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Income Tax Appellate Tribunal, KOLKATA BENCH ‘A’, KOLKATA
Before: Shri P. M. Jagtap, A.M. & Shri S.S.Viswanethra Ravi, J.M.)
ORDER Per Shri S.S.Viswanethra Ravi, J.M. This is an appeal filed by the assessee against the order dated 16.09.2011 passed by the CIT(Appeals)-XIX, Kolkata for the assessment year 2008-09 framed under section 143(3) of the I.T.Act.
The grounds raised
by the assessee are placed as below: “1. That the Ld. CIT(A) erred in holding that the capital gain arising out of the sale of leasehold land and building thereon is STCG in place of LTCG in terms of Section 50 of the Income Tax Act, 1961. The said asset has never been a business asset. A wrong claim of depreciation over the same in the last year can not change the nature of asset. The profit out of the sale of said asset need to be treated as LTCG with benefit of cost indexation.
2. That in view of the facts & circumstances of the case, the Ld. CIT(A) erred in confirming disallowance of the foreign tour expenses to the extent of 60% of the total expenses of Rs.1,39,249/-. Such disallowance of Rs.83,550/- made and confirmed by the Ld. CIT(A) need to be allowed,
3. That the assessee craves leave to add, alter amend or withdraw any ground or grounds of appeal before or at the time of hearing.”
Md. Farooque Ansari Assessment Year: 2008-09 3. The brief facts of the case are that the assessee is an individual and proprietor of M/s. Oriental Leather Industries dealing with manufacturing and export of leather products. The assessee filed its return of income on 03.08.2008 showing a total income of Rs.71,565/-. The notices under section 143(2) and 142(1) of the Act were issued under scrutiny.
During the assessment proceedings, the assessee has shown long term capital gain of Rs.7,46,717/-. The AO found that the assessee has relinquished lease right on land and construction thereon and sold for a consideration of Rs.1,20,00,000/- and also found assessee deposited only Rs.5,00,000/-in Union Bank of India. The AO treated Rs.1,25,00,000/- as value of consideration of relinquishment of lease right. The AO added Rs.64,39,923/- as capital gain of assessee to the total income of the assessee by deducting written down value and addition made on STCG.
Aggrieved by the above order of the AO, the assessee preferred appeal before the ld. CIT(A). During the course of appellate proceedings, it is submitted on behalf of assessee that the AO was not justified in treating the full value of consideration on surrender of lease rights at Rs.1,25,00,000/- instead of Rs.1,20,00,000/- as per the provisions of Sec.50C of the Act. It was contended by the Ld. A.R. that it is apparent from the record that by a registered Deed of Surrender of Lease being an Indenture of Surrender dt. 29th Feb. 2008, the lease-hold interest in land together with two- storied brick-built structure thereon for a total consideration of Rs.l,20,00,000/-. The consideration of Rs.l,20,00,000/- was received by the assessee by way of two cheques dt. 2/2/2008 and 27/2/2008 for a sum of Rs. 50 lakh and Rs.70 lakh respectively. The copy of Deed of Surrender of Lease dt. 29/2/2008 was duly filed before the AO and wherein there was no mention that the assessee had received consideration of Rs.1,25,00,000/- or that the stamp valuation authority had assessed the value at Rs.1,25,00,000/-. It is further contended by the assessee that in the course of assessment proceedings, it was found by the AO that the assessee had Md. Farooque Ansari Assessment Year: 2008-09 deposited Rs.5 lakh on 28/4/2007 on account of Receivable Against Termination of Lease and has erroneously considered this amount to be a part of consideration money received by the appellant against the Deed of Surrender of Lease dt. 29/2/2008. It was submitted by the assessee that addition of Rs. 51akh to the total consideration of Rs.1,20,00,000/- as per the Deed is completely arbitrary and erroneous because the aforesaid sum of Rs.5 lakh which was received and deposited in bank on 28/4/2007 was actually, receied by the assessee in respect of termination of lease in immediately preceding F.Y. i.e., F.Y. 2006-07, and such sum appears in "Receivable Against Termination of Lease A/c." as on 1/4/2007. In view of above, it was pleaded by the assessee that the addition of Rs. 5 lakh made by the AO in full value of consideration deserves to be deleted.
5.1 It was further submitted by the assessee that the AO was also not justified in disallowing the benefit of Indexation claimed by him while computing the income from Capital Gains and also in computing the capital gain by applying the provisions of Sec. 50 of the Act. It was contended that from the records it is apparent that in the assessee's books of account under the head "Land & Building a/c.", there were two types of assets, i.e. (i) Leasehold interest in the land and (ii) Building constructed on such leasehold land. According to provisions of Section 32 of the Act, no depreciation is allowable on land. The reliance is placed on the decision of Supreme Court in the case of CIT vs. Alps Theatre 65 ITR 377 (SC). That apart, no depreciation was allowable on leasehold interest in land as per Sec. 32 of the Act, it was noticed that the accountant of the assessee had charged depreciation erroneously on both land and building in the accounts of F.Y. ended on 31/3/2007, although no depreciation is allowable on land. It was further submitted by the assessee that there has been no income-tax assessment of the assessee in respect of A.Y. 2007-08 and hence the charging of depreciation in books of account of the assessee in respect of the preceding financial year cannot be automatically treated to have been allowed to the assessee in terms of provisions of Sec. 50 of the Act. Since, no assessment has Md. Farooque Ansari Assessment Year: 2008-09 been made in respect of immediately preceding F.Y., no depreciation on land & building has been allowed to the assessee and hence the provisions of Sec. 50 are not applicable in the instant case. It was pleaded by the assessee that A.O. be directed to allow the benefit of indexation and compute the capital gain as 'long term capital gain' instead of short-term capital gain.
After considering all the factors, the ld. CIT(A) upheld the action of the AO by making his observation as follows:
“I have considered the submission of the appellant and perused the assessment order. I have also gone through the assessment record. In the course of assessment proceedings, it is observed by the AO that on 28/4/2007, the appellant had deposited a sum of Rs. 5 lakh on account of Receivable Against Termination of Lease. Hence, he has considered the full value of consideration for the purpose of computation of capital gain at Rs.1,25,00,000/- instead of Rs.1,20,00,000/- declared by the appellant. On the other hand, during the course of appellate proceedings it is contended by the Ld. A.R. that the AO was not justified in taking full value of consideration for surrender of lease rights at Rs.1,25,00,000/- because, the sum of Rs. 5 lakh was receivable as on 31/3/2007 which was received by the appellant in F.Y. 2007-08 and deposited the same in his bank account. It is also contended by the appellant that as per the deed of surrender of least right, the full value of consideration was Rs. 1,20,00,000/- only and not Rs.1,25,00,000/-. On careful consideration of the facts I find no substance in the submission of the appellant, because he himself has admitted that sum of Rs. 5 lakh deposited in Union Bank of India was on account of amount receivable against termination of lease. However, he has failed to explain that if the said amount of Rs. 5 lakh was not related to the surrender of lease of land and building, then, on account of which termination of lease that sum of Rs. 5 lakh was received by him. He has further failed to explain as to whether the said sum of Rs.5 lakh was offered for taxation in the preceding financial year, i.e. F.Y. 2006-07. In view of above, I, am of the opinion that though as per the deed dt. 29/2/2008, the full value of consideration has been mentioned at Rs.1,20,00,000/-, but the fact is that in addition to Rs.1.20 crore, the appellant had also received amount of Rs. 5 lakh on surrender of lease. Hence, the AO was justified in adopting the full value of consideration at Rs. 1,25,00,000/- instead of Rs.1,20,00,000/-. With regard to claim of Md. Farooque Ansari Assessment Year: 2008-09 indexation also, I do not find any merit in the submission of the appellant. From the assessment records it is apparent that the; appellant has treated the land & building as his business assets of the proprietary concern M/s. Oriental Leather Industries and that he has also claimed the depreciation On that asset. Under the circumstances, the AO was justified in denying the Indexation and assessing the capital gain income as short-term capital gain by invoking provisions of section 50 of the I.T. Act. The action of the AO in this regard is upheld. In view of above, the ground no.1 and 2 are dismissed.”
Aggrieved by first appellate order, the assessee has come before this Tribunal contending that the assessee surrendered lease right at Rs.1,20,000/- and the same is clear and established in deed of conveyance and drew our attention to the page nos.59 and 60 of the paper book. The ld. DR relied on the orders of both the authorities below.
Heard both representatives and perused the relevant material available on record. The question that arises for deciding this issue that whether section 50 is applicable in the facts and circumstances of the case. The said provision is applicable where the capital is an asset forming part block of asset in respect of which depreciation is allowed under the Act. In this regard, the ld. Counsel for the assessee has contained that the building was incomplete and are not in the position to use. He also contended that the land was taken on lease and leasehold rights on land cannot be regarded as depreciated asset by any stretch of imagination. We are unable to accept the contentions of ld. Counsel for the assessee, as already noted section 50 is applicable where capital is an asset forming part of a block of assets in respect of which the depreciation was allowed under the Income Tax Act. In so far as the land and building in question is concerned, the assessee has himself claimed the depreciation which has been duly allowed by the AO. Thus, the provisions of section 50 of the Act, then, are clearly applicable in the case of assessee and the profit arises from the sale of land and building is chargeable to tax as STCG as Md. Farooque Ansari Assessment Year: 2008-09 rightly held by the authorities below. We therefore, find no merit in the ground no.1 and dismiss the same.
Ground no.2 raised by the assessee is regarding the disallowance of Rs.83,550/- on account of foreign travel. The AO disallowed at 60% of Rs.1,39,249/-. The ld. CIT(A) was of the view that the foreign travel expenses on Ms. Roquia Farooque was purely in personal capacity, accordingly, CIT(A) confirmed the disallowance made by the AO.
Before us, ld. AR submitted that the assessee is a lady and requires personal assistance at that age and relied on a case law of Hon’ble High Court of Kerala. The ld. DR submitted that the assessee did not produce any kind of evidence regarding the foreign travel expenses are non-personal and relied on the orders of both the lower authorities.
Heard both the sides and perused the material available on record. As relied by the HON’BLE HIGH COURT OF KERALA in the case of CIT vs. APPOLLO TYRES LTD reported in 237 ITR 0706 held as follows:
But the Tribunal has relied on the decision of the Special Bench of the Tribunal in the case of Glaxo Laboratories (India) Ltd. vs. ITO (supra) which distinguished the two decisions referred to above. It is the case of the assessee-company that the wife of the chairman-cum-managing director of the company accompanied him on his business tour and that the accompaniment was for the purpose of enabling him to discharge his social-cum-business obligations in an effective manner. The Special Bench observed that in the modern age, and more so in the western countries, the senior executives are, as a matter of social custom, accompanied by their wives when the visit, though for business purposes, has necessarily some social aspects also. Neither the assessing authority nor the appellate authority has got a case that the foreign tour made by the chairman-cum-managing director is not for any business purposes or that the accompaniment of the wife is not for the purpose of fulfilling the social aspects aforementioned. The authorities below also do not have a case that the accompaniment of the wife of the chairman- cum-managing director did not result in any advantage to the assessee. It is Md. Farooque Ansari Assessment Year: 2008-09 also relevant to note that the board of directors of the company, by resolution, have permitted the same.
We had occasion to consider almost a similar situation in IT Ref. No. 39 of 1995. We have noted that the Tribunal in that case took the view that the wife of the chief executive accompanied in a business travel and that there was no material to show that her travel was for any purpose other than business and that the Tribunal had taken note of the modern trend in which the senior executives are accompanied by their wives on visits for business purposes. Thereafter, we considered the decisions of the Madras and Gujarat High Courts discussed above and distinguished the said decisions. Relying on the factual finding entered by the Tribunal, we held that the dictum laid down by the Madras and Gujarat High Courts did not apply. In these circumstances, we do not find any illegality in the findings entered by the Tribunal which relate to the Question No. 1 in IT Ref. No. 43/97.
In the aforesaid decision, the question that arose for consideration before the Hon’ble High Court of Kerala that whether the expenditure incurred on foreign tour of the wife of the director is incurred for purposes of business or not. The Hon’ble High Court considered the decisions rendered by the Gujarat High Court in Bombay Mineral Supply Co. Pvt. Ltd. vs. CIT (1985) 153 ITR 437 (Guj) and of the Madras High Court in CIT vs. T.S. Hajee Moosa & Co. (1985) 153 ITR 422 (Mad), but, the Hon,ble Kerala High Court held that the ratio laid down by the Madras and Gujarat High Courts does not apply to the case on hand and applied the finding given by the Bombay Special Bench in GLAXO LABORATORIES (INDIA) LTD. vs. INCOME TAX OFFICER
Let us examine the finding of the Bombay Special Bench in GLAXO LABORATORIES (INDIA) LTD. vs. ITO reported in 18 ITD 0226 (SB), the facts are that Chairman and the Chief Executive of "Glaxo Holding" had extended invitation to Mr. & Mrs. Bhoothalingam and that the wife was accompanying her husband as a number of social engagements were included in the programme, The Special Bench also considered the ratio laid down by the Madras and Gujarat High Md. Farooque Ansari Assessment Year: 2008-09 Courts and observed that the facts of the case on hand and facts in the afore said decisions are different and taking into consideration the facts of the case on hand and held as herein below:
In both the above cases, the assessees were unable to prove that the wife accompanied the husband for business considerations. The case before us is, therefore, entirely different where it is claimed that the wife accompanied the husband because of business considerations. In the modern age, and more so in the western countries, the senior executives are, as matter of social custom, accompanied by their wives when the visit, though for business purposes, has necessarily some social aspects also. Under these circumstances, we hold that the expenditure of Rs. 19,783 which includes air-fare of Rs. 15,656 and foreign exchange of Rs. 4,022 equivalent to £ 210 is an allowable expenditure.
In the present case it was argued that the assessee was 60 years old at that point of time and he requires assistance of some one to look after him on daily basis including on health ground which he had to take medicines regularly and in those circumstances travelling to long distance to USA was not advisable and presence of his wife also required for his export business. The facts of the cases before the Madras and Gujarat High Courts were similar to the case on hand where in both the assesse’s claimed foreign tour expenses for their spouses on health grounds. The Hon’ble Madras High Court held that the wife's travelling expenses were in the nature of personal expenses. The Hon’ble Gujarat High Court held that expenses being personal were not allowable as the wife was not a qualified or trained nurse. The Hon’ble Kerala High Court supra confirmed the finding of the Bombay Special Bench in Glaxo Laboratories (India) Ltd vs. ITO supra wherein Special Bench held though the husband travels abroad for business purposes, has necessarily some social aspects also for which presence of wife is required and the expenditure involved in foreign travel is an allowable expenditure. Therefore we are of view that the claim of the assessee of Rs. 1,39,249/- on account of expenditure incurred for foreign travel of his wife is sustained and it is an allowable expenditure as held by Md. Farooque Ansari Assessment Year: 2008-09 the HON’BLE HIGH COURT OF KERALA in the case of CIT vs. APPOLLO TYRES LTD reported in 237 ITR 0706 supra, and disallowance thereon confirmed by the CIT-A is not justified and ground no.2 raised by the assessee is allowed.
In the result, the appeal filed by the Assessee is partly allowed.
Order Pronounced in the Open Court on 15th April, 2016.