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TMI Blog2010 (1) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of s. 47(iv) regarding the properties transferred to its subsidiary, M/s Sakthi Properties (Cbe) Ltd. Initially, the return was processed under s. 143(1). Thereafter, the AO reopened the assessment by issuing a notice under s. 148 on 20th Sept., 2004 on the reason that share issue expenses could no longer be considered as revenue expenditure. The first reassessment was completed by the order under s. 143(3) r/w s. 147 of the IT Act on 13th Dec., 2004. The assessee went in appeal against the first reassessment order and the CIT(A) allowed partial relief to the assessee vide order dt. 9th Jan., 2006. The AO again reopened the assessment by issuing a notice under s. 148 on 12th March, 2007 on the reason that M/s Sakthi Properties (Cbe) Ltd. as subsidiary of the assessee-company during the asst. yr. 2003-04 converted the fixed assets into stock-in-trade. Accordingly, as per s. 47A, if the transferee-company converts the capital asset into stock-in-trade before the expiry of eight years from the date of transfer, the capital gains claimed exempted are taxable under the IT Act. In response to notice under s. 148. the assessee, vide its letter dt. 21st March, 2007 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om reiterating the contentions as raised before the learned CIT(A) submitted that, when a specific provision is provided in the statute for the purpose of withdrawal of exemption under s. 47A, then the AO has no jurisdiction to invoke the provisions of s. 147 of the IT Act. He has further submitted that the powers and jurisdiction of the AO vary under different sections of the IT Act. The AO cannot exercise a wider jurisdiction under s. 147 when a specific provision under s. 155(7B) has been provided in the statute for this purpose. The reason for reopening of the assessment is not that the assessee has concealed any particulars of income due to which the income assessable to tax has escaped assessment but the reopening is on the reason that the subsidiary company has violated the conditions of s. 47A. Therefore, the remedy to deal with the situation is provided under s. 155(7B). He has relied upon the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Shyama Charan Gupta (2003) 261 ITR 362 (All) as well as the decision of Cochin Bench of this Tribunal dt. 26th Feb., 1992 in the case of ITO vs. K. Ravindranathan Nair (1992) 41 ITD 462 (Coch). 6. On the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital assets. Since in the assessee-cornpany's case, the conditions stipulated under s. 47A(1) have not been fulfilled by the assessee-company, the capital gains claimed exempt are taxable under the IT Act, 1961. Hence, to that extent, the income has escaped assessment and the case is reopened under s. 147 for the asst. yr. 2002-03." 9. It is clear from the reasons recorded that there was no real income relating to the assessment year under consideration that had escaped assessment. But due to the deeming provisions of s. 47A of the IT Act, the AO has reopened the assessment to bring the capital gains to tax on transfer of the property by the assessee to the subsidiary company. As pointed out by learned counsel for the assessee, the correct course of action is provided under s. 155(7B) of the IT Act in case of violation of conditions stipulated in s. 47A. 10. It is proper to quote s. 155(7B) of the IT Act as under:- "Where in the assessment for any year, the capital gain arising from the transfer of a capital asset is not charged under s. 45 by virtue of the provisions of cl. (iv) or, as the case may be, cl. (v) of s. 47, but is deemed under s. 47A to be income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was considered as escaped assessment at the time of reopening. Even otherwise, s. 147 of the IT Act does not confer any power, authority or jurisdiction to the AO to open the assessment except on existing conditions as prescribed in the section itself. Therefore, the AO is not authorised to invoke the other provisions of law for a purpose when the remedy is provided in the specific provision for the said purpose. Sec. 155(7B) gives the authority and jurisdiction to the AO to recompute the income by amending the assessment under s. 154 of the IT Act. No such jurisdiction or authority can be derived from the provisions of s. 147 of the IT Act because the provisions under s. 147 and under s. 155(7B) r/w s. 154 are not a substitute to each other. 12. In the case of CIT vs. Shyama Charan Gupta (supra), the Hon'ble Allahabad High Court has held as under:- "A perusal of the above provision shows that in case of reassessment of a firm, the AO has not only to determine the assessable income of the firm but has also to amend the assessment orders of the partners accordingly. Hence, in our opinion, the Tribunal has correctly held that the AO could only take recourse to s. 155 to modify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, even if the provisions of s. 154 or 155 are interchangeable with the provisions of s. 147 in certain areas, it cannot be held in the facts of the case before us that there was any escapement of income by the grant of investment allowance on the fishing boat named Ragam in the previous year relevant to the asst. yr. 1978-79. Thus looked at from any angle, the provisions of s. 147 cannot be invoked to withdraw the investment allowance originally granted in the asst. yr. 1978-79 as the time-limit for such withdrawal having expired in terms of the provisions of s. 155 r/w s. 154. In this view of the matter, we uphold the order of the CIT(A)." 14. In view of the above discussion and the law laid down by the Hon'ble Allahabad High Court as well as the Cochin Bench of this Tribunal, we hold that the provisions of s. 147 cannot be invoked when the specific remedy is available under s. 155(7B) r/w s. 154 of the IT Act. Accordingly, in our opinion, the reopening as well as reassessment is not valid and void ab initio. Issue No. 2 - Withdrawal of exemption under s. 47A:- 15. The AO noted that M/s Sakthi Properties (Cbe) Ltd., the subsidiary of the assessee-company during the period rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that once the rectified financial statements as per the provisions of the Companies Act has been accepted by the RoC and also duly approved in the general meeting of shareholders, then the mistake of misclassification without any authorisation has no validity or relevance and becomes meaningless. The learned Authorised Representative for the assessee has urged that when the income from these properties was shown as "income from house property", the T. Nagar property which is only on a leased land, only the building was transferred and not the entire property because the land could not be transferred. In these facts, the said property could not be converted into stock-in-trade because the property is on a leasehold land and the same was also leased out to Saravana Hotels. 18. The learned Authorised Representative has further pointed out that the property at Adyar stood as a security against the issue of non-convertible debentures by the subsidiary company. Therefore, when the property was under charge as a security against the debentures, then the same could not be transferred or sold out and, therefore, the conversion of the said property into stock-in-trade was also not v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains in the hands of the assessee-company. The revised returns of income filed by the subsidiary company were beyond the time-limit prescribed under the Act and the said action was also subsequent to the notice under s. 148. He has further submitted that merely because the income from the properties in question was treated as "income from house property" will not decide the nature of the property, whether "fixed" or "current" asset. He has further pointed out that even in the case of movable and immovable property, the income is not relevant to decide the character of the property. The income from house property would remain the same despite the conversion of the fixed asset into stock-in-trade. The learned Departmental Representative has contended that the provisions of company law cannot be applied in computation of income under the IT Act. When the rectified accounts and revised returns filed by the subsidiary company were considered as filed beyond time, the same were non-existent for the purpose of the assessment of capital gains in the hands of the assessee-company. He has relied upon the orders of the lower authorities and the decision of the Hon'ble Delhi High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drances in transfer. The part of the Adyar property was sold in the year 2008 to repay the loan by the subsidiary company to the assessee-company and the capital gain was offered for tax. From all these facts, it is clear that the properties in question were not free from impediments against the transfer/sale. Therefore, these facts suggest and indicate without any doubt that the subsidiary company despite the classification of the properties as current assets stock-in-trade never intended to treat the same as stock-in-trade in the course of its business. 22. In the case of CIT vs. S. Ramaamirtham (supra) the Hon'ble jurisdictional High Court has held that the intent of the assessee is relevant to determine whether he is carrying on the business in shares or investment. 23. It is an undisputed fact that the subsidiary company subsequently rectified and modified its financial accounts through proper mode prescribed under the Companies Act after getting the approval of the shareholders in the extraordinary general meeting. The said rectification of the financial accounts was filed in the office of the RoC and was accepted under the Companies Act. When the AO has acted purely on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show that the land had been converted into stock-in-trade because in the accounts for the assessment year ended 31st March, 1981, the chartered accountant signed the balance-sheet subsequently on 15th Jan., 1982, and it was filed before the ITO in May, 1982, and the Tribunal recorded a finding that the action of the assessee was in conformity with its action to cover up the liability for capital gains tax. Therefore, the finding of the Tribunal that the conversion of the capital into stock-in-trade, by the resolution dt. 1st Jan., 1981, was not a genuine one was a finding of fact. (iii) That the assessee had not produced any material before the authorities to show during the assessment proceedings for the asst. yr. 1981-82 that the assessee had produced the resolution dt. 1st Jan., 1981, and claimed the same as stock-in-trade. Therefore the conversion of the land into stock-in-trade and the resolution dt. 1st Jan., 1981, were not true. (iv) That the Tribunal had recorded a finding that there was no material to prove that the sale consideration had been paid for discharge of the mortgage amount. There was no material to go against that finding. Therefore, the contention that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead 'Income from other sources'. On the facts of this case, it is clear that the assessee, as a owner of the building, was only exploiting the property as owner by leasing out the same and realising income by way of rent. Such rental income is liable to be assessed under the head 'Income from house property'. The Tribunal was in error in holding otherwise." 27. In the case of Anand Charitable Trust vs. CWT and Ors. (supra) relied upon by the learned Departmental Representative, the Hon'ble Delhi High Court has held as under:- "The word 'investment' means to lay out money in business with a view to obtain income or profit. In order to constitute an investment the amount laid down should be capable of resulting in an income or return or profit to the investor and in every case of investment, the intention and positive act on the part of the investor should be to earn such income, return or profit to the investor. In order to constitute an investment/the money shall be laid out in such manner, as to acquire some species of property which brings in an income to the investor. An investment popularly means every application of money which is intended to fetch return by way of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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