Karnataka High Court
The Commissioner Of Income Tax vs P R Seshadri on 28 July, 2009
Bench: D.V.Shylendra Kumar, Aravind Kumar
IN THE HIGH COURT on KARNATAKA, DATED THIS THE 281"" my 0:? J1, "
PRESEIW « «M THE HOISPBLE MR. JUS'I'iCE éH*i?LE}1~::§R}; _ AND . ~. :
THE I~iON'BLE MR. J~L:s':?I_C:E AEQAVTND-,K'E¥:NiAR _1_,_fg_,A BETWEEN 1' A 'A I. The Commi$si9_;1er:éfII1c§:1neg:ax,3 c.12.Bui1dmg;,.~ Queens_..I€t>ad;~--._...';1 " Q " » Banga1cizfe.--::__
2. The I)ept1tj,i_.C91*£1;nissioner- Of Ii1ccme~-Tax;-~ % = ' CircI6*.5('1), ' C.R.Bui.}§ling, ._ Queens Road," "
Bzirxgaiflre. %%%%% " " ~ APPelIan1:s:
' Advocate) AME:
A ~ - -. V "'.~3:~.:.P.R;seshac1xi, _ '~. ?~¥o.i2"1, Guhnohal Enclavc, ' " Qppasitc to Airport White Field Road, ' Baamgaiore-37.
(By Sri.M.Lava for Aflhankar, Advocate) Resmndent:
This Appeal is fled under Section 260A ofincome Tax Act, 1961 to aliow the appeal and set aside..Vth5es~o1~der passed by the ITAT, Bangalore ETA No. 1I62jBa ng,I2002 dated 29-3-2003 and confirm the order of$Vj;he"VV4?if;;3}i>€1_1i3a~te Commissioner confimling the order passed'?b__y the "{)Vepi1ty Commissioner of Income Tax. Cirole---5(1_}--,"Bm'gaIore._ " "
This Appeal coming orx-._ fc-_1'e..heé:I'iI1g}' ifiay, "
D.V.3HYLENDRA KUMAR VJ, delivered th¢_*vf;fl}0WiI:.,'gt*~.A * Jvbonmlg % ' % Appeal by the A of the Act. Assessment is an iritdividlial' 'his of income ofi'e-ring to tax income'If1'om'his'1§1;1si1*1ess44'a*«.ctivities etc, apart from eapitai gains, _ V' ._ '1";-he appeal is one relating to the offhe capital gains.
'A 3. the accounting period relevant for the 7-'«4__"-»assessm,ent year, the assesses was holding shares in a - by name M/s Vishesh Technologies Pvt. Ltd., and h V' about 90% of the share held anti transferred his ' enfire share holding of Rs.40,07,00() in favour of M/ s SRO Infotech (India) Ltd., at a price of Rs.18.75 per share yieiding a net receipt of RS.75, 13, 125/-.
4. Apart from transferring his entire shagfe': in the company in favour of the buyer the asseesjee. a separate agveement ageed to"ti*ansfe:j 1'. A' connection with a soft ware' thatV'the'--a.sseseee"hiH1Seif.had developed, some of the of faameiy computers and some omcle Software as also intellectual vxa;l»'__f:atents and copy rights iwlfich owned valued as under:
I. S 6.75 lacs ~ {Rain lacs) __ HNR ~ 0.85 lacs ~--
" deb ~ 7.60 ,, .4 . of VT» 3. 14 e property rights
- of patents & copy rights ~~ _ owned by Mr.P.R.Seshadri 34.78 , Oracle Software , 0.48 Total 45.00 , (2313259) fi~0,0720OQ!'~ Totaiirxg a sum of Rs.45 Lakhs.
5. It appears the assesses in the capital gains from the sale of the:sha1*es_ whether of the company or of the capita}. gains attributabie..__§o worked as under: _ 1 Income from long
1) Sale of 400, 709.
Tech.(P)Ltd. - ,
@Rs.18.75}icr :_ %
%%75,13,125.oo
Less C%:)st'--Of 4003300.
Rs. 10/~'Pcr V. "4z3,o7,o00.0o Indexed cdstof 40.0; A709? Jshares Purchased on.4.4'.94 "
43,4»7,362.00 and" ofiered a further sum of Rs.8.78 lakhs as A 5.' gain from thc sale copy right (Computer soft ware) ifigdicaiing that the: price which he had received for the sale V of this item itself was the capital gain as accfllftlittéfp the assesses the cost of acquisition was nil. ' I' 'T A4
6. The assessee, it appears, amount of Rs.25,00,000/- by Wegy of Rs.45 Iakhs which the '£0.
7. ' While assessttigi filed by the assessee, the )§.ssess1fln;g":.F the assessee had claimed. as a deduction in 1 of Act which the Assessing Oificer was not entitled as it appeaied to Oificer that the spouse of the claim' ed like benefit for the sum for which claimed deduction by way of investment V V' _ in the eonsteuotion of the house and also being of the ViCW Elie 'sum of Rs.25,00,000/- should have been ofiered gain in the very year and not avoided for offering T the pretext of being advance payment as in the opinion of the Assessing Officer the transaction was well over and amount was regaxfled as part of the saie consideration. On such premise the Assessing Ofiieer the assessment adding a sum of Rs.25,00,000 1- to the capital gaifl at the assessee himself and calied 2 commensurate tax. tt A . »_ A L
8. The Appellate Commissioner. Before t > Cemmissioner the assessee conte.-atleé fjau of Rs.8.'?'8 lakhs was in i@_1_oiaeVce'3'of and that the amount was not
- assessableto gain as the capital gain could net worited dtie the difficulty in working out the of of the particular asset and therefore the 'act have been added as capital gain though V V' _ haé§"'beet:1'of;fered by the aseessee himself. 'A s 4_ 9.7' it was also urged that the Assessing Oflicer could fgot' Iiave taken the receipt of Rs.25,()0,000/--- as income T "due to capital gain for the very year as it was only an advance payment. It was therefore contended that the Assessing Officer error in adding this '_f1'he further gound raised is that the assessee benefit of Section 541?' of the Act:-J ' 2 4' in
10. The Appellate "
impressed upon by any assesses, dismissed
11. The assesses' the Income Tax Appellate The Appellate Tribunal assesses himself having 1 of the new residential buiidingeutof his:'i:Vfnn<lsV"'generated by the sale of shares, mespective of that the spouse claimed on the very V" piiovisien where the assesses had made from out of for the construction of the building, thoijigli on a land belonging to his wife, was . .. , _, . ei:m:¢:me1§ss entitled to the benefit under Section 541?' and ieeeorkiinglyr allowed the deduction claimed by the assesses.
12. In so far as the computation under the head of V x capital gains is concerned, the Tribunal for examining the as/"
addition of Rs.25,00,000/-- that it att1'acteciQ..t3fi1 t;jV.'Vp'i;3:1::§ip1e laid down by the Supreme Court in CIT reported in (1931) 123 rm 294%j(éCj}I W'hereén%:;he¥s%ug:;se§--ne Court had taken the Viéfi' assgfié. cannot be subjected to as" as thf:
cost of acquisition computing and themfore the under Section 48 faiis the facts and also being of of such an asset was made Section 55(2) of the Act which book only with effect from 1-4"-41998 oz1aWe,r_§;i's"wfiich reads as under:
of "adjusted", "cost of ~ iII1pi'O1?fL'3.ii£?:'I}t" and "cost of acquisition". ~-- (1) A ._ "F_(}I' of Sections 48 and 49, - T?-*?){(35I¥1i'3%,*5'i}
(b) "cost of any impr0vement",--
(:§)":in relation. to a capital asset being goodwill of a business. [or a right to manufacture, produce or process any article or thing] {or right to carry on any business] shall be taken to be nil, and (2) in relation to any other capital asset, - E/V
(i) where the capital asset the property of the pxevieias _ "
owner or the assessee befQreV_'flfi1e 1st day of April, _:{'l9$'1],.'[* ' means all expcgnditufim capital nature AKiI1:Ct1};£'Cd'-_V'iI1 _ making any atiditiens A31} 2 aiterations to capital asset <3zji"' "
or after the Said _date'---by"theg previous owner Or. the assesses;
(ii) in any means an _ .e:{q:enditure"V..:of_a{";;apit1a1' nature é;r;3%"'additions V' _oI9"~a1i;_er-a1f;E<)1*isV_tio tF:1e,.::apita1 asset the aesessee after it became """ 2";:.}1ié5: "?I'*t>,?€TW{"'a11'd, where the " V.-;;;ag3ieta1'«.,_ -asset became the ' "of 'ihe assesses by any . of the..1ixn_pdes specified in sub- . "scc'?:ior1_ (I) of Section 49, by the previous owner, _ gglpcvs £1ot'i.u~::iude any expenditure which ' is deductible in computing the income " g:11afgea.Ejie"--}1nder the head "Interest on " _"'sect11*if7ie$'§"'"II1con1e from house property", ' ffPI'o1'its'a1:1d gains of business or profession", "
61' "'¥.jr1c':)'me fiom other stmrces", and the exgireéssion "fimpmvement" shall be ' " rcpnstrued accordingly.
V' (2)"For the purpose of Sections 48 and 49, "cost of acquisition", -
[(a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associateci with a business] @/ 16 [or a right to manufacture, produce process any article or thing [er carry on any busir1ess}], tenancy Ijghts,' ' stage carriage permits or 1oem11o11z*s,- " " V'
(i) in the case of acqtzisitieir ' of [such A ~ A asset by the aseessee'----by"-purchase ' é from a previous ._dwner,"'means~-._the""' amount of the p:riee;'a1£d '4
(ii) in any other case---{net a'ee.se"
falling undef*«.su!)~c}.a:1=.5esVV%{i},t0 (iv) of subsection' {1} of _Seet:i_oz1 49}._. shall be taken tote?-<ettni1;"
and thcre;'c);'e5_ Section 55(2) is not avaflatale fef year 96-97 there is no way of suspentiirzg of the principle as etrolved in Sri1:i;\raee..Shett;;aff.;"easte am directed deletion of addition of also held the addition of Rs.8.'78 iakfis is: to be deleted for the same reason as the . .. .,.'Ve:eQ;1nt"'x;srae on par with the sum of Rs.25,00,000/~. The ailowed the appeal on such findings.
14. It is against this finding of the Tribunal, revenue is in appeal. The revenue has raised the following W/ 11 substantial questions of Law for examination in this appeal:
(1) Whether the Tribunal was correc;1.' tin -
holding that the 4 enfified to claim deduction.' V _ section 54F of the Act; on _1;he incameé' . derived from sale of on the _ "
yound that the _ had emr:m 2 invested on a hG1__1 $»f; owtxedhy 'V wife at No.79'7',=.._ ' Rustu:-m_.bagI1,} Eangalore by,-H" . "intck oonsidexatitmp. -ceI;tain._ tmilateral cdntragtors, tender 'fQr:'_r_3s_ f0? construction
-------- mxly éifiectby the"vas$essee and not b3"75'A1<?v'0flifif"'-Pam' and rejected by "4the_'aS54¢Ssif1g"o:fficer and certain ' vmuchers"pr0:1ii¢ed for the first time Lbefere 'I'ribuna1 and corzsequently recorded a perverse .... .. « ' " ~ V (ii}._ " Whether the Tribunal was correct in the admission made by the "a.$3'esse's wife Smt.Va1sala Seshadri ' Farm Ne.34A under section 230A of the Act on 12.2.1996 that she was the absolute ewner of 4,000 sq feet of house built in No.'?97, Rustumbagll, Bangalore owned and built by her out of funds derived from sale of her property situatw at I-{AL 21"? stage, Bangalore and 12 consequently recorded a findixxg?
Whether the Tribunalwss' corfeét holding that a sum 'of derived by the assessee tram sale" of 1 .. soft ware was towards 'edvance.»:¢;s_dV consequently the-same c£>11ld~ (lot brought to tax the assessment. year, '- _ " V -.
Whether the was '*r;0I'£.'ect in holding tl1;:1t._ijsf:oi'I_1e..» of""Rs;'2;5 'iakhs derix(ed_ by the; assesses team the sale soft- wa!s'"I3ot1";ing but a com Vgiatentw. right being z:ig',ht:f,to produce or " --p;'e:)ces.}-f;~ "of'"sJ.fIy a'rt'1"c}e"'or thing under _ .2: anti was not liable to l as."the..a';E3e'1;ded section 55(2){a) 'A of the Act was not applicable to the "suites": assessment year?
vvl_Whetl1er-~tl1e Tribunal was correct in Jfxolding that a sum of Rs.8.78 lakhs ».fi€§I'iEfed by the assessee fiom sale of ware was nothing but a copy tight and patent right being right to l "V manufacture, produce or process of any article or thing under a brand name was not liable to tax as the amended section 55(2)(a) of the Act was not applicable ':13 the current assessment year especially when the assesses has admitted this amount as its taxable income in the return filed by him?
rm»
- itself e 13
15.We have heard Sri. Seshachala learned counsel appearing for the revenue and f for Sri.Shanka3' for the assessee.
16. Submission of iv the Tribunal has committed e3':-4__.eI1'oi'._V_'i:1 assessee is emtitled for the of that the Tribunal failed to had also ciaimed the made for the Very could not have been " benefit of Section 54F in respect L It is also submitted that the the name of the spouse of the tfxerefore also there cannot be any claim ef the assessee in respect of the construction ''._of euchia building etc. V' . '_«1'7. The next argument is that the Tribunal has ' cemmitted a serious error in law in simply proceeding to apply the principle evolved by the Supreme Court in $// 14 Srinivasa Shetty's case even without examining set of facts and circumstances and it is that the Tribunal failed to "'t._he3' of AV bringing to tax the c:apita1Vga_i'n a£~e:fb§tab1§tet:aAt they of cepy rights technical he had property is tttattvveven before the amendment to Act, there is requirement of the capital gains to not examined the proceeded to apply the principie Shetty's case. It is also subllfiitted cannot be said to be on . V. like intellectual pmperty rights of ieopy rights owned by the assessee and also the"'vah;'e' soft ware etc. It is therefore submitted that L without examirxatioxa, blindly directed deletion of Rs.Z25,00,{)0()/- even without going into the " -qiiestion of ascertaining the capital gain. The other ' " argument advanced en behalf of the revenue is that in so 3/ 15 far as the amount of Rs.8.78 lakhs which the assessee himself had ofiered as capital gain is concerned, the Tribunal was in error in directing deletion of thi.sV':-ajbmeunt that too on the reason this was on par Rs.25,00,000/-- which the Assessing OfiiCéI"'::oVnv. premise that it amounted to' ecmsideration received in the assessment year. i . it
18. Submission is Vhimself admitted the reeeipt and had offered this amount to tax on the cost of acquisition as nil and' p11 sucii calculated the capital gain. If there V'was"no""adciition, the principle in Srinivas Shetty's case is hf-:3ti'__e1%e:i:'"ai;tra;e'i:ed. This is a case where assessee himself had'"assesseti and offered it as capital gain. A. 19;" On the other hand appearing on behalf of the _' assesses S:ri.Lava lmmed counsel for the assessee it " "vehemently urged that the assessee }:1,a<i'Iightly claimed the benefit of the pirevisions of Section 54 F in this regard. V 16 Learned counsel for the assessee would take us through the computation of the amount for mpital gain and has also drawn our attention to the amount offered hjfway of capital gain and the benefit claimed in resgect gain by the spouse. of the assessee whichs_is':
the assessment order (page the I spouse of the assessee had _v:tie<'_';1?.1é...1'.(':'£'.'i(:):i1, under Section 54}? oniy to of the value of the _the benefit had iibeenfl t ' . the assessee was about Rs.25,0O,()O{.)/4 had claimed to the extent of Rs.'2§_),*§a'5,,61t?./~..V_V_V"V1Sobmission of Sri.Lava is that the f~2s.8.78 lakhs c§a1m' ed by the spouse of the ti:1e"'benefit of Section 54?' in fact was not even _ suifieient the value of the land which was valued at ,.';1'€As,;9?IOsV,'{];OO/- and it was not as though the assessees had any benefit in respect of the construction of T building in terms of the provisions of Section 54F' of A t theAe!:.
17
20. With regard to the deletion of amounts of R$.25,0(),00O/~ and Rs.s.7s lakhs by the learned counsel wouid submit that it is jtistifited the reason the Tribunal had fo1Ic§V.Veet:_tI:e'"'raiio the Supreme Court in tlieeaee of .S'I'iniva,e-
the opinion of the ttxe peipctple was applicable to the ttxerefore the appeal has to respect. He also submitted that '"'rea soIi' the" matter requires ne- off the Tribunal held the entire computetiont of also to be re~e.v-zamined and thetfefo1'e tlte tmincipal shouici have applied in the .C:t§m1outafion of capital gain in respect of sumfl of l or Rs.2s Iakhs both of which are to .% be'tie1.et;et:1'v'oy'the Tziburxal. In this regard Sri..Lava would .4 H 'A it is well settlegi en the authority of the rulings Supreme Court in the matter of taxation that T eozlsent cannot be the basis for fixing the liability which is not found in the statutory provisien. The mere fact that M 18 the assessea himself had offered a sum of for tax by itself wauid not put against the V i
21. Sri.Lava in support on the foilowing decisiens . é 1 i ii A. 'V (1) 287 IT}? 271
(ii) 91 rm 18 4 So far as the i':6vV.:i:iiiéiv»V2i:j:)pficabifity of the ratio of is concerned While it is true ti'-g1:'::..<9:8;)13.s£31'1t;.'iiot'}confer jurisdiction 0;; an assess;_j11g_ at1"t1*i9ifit;,5 toVV"suhje(;t a citizen to irax, over and above tlki 'statutory pfafiiéizins, the said decision is not attifgcted to' ti"1¢i1V')re.§'.'.eI1t situation for the simple 21633011 :t i;«§&;;§1;«iiias though by consent the additional liability the statutory liabiiity is created but the assésseét had Worked out the method for .4 Au"'V.vi,.'V:c:,~mputvi.é.ti0n Of capitai gain and had by himself éxwiéeiiained both the cost of acquisition and the safe price i when both are available there is no difficulty in computating the capital gain for the purpose of Sectien 45 %/i 19 of the Act and themfam thc Tribuna} was ~ "to ezxamine the applicability or otherwise of down by the Supreme: Court in Sfinjvéé
22. We have perused the records inclusive of the orderé--r§_f'?3gc Fifi: L' and tile assessment OI'd€_,I'.,. the "in~f31C~ and bestowed our attcnfiofi S*;'&V2':t_;;1V:11<,2%:«*;i<31:a made by the learned counsel fiat V V ' V J
23. 'I'1'_1_cV benefit of Section 54F our opinion has to be W araswtzrégi {ind in favour of the assesses for the mas§n.._§hat may be in the crwncrship of assessefls spou»sgV," fievérthciess thc Tribunal has mcorcied a finding construcfion work was in progress till 31-8-1996 and the wife of the £iS$€S$E',{§ have the value of consaucfion for mortgagt 'p131'posé:s__ é1nd this Wane does not mean that construction out by 6: Wlffl of thc assesses out of her own funds V. sq? as to deny the assessett the benefit of deduction under u Section 549 of the Act, g a/ 20
24. If that is to be accepted as finding of we find no impediment in the assessecfs ciaim Section 54F', as the assessee vhad-. to j x extent of Rs.20,96,€)O8/-- as cost of eonstzruction of agid we find that wiil fall "Cost fir building. Accordingly questionsa' ggnswereci in the affimaative
25. the to the addition of j essessing ofiicer and the directioii (ifs the to delete this amount is conee 'led, v.§re' tflat the Tribunal has simply preceeded ratio of the decision of the Supreme Ceurt in case to this situation d .3150 for the"ieas1 3n't;iiat the provision of Section 55(2) had not come .. the statute for the assessment year relevant for the 'eieebtinting period. We find that the Tribunal has in fact T "net examined the facts and circumstances of the case V U before applying the principle as evolved in Srinivas Shetty's 21 case and recording a finding that prineipie is attracted to the facts and circumstances of the case.
26. We would like te sound a word Tribunal passing orders on the epreixziset of xqufesvtiont j involved in a case being auteofity? of the High Court or R the V being applied is only vzhen records a fnding about the factsttfiatzicli of the case and finds that to faets the ratio is attracted "the.q"aestion is covered and issue can be tdeejscied». the ratio of the case as entgrteieted Court or the Supreme Court. In , , V . , V _____ _. $3,;
'V ef examinatiorficts and circumstances of the way of the '{'rib1ma} directly applying the '. . ratio" Qourt of Supreme Court. in the instant .. , '; find the Tribunal had not embarked on the Q~_.'e:V::Vere3'tse of finding the decision in so far as the assessee is t "Concerned later recording a finding as to the appiicability of the ratio. Here again the ratio evolved in the ease in the §/% 22 facts and circumstances of the case eaxmot blindly applied in ad} situation partieulariy by applying the prineipie as evoived by Srinivas Shetty"s case, faiiure to the provisions of Section 48 of the Act, the factuei 'Of impossibie to ascertain the i11i':;i&1~- the j gaodwill itself might have been value. V» H . V_ 2 ' V
27. In this I'ega;'d djlat A' 'the 'eeubsequent judment of the Suprefiie' if;1;L'Q'XgR1;E;frishnam1:rt}1y & Another Vs)" 'TvLt3ex},ii:n::_ie4s_ie1;er _'-af Income Tax reported in (1939) Ai'".'..6"E'I'R v41?e(ee;«ee§51;Lwmch reliance was placed by Srifieshachale, Ie arx1 ed counsel for the revenue governs "the present case, more than Srinivas Shetty's A w%§e"i1ot applicable to the situation on hand. ' 289.: '1:}':'§{1ishnamurthy's ease as in the case of valuing H ,V :fltree__1easeV"" field right it was possible to aseertam the or cast of acquisition which in fact was nil in the T " mtuafion and likewise there may be several situations where it is possible to ascertain the capital gain by / V 23 appiying but if the provisions of Section 48 the maehinery Section fails in turn the chargng section a situation Where it is impossible to gain by the impossibility of oi' it acquisition or the precise value from out of the value of saleiiastiien fomis part of a compendious of sale of the particular asset there is a failure of maCmnery§".pI-ié it it applied we find that the Jias such aspects, simply opitg-ed' t11atab'y.. the principle of Srinivas Shetty's acidition of Rs.2S,O0,000/-- has to be deleted. _s{jev"have to notice that the Tribunal has not V i' . betfiereci its 'ffmd out about the receipt of the amount in the it .i,.ias«sess:t:ient year as indicated the Assessing Oificer and . as 'toiwhether it was assessable as the assessee's sale of T was not 3. receipt, was also not examined. 26 examine the question of tax liability under gain in respect of entire amount of Rs.33,78'E Z T > e»/'
33. Therefore this appeal indicated above and the metger to examine afresh only the ef on the addition of IQs.25,()O',i::)§{},'/to correctness of the addition pf direction of the Tribune} total capital gain of the assesséifir. V' Sd/-7 JUDGE _ _' V .__sb;g;- ~~ :2.