Income Tax Appellate Tribunal - Delhi
Wimco Exports Ltd. vs Addl. Cit. on 30 August, 2005
Equivalent citations: [2006]5SOT262(DELHI)
ORDER
Pradeep Parikh, V.P. This appeal by the assessee is directed against the order of the learned Commissioner (Appeals) dated 28-2-2002 for assessment year 1998-99. In the first ground the assessee is aggrieved against two disallowances, viz. Rs. 1,06,500 being expenses incurred in connection with the mutation of property and Rs. 46,504 representing cost of pagers each costing less than Rs. 5,000.
2. The assessee-company is engaged in the business of trading, export, import and real estate. It had declared a total loss of Rs. 1,35,44,542 for the year under consideration. The expenditure of Rs. 1,06,500 was incurred for the mutation of the property which was the office building of the assessee. Since the assessing officer considered this to be of capital nature, he disallowed the claim of the assessee. Before the Commissioner (Appeals) it was contended that mutation was necessitated only on account of the change in the name of the company and not because the property was duly purchased. However, the Commissioner (Appeals) concurred with the assessing officer and confirmed the disallowance.
3. The contention of the learned counsel was the same as it was before the Commissioner (Appeals) and the learned DR relied on the orders of the lower authorities.
4. On due consideration of the matter, we direct the assessing officer to allow the claim of the assessee. It is evident from the record that the property in question was purchased by the assessee long back and the allotment/lease deed was executed on 4-6-1982. The earlier name of the company was Singh Enterprises (Exports) Ltd. The name was changed to Wimco Exports Ltd. with effect from 10-5-1993. Thus, the property was already owned by the assessee in its own erstwhile name, but since it was applying for a loan from the bank, the change in the records was necessary. Therefore, the mutation was not in connection with the acquisition of the property but it was only on account of the change in the name of the company and hence the expenses are of revenue nature. Accordingly, the claim is allowed.
5. During the year, the assessee had purchased certain pagers, the total cost of which was Rs. 46,504. The assessing officer treated the same as capital expenditure and disallowed the claim but allowed depreciation thereon. Commissioner (Appeals) confirmed the action of the assessing officer.
6. In our view, the pagers do not have a long life and due to technological advancement they soon become outdated and hence the expenses thereon should not be considered to be of capital nature. As a matter of fact, it is quite well known that after the advent of mobile phones, pagers have already become extinct and they remained in use for a very short period. Therefore, the expenses are treated as revenue expenditure.
7. In the second ground, the grievance of the assessee is that the Commissioner (Appeals), while deleting the addition of Rs. 2,79,32,903 directed the assessing officer to make the addition in assessment year 1997-98. This direction according to the assessee, is not only beyond the jurisdiction of the Commissioner (Appeals), but in so doing he also overlooked the fact that the said income never accrued to the assessee. We may briefly note the facts. A perusal of the notes to the annual accounts of the assessee revealed that the assessee had shown real estate work in progress at Rs. 1,56,45,593 which included land acquired by the assessee from the amount taken as unsecured loan from its holding company Wimco Ltd. The stand of the assessee was that actually the land was acquired by Wimco Ltd. by its own funds but through the assessee because due to certain regulations, Wimco Ltd. could not acquire it directly in its own name. On the basis of a tripartite agreement between Wimco Ltd., Vatika Township (P) Ltd. (VTPL) and the assessee, Wimco Ltd. was to get a return of Rs. 6,50,00,000 from VTPL. Wimco Ltd. had accounted for this income in its return of income. However, the assessing officer was of the view that it was the assessee who had made this investment albeit by borrowing from Wimco Ltd., and had acquired the land on its own account and, therefore, the income earned from VTPL should have been accounted for by the assessee. Accordingly, considering the fact that the land was acquired on 24-2-1995, the assessing officer took into account the period during which borrowed funds were utilized by the assessee and on which the return on investment was purported to be allowed as per the tripartite agreement. This was worked out at Rs. 2,79,32,903 and was added as the income of the assessee.
8. The Commissioner (Appeals) noted that the tripartite agreement was dated 25-3-1997 which was relevant to assessment year 1997-98. He further noted that out of the total 75 acres of land acquired from VTPL was apportioned as 36 acres belonging to Wimco Ltd. and 39 acres belonging to the assessee. Therefore, he was of the view that the total return on investment of Rs. 650 lakhs had to be apportioned between Wimco Ltd. and the assessee. Accordingly, he upheld the view of the assessing officer that Rs. 2,79,32,903 was the income attributable to the assessee. However, considering the fact that it had accrued in the year relevant to assessment year 1997-98, he directed the assessing officer to delete the addition from the total income of the year under consideration. Finally, the Commissioner (Appeals) remarked, "accordingly, the assessing officer is to consider and assess the said income in the relevant assessment year mentioned and the inclusion in this year is to be dropped".
9. The learned counsel appraised us of the facts of the case as narrated above and since there is no dispute with regard to the fact that we do not consider it necessary to repeat the same. His objections were, however two fold. His first objection was that the finding given by the Commissioner (Appeals) in para 4.5 was incorrect and that the direction given in para 4.6 to assess the income in assessment year 1997-98 was against law. For the proposition that the Commissioner (Appeals) could not issue any direction for the assessment year which was not before him, he relied on the judgment of the Supreme Court in the case of Rajinder Nath v. CIT (1979) 120 ITR 14 and on the judgment of the Calcutta High Court in the case of Mrs. R.H. Dave v. CIT (1983) 140 ITR 1035. So far as the former judgment is concerned, we are unable to appreciate as to how it is applicable as it does not make a mention of the issue before us. In the latter judgment, the Tribunal had observed that the Appellate Assistant Commissioner had no jurisdiction to direct the Income Tax Officer to bring the amount to tax in the correct assessment year. Despite this, the Tribunal declined to delete the direction because according to it, the Income Tax Officer had the same power under section 153(3) of the Act. In this context, the High Court, relying on the judgment of the Supreme Court supra held that the Tribunal was in error in declining to delete the direction contained in the Appellate Assistant Commissioner's order. Next, it was contended that since the entire income of Rs. 650 lakhs was already assessed in the hands of Wimco Ltd., the same income could not be again taxed in the hands of the assessee and for this proposition reliance was placed on the judgment of the Supreme Court in the case of State of U.P. v. Raza Buland Sugar Co. Ltd. (1979) 118 ITR 50.
The learned counsel wound up his arguments by stating that the entire income legally belonged to M/s. Wimco Ltd., it was already assessed in its hands and hence no part of such income could be assessed in the hands of the assessee.
10. The basic contentions of the learned DR was that part of the income accrued to the assessee since part of the land, i.e., 39 acres was in its name. It was submitted that Wimco Ltd. had merely financed the transaction but that did not ipso facto make Wimco Ltd. the owner of the land. He sought to draw an analogy by stating that if bank finances a transaction for purchase of a property, the bank does not become the owner of the property. He relied on the following judgments :
1. CIT v. Vikram Cotton Mills Ltd. (1988) 169 ITR 597 (SC);
2. CIT v. K.K. Kochammed(1993) 199 ITR 200 (Ker); and
3. CIT v. Golcha Properties (P) Ltd. (1997) 227 ITR 391 (Raj).
With regard to the other claim of the assessee that the Commissioner (Appeals) could not have given any direction with regard to assessment year 1997-98, it was submitted that it was not a clear direction given by the Commissioner (Appeals) and hence the observation need not be deleted.
11. We have duly considered the rival contentions and the material on record. The judgment of the Rajasthan High Court relied upon by the learned DR has no application to the facts of the present case because the facts in that case are totally on a different footing. Likewise, the judgment of the Kerala High Court also stands on its own facts and in fact if at all it is applicable, it supports the case of the assessee whose facts are on a stronger footing than the facts in the case before the Kerala High Court. The judgment in the case of Vikram Cotton Mills Ltd. (supra) has been relied upon by the learned DR to contend that the conduct of the parties also need to be seen. We shall advert to this point later. Coming to the facts of the case, we have perused the tripartite agreement. The preamble to the agreement clearly states that Wimco Ltd. was interested in acquiring nearly 100 acres of land at Bhondsi Village. The said land was to be acquired through the services of VTPL. The preamble further states that till the date of the agreement, i.e., till 25-3-1997, VTPL had been able to organize about 75 acres of land. Out of these 75 acres, 39 acres of land was acquired in the name of the assessee-company. Perhaps, Wimco Ltd. itself could not acquire the entire land in its own name due to certain regulations. Therefore, it was so arranged that Wimco, Ltd. would provide the necessary finance to the assessee-company who in turn will acquire the balance land on behalf of Wimco Ltd. The preamble clearly states that Wimco Ltd. has given advance to the second party (i.e. the assessee) for acquisition of further land on its behalf for the real estate project of Wimco Ltd. (underlined by us). Thus, the agreement makes it more than clear that the entire land admeasuring 75 acres belonged to Wimco Ltd., though part of it was held in the name of the assessee-company. The agreement further provides that VTPL shall pay a sum of Rs. 650 lakhs to Wimco Ltd. as return oil investment made by the latter. In other words, the agreement between the parties is unequivocal on the point that the entire land belonged to Wimco Ltd. and the entire income of Rs. 650 lakhs also belonged to Wimco Ltd. The assessee was merely a confirming party in the tripartite agreement and it had to be so because certain portion of the land belonging to Wimco Ltd. was held in its name. Otherwise, the assessee-company had no ownership or any claim whatsoever either over the land or the income arising therefrom. Adverting to the argument of the learned DR relating to the conduct of parties, in the present case, the conduct also supports the case of the assessee. Since the assessee-company was merely a benami holder for Wimco Ltd. the income arising from the land could not be assessed in its hands and, therefore, the entire income had been offered for taxation by Wimco Ltd. This was accepted also by the department. Merely because the property is registered in the name of the assessee-company, it does not become the owner and since Wimco Ltd. is the real owner, it cannot escape its liability to be taxed on the income earned from the impugned property. This aspect has been explained by the Supreme Court in the case of CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 by invoking the doctrine of updated construction. Thus, we are of the confirmed view that the entire income of Rs. 650 lakhs belonged to Wimco Ltd. and no part of it can be assessed in the hands of the assessee-company. The addition has to be deleted on this ground. In the passing, we may take note of the decision of the Tribunal in the assessee's case for assessment year 1996-97 in I.T.A. No. 2719/Del./2000 dated 26-4-2004. This appeal was altogether on a different issue but there also the Tribunal has taken note of the fact that the assessee had purchased the land out of the funds arranged by Wimco Ltd. Thus, for all purposes, Wimco Ltd. is the owner of the entire land of 75 acres.
12. Now we come to the other argument of the learned counsel regarding the purported direction of the Commissioner (Appeals) to tax the above income in assessment year 1997-98. As such, since we have already held earlier that the income does not belong to the assessee and hence cannot be taxed in its hands, adjudication on this argument would not have been necessary. However, since the learned counsel had very vehemently argued the same, we may not brush it aside without dealing with it. The relevant observations of the Commissioner (Appeals) are couched in the following language :
"However it is the alternative claim of the appellant even if the same was treated as the income of the appellant it had actually accrued in the earlier year, i.e., Assessment Year 1997-98, in view of the agreement and as such could not be assessed in this year. Accordingly, the assessing officer is to consider and assess the said income in the relevant assessment year mentioned and the inclusion in this year is to be dropped."
The learned counsel has heavily relied on the judgment of the Supreme Court in the case of Rajinder Nath (supra). Let us examine the judgment. The pertinent observations are at pages 18 and 19 of the report (120 ITR) :
"The expressions "finding" and "direction" are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that the order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respecting B is intimately involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A's liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only. It is not a finding necessary for the disposal of the case pertaining to A. The same principles seem to apply when the question is whether the income under enquiry is taxable in the assessment year under consideration or any other assessment year. As regards the expression "direction" in section 153(3)(ii) of the Act, it is now well settled that it must be an express direction necessary for the disposal of the case before the authority or court. It must also be a direction which the authority or court is empowered to give while deciding the case before it. The expressions "finding" and "direction" in section 153(3)(ii) of the Act must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or court. It is a provision which merely raises the bar of limitation for making an assessment order under section 143 or section 144 or section 147 : ITO v. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC) and N.K.T. Sivalingam Chettiar v. CIT (1967) 66 ITR 586 (SC). The question formulated by the Tribunal raises the point whether the Appellate Assistant Commissioner could convert the provisions of section 147(1) into those of section 153(3)(ii) of the Act. In view of section 153(3)(ii) dealing with limitation merely, it is not easy to appreciate the relevance or validity of the point."
From the above, it is evident that in the present case the Commissioner (Appeals) had to give a finding in respect of assessment year 1997-98 in order to dispose of the matter for assessment year 1998-99 which was before her. However, whether this finding necessarily amounts to a direction or not needs to be considered. In this connection, the Supreme Court, in the same judgment cited above, held that a direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the Income Tax Officer whether or not to take action, it cannot be described as a direction. In the present case, the Commissioner (Appeals), after giving a finding that the income actually belonged to assessment year 1997-98, observed that "...the assessing officer is to consider and assess the said income in the relevant assessment year mentioned" According to our understanding, this does not amount to a direction by the Commissioner (Appeals) to the assessing officer. He has left it to the assessing officer to assess the income in the relevant assessment year after considering the same. Thus, by using the word "consider", the Commissioner (Appeals) has left the assessment of the income to the discretion of the assessing officer. It is not an order requiring positive compliance because after considering it, the assessing officer has the discretion not to assess it. In view of this discussion we are not inclined to delete the observations of the Commissioner (Appeals) as advocated by the learned counsel.
13. Next ground in the appeal is against not directing the assessing officer to set off the unabsorbed determined loss of Rs. 9,15,824. Since the Commissioner (Appeals) had given a finding that the income of Rs. 2,79,32,903 was assessable in assessment year 1997-98, he directed the Assessing Officer to consider the question of set-off in that assessment year. We direct that if the assessing officer chooses to assess the aforementioned income in assessment year 1997-98, he may consider the question of set-off in accordance with law subject to verification of the amounts.
14. Next ground in the appeal is against the levy of interest under section 234B of the Act. The assessing officer is directed to give consequential relief to the assessee.
15. In the result, the appeal of the assessee is partly allowed.
16. The decision of the court was announced on 30-8-2005.