Vildirect: IncomeTax-caselaws-2011-VIL-911-MAD-DT

2011-VIL-911-MAD-DT

MADRAS HIGH COURT

407 & 408 of 2005

Date: 13.12.2011

THE COMMISSIONER OF INCOME TAX, MADURAI.

J. CHELLADURAI,

For appellant : Mr.J.Naresh Kumar
For respondent : Mr.J.Balachander for M/s S.Sridhar

BENCH

MR.JUSTICE P.JYOTHIMANI, MR.JUSTICE P.P.S.JANARTHANA RAJA, JJ.

JUDGMENT

P.P.S.JANARTHANA RAJA, J

The revenue has filed the above appeals against the orders of the Income Tax Appellate Tribunal, 'A' Bench, Chennai, dated 23.10.2001 in ITA Nos.1491 & 1532/Mds/2000 for the assessment year 1995-1996.

2. The above appeals were admitted on 09.08.2005 on the following substantial questions of law:

"1.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in directing the assessing officer to compute the cost of the land at Kurinchi as on 01.04.1981 should be Rs.500/- per cent, even though the assessing officer fixed the value of the land based on the material available as on records and further departmental enquiries made by him and fixed the cost of the land at Rs.100 per cent for computing the capital gains?

2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding and directing the assessing officer to delete Rs.5,51,000/- which was included as income of the assessee under the head other sources, even though the assessee diverted it to the trust in which he and his wife have full control of the trust with a view to reduce higher income of the assessee?

3. Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in law in holding and directing the assessing officer to delete Rs.7,53,412/- which was included as income of the assessee under the head other sources even though the assessee diverted it to the trust in which he and his wife have full control of the trust with a view to reduce higher income of the assessee?

4. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in directing the assessing officer to compute the cost of the agricultural lands (WYDRA) as on 01.04.1981 should be at Rs.1,500/- per cent even though the assessing officer fixed the value of the land based on materials available as on records and further departmental enquiries made by him and fixed the cost of the land at Rs.250/- per cent for computing the capital gains?

5. Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in law in directing the assessing officer to delete the notional interest for the assessment year 1995-1996 at Rs.28,07,605/- even though the assessee and his wife are the trustees of the trust and full control over the trust with a view to reduce higher income of the assessee?"

3.The respondent-assessee is an individual engaged in the business of bus transports in the name and style of M/s.Chellam Automobiles and also repairing service unit known as M/s.J.C. Industries. The assessee is also a partner in the partnership concern. He also earn dividend and interest income. The relevant assessment year is 1995-1996 and the corresponding accounting year ended on 31.03.1995. A search was conducted in the premises of the assessee under Section 132 of the Income Tax Act, 1961, but there was no seizure of either cash or jewellery. However, fixed deposit receipts amounting to Rs.13,92,439/- relating to J.C. Trust and pro-notes for Rs.40,37,000/- were found and the same were seized by the authorities concerned. The assessee has made a disclosure of Rs.90,00,000/- under Section 132(4) of the Act. Later, the assessee filed a return of income on 31.10.1995 admitting total income at Rs.69,79,057/- including the long term capital gains of Rs.67,50,775/-. The said return was processed under Section 143(1)(a) of the Act on 04.07.1996. Later, the assessment was taken up for scrutiny and the assessing officer completed the assessment and determined the total income at Rs.2,26,68,981/-. While completing the assessment, the assessing officer determined total income under the head income from "capital gains" and income from "other sources" and also made number of additions and dis-allowances. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner allowed the appeal in part, against which, both the revenue as well as the assessee filed appeals before the Income Tax Appellate Tribunal, which partly allowed both the appeals. Aggrieved by that order, the Revenue has filed the present appeals by raising the abovesaid questions of law.

4. The learned counsel appearing for the Revenue submitted that the order of the Tribunal holding against the Department is wrong, illegal, without basis and justification. He further submitted that the Tribunal is wrong in fixing the fair market value of the land as on 01.04.1981 at Rs.500/- per cent in respect of Kurinchi land and in respect of cost of the WYDRA land, the Tribunal has fixed the fair market value of the land at Rs.1,500/- per cent. He further contended that the Tribunal is wrong in deleting the addition of Rs.5,51,000/- on the ground that there is diversion by overriding title. He further contended that the Tribunal was wrong in deleting addition of Rs.7,53,412/-, which was added as an income of the assessee and the same was wrongly deleted by both the appellate authorities. He further contended that the Tribunal erred in deleting the notional interest income of Rs.28,07,605/- made by the assessing officer, which is without any basis and justification and hence, the order passed by the Tribunal is not in accordance with law and sought to set aside the same.

5. The learned counsel appearing for the assessee contended that the Tribunal had considered all the facts and circumstances of the case and correctly decided and deleted the addition by accepting the explanation offered by the assessee, which is based on valid materials and in conformity with law and the same has to be confirmed.

6. Heard the learned counsel on either side and perused the documents available on record.

7. In respect of the first question of law, the assessee sold Kurinchi garden lands. The assessee sold 1.5 acres of Kurinchi garden lands to one V.Kandasamy Gounder at Rs.4,500/- per cent and the total consideration received was Rs.6,75,000/-. While computing the capital gains in respect of the said land, the assessee adopted the value as on 01.04.1981 at Rs.50,000/- per acre on the basis of the guideline value given by the Sub Registrar by way of letter. The assessing officer verified with the Sub Registrar, Kodaikanal, and found that the said certificate does not appear to have been issued by the Sub Registrar, Kodaikanal and the same was not available with the office of the Sub Registrar, Kodaikanal. It was also found by the assessing officer that on the date of transfer of the land in the year 1994, the guideline value as per the registers maintained by the Sub Registrar was only Rs.11,300/- per acre and further, the assessing officer was of the view that in the year 1981, Kodaikanal was very much under-developed and the lands in question were agricultural lands situated in a village and they do not fetch more than Rs.10,000/- per acre. Therefore, the assessing officer fixed the fair market value at R.100/- per cent. On appeal, the Commissioner of Income Tax (Appeals) fixed it at Rs.200/- per cent. Aggrieved by that order, the assessee filed an appeal before the Income Tax Appellate Tribunal. The Tribunal accepted the certificate given by the Sub Registrar and directed the assessing officer to fix the cost of land at Rs.500/- per cent. In the present case, the validity of the certificate given by the Sub Registrar was questioned, who accepted that it was not issued by them. Therefore, the Tribunal is wrong in relying on the certificate issued by the Sub Registrar and fixing the value at Rs.500/- per cent. No other document was furnished by the assessee to substantiate the claim that market value as on 01.04.1981 was Rs.500/- per cent and any sale deed executed during that period was not filed. In view of the above, we are of the view that the Tribunal is wrong in fixing the market value at Rs.500/- per cent and the same is without any basis and justification and no useful purpose would be served to remand the matter since the assessment year involved in this case is 1995-1996. Considering the facts and circumstances of the case, it is reasonable to fix the value of the land by averaging the cost given by the assessee as well as the market value fixed by the assessing officer. In the present case, the assessee claimed the value of the land as on 01.04.1981 at Rs.500/- per cent, whereas the assessing officer fixed the value at Rs.100/-; the first Appellate Authority fixed it at Rs.200/- per cent and the Tribunal fixed the same at Rs.500/-. After considering the facts and circumstances of the case, we are of the view that it is reasonable to fix the market value of the land by averaging the value given by the assessee and the assessing officer respectively Rs.500/- + Rs.100/- = Rs.600/2=Rs.300/-. In view of the same, we direct the assessing officer to fix the market value of the land as on 01.04.1981 at Rs.300/- per cent and the first question of law is answered accordingly.

8. In respect of question No.2, the assessing officer made addition of Rs.5,51,000/- under the head "other sources" on the ground that the unaccounted consideration was received for the sale of poramboke land in WYDRA property. The assessee and his wife jointly owned 23.52 acres of lands at Observatory Road, Kodaikanal, of which 15.46 belonged to the assessee and the remaining lands belonged to his wife. The said property was known as WYDRA property and the same is situated 3 kms from Kodaikanal. It is seen from the records that the assessee and his wife entered into an agreement on 24.02.1992 with M/s.Mukund P.Sajpal, V.Balakrishna and Kiran Bhameer. As per the agreement, advance of Rs.50 lakhs was paid to the assessee and if the purchase was not finalised by 09.08.1992, a sum of Rs.10 lakhs from the amount paid by the assessee as advance would be treated as forfeiture. There was a raid in the premises of the assessee and it was found that an amount of Rs.15,51,000/- was deposited in the Bank Account with the Bank of Madura Limited, Madurai. It is submitted by the learned counsel appearing for the assessee that a sum of Rs.15,51,000/- represented deposits made by the purchasers of the property in the Trust account viz., M/s Jeyaraj Chelladurai Trust and the Trust has also issued receipt for the amount of Rs.9 lakhs to M/s.PRS Construction which purchased WYDRA property from the assessee. The assessing officer was of the view that the assessee had collected extra amount from M/s.PRS Construction in the form of donation to the Trust, which was constituted by him and received a sum of Rs.5,51,000/- out of the donation of Rs.15,51,00/- as sale consideration for 1.6 acres of poramboke lands. Further, the assessing officer was of the view that the agreement dated 24.02.1992 was not complied with by the purchaser and therefore, the amount was forfeited. In these circumstances, the assessing officer held that various transactions entered into by the assessee, parties to the agreement dated 24.02.1992 and also M/s PRS Construction lead to the conclusion that the amount of Rs.5,51,000/- was received as donation by M/s Jeyaraj Chelladurai Trust. Therefore, the assessee had received unaccounted consideration for the sale of poramboke land of WYDRA property. On appeal by the assessee, the Appellate Assistant Commissioner took the view that there is no material to show that the said amount was siphoned off by the assessee at any stage. Therefore, the first appellate authority directed the assessing officer to exclude the amount from the income of the assessee. On further appeal to the Income Tax Appellate Tribunal by the Revenue, the Tribunal without considering any of the relevant material, merely relied on the decision of this Court in the case of VELLORE RADHA JAYALAKSHMI HOTELS (P) LTD., V. COMMISSIONER OF INCOME TAX reported in (1984) 147 ITR 480, wherein it has been held that there was diversion of income and no re-routing of the amount from the Trust to the assessee and therefore, deleted the addition. The learned counsel appearing for the Revenue contended that the authorities below had not examined the relevant factor as to how this amount has to be assessed and the following factors are relevant for the purpose of assessing it:-

1. How the amount was paid to M/s Jeyaraj Chelladurai Trust;

2. At whose instance, the amount was paid;

3.How the amount was donated to the Trust;

4. If the assessee is entitled to the receive the sale consideration, how the amount should be assessed i.e. Whether under the head "other sources or under the head "capital gain".

9. The above factors were not at all examined and considered by the authorities below in detail and therefore, both the counsel requested the Court to remand the matter to the assessing officer. In these circumstances, we set aside the order of the authorities below and direct the assessing officer to re-hear the matter afresh and decide the matter in accordance with law after giving opportunity to the assessee and the second question of law is answered accordingly.

10. In respect of the third question of law, the assessing officer made an addition of Rs.7,53,412/-. The Tribunal considered the above question in paragraph 11 of the order, which reads as follows:

"The next issue as raised by the Department is with reference to another amount of Rs.7,53,412/-, which was added as income of the assessee but was deleted by the CIT (A). The facts in regard to this issue are common for the assessee as well as the wife of the assessee whose appeal was also heard for which a separate order is being passed. The parties who bought certain properties of the assessee which are called "Wydra Properties", had donated amounts to M/s Jeyaraj Chelladurai Trust. The receipts issued by the said Trust were in the names of the people who are close associates of PRS Constructions who were to be provided with certain construction work of M/s Jeyaraj Chelladurai Trust on sale of property. PRS constructions apparently agreed to advance a loan of Rs.34 lakhs. He noted that consequent to the search that was made certain noting of the assessee in a sheet was seized which indicated 3 DDs., advance, etc., which amounted aggregated to Rs.2,23,50,000/-. Some amounts were found as towards Trust Account which were to the tune of Rs.10 lakhs. The A.O., combining the donations by the parties, distributed the amounts between the assessee and his wife who had certain interest in the property, which sale consideration are also the subject matter of appeal in her case, included Rs.7,53,412/- in the case of the assessee. The CIT (A), following the Madras High Court decision reported in 147 ITR 480 (supra) found that the affirmation of the parties who donated the amounts was uncontroverted and there was no flow of funds from the Trust to the assessee, deleted the addition made."

It is pertinent to note that this question of law is connected with the second question of law and since both the counsel have agreed to remand the matter to the assessing officer in respect of second question of law on the ground that the authorities below had not considered the issue in detail and though the Tribunal has relied on the decision of this Court, it has not dealt with how far the judgment is relevant to the facts of the present case, we set aside the order of the authorities below and remand the matter back to the assessing officer to re-hear the matter afresh in respect of the second and third questions of law and decide the matter in accordance with law after giving opportunity to the assessee and the third question of law is answered accordingly.

11. In respect of fourth question of law, the dispute is regarding fair market value fixed as on 01.04.1981 with regard to WYDRA property. The assessee claimed that the cost of the property should be taken at Rs.2,500/- per cent. To support his contention, the assessee filed a certificate dated 27.05.1996, which is supposed to have been issued by the Sub Registrar, Kodaikanal, wherein the market value of the land is shown as Rs.2,50,000 per acre. The assessing officer verified with the Sub Registrar, Kodaikanal, and found that no such guideline value was available in the Office of the Sub Registrar and held that on the date of transfer of the land of the assessee in the year 1995, the guideline value of the same as per the records of the Sub Registrar, works out from Rs.51,800/- to Rs.1,31,600/- per acre. Therefore, the assessing officer doubted the genuineness of the certificate given by the Sub Registrar, Kodaikanal and fixed the value at Rs.250/- per cent. On appeal, the Commissioner of Income Tax (Appeals) fixed the value at Rs.1500/- per cent. Aggrieved by the same, both the assessee as well as the revenue filed appeals before the Income Tax Appellate Tribunal. The Tribunal dismissed both the appeals, confirming the order of the Commissioner of Income Tax (Appeals). Aggrieved by that order, the Revenue filed the present appeals. Before the authorities, the assessee has filed a copy of the sale deed dated 29.09.1981 executed between P.Seetaraman and Mohammed Sheriff, in which the sale consideration of Rs.1,20,000/- was shown in respect of 51 cents of the land with a three-storeyed building, each floor measuring 1900 sq.ft., and that property was very proximate to the property in dispute now. But in the sale document, nothing was mentioned about the market value of the land. 51 cents of land at Observatory Road, Kodaikanal, are close to the land in dispute and the age of the comparable building was 55 years old and no other document was available except the one given by the assessee to prove the same. Therefore, the Commissioner of Income Tax (Appeals), taking into account the total consideration of the property at Rs.1,20,000/-, apportioned the value of the land and building in the ratio of 50:50 on the ground that the building is very old and worked out the value of the land at Rs.60,000/-= or Rs.1,500/- per cent and the same was affirmed by the Appellate Tribunal. As the Revenue has also not produced any other materials before us to take a contrary view of the Tribunal, we confirm the orders of the authorities below taking into account the market value of the property at Rs.1500/- per cent and answer the fourth question of law in favour of the assessee and against the Revenue.

12. The fifth question of law relates to the assessment of notional interest income of Rs.28,07,605/-. During the previous year, the assessee lent substantial amounts to M/s.Jeyaraj Chelladurai Trust as interest free advances. The said M/s.Jeyaraj Chelladurai Trust was started in the year 1989 by the trustee, the assessee and his wife. The objects of the Trusts are construction and maintenance of School and Colleges, Hospitals and other educational institutions. The said Trust was started with initial corpus of Rs.1000/-. The assessing officer was of the view that the assessee used to deposit huge amount in the bank out of the surplus money available with him and received from the such deposit. He further held that the assessee all of a sudden resorted to shifting of the deposit standing in his name and other surplus to M/s Jeyaraj Chellaudrai Trust, wherein the assessee and his wife are the trustees and hence, the assessing officer was of the view that the said trust is enjoying the benefit of exemption and the assessee for the purpose of reducing the tax liability, invested the amount with the Trust without charging any interest and hence, it was only device for evading tax. Therefore, he estimated the notional interest on the money advanced by the assessee to the Trust and he made an addition of Rs.28,07,605/- as notional income from the Trust. The assessing officer worked out the interest at 18% per annum and the details regarding the amounts deposited as well as the interest calculated are as follows:

Sl. No.	Deposit Rs.	Period	Interest Rs.
1.	66,86,834	1.4.94 to 31.08.1995	12,03,630
2.	9,50,000	11.4.94 to 31.03.1995 11 M 20 d	1,70,525
3.	33,500	21.4.94 to 31.03.1995 11 M 10 d	5,693
4.	1,22,500	20.6.94 to 31.03.1995 9 M 11 d	17,202
5.	70,000	6.7.94 to 31.03.1995 8 M 26 d	9,298
6.	15,18,900	23.7.94 to 31.03.1995 8 M 9 d	1,89,010
7.	10,00,000	4.8.94 to 31.03.1995 7 M 28 d	1,18,808
8.	32,00,000	5.8.94 to 31.03.1995 7 M 27 d	3,78,608
9.	50,000	7.10.94 to 31.03.1995 5 M 25 d	4,366
10.	55,00,000	19.10.94 to 31.03.1995 5 M 13 d	4,47,760
11.	31,87,000	20.10.94 to 31.03.1995 5 M 12 d	2,40,071
12.	75,000	11.01.94 to 31.03.1995 2 M 21 d	3,027
13.	55,000	01.02.95 to 31.03.1995 2 M	1,650
14.	10,15,000	10.03.95 to 31.03.1995 22 d	11,012
15.	45,00,000	20.03.95 to 31.03.1995 12 d	26,630
16.	10,00,000	21.03.95 to 31.03.1995 11 d	5,425
	Total Interest on deposits		28,32,715

Aggrieved by that, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) deleted the addition on the ground that the assessing officer is wrong in including the notional interest as assessable income of the assessee. Aggrieved by that, the Revenue has filed appeal before the Income Tax Appellate Tribunal. The Tribunal also confirmed the order of the Commissioner of Income Tax (Appeals) and rejected the additions made on the account in the assessment order. Aggrieved by that order, the Revenue has filed the present appeals.

13. The learned counsel appearing for the Revenue vehemently contended that the assessee and his wife are the only trustees of the Trust and had full control over the Trust and therefore, the assessing officer was right is assessing the notional income from the income deposited by the assessee. He further contended that in respect of the interest on deposits from the bank, the assessee purposely deposited it in the Trust only with a view to avoid payment of tax. He further contended that the assessee ought not to have deposited the amount without charging interest. The argument of the learned counsel appearing for the assessee is that the assessee can deposit the amount wherever he prefers and it is for the assessee to decide whether to deposit or not and whether to charge interest on the deposited amount or not. Normally the interest income can be charged on accrual or receipt basis. In the present case, there is no income received or earned by the assessee. Only the assessing officer was of the view that instead of depositing the amount in the fixed deposit, the assessee for reducing the tax liability, deposited the same with the Trust without charing interest. It is not the case of the Revenue that the assessee was unable to prove the source of deposit. Per contra, the assessing officer has given a finding that the assessee deposited the excess amount on various deposits with the bank. So it indicates that the deposited amount already suffered tax and it is not the case of the assessee that the assessee borrowed money and diverted it for non-business purpose. Therefore, the assessing officer is wrong in holding that there was evasion of payment of tax merely because the assessee deposited the amount with the Trust without charging interest. The learned counsel appearing for the Revenue has not shown any provision of law to charge notional income. It is well settled principles of law in a taxing statute, one has to look merely at what is said in the relevant provision and there is no presumption as to a tax. The Apex Court in the case of AJMERA HOUSING CORPORATION AND ANOTHER V. COMMISSIONER OF INCOME TAX reported in (2010) 326 ITR 642 considered the scope of taxing statutes and in paragraph 32 it has been held as follows:

" It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax (See. Cape Brandy Syndicate V. IRC (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce and Industry V. State of A.P. (2000) 6 SCC 550). In interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see:CST v. Modi Sugar Mills Ltd. (1961) (2) SCR 189."

Considering the above principles to the facts of the present case, we are of the view that the assessing officer is wrong in holding that the assessee ought to have charged interest on the amount deposited with the Trust, which is not in accordance with law. Therefore, the appellate authorities are correct in holding that notional interest cannot be added by the assessing officer and rightly deleted the addition made on the said amount and there is no error or irregularity in interfering with the impugned order of the Tribunal. Accordingly, we answer the fifth question of law in favour of the assessee and against the Revenue.

With the above observations, both the appeals are disposed of.

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