Income Tax Appellate Tribunal - Kolkata
Mcleod & Co. Ltd., Kolkata vs Department Of Income Tax on 25 February, 2010
आयकर अपीलीय अधीकरण, ए", कोलकाता,
अधीकरण, Ûयायपीठ - "ए कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH : KOLKATA
सम¢ ौी एस.
[सम¢ एस. भी.
भी.मेहरोऽा, लेखा सदःय, ौी महावीर िसंह, Ûयायीक सदःय ]
[Before Hon'ble Shri S.V. Mehrotra, AM & Hon'ble Shri Mahavir Singh, JM
आयकर अपील संÉया / I.T.A. No. 107/Kol/2011
िनधॉरण वषॅ/Assessment Year : 2007-08
Dy. Commissioner of Income Tax -vs.- M/s. Mcleod & Co. Limited
Circle-4, Kolkata. Kolkata [PAN : AABCM 7872 L]
[अपीलाथȸ /Appellant] [ू×यथȸ/Respondent]
अपीलाथȸ/ For the Appellant : ौी़/Shri A. K. Paramanik
ू×यथȸ/ For the Respondent : ौी़/Shri A. K. Tribrewal
आदे श/O R D E R
[एस.
एस. भी.
भी.मेहरोऽा, लेखा सदःय]
Per S.V. Mehrotra, AM
The Department has filed this appeal for assessment year 2007-08 against order of CIT(A)- IV, Kolkata dated 25.02.2010.
2. As per office note, the appeal is delayed by 90 days. The Department has filed affidavit of Shri P.B. Pramanik, Dy. Commissioner of Income Tax. It is stated that the last date of filing second appeal against the appellate order was on 16.10.2010 but for the following reasons, it could not be filed within time.
"Date Reasons
16.10.2010 to 09.01.2011 Application for filing second appeal was
not communicated.
10.01.2011 Application for filing second appeal
communicated.
11.01.2011 & 13.01.2011 Papers were being processed for filing.
14.01.2011 The papers are being filed for second
appeal.
2 [ITA No. 107/Kol/2011]
Within a span of one week this office received 93 Appellate Orders from the office of Ld. CIT(A) relating to several months batches apart from having 19 old Appellate Order of which appeal scrutiny reports are being prepared and sent to the office of CIT, Kol.-II, Kolkata.
Besides this, due to pendency time barred to be completed by 31.12.2010 a delay occurred in sending papers for filing of appeal.
That the delay is not deliberate and the respondent does not gain in any manner by delay committed."
3. We have considered the submissions of both the parties and have perused the records of the case. Considering the facts as stated in the affidavit noted above, we are of the opinion that the Department was prevented by reasonable cause from preferring the appeal within the stipulated limitation period. We, accordingly, condone the delay and proceed to decide the appeal on merits.
4. Brief facts of the case are that the assessee-company had filed its return of income showing total income of Rs.43,55,673/- which comprised of rental income, interest income, maintenance, hiring & service charges, and partly on account of trading of shares. The assessment was completed at a total income of Rs.1,42,71,202/- by considering, inter alia, annual letable value of the property let out at Rs.22,62,511/- under the head "income from house property" and further by treating the income from sale of shares under the head "capital gain" instead of business income. The Ld. CIT(A) partly allowed assessee's appeal.
5. Being aggrieved, the Department is in appeal before us and has taken the following grounds of appeal :-
1. That on the facts and circumstances of the case, Ld. CIT(A), Kolkata has erred in law in directing the A.O. to delete the addition without appreciating the fact that in this case two aspects are involved. Firstly, judicial pronouncement upon which Ld. CIT(A) relied on did not adjudicate on the issues raised by the A.O. as to three conditions laid down in Sec.23 for estimation of fair rent and secondly the concept of fair rent is not based on market valuation and cannot differ at the same place and in the same premises.
2. That on the facts and circumstances of the case, Ld. CIT(A), Kolkata has erred in law in allowing the claim of the assessee as to business loss of Rs.18,40,969/-
without considering the fact that the assessee created such loss by inflation of credit side to get benefit of the corresponding debit side in P & L a/c.
3. That on the facts and circumstances of the case, Ld. CIT(A), Kolkata has erred in law in allowing the claim of the assessee as to business income raised on the share activities of subsidiary companies to keep control over it without 3 [ITA No. 107/Kol/2011] considering the fact that in the previous year the assessee performed a very little activity of share trading with its subsidiary company.
6. Brief facts apropos ground No.1 are that the main source of assessee's income was from Mcleod House. The Assessing Officer observed that this property was located at a place which is its prime location for offices in Kolkata. He has given the details of tenants with area of occupation and rate of rent per month at page 2 of his order. Taking into consideration the fact that assessee had let out different area of different floors of the premises at different rates proceeded to compute the fair market rent. After considering the assessee's submissions, he observed that fair rent expected from the let out property was @ Rs.33.49 per month per Sft. and taking into consideration the floor area of 56301.66 Sft. being let out, the fair rent is to be taken at Rs.2,26,26,511/-. He further observed that this amount is higher of three conditions mentioned in Section 23 of the Act and, therefore, it is to be taken as annual letable value of the property. Before Ld. CIT(A), it was, inter alia, pointed out that the Assessing Officer himself had observed that as per Municipal valuation, the annual valuation of the property is Rs.50.72 lakhs which is lower than the actual rent received of Rs.90.13 lakhs. The assessee had relied on the decisions of Hon'ble Supreme Court in the case of Dewan Daulat Raj Kapoor vs. New Delhi Municipal Committee & Another [1980] 122 ITR 700 (SC) and in the case of Mrs. Sheila Kaushish vs. CIT [1981] 131 ITR 435 (SC). It was pointed out that in both these case, it was decided that where the property is subject to rent control regulation, the municipal valuation should be considered to represent the fair rent of the property for the purposes of levies of municipal taxes and also income tax. It was further pointed out that in the case of Mrs. Sheila Kaushish (supra), although the actual rent received from the property was higher than the municipal valuation, it was held that municipal valuation should be adopted for the purpose of determination of annual value of the property. With reference to these decisions, it was pointed out that in the present case, majority of the tenants were very old ones and paying rent at the old rate of 1.80 per sft. The tenancy was subject to regulation under West Bengal Premises Tenancy Act and, hence, the rent could not be enhanced. The assessee had also relied on the decision of Hon'ble Calcutta High Court in the case of in the case of CIT vs. Kishanlal & Sons (Udyog) Pvt.Ltd. [2003] 260 ITR 481 (Cal.), wherein it was, inter alia, held that the rent being fetched by the property at the beginning of the relevant previous year should be considered to represent the annual rent value of the property. The assessee also relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Modi Industries Ltd. [1993] 200 ITR 350 (Delhi) and in the case of CIT vs. Modi Spinning & Manufacturing Mills Co. Ltd. [1980] 125 ITR 361 (All.) for the proposition that when the property is subject to statutory control regulations, the actual rent being fetched by the property 4 [ITA No. 107/Kol/2011] should prevail as a measure of annual value of the property for the purpose of assessment of income from the property. The Ld. CIT(A) after considering the submissions of the assessee and, inter alia, taking note of the fact that the tenancy agreement had not been challenged by the Department and further, taking note of the fact that the municipal valuation of the property is Rs.50.72 lakhs and annual value of the property was Rs.90.13 lakhs, held that annual value as taken by the assessee on the basis of actual rent has to be accepted.
7. Ld. Departmental Representative relied on the order of the Assessing Officer.
8. Ld. Counsel appearing on behalf of the assessee reiterated the submissions made before the Ld. CIT(A) and pointed out that the issue is covered by the decision of Hon'ble Jurisdictional High Court in the case of Kishanlal & Sons (Udyog) Pvt.Ltd. (Supra).
9. We have considered the submissions of both the parties and have perused the records of the case. It is not disputed that the municipal valuation of the property, as evidenced at page 16 of the paper book, is less than the actual rent received. It is also not disputed that most of the tenants are old. The Ld. CIT(A) has also noted that most of the tenant-Companies were earlier under the management of the assessee-company but presently, they are neither under the management of the assessee-company or under the control of the assessee-company. The Directors were also not common and the shareholdings were also different. These facts have not been controverted by the Department. The tenancy agreement has not been disputed by the Department. Section 23 clause (1)(b) refers to the cases where the property has been let out for the purposes of determination of annual value. As per this clause, if the actual rent received is more than the fair rent as per clause
(a), then the actual rent is to be taken as annual value of the property. Since the property was under
the control of West Bengal Tenancy Act, the rent could be realized subject to the conditions of the said Act. Hon'ble Supreme Court in the case of Dewan Daulat Raj Kapoor (supra) has held that where the property is subject to Rent Control Regulations, the Municipal valuation should be considered to represent the fair rent of the property for the purpose of levies of Municipal Tax and Income Tax. Therefore, under Clause (a), Municipal valuation is to be treated as fair rent of the property. Admittedly, the Municipal valuation is less than the actual rent received and, therefore, as per Section 23, clause (b), annual value of the property is taken as actual rent received by the assessee. Further, Hon'ble Calcutta High Court in the case of Kishanlal & Sons (Udyog) Pvt.Ltd. (Supra) has held that under such circumstances, the rent being fetched by the property at the beginning of the relevant previous year should be considered to represent the annual value of the 5 [ITA No. 107/Kol/2011] property. In view of above discussion, we do not find any infirmity in the order of the Ld. CIT(A).
This ground of the Department is dismissed.
10. Brief facts apropos ground Nos. 2 & 3 are that during the course of assessment proceedings, Assessing Officer noticed that assessee had shown profit on sale of share and had claimed the same as business profit. The Assessing Officer examined the inventory of stock and noted that either during the year or in last year, assessee had not purchased any share. The share scripts which were sold were of those companies in which the assessee-company or its associate had control over the management. He observed that assessee had sold shares of subsidiary company and claimed the same under the head profits and gains of business as share trader. He pointed out that the intention of the assessee in holding those shares was not for trading in those shares but to reign control over the affairs of those companies. He further observed that there was no repetition of sales or purchase of shares so as to constitute trading activity. He did not accept the assessee's claim regarding share trading as business affair and treated the same as long term capital gain. Before the Ld. CIT(A), it was pointed out that assessee was in the line of share trading since long and the position had also been accepted by the Department in the past assessments of the assessee. The Department had reopened certain assessments u/s. 147 of the Act for the purpose of treating the share trading activities as deemed speculative activity under the provisions of Explanation to Section 73 of the Act. However, the Assessing Officer finally held that the assessee-company is an investment company, therefore, the provisions of Explanation to Section 73 of the Act did not apply. Thus, it was submitted that the position, that the share trading activities of the assessee constitute business activity has been accepted by the Department. The Ld. CIT(A) relying on the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT [1992] 193 ITR 321 (SC) wherein it was held that although the principle of res judicata does not apply to individual income-tax assessment from year to year but at the same time, their fundamental aspect permeating to different assessment years has been found as a fact one way or the other and parties have been allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, allowed the assessee's appeal.
11. Ld. Departmental Representative submitted that assessee had sold shares of subsidiary companies in which there could not be any intention to trade. Ld. Departmental Representative further referred to profit & loss account contained at Sl.No.8 of the paper book and pointed out that sales as per internal page 13 of the profit & loss account has been shown at Rs.11,90,397/-. He 6 [ITA No. 107/Kol/2011] further referred to internal page 20 of the annual accounts and pointed out that in Schedule 12, the opening stock and closing stock of shares has been shown as under :-
"SCHEDULE - 12 INCREASE/(DECREASE) IN STOCK Opening Stock 37,46,622/-
Closing Stock 25,81,912/-
(11,64,710/-)"
With reference to these figures, he pointed out that it is not clear as to how the assessee had claimed business loss of Rs.18,40,969/-.
12. Ld. Counsel appearing on behalf of the assessee referred to page 7 of the paper book, wherein the computation of total income is contained and showed the manner in which the loss under the head "profits and gains of the business" had been arrived. Ld. Counsel further submitted that assessee is in share trading activity since long and these facts have been accepted by the Department.
13. We have considered the submissions of both the parties and have perused the records of the case. The fundamental principle for deciding whether the assessee is carrying on share trading activity so as to constitute the business activity or holding shares for the purposes of investment, depends entirely on the assessee's intention. The assessee's intention is to be gathered from the facts and circumstances in each case. In this regard, the past history, manner of holding the shares in the books of account, frequency of transactions and all other incidental factors assume great significance. It is settled law that the manner of recording transactions in books of account is not decisive of the true nature of transactions. The assessee's intention is to be decided after taking into consideration all these aspects. If the intention of the assessee is to hold the shares as investment then the same cannot be treated as part of share trading activity when the investment is liquidated. There can not be any dispute that a holding company holds shares of its subsidiary as its investment and to the extent of such holding its portfolio of share holding cannot be treated as part of share trading portfolio. In the backdrop of these principles, if we examine the facts of the present case, we find that at internal page 8/17 of the paper book, Schedule 6 to the balance sheet giving details of stock-in-trade of shares and securities is contained. As per this Schedule, assessee-company was holding 1,57,654 shares of Craig Jute Mills Ltd., which was its subsidiary. All such shares have been liquidated enblock and, therefore, this can not be treated as part of assessee's share trading activity. However, in respect of other shares, since assessee's share trading activity has been accepted in past, therefore, from sale of those shares the business profit/loss is to be computed. The 7 [ITA No. 107/Kol/2011] Assessing Officer has treated the entire sale proceeds as being from sale of shares relating to subsidiary company but the assessee disputes the same. We, therefore, set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of Assessing Officer with the following directions :-
(i) As regards, sale of shares of subsidiary companies, Assessing Officer will compute long term capital gain as per law.
(ii) In respect of sale of other shares, Assessing Officer will compute business loss/profit as per law.
We may clarify that if certain quoted equity shares as mentioned in Schedule 6 of the balance sheet relate to subsidiary company then, Assessing Officer will determine the long term capital gain as per direction No. (i) above. Accordingly, these two grounds are partly allowed for statistical purposes in terms of aforementioned observations.
14. In the result, the appeal filed by the Department is allowed in part for statistical purposes.
यह आदे श Ûयायालय मɅ सुनाया गया है Order pronounced in the Court on 15. 07. 2011.
Sd/- Sd/-
[महावीर िसंह, Ûयायीक सदःय] [एस.भी.मेहरोऽा, लेखा सदःय]
[Mahavir Singh] [S.V. Mehrotra]
Judicial Member Accountant Member
तारȣख/ Dated : 15th July, 2011.
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. आवेदक /Appellant- Dy. Commissioner of Income Tax, Circle-4, P-7, Chowringhee Square, 8th floor, Kolkata-700 069.
2 ू×यथȸ/ Respondent : M/s. Mcleod & Co. Ltd., 3, N.S. Road, Mcleod House, Kolkata-700 001.
3. आयकर किमशनर/ CIT(E)
4. आयकर किमशनर (अपील)/ CIT(A)
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata [ स×याǒपत ूित/True Copy] आदे शानुसार/ By order उप/पंजीकार/Deputy/Asstt. Registrar.
[kkc वǐरƵ िनǔज सिचव/Sr.PS]