M/s. MEC International Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 731/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61029 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 21-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset
• Section: 143(3); 2(14); 263; 63

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 731/MDS/2011 ASSESSMENT YEAR: 2006-07 M/S. MEC INTERNATIONAL PVT. LTD., OLD NO. 37, NEW NO. 6, ARCOT ROAD, VADAPALANI, CHENNAI 600 026. [PAN: AAACM6504C] VS. THE COMMISSIONER OF INCOME TAX, CHENNAI III, CHENNAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. T. BANUSEKAR, C.A. REVENUE BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEAR ING : 14 . 0 3 .201 2 DATE OF PRONOUNCEMENT : 16.04.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST ORD ER UNDER SECTION 263 PASSED BY THE CIT, CHENNAI DATED 10.02.2011 IN C. NO. 3033/216/CIT- III/10-11 FOR THE ASSESSMENT YEAR 2006-07. SHRI T. BANUSEKAR, C.A. REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI SHAJ I P. JACOB, ADDL. CIT REPRESENTED ON BEHALF OF THE REVENUE. 2. THE ASSESSEE RAISED FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX - CHENNAI - II U/S 263 IS VITIATED I N LAW AND BARRED BY LIMITATION. THE LEARNED CIT ERRED IN PASSING A REVI SION I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 2 ORDER AFTER A EXPIRY OF TWO YEARS FROM THE END OF T HE FINANCIAL YEAR . 2. THEN LEARNED COMMISSIONER OF INCOME TAX - CHENNAI - II ERRED IN LAW I N PASSING AN ORDER OF REVISION WHEN THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTEREST OF THE REVENUE. 3. THE LEARNED COMMISSIONER OF INCOME TAX -II ERRE D IN LAW IN TREATING THE TRANSACTION OF LEASE AS TRANSACTION OF SALE. THE LEARNED COMMISSIONER OF INCOME TAX OUGHT TO HAV E CONSIDERED THE ORIGINAL LEASE DEED IN CONSONANCE WI TH THE AMENDED LEASE AGREEMENT WHILE DECIDING THE ISSU E. 4. THE LEARNED COMMISSIONER OF INCOME TAX - II OUG HT TO HAVE SEEN THE TRANSACTION OF LEASE IS ONLY FOR A PE RIOD OF 11 YEARS AND THE SAME CANNOT BE CONSTRUED AS DEEMED SALE IN ORDER TO ATTRACT CAPITAL GAINS . 3. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESS EE IS AGAINST PASSING OF REVISION ORDER BY THE CIT AFTER EXPIRY OF TWO YE ARS FROM THE END OF THE FINANCIAL YEAR AND THEREFORE BARRED BY LIMITATION. 4. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 04.12.2008. THE CIT PASSED ORD ER UNDER SECTION 263 OF THE ACT ON 10.02.2011. AS PER THE PROVISIONS OF SUB -SECTION 2 TO SECTION 263, THE CIT SHALL NOT PASS AN ORDER AFTER EXPIRY OF 2 Y EARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVI SED WAS PASSED. IN THIS CASE, SINCE THE ASSESSING OFFICER PASSED THE ORDER UNDER SECTION 143(3) ON 04.12.2008, THE CIT SHALL NOT PASS AN ORDER UNDER S ECTION 263 AFTER 31.03.2011, I.E., 2 YEARS FROM THE END OF THE FINAN CIAL YEAR 2008-09. HOWEVER, SINCE THE CIT PASSED ORDER UNDER SECTION 2 63 ON 10.02.2011, THE I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 3 CONTENTION OF THE ASSESSEE THAT THE ORDER PASSED BY THE CIT IS BEYOND TIME LIMIT AND BARRED BY LIMITATION IS FACTUALLY INCORRE CT. THEREFORE, THIS GROUND OF THE APPEAL IS DISMISSED. 5. GROUND NO.2 IS RAISED CONTENDING THAT THE CIT E RRED IN PASSING AN ORDER OF REVISION WHEN THE ASSESSMENT ORDER IS NEIT HER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 6. WE HAVE GONE THROUGH THE ASSESSMENT ORDER PASSE D UNDER SECTION 143(3) ON 04.12.2008 BY THE ASSESSING OFFICER AND P ERUSED THE MATERIALS AVAILABLE ON RECORD. WE HAVE NOTICED THAT THE ASSES SING OFFICER DID NOT DISCUSS IN THE ASSESSMENT ORDER ABOUT THE ASSESSEE LETTING OUT RESIDENTIAL PROPERTY AND RECEIVING LEASE RENTAL INCOME FROM SUC H PROPERTY. WE ALSO DID NOT SEE THAT THE ASSESSEE HAS FURNISHED ANY SUCH IN FORMATION TO THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. THEREFORE, IN THE ABSENCE OF EITHER FURNISHING OF DETAILS REGA RDING LEASE TRANSACTION DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR THE DISCUSSION BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U NDER SECTION 143(3), WE FEEL THAT THE CIT HAS RIGHTLY INVOKED THE PROVIS IONS OF SECTION 263. THEREFORE, GROUND NO. 2 RAISED BY THE ASSESSEE CONT ENDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS NEITHER ERRONEOU S NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE, IS DISMISSED. I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 4 7. GROUND NOS.3 AND 4 RAISED BY THE ASSESSEE ARE A GAINST THE DIRECTION OF THE CIT TO TREAT THE LEASE TRANSACTION AS TRANSA CTION OF SALE AND COMPUTATION OF CAPITAL GAINS THEREON. 8. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD ENTE RED INTO LEASE AGREEMENT ON 01.06.2005 WITH M/S. P.G. FOILS LTD. F OR LETTING OUT TWO BED ROOM APARTMENT WITH BUILT-UP AREA OF 1000 SQ.FT. BE ARING FLAT NO. 132, ON THE 13 TH FLOOR, ANTARIKSHA BUILDING AT ANTARIKSHA COOPERATI VE HOUSING SOCIETY, 95/96, KAKASAHIB GADGIL MARG, PRABHADEV, MUMBAI 400 025 ALONG WITH FIXTURES AND FITTINGS THEREON. IT IS SUBMITTED THAT INITIALLY THE AGREEMENT WAS ENTERED INTO FOR LEASE OF THE SAID APARTMENT PREMIS ES FOR A PERIOD OF 99 YEARS ON A MONTHLY LEASE RENT OF ` .2,500/- AND INTEREST FREE SECURITY DEPOSIT OF ` .95 LAKHS TO BE PAID. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE AMENDED THE LEASE DEED ON 28.09.2005 DELETING SOME OF THE CLAUSES AND MODIFIED SOME OF THE CLAUSES OF THE LEA SE AGREEMENT INITIALLY ENTERED INTO ON 01.06.2005. ACCORDING TO THE AMENDE D LEASE DEED, THE PROPERTY IS LET OUT ONLY FOR 11 YEARS, BUT NOT FOR 99 YEARS. THE LD. COUNSEL SUBMITTED THAT THE LEASE AGREEMENT BETWEEN THE ASSE SSEE AND M/S. P.G. FOILS LTD. IS FOR LETTING OUT OF A TWO BED ROOM FLA T TO BE USED ONLY FOR THE RESIDENTIAL PURPOSE BY THE TENANT AND IS ONLY A SIM PLE LEASE AGREEMENT AND THERE IS NO TRANSFER OF RIGHT IN THE PROPERTY TO TH E LESSEE. THEREFORE, IT IS SUBMITTED THAT THE CIT IS NOT CORRECT IN DIRECTING THE ASSESSING OFFICER TO I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 5 TREAT THE LEASE AGREEMENT AS TRANSACTION OF SALE AN D COMPUTE THE CAPITAL GAINS THEREON. 9. THE LD. DR SUPPORTED THE ORDER OF THE CIT. 10. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATE RIALS AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ORDER OF THE CIT P ASSED UNDER SECTION 263. THE CIT, IN HIS ORDER HELD THAT BY ENTERING IN TO LEASE AGREEMENT, THE ASSESSEE HAD EFFECTED A TRANSFER ON 01.06.2005 BY R ELINQUISHING ITS RIGHT ON THE PROPERTY AT MUMBAI. THE CIT HELD THAT THE AMEND MENT CANNOT IN ANY WAY NULLIFY THE FACT OF TRANSFER EFFECTED BY THE AS SESSEE BY EXECUTION OF ORIGINAL LEASE AGREEMENT. THE CIT REFERRING TO THE DECISIONS IN THE CASE OF TRADERS AND MINERS LTD. V. CIT [1955] 27 ITR 341 (P ATNA), IN THE CASE OF A.R. KRISHNAMURTHY V. CIT (176 ITR 417) (SC), IN TH E CASE OF CIT V. C.F. THOMAS 284 ITR 557 (KERALA) AND IN THE CASE OF CIT V. SUJATHA JEWELLERS 290 ITR 631 (MAD) HELD THAT THE TRANSACTION IN QUES TION CLEARLY INVOLVE TRANSFER OF CAPITAL ASSETS AND THEREFORE, ANY GAINS ARISING OUT OF SUCH TRANSACTION WILL RESULT IN CAPITAL GAINS AND DIRECT ED THE ASSESSING OFFICER TO COMPUTE CAPITAL GAINS ARISING OUT OF THE LEASE AGRE EMENT DATED 01.06.2005 TO TAX. 11. THE CONCLUSION OF THE CIT THAT THE LEASE TRANS ACTION ENTERED INTO BY THE ASSESSEE WITH M/S. P.G. FOILS LTD. INVOLVED TRA NSFER OF CAPITAL ASSET I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 6 APPEARS TO BE INCORRECT. THE CLAUSES OF THE LEASE A GREEMENT WHICH WAS EXTRACTED BY THE CIT AT PAGE 2 IN HIS ORDER IN S.NO . 1 TO 4 HAVE BEEN DELETED IN SUBSEQUENT AMENDED LEASE DEED BY THE ASSESSEE AN D THUS, THE CONCLUSION OF THE CIT THAT THE ASSESSEE COMPANY HAS RELINQUISHED ITS RIGHT IN THE SAID PROPERTY GIVEN ON LEASE TANTAMOUNT TO TRAN SFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT IS NOT CORRECT. WE HAVE GO NE THROUGH THE LEASE AGREEMENT DATED 01.06.2005 AND ALSO AMENDED LEASE D EED DATED 28.09.05. THE RELEVANT CLAUSES OF BOTH THESE AGREEMENT DEED A RE AS UNDER: LEASE DEED EXECUTED ON 01.06.2005 A) TO PAY THE SAID LEASE RENT CHARGES AND INTEREST FREE SECURITY DEPOSIT AT THE TIME AND IN THE MANNER AFORESAID. B) ALL MAINTENANCE CHARGES OF THE SOCIETY, POWER CO NSUMPTION CHARGES AS PER BILL OF BEST AND ALL OTHER GOVERNMEN T RATES, TAXES AND CHARGES APPLICABLE AS ON TODAY OR MAY BE PUT ON IN FUTURE REGARDING THIS PROPERTY WILL BE PAID BY THE USER. C) TO USE THE DEMISED PREMISES FOR THE PURPOSE OF R ESIDENTIAL USE ONLY AND NOT FOR ANY OTHER PURPOSES WHATSOEVER. D) TO KEEP THE INTERIOR OF THE DEMISED PREMISES AND THE OWNERS FITTINGS AND FIXTURES THEREIN IN GOOD AND T ENANTABLE CONDITION (REASONABLE WEAR AND TEAR AND DAMAGE BY F IRE, FLOODS, EARTHQUAKE, TEMPEST, LIGHTING, VIOLENCE OF ANY ARMY OF OR A MOB OR IRRESISTIBLE OR INEVITABLE FORCE OR ACCIDENT EXC EPTED). E) NOT TO MAKE OR PERMIT TO MAKE ANY ALTERATIONS OR ADDITIONS (TEMPORARY OR OTHERWISE) IN THE CONSTRUCTION OF THE DEMISED PREMISES WITHOUT THE PREVIOUS CONSENT OF THE SOCIET Y AND NOT WITHOUT THE LIKE CONSENT TO CUT, ALTER OR INJURE AN Y PART OF THE WALLS, PARTITIONS, TIMBERS, CEILING OR FLOORING OF THE DEMISED PREMISES. F) TO PERMIT THE OWNER HIS/HER SERVANTS, AGENTS, SU RVEYORS, ENGINEERS, WORKMEN OR INTENDING PURCHASERS AND ALL OTHER I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 7 PERSONS AUTHORISED BY HIM/HER RESPECTIVELY TO ENTER UPON THE DEMISED PREMISES AT ALL REASONABLE TIMES IN THE WOR KING DAY FOR THE PURPOSE OF INSPECTING THE SAME OR VIEWING THE C ONDITION OF DEMISED PREMISES. G) THE USER CAN SUB-LEASE/SUBLET FULL OR PART OF TH E DEMISED PREMISES UNDER POSSESSION TO ANY PARTY OR ASSIGN TO BANK AS SECURITY WITHOUT PRIOR PERMISSION/APPROVAL/INTIMATI ON TO OWNER. H) TO TITLE UP THE DEMISED PREMISES WITH THE OWNER S FIXTURE AND FITTINGS AT THE EXPIRATION IN CONFORMITY WITH T HE USERS OBLIGATIONS HEREIN CONTAINED. I) TO OBSERVE ALL RULES AND REGULATIONS WITH REGARD TO THE USE OF THE SAID DEMISED PREMISES ENTRANCE DOORWAYS IN THE SAID BUILDING LAID DOWN BY THE SOCIETY AUTHORITIES CONCE RNED. J) THE USER AGREES/WILL NOT STORE ANY ILLEGAL GOODS OR EXPLOSIVES IN THE DEMISED PREMISES/BUILT UP AREA UNDER THIS AG REEMENT. AMENDED LEASE DEED EXECUTED ON 28.09.2005: I. THAT THE OWNER INTENDED TO GIVE THE SAID PREMI SES ON LEASE ONLY AND THE USER HAS TAKEN THE SAID PREMISES ON LE ASE ONLY. II. THAT THE CLAUSE NO. VIII, IX & X ON PAGE NO.4 MAY BE TREATED AS CANCELLED AND DELETED FROM THE ORIGINAL ARTICLES OF LEASE AGREEMENT DATED 1 ST JUNE, 2005. III. THAT THE INTEREST FREE SECURITY DEPOSIT WILL HAVE TO BE REFUNDED BY THE OWNER TO THE USER ON TERMINATION OF THIS AGR EEMENT BY EITHER PARTY OR ON EXPIRY OF LEASE AGREEMENT. IV. THAT THE WORD' 99 YEARS' ON PAGE NO.2 IN PARA 2, CLAUSE NO. I & III AND IN CLAUSE NO. VII ON PAGE NO.3 SHOULD BE READ AS 11 (ELEVEN) YEARS. V. THAT THIS AMENDMENT TO THE ARTICLES OF LEASE AG REEMENT WILL BE TREATED AS PART AND PARCEL OF THE SAID ORIGINAL ART ICLES OF LEASE AGREEMENT DATED 1 ST JUNE, 2005. I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 8 VI. THAT ALL THE OTHER CLAUSE OF THE SAID ORIGINAL AGREEMENT DATED 1 ST JUNE, 2005 WILL REMAIN UNCHANGED AND UNALTERED. 12. ON GOING THROUGH THE ABOVE CLAUSES OF BOTH TH E LEASE AGREEMENTS, WE ARE OF THE VIEW THAT THE LEASE AGREEMENT ENTERED IN TO BY THE ASSESSEE WAS ONLY A SIMPLE AGREEMENT FOR LETTING OUT OF RESIDENT IAL FLAT FOR A LIMITED PERIOD OF 11 YEARS AND THERE IS NO TRANSFER OF RIGHT OR RE LINQUISHMENT OF RIGHT BY THE ASSESSEE IN THE PROPERTY, SO AS TO TREAT THIS LEASE TRANSACTION AS TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT ATTR ACTING CAPITAL GAINS UNDER SECTION 45 OF THE ACT. 13. IN THE CASE OF TRADERS AND MINERS LTD. V. CIT(S UPRA), THE FACTS BEFORE THE HONBLE HIGH COURT ARE THE ASSESSEE LET ON LEAS E FOR 99 YEARS A PORTION OF A ZAMINDARI ACQUIRED BY IT. THE LEASE RELATED TO SURFACE RIGHT IN LAND TOGETHER WITH 9 MICA MINES. THE CONSIDERATION FOR T HE LEASE WAS THE PAYMENT OF SALAMI AND RESERVE RENT PER YEAR. ON THE SE FACTS, THE HONBLE HIGH COURT HELD THAT THE LEASE WAS A TRANSFER OF CA PITAL ASSET WITHIN THE MEANING OF SECTION 12B OF 1922 ACT. 14. IN THE CASE OF AR KRISHNAMURTHY VS. CIT 176 IT R 417 (SUPRA) RELIED ON BY THE CIT, THE FACTS ARE THAT ASSESSEE PURCHASED L AND AND GIVEN ON LEASE FOR MINING TO EXTRACT CLAY FOR 10 YEARS ON A PREMIU M OF ` . 5 LAKHS IN ADDITION TO ROYALTY. IN THESE CIRCUMSTANCES, THE HONBLE SUP REME COURT HELD THAT THE GRANT OF MINING LEASE WAS CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) I II I.T.A. .T.A. .T.A. .T.A. NO. NO. NO. NO. 731 731731 731/M/ /M/ /M/ /M/11 1111 11 9 OF THE ACT. SIMILARLY, THE OTHER TWO DECISIONS RELI ED ON BY THE CIT IN THE CASE OF CIT V. C.F. THOMAS (SUPRA) AND CIT V. SUJATHA JE WELLERS (SUPRA) ARE DISTINGUISHABLE ON FACTS. 15. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE CIT FELL IN ERROR IN HOLDING THAT THE LEASE TRANSACTION IS A TRANSACTION OF SALE AND DIRECTING THE ASSESSING OFFICER TO COMPUTE THE CAPI TAL GAINS ARISING OUT OF THE LEASE AGREEMENT DATED 01.06.2005. THEREFORE, WE ALL OW THE GROUNDS OF APPEAL OF THE ASSESSEE ON THIS ISSUE AND SET ASIDE THE ORDER OF THE CIT PASSED UNDER SECTION 263 OF THE ACT. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16.04.2012. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 16.04.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.