ITO Vs Late Shri B. Kailasam (ITAT Chennai)
Since availing a loan itself is consideration and therefore, constructive benefit was very well accrued to the assessee when the loan was availed by the concerned company, which was owned partly by the assessee. Since, the mortgaged property was sold in discharge of the mortgage created by the assessee himself, belonged to the assessee, thus, the price realized there from also belonged to the assessee and capital gain was very much warranted on the full price (less admissible deduction). However, matter was remanded for computation of cost of acquisition, as the assessee could not produce relevant vouchers, documents, etc.
FULL TEXT OF THE ITAT JUDGMENT
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) VI, Chennai dated 22.02.2013 relevant to the assessment year 2006-07. The Revenue has raised two effective grounds viz., (i) the ld. CIT(A) erred in deleting the addition made towards long term capital gains at ₹.1.68 crores and (ii) the ld. CIT(A) erred in holding that the assessee is eligible to claim cost of improvement amounting to ₹.24.11 lakhs for the purpose of computation of long term capital gains. Against the order of the ld. CIT(A), the assessee has filed Cross Objection and challenged that the ld. CIT(A) failed to adjudicate on the ground that the Assessing Officer has not considered the cost of construction of improvements made by the assessee on his property while computing capital gains on sale of said property and (ii) the ld. CIT(A) erred in disallowing the capital loss of ₹.77,27,840/- resulting out of sale of shares of M/s. Min Bimbingal Productions Pvt. Ltd. [MBPPL] by the assessee.
2. Brief facts of the case are that the assessee has filed his return of income on 31.10.2006 admitting total income of ₹.1,07,448/-. The return filed by the assessee was selected for scrutiny and notices under section 143 (2) and 142(1) of the Income Tax Act, 1961 [“Act” in short] were served on the assessee on 31.0-8.2007.
2.1 With regard to the issue of income from long term capital gain, the Assessing Officer noticed that the assessee sold the property at 17A, Karpagambal Nagar, Mylapore for a consideration of ₹.1,75,00,000/-, which was not admitted by the assessee in the return of income. When the details were called for, it was the submission of the assessee that the assessee has mortgaged the property owned by him at Karpagambal Nagar, Chennai for the loan granted by Indian Overseas Bank (IOB) to Min Bimbangal Productions Pvt. Ltd. [MBPPL] around the year 2001-02. As it was only as additional collateral security extended by the assessee, the assessee did not receive any consideration at that time of the mortgage of the property with IOB. Since the MBPPL failed to repay the loan availed from IOB, the IOB issued notice for disposal of the property for recovery of the loan extended to MBPPL and subsequently the property was sold and the entire consideration was recovered by the bank. The contention of the assessee that the assessee has not received a pie from the transfer and the entire sale proceeds realized on transfer of the mortgaged asset has been appropriated towards discharge of mortgage was not accepted by the Assessing Officer since, when, the property belonging to the assessee is sold in discharge of the mortgage created by the assessee himself, then irrespective of the amount actually received by the assessee, the capital gain has to be computed on the full price realized [less admissible deduction] on transfer of the asset. Accordingly, the Assessing Officer worked out the income from capital gain and brought to tax.
3. The assessee carried the matter in appeal before the ld. CIT(A). By considering the submissions of the assessee as well as by following various case law, the ld. CIT(A) allowed the ground raised by the assessee
4. Aggrieved, the Revenue is in appeal before the Tribunal. By relying upon the decision in the case of CIT v. Attilli N Rao 252 ITR 880 (SC), the ld. DR has submitted that the issue is squarely covered in favour of the Revenue and pleaded that the order of the ld. CIT(A) should be set aside. On the other hand, the ld. Counsel for the assessee strongly supported the order passed by the ld. CIT(A).
5. We have heard both sides, perused the materials available on record and gone through the orders of authorities below. The assessee has pledged his property to IOB as a collateral security to loan availed by MBPPL. No lay man can execute a deed of mortgage of his property against the loan availed by a third party, a private limited company, until and unless the individual has substantial interest over the said company. Even though MBPPL is a registered company, this company is owned partly by the assessee as observed by the ld. CIT(A). Thus, it is clear that the assessee availed loan from the IOB under the banner of MBPPL by mortgaging assessee’s own property and MBPPL (partly owned by the assessee) failed to repay the loan, the bank sold the property and the entire consideration was recovered by the bank. Thus, it cannot be held that the assessee has not received any consideration directly or indirectly, which were liable to tax.
5.1 We have gone through the judgement in the case of CIT v. Attilli N. Rao (supra), which was relied upon by the Assessing Officer, wherein, the Hon’ble Supreme Court has observed and held as under:
“4. The assessment year with which we are concerned is the assessment year 1982-83. The assessee carried on abkari business. In the course of the financial year 1970-71 he mortgaged to the Excise Department of the State of Andhra Pradesh immovable property belonging to him at Waltair. He did so to provide security for the amounts of “kist” which were due by him to the State. The State, in the assessment year with which we are concerned, sold the immovable property by public auction, without the intervention of the court, to realise its dues. A sum of Rs. 5,62,980 was realised at the auction. Thereout, the State deducted the amount of Rs. 1,29,020 due to it towards “kist” and interest and paid over the balance to the assessee.
