ITO, CHENNAI V. Sri V.Pitchamuthu, CHENNAI

ITA 78/CHNY/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3959 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.78/MDS/2013 ' (' / ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, BUSINESS WARD IV(3), CHENNAI. V. SHRI V. PITCHAMUTHU, NO.35, 2 ND AVENUE, INDIRA NAGAR, ADYAR, CHENNAI - 600 020. PAN : ANCPP 0501 A (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI AR.V. SREENIVASAN, JCIT ,-*+ . / / RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE 0 . 1$ / DATE OF HEARING : 24.07.2017 2!( . 1$ / DATE OF PRONOUNCEMENT : 27.07.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) VIII, CH ENNAI, DATED 30.10.2012 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS COMPU TATION OF CAPITAL GAIN ON SALE OF PROPERTY. 2 I.T.A. NO.78/MDS/13 3. SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEES SON, WHO IS A NON- RESIDENT INDIAN, PURCHASED AN IMMOVABLE PROPERTY WH ICH IS A HOTEL ON 07.12.2005 FOR A TOTAL CONSIDERATION OF ` 1,69,00,000/-. AFTER PURCHASE, THE ASSESSEES SON BORROWED LOAN FROM STA TE BANK OF INDIA TO THE EXTENT OF ` 1,39,00,000/-. SUBSEQUENTLY, ON 06.10.2008, THE ASSESSEES SON SETTLED THE PROPERTY IN FAVOUR O F THE ASSESSEE. ACCORDING TO THE LD. D.R., THE ASSESSEE SOLD THE PR OPERTY TO M/S SABARI INN PVT. LTD. FOR A TOTAL CONSIDERATION OF ` 6,75,00,000/- FROM AND OUT OF THE SALE CONSIDERATION, THE ASSESSEE HAS REPAID THE OUTSTANDING LOAN OF ` 1,28,48,668/- TO STATE BANK OF INDIA AND GOT THE MORTGAGE RELEASED. ACCORDING TO THE LD. D.R., WHILE COMPUTING THE CAPITAL GAIN, THE ASSESSEE CLAIMED THE SAME AT ` 1,69,00,000/- BEING THE COST OF ACQUISITION TO THE PREVIOUS OWNER AND ALSO CLAIMED ` 1,28,48,668/- AS COST OF ACQUISITION. ACCORDING TO THE LD. D.R., THE ASSESSEE RECEIVED THE PROPERTY AS GIFT FROM HIS SON AND THE LOAN WAS BORROWED SUBSEQUENT TO THE PURCHASE OF PROPERTY . THEREFORE, ACCORDING TO THE LD. D.R., THE SALE CONSIDERATION W HICH WAS UTILISED FOR REPAYMENT OF LOAN CANNOT BE TREATED AS CHARGE O N THE PROPERTY. HENCE, ACCORDING TO THE LD. D.R., THE REPAYMENT OF LOAN TO THE 3 I.T.A. NO.78/MDS/13 EXTENT OF ` 1,28,48,668/- CANNOT BE ALLOWED WHILE COMPUTING THE CAPITAL GAIN. 4. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT IT IS NOT CORRECT TO SAY T HAT THE ASSESSEES SON BORROWED LOAN SUBSEQUENT TO THE PURCHASE OF PRO PERTY. THE ASSESSEES SON BORROWED LOAN OF ` 1,39,00,000/- ONLY FOR THE PURPOSE OF PURCHASING THE PROPERTY. SUBSEQUENTLY, THE ASSESSEES SON GIFTED THE PROPERTY TO HIS FATHER AND ON 06.10. 2008, THE ASSESSEE SOLD THE PROPERTY. ACCORDING TO THE LD. C OUNSEL, SINCE THE PROPERTY WAS RECEIVED BY THE ASSESSEE FROM HIS SON AS GIFT SUBSEQUENT TO THE MORTGAGE TO STATE BANK OF INDIA, THE ASSESSEE DEDUCTED THE OUTSTANDING LOAN AMOUNT WHILE COMPUTIN G THE CAPITAL GAIN. IN FACT, ACCORDING TO THE LD. COUNSEL, THE S ALE CONSIDERATION OF ` 6,75,00,000/- WAS UTILIZED FOR REPAYMENT OF OUTSTAN DING LOAN. THE LD.COUNSEL PLACED HIS RELIANCE ON THE JUDGMENT OF A PEX COURT IN R.M. ARUNACHALAM V. CIT (1997) 227 ITR 222. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE ORDER OF THE ASSESSMENT IT APPEARS THE ASSESSEES SON, WH O IS A NON- RESIDENT INDIAN, PURCHASED THE PROPERTY ON 07.12.20 05 FOR A TOTAL 4 I.T.A. NO.78/MDS/13 CONSIDERATION OF ` 1,69,00,000/- BY OBTAINING LOAN OF ` 1,39,00,000/- FROM STATE BANK OF INDIA, NRI BRANCH. THE ASSESSEE S SON EXECUTED THE MORTGAGE DEED IN FAVOUR OF STATE BANK OF INDIA AS A COLLATERAL SECURITY FOR BORROWAL OF LOAN. THIS IS OBVIOUS FROM THE ASSESSMENT ORDER, MORE PARTICULARLY AT PARA 3.2. T HEREFORE, THE CONTENTION OF THE LD. D.R. THAT THE LOAN WAS BORROW ED SUBSEQUENT TO THE PURCHASE OF PROPERTY IS NOT CORRECT. THE FACT REMAINS THAT THE VERY LOAN BORROWED BY THE ASSESSEES SON WAS FOR PU RCHASE OF PROPERTY. SUBSEQUENTLY THE ASSESSEES SON GIFTED T HE SAID PROPERTY TO THE ASSESSEE BY WAY OF REGISTERED GIFT DEED. 6. ON 06.10.2008, THE ASSESSEE SOLD THE PROPERTY TO M/S SABARI INN PVT. LTD. FOR A TOTAL CONSIDERATION OF ` 6,75,00,000/-. THEREFORE, IT IS OBVIOUS FROM THE MATERIAL AVAILABLE ON RECORD TH AT THE ASSESSEES SON BORROWED ` 1,39,00,000/- FOR THE PURPOSE OF PURCHASE OF PROPERTY. HENCE, THAT IS A CHARGE ON THE PROPERTY ITSELF. THE ASSESSEES SON GIFTED THE PROPERTY TO THE ASSESSEE ALONG WITH THE EXISTING MORTGAGE. EVEN THOUGH THERE WAS NO REFERE NCE IN THE GIFT DEED ABOUT THE EXISTENCE OF MORTGAGE, THE FACT IS T HAT THE PROPERTY WAS SUBJECTED TO MORTGAGE CANNOT BE DISPUTED. THER EFORE, THE PAYMENT OF ` 1,28,48,668/- BEING THE OUTSTANDING LOAN AMOUNT WAS 5 I.T.A. NO.78/MDS/13 THE LOAN BORROWED FROM STATE BANK OF INDIA FOR PURC HASE OF PROPERTY AND IT HAS TO BE DEDUCTED WHILE COMPUTING THE CAPIT AL GAIN. 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF A PEX COURT IN R.M. ARUNACHALAM (SUPRA). THE APEX COURT HAS OB SERVED AS FOLLOWS:- WHILE WE ARE AFFIRMING THE IMPUGNED JUDGMENT OF THE HIGH COURT, WE ARE UNABLE TO ENDORSE THE VIEW O F THE KERALA HIGH COURT IN AMBAT ECHUKUTTY MENON V. CIT [ 1978] 111 ITR 880 TO WHICH REFERENCE HAS BEEN MADE BY THE HIGH COURT IN THE IMPUGNED JUDGMENT. IN THAT CASE, THE A SSESSEE, AS ONE OF THE HEIRS, HAD INHERITED PROPERTY FROM TH E PREVIOUS OWNER WHO HAD MORTGAGED THE SAME DURING HI S LIFETIME AND AFTER HIS DEATH THE HEIRS, INCLUDING T HE ASSESSEE, HAD DISCHARGED THE MORTGAGE CREATED BY TH E DECEASED. THE SAID PROPERTY WAS SUBSEQUENTLY ACQUIR ED UNDER THE LAND ACQUISITION ACT AND FOR THE PURPOSE OF CAPITAL GAINS THE ASSESSEE SOUGHT DEDUCTION OF THE AMOUNT SPENT TO CLEAR THE MORTGAGE. THE HIGH COURT HELD TH AT THE CAPITAL ASSET HAD BECOME THE PROPERTY OF THE ASSESS EE BY SUCCESSION OR INHERITANCE ON THE DEATH OF THE PREVI OUS OWNER UNDER SECTION 49(1) OF THE ACT AND THE COST OF ACQUISITION OF THE ASSET IS TO BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER ACQUIRED IT, AS INCREASED BY THE COST OF ANY IMPROVEMENT OF THE ASSETS INCURRED OR B ORNE EITHER BY THE PREVIOUS OWNER OR BY THE ASSESSEE. THIS JUDGMENT OF APEX COURT WAS RIGHTLY FOLLOWED BY THE CIT(APPEALS). THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 6 I.T.A. NO.78/MDS/13 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON 27 TH JULY, 2017 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 27 TH JULY, 2017. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-VIII, CHENNAI 4. 0 81 /CIT-VI, CHENNAI-34 5. 69 ,1 /DR 6. :' ; /GF.