Namakkal South India Transports, Namakkal V. JCIT, Salem

ITA 800/CHNY/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2719 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-01-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T VASUDEVAN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Avoidance of tax

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER & SHRI S.JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.800/CHNY/2015 / ASSESSMENT YEAR : 2010-11 M/S.NAMAKKAL SOUTH INDIA TRANSPORTS , 610,SALEM MAIN ROAD, NAMAKKAL 637 001. VS. THE JOINT COMMISSIONER OF INCOME TAX, RANGE-II, SALEM. [PAN AACFN 2205 Q ] ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI T.VASUDEVAN ,ADVOCATE !' /RESPONDENT BY : SHRI CLEMENT RAMESH KUMAR, ADDITIONAL CIT D.R # $ %& / DATE OF HEARING : 24 - 1 0 - 201 8 '( %& / DATE OF PRONOUNCEMENT : 24 - 1 0 - 201 8 ! / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS),SALEM IN ITA NO.11/2013- 14 DATED 29.01.2015 FOR THE ASSESSMENT YEAR 2010 -11. 2. SHRI T.VASUDEVAN REPRESENTED ON BEHALF OF THE ASSESSEE, AND SHRI CLEMENT RAMESH KUMAR REPRESENTED ON BEHALF OF THE REVENUE. 3. IT WAS SUBMITTED BY LD.A.R THAT TWO ISSUES WERE RAISED IN ASSESSEES APPEAL. THE FIRST ONE BEING THE DISALLOW ANCE OF THE INTEREST PAID TO THE PARTNERS. IT WAS A SUBMISSION THAT IN R ESPECT OF THIS ISSUE, ITA NO.800/CHNY/2015 :- 2 -: THE ASSESSEE HAD CLAIMED INTEREST PAYMENTS TO TWO P ARTNERS BEING MR.MURUGESAN TO AN EXTENT OF ` 5 LAKHS, AND BEING MR.CHANDRASEKARAN TO AN EXTENT OF `1. 5 LAKHS. IT WAS A SUBMISSION THAT THE LD. ASSESSING OFFICER HAD DISALLOWED THE INTEREST PAYMENTS ON THE GROUND THAT THE SAID TWO PARTNERS HAD ONLY DEBIT BALANCES. IT WAS A SUBMISSION THAT IN RESPECT OF OTHER PARTNERS, WHO HAD CREDIT BALANCE, NO INTEREST HAD BEEN CLAIMED. IT WAS A SUBMISSION THAT THE PARTNERS HIP DEED ALSO PERMITTED THE PAYMENT OF INTEREST TO THE PARTNERS O N THEIR CAPITAL ACCOUNT. IT WAS A SUBMISSION THAT THE LD.A.R HAD NO OBJECTION, IF THE LD. ASSESSING OFFICER IS DIRECTED TO VERIFY AS TO WHETH ER PARTNERSHIP DEED PROVIDED FOR PAYMENT OF INTEREST TO THE PARTNERS, A ND IF PERMITTED, DIRECTED TO ALLOW INTEREST ON THE CREDIT BALANCE OF THE PARTNERS, EVEN THOUGH THE SAME HAS NOT BEEN SPECIFICALLY CLAIMED. 4. IN REPLY, LD.D.R SUBMITTED THAT HE HAD NO OBJEC TION, I F THE ISSUE COULD BE RESTORED TO THE FILE OF THE AO FOR V ERIFICATION AS TO WHETHER THE PARTNERSHIP DEED PROVIDED FOR INTEREST TO BE PAID TO THE PARTNERS CAPITAL ACCOUNT AND IF SO PROVIDED, TO AL LOW THE SAME. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN R EGARD TO THE FIRST ISSUE AS TO DEBIT BALANCE OF THE PARTNERS CA PITAL ACCOUNT, THE DISALLOWANCE OF THE INTEREST HAS BEEN RIGHTLY MADE BY THE LD. ASSESSING OFFICER AND THE SAME STANDS CONFIRMED. IN RESPECT O F THE ASSESSEES CLAIM THAT THE PARTNERSHIP DEED PROVIDED FOR PAYMEN T OF INTEREST TO THE ITA NO.800/CHNY/2015 :- 3 -: PARTNERS CAPITAL ACCOUNT ON THE CREDIT BALANCE, THE ISSUE IS RESTORED TO THE FILE OF LD. ASSESSING OFFICER FOR VERIFICATION AS TO WHETHER THE PARTNERSHIP DEED PROVIDED FOR THE SAME, AND IF IT I S PROVIDED FOR THE PAYMENT OF INTEREST TO THE PARTNERS CAPITAL ACCOUNT S CREDIT BALANCE, THEN IN VIEW OF PROVISIONS OF THE SECTION 40(B)(IV) WHETHER THE INTEREST HAS BEEN CLAIMED OR CHARGED, THE SAME WAS LIABLE TO BE ALLOWED. TO THIS EXTENT THE ISSUE IS RESTORED TO THE FILE OF LD . ASSESSING OFFICER. 6. THE SECOND ISSUE WAS AGAINST THE ACTION OF LD.C IT(A) CONFIRMING THE ORDER OF THE LD. ASSESSING OFFICER I N BRINGING TO TAX THE CAPITAL GAINS IN RESPECT OF THE AGRICULTURAL LANDS GIFTED BY THE ASSESSEE FIRM TO ITS PARTNERS. IT WAS SUBMITTED BY LD.A.R T HAT DURING THE RELEVANT ASSESSMENT YEAR, ASSESSEE-FIRM HAS TRANSFE RRED THREE OF ITS PROPERTIES SITUATED IN THE DISTRICTS OF NAMAKKAL, K ANCHIPURAM AND TRICHY TO ITS FIVE PARTNERS BY WAY OF THREE SETTLEM ENT DEEDS ON 11.09.2009, 23.09.2009 AND 22.09.2009 RESPECTIVELY. IT WAS A SUBMISSION THAT THE LD. ASSESSING OFFICER, ON THE G ROUND THAT THE ASSESSEE HAS DONE TAX PLANNING TO OVERCOME TAX LIAB ILITY U/S.45(4) OF THE ACT AND FOR THE PURPOSE OF AVOIDING THE PROBABL E TAX LIABILITY IN THE HANDS OF ITS PARTNERS U/S.56(1)(VII) OF THE ACT, IF THE TRANSFER HAD TAKEN PLACE AFTER 01.10.2009, HAD HELD THAT THE TRANSFER WAS NOTHING BUT DISTRIBUTION OF CAPITAL ASSETS OF THE FIRM TO ALL I TS PARTNERS AND HELD THAT PROVISIONS OF THE SECTION 45(4) ARE ATTRACTED. IT W AS A SUBMISSION THAT ITA NO.800/CHNY/2015 :- 4 -: ADMITTEDLY AMENDMENT TO SECTION 56(1)(VII) OF THE A CT WAS IN THE PUBLIC KNOWLEDGE TO BE COMING INTO EFFECT FROM 01.1 0.2009. IT WAS A SUBMISSION THAT SECTION 56(1)(VII) OF THE ACT PROVI DED FOR STAMP DUTY VALUE OF THE PROPERTY RECEIVED BY THE INDIVIDUAL OR HUF WITHOUT CONSIDERATION IS TO BE CHARGEABLE TO TAX AS INCOME FROM OTHER SOURCES. IT WAS A SUBMISSION THAT IN THE PRESENT CASE, CLEAR LY THE PROPERTIES BELONGED TO THE PARTNERSHIP FIRM AND THE PARTNERS R EPRESENTED THE PARTNERSHIP FIRM. IT WAS A SUBMISSION THAT THE TRA NSFER OF THE PROPERTY BY THE SETTLEMENT DEED, WHICH WAS THE FORM OF GIFT, TOOK PLACE ON 11.09.2009 AND 23.09.2009 MUCH BEFORE THE INTRODUCT ION OF SECTION 56(1)(VII) OF THE ACT. IT WAS A SUBMISSION THAT IN FACT SECTION 56(1)(VII) OF THE ACT WAS TO CONTROL THE CLAIM OF GIFTS FROM U NRELATED PERSONS. EVEN AFTER THE INTRODUCTION OF THIS PROVISIONS OF S ECTION 56(1)(VII) OF THE ACT, IF THE GIFT IS FROM RELATED PERSONS, THEN PROVISIONS OF SECTION 56(1)(VII) ITSELF WOULD NOT APPLY. IT WAS A SUBMISS ION THAT IN FACT PROVISIONS OF THE SECTION 47(III) SPECIFICALLY PROV IDES FOR EXCLUSION OF THE PROVISIONS OF THE SECTION 45 OF THE ACT IN RESPECT OF TRANSFERS OF ANY CAPITAL ASSET UNDER GIFT. IT WAS A SUBMISSION THAT IN THE PRESENT CASE CLEARLY THE SAID SETTLEMENT DEED BY WHICH THE ASSES SEE FIRM HAS GIVEN THE GIFT TO THE PARTNERS, WAS BEFORE THE INTRODUCTI ON OF SECTION 56(1)(VII) OF THE ACT AND IN VIEW OF THE FACT THAT THE PROVISIONS OF THE ITA NO.800/CHNY/2015 :- 5 -: SECTION 47(III) OF THE ACT, THE SAME COULD NOT BE T REATED AS GIVING RISE TO CAPITAL GAINS ASSESSABLE U/S.45 OF THE ACT. 7. IN REPLY, THE LD.D.R VEHEMENTLY SUPPORTED THE O RDER OF THE LD. ASSESSING OFFICER AND THE CIT(A). IT WAS A SUBM ISSION THAT THE GIFT DEED WAS A COLOURABLE DEVICES TO AVOID THE LEVY OF CAPITAL GAINS. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A SSESSEE IS ENTITLED TO DO ALL SUCH ACTIONS AS ARE LIABLE TO RE DUCE ITS TAX BURDEN OR INCIDENCE OF TAX. HOWEVER, COLOURABLE DEVICE FOR EV ASION OF TAX IS FROWNED UPON. AVOIDANCE OF TAX IS FULLY ACCEPTED AN D RECOGNIZED AS A PART OF TAXATION SYSTEM. IN THE PRESENT CASE, CLEAR LY GIFT HAS BEEN GIVEN BY THE PARTNERSHIP FIRM TO ALL ITS PARTNERS B EFORE THE EFFECTIVE DATE OF INTRODUCTION OF PROVISIONS OF THE SECTION 5 6(1)(VII) OF THE ACT. JUST BECAUSE THE DATE OF EFFECTIVE INTRODUCTION OF PROVISIONS OF THE SECTION 56(1)(VII) OF THE ACT IS IN THE PUBLIC KNOW LEDGE, WOULD NOT MAKE THE GIFT GIVEN BY THE ASSESSEE FIRM TO ITS PAR TNERS AS COLOURABLE DEVICES FOR TAX EVASION. IN ANY CASE, THERE CAN BE NO TAX EVASION. IN THE PRESENT SITUATION, PROVISION OF THE SECTION 47( III) OF THE ACT IS AVAILABLE IN THE STATUTE AND THE SAID PROVISIONS SP ECIFICALLY PROVIDES THAT SUCH GIFT IS NOT TO BE CONSIDERED AS A TRANSFE R FOR THE PURPOSE OF SECTION 45 OF THE ACT. OUR VIEW FURTHER STANDS FORT IFIED BY THE FACT THAT EVEN WHEN THE PARTNERS SELL THE SAID IMMOVABLE PROP ERTY, WHICH HAS BEEN RECEIVED BY THEM AS GIFT FROM THE ASSESSEE FIR M, THE COST OF ITA NO.800/CHNY/2015 :- 6 -: ACQUISITION FOR THE PURPOSE OF INDEXATION WOULD OBV IOUSLY BE THE COST IN THE HANDS OF THE ORIGINAL OWNER, BEING THE ASSESSEE -FIRM, AS THE PROPERTY HAS BEEN ACQUIRED BY THE PARTNERS THROUGH GIFT. THUS, EVEN THE ARGUMENT THAT THE ASSESSEE HAS ATTEMPTED TO EVA DE THE PAYMENT OF CAPITAL GAINS TAX, DOES NOT SURVIVE. IN THE CIRC UMSTANCES, THE FINDINGS OF THE LD.CIT(A) AND THAT OF THE LD. ASSES SING OFFICER STANDS REVERSED AND THE LD. ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE CAPITAL GAINS LEVIED IN RESPECT OF PROPERTIES GIFTED BY THE PARTNERSHIP FIRM TO ITS FIVE PARTNERS. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 24 TH OCTOBER, 2018, AT CHENNAI. SD/ - SD/ - ( ) (S. JAYARAMAN) ' # /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) $ # / JUDICIAL MEMBER ) $ / CHENNAI * / DATED: 24 TH OCTOBER, 2018. K S SUNDARAM + !%,- . -% / COPY TO: 1 . / APPELLANT 3. # /% () / CIT(A) 5. -23 !%4 / DR 2. !' / RESPONDENT 4. # /% / CIT 6. 35 6$ / GF