DCIT, CHENNAI V. Mangal Tirth Estates Limited, CHENNAI

ITA 1984/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7808 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 04-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 30-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUPRIYA PAL
• Assessee Lawyers: R. SUBRAMANIAN
• Keywords: Capital asset; Business income; Speculation loss; Capital Gains
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 73

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU R.L REDDY, JUDICIAL MEMBER ./ ITA NOS.:1983 & 1984/MDS/2016 / ASSESSMENT YEAR : 2008-09 & 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4 (1), CHENNAI. V. M/S. MANGAL TIRTH ESTATES LIMITED, NO.769, SPENCER PLAZA, ANNA SALAI, CHENNAI 600 002. PAN: AAACM4614R ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI SUPRIYA PAL, JCIT /RESPONDENT BY : SHRI R. SUBRAMANIAN, CA /DATE OF HEARING : 04.01.2017 /DATE OF PRONOUNCEMENT : 27.02.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE CIT (APPEALS) FOR THE ABOVE ASSESSMENT YEARS. 2. FIRST WE TAKE ITA NO.1983/MDS/2016 FOR THE ASSE SSMENT YEAR 2008-09. THE ONLY ONE GROUND IN THIS APPEAL I S CIT (APPEALS) ERRED IN DELETING THE DISALLOWANCE. 2 I.T.A. NO. 1983 & 1984/MDS/2016 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFF ICER DISALLOWED RS.38,28,526/- BY INVOKING PROVISIONS OF EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961 (IN SHORT T HE ACT), WHEREIN THE ASSESSEE CLAIMED IT HAS SHORT TERM CAPITAL LOSS FROM TRADING IN SHARES BY THE ASSESSEE. THE ASSESSING OFFICER OBSE RVES THAT THESE SHARES WERE ACQUIRED AND SOLD DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND THAT TH ESE TRANSACTIONS WERE SHOWN UNDER THE HEAD ADMINISTRAT ION OVERHEADS. THEREFORE, HE INVOKED THE PROVISIONS O F THE EXPLANATION TO SECTION 73 OF THE ACT AND TREATED IT AS SPECULATION LOSS NOT ALLOWED AS SHORT TERM CAPITAL LOSS OF THE ASSESSEE. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT EXPLANATION TO SECTION73 OF THE ACT CANNOT BE APPLIED TO THE ASSESSEES CASE AS THE GROSS TOTAL INCOME OF THE ASSESSEE MAINLY FROM INCOME OF THE HO USE PROPERTY. ACCORDINGLY, HE OBSERVED THAT THE SAID LOSS IS TO B E CONSIDERED AS SHORT TERM CAPITAL LOSS. AGAINST THIS REVENUE IS I N APPEAL BEFORE US. 3. THE LD. AR SUBMITTED THAT THE INCOME OF THE ASSE SSEE FOR THE ASSESSMENT YEAR 2008-09 IS AS FOLLOWS: 3 I.T.A. NO. 1983 & 1984/MDS/2016 MANGAL TIRTH ESTATE LTD. A.Y. 2008-09 HEADS OF INCOME INCOME % OF INCOME INCOME FROM BUSINESS (4,97,91,638) (118) INCOME FROM HOUSE PROPERTY 9,19,71,544 218 INCOME FROM CAPITAL GAIN CAPITAL GAIN INCOME 41,35,228 LESS SHORT TERM CAPITAL LOSS 38,28,526 SHORT TERM CAPITAL GAIN 6,496 SET OFF LOSS ON SALE OF INVESTMENT 3,00,206 GROSS TOTAL INCOME 4,21,79.906 100 A) ACCORDING TO HIM, THE CHARACTER OF GROSS TOTAL I NCOME FOR THE PURPOSE OF EXPLANATION TO SECTION 73 IS TO BE EXAMI NED IN THE LIGHT OF THE CHARGEABILITY TO TAX OF VARIOUS COMPONENTS OF THE GROSS TOTAL INCOME UNDER THE SPECIFIED HEADS OF INCOME. THE C HARGEABILITY IS TO BE LOOKED INTO WITH REFERENCE TO THE HEADS OF IN COME. THE EMPHASIS GIVEN TO CHARGEABILITY ON THE BASIS OF T HE HEADS OF INCOME IS APPARENT FROM THE RELEVANT TEXT OF LAW GI VEN IN EXPLANATION TO SECTION 73. B) THE LD. AR SUBMITTED THAT THE CHARGEABILITY OF I NCOME UNDER A SPECIFIC HEAD IS THE PRIME CONSIDERATION IN VERIF YING THE COMPOSITION OF GROSS TOTAL INCOME FOR THE PURPOSE O F EXPLANATION TO SECTION 73. AS THE QUESTION WHETHER AN INCOME IS CH ARGEABLE UNDER ANY OF THE SPECIFIED HEADS OF INCOME OR NOT IS TO B E LOOKED INTO, IT IS 4 I.T.A. NO. 1983 & 1984/MDS/2016 EQUALLY IMPORTANT TO FOLLOW THE PRINCIPLES GOVERNIN G THE CLASSIFICATION OF INCOME. THE CLASSIFICATION OF INCOME UNDER DIFF ERENT HEADS IS IMPORT IN CONTEXT OF CHARGE OF INCOME-TAX. THE C HARGE IS ON TOTAL INCOME. THE TOTAL INCOME IS THE AGGREGATE OF INCOM ES CHARGEABLE UNDER DIFFERENT HEADS SPECIFIED IN SECTION 14. INC OME, WHICH IS NOT CHARGEABLE UNDER ANY OF THE SPECIFIED HEAD OF INCOM E, CANNOT BE BROUGHT TO TAX AT ALL. C) ACCORDING TO AR, SECTION 56(2)(I) MANDATES THAT DIVIDENDS SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD I NCOME FROM OTHER SOURCES. THE NATURE AND COMPOSITION OF GROS S TOTAL INCOME FOR THE PURPOSE OF EXPLANATION TO SECTION 73 NEED T O BE EXAMINED ON THE BASIS WHETHER THE MAIN CHUNK OF THE GROSS TO TAL INCOME IS MADE UP OF INCOME CHARGEABLE UNDER THE HEAD INCO ME FROM OTHER SOURCES. THE GROSS TOTAL INCOME IN THE INSTANT CA SE WAS MADE UP OF DIVIDEND FROM SHARES HELD AS STOCK-IN-TRADE. TH EREFORE, THE GROSS TOTAL INCOME IN THE INSTANT CASE WAS CHARGEABLE UND ER THE HEAD INCOME FROM OTHER SOURCES. D) FURTHER, HE SUBMITTED THAT THE TEST OF GROSS TOT AL INCOME ITSELF SUGGESTED THAT THE INCOME COMPOSITION ALONE IS TO B E LOOKED INTO AS ANY OTHER INQUIRY MAY LEAD TO A CASE OF GENERALIZAT ION WHICH IS NOT 5 I.T.A. NO. 1983 & 1984/MDS/2016 CONTEMPLATED IN THE CONTEXT IN WHICH THE DEEMING PR OVISION BY WAY OF EXPLANATION IS PROVIDED TO SECTION 73. THE EXPL ANATION TO SECTION 73 IS A DEEMING PROVISION AND HAS TO BE STRICTLY CO NSTRUED. E) ACCORDING TO AR, THERE WAS NO MATERIALS ON RECOR D TO SHOW THAT THE ASSESSEE-COMPANY DID MAKE LOSS IN THE SHAR E TRADING ACTIVITIES IN ORDER TO PRODUCE THE TAX INCIDENCE. IN RESPECT OF THE CONTENTION REGARDING GROSS TOTAL INCOME, SECTION 73 DID NOT PROVIDE FOR ANY SPECIAL TREATMENT. HE SUBMITTED THAT THE S AME WORD OCCURRING MORE THAN ONCE IN THE ACT SHOULD GENERALL Y BE GIVEN THE SAME MEANING, BUT THE CONTEXT MAY INDICATE THE CONT RARY LEGISLATIVE INTENTION. THERE IS NO SUCH INDICATION IN SECTION 73 AND THE EXPLANATION THERETO. THEREFORE, THE MEANING OF THE EXPRESSION GROSS TOTAL INCOME HAS TO BE CONSTRUED AS GIVEN I N SECTION 80B(5). THEREFORE THE COMMISSIONER (APPEALS) WAS RIGHT IN H OLDING THAT PROVISIONS OF SECTION 73, READ WITH EXPLANATION THE RETO, WERE NOT APPLICABLE TO THE ASSESSEE-COMPANY. THE COMMISSION ER (APPEALS) WAS JUSTIFIED IN DIRECTING TO ALLOW THE SET OFF OF LOSSES INCURRED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES AGAINST THE OTHER INCOME. FINALLY THE AR RELIED ON THE ORDER OF THE CIT (APPE ALS). 6 I.T.A. NO. 1983 & 1984/MDS/2016 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE ASSESSING OFFICER AND GROUNDS OF APPEAL. 5. WE HEARD BOTH THE PARTIES AND PERUSED THE MATERI AL ON RECORD. IN THIS CASE, UNDISPUTED FACTS ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY DEALING AND DER IVES BUSINESS INCOME FROM SALE OF PROPERTIES. IN ADDITION TO THA T THE ASSESSEE DERIVES INCOME FROM HOUSE PROPERTY AND CAPITAL GAIN . IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE D ERIVES LOSS FROM INCOME OF BUSINESS AT RS.497.91 LAKHS, INCOME FROM HOUSE PROPERTY RS.919.71 LAKHS, IN ADDITION TO THIS, ASSE SSEE EARNED RS.41.35 LAKHS INCOME FROM CAPITAL GAIN AND LOSS OF RS.38.29 LAKHS (SHORT TERM CAPITAL LOSS). THUS THE BUSINESS INCOM E OF THE ASSESSEE DURING THE YEAR IS LOSS AS AGAINST THE INCOME FROM HOUSE PROPERTY. FINALLY THE GROSS TOTAL INCOME OF THE ASSESSEE WAS RS.421.71 LAKHS. THE ASSESSING OFFICER TREATED THE LOSS ARISED FROM SALE OF SHARES HAS SPECULATION LOSS AND ASSESSEES MAIN BUSINESS I S REAL ESTATE BUSINESS DEALING WITH PROPERTIES. AS SEEN FROM THE ACTIVITY OF THE ASSESSEE, ASSESSEES MAIN OBJECT WAS DEALING IN REA L ESTATES / PROPERTIES. IN ADDITION TO THIS, ASSESSEE IS DEALI NG IN SHARES ONLY FOR FURTHERANCE OF THE ABOVE ACTIVITIES. IN THE ASSESS MENT YEAR UNDER CONSIDERATION, ITS INCOME FROM BUSINESS FELL SHORT OF INCOME FROM 7 I.T.A. NO. 1983 & 1984/MDS/2016 HOUSE PROPERTY. NOW, THE QUESTION ARISES FOR CONSI DERATION IS WHETHER MERELY ON THAT ACCOUNT IT CAN BE HELD TO BE ASSESSEE ENGAGED IN EARNING ITS TOTAL INCOME MAINLY FROM HOU SE PROPERTY AND CAPITAL GAINS HAS TO EXCLUDE FROM SECTION 73 READ W ITH EXPLANATION. THE ANSWER TO THIS QUESTION HAS TO BE IN A NEGATIVE BECAUSE FOR PERUSAL OF ACTIVITIES OF THE ASSESSEE COMPANY AND I TS INCOME PATTERN, IT IS EVIDENT THAT ITS GROSS TOTAL INCOME MAINLY CONSISTS OF INCOME FROM BUSINESS AND NOT INCOME FROM HOUSE PROP ERTY OR CAPITAL GAIN AND OTHER SOURCES. THE GROSS TOTAL OF THE COMPANY CANNOT BE SAID THAT MAINLY FROM HOUSE PROPERTY, CAP ITAL GAINS AND INCOME FROM OTHER SOURCES. THE COMPANY IS THEREFOR E CANNOT BE HELD TO BE SO, IN PARTICULAR YEAR MERELY BECAUSE IT S INCOME FROM OTHER SOURCES IS MORE THAN BUSINESS ACTIVITIES. W E ARE THEREFORE OF THE OPINION THAT CONSIDERING OVERALL VIEW OF THE AC TIVITY OF THE ASSESSEE COMPANY NOT CONFINED TO THE INCOME PATTERN OF PRESENT ASSESSMENT YEAR, WE ARE OF THE OPINION THAT THE LOS S ARISED OUT OF SALE OF SHARES SHOULD BE CONSIDERED AS SPECULATION LOSS ONLY AND NOT AS SHORT TERM CAPITAL LOSS. ACCORDINGLY WE REV ERSE THE ORDER OF THE CIT (APPEALS) ON THIS ISSUE AND ALLOWED THE APP EAL OF THE REVENUE. 8 I.T.A. NO. 1983 & 1984/MDS/2016 6. IN THE RESULT APPEAL BY THE REVENUE IN ITA NO.19 83/MDS/ 2016 IS ALLOWED. 7. IN ITA NO.1984 OF 2016, THE FIRST GROUND FOR CON SIDERATION IS AS FOLLOWS: 2.1 THE CIT(A) ERRED IN DIRECTING THE AO TO TREAT THE INCOME ON SALE OF SHOPS OF RS.3,07,47,931/- UNDER THE HEAD CAPITAL GAINS AS AGAINST THE ASSESSMENT OF THE SAME AS BUSINESS INCO ME BY THE AO. 2.2 THE CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT ONLY CERTAIN SHOPS WERE CONVERTED BY THE ASSESSEE AS FIXED ASSET S, I.E., AS CAPITAL ASSET; NOT ALL THE SHOPS WERE CONVERTED. T HIS, PER SE, INDICATES THAT THE ACTION OF THE ASSESSEE IS NOT GE NUINE AND THE ASSESSEE HAS RESORTED TO CONVERT THE STOCK-IN-TRADE INTO CAPITAL ASSET ONLY TO DEPRIVE THE REVENUE OF ITS RIGHTFUL D UE. 2.3 THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAS ADOPTED THE CONVERSION STRATEGY ONLY TO PAY LES SER TAX AS LONG TERM CAPITAL GAIN IS ASSESSABLE AT 20% WHEREAS BUSINESS INCOME IS ASSESSABLE AT 30%. 2.4 THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT A MERE SHIFTING O THE STOCK IN TRADE FROM THE CURRENT ASSETS TO THE FIXED ASSETS IN THE ACCOUNTS WOULD NOT CHANGE THE BASIC CHARACTER O F THE SHOPS BEING STOCK IN TRADE AND HENCE THE TREATMENT GIVEN BY THE ASSESSEE IN THE ACCOUNTS WITH REGARD TO TAKING THE PART OF ITS STOCK IN TRADE AS FIXED ASSET IS NOTHING BUT A COLO URABLE DEVICE TO REDUCE ITS TAX BURDEN WHICH IS NOT PERMISSIBLE. 9 I.T.A. NO. 1983 & 1984/MDS/2016 2.5 IT IS SUBMITTED THAT THE CIT(A)S RELIED UPON ORDER OF ITAT IN ASSESSEES OWN CASE FOR AY. 2009-10 HAS NOT BECOME FINAL AND AGAINST WHICH THE DEPARTMENTS APPEAL IS PENDING BE FORE THE HONBLE HIGH COURT OF MADRAS. 8. GROUND NO.2.1: THE FACT OF THE ISSUE ARE THAT TH E ASSESSEE CLAIM CAPITAL GAIN OF RS.3,07,47,931/- ON SALE OF P ROPERTIES. IT WAS STATED BEFORE THE ASSESSING OFFICER THAT THE ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OW N CASE IN ITA NO.567/MDS/2013 DATED 10.10.2013 WHEREIN THE TRIBUN AL CONSIDERED THE SIMILAR ISSUE HELD THAT GAIN ON REAL IZATION ON SALE OR REAL ESTATE PROPERTIES ARE HELD AS STOCK IN TRADE T O BE CONSIDERED AS BUSINESS INCOME. ON OTHER HAND, GAIN ON SALE OF CAPITAL ASSET TO BE CONSIDERED AS CAPITAL GAIN. THE ASSESSING OF FICER NOT AGREEING WITH THE CONTENTION OF THE ASSESSEE TREATE D THE GAIN ON SALE OF PROPERTIES AS CAPITAL GAIN. AGAIN THE ASSE SSEE CARRIED THE APPEAL TO THE CIT (A). THE CIT (A) OBSERVED THAT I N THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE H AS SOLD THE CAPITAL ASSET WHICH IS THE PART OF THE BLOCK UP FIX ED ASSETS AND GAIN ON SALE OF THE SAME IS TO BE CONSIDERED AS LONG TER M CAPITAL GAIN. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 10 I.T.A. NO. 1983 & 1984/MDS/2016 9. WE HEARD BOTH THE PARTIES AND PERUSED THE MATERI AL ON RECORD BEFORE US. THE LD. AR SUBMITTED THAT THE AS SESSEE EARNED CAPITAL GAIN ON SALE OF LAND AND BUILDING WHICH WAS HELD AS A FIXED ASSET AT RS.1,34,70,732/- IN THE SCHEDULE OF FIXED ASSETS AND THE SAME WAS SOLD EARNING CAPITAL GAIN OF RS.3,07,47,93 1/-. IN OUR OPINION, IF THE ASSESSEE EARNS GAIN ON SALE OF CAPI TAL ASSET, THE SAME SHOULD BE TREATED AS LONG TERM CAPITAL GAIN. ON THE OTHER HAND, IF THIS GAIN IS ON ACCOUNT OF REALIZATION OF STOCK IN TRADE BY THE ASSESSEE, THE SAME HAS TO BE CONSIDERED AS BUSI NESS INCOME. BEING SO, IN OUR OPINION IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE AO TO VERIFY WHETHER THE ASSESSEE SOLD THE BUILDING WHICH WAS HELD AS A CAPITAL ASSET OR WHETHER IT HAS EARNED INCOME BY SALE OF STOCK IN TRADE AND DECIDE IT ACCORDINGLY . THIS GROUND OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPO SE. 10. GROUND NO.3 : THE CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS.8,21,052/- BEING 30% OF THE MAINTENANCE EXPENSES CLAIMED AGAINST HOUSE PROPERTY INCOME. 11. THE ASSESSEE CLAIMED AN EXPENDITURE OF RS.8,21, 052/- TOWARDS MAINTENANCE EXPENSES. ACCORDING TO THE ASS ESSEE, THIS MAINTENANCE EXPENDITURE RELATES TO THE BUILDING USE D BY THE 11 I.T.A. NO. 1983 & 1984/MDS/2016 ASSESSEE FOR HIS BUSINESS. ON THE OTHER HAND, THE AO OBSERVED THAT THE INCOME OF THE ASSESSEE FROM HOUSE PROPERTY HAS BEEN OBSERVED AS INCOME FROM HOUSE PROPERTY AND THE ASSE SSEE ALREADY CLAIMED DEDUCTION TOWARDS REPAIRS AND MAINT ENANCE OUT OF THE HOUSE PROPERTY INCOME AND ONCE AGAIN, THE ASSES SEE IS NOT ENTITLED FOR EXPENSES TOWARDS MAINTENANCE. HOWEVER , CIT(A) ALLOWED THE GROUND TAKEN BY THE ASSESSEE STATING TH AT THESE MAINTENANCE EXPENDITURE IS RELATED TO THE PROPERTY USED BY THE ASSESSEE FOR ITS OWN BUSINESS PURPOSES. THE REVENU E IS IN APPEAL BEFORE US. 12. WE HEARD BOTH THE PARTIES AND PERUSED THE MATER IAL AVAILABLE ON RECORD WITH US. THE MAIN CONTROVERSY IS WITH RE GARD TO CLAIM OF MAINTENANCE EXPENDITURE AND THE BUILDING REPAIRS. THE CONTENTION OF THE AR IS THAT THE MAINTENANCE EXPENDITURE IS NO T RELATING TO THE INCOME TREATED AS INCOME FROM HOUSE PROPERTY. THIS MAINTENANCE EXPENDITURE IS RELATING TO MAINTENANCE OF BUILDING USED BY THE ASSESSEE FOR ITS OWN BUSINESS PURPOSE. IF THE ASSE SSEE IS ABLE TO PROVE THAT THE MAINTENANCE EXPENDITURE CLAIMED BY T HE ASSESSEE IS RELATING TO THE BUILDING USED BY THE ASSESSEE FO R ITS OWN BUSINESS, THEN THE CLAIM OF THE ASSESSEE IS ALLOWED . WITH THIS OBSERVATION, WE REMIT THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION 12 I.T.A. NO. 1983 & 1984/MDS/2016 TO THE ASSESSEE TO PROVE THAT THE EXPENDITURE INCUR RED IN RELATING TO THE BUILDING IS USED FOR ASSESSEES OWN BUSINESS. IN THE RESULT THIS ISSUE IS REMITTED BACK TO THE FILE OF THE AO F OR FRESH CONSIDERATION. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1984/MDS/2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 27 TH FEBRUARY, 2017 AT CHENNAI. SD/- SD/- ( (( ( ) )) ) ( ) (DUVVURU R.L REDDY) (CHAN DRA POOJARI) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 27 TH FEBRUARY, 2017. JR. /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A)-2, CHENNAI 4. /CIT 5. /DR 6. /GF.