DY CIT-1(3)(2), Mumbai V. MAHARASHTRA STATE CO-OPERATIVE BANK LIMITED, Mumbai

ITA 3916/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1603 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 31-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUSHIL LAKHANI
• Keywords: Opportunity of being heard
• Section: 143(3); 264; 153; 147; 148; 144

Judgement Text

ITA NO. 3878 AND 3916 /MUM/2019 ASSESSMENT YEAR: 2013 - 14 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ' D ' BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) , AND AMARJIT SINGH (JUDICIAL MEMBER)] ITA NO. 3878/MUM/2019 ASSESSMENT YEAR: 2013 - 14 MAHARASHTRA STATE COOPERATIVE BANK LTD . APPELLANT 9, SIR VITHALDAS THACKERSEY MEMORIAL BUILDING MAHARASHTRA CHAMBER OF COMMERCE LANE FORT, MUMBAI 400 001 [PAN: AAAAT4066A] VS . INCOME TAX OFFICER WARD 1(3)(3), MUMBAI RESPONDENT ITA NO. 3916/MUM/2019 ASSESSMENT YEAR: 2013 - 14 INCOME TAX OFFIC ER WARD 1(3)(3), MUMBAI . APPELLANT VS . MAHARASHTRA STATE COOPERATIVE BANK LTD RESPONDENT 9, SIR VITHALDAS THACKERSEY MEMORIAL BUILDING MAHARASHTRA CHAMBER OF COMMERCE LANE FORT, MUMBAI 400 001 [PAN: AAAAT4066A] APPEARANCES BY SUSHIL LAKHANI FOR THE A SSESSEE K MADHUSUDAN FOR THE ASSESSING OFFICER I N T E R I M O R D E R PER PRAMOD KUMAR, VP: 1. THESE CROSS - APPEALS CALL INTO QUESTION THE CORRECTNESS OF THE ORDER DATED 1 ST MARCH 2019 PASSED BY THE LEARNED COMMISSIONER (APPEALS) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2013 - 14. 2. GRIEVANCE RAISED BY THE ASSESSEE, AS SET OUT IN THE MEMORANDUM OF APPEAL, IS AS FOLLOWS: THE LEARNED C OMMISSIONER (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS 14,22,26,284, BEING RENTAL INCOME ON THE PROPERTIES SEIZED UNDER SARFAESI ACT 2002 BY THE APPELLANT BANK, TO THE INCOME OF THE BANK. ITA NO. 3878 AND 3916 /MUM/2019 ASSESSMENT YEAR: 2013 - 14 PAGE 2 OF 5 3. THE ASSESSEE BEFORE US IS A BANKING INSTITUTION AND IS ENGAGED IN THE BUSINESS O F, INTER ALIA , EXTENDING LOANS AND ADVANCES. AS SOME OF THE BORROWERS END UP DEFAULTING ON REPAYMENT OF LOANS, THE ASSESSEE DOES ENFORCE THE SECURITY TAKES POSSESSION OF THE SECURED ASSETS, IN TERMS OF THE PROVISIONS OF THE SECURITISATION AND RECONSTRUCTIO N OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (REFERRED TO AS SARFAESI ACT 2002). THE INCOME IN QUESTION IS SAID TO BE OUT OF RENTAL INCOME EARNED FROM THE ASSETS SO POSSESSED UNDER THE SARFAESI ACT 2002. THE SHORT PLEA OF THE ASSESS EE IS THAT, AS IS SAID TO BE THE SETTLED LEGAL POSITION, THE ASSESSEE CANNOT BE TREATED AS THE OWNER OF THESE ASSETS, AND, AS THE INCOME FROM THE ASSETS ACQUIRED UNDER THE SARFAESI ACT 2002 IS IN THE NATURE OF REPAYMENT OF DUES TO THE ASSESSEE, RATHER THAN OF THE INCOME NATURE, THE SAID INCOME CAN NOT BE TAXED IN THE HANDS OF THE ASSESSEE. IT IS SUBMITTED THAT THE TAX DEDUCTION CERTIFICATES FOR THE TAXES WITHHELD BY THE TENANTS HAVE BEEN ISSUED IN FAVOUR OF THE ASSESSEE , BUT THEN THE MONIES ARE RECEIVED BY THE ASSESSEE IN A PURELY FIDUCIARY CAPACITY AND TOWARDS THE SETTLEMENT OF HIS DUES RATHER THAN AS INCOME. LEARNED COUNSEL FOR THE ASSESSEE WAS, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE, INTERRUPTED AT THIS STAGE. LEARNED COUNSEL WAS ASKED WHETHER A NY NOTICES OF HEARING ARE SERVED TO THE PERSONS WHO, ACCORDING TO HIM AND AS THE ACTUAL OWNER OF THE PROPERTIES IN QUESTION, WERE TAXABLE IN RESPECT OF THE SAID RENTAL INCOME AND WHETHER THE ASSESSEE HAS FILED A LIST OF NAMES AND ADDRESSES OF SUCH PERSONS IN THESE PROCEEDINGS. LEARNED COUNSEL SUBMITTED THAT HE HAS NO IDEA ABOUT THIS ASPECT OF THE MATTER, THAT HE HAS NOT GIVEN ANY LIST OF THESE PERSONS, AND THAT, IN ANY EVENT, ALL THIS IS IRRELEVANT BECAUSE WHETHER THESE PERSONS ARE SERVED NOTICE OR NOT, THE ASSESSEE CANNOT BE TAXED IN RESPECT OF INCOME IN QUESTION. LEARNED COUNSEL EMPHATICALLY SUBMITTED THAT THIS ASPECT OF THE MATTER, SO FAR AS THE ASSESSEE IS CONCERNED, IS WHOLLY IRRELEVANT. IF AN INCOME CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE, IT CANN OT BE TAXED IN THE HANDS OF THE ASSESSEE, AND THAT WE MUST NOT MIX UP TWO UNRELATED ASPECTS OF THE MATTER BY RAISING QUESTIONS ABOUT THE ACTUAL OWNERS OF THE ASSESSES BEING PUT TO THE NOTICE. THAT IS NOT GERMANE TO TAXABILITY IN THE HANDS OF THE ASSESSEE. 4. LEARNED DEPARTMENTAL REPRESENTATIVE DID N OT HAVE MUCH TO SAY ON THE SERVICE OF NOTICE OF THIS HEARING ON THE A CTUAL ALLEGED OWNERS OF THE ASSETS, NOR DID HE SEE ANY LEGAL IMPLICATIONS TO THIS ASPECT EITHER. NEVERTHELESS, LEARNED DEPARTMENTAL REPRESENTA TI VE SUBMITS THAT THE RENTAL INCOME IS EARNED, AND WHETHER IT IS TO BE TAXED IN THE HANDS OF THE LEGAL OWNER OF THE ASSET OR IN THE HANDS OF THIS ASSESSEE, IT IS TO BE TAXED NEVERTHELESS. WHEN AN INCOME IS EARNED, IT CANNOT ESCAPE TAXATION ONLY BECAUSE THE B ENEFICIAL OWNER OF THE INCOME IS SOMEONE OTHER THAN THE LEGAL OWNER. HE IS, HOWEVER, ON THE SAME PAGE AS THE LEARNED COUNSEL INASMUCH HE DOES NOT REALLY DISPUTE THE PROPOSITION THAT THE INCOME IN QUESTION MAY HAVE ARISEN TO THE OWNER OF THE ASSET AND , VI EW ED THUS, THE REPAYMENT TO THE ASSESSEE IS IN THE NATURE OF THE APPLICATION OF INCOME FOR REPAYMENT OF LOANS. 5. WE ARE ALIVE TO THE FACT THAT THE INCOME IN QUESTION CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE JUST BECAUSE THE SAID INCOME CANNOT BE TAX ED IN THE HANDS OF SOME OTHER ASSESSEE AS WELL, AND THE INCOME IS GOING UNTAXED AS SUCH. THE FACT, HOWEVER, REMAINS THAT THE PLEA OF THE ASSESSEE BEFORE US, AS ONE OF THE DIMENSIONS, THAT THIS INCOME CANNOT BE TAXED IN THE HANDS OF THIS ASSESSEE AS IT LAWF UL LY BELONGS TO THE OWNER OF THE ASSETS AND WHAT IS RECEIVED BY THE ASSESSEE IS AN APPLICATION OF INCOME EARNED BY THE SAID OWNER. ON THE FACE OF IT, THIS PLEA MAKES SE NSE AS WELL. 6. THERE IS, HOWEVER, A PRACTICAL DIFFICULTY. ITA NO. 3878 AND 3916 /MUM/2019 ASSESSMENT YEAR: 2013 - 14 PAGE 3 OF 5 7. IN CASE WE ARE TO UPHO LD THE P LEA OF THE ASSESSEE, WITHOUT PUTTING THE PERSONS IN WHOSE HANDS THE INCOME IS TO BE TAXED, TO NOTICE, THE ASSESSMENTS OF THIS INCOME IN THE HANDS OF THOSE PERSONS WILL PERHAPS BE CLEARLY TIME - BARRED. HOWEVER, WHEN WE ACCEPT THE SAME PLEA, AFTER PUT TING T HE SE PERSONS TO NOTICE, IN TERMS OF THE PROVISIONS OF SECTION 153(6)(I) READ WITH EXPLANATION 2 (B) TO SECTION 153 - WHICH IS MATERIALLY THE SAME AS SECTION 153(3) READ WITH EXPLANATION 3 IN THE PRE - AMENDMENT SECTION, THE ASSESSMENTS OR REASSESSMENTS OF INC OM E, TO BRING THE SAID INCOME TO TAX, WILL NOT BE TIME - BARRED. AS THE PROVISIONS IN SECTION 153, WHETHER AS IN FORCE UP TO 1 ST JUNE 2016 OR WHETHER AS IN THE AMENDED SECTIONS, ARE SIMILAR IN NATURE, IT IS NOT REALLY NECESSARY TO DEAL WITH THE QUESTI ON AS TO WHICH OF THESE PROVISIONS WILL APPLY - AS IN FORCE AT THE POINT OF TIME WHEN THE ASSESSMENT WAS FRAMED OR AS IN FORCE NOW. THE RELEVANT EXTRACTS FROM THE ABOVE PROVISIONS ARE AS FOLLOWS: TIME LIMIT FOR COMPLETION OF ASSESSMENT, REASSESSMENT AND RE COMPUT AT ION. 153. (1) NO ORDER OF ASSESSMENT12 SHALL BE MADE UNDER SECTION 143 OR SECTION 144 AT ANY TIME AFTER THE EXPIRY OF TWENTY - ONE MONTHS FROM THE END OF THE ASSESSMENT YEAR IN WHICH THE INCOME WAS FIRST ASSESSABLE: PROVIDED THAT IN RESPECT OF AN ORDER OF ASSESSMENT RELATING TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 2018, THE PROVISIONS OF THIS SUB - SECTION SHALL HAVE EFFECT, AS IF FOR THE WORDS 'TWENTY - ONE MONTHS', THE WORDS 'EIGHTEEN MONTHS' HAD BEEN SUBSTITUTED: PROVIDED FURTHER THAT IN RESPECT OF AN ORDER OF ASSESSMENT RELATING TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2019, THE PROVISIONS OF THIS SUB - SECTION SHALL HAVE EFFECT, AS IF FOR THE WORDS 'TWENTY - ONE MONTHS', THE WORDS 'TWELVE MONTHS' HAD BEEN SUBSTI TU TED. (2) NO ORDER OF ASSESSMENT, REASSESSMENT OR RECOMPUTATION SHALL BE MADE UNDER SECTION 147 AFTER THE EXPIRY OF NINE MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE NOTICE UNDER SECTION 148 WAS SERVED: PROVIDED THAT WHERE THE NOTICE UND ER SEC TI ON 148 IS SERVED ON OR AFTER THE 1ST DAY OF APRIL, 2019, THE PROVISIONS OF THIS SUB - SECTION SHALL HAVE EFFECT, AS IF FOR THE WORDS 'NINE MONTHS', THE WORDS 'TWELVE MONTHS' HAD BEEN SUBSTITUTED.] .. .. (6) NOTHING CONTAINED IN SUB - SECTIO NS (1) AND (2) SHALL APPLY TO THE FOLLOWING CLASSES OF ASSESSMENTS, REASSESSMENTS AND RECOMPUTATION WHICH MAY, SUBJECT TO THE PROVISIONS OF SUB - SECTIONS (3) AND (5), BE COMPLETED (I) WHERE THE ASSESSMENT, REASSESSMENT OR RECOMPUTATION IS MADE ON T HE ASS ES SEE OR ANY PERSON IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTION CONTAINED IN AN ORDER UNDER SECTION 250, SECTION 254 , SECTION 260, SECTION 262, SECTION 263, OR SECTION 264 OR IN AN ORDER OF ANY COURT IN A PROCEEDING OTHERWISE THAN BY WA Y OF APPEAL OR REFERENCE UNDER THIS ACT, ON OR BEFORE THE EXPIRY OF TWELVE MONTHS FROM THE END OF THE MONTH IN WHICH SUCH ORDER IS RECEIVED OR PASSED BY THE PRINCIPAL COMMISSIONER OR COMMISSIONER, AS THE CASE MAY BE; OR ITA NO. 3878 AND 3916 /MUM/2019 ASSESSMENT YEAR: 2013 - 14 PAGE 4 OF 5 . EXPLANATION 2. FOR T HE PURPOSES OF THIS SECTION, WHERE, BY AN ORDER REFERRED TO IN CLAUSE (I) OF SUB - SECTION (6), (B) ANY INCOME IS EXCLUDED FROM THE TOTAL INCOME OF ONE PERSON AND HELD TO BE THE INCOME OF ANOTHER PERSON, THEN, AN ASSESSMENT OF SUCH INCOME ON SUCH OTHER PE RSON SHALL , FOR THE PURPOSES OF SECTION 150 AND THIS SECTION, BE DEEMED TO BE ONE MADE IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTION CONTAINED IN THE SAID ORDER , IF SUCH OTHER PERSON WAS GIVEN AN OPPORTUNITY OF BEING HEARD BEFORE THE SA ID ORDER WAS PASSED . 8. IT IS THUS CLEAR THAT UNDER THE SCHEME OF THE ACT, IT IS PERMISSIBLE THAT THE PARTIES, OTHER THAN THE PARTIES IN APPEAL, ARE ALSO SERVED NOTICE ABOUT THE PROCEEDINGS BEFORE US AND THE EFFECT OF SUCH NOTICE BEING SERVED ON OT HER AF FE CTED PARTIES SERIOUSLY AFFECTS THE LIMITATION OF ASSESSMENTS OR REASSESSMENTS ON SUCH OTHER PERSON. THERE IS ALSO NO DOUBT, AND NOT EVEN A SUGGESTION BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS COURSE BEING FOLLOWED DOES NOT AFFECT LEGITIMATE , AND IN FACT ANY, INTERESTS OF THE ASSESSEE - APPELLANT , EVEN THOUGH IT MAY RESULT IN SOME INCONVENIENCE TO THE ASSESSEE . THE SERVICE OF NOTICE ON THE AFFECTED PARTIES IS THUS WHOLLY OF NEUTRAL IMPACT SO FAR AS THE ASSESSEE IS CONCERNED. WHEN TWO COURSES A RE AV AILABLE TO US, AND ONE OF THESE COURSES EXTENDS LEGITIMATE PROTECTIO N TO INTERESTS OF ONE OF THE PARTIES BEFORE US (I.E. THE ASSESSING OFFICER IN THIS CASE), WITHOUT OFFENDING LEGITIMATE INTERESTS OF THE OTHER PARTY BEFORE US (I.E. THE ASSESSEE - APPELL ANT), IN OUR CONSIDERED VIEW, WE MUST FOLLOW THE SAID COURSE. THE POWERS WE HOLD, OR INDEED ANY PUBLIC AUTHORITY H A S, ARE THE POWERS THAT MUST BE EXERCISED FOR THE GOOD OF THE PUBLIC AND IN THE MANNER WHICH FURTHERS THE COMMON C AUSE IN THE MOST OPTIM UM WAY . 9 . WHEN THESE PROVISIONS WERE POINTED OUT TO THE PA RTIES , AND WE PUT IT TO THEM AS TO WHY THE NOTICES NOT BE ISSUED TO THE ACTUAL OWNERS OF THE ASSETS FROM WHICH THE INCOME IN QUESTION IS DERIVED, BOTH THE PARTIES VERY GRACIOUSLY AGREED TO OU R SUGGEST ION AND EXTENDED THEIR CO - OPERATION IN SERVICE OF NOTICE S TO THE AFFECTED PARTIES. LEARNED COUNSEL FOR THE ASSESSEE VOLUNTEERED TO FILE THE NAMES, ADDRESSES AND SUCH OTHER DETAILS OF THE ACTUAL OWNERS OF THE ASSETS IN QUESTION, AS THE ASSESSEE MAY HAVE IN HIS POSSESSION, AT THE EARLIEST POSSIBLE, AND LEARNED DE PARTMENTAL REPRESENTATIVE VOLUNTEERED TO SERVE THE NOTICE OF NEXT HEARING TO THESE PERSONS. WE, THEREFORE, DIRECT AS FOLLOWS: (A) THE ASSESSEE WILL FURNISH A LIST OF THE PERSONS, ALONG WITH THEIR AD DRESSES AND PAN - NUMBERS - IF POSSIBLE, WHOSE ASSETS ARE H ELD BY THE ASSESSEE - APPELLANT UNDER THE SARFAESI ACT, WITHIN ONE WEEK FROM THE DATE OF THIS ORDER TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, AS ALSO TO THE ITAT REGISTRY . (B) THE LEARNED DEPARTME NTAL REPRESENTATIVE WILL ENSURE THAT NOTICES OF HEARING FOR THE NEXT HEARING, I.E. ON 30 TH JULY 2021, ALONG WITH A COPY OF THIS ORDER, WILL BE SERVED UPON THESE PERSONS IN ACCORDANCE WITH THE LAW. THE REGISTRY IS DIRECTED TO ITA NO. 3878 AND 3916 /MUM/2019 ASSESSMENT YEAR: 2013 - 14 PAGE 5 OF 5 HAND OVER COPIES OF NO TICES OF HEARINGS AND THIS INTERIM ORDER TO THE LEARNED DEPARTMEN TAL REPRESENTATIVE FOR SERVICE ON AFFECTED PARTIES, AND ALSO SERVE THE NOTICE PER RPAD, DIRECTLY ON THE AFFECTED PARTIES. (C) THE AFFECTED PARTIES, WHOSE ASSETS ARE HELD BY THE ASSESSEE UN DER THE SA RFAESI ACT, WILL HAVE THE OPPORTUNITY OF HEARING ON AS TO WHY THIS INCOME NOT BE HELD TO BE TAXABLE IN THEIR HANDS, AS THEY ARE SAID TO CONTINUE TO THE LEGAL OWNERS OF THE RELATED ASSETS AND THE ASSESSEE BEFORE US IS SAID TO BE HOLDING THE SAME O NLY IN A F IDUCIARY CA PACITY. 10. THE REGISTRY IS DIRECTED TO ISS UE THE NOTICES TO ALL THE AFFECTED PARTIES, INCLUDING THE PARTIES WHOSE ASSETS ARE HELD BY THE ASSESSEE - APPELLANT BEFORE US, ALONG WITH A COPY OF THIS INTERIM ORDER, DIRECTLY, AS ALSO THROUGH THE LEA RNED DEPARTMENTAL REPRESENTATIVE, FOR THE NEXT DATE OF HE ARING, I.E. ON 30 TH JULY 2021. 11. THE INTERIM ORDER, AS ABOVE, IS WITHOUT PREJUDICE TO THE ADDITIONAL GROUNDS OF APPEAL AND ALL OTHER RIGHTS OF THE ASSESSEE AS INDEED BOTH THE PARTIES BEFO RE US. T HE HEARING IS ADJOURNED TO 30 TH JULY 2021. THE MATTER MAY BE TREATED AS PART - HEARD. SD/ - SD/ - AMARJIT SINGH PRAMOD KUMAR ( JUDICIAL MEMBER ) (VICE PRESIDENT) MUMBAI, DATED TH E 23 RD DAY OF JUNE, 2021 COPIES TO: (1) THE APPELLANT (2) TH E RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI