S.Venkatasubramanian, CHENNAI V. ITO, CHENNAI

ITA 427/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4841 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 20-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M MURALI MOHAN
• Assessee Lawyers: S KRISHNAN F
• Keywords: Capital asset; Diversion of income; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.427/MDS/2017 / ASSESSMENT YEAR : 2011-2012 SHRI. S. VENKATASUBRAMANIAN, FLAT NO.1-D, SORRENTO YETHIRAJ RESIDENCY, NO54, BESANT AVENUE, ADYAR, CHENNAI 600 020. [ PAN ACRPV 2670A ] VS THE INCOME TAX OFFICER, CORPORATE WARD 6(2) CHENNAI 600 034. ./ I.T.A. NO.428/MDS/2017 /ASSESSMENT YEAR : 2011-2012 SMT. GEETHA SUBRAMANIAN, FLAT NO.1-D, SORRENTO YETHIRAJ RESIDENCY, NO54, BESANT AVENUE, ADYAR, CHENNAI 600 020. [PAN AGBPG 2894D] VS. THE INCOME TAX OFFICER, CORPORATE WARD 6(2) CHENNAI 600 034. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI. S. KRISHNAN, F.C.A /RESPONDENT BY : SHRI. M. MURALI MOHAN, JCIT. /DATE OF HEARING : 26-04-2017 !' /DATE OF PRONOUNCEMENT : 27-04-2017 ITA NOS.427 & 428/MDS/2017 :- 2 -: % / O R D E R THESE APPEALS FILED BY THE ASSESSEES WHO ARE HUSBA ND AND WIFE ARE DIRECTED AGAINST ORDER DATED 14.01.2017 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI. 2. ONLY GROUND RAISED BY THE ASSESSEES IN THESE APPEA LS ARE ON AN ADDITION OF F18,78,735/- UNDER THE HEAD INCOME FROM CAPITAL GAINS. 3. FACTS APROPOS ARE THAT ASSESSEES WHO ARE SALARIED EMPLOYEES HAD FILED RETURN OF INCOME FOR THE IMPUGN ED ASSESSMENT YEAR DECLARING INCOME OF F1,57,620/- AND F1,45,400 /- RESPECTIVELY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSEES WHO WERE JOINTLY OWNING A RESIDENTIAL PROPERTY HAD SOLD IT FOR A CONSIDERATION OF F70,00, 000/-. ASSESSEES HAD CLAIMED A LOSS ON SALE OF PROPERTY IN ITS RETUR N OF INCOME. FOR ARRIVING AT SUCH LOSS ASSESSEES HAD SET OFF THE AM OUNT PAID BY THEM TO M/S. AXIS BANK ON A LOAN RAISED A COMPANY CALLED M/ S. SHREYAS COMMUNICATION AND SERVICES P. LTD, IN WHICH THE AS SESSEES WERE DIRECTORS. SUBJECT PROPERTY WHICH WAS SOLD WAS OF FERED AS COLLATERAL FOR THE LOANS RAISED BY THE SAID COMPANY FROM M/S. AXIS BANK. ITA NOS.427 & 428/MDS/2017 :- 3 -: ARGUMENT OF THE ASSESSEE BEFORE LD. ASSESSING OFFIC ER WAS THAT THERE WAS DIVERSION OF ENTIRE CONSIDERATION RECEIVED AT SOURCE TO M/S. AXIS BANK, BEFORE IT BECAME THE INCOME OF THE ASSESSEES. AS PER THE ASSESSEES, BANKERS HAD TAKEN POSSESSION OF THE HOUS E PREVENTING ANY TRANSACTIONS, WITHOUT SETTLING THE LOAN TAKEN BY TH E COMPANY. CONTENTION OF THE ASSESSEE WAS THAT ADVANCE RECEIVE D AGAINST THE SALE OF THE PROPERTY WAS APPROPRIATED BY THE BANKER AND THE SALE DEED WAS ENTERED SUBSEQUENTLY. ASSESSEES IN SUPPORT OF THI S CONTENTION, FILED A POSSESSION NOTICE ISSUED BY AXIS BANK AND SETTLEM ENT REQUEST OF LOAN. HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRE SSED. ACCORDING TO HIM, PROPERTY WAS MORTGAGED BY THE ASSESSEES FOR OB TAINING LOAN FOR A COMPANY IN WHICH THEY WERE DIRECTORS. AS PER LD. A SSESSING OFFICER THIS WAS ONLY SELF CREATED MORTGAGE AND SELF CREAT ED MORTGAGE WAS NOT A CHARGE ON THE PROPERTY. RELIANCE WAS PLACED ON THE JUDGMENT OF APEX COURT IN THE CASE OF CIT VS. ATTILI N. RAO 252 ITR 880 . LD. ASSESSING OFFICER DECLINED TO CONSIDER THE CLAIM OF THE ASSESSEE. HE RECOMPUTED CAPITAL GAINS OF THE ASSESSEE AND TOTAL CAPITAL GAINS WORKED OUT F37,57,471/- AND ASSESSEES INDIVIDUAL SHARE F18,78,735/. 4. AGGRIEVED, THE ASSESSEES MOVED IN APPEAL BEFORE LD . COMMISSIONER OF INCOME TAX (APPEALS). CONTENTION O F THE ASSESSEES WAS THAT THE SALE CONSIDERATION WAS NEVER ALLOWED T O REMAIN IN THEIR ITA NOS.427 & 428/MDS/2017 :- 4 -: HANDS AND THE FULL SALE CONSIDERATION WHICH WAS REC EIVED IN ADVANCE WAS HANDED OVER TO THE COMPANY TO SETTLE ITS BANK D UES. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE GUJARAT HIGH COU RT IN THE CASE OF CIT VS. MAHANBHAI PAMABHAI 91 ITR 393 AND THAT OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF RAJASTHAN PETRO SYNTHETICS LTD VS. ACIT (2014) 49 TAXMANN.COM 599. HOWEVER, LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT IMPRESSED. ACCORDING TO HIM, BOTH THE DECISIONS RELIED ON BY THE ASSESSEE WERE COMPLETELY DIFFERENT ON FACTS. ACCORDING TO HIM, BY VIRTUE OF THE JUDGMENT OF HON BLE APEX COURT OF ATTILI N. RAO (SUPRA) THE ADDITIONS WERE RIGHTLY MADE BY THE LD. ASSESSING OFFICER. WHILE HOLDING SO, THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) MADE A DETAILED ANALYSIS OF THE JUDGM ENT OF APEX COURT IN ATTILI N. RAO (SUPRA) AND REACHED A CONCLUSION THAT FACTS WERE VERY SIMILAR. HE THUS UPHELD THE ORDER OF THE LD. ASSESS ING OFFICER. 5. NOW BEFORE ME, LD. AUTHORISED REPRESENTATIVE REITER ATED THE SAME CONTENTIONS WHICH WERE TAKEN BEFORE THE LOWER AUTHORITIES. FURTHER, ACCORDING TO HIM, BY VIRTUE OF SEC. 13(2) OF THE SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEM ENT OF SECURITY INTEREST ACT, 2002 (SARFAESI) ONCE POSSESSION WAS T AKEN OVER BY THE BORROWER ASSESSEE LOST ALL RIGHTS FOR SELLING THE C ONCERNED PROPERTY. RELIANCE WAS ALSO PLACED ON THE DECISION OF DELHI B ENCH OF THE TRIBUNAL ITA NOS.427 & 428/MDS/2017 :- 5 -: IN THE CASE OF ACIT VS. GLAD INVESTMENTS (P) LTD (2006) 102 ITD 22 7 AND RAJASTHAN PETRO SYNTHETICS LTD VS. ACIT, (2014) 66 SOT 140. FOR ADVANCING THE ARGUMENT THAT SECURITIZATION OF CREDI T EXPOSURES BY BANKS AND CREDIT INSTITUTION INVOLVED A TRANSFER OF OUTSTANDING BALANCES IN LOANS/ADVANCES AND PACKAGING INTO TRANSFERABLE A ND TRADABLE SECURITIES, RELIANCE WAS ALSO PLACED ON THE JUDGMEN T OF HONBLE APEX COURT IN THE CASE OF M/S. TRANSCORE VS. UNION OF IN DIA & ANR, CIVIL CASE NO.3228 OF 2006, DATED 29.11.2006. 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. FACTS CLEARLY SHOW THAT THE PROPERTY WHICH WAS SOLD BY THE ASSESSEES WERE OFFERED BY TH EM AS COLLATERAL SECURITY TO M/S. AXIS BANK FOR A LOAN RAISED BY M/S . SHREYAS COMMUNICATION AND SERVICES P. LTD. ASSESSEES WER E DIRECTORS OF THE SAID COMPANY. SINCE THE COMPANY HAD DEFAULTED THE LOAN A NOTICE WAS ISSUED BY M/S. AXIS BANK TO THE SAID COMPANY AND IT S DIRECTORS INCLUDING THE ASSESSEES U/SEC. 13(2) OF THE SARFAE SI ACT. SINCE THE COMPANY DID NOT MAKE THE PAYMENT, POSSESSION OF THE PROPERTY WAS TAKEN BY M/S. AXIS BANK ON 25.06.2010. THEREAFTER IT SEEMS THERE WAS A ONE TIME SETTLEMENT ENTERED BETWEEN THE COMPANY A ND AXIS BANK, ITA NOS.427 & 428/MDS/2017 :- 6 -: WHEREBY THE BANK AGREED TO SETTLE THE LOAN FOR A SU M OF F70,00,000/- AGAINST THE DUE OF F93,35,000/-. ASSESSEES ON 11.0 8.2010 ENTERED INTO A SALE AGREEMENT FOR SELLING THE RESIDENTIAL P ROPERTY OFFERED AS COLLATERAL, AND RECEIVED A CONSIDERATION OF F70,00, 000/- FROM THE BUYER WHO PAID THE AMOUNT DIRECTLY TO THE BANK ACCOUNTS OF THE ASSESSEES. THE MONEY WHICH CAME IN TO THE BANK ACCOUNTS OF THE ASSESSEES WAS PAID FOR SETTLEMENT OF THE LOAN AND THEREAFTER THE DOCUMENT OF THE PROPERTY WERE RELEASED BY THE BANK. THE QUESTION B EFORE US, IS WHETHER THE ABOVE SEQUENCE SHOW DIVERSION OF INCOME THROUGH OVERRIDING TITLE. NO DOUBT BY VIRTUE OF SARFAESI A CT ONCE THE BORROWER TAKES POSSESSION OF THE SECURED ASSET, SAL E OF SUCH AN ASSET COULD BE EFFECTED ONLY WHEN THE DEBTOR AGREES TO PA Y THE AMOUNT REALIZED FROM THE SALE, AGAINST THE OUTSTANDING DUE S. HOWEVER, THIS IN MY OPINION WILL NOT ESTABLISH AN OVERRIDING TITLE T O THE BORROWER ON THE INCOME ARISING OUT OF THE SALE OF THE PROPERTY. OFF ERING A PROPERTY AS A COLLATERAL SECURITY AND SELLING THE PROPERTY WHICH WAS OFFERED AS A COLLATERAL SECURITY ARE TWO INDEPENDENT AND DIFFERE NT TRANSACTIONS. JUST BECAUSE THE SELLER IS DUTY BOUND TO PAY THE PROCEED S TO THE BORROWER FOR THE SETTLEMENT OF THE LOAN, WOULD NOT PERSE CRE ATE AN OVERRIDING TITLE ON THE INCOME ARISING FROM THE SALE OF THE P ROPERTY. IT IS NOT A PRE-EXISTING TITLE ON THE INCOME ARISING OUT FROM T HE SALE OF THE ITA NOS.427 & 428/MDS/2017 :- 7 -: PROPERTY. THE PROCEEDS OF THE SALE ARE ONLY USED T O SATISFY A DEBT. WHEN PROCEEDS OF A SALE IS USED TO SATISFY THE DEBT , THE DEBT CANNOT BE SET OFF AGAINST SUCH PROCEEDS WHILE COMPUTING CA PITAL GAINS. IT IS ONLY A APPLICATION OF INCOME. JUST BECAUSE THE PROP ERTY WAS OFFERED AS A COLLATERAL WILL NOT IN MY OPINION CHANGE THE COMP LEXION OF THE TRANSACTIONS. 8. COMING TO THE DECISION OF GLAD INVESTMENT (P) LTD (SUPRA) RELIED ON BY THE LD. AR, THE CONCERNED ASSESSEE HAD PLEDGED THEIR SHARES AS COLLATERAL SECURITY AND WERE DIVESTED OF THE OWNERSHIP OF SUCH SHARES. THE CO-ORDINATE BENCH TOOK A VIEW THAT TRANSFER OF THE SHARES OFFERED AS COLLATERAL BY THE CONCERNED ASSES SEE WAS COMPLETE WHEN THE SHARES WERE PLEDGED. IT IS FOR THIS REASO N THE TRIBUNAL HELD THE CREDITORS TO HAVE AN OVERRIDING TITLE ON THE IN COME ARISING FROM THE SALE OF SHARES. HOWEVER, IN THE INSTANT CASE BEFOR E ME, THERE WAS NO TRANSFER OF OWNERSHIP OF THE PROPERTY TO M/S. AXIS BANK WHEN THE PROPERTY WAS OFFERED AS COLLATERAL. COMING TO THE DECISION OF DELHI BENCH IN RAJASTHAN PETRO SYNTHETICS LTD (SUPRA) THE QUESTION THERE WAS WHETHER TAKING OVER OF THE POSSESSION AND CONTR OL OVER OF THE ASSETS OF THE BORROWER BY A SECURED LENDER WOULD TA NTAMOUNT TO TRANSFER OF ASSETS FROM THE BORROWER TO THE LENDER . CO-ORDINATE BENCH HELD THAT LENDER NEVER BECAME THE OWNER OF THE ASSE TS NOR ACQUIRED ITA NOS.427 & 428/MDS/2017 :- 8 -: OWNERSHIP OF THE ASSETS. THIS CASE IN MY OPINION O NLY FURTHER THE VIEW TAKEN BY THE REVENUE AND DOES NOT HELP THE ASSESSEE . COMING TO THE LAST OF THE JUDGMENT WHICH WAS RELIED BY THE LD. AU THORISED REPRESENTATIVE VIZ-A-VIZ THAT OF HONBLE APEX COURT IN TRANSCORE (SUPRA), IN THIS CASE THEIR LORDSHIPS WERE CALLED U PON TO INTERPRET THE TERM SECURITIZATION UNDER THE SARFAESI ACT. THIS CASE IN MY OPINION WAS NOT AT ALL ON THE TAX ISSUE AND WOULD NOT HELP ASSESSEES CASE. AS AGAINST THIS LD. COMMISSIONER OF INCOME TAX (APPEAL S) RELIED ON THE JUDGMENT OF APEX COURT IN ATTILI N. RAO (SUPRA) WHILE UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER . RELEVANT OBSERVATION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS IT APPEAR I N PARAGRAPHS 16 TO 18 OF HIS ORDER IS REPRODUCED HEREUNDER:- 16. HOWEVER, DISAGREEING WITH THE FINDINGS OF THE HIGH COURT, THE HON'BLE SUPREME COURT HELD THAT WHA T WAS SOLD BY THE STATE AT THE AUCTION WAS THE IMMOVA BLE PROPERTY THAT BELONGED TO THE ASSESSEE. THE PRICE T HAT WAS REALISED, THERE FROM BELONGED TO THE ASSESSEE. FROM OUT OF THAT PRICE, THE STATE DEDUCTED ITS DUES TOWARDS 'KIST' AND INTEREST DUE FROM THE ASSESSEE A ND PAID OVER THE BALANCE TO HIM. THE CAPITAL GAIN THAT THE ASSESSEE MADE WAS ON THE IMMOVABLE PROPERTY THAT BELONGED TO HIM. THEREFORE, IT WAS ON THE FULL PRICE REALISED (LESS ADMITTED DEDUCTIONS) THAT THE CAPITAL GAIN AND THE TAX THEREON HAD TO BE COMPUTED. THEREFORE, IT WAS OBSERVED BY THE APEX COURT THAT THE HIGH COURT WAS NOT CORRECT IN HOLDING THAT AMOUNT REALISED BY THE SALE OF THE ASSESSEE'S INTEREST IN THE PROPERTY WAS ONLY RS . 4,33,960/-, I.E., RS. 5,62,980/ MINUS RS.1,29,020/- . 17. ON PERUSAL OF THE ABOVE CASE LAW, IT IS NOTICED THA T IN THE REFERRED CASE THE IMPUGNED CAPITAL ASSET WAS MORTGAGED BY THE ASSESSEE WITH STATE GOVERNMENT TO ITA NOS.427 & 428/MDS/2017 :- 9 -: PROVIDE SECURITY FOR THE AMOUNTS OF 'KIST' WHICH WE RE DUE BY HIM TO THE STATE. IN THE PRESENT CASE OF THE APPELLANT, THE IMPUGNED PROPERTY WAS MORTGAGED AS COLLATERAL SECURITY FOR OBTAINING LOAN FOR THE COMPANY IN WHIC H THE APPELLANT AND HIS WIFE WERE DIRECTORS/SHAREHOLDERS AND NOT FOR THEIR OWN BUSINESS PURPOSES. AS CATEGORICALLY H ELD IN THE ABOVE REFERRED CASE, THE AMOUNT OF INTEREST DED UCTED' BY THE STATE GOVERNMENT, CANNOT BE REDUCED AS COST OF ACQUISITION OF CAPITAL ASSET FOR CALCULATING CAPITA L. ON SIMILAR INSTANCE, THE AMOUNT OF RS. 70 LAKHS PAID T O AXIS BANK TO AVAIL OF 'ONE TIME SETTLEMENT' SCHEME FOR T HE COMPANY CANNOT BE CONSIDERED AS COST OF ACQUISITION OR THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY TOW ARDS TRANSFER OF THE IMPUGNED CAPITAL ASSET. 18. REGARDING THE CONTENTION OF THE APPELLANT THAT THER E WAS A DIVERSION OF ENTIRE SALE CONSIDERATION AT SOU RCE, THE FOLLOWING JUDGEMENT OF THE HON'BLE APEX COURT CAN B E RELIED ON TO CONTROVERT THE SAME. V. S. M. R. JAGADISHCHANDRAN ... VS COMMISSIONER OF INCOME TAX (1997) 141 CTR SC 361. THIS APPEAL BY TH E ASSESSEE WAS DIRECTED AGAINST THE ORDER DT. 25TH JU LY, 1984 PASSED BY THE HON'BLE JURISDICTIONAL MADRAS HI GH COURT IN TC NO. 145 OF 1983 WHEREIN THE HIGH COURT ON AN APPLICATION FILED UNDER S.256(2) OF THE ACT DECLINE D TO DIRECT THE TRIBUNAL TO STATE A CASE AND REFER THE F OLLOWING QUESTIONS OF LAW TO THE HIGH COURT : '1. WHETHER THE TRIBUNAL IS RIGHT IN HOLDING THAT T HE LEVY OF THE CAPITAL GAINS OF RS. 68,400/- WAS PROPER UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE? 2. WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT M ORTGAGE DEBTS DID NOT CONSTITUTE DIVERSION AT SOURCE? 3. WHETHER THE DEBTS DISCHARGED BY THE APPLICANT ON THE PROPERTIES CANNOT BE SAID TO ENHANCE THE COST OF ACQUISITION.' IN THE CIRCUMSTANCES, I AM OF THE OPINION THAT COMP UTATION OF CAPITAL GAINS WAS RIGHTLY DONE BY THE LD. ASSESSING OFFICER AND CONFIRMED BY ITA NOS.427 & 428/MDS/2017 :- 10 -: THE LD. COMMISSIONER OF INCOME TAX (APPEALS). I DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AU THORITIES. 9. IN THE RESULT, APPEALS OF THE ASSESSEES STAND DISMI SSED. ORDER PRONOUNCED ON THURSDAY, THE 27 TH DAY OF APRIL, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 27TH APRIL, 2017 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /1 / GF