DCIT (OSD) 2(3), MUMBAI V. SEA PRINCESS HOTELS & PROPERTIES P.TLD, MUMBAI

ITA 6890/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8803 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Keywords: Revocable transfer
• Section: 63

Judgement Text

, B BB B INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH , IOU IOUIOU IOU , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMBER & PAWAN SINGH, JUDICIAL MEMBER /.ITA NO. 6890/MUM/2014, /ASSESSMENT YEAR-2010-11 DCIT (OSD)-2(3), ROOM NO. 556, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. M/S SEAPRINCESS HOTELS & PROPERTIES PVT. LTD., 509, GUNDECHA CHAMBERS, NAGINDAS MASTER ROAD, FORT, MUMBAI-400023 PAN: AABCS4665D ( / APPELLANT) ( / RESPONDENT) / REVENUE BY : MS BEENA SANTOSH (DR) ! ! / ASSESSEE BY : SHRI VIMAL PUNMIYA (AR) ' ! / DATE OF HEARING : 11 -01-2017 ! '( / DATE OF PRONOUNCEMENT : 20 -01-2017 , 1961 ' 254(1) #!$! ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER PAWAN SINGH, J.M. IOU IOUIOU IOU : 1. THIS APPEAL BY REVENUE U/S 253 OF THE INCOME-TAX AC T IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-6, MUMBAI (FOR SHORT THE CIT(A) DATED 27.08.2014 FOR ASSESSMENT YEAR(AY) 2010-11. THE REVENUE HAS RA ISED ONLY ONE GROUND OF APPEAL THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 1,40,83,572/- AND RS. 1,71,81,669/- MADE BY CLUBBING OF INCOME OF TWO ENTITIES NAMELY M /S SEA PRINCESS REALTY AND M/S SEA PRINCESS INVESTMENTS WITHOUT APPRECIATING THE PROVI SIONS OF SECTION 60 TO 63 OF THE ACT. 2. AT THE OUTSET THE LD. AUTHORIZED REPRESENTATIVE ( AR) OF ASSESSEE SUBMITTED THAT THE GROUND OF APPEAL RAISED BY REVENUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR AY 2007-08 AND 2009-10 IN I TA NO. 2286/MUM/2013 AND IN ITA NO. 2466/MUM/2013 DATED 09.10.2013 RESPECTIVELY. T HE DECISION OF TRIBUNAL WAS FURTHER FOLLOWED IN ASSESSEES OWN CASE FOR AY 2010-11 (SUB SEQUENT YEAR) IN ITA NO. 729/MUM/2014. THE LD. AR OF THE ASSESSEE PLACED ON RECORD THE COPY OF DECISION FOR AY 2007-08 AND 2009-10 AND FOR AY 2011-12. ON THE OTHE R HAND, LD. DR FOR THE REVENUE RELIED ON THE ORDER OF AO. ON SPECIFIC QUERY, THE LD. DR F OR THE REVENUE NOT DISPUTED THE FACTUAL AND LEGAL POSITION. 3. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE DECISION OF CO-ORDINATE BENC H IN ASSESSEES OWN CASE. WE FIND THAT THE ISSUE RAISED IN THE PRESENT APPEAL BY REVENUE I S SQUARELY COVERED BY THE DECISION OF CO- 2 ITA NO. 6890/M/2014 M/S SEAPRINCESS HOTELS & PROPE RTIES PVT. LTD. ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SE FOR EARLIER AYS AND IN THE SUBSEQUENT YEAR, WHICH UNDER CONSIDERATION. WE HAVE SEEN THAT ON THE IDENTICAL GROUNDS OF APPEAL, THE CO-ORDINATE BENCH MADE THE FOLLOWING ORDER: 44. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE IMPUGN ED ADDITION HAVE BEEN MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) TO THE TOTAL I NCOME OF THE ASSESSEE BY DUBBING THE INCOME OF TWO PARTNERSHIP FIRMS NAMELY M/S SEA PRINCESS INVESTMENT AND M/S SEA PRINCESS REALTY BY INVOKING THE PROVISIONS OF SECTI ON 60 TO 63 OF THE ACT WHICH READ AS UNDER:- '60. TRANSFER OF INCOME WHERE THERE IS NO TRANSFER OF ASSETS. ALL INCOME ARISING TO ANY PERSON BY VIRTUE OF TRANSFER WHETHER REVOCAB LE OR NOT AND WHETHER EFFECTED BEFORE OR AFTER THE COMMENCEMENT OF THIS ACT SHALL, WHERE THERE IS NO TRANSFER OF THE ASSETS FROM WHICH THE INCOME ARISES, BE CHARGEA BLE TO INCOME TAX AS THE INCOME OF THE TRANSFEROR AND SHALL BE INCLUDED IN H IS TOTAL INCOME. 61. REVOCABLE TRANSFER OF ASSETS.--AII INCOME ARISI NG TO ANY PERSON BY VIRTUE OF A REVOCABLE TRANSFER OF ASSETS SHALL BE CHARGEABLE TO INCOME- TAX AS THE INCOME OF THE TRANSFEROR AND SHALL BE INCLUDED IN HIS TOTAL I NCOME. 62. TRANSFER IRREVOCABLE FOR A SPECIFIED PERIOD. -- ( 1) THE PROVISIONS OF SECTION 61 SHALL NOT APPLY TO ANY INCOME ARISING TO ANY PERSON BY VIRTUE OF A TRANSFER-- (I) BY WAY OF TRUST WHICH IS NOT REVOCABLE DURING T HE LIFETIME OF THE BENEFICIARY, AND, IN THE CASE OF ANY OTHER TRANSFER, WHICH IS NO T REVOCABLE DURING THE LIFETIME OF THE TRANSFEREE; OR (II) MADE BEFORE THE FIRST DAY OF APRIL, 1961, WHIC H IS NOT REVOCABLE 1 FOR A PERIOD EXCEEDING SIX YEARS: PROVIDED THAT THE TRANSFEROR DERIVES NO DIRECT OR I NDIRECT BENEFIT FROM SUCH INCOME IN EITHER CASE. (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (1), ALL INCOME ARISING TO ANY PERSON BY VIRTUE OF ANY SUCH TRANSFER SHALL BE CHARGEABLE TO INCOME-TAX AS THE INCOME OF THE TRANSFEROR AS AND WHEN THE POWER TO R EVOKE THE TRANSFER ARISES, AND SHALL THEN BE INCLUDED IN HIS TOTAL INCOME. 63. 'TRANSFER' AND 'REVOCABLE TRANSFER' DEFINED. -- FOR THE PURPOSES OF SECTIONS 60, 61 AND 62 AND OF THIS SECTION,-- (A) A TRANSFER SHALL BE DEEMED TO BE REVOCABLE IF-- (I) IT CONTAINS ANY PROVISION FOR THE RE-TRANSFER D IRECTLY OR INDIRECTLY OF THE WHOLE OR ANY PART OF THE INCOME OR ASSETS TO THE TRANSFER OR, OR 33 ITA 2286/M/13 & 2466/N/13 (II) IT, IN ANY WAY, GIVES THE TRANSFEROR A RIGHT T O REASSUME POWER DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART OF THE INCOME OR ASSETS; (B) TRANSFER INCLUDES ANY SETTLEMENT, TRUST, COVE NANT, AGREEMENT OR ARRANGEMENT. 45. IN HIS MANIFEST FROM THE ABOVE PROVISIONS THAT IF THERE IS ANY TRANSFER, WHETHER RECOVERABLE OR NOT, THE INCOME ARISING TO ANY PERSO N FROM SUCH ASSETS SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE TRANSFEROR A ND SHALL BE INCLUDED IN HIS TOTAL INCOME. THE TERMS 'TRANSFER' AND 'REVOCABLE TRANSFE R FOR THE PURPOSES OF SECTION 60 TO 62 ARE DEFINED IN SECTION 63 WHICH PROVIDES THAT A TRANSFER SHALL BE DEEMED TO BE REVOCABLE IF IT CONTAINS ANY PROVISION FOR THE RE-T RANSFER DIRECTLY OR INDIRECTLY OF THE WHOLE OR IN PART OF THE INCOME OR ASSETS TO THE TRA NSFEROR OR IT IN ANY WAY GIVES THE TRANSFEROR A RIGHT TO RE-ASSUME POWER DIRECTLY OR I NDIRECTLY OVER THE WHOLE OR .ANY PART OF THE INCOME OR ASSETS. THE TRANSFER INCLUDES ANY SET TLEMENT; TRUST, COVENANT, AGREEMENT OR ARRANGEMENT. THE DEFINITION GIVEN ON SECTION 63(B) THUS INCLUDES ANY SETTLEMENT, TRUST, COVENANT, AGREEMENT OR ARRANGEMENT WHEREBY THERE IS A TRANSFER OF AN ASSET. AS RIGHTLY CONTENDED BY THE ID. COUNSEL FOR THE ASSESSEE, THER E WAS, HOWEVER, NO SUCH TRANSFER BY WAY OF ANY SETTLEMENT, TRUST, COVENANT AGREEMENT OR ARRANGEMENT AND IT WAS A CASE OF 3 ITA NO. 6890/M/2014 M/S SEAPRINCESS HOTELS & PROPE RTIES PVT. LTD. CONTRIBUTION OF CAPITAL MADE BY THE ASSESSEE COMPAN Y IN THE PARTNERSHIP FIRMS IN THE CAPACITY OF A PARTNER WHICH DID NOT RESULT ON ANY S UCH TRANSFER. THE DEFINITION OF REVOCABLE TRANSFER GIVEN IN SECTION 63(A) OF THE AC T, ON THE OTHER HAND, ENVISAGES THAT THERE SHOULD BE A TRANSFER FIRST AS THE SAME TALK A BOUT CONDITION INVOLVING RE-TRANSFER OF ANY PART OF THE INCOME OR ASSETS TO THE TRANSFEROR. IN THE PRESENT CASE INVOLVING CONTRIBUTION OF CAPITAL BY THE PARTNER OF THE FIRM, THERE IS NO TRANSFER AS SUCH AND THEREFORE THE QUESTION OF RE-TRANSFER DIRECTLY OR I NDIRECTLY OF THE WHOLE OR PART OF THE INCOME OR ASSETS TO THE TRANSFEROR DOES NOT ARISE. THE CAPITAL REMAINS THE LIABILITY OF THE PARTNERSHIP FIRM AND THE SAME IS PAYABLE AS SUCH TO THE PARTNERS. THE PARTNER IS ALWAYS ENTITLED TO RECEIVE BACK HIS CAPITAL FROM THE PARTN ERSHIP FIRM AND THE QUESTION OF RIGHT TO REASSUME THE POWER OF THE WHOLE OR ANY PART OF THE INCOME OR ASSETS DOES NOT ARISE. 46. AS RIGHTLY CONTENDED BY THE ID. COUNSEL FOR THE ASSESSEE, THE SHARE OF PROFIT OF THE PARTNERS AND THE CAPITAL CONTRIBUTION MADE BY THEM ARE GOVERNED BY THE PARTNERSHIP ACT WHICH PROVIDES THAT THE SAME ARE TO BE DECIDED BY A ND BETWEEN THE PARTNERS. THESE ASPECTS ARE DECIDED BY THE PARTNERS AS PER THE PART NERSHIP DEED ENTERED INTO BY BETWEEN THEM AND IT IS NOT NECESSARY THAT THE CAPITAL CONTR IBUTION OF THE PARTNERS SHOULD ALWAYS BE IN THE RATIO OF THEIR SHARE OF PROFIT. AS POINTE D OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE CAPITAL CONTRIBUTION IN THE CASE OF TWO RELEVAN T PARTNERSHIP FIRMS WAS TO BE MADE BY THE PARTNERS AS MAY BE REQUIRED BY THE PARTNERSHIP FIRM FROM TIME TO TIME AND THERE WAS NO SUCH AGREEMENT BETWEEN THE PARTNERS THAT THE SAM E SHOULD ALWAYS BE IN THE PROFIT SHARING RATIO OF THE CONCERNED PARTNERS. THE SAID T WO PARTNERSHIP FIRMS WERE INDEPENDENT ENTITIES UNDER THE INCOME TAX ACT CHARG EABLE TO TAX AND THE ENTIRE INCOME RECEIVED BY THEM WAS ALREADY SUBJECTED TO TAX IN TH EIR HANDS. IN SUCH CIRCUMSTANCES, CLUBBING THEIR INCOME IN THE HANDS OF THE ASSESSEE COMPANY AND CHARGING THE TAX AGAIN AMOUNTED TO DOUBLE ADDITION WHICH, IN OUR OPINION/ IS NOT PERMISSIBLE IN LAW AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE RELYI NG, INTER ALIA, ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LAXMIPAT SINGH ANIA (SUPRA) AND IN THE CASE OF BACHU LAL KAPOOR (SUPRA). MOREOVER, WHEN THE SAID I NCOME WAS SUBJECTED TO TAX IN THE HANDS OF THE PARTNERSHIP FIRMS AT THE MAXIMUM MARGI NAL RATES, IT CANNOT BE SAID BY ANY STRETCH OF IMAGINATION THAT THERE WAS ANY ARRANGEME NT MADE BY THE ASSESSEE TO USE THE PARTNERSHIP FIRMS AS A TOOL TO AVOID TAX AS ALLEGED BY THE A.O. FURTHERMORE, ME FACT THAT THE PARTNERSHIP FIRM OF M/S SEA PRINCESS REALTY HAD ALREADY MADE INVESTMENT IN VARIOUS TENDS DURING THE COURSE OF ITS BUSINESS BEFORE THE ASSESSEE COMPANY BECAME PARTNER THEREOF ON 1-4- 2006 AND THEREBY BECAME ENTITLED TO ENJOY THE BENEFIT OF INCREASED VALUE OF THE SAID LAND AS A RESULT OF CONTRIBUTION OF ITS CAPITAL ESTABLISHES THAT THE CAPITAL CONTRIBUTION WAS NOT MADE BY THE ASSESSEE FIRM TO U SE THE PARTNERSHIP FIRMS AS TOOL TO AVOID TAX. IN OUR OPINION, THE CAPITAL WAS CONTRIBU TED BY THE PARTNERS AS PER THE REQUIREMENT OF THE FIRM AS DECIDED FROM TIME TO TIM E KEEPING IN VIEW THE DIFFERENT BUSINESS CONSIDERATIONS AND 35 ITA 2286/M/13 & 2466 /M/13 THIS WAS ONE OF SUCH CONSIDERATIONS FOR THE ASSESSEE COMPANY TO MAKE SUB STANTIAL CONTRIBUTION IN THE PARTNERSHIP FIRM OF M/S SEA PRINCESS REALTY. 47. KEEPING IN VIEW THE CONCEPT OF THE PARTNERSHIP FIRM AS GOVERNED BY THE PARTNERSHIP ACT AS WELL AS THE SCHEME OF TAXATION OF THE PARTNE RSHIP FIRMS WHICH ARE RECOGNIZED AS SEPARATE ENTITIES FOR INCOME TAX PURPOSE AND HAVING REGARD TO THE TAXATION PURPOSE, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 60 T O 63 OF THE ACT CANNOT BE APPLIED TO CLUB THE INCOME OF TWO PARTNERSHIP FIRMS NAMELY M/S SEA PRINCESS INVESTMENT AND M/S SEA PRINCESS REALTY WITH THE INCOME OF THE ASSESSEE AND THE LD. CIT(A), IN OUR OPINION, WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE A. O. IN CLUBBING THE INCOME OF THE SAID TWO PARTNERSHIP FIRMS IN THE HANDS OF THE ASSESSEE BY INVOKING THE SAID PROVISIONS. IN THAT VIEW OF THE MATTER, WE DELETE THE ADDITIONS MA DE BY THE A. O. AND CONFIRMED BY THE LD. CIT(A) TO THE TOTAL INCOME OF THE ASSESSEE BY C LUBBING THE INCOME OF TWO PARTNERSHIP FIRMS WITH THE INCOME OF THE ASSESSEE AND ALLOW GRO UND NO. 1 & 2 OF ASSESSEE'S APPEAL FOR A. Y.2009-10. 4 ITA NO. 6890/M/2014 M/S SEAPRINCESS HOTELS & PROPE RTIES PVT. LTD. 4. WE HAVE SEEN THAT THE DECISION FOR AY 2007-08 AND 2 009-10 WAS FOLLOWED FOR AY 2011-12. THUS, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORD INATE BENCH, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY THE REVENUE. HENCE, THE SAME IS DISMISSED. AS A RESULT APPEAL FILED BY TH E REVENUE STANDS DISMISSED. ' JKTLO , - ! ./ UK 0 ! ' 1 . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY,2017. 3 ! 4 5 20 ( , 201 7 ! ./ 9 SD/- SD/- ( / RAJENDRA ( IOU IOUIOU IOU / PAWAN SINGH)) ( / ACCOUNTANT MEMBER # ( / JUDICIAL MEMBER / /MUMBAI, 5 /DATE: 20.01.2017 SK ' )!*+ ,+! / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ ,: ( ;' , 4. THE CONCERNED CIT / ,: ;' 5. DR E BENCH, ITAT, MUMBAI / <=. '>: B BB B , . . . / 6. GUARD FILE/ . / <' ' //TRUE COPY// 3 / BY ORDER, / DY./ASST. REGISTRAR ( >: , / /ITAT, MUMBAI