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TMI Blog2014 (2) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case as no such provision was actually provided by the developer – Decided against Revenue. Indexation benefit to the cost of improvement - Compensation paid to the tenants for vacating possession – Held that:- The compensation paid to the tenants for delivering the vacant possession, improved the right and interest of the assessee over the property, thus, it would amount to improvement cost – there was no erroneous approach or infirmity in the findings of the appellate authority and the Tribunal that the compensation paid to tenants for getting vacant possession would amount to cost of improvement and that the assessee was entitled for indexation benefit on that account - Relying upon Radhasoami Satsang Versus Commissioner of Income-Tax [1991 (11) TMI 2 - SUPREME Court] - section 48(ii) provides for deduction towards "costs of any improvement" – thus, compensation was paid to the tenants to obtain vacant possession so that the property could be put to better use and construct the building for which an agreement was entered into with the developer – hence it would constitute a "cost on improvement" as the said cost is incurred only for beneficial utilisation of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DHARMA RAO AND VENUGOPAL M. JJ JUDGMENT Elipe Dharma Rao J.- This appeal is filed against the order dated March 28, 2008, passed by the Income-tax Appellate Tribunal, Madras "C" Bench in I. T. A. No. 576/Mds/2007. On completion of the assessment proceedings in respect of the assessment year 2003-04, the Assessing Officer made certain additions in respect of car parking spaces and providing air conditioning equipment as well as disallowed the claim made by the assessee regarding the cost of improvement made to the property; loss of shares ; interest on investment in sister concerns and licence fee paid to M/s. RPG Enterprises Ltd. The appeal filed by the assessee before the Commissioner of Income-tax (Appeals) as against the said order was allowed. Aggrieved by the said order, the Revenue filed an appeal before the Income-tax Appellate Tribunal, which dismissed the appeal. Challenging the same, the Revenue has filed this T. C. (A.) No. 1980 of 2008. At the time of admitting the above tax case appeal, the following substantial questions of law were framed : "1. Whether, in the facts and in the circumstances of the case, the Tribunal was right in deleting the addition of Rs. 35 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an agreement with a developer for development of their property situated at Chennai under which the developer was to construct for the assessee 1,50,000 sq. ft. of area free of cost and 20 per cent. of the sale value subject to a minimum of Rs. 200 per sq. ft. of the balance constructed area on the land. The assessing authority treated the income from the development of land with the help of the developer-promoter as business income of the assessee and assessed to tax. The assessing authority made an addition of Rs. 35,00,000 and Rs. 50,00,000 as notional value of the benefits towards allotment of 35 car park spaces and provision of air-conditioning equipment at free of cost by the developer for 29,000 sq. ft. built up area to the business income of the assessee. We have carefully gone through the agreement entered into between the assessee and the developer/promoter. From the clauses contained in the said agreement, we are satisfied that the transaction between the parties was for granting developing rights in the land for a specified consideration. The agreement provided for allotment of a specified car parking spaces to the respondent-assessee and provision of air-conditionin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made by the assessing authority was to the tune of Rs. 1,00,000 per car parking space. Even this addition was only an estimate without any legal or factual basis. It is axiomatic that on the one hand the assessing authority has disallowed the deduction of Rs. 10,00,000 towards the cost of acquisition of car parks and on the other hand additions were made to the income at Rs. 1,00,000 per car park and thus the assessing authority had adopted two separate yardsticks for different assessment years. This, in our view, goes to the root of the issue and the Tribunal has rightly held that the additions are not tenable, thus confirming the findings of the appellate authority. We have also given our anxious consideration to the judgment of this court in CIT v. Mangal Tirth Estates Ltd. [2008] 303 ITR 366 (Mad) and found that the said case stands completely on a different factual footing since no such condition to park the cars in open spaces against the refundable deposits is involved therein. Therefore, it cannot have any bearing to the facts of the present case. Therefore, we find no reason to interfere with the well-reasoned order of the appellate authority in deleting the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of electricity which were added by the Income-tax Officer while passing the assessment orders in respect of the assessment years under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Incometax Officer did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal." We have carefully analysed the decisions cited on behalf of the Revenue. In our view none of the above decisions are relatable to the peculiar facts of the present case where no right to transfer the car park rights has accrued in favour of the assessee and merely open space was being utilized beyond the permissible FSI for parking of vehicles. Furthermore, as discussed above, the notional additions on account of provision for air-conditioning does not arise in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to arrive at the capital gains. Apart from these two clauses in section 48, there is no other provision in the Act which permits deductions of any kind in the computation of capital gains. It may be that there was no obligation for making a provision for the marriage of the assessee's sister and the liability was created under the very terms of the partition deed, under which they were allotted the items of properties, which were subsequently sold, which sale led to realisation of capital gains. Even so, the mere liability of obligation cannot be regarded as an item of expenditure, let alone an expenditure incurred wholly and exclusively in connection with the sale of the properties. The obligation was connected with the partition arrangements, and not with anything else. Our answer to the third question in the two groups of references is accordingly against the assessees and in favour of the Department." On the other hand, learned senior counsel for the respondent-assessee by putting forth the submissions made before the appellate authority and the Tribunal submitted that the compensation paid to the tenants could not be held to be expenditure incurred in relation to transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have allowed that position to be sustained by not challenging the order it would not be at all appropriate to allow the position to be changed in a subsequent year." We have gone through the findings of the appellate authority and the Tribunal in the light of the materials available on record. The payment of compensation to the tenants for delivering vacant possession not disputed. On a perusal of the development agreement the assessee entered into with the developer, we found that the agreement nowhere imposed an obligation on the part of the assessee to settle the claim of the tenants for getting vacant possession of the property and in the absence of such contractual obligation, we are of the considered view that the payment of compensation to the tenants for getting vacant possession of the property could not be related to transfer of development rights. On the other hand, the compensation paid to the tenants for delivering the vacant possession, improved the right and interest of the assessee over the property and, therefore, it would amount to improvement cost. It was also brought to our notice that a similar claim of the assessee for the earlier assessment years were allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) of section 73 restricts the scope of section 70 which permits setting off of loss from one source against the profit from another source falling under the same head of income and subsection (1) of section 73 categorically declares that any loss arising from speculation business shall not be set off except against profits and gains of another speculation business. In other words, if there is a speculation loss and also gain from another source of non-speculation business, then such speculation loss cannot be set off against the profit of a non-speculation business. Sub-section (2) of section 73 restricts the scope of section 72 which provides for carrying forward and setting off of business losses. If any loss computed in respect of a speculation business has not been wholly set off, such loss may be carried forward and set off against profits and gains of any speculation business in the following assessment years." (b) McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), wherein the Supreme Court observed as follows (page 160) : "In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asically a question of fact. The identity of the parties through whom the shares were purchased and to whom the shares were sold is disclosed. Even the broker through whom the shares were purchased was produced. The payment was received by an account payee cheque and the payment was also made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold or the person to whom the shares were sold, it does not affect the genuineness of shares in case when the assessee came with a fact and disclosed the identity of the persons from whom the shares were purchased and sold. If the assessee failed to produce those persons, that alone does not affect the genuineness of transactions. Summons can be issued under section 131 of the Act to compel them to appear before the Income-tax Officer or the Assessing Officer. But that has not been done. One more factor has been highlighted by the Assessing Officer that the delivery of shares is on November 9, 1982, when the sale was on Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has failed to take into consideration any relevant material or the conclusion arrived at by the Tribunal is perverse in the sense that no reasonable person, on the basis of facts before the Tribunal, could have come to the conclusion to which the Tribunal has come. It is equally settled that the decision of the Tribunal has not to be scrutinised sentence by sentence merely to find out whether all facts have been set out in detail by the Tribunal or whether some incidental fact which appears on the record has not been noticed by the Tribunal in its judgment. If the court on a fair reading of the judgment off the Tribunal, finds that it has taken into account all relevant material and has not taken into account any irrelevant material in basing its conclusions, the decision of the Tribunal is not liable to be interfered with, unless, of course, the conclusions arrived at by the Tribunal are perverse. Keeping these principles in mind in the present case, we find that the Tribunal has taken note of all the relevant circumstances which appear on the record and which were referred to by the Departmental representatives before the Tribunal. It has not taken into account any material whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court held as follows (page 541) : "It is also brought to our notice that on almost similar facts this court has considered the similar issue in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal) and answered the question in favour of the assessee. The admitted facts in this case are that the details of purchase and sale of shares are furnished. The payment and receipt are by account payee cheque. The identity of seller and purchaser is not in dispute. The disallowance is basically made on the ground that the assessee failed to produce the brokers for verification of the transaction. Following our view in the earlier case referred to non-production of the share broker by the assessee does not disentitle the assessee for claim of loss in a genuine transaction of shares. Considering the aforesaid facts and our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue." (d) CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e required primary evidence such as copies of bills, contract notes, receipts for sale consideration, share particulars, etc., relating to the sale of shares. The appellate authority also found that the assessing authority did not prove these documents or evidence to be false or bogus. On appreciation of the factual aspects of the matter, the appellate authority held that the assessing authority was not justified in holding the sale of shares as bogus and the claim was made with a motive to avoid payment of tax. The appellate authority was found to be satisfied with the materials available on record that the loss suffered by the assessee in sale of shares was a genuine loss and, therefore, entitled to claim the loss under "Capital gains". The finding of the appellate authority was based on the materials available on record and, therefore, is a finding of fact. The Tribunal, concurring with the said finding, held that there was no convincing material put forth by the Revenue to establish that the assessee was claiming loss on ostensible sale of shares belonging to the group companies with the motive of tax avoidance. The Tribunal also confirmed the finding of the appellate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. It was argued that the borrowed capital was mainly invested in shares of group companies and as such, interest claimed to have paid on such borrowed capital was used for the purposes of the assessee's business. In support of his argument, the learned standing counsel relied on the following decisions : (a) In K. Somasundaram and Brothers v. CIT [1999] 238 ITR 939 (Mad), wherein it was held as follows (page 943) : "The amount borrowed for the business remains a liability for the business till its discharge. The fact that the amount borrowed may have been invested in the purchase of machinery or utilised as working capital or used in any other way does not in any way affect the liability for repayment of the amount borrowed. So long as the money borrowed is used in the business, interest paid on such borrowing is a proper charge on the business and is allowable as an expenditure. Under section 36(1)(iii) of the Act, amounts diverted not being used for the purposes of the business, interest relating to the operation diverted cannot be treated as an item of permissible deduction in the computation of income." (b) CIT v. Munjal Sales Corporation [2008] 298 ITR 294 (P&H). It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that it is diverted towards sister concern free of interest.' " On the other hand, learned senior counsel for the respondent assessee, reiterating the submissions made before the appellate authority and the Tribunal submitted that all the requirements under section 36(1)(iii) of the Income-tax Act for an allowance on interest paid on borrowed capital were fulfilled by the assessee. It was proved in the present case that the assessee had borrowed capital, the borrowed capital was used for business purposes and that interest was paid an borrowed capital. No material had been produced by the Revenue to show that the borrowed capital was utilised by the assessee for non-business purposes. Learned senior counsel submitted that the order passed by the Tribunal calls for no interference in this appeal. Learned senior counsel, to buttress his arguments, relied on the following decisions : (a) Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However, wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory ; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business. In the present case, the company, as a statutory agent of the deceased owners of the shares, paid the sums payable by the legal representatives of the deceased shareholders. The payments have nothing to do with the conduct of the business. The fact that on his default, if any, in the payment of the dues the Revenue may realise the amounts from the business assets is a conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and that the expenditure incurred was a mere reimbursement of the expenditure incurred by M/s. RPG Enterprises Ltd. for its own activities and not for the assessee's business purposes. It was argued that the appellate authority and the Tribunal erred in holding that the licence fee paid was for the business purposes of the assessee. Learned senior counsel submitted that the payment of licence fee to a common group resource company is a practice among many business enterprises. Having heard the learned standing counsel for the Revenue and the learned counsel for the respondent-assessee, we have carefully gone through the material available on record and the order passed by the authorities below and that of the Tribunal. The assessing authority held that the respondent-assessee and M/s. RPG Enterprises Ltd. are two different legal entities under the Income-tax Act and, therefore, the sharing of expenditure of some other entity by the assessee was not an allowable expenditure. The assessing authority was of the view that it may be true and not disputed that RPG Enterprises Ltd. had incurred this expenditure but the business purpose of assessee reimbursing the said expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gether with these appeals today, we have dealt with the very same issue of licence fee payment at length. The fact situation relating to the claim of licence fee payment to M/s. RPG Enterprises Ltd. is similar to the case on hand except for different assessment year. We hereunder quote the relevant part of our finding on the licence fee payment to RPG Enterprises Ltd. in our judgment in T. C. (A.) No. 1783 of 2008 since reported in CIT v. Spencers and Co. Ltd. (No. 2) [2013] 359 ITR 630 (Mad) (page 639) : "Before us, reiterating the findings of the Tribunal in the order impugned in this appeal, learned counsel for the respondent-assessee drew our attention of the decision of the Calcutta High Court in Philips Carbon's case, where the Calcutta High Court had dismissed the appeal filed by the Revenue on the licence fee holding that no substantial question of law was involved. It is pertinent here to note that the said decision was no rendered on the merits of such expenditure which was allowed as business expenditure but the High Court was of the view that no substantial question of law was involved. In such circumstances, the said decision of the Calcutta High Court may not be of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business expediency and profits of the respondent-assessee and that the benefits availed of by the respondent-assessee from the service of the group resource company was tangible and justified. We do not see any reason to interfere with the concurrent finding of fact recorded by the Commissioner of Income-tax (Appeals) and the Tribunal. The orders passed by the Commissioner of Income-tax (Appeals) and the Tribunal contained cogent reasons for arriving at such findings. The issue regarding licence fee paid is squarely covered by two decisions of the High Courts of Bombay and Calcutta (referred to above) in which the question of law raised by the Revenue was rejected in the assessee's group company case. It is settled law in so far as the scope, power and ambit of the High Court in exercise of jurisdiction under section 260A of the Income-tax Act and the sum and substance of the decisions relied upon by the learned counsel on either side is that once the Tribunal and the appellate authority has decided case with reference to the explanation offered by the assessee in detail then the court cannot interfere on the case. Further, if the findings of fact arrived at by the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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