IN THE HIGH COURT on KARNATAKA,
DATED THIS THE 281″” my 0:? J1, ”
PRESEIW « «M
THE HOISPBLE MR. JUS’I’iCE éH*i?LE}1~::§R}; _
AND . ~. :
THE I~iON’BLE MR. J~L:s’:?I_C:E AEQAVTND-,K’E¥:NiAR
_1_,_fg_,A
BETWEEN 1′ A ‘A
I. The Commi$si9_;1er:éfII1c§:1neg:ax,3
c.12.Bui1dmg;,.~
Queens_..I€t>ad;~–._…’;1 ” Q ” »
Banga1cizfe.–::__
2. The I)ept1tj,i_.C91*£1;nissioner-
Of Ii1ccme~-Tax;-~ % = ‘
CircI6*.5(‘1), ‘
C.R.Bui.}§ling, ._
Queens Road,” ”
Bzirxgaiflre. %%%%%
” ” ~ APPelIan1:s:
‘ Advocate)
AME:
A ~ – -. V “‘.~3:~.:.P.R;seshac1xi,
_ ‘~. ?~¥o.i2″1, Guhnohal Enclavc,
‘ ” Qppasitc to Airport White Field Road,
‘ Baamgaiore-37.
(By Sri.M.Lava for Aflhankar, Advocate)
Resmndent:
This Appeal is fled under Section 260A ofincome
Tax Act, 1961 to aliow the appeal and set aside..Vth5es~o1~der
passed by the ITAT, Bangalore ETA No. 1I62jBa ng,I2002
dated 29-3-2003 and confirm the order of$Vj;he”VV4?if;;3}i>€1_1i3a~te
Commissioner confimling the order passed’?b__y the “{)Vepi1ty
Commissioner of Income Tax. Cirole—5(1_}–,”Bm’gaIore._ ” ”
This Appeal coming orx-._ fc-_1’e..heé:I’iI1g}’ ifiay, ”
D.V.3HYLENDRA KUMAR VJ, delivered th¢_*vf;fl}0WiI:.,’gt*~.A *
Jvbonmlg % ‘ %
Appeal by the A of the
Act. Assessment is an
iritdividlial’ ‘his of income ofi’e-ring to tax
income’If1’om’his’1§1;1si1*1ess44’a*«.ctivities etc, apart from eapitai
gains, _
V’ ._ ‘1″;-he appeal is one relating to the
offhe capital gains.
‘A 3. the accounting period relevant for the
7-‘«4__”-»assessm,ent year, the assesses was holding shares in a –
by name M/s Vishesh Technologies Pvt. Ltd., and
h V’ about 90% of the share held anti transferred his
‘ enfire share holding of Rs.40,07,00() in favour of M/ s SRO
Infotech (India) Ltd., at a price of Rs.18.75 per share
yieiding a net receipt of RS.75, 13, 125/-.
4. Apart from transferring his entire shagfe’: in
the company in favour of the buyer the asseesjee.
a separate agveement ageed to”ti*ansfe:j 1′. A’
connection with a soft ware’ thatV’the’–a.sseseee”hiH1Seif.had
developed, some of the of faameiy
computers and some omcle Software
as also intellectual vxa;l»’__f:atents and copy
rights iwlfich owned valued as under:
I. S 6.75 lacs ~ {Rain lacs)
__ HNR ~ 0.85 lacs ~–
” deb ~ 7.60
,, .4 . of VT» 3. 14
e property rights
– of patents & copy rights
~~ _ owned by Mr.P.R.Seshadri 34.78
, Oracle Software , 0.48
Total 45.00
, (2313259) fi~0,0720OQ!’~
Totaiirxg a sum of Rs.45 Lakhs.
5. It appears the assesses in the
capital gains from the sale of the:sha1*es_
whether of the company or of
the capita}. gains attributabie..__§o
worked as under: _ 1
Income from long
1) Sale of 400, 709.
Tech.(P)Ltd. - ,
@Rs.18.75}icr :_ %
%%75,13,125.oo
Less C%:)st'--Of 4003300.
Rs. 10/~’Pcr V. “4z3,o7,o00.0o
Indexed cdstof 40.0; A709? Jshares
Purchased on.4.4′.94 ”
43,4»7,362.00
and” ofiered a further sum of Rs.8.78 lakhs as
A 5.’ gain from thc sale copy right (Computer soft ware)
ifigdicaiing that the: price which he had received for the sale
V
of this item itself was the capital gain as accfllftlittéfp the
assesses the cost of acquisition was nil. ‘ I’ ‘T A4
6. The assessee, it appears,
amount of Rs.25,00,000/- by Wegy of
Rs.45 Iakhs which the ‘£0.
7. ‘ While assessttigi filed by the
assessee, the )§.ssess1fln;g”:.F the assessee
had claimed. as a deduction
in 1 of Act which the Assessing
Oificer was not entitled as it
appeaied to Oificer that the spouse of the
claim’ ed like benefit for the sum for which
claimed deduction by way of investment
V V’ _ in the eonsteuotion of the house and also being of the ViCW
Elie ‘sum of Rs.25,00,000/- should have been ofiered
gain in the very year and not avoided for offering
T the pretext of being advance payment as in the opinion
of the Assessing Officer the transaction was well over and
amount was regaxfled as part of the saie consideration. On
such premise the Assessing Ofiieer the
assessment adding a sum of
Rs.25,00,000 1- to the capital gaifl at
the assessee himself and calied 2
commensurate tax. tt A . »_ A L
8. The Appellate
Commissioner. Before t > Cemmissioner the
assessee conte.-atleé fjau of Rs.8.’?’8 lakhs
was in i@_1_oiaeVce’3’of and that the amount was not
– assessableto gain as the capital gain could
net worited dtie the difficulty in working out the
of of the particular asset and therefore the
‘act have been added as capital gain though
V V’ _ ha駔‘beet:1’of;fered by the aseessee himself.
‘A s 4_ 9.7′ it was also urged that the Assessing Oflicer could
fgot’ Iiave taken the receipt of Rs.25,()0,000/— as income
T “due to capital gain for the very year as it was only an
advance payment. It was therefore contended that the
Assessing Officer error in adding this ‘_f1’he
further gound raised is that the assessee
benefit of Section 541?’ of the Act:-J ‘ 2 4’ in
10. The Appellate ”
impressed upon by any
assesses, dismissed
11. The assesses’ the Income Tax
Appellate The Appellate
Tribunal assesses himself having
1 of the new residential
buiidingeutof his:’i:Vfnn<lsV"'generated by the sale of shares,
mespective of that the spouse claimed on the very
V" piiovisien where the assesses had made from out of
for the construction of the building,
thoijigli on a land belonging to his wife, was
. .. , _, . ei:m:¢:me1§ss entitled to the benefit under Section 541?' and
ieeeorkiinglyr allowed the deduction claimed by the assesses.
12. In so far as the computation under the head of
V x capital gains is concerned, the Tribunal for examining the
as/”
addition of Rs.25,00,000/– that it att1’acteciQ..t3fi1 t;jV.’Vp’i;3:1::§ip1e
laid down by the Supreme Court in CIT
reported in (1931) 123 rm 294%j(éCj}I W’hereén%:;he¥s%ug:;se§–ne
Court had taken the Viéfi’ assgfié.
cannot be subjected to as” as thf:
cost of acquisition computing
and themfore the under Section
48 faiis the facts and also
being of of such an asset was
made Section 55(2) of the Act
which book only with effect from
1-4″-41998 oz1aWe,r_§;i’s”wfiich reads as under:
of “adjusted”, “cost of
~ iII1pi’O1?fL’3.ii£?:’I}t” and “cost of acquisition”. ~– (1)
A ._ “F_(}I’ of Sections 48 and 49, –
T?-*?){(35I¥1i’3%,*5’i}
(b) “cost of any impr0vement”,–
(:§)”:in relation. to a capital asset being
goodwill of a business. [or a right to
manufacture, produce or process any
article or thing] {or right to carry on
any business] shall be taken to be nil,
and
(2) in relation to any other capital asset, –
E/V
(i) where the capital asset
the property of the pxevieias _ ”
owner or the assessee befQreV_’flfi1e
1st day of April, _:{‘l9$’1],.'[* ‘
means all expcgnditufim
capital nature AKiI1:Ct1};£’Cd’-_V’iI1 _
making any atiditiens A31} 2
aiterations to capital asset <3zji"' "
or after the Said _date'—by"theg
previous owner Or. the assesses;
(ii) in any means an
_ .e:{q:enditure”V..:of_a{“;;apit1a1′ nature
é;r;3%”‘additions
V’ _oI9″~a1i;_er-a1f;E,?€TW{“‘a11’d, where the
” V.-;;;ag3ieta1’«.,_ -asset became the
‘ “of ‘ihe assesses by any
. of the..1ixn_pdes specified in sub-
. “scc’?:ior1_ (I) of Section 49, by the
previous owner,
_ gglpcvs £1ot’i.u~::iude any expenditure which
‘ is deductible in computing the income
” g:11afgea.Ejie”–}1nder the head “Interest on
” _”‘sect11*if7ie$’§”‘”II1con1e from house property”,
‘ ffPI’o1’its’a1:1d gains of business or profession”, ”
61’ “‘¥.jr1c’:)’me fiom other stmrces”, and the
exgireéssion “fimpmvement” shall be
‘ ” rcpnstrued accordingly.
V’ (2)”For the purpose of Sections 48 and
49, “cost of acquisition”, –
[(a) in relation to a capital asset, being
goodwill of a business [or a trade mark or
brand name associateci with a business]
@/
16
[or a right to manufacture, produce
process any article or thing [er
carry on any busir1ess}], tenancy Ijghts,’ ‘
stage carriage permits or 1oem11o11z*s,- ” ” V’
(i) in the case of acqtzisitieir ‘ of [such A ~ A
asset by the aseessee’—-by”-purchase ‘ é
from a previous ._dwner,”‘means~-._the””‘
amount of the p:riee;’a1£d ‘4
(ii) in any other case—{net a’ee.se”
falling undef*«.su!)~c}.a:1=.5esVV%{i},t0 (iv) of
subsection’ {1} of _Seet:i_oz1 49}._. shall
be taken tote?-<ettni1;"
and thcre;’c);’e5_ Section 55(2) is not
avaflatale fef year 96-97 there is no way of
suspentiirzg of the principle as etrolved in
Sri1:i;\raee..Shett;;aff.;”easte am directed deletion of addition of
also held the addition of Rs.8.’78
iakfis is: to be deleted for the same reason as the
. .. .,.’Ve:eQ;1nt”‘x;srae on par with the sum of Rs.25,00,000/~. The
ailowed the appeal on such findings.
14. It is against this finding of the Tribunal, revenue
is in appeal. The revenue has raised the following
W/
11
substantial questions of Law for examination in this
appeal:
(1) Whether the Tribunal was correc;1.’ tin –
holding that the 4
enfified to claim deduction.’ V _
section 54F of the Act; on _1;he incameé’ .
derived from sale of on the _ ”
yound that the _ had emr:m 2
invested on a hG1__1 $»f; owtxedhy ‘V
wife at No.79’7’,=.._ ‘ Rustu:-m_.bagI1,}
Eangalore by,-H” . “intck
oonsidexatitmp. -ceI;tain._ tmilateral
cdntragtors, tender
‘fQr:’_r_3s_ f0? construction
——– mxly éifiectby the”vas$essee and not
b3″75’A1<?v'0flifif"'-Pam' and rejected by
"4the_'aS54¢Ssif1g"o:fficer and certain
' vmuchers"pr0:1ii¢ed for the first time
Lbefere 'I'ribuna1 and
corzsequently recorded a perverse
…. .. « '
" ~ V (ii}._ " Whether the Tribunal was correct in
the admission made by the
"a.$3'esse's wife Smt.Va1sala Seshadri
' Farm Ne.34A under section 230A
of the Act on 12.2.1996 that she
was the absolute ewner of 4,000 sq
feet of house built in No.'?97,
Rustumbagll, Bangalore owned and
built by her out of funds derived
from sale of her property situatw at
I-{AL 21"? stage, Bangalore and
12
consequently recorded a
findixxg?
Whether the Tribunalwss’ corfeét
holding that a sum ‘of
derived by the assessee tram sale” of 1 ..
soft ware was towards ‘edvance.»:¢;s_dV
consequently the-same c£>11ld~ (lot
brought to tax the
assessment. year, ‘- _ ” V -.
Whether the was ‘*r;0I’£.’ect in
holding tl1;:1t._ijsf:oi’I_1e..» of””Rs;’2;5 ‘iakhs
derix(ed_ by the; assesses team the
sale soft- wa!s'”I3ot1″;ing but a
com Vgiatentw. right being
z:ig’,ht:f,to produce or
” –p;’e:)ces.}-f;~ “of'”sJ.fIy a’rt’1″c}e”‘or thing under
_ .2: anti was not liable to
l as.”the..a’;E3e’1;ded section 55(2){a)
‘A of the Act was not applicable to the
“suites”: assessment year?
vvl_Whetl1er-~tl1e Tribunal was correct in
Jfxolding that a sum of Rs.8.78 lakhs
».fi€§I’iEfed by the assessee fiom sale of
ware was nothing but a copy
tight and patent right being right to
l “V manufacture, produce or process of
any article or thing under a brand
name was not liable to tax as the
amended section 55(2)(a) of the Act
was not applicable ‘:13 the current
assessment year especially when the
assesses has admitted this amount
as its taxable income in the return
filed by him?
rm»
– itself e
13
15.We have heard Sri. Seshachala learned
counsel appearing for the revenue and f
for Sri.Shanka3′ for the assessee.
16. Submission of iv the
Tribunal has committed e3′:-4__.eI1’oi’._V_’i:1
assessee is emtitled for the of that the
Tribunal failed to had
also ciaimed the made for the
Very could not have
been ” benefit of Section 54F in
respect L It is also submitted that the
the name of the spouse of the
tfxerefore also there cannot be any claim ef
the assessee in respect of the construction
”._of euchia building etc.
V’ . ‘_«1’7. The next argument is that the Tribunal has
‘ cemmitted a serious error in law in simply proceeding to
apply the principle evolved by the Supreme Court in
$//
14
Srinivasa Shetty’s case even without examining
set of facts and circumstances and it is
that the Tribunal failed to “‘t._he3’ of AV
bringing to tax the c:apita1Vga_i’n a£~e:fb§tab1§tet:aAt they
of cepy rights technical
he had property is tttattvveven before
the amendment to Act, there is
requirement of the capital
gains to not examined the
proceeded to apply the
principie Shetty’s case. It is also
subllfiitted cannot be said to be on
. V. like intellectual pmperty rights of
ieopy rights owned by the assessee and also
the”‘vah;’e’ soft ware etc. It is therefore submitted that
L without examirxatioxa, blindly directed deletion
of Rs.Z25,00,{)0()/- even without going into the
” -qiiestion of ascertaining the capital gain. The other
‘ ” argument advanced en behalf of the revenue is that in so
3/
15
far as the amount of Rs.8.78 lakhs which the assessee
himself had ofiered as capital gain is concerned, the
Tribunal was in error in directing deletion of thi.sV’:-ajbmeunt
that too on the reason this was on par
Rs.25,00,000/– which the Assessing OfiiCéI”‘::oVnv.
premise that it amounted to’
ecmsideration received in
the assessment year. i . it
18. Submission is Vhimself admitted
the reeeipt and had offered this amount to
tax on the cost of acquisition as nil
and’ p11 sucii calculated the capital gain. If there
V’was”no””adciition, the principle in Srinivas Shetty’s case is
hf-:3ti’__e1%e:i:'”ai;tra;e’i:ed. This is a case where assessee himself
had'”assesseti and offered it as capital gain.
A. 19;” On the other hand appearing on behalf of the
_’ assesses S:ri.Lava lmmed counsel for the assessee
it ” “vehemently urged that the assessee }:1,a<i'Iightly claimed
the benefit of the pirevisions of Section 54 F in this regard.
V
16
Learned counsel for the assessee would take us through
the computation of the amount for mpital gain and has
also drawn our attention to the amount offered hjfway of
capital gain and the benefit claimed in resgect
gain by the spouse. of the assessee whichs_is’:
the assessment order (page the I
spouse of the assessee had _v:tie<'_';1?.1é…1'.(':'£'.'i(:):i1,
under Section 54}? oniy to of
the value of the _the benefit
had iibeenfl t ' . the assessee was about
Rs.25,0O,()O{.)/4 had claimed to the extent of
Rs.'2§_),*§a'5,,61t?./~..V_V_V"V1Sobmission of Sri.Lava is that the
f~2s.8.78 lakhs c§a1m' ed by the spouse of the
ti:1e"'benefit of Section 54?' in fact was not even
_ suifieient the value of the land which was valued at
,.';1'€As,;9?IOsV,'{];OO/- and it was not as though the assessees
had any benefit in respect of the construction of
T building in terms of the provisions of Section 54F' of
A t theAe!:.
17
20. With regard to the deletion of amounts of
R$.25,0(),00O/~ and Rs.s.7s lakhs by the
learned counsel wouid submit that it is jtistifited
the reason the Tribunal had fo1Ic§V.Veet:_tI:e'”‘raiio
the Supreme Court in tlieeaee of .S’I’iniva,e-
the opinion of the ttxe peipctple was
applicable to the ttxerefore the
appeal has to respect. He also
submitted that ‘”‘rea soIi’ the” matter requires ne-
off the Tribunal held the entire
computetiont of also to be re~e.v-zamined and
thetfefo1’e tlte tmincipal shouici have applied in the
.C:t§m1outafion of capital gain in respect of sumfl of
l or Rs.2s Iakhs both of which are to
.% be’tie1.et;et:1’v’oy’the Tziburxal. In this regard Sri..Lava would
.4 H ‘A it is well settlegi en the authority of the rulings
Supreme Court in the matter of taxation that
T eozlsent cannot be the basis for fixing the liability which is
not found in the statutory provisien. The mere fact that
M
18
the assessea himself had offered a sum of for
tax by itself wauid not put against the V i
21. Sri.Lava in support
on the foilowing decisiens . é 1 i ii A. ‘V
(1) 287 IT}? 271
(ii) 91 rm 18 4
So far as the i’:6vV.:i:iiiéiv»V2i:j:)pficabifity of the
ratio of is concerned While
it is true ti’-g1:’::..<9:8;)13.s£31'1t;.'iiot'}confer jurisdiction 0;; an
assess;_j11g_ at1"t1*i9ifit;,5 toVV"suhje(;t a citizen to irax, over and
above tlki 'statutory pfafiiéizins, the said decision is not
attifgcted to' ti"1¢i1V')re.§'.'.eI1t situation for the simple 21633011
:t i;«§&;;§1;«iiias though by consent the additional liability
the statutory liabiiity is created but the
assésseét had Worked out the method for
.4 Au"'V.vi,.'V:c:,~mputvi.é.ti0n Of capitai gain and had by himself
éxwiéeiiained both the cost of acquisition and the safe price
i when both are available there is no difficulty in
computating the capital gain for the purpose of Sectien 45
%/i
19
of the Act and themfam thc Tribuna} was ~ “to
ezxamine the applicability or otherwise of
down by the Supreme: Court in Sfinjvéé
22. We have perused the
records inclusive of the orderé–r§_f’?3gc Fifi: L’
and tile assessment OI’d€_,I’.,. the “in~f31C~ and
bestowed our attcnfiofi S*;’&V2′:t_;;1V:11<,2%:«*;i<31:a made by the
learned counsel fiat V V ' V J
23. ‘I’1’_1_cV benefit of Section
54F our opinion has to be W
araswtzrégi {ind in favour of the assesses for
the mas§n.._§hat may be in the crwncrship of
assessefls spou»sgV,” fievérthciess thc Tribunal has mcorcied a
finding construcfion work was in progress
till 31-8-1996 and the wife of the £iS$€S$E’,{§
have the value of consaucfion for mortgagt
‘p131’posé:s__ é1nd this Wane does not mean that construction
out by 6: Wlffl of thc assesses out of her own funds
V. sq? as to deny the assessett the benefit of deduction under
u Section 549 of the Act, g
a/
20
24. If that is to be accepted as finding of we
find no impediment in the assessecfs ciaim
Section 54F’, as the assessee vhad-. to j x
extent of Rs.20,96,€)O8/– as
cost of eonstzruction of agid we
find that wiil fall “Cost fir building.
Accordingly questionsa’ ggnswereci in the
affimaative
25. the to the addition
of j essessing ofiicer and the
directioii (ifs the to delete this amount is
conee ‘led, v.§re’ tflat the Tribunal has simply preceeded
ratio of the decision of the Supreme Ceurt in
case to this situation d .3150 for
the”ieas1 3n’t;iiat the provision of Section 55(2) had not come
.. the statute for the assessment year relevant for the
‘eieebtinting period. We find that the Tribunal has in fact
T “net examined the facts and circumstances of the case
V U before applying the principle as evolved in Srinivas Shetty’s
21
case and recording a finding that prineipie is attracted to
the facts and circumstances of the case.
26. We would like te sound a word
Tribunal passing orders on the epreixziset of xqufesvtiont j
involved in a case being auteofity? of
the High Court or R the V
being applied is only vzhen records a
fnding about the factsttfiatzicli of the case and
finds that to faets the ratio is
attracted “the.q”aestion is covered and issue
can be tdeejscied». the ratio of the case as
entgrteieted Court or the Supreme Court. In
, , V . , V _____ _. $3,;
‘V ef examinatiorficts and circumstances of the
way of the ‘{‘rib1ma} directly applying the
‘. . ratio” Qourt of Supreme Court. in the instant
.. , ‘; find the Tribunal had not embarked on the
Q~_.’e:V::Vere3’tse of finding the decision in so far as the assessee is
t “Concerned later recording a finding as to the appiicability
of the ratio. Here again the ratio evolved in the ease in the
§/%
22
facts and circumstances of the case eaxmot blindly applied
in ad} situation partieulariy by applying the prineipie as
evoived by Srinivas Shetty”s case, faiiure to the
provisions of Section 48 of the Act, the factuei ‘Of
impossibie to ascertain the i11i’:;i&1~- the j
gaodwill itself might have been
value. V» H . V_ 2 ‘ V
27. In this I’ega;’d djlat A’ ‘the ‘eeubsequent
judment of the Suprefiie’ if;1;L’Q’XgR1;E;frishnam1:rt}1y &
Another Vs)” ‘TvLt3ex},ii:n::_ie4s_ie1;er _’-af Income Tax reported in
(1939) Ai'”.’..6″E’I’R v41?e(ee;«ee§51;Lwmch reliance was placed by
Srifieshachale, Ie arx1 ed counsel for the revenue governs
“the present case, more than Srinivas Shetty’s
A w%§e”i1ot applicable to the situation on hand.
‘ 289.: ‘1:}’:’§{1ishnamurthy’s ease as in the case of valuing
H ,V :fltree__1easeV”” field right it was possible to aseertam the
or cast of acquisition which in fact was nil in the
T ” mtuafion and likewise there may be several situations
where it is possible to ascertain the capital gain by
/
V
23
appiying but if the provisions of Section 48 the maehinery
Section fails in turn the chargng section
a situation Where it is impossible to
gain by the impossibility of oi’ it
acquisition or the precise value
from out of the value of saleiiastiien fomis
part of a compendious of sale of
the particular asset there is a failure
of maCmnery§”.pI-ié it
it applied we find that the
Jias such aspects, simply
opitg-ed’ t11atab’y.. the principle of Srinivas Shetty’s
acidition of Rs.2S,O0,000/– has to be deleted.
_s{jev”have to notice that the Tribunal has not
V i’ . betfiereci its ‘ffmd out about the receipt of the amount in the
it .i,.ias«sess:t:ient year as indicated the Assessing Oificer and
. as ‘toiwhether it was assessable as the assessee’s sale of
T was not 3. receipt, was also not examined.
26
examine the question of tax liability under
gain in respect of entire amount of Rs.33,78’E Z T >
e»/’
33. Therefore this appeal
indicated above and the metger
to examine afresh only the ef on the
addition of IQs.25,()O’,i::)§{},’/to correctness
of the addition pf direction of the
Tribune} total capital gain of
the assesséifir. V’
Sd/-7
JUDGE
_ _’ V .__sb;g;- ~~ :2.