Recent Decisions Under The Income Tax Act,
1961
By Subash Agarwal, Advocate
1) CIT vs. Kanpur Plasticpack Ltd.
[2018] 95 taxmann.com 140 (SC)
Special Leave Petition (Civil) Diary No. 19775 of 2018
Order Dated :
03.07.2018
RATIO : Sec. 148 – service of notice - SLP dismissed against High Court ruling
that reassessment proceedings initiated on the basis of notice served under
section 148 on accountant of company were vitiated, as accountant was not
Principal Officer of Company, nor was there any material to show that he had
been authorised by company to accept any notice.
FACTS : Notice under section 148 was served on
accountant of company. He had duly been given Power of Attorney to conduct
assessment proceedings for that year. Tribunal held that reassessment
proceedings were invalid and quashed assessment order on ground that notice
under section 148 was not validly served. High Court held that accountant was
not Principal Officer of Company, nor was there any material to show that he
had been authorised by company to accept any notice and such being case.
FINDINGS : Reassessment proceedings
initiated on the basis of notice served under section 148 on accountant of
company were vitiated, as accountant was not Principal Officer of Company, nor was
there any material to show that he had been authorised by company to accept any
notice.
The
Special Leave Petition is dismissed on the ground of delay as well as on
merits.
Imp Note : SLP
arose out of the order of Allahabad High Court in CIT v. Kanpur Plastipack Ltd. 390 ITR 381 (All.)
2) BPTP Ltd. vs. PCIT
[2018] 95 taxmann.com 234 (Delhi)W.P. (C) No. 7098 of 2018
Order Dated : 16.07.2018
RATIO : ITAT cannot pass an order for consolidation of appeals
pending in different benches without giving notice of hearing to the other side
and such order shall specify the reasons for consolidation.
FACTS : The Petitioner is aggrieved by the order of
the Income Tax Appellate Tribunal consolidating 13 appeals pending before
different Benches. The Petitioner is aggrieved by the cryptic and unreasoned
order and relies upon the application filed by one of the parties requesting
for consolidating of the appeals. It is submitted that these applications did
not disclose any reason as to why consolidation of all appeals, which were
pending for a long time and were adjourned at the behest of the revenue by
various benches, should be consolidated and listed before one Bench.
The
learned counsel for the Revenue seeks to justify the consolidation submitting
that similar factual disputes are involved in Assessee's appeal and it was felt
that in the interest of justice, it would be essential to consolidate all the
appeals to enable the Bench to discern the common picture. The record nowhere
discloses nor does the Revenue dispute that the ITAT did give any notice to the
Petitioner/assessee before issuing the consolidation order.
FINDINGS : All
these appeals preferred by the appellant were listed and heard repeatedly by
different Benches. In these circumstances, the Tribunal has to follow the
proper procedure.
In
these circumstances, all the previous orders are hereby quashed. In case the
Revenue wishes to consolidate all these appeals, it shall move a proper
comprehensive application before the ITAT, serving a copy in advance to the
assessee. The ITAT should issue notice to the Assessee before agreeing on the
application and after considering the submission of both the parties, pass a
reasoned order.
With
aforesaid observations, the present petition filed by the petitioner is allowed
and disposed of accordingly.
Cases relied upon :
(i) Olympia
Paper & Stationery Stores v. Assistant Commissioner of Income Tax,
(63 ITD 148)
(ii)
Dr. Prannoy Roy v. The Deputy
Commissioner of Income Tax & Ors, [W.P. (C) No. 4742/2018,
decided on 04.05.2018]
3) Indian Galvanics Cyrium Foils Ltd.
vs. DCIT, Circle- 4(4), Mumbai
[2018] 95 taxmann.com 259 (Bombay)
IT Appeal No. 199 of 2002
Order Dated :
06.07.2018
RATIO : Sec 37- Where assessee had incurred expenses for higher education and
training of one of its director’s son but failed to place particulars on record like basic
qualification, subjects in which he did his administration course; how such
subjects had nexus to business activities of appellant, the expenditure cannot
be held to be for business purposes.
FACTS : The Appellants - assessee company was engaged
in manufacturing copper foils. The assessee had claimed certain amount as
expenses incurred under the head 'Management Training and Development
expenditure'. It was incurred for higher education and training of one of its
director’s son, namely, Harsh Kumar, who was sent to USA for completing course
in Business Administration. An agreement
was executed with him, who had committed to serve assessee for ten years after
completing his course.
The Assessing Officer, however, refused to
accept the assessee's contentions and thus, rejected the claim of assessee. On
appeal, the Commissioner (Appeals) allowed the claim of the assessee.
On second appeal of the revenue, the Tribunal
allowed the appeal of the revenue and resultantly, disallowance was restored as
made by the A.O.
FINDINGS : The
amount which is claimed by the Appellant-Assessee as deductible allowance was
not incurred wholly and exclusively for the purpose of business of the
Appellant-Assessee. Appellant did not place better particulars on record like,
basic qualification, subjects in which he did his administration course; how
such subjects has had nexus to business activities of appellant and so on.
In the result, the appeal allowed in favour of
the revenue.
Cases relied upon :
AR relied upon –
DR relied upon –
4) Sunrise Academy of Medical
Specialities ) (India) (P.) Ltd. vs. ITO
[2018] 96 taxmann.com 43 (Kerala)
WA. No. 1297 & Wp(C) No. 3485 of 2018
Order Dated :
12.07.2018
RATIO : Section 56(2) (viib) is triggered at the stage of computation of
income itself even though assessee had disclosed genuineness of persons who
purchased shares ot a premium.
FACTS : A
private limited Company, incorporated under the Companies Act, and in which the
public are not substantially interested, issued shares at a premium above the
face value.. A notice under Section 143(2) was issued and the appellant is said
to have proved the genuineness of the persons, who purchased the said shares on
a premium. The Assessing Officer then attempted to tax the amounts so received
under Section 56(2)(viib) of the Income Tax Act, 1961. The assessee filed a
writ petition before the High Court.
FINDINGS : As
per Sec. 56(2) (viib), any premium received by a Company on sale of shares, in
excess of its face value, if the Company is not one in which the public has
substantial interest, would be treated as income from other sources, which
cannot controlled by the provisions of Sec. 68. Sec. 68 on the other hand, as
substituted with the provisos, treats any credit in the books of accounts, even
by way of allotment of shares; for which no satisfactory explanation is
offered, to be liable to income-tax. In this case, the aggregate consideration
received for the shares exceeding the fair market value will be included as
income from other sources. However, when the resident investor is not able to
explain the nature and source for the credit seen in the books of accounts of
the Company or the explanation offered is not satisfactory then the entire
credit would be charged to income tax for that previous year. That is, the
entire amounts credited in the books of accounts, for allotment of shares or
application money, including the fair market value determined will be charged
to tax. However if an explanation is offered and if it is satisfactory in the
case of a Company in which the public are not substantially interested, then
the charge to tax will only be to that portion exceeding the fair market value
determined, which anyway has to occur under Section 56(2)(viib).
The
appeal of the assessee was dismissed
Case relied upon :
M/s.State of
H.P. v.
Gujarat Ambuja Cement Ltd. (2005) 6 SCC 499)
5) Atul Ltd. vs.
DCIT, Range1 1, Ahmedabad
[2018] 95 taxmann.com 161 (Ahmedabad - Trib.)
IT Appeal No. 1766 (Ahd.) of 2014
Order Dated :
11.07.2018
RATIO :
Section 147 – Re-opening on the basis of Change of Opinion is not
permissible even within 4 years.
FACTS : The
Assessing Officer sought to reopen the assessment on the ground that loss on
sale of stores was capital expenditure and hence not allowable.
FINDINGS : Having
noticed the fact that the Assessing Officer had raised specific questions vide
requisite notice dated 15-10-2010 with respect to allowability on 'loss on sale
of stores' and that the assessee had explained the same - without any follow-up
question by the Assessing Officer in this regard, the Assessing Officer had
indeed formed an opinion about the deductibility of loss on sale of stores. It
is also not in dispute that no new material has come to the light on account of
which the present assessment proceedings were reopened. On these facts, the
reopening was clearly on account of change of opinion by the Assessing Officer
- something which is impermissible under the scheme of the Act and in the light
of binding judicial precedent. Thus, the impugned reassessment proceedings were
to be quashed.
In the result, appeal is allowed in
favour of assessee.
Case relied upon :
Gujarat Power Corpn. Ltd. v. Asstt. CIT [2013] 350 ITR 266
(Guj.) for the proposition that where the A.O. has raised a query during the
course of original assessment proceedings in regard to the issue to re-opening
but in the final order he has not discussed anything, it cannot be said that he
has not formed an opinion in regard to the said matter and also for the
proposition that the principle of change of opinion is applicable even where
the re-opening is sought to be done within the four years of the original
assessment.
6) CLC
& Sons (P.) Ltd. vs. ACIT, Circle-3(1), New Delhi
[2018] 95
taxmann.com 219 (Delhi - Trib.) (SB)
ITA no. 1976/Del/06
Order Dated : 19.07.2018
RATIO : In view of the
judgment of the Hon'ble Summit court in CIT
v. Smifs Securities Ltd. [2012]
348 ITR 302 (SC) in which it has been held: "that goodwill will fall under the expression 'or any other
business or commercial rights of similar nature”, goodwill qualifies for
depreciation u/s 32(1) of the Act.
FACTS : The assessee company took over all the assets and liabilities of M/s CLC
& Sons, a partnership firm. An agreement for transfer of all the assets and
liabilities was signed between them. As per clause 2 of the said Agreement, all
the assets in the books of the partnership firm were taken over by the assessee
company alongwith goodwill which was valued at Rs.10 crore, which was also
transferred to the assessee company.
FINDINGS : The A.O.
held that no depreciation can be granted on genuine goodwill in terms of
section 32(1) of the Act, which opinion stands overturned in
view of the judgment of the Hon'ble Summit court in CIT v. Smifs
Securities Ltd. [2012] 348 ITR 302 (SC) in which it has been held: "that
goodwill will fall under the expression 'or any other business or commercial
rights of similar nature'" and, hence, qualifies for depreciation u/s
32(1) of the Act. Secondly, as regards A.O’s view
that the firm has been succeeded by a company and net assets of the firm have
vested in the company, and consequently there is no transfer of goodwill in
real sense and further the valuation of goodwill done by the assessee in the
instant case was erroneous, both the sides candidly accepted that the second
broader limb involved in the instant appeal does not precisely emanate from the
substance of the question referred to the Special Bench.
The bench agreed with such a common contention and, accordingly, sent
the matter back to the Division Bench for disposing of the appeal in above
terms.
Case relied upon :
CIT v. Smifs Securities Ltd. [2012]
348 ITR 302 (SC)
7) Customer Lab Solutions (P.) Ltd. vs.
ITO, Ward- 1(2), Hyderabad
[2018] 95 taxmann.com 280 (Hyderabad - Trib.)
ITA no. 438/Hyd/2017
Order Dated :
04/07/2018
RATIO : Where the
payment to the U.S. company, who does not have any P.E in India, is in the
nature of affiliation fee not involving any transfer of technical knowledge or
use of technical knowledge, liability to deduct TDS does not arise.
FACTS : The
assessee entered into an agreement with US company for the purpose of its
consultancy business and accordingly, paid a sum as fee. The A.O. held that the
fee paid as royalty within the meaning of clause (vi)(b) of sub-section
(1) of section 9 of the Income Tax Act and disallowed the amount under section
40(a)(i) on the ground that no TDS had been deducted. Before the
CIT(A), it was contended by assessee that the amount paid by the assessee to US
company was affiliate fee and amount
was not in connection with use of any right
to use any material or service provided by the non-resident as there was no
income accruing in India. After detailed discussion, CIT(A) held that the
payment was in nature of royalty under the Income-tax Act and DTAA as well.
FINDINGS : The
agreement dated 31-03-2005 between the assessee and US company specifies
various terms and conditions and the relationship, vision philosophy which
CIT(A) has painstakingly considered and extracted in the order to indicate that
there is arrangement for use of technical knowledge. However, as seen from the
agreement itself, there are two types of payments. The affiliation fee is
one-time payment which does not provide for transfer of any technology.
However, there is further fee to be paid "Fees on consulting and
reports" in the agreement. This fee will be paid based on the performance,
targets achieved by assessee in consulting technology, tools etc. What assessee
has paid and claimed was only an affiliation fee and not the fee on consulting
and reports. The payment of affiliation
fee does not involve any transfer of technical knowledge or use of technical
knowledge. As seen from the paper book placed on record, what assessee got
is in the form of two magazines which are published by the Harvard Business
School with a title 'Balanced Scorecard Report'. This magazine, short of
management jargon, is nothing but a periodical magazine with various write-ups,
which cannot be considered as a right to use a copy right. Assessee being
management consultant, the agreement with M/s. Balanced Scorecard Collaborative
inc. of USA, had this high sounding management terminology, but put it simply,
assessee has paid only the affiliation fee and not a fee for consultation or
for technical knowledge. Since there is no transfer of technical know-how or
technical knowledge or use of technical knowledge, the definition 'royalty'
either under IT Act or under the DTAA does not apply to the present payment of
affiliation fee. Since U.S. company does
not have any PE in India, the payment itself per se does not attract any
TDS provisions. Since the payment of affiliation fee alone does not result
in either providing any technical service or use of technical knowledge, both
the A.O. and CIT(A) have erred in considering the fee as in the nature of
royalty. Since there is no transfer of technology or use of any technology and
payment is only simply for affiliation, the above amount cannot be considered
as 'royalty' either under the provisions of Income Tax Act or under the
provisions of DTAA.
Cases relied upon :
(vi)
CIT v. Vinzas Solutions India (P.) Ltd. [2017] 77 taxmann.com 279/245 Taxman 289/392 ITR 155
(Mad.)
(vii)
GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18 (SC)
8) Fidelity Business Services India (P.)
Ltd. vs. ACIT
[2018] 95 taxmann.com 253 (Karnataka HC)
Ita no. 512 of 2017
Order Dated :
23.07.2018
RATIO: Tribunal has the power to give directions for fresh
enquiry into the aspects of the subject matter of appeal filed before it which
have not been investigated or enquired into by the lower Authorities earlier
and which may result in enhancement of tax liability of the assessee.
FACTS : The appellant assessee company bought back its
own shares from its holding company at Mauritius named M/s. FIS Holding Muritian Ltd. to the extent of 2,933 Shares having face value of Rs. 10/- per share at a hugely high
price of Rs. 2,85,108/- per share during
the relevant previous year. The learned Income Tax Appellate Tribunal, Bangalore Bench "B", vide
its Order dated 22/02/2017 for AY 2011-12 held partly in favour of
the Appellant – Assessee that Appellant Assessee was not liable to pay tax on 'Distribution of Dividend' as defined
under Section 2(22)(d) of the
Income Tax Act, 1961 in terms of Section
115-O of the Act on the pay-out by it for buy-back of its own shares
from its foreign Holding Company, M/s.
FIS Holding Muritian Ltd. incorporated in Mauritius. The learned Tribunal held that after insertion of Section 115-QA of the Act with effect
from 01/06/2013, the purchase of
its own shares by the Company in accordance with the provisions of Section77-A of the Companies Act, 1956
is chargeable to income tax as Distribution
Dividend Tax (DDT) but since the transaction in the present case of
buy-back of shares took place prior to 01/06/2013,
such buy-back of the shares between the period 01/04/2000 to31/05/2013 would be taxed as 'Capital Gains' in the hands of the recipient in accordance with
the provisions of Section 46-A of
the Act and no such amount would be treated as dividend in view of exclusion
part of Section 2 (22)(iv) of
the Act. The Assessing Officer also held that the Capital Gains in the hands of
the Holding Company (Mauritius Company) was also not chargeable to tax in India
as per the provisions of Article 13(4) of
the Indo-Mauritius Double Taxation
Avoidance Agreement (DTAA).
However,
the learned Tribunal observed that there is another aspect of this transaction
of buy-back at an abnormally high price of Rs. 2,85,108/- per share having face value of only Rs. 10/- per share and therefore
the payment made by the Assessee - Indian Company over and above the fair
market price of the shares of the Assessee would not be treated as part of the
purchase price because, the transaction is between the two closely related
parties and not at the Arm's Length Price (ALP) and therefore the payment for
buy-back in excess of the fair market price of shares of the Assessee - Indian
Company, would certainly fall within the ambit of Section 2(22)(e) of the Act and could be taxed as Dividends, in
the hands of the Assessee Company.
The
learned Tribunal said that since this aspect of the matter was not examined by
the Authorities below and it could be treated as a device for transfer of
substantial 'Reserves and Surpluses' by the Indian Company to the Holding
Company at Mauritius as BEPS -Base Erosion and Profit Shifting and it
could be a colourable device and a dubious method of avoiding tax in the garb
of buying back of shares at a highly unrealistic and inflated price, therefore,
the matter deserved to be examined again by the Assessing Authority on the said
issue of fair market price of shares, vis-Ã -vis buy-back price of the shares by
the assessee Indian Subsidiary Company.
FINDINGS : "SATYAMEV
JAYTE" (Truth alone Triumphs) is the quote from Mundaka Upanishad, the
concluding part of the sacred Hindu Vedas and it is the North Star of our
Judicial System inscripted at the bottom of our National Emblem, Ashok Stambh
and Dharm Chakra.
It
tells us that, the 'truth' should be the Guiding Star in the entire judicial
process. Truth alone has to be the foundation of justice. The entire judicial
system has been created only to discern and find out the real truth. Judges at
all levels have to seriously engage themselves in the journey of discovering
the truth. That is their mandate, obligation and bounden duty. Justice system
will acquire credibility only when people will be convinced that justice is
based on the foundation of the truth.
Tribunal has the power to give directions for fresh
enquiry into the aspects of the subject matter of appeal filed before it either
suo motu or on any grounds raised by either party to the appeal which
have not been investigated or enquired into by the lower Authorities earlier
and which may result in enhancement of tax liability of the assessee.
In
this case, the Tribunal was right and within its jurisdiction in directing the
examination of the fair market value of the shares bought back by it for the A.Y.: 2011-12 in question.
The
Appeal of the Appellant -Assessee Company was dismissed.
9) DCIT-1(1)(2),
Mumbai vs. M/s. Gilbarco Veeder Root India (P) Ltd.
ITA NO. 1003/MUM/2017
Order Dated : 20/06/2018
( SOURCE : itatonline.org )
RATIO : Deemed dividend u/s 2(22)(e) can be taxed only in the
hands of a registered shareholder. Apex court decision in the case of Gopal
& Sons (HUF) is distinguishable on facts.
FACTS : Assessee
company is engaged in the business of manufacture and sale of petrol
dispensers, related accessories apart from carrying on maintenance services
and research & development activity.
An addition was made by the A.O. for a sum of Rs. 90 crores by invoking Sec.
2(22)(e) treating the same as ‘deemed dividend’.
Assessee had received a sum of Rs.90 crores
from one, M/s. Portescap India Pvt. Ltd. There was common shareholder, both in
the assessee-company and Portescap. The 100% shareholding of assessee-company
is held by one, M/s. Kollmorgen India Investment Company, Mauritius. The A.O.
held that every kind of lending would be covered by the expression ‘loan’ and
‘advance’ for the purposes of Sec. 2(22)(e) of the Act. On the alternate plea, the A.O. inferred that
the impugned sum was covered by the second category of payments referred to in
Sec. 2(22)(e) of the Act, namely, the recipient of the amount being a concern in
which the shareholder has a substantial interest. For the said reason, the A.O. treated the
receipt of Rs.90 crores from Portescap as deemed dividend u/s 2(22)(e) of the
Act.
FINDINGS : Sec.
2(22)(e) covers within its sweep three categories of payments. Firstly, the payment by way of loan or
advance to a shareholder; Secondly, payment to any concern in which such
shareholder is a member or a partner; and, thirdly, any payment made on behalf
of or for the individual benefit of any such shareholder. Ostensibly, assessee-recipient is not a shareholder
in the payer company, i.e. Portescap and, therefore, it is not covered by the
first category of payment. In fact, it
is the second category which is sought to be invoked by the A.O. There is a common shareholder, both in the
assessee-company and Portescap, and even if we were to assume that the amount
received by the assessee-company is for the benefit of the stated aforesaid
common shareholder, yet, it could only be assessed in the hands of such
registered shareholder and not in the hands of the assessee-company.
In the result, this case is in favour
of the assessee.
IMP.
NOTE: The Tribunal in the instant case has distinguished the Apex court
decision in the case of Gopal & Sons
(HUF) 77 taxmann.com 71 in the
following words :
“So far as
the reliance placed by the Revenue on the judgment of the Hon'ble Supreme Court
in the case of Gopal and Sons (HUF) (supra) is concerned, the same, in our
view, is quite inapplicable to the facts of the present case. Firstly, the
assessee before the Hon'ble Supreme Court was a HUF and the issue was as to
whether the loans and advances received by the HUF could be treated as ‘deemed
dividend’ within the meaning of Sec. 2(22)(e) of the Act. Notably, in the case
before the Hon'ble Supreme Court, the payment was made by the company to the
HUF and the shares in the company were held by the karta of the HUF. It is in
this context that the Hon'ble Supreme Court upheld the addition in the hands of
the HUF as factually the HUF was the beneficial shareholder. The fact-situation in the case before us
stands on an entirely different footing inasmuch as the assessee-recipient of
money is neither the registered nor the beneficial shareholder of the payer
company, i.e. Portescap. Ostensibly, the common registered as well as beneficial
shareholder of assessee-company and Portescap is Kollmorgen and not the
assessee-company. Therefore, the decision of the Hon'ble Supreme Court in the
case of Gopal and Sons (HUF) (supra) is inapplicable to the facts of the
present case.”
Cases referred to :
(i)
PCIT vs M/s. Ennore Cargo Container Terminal P. Ltd., T.C (A) Nos. 105 and 106
of 2017 dated 27.03.2017
(ii)
CIT vs Universal Medicare (P.) Ltd., 324 ITR 263 (Bom.)
(iii)
CIT vs Impact Containers, 367 ITR 346 (Bom.)
(iv)
CIT vs NSN Jewellers (P) Ltd., [ITA no. 2312 of 2011] (Bombay HC)
10) DCIT, Circle- 2(1), Hyd vs.
Inventaa Industries (P) Ltd.
[2018] 95 taxmann.com 162 (Hyderabad - Trib.) ( Spl Bench)
IT Appeal Nos. 1015 to 1018(HYD.) of 2015
Order Dated :
9.07.2018
RATIO : Sec 10(1) - Just
because mushrooms are grown in controlled conditions, it does not negate the
claim of the assessee that the income arising from the sale of such mushrooms
is agricultural income.
FACTS : The assessee was treating the income from
growing mushrooms (Edible white button mushroom) as "income from
agriculture" and hence exempt u/s. 10(1) of the Income Tax Act, 1961. A
survey operation u/s. 133A was conducted at the mushroom growing unit of the
assessee-company. During the course of survey, statements were recorded from
two Vice Presidents of the company.
FINDINGS : Basic operations are performed by expenditure
of human skill and labour on land by the assessee, which results in the raising
of the 'product' called "Edible white button mushroom" on the land
and as this product has utility for consumption, trade and commerce, the income
arising from the sale of this product is agricultural income and hence exempt
u/s. 10(1) of the Act.
With
the advancement of modern technology, most of the crops, fruits, vegetables and
flowers are being grown in controlled conditions, in green houses and in pots.
In these advanced scientific agricultural techniques, soil is removed from the
land and is placed in different containers such as pots, trays and stands etc.
and agricultural operations are performed on them to yield the desired results
of production of products which have some utility.
Just
because mushrooms are grown in controlled conditions it does not negate the
claim of the assessee that the income arising from the sale of such mushrooms
is agricultural income.
ITAT upheld
the order of the Ld. CIT(A) on this issue in favour of the assessee.
Cases referred to :
(i) M/s.
Venkateswara Hatcheries Pvt Ltd (237 ITR 174)
(ii) Chander
Mohan v.
ITO [52 taxmann.com 203] (Chandigarh- Trib)
(iii) CIT
v. Raja Benoy Kumar Sahas Roy [1957] [32 ITR 466]
(iv) CIT v. K.E. Sundara Mudaliar [1950] 18
ITR 259 (MAD.)
(v) Panadai Pathan v. Ramasami Chetti [1922]
ILR 45 Mad
(vi) Commissioner of Income-tax v. Soundarya Nursery [2000] 241 ITR
530 (Madras)
(vii) CIT, Chennai v. K.N.
Pannerselvam [2016] 75 taxmann.com 98 (Madras)
(viii) DCIT v. Best Roses Biotech
Ltd. (2012)17 taxmann.com 56 (Ahd.)
11) Titagarh Industries Ltd.
vs. DCIT, Circle- 4(1), Kolkata
[2018] 95 taxmann.com 288 (Kolkata - Trib.)
IT Appeal No. 1052 (Kol.) of 2017
Order Dated :
04.07.2018
RATIO : Sec.
50- When assessee had sold plant and machinery along with capital WIP, cost
incurred on capital WIP was required to be reduced as 'cost of acquisition'
while arriving at taxable amount of capital gain/loss under sec. 50.
FACTS
: During
the relevant year, the assessee had sold its scrap paper manufacturing plant
including capital work-in-progress ('Capital WIP') for consideration of Rs.
27.50 crores to M/s. Ajmera Steels Pvt. Ltd. (ASPL). The Commissioner took a view that in
terms of section 50(2), capital WIP did not form part of block of assets and
for that reason did not qualify to be called capital asset. In his opinion the
cost of capital WIP would not be taken into account in arriving at short-term
capital gain chargeable under section 50. In his opinion the subject matter of
sale to ASPL was only scarp paper machinery and not capital WIP. He thus passed
a revisional order under section 263 directing A.O. to compute short-term
capital gain after excluding cost of acquisition of capital WIP.
FINDINGS
: On
the facts of the case, since the assessee had sold the plant and machinery
along with the capital WIP, the cost incurred on capital WIP was required to be
considered and reduced as and by way of 'cost of acquisition' while arriving at
the taxable amount of capital gain/loss. On this count also the Principal
Commissioner's allegation in the show cause notice that the cost of acquisition
of capital WIP could not be considered for computing the short-term capital
loss is rejected.
In the impugned order the only reason given by
the Principal Commissioner for not accepting the cost of acquisition of capital
WIP was required to be reduced from the sale consideration for arriving at the
taxable capital gain/loss was that no evidence was furnished to show that the
consideration was also received towards the capital WIP and not the plant and
machinery alone.
In this regard, it is, however, found that the
terms of the agreement between the appellant and ASPL sufficiently establish
that the assessee had in fact sold the plant and machinery along with the
capital WIP as can be seen from the subject agreement. This contemporaneous
piece of evidence clearly goes on to show that the sale consideration of Rs.
27.50 crores was paid for purchasing the plant and machinery and the capital
WIP lying at the assessee's factory. There is sufficient merit in the
assessee's submission that no prudent businessman would spend Rs. 27.50 crores
to purchase fixed assets whose useful value as per the provisions of the
Companies Act, 1956 was Rs. 3,04,49,393 and the WDV for tax purpose was only
Rs. 5,38,761. In fact the original cost of the fixed assets at the time of purchase
by the appellant/assessee was Rs. 4,12,55,831.
In the circumstances, by no stretch of
imagination one can argue that any blind person would pay a consideration of
almost seven times of the actual cost at which the machinery was originally
acquired but at the relevant time of sale have been used, old, depreciated and
worn out scrap item. Indeed therefore, the assertion of assessee that the
capital WIP was sold along with the plant and machinery which were lying idle
in the appellant/assessee's factory whose business was under suspension is
correct. Accordingly, both the assessee as well as the Assessing Officer were
right on the facts and in law in taking into account the cost of acquisition of
capital WIP for computing the overall loss accruing on sale of fixed assets
including capital WIP. For the reasons set out above, the Principal
Commissioner's finding in the impugned order that no evidence was furnished
before him satisfying the claim raised by the assessee is not tenable and,
therefore, the jurisdiction invoked for exercising his revision jurisdiction is
not tenable in the eyes of law and, therefore, the impugned order passed by the
Principal Commissioner is quashed.
In the result, appeal of the assessee
was allowed.
Cases referred to :
