{"id":193462,"date":"2007-10-23T00:00:00","date_gmt":"2007-10-22T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-madathil-brothers-vs-the-deputy-commissioner-of-income-on-23-october-2007"},"modified":"2018-06-11T06:28:23","modified_gmt":"2018-06-11T00:58:23","slug":"ms-madathil-brothers-vs-the-deputy-commissioner-of-income-on-23-october-2007","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-madathil-brothers-vs-the-deputy-commissioner-of-income-on-23-october-2007","title":{"rendered":"M\/S. Madathil Brothers vs The Deputy Commissioner Of Income … on 23 October, 2007"},"content":{"rendered":"
Madras High Court<\/div>\n
M\/S. Madathil Brothers vs The Deputy Commissioner Of Income … on 23 October, 2007<\/div>\n
       \n\n  \n\n  \n\n \n \n           IN THE HIGH COURT OF JUDICATURE AT MADRAS\n                              \n                      DATED: 23.10.2007\n                              \n                            Coram\n                              \n        The Honourable Mr.JUSTICE K.RAVIRAJA PANDIAN\n                             and\n       The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN\n                              \n                 Tax Case (A) No.45 of 2004\n                              \n\n\nM\/s. Madathil Brothers\nNo.158\nArcot Road\nChennai 600 026.            \t\t\t..Appellant\n\n         Versus\n\nThe Deputy Commissioner of Income Tax\nSpecial Range VI\nNo.122\nUttamar Gandhi Road\nChennai 600 034.            \t\t\t..Respondent\n\n\n\n\n      Appeal  under  Section 260-A of  the  Income  Tax  Act\nagainst the order dated 31.12.2002 made in ITA No.569\/mds\/98\n\"C\" Bench.\n\n\n\n          For Appellant  :  Mr.V.S.Jayakumar\n\n          For Respondent :  Mr.Murali Kumaran,\n                            Senior Standing counsel for Income Tax\n\n\n\n                       J U D G M E N T\n<\/pre>\n
CHITRA VENKATARAMAN,J.\n<\/p>\n<\/p>\n
      This  Tax  Case (Appeal) is preferred by the  assessee<\/p>\n
against  the  order  of  the Income Tax  Appellate  Tribunal<\/p>\n
relating to the assessment year 1987-88.\n<\/p>\n<\/p>\n
      2.  In the grounds of appeal, the assessee raised five<\/p>\n
questions of law.  Except the one on the question of capital<\/p>\n
gains  arising out of the sale of an immovable  property  at<\/p>\n
35,  Nungambakkam High Road, Chennai, four questions of  law<\/p>\n
were admitted by this Court under order dated 23.4.2004.<\/p>\n
      3. It is stated that subsequent to the disposal of the<\/p>\n
appeal,   the  applicant filed M.P.Nos.21  &  87  (MDS)\/2003<\/p>\n
before the Tribunal seeking a decision again on the question<\/p>\n
of  capital  gains arising thereon treated as  a  short-term<\/p>\n
gain and not a long term one.  The appellant also sought for<\/p>\n
reconsideration  on the question of loss  arising  from  the<\/p>\n
film  “Kasthuri  Vijayam”.  By  order  dated  1.9.2003,  the<\/p>\n
Tribunal allowed the M.P on the question of capital gains on<\/p>\n
the  sale  of the immovable property accepting the  same  as<\/p>\n
long-term  capital  gains.  It is stated  that  the  Revenue<\/p>\n
filed  an appeal in Tax Case No.272 of 2004.  By order dated<\/p>\n
6.8.2004,  this Court took the view that the  order  of  the<\/p>\n
Tribunal  granting the relief on capital gains  amounted  to<\/p>\n
review of the order earlier passed rejecting the said  plea.<\/p>\n
This  Court took the view that the Tribunal had no authority<\/p>\n
under  law to review its order.  Hence, in the said view  of<\/p>\n
the  matter, considering the prejudice that might be  caused<\/p>\n
to  the appellant herein on the question of capital gains on<\/p>\n
the   sale  of  immovable  properties,  the  appellant   was<\/p>\n
permitted  to  raise  the question on  capital  gains  as  a<\/p>\n
question of law for consideration along with other questions<\/p>\n
admitted earlier under order dated 23.4.2004.<\/p>\n
      4.  Accordingly, the appellant filed T.C.M.P.No.50  of<\/p>\n
2007  seeking  the following question also to be  raised  to<\/p>\n
consider:\n<\/p>\n<\/p>\n
        ”     Whether in law in holding that  the
\n         capital  gains arising on  the  sale  of
\n         immovable  property at 35 , Nungambakkam
\n         High  Road is a short term capital  gain
\n         and not a long term one?”\n<\/p>\n
\nBy  order  dated 14.8.2007, this Court ordered  the T.C.M.P.<\/p>\n
Thus,  the said question is also considered as part  of  the<\/p>\n
questions raised and admitted by this Court.<\/p>\n
       5.  Hence,  the  questions  of  law  that  arise  for<\/p>\n
consideration as admitted by this Court are as follows:<\/p>\n
            “1.    Whether  on  facts  and   in   the<\/p>\n
     circumstances  of  the case,  the  Tribunal  was<\/p>\n
     right  in law in rejecting the appellant’s claim<\/p>\n
     of   loss  arising  from  two  movies  by   name<\/p>\n
     “Kannamma” and “Uzaikum Karangal”?<\/p>\n
           2.   Whether  the Tribunal  was  right  in<\/p>\n
     holding   that  the  sum  of  Rs.1,26,000\/-   is<\/p>\n
     unexplained cash credit under Section 68 of  the<\/p>\n
     Income Tax Act, 1961?\n<\/p><\/blockquote>\n
<\/blockquote>\n
           3.   Whether the Tribunal was right in law<\/p>\n
     in  upholding  the disallowance of loss  arising<\/p>\n
     from “Kasturi Vijayam”, without dealing with the<\/p>\n
     said grounds of appeal?\n<\/p><\/blockquote>\n
<\/blockquote>\n
           4.   Whether  the Tribunal  was  right  in<\/p>\n
     disallowing  the claim of loss of  Rs.3,60,000\/-<\/p>\n
     arising  out of sale of shares of M\/s. Sudershan<\/p>\n
     Clay and Ceramics Limited?    5. Whether  in law<\/p>\n
     in holding that the capital gains arising on the<\/p>\n
     sale  of  immovable property at 35, Nungambakkam<\/p>\n
     High Road is a short term capital gain  and  not<\/p>\n
     a long term one?”<\/p><\/blockquote>\n
      6.  The assessee is a firm engaged in the business  of<\/p>\n
distribution and exhibition of films.  It is stated that the<\/p>\n
appellant  herein had purchased the negative rights  of  two<\/p>\n
feature  films,  namely, “Kannamma” and  “Uzaikum  Karangal”<\/p>\n
from   its  sister  concern  M\/s.Kamakshi  Agencies  Private<\/p>\n
Limited   for   a   consideration   of   Rs.5,76,000\/-   and<\/p>\n
Rs.12,01,000\/-  on  22.8.1986  and  7.10.1986  respectively.<\/p>\n
These  two  films were released as early as  1972  and  1976<\/p>\n
respectively.  The vendor, in turn, had purchased the rights<\/p>\n
in  the  year 1982 and 1983 respectively from another sister<\/p>\n
concern of the assessee, i.e., M\/s.Sudarsan Agencies,  which<\/p>\n
is  the proprietary concern of M\/s.Sudarsan Trading Company.<\/p>\n
It  is  stated that eversince the purchase of the two movies<\/p>\n
in  1982 and 1983, the vendor, M\/s.Kamakshi Agencies Private<\/p>\n
Limited had not exploited these two movies in any manner and<\/p>\n
were  shown  as closing stock and opening stock  every  year<\/p>\n
till  finally the negative rights were disposed of in favour<\/p>\n
of  M\/s.Ashoka Brothers, a unit of the assessee  herein,  in<\/p>\n
the  year  1986.  The assessee contended  that  as  per  the<\/p>\n
agreement entered into by the assessee, these two films were<\/p>\n
given  to  the  mediators  to  exhibit  the  films  in   any<\/p>\n
particular  area  for a particular period and  amounts  were<\/p>\n
received  thereon  on  the  rights  given.  Admittedly,  the<\/p>\n
assessee  had  not  entered  into  any  agreement  with  the<\/p>\n
exhibitors   directly.  The  total   collection   made   for<\/p>\n
exhibiting these two films through the mediators were stated<\/p>\n
to  be to the tune of Rs.1.26 lakhs.  The cost of these  two<\/p>\n
movies and the income earned were debited to the Profit  and<\/p>\n
Loss  Account  and the assessee has showed  a  net  loss  of<\/p>\n
Rs.20,68,830\/-.\n<\/p>\n<\/p>\n
      7.   In the course of the assessment proceedings,  the<\/p>\n
appellant   was  asked  to show the  necessary  evidence  as<\/p>\n
regards   the   exploitation  through  the  mediators.   The<\/p>\n
appellant  herein produced confirmatory slips from different<\/p>\n
parties who had taken the films on hire, the amount of  hire<\/p>\n
charges for the period for which they were screened, and the<\/p>\n
place of screening.  In terms of the addresses given in  the<\/p>\n
confirmatory  slips, enquiries were made as to  whether  the<\/p>\n
assessee  had  actually  engaged  the  mediators   for   the<\/p>\n
exhibition of the films.  On enquiry, it was found that none<\/p>\n
of  the  parties  mentioned in the confirmatory  slips  were<\/p>\n
found existing\/or the addresses given were not found.  There<\/p>\n
were  instances  where  the assessee  could  not  give  full<\/p>\n
addresses of the persons who had claimed to have taken these<\/p>\n
films  for  hire.  By letter dated 31.1.1990, the  assessing<\/p>\n
authority  called upon the appellant herein to identify  the<\/p>\n
persons  who  were stated to have been given the  exhibition<\/p>\n
rights  and produce those parties for verification.  In  its<\/p>\n
letter  dated 12.2.1990, the appellant replied that  it  had<\/p>\n
received the contracts only through the mediators and it had<\/p>\n
no  direct  contact with the exhibitors and that  the  films<\/p>\n
were  given  to  the middlemen. Except for the  confirmatory<\/p>\n
slips produced before the assessing authority as regards the<\/p>\n
receipt  of film hire charges, no details were furnished  by<\/p>\n
the  appellant  herein.  On the other  hand,  the  appellant<\/p>\n
stated  that  since the transactions had  taken  place  well<\/p>\n
before 31.3.1987, it was not practically possible to produce<\/p>\n
the mediators before  the  assessing  authority. The General<\/p>\n
Manager  of the appellant firm, the former Managing Partner,<\/p>\n
expressed his inability to give the details or identify  the<\/p>\n
persons to whom the exhibition rights were given. He further<\/p>\n
stated  that  some of the middlemen approached  him  through<\/p>\n
some persons known to the appellant. The assessing authority<\/p>\n
noted  that  nothing  further could  be  elicited  from  the<\/p>\n
General Manager of the firm Mr.C.V.Velayudham.  In the  face<\/p>\n
of  total lack of evidence as regards the mediators and  the<\/p>\n
exhibitors through whom the films were exhibited and in  the<\/p>\n
absence  of  any  material to substantiate the  confirmatory<\/p>\n
slips,  the  assessing authority rejected the  case  of  the<\/p>\n
appellant-assessee for treating the loss as a business loss.<\/p>\n
On  the other hand, the assessing authority held that  since<\/p>\n
the  films purchased had not been exploited during the year,<\/p>\n
the entire cost of acquisition of the two films were allowed<\/p>\n
to  be carried forward as per Rule 9-B(iv) of the Income Tax<\/p>\n
Rules, 1962.  As regards the collection of Rs.1.26 lakhs for<\/p>\n
the  exhibition  of  the  movies,  the  assessing  authority<\/p>\n
treated  the same as unexplained cash credits under  Section<\/p>\n
68  of  the Income Tax Act, 1961, on the premise that  these<\/p>\n
monies  were really that of the appellant’s money introduced<\/p>\n
in  the  guise of the receipts from the exploitation of  the<\/p>\n
films.\n<\/p>\n<\/p>\n
     8. The second issue relates to the disallowance of loss<\/p>\n
arising from the film “Kasthuri Vijayam”.  It is stated that<\/p>\n
the said film was purchased by M\/s.Ashoka Brothers under the<\/p>\n
banner  “Moogambika Films”.  The negative rights were  owned<\/p>\n
by   the   appellant-assessee  firm.  Since  there  was   no<\/p>\n
collection forthcoming, a sum of Rs.1,53,534.57 was  written<\/p>\n
off.   The  assessing authority took the view that as  there<\/p>\n
was  no  credit of collection during this period,  the  said<\/p>\n
amount could not be written off under Rule 9-B.<\/p>\n
      9.  On the  next question as to the short term capital<\/p>\n
loss   of  Rs.3,60,000\/-  arising  out  of  sale  of  shares<\/p>\n
purchased  from  its  sister concern M\/s.Sudarsan  Clay  and<\/p>\n
Ceramics  Limited, it was stated that the appellant-assessee<\/p>\n
had  purchased one lakh shares of Rs.10\/- each on 3.10.1980.<\/p>\n
The shares were sold for a consideration of Rs.8,40,000\/- on<\/p>\n
20.1.1987. This was claimed as a short-term capital loss  in<\/p>\n
the  statement of accounts.  The assessing authority pointed<\/p>\n
out that M\/s.Sudarsan Clay Products was a losing company and<\/p>\n
the  shares  were  originally transferred  in  the  name  of<\/p>\n
Mr.Velayudham,  the Managing Partner and representative  for<\/p>\n
and  on  behalf  of  the firm, and the  company  refused  to<\/p>\n
register  the shares in the name of the firm.  Subsequently,<\/p>\n
the  shares were sold by the appellant-assessee at the  best<\/p>\n
available price considering the fact that the company was  a<\/p>\n
loss   making   company.   The  appellant  herein   received<\/p>\n
Rs.6,00,000\/- out of the total consideration of Rs.8,40,000\/-<\/p>\n
and  the balance of Rs.2,40,000\/- was still outstanding. The<\/p>\n
assessing  authority felt that the claim of short term  loss<\/p>\n
had  been  deliberately incurred by the appellant herein  to<\/p>\n
avoid  the  capital gains. It is an admitted fact  that  the<\/p>\n
company  had not allowed any dividends at any point of  time<\/p>\n
from  1983 onwards. It is also pointed out that whether  the<\/p>\n
valuation  was by the yield method or under Rule 1D  of  the<\/p>\n
Wealth Tax Rules, the value of the shares were negative  and<\/p>\n
the  balance  sheet  of M\/s.Sudarsan Clay  Products  Limited<\/p>\n
showed  the  value  of  the shares as ‘nil’.  The  assessing<\/p>\n
authority  took  the view that there were no reasons  stated<\/p>\n
for  purchase of the shares from the loss making company and<\/p>\n
there  was equally no reason assigned for the sister concern<\/p>\n
purchasing the shares from the assessee at Rs.7\/- per share.<\/p>\n
Hence,  there was no bona fide commercial principle involved<\/p>\n
in  this  transaction. Hence, the assessing  authority  held<\/p>\n
that  it  was only a colourable transaction to evade payment<\/p>\n
of  income tax, which otherwise would be liable to  be  paid<\/p>\n
under the capital gains.\n<\/p>\n<\/p>\n
      10. On the question of the claim for long-term capital<\/p>\n
gains  on  the  sale  of  the  immovable  property  at   35,<\/p>\n
Nungambakkam  High  Road, Chennai, the  assessing  authority<\/p>\n
applied  the decision of the Hon’ble Supreme Court  reported<\/p>\n
in  57  ITR  185 (ALAPATI VENKATARAMIAH Vs. COMMISSIONER  OF<\/p>\n
INCOME  TAX)  to  hold that the original agreement  of  sale<\/p>\n
dated  16.9.1995  did not confer any title to  the  assessee<\/p>\n
that  the  sale  deed  was  executed  as  per  the  memo  of<\/p>\n
compromise entered into in the O.S. Appeal before  the  High<\/p>\n
Court on 9th July 1986; that the sale deed was registered in<\/p>\n
favour  of the appellant-assessee only on 10.7.1986.  Hence,<\/p>\n
till  the  sale deed was executed in favour of the appellant<\/p>\n
in the year 1986, the appellant did not have any title as an<\/p>\n
owner;  consequently, the sale effected by the appellant  on<\/p>\n
26.9.1986  resulted in short-term capital  gains  only.  The<\/p>\n
appellant-assessee did not hold the property  for  a  period<\/p>\n
more  than 36 months to treat the gain as long term  capital<\/p>\n
gains.\n<\/p>\n<\/p>\n
      11. Aggrieved by the order of the assessing authority,<\/p>\n
the   appellant   -assessee  went  on  appeal   before   the<\/p>\n
Commissioner  of  Income Tax (Appeals). By  an  order  dated<\/p>\n
9.12.1992,   the  Commissioner  of  Income   Tax   (Appeals)<\/p>\n
dismissed  the  appeal, upheld the order  of  the  assessing<\/p>\n
authority, thereby confirmed the assessment.<\/p>\n
      12.   Aggrieved  by the order of the  Commissioner  of<\/p>\n
Income  Tax  (Appeals), the appellant-assessee  preferred  a<\/p>\n
further appeal before the Income Tax Appellate Tribunal.  By<\/p>\n
an order dated 31.12.2002, the Tribunal rejected the appeal,<\/p>\n
thereby confirmed the findings of the authorities below.  As<\/p>\n
against  this order of the Tribunal, the appellant -assessee<\/p>\n
has  preferred  this appeal before this Court under  Section<\/p>\n
260-A  of the Income Tax Act, 1961 on the grounds as  stated<\/p>\n
above.\n<\/p>\n<\/p>\n
     13. Heard counsel for the parties.\n<\/p>\n<\/p>\n
      14. On the first question of claim of business loss on<\/p>\n
the  exhibition of the films, a perusal of the order of  the<\/p>\n
Tribunal  shows the finding of fact that the assessee  could<\/p>\n
not  produce any evidence as to the identity of  the  middle<\/p>\n
men and the exhibitors. The parties issuing the confirmatory<\/p>\n
letters  were  also  found as either not  traceable  or  the<\/p>\n
addressees\/address  were  not there.  The  Tribunal  further<\/p>\n
pointed out to the finding of the Assessing Officer that  as<\/p>\n
there  was  no  exhibition receipts, the write-off  for  the<\/p>\n
films could not be allowed.  The Tribunal further found that<\/p>\n
the  films were not exhibited for quite some time and  there<\/p>\n
was  no  demand for those films.  In the circumstances,  the<\/p>\n
Tribunal upheld the order of the Commissioner of Income  Tax<\/p>\n
(Appeals).   The   Tribunal   further   pointed   out   that<\/p>\n
Sri.C.V.Velayudham, who had himself signed on the contracts,<\/p>\n
refused  knowledge about any of the alleged exhibitors.  The<\/p>\n
Tribunal further stated that when the said Velayudham was  a<\/p>\n
signatory  to  the  documents,  his  plea  that  he  had  no<\/p>\n
knowledge about the same clearly showed that the explanation<\/p>\n
given   could  not  be  acted  upon  that  the  receipt   of<\/p>\n
Rs.1,26,000\/-  represented collection on the  exhibition  of<\/p>\n
films.   In  the  background of these  facts,  rightly,  the<\/p>\n
Tribunal upheld the orders of the authorities below.<\/p>\n
      15.  Learned counsel appearing for the appellant could<\/p>\n
not point out any error in the reasoning of the Tribunal, or<\/p>\n
for  that  matter,  any of the authorities.   Being  a  pure<\/p>\n
question  of  fact  and appreciation of evidence  and  there<\/p>\n
being  no  material produced to point out any error  in  the<\/p>\n
findings  of  the  Tribunal, we do not find  any  ground  to<\/p>\n
disturb  the  findings.  Hence, we reject the  plea  of  the<\/p>\n
appellant-assessee on this issue.\n<\/p>\n<\/p>\n
     16. The assessing authority came to the conclusion that<\/p>\n
the appellant-assessee had no intention to exploit the films<\/p>\n
and  these films were lying idle with the assessee’s  sister<\/p>\n
concern;  that these films were purchased at a  cost  higher<\/p>\n
than  what  was  paid by the sister concern.   The  Tribunal<\/p>\n
referred to the findings of the assessing officer  that  the<\/p>\n
idea  of claiming loss was only to negate the capital  gains<\/p>\n
incidence which the appellant-assessee had during this year.<\/p>\n
Hence,  the  plea of exploitation of the films  through  the<\/p>\n
mediators   itself  was  a  fabricated  one.  The   Tribunal<\/p>\n
confirmed the findings of the  assessing authority  to  hold<\/p>\n
that since the films were not exploited during the year, the<\/p>\n
entire cost of acquisition of these films were to be carried<\/p>\n
forward  as  per  Rule  9-B(4). Touching  on  this,  learned<\/p>\n
counsel  appearing  for the assessee  took  us  through  the<\/p>\n
provisions  of  Rule 9-A and 9-B of the  Income  Tax  Rules,<\/p>\n
1962,  to  impress on the submission that these  Rules  have<\/p>\n
relevance  for  the new films for exhibition.  He  submitted<\/p>\n
that the assessing authority erred in invoking Rule 9-B that<\/p>\n
the  appellant could only have the benefit of carry  forward<\/p>\n
of  the loss as per Rule 9-B.  He emphasized  that Rule  9-B<\/p>\n
and  Rule  9-A have to be read harmoniously to  get  at  the<\/p>\n
intention of the Rules provided therein that at best,  these<\/p>\n
Rules  have  relevance for new films  alone  and  cannot  be<\/p>\n
extended to films already released and exhibited and further<\/p>\n
sold to others for exploiting the rights.  In the context of<\/p>\n
the  submissions, learned counsel stated that the appellant-<\/p>\n
assessee would be entitled to have the adjustment under  the<\/p>\n
regular provisions of the Act.  Elaborating on the facts, he<\/p>\n
submitted that the appellant herein had, in fact, given  the<\/p>\n
details  as  to the  middle men through whom the films  were<\/p>\n
given  for  exhibition before the assessing  authority,  and<\/p>\n
that  by  efflux  of  time, the assessee had  difficulty  in<\/p>\n
tracing the exhibitors or the middle men. He further pointed<\/p>\n
out that when the details as regards those who had exhibited<\/p>\n
the  films through the middle men were furnished, the burden<\/p>\n
is  on  the Revenue to make necessary enquiries to  consider<\/p>\n
the  claim as to whether it is a genuine transaction or not.<\/p>\n
In  the  context of the rejection of the claim for  business<\/p>\n
loss  and  treating the sum of Rs.1.26 lakhs as ‘unexplained<\/p>\n
cash credit’, learned counsel referred to Section 68 of  the<\/p>\n
Income  Tax  Act, 1961. He contended that when the  assessee<\/p>\n
had discharged its burden and the amount was found in credit<\/p>\n
in  the books of accounts maintained by the assessee and  an<\/p>\n
explanation was offered as relating to the income earned  on<\/p>\n
giving  the  films  for  exhibition through  mediators,  the<\/p>\n
assessing authority cannot invoke the provisions of  Section<\/p>\n
68  of  the  Income  Tax Act, 1961, to  treat  the  same  as<\/p>\n
unexplained  cash credit.  Learned counsel  further  pointed<\/p>\n
out that the Section enjoins upon the assessing authority to<\/p>\n
record  the  satisfaction as to the materials given  by  the<\/p>\n
assessee before embarking on the provisions under Section 68<\/p>\n
of  the  Income  Tax Act, 1961. In the above  circumstances,<\/p>\n
learned  counsel  submitted  that  the  assessing  authority<\/p>\n
failed  to observe the provisions of Section 68 of the  said<\/p>\n
Act  and  hence,  to treat  Rs.1.26 lakhs as an  unexplained<\/p>\n
cash credit.\n<\/p>\n<\/p>\n
      17. We do not agree with the aforesaid contentions  by<\/p>\n
the  learned counsel for the appellant-assessee  herein.  On<\/p>\n
the   geniuneness of the claim of the exhibition through the<\/p>\n
mediators,  we  have  already  rejected  the  plea  of   the<\/p>\n
appellant  herein.   As  regards the contention  as  to  the<\/p>\n
applicability of Section 68 treating the alleged  exhibition<\/p>\n
receipts  as cash credits, it must be seen that the  primary<\/p>\n
onus  as  to  the  receipt of the  said  amount  is  on  the<\/p>\n
appellant-assessee to show the identity  of  the  exhibitors<\/p>\n
and  the  mediators and the genuineness of the  transaction.<\/p>\n
Only  where the assessee discharges the burden prima  facie,<\/p>\n
that   the  burden  shifts  on  to  the  revenue.  The  mere<\/p>\n
production of the confirmatory letters would not, by itself,<\/p>\n
prove  the  claim of the appellant as regards the exhibition<\/p>\n
of  the  films.   Read  in  the  context  of  the  inability<\/p>\n
expressed by the assessee to bring the exhibitors before the<\/p>\n
assessing  authority  and  considering  the  fact  that  the<\/p>\n
addressees  were  not  there in  the  said  address  or  the<\/p>\n
particulars  were  not correct, the view  of  the  assessing<\/p>\n
authority  could not be faulted with.  It is no  doubt  true<\/p>\n
that  law does not contemplate or require compliance  of  an<\/p>\n
impossible   act.  Yet,  when  the  details  regarding   the<\/p>\n
particular  receipt  is exclusive to the  knowledge  of  the<\/p>\n
assessee who has the necessary information relating  to  the<\/p>\n
same,  the initial burden is certainly on the tax  payer  to<\/p>\n
discharge the same so that further enquiry thereon is  taken<\/p>\n
to  the  logical end by the revenue.  Going by the  findings<\/p>\n
recorded  by  the  Tribunal, we do not find  any  ground  to<\/p>\n
accept the plea of the appellant-assessee in this regard.<\/p>\n
      18.  On  the question of  the claim  of loss  and  the<\/p>\n
applicability of Rules relating thereto, the amortization of<\/p>\n
costs  of  film either in the hands of the producer  or  the<\/p>\n
distributor is governed by Rules 9-A and 9-B of  the  Income<\/p>\n
Tax Rules, 1962.  A cursory glance of these  provisions show<\/p>\n
that   Rule   9-A  prescribes  deductions  in   respect   of<\/p>\n
expenditure on the production of feature  films.   Rule  9-B<\/p>\n
deals with the deduction available in respect of expenditure<\/p>\n
on  acquisition  of  distribution rights of  feature  films.<\/p>\n
While  Rule 9-A concerns itself as to the case of  the  film<\/p>\n
producers,  Rule  9-B  is about film distributors,  a  stage<\/p>\n
after  the production of the film. These Rules lay down  the<\/p>\n
procedure  for  computing the profits and  gains  from  film<\/p>\n
production and\/or film distribution  business.<\/p>\n
      19.  Admittedly, the case herein relates to exhibition<\/p>\n
of  old  movies. Hence, going by the case of the  appellant,<\/p>\n
the  deduction falls for consideration only under Rule  9-B.<\/p>\n
The manner of allowing such a deduction is given in Sub Rule<\/p>\n
(2)  to  Sub Rule (4).  The explanation to Sub Rule  (1)  to<\/p>\n
Rule  9-B  defines the cost of acquisition.  It states,  the<\/p>\n
cost  of  acquisition in relation to feature film means  the<\/p>\n
amount paid by the film distributor to the film producer  or<\/p>\n
another distributor under an agreement entered into  by  the<\/p>\n
film  distributor  with  such film producer  or  such  other<\/p>\n
distributor as the case may be for acquiring the  rights  of<\/p>\n
exhibition  expenditure.  The provisions  contained  therein<\/p>\n
also  stipulate the minimum period for which the film should<\/p>\n
have  been  exhibited for the purposes  of  gaining  benefit<\/p>\n
under these provisions.\n<\/p>\n<\/p>\n
      20.  A  reading  of Rule 9-B(1) with the   explanation<\/p>\n
thereon  leaves  no room for doubt that it intends  to  deal<\/p>\n
with  films coming for exhibition after its release for  the<\/p>\n
first  time.  The fact that it refers to “distribution  from<\/p>\n
one  distributor to another or from one distributor to  such<\/p>\n
other  distributors”  clearly  shows  the  futility  in  the<\/p>\n
contention of the learned counsel for the appellant to  read<\/p>\n
this provision as relatable to new films and that there  are<\/p>\n
no reference to relate the same to old films. In contrast to<\/p>\n
Rule 9-B, Rule 9-A shows that it relates to a new film.  The<\/p>\n
Section  deals with deductions in computing the profits  and<\/p>\n
gains  of production of feature films certified for  release<\/p>\n
by  the Board of Film Censors in terms of the provisions  of<\/p>\n
Sub-Rule  (2) to Sub Rule (4).  A reading of the  provisions<\/p>\n
clearly show the difference in the area of operation of  the<\/p>\n
provisions of Rule 9-A and 9-B. In the circumstances, we  do<\/p>\n
not find any justification to hold that invocation of Rule 9-<\/p>\n
B  will  not have any bearing to the case on hand. We  agree<\/p>\n
with  the Tribunal that the appellant-assessee is, at  best,<\/p>\n
entitled  to  the cost of acquisition of these films  to  be<\/p>\n
carried  forward as per Rule 9-B(4). Consequently, questions<\/p>\n
1 and 2 raised are answered against the assessee appellant.<\/p>\n
      21.  As  regards  the  third question  raised  by  the<\/p>\n
appellant  herein   on  disallowance of  loss  arising  from<\/p>\n
“Kasturi Vijayam”, it may be noted that Rule 9-B(4) provides<\/p>\n
that in the event of the assessee not exhibiting the film on<\/p>\n
commercial  basis or sell his rights of exhibition,  thereby<\/p>\n
resulting  in  no  deduction  in  respect  of  the  cost  of<\/p>\n
acquisition,  the assessee is granted carry forward  of  the<\/p>\n
loss.   Learned  counsel for the assessee  pointed  out  the<\/p>\n
provisions herein applied in relation to the assessment year<\/p>\n
1987-88  that the provisions itself came to be effective  on<\/p>\n
and  from the assessment year commencing after 1.4.1987 (Sub<\/p>\n
Rule   (7)).   In  these  circumstances,  the  question   of<\/p>\n
construing  any benefit as per Sub-Rule (4) does not  arise.<\/p>\n
Consequently,  he states that the Rule has no  relevance  to<\/p>\n
this case.\n<\/p>\n<\/p>\n
       22.  As  already noted, Sub-Rule (7) makes provisions<\/p>\n
effective from 1.4.1987.  The Rule itself was introduced for<\/p>\n
deduction  in  respect  of expenditure  on  acquisition  and<\/p>\n
distribution  rights of the feature films under  the  Income<\/p>\n
Tax   (Seventh  Amendment)  Rules,  1976.  Learned   counsel<\/p>\n
submitted that the normal Rule as regards the deduction have<\/p>\n
not  been  applied  in  this case.  Learned  counsel  placed<\/p>\n
reliance on the decision of Jabalpur Bench of the Income Tax<\/p>\n
Bench  reported in (1983) 5 ITD 142 in the case of  ITO  Vs.<\/p>\n
R.S. Enterprises, which was referred to before the Tribunal.<\/p>\n
The  grievance of the appellant herein is that the  Tribunal<\/p>\n
had omitted to consider this issue raised.  However, learned<\/p>\n
counsel fairly stated that the Tribunal considered the claim<\/p>\n
in  the M.P. filed after the disposal of the appeal only  to<\/p>\n
reject the same once again.\n<\/p>\n<\/p>\n
       23.  A  perusal of the order passed in  M.P.Nos.21  &<\/p>\n
87\/03 dated 1.9.2003 shows that the Tribunal considered  the<\/p>\n
claim  and  pointed  out  that the  facts  relating  to  the<\/p>\n
expenditure  on  the  production  of  the  films  which  was<\/p>\n
abandoned were not placed before the authorities at all  for<\/p>\n
consideration.\n<\/p>\n<\/p>\n
      24.  It  is  no  doubt  true that  the  relevant  Rule<\/p>\n
pertaining to deduction comes into operation from  1.4.1987.<\/p>\n
It  may be noted that the assessee, in its application filed<\/p>\n
before the Tribunal after the disposal of the appeal, stated<\/p>\n
that the film was abandoned during the accounting year 1987-<\/p>\n
88.  The  Tribunal pointed out that the contention that  the<\/p>\n
film was abandoned during the year 1987-88 was not available<\/p>\n
in  the  petition to consider the contention that  Rule  9-B<\/p>\n
itself is not applicable as regards the assessment year 1987-<\/p>\n
88.  It may be noted that even before this Court, except for<\/p>\n
the mere contention that Rule 9-B will not be applicable, no<\/p>\n
facts are placed. As found by the authorities below, in  the<\/p>\n
absence  of  any  material  to  substantiate  his  claim  of<\/p>\n
expenditure, we do not accept the plea of the assessee.  The<\/p>\n
Tribunal  pointed out that as regards this claim, there  are<\/p>\n
no  evidence  placed before the Tribunal to  show  that  the<\/p>\n
rights  were  abandoned,  since  there  were  no  credit  of<\/p>\n
collections.  However, if the rights were purchased  by  the<\/p>\n
assessee  and  there were no collection, the provision  that<\/p>\n
would  be  applicable  would be Rule  9-B,  which  had  been<\/p>\n
rightly  applied by the assessing authority concerned.   The<\/p>\n
Rule provides for deduction on certain basis.  The deduction<\/p>\n
is  available  only  subject  to  exhibition  of  films  for<\/p>\n
particular  number of days.  In the absence of  any  details<\/p>\n
thereon,  the  claim  of the assessee was  rejected.   While<\/p>\n
going  through the order of the Commissioner of Appeals,  it<\/p>\n
is  seen that when the assessee was asked to show how he was<\/p>\n
entitled  to  write  off the sum of Rs.1,53,534.57,  it  was<\/p>\n
stated  that  the  assessee  explained  vide  letter   dated<\/p>\n
15.2.1989 that the amount should be allowed under  Rule  9-A<\/p>\n
and 9-B.  If there are collections during the year, Rule 9-B<\/p>\n
expressly  states that the same should be  credited  to  the<\/p>\n
books  of accounts of the assessee and deduction granted  in<\/p>\n
accordance  with  Rule  9-B.  Since  there  was  credit   of<\/p>\n
collections during the year, the assessee was not  permitted<\/p>\n
the write off by the assessing authority. Thus confirmed  on<\/p>\n
factual aspect, we do not find any ground to interfere  with<\/p>\n
the same in exercise of the jurisdiction under Section 260-A<\/p>\n
of  the  Income Tax Act, 1961.  It may also be  pointed  out<\/p>\n
that  the assessee had not denied the applicability of  Rule<\/p>\n
9B  in  the proceedings taken before the assessing authority<\/p>\n
or  before the first appellate authority.  In any event,  on<\/p>\n
the  view  taken  on  facts and  as  to  Rule  9-B  and  its<\/p>\n
applicability,  we do not find any justification  to  accept<\/p>\n
the  plea of the appellant herein.  Hence the third question<\/p>\n
is answered against the assessee.\n<\/p>\n<\/p>\n
      25. As regards the fourth question on the disallowance<\/p>\n
of the claim of  capital loss of Rs.3.60 lakhs, the Tribunal<\/p>\n
has  considered the claim in detail to arrive at the finding<\/p>\n
of fact that the purchase of shares was from a company which<\/p>\n
was  economically not very sound.  Learned counsel  for  the<\/p>\n
appellant submitted that the commercial decisions cannot  be<\/p>\n
dissected  to reject the claim of loss arising  out  of  the<\/p>\n
sale of shares of M\/s.Sudarsan Clay and Ceramics Limited.  A<\/p>\n
perusal  of the order of the Tribunal shows that whether  it<\/p>\n
is  by  the application of break up value method or by yield<\/p>\n
method, the value of shares of M\/s.Sudarsan Clay Products is<\/p>\n
shown as ‘nil’; in fact it showed a negative figure for  the<\/p>\n
years 1984-85, 1985-86, 1986-87 and 1987-88.  In the face of<\/p>\n
full  knowledge of the state of affairs of M\/s.Sudarsan Clay<\/p>\n
Products,  the  Tribunal  held that  the  whole  transaction<\/p>\n
lacked rational commercial principles involved in this. Thus<\/p>\n
the  Tribunal  confirmed  the finding  that  the  appellant-<\/p>\n
assessee could not prove the genuineness of the transaction,<\/p>\n
that  the  claim  of  the  short  term  capital  gains   was<\/p>\n
deliberately made by the appellant to avoid tax  on  capital<\/p>\n
gains.  In the face of the findings of the Tribunal on  this<\/p>\n
issue  which could not be assailed by the appellant,  we  do<\/p>\n
not  find any justification to interfere and hence, the same<\/p>\n
is rejected.\n<\/p>\n<\/p>\n
      26.   This takes us to the claim of long term  capital<\/p>\n
gains  arising on the sale of an immovable property  at  35,<\/p>\n
Nungambakkam  High  Road,  Chennai.  It  is  seen  that  the<\/p>\n
appellant-assessee had an agreement for sale under  document<\/p>\n
dated  16.9.1975 and the possession was handed over  to  the<\/p>\n
appellant  herein on 1.1.1976. During  the  assessment  year<\/p>\n
1987-88,  the  appellant  -assessee  sold  the  property  at<\/p>\n
Nungambakkam  High  Road for a sum of  Rs.45  lakhs  to  one<\/p>\n
Kalpatharu  Private Limited on 30.9.1986. It is stated  that<\/p>\n
the  sale  deed  in  favour  of the  appellant-assessee  was<\/p>\n
executed  on  10.7.1986  by  Velayudham  and  registered  on<\/p>\n
26.9.1986. The Assessing Authority took the view that  since<\/p>\n
the  appellant-assessee was in possession for  a  period  of<\/p>\n
about  two months, it is a short-term capital asset in terms<\/p>\n
of  Section  2(42-A)  of  the Income  Tax  Act,  1961.   The<\/p>\n
assessing  authority  thus  took  the  view  that  the  sale<\/p>\n
proceeds  from  the  short-term  capital  asset  should   be<\/p>\n
assessed  only  as short term capital gains.   Aggrieved  of<\/p>\n
this,  the  appellant-assessee went  on  appeal  before  the<\/p>\n
Commissioner  of Income Tax (Appeals).  The first  appellate<\/p>\n
authority  took  the  view  that till  9th  July  1986,  the<\/p>\n
appellant  was  not  the  owner of the  property,  that  the<\/p>\n
ownership could not be transferred by mere possession of the<\/p>\n
immovable  property  without a document  registered  to  its<\/p>\n
name. Hence, the appellant could not be held to be the owner<\/p>\n
holding  the property for more than 36 months to  treat  the<\/p>\n
sale  as  resulting  in long-term capital  gains.  Thus  the<\/p>\n
appellate  authority rejected the plea of the assessee.   On<\/p>\n
further appeal by the appellant assessee, the Tribunal  took<\/p>\n
a  view  that the assessee had its agreement for sale  under<\/p>\n
document dated 16.9.1975 and possession was handed  over  to<\/p>\n
the appellant herein on 1.1.1976. The sale deed in favour of<\/p>\n
the appellant herein was registered on 26.9.1986 pursuant to<\/p>\n
the  compromise memo recorded in the suit proceedings before<\/p>\n
the Original Side of this Court. The appellant-assessee,  in<\/p>\n
turn,  sold  the property on 30.9.1986. The Tribunal  viewed<\/p>\n
that  as  per the law then stood, the transaction  could  be<\/p>\n
treated as transfer only on the registration of the document<\/p>\n
and  part-performance could not be treated as transfer.  The<\/p>\n
Tribunal  held  that   the definition  of  “transfer”  under<\/p>\n
Section  2(47)  was amended to include even part-performance<\/p>\n
under  Section 53-A of the Transfer of property  Act,  1882,<\/p>\n
only  on and from 1.4.1988.  Hence, only from the date  when<\/p>\n
the  sale  was  executed and registered that the  appellant-<\/p>\n
assessee  could be held to be having the title to  sell  the<\/p>\n
property.  Thus  taking this view, the Tribunal  upheld  the<\/p>\n
orders  of the authorities below holding the gains as short-<\/p>\n
term capital gains.\n<\/p>\n<\/p>\n
     27. Learned counsel appearing for the appellant pointed<\/p>\n
out  that  the  appellant had entered into an agreement  for<\/p>\n
purchase  of  the  property  on 16.9.1975.  He  was  put  in<\/p>\n
possession  as  early  as 1.1.1976.   Hence,  going  by  the<\/p>\n
decision of the Calcutta High Court reported in 117 ITR  525<\/p>\n
(CIT  Vs.  ALL  INDIA  TEA  & TRADING  CO.  LTD.)   and  the<\/p>\n
possessory  right in terms of the agreement  for  sale,  the<\/p>\n
claim  could not be considered as a short-term capital gains<\/p>\n
to  deny  the benefit of set off.  Learned counsel  for  the<\/p>\n
appellant  also pointed out that when the vendor refused  to<\/p>\n
go  ahead with the agreement entered into, a suit was  filed<\/p>\n
before this Court on the Original Side in C.S.No.710 of 1980<\/p>\n
for  a  relief  of  specific  performance.  Ultimately,  the<\/p>\n
dispute resulted in a settlement in the appeal, whereby, the<\/p>\n
vendor agreed to execute the sale deed on a consideration of<\/p>\n
Rs.45  lakhs as against the original consideration. In terms<\/p>\n
of  the agreement, the sale deed was executed and registered<\/p>\n
on  30.9.1986.  Learned counsel pointed out that  since  the<\/p>\n
right  is traceable to the original agreement, the claim  of<\/p>\n
the  appellant-assessee has to be seen from the date of  the<\/p>\n
original agreement.\n<\/p>\n<\/p>\n
       28.  Per  contra,  learned  Senior  Standing  Counsel<\/p>\n
appearing  for the Revenue submitted that it is an  admitted<\/p>\n
fact  that the original agreement entered into in  the  year<\/p>\n
1975 underwent changes as regards the consideration.  Hence,<\/p>\n
there  was  a  novation  of  contract  and  the  fresh  sale<\/p>\n
agreement  was  entered  into and registered  on  30.9.1986.<\/p>\n
Hence,  the right of the appellant-assessee has to be worked<\/p>\n
out  from  the date the document was executed and registered<\/p>\n
in favour of the appellant.  Viewed thus, the claim could be<\/p>\n
nothing but a short-term capital asset giving rise to short-<\/p>\n
term capital gains.\n<\/p>\n<\/p>\n
      29. A perusal of the documents filed before this Court<\/p>\n
shows  that  admittedly, the appellant-assessee was  put  in<\/p>\n
possession  and enjoyment of the suit property as  agreement<\/p>\n
holder   right   from  1.1.1976.   The  suit  for   specific<\/p>\n
performance  was  filed  by the appellant-  assessee  herein<\/p>\n
before  the original side of this Court and in terms of  the<\/p>\n
compromise  memo filed in the suit, a decree was  passed  on<\/p>\n
30.9.1983 in favour of this appellant.  It is no doubt  true<\/p>\n
that as part of the settlement terms, the parties agreed  to<\/p>\n
revise  the sale consideration.  However, the same was  done<\/p>\n
with  reference to the claim under the agreement.  The  sale<\/p>\n
deed was executed in terms of the settlement reached in  the<\/p>\n
suit  proceedings.   As  such,  there  was  no  novation  of<\/p>\n
contract to result in a fresh agreement entered into.<\/p>\n
      30.  On the question as to whether a possessory  right<\/p>\n
under  this agreement, per se, confers an interest to  claim<\/p>\n
long-term  capital  gains,  we  may  have  to  look  at  the<\/p>\n
definition  provisions  relating to  “Capital  Asset”  under<\/p>\n
Section  2(14),  “Short Term capital  asset”  under  Section<\/p>\n
2(42A) and ‘Transfer” under Section 2(47) of the Income  Tax<\/p>\n
Act,  1961.   The  relevant  provisions  necessary  for  the<\/p>\n
purpose of our consideration are as follows:<\/p>\n
     Section 2(14) “Capital Asset”:<\/p>\n<\/blockquote>\n
          “capital  asset” means property  of  any
\n          kind held by an assessee, whether or not
\n          connected    with   his   business    or
\n          profession..”\n<\/p><\/blockquote>\n<\/blockquote>\n
      Section 2(42A) “Short Term capital asset”:\n<\/p><\/blockquote>\n
         Short   term  capital  asset    means   a
\n          capital  asset held by an  assessee  for
\n          not    more   than   thirty-six   months
\n          immediately  preceding the date  of  its
\n          transfer: … ”\n<\/p><\/blockquote>\n
     Section 2(47)’Transfer”:\n<\/p><\/blockquote>\n
            “Transfer”  in  relation  to  a  capital  asset,<\/p>\n
     includes,-\n<\/p><\/blockquote>\n
          (i)   the      sale,     exchange      or
\n                relinquishment of the asset; or<\/p>\n<\/blockquote>\n
          (ii)  the  extinguishment of  any  rights
\n                therein; or<\/p>\n<\/blockquote>\n
          (iii) the  compulsory  acquisition
\n              thereof under any law; or<\/p>\n<\/blockquote>\n
          (iv)in   a  case  where  the  asset  is
\n              converted  by  the  owner   thereof
\n              into,  or  is treated  by  him  as,
\n              stock-in-trade   of   a    business
\n              carried  on by him, such conversion
\n              or treatment; (or)<\/p>\n
     The  following clause was inserted under  Finance
\n     Act, 1987 with effect from 1.4.1988:<\/p>\n<\/blockquote>\n
         (v)  any    transaction   involving   the
\n              allowing of the possession  of  any
\n              immovable property to be  taken  or
\n              retained in part performance  of  a
\n              contract of the nature referred  to
\n              in  section 53A of the Transfer  of
\n              Property Act, 1882 (4 of 1882); or<\/p>\n
          ……..   “<\/p><\/blockquote>\n
     31. A conjoint reading of the provisions, as they stood<\/p>\n
at  the  material assessment year, show that “capital asset”<\/p>\n
means  “property of any kind held” by the assessee.  It  may<\/p>\n
be  seen that the Income Tax Act, 1961, does not contain the<\/p>\n
definition  of “property”.  In the decision reported  in  76<\/p>\n
ITR  471  (AHMED G.H. ARIFF Vs. COMMISSIONER OF WEALTH-TAX),<\/p>\n
in  the context of the Wealth Tax proceedings with reference<\/p>\n
to  the  definition of “Assets” in Section 2(e) to  “include<\/p>\n
property  of  any  description”, the Apex  Court  held  that<\/p>\n
‘property’  is a term of the widest import and,  subject  to<\/p>\n
any  limitation which the context may require, it  signified<\/p>\n
every  possible interest that  a person can  hold or  enjoy.<\/p>\n
The  definition   of “capital asset”  under the  Income  Tax<\/p>\n
Act,  referring to “property of any kind” carry no words  of<\/p>\n
limitation. The definition is of wide amplitude  to  include<\/p>\n
every  possible interest that a person may hold  and  enjoy.<\/p>\n
The   meaning  ascribed  by  the  Apex  Court  to  the  term<\/p>\n
“property” applies with equal force to the understanding  of<\/p>\n
“capital asset” under the provisions of the Income Tax Act.<\/p>\n
      32.  The  definition  of  “capital  asset”  refers  to<\/p>\n
property   of   any   kind  “held”  by   an   assessee.   In<\/p>\n
contradistinction  to  the  word  “owner”  or  “owned”,  the<\/p>\n
definition uses the phrase “held”.\n<\/p>\n<\/p>\n
      33. Touching on the meaning of the term “owner” in the<\/p>\n
context  of assessability of the income from property  under<\/p>\n
Section  22, in the decision reported in 226 ITR 625 (C.I.T.<\/p>\n
Vs. PODAR CEMENT PVT. LTD.), the Apex Court held that “Owner<\/p>\n
is  the  person who is entitled to receive income  from  the<\/p>\n
property  in his own right.”   The Apex Court held  that  in<\/p>\n
the context of Section 9 of the 1922 Act, the owner must  be<\/p>\n
a person “who can exercise the rights of owner not on behalf<\/p>\n
of  the  owner,  but  in  his own right.”   The  Apex  Court<\/p>\n
pointed out to the amendment to Section 27 under the Finance<\/p>\n
Bill,  1987, to get over an obvious omission to the  meaning<\/p>\n
of  the  word “owner” under Section 22 that even  though  in<\/p>\n
common  law, “owner” means a person who has got valid  title<\/p>\n
legally   conveyed   to  him  after   complying   with   the<\/p>\n
requirements of law under the Transfer of Property  Act  and<\/p>\n
the  Registration Act, having regard to the ground realities<\/p>\n
and  the  object of the Act, namely, to tax income,  in  the<\/p>\n
context  of  Section  22, the owner is  the  person  who  is<\/p>\n
entitled  to  receive income from the property  in  his  own<\/p>\n
right.   Adverting  to the provisions  of  the  Transfer  of<\/p>\n
Property  Act under Section 53-A, 54 and 55, the Apex  Court<\/p>\n
held  that legal title does not pass unless there is a  deed<\/p>\n
of  conveyance duly registered.  Referring to the effect  of<\/p>\n
Section  54, and Section 22 of the Income Tax Act, the  Apex<\/p>\n
Court said “That, however, would not take away the right  of<\/p>\n
the  assessee  to remain in possession of the  property,  to<\/p>\n
realise and receive the rents and profits therefrom  and  to<\/p>\n
appropriate the entire income for its own use. The so-called<\/p>\n
vendor  is not permitted in law to dispossess or to question<\/p>\n
the title of the assessee (the so-called vendee). It was for<\/p>\n
this  very practical purpose that the doctrine of the equity<\/p>\n
of  part  performance  was introduced  in  the  Transfer  of<\/p>\n
Property  Act, 1882, by inserting section 53A  therein.  The<\/p>\n
section specifically allows the doctrine of part performance<\/p>\n
to be applied to the agreements which, though required to be<\/p>\n
registered,   are  not  registered  and  to  transfers   not<\/p>\n
completed in the manner prescribed therefor by any law.  The<\/p>\n
section  is,  therefore,  applicable  to  cases  where   the<\/p>\n
transfer is not completed in a manner required by law unless<\/p>\n
such  a  non-compliance with the procedure  results  in  the<\/p>\n
transfer  being void.”  Affirming the view of the  Rajasthan<\/p>\n
High  Court,  the  Apex Court held that in  the  context  of<\/p>\n
Section  22, where the transferor had handed over possession<\/p>\n
of the property pursuant to an agreement for sale, “owner is<\/p>\n
a  person  who  is  entitled  to  receive  income  from  the<\/p>\n
property.” The Apex Court held that the amendment introduced<\/p>\n
by  the Finance Bill, 1987, was declaratory\/clarificatory in<\/p>\n
nature  and  hence,  these provisions are  retrospective  in<\/p>\n
operation.\n<\/p>\n<\/p>\n
      34.  The  Rajasthan  High Court  had  an  occasion  to<\/p>\n
consider  a  case similar to the one that we have  on  hand.<\/p>\n
Applying  the  aforesaid decision of the Apex Court  to  the<\/p>\n
case   dealing  with  a  question  of  capital  gains  where<\/p>\n
possession was given to an agreement holder, in the decision<\/p>\n
reported  in  259  ITR 724 (C.I.T. Vs.  VISHNU  TRADING  AND<\/p>\n
INVESTMENT  CO.), the Rajasthan High Court  held  “Following<\/p>\n
the  view taken by their Lordships, we are of the view  that<\/p>\n
for  taxing the capital gain, registration of the sale  deed<\/p>\n
is  not  necessary  under the provisions of  the  Income-Tax<\/p>\n
Act.”  The  said  decision of the Rajasthan High  Court  was<\/p>\n
again  followed  in the decision reported  in  260  ITR  503<\/p>\n
(C.I.T. Vs. RAJASTHAN MIRROR MANUFACTURING CO.) .<\/p>\n
      35.  Again,  in the decision reported in 234  ITR  140<\/p>\n
(M.SYAMALA  RAO Vs. C.I.T.), the Andhra Pradesh  High  Court<\/p>\n
considered the situation, where, under the agreement of sale<\/p>\n
on  the 1st May 1962, the assessee was put in possession  of<\/p>\n
the  land. The document of sale was registered on  8th  June<\/p>\n
1979.   The assessee sold the land after converting it  into<\/p>\n
plots.  The sale of these lands was sought to be assessed as<\/p>\n
capital  gains.   On  a reference, the Andhra  Pradesh  High<\/p>\n
Court held that though the document was registered on June 8<\/p>\n
1979, it related back to the date on which the agreement  of<\/p>\n
sale  was executed in favour of the assessee by the  vendor.<\/p>\n
Hence,  the  assessee  was deemed to be  the  owner  of  the<\/p>\n
property  with  effect from 1962.  The Andhra  Pradesh  High<\/p>\n
Court  pointed out that the assessee had held  property  for<\/p>\n
more  than 36 months; hence, the capital gains could not  be<\/p>\n
assessed as short-term capital gains.\n<\/p>\n<\/p>\n
      36.   Similar is the view  expressed by the  Punjab  &<\/p>\n
Haryana  High Court on the scope of Section 2(42-A)  of  the<\/p>\n
Income  Tax Act, 1961, in the decision reported in  207  ITR<\/p>\n
148  (C.I.T.  Vs.  VED PARKASH AND SONS  (HUF).  There,  the<\/p>\n
assessee entered into an agreement for purchase of a flat in<\/p>\n
the  year 1970.  He was put in possession of the flat in the<\/p>\n
same  year.  The assessee made a final payment in  the  year<\/p>\n
1973, i.e., on February 10, 1973.  On the same day, he  sold<\/p>\n
the property and claimed the gain arising therefrom as long-<\/p>\n
term  capital gains.  The Punjab and Haryana High Court took<\/p>\n
the view that Section 2(42-A) relating to the definition  of<\/p>\n
short-term  capital gains asset refers to  a  capital  asset<\/p>\n
held  by an assessee for not more than 36 months immediately<\/p>\n
preceding the date of transfer. The High Court took the view<\/p>\n
that  “As  is clear from a bare reading of section 2(42)  of<\/p>\n
the  Act, the word “owner” has designedly not been  used  by<\/p>\n
the Legislature. The word “hold”, as per dictionary meaning,<\/p>\n
means  to  possess,  be  the  owner,  holder  or  tenant  of<\/p>\n
(property, stock, land . . . .). Thus, a person can be  said<\/p>\n
to  be holding the property as an owner, as a lessee,  as  a<\/p>\n
mortgagee or on account of part performance of an agreement,<\/p>\n
etc.   Conversely, all such other persons who may be  termed<\/p>\n
as   lessees,  mortgagees  with  possession  or  persons  in<\/p>\n
possession as part performance of the contract would not  in<\/p>\n
strict  parlance come within the purview of “owner”. As  per<\/p>\n
the  Shorter Oxford Dictionary, edition 1985, “owner”  means<\/p>\n
one  who  owns or holds something; one who has the right  to<\/p>\n
claim title to a thing.”\n<\/p>\n<\/p>\n
     37. The High Court held that even if the amount was not<\/p>\n
paid  in full by the assessee in terms of the agreement,  it<\/p>\n
could  not  be construed that the assessee had no  right  or<\/p>\n
interest  in  the  property.   The  assessee  was   put   in<\/p>\n
possession  as early as 1970 and was remaining in occupation<\/p>\n
as  a  matter  of right.  Thus for all purposes,  he  was  a<\/p>\n
beneficial  owner from the start.  In the  context  of  this<\/p>\n
view  taken,  the  Court  held that  the  capital  gain  was<\/p>\n
assessable as long-term capital gain.\n<\/p>\n<\/p>\n
      38. We find no reason to differ from the view taken by<\/p>\n
the  other  High  Courts as stated above  on  the  scope  of<\/p>\n
Section  2(47) with reference to the liability under Section<\/p>\n
45.   Although the decision of the Apex Court related  to  a<\/p>\n
case of income assessability at the hands of an occupier who<\/p>\n
need  not be an owner in the normal connotation, yet,  given<\/p>\n
the  scope of the definition provisions under Section  2(14)<\/p>\n
and  Section  2(47) and the effect of the amendment  brought<\/p>\n
forth by the insertion of Clause (v) under Section 2(47), we<\/p>\n
agree with the view expressed by other High courts.<\/p>\n
      39.  Learned Counsel for the respondent submitted that<\/p>\n
in the context of the decision of the Apex Court reported in<\/p>\n
57 ITR 185 (ALAPATI VENKATARAMIAH Vs. COMMISSIONER OF INCOME<\/p>\n
TAX),  referred to above, the period of holding the property<\/p>\n
has to be reckoned from the date of passing of title.<\/p>\n
      40. This decision was considered by this Court in  the<\/p>\n
decision  reported in 254 ITR 175 (MECCANE  INDUSTRIES  LTD.<\/p>\n
Vs.  C.I.T.),   that transfer meant effective conveyance  of<\/p>\n
capital  asset to the transferee.  It may be noted that  the<\/p>\n
case  reported in 254 ITR 175 (MECCANE INDUSTRIES  LTD.  Vs.<\/p>\n
C.I.T.), related to the Assessment Year 1968-69. This  Court<\/p>\n
held  that the delivery of possession of immovable  property<\/p>\n
could not, by itself, be treated as equivalent to conveyance<\/p>\n
of  the  immovable  property.  This Court held  that  having<\/p>\n
regard  to  the  law that prevailed in the  assessment  year<\/p>\n
concerned,  capital gains could be regarded  only  when  the<\/p>\n
conveyance  was  executed and not at any  earlier  point  of<\/p>\n
time.\n<\/p>\n<\/p>\n
      41. The decision of this Court reported in 254 ITR 175<\/p>\n
(MECCANE INDUSTRIES LTD. Vs. C.I.T.), no doubt, applied  the<\/p>\n
law  declared  by  the Apex Court reported  in  57  ITR  185<\/p>\n
(ALAPATI VENKATARAMIAH Vs. COMMISSIONER OF INCOME TAX)  that<\/p>\n
capital  gain  arose  in  the year in  which  the  deed  was<\/p>\n
registered.  However, it must be noted that the decision  is<\/p>\n
distinguishable  as  the  same was  with  reference  to  the<\/p>\n
chargeability under Section 45 with reference  to “transfer”<\/p>\n
as defined under Section 2(47) as it then stood prior to the<\/p>\n
amendment  under the Taxation Laws Amendment Act, 1984  with<\/p>\n
effect from 1.4.1985.  Hence, it does not cover the issue on<\/p>\n
hand.\n<\/p>\n<\/p>\n
      42.  In  the decision reported in 271 ITR  269  (ZUARI<\/p>\n
ESTATE   DEVELOPMENT  AND  INVESTMENT  CO.  PVT.  LTD.   Vs.<\/p>\n
J.R.KANEKAR), the Bombay High Court considered the effect of<\/p>\n
Section 2(47) which was amended  from 1.3.1988.  The  Bombay<\/p>\n
High  Court  held  that  for the transaction  to  amount  to<\/p>\n
“transfer” within the meaning of Section 2(47), the  minimum<\/p>\n
requirements  are that there has to be an agreement  between<\/p>\n
the  parties signed by the parties; it should be in writing;<\/p>\n
it should pertain to transfer of property and the transferee<\/p>\n
should  have taken possession of the property. Referring  to<\/p>\n
the  decision  reported in 57 ITR 185 (ALAPATI VENKATARAMIAH<\/p>\n
Vs. COMMISSIONER OF INCOME TAX) with reference to Section 12-<\/p>\n
B  of  the Act of 1922,  it pointed out that “transfer”  for<\/p>\n
the  purposes of the Income Tax Act, 1961, require facts  of<\/p>\n
conveyance   of  the  capital  assets  to  the   transferee.<\/p>\n
Delivery  of  possession of immovable property,  by  itself,<\/p>\n
could  not  be  treated as equivalent to conveyance  of  the<\/p>\n
immovable property.\n<\/p>\n<\/p>\n
       43. The decision of the Supreme Court reported in  57<\/p>\n
ITR  185  (ALAPATI VENKATARAMIAH Vs. COMMISSIONER OF  INCOME<\/p>\n
TAX)  on which the Tribunal based its decision and relied on<\/p>\n
by the revenue is to be understood with reference to Section<\/p>\n
12-B  of the Indian Income Tax Act, 1922. and in the context<\/p>\n
of the provisions as they stood at the material time.<\/p>\n
     44. The provisions of Section 12-B of the Indian Income<\/p>\n
Tax  Act, 1922, which corresponds to Section 45 of the  1961<\/p>\n
Act  relating to capital gains liability  brought to  charge<\/p>\n
capital  gains  “in respect of any profits or gains  arising<\/p>\n
from sale, exchange, relinquishment or transfer of a capital<\/p>\n
asset…”.  The 1922 Act contained a definition of  “capital<\/p>\n
asset”  under Section 2(4-A). However, there was no specific<\/p>\n
provision  therein corresponding to Section 2(47) under  the<\/p>\n
1961  Act defining “transfer”.  The present provision  under<\/p>\n
Section 2(47) defining “transfer” is  wider in scope and  is<\/p>\n
an  inclusive definition.  Touching on the scope of  Section<\/p>\n
12-B,  the  Apex  Court held “Before  Section  12-B  can  be<\/p>\n
attracted,  title must pass to the company  by  any  of  the<\/p>\n
modes  mentioned  in Section 12-B, i.e., sale,  exchange  or<\/p>\n
transfer.  It is true that the word “transfer”  is  used  in<\/p>\n
addition  to  the word “sale” but even so, in  the  context,<\/p>\n
“transfer”  must mean effective conveyance  of  the  capital<\/p>\n
asset to the transferee. Delivery of possession of immovable<\/p>\n
property  cannot  by  itself be  treated  as  equivalent  to<\/p>\n
conveyance of the immovable property.”\n<\/p>\n<\/p>\n
      45.  A reading of Section 45 as it stands today,  show<\/p>\n
that  capital gains is chargeable on “any profits  or  gains<\/p>\n
arising from the transfer of the capital asset…”.  Read in<\/p>\n
the  context  of  the  definitions of  “capital  asset”  and<\/p>\n
“transfer”  the  Section carries no words of  limitation  to<\/p>\n
read  that a transfer effected by a person backed up with  a<\/p>\n
title  passed  on  under a registered deed  alone  could  be<\/p>\n
considered as resulting in a profit or gain assessable under<\/p>\n
Section  45.  All that the present Section looks at  is  the<\/p>\n
transfer of a capital asset held as understood under Section<\/p>\n
2(14)  and  under  Section 2(47). In the background  of  the<\/p>\n
provisions as they stand today, the decision reported in 254<\/p>\n
ITR 175 (MECCANE INDUSTRIES LTD. Vs. C.I.T.) relating to the<\/p>\n
assessment year 1968-69, or for that matter, the decision of<\/p>\n
the   Supreme   Court  reported  in  57  ITR  185   (ALAPATI<\/p>\n
VENKATARAMIAH Vs. COMMISSIONER OF INCOME TAX), can  have  no<\/p>\n
relevance  to  the issue in the matter of understanding  the<\/p>\n
scope of Section 2(47) and Section 45.  As already seen, the<\/p>\n
case  on  hand  has  to be analysed in the  context  of  the<\/p>\n
provisions prevailing during the relevant point of time.  In<\/p>\n
the  circumstances, we do not agree with the view  taken  by<\/p>\n
the Tribunal, applying the decision of the Apex Court in the<\/p>\n
decision  reported in 57 ITR 185 (ALAPATI VENKATARAMIAH  Vs.<\/p>\n
COMMISSIONER OF INCOME TAX) and the decision of  this  Court<\/p>\n
reported  in  254  ITR  175  (MECCANE  INDUSTRIES  LTD.  Vs.<\/p>\n
C.I.T.).\n<\/p>\n<\/p>\n
      46.  The question then is, what will be the effect  of<\/p>\n
the   amendment  brought  forth  to  Section  2(47)  by  the<\/p>\n
insertion of sub clause (v) to Section 2(47) relating to the<\/p>\n
definition  of  “transfer” under the Finance Act  1987  with<\/p>\n
effect from 1.4.1988.\n<\/p>\n<\/p>\n
      47.  This takes us once again to the decision  of  the<\/p>\n
Apex  Court reported in 226 ITR 625 (C.I.T. Vs. PODAR CEMENT<\/p>\n
PVT. LTD.).\n<\/p>\n<\/p>\n
     48. As already seen, the decision of the Apex Court was<\/p>\n
concerned  on  the  meaning  of “owner”  with  reference  to<\/p>\n
Section  22.   Yet, the construction given to the  amendment<\/p>\n
effected  under the Finance Act of 1987 to Section 2(47)  is<\/p>\n
of  relevance  to the case on hand. Given the interpretation<\/p>\n
of  the  term “property” and that assessee having possession<\/p>\n
of  a property pursuant to an agreement made has also to  be<\/p>\n
construed as “owner” for the limited purpose of Section  22,<\/p>\n
the  Apex Court held that the insertion of Section  53-A  of<\/p>\n
the Transfer of Property Act to Section 2(47) could only  be<\/p>\n
viewed  as  declaratory  of  what  was  already  there   and<\/p>\n
intended. Touching on the scope of Section 27 of the  Income<\/p>\n
Tax  Act, brought forth under the Finance Bill of 1987,  the<\/p>\n
Apex  Court held “We have, therefore, no hesitation to  hold<\/p>\n
that the amendment introduced by the Finance Bill, 1987, was<\/p>\n
declaratory\/clarificatory in nature so far as it relates  to<\/p>\n
section  27(iii),  (iiia)  and (iiib).  Consequently,  these<\/p>\n
provisions are retrospective in operation.”  We have already<\/p>\n
noted in Paragraph 33 of this judgment the discussion in the<\/p>\n
decision  of  the  Apex Court as to the  provisions  of  the<\/p>\n
Transfer  of  Property Act, particularly with  reference  to<\/p>\n
Section 53-A, 54 and 55.  Although the said decision is with<\/p>\n
reference  to  the scope of Section 22 of the Act,  yet  the<\/p>\n
decision of the Apex Court on the scope of the Finance  Bill<\/p>\n
of  1987  covers  the issue on hand fully.   The  definition<\/p>\n
under Section 2(47) is an inclusive Section which starts  by<\/p>\n
saying  “transfer in relation to the capital asset  includes<\/p>\n
….”;  as such, it is not possible to accept the  stand  of<\/p>\n
the  respondent that the  transactions falling under Section<\/p>\n
53-A  of  the  Transfer of Property Act for the  purpose  of<\/p>\n
considering  the capital gains would fall for  consideration<\/p>\n
for  the  purpose of considering the same as  falling  under<\/p>\n
long  term  capital  asset only on and  from  the  amendment<\/p>\n
inserted  under  the  Finance Act, 1987,  with  effect  from<\/p>\n
1.4.1988.   In the light of the decision of the  Apex  Court<\/p>\n
already noted, the insertion is only declaratory of the  law<\/p>\n
already  there  by reason of inclusive terms  under  Section<\/p>\n
2(47)  which  is  a wide definition in its  import.  In  the<\/p>\n
circumstances,  we  are in entire agreement  with  the  view<\/p>\n
expressed  by  the decision of the Punjab and  Haryana  High<\/p>\n
Court  reported in 207 ITR 148 (C.I.T. Vs. VED  PARKASH  AND<\/p>\n
SONS  (HUF)),  the  decisions of the  Rajasthan  High  Court<\/p>\n
reported  in  259  ITR 724 (C.I.T. Vs.  VISHNU  TRADING  AND<\/p>\n
INVESTMENT CO.) and 260 ITR 503 (C.I.T. Vs. RAJASTHAN MIRROR<\/p>\n
MANUFACTURING  CO.) as well as the decision  of  the  Andhra<\/p>\n
Pradesh  High  Court reported in 234 ITR 140 (M.SYAMALA  RAO<\/p>\n
Vs.  C.I.T.), that the capital gain arising on the  transfer<\/p>\n
of  capital assets has to be worked out from the date of the<\/p>\n
agreement under which the assessee was put in possession  of<\/p>\n
the  property.  The reasoning of the Tribunal, consequently,<\/p>\n
cannot be upheld.  The fact that the sale consideration  had<\/p>\n
undergone  a  change  by  reason of a compromise  ultimately<\/p>\n
entered  into in the suit proceedings does not result  in  a<\/p>\n
novation  of a contract. The compromise entered in the  suit<\/p>\n
is  itself  with reference to the rights arising  under  the<\/p>\n
agreement entered into in 1975 under which the assessee  was<\/p>\n
put  in possession.  Consequently, we have no hesitation  in<\/p>\n
setting  aside  the  order of the Tribunal  insofar  as  the<\/p>\n
decision  of the Tribunal is concerned on the capital  gains<\/p>\n
arising  on  the  sale of the property.  We  hold  that  the<\/p>\n
assessment  has  to be made treating the gain  as  long-term<\/p>\n
capital  gains  arising  out of the sale  of  the  immovable<\/p>\n
property  at   35,  Nungambakkam High  Road,  Chennai.   The<\/p>\n
relief,  hence, has to be worked out in terms of the  above-<\/p>\n
said view that we have expressed.\n<\/p>\n<\/p>\n
      49.  In the light of the view that we have taken,  our<\/p>\n
conclusion is as follows:\n<\/p>\n<\/p>\n
      On  the question Nos. 1 to 4, the order passed by  the<\/p>\n
Tribunal  is  confirmed.   We do  not  find  any  ground  to<\/p>\n
interfere with the findings arrived at by the Tribunal based<\/p>\n
on  materials and record.  However, on the fifth question on<\/p>\n
capital  gains  on  the sale of the immovable  property,  we<\/p>\n
answer the question in favour of the assessee reversing  the<\/p>\n
order of the Tribunal.\n<\/p>\n<\/p>\n
     50.  In the circumstances, the Tax Case (Appeal) stands<\/p>\n
partly allowed.  No costs.\n<\/p>\n
sl\/ksv<\/p>\n","protected":false},"excerpt":{"rendered":"
Madras High Court M\/S. Madathil Brothers vs The Deputy Commissioner Of Income … on 23 October, 2007 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.10.2007 Coram The Honourable Mr.JUSTICE K.RAVIRAJA PANDIAN and The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN Tax Case (A) No.45 of 2004 M\/s. Madathil Brothers No.158 Arcot Road Chennai 600 026. ..Appellant […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,13],"tags":[],"class_list":["post-193462","post","type-post","status-publish","format-standard","hentry","category-high-court","category-madras-high-court"],"yoast_head":"\nM\/S. Madathil Brothers vs The Deputy Commissioner Of Income ... on 23 October, 2007 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/ms-madathil-brothers-vs-the-deputy-commissioner-of-income-on-23-october-2007\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"M\/S. 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