Sh. Mohinder Singh Sanghera, V. Asstt. Director of Income Tax, Chandigarh

ITA 369/CHANDI/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1286 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDER KANTA
• Keywords: Capital asset; Double taxation relief; Capital receipt
• Section: 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, A CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NOS. 369 TO 371/CHD/2016 ASSESSMENT YEARS: 2008-09 TO 2010-11 SH. MOHINDER SINGH SANGHERA, VS. ASSTT. DIRECTOR O F I.TAX, 81, LINDENLEA COMPTON, INTERNATIONAL TAXATION, WOLVERHAMPTON, CHANDIGARH UNITED KINGDOM-WV38BQ PAN NO. CMZPS4270H & ITA NOS. 372 TO 374/CHD/2016 ASSESSMENT YEARS: 2008-09 TO 2010-11 SH. JATINDER SINGH CHATTA, VS. ASSTT. DIRECTOR O F I.TAX, SPRINGHILL HOUSE, INTERNATIONAL TAXATION, WALSALL ROAD, SPRINGHILL LICHFIELD, CHANDIGARH ENGLAND WS 140 BX, UNITED KINGDOM PAN NO. AMZPC6933B (APPELLANT) (RESPONDENT) APPELLANT BY : SH SAMIR MAHAJAN, CA RESPONDENT BY : SMT.CHANDERKANTA, SR. DR DATE OF HEARING : 17.07.2018 DATE OF PRONOUNCEMENT : 17.09.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT IS BUNCH OF APPEALS PREFERRED BY THE DI FFERENT ASSESSEES ARE AGAINST THE SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)- 43, NEW DELHI [HEREINAFTER REFERRED TO AS CIT(A)] DATED 29.1.2016 (IN ITA NOS 369 TO 371/CHD/2016) & DATED 8.2.2016 (IN ITA NOS. 372 TO 374/CHD/2016). ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 2 2. SINCE COMMON ISSUE IS INVOLVED IN THE CAPTIONED APPEALS, HENCE, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSE D OF BY THIS COMMON ORDER. FOR THE SAKE OF CONVENIENCES, ITA NO. 372/CHD/2016 IN THE CASE OF JATINDER SINGH CHATTA IS TAKEN AS A LEAD CASE FOR N ARRATION OF FACTS. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A TAX RESIDENT OF UNITED KINGDOM (U.K). DURING THE FINANCIAL YEAR 200 7-08, ASSESSEE INVESTED IN AN UPCOMING PROJECT OF OMAXE LTD. ALONG WITH FOUR OTHER INVESTORS. THE ASSESSEE MADE PAYMENT OF 95% OF THE SALE PRICE AND WAS PROVISIONALLY ALLOTTED FOURTH AND FIFTH FLOORS IN A PROPOSED COMMERCIAL COMPLEX. IN LIEU OF SUCH 95% ADVANCE PAYMENT, OMAXE LTD. WAS TO PAY ASSURED RETURN ON MONTHLY BASIS TO ASSESSEE TILL TH E TIME POSSESSION OF THE COMMERCIAL SPACE WAS HANDED OVER. SUCH PAYMENT WAS MADE BY OMAXE LTD FROM ASSESSMENT YEAR 2008-09 TO ASSESSMENT YEAR 2012-13 AFTER DEDUCTION OF TAX U/S 195 @ 15% UNDER THE INDIA-U.K. DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) THE ASSESSING OFFICER ON THE BASIS OF INFORMATION R ECEIVED BY HIM HAD REOPENED THE ASSESSMENT AND ASKED THE ASSESSEE TO FILE ITS RETURN OF INCOME. THE ASSESSEE ACCORDINGLY FILED IS RETURN O F INCOME AND OFFERED TO TAX THE ASSURED RETURN RECEIVED FROM M/S OMAXE LIMI TED TREATING THE SAME AS INTEREST INCOME. SINCE THE TDS @ 15% HAS ALREADY BEEN DEDUCTED BY OMAXE LIMITED IN ACCORDANCE WITH ARTICLE 12 OF THE DTAA BETWEEN INDIA AND U.K., INCOME WAS OFFERED TO TAX @ 15% ACCORDING LY. THE ASSESSING OFFICER, HOWEVER, WAS OF THE VIEW THAT THE ASSURED RETURN RECEIVED BY THE ASSESSEE FROM OMAXE LIMITED WAS NOT THE INTEREST IN COME, RATHER HE TREATED THE SAME AS RETURN FROM INVESTMENT AND ASSESSED THE SAME AS INCOME FROM ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 3 OTHER SOURCES AND THEREBY MAKING THE ADDITION OF R S. 1,63,939/ INTO THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION. 4. IDENTICAL FACTS ARE THERE IN ALL THE APPEALS EXC EPT VARIATION IN THE AMOUNT OF ASSURED RETURN RECEIVED OR THE AMOUNT OF ADDITION MADE BY THE ASSESSING OFFICER AS PER DISCUSSION MADE ABOVE. THE ADDITIONS SO MADE BY THE ASSESSING OFFICER HAVE BEEN CONFIRMED BY LD. CI T(A). THE ASSESSEE THUS HAS COME IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS. LD. COUNSEL FOR THE ASSESSEE HAS STRESSED UPON THREE POINTS. FIRSTLY, THAT THE REOPE NING IN THIS CASE WAS BAD IN LAW. SECONDLY, THE AMOUNT OF ASSURED RETURN REC EIVED BY THE ASSESSEE WAS A CAPITAL RECEIPT WHICH GOES ON TO REDUCE THE C OST OF THE ASSET AND THIRDLY THAT THE ASSESSEE HAD RIGHTLY RETURNED THE SAME AS INTEREST INCOME AND PAID TAX @ 15% AS PER ARTICLE 12 OF THE INDIA - U.K. DTAA. 6. THE LD. DR, ON THE OTHER HAND HAS RELIED ON THE FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO GONE THROUGH THE RECORD. ADMITTEDLY, THE ASSESSEE BOOKED THE COM MERCIAL FLOORS IN THE PROPOSED UPCOMING COMMERCIAL COMPLEX TO BE BUILT BY OMAXE LTD. THE ASSESSEE PAID 95% OF THE SALE PRICE AS ADVANCE MONE Y AGAINST WHICH IT RECEIVED ASSURED RETURN. NOW, THE QUESTION BEFORE U S IS RELATING TO THE NATURE OF THE ABOVE RECEIPTS / MONTHLY RETURNS. APA RT FROM THAT, THE ASSESSEE HAS ALSO RAISED LEGAL OBJECTION ABOUT THE VALIDITY OF THE REOPENING OF THE ASSESSMENT. HE INVITED OUR ATTENTION TO THE REASONS RECORDED AND SUBMITTED THAT THE ASSESSING OFFICER IN THE REASONS RECORDED HAS GIVEN TWO REASONS; FIRSTLY, THAT THE SOURCE OF THE INVESTMENT MADE BY THE ASSESSEE IS ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 4 TO BE VERIFIED. SECONDLY, THE ASSESSING OFFICER HAD INFORMATION THAT THE ASSESSEE HAD RECEIVED THE ASSURED RETURNS FROM OMAX E LTD. BUT THE ASSESSEE HAD NOT FILED HIS RETURN OF INCOME. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 115A, SUB SEC TION (5), IT IS NOT NECESSARY FOR AN ASSESSEE WHO IS A NON-RESIDENT TO FURNISH RETURN U/S 139 OF THE ACT, IF HIS INCOME CONSISTED ONLY OF INCOME REF ERRED TO IN CLAUSE (A) OF SUB SECTION (1) OF SECTION 115A, WHICH INCLUDE INTE REST INCOME AND FURTHER THAT THE TAX DEDUCTIBLE AT SOURCE UNDER THE RELEVAN T PROVISIONS HAS BEEN DEDUCTED FROM SUCH INCOME. THE CONTENTION OF THE LD . COUNSEL IN THIS RESPECT HAS BEEN THAT SINCE THE ASSESSEE DID NOT HA VE ANY INCOME OTHER THAN THE INTEREST INCOME RECEIVED FROM OMAXE LTD. AND O MAXE LTD HAD ALREADY DEDUCTED TAX AT SOURCE @ 15% AS PER THE INDIA - U.K . DTAA AND, HENCE, THE ASSESSEE WAS NOT NECESSARILY REQUIRED TO FILE R ETURN OF INCOME. THE LD. COUNSELS SUBMISSIONS IN THIS RESPECT HAVE BEEN THAT THE REOPENING CANNOT BE DONE JUST TO VERIFY THE SOURCE OF INVESTMENT IN THE ABSENCE OF ANY INFORMATION OR REASONS TO BELIEVE OF ESCAPEMENT OF INCOME. THAT THE ASSESSMENT CANNOT BE REOPENED FOR MAKING F ISHING AND ROVING INQUIRIES. FURTHER, THAT THE SECOND REASON RECORDED THAT THE ASSESSEE HAD NOT FILED THE RETURN, WAS NOT TENABLE AS THE ASSESSEE A S PER THE PROVISIONS OF THE INCOME TAX ACT WAS NOT NECESSARILY REQUIRE TO FILE THE RETURN OF INCOME AS DISCUSSED ABOVE. 8. WE ARE NOT CONVINCED WITH THE ABOVE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. A PERUSAL OF THE COPY OF THE REA SONS RECORDED REVEALS THAT THE ASSESSING OFFICER HAS NOT USED THE WORD INTERE ST INCOME RATHER HE MENTIONED THAT HE HAD THE INFORMATION THAT THE ASSE SSEE HAD BEEN RECEIVING ASSURED RETURNS ON THE INVESTMENT MADE IN OMAXE LTD . ACCORDINGLY, HE ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 5 REOPENED THE ASSESSMENT AND DETERMINED THE NATURE O F INCOME AS INCOME FROM OTHER SOURCES AND COMPUTED THE INCOME OF THE ASSESSEE ACCORDINGLY. IN VIEW OF THIS, IT CANNOT BE SAID THAT THE ASSESSI NG OFFICER WAS SUPPOSED TO ASSUME THAT THE ASSESSEE WAS NOT REQUIRED TO FILE T HE RETURN OF INCOME AS PER THE PROVISIONS OF SECTION 115A SUB-SECTION (5) OR THAT THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS BEEN RECEIVING INTEREST INCOME ONLY. IN VIEW OF THIS, THE REOPENING OF THE ASSESS MENT IS HELD VALID. 9. NOW, COMING TO THE MERITS OF THE CASE, THE ASSES SING OFFICER WHILE MAKING THE IMPUGNED ADDITIONS HAS RELIED UPON THE D EFINITION OF INTEREST AS PROVIDED UNDER ARTICLE 12 OF THE INDIA U.K. DTA A, WHICH READ AS UNDER:- THE TERM INTEREST AS USED IN ARTICLE MEANS INCOME FROM DEBT-CLAIMS OF EVERY KIND, WHETHER OR NOT SECURED B Y MORTGAGE AND WHETHER OR NOT CARRYING A RIGHT TO PARTICIPATE IN THE DEBTORS PROFITS, AND IN PARTICUL AR, INCOME FROM GOVERNMENT SECURITIES AND INCOME FROM BONDS AND DEBENTURES, INCLUDING PREMIUMS AND PRIZES ATTACHING TO SUCH SECURITIES, BONDS OR DEBENTURES B UT, SUBJECT TO THE PROVISIONS OF PARAGRAPH 9 OF THIS A RTICLE, 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 ASS ESSEE, 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 B Y 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 UNTI L 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. ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 6 A PERUSAL OF THE ABOVE CLAUSE 23 OF THE ALLOTMENT L ETTER REVEALS THAT AS PER THE TERMS AND CONDITIONS OF THE ALLOTMENT LETTER, U NLESS AND UNTIL THE CONVEYANCE DEED IS EXECUTED AND REGISTERED, THE COM PANY I.E. OMAXE LTD WILL CONTINUE TO HAVE FULL AUTHORITY OVER THE PROPO SED UNIT AND ALL THE AMOUNTS PAID BY THE ALLOTTEE SHALL MERELY BE A TOKE N PAYMENT AND SHALL NOT GIVE ANY LIEN OR INTEREST IN THE SAID UNIT TO THE A LLOTTEE. 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 INTER EST IN THE PROPOSED UNIT TO BE CONSTRUCTED BY OMAXE LTD. HOWEVER, IN LIEU O F THE 95% OF THE TOTAL SALE CONSIDERATION SETTLED, THE OMAXE LTD. AGREED T O PAY A CERTAIN FIXED MONTHLY AMOUNT TO THE ASSESSEE IN THE NAME OF ASSUR ED RETURN. NOW THE QUESTION ARISES WHAT IS THE NATURE OF THE ADVANCE P AYMENT 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 CI RCUMSTANCES 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 EXPLOI TED. 11. UNDER THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSURED RETURN WAS ANY RETURN FROM THE PROPERTY IN RESPECT OF WHICH TH E 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 ASSESSE E 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 TH E ASSESSEE HAD ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 7 ADVANCED MONEY TO THE OMAXE LTD. WHICH WAS NOTHING BUT A DEBT CLAIM TILL THE PROPOSED PROPERTY IS CONSTRUCTED, POSSESSION HA NDED OVER TO THE ASSESSEE AND THE CONVEYANCE DEED EXECUTED AND REGI STERED. IN OUR VIEW, IT WAS A FINANCIAL TRANSACTION AND THE ASSURED MONEY R ETURN RECEIVED BY THE ASSESSEE WAS NOTHING ELSE THAN THE INTEREST RECEIVE D BY THE ASSESSEE ON THE FINANCES MADE BY THE ASSESSEE TO THE OMAXE LTD TO B E USED FOR THE CONSTRUCTION OF THE PROPERTY. THEREFORE, THE OMAXE LTD HAD RIGHTLY DEDUCTED THE TAX @ 15% OF THE INTEREST / ASSURED RE TURN PAID TO THE ASSESSEE. EVEN THE ASSESSEE ON BEING ASKED TO FILE THE RETURN HAS ALSO TREATED THE SAID RECEIPTS AS INTEREST INCOME. HOWEV ER, SUBSEQUENTLY, THE ASSESSEE CHANGED HIS STAND AND COME WITH A PLEA THA T 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 AN D SUPREME COURT. WITHOUT REFERRING TO EACH OF THE DECISION, WE MAY P OINT OUT THAT THE DECISIONS REFERRED TO BY THE ASSESSEE ARE NOT APPLI CABLE 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 S UPPLY OF PLANT AND MACHINERY. THE HON'BLE SUPREME COURT HELD THAT THE DAMAGES WERE DIRECTLY AND INTRINSICALLY LINKED WITH THE PROCUREMENT OF TH E 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 I S INCURRED SUCH AS INTEREST PAID FOR ACQUIRING ASSETS, THE SAME WILL BE ADDED T O THE COST OF THE ASSETS. HOWEVER, NONE OF THE CASE LAWS RELIED UPON BY THE A SSESSEE AS DISCUSSED ABOVE, ARE APPLICABLE TO THE FACTS AND CIRCUMSTANCE S OF THIS CASE. NEITHER ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 8 ANY DAMAGES WERE PAID BY THE OMAXE LTD. TO THE ASSE SSEE FOR LATE DELIVERY OF THE POSSESSION OF THE COMMERCIAL FLOORS IN QUEST ION NOR ANY ADVANCE MONEY WAS PAID BY THE ASSESSEE TO GET THE COMMERCIA L FLOORS AT SOME CONCESSIONAL RATE OR ON AN EARLY DATE RATHER AS DIS CUSSED 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 ASSESS EE AND OMAXE LTD. IN VIEW OF THIS, WE HOLD THAT THE ASSURED RETURN RECEI VED BY THE ASSESSEE WAS IN THE NATURE OF INTEREST AND THE ASSESSEE HAS RIGH TLY RETURNED / OFFERED THE SAME AS INTEREST INCOME. 13. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATI ON ON THE PART OF THE LOWER AUTHORITIES IN TREATING THE RECEIPTS OF THE A SSESSEE AS INCOME FROM OTHER SOURCES. WE, ACCORDINGLY, SET ASIDE THE IMPU GNED 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, TH E CLAIM OF THE ASSESSEE THAT IT IS A CAPITAL RECEIPT NOT LIABLE FO R TAXATION IS REJECTED. THE APPEAL OF THE ASSESSEE IS, THEREFORE, TREATED AS AL LOWED. 14. SINCE THE FACTS AND ISSUE INVOLVED IN ALL THE A PPEALS ARE IDENTICAL, HENCE, THE DECISION ARRIVED AT WILL APPLY MUTATIS-M UTANDIS TO ALL THE CAPTIONED APPEALS (ITA NOS. 369 TO 371 AND 373 TO 374/CHD/2016), AND ACCORDINGLY ALL THE APPEALS ARE TREATED AS ALLOWED IN THE SAME TERMS AND WITH IDENTICAL DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 07.09.2018 SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 07.09.2018 ITA NOS. 369 TO 371/CHD/2016 & 372 TO 374/CHD/2016- SH. MOHINDER SINGH SANGHERA & JATINDER SINGH CHATTA 9 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR