KTC Automobiles P.Ltd, Calicut V. DCIT, Calicut

MA 116/COCH/2013

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 1242 (ITAT-COCHIN)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 15-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: V SATHYANARAYANAN
• Section: 234B; 263

Judgement Text

1 MP NO.116 /COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) M.P. NO.116/COCH/2013 (ARISING OUT OF I.T.A NO. 446/COCH/2013) (ASSESSMENT YEAR 2005-06) K.T.C AUTOMOBILES VS DY.CIT, CIR.2(1) YMCA ROAD, CALICUT KOZHIKODE PAN : AADFK4576C (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI V SATHYANARAYANAN RESPONDENT BY : SMT. LATHA V KUMAR DATE OF HEARING : 06-12-2013 DATE OF PRONOUNCEMENT : 06-12-2013 O R D E R PER N.R.S. GANESAN (JM) THE ASSESSEE FILED THE PRESENT MISCELLANEOUS PETIT ION ON THE GROUND THAT THERE IS AN ERROR IN THE ORDER OF THIS TRIBUNA L DATED 27-09-2013. 2. SHRI V SATHYANARAYANAN, THE LD.REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT THE NAME OF THE ASSESSEE IS K.T.C. AUTOMOBILES. HOWEVER, IN THE TRIBUNAL ORDER, IN THE CAUSE TITLE, THE TRIBUNAL MENTIONED THE NAME OF THE ASSESSEE AS K.T.C. AUTOMOBILES (P) LTD. THIS IS AN ERROR WHICH NEEDS TO BE RECTIFIED. 2 MP NO.116 /COCH/2013 3. THE LD.REPRESENTATIVE FOR THE ASSESSEE FURTHER S UBMITTED THAT GROUNDS NO.3, 4, & 5 OF THE APPEAL WERE NOT DISPOSE D OF. THE LD.REPRESENTATIVE SUBMITTED THAT BALANCES IN THE CU RRENT ACCOUNTS OF THE PARTNERS ARE CURRENT LIABILITIES OF THE FIRM AND NO T CAPITAL WHICH THE PARTNERS ARE ENTITLED TO WITHDRAW ANY TIME. THE BALANCE IN THE CURRENT ACCOUNT IS NOT CAPITAL OF THE FIRM. ACCORDING TO THE LD.REPRE SENTATIVE, THE FIRM IS BOUND TO PAY THE CURRENT ACCOUNT BALANCE TO THE PARTNERS AS LIABILITY. ACCORDING TO THE LD.REPRESENTATIVE, THE DEPARTMENT HAS ACCEPTED THE PARTNERS LOAN ACCOUNT AS LIABILITY, HOWEVER, THE PARTNERS CURREN T ACCOUNT WAS NOT ACCEPTED AS LIABILITY. THIS TRIBUNAL FOUND THAT CU RRENT BALANCES ARE NOT LIABILITIES. THIS IS AN APPARENT ERROR. REFERRING TO THE DECISION OF THE COCHIN BENCH OF THIS TRIBUNAL IN K.V. MOHAMMED ZAKE R ITA NO.270/COCH/2005, THE LD.REPRESENTATIVE SUBMITTED T HAT PARTNERS CURRENT ACCOUNT IS A LIABILITY OF THE FIRM. ON A QUERRY FR OM THE BENCH, WHETHER THE EARLIER DECISION OF THIS BENCH OF THIS TRIBUNAL WAS BROUGHT TO THE NOTICE OF THE BENCH, THE LD.REPRESENTATIVE FAIRLY SUBMITTED T HAT THIS ORDER WAS NOT BROUGHT TO THE NOTICE OF THE BENCH AT THE TIME OF H EARING OF THE APPEAL. THE LD.COUNSEL CLARIFIED THAT AT THE TIME OF HEARING OF THE APPEAL SOME OTHER COUNSEL APPEARED, THEREFORE, HE WAS NOT ABLE TO BRI NG THE DECISION TO THE NOTICE OF THIS BENCH AT THE TIME OF HEARING OF THE APPEAL. THE LD.COUNSEL FURTHER SUBMITTED THAT THERE IS NO TRANSFER OF ASSE T WHEN THE ASSETS AND LIABILITIES OF THE PARTNERSHIP FIRM WERE SUCCEEDED BY A PRIVATE LIMITED 3 MP NO.116 /COCH/2013 COMPANY. THERE CANNOT BE ANY TRANSFER WHEN THE PAR TNERSHIP FIRM WAS CONVERTED INTO A PRIVATE LIMITED COMPANY. ACCORDIN G TO THE LD.REPRESENTATIVE, THE MOMENT THE PRIVATE LIMITED C OMPANY CAME INTO EXISTENCE, THE PARTNERSHIP FIRM CEASED TO EXIST. T HEREFORE, THERE CANNOT BE A TRANSFER AT ALL. ACCORDING TO THE LD.REPRESENTAT IVE, WHEN THERE IS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT, THERE CANNOT BE ANY CAPITAL GAIN. ON A QUERY FROM THE BENCH, IF THERE WAS NO TRANSFER U/S 2(47) WHAT IS THE OCCASION FOR THE PARLIAMENT TO INSERT S ECTION 47(XIII) IN THE CONTEXT OF THE ASSET OF THE FIRM WAS TRANSFERRED TO THE COMPANY AS A RESULT OF SUCCESSION OF THE FIRM BY THE COMPANY, INCORPORA TING CERTAIN CONDITIONS, THE LD.REPRESENTATIVE CLARIFIED THAT THIS IS APPLIC ABLE ONLY IF SECTION 2(47) IS APPLICABLE. WHEN SECTION 2(47) IS NOT APPLICABLE, ACCORDING TO THE LD.REPRESENTATIVE, THE PROVISIONS OF SECTION 47(XII I) ARE NOT APPLICABLE, THEREFORE, THE ORDER OF THIS TRIBUNAL IS AN ERROR W HICH NEEDS TO BE RECTIFIED. 4. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE HAS RAISED ONE MORE GROUND WITH REGARD TO INDEXATION OF THE CO ST OF ACQUISITION. THIS WAS NOT DISPOSED OF BY THE TRIBUNAL. ON A QUERY FR OM THE BENCH, WHETHER, THIS GROUND WAS RAISED BEFORE THE ASSESSING OFFICER , THE LD.REPRESENTATIVE CLARIFIED THAT THIS WAS NOT RAISED BEFORE THE ASSES SING OFFICER, HOWEVER, WAS RAISED BEFORE THE CIT(A). THE CIT(A) DID NOT DISPO SE OF THE GROUND. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESS EE HAS ALSO RAISED 4 MP NO.116 /COCH/2013 GROUND WITH REGARD TO LEVY OF INTEREST U/S 234B AND 234C OF THE ACT. THIS GROUND WAS ALSO NOT DISPOSED OF. ACCORDING TO LD.R EPRESENTATIVE, IN RESPECT OF CAPITAL GAIN TAX, THERE CANNOT BE ANY LE VY OF INTEREST U/S 234B AND 234C. 5. WE HEARD SMT. LATHA V KUMAR, THE LD.DR ALSO. 6. WITH REGARD TO ASSESSABILITY OF CAPITAL GAIN, TH IS TRIBUNAL EXAMINED THE PROVISIONS OF SECTION 47(XIII) AND FOUND THAT A SSETS AND LIABILITIES OF THE PARTNERSHIP FIRM AS IT EXISTED AT THE TIME OF SUCCE SSION WAS NOT TREATED AS SHARES OF THE RESPECTIVE PARTNERS / SHAREHOLDERS. ADMITTEDLY, THE ASSET OF THE PARTNERSHIP FIRM WAS REVALUED AND THE REVALUATI ON AMOUNT WAS TREATED AS LOAN IN THE HANDS OF THE PARTNERS / SHAREHOLDERS INSTEAD OF TREATING THE SAME AS SHARES IN THE HANDS OF THE RESPECTIVE SHARE HOLDERS. THIS TRIBUNAL FOUND THAT TREATING THE VALUE OF THE LAND AS LOAN I N THE HANDS OF THE COMPANY AMOUNTS TO AN INDIRECT TRANSFER OF PROPERTY TO THE PARTNERS AND THE ERSTWHILE PARTNERS OF THE FIRM CAN WITHDRAW THE MONEY AT ANY POINT OF TIME WHICH WAS SHOWN AS LOAN IN THE BOOKS OF ACCOUN T OF THE COMPANY APART FROM DRAWING INTEREST. THE TRIBUNAL HAS ALSO SPECIFICALLY FOUND THAT THE PARTNERSHIP FIRM INDIRECTLY TRANSFERRED THE ASS ET TO THE PRIVATE LIMITED COMPANY AND DISTRIBUTED THE CONSIDERATION TO THE ER STWHILE PARTNERS, AS IT IS SHOWN AS IF THE PARTNERS ADVANCED LOAN TO THE PRIVA TE LIMITED COMPANY. 5 MP NO.116 /COCH/2013 THIS IS AN INDIRECT METHOD OF TRANSFER OF PROPERTY BY APPLYING THE ACCOUNTING TECHNIQUE TO AVOID TAX ON CAPITAL GAIN C ONTRARY TO THE PROVISIONS OF THE INCOME-TAX ACT. WHEN THE TRIBUNAL SPECIFICA LLY FOUND THAT THIS IS AN ACCOUNTING TECHNIQUE ADOPTED BY THE PARTNERSHIP FIR M TO AVOID CAPITAL GAIN TAX, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO ERROR, MUCH LESS, A PRIMA FACIE ERROR, WITHIN THE MEANING OF SECTION 25 4(2) OF THE ACT. THE ARGUMENTS ADVANCED BY THE LD.REPRESENTATIVE FOR THE ASSESSEE MAY BE ANOTHER WAY OF LOOKING AT THE ISSUE. AS FAR AS THI S TRIBUNAL IS CONCERNED, THE ENTIRE PROVISIONS OF THE INCOME-TAX ACT HAVE TO BE READ TOGETHER AND A HARMONIOUS EFFECT SHOULD BE GIVEN. THEREFORE, THE PROVISIONS OF SECTION 47(XIII) CANNOT BE IGNORED WHEN THERE IS AN INDIREC T WAY OF AVOIDING THE TAX BY APPLYING THE ACCOUNTING TECHNIQUES AGAINST THE P ROVISIONS OF INCOME- TAX ACT. HENCE, WE DO NOT FIND ANY ERROR, MUCH LES S, A PRIMA FACIE ERROR, IN THE ORDER OF THIS TRIBUNAL. 7. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL IN K.V. MOHAMMED ZAKER (SUPRA). IN THE CASE BEFORE TH E TRIBUNAL, THE ASSESSEE CHALLENGED THE ORDER OF THE ADMINISTRATIVE COMMISSIONER U/S 263 OF THE ACT ON THE GROUND THAT ALL THE CONDITIONS AS LAID DOWN UNDER THE PROVISO TO SECTION 47(XIII) ARE NOT FULFILLED. THE TRIBUNAL FOUND THAT THERE IS NO VIOLATION OF CONDITIONS PRESCRIBED IN SECTION 47 (XIII). THE TRIBUNAL FOUND 6 MP NO.116 /COCH/2013 THAT SHARES HAVE BEEN ALLOTTED EQUIVALENT TO THE CA PITAL ACCOUNT OF THE PROPRIETOR. THE TRIBUNAL HAS OBSERVED AS FOLLOWS: 13.. DURING THE YEAR UNDER APPEAL, THE SOLE PROPRIETOR HAS NOT RECEIVED ANY PAYMENT IN CASH OR IN KIND OR OTHERWISE, EXCEPT FOR ALLOTMENT OF SHARES IN THE CO MPANY. UNLESS THE SOLE PROPRIETOR WHO IS THE OWNER OF THE SOLE PROPRIETORY CONCERN, RECEIVES ANY CONSIDERATION OR BENEFIT IN ANY OTHER FORM DURING THE YEAR THE PROVISIONS OF SU B CLAUSE (C) OF SECTION 47(XIV) AS ABOVE COULD BE INVOKED.. 8. IN THE CASE BEFORE US, WE FIND THAT THERE IS A C LEAR VIOLATION OF CONDITIONS PRESCRIBED IN SECTION 47(XIII). THE REVALUATION AMOUNT WAS SHOWN AS LOAN INSTEAD OF TREATING THE SAME AS SHARES IN THE HANDS OF THE ERSTWHILE PARTNERS / SHAREHOLDERS. THEREFORE, THE DECISION OF THIS TR IBUNAL IN K.V. MOHAMMED ZAKER (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE P RESENT CASE. MOREOVER, THE DECISION OF THE TRIBUNAL IN K.V. MOHAMMED ZAKER (SU PRA) WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL WHEN THE APPEAL OF THE ASSES SEE WAS HEARD. SHARES WERE NOT ALLOTTED IN RESPECT OF REVALUATION AMOUNT OF CA PITAL ASSET. THEREFORE, WE ARE OF THE CONSIDERED OPINION, THE DECISION OF THIS TRI BUNAL IN K.V. MOHAMMED ZAKER (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THIS CASE . 9. NOW COMING TO THE NON DISPOSAL OF GROUNDS 3, 4 & 5 IS CONCERNED, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE TRIBUNAL EXAMINED THE 7 MP NO.116 /COCH/2013 ISSUE ELABORATELY, AFTER CONSIDERING THE DECISION O F THE AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS ALTA INTER-C HEM INDUSTRIES 2012 6 TAXCORP (A.T.) 29767 (AHMEDABAD) AND FOUND THAT THE CONDITIONS PROVIDED IN SECTION 47(XIII) WAS VOILATED AND THEREFORE, THE TRANSFER IS LIABLE FOR TAXATION UNDER THE INCOME-TAX ACT. THIS WAS EXACTL Y RAISED BY THE ASSESSEE IN GROUNDS 3, 4 & 5. THEREFORE, THE ASSES SEE CANNOT NOW CLAIM THAT THE GROUND RAISED BY THE ASSESSEE IN GROUNDS 3 , 4 & 5 WAS NOT DISPOSED OF. THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT THE GROUND RAISED BY THE ASSESSEE IN GROUNDS 3, 4 & 5 HAS ALRE ADY BEEN DISPOSED OF. OTHERWISE, IT IS COVERED IN THE DISCUSSION MADE IN THE ORDER OF THIS TRIBUNAL. THEREFORE, THERE IS NO MERIT IN THIS SUB MISSION OF THE LD.REPRESENTATIVE FOR THE ASSESSEE. 10. THE NEXT GROUND OF THE ASSESSEE IS WITH REGARD TO INDEXATION. THE ASSESSEE HAS NOT RAISED THE INDEXATION ISSUE BEFORE THE ASSESSING OFFICER. THOUGH A GROUND WAS RAISED BEFORE THE CIT(A) WITH R EGARD TO INDEXATION, THIS WAS NOT APPARENTLY DISPOSED OF BY THE CIT(A). THEREFORE, THE GROUND RAISED BY THE ASSESSEE WITH REGARD TO INDEXATION IS NOT ARISING OUT OF THE ORDER OF THE CIT(A). HOWEVER, WE MAY MAKE IT CLEAR THAT WHILE GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL, THE ASSESSING OFFICE R SHALL CONSIDER THE ISSUE OF INDEXATION WITH REGARD TO THE COST OF THE PROPER TY ON MERIT IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 8 MP NO.116 /COCH/2013 11. THE NEXT ISSUE IS WITH REGARD TO LEVY OF INTERE ST U/S 234B AND 234C OF THE ACT. THE LEVY OF INTEREST U/S 234B AND 234C ON THE CAPITAL GAIN HAS TO BE COMPUTED IN ACCORDANCE WITH LAW WHILE GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL. THIS TRIBUNAL, AT THIS STAGE, CANNO T COMPUTE THE INTEREST. THE ASSESSING OFFICER SHALL CONSIDER WHETHER THE AS SESSEE IS LIABLE TO PAY INTEREST U/S 234B AND 234C ON THE CAPITAL GAIN AND THEREAFTER COMPUTE THE SAME IN ACCORDANCE WITH LAW. 12. NOW COMING TO THE NAME OF THE ASSESSEE, APPAREN TLY, IN THE CAUSE TITLE, THE ASSESSEE HAS MENTIONED THE NAME AS K.T. C. AUTOMOBILES. HOWEVER, AT COLUMN NO.10 OF THE APPEAL MEMO THE ASS ESSEE MENTIONED THE NAME AS K.T.C. AUTOMOBILES (P) LTD. THIS MAY BE THE REASON FOR INCORPORATING THE NAME OF THE ASSESSEE AS K.T.C. A UTOMOBILES (P) LTD. THE FACT IS THAT THE ERSTWHILE FIRM K.T.C. AUTOMOBI LES FILED THE APPEAL AND THE APPELLANT IS K.T.C. AUTOMOBILES. THEREFORE, TH E NAME IN THE CAUSE TITLE SHALL ONLY BE K.T.C. AUTOMOBILES. THE MENTIONING OF THE K.T.C. AUTOMOBILES (P) LTD IN THE CAUSE TITLE IS AN ERROR . ACCORDINGLY, THE FOLLOWING IS DELETED FROM THE NAME IN THE CAUSE TIT LE: (P) LTD NOW THE NAME OF THE ASSESSEE IN THE CAUSE TITLE SHA LL BE READ AS K.T.C. AUTOMOBILES 9 MP NO.116 /COCH/2013 11. IN THE RESULT, MISCELLANEOUS PETITION FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DECEMBER, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 06 TH DECEMBER, 2013 PK/- COPY TO: 1. K.T.C. AUTOMOBILES, YMCA ROAD, CALICUT-673 001 2. DY.CIT, CIR.2(1), KOZHIKKODE 3. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE 4. THE COMMISSIONER OF INCOME-TAX(A), AAYAKAR BHAVA N, MANANCHIRA, KOZHIKODE 673 001 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH