Principal Commissioner Of Income Tax 2 v. M/S. B.rangaswamy Naidu Orchards Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 11.06.2019 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Nos.744 & 745 of 2018CMP.No.16815 of 2018 Principal Commissioner of Income Tax 2,No.63, Race Course Road,Coimbatore ...Appellant in both the appeals -vs- M/s. B.Rangaswamy Naidu Orchards Pvt. Ltd,No.14, Puliakulam Road, Coimbatore(Now amalgamated with M/s.GestioneConsulting India Pvt Ltd,No.14 Vathiyaar Thottam,Rambaiyalur, Chikkarasampalayam,Sathyamanglam-638401 ...Respondent in both the appeals Tax Case Appeals under Section 260-A of the Income TaxAct, 1961, are directed against the order passed by the IncomeTax Appellate Tribunal, Madras “B” Bench, in I.T.ANos.343/Mds/2017 and 344/Mds/2017 dated 13.07.2017 for theassessment years 2012-13 and 2013-14. Appeals filed against theOrders of the Commissioner of Income Tax(Appeals)-3, Coimbatore,in ITA.No.191/16-17 and ITA.No.192/16-17 dated 18.11.2016 forthe Assesment Year 2012-13 and 2013-14 against the orders of theDeputy Commissioner of Income Tax, Corporate Circle-2,Coimbatore, dated 26.03.2015 and 30.03.2016 for the Assessmentyear 2012-13 and 2013-14. For appellant :Mr.K.G.Usha Rani(in both the cases) JUDGEMENT https://hcservices.ecourts.gov.in/hcservices/ [Judgement of the Court was delivered by T.S.Sivagnanam, J.] These Tax Case Appeals by the Revenue, filed under Section260-A of the Income Tax Act, 1961, ('the Act' for brevity) aredirected against the order passed by the Income Tax AppellateTribunal, Madras “B” Bench, in I.T.A Nos.343/Mds/2017 and344/Mds/2017 dated 13.07.2017 for the assessment years 2012-13and 2013-14. 2.The above Tax Case Appeals have been filed raising thefollowing substantial questions of law:- "(i) Whether the ITAT was right in confirmingthe order of the CIT-A without appreciating thatGCIPL acquired rights over the shares of the companyheld by Shri K Rajesh and Smt Srivally by virtue ofclause 5 of the agreement dated 20-04-2007 bypayment of a consideration of Rs.8,50,00,000/-? (ii) Whether the ITAT was right in confirmingthe order of the CIT-A holding that GCIPL acquiredthe land by payment of a compensation ofRs.8,50,00,000/- without appreciating that the CIT-Aalso held that the capital gains admitted in thehands of the original shareholders, Shri K Rajeshand Smt Srivally should be assessed as capital gainson sale of the shares? (iii) Whether the ITAT was right in holdingthat the payment made by the purchaser to the escrowagent was cost of improvement without appreciatingthat the payment made out of the sale considerationwas towards settling of the loan borrowed by one ofthe directors, Shri Rajesh on 02-05-2008 afterentering into an agreement for the sale of the landon 20-04-2007 and depositing the papers with theescrow agent, Shri Vikram Mohan after 20-07-2007? (iv) Whether the ITAT was right in holdingthat the payment made by the purchaser to the escrowagent was cost of improvement without appreciatingthat courts have held that where a property is heldby an assessee free from encumbrances' andthereafter encumbrances' are created by the assesseeis not entitled to deduction on account ofencumbrances?(v) Whether the ITAT was justified inconfirming the order or the CIT-A by holding thatRs.2,75,00,000/- was incurred for protecting,preserving and improving the title of land and hencethe expenditure has to be allowed as part of theagreementbythethendirectorswithSmt.P.Thillaikarasi, the assessee company had no liabilities. (iv) Whether the ITAT was right in holdingthat the payment made by the purchaser to the escrowagent was cost of improvement without appreciatingthat courts have held that where a property is heldby an assessee free from encumbrances' andthereafter encumbrances' are created by the assesseeis not entitled to deduction on account ofencumbrances?(v) Whether the ITAT was justified inconfirming the order or the CIT-A by holding thatRs.2,75,00,000/- was incurred for protecting,preserving and improving the title of land and hencethe expenditure has to be allowed as part of theagreementbythethendirectorswithSmt.P.Thillaikarasi, the assessee company had no liabilities. (vi) Whether the ITAT was justified inconfirming the order of the CIT-A by holding thatGCIPL had borrowed and the interest incurred was onbehalf of the assessee and as such the liabilitieswereincurredbyGCIPLforimproving,preserving/protecting the title and the interestpaid is an allowable deduction without appreciatingthat these interest expenses and bank charges wereincurred by GCIPL and these in no way are relatedwith the conversion of capital asset into stock-in-trade and that the (vii) Whether on the facts and circumstancesof the case, the costs of improvements claimed bythe assessee, allowed by the CIT-A and confirmed bythe ITAT within the definition of cost ofimprovement under Section 55(1) of the IT Act”? 3. We have heard Mrs.K.G.Usha Rani, learned counsel forthe Revenue in both the cases. 4. We have carefully gone through the orders of assessmentfor the assessment years under consideration namely 2012-13 and2013-14 and the orders passed by the Commissioner of Income Tax(Appeals) and the orders passed by the Income Tax AppellateTribunal. 5. The appeal was filed by the assessee before the CIT(A)disputing the computation of capital gains under Section 45(2)of the Act. The matter concerned an expenditure of Rs.8.5 Croresincurred by the assessee for making a property free fromencumbrances. The CIT(A) took into consideration the factualaspects that the assessee had to pay a consideration of Rs.5.5Crore to one Smt.Tillaikarasi to clear an encumbrance which wascreated in her favour. Therefore, an amount of Rs.2.75 Crore waspaid to Mr.Vikram Mohan by the original shareholders of theassessee company Mr.K.Rajesh and Mrs.Srivalli. This was for thepurpose of returning the original title deeds held by Mr.VikramMohan. Apart from that a sum of Rs. 2.74 Crore each was paid toMr.K.Rajesh and Mrs.Srivalli outgoing shareholders. Thisexpenditure incurred was held to be an eligible deduction forthe purpose of preserving and protecting the title of theproperty. The factual aspect was tested by the Tribunal in greatlength and the appeal filed by the Revenue was rejected. 6. On going through contentions advanced before us, wefind no question of law much less a substantial question of lawarises for consideration in these appeals. For the above reasons https://hcservices.ecourts.gov.in/hcservices/ these Tax Case Appeals are dismissed. No costs. Consequently,connected miscellaneous petition is closed. Sd/- Assistant Registrar(CS VIII) //True Copy// Sub Assistant Registrar ska/mrm 1.The Income Tax Appellate Tribunal, Madras “B” Bench, Chennai.2.The Commissioner of Income Tax(Appeals)-3,Coimbatore.3.The Deputy Commissioner of Income Tax, Corporate Circle-2, Coimbatore.+1cc to Mr.T.R.Senthil Kumar, Advocate, S.R.No.47292Tax Case Nos.744 & 745 of 2018CMP.No.16815 of 2018SS(CO)CS/14/08/2019