Ita/59/2009 Of The Commissioner Of Income Tax v. Parry Agro Industries Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 28TH DAY OF JANUARY 2019 / 8TH MAGHA, 1940 ITA.No. 59 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 1224/2004 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 10-09-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX,COCHIN. BY ADV.SRI PKR MENON, SR.COUNSEL FOR GOI TAXESSRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/S: PARRY AGRO INDUSTRIES LTD., W.ISLAND, KOCHI-03. BY ADVS.SRI.P.GOPINATH (SR.)SRI.JOSON MANAVALANSRI.K.JOHN MATHAISRI.KURYAN THOMASSRI.M.GOPIKRISHNAN NAMBIARSRI.P.BENNY THOMAS OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON28.01.2019, ALONG WITH ITA.33/2014, ITA.1534/2009, THE COURT ONTHE SAME DAY DELIVERED THE FOLLOWING: 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 28TH DAY OF JANUARY 2019 / 8TH MAGHA, 1940 ITA.No. 33 of 2014 AGAINST THE ORDER/JUDGMENT IN ITA 1224/2004 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 10-09-2008 APPELLANT/S: M/S MURUGAPPA HOLDINGS LTD.,(ERSTWHILE PARRY AGRO INDUSTRIES LIMITED), WILLINGDON ISLAND, KOCHI- 682003. BY ADVS.SRI.P.GOPINATH (SR.)SRI.M.GOPIKRISHNAN NAMBIARSMT.PREETHA S.NAIRSRI.K.JOHN MATHAISRI.P.BENNY THOMAS RESPONDENT/S: COMMISSIONER OF INCOME TAX,C.R.BUILDINGS, I.S.PRESS ROAD, ERNAKULAM, KOCHI- 682018. BY ADV.SRI PKR MENON, SR.COUNSEL FOR GOI TAXESSRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON28.01.2019, ALONG WITH ITA.1534/2009, ITA.59/2009, THE COURT ONTHE SAME DAY DELIVERED THE FOLLOWING: 3 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 28TH DAY OF JANUARY 2019 / 8TH MAGHA, 1940 ITA.No. 1534 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 1226/2004 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 27-06-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: HARRISONS MALAYALAM LTD,WILLINGDON ISLAND, COCHIN-682003. BY ADVS.SRI.E.K.NANDAKUMAR (SR.)SRI.P.GOPINATH (SR.)SRI.K.JOHN MATHAISRI.P.BENNY THOMASSRI.RAJA KANNAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON28.01.2019, ALONG WITH ITA.59/2009, ITA.33/2014, THE COURT ONTHE SAME DAY DELIVERED THE FOLLOWING: I.T.A. Nos. 59/2009, 1534/2009 & 33/2014 JUDGMENT [ITA 59/2009, ITA.33/2014, ITA.1534/2009] Vinod Chandran, J. questions of law raised. The question arisesessentiallyfromtheorderimpugnedin I.T.A.No.1534/2009 and in the identical order impugnedin the other appeals both relating to the same companyfor the year 1991-92, the Tribunal followed its earlierorder. the Revenue, as re-framed by us, are as follows: ii)Whether the Tribunal was correct in havingfound that the assessee does not have abusiness consisting wholly or partly indealing in securities for reason only ofthe Assessing Officer having treated the loss on sale of securities as capital lossin an earlier year and the same havingacquired finality at the Tribunal stage,with the Revenue accepting the same ? The transactions by virtue of which the [ITA 59/2009, ITA.33/2014, ITA.1534/2009] Vinod Chandran, J. questions of law raised. The question arisesessentiallyfromtheorderimpugnedin I.T.A.No.1534/2009 and in the identical order impugnedin the other appeals both relating to the same companyfor the year 1991-92, the Tribunal followed its earlierorder. the Revenue, as re-framed by us, are as follows: ii)Whether the Tribunal was correct in havingfound that the assessee does not have abusiness consisting wholly or partly indealing in securities for reason only ofthe Assessing Officer having treated the loss on sale of securities as capital lossin an earlier year and the same havingacquired finality at the Tribunal stage,with the Revenue accepting the same ? The transactions by virtue of which the Assessing Officer invoked Section 94 is purchase andsale of units. Admittedly, the assessee had purchasedunits of the Unit Trust of India in the earlier yearsand also in the subject year and sold a considerableportion of the same in the subject year itself. Forthe units/bonds purchased and held for about 25 months,short term capital gain of Rs.22,81,871/- was computed.The assessee claimed a loss of Rs.2,14,65,000/-, whichwas claimed as loss occurred on the purchase and saleof the units in the very same year. The assesseedisclosed in its accounts and the returns, the interestincome obtained from such investments made in units,which was purchased and sold in the very same year.This was exempted under Section 10(15) of the IncomeTax Act, 1961 (for short “the Act”). 4. The Assessing Officer found that sub-section (4)of Section 94 would be applicable and disallowed thesame. The First Appellate Authority also concurred. I.T.A. Nos. 59/2009, 1534/2009 & 33/2014 The Tribunal, however, reversed the dis-allowance onthe ground that sub-section (4) of Section 94 is notapplicable to the assessee for reason of the assesseebeing not an owner of the shares as provided undersub-section (1) of Section 94 and also since theassessee did not have a business wholly or partly insecurities. We have heard the Senior Standing Counselfor the Revenue and the learned Senior Counsel for theassessee. 5.The entire issue revolves on the interpretationof Section 94. We find that sub-sections (1) and (4)of Section 94 are interconnected, which are extractedhereunder: “94.Avoidanceoftaxbycertaintransactions in securities.—(1) Where the ownerof any securities [in this sub-section and insub-section (2) referred to as ―the owner]sells or transfers those securities, and buysback or reacquires the securities, then, if theresult of the transaction is that any interestbecoming payable in respect of the securitiesis receivable otherwise than by the owner, theinterest payable as aforesaid shall, whether itwould or would not have been chargeable toincome-tax apart from the provisions of thissub-section, be deemed, for all the purposesof this Act, to be the income of the owner andnot to be the income of any other person.Explanation.—The references in this sub-section to buying back or reacquiring the I.T.A. Nos. 59/2009, 1534/2009 & 33/2014 securities shall be deemed to includereferences to buying or acquiring similarsecurities, so, however, that where similarsecurities are bought or acquired, the ownershall be under no greater liability to income-tax than he would have been under if theoriginal securities had been bought back orreacquired. xx xx xx I.T.A. Nos. 59/2009, 1534/2009 & 33/2014 securities shall be deemed to includereferences to buying or acquiring similarsecurities, so, however, that where similarsecurities are bought or acquired, the ownershall be under no greater liability to income-tax than he would have been under if theoriginal securities had been bought back orreacquired. xx xx xx (4) Where any person carrying on abusiness which consists wholly or partly indealing in securities, buys or acquires anysecurities and sells back or retransfers thesecurities, then, if the result of thetransaction is that interest becoming payablein respect of the securities is receivable byhim but is not deemed to be his income byreason of the provisions contained in sub-section (1), no account shall be taken of thetransaction in computing for any of thepurposes of this Act the profits arising fromor loss sustained in the business.” 6.The assessee as the owner of securities did not sell the shares owned by it and then repurchase it andhence there is no applicability of sub-section (1).The contention of the Revenue also is that the purchaseand sale of the units carried out by the assessee inthe subject year was from persons, who would fall undersub-section (1) and for that reason the assessee wouldcome within the ambit of sub-section (4). This is whythe Assessing Officer also called for the details ofthe persons from whom the shares were purchased and then sold. We do not think that such an enquiry ispossible in the present case, especially when the unitswere purchased through an agent and there is nothing toindicate that the assessee had intended such owner, theseller, to be absolved of the liability to tax, which hewould otherwise have had;dehorsSection 10(15) byapplication of the deeming provision under sub-section (1). 7. Sub-sections (1) and (4) of Section 94 areinterlinked. We are of the opinion that the enquiryshould commence from sub-section (1); where the ownerof securities attempts to sell and repurchase, so thatthe interest income is not taxed in his hands. In thatcircumstances, the person to whom the securities aresold and then repurchased from; who actually earns theinterest income and is liable to income-tax, buthowever is absolved from it by reason only ofsub-section (1); would not in his assessment beentitled to claim for any loss that occurred in thetransaction. Section 94 at one stroke discourages boththe owner of securities, who sells and the purchaserfrom entering into a transaction, ostensibly to be onefor avoidance of tax on the interest income. The owner, who sells and re-purchases securities, enablinganother person to earn the interest due on the recorddate; in the process avoids tax on the interest butobtains a gain in so far as the repurchase would be ata lesser price after the record date. Section 94(1) inthat circumstances shifts the liability to income taxon such interest income to the seller-repurchaser.Consequently, the person who received the interestincome, but is exempted from liability to income tax byvirtue of sub-section (1) of Section 94, is disentitledfrom claiming the loss occassioned in the transaction,in his assessment. 8. Pertinently, it is to be seen that sub-section(4) does not speak of an exemption under Section10(15), but speaks of the interest income received bythe person, who buys and re-sells the securities, nothaving the liability to income tax by reason only ofsub-section (1), the deeming provision, which mulctsthe liability of income tax on such interest income, onthe owner of the securities, who sold it and thenrepurchased it. These are provisions interlinked, soas to bring to tax the income of such persons, who sell 8. Pertinently, it is to be seen that sub-section(4) does not speak of an exemption under Section10(15), but speaks of the interest income received bythe person, who buys and re-sells the securities, nothaving the liability to income tax by reason only ofsub-section (1), the deeming provision, which mulctsthe liability of income tax on such interest income, onthe owner of the securities, who sold it and thenrepurchased it. These are provisions interlinked, soas to bring to tax the income of such persons, who sell and repurchase securities; only to absolve themselvesof the liability to tax on interest income and in theprocess enables another to claim loss, which laterclaim, cannot be entertained by reason of theprovisions under sub-section (4). 9. In the present case, we do not see any suchdeeming fiction applied on the interest income obtainedby the assessee by reason only of which the interestreceivable by him is exempted from taxation. The factthat Section 10(15) exempts such interest income is notrelevant, insofar as sub-section (4) speaking only ofthe interest received by an assessee being deemed to benot his income by reason of the provisions undersub-section (1). In such circumstances, we answer thefirst question of law framed in favour of the assesseeand against the Revenue and uphold the order of theTribunal. We notice that the Tribunal has alsoconsidered the second issue of the assessee's purchaseof securities being capital investment made, with whichwe do not think we have to deal with as we have foundon the other issue that the assessee cannot be mulctedwith the liability by adding back the loss claimed. 10. I.T.A.No.59/2009 is filed by the Revenue andI.T.A.No.33/2014 is filed by the assessee, who is therespondent in the other appeal. Here, again theAssessing Officer disallowed the loss claimed on thepurchase and sale of shares. The assessee on beingissued with a notice under Section 148, produced thedetails of the sellers and purchasers, not fully, butpartly. The transactions with those persons, who wereidentified were excluded by the Assessing Officer.However, the First Appellate Authority issued a noticeand included those transactions also and disallowed theloss with respect to such transactions enhancing thetax payable, in appeal. The assessee filed a furtherappeal before the Tribunal raising contentions againstboth the issues; on the disallowance as such and on theaddition made with respect to those exempted by theAssessing Officer. The Tribunal followed its own order,impugned in I.T.A.No.1534/2009, and found the issue ofdis-allowance in favour of the assessee; against whichthe Revenue has filed appeal. The Tribunal did not speakabout the enhancement made by the First AppellateAuthority and hence the appeal by the assessee. 11. There is also an ancillary ground raised on theapplication of sub-section (7) of Section 94, which isheld in favour of the assessee and against the Revenueholding it to be prospective in application from01.04.2002. The Hon'ble Supreme Court in CITv. Walfort Share and Stock Brokers Private Limited,(2010) 8 SCC 137has upheld the judgment relied on by the Tribunal.12. We having upheld the order of the Tribunal inI.T.A.No.1534/2009, follow the same here also andreject I.T.A.No.59/2009 and allow I.T.A.No.33/2014.The loss claimed by the assessee on the sale ofsecurities shall be allowed without any dis-allowancemade under sub-section (4) of Section 94. I.T.A.Nos.1534/2009 and 59/2009 are rejectedI.T.A.No.33/2014 is allowed. No order on costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE APPENDIX OF ITA 59/2009 APPELLANT'S/S ANNEXURES: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER U/S.143(3) DATED 26.03.1998.(3) DATED 26.03.1998. Share and Stock Brokers Private Limited,(2010) 8 SCC 137has upheld the judgment relied on by the Tribunal.12. We having upheld the order of the Tribunal inI.T.A.No.1534/2009, follow the same here also andreject I.T.A.No.59/2009 and allow I.T.A.No.33/2014.The loss claimed by the assessee on the sale ofsecurities shall be allowed without any dis-allowancemade under sub-section (4) of Section 94. I.T.A.Nos.1534/2009 and 59/2009 are rejectedI.T.A.No.33/2014 is allowed. No order on costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE APPENDIX OF ITA 59/2009 APPELLANT'S/S ANNEXURES: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER U/S.143(3) DATED 26.03.1998.(3) DATED 26.03.1998. ANNEXURE BTRUE COPY OF THE ORDER OF THE COMMISSIONEROF INCOME TAX (APPEALS) DATED 27.09.2004.OF INCOME TAX (APPEALS) DATED 27.09.2004. ANNEXURE CCOPY OF THE ORDER OF TRIBUNAL DATED10.09.2008. APPENDIX OF ITA 33/2014 APPELLANT'S/S ANNEXURES: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER UNDER SEC143(3) DATED 21.03.1994 FOR 1991-92 ISSUEDTO THE APPELLANT BY THE DEPUTY COMMISSIONEROF INCOME TAX (ASSMT).143(3) DATED 21.03.1994 FOR 1991-92 ISSUEDTO THE APPELLANT BY THE DEPUTY COMMISSIONEROF INCOME TAX (ASSMT). ANNEXURE BTRUE COPY OF THE ASSESSMENT ORDER UNDER SEC143(3) READ WITH SECTION 147 DATED26.03.1998 FOR 1991-92 ISSUED TO THEAPPELLANT BY THE DEPUTY COMMISSIONER OFINCOME TAX (ASSMT).143(3) READ WITH SECTION 147 DATED26.03.1998 FOR 1991-92 ISSUED TO THEAPPELLANT BY THE DEPUTY COMMISSIONER OFINCOME TAX (ASSMT). ANNEXURE CTRUE COPY OF THE ORDER DATED 27.09.2004ISSUED TO THE APPELLANT BY THE COMMISSIONEROF INCOME TAX (APPEALS).ISSUED TO THE APPELLANT BY THE COMMISSIONEROF INCOME TAX (APPEALS). ANNEXURE DTRUE COPY OF THE APPEAL MEMORANDUM DATED01.12.2004 IN FORM NO.36 FILED BEFORE THEINCOME TAX APPELLATE TRIBUNAL.01.12.2004 IN FORM NO.36 FILED BEFORE THEINCOME TAX APPELLATE TRIBUNAL. ANNEXURE ETRUE COPY OF THE ORDER DATED 10.09.2008ISSUED TO THE APPELLANT BY THE INCOME TAXAPPELLATE TRIBUNAL.ISSUED TO THE APPELLANT BY THE INCOME TAXAPPELLATE TRIBUNAL. ANNEXURE FTRUE COPY OF THE APPLICATION DATED19.03.2012, FILED BY THE PETITIONER BEFORETHE ASSISTANT COMMISSIONER OF INCOME TAX.19.03.2012, FILED BY THE PETITIONER BEFORETHE ASSISTANT COMMISSIONER OF INCOME TAX. APPELLANT'S/S ANNEXURES: