Principal Commissioner Of Income Tax-1, Chandigarh v. Shri Mahipinder Singh Sandhu

ITA-368-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-368-2018 (O&M) Date of Decision: 12.3.2019 Principal Commissioner of Income Tax-1, Chandigarh Versus ....Appellant. Shri Mahipinder Singh Sandhu ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel,for the appellant.*** AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the revenue under Section 260Aof the Income Tax Act, 1961 (in short “the Act”) against the order dated14.3.2018 (Annexure A-3) passed by the Income Tax Appellate Tribunal,Chandigarh Bench, 'B', Chandigarh (hereinafter referred to as “theTribunal”) in ITA No. 650/Chd/2017, for the assessment year 2008-09,claiming the following substantial questions of law:- i)Whether on the facts and circumstances of thecase, the ITAT's order is perverse as the agreementto sell was executed on 19.11.2007 and theassessee had received 90% of the totalconsideration amounting to ` 4,71,69,579/- whichwas more than 90% of the total consideration incase, the ITAT's order is perverse as the agreementto sell was executed on 19.11.2007 and theassessee had received 90% of the totalconsideration amounting to ` 4,71,69,579/- whichwas more than 90% of the total consideration in the F.Y. 2007-08 relevant to A.Y. 2008-09 and hadthe requisite funds to invest within six months ofthe transfer to claim the benefit under section54EC? ii)Whether on the facts and circumstances of thecase, the ITAT's order is perverse in holding thattransfer took place in A.Y. 2010-11 and therefore,exigible to deduction under Section 54EC? iii)Whether on the facts and circumstances of thecase, the ITAT's order is legally sustainable underSection 2(47) read with Section 45 which is adeeming Section and introduced a legal Section todecide the issue of transfer of capital assets?case, the ITAT's order is legally sustainable underSection 2(47) read with Section 45 which is adeeming Section and introduced a legal Section todecide the issue of transfer of capital assets? iv)Whether on the facts and circumstances of thecase, the Hon'ble ITAT order is perverse as it isagainst the judgment of the Hon'ble Apex Court inSanjeev Lal Versus CIT in Civil Appeal No. 5899of 2014 on the issue of transfer under Section 2(47) read with Section 45 of the Income Tax Act?case, the Hon'ble ITAT order is perverse as it isagainst the judgment of the Hon'ble Apex Court inSanjeev Lal Versus CIT in Civil Appeal No. 5899of 2014 on the issue of transfer under Section 2(47) read with Section 45 of the Income Tax Act? 2.Briefly stated, the facts necessary for adjudication of the instantappeal as narrated therein may be noticed. The assessee filed his return ofincome on 29.9.2008 for the assessment year 2008-09 declaring an incomeof ` 5,27,15,240/-. Subsequently, the case was reopened and notice underSection 148 of the Act was issued to the assessee. The Assessing Officernoticed that the assessee had sold shares of M/s TICS Telecom Towers Pvt.Ltd. on 28.11.2007 and had received a part sale consideration amounting to ITA-368-2018 -3- 2.Briefly stated, the facts necessary for adjudication of the instantappeal as narrated therein may be noticed. The assessee filed his return ofincome on 29.9.2008 for the assessment year 2008-09 declaring an incomeof ` 5,27,15,240/-. Subsequently, the case was reopened and notice underSection 148 of the Act was issued to the assessee. The Assessing Officernoticed that the assessee had sold shares of M/s TICS Telecom Towers Pvt.Ltd. on 28.11.2007 and had received a part sale consideration amounting to ITA-368-2018 -3- ` 40,28,748/- during the assessment year 2010-11 and the said income hasto be taxed in the assessment year 2008-09. It was further observed thatsince the assessee had made investment in REC bond on 6.8.2010, i.e. aftera period of six months from the date of transfer of the shares irrespective ofwhen the whole or part of sale consideration was actually received, theassessee was not entitled to deduction under Section 54EC of the Act.Accordingly, the Assessing Officer vide assessment order dated 30.10.2015(Annexure A-1) disallowed the benefit of exemption under Section 54EC ofthe Act as claimed by the assessee and made addition of ` 40,28,748/-.Feeling aggrieved by the order, Annexure A-1, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals), Chandigarh [for brevity“the CIT(A)”]. The CIT(A) vide order dated 22.2.2017 (Annexure A-2)upheld the addition made by the Assessing Officer and dismissed theappeal. Still dissatisfied, the assessee filed an appeal before the Tribunal.The Tribunal vide order dated 14.3.2018 (Annexure A-3) while partlyallowing the appeal, had deleted the addition made by the Assessing Officerand affirmed by the CIT(A). Hence, the present appeal by the revenue. 3.After hearing learned counsel for the appellant, we do not findany merit in the appeal. 4.The Assessing Officer had reopened the case of the assessee towhich the assessee filed objections. The Assessing Officer disposed of thesaid objections by giving reasons in the order dated 23.6.2016 wherein itwas observed that the capital gains were to be taxed in the year in whichthey were transferred and that the delay in receipt of consideration was nobearing on the taxability of the amount. Vide the said order, the AssessingOfficer rejected the objection of the assessee regarding withdrawal of ITA-368-2018 -4- 3.After hearing learned counsel for the appellant, we do not findany merit in the appeal. 4.The Assessing Officer had reopened the case of the assessee towhich the assessee filed objections. The Assessing Officer disposed of thesaid objections by giving reasons in the order dated 23.6.2016 wherein itwas observed that the capital gains were to be taxed in the year in whichthey were transferred and that the delay in receipt of consideration was nobearing on the taxability of the amount. Vide the said order, the AssessingOfficer rejected the objection of the assessee regarding withdrawal of ITA-368-2018 -4- exemption under Section 54EC of the Act by noticing that the assessee wasnot eligible for exemption under Section 54EC since the investment was notmade within six months after the date of transfer which is an eligibilitycriterion for claiming the exemption. The said findings of the AssessingOfficer were upheld by the CIT(A) in appeal. On further appeal, theTribunal upheld the action of the Assessing Officer in reopening of theassessment. However, the Tribunal deleted the addition of ` 40,28,748/-made by the Assessing Officer and upheld by the CIT(A). The Tribunalheld that admittedly the amount of ` 18,00,000/- was deposited in theEscrow Account. Both the transferrer and the transferee had common rightsover the said amount as the said amount was deposited in the EscrowAccount as a security in respect of future liabilities of the company/transferor. There was no certainty about the quantum of amount likely to bereceived by transferor or transferee out of the said amount deposited inEscrow Account. Since, there was no certainty of the time of release of thesaid amount or the part of the amount to either of the parties as disputebetween the parties had occurred and the litigation was going on, it cannotbe said that the assessee had got a vested right to receive the amount inquestion. It was only at the end of the litigation that the rights and liabilitiesof the transferor and transferee were ascertained and thereupon the share ofthe assessee was passed on to the assessee for which the assessee offeredcapital gains in the immediate assessment year 2010-11. Further, theTribunal had held the assessee entitled to the benefit of deduction underSection 54EC of the Act as the amount was invested by him in the RuralElectrification Corporation Ltd. bonds in the year of receipt which was alsoGURBACHAN SINGHthe year of taxability of the capital gains so received. The relevant findings2019.03.26 17:09I attest to the accuracy andintegrity of this document ITA-368-2018 recorded by the Tribunal read thus:- “8.We have considered the rival submissions ofthe Ld. Representatives of the parties and have alsogone through the record. We find force in thecontention raised by the Ld. Counsel for theassessee. Admittedly, a sum of ` 18,00,000/- wasdeposited in the Escrow Account. Both thetransferor and transferee had common rights overthe said amount as the said amount was depositedin the Escrow Account as a security in respect offuture liabilities of the company/transferor. Therewas no certainty about the quantum of amountlikely to be received by transferor or transferee outof the said amount deposited in Escrow Account.Even there was no certainty of the time of releaseof the said amount or the part of the amount toeither of the parties as a dispute between theparties had occurred and litigation was going on.In these circumstances, it cannot be said that theassessee had got a vested right to receive theamount in question. It was only at the end of thelitigation that the rights and liabilities of thetransferor and transferee were ascertained andthereupon the share of the assessee was passed onto the assessee for which the assessee offeredcapital gains in the immediate A.Y. 2010-11. The Hon'ble Bombay High Court in the case of CIT Vs.Hemel Raju Shete' (supra) while relying upon thedecision of the Hon'ble Supreme Court in 'E.D.Sassoon & Co. Ltd. Vs. CIT' (supra) has observedthat when the taxpayer did not have the vestedright to receive a particular amount, it cannot besaid that the said amount has accrued to thetaxpayer. The Hon'ble Delhi High Court in thecase of 'R. Dalmia Vs. CIT' (supra) has held thatthe capital gains would accrue only to an assesseewhen they are ascertained. 9.We also find force in the contention of theLd. Counsel for the assessee that the amount wasinvested in Rural Electrification Corporation Ltd.bonds on receipt of the same and in the year of thetaxability of the capital gains. We, therefore, holdthat the assessee is entitled to the benefit ofdeduction u/s 54EC as the amount was invested bythe assessee in the Rural ElectrificationCorporation Ltd. bonds in the year of receipt whichwas also the year of taxability of the capital gainsso received. In view of this, the order of the lowerauthorities on this issue is set aside and theadditions made into the account of the assessee arehereby ordered to be deleted.” In view of the above, no error could be pointed out by learned ITA-368-2018 -7- counsel for the revenue in the findings recorded by the Tribunal warrantinginterference by this Court. Further, referring to the judgment of the ApexCourt in Sanjeev Lal and another v. Commissioner of Income Tax andanother (2014) 365 ITR 389 (SC), relied upon by the learned counsel forthe revenue, in view of the factual matrix noticed hereinbefore,suffice it toobserve that the said pronouncement being based on its own facts does notadvance the case of the revenue. 6.No question of law, much less, substantial question of law arisein the appeal. Consequently, finding no merit in the appeal, the same ishereby dismissed. (AJAY KUMAR MITTAL) JUDGE March 12, 2019gbs (MANJARI NEHRU KAUL)JUDGE Whether Speaking/ReasonedYesWhether ReportableYes