PUNAMCHAND R SHAH CO Versus STATE OF TAMIL NADU - [1976 10 TMI 65 ITAT MADRAS] - Case Law - Income Tax
Member s M A PAKKIRI MOHAMMED S RAJARATNAM M A PAKKIRI MOHAMMED CHAIRMAN These two appeals have been filed by Tvl Punamchand R Shah 1 2 Royapuram Beach Road Madras under s 36 1 of the Tamil Nadu General Sales Tax Act 1959 against the Common Order passed by the AAC C T I Madras dated 4th Aug 1975 in Appeal Nos 196 and 197 75 with respect to the assessment years 1971 72 and 1972 73 As the assessees and the points involved are the same a common order is passed 2 The assessing authority determined the total and taxable turnover for the year 1971 72 at Rs 5 04 252 and for the year 1972 73 at Rs 7 70 994 as reported by the assessee Sales Tax was levied at 3 1 2 per cent for both the years Tvl Punamchand R Shah and Company started a joint venture with 19 partners initially with their head office at Bombay and branch office at 1 2 Royapuram Beach Road Madras 13 under a partnership agreement dt 29th May 1971 Tvl Punamchand R Shah and others entered into an agreement of sale of properties with Tvl Burma Shell Oil Storage and Distributing Company of India Limited on 21st May 1971 for the purchase of land with super structures comprising petrol tanks oil installations pipe lines and other materials in Tondiarpet and Royapurm at Madras as one lot for an aggregate price of Rs 25 50 000 The assessees viz Punamchand R Shah agreed to pay an earnest money deposit of Rs 1 11 000 immediately on receipt of the letter of agreement and further earnest money of Rs 2 64 000 on or before 31st May 1971 The properties comprised in Annexure I to VIII attached to the agreement were sought to be sold by M s Burmah Shell Company to the assessees After the purchase of the properties by the assessees the assessees have sold some movable properties for Rs 5 04 252 in favour of 3 scrap dealers between 10th Jan 1972 and 17th March 1972 and some other movables in favour of 7 persons for Rs 7 70 994 between 27th April 1972 and 3rd March 1973 3 The assessees have not registered themselves as dealers under the Tamil Nadu General Sales Tax Act and did not submit form A 1 return The Special Deputy Commercial Tax Officer Madras City investigated into the transactions of the assessees and issued a notice proposing to assess them on a taxable turnover of Rs 5 04 252 for 1971 72 and Rs 7 54 051 for 1972 73 respectively On receipt of the notices from the Special Deputy Commercial Tax Officer int Madras the assessees submitted Form D application and registered themselves as dealers under the Act and submitted Form A 1 returns for 1971 72 and 1972 73 Accordingly the Special Deputy Commercial Tax Officer issued pre assessment notices to the assessee for levying sales tax on Rs 5 04 252 for 1971 72 and on Rs 7 54 051 for 1972 73 and levy of penalty at 1 1 2 times the tax due under s 12 3 of the Act The assessees submitted their replies stating that they were not liable to be assessed to sales tax and much less to the levy of penalty The objections of the assessees were over ruled by the assessing officer on the ground that the sales effected by the assessees in their joint venture came under the term business rsquo as per s 2 d of the Act and as such sales of tanks etc have been held to be exigible to sales tax by this Tribunal in T A 996 73 and 275 74 dated 5th Aug 1974 4 As against the above order of the assessing authority dated 27th May 1975 the assessees filed appeals to the AAC Commercial Tax Officer I Madras The learned Appellate Assistant Commissioner in his common order has confirmed the orders of assessment in substance though he has reduced the penalty to an amount equal to the tax levied for the year 1971 72 No penalty was levied for 1972 73 Hence these appeals 5 The grounds that are stated in the appeals are as follows mdash The appellants are non residents and their principal place of business is at Bombay The appellants came together by an agreement in a joint venture for the purpose of acquiring the real estate properties of M s Burmah Shell Company Accordingly the appellants acquired plants machinery oil storage tanks lands and buildings for a total consideration of Rs 25 50 000 The value of plant machinery and tanks was put at Rs 25 50 000 as per the records of minutes in the meeting held on 8th March 72 The appellants had pleaded that M s Burmah Shell Company should be treated as first sellers regarding the movable items since the contract evidenced agreement to sever and sell super structure Moreover the sales by the assessees were not in the course of business The authorities should have held that the goods were declared goods falling under s 14 iv of the Central Sales Tax Act and the rate of tax should be 3 per cent as for declared goods 6 The points for consideration are as follows mdash i Whether the joint venture of the assessees is not business as defined in s 2 d of the Act and the assessees are not dealers as defined in s 2 g of the Act i Whether the assessee should be treated as second sellers since Tvl Burmah Shell Co is the first seller iii Whether the goods purchased and sold by the assessee were not in the course of business iv Whether the disputed turnovers related to the sale of declared goods falling under s 14 iv of the C S T Act And v Whether the penalty imposed for 1971 72 is valid and correct 7 Points i ii and ii In the letter dt 26th April 1971 by the Solicitors and Notaries of the assessee it is stated that Tvl Burmah Shell Co at Madras have offered to sell four immovable properties and other assets as a single unit and that the assessee might improve their offer to such an extent to make it acceptable by Tvl Burmah Shell Co Subsequent to this letter the assessees appeared to have improved their offer to such an extent acceptable to Tvl Burmah Shell Co and the same resulted in the execution of sale agreement dated 21st May 1971 between the assessees and Tvl Burmah Shell Oil Co In the agreement dated 21st May 1971 it is mentioned that the composite offer for the purchase of the immovable properties buildings and other items found in the immovable property for Rs 25 50 000 was accepted by Tvl Burmah Shell Co In clause 3 of the agreement it is provided that Burmah Shell Co will remove from the immovable properties such items which are not mentioned in Annexure II IV and VIII at its cost before the sale deed or deeds are finally registered or at a date as mutually agreed otherwise In clause 9 of the sale agreement it is provided that the titles to the properties should commence with the respective earliest of the documents relating to each of the said immovable properties in the possession of the company In clause 19 it is provided that the sale deed would be executed by or on behalf of Tvl Burmah Shell Co after receiving the balance of the purchase price viz Rs 15 37 500 on or before 15th Dec 1971 In clause 20 it is provided that on payment of the full purchase price as agreed above Tvl Burmah Shell Co would have no objection to convey any one or more of the properties to such of the nominee or nominees of the assessee on condition that all additional cost and expenses including stamp duty and registration and other out of pocket expenses in complying with the request of the assessees in the execution of separate sale deeds would be borne by the assessees and that both parties would have to complete the execution of the sale deeds in respect of the immovable properties on or before 15th Dec 1971 and in respect of the remaining properties on or before 15th March 1972 Clause 23 provides that in the event of there being separate sale deeds executed as desired by the assessees the sale deeds should specify the price of each of the properties covered under each of the sale deeds which are included in the total purchase price of Rs 25 50 000 such price of each property being shown as mutually agreed upon and failing such mutual agreement as determined by Burmah Shell Co in its discretion Finally clause 26 provides that on and after full purchase price was paid by the assessees to the Company and after vacant and peaceful possession of the properties were handed over to the assessees or the nominees of the assessees the assessees would be liable for all the taxes and out goings in respect of the properties and facilities agreed to be sold including taxes and insurances From the above specific clauses it is quite clear that so far as Tvl Burmah Shell Co the first seller is concerned they intended to effect a composite sale of their immovable properties with super structures and additions embedded into the immovable properties as a slump sale for a total single price of Rs 25 50 000 Accordingly sale deeds have been executed both in favour of the assessees and their nominee South India Flower Mills in respect of the immovable properties subsequent to the purchase of the immovable properties Therefore as per the agreement of sale by Tvl Burmah Shell Co Burmah Shell Co can only be treated as the first seller of immovable properties with superstructures and additions and there is no question of Burmah Shell Co becoming the first seller in respect of the immovable properties which were subsequently sold by the assessees and which are the subject matter of the disputed turnovers 8 We have already found that in the agreement of sale dated 21st May 1971 only one composite sale price has been mentioned for the immovable lands and the movable items which were embedded in the lands and that it is specifically stipulated that only at the risk of the purchaser viz the assessees the seller would execute several sale deeds by splitting up the single sale price within reasonable limits It is only after subsequent thought probably for the purpose of avoiding tax the assessee has suggested ways and means to split up the purchase price which is put in the agreement of sale dated 21st May 1971 This is supported by the very letter of the assessee written from Madras branch office to the Bombay head office on 30th Oct 1971 It is specifically written in that a letter dt 30th Oct 1971 that after making payments to Tvl Burmah shell Co as per agreement Burmah Shell Co should be requested to fix the valuation to each of the building and land separately as well as for separate valuation for every movable items so that the value of every individual item might be put in subsequent sale deeds that would be arranged by the assessees to be executed The Solicitors of the assessees have written a letter on 30th Nov 1971 to the assessee In that letter also it is mentioned that the Solicitors of the assessee had requested Tvl Burmah Shell Co to give the break up value separately for each of the immovable properties and for the movable items and that the Solicitors of the Burmah Shell Co had stated that they would give the break up value after payment of the second instalment In the 4th paragraph of the said letter dated 30th Nov 1971 Solicitors have stated that the documents should be registered one by one as per the convenience of the assessees either in the name of the assessees before 31st Dec 1971 before which date the assessee should make full payment to the title deed and that in the mean time the assessees should have to earmark the value and cost of each of the items separately viz each buildings and land separately as well as tanks pipes engines and other movables etc 9 On 4th Dec 71 the assessees have written a reply to their Solicitors giving break up value for the several movable items and immovable items followed by a statement that there would be no difficulty for Tvl Burmah Shell Co To apportion the price according to the break up value and enter the same in the accounts of Tvl Burmah Shell Co for tax purposes It is clear therefore that the assessees were quite conscious of the fact that they had purchased immovable properties with installations and other movables which were embedded into the immovable properties and that only after the agreement of purchase they contemplated getting separate documents of title from Tvl Burmah Shell Co for the purpose of avoidance of taxes In the subsequent letter dt 10th Dec 1971 also the assessees have reiterated the above intention to their Solicitors with a specific mention in the third paragraph that the assessees had made full and final payment to Burmah Shell Co against the sale of their properties to the assessees as a package deal and that therefore the Solicitors should request M s Burmah Shell Co to release and give possession of movable and immovable properties to enable the assessees to commence removing the movables immediately In the above latter dated 10th Dec 1971 we clearly see that the assessees contemplated removing the movables from the immovable properties after payment of the full slump price amount to Bumah Shell Co In the subsequent portions of the letter also the intention of the assessee to dismantle the installations from the immovable properties after making final payment to Tvl Burmah Shell Co has been reiterated In the above context it will not be possible to hold that Burmah Shell co were the first sellers of the installations engines tanks etc which were embedded into the immovable property as Burmah Shell Co did not sell the above movable items separately to the assessees Consequently it follows that Burmah Shell Co are not the first sellers of the movable items which form the subject matter of disputed turnovers in these appeals It is only for dismantling the installations and movable items from the immovable properties the assessees have sold the movable items alone which have been sought to be assessed by the sales tax authorities 10 Among the assessees who are a partnership concern there was a joint venture agreement dated 29th May 1971 In the said agreement also it is specifically mentioned in clause a that the parties to the partnership agreement had agreed prior to 21st May 1971 to enter into a joint venture for doing business of purchase and sale of immovable and other properties on the terms and conditions mentioned in the joint venture agreement At page 3 of the copy of agreement also the above intention has been specifically expressed The above agreement finds place at page 87 of the assessment file In the subsequent agreement of sale of movable items by the assessees in favour of the subsequent purchasers of movable items it is specifically mentioned that the assessees had jointly entered into an agreement of sale with Tvl Burmah Shell Co for th................Income Tax - Case Law-........
............. 6,35,000, Rs. 42,500, Rs. 42,151, Rs. 943 and Rs. 16,000) whereas the remaining two items do not relate to the sale of declared goods under s. 14 (iv) of the Central Sales Tax Act. 24. In the result, T.A. No. 995/75 is allowed in part and sales tax shall be levied at 3 per cent on the first two items of sales covering Rs. 4,79,002 and the levy of penalty is cancelled and in other respects, the orders of the lower authorities are confirmed. T.A. No. 953/75 is allowed in part and sales tax shall be levied at 3 per cent on the declared goods on a turnover of Rs. 7,36,594 and in other respects the orders of the lower authorities are confirmed.
Magadh Stock Exchange Association Versus Union of India And Others - [1995 7 TMI 2 PATNA High Court] - Case Law - Income Tax
Judge s G B PATNAIK DR J N DUBLEY JUDGMENT G B PATNAIK C J The order passed by the Appropriate Authority dated January 25 1990 under section 269UD 1 of the Income tax Act 1961 hereinafter referred to as the Act is the subject matter of challenge in C W J C No 879 of 1990 and the petitioner therein is the transferee The petitioner challenged the constitutional validity of Chapter XX C of the Act as well as the impugned order passed by the appropriate authority inter alia on the ground that the said order had been passed without affording an opportunity of hearing to the affected parties The further stand of the petitioner is that the consideration money not having been tendered to the transferor as required under section 269UG of the Act the property in question must be held to have been revested and consequently possession of the Central Government is without jurisdiction When this writ application was listed before this court on February 9 1990 this court had passed an interim order to the effect that i the operation of the order of the appropriate authority under section 269UD of the Act shall remain stayed ii the income tax authorities shall not be required to pay either to the seller or to the purchaser the amount of the purchase price of the property until further orders or to deposit with the prescribed authority iii the provisions regarding limitation as contained in sections 269UG and 269UE shall not operate against the Income tax Department and iv respondent No 4 shall be at liberty to proceed with the construction of the project in question At that point of time the application filed by C B Gautam challenging the very same provisions of the Act was pending before the apex court On December 3 1990 this court modified its earlier order dated February 9 1990 and on the prayer of the petitioner the said interim order was vacated but it was made clear that any action taken in the meantime shall be subject to the result of the said writ application The said transferee filed yet another writ application in this court which was registered as C W J C No 51 of 1991 contending inter alia that the property which vested under the Central Government pursuant to the order under section 269UD 1 dated January 25 1990 has revested under section 269UH 1 of the Act since the Central Government did not comply with the requirement of section 269UG 1 of the Act In the meantime Gautam s case had been disposed of by the apex court since reported in 1993 199 ITR 530 Their Lordships of the Supreme Court have held the provisions contained in Chapter XX C of the Act to be valid but it has been laid down that the requirement of reasonable opportunity being given to the concerned parties particularly the intending purchaser and the intending seller must be read into the provisions of Chapter XX C and before an order for compulsory purchase is made under section 269UD the intending purchaser and the intending seller must be given reasonable opportunity of showing cause against an order for compulsory purchase being made by the appropriate authority concerned Admittedly no such opportunity has been afforded in the case in hand and therefore the impugned order dated January 25 1990 must be held to be vitiated Mr Rastogi learned senior standing counsel for the Revenue fairly conceded that an opportunity not having been afforded to the affected parties the matter should be remitted back to the appropriate authority for reconsideration and for re disposal in accordance with law Mr P K Shahi learned counsel appearing for the transferee and Mr Pawan Kumar learned senior counsel appearing for the transferor however argued with vehemence that no action having been taken by the appropriate authority within two months from the date of vacation of the stay order by this court or at least within two months from the judgment of the Supreme Court in Gautam s case 1993 199 ITR 530 the embargo contained under the proviso to sub section 1 of section 269UD of the Act would be attracted and therefore it is not open for the appropriate authority to pass a fresh order under section 269UD 1 of the Act According to learned counsel this is apparent from the clarification issued by the apex court in Gautam s case 1993 199 ITR 530 by the very order dated November 27 1992 Mr Shahi further urged that it is the transferee who has the right to receive the consideration money in terms of section 269UG and no money having been tendered or paid to the transferee consequently the effect contemplated under section 269UH of the Act must apply and therefore it must be held that the property has stood revested I will first dispose of the contentions of Mr Shahi on the question of revesting Under section 269UF of the Act where an order for the purchase of any immovable property by the Central Government is made under sub section 1 of section 269UD the Central Government is required to pay by way of consideration for such purchase an amount equal to the amount of the apparent consideration Under sub section 1 of section 269UG this consideration is required to be tendered to the person or persons entitled thereto within a period of one month from the end of the month in which the immovable property concerned becomes vested in the Central Government under sub section 1 or as the case may be sub section 6 of section 269UE Where there is failure on the part of the Central Government to comply with the provisions of sub section 1 of section 269UG or sub section 2 or sub section 3 thereof then the order made under sub section 1 of section 269UD would stand abrogated and the immovable property would stand revested in the transferor after the expiry of the said period On a plain reading of the aforesaid provisions it is crystal clear that the consideration money as provided under section 269UF of the Act is payable to the transferor In the case in hand by an interim order of this court dated February 9 1990 it had been directed that the income tax authorities shall not be required to pay either to the seller or to the purchaser the amount of purchase price of the property The said stay order stood vacated on December 3 1990 The Department has paid a sum of Rs 15 37 260 to the transferor and therefore it is difficult for us to accept the contention of Mr Shahi that there has been any infraction of the provisions of sub section 1 of section 269UG In this view of the matter the question of revesting of the property under section 269UH does not arise The submission of Mr Shahi on this score is accordingly rejected The next question that arises for consideration is whether no opportunity of hearing having been afforded to the affected parties in terms of Gautam s case 1993 199 ITR 530 within two months from the date when the order of stay was vacated by this court or at least within two months from the date of judgment of the Supreme Court in Gautam s case 1993 199 ITR 530 the embargo contained in the proviso to sub section 1 of section 269UD of the Act would apply In other words the question for consideration is as to from which date the limitation of two months contained in the proviso to sub section 1 of section 269UD of the Act would be reckoned According to learned counsel for the petitioner the said period of two months has to be reckoned from the date when this court vacated the interim order of stay or in any event from November 17 1992 the date when the apex court delivered the judgment in Gautam s case 1993 199 ITR 530 According to Mr Rastogi counsel for the Department the period of two months has to be reckoned only after the disposal of the writ application that was pending in court and not from any earlier point of time Their Lordships of the Supreme Court in Gautam s case 1993 199 ITR 530 have observed that the object of the pr................Income Tax - Case Law
Immovable Property, Limitation, Purchase, Consideration........
............ C.W.J.C. No. 879 of 1990), since the said order had been passed without affording reasonable opportunity to the affected parties. The statement that had been submitted in Form No. 37-I shall be treated as if it had been submitted on the date of delivery of the judgment in the present case. The appropriate authority is directed to redispose of the matter in accordance with the law, bearing in mind the observations and directions contained in the case of C. B. Gautam v. Union of India [1993] 199 ITR 530 (SC). Both these applications are disposed of accordingly. There will be no order as to costs. DR. J. N. DUBEY J.---I agree.
Kumudam Printers Pvt Limited Versus Commissioner Of Income Tax - [1996 6 TMI 46 MADRAS High Court] - Case Law - Income Tax
Judge s AR LAKSHMANAN K A SWAMI JUDGMENT The judgment of the court was delivered by AR LAKSHMANAN J The assessee a private limited company purchased certain land and building owned by one A Jawahar Palaniappan under a registered sale deed dated November 30 1972 for Rs 11 lakhs The Income tax Department being of the opinion that the fair market value of the said property was Rs 16 94 lakhs and hence the purchase consideration was undervalued in the sale deed initiated proceedings under Chapter XX A of the Income tax Act 1961 hereinafter referred to as the Act and issued notice for the acquisition of the property The vendor received the said notice on October 3 1973 Thereafter discussions were held between the vendor and the Department as a result of which the vendor agreed to pay the capital gains tax that would arise in respect of this transaction on the basis that the sale consideration was Rs 16 94 lakhs The additional capital gains tax that was payable by the vendor on the basis of this agreement with the Department was Rs 1 75 lakhs The assessee company agreed to pay the sum of Rs 1 75 lakhs on behalf of the vendor in order to avoid the acquisition proceedings The assessee company paid this amount during the account year ending June 30 1974 and claimed the same as a deduction in its business for the assessment year 1975 76 The assessing authority disallowed this claim on the ground that the expenditure was not one incurred in the course of the business of the assessee company or for the purpose of earning income from its business relating to the year ended June 30 1974 and also because it was in the nature of a capital expenditure The assessing authority also held that the liability to pay the additional capital gains tax of Rs 1 75 lakhs arose only to the vendor and that too long after the sale transaction between the vendor and the assessee company The assessee company appealed against this order to the Commissioner of Income tax Appeals raising two grounds viz a the payment of the sum of Rs 1 75 lakhs should be allowed as a revenue expenditure and b alternatively the said amount should be treated as additional cost for acquiring the property and depreciation granted on this amount as well The Commissioner of Income tax Appeals upheld the disallowance in the view that the liability to pay the capital gains tax was clearly a statutory liability of a third party as far as the assessee company was concerned and further there was no contract at the time of sale so as to bind the assessee company with this liability According to the appellate authority the payment was made by the assessee company perhaps because of the interest which the persons in management had in the seller The alternative claim of the assessee was also rejected by the appellate authority applying the ratio of the decision of this court in CIT v Indira 1979 119 ITR 837 In the further appeal before the Tribunal though the assessee raised both the above grounds the Tribunal observed that counsel for the assessee did not press the first claim though he did not give it up The Tribunal held that the liability to pay the capital gains tax was a statutory liability of the vendor and not of the assessee company and hence as far as the assessee company was concerned the liability was that of a third party The Tribunal also held that there was no stipulation at the time of the sale to bind the assessee company towards the tax liability of the vendor The Tribunal agreed with the finding of the appellate authority that in all probability the payment was made because of the interest which the persons in management of the assessee company had in the vendor and not because of any liability or threatened liability which had come upon the assessee company and which the assessee tried to evade or avoid by agreeing to bear the liability The Tribunal also held that the assessee never treated this payment as a capital expenditure but wrote off the amount in its profit and loss account as a revenue expenditure and hence the amount cannot be treated to go to enhance the cost of the asset and accordingly the question of grant of depreciation on this amount would not arise According to the Tribunal the payment was purely and simply a gratuitous payment as there was no evidence to show how the assessee had agreed to pay the amount and the payment had been made long after the purchase of the property and hence cannot be treated as an increase to the cost of the property warranting grant of depreciation thereon On these facts the following two questions had been referred to this court at the instance of the assessee 1 Whether the Tribunal was right in holding that the amount paid as capital gains tax is not allowable as revenue expenditure 2 Whether the Tribunal was right in holding that in the alternative the payment does not go to enhance the cost of the asset and hence depreciation is not allowable We have heard the arguments of Mr P P S Janarthanaraja for the assessee and Mr S V Subramaniam for the Department On the first question Mr P P S Janarthanaraja made the following submission on behalf of the assessee There was a threat of the property that had been purchased being lost in view of the notice for taking acquisition proceedings under Chapter XXA of the Act and hence the assessee in order to save the property from being acquired undertook to make payment of Rs 1 75 lakhs being the capital gains tax payable by the vendor in regard to the sale of the property The payment was made only in order to perfect the title of the assessee company to the property and prevent it from being acquired by the Department so that the assessee can continue to carry on its business Hence the payment was really for the purpose of saving the property and as such was a revenue expenditure On the second question the following is his submission The amount was paid in addition to the consideration paid for the purchase of the property and hence so far as the assessee was concerned this payment only went to increase the cost of acquisition of the property Depreciation is granted under section 32 of the Act on the actual cost of the asset to the assessee Actual cost has been defined in section 43 1 of the Act as meaning the actual cost of the asset to the assessee As the amount of Rs 1 75 lakhs is really paid towards the cost of the property that had been purchased which will really go to increase the actual cost of the property to the assessee depreciation should be granted on this amount as well Learned counsel for the assessee relied on the passages at page 505 of Volume I of Law and Practice of Income tax by Kanga and Palkhivala 8th edition to show that the word cost is not synonymous with the word price and the word actual cost should be construed in a commercial sense to include all expenditure necessary to bring the assets into existence and to put them in working condition The passages relied on by learned counsel for the assessee run thus The word cost is not synonymous with price As the Supreme Court held in Challapalli Sugars Ltd v CIT 1975 98 ITR 167 the expression actual cost should be construed in a commercial sense and in accordance with the normal rules of accountancy it includes all expenditure necessary to bring the assets into existence and to put them in working condition Fees and charges paid to the State insurance premia and travelling expenses of trips within and outside India may be treated as part of the actual cost of capital assets CIT v Balakrishnan L G and Bros 1974 95 ITR 284 Mad The actual cost of a cinema theatre includes any payment made to a third party for assistance in preparing plans for the construction and for securing permits priorities import licences and foreign exchange for the materials Habib Hussein v CIT 1963 48 ITR 859 Bom but not ground rent and corporation tax which are payable whether or not the theatre is built Kapur Sons and Co v CIT 1986 157 ITR 382 Delhi The actual cost of a ship would include travelling expenses for buying negotiating the price and taking delivery and expenses in connection with the launching of the ship CIT v Great Eastern Shipping Co Ltd 1979 118 ITR 772 Bom The actual cost of a plant would include special fees paid to auditors CIT v J M A Industries Ltd 1981 129 ITR 373 Delhi the expenditure incurred on the ceremony of laying the foundation stone of a factory CIT v Nirlon Synthetic Fibres and Chemicals Ltd 1982 137 ITR 1 Bom fees paid to the foreign collaborator for technical know how for the erection of the plant and the expenditure incurred in training technical staff in the erection and working of the plant CIT v Simco Meters Ltd 1978 111 ITR 113 Mad the expenditure incurred on the trial run of the plant CIT v Saurashtra Cement and Chemical Industries Ltd 1991 127 ITR 47 Guj and other pre commissioning expenditure CIT v Cochin Refineries Ltd 1988 173 ITR 461 Ker and the additional expenditure incurred on the devaluation of the rupee in relation to repayment of the loan in a foreign currency Arvind Mills Ltd v CIT 1978 112 ITR 64 Guj The actual cost of spindles installed by a mill would include the price paid by it for purchasing the surplus spindle capacity under Government regulations of another mill CIT v Tata Mills Ltd 1979 118 ITR 496 Bom Mr S V Subramaniam learned senior counsel appearing for the Department in his reply to the argument of learned counsel for the assessee submitted as follows On the first question the following is his submission The sale deed in the instant case was registered on November 30 1972 and the assessee company became the owner of the property from that date Any liability to pay capital gains tax on the sold property is only on the seller and not on the assessee company which is the purchaser Chapter XX A of the Act consists of 19 sections section 269A to section 269S which was inserted in the Act by the Taxation Laws Amendment Act 1972 with effect from November 15 1972 They provide for the acquisition of immovable property in certain cases of transfer to counteract evasion of tax Chapter XX A was in force in regard to transfers effected up to September 30 1986 and in regard to transfers made with effect from October 1 1986 Chapter XX C providing for pre emptive purchase of property which was inserted by the Finance Act of 1986 was made applicable Section 269RR of the Act which was inserted in Chapter XX A by the Finance Act of 1986 specifically provides that the provisions of Chapter XX A will not apply to any transfers made after September 30 1986 While Chapter XX A applied only in respect of cases where the property had already been transferred Chapter XX C was made applicable in respect of cases of intended transfers In cases where Chapter XX C applied the parties who intend to transfer any immovable property at a value over the stipulated price will have to enter into an agreement for transfer and file the same with the appropriate authority in Form No 37 I to enable the appropriate authority to take a decision as to whether the property should be acquired for the Central Government at the price stated in the agreement While in the case of acquisition of property under Chapter XXA the amount payable for the property that was acquired was 15 per cent over the price stated in the instrument of transfer in cases of pre emptive purchase of property under Chapter XX C the amount payable was the same amount that was stated in the agreement of transfer subject to certain discount Since the transfer in this case had been effected on November 30 1972 in our view it is Chapter XX A which will be applicable Section 269C of Chapter XX A of the Act as far as relevant for the present case as it stood at the relevant time reads as under 269C Immovable property in respect of which proceedings for acquisition may be taken 1 Where the competent authority has reason to believe that any immovable property of a fair market value exceeding twenty five thousand rupees has been transferred by a person hereafter in this Chapter referred to as the transferor to another person hereafter in this Chapter referred to as the transferee for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of a facilitating the reduction or evasion of the liability of the transferor to pay tax under this Act in respect of any income arising from the transfer or b facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income tax Act 1922 11 of 1922 or this Act or the Wealth tax Act 1957 27 of 1957 the competent authority may subject to the provisions of this Chapter initiate proceedings for the acquisition of such property under this Chapter Provided that before initiating such proceedings the competent authority shall record his reasons for doing so Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent of such apparent consideration Apparent consideration in relation to any immovable property transferred being immovable property of the nature referred to in sub clause i of clause e has been defined in section 269A a of the Act as meaning the consideration for such transfer as specified in the instrument of transfer Immovable property referred to in sub clause i of clause e of section 269A of the Act is defined to mean any land or any building or part of a building and includes where any land or any building or part of a building is transferred together with any machinery plant furniture fittings or other things such machinery plant furniture fittings or other things also Fair market value in relation to any immovable property transferred by way of sale being immovable property of the nature referred to in sub clause i of clause e has been defined in section 269A d of the Act as meaning the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property Section 269D of the Act provides for issue of a preliminary notice for the purpose of acquisition under Chapter XX A Section 269E of the Act provides for filing of objections Section 269F 1 of the Act provides for the hearing of objections Section 269F 6 provides for the making of an order of acquisition while section 269F 7 of the Act provides for the passing of an order declaring that the property will not be acquired Section 269G of the Act provides for the filing of appeal against the order of acquisition Section 269 I of the Act provides for the vesting of the property in the Central Government after the order of acquisition becomes final In the case on hand the consideration for the transfer as specified in the instrument of transfer dated November 30 19 72 being Rs 11 lakhs it has to be taken as the apparent consideration The fair market value of the property in the instant case was determined at Rs 16 94 lakhs by the Income tax Department It may be relevant to point out that the parties to the transaction did not question the fair market value of Rs 16 94 lakhs as determined by the Department Accordingly proceedings for acquisition of property were initiated It was at that stage that the vendor of the property who ha................Income Tax - Case Law
Acquisition Proceedings, Actual Cost, Business Expenditure, Capital Gains Tax, Tax Liability........
............ matter came up before the Tribunal, the first claim made on behalf of the assessee was given up laying stress only on the alternative and second contention, viz., the allowance of depreciation. Though the first claim was not pressed, certain arguments were advanced before us stating that this amount should be regarded as having been paid towards perfecting the title to the property. We are unable to agree. In view of our above conclusion, both the questions of law that have been referred to the court will have to be answered in the affirmative, against the assessee and in favour of the Department. It is answered accordingly.
S INDERJIT SINGH Versus INCOME TAX OFFICER - [1986 11 TMI 104 ITAT DELHI C ] - Case Law - Income Tax
Member s S NARAYANAN V P ELHENCE JUDGMENT The assessee in an individual He was allotted a flat i e E 127 1 Naraina Residential Scheme by the DDA the purchase price being payable in stated instalments under that scheme In terms of this scheme the assessee made a deposit of Rs 5 762 about 30 per cent of the sale price of the total purchase cost on19th Aug 1969 The balance was to be paid in prescribed instalments over a period of 15 years 2 Though the assessee took over the possession of the flat in 1968 and also occupied it the DDA had not executed a conveyance deed in favour of the assessee till the end of the relevant previous years which was on15th May 1978 Meanwhile the assessee entered into an agreement for sale with one Usha Manuja on13th June 1978 This recited the following briefly i The assessee was the owner alloted of residential flat No E 127 1 Ground Floor built over a plot of 125 sq Yards in Naraina Indl Scheme and was in absolute possession thereof by virtue of DDA s letter No F 14 139 69 HB dt 19th Aug 1969on hire purchase basis ii The lease for the land under the appurtenant to the flat commenced w e f 19th Aug 1969 iii The intending vendor the assessee had paid all the monthly instalments in entirety towards the cost of the aforesaid and the land underneath to the DDA iv The DDA under the terms of hire purchase agreement entered into with the intending vendor was bound to execute a conveyance deed in respect of the said property in his favour after receiving the entire sale consideration stipulated by the DDA in its letter dt 19th Aug 1969 v The assessee has already applied to the DDA for such a conveyance deed vi That the assessee agreed to convey to the intending vendor Usha Manuja by way of conveyance of all his rights title and interest of Usha Manuja in the aforesaid property under the following terms a The assessee to convey and transfer by way of a conveyance all his rights title and interest in the said property for a consideration of Rs 40 000 to Usha Manuja b The assessee declared the property to be free of defects of title and encumbrance c All rates cases due and payable in respect of the said property to be the sole responsibility of the assessee upto the date of handing over of the possession of the property to Usha Manuja and thereafter such liability to be that of Usha Manuja solely d The assessee agreed to initiate the action required with all despatch and speed to obtain the convenience deed in his favour from the DDA and promptly had over the original title deed of the property to Usha Manuja within seven days of obtaining the same from DDA Any unpaid instalment towards the cost of the said property also to be paid to the DDA by the assessee Expenditure to be incurred on stamps and registration of the said conveyance deed also to be met by the assessee e Actual physical vacant possession of the entire property stood delivered to Usha Manuja at the time of the execution of the agreement for sale f The assessee specifically agreed that he would not mortgage sell dispose of or alienate in any manner whatsoever his right title and interest in the said property For removal of doubts the assessee agreed to pay over and above the sale consideration of Rs 40 000 to the DDA as its share in the unearned increase in the value of the land on behalf of the assessee that being a pre requisite and for grant of permission for sale of the said property by the assessee The quantum of such unearned increase thus paid to the DDA would also be taken into account and the conveyance deed was to be executed in favour of Usha Manuja showing such enhanced amount g The assessee specifically agreed that Usha Manuja would remain in actual and peaceful possession of the said property and shall use and enjoy the occupation permission rent and profit thereof without any let or hindrance on the part of the assessee or any person directly or indirectly claiming under him h All charges for stamping engrossing and registration of the final conveyance deed in favour of Usha Manuja to be borne by her exclusively 3 It may be mentioned that the assessee had occupied the property as already noted in 1969 paid the prescribed instalments obtained electricity and water connections in his capacity as owner paid municipal taxes as such and also returned the income from the self occupied property from the asst yr 1970 71 to 1978 79 During the relevant previous year he had not disclosed any income from this property He claimed that under the agreement for sale dt 13th April 1978 he had delivered the possession of the flat to Usha Manuja and hence no income was assessable in his hands for this year The ITO however brought such income to assessment in the assessee s hands on the ground that no sale deed having been executed the ownership of the flat still remained with the assessee The assessee appealed against this contending that he was never the legal owner of the property as the DDA itself had not executed a conveyance deed in his favour The matter went upto the Tribunal The Tribunal restored the matter for fresh consideration to the authorities below 4 Following the directions of the Tribunal the ITO considered the assessee s claim that pending execution of a conveyance deed by the DDA the assessee had never been the legal owner and hence was not liable at all for assessment under the head Income from House Property as regards the flat in question Relying on the decision in R B Jodhamal Kuthiala vs CIT 1971 12 ITR 570 SC and Addl CIT vs U P StateAgro Indus Corpn Ltd 1981 20 CTR All 141 1981 127 ITR 97 All as also other judicial authorities the ITO held that for the purpose of s 22 the owner is the person who can exercise the right of the owner not on behalf of the owner but in own right and that the assessee was liable to pay tax in respect of his self occupied property under s 22 of the Act The AAC found substance in this approach of the ITO and upheld the action of the ITO for assessment of income from the self occupied property upto13th April 1978 It is evident from the grounds of appeal taken before the AAC that the assessee did not object to the assessment of such income He however objected to the assessment of long term capital gain made by the ITO for this assessment year on the basis of the agreement for sale dt 13th April 1978 His contention was that since he was not the legal owner of the immovable property in question and since there was only an agreement for sale there has been no transfer of the said property in law and until there was such a transfer the question of capital gains would not arise 5 The AAC considered the above objection Reliance was placed for the assessee on the decision in CIT vs Bhurangya Coal Co 1958 34 ITR 802 SC and Alapati Venkataramiah vs CIT 1965 57 ITR 185 SC Other decisions relied upon for the assessee were D C Anand and Sons vs CIT 1981 131 ITR 77 Del and CIT vs Hansraj Gupta 1982 28 CTR Del 92 1982 137 ITR 195 Del After considering these authorities specially the two Supreme Court decisions referred to above the AAC noted that these decisions were under the old Act of 1922 which did not carry a specific definition of the worked transfer On the other hand s 2 47 of the 1961 Act defined transfer in relation to capital asset and the definition includes sale exchange or relinquishment of the asset or extinguishment of any rights therein or the compulsory acquisition thereof under any law The AAC then noted that the meaning of the term extinguishment of any right found in the above definition was explained by the Gujarat High Court in CIT vs Vania Silk Mills P Ltd 1978 CTR Guj 141 1977 107 ITR 300 Guj The Court in this decision held that extinguishment of any rights therein occurring in s 2 47 covered every possible transaction resulting in the destruction annihilation extinction termination cessation or cancellation by satisfaction or otherwise of all or any of the bundle of rights mdash qualitative or quantitative which the assessee has in a capital asset whether such asset is corporeal or incorporeal However according to the Court in order to subject any profit or gain respectively or accruing to the assessee to capital against tax the necessary condition was that the receipt or accrual must have originated in a transfer within the meaning of s 45 r w s 2 47 i e There must be a casual nexus between the transfer the extinguishment of any rights in capital asset and the profit or gain accruing to or received by the assessee The AAC in the light of this exposition held tha the assessee transferred his right title and interest in the property to Usha Manuja by the agreement for sale on13th April 1978 a vacant physical possession was handed over to Usha Manuja The AAC was also of the view that the decision in Hansraj Gupta 1982 28 CTR Del 92 1982 137 ITR 195 Del would not apply to the facts of the instant case because in that case the property deed was registered in the name of the assessee seller and only a resolution was passed by the vendee company for the purchase of that property there being no registered sale agreement executed In the instant case however the assessee could not plead that the DDA was the owner of the property and not himself as no conveyance deed had been executed in his favour Similarly the AAC found no substance on the assessee rsquo s reliance on the decision in D C Anand and Sons as in the case what was involved was quite a different context of facts In that case the assessee HUF a owner of a house property had rented out its house property to a company for Rs 6 000 per month In May 1965 the company passed a resolution that a Director had offered the assessee to purchase the property that the company had paid a sum of Rs 10 Lakhs for this purpose and that the company would stop paying rent w e f 1st May 1965and the conveyance would be completed within a period of three months The sale deed was however executed by the assessee only in May 1966 for a consideration of Rs 11 05 002 There was no evidence to show that the assessee had waived the rent fr................Income Tax - Case Law
1986 (11) TMI 104 - ITAT DELHI-C
S. INDERJIT SINGH. Versus INCOME TAX OFFICER.
S. INDERJIT SINGH. Versus INCOME TAX OFFICER.
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............partment) was to obtain for consideration in a right to conveyance in his favour of the property in question and this right, in any case, was transferred by the assessee within the meaning of s. 2(47) to Usha Manuja during the relevant previous year. As regards the decision relied upon for the assessee. Firstly, the point that some of the decisions had no scope for considering the new definition of 'transfer' in s. 2(47), and, secondly, in the other decisions the ITO has made the factual context was different e.g. in Hansraj Gupta's case, the assessee was the legal owner of the property in question. 9. It the result, the appeal is dismissed.
............partment) was to obtain for consideration in a right to conveyance in his favour of the property in question and this right, in any case, was transferred by the assessee within the meaning of s. 2(47) to Usha Manuja during the relevant previous year. As regards the decision relied upon for the assessee. Firstly, the point that some of the decisions had no scope for considering the new definition of 'transfer' in s. 2(47), and, secondly, in the other decisions the ITO has made the factual context was different e.g. in Hansraj Gupta's case, the assessee was the legal owner of the property in question. 9. It the result, the appeal is dismissed.
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