THE ADDL. CIT TO THE EXTENT IT HOLDS THAT THE BUSINESS OF OPERATING SHIP S IS NOT A MAIN OBJECT OF THE PETITIONER-COMPANY, GOING BY ITS MEMORANDUM, IS ILL EGAL. THE SAID DECISION OF THE HIGH COURT IS REPORTED IN (2009) 312 ITR 31. 5. WITH REGARD TO THE SECOND GROUND RELATING TO TH E PROPORTION OF SHIPPING RECEIPTS VIS--VIS GROSS RECEIPTS, THE HONBLE KERALA HIGH C OURT RESTORED THE MATTER BACK TO THE FILE OF THE LD. CIT(A), BEFORE WHOM THE APPEAL WAS PENDING BY THAT TIME. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE CONTENDED THAT THE LD. ADDL. CIT WAS NOT CORRECT IN COMPARING THE TURNOVER FROM SHIPPING BUSINESS AGAIN ST THE GROSS TURNOVER. IT WAS SUBMITTED THAT THE CORRECT CRITERIA WOULD BE TO ASC ERTAIN THE % OF PROFIT EARNED FROM THE SHIPPING BUSINESS VIS--VIS NET PROFIT DECLARED BY THE ASSESSEE. IT IS TO BE NOTED THAT THE LD. ADDL. CIT HAD COMPARED THE GROSS TURNOVER F OR THE YEARS ENDING 31-03-2003 AND 31-03-2004. THE OBSERVATIONS MADE BY THE LD. A DDL. CIT ARE EXTRACTED BELOW:- I.T.A. NOS. 80 & 17/COCH/2011 4 ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FO R THE YEAR ENDED 31-3-2003 AND 31-3-2004 THE DETAILS OF INCOME IS AS UNDER: SALES & SERVICES 2,76,73,16,396 2,58,96,39,507 SHIPS CHARTER INCOME 30,84, 67,989 49,57,91,037 WIND ENERGY GENERATION 1,64,96 ,917 1,56,93,920 OTHER INCOME 17, 22,35,982 20,72,84,552 INCREASE/DECREASE IN (-) 1 3,05,183 (-) 44,47,164 INVENTORIES 3,26,32,12,101 3,30,39,61,852 THE ABOVE DETAILS SHOW THAT OUT OF THE GROSS INCOM E OF RS. 3,30,39,61,852/- FOR THE YEAR ENDED 31-3-2004, THE SHIP CHARTER INCOME IS RS. 49,57,91,037/- AND OUT OF RS. 3,26,32,12,101/- FOR THE YEAR ENDED 31-3-20 03, THE SHIP CHARTER INCOME IS RS. 30,84,67,989/-. AS PER THE DETAILS PRODUCED B EFORE ME IT IS SEEN THAT THE INCOME FROM SHIPPING BUSINESS AND INCOME FROM THE QUALIFYING SHIP FORMS ONLY SMALL PORTION OUT OF THE GROSS INCOME OF THE COMPA NY. AFTER CONSIDERING ALL THE FACTS AND EVIDENCES PRODUCED BY THE ASSESSEE, IT I S SEEN THAT IT CANNOT BE CONSIDERED THAT THE MAIN OBJECTIVE OF THE COMPANY IS TO CARRY ON THE BUSINESS OF OPERATING SHIPS AND THE ASSESSEES APPLICATION FOR EXERCISING THE OPTION FOR TONNAGE TAX SCHEME IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 115VP(1) OF THE INCOME-TAX ACT, 1961 CANNOT BE ENTERTAINED AND IS REJECTED. 6. HOWEVER, THE LD. CIT(A) CONSIDERED THE PROFITS E ARNED FROM SHIPPING BUSINESS VIS--VIS GROSS INCOME FOR THE YEARS ENDING 31-03-2 005, 31-03-2006 AND 31-03-2007 AND HELD THAT THE ASSESSEE IS ELIGIBLE FOR OPTING F OR TONNAGE TAX SCHEME. AGGRIEVED BY THE SAID DECISION OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE COMPANY HAS FILED THE APPLICATION IN F ORM NO. 65 BEFORE THE ADDL. CIT ON 03-12-2004 OPTING FOR TONNAGE TAX SCHEME U/S. 115VP (1) OF THE ACT. HENCE, IN OUR VIEW, IT WOULD BE CORRECT AND JUSTIFIABLE ONLY TO C ONSIDER THE DATA THAT WERE AVAILABLE AS ON THAT DATE IN ORDER TO ASCERTAIN WHETHER THE MAIN OBJECT OF THE COMPANY IS TO CARRY ON THE BUSINESS OF OPERATING SHIPS OR NOT. HOWEVER , WE NOTICE THAT THE LD. CIT(A) HAS CONSIDERED THE FINANCIAL ACCOUNTS RELATING TO 31-03 -2005, 31-03-2006 AND 31-03-2007 AND HELD THAT THE MAIN OBJECTIVE OF THE ASSESSEE CO MPANY IS TO CARRY ON THE BUSINESS OF OPERATING SHIPS. AS STATED EARLIER, THE ASSESSEE C OMPANY FILED ITS APPLICATION ON 03-12- 2004, ON WHICH DATE THE DATA PERTAINING TO 31.3.200 5, 31.3.2006 AND 31.3.2007 WOULD I.T.A. NOS. 80 & 17/COCH/2011 5 NOT BE AVAILABLE BEFORE THE ADDL. CIT. HENCE, IN OUR VIEW, THE LD CIT(A) IS NOT CORRECT IN CONSIDERING DATA PERTAINING TO THE SUBSEQUENT PE RIODS. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS OF THE L D. CIT(A):- 11.8 ON A CAREFUL CONSIDERATION OF FACTS AND RECO RDS, THE ACCOUNTS AND PROFIT POSITIONS FOR VARIOUS YEARS VIS--VIS SHIPPING BUS INESS EMERGES AS UNDER:- DIVISIONWISE PROFIT % 31/3/2005 % 31/3/2008 % 31/3/2007 CLEARING AND FORWARDING 49 243179615 43.8 205673589 57 221602150 WORK CONTRACT 9.2 46348698 10.6 44831657 10 38747486 SHIPPING DIVISION 52 262895284 51.9 218687504 48 185045126 UPTO AUGUST 2006 OTHERS -10 -51240127 -11.3 -47744289 -15 -57056621 TOTAL 100 501183470 100 421448421 100 388338141 31 /3/2005 31/3/2006 31/3/2007 NET PROFIT 60925 1502 428493669 836779831 LESS: OTHER EXCEPTIONAL INCOME PROFIT ON SALE OF ASSETS 107245238 1346896 448441690 PROFIT ON SALE OF INVESTMENT 822794 5698312 0 501183470 421448461 388338141 SHIPPING DIVISION PROFIT 26289528 4 218687504 633486816 LESS: PROFIT ON SALE OF SHIP 448441690 18 5045126 UPTO AUGU ST 08 PERCENTAGE OF PROFIT 52. 45 51.89 47.65 11.9 HENCE, AS PER THE ACCOUNTS AND OTHER CRITERIA FOR ELIGIBILITY, IT HAS BEEN NOTICED THAT THE ASSESSEE COMPANY HAD AL THE INGRE DIENTS AVAILABLE TO BE A QUALIFYING COMPANY AND WAS VERY WELL ELIGIBLE TO H AVE BEEN ALLOWED FOR EXERCISING THE OPTION FOR TONNAGE TAX, BECAUSE AS PER THE INCOME CRITERIA ALSO, THE APPELLANT WAS MAINTAINING SEPARATE ACCOUNTS OF INCOME DERIVED OUT OF THE SHIPPING OPERATIONS. HENCE, IN MY VIEW THE REJECT ION OF APPELLANTS APPLICATION BY THE A.O. PASSING ORDER WAS NOT JUSTIFIED. I.T.A. NOS. 80 & 17/COCH/2011 6 8. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE PRESENT ISSUE NEEDS TO BE EXAMINED AFRESH AT THE END OF LD CIT(A) . ACCORDINGLY WE SET ASIDE HIS ORDER AND RESTORE THE SAME TO HIS FILE FOR CONSIDER ATION OF THE SAME AFRESH IN ACCORDANCE WITH LAW BY CONSIDERING THE MATERIAL AVA ILABLE AS ON THE DATE OF FILING APPLICATION. 9. WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE IN WHICH THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT(A) IN UPHOLDING TH E DECISION OF THE ASSESSING OFFICER TO TAX THE CAPITAL GAIN AS PER THE PROVISIONS OF SEC. 50C OF THE ACT. 10. THE FACTS RELATING TO THE SAME ARE STATED IN BR IEF. IN THE RETURN OF INCOME, THE ASSESSEE DECLARED LONG TERM CAPITAL GAIN OF RS. 2,5 3,33,605/-. THE ASSESSING OFFICER NOTICED THAT ONE OF THE ASSETS SOLD BY THE ASSESSEE WAS A PROPERTY CONSISTING OF LAND MEASURING 23980 SQ. FT AND A BUILDING THEREON, WHIC H WAS LOCATED AT RACE COURSE ROAD, COIMBATORE. THE SAID PROPERTY WAS SOLD FOR A CONSI DERATION OF RS. 4,82,20,200/-. IT WAS NOTICED THAT THE VALUE DETERMINED BY THE STAMP AUTHORITIES FOR THE PURPOSES OF STAMP DUTY WAS RS. 5,67,63,700/-. ACCORDINGLY, THE ASSESSING OFFICER, BY INVOKING THE PROVISIONS OF SEC. 50C, TOOK THE SALE CONSIDERATION AS RS.5,67,63,700/-, BEING THE VALUE FIXED BY THE STAMP AUTHORITIES FOR THE STAMP DUTY P URPOSES. THE DECISION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). THE CONTENTION OF THE ASSESSEE BEFORE THE LD. CIT(A) WAS THAT THE ASSESSEE HAS SOL D THE IMPUGNED PROPERTY TO A CHARITABLE TRUST, WHICH ENJOYS THE BENEFITS OF PROV ISIONS OF SEC. 80G OF THE ACT. ACCORDINGLY, IT WAS CONTENDED THAT THE DIFFERENCE B ETWEEN THE VALUE DETERMINED BY THE STAMP AUTHORITIES AND VALUE DECLARED IN THE SALE DE ED HAS TO BE TREATED AS GIFT TO THE TRUST AND IN THAT CASE, THE SAID GIFT IS NOT LIABLE TO CAPITAL GAINS TAX AS PER THE PROVISIONS OF SEC. 47(III) OF THE ACT. THE LD. CIT(A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: I.T.A. NOS. 80 & 17/COCH/2011 7 HAVING GONE THROUGH THE SUBMISSIONS FILED BY THE A PPELLANT AND THE FACTS OF THE CASE AND ALSO THE ASSESSMENT ORDER I HAVE NOTICED T HAT NOWHERE IN THE ASSESSMENT ORDER THE FACT OF GIFT HAS BEEN MENTIONE D. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS HE ARD THIS CASE SEVERAL TIMES BETWEEN 01-09-2006 TO 19-12-2007 AND HAS PASSED AN ELABORATE ORDER. HOWEVER, AT NO PLACE THIS ISSUE WAS EVER DISCUSSED. THEREFORE, AT THIS POINT OF TIME THE ASSESSEES SUBMISSIONS CANNOT BE ACCEPTED AT ITS FACE VALUE. FURTHER, IN MY OPINION THE DIFFERENCE BETWEEN THE MARKET RAT E AND THE AGREEMENT CANNOT AUTOMATICALLY BE TREATED AS A GIFT AS CONTENDED BY THE APPELLANT EVEN IF THE PROPERTY IS SOLD TO A CHA RITABLE TRUST. IF A GIFT IS MADE THAT SHOULD BE THROUGH AN IRREVOCABLE GIFT DEED DULY WITNESSED BY INDEPENDENT WITNESSES AND ACKNOWLEDGED BY THE DONEE . THE RECORD DOES NOT SHOW ANY SUCH INFORMATION EITHER BY THE SELLER OR B Y THE BUYER. NO SUCH MATERIAL OR CORROBORATIVE EVIDENCE IS FURNISHED EITHER BEFOR E THE ASSESSING OFFICER OR AT THE TIME OF APPELLATE PROCEEDINGS. THEREFORE, THE DIFFERENCE CANNOT BE TAKEN AS GIFT. HENCE IN MY VIEW THE ASSESSING OFFICER HAS R IGHTLY TAKEN THE DIFFERENCE AS CAPITAL GAIN OF THE APPELLANT AND HAS ASSESSED IT C ORRECTLY IN THE HANDS OF THE APPELLANT. HENCE THIS GROUND STANDS DISMISSED. 11. WE HAVE HEARD THE PARTIES ON THIS ISSUE. WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD. CIT(A) FOR THE FOLLOWING REASON S: (I) SEC. 50C IS A DEEMING PROVISION AND HENCE, THE QUESTION OF GIFT OF PROPERTY DOES NOT ARISE. (II) THERE IS NO FINDING THAT THE ASSESSEE HAS TRAN SFERRED THE ASSET FOR INADEQUATE CONSIDERATION, WHICH MAY POSSIBLY RESULT IN GIFT. ON THE CONTRARY, SEC. 50C OF THE ACT ONLY CONTEMPLATES ONLY SUBSTITUTING THE SALE CO NSIDERATION. (C) EVEN IF FOR A MOMENT, THE CONTENTION OF GIFT IS ACCEPTED IN THE PRESENT CASE, THE QUESTION THAT ARISES IS WHAT WAS ACTUALLY GIFTE D. THE ENTIRE PROPERTY HAS BEEN SOLD FOR A CONSIDERATION OF RS.4.82 CRORES AS AGAINST THE STAMP DUTY VALUE OF RS.5.67 CRORES. HENCE THE DIFFERENCE BETWEEN B OTH THE AMOUNTS HAS TO BE TREATED AS CONSTRUCTIVE OF RECEIPT OF MONEY IN THE FORM OF CASH BY THE ASSESSEE AND CONSTRUCTIVE PAYMENT OF MONEY IN THE FORM OF GI FT TO THE TRUST. SINCE THE TRANSACTION OF GIFT IS CONSIDERED AS TAKEN PLACE IN THE FORM OF GIFT, THE PROVISION OF SEC. 47(III) SHALL NOT APPLY TO IT. IN VIEW OF THE ABOVE, WE DO NOT FIND MERIT IN THE C ONTENTIONS OF THE ASSESSEE. I.T.A. NOS. 80 & 17/COCH/2011 8 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IS DISMISSE D. PRONOUNCED ACCORDINGLY O N 14-09-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 14TH SEPTEMBER, 2012 GJ COPY TO: 1. SOUTH INDIA CORPORATION LTD., RANI MEYYAMMAI BLD G., KPK MENON ROAD, WELLINGTON ISLAND, KOCHI-682 003. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-4(1) , ERNAKULAM. 3.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 2(1), RANGE-2, ERNAKULAM. 4.THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 5.THE COMMISSIONER OF INCOME-TAX, KOCHI. 6. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 7. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN