Itr/182/1996 Of The Commr. Of Income Tax,Ernakulam v. M/S Nechupadam Constructions

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR MONDAY, THE 14TH JANUARY 2008 / 24TH POUSHA 1929 ITR.No. 182 of 1996() ------------------------------ AGAINST THE ORDER DATED 21/08/1996 IN RA 284C/92 IN ITA.184C/1987 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ------------------ THE COMMISSIONER OF INCOME TAX,ERNAKULAM. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: ------------------------ 1.M/S. NECHUPADAM CONSTRUCTION,C/O. K.P.POULOSE, KADAYIRUPPU KOLENCHERRY, (DISSOLVED). 2.K.P.IYPE, NECHUPADAM, KADAYIRUPU,KOLENCHERRY 682 311. 3.K.E.THOMAS, OF DO. DO. 4.GEROGE THOMAS OF DO. DO. 5.DAISY THOMAS OF DO. DO. (REMOVED THE PETITION AS PERORDER IN CMP. 4980/2002 DT. 10.10.2002.ORDER IN CMP. 4980/2002 DT. 10.10.2002. 6.DR. C.I. DARLY, 33, GREEM VALLEY VILLAGE,VAZHAKALA, KAKKANAD.VAZHAKALA, KAKKANAD. 7.LILLY ISSAC, C/O. RAJAN, VALAVIL HOUSE,KIZHAKKAMBALAM. 8.K.P.MARY, C/O. GEORGE VARKEY, SANKARAMANGALAM THIRUVALLA. I.T.R. NO.182/1996 9.ANNIE PAUL, NECHUPADAM, KADAYIRUPPU. 10. VALSA PAUL, 10/579, JASEELA PARK, FEROOK, CALICUT 673 631./ 11.C.P.PAUL , PAULSON PARK HOTEL, ERNAKULAM COCHIN 11. 12.USHA PETER, JDGES AVENUE, KALOOR, ERNAKULAM ADDL. RESPONDENTS 2 TO 12 ARE IMPLEADED AS PER ORDER DT. 24.10.2002 ON CMP. NO.5527/2000. BY ADV. SRI.P.JACOB VARGHESE R6,R7 & R12 SRI.T.V.VARGHESE - R3 SRI.JOMY GEORGE - R8 SRI.V.C.SABU SRI.M.C.SEN - R11 SRI.M.P.SREEKRISHNAN SMT.SHAHNA KARTHIKEYAN THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 14/01/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N. Ramachandran Nair &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - - - I.T.R.NO.182 of 1996 - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 14[th] day of January, 2008. JUDGMENT C.N. Ramachandran Nair, J. Heard learned counsel for the applicant and learned Standing Counsel appearing for the respondents as well. The questions which arise from the order of the Tribunal for the assessment year 1978-79 are the following: “1. Whether on the facts and in the circumstances of the case theTribunal is right in law and fact in deleting the addition ofRs.68,581? 2. Whether, on the facts and in the circumstances of the case theTribunal is right in law in holding that the loss in relation to thetippers cannot be viewed as capital loss?” The assessee was awarded a contract on 22.12.1976 by the Mysore PowerCorporation for the construction of a tunnel and allied works. The awarderhad sold four tippers to the assessee for use in the construction work.Admittedly, the trucks were charged. It is not known whether the assesseemade payment for the trucks or whether the value remained as amountpayable to the awarder to be set off against the bills raised by the assessee.The accepted position is that the assessee carried out only very little work,valued at Rs.68,581/- and on account of the failure of the assessee to ITR 186/1996 2. Whether, on the facts and in the circumstances of the case theTribunal is right in law in holding that the loss in relation to thetippers cannot be viewed as capital loss?” The assessee was awarded a contract on 22.12.1976 by the Mysore PowerCorporation for the construction of a tunnel and allied works. The awarderhad sold four tippers to the assessee for use in the construction work.Admittedly, the trucks were charged. It is not known whether the assesseemade payment for the trucks or whether the value remained as amountpayable to the awarder to be set off against the bills raised by the assessee.The accepted position is that the assessee carried out only very little work,valued at Rs.68,581/- and on account of the failure of the assessee to ITR 186/1996 complete the work, the contract was cancelled on 27.12.1977. In fact, it isseen that the contract awarded on 22.12.1976 was cancelled within a year onaccount of the assessee's failure to carry out the work. It is seen from theTribunal's order that the total liquidated damages claimed by the awarder isRs.11 lakhs. Besides the liquidated damages claimed, the awarder forfeitedthe four tippers sold to the assessee for use in the construction work. Theassessing officer, while granting the loss claimed, reduced the amount ofwork in progress and allowed the net loss which was objected by theassessee. Similarly, the loss claimed for forfeiture of the trucks wasdisallowed by the assessing officer, treating it as capital loss. Even thoughthe Commissioner of Income Tax affirmed the assessment, the Tribunalallowed both the claims. 2. On going through the Tribunal's order and after hearing learnedcounsel appearing on both sides, we are unable to answer the questions, forthe reason that full facts are not on record. In the first place, it is not knownwhether the assessee had billed for the work in progress and if so,following the mercantile system, it was to be set off against the net lossclaimed. Moreover, if the work bill was not approved by the awarder forpayment, then there is no question of reducing the value of work in progressfrom the loss claimed by the assessee. On the other hand, if the bill was ITR 186/1996 entertained for consideration, then it was rightly reduced from the lossclaimed by the assessee. So far as the value of the forfeited tippers areconcerned, we do not know whether it was treated as a business asset anddepreciation granted for the preceding assessment year, i.e. 1977-78. If thevehicles are treated as business assets and depreciation granted, then thedepartment's claim that it is a business asset and hence forfeiture leads tocapital loss only, is to be upheld. If it was a case of procurement of trucksfor purpose of business and business never took off, then it could not beclaimed as a business loss and there was no occasion to use the trucks forany business purpose. If the tippers were seized before commencement ofthe work and the awarder has reckoned the cost of the seized tippers whilecomputing liquidated damages, then the question of allowing its cost asloss over and above the liquidated damages, does not arise. The Tribunalhad allowed the claim on the ground that apart from claiming liquidateddamages, the awarder has forfeited the tippers. 3. Since factual position is not clear from the Tribunal's order andthe same will be evident only from the final claim of liquidated damages bythe awarder, we set aside the order of the Tribunal and the Commissioner ofIncome Tax (Appeals) and remand the matter to the assessing officer forreconsidering the issue after verifying facts and with reference to the ITR 186/1996 -4- subsequent years' assessment also. The Income Tax Reference is disposed of as above. (C.N. Ramachandran Nair, Judge.) (T.R. Ramachandran Nair, Judge.) kav/ C.N. Ramachandran Nair & &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - -I.T.R. No.182 of 1996 - - - - - - - - - - - - - - - - - - - - - - JUDGMENT 14[th] January, 2008.