ROOPAM P. BHARTIYA,MUMBAI vs. ITO 14(3)(4), MUMBAI

आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

“1) On the facts and the circumstance of the case the learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of Rs.7,000/- on account of brokerage, Rs.15,000/- on account of Commission and Rs.17,985/- on account of Interest Paid on Loan under Section 40(a)(ia). 2) On the facts and the circumstance of the case the learned Commissioner of Income Tax (Appeals) erred in confirming addition of Rs.20,00,000/- as Long Term Capital Gains without appreciating that Assessee did not owned any Apartment and the Flat sold during the year was sold by Mr. Prahladrai Bhartia and all the sales proceeds were also received by him. 3) On the facts and the circumstance of the case the learned Commissioner of Income Tax (Appeals) erred in not allowing the cost of purchase and indexation thereafter even after presuming that the above Flat was owned by the Assessee.”

“14. In the aforesaid backdrop, let us now deal with the issue, namely, the word 'payable' in Section 40(a)(ia) would mean only when the amount is payable and not when it is actually paid. Grammatically, it may be accepted that the two words, i.e. 'payable' and 'paid', denote different meanings. The Punjab & Haryana High Court, in P.M.S. Diesels (supra) referred to above, rightly remarked that the word 'payable' is, in fact, an antonym of the word 'paid'. At the same time, it took the view that it was not significant to the interpretation of Section 40(a)(ia). Discussing this aspect further, the Punjab & Haryana High Court first dealt with the contention of the assessee that Section 40(a)(ia) relates only to those assessees who follow the mercantile system and does not cover the cases where the assessees follow the cash system. Those contention was rejected in the following manner:

'19. There is nothing that persuades us to accept this submission. The purpose of the section is to ensure the recovery of tax. We see no indication in the section that this object was confined to the recovery of tax from a particular type of assessee or assessees following a particular accounting practice. As far as this provision is concerned, it appears to make no difference to the Government as to the accounting system followed by the assessees. The Government is interested in the recovery of taxes. If for some reason, the Government was interested in ensuring the recovery of taxes only from assessees following the mercantile system, we would have expected the provision to so stipulate clearly, if not expressly. It is not suggested that assessees following the cash system are not liable to deduct tax at source. It is not suggested that the provisions of Chapter XVII-B do not apply to assessees following the cash system. There is nothing in Chapter XVII-B either that suggests otherwise.

** ** ** With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section(1) of section 200 and in accordance with the other provisions of Chapter XVII-B. ……

'12.3. It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term 'payable' legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both in the situation of actual payment as well of the credit of the amount. It becomes very clear from the fact that the phrase, 'on which tax is deductible at source under Chapter XVII-B', was not there in the Bill but incorporated in the Act. This was not without any purpose.' 15. We approve the aforesaid view as well. As a fortiorari, it follows that Section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. In this behalf, one has to keep in mind the purpose with which Section 40 was enacted and that has already been noted above. We ITA 4537/Mum/2016 5 have also to keep in mind the provisions of Sections 194C and 200. Once it is found that the aforesaid Sections mandate a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax at source from the payments made, where tax was to be deducted at source or failure to pay the same to the credit of the Central Government, are stipulated in Section 201 of the Act. This Section provides that in that contingency, such a person would be deemed to be an assessee in default in respect of such tax. While stipulating this consequence, Section 201 categorically states that the aforesaid Sections would be without prejudice to any other consequences which that defaulter may incur. Other consequences are provided under Section 40(a)(ia) of the Act, namely, payments made by such a person to a contractor shall not be treated as deductible expenditure. When read in this context, it is clear that Section 40(a)(ia) deals with the nature of default and the consequences thereof. Default is relatable to Chapter XVIIB (in the instant case Sections 194C and 200, which provisions are in the aforesaid Chapter). When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word 'payable' occurring in Section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVIIB (or specifically Sections 194C and 200 in the instant case), he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences. The Punjab & Haryana High Court has exhaustively interpreted Section 40(a(ia) keeping in mind different aspects. We would again quote the following paragraphs from the said judgment, with our complete approval thereto:

"26. Further, the mere incurring of a liability does not require an assessee to deduct the tax at source even if such payments, if made, would require an assessee to deduct the tax at source. The liability to deduct tax at source under Chapter XVII-B arises only upon payments being made or where so specified under the sections in Chapter XVII, the amount is credited to the account of the payee. In other words, the liability to deduct tax at source arises not on account of the assessee being liable to the payee but only upon the liability being discharged in the case of an assessee following the cash system and upon credit being given by an assessee following the mercantile system. This is clear from every section in Chapter XVII.

contractor, fails to do so for any reason. The assessee is not then liable to deduct tax at source. Take also the case of an assessee, who follows the mercantile system. Such an assessee may have incurred the liability to pay amounts to a party. Such an assessee is also not bound to deduct tax at source unless he credits such sums to the account of the party/payee, such as, a contractor. This is clear from Section 194C set out earlier. The liability to deduct tax at source, in the case of an assessee following the cash system, arises only when the payment is made and in the case of an assessee following the mercantile system, when he credits such sum to the account of the party entitled to receive the payment.

The Learned DR did not raise any objection to the dismissal of ground no. 1 on account of Hon’ble Supreme Court decision in the case of Palam Gas Service (supra) . After hearing both the parties, we order dismissal of Ground No. 1 on merits in view of binding decision of Hon’ble Supreme Court in the case of Palam Gas Service (supra) wherein issue is decided against the assessee as detailed above. We , therefore, dismiss ground No. 1 on merits by deciding the same against assessee. This issue is decided against the assessee. We order accordingly.

i) Though the assessee claims that the entire purchase cost of the flat was met by Mr.Pralhadrai Bhartiya only, nothing ITA 4537/Mum/2016 8 has been kept in support thereof on record, such as, the photo copy of the relevant page of the bank statement, evidencing the outflow of funds towards agreement dated 29.11.1999 made and entered into with M/s. Runwal Chembers, Chembur, Mumbai-400072, copy of the annual accounts in general and the balance sheet in particular of Mr.Pralhadrai Bhartiya etc. ii. The assessee failed to file the photo copy of the agreement dated 29.11.1999. iii. The assessee failed to quote the purchase cost of the flat. iv) The quantum of the amount towards sale consideration received by each of the Transferor no way lead to an answer to million dollar question as to "In whose hands, the capital gains tax will be charged".

The A.O. observed that the assessee has not brought on record such as photocopy of the purchase agreement dated 29th November, 1999 entered into with M/s Runwal Chambers for purchase of said flat B-201, 2nd floor Runwal Towers CHS Ltd., LBS Marg, Mulund (W), Mumbai . Thus, the A.O. adopted a sum of Rs. 20 lacs as assessee’s share in sales consideration for arriving at the working of the amount of long term capital gain on sale of said flat and no credit was given towards indexed cost of acquisition and hence the long term capital gain of Rs 20 lacs ( being 1/3) was brought to tax by the AO vide assessment order dated 28-02-2014 passed u/s 143(3) of 1961 Act.

6.The assessee reiterated the submission made before the A.O. and submitted that the said flat B-201, 2nd floor Runwal Towers CHS Ltd., LBS Marg, Mulund (W), Mumbai was owned by Mr. Prahladrai Bharthlya and the entire purchase price for the flat i.e. Rs.14,12,951/- was paid by Mr. Prahladral ITA 4537/Mum/2016 9 Bharthlya alone. It was submitted that the assessee and Mrs. Usha P. Bhartiya did not contribute anything and therefore they did not have any right in the said flat. Mr. Prahladrai Bharthia had mortgaged the flat and obtained the loan from Karur Vysya Bank and out of the sale proceeds of Rs.60 lacs received from sale of the said flat, Rs.55 lacs were directly deposited in the bank towards discharge of loans taken by Shri. Pahladrai Bharthiya. It was further submitted that the said flat was never shown in the balance sheet of the assessee but was reflected as an asset in the balance sheet of Mr. Prahladrai Bhartlva. The assessee submitted that the copies of the balance sheet for the assessment year 2003-04 of Mr. Prahladrai Bhartiya had been filed which showed the flat as office premises valued at 14,12,951/- in the balance sheet. The ld. CIT(A) observed that the purchase deed for purchase of this flat was not produced either before the A.O. or before the ld. CIT(A). The learned CIT(A) observed that even if purchase deed is not produced but since the assessee has sold the property, clearly indicate that the assessee had a right in the property and in the absence of the determination of shares, it was presumed that his share would be equal to 1/3rd as there were three co-owners. The ld.CIT(A) observed that the contention of the assessee that the assessee did not made any payment towards the purchase of flat was not supported by any evidence. It was also observed that the flat had been sold for a consideration of Rs. 60 lacs but no capital gain had been paid by any of the parties. Mr. Prahladrai Bhartiya had not filed the return of income with the Revenue for the impugned assessment year and no taxes have been paid, hence, the ld. CIT(A) upheld the addition made by the A.O. , vide appellate order dated 23-03-2016 passed by the learned CIT(A).

ITA 4537/Mum/2016 10

“(c) Initially Transferor no. 1, 2 & 3 have jointly purchased and acquired the said flat from the Promoter M/s Runwal Estate Private Limited, a company incorporated and registered in India and having its registered office situate at RUNWAL CHAMBERS, First Road, Chembur, Mumbai- 400072 by virtue of an Agreement dated 29th day of November , 1999. The said agreement is duly registered with the Jurisdictional sub registrar. (d) The Transferor 1, 2 & 3 have availed financial assistance from KARUR VYSYA BANK LTD against mortgage/charge on the said flat and said shares.

(e) The Transferor have agreed to clear all loan liability of KARUR VYSYA BANK LTD on the said flat , and will give clear , marketable title free from encumbrances and vacant possession of the said flat”

Perusal of the sale agreement dated 23-07-2010 leaves no doubt that all the three persons namely Mr. Prahladrai Bhartiya, Mr. Roopam Prahladrai Bhartiya and Mrs. Usha P. Bhartiya have ownership right , title and interest in the said flat along with they jointly availed loan from Karur Vysya Bank unless said presumption is rebutted by the assessee with cogent evidences. The assessee’s father has not filed income tax return for the year under consideration and capital gain earned on this flat was not declared to the ITA 4537/Mum/2016 14 Revenue , and only one year records i.e. for assessment year 2003-04 of father are produced and that also did not establishes that the father of the assessee has declared this flat in the said return of income as general description ‘ office premises’ is mentioned . No evidence is brought on record which could show that the payment were made by the assessee’s father as no bank statement of father is produced by the assessee. Nor bank statement wherein proceeds of the sale of office are credited are brought on record. Any assumption of the facts in the absence of evidence will be contrary to material on records and shall be in the realm of conjectures and surmises. It is incumbent on the assessee to have brought on record all the evidences whereas the assessee did not brought on record any evidence to rebut the presumption which is against the assessee that the assessee is one of the co- owner of the said flat as is emanating from purchase and sale deed as well loan obtained by the assessee against the mortgage of said flat from Karur Vysya Bank Limited. The entire sale consideration of Rs. 60 lacs was claimed to be credited to the bank O/D account of Mr. Pralharai Bhartiya , while the sale agreement clearly stipulates that all the three transferor have availed financial assistance from Karur Vysya Bank and all of three have decided to clear the loan. The documents of bank loan are not brought on record on the pretext that there was some dispute with the bank and hence the bank is not providing bank statements / loan details. The purchase and sale documents leave no room of doubt that the flat is jointly owned by all the three family members namely Mr. Prahladrai Bhartiya, Mr. Roopam Prahladrai Bhartiya and Mrs. Usha P. Bhartiya . The burden of proof and onus of proof is on the assessee to prove the facts as these facts are especially within knowledge of the assessee. The presumption u/s 106 of Indian Evidence Act, 1872 shall apply. Section 106 of Indian Evidence Act ,1872 clearly stipulates as under:

“106. Burden of proving fact especially within knowledge ITA 4537/Mum/2016 15

When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.

Illustrations

(a)****

(b) A is charged with traveling on a railway without a ticket. The burden of proving that he had a ticket is on him.”

The assessee was not able to discharge burden of proof/onus of proof cast u/s 106 of 1872 Act as the assessee did not file documents for showing that the flat was exclusively owned by father of the assessee and payments for acquisition of the flat was exclusively paid by father of the assessee. The assessee could not rebut the presumption of ownership of the flat jointly with the mother and father of the assessee , with cogent evidences that the assessee name is merely included in the said flat for name sake . The assessee only filed one unsubstantiated accounts for assessment year 2003- 04 of father of the assessee which only showed general description ‘Office Premises’ without having any details of the said flat and verification from the Revenue that the total consideration was paid by the assessee’s father which was reflected in his statement of affairs/balance sheet filed with revenue. The father of the assessee had also not paid taxes on capital gain earned from the sale of the said flat and hence no taxes on this sale of flat is paid to Revenue. In view of peculiar facts and circumstances of the case, the contentions of the assessee cannot be accepted. The assessee has however filed purchase agreement for the purchase of this flat for the first time before the tribunal. We have perused both the sale agreement and purchase agreement which are placed on record in paper book filed with the tribunal. Thus, we are of the considered view that the capital gain on sale of assessee’s share in the said flat ( being 1/3 )is to be brought to tax in the hand of the assessee. However, the A.O. is directed to give relief for the cost of acquisition ITA 4537/Mum/2016 16 of the flat and cost inflation index , as per provisions of section 48 & 49 of the Act in accordance with law after verification of the purchase deed dated 29-11-1999 and other cogent and credible material brought on record by the assessee. We order accordingly.

Order pronounced in the open court on 29th September, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांकः 29.09.2017 को क� गई ।