TMI Blog2007 (10) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... d, Chennai, four questions of law were admitted by this Court under order dated 23.4.2004. 3. It is stated that subsequent to the disposal of the appeal, the applicant filed M.P.Nos.21 87 (MDS)/2003 before 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 sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contended that as per the agreement entered into by the assessee, these two films were given to the mediators to exhibit the films in any particular area for a particular period and amounts were received thereon on the rights given. Admittedly, the assessee had not entered into any agreement with the exhibitors directly. The total collection made for exhibiting these two films through the mediators were stated to be to the tune of Rs.1.26 lakhs. The cost of these two movies and the income earned were debited to the Profit and Loss Account and the assessee has showed a net loss of Rs.20,68,830/-. 8. In the course of the assessment proceedings, the appellant was asked to show the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he films purchased had not been exploited during the year, the entire cost of acquisition of the two films were allowed to be carried forward as per Rule 9-B(iv) of the Income Tax Rules, 1962. As regards the collection of Rs.1.26 lakhs for the exhibition of the movies, the assessing authority treated the same as unexplained cash credits under Section 68 of the Income Tax Act, 1961, on the premise that these monies were really that of the appellant's money introduced in the guise of the receipts from the exploitation of the films. 9. The second issue relates to the disallowance of loss arising from the film "Kasthuri Vijayam". It is stated that the said film was purchased by M/s.Ashoka Brothers under the banner "Moogambika Films". The negative rights were owned by the appellant-assessee firm. Since there was no collection forthcoming, a sum of Rs.1,53,534.57 was written off. The assessing authority took the view that as there was no credit of collection during this period, the said amount could not be written off under Rule 9-B. 10. On the next question as to the short term capital loss of Rs.3,60,000/- arising out of sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of sale dated 16.9.1995 did not confer any title to the assessee that the sale deed was executed as per the memo of compromise entered into in the O.S. Appeal before the High Court on 9 th July 1986; that the sale deed was registered in favour of the appellant-assessee only on 10.7.1986. Hence, till the sale deed was executed in favour of the appellant in the year 1986, the appellant did not have any title as an owner; consequently, the sale effected by the appellant on 26.9.1986 resulted in short-term capital gains only. The appellant-assessee did not hold the property for a period more than 36 months to treat the gain as long term capital gains. 12. Aggrieved by the order of the assessing authority, the appellant -assessee went on appeal before the Commissioner of Income Tax (Appeals). By an order dated 9.12.1992, the Commissioner of Income Tax (Appeals) dismissed the appeal, upheld the order of the assessing authority, thereby confirmed the assessment. 13. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the appellant-assessee preferred a further appeal before the Income Tax App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; that these films were purchased at a cost higher than what was paid by the sister concern. The Tribunal referred to the findings of the assessing officer that the idea of claiming loss was only to negate the capital gains incidence which the appellant-assessee had during this year. Hence, the plea of exploitation of the films through the mediators itself was a fabricated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 authority and considering the fact that the addressees were not there in the said address or the particulars were not correct, the view of the assessing authority could not be faulted with. It is no doubt true that law does not contemplate or require compliance of an impossible act. Yet, when the details regarding the particular receipt is exclusive to the knowledge of the assessee who has the necessary information relating to the same, the initial burden is certainly on the tax payer to discharge the same so that further en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to relate the same to old films. In contrast to Rule 9-B, Rule 9-A shows that it relates to a new film. The Section deals with deductions in computing the profits and gains of production of feature films certified for release by the Board of Film Censors in terms of the provisions of Sub-Rule (2) to Sub Rule (4). A reading of the provisions clearly show the difference in the area of operation of the provisions of Rule 9-A and 9-B. In the circumstances, we do not find any justification to hold that invocation of Rule 9-B will not have any bearing to the case on hand. We agree with the Tribunal that the appellant-assessee is, at best, entitled to the cost of acquisition of these films to be carried forward as per Rule 9-B(4). Consequently, questions 1 and 2 raised are answered against the assessee appellant. 22. As regards the third question raised by the appellant herein on disallowance of loss arising from "Kasturi Vijayam", it may be noted that Rule 9-B(4) provides that in the event of the assessee not exhibiting the film on commercial basis or sell his rights of exhibition, thereby resulting in no deduction in respect of the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below, in the absence of any material to substantiate his claim of expenditure, we do not accept the plea of the assessee. The Tribunal pointed out that as regards this claim, there are no evidence placed before the Tribunal to show that the rights were abandoned, since there were no credit of collections. However, if the rights were purchased by the assessee and there were no collection, the provision that would be applicable would be Rule 9-B, which had been rightly applied by the assessing authority concerned. The Rule provides for deduction on certain basis. The deduction is available only subject to exhibition of films for particular number of days. In the absence of any details thereon, the claim of the assessee was rejected. While going through the order of the Commissioner of Appeals, it is seen that when the assessee was asked to show how he was entitled to write off the sum of Rs.1,53,534.57, it was stated that the assessee explained vide letter dated 15.2.1989 that the amount should be allowed under Rule 9-A and 9-B. If there are collections during the year, Rule 9-B expressly st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35, Nungambakkam High Road, Chennai. It is seen that the appellant-assessee had an agreement for sale under document dated 16.9.1975 and the possession was handed over to the appellant herein on 1.1.1976. During the assessment year 1987-88, the appellant -assessee sold the property at Nungambakkam High Road for a sum of Rs.45 lakhs to one Kalpatharu Private Limited on 30.9.1986. It is stated that the sale deed in favour of the appellant-assessee was executed on 10.7.1986 by Velayudham 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 9 th July 1986, the appellant was not the owner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sale agreement was entered into and registered on 30.9.1986. Hence, the right of the appellant-assessee has to be worked out from the date the document was executed and registered in favour of the appellant. Viewed thus, the claim could be nothing but a short-term capital asset giving rise to short-term capital gains. 30. A perusal of the documents filed before this Court shows that admittedly, the appellant-assessee was put in possession and enjoyment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions, as they stood at the material assessment year, show that "capital asset" means "property of any kind held" by the assessee. It may be seen that the Income Tax Act, 1961, does not contain the definition of "property". In the decision reported in (AHMED G.H. ARIFF Vs. COMMISSIONER OF WEALTH-TAX [1970] 76 ITR 471 ) , in the context of the Wealth Tax proceedings with reference to the definition of "Assets" in Section 2(e) to "include property of any description", the Apex Court held that 'property' is a term of the widest import and, subject to any limitation which the context may require, it signified every possible interest that a person can hold or enjoy. The definition of "capital asset" under the Income Tax Act, referring to "property of any kind" carry no words of limitation. The definition is of wide amplitude to include every possible interest that a person may hold and enjoy. The meaning ascribed by the Apex Court to the term "property" applies with equal force to the understanding of "capital asset" under the provisions of the Income Tax Act. 33. The definition of "capital asset" refers to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efor by any law. The section is, therefore, applicable to cases where the transfer is not completed in a manner required by law unless such a non-compliance with the procedure results in the transfer being void." Affirming the view of the Rajasthan High Court, the Apex Court held that in the context of Section 22, where the transferor had handed over possession of the property pursuant to an agreement for sale, "owner is a person who is entitled to receive income from the property." The Apex Court held that the amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory in nature and hence, these provisions are retrospective in operation. 35. The Rajasthan High Court had an occasion to consider a case similar to the one that we have on hand. Applying the aforesaid decision of the Apex Court to the case dealing with a question of capital gains where possession was given to an agreement holder, in the decision reported in (C.I.T. Vs. VISHNU TRADING AND INVESTMENT CO [ 2003] 259 ITR 724.), the Rajasthan High Court held "Following the view taken by their Lordships, we are of the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , land . . . .). Thus, a person can be said to be holding the property as an owner, as a lessee, as a mortgagee or on account of part performance of an agreement, etc. Conversely, all such other persons who may be termed as lessees, mortgagees with possession or persons in possession as part performance of the contract would not in strict parlance come within the purview of "owner". As per the Shorter Oxford Dictionary, edition 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) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision of the Supreme Court reported in (ALAPATI VENKATARAMIAH Vs. COMMISSIONER OF INCOME TAX [1965] 57 ITR 185 ) on which the Tribunal based its decision and relied on by the revenue is to be understood with reference to Section 12-B of the Indian Income Tax Act, 1922. and in the context of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontext 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) and the decision of this Court reported in (MECCANE INDUSTRIES LTD. Vs C.I.T [2002] 254 ITR 175 .). 47. The question then is, what will be the effect of the amendment brought forth to Section 2(47) by the insertion of sub clause (v) to Section 2(47) relating to the definition of "transfer" under the Finance Act 1987 with effect from 1.4.1988. 48. This takes us once again to the decision of the Apex Court reported in (C.I.T. Vs. PODAR CEMENT PVT. LTD [1997] 226 ITR 625). 49. As already seen, the decision of the Apex Court was concerned on the meaning of "owner" with reference to Section 22.Yet, the construction given to the amendment effected under the Finance Act of 1987 to Section 2(47) is of relevance to the case on hand. Given the interpretation of the term "property" and that assessee having possession of a property pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court reported in (M.SYAMALA RAO Vs. C.I.T [1998] 234 ITR 140.), that the capital gain arising on the transfer of capital assets has to be worked out from the date of the agreement under which the assessee was put in possession of the property. The reasoning of the Tribunal, consequently, cannot be upheld. The fact that the sale consideration had undergone a change by reason of a compromise ultimately entered into in the suit proceedings does not result in a novation of a contract. The compromise entered in the suit is itself with reference to the rights arising under the agreement entered into in 1975 under which the assessee was put in possession. Consequently, we have no hesitation in setting aside the order of the Tribunal insofar as the decision of the Tribunal is concerned on the capital gains arising on the sale of the property. We hold that the assessment has to be made treating the gain as long-term capital gains arising out of the sale of the immovable property at 35, Nungambakkam High Road, Chennai. The relief, hence, has to be worked out in terms of the above-said view that we have expressed. 50. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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