Principal Commissioner Of Income Tax-I v. Shri.s.yogarathnam

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 08.7.2020 CORAM THE HONOURABLE MR. JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE MRS. JUSTICE V.BHAVANI SUBBAROYAN TAX CASE APPEAL No.234 of 2018(heard through video conferencing) Principal Commissioner of IncomeTax-I, No.108, NungambakkamHigh Road, Chennai-34. ...Appellant/AppellantVs Shri.S.Yogarathnam ...Respondent/Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 15.3.2017 made in ITA.No.1037/Mds/2016on the file of the Income Tax Appellate Tribunal, Madras ‘A’Bench for the assessment year 2010-11 and against the order ofthe Commissioner of Income Tax, Appeals 18, Nungambakkam,Chennai-34, dated 27/01/2016 made in ITA No.99/14-15 and againstthe order of the Assistant Commissioner of Income Tax CentralCircle IV(2), Chennai-34, dated 31/03/2014 made in PANNo.AAKPY9845P Assessment year 2010-11. For Appellant: Mr.T.R.Senthikumar, SSC & For Responden: No appearanceJudgment was delivered by T.S.SIVAGNANAM,J This appeal, by the Revenue under Section 260A of the IncomeTax Act, 1961 (for short, the Act), is directed against theorder dated 15.3.2017 passed by the Income Tax AppellateTribunal, Madras 'A' Bench in ITA.No.1037/Mds/2016 for theassessment year 2010-11 by raising the following substantialquestions of law : https://hcservices.ecourts.gov.in/hcservices/ “1. Whether the Tribunal is correct inlaw in holding that there is no legaldifference between settlement and giftoverlooking the basic nature of thesettlement? 2. Whether the Tribunal is correct in law in giving relief to the assessee byplacing reliance on the definition of 'gift'under Section 122 of the Transfer ofProperty Act, without considering thedefinition of Section 2(47)(i) of the IncomeTax Act, which deals with sale, exchange orrelinquishment of an asset ?and 3. Whether the Tribunal is correct inlaw in giving relief to the assessee byholding that the settlement entered into bythe assessee with his brother ShriS.Rajarathnam is out of his own free willand love and affection and as such fallswithin the meaning of gift by overlookingthe very nature of the transaction namelyexchange of properties?” 2. We have heard Mr.T.R.Senthilkumar, learned SeniorStanding Counsel and Ms.K.G.Usharani, learned Standing Counselappearing for the appellant – Revenue. Though the respondent hasbeen served and the name of the respondent printed in the causelist, none appears for the respondent. 3. The assessee is an individual and a partner ofgroup of concerns. A search and seizure operation was conductedin the business premises of the assessee on 18.8.2011, pursuantto which, assessments were made under Section 153C read withSection 153A and Section 143(3) of the Act for the years 2006-07to 2009-10 and completed on 30.3.2014. 4. The assessee and his brother one Mr.S.Rajarathnampurchased certain properties and they were not inherited. Duringthe assessment year in question, the assessee relinquished 50%of the share in certain of those properties vide settlement deeddated 05.3.2010 in favour of his brother the saidMr.S.Rajarathnam, who also relinquished his 50% of the share incertain other properties by way of another settlement deed dated05.3.2010 in favour of the assessee. The Assessing Officer foundthat the transaction of settlement executed by the assesseeamounted to 'transfer' within the meaning of Section 2(47) ofthe Act, that it attracted the provisions of Section 45 of theAct thereby the liability to tax on capital gains arose and thatthe exemptions provided under Section 47 of the Act were notapplicable. 5. Aggrieved by such an order, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals)-18, Chennai-34[for short, the CIT(A)] in ITA.No.99/2014-15. The appeal wasallowed by the CIT(A) vide order dated 27.1.2016. As againstthe same, the Revenue preferred an appeal before the Tribunal,which dismissed the appeal by a common order dated 15.3.2017along with other appeals filed by the Revenue against the verysame assessee, over which, we are not concerned in this appeal. 6. The question would be as to whether the arrangementbetween the respondent – assessee and his brother by way of giftsettlement deed would amount to transfer within the meaning ofSection 2(47) of the Act. 7. The Assessing Officer, while completing the assessment,vide order dated 31.3.2014, after noting the definition of theterm 'transfer' as defined under Section 2(47) of the Act, madean elaborate factual exercise, which could be seen on a readingof paragraph 6.12 of the assessment order and for betterappreciation, we quote the said paragraph as hereunder : “It is seen that the deed of settlementwas executed by the assessee on 05.3.2010whereby the assessee had relinquished his50% share in about 30 properties in favourofhisbrotherShri.Rajarathnam.Reciprocally, on the same day, i.e.05.3.2010 the brother of the assesseeShri.Rajarathnam has, in turn, by way ofanother settlement deed given up his 50%share in another set of 55 properties infavour of the assessee. Out of the total 85properties held jointly by the assessee withhis brother, the assessee has relinquishedhis share of 50% in 30 properties and inreturn, he became absolute and 100% owner inrespect of other 55 properties. Thus, theassessee acquired new rights in 55properties, which were not there prior tothe so called settlement, at the expense ofhis 50% share in 30 other properties, whichshare vanished after the settlement. Hence,by reading both the settlements together,since both of them between the same personson the same day and with reference to jointproperties belonging to the same persons,the clear picture which emerges that thereis an exchange of properties between theassessee and his brother and such exchangewas done by way of relinquishment ofrespective rights in the properties to suittheir convenience. It can, therefore, be safely said that the act of relinquishingthe assessee's share in 30 properties is notan act of charity or benevolence, but itresulted in acquisition of new rights in 55other properties. Hence, profit did arise tothe assessee in the form of his new rightsin 55 other properties (whose market valuecomes to Rs..../- as per the settlementdeed.).” 8. The facts, as culled out by the Assessing Officer, showthat totally, there were 85 properties owned by the assessee andhis brother, that the assessee relinquished 50% of the share in30 properties and that he became the absolute owner in respectof other 55 properties. The Assessing Officer concluded that theassessee acquired new rights in 55 properties, which were notthere prior to the so called settlement by parting away 50% ofhis share in 30 other properties, which share got vanished afterthe gift settlement. 9. Thus, the Assessing Officer held that there had been anexchange of properties between the assessee and his brother andsuch exchange was done by way of relinquishment of respectiverights in the properties to suit their convenience. TheAssessing Officer further held that such relinquishment was notan act of benevolence or charity, but as a result of acquisitionof new property rights in 55 other properties by the assessee.The Assessing Officer concluded that all the ingredientsrequired for invoking the provisions of Section 45 of the Actwere found to be existing in the case of the assessee and thatthe transaction squarely fell under the said provision. 9. Thus, the Assessing Officer held that there had been anexchange of properties between the assessee and his brother andsuch exchange was done by way of relinquishment of respectiverights in the properties to suit their convenience. TheAssessing Officer further held that such relinquishment was notan act of benevolence or charity, but as a result of acquisitionof new property rights in 55 other properties by the assessee.The Assessing Officer concluded that all the ingredientsrequired for invoking the provisions of Section 45 of the Actwere found to be existing in the case of the assessee and thatthe transaction squarely fell under the said provision. 10. The Assessing Officer also took note of theobservations made by the Hon'ble Supreme Court in the case ofCIT Vs. Rasiklal Maneklal [reported in 177 ITR 198] whiledeciding the issue as to why the transaction amounted torelinquishment thereby falling within the definition of the term'transfer' under Section 2(47) of the Act. The Assessing Officerdealt with the submissions of the assessee with regard to theeffect of the provisions of the Indian Stamp Act and it wasobserved that merely because, under the provisions of the IndianStamp Act, which is intended for collection of appropriate stampduty, the document has been treated as a settlement, that wouldnot be an embargo for the Assessing Officer under the Income TaxAct to scrutinise and ascertain as to whether the document ortransaction amounted to transfer as defined under Section 2(47)of the Act. 11. The Assessing Officer also commented upon one of thecovenants in the document, which stated that the settlor, out oflove and affection for the settlee and with a view to provide acomfortable living to the settlee, executed the document. TheAssessing Officer held that already, the assessee and hisbrother were living comfortably and there were 85 propertiesworth above Rs.70 Crores and concluded that the covenants in thesettlement deed were only for name sake and did not reflect thetrue intention of the properties. 12. Thereafter, the Assessing Officer, took up fordiscussion the effect of Section 45 of the Act and summed up hisconclusion by holding that the transaction amounted to transferwithin the meaning of Section 2(47) of the Act, that itattracted the provisions of Section 45 of the Act thereby liableto tax on capital gains and that the exemptions provided underSection 47 of the Act were not applicable to the assessee. 13. The assessee carried the matter on appeal to the CIT(A)stating that the Assessing Officer did not consider the validobjections filed by the assessee along with appropriatejudgments. It was further contended that the settlement ofjointly held properties would not fall within the term'transfer' as defined under Section 2(47) of the Act and thesettlement was made for peaceful living and out of love andaffection. 14. Before the CIT(A), the assessee reiterated thecontentions raised before the Assessing Officer stating that thedocument was registered by the Sub-Registrar of the RegistrationDepartment as a settlement deed and not as a release deed bycharging Rs.10,000/- towards stamp duty instead of imposingregistration fee at 9% of the guideline value of the properties.Hence, the assessee submitted that the two laws namely theIndian Stamp Act and the Income Tax Act treated the transactionas a settlement and not otherwise. It was further contended thatthere was no relinquishment of right as mentioned by theAssessing Officer and there was no exchange of property, but theassessee distributed certain jointly held properties to hisbrother, who, in turn, got certain jointly held properties forhim because of the settlement deed and not by a release deed orby a sale deed. Hence, the assessee contended that thetransaction is a gift by his brother out of love and affectionfor comfortable living. 15. In support of his contention, the assessee referred tothe decision of the Punjab & Haryana High Court in the case ofCIT-II, Jalandhar Vs. Ashwani Chopra [ITA.No.353 of 2011 dated10.1.2013] and other decisions including the decision of theKarnataka High Court in the case of CIT Vs. R.Nagaraja Rao[ITA.No.3038 of 2005 dated 19.2.2012], the decision of theHon'ble Supreme Court in the case of Kale Vs. Deputy Director of Consolidation [reported in AIR 1976 SC 807]; the decision of theHon'ble Supreme Court in the case of S.S.Pillai Vs. K.S.Pillai[reported in AIR 1972 SC 2069]; the decision of this Court inthe case of CIT Vs. R.Ponnammal [reported in 164 ITR 706] andthe decision of the Income Tax Appellate Tribunal, Chennai 'C'BenchinthecaseofR.Manogar,Coimbatore [ITA.No.138/Mds/2010]. 16. The assessee, thus, contended that when the Courtsgenerally lean in favour of family arrangements and reluctant todisturb the same, the Assessing Officer ought to have followedthe said norms and that imposition of capital gains tax for theproperties settled under the settlement deed by co-owners/brothers would clearly fall within the meaning of theterm 'gift' and would not attract any tax. 17. Ultimately, the CIT(A), vide order dated 27.1.2016,allowed the appeal filed by the assessee. 18. On a reading of the order passed by the CIT(A), it isseen that the order of the Assessing Officer dated 31.3.2014 wasnot referred to in the preamble portion of the order dated27.1.2016 except for the grounds raised by the assessee.Further, from the first page of the order passed by the CIT(A),which gives details in a tabular column, we find that noneappeared for the Department. We are informed that invariably theAssessing Officer or the Departmental Representative would bepresent before the CIT(A) and more particularly during thehearing of the cases. 19. However, to our shock and surprise, it is not known asto why the Department was not represented by an Officer orDepartmental Representative especially when the Revenue iscontesting the matter. We wish to state that the Principal ChiefCommissioner of Income Tax, Chennai shall take note of thesefacts and ensure that in all cases, the Department isrepresented before the First Appellate Authority and theTribunal not only to defend the cases of the Department, butalso to assist in the decision making process. The learnedSenior Standing Counsel appearing for the appellant is directedto furnish a copy of this judgment to the Principal ChiefCommissioner of Income Tax, Chennai. 20. Coming back to the order passed by the CIT(A), as notedearlier, there is no discussion as to the finding of rendered bythe Assessing Officer after examining the nature of transaction.All that the CIT(A) did was to note down the facts, referred tothe two decisions namely the decision of the Hon'ble SupremeCourt in the case of CIT Vs. Narang Dairy Products [reported in(1996) 219 ITR 478] and the decision of the Hon'ble SupremeCourt in the case of Rasiklal Maneklal. 21. The law laid down in various decisions cannot appliedin the abstract, but needs to be applied to the facts andcircumstances of the case. Therefore, the cardinal principle isthat law is applied to each and every case after considering thefacts. Otherwise, it would tantamount to putting the 'cartbefore the horse'. Though the CIT(A) referred to the twodecisions, no reasons were given as to how those two decisionswould apply to the assessee's case. Thus, we hold the order ofthe CIT(A) to be an order devoid of reasons and a nullity. 21. The law laid down in various decisions cannot appliedin the abstract, but needs to be applied to the facts andcircumstances of the case. Therefore, the cardinal principle isthat law is applied to each and every case after considering thefacts. Otherwise, it would tantamount to putting the 'cartbefore the horse'. Though the CIT(A) referred to the twodecisions, no reasons were given as to how those two decisionswould apply to the assessee's case. Thus, we hold the order ofthe CIT(A) to be an order devoid of reasons and a nullity. 22. The parties to the proceedings are entitled to know asto why the Authority or the Tribunal or the Court does not agreewith their submissions. Thus, order without reasons is arbitraryand unreasonable and it would amount to violation of theprinciples of natural justice. Further, without assigning anyreasons, without discussing about the transaction and withoutrendering any findings as to why, in the opinion of the CIT(A),the Assessing Officer was wrong, the CIT(A) allowed the appeal.To say the least, the manner, in which, the appeal was allowedby the CIT(A) is erroneous. 23. The Revenue, being aggrieved by such an order, filed theappeal before the Tribunal. The Tribunal also did not considerthe matter in a proper perspective and the discussion is only inparagraphs 14 and 15 of the impugned order. The Tribunalconcluded that the artificial definition made by LowerAuthorities with reference to gift and settlement was notappropriate. The Tribunal was of the opinion that for thepurpose of Section 49(1)(ii) of the Act, there was no differencebetween gift and settlement and that in the instant case, thesettlement made with the assessee's brother could not attractcapital gains on this count. There are no reasons as to how theTribunal came to such a conclusion. We are unable to find anysuch reasoning in paragraph 15 of the impugned order. Therefore,the said finding is not supported by reasons and hence, notsustainable. 24. The Tribunal referred to the decision of the CoordinateBench in the case of Mr.Abdul Hameed Khan Mohammed [ITA.No.1782/Mds/2015 dated 29.12.2015] for the assessment year 2011-12. TheTribunal did not assign any reason as to how the said decisionof the Coordinate Bench would apply to the assessee's case.Paragraph 14 of the impugned order is also devoid of reasons. 25. Accordingly, the above tax case appeal is allowed, theimpugned order is set aside and the matter is remitted back tothe CIT(A) for a fresh consideration in accordance with law.Considering the fact that the year, in which, the search andseizure operations were conducted in the place of business of https://hcservices.ecourts.gov.in/hcservices/ the assessee namely 2011, we direct the CIT(A) to give priorityto this case and dispose of the same as expeditiously aspossible after hearing both the assessee and the DepartmentalRepresentative. Sd/-Assistant Registrar //True copy// Sub Assistant Registrar To 1. The Principal Chief Commissioner of Income Tax, Chennai. 2. The Income Tax Appellate Tribunal, Madras ‘A’ Bench, Chennai 3. The Commissioner of Income Tax, Appeals-18, Nungambakkam, Chennai.4. The Assistant Commissioner of Income Tax, Central Circle IV(2), Chennai-34Copy To:Mr.T.R.Senthil Kumar,Senior Standing Counsel,27, Lawyer's ChamberHigh Court, Building,Chennai-104. BR(CO)GMY(09/09/2020) T.C.A.No.234 of 2018 https://hcservices.ecourts.gov.in/hcservices/