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MR. SYED BAQAR HASAN Versus THE INCOME TAX OFFICER

2016 (7) TMI 398 - ANDHRA PRADESH HIGH COURT

Determination of capital gains - deduction u/s 48 - sale proceeds, to clear the mortgage debt - cost of acquisition - Held that:- As has been rightly observed by the Commissioner of Income Tax (Appeals), and the Tribunal, no deduction can be claimed under Section 48 of the Act, even if the said amount had been utilised for repayment of the loan extended by the bank to the company and the firm. - The assessment orders passed in the case of the company and the firm, and certain transactions o .....

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the consideration received on the sale of the subject property. The fact that the Tribunal took a lenient view subsequently, by its order dated 09.10.2015, would not justify setting aside the earlier order of the Tribunal dated 14.01.2015 upholding the assessment order. Viewed from any angle, we see no error in the order of the Tribunal, much less a substantial question of law, necessitating interference in these appeals. - I.T.T.A.Nos.433, 448 & 466 of 2015 - Dated:- 7-12-2015 - SRI JUSTICE RAM .....

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Section 260-A of the Income Tax Act, 1961 (for short the Act ) against the order of the Income Tax Appellate Tribunal, Hyderabad in I.T.A.Nos.1386, 1387 and 1388 of 2014 dated 14.01.2015. The assessees, in these three appeals, are two brothers and their mother. They were assessed as individuals deriving income from salary, share income from M/s.Hansa Overseas Enterprises (a partnership firm) and income from other sources. Returns of income were filed by the assessees declaring certain income. W .....

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Hyderabad by way of registered sale deed No.2540/05 dated 23.06.2005 for a consideration of ₹ 1,09,50,000/- each received by their two brothers, and ₹ 1,20,48,000/-, received by their mother, totalling to ₹ 3,39,48,000/-. The assessees, however, did not offer the said sale transaction to tax under the head capital gains . The case of the assessees, before the Assessing Authority, was that the entire sale proceeds, received on the sale of the subject property, were paid to State .....

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Garments Private Limited, in which the assessees (brothers) were directors, a perusal of the bank account maintained by them, with the State Bank of Hyderabad, showed that, after receipt of the sale consideration, the amount received was kept in short term Fixed Deposits, and the interest earned thereon was also offered as income in the assessment years under consideration. In his order, the Assessing Authority held that the claim of the assessees that they did not receive the sale consideratio .....

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ransaction to tax as capital gains holding that, as per the statutory provisions, loan repayment is not one of the modes which would entitle the assessees to claim deduction from chargeability to tax on capital gains. In the appeals, filed before the Commissioner (Appeals), the assessees contended that both M/s.Hansa Overseas Enterprises (a partnership firm) and M/s.Hoe Leather Garments Private Limited had availed loans from the State Bank of India as security for which, their residential house, .....

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; 75 lacs for M/s.Hansa Overseas Enterprises, which was also accepted by these concerns; in terms of the OTS, the assessees made payment, through their individual accounts, which were reflected in the books of M/s. Hoe Leather Garments Limited and M/s. Hansa Overseas Enterprises; these two concerns had also offered the amount, waived by the Bank on the OTS, as income from other sources; in the case of M/s.Hoe Leather Garments Private Limited, ₹ 2,85,00,000/- was added to the income of the .....

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hands of the company, treating the amounts paid by the directors towards OTS as an unsecured loan and, at the same time, charging the sale consideration again in the hands of the assessees as capital gains, would amount to assessing the same income twice over; the sale consideration had been utilised for the purpose of discharging the debts of the company, that too, on a property mortgaged to the bank; and the same is allowable under Section 48(1) of the Act. In his order, the Commissioner of I .....

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also earned; there was no indication that the sale consideration was either paid to the bank directly, or appropriated by the bank directly, so as to make the sale consideration eligible for deduction under Section 48 of the Act; the sale consideration was not paid directly to the mortgagee bank; the property was directly sold by the assessee, regardless of the OTS and the mortgage in force; and, hence, the assessees claim, that the sale consideration received by them should be allowed as deduc .....

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accounts of these concerns credited in the name of the directors, could not be treated as expenses incurred by the assessees in connection with the transfer of property; the assessees were independent entities different from the concerns which had availed the loans; the properties were also sold independently by their owners, irrespective of the fact that there was a mortgage or an OTS; as the sale consideration had no connection with repayment of the loan, the consideration received, from such .....

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l asset as defined under Section 2(14) of the Act; the gain derived from sale of such property would normally be assessable to tax under the head capital gains ; the sale consideration, received by the assesses, was deposited into their personal bank accounts, and was kept in the form of short term fixed deposits; the interest earned on these short term fixed deposits was also offered to tax in the returns of income filed by the assessees; the property was sold much prior to the sanction of OTS .....

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ectors/partners; the contention of the assessees, that the bank had appropriated the sale consideration towards discharge of the debt as per the OTS, was not acceptable; there was no direct nexus between the receipt of the sale consideration, and the payment made to the bank towards discharge of the debt; the unsecured loan, of the amount claimed to have been received from the directors, was disbelieved by the Department while completing assessment in the case of M/s. Hoe Leather Garments Privat .....

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e debt availed by the company/firm, the same could not be charged to capital gains; the Supreme Court, in R.M.Arunachalam vs. Commissioner of Income Tax and VSNR Jagdish Chandran vs. Commissioner of Income Tax, had held that the amount paid, out of the sale proceeds, to clear the mortgage debt could not be treated as the cost of acquisition or the cost of improvement, so as to reduce the same from the sale consideration, while computing capital gains under Section 48 of the Act; and there was no .....

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to the bank under the OTS; the amounts lent by the assessees, in the form of unsecured loans, were treated as unexplained cash credits in the books of accounts of the company/firm; and, as these transactions had already been subjected to tax in the hands of the company and the firm, the same could not be subjected to tax in the hands of the individual assessees also. Learned counsel would further submit that the very fact that the Tribunal had subsequently waived the penalty, imposed by the Ass .....

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