9911796707
TMI Blog2010 (1) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... s stock-in-trade in the course of business by the subsidiary company, actual treatment of the property being stock-in-trade, initiation of proceedings by the AO on the basis of book entries should have been dropped when financial statements were properly rectified as per the provisions of the Companies Act, withdrawal of exemption claimed under s. 47(iv) by invoking the provisions of s. 47A is not justified and valid, order of the lower authorities set aside and decide this issue in favour of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the revised returns filed by the subsidiary company after rectifying the classification of assets, the provisions of s. 47A will not apply and the proceedings initiated under s. 148 may be dropped. The AO did not accept the contentions and submissions of the assessee and completed the reassessment vide order dt. 29th Dec., 2007 thereby bringing to tax in the hands of the assessee short-term capital gains from sale of the properties to the subsidiary company. On appeal, the learned CIT(A) dismissed the appeal of the assessee and confirmed the reassessment order. Issue No. 1 -- Validity of reopening:- 4. The assessee challenged the validity of reopening and reassessment before the learned CIT(A). The main contention of the assessee before the learned CIT(A) was that the AO had no jurisdiction to initiate the proceedings under s. 147 and issue notice under s. 148 when there is a specific provision under s. 155(7B) of the IT Act in respect of treatment of the issue of short-term capital gains on transfer of property and withdrawal of exemption claimed under s. 47(iv). Another line of argument of the assessee before the learned CIT(A) is that there was no concealment of any particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y issuing a notice under s. 148 are valid and consequential reassessment is legal and as per the provisions of law. He has relied upon the order of the CIT(A). 7. We have considered the rival contentions, relevant records as well as the decisions relied upon by both the parties. This is a case of second reopening of assessment. Initially, the return of income filed by the assessee was processed under s. 143(1), which was subsequently reopened and the reassessment was completed under s. 143(3) r/w s. 147 of the IT Act, vide order dt. 13th Dec., 2004. The AO again reopened the assessment by issuing a notice under s. 148 on 12th March, 2007. 8. The reasons for reopening of the assessment as recorded by the AO are recorded as under:- "M/s Sakthi Properties (Cbe) Ltd., the subsidiary company of M/s Sakthi Finance Ltd., the assessee-company, during the asst. yr. 2003-04 converted the fixed assets, i.e., buildings at Adyar and T. Nagar, Chennai into trade stock which were earlier transferred by the assessee-company to it during the asst. yr. 2002-03. The assessee-company claimed capital gains as exempt under the provisions of s. 47(iv) of the IT Act, 1961. However, since the wholly own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as so converted or treated or in which the parent company or its nominees or, as the case may be, the holding company ceased to hold the whole of the share capital of the subsidiary company." 11. From the provisions of s. 155(7B), it is manifestly clear that when the capital gains arising from transfer of capital asset not chargeable under s. 45 due to the provisions of cl. (iv) of s. 47, are subsequently deemed to be income chargeable in view of s. 47A, the AO has to make necessary amendments to recompute the total income of the transferor-company and the provisions of s. 154 so far as may be applied for making the necessary amendment in the assessment for the previous year in which such assets were transferred. This provision further stipulates that the period of four years specified in sub-s. (7) of s. 154 shall be reckoned from the end of the previous year in which the capital asset was so converted or treated as stock-in-trade of its business by the subsidiary company. When the remedy for applying the deeming provision under s. 47A is specifically provided in the statute under s. 155(7B), then the AO cannot invoke the provisions of reopening under s. 147 for such remedy. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year and make the necessary amendment, and the provisions of s. 154 shall, so far as may be, apply thereto, the period of four years specified in sub-s. (7) of that section being reckoned from the end of the previous year in which the sale or other transfer took place. The time-limit for withdrawing the investment allowance is to be reckoned from the end of the previous year in which the sale or transfer took place. In the case of the assessee the sale of Ragam boat took place on 30th Sept., 1981. Therefore, recourse to s. 155 r/w s. 154 can be had by the ITO only on or before 30th Sept., 1986 to withdraw the investment allowance originally granted on Ragam in the asst. yr. 1978-79. The time-limit having expired, the ITO in law cannot withdraw the investment allowance granted on Ragam in the reassessment order dt. 25th Nov., 1986. It is argued before us by the Revenue that the provisions of s. 155 or 154 are interchangeable with the provisions of s. 147 and, therefore, in a s. 147 proceeding such mistakes can be corrected. We are unable to accept this argument. A special provision always excludes the general provision. Sec. 147 proceedings were taken only with reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet. The assessee-company filed a detailed submission vide letter dt. 16th Aug., 2007 and submitted that the subsidiary company had already filed a revised return of income for the asst. yrs. 2003-04 to 2006-07 after rectification of the mistakes duly approved by the AGM. The AO did not accept the contention of the assessee and assessed the short-term capital gains by applying the provisions of s. 47A. 16. On appeal, the CIT(A) held that the action of the AO in withdrawing the exemption from the capital gains and bringing to tax the capital gain in the hands of the assessee-company is in order and confirmed the finding of the AO. 17. Before us, the learned Authorised Representative for the assessee has submitted that it is only by mistake the "fixed assets" were misclassified as "current assets". The said mistake was subsequently rectified by the subsidiary company by modifying its financial accounts through proper mode prescribed under the provisions of the Companies Act. He has further pointed out that after getting due approval of the shareholders at the extraordinary general meeting to rectify the "current assets" into "fixed assets", the subsidiary company has filed a rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na fide mistake which was duly rectified and, therefore, the same cannot be considered as a ground for withdrawing the exemption under s. 47A. Even the subsidiary company in the subsequent year offered capital gains from the sale of one of the properties in question, which clearly show that the subsidiary company practically never treated the properties in question as stock-in-trade. He has also relied upon the following decisions:- (i) CIT vs. Chennai Properties and Investments Ltd. (2004) 186 CTR (Mad) 409 : (2004) 266 ITR 685 (Mad); (ii) Sathappa Textilers (P) Ltd. vs. CIT (2003) 181 CTR (Mad) 344 : (2003) 263 ITR 371 (Mad); (iii) CIT vs. S. Ramaamirtham (2008) 217 CTR (Mad) 206 : (2008) 6 DTR (Mad) 342 : (2008) 306 ITR 239 (Mad). 20. On the other hand, the learned Departmental Representative has submitted that it is an undisputed fact that the subsidiary company converted the fixed assets, which is the subject-matter in this case, into stock-in-trade in the period relevant to the asst. yr. 2003-04. The books of account for the said year along with the notes on accounts of annual report also show that the subsidiary company did not have any fixed assets. The subsequent recti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere book entries are not sufficient but all the relevant facts including subsequent events have to be taken into consideration. The real intent of the party, how to treat the property is material and relevant in deciding the question. When the property at T. Nagar is only a leasehold property, then at least the land cannot be sold or converted into stock-in-trade for sale. What can be transferred irrespective of the said property are only the leasehold rights. Therefore, the same cannot be further sold as stock-in-trade which was transferred to the subsidiary company through a lease deed dt. 14th Dec., 2000 and the income from the said property was shown and offered as 'income from house property' and not as "business income". If an asset is converted into stock-in-trade, then any income derived from sale or transfer of the said asset would be treated as income of the business. But in the case in hand, the income from the properties in question was offered as "income from house property" which was accepted by the Revenue. Further, as pointed out by learned counsel for the assessee from the annual reports that the subsidiary company issued secured non-convertible debentures, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine mistake. 24. In the case of Sathappa Textilers (P) Ltd. vs. CIT (supra), the Hon'ble jurisdictional High Court held that (headnote):- "Held,- (i) that the Tribunal had recorded a finding that in view of the express provision under s. 193 of the Companies Act, 1956, the minutes dt. 1st Jan., 1981, produced in a loose sheet could not be accepted. The finding of the AO also was that in spite of the opportunity given the assessee had not produced the minutes book. The Tribunal had considered the fact that as early as the year May, 1969 and December, 1970, the assessee entered into several sale agreements in respect of the property in question with several persons which were not consistent with the minutes. The Tribunal found that the advertisement given on behalf of the assessee on 8th Sept., 1982, inviting purchasers for the sale of land in an extent of 357.74 cents with factory, shed, godown and other machines clearly showed that the assessee was intending to dispose of the entire business premises and was not doing any business in real estate. It was also found by the Tribunal that the assessee was not in possession of the land which was sold during the relevant previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties being lease hold, leased out and charged as security, then the same could not be treated as stock-in-trade though in the books of account it was recorded so. Therefore, the wrongful classification subsequently rectified would not affect the actual nature of the asset. 26. In the case of CIT vs. Chennai Properties and Investments Ltd. (supra), the Hon'ble jurisdictional High Court has held in p. 694 that,- "Although it was held by the Constitution Bench in the case of Sultan Brors. (P) Ltd. vs. CIT (1964) 51 ITR 353 (SC) that whether a particular letting is business has to be decided in the circumstances of each case and that each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner, in all the cases which have come before the Courts involving commercial or residential buildings owned by the assessees it has been held that the income realised by such owners by way of rental income from a building, whether a commercial building or residential house, is assessable under the head 'Income from house property'. The only exceptions are cases where the letting of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
