HATHWAY INVESTMENTS PVT.LTD., MUMBAI v. THE ASST.C.I.T.,CENTRAL CIRCLE 34, MUMBAI

ITA 6256/MUM/2008 | 2005-2006
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 625619914 RSA 2008
Assessee PAN AAACH1675B
Bench Mumbai
Appeal Number ITA 6256/MUM/2008
Duration Of Justice 2 year(s) 8 month(s) 23 day(s)
Appellant HATHWAY INVESTMENTS PVT.LTD., MUMBAI
Respondent THE ASST.C.I.T.,CENTRAL CIRCLE 34, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 15-07-2011
Date Of Final Hearing 31-05-2011
Next Hearing Date 31-05-2011
Assessment Year 2005-2006
Appeal Filed On 22-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 6256/MUM./2008 (ASSESSMENT YEAR : 2005-06 ) DATE OF HEARING 1.6.2011 DATE OF DICTATIO N : 22.6.2011 HATHWAY INVESTMENTS PVT. LTD. RAHEJAS CORNER OF MAIN ANNEXE & V.P. ROAD SANTACRUZ (WEST) MUMBAI 400 054 PAN AAACH1675B .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-34 AAYAKAR BHAVAN 101 M.K. ROAD MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : MR. NITESH JOSHI REVENUE BY : MR. GOLI SRINIVAS RAO O R D E R PER J. SUDHAKAR REDDY A.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 8 TH AUGUST 2008 PASSED BY THE COMMISSIONER (APPEALS)-VI MUMBAI FOR ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT. IT FILED RETURN OF INCO ME ON 28 TH OCTOBER 2005 DECLARING TOTAL INCOME AT NIL. THE ASSESSING OFFICE R PASSED ORDER UNDER SECTION 147(3) OF THE INCOME TAX ACT 1961 (FOR SHO RT THE ACT) ON 13 TH DECEMBER 2007 DETERMINING THE INCOME AT ` 1 80 54 880. THE ASSESSEE HATHWAY INVESTMENTS P. LTD. ITA NO.6256/M./2008 2 CARRIED THE MATTER IN FIRST APPEAL WHEREIN THE COM MISSIONER (APPEALS) GRANTED PART RELIEF. FURTHER AGGRIEVED THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL:- 3. GROUNDS NO.1 AND 2 READ AS FOLLOWS:- 1(A) THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTI ON OF THE ACIT IN TREATING LONG TERM CAPITAL GAIN ARISING ON SALE OF DEPRECIABLE ASSET AS SHORT TERM CAPITAL GAINS AND CONSEQUENTLY NOT ALLOW ING SET OFF AGAINST LONG TERM CAPITAL LOSS. (B) THE APPELLANT SUBMITS THAT THE DECISION IN THE CASE OF ACE BUILDERS P. LTD. 281 ITR 210 (BOM.) DIRECTLY SUPPO RTS THE APPELLANTS SUBMISSIONS AND LEARNED CIT(A) ERRED IN REJECTING T HE CLAIM OF THE APPELLANT ON MERITS. (C) THE APPELLANT SUBMITS THAT UNDER SECTION 50 OF THE ACT GAIN IN RESPECT OF DEPRECIABLE ASSETS (FORMING PART OF BLOC K OF ASSETS) IS DEEMED TO BE CAPITAL GAINS ARISING FROM THE TRANSFE R OF SHORT TERM CAPITAL ASSET ONLY VIS-Z-VIS SECTION 48 & 49 OF THE ACT AND THE SAME DOES NOT AFFECT ANY OTHER PROVISIONS OF THE ACT. 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING WRITE-OFF OF A SUM OF ` 2 27 000 BEING LOAN GIVEN TO AN EMPLOYEE. 4. BEFORE US LEARNED COUNSEL MR. NITESH JOSHI ON BE HALF OF THE ASSESSEE SUBMITS THAT THE FIRST ISSUE I.E. TREATING LONG TE RM CAPITAL GAIN ARISING ON SALE OF DEPRECIABLE ASSET AS SHORT TERM CAPITAL GAINS BY THE ASSESSING OFFICER AND CONSEQUENTLY DENYING SET-OFF AGAINST LONG TERM CAP ITAL LOSS IS COVERED BY THE DECISION OF MUMBAI B BENCH OF THE TRIBUNAL IN M/S . MANALI INVESTMENTS V/S ACIT CENTRAL CIRCLE-34 DECIDED IN ITA NO.6646/MUM ./2008 ASSESSMENT YEAR 2005-06 ORDER DATED 13 TH APRIL 2001. HE SUBMITS THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S ACE BUILDERS P . LTD. (2006) 281 ITR 210 (BOM.) RESOLVED THE ISSUE IN FAVOUR OF THE ASSESSE E. 5. REGARDING GROUND NO.2 THE LEARNED COUNSEL DID NOT WISH TO PRESS THE SAME. 6. GROUND NO.3 READS AS FOLLOWS:- HATHWAY INVESTMENTS P. LTD. ITA NO.6256/M./2008 3 3. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTIO N OF THE ASSESSING OFFICER IN VALUING CERTAIN SHARES HELD AS STOCK IN TRADE AT COST THOUGH CONSIDERED NIL BY THE APPELLANT DUE TO VARIOUS REASONS LIKE COURT RESTRAINT INABILITY ON THE PART OF COMPANY T O DEMAT THE SHARE. 7. LEARNED COUNSEL SUBMITS THAT 200 SHARES WERE PURCHA SED BY THE ASSESSEE COMPANY FROM ONE MR. PRAVIN SINGHJI JHALA WERE SUBJECT MATTER OF THE COURT ORDER AND THE ASSESSEE WAS PREVENTED FROM TRANSFERRING THE SAME. IN CASE OF REGENCY CERAMICS LTD. HE SUBMITS THAT H E SHARES WERE COVERED UNDER HARSHAD MEHTA SCAM AND WERE NOT TRANSFERABLE. UNDER THESE CIRCUMSTANCES HE SUBMITS THAT THE SHARES WERE VALU ED AT NIL. HE REPEATED THE ARGUMENTS MADE BEFORE THE COMMISSIONER (APPEALS ) AND SUBMITS THAT THE NET REALISABLE VALUE OF THE STOCKS OF SHARES IS TAKEN AT NIL. 8. LEARNED DEPARTMENTAL REPRESENTATIVE MR. GOLI SRINI VAS RAO ON THE OTHER HAND RELIED ON THE ORDERS PASSED BY THE ASSE SSING OFFICER AS WELL AS THE COMMISSIONER (APPEALS). 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD AS WELL AS THE CASE LAWS CITED BEFORE US WE FIND THAT THE FIR ST ISSUE I.E. TREATMENT OF LONG TERM CAPITAL GAIN ARISING ON SALE OF DEPRECIAB LE ASSET IS RESOLVED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF MUMBAI B BENCH DECISION OF TRIBUNAL IN M/S. MANALI INVESTMENTS (SUPRA) WHEREI N THE TRIBUNAL VIDE PARA- 13 PAGE-9 IT IS HELD AS FOLLOWS:-D 13. FROM THE ABOVE EXTRACTED PORTION OF THE JUDGMEN T OF THE HON'BLE JURISDICTIONAL HIGH COURT IT IS DISCERNIBLE THAT THE PROVISIONS OF SECTION 50 ARE APPLICABLE ONLY UP TO THE STAGE OF C OMPUTATION OF CAPITAL GAIN IN CASE OF DEPRECIABLE ASSETS. HENCE WHERE DE PRECIATION HAS BEEN ALLOWED ON A LONG TERM CAPITAL ASSET THE CAPITAL G AIN SHALL BE COMPUTED IN THE MANNER PRESCRIBED UNDER SECTION 50 AND IT SHALL BE CONSIDERED AS ARISING OUT OF A SHORT TERM CAPITAL A SSET. ONCE CAPITAL GAIN IS COMPUTED ON DEPRECIABLE ASSET AS PER SECTIO N 50 WHICH IS A LONG TERM CAPITAL ASSET THE OPERATION OF SUCH SECT ION IS OUSTED. IF THE ASSESSEE IS OTHERWISE ELIGIBLE FOR ANY BENEFIT UNDE R THE ACT WHICH IS ATTACHED TO A LONG TERM CAPITAL ASSET THE SAME SHA LL REMAIN INTACT. IT CANNOT BE DENIED SIMPLY FOR THE REASON THAT ON THE TRANSFER OF SUCH A LONG TERM CAPITAL ASSET THE SHORT TERM CAPITAL GAI N HAS BEEN COMPUTED AS PER SEC. 50. IN THE CASE OF ACE BUILDERS (SUPRA) THE ASSESSEE HAS HATHWAY INVESTMENTS P. LTD. ITA NO.6256/M./2008 4 BEEN ALLOWED THE BENEFIT U/S 54E WHICH IS OTHERWIS E AVAILABLE ONLY AGAINST LONG TERM CAPITAL GAIN. IN THE SAME MANNER THERE CANNOT BE ANY REJECTION OF ANY BENEFIT WHICH IS ASSOCIATED WI TH THE CHARACTER OF OTHERWISE LONG TERM CAPITAL GAIN NOTWITHSTANDING TH E FACT THAT CAPITAL GAIN ON ITS TRANSFER HAS BEEN COMPUTED U/S 50 BY DE EMING IT AS A SHORT TERM CAPITAL GAIN. 10. THE TRIBUNAL WHILE DECIDING THE APPEAL IN M/S. MAN ALI INVESTMENTS (SUPRA) RELIED ON THE JUDGMENT OF HON'BLE JURISDICT IONAL HIGH COURT IN ACE BUILDERS (SUPRA) WHEREIN VIDE PARA-14 IT HAS BEE N HELD AS FOLLOWS:- 14. .. WE HAVE ALREADY HELD THAT SECTION 50 CONT AINS A DEEMING PROVISION AND THE SAME HAS TO BE RESTRICTED ONLY FO R THE PURPOSE OF WHICH IT IS ENACTED. SINCE THIS DEEMING PROVISION I NVOLVES ONLY THE COMPUTATION PART OF THE CAPITAL GAIN IN THE CASE OF DEPRECIABLE ASSETS ONCE THIS COMPUTATION PART IS OVER THE OPERATION O F SECTION 50 IS ALSO STOPPED. THE AMOUNT SO COMPUTED HAS TO BE DEALT WIT H IN ACCORDANCE WITH THE RELEVANT PROVISIONS. IF WE ACCEPT THE VIEW POINT OF THE DEPARTMENT AND HOLD THAT CAPITAL GAIN OF ` 145.99 LAKHS BE CONSIDERED AS SHORT TERM CAPITAL GAINS FOR ALL PURPOSES INCLUD ING SECTION 74 THEN IT WOULD VIOLATE THE JUDGMENT OF THE HON'BLE JURISDICT IONAL HIGH COURT IN THE CASE OF ACE BUILDERS (SUPRA). IN THAT CASE ALSO THERE WAS CAPITAL GAIN ON THE TRANSFER OF DEPRECIABLE ASSET HELD BY T HE ASSESSEE FOR PERIOD OF MORE THAN THREE YEARS WHICH WAS DETERMINE D U/S 50. THE HONBLE HIGH COURT HELD THAT THE ASSESSEE IS ENTITL ED TO THE BENEFIT UNDER SECTION 54E WHICH IS AVAILABLE ONLY AGAINST L ONG TERM CAPITAL GAIN. DESPITE THE FACT THAT NO LONG TERM CAPITAL GA IN ENTERED INTO THE COMPUTATION OF TOTAL INCOME OF THAT ASSESSEE STILL THE BENEFIT UNDER SECTION 54E WAS GRANTED. SIMILAR IS THE POSITION IN THE INSTANT CASE ALSO. CAPITAL GAIN HAS RESULTED FROM THE TRANSFER O F AN ASSET WHICH WAS HELD FOR A PERIOD OF MORE THAN THREE YEARS AND NO L ONG TERM CAPITAL GAIN HAS ENTERED INTO THE COMPUTATION OF TOTAL INCO ME OF THE OF THE ASSESSEE ON THIS TRANSACTION. THIS AMOUNT WOULD ALS O RETAIN THE CHARACTER OF LONG TERM CAPITAL GAIN FOR ALL OTHER P ROVISIONS AND CONSEQUENTLY QUALIFY FOR SET OFF AGAINST THE BROUG HT FORWARD LOSS FROM THE LONG TERM CAPITAL ASSETS. IN OUR CONSIDERED OPI NION THE FACTS OF THE INSTANT CASE ARE FULLY COVERED BY THE JUDGMENT OF H ON'BLE JURISDICTIONAL HIGH COURT IN ACE BUILDERS (SUPRA) WHICH IS BINDIN G ON ALL THE AUTHORITIES ACTING UNDER ITS JURISDICTION. WE THER EFORE OVERTURN THE IMPUGNED ORDER OF THIS SCORE AND HOLD THAT THE ASSE SSEE IS ENTITLED TO SUCH SET-OFF IN TERMS OF SECTION 74. 11. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E TRIBUNAL WE ALLOW GROUND NO.1 RAISED BY THE ASSESSEE. 12. GROUND NO.2 IS DISMISSED AS NOT PRESSED . HATHWAY INVESTMENTS P. LTD. ITA NO.6256/M./2008 5 13. COMING TO GROUND NO.3 THE VALUE OF 200 SHARES OF L &T LTD. IS TAKEN @ ` 54 202 PER SHARE AND 100 SHARES OF REGENCY CERAMIC S AT ` 1 514 PER SHARE. ASSESSEES CASE IS THAT THESE SHARES ARE NOT TRANSFERABLE DUE TO VARIOUS COURT ORDERS AND HENCE THE NET REALISABLE VALUE IS NIL AS ON THE DATE OF VALUATION. AS THE SHARES ARE CLOSING STOCK OF TH E ASSESSEE AND IT IS THE POLICY OF THE COMPANY TO VALUE THE SHARES AT STOCK OR NET REALISABLE VALUE WHICHEVER IS LESS AND AS THE NET REALISABLE VALUE I S NIL DUE TO CERTAIN COURT ORDERS WE AGREE WITH THE CONTENTIONS OF THE ASSESS EE AND HEREBY ALLOW GROUND NO.3. 14. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.7.2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI DATED: 15.7.2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A) MUMBAI CONCERNED; (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR H BENCH ITAT MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT MUMBAI BENCHES MUMBAI