Income Tax Appellate Tribunal - Chennai
Dcit, Chennai vs M.A.M.Ramaswamy, Chennai on 11 January, 2019
आयकर अपील य अ धकरण ,'ए' यायपीठ,चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, CHENNAI
ी एन .एस.आर.गणेशन, या यक सद य एवं
ी एस जयरामन, लेखा सद य केसम#
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI S. JAYARAMAN, ACCOUNTANT MEMBER
आयकर अपील सं/.I.T.A. Nos. 424 & 425/Chny/2014,
1494/Chny/2012 & 1442/Chny/2015
नधारण वष/Assessment Years : 2009-10 & 2010-11,
2008-09 & 2011-12
The Assistant Commissioner of (Late) Shri MAM Ramasamy,
Income Tax, Vs. Legal Heir Shri. M.A.M.R. Muthiah,
Central Circle -3(2), Chettinad House,
Chennai - 600 034. Raja Annamalai Puram,
Chennai - 600 028.
[PAN: AAJPR 4449M]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ%क&ओरसे/Appellant by : Shri. AR V Sreenivasan, JCIT
)*यथ%क&ओरसे/Respondent by : Shri. S. Sridhar, Advocate
सुनवाईक&तार ख/Date of Hearing : 08.01.2019
घोषणाक&तार ख/Date of Pronouncement : 11.01.2019
आदे श/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The Revenue filed these appeals against the orders of the Commissioner of Income Tax (Appeals) (C)-II, Chennai in ITA Nos. 411 & 412/13-14 dated 12.11.2013 for assessment years 2009-10 & 2010-
:-2-: ITA Nos.424, 425/Chny/2014
1494/2012 & 1442/2015
11, respectively, Commissioner of Income Tax (Appeals)-III, Chennai in ITA No. 815/2010-11/A-III dated 05.01.2012 for assessment year 2008-09 and Commissioner of Income Tax (Appeals)-1, Chennai in ITA No. 644/13-14/A-1 dated 25.02.2015 for assessment year 2011-12.
2. The facts in brief as canvassed are that Shri MAM Ramasamy (Late), the assessee, was a director of M/s Chettinad Cement Corporation and was also engaged in breeding, owning and maintaining of race horses and civil construction. Rajah Sir Annamalai Chettiar of Chettinad, the assessee's paternal grandfather under his Will dated 04.03.1948 bequeathed the land in RS No. 4288/2 in favour of his first son Dr. Rajah Sir M.A. Muthiah Chettiar who is assessee's father. Dr. Rajah Sir Muthiah Chettiar died on 12.05.1984 and on his death, the land in RS No. 4288/2 devolved on the assessee and on his brother's family. Assessee's brother Kumararajah M.A.Muthiah Chettiar died on 24.01.1970 and therefore his interest devolved on his wife Mrs Kumararani Dr. Meena Muthiah and his adopted son Mr. M.A.M.M. Annamalai. Thus, the assessee and his brother's family became the owners of the land in RS No 4288/2. They decided to develop the lands by putting up multistoreyed buildings (flats) in the name and style of "Rani Meyyammai Towers". By an agreement of division dated 14.04.1994, they provisionally bifurcated the lands equally. The :-3-: ITA Nos.424, 425/Chny/2014 1494/2012 & 1442/2015 assessee started constructing flats on his land in the name of Rani Meyyammai Towers Phase-1,but his brother's family wanted the land to be jointly developed. A dispute arose and the assessee got an order of the Hon'ble Madras High Court in application No. 23627 of 2003 in CS No. 395 of 2003 and permission was granted to him to sell or alienate the land with construction of flats. This was objected to by his brother's family and ultimately, after further discussions, they agreed for division by partition wherein higher share was taken by the assessee. The assessee paid owelty of Rs. 25 crores each of them, viz., Kumararani Dr. Meena Muthiah and Mr. M.A.M.M. Annamalai. So, the total owelty paid is Rs. 50 crores which is evidenced by the deed of partition dated 15.11.2006 registered as document no. 158 of 2007. 2.1 By virtue of the order of High Court of Madras, the assessee sold both undivided share of land and built up flats in Rani Meyyammai Towers Phase-I to various buyers. The gain on sale of undivided share of land in it was assessed as long term capital gain by the AO and the profit on sale of constructed flats were treated as business profits. There is no dispute on this issue.
2.2 However, from the project, known as "Rani Meyyammai Towers- Phase II" (RMT-ll)which was obtained in the form of land and partially :-4-: ITA Nos.424, 425/Chny/2014 1494/2012 & 1442/2015 completed flats from assessee's brother's wife viz. Kumararani Dr. Meena Muthiah &her son Sri M.A.M.M. Annamalai, started in December, 2006, out of 128 flats, during the financial year 2007-08, he sold 19 flats. After hearing the assessee, the sale of undivided share of land from this project was treated by the AO as business profits along with the profits on the sale of constructed flats in the assessment made for assessment year 2008-09. The assessee objected to such differential treatment of flats of Rani Meyyanimai Towers, Phase-Il (RMT-ll) before the CIT(A) by an appeal submitting that similar treatment given to RMT-1 should also be given for the sale of undivided share of land of RMT-11 and the profit should be assessed as long-term capital gain.
2.3 The Ld. CIT(A) in his order related to the assessment year 2008- 09 held , inter alia, that "the AO in the remand report has stated that the appellant was right in bifurcating the profits between LTCG and business profit in respect of project RMT-l, because land in RMT-l was inherited by the appellant. However, land in RMT-Il was inherited by the family of appellant's brother and subsequently it was purchased by the appellant from them. I do not agree with the above view of the AO. The appellant obtained the land relating to RMT-ll on partition. The fact that he got a bigger share of land for which he paid owelty of Rs.50 crores would not alter the nature of partition into purchase. After considering the entire facts, I am of the considered opinion that the land allotted on partition is a long-term capital assets devolved on the assessee from his grandfather and father.
:-5-: ITA Nos.424, 425/Chny/2014
1494/2012 & 1442/2015
The asset was a long- term asset. Therefore, the AO is directed to assess the gain on sale of undivided share of land as long-term capital gain after verifying the computation as given above. Accordingly, the ground is allowed for statistical purpose".
3. Further, during the remand proceedings in connection with ay 2008-09, the AO has raised a new issue and requested the CIT(A) for making an enhancement of income. The relevant part is as under:-
"5.1 The assessment had failed to disallow the below narrated claim of expenditure. The taxable income of the assessee comprises gains from construction activity, betting activities in horse racing which is adjusted against loss from breeding activities. The expenditure for the year in the activity of breeding horses is Rs. 4,44,56,451/-. The assessee has not sold any horses during the year and therefore, the loss pertaining to this segment has to be added to the value of horses as at 31- 03-2008 and cannot be allowed as a revenue loss. The Appellate Commissioner may kindly, during the course of the appellate proceedings, enhance the taxable income by such amount of Rs. 4,44,56,451/- which remains an unsupportive claim of expenditure not deliberated upon while concluding the scrutiny assessment for the year under consideration."
Thus, the AO has stated that expenditure incurred for the breeding of horses Rs.4,44,56,451/- cannot be allowed as there was no sale of horses and the value should be included in the closing stock as on 31.03.2008. However, the Ld. CIT(A) allowed the assessee's appeal based on assessee's plea as well as this Tribunal decision, in its own case, made in the earlier year.
:-6-: ITA Nos.424, 425/Chny/2014
1494/2012 & 1442/2015
4. Aggrieved against the order of the CIT(A), the Revenue filed appeals with the following grounds for ITA No. 1494/2012 for ay 2008- 09:
"1. The order of the learned CIT(A) is contrary to law and facts andcircumstances of the case.
2.1 The CIT(A) erred in holding that the land comprised in the project 'RMT Phase II' is a capital asset and the gain out of the sale of the same should be treated as capital gains.
2.2 The CIT(A) failed to appreciate that the project RMT II was not conceived by the assessee but the land along with the building was acquired by the assessee from his sister-in-law Mrs. Meena Muthiah and her son Shri Annamalai for a consideration of Rs.81.34 lakhs and along with the cost of interest expenditure on the unfinished project of Rs.95,05,766 , the opening work-in-progress as on 1.4.2007 amounted to Rs.82,29,11,383 which formed the basis for computing the profits during the year based on sales and current year expenses of the current year.
2.3 The CIT(A) ought to have rejected the assessee's claim before the CIT(A) that the land component of the sale value is a capital asset and not stock-in-trade taking a plea that the property devolved on him from the erstwhile owners through a partition deed dt.15.ii.2006 and in order to acquire a larger share of land a sum of Rs.50 crores was paid to them, and therefore the profits on sale of land should be subject to tax as Long term capital gains.
2.4 The CIT(A) ought to have appreciated that the assessee's treatment of bifurcating the sale proceeds of project RMT I , (profits of sale of land offered under LTCG and the profits on sale of flats offered as business profits) were accepted since the land comprised in project RMT I were inherited by the assessee. The CIT(A) ought to have further appreciated that however in respect of RMT II, the land and semi-finished building was acquired at a cost of about Rs.82 crores and though the scheme of arrangement is titled as partition, going by the facts of the case, the :-7-: ITA Nos.424, 425/Chny/2014 1494/2012 & 1442/2015 channel by which the assessee acquired the property cannot in any way categorized as partition.
2.5 The CIT(A) ought to have appreciated that by the partition, a distinct and clear apportionment of the property were made and the subsequent arrangement in order to take over the land and the unfinished building cannot be stated to be partition and consequently it does not fall under the exclusions provided in sec.49(1) and therefore, the cost of previous owner or the value as at 1.4.1981 cannot determine the cost for the present owner, i.e., the assessee. 2.6 It is submitted that Dr. Meena Muthiah and her son M.A.M.M.Annamalai had computed the capital gains arising in this transfer of asset to the assessee by adopting the value of the land as at 1.4.1981 and under these facts and circumstances of the case, on the very same asset, the present owner cannot once again adopt the value as on 1.4.1981 as cost , to compute his capital gains. 2.7 The CIT(A) ought not to have entertained the new scheme of transaction adopted by the assessee in computation of profits and gains of the project RMT II, which is an after- thought. It is highlighted that as per the final accounts of the assessee, the land together with the building acquired in semi-finished state were included in the value of closing stock and the assessee did not exhibit the land as a capital asset and only the building as stock in trade.
2.8 The CIT(A) ought to have appreciated that consistency is one of the important aspect of taxation and ought to have held that the assessee is not free to alter the nature and characteristics of the asset as it would suit him year after year.
3.1 The CIT(A) erred in rejecting the proposal of the Assessing Officer for enhancement of income by disallowing the expenditure in the activity of breeding horses.
3.2 It is submitted that the decisions of the ITAT in the assessee's own case for the AY 2003-04 in ITA No.13/2007 dated 11/01/2008 and in ITA Nos. 800,801, 802 & 2346 of 1991 dated 28/03/2002 have no connection to the issue raised by the assessee before CIT(A).
:-8-: ITA Nos.424, 425/Chny/2014
1494/2012 & 1442/2015
4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored."
5. In the assessments made for assessment years 2009-10, 2010- 11 & 2011-12, the AO continued to assess income derived from the land of project RMT-II as business income, as he has done in for assessment year 2008-09. Aggrieved against those orders, the assessee filed appeals before the CIT(A). The CIT(A) following his decision made in assessment year 2008-09, allowed the assessee's appeals. Aggrieved against those orders, the Revenue filed appeals for all these assessment years on the common grounds and hence the common grounds filed for ITA 425/2014 is extracted as under:
"1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.
2.1 The CIT(A) erred in holding that the land comprised in the project 'RMT Phase II' is a capital asset and the gain out of the sale of the same should be treated as capital gains.
2.2. The CIT(A) ought to have appreciated that the assessee's treatment of bifurcating the sale proceeds of project RMT I , (profits of sale of land offered under LTCG and the profits on sale of flats offered as business profits) were accepted since the land comprised in project RMT I were inherited by the assessee.
2.3 The CIT(A) failed to appreciate that unlike project RMT I, in respect of RMT II, the land and semi4inished building was acquired at a cost of about Rs.82 crores and though the scheme of arrangement is titled as partition, going by the facts of the case, the channel by which the assessee acquired the property cannot in any way categorized as partition.
:-9-: ITA Nos.424, 425/Chny/2014
1494/2012 & 1442/2015
2.4. The CIT(A) ought to have appreciated that when the mode of acquiring the property could not be termed as partition, it does not fall under the exclusions provided in sec.49(1) and therefore, the cost of previous owner or the value as at 1.4.1981 cannot determine the cost for the present owner, i.e., the assessee.
2.5. It is submitted that Dr. Meena Muthiah and her son M.A.M.M. Annamalai had computed the capital gains arising in this transfer of asset to the assessee by adopting the value of the land as at 1.4.1981 and under these facts and circumstances of the case, on the very same asset, the present owner cannot once again adopt the value as on 1.4.1981 as cost ,to compute his capital gains.
2.6 The CIT(A) ought to have appreciated the fact that as per the final accounts of the assessee, the land together with the building acquired in semi-finished state were included in the value of closing stock and the assessee did not exhibit the land as a capital asset and only the building as stock in trade.
2.7 The CIT(A) ought to have appreciated that consistency is one of the important aspect of taxation and ought to have held that the assessee is not free to alter the nature and characteristics of the asset as it would suit him year after year.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored."
6. On the issue of profits on sale of land, offered under long term capital gains in respect of RMT-II, but assessed as business profits, the Ld. DR placed his arguments on the lines of grounds of appeal extracted, supra, and relied on the orders of the AO. Per contra, the Ld. AR placed his reliance on the orders of the Ld. CIT(A). When we called for the relevant documents, both the parties could not place anything but pleaded on the orders of the lower authorities. However, :-10-: ITA Nos.424, 425/Chny/2014 1494/2012 & 1442/2015 both of them have agreed that this issue can be remitted back to the AO for a fresh examination. In the facts and circumstances, we deem it fit to remit this issue back to the AO for a fresh examination. The assessee shall place all the materials in its support before the AO and comply to the AO's requirements as per law. The A O is free to conduct appropriate enquiry as deemed fit, but he shall furnish adequate opportunity to the assesssee on the material etc to be used against it and decide the matter in accordance with law for assessment years 2008-09 to 2011-12.
7. In respect of the proposal of the AO for enhancement of income to the CIT(A), towards disallowance of expenditure in the activity of breeding horses for assessment year 2008-09, the Ld. DR pleaded on the lines of grounds of appeal extracted, supra. Per contra, the Ld. AR invited our attention to the relevant portion of the order of the Ld. CIT(A) which is extracted as under:
"6.1 The ld.AR has strongly contested the above suggestion for enhancement and stated that all the activities relating to horses/foals have been considered as a single activity by the Hon'ble ITAT in appellant's own case for AY 2003-04 in ITA No. 13/2007 dated 11.01.2000 and ITA Nos. 800,801,802 & 2346 of 1991 dated 28.03.2002 and the observation of the ITAT is very clear that the loss or gain in this activity should be assessed as commercial activity in horse racing business. The ld.AR argued that the foals, which are young, have no values. The value of these foals and horses depend upon its :-11-: ITA Nos.424, 425/Chny/2014 1494/2012 & 1442/2015 performances in races and unless they are sold and proceeds realized, they do not have any value except that they are held as assets for pride of possession. He also relied on the decision of the Hon'ble Delhi High Court in CIT v. Usha Stud and Agriculture Farm Pvt. Ltd (276 ITR 25) wherein it was held that the value of expenditure actually incurred in any year is to be allowed and the consideration for the sale value should be assessed when they are sold.
6.2 I have carefully considered the facts of the case and the submissions of the ld.AR. I have also gone through the decisions relied on by the ld.AR. The appellant has been regularly following the method of accounting whereby proceeds from the sale of horses/foals are offered as income. Having accepted this method for earlier years, the AO cannot change the method and add the expenditure of breeding horses to the closing stock of horse. The expenditure incurred for the breeding of horses cannot be treated as value addition to them. The expenditure for the maintenance and breeding activities is also allowable as per the decision of the Hon'ble ITAT stated above. The appellant has consistently followed the method of offering as income the sale proceeds of foals/horses, which has been accepted by the Department. Since the method adopted has been accepted, there is no necessity to enhance the income by adding the expenditure of horse breeding to the value of horse as at 31.3.2008. The decisions of Hon'ble ITAT in ITA No.13/Mds/2007, ITA Nos.800,801,802 and 2342/Mds/1991 (supra), decision of CIT(A) in ITA No.596/09- 10/All! dated 29.9.2010 and the decision of Hon'ble Delhi High Court in Usha Stud and Agriculture Farm (supra) also supports the view of the ld.AR. In view of the above facts and precedents, I am of the considered opinion that no enhancement of income is called for. The proposal of the AO is accordingly rejected ".
and submitted that since, this issue is decided in its favour by the Hon'ble ITAT in the earlier years, which has been followed by the Ld. CIT(A), on the principle of consistency the Revenue's appeal may be dismissed.
:-12-: ITA Nos.424, 425/Chny/2014
1494/2012 & 1442/2015
8. We heard the rival submissions and gone through the relevant material. Since, the Ld. CIT(A) followed the order of this tribunal, supra, we do not find any reason to interfere with his order and hence, the corresponding grounds of the Revenue for assessment year 2008- 09 is dismissed.
9. In the result, the Revenue's appeal for assessment year 2008-09 in ITA No. 1494/Chny/2012 is treated as partly allowed and all other appeals for assessment years 2009-10, 2010-11 & 2011-12 in ITA Nos. 424,425/Chny/2014 & ITA No. 1442/Chny/2015, respectively, are treated as allowed for statistical purposes.
Order pronounced on Friday, the 11th day of January, 2019 at Chennai.
Sd/- Sd/-
(एन.आर.एस .गणेशन) (एस जयरामन)
(N.R.S. GANESAN) (S. JAYARAMAN)
या यकसद!य/Judicial Member लेखासद!य/Accountant Member
चे नई/Chennai,
0दनांक/Dated: 11th January, 2019
JPV
आदे शक&) त1ल2पअ3े2षत/Copy to:
1. अपीलाथ%/Appellant 2. )*यथ%/Respondent 3. आयकरआय4 ु त) अपील(/CIT(A)
4. आयकरआय4 ु त/CIT 5. 2वभागीय) त न ध/DR 6. गाड7फाईल/GF