Butterfly Marketing Pvt. Ltd. (By Successor V.M. Chettiar & Sons India P. Ltd.), Kancheepuram V. DCIT, CHENNAI

ITA 3079/CHNY/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9494 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 03-11-2016
• Court: TRIBUNAL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./I.T.A. NO.3079/CHNY/2016 ! ' / ASSESSMENT YEAR : 2012-2013. M/S. BUTTERFLY MARKETING PRIVATE LTD, BY SUCCESSOR V.M. CHETIAR & SONS INDIA PVT LTD, (NOW V.M. CHETTIAR AND SONS INDIA LLP) E-34, SECOND FLOOR, RAJIV GANDHI SALAI, EGATTUR VILLAGE, NAVALUR 600 130. KANCHEEPURAM DIST. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2) CHENNAI 600 034. [PAN AAACB 2219D] ( / APPELLANT) ( /RESPONDENT) # $ % / APPELLANT BY : SHRI. R. MEENAKSHISUNDARAM, ADV &' # $ % /RESPONDENT BY : SHRI. R. CLEMENT RAMESH KUMAR, IRS, ADD. CIT ( ) $ * /DATE OF HEARING : 30-07-2019 +,'! $ * /DATE OF PRONOUNCEMENT : 19-09-2019 / O R D E R PER INTURI RAMA RAO , ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-1, CHENNAI ITA NO. 3079/2016 :- 2 -: (CIT(A) FOR SHORT) DATED 07.09.2016 FOR THE ASS ESSMENT YEAR (AY) 2012-2013. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (A PPEALS)-1, CHENNAI DATED 07-09-2016 INSOFAR AS IT CONFIRMS THE ORDER OF THE ASSESSING OFFICER IN BRINGING TO TAX THE SUM OF RS. 4,65,30,500/- BEING COMPENSATION RECEIVED FROM BUTTERFLY GANDHIMA THI APPLIANCES LIMITED FOR LOSS ON ACCOUNT OF NON-EXERC ISE OF COMMERCIAL EXPLOITATION/DEVELOPMENT RIGHTS ON ACCOU NT OF 99 YEARS LEASE TO RUN THE SAID BUTTERFLY GANDHIMATHI A PPLIANCES LIMITED IS ERRONEOUS, AGAINST THE PROVISIONS OF LAW AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE FOUND THAT THE MEMORANDUM OF UNDERSTANDING DATED 29 -03-2012 PROVIDES FOR COMPENSATION TO THE APPELLANT ON ACCOU NT OF ITS INABILITY TO GO FOR COMMERCIAL EXPLOITATION/DEVELOP MENT RIGHTS OF THE PROPERTY UNDER CONSIDERATION SOLD BY IT AND HEN CE, THE COMPENSATION RECEIVED ON THAT ACCOUNT IS NOT INCOME BUT ONLY CAPITAL RECEIPT, NOT LIABLE TO TAX. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE FOUND THAT AS PER THE LEASE AGREEMENT, THERE IS NO PROVISION FOR PAYMENT OF COMPENSATION FOR TERMINATION OF LEASE BE TWEEN THE PARTIES AND LESSOR IS NOT ENTITLED FOR COMPENSATION FOR LOSS OF RENT WHEN THE LEASE IS TERMINATED BY THE LESSOR ITSELF, AND NOT BY THE LESSEE. 4. THE COMMISSIONER SHOULD HAVE FOUND THAT IN THE MEMORANDUM OF UNDERSTANDING DATED 2GTH MARCH 2012, IT HAS CLEARLY BEEN STATED THAT THE COMPENSATION IS FOR GI VING UP ANY CLAIM BY THE APPELLANT FOR THE LOSS ARISING ON ACCO UNT OF NONEXERCISE OF COMMERCIAL EXPLOITATION/DEVELOPMENT RIGHTS AND CONSEQUENTLY, THE COMMISSIONER SHOULD HAVE FOUND TH AT THE COMPENSATION UNDER QUESTION IS NOT FOR THE LOSS OF RENT BUT FOR THE LOSS OF SOURCE OF INCOME NAMELY, EXPLOITATION O F THE SUBJECT ASSET. FOR THESE REASONS AND FOR ANY OTHER REASONS THAT MA Y BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT T HE HONBLE TRIBUNAL MAY BE PLEASED TO SET ASIDE THE ORDER OF T HE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI DAT ED 07-09- ITA NO. 3079/2016 :- 3 -: 2016 INSOFAR AS IT CONFIRMS THE ADDITION OF COMPENS ATION OF RS.4,65,30,500/- WHICH BEING A CAPITAL RECEIPT WH ICH IS ASSESSABLE TO TAX IS ERRONEOUS, AGAINST THE PROVISI ONS OF LAW AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND PASSED WITH TOTAL LACK OF APPLICATION OF MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY M/S. BUTTERFLY MARKETING PRIVA TE LTD IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTUR ING HOUSEHOLD APPLIANCES. THE RETURN OF INCOME FOR THE AY 2012-1 3 WAS FILED ON 02.05.2013 DISCLOSING TOTAL INCOME OF RS.2.72,34,32 0/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE DY. CIT, CORPORATE CIRCLE-I(2), CHENNAI (HEREINAFTER CALLED AO) VIDE ORDER DATED 13.02.2015 PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS. 7,46,42,470 /- AFTER MAKING SEVERAL DISALLOWANCES. WHILE DOING SO, THE ASSESSI NG OFFICER MADE ADDITION OF H4,65,30,500/- TOWARDS COMPENSATION REC EIVED FROM M/S. BUTTERFLY GANDHIMATHI APPLIANCES LTD CLAIMED TO BE CAPITAL RECEIPT BY THE APPELLANT. 4. BRIEF FACTUAL MATRIX OF THE ISSUE ARE AS UNDER:- ASSESSEE COMPANY OWNING PROPERTY MEASURING 26,265 SQ.FT WITH SUPER STRUCTURE SITUATED AT PUDUPAKKAM VILLAGE, VANDALUR- ITA NO. 3079/2016 :- 4 -: KELAMBAKKAM ROAD, KELAMBAKKAM 603 103 USED AS GODOW N AND THIS BUILDING WAS UNDER LONG TERM LEASE OF 99 YEARS WITH M/S. BUTTERFLY GANDHIMATHI APPLIANCES LTD AND THIS PROPERTY WAS SO LD TO SAME COMPANY NAMELY M/S. BUTTERFLY GANDHIMATHI APPLIANCE S LTD FOR A CONSIDERATION OF H3,75,69,500/- ON 29.03.2012. ON T HE SAME DAY ASSESSEE COMPANY HAD ENTERED INTO MEMORANDUM OF UN DERSTANDING WITH M/S. BUTTERFLY GANDHIMATHI APPLIANCES LTD IN T ERMS OF WHICH ASSESSEE COMPANY WAS PAID COMPENSATION OF H4,65,30 ,500/- STATED TO BE ON ACCOUNT OF CONSIDERATION TOWARDS MITIGATING THE CAPITAL LOSS ON ACCOUNT OF SALE OF PROPERTY. COMPENSATION WAS ST ATED TO HAVE BEEN PAID TO COMPENSATE THE LOSSES WHICH ASSESSEE COMPAN Y COULD HAVE EARNED IF THE GODOWN WAS RENTED OUT OR RENT IT WOUL D HAVE SAVED AS THE BUILDING WAS USED FOR ITS OWN BUSINESS PURPOSE AND THE SAME WAS CLAIMED TO BE CAPITAL RECEIPT. HOWEVER THE ASSESS ING OFFICER HELD THAT COMPENSATION WAS RECEIVED IN LIEU OF LOSS OF PROFI T AND THEREFORE HELD AS REVENUE RECEIPT, PLACING RELIANCE ON THE DECISIO NS OF HON'BLE SUPREME COURT IN THE CASES OF CIT VS. M/S. GANGATH AR BAGGNATH (1972) 86 ITR 19 AND CIT VS. MANNA RAMJI (1972) 86 ITR 29. FURTHER, THE ASSESSING OFFICER TAKING NOTE OF THE FACT THAT PROPERTY WAS SOLD BY THE ASSESSEE COMPANY TO THE SAME PARTY I.E. M/S. B UTTERFLY GANDHIMATHI APPLIANCES LTD TO WHOM THE PROPERTY WAS LEASED FOR 99 YEARS, INFERRED THAT IT IS A PART OF SALE CONSIDERA TION. ITA NO. 3079/2016 :- 5 -: 5. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDER CONFIRMED THE ACT ION OF THE ASSESSING OFFICER (AO). 6. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. IT IS CONTENDED THAT THE ASSESSING OFFICER OUGHT NOT HAVE INFERRED THAT COMP ENSATION PAID IS PART OF THE SALE CONSIDERATION, IN AS MUCH AS, THE STATED SALE CONSIDERATION IS NOT BELOW GUIDELINE VALUE FOR STA MP DUTY PURPOSE AND IN ABSENCE OF ANY EVIDENCE TO THE CONTRARY, IT CAN NOT BE ASSUMED THAT CONSIDERATION WAS PAID OVER THE ABOVE STATED CONSID ERATION. THE LD. AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE JU DGMENT OF HON'BLE SUPREME COURT IN THE CASE OF K.P. VARGHESE VS. ITO ,( 1981) 131 ITR 597. THE LD. AUTHORISED REPRESENTATIVE FURTHER SUBM ITTED THAT COMPENSATION WAS RECEIVED TOWARDS TERMINATION OF LO NG TERM LEASE OF 99 YEARS, WHICH IS CAPITAL RECEIPT NOT LIABLE TO BE TAXED. 7. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. ADMITTEDLY, IN THE PRESENT CASE PROPERTY WA S SOLD TO THE SAME PARTY WHO WAS ENJOYING THE PROPERTY AS LESSEE ON L ONG TERM LEASE OF ITA NO. 3079/2016 :- 6 -: 99 YEARS AND THE PROPERTY WAS SOLD FOR A CONSIDERAT ION NOT BELOW THE GUIDELINE VALUE PRESCRIBED FOR STAMP DUTY PURPOSE. THEREFORE THE PROVISIONS OF SECTION 50C OF THE ACT HAVE NO APPLI CATION. IT IS SETTLED PROPOSITION OF LAW THAT THERE CANNOT BE ANY PRESUMP TION OF RECEIPT OF CONSIDERATION OVER AND ABOVE APPARENT CONSIDERATIO N STATED IN REGISTERED SALE DEED. WHAT IS APPARENT SHOULD BE BELIEVED TO BE REAL IN THE ABSENCE OF ANY MATERIAL TO CONTRARY ON RECOR D. APPARENTLY, THE COMPENSATION WAS PAID TOWARDS TERMINATION OF LONG T ERM LESSEE, IN TERMS OF MOU ENTERED BETWEEN PARTIES ON 29.03.201 2. THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF THE TERM OF MOU . HE SHOULD HAVE EXAMINED THE OTHER PARTIES TO FIND OUT THE PURPOSE OF THE IMPUGNED PAYMENT, WHICH THE ASSESSING OFFICER HAD CHOSEN NOT TO DO SO. THEREFORE THE MOU HAS TO BE BELIEVED AND THE AMOUNT RECEIVED SHOULD BE HELD TO BE COMPENSATION TOWARDS TERMINATION OF LONG TERM LEASE. THEN THE QUESTION BOILS DOWN TO WHATEVER COMPENSATI ON RECEIVED ON ACCOUNT OF TERMINATION OF LONG TERM LEASE OF 99 YE ARS CAN BE TREATED AS REVENUE RECEIPTS AND LIABLE TO TAX. ANY COMPENS ATION RECEIVED TOWARDS LOSS OF SOURCE OF INCOME CANNOT BE TREATED AS REVENUE RECEIPTS BUT CAPITAL RECEIPTS WHICH IS NOT LIABLE T O BE TAXED. THE HONBLE SUPREME COURT IN THE CASE OF KARAM CHAND THAPAR BROS (P) LTD VS. CIT (1971) 80 ITR 167, WHEREIN IT WAS HELD AS FOLLOWS. ITA NO. 3079/2016 :- 7 -: 9.IN THE DETERMINATION OF THE QUESTION WHETHER A RECEIPT IS CAPITAL OR INCOME, IT IS NOT POSSIBLE TO LAY DOWN A NY SINGLE TEST AS INFALLIBLE OR ANY SINGLE CRITERION AS DECISIVE. THE QUESTION MUST ULTIMATELY DEPEND ON THE FACTS OF THE PARTICUL AR CASE, AND THE AUTHORITIES BEARING ON THE QUESTION ARE VALUABL E ONLY AS INDICATING THE MATTERS THAT HAVE TO BE TAKEN INTO A CCOUNT IN REACHING A DECISION. THAT, HOWEVER, IS NOT TO SAY T HAT THE QUESTION IS ONE OF FACT, FOR THESE QUESTIONS BETWEE N CAPITAL AND INCOME, TRADING PROFIT OR NON-TRADING PROFIT, ARE Q UESTIONS WHICH, THOUGH THEY MAY DEPEND TO A VERY GREAT EXTEN T ON THE PARTICULAR FACTS OF EACH CASE, DO INVOLVE A CONCLUS ION OF LAW TO BE DRAWN FROM THOSE FACTS (SEE COMMISSIONER OF INCO ME-TAX V. RAI BAHADUR JAIRAM VALJI (1955) 35 ITR 148 P. H. DI VECHA V. COMMISSIONER OF INCOME-TAX 48 ITR 222, KETTLEWELL B ULLEN & CO. LTD. V. COMMISSIONER OF INCOME-TAX, 53 ITR 261, GILLANDERS ARBUTHNOT AND CO. LTD. V. COMMISSIONER OF INCOME-TA X, 53 ITR 283 AND COMMISSIONER OF INCOME-TAX V. BEST & CO. (P .) LTD. (1966) 60 ITR 11 (SC) 10. THE QUESTION WHETHER A PARTICULAR INCOME ARISIN G FROM THE TERMINATION OF ONE OF THE AGENCIES OF A MULTI-AGENC Y CONCERNED IS A CAPITAL RECEIPT OR A REVENUE RECEIPT IS UNDOUB TEDLY A DIFFICULT QUESTION TO BE ANSWERED. THE DIFFICULTY I S INHERENT IN THE PROBLEM ITSELF. DECISIONS ON THIS QUESTION ARE NUMEROUS. BUT NONE OF THEM HAVE LAID DOWN A PRECISE PRINCIPLE OF UNIVERSAL APPLICATION, BUT VARIOUS WORKABLE RULES H AVE BEEN EVOLVED FOR GUIDANCE. ONE OF US, SPEAKING FOR THE C OURT IN KETTLEWELL BULLEN & CO.'S CASE (SUPRA) HAS LAID DOW N THE FOLLOWING GUIDELINES FOR FINDING OUT THE TRUE NATUR E OF SUCH A RECEIPT. THE RELEVANT OBSERVATIONS READ THUS : ' WHERE, ON A CONSIDERATION OF THE CIRCUMSTANCES, PAYMENT IS MADE TO COMPENSATE A PERSON FOR CANCELLATION OF A CONTRACT WHICH DOES NOT AFFECT TH E TRADING STRUCTURE OF HIS BUSINESS, NOR DEPRIVE HIM OF WHAT IN SUBSTANCE IS HIS SOURCE OF INCOME, TERMINAT ION OF THE CONTRACT BEING A NORMAL INCIDENT OF THE BUSINES S, AND SUCH CANCELLATION LEAVES HIM FREE TO CARRY ON HIS T RADE (FREED FROM THE CONTRACT TERMINATED), THE RECEIPT I S REVENUE : WHERE BY THE CANCELLATION OF AN AGENCY TH E ITA NO. 3079/2016 :- 8 -: TRADING STRUCTURE OF THE ASSESSEE IS IMPAIRED, OR S UCH CANCELLATION RESULTS IN LOSS OF WHAT MAY BE REGARDE D AS THE SOURCE OF THE ASSESSEE'S INCOME, THE PAYMENT MA DE TO COMPENSATE FOR CANCELLATION OF THE AGENCY AGREEM ENT IS NORMALLY A CAPITAL RECEIPT. ' IN THE LIGHT OF THE ABOVE DECISION, WE ALLOW THE A PPEAL FILED BY THE ASSESSEE 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS A LLOWED. ORDER PRONOUNCED ON 19 TH DAY OF SEPTEMBER 2019, AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER -) / CHENNAI . / DATED:19TH SEPTEMBER, 2019. KV /0 $0& *12032'* / COPY TO: 0 1 . # / APPELLANT 3. 0 ( 4*056 / CIT(A) 5. 278 0& * 9 / DR 2. &' # / RESPONDENT 4. 0 ( 4* / CIT 6. 8:0;) / GF