Income Tax Appellate Tribunal - Hyderabad
Sri Anthati Bikshapathy,, Hyderabad vs Department Of Income Tax on 7 January, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1650/Hyd/2013
Assessment Year: 2009-10
Income-tax Officer, Ward - 4(1), Sri Anthati Bikshapathy,
Hyderabad Hyderabad
PAN - ACYPA 3177 E
(Appellant) (Respondent)
Revenue by Shri Rajat Mitra
Assessee by ShriB. Shanti Kumar
Date of hearing 10-12-2014
Date of pronouncement 07-01-2015
O RDE R
PER SAKTIJIT DEY, J.M.:
This appeal by department is against order dated 30/08/13 of ld. CIT(A)-V, Hyderabad relating to AY 2009-10.
2. As can be seen from the ground raised, department is basically aggrieved with the decision of ld. CIT(A) in deleting the addition of Rs. 70,45,443 made by AO on account of Long Term Capital Gain (LTCG).
3. Briefly the facts relating to the issue in dispute are, assessee an individual derives income from liquor business. For the AY under dispute, assessee filed his return of income on 30/09/2009 declaring total income of Rs. 2,35,090. During the assessment proceeding, as noted by AO, it was seen that assessee executed a release deed on 23/06/08 releasing his ½ share in property bearing municipal No. 1-5- 2 ITA No. 165 0/Hyd/20 13 Sri Anthati Bikshapathy 6/33 admeasuring 808.58 sq.ft. comprising of ground and first floor in favour of one Shri Balaraj Goud, Chikkadapalli. He further noted that the property was purchased by assessee and Shri Balaraj Goud on 23/06/04( for a consideration of Rs. 15 lakhs) from Smt. K. Vijaya and two others. However, the transaction was not recorded in the books of assessee. During the assessment proceeding, assessee was summoned and a statement was recorded from him on 19/12/09. When assessee was asked to explain on the purchase transaction of the property in question, it was stated by him that the property was purchased by Shri Balaraj Goud and assessee's name was included in the transaction only for the purpose of security to Shri Krishana Rao Kesav, the GPA Holder, though, assessee did not pay any amount. It was stated by assessee, after a period of one year or thereabout when the entire amount was paid by Shri Balaraj Goud to Krishna Rao Kesav, release deed was executed in favour of Shri Balaraj Goud without any consideration and entire property was transferred in his name. It was further stated by assessee that as he neither made any payment towards purchase of the property nor he received any consideration while executing release deed, he did not disclose the transaction to the department. AO, however, did not accept explanation of assessee. On examining the sale deed, AO noticed that the total consideration of Rs. 15 lakhs was paid on different dates through cheques, DD and one payment of Rs. 1 lakh was made in cash. Thus, it was found by AO that the entire sale consideration was paid by purchasers before execution and registration of the sale deed on 23/06/04. He, therefore, concluded that assessee's claim that his name was included in the deed for security purpose is not acceptable. According to AO, it would be incorrect to say that assessee has no interest in this transaction. As far as the value of the property is concerned, AO on perusing release deed found that assessee as per the release deed has received an amount of Rs. 20 lakh. However, the stamp duty authority of the State Govt. has valued the release deed for stamp duty purpose at Rs.
3 ITA No. 165 0/Hyd/20 13Sri Anthati Bikshapathy 82,04,375. AO, therefore, invoking the provisions of section 50C of the Act, treated SRO value as sale consideration deemed to have bee received by assessee and accordingly, computed LTCG at Rs. 70,45,443. Assessee challenged the computation of LTCG by AO in an appeal preferred before ld. CIT(A).
4. In course of hearing of appeal before ld. CIT(A), it was submitted by assessee that no part of the sale consideration was paid by assessee to the land owner and the assessee's name was mentioned in the sale deed only for the purpose of security. It wa submitted that later on for regularizing the ownership in the name of Shri Balaraj Goud, a release deed was executed though assessee did not receive any money. The value of Rs. 20 lakh was mentioned in the document only for registration purposes. It was submitted that to help and safeguard interest of Sri Krishan Rao Kesav, who is a friend, assessee signed release deed to ensure that sale transaction of the property as per MOU dated 03/06/2004 is completed. It was contended on behalf of assessee that in the MoU dated 03/06/04, between the vendor Sri Krishna Rao Kesav and Vendee Shri Balaraj Goud, assessee was not a party. Alternatively, it was submitted by assessee that the entire sale consideration of Rs. 15 lakh was paid by Shri Balaraj Goud alone. It was submitted that this would be evident from the fact that sale consideration of Rs. 15 lakh along with registration charges, total amounting to Rs. 19,47,680 was considered for addition both at the hands of assessee and Shri Balaraj Goud. However, in an appeal preferred by assessee, the addition made was deleted and the entire sale consideration including registration charges was treated as investments being made by Shri Balaraj Goud alone and in fact the entire amount of Rs. 19,47,680 was assessed at the hands of Sri Balraj Goud. Thus, it was submitted by assessee that since there is no cost of acquisition to assessee as the entire sale consideration of Rs. 15 lakh was paid by Shri Balaraj Goud alone, computation provision fails, accordingly capital gain cannot be 4 ITA No. 165 0/Hyd/20 13 Sri Anthati Bikshapathy assessed at the hands of assessee. In support of such contention, assessee relied upon a decision of Hon'ble Supreme Court in case of CIT Vs. Shri B.C. Srinivasa Shetty, 128 ITR 294.
5. Ld. CIT(A) after considering the submissions of assessee in the light of facts and materials available on record, deleted the addition on account of LTCG amounting to Rs. 70,45,443 by holding as under:
"6. I have carefully considered the appellant's submissions. The issue for consideration is whether there is a transfer arising out of release deed dated 23/06/2008 executed by appellant in favour of B. Balraj Goud for the purpose of capital gains. As far as investment of Rs. 15 lakh plus registration charges in acquisition of impugned property on 23/06/2004 is concerned, the same was assessed both in appellant's hands as well as in hands of B. Balraj Goud equally. However, subsequently, the assessment of B. Balraj Gound was reopened and the entire investment was held to be made by B. Balraj Goud himself and assessed accordingly. When appellant contested in appeal, the addition of half of investment made in his hands was deleted vide order in ITA No. 0227/ITO-4(1). V/2012-13 dated 31/05/2013 on the ground that the whole investment was assessed by the department in the hands of B. Balraj Goud. In other words, entire cost of acquisition of impugned property on 03/06/2004 was held to be made by B. Balraj Goud only. Now, therefore, it is only for consideration whether the 'release' in the present release deed amounts to transfer within the meaning of section 2(47) of the IT Ac, 1961. The whole appellant's arguments can be deducted to
i) Whether execution of release deed was necessitated by section 17 of Registration Act, 1908, and not for the purpose of section 5 of transfer of Property Act, 1882:
and
ii) Whether or not the impugned 'release' is regarded as a transfer for the purpose of capital gains, when cost of acquisition to appellant is nil and when there is no cost of acquisition, whether capital gain arises.
7. After carefully going through the facts of the case, the arguments put forth by the AR and various judicial pronouncements supra, I am of the opinion that the cost of acquisition to appellant being nil in the impugned property, capital gain does not arise in appellant's hands in view of the decision of Hon'ble Supreme Court in the case of CIT Vs. B.C. Srinivasa Shetty [1981] 128 ITR 294. Further, the ratio applied 5 ITA No. 165 0/Hyd/20 13 Sri Anthati Bikshapathy in the decision of the Supreme Court was also followed by ITAT, Pune and Hon'ble High Court of Gujarat. Therefore, the addition of Rs. 70,45,443 under the head capital gain is deleted."
6. Ld. DR submitted before us that by executing release deed since assessee has relinquished/extinguished his rights over the property, there is a transfer of capital in terms with section 2(47) of the Act. It was submitted that since SRO has valued the property at Rs. 82,04,375, provisions of section 50C gets attracted and SRO value is to be deemed to be the sale consideration received by assessee.
7. Ld. AR, on the other hand, reiterating the submissions made before the departmental authorities contended that in the sale deed assessee's name was mentioned only for security purpose, but, in reality assessee never paid any sale consideration to the vendor. It was submitted that MoU dated 03/06/04 clearly establishes this fact as in the MoU, assessee is not made a party and only Shri B. Balaraj Goud is a party. It was submitted by ld. AR that Shri B. Balaraj Goud alone has paid entire sale consideration of Rs. 15 lakh along with registration charges is proved from the fact that not only the entire investment has been assessed at the hands of Shri B. Balaraj Goud, but, 50% of sale consideration assessed at the hands of assessee was deleted in appeal by ld. CIT(A). It was submitted that from the aforesaid facts, it is clearly proved that the property was purchased by Shri B. Balaraj Goud alone and assessee was merely a name lendor for safety purpose. Ld. AR submitted that only for regularizing ownership of the property in the name of Shri B. Balaraj Goud, release deed was executed by mentioning the sale consideration of Rs. 20 lakh, even though in reality, assessee did not receive the amount. Therefore, ld. AR submitted that as there is no cost of acquisition to assessee, LTCG cannot be assessed at the hands of 6 ITA No. 165 0/Hyd/20 13 Sri Anthati Bikshapathy assessee. In support of such contention, he relied on the decision of CIT Vs. Shri B.C. Srinivasa Shetty (supra).
8. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. Undisputedly, a registered sale deed was executed on 23/06/04. From the said sale deed it appears, assessee along with Shri B. Balaraj Goud have purchased the property in question on payment of Rs. 15 lakh along with registration charges of Rs. 4,47,680, totaling to Rs. 19,47,680. However, it is a fact on record that while completing assessment in case of assessee for AY 2005-06, AO made addition of Rs. 9,73,839 being assessee's ½ share in the investment made towards purchase of the property. However, in an appeal preferred before ld. CIT(A) by assessee, the addition made by AO was deleted by taking note of the fact that in an assessment order passed u/s 143(3) read with section 147 of the Act for the AY 2005-06, entire investment of Rs. 19,47,680 was assessed at the hands of Shri B. Balaraj Goud. This fact remains uncontroverted. That being the case, the entire investment in purchase of property having been made by Shri B. Balaraj Goud and assessee having not made any investment, there is no cost of acquisition in so far as assessee is concerned. Therefore, even assuming assessee has received the amount of Rs. 20 lakhs on executing release deed, he cannot be charged to LTCG as there is no cost of acquisition to assessee. In case of CIT Vs. B.C. Srinivasa Shetty (supra), the Hon'ble Supreme Court held as under:
"7. Sec. 45 charges the profits or gains arising from the transfer of a capital asset to income-tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings s. 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other sections of the head "Capital gains". Sec. 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by s. 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never 7 ITA No. 165 0/Hyd/20 13 Sri Anthati Bikshapathy intended by s. 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the IT Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head.
The point to consider then is whether if the expression "asset" in s. 45 is construed as including the goodwill of a new business, it is possible to apply the computation sections for quantifying the profits and gains on its transfer.
8. The mode of computation and deductions set forth in s. 48 provide the principal basis for quantifying the income chargeable under the head "Capital gains". The section provides that the income chargeable under that head shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset :
"(ii) the cost of acquisition of the capital asset . . ."
What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class, it may, on the facts of a certain case, be acquired without the payment of money. That kind of case is covered by s. 49 and its cost, for the purpose of s. 48, is determined in accordance with those provisions. There are other provisions which indicate that s. 48 is concerned with an asset capable of acquisition at a cost. Sec. 50 is one such provision. So also is such s s. (2) of s. 55. None of the provisions pertaining to the head "Capital gains" suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded. The elements which create it have already been detailed. In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain.
8 ITA No. 165 0/Hyd/20 13Sri Anthati Bikshapathy
9. In the case of goodwill generated in a new business there is the further circumstance that it is not possible to determine the date when it comes into existence. The date of acquisition of the asset is a material factor in applying the computation provisions pertaining to capital gains. It is possible to say that the "cost of acquisition" mentioned in s. 48 implies a date of acquisition, and that inference is strengthened by the provisions of ss. 49 and 50 as well as sub-s. (2) of s. 55.
10. It may also be noted that if the goodwill generated in a new business is regarded as acquired at a cost and subsequently passes to an assessee in any of the modes specified in sub-s. (1) of s. 49, it will become necessary to determine the cost of acquisition to the previous owner. Having regard to the nature of the asset, it will be impossible to determine such cost of acquisition. Nor can sub-s. (3) of s. 55 be invoked, because the date of acquisition by the previous owner will remain unknown."
9. The principle of law as can be culled out from the aforesaid decision of the Hon'ble Supreme Court is charging section and computation of provision together constitute a integrated code. When there is a case to which computation provision cannot apply at all, it is evident that such a case was not intended to fall within the charging section. On a reading of computation provision as contained u/s 48 of the Act, it is clear that while computing capital gain, the cost of acquisition has to be reduced. The cost of acquisition to assessee in the present case cannot be arrived at u/s 49 of the Act as the transaction entered into by assessee does not fall within any of the categories mentioned therein. Even the cost of acquisition cannot be taken to be 'nil' in terms with section 55(2) of the Act, as it is not coming within the category of transaction mentioned therein. In the aforesaid facts and circumstances, when undisputedly, there is no cost of acquisition to assessee, the computation provision fails, accordingly, capital gain cannot be computed. In the aforesaid view of the matter, assessee, in the peculiar facts and circumstances of the case, cannot be charged to LTCG on the value of consideration deemed to have been received on execution of release deed. Accordingly, we do not find any infirmity in the order of ld. CIT(A), which is upheld.
9 ITA No. 165 0/Hyd/20 13Sri Anthati Bikshapathy
10. In the result, appeal of the department is dismissed.
Pronounced in the open court on 07/01/2015.
Sd/- Sd/-
(B. RAMAKOTAIAH) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 7 th January, 2015
kv
Copy to:-
1) ITO, Ward - 4(1), 5 th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
2) Sri Anthati Bikshapathy, 1-3-183/40/128, SBI Colony, Gandhinagar, Hyderabad.
3) CIT(A)-V, Hyderabad
4) CIT-IV, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.