Principal Commissioner Of Income Tax 1 v. Dr.d.ramamurthy

IN THE HIGH COURT OF JUDICATURE AT MADRAS The Hon'ble Ms.INDIRA BANERJEE, CHIEF JUSTICE Principal Commissioner of Income Tax 1No.63, Race Course Road,Coimbatore-641 018. .. AppellantVs.Dr.D.Ramamurthy.. Respondent Tax Case Appeal is preferred under Section 260A of theIncome Tax Act, 1961 against the order of the Income TaxAppellate Tribunal, 'C' Bench, Chennai dated 28[th] September 2016in ITA No.1851/Mds/2016 preferred against the order dated29.04.2016 of the Commissioner of Income Tax(Appeals I) ,Coimbatore in appeal No 111/18-16 preferred against the orderspassed under Section 143(3) of the Income Tax Act 1961, on31.03.2015 fot the assessment year 2012-2013 for PAN No ADCPR2167 E by the Joint Commissioner of Income Tax , Non CorporateRange 2, Coimbatore. This appeal is against an order dated 28[th] September 2016passed by the Income Tax Appellate Tribunal, “C” Bench, Chennai,allowing the appeal of the Assessee being ITA No.1851/Mds/2016relating to Assessment Year 2012-13 against the order dated 29[th]April 2016 passed by the Commissioner of Income Tax (Appeals)-1,Coimbatore dismissing the Assessee's appeal No.111/15-16 againstan order of assessment dated 31.3.2015. https://hcservices.ecourts.gov.in/hcservices/ 2The Respondent Assessee, a Doctor by profession andProprietor of a concern 'The Eye Foundation', transferred hisassets to the partnership firm constituted on 1[st] April 2011, byway of his contribution to the partnership assets. 3A partnership deed was executed on 1[st] April 2011 byseven partners including respondent Assessee and the capitalcontribution of the respondent Assessee was shown to beRs.2,98,00,000.00. On or about 29[th] June 2011, the partnershipfirm was converted into a private company limited by shares.Upon such conversion, the assets of the partnership firm stoodvested in the company and the shares were allotted to thepartners in the proportion of their share in the assets of thepartnership firm. 4Before the private limited company was constituted, theshares of the partnership firm had been revalued. According tothe respondent Assessee, the revaluation was done on or about29[th] May 2011. The Assessing Officer, however, passed an order ofassessment computing capital gains on the basis of the revaluedvalue of assets. 5The only question before the Tribunal was whetherassessment would have to be done on the basis of the value ofassets as on 1[st] April 2011 when partnership firm was constitutedor revalued value of assets. In this context, it would beperhaps pertinent to note that it is the contention of theRevenue that assets were actually revalued before 1[st] April 2011and the value of assets was much higher on 1[st] April 2011 thanwhat was shown in the deed of partnership. 6Learned Tribunal found that the legislative intentionin bringing Section 45(3) of the Income Tax Act to the statuteas stated in the memorandum explaining the clauses to theFinance Bill were as follows: 5The only question before the Tribunal was whetherassessment would have to be done on the basis of the value ofassets as on 1[st] April 2011 when partnership firm was constitutedor revalued value of assets. In this context, it would beperhaps pertinent to note that it is the contention of theRevenue that assets were actually revalued before 1[st] April 2011and the value of assets was much higher on 1[st] April 2011 thanwhat was shown in the deed of partnership. 6Learned Tribunal found that the legislative intentionin bringing Section 45(3) of the Income Tax Act to the statuteas stated in the memorandum explaining the clauses to theFinance Bill were as follows: “As per the existing provisions of section 45of the Income-tax Act profits or gains arising fromthe transfer of a capital asset are chargeabilityto income-tax as capital gains in the year in whichthe transfer took place. With a view to preventingmisuse of entities such as partnership firms, etc.,as escape routes for avoiding capital gain tax, theBill by inserting a new sub-section (3) in section45 seeks to provide for charging to tax of theprofits or gains arising from transfer of a capitalasset by a partner to a firm or by a member to anassociation of persons or body of individuals orof the Income-tax Act profits or gains arising fromthe transfer of a capital asset are chargeabilityto income-tax as capital gains in the year in whichthe transfer took place. With a view to preventingmisuse of entities such as partnership firms, etc.,as escape routes for avoiding capital gain tax, theBill by inserting a new sub-section (3) in section45 seeks to provide for charging to tax of theprofits or gains arising from transfer of a capitalasset by a partner to a firm or by a member to anassociation of persons or body of individuals or https://hcservices.ecourts.gov.in/hcservices/ VICE VERSA. In view of the practical difficultiesin evaluating the consideration for transfer insuch cases, the bill seek to provide certaindeeming provisions as well. Thus, in a case intransfer of a capital asset by a partner to a firmor by a member to association of persons or body ofindividuals, the amount recorded in the books ofaccount of firm, association or body as the valueof the capital asset, shall be deemed to be thefull value of consideration as a result of suchtransfer. By way of distribution of capital assetby a firm association of persons or body ofindividuals, the FAIR MARKET VALUE, of the assetsas on the date of transfer shall be deemed to bethe full value of consideration as a result of suchtransfer consequential amendment to sections 47 and 49 have also been proposed.” 7By an explanatory Circular No.495 dated 22[nd] September1987, the Central Board of Direct Taxes (CBDT) clarified asunder : ”24.2 With a view to blocking this escaperoute for avoiding capital gain tax, the FinanceAct, 1987 has inserted new sub-section (3) insection 45. The effect of this amendment is thatprofits and gains arising from the transfer of acapital asset by a partner to a firm shall bechargeable as the partner's income of the previousyear in which the transfer took place. For purposeof computing the capital gains, the value of theasset recorded in the books of the firm on the dateof the transfer shall be deemed to be full value ofconsideration received or accrued as a result ofthe transfer of capital asset.” 8From the statement in the memorandum explaining theclauses to the Finance Bill, as also the said circular No.495dated 22[nd] September 1987, it is patently clear that it was thelegislative intent that, for the purpose of computing thecapital gains, value of assets recorded in the books of the firmon the date of transfer would be deemed to be the full value ofconsideration received or accrued as a result of the transfer. 8From the statement in the memorandum explaining theclauses to the Finance Bill, as also the said circular No.495dated 22[nd] September 1987, it is patently clear that it was thelegislative intent that, for the purpose of computing thecapital gains, value of assets recorded in the books of the firmon the date of transfer would be deemed to be the full value ofconsideration received or accrued as a result of the transfer. 9In the backdrop of the aforesaid legal position, thequestion is what was the value of the assets as on 1[st] April2011? The value would necessarily have to be the value asrecorded in the books of the firm as on 1[st] April 2011, i.e., thevalue before the revaluation. More over, as observed above, thelearned Tribunal arrived at a factual finding with regard to thevalue of the assets transferred to the partnership as on 1[st]April 2011 and rejected the contention of the Revenue that the value of the assets as revalued would have to be taken intoconsideration. The learned Tribunal having factually determinedthe value of the assets in question as on 1[st] April 2011, thiscourt cannot entertain any appeal under Section 260A of theIncome Tax Act, 1961. 10Section 260A of the Income Tax Act, 1961, provides asfollows: “Section 260A. Appeal to High Court.(1) An appeal shall lie to the High Court fromevery order passed in appeal by the AppellateTribunal before the date of establishment of theNational Tax Tribunal, if the High Court issatisfied that the case involves a substantialquestion of law. (2) The Principal Chief Commissioner or ChiefCommissioner or the Principal Commissioner orCommissioner or an Assessee aggrieved by any orderpassed by the Appellate Tribunal may file an appealto the High Court and such appeal under this sub-section shall be- (a) filed within one hundred and twenty days from the date on which the order appealedagainst is received by the Assessee or thePrincipal Chief Commissioner or ChiefCommissioner or Principal Commissioner orCommissioner.(b) [***];(c) in the form of a memorandum of appealprecisely stating therein the substantialquestion of law involved. (2A) The High Court may admit an appeal after theexpiry of the period of one hundred and twenty daysreferred to in clause (a) of sub-section (2), if itis satisfied that there was sufficient cause fornot filing the same within that period. (3) Where the High Court is satisfied that asubstantial question of law is involved in anycase, it shall formulate that question. (4) The appeal shall be heard only on the questionso formulated, and the respondents shall at thehearing of the appeal, be allowed to argue that thecase does not involve such question:Provided that nothing in this sub-section shall bedeemed to take away or abridge the power of theCourt to hear, for reasons to be recorded, theappeal on any other substantial question of law notformulated by it, if it is satisfied that the caseinvolves such question. (5) The High Court shall decide the question of lawso formulated and deliver such judgment thereon containing the grounds on which such decision isfounded and may award such cost as it deems fit.(6) The High Court may determine any issue which -(a) has not been determined by the AppellateTribunal; or(b) has been wrongly determined by the AppellateTribunal, by reason of a decision on such questionof law as is referred to in sub-section (1).(7) Save as otherwise provided in this Act, theprovisions of the Code of Civil Procedure, 1908 (5of 1908) relating to appeals to the High Courtshall, as far as may be, apply in the case ofappeals under this section.” 11An appeal lies under Section 260A of the Income TaxAct, only when there is a substantial question of law. We findthat there is no question of law involved in this appeal muchless any substantial question of law. 11An appeal lies under Section 260A of the Income TaxAct, only when there is a substantial question of law. We findthat there is no question of law involved in this appeal muchless any substantial question of law. 12In Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. &Mfg. Co. Ltd., reported in AIR 1962 SC 1314, the Supreme Courtagreed with and approved a Full Bench Judgment of this Court inRimmalapudi Subba Rao vs Noony Veeraju And Ors reported in AIR1951 Mad 969 and laid down the principles for deciding when aquestion of law becomes a substantial question of law. 13In Hero Vinoth Vs. Seshammal reported in (2006) 5 SCC545, the Supreme Court followed Sir Chunilal V. Mehta & Sons(supra) and other judgments and summarized the tests to find outwhether a given set of questions of law were mere questions oflaw or substantial questions of law. 14The relevant paragraphs of the judgment of the SupremeCourt in Hero Vinoth (supra) are set out herein below : “21. The phrase “substantial question of law”,as occurring in the amended Section 100 CPC isnot defined in the Code. The word substantial,as qualifying “question of law”, means—of havingsubstance, essential, real, of sound worth,important or considerable. It is to beunderstood as something in contradistinctionwith—technical, of no substance or consequence,or academic merely. However, it is clear thatthe legislature has chosen not to qualify thescope of “substantial question of law” bysuffixing the words “of general importance” ashas been done in many other provisions such asSection 109 of the Code or Article 133(1)(a) ofthe Constitution. The substantial question of law on which a second appeal shall be heard neednot necessarily be a substantial question of lawof general importance. In Guran Ditta v. RamDitta [(1927-28) 55 IA 235 : AIR 1928 PC 172]the phrase “substantial question of law” as itwas employed in the last clause of the thenexisting Section 100 CPC (since omitted by theAmendment Act, 1973) came up for considerationand their Lordships held that it did not mean asubstantial question of general importance but asubstantial question of law which was involvedin the case. In Sir Chunilal case [1962 Supp (3)SCR 549 : AIR 1962 SC 1314] the ConstitutionBench expressed agreement with the followingview taken by a Full Bench of the Madras HighCourt in Rimmalapudi Subba Rao v. Noony Veeraju[AIR 1951 Mad 969 : (1951) 2 MLJ 222 (FB)] :(Sir Chunilal case [1962 Supp (3) SCR 549 : AIR1962 SC 1314] , SCR p. 557) “When a question of law is fairlyarguable, where there is room fordifference of opinion on it or where theCourt thought it necessary to deal withthat question at some length and discussalternative views, then the question wouldbe a substantial question of law. On theother hand if the question was practicallycovered by the decision of the highestcourt or if the general principles to beapplied in determining the question arewell settled and the only question was ofapplyingthoseprinciplestotheparticular fact of the case it would notbe a substantial question of law.” This Court laid down the following test asproper test, for determining whether a questionof law raised in the case is substantial: (SirChunilal case [1962 Supp (3) SCR 549 : AIR 1962SC 1314] , SCR pp. 557-58) “The proper test for determining whether aquestion of law raised in the case issubstantial would, in our opinion, bewhether it is of general public importanceor whether it directly and substantiallyaffects the rights of the parties and if sowhether it is either an open question inthe sense that it is not finally settled bythis Court or by the Privy Council or bythe Federal Court or is not free from This Court laid down the following test asproper test, for determining whether a questionof law raised in the case is substantial: (SirChunilal case [1962 Supp (3) SCR 549 : AIR 1962SC 1314] , SCR pp. 557-58) “The proper test for determining whether aquestion of law raised in the case issubstantial would, in our opinion, bewhether it is of general public importanceor whether it directly and substantiallyaffects the rights of the parties and if sowhether it is either an open question inthe sense that it is not finally settled bythis Court or by the Privy Council or bythe Federal Court or is not free from difficulty or calls for discussion ofalternative views. If the question issettled by the highest court or the generalprinciples to be applied in determining thequestion are well settled and there is amere question of applying those principlesor that the plea raised is palpably absurdthe question would not be a substantialquestion of law.” 22. In Dy. Commr. v. Rama Krishna Narain [1954SCR 506 : AIR 1953 SC 521] also it was held thata question of law of importance to the partieswas a substantial question of law entitling theappellant to a certificate under (the then)Section 100 CPC. 23. To be “substantial” a question of law mustbe debatable, not previously settled by law ofthe land or a binding precedent, and must have amaterial bearing on the decision of the case, ifanswered either way, insofar as the rights ofthe parties before it are concerned. To be aquestion of law “involving in the case” theremust be first a foundation for it laid in thepleadings and the question should emerge fromthe sustainable findings of fact arrived at bycourt of facts and it must be necessary todecide that question of law for a just andproper decision of the case. An entirely newpoint raised for the first time before the HighCourt is not a question involved in the caseunless it goes to the root of the matter. Itwill, therefore, depend on the facts andcircumstance of each case whether a question oflaw is a substantial one and involved in thecase or not, the paramount overall considerationbeing the need for striking a judicious balancebetween the indispensable obligation to dojustice at all stages and impelling necessity ofavoiding prolongation in the life of any lis.(See Santosh Hazari v. Purushottam Tiwari[(2001) 3 SCC 179] .)24.The principles relating to Section 100 CPCrelevant for this case may be summarised thus :(i) An inference of fact from the recitals orcontents of a document is a question of fact.But the legal effect of the terms of a documentis a question of law. Construction of a documentinvolving the application of any principle oflaw, is also a question of law. Therefore, when there is misconstruction of a document or wrongapplication of a principle of law in construinga document, it gives rise to a question of law.(ii) The High Court should be satisfied that thecase involves a substantial question of law, andnot a mere question of law. A question of lawhaving a material bearing on the decision of thecase (that is, a question, answer to whichaffects the rights of parties to the suit) willbe a substantial question of law, if it is notcovered by any specific provisions of law orsettled legal principle emerging from bindingprecedents, and, involves a debatable legalissue. A substantial question of law will alsoarise in a contrary situation, where the legalposition is clear, either on account of expressprovisions of law or binding precedents, but thecourt below has decided the matter, eitherignoring or acting contrary to such legalprinciple. In the second type of cases, thesubstantial question of law arises not becausethe law is still debatable, but because thedecision rendered on a material question,violates the settled position of law .(iii) The general rule is that High Court willnot interfere with the concurrent findings ofthe courts below. But it is not an absoluterule. Some of the well-recognised exceptions arewhere (i) the courts below have ignored materialevidence or acted on no evidence; (ii) thecourts have drawn wrong inferences from provedfacts by applying the law erroneously; or (iii)the courts have wrongly cast the burden ofproof. When we refer to “decision based on noevidence”, it not only refers to cases wherethere is a total dearth of evidence, but alsorefers to any case, where the evidence, taken asa whole, is not reasonably capable of supportingthe finding.” 15In M.Janardhana Rao Vs. Joint Commissioner of IncomeTax [2005 273 ITR 50 (SC)], the Hon'ble Supreme Court held thatthe principles contemplated under Section 100 of the Code ofCivil Procedure would apply to Section 260A of the Income TaxAct too. 16Right of appeal is not automatic. Right of appeal isconferred by statute. When statute confers a limited right ofappeal only in a case which involves substantial questions oflaw, it is not open for this Court to sit in appeal over thefactual findings arrived at by the Appellate Tribunal. https://hcservices.ecourts.gov.in/hcservices/ 17We find that there is no substantial question of lawinvolved in this appeal. The appeal is, therefore, notentertained and the same is dismissed. No costs. s/d- Assistant Registrar(CS-V) True Copy Sub-Assistant RegistrarvvkTo1.The Income Tax Appellate Tribunal, 'C' Bench, Chennai.2. The Commissioner of Income Tax, Appeals I, Coimbatore3. The Joint Commissioner of Income Tax, Non Corporate Range 2 Coimbatore+1 CC to Ms.T.R. Senthilkumar, Advocate sr 66224.+1 CC to Ms. Subbaraya Iyyar, Advocate sr 66223.T.C.A.No.377 of 2017SP(28/11/2017)