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TMI Blog2007 (10) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Tribunal seeking a decision again on the question of capital gains arising thereon treated as a short-term gain and not a long term one. The appellant also sought for reconsideration on the question of loss arising from the film "Kasthuri Vijayam". By order dated 1.9.2003, the Tribunal allowed the M.P on the question of capital gains on the sale of the immovable property accepting the same as long-term capital gains. It is stated that the Revenue filed an appeal in Tax Case No.272 of 2004. By order dated 6.8.2004, this Court took the view that the order of the Tribunal granting the relief on capital gains amounted to review of the order earlier passed rejecting the said plea. This Court took the view that the Tribunal had no authority under law to review its order. Hence, in the said view of the matter, considering the prejudice that might be caused to the appellant herein on the question of capital gains on the&n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , namely, "Kannamma" and "Uzaikum Karangal" from its sister concern M/s.Kamakshi Agencies Private Limited for a consideration of Rs.5,76,000/- and Rs.12,01,000/- on 22.8.1986 and 7.10.1986 respectively. These two films were released as early as 1972 and 1976 respectively. The vendor, in turn, had purchased the rights in the year 1982 and 1983 respectively from another sister concern of the assessee, i.e., M/s.Sudarsan Agencies, which is the proprietary concern of M/s.Sudarsan Trading Company. It is stated that eversince the purchase of the two movies in 1982 and 1983, the vendor, M/s.Kamakshi Agencies Private Limited had not exploited these two movies in any manner and were shown as closing stock and opening stock every year till finally the negative rights were disposed of in favour of M/s.Ashoka Brothers, a unit of the assessee herein, in the year 1986. The assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; contact with the exhibitors and that the films were given to the middlemen. Except for the confirmatory slips produced before the assessing authority as regards the receipt of film hire charges, no details were furnished by the appellant herein. On the other hand, the appellant stated that since the transactions had taken place well before 31.3.1987, it was not practically possible to produce the mediators before the assessing authority. The General Manager of the appellant firm, the former Managing Partner, expressed his inability to give the details or identify the persons to whom the exhibition rights were given. He further stated that some of the middlemen approached him through some persons known to the appellant. The assessing authority noted that nothing further could be elicited from the General Manager of the firm Mr. C. V. Velayudham. In the face of total lack of evidence as regards the mediators and the exhibitors through whom the films were exhibited and in&n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative for and on behalf of the firm, and the company refused to register the shares in the name of the firm. Subsequently, the shares were sold by the appellant-assessee at the best available price considering the fact that the company was a loss making company. The appellant herein received Rs.6,00,000/- out of the total consideration of Rs.8,40,000/-and the balance of Rs.2,40,000/- was still outstanding. The assessing authority felt that the claim of short term loss had been deliberately incurred by the appellant herein to avoid the capital gains. It is an admitted fact that the company had not allowed any dividends at any point of time from 1983 onwards. It is also pointed out that whether the valuation was by the yield method or under Rule 1D of the Wealth Tax Rules, the value of the shares were negative and the balance sheet of M/s.Sudarsan Clay Products Limited showed the value of the shares as 'nil'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the appellant-assessee preferred a further appeal before the Income Tax Appellate Tribunal. By an order dated 31.12.2002, the Tribunal rejected the appeal, thereby confirmed the findings of the authorities below. As against this order of the Tribunal, the appellant -assessee has preferred this appeal before this Court under Section 260-A of the Income Tax Act, 1961 on the grounds as stated above. 14. Heard counsel for the parties. 15. On the first question of claim of business loss on the exhibition of the films, a perusal of the order of the Tribunal shows the finding of fact that the assessee could not produce any evidence as to the identity of the middle men and the exhibitors. The parties issuing the confirmatory letters were also found as either not traceable or the addressees/address were not there. The Tribunal further pointed out to the finding of the Assessing Officer that as there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated one. The Tribunal confirmed the findings of the assessing authority to hold that since the films were not exploited during the year, the entire cost of acquisition of these films were to be carried forward as per Rule 9-B(4). Touching on this, learned counsel appearing for the assessee took us through the provisions of Rule 9-A and 9-B of the Income Tax Rules, 1962, to impress on the submission that these Rules have relevance for the new films for exhibition. He submitted that the assessing authority erred in invoking Rule 9-B that the appellant could only have the benefit of carry forward of the loss as per Rule 9-B. He emphasized that Rule 9-B and Rule 9-A have to be read harmoniously to get at the intention of the Rules provided therein that at best, these Rules have relevance for new films alone and cannot be extended to films already released and exhibited and further so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein. On the geniuneness of the claim of the exhibition through the mediators, we have already rejected the plea of the appellant herein. As regards the contention as to the applicability of Section 68 treating the alleged exhibition receipts as cash credits, it must be seen that the primary onus as to the receipt of the said amount is on the appellant-assessee to show the identity of the exhibitors and the mediators and the genuineness of the transaction. Only where the assessee discharges the burden prima facie, that the burden shifts on to the revenue. The mere production of the confirmatory letters would not, by itself, prove the claim of the appellant as regards the exhibition of the films. Read in the context of the inability expressed by the assessee to bring the exhibitors before the assessing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub Rule (1) to Rule 9-B defines the cost of acquisition. It states, the cost of acquisition in relation to feature film means the amount paid by the film distributor to the film producer or another distributor under an agreement entered into by the film distributor with such film producer or such other distributor as the case may be for acquiring the rights of exhibition expenditure. The provisions contained therein also stipulate the minimum period for which the film should have been exhibited for the purposes of gaining benefit under these provisions. 21. A reading of Rule 9-B(1) with the explanation thereon leaves no room for doubt that it intends to deal with films coming for exhibition after its release for the first time. The fact that it refers to "distribution from one distributor to another or from one distributor to such other distributors" clearly shows the futility in the contention of the learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax (Seventh Amendment) Rules, 1976. Learned counsel submitted that the normal Rule as regards the deduction have not been applied in this case. Learned counsel placed reliance on the decision of Jabalpur Bench of the Income Tax Bench reported in in the case of ITO Vs. R.S. Enterprises (1983) 5 ITD 142, which was referred to before the Tribunal. The grievance of the appellant herein is that the Tribunal had omitted to consider this issue raised. However, learned counsel fairly stated that the Tribunal considered the claim in the M.P. filed after the disposal of the appeal only to reject the same once again. 24. A perusal of the order passed in M.P.Nos.21 & 87/03 dated 1.9.2003 shows that the Tribunal considered the claim and pointed out that the facts relating to the expenditure on the production of the films which was abandoned were not placed before the authorities at all for consideration. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same should be credited to the books of accounts of the assessee and deduction granted in accordance with Rule 9-B. Since there was credit of collections during the year, the assessee was not permitted the write off by the assessing authority. Thus confirmed on factual aspect, we do not find any ground to interfere with the same in exercise of the jurisdiction under Section 260-A of the Income Tax Act, 1961. It may also be pointed out that the assessee had not denied the applicability of Rule 9B in the proceedings taken before the assessing authority or before the first appellate authority. In any event, on the view taken on facts and as to Rule 9-B and its applicability, we do not find any justification to accept the plea of the appellant herein. Hence the third question is answered against the assessee. 26. As regards the fourth question on the disallowance of the claim of capital loss of Rs.3.60 lakhs, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... layudham and registered on 26.9.1986. The Assessing Authority took the view that since the appellant-assessee was in possession for a period of about two months, it is a short-term capital asset in terms of Section 2(42-A) of the Income Tax Act, 1961. The assessing authority thus took the view that the sale proceeds from the short-term capital asset should be assessed only as short term capital gains. Aggrieved of this, the appellant-assessee went on appeal before the Commissioner of Income Tax (Appeals). The first appellate authority took the view that till 9th July 1986, the appellant was not the owner of the property, that the ownership could not be transferred by mere possession of the immovable property without a document registered to its name. Hence, the appellant could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; the appellant also pointed out that when the vendor refused to go ahead with the agreement entered into, a suit was filed before this Court on the Original Side in C.S.No.710 of 1980 for a relief of specific performance. Ultimately, the dispute resulted in a settlement in the appeal, whereby, the vendor agreed to execute the sale deed on a consideration of Rs.45 lakhs as against the original consideration. In terms of the agreement, the sale deed was executed and registered on 30.9.1986. Learned counsel pointed out that since the right is traceable to the original agreement, the claim of the appellant-assessee has to be seen from the date of the original agreement. 29. Per contra, learned Senior Standing Counsel appearing for the Revenue submitted that it is an admitted fact that the original agreement entered into in the year 1975 underwent changes as regards the consideration. Hence, there was a novation of contract and the fresh sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see for not more than thirty-six months immediately preceding the date of its transfer: ... " Section 2(47)'Transfer": "Transfer" in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; (or) The following clause was inserted under Finance Act, 1987 with effect from 1.4.1988: (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer&nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the owner, but in his own right." The Apex Court pointed out to the amendment to Section 27 under the Finance Bill, 1987, to get over an obvious omission to the meaning of the word "owner" under Section 22 that even though in common law, "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law under the Transfer of Property Act and the Registration Act, having regard to the ground realities and the object of the Act, namely, to tax income, in the context of Section 22, the owner is the person who is entitled to receive income from the property in his own right. Adverting to the provisions of the Transfer of Property Act under Section 53-A, 54 and 55, the Apex Court held that legal title does not pass unless there is a deed of conveyance duly registered. Referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VESTMENT CO [ 2003] 259 ITR 724.), the Rajasthan High Court held "Following the view taken by their Lordships, we are of the view that for taxing the capital gain, registration of the sale deed is not necessary under the provisions of the Income-Tax Act." The said decision of the Rajasthan High Court was again followed in the decision reported in (C.I.T. Vs. RAJASTHAN MIRROR MANUFACTURING CO [2003] 260 ITR 503.) . 36. Again, in the decision reported in (M.SYAMALA RAO Vs. C.I.T [1998] 234 ITR 140.), the Andhra Pradesh High Court considered the situation, where, under the agreement of sale on the 1st May 1962, the assessee was put in possession of the land. The document of sale was registered on 8th June 1979. The assessee sold the land after converting it into plots. The sale of these lands was sought to be assessed as capital gains. On a reference, the Andhra Pradesh High Court held that though the document wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition 1985, "owner" means one who owns or holds something; one who has the right to claim title to a thing." 38. The High Court held that even if the amount was not paid in full by the assessee in terms of the agreement, it could not be construed that the assessee had no right or interest in the property. The assessee was put in possession as early as 1970 and was remaining in occupation as a matter of right. Thus for all purposes, he was a beneficial owner from the start. In the context of this view taken, the Court held that the capital gain was assessable as long-term capital gain. 39. We find no reason to differ from the view taken by the other High Courts as stated above on the scope of Section 2(47) with reference to the liability under Section 45. Although the decision of the Apex Court related to a case of income assessability at the hands of an occupier who need not be an owner in the normal connotation, yet, given the scope of the definition prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; J.R.KANEKAR [2004] 271 ITR 269 ), the Bombay High Court considered the effect of Section 2(47) which was amended from 1.3.1988. The Bombay High Court held that for the transaction to amount to "transfer" within the meaning of Section 2(47), the minimum requirements are that there has to be an agreement between the parties signed by the parties; it should be in writing; it should pertain to transfer of property and the transferee should have taken possession of the property. Referring to the decision reported in (ALAPATI VENKATARAMIAH Vs. COMMISSIONER OF INCOME TAX [1965] 57 ITR 185) with reference to Section 12-B of the Act of 1922, it pointed out that "transfer" for the purposes of the Income Tax Act, 1961, require facts of conveyance of the capital assets to the transferee. Delivery of possession of immovable property, by itself, could not be treated as equivalent to conveyance of the immovable property. 44. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulting in a profit or gain assessable under Section 45. All that the present Section looks at is the transfer of a capital asset held as understood under Section 2(14) and under Section 2(47). In the background of the provisions as they stand today, the decision reported in (MECCANE INDUSTRIES LTD. Vs. C.I.T [2002] 254 ITR 175.) relating to the assessment year 1968-69, or for that matter, the decision of the Supreme Court reported in (ALAPATI VENKATARAMIAH Vs. COMMISSIONER OF INCOME TAX[1965] 57 ITR 185 ), can have no relevance to the issue in the matter of understanding the scope of Section 2(47) and Section 45. As already seen, the case on hand has to be analysed in the context of the provisions prevailing during the relevant point of time. In the circumstances, we do not agree with the view taken by the Tribunal, applying the decision of the Apex Court in the decision reported in (ALAPATI VENKATARAMIAH Vs. COMMISSIONER OF INCOME TAX [1965] 57 ITR 185) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; covers the issue on hand fully. The definition under Section 2(47) is an inclusive Section which starts by saying "transfer in relation to the capital asset includes ...."; as such, it is not possible to accept the stand of the respondent that the transactions falling under Section 53-A of the Transfer of Property Act for the purpose of considering the capital gains would fall for consideration for the purpose of considering the same as falling under long term capital asset only on and from the amendment inserted under the Finance Act, 1987, with effect from 1.4.1988. In the light of the decision of the Apex Court already noted, the insertion is only declaratory of the law already there by reason of inclusive terms under Section 2(47) which is a wide definition in its import. In the circumstances, we are in entire agreement with the view expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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