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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
Per Shri Duvvuru RL Reddy, Judicial Member :
This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”]-1, Visakhapatnam in ITA No.72/2015-16/CIT(A)-1/VSP/2019-20 dated 19.09.2019 for the Assessment Year (A.Y.) 2009-10. 2. Brief facts of the case are that the assessee, an individual engaged in the business of undertaking contract works, filed his return of income for 2 ITA No.654/Viz/2019, A.Y.2009-10 Sri Bhupathi Raju Ravi Varma, Visakhapatnam
the A.Y.2009-10, declaring a total income of Rs.8,62,158/-. The case was selected for scrutiny under CASS and the assessment was completed, determining total income at Rs.8,74,300/-. On verification of records, the Assessing Officer(AO) observed that the assessee had purchased a cinema theatre at Narsipatnam on 28.03.2007 for Rs.23,77,000/- and sold for a consideration of Rs.24,00,000/- as against the market value of Rs.59,81,000/-. The AO completed the assessment by invoking the provisions of section 50C by determining the short the short term capital gains at Rs.36,04,000/- and raised a demand of Rs.19,61,750/- u/s 143(3) r.w.s. 263 of the Act.
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and after considering the submissions of the assessee, the Ld.CIT(A) allowed the appeal of the assessee, holding that the theatre is a business asset and the provisions of section 50C are not applicable.
Aggrieved by the order of the Ld.CIT(A), the revenue filed an appeal before the Tribunal by raising the following grounds :
The order of the Ld.CIT(A)-1, Visakhapatnam is erroneous both on facts and in law.
The Ld.CIT(A) has erred in holding that the asset (cinema hall) is a business asset and the provision of sec.50C of the Act are not applicable, when the property acquired, viz., cinema theatre is squarely covered under the 3 ITA No.654/Viz/2019, A.Y.2009-10 Sri Bhupathi Raju Ravi Varma, Visakhapatnam
definition of “capital asset” as per the provision of sec.2(14) of the Act and its sale attracts the provision of sec.50C of the Act.
The Ld.CIT(A) has erred in holding that the provision of sec.50C of the Act are not applicable, when the business of the assessee is execution of contracts and therefore purchase and sale of cinema theatre cannot be regarded as a transaction related to stock-in-trade in relation to the business carried out by the assessee.
The Ld.CIT(A) has erred in directing the AO to accept the loss on account of sale of the asset by treating the same as business loss, when the asset sold is a capital asset.
The appellant craves leave to add or delete or amend or substitute any ground of appeal before and / or at the time of hearing of appeal.
Ground No.1 and 5 are general in nature which does not require specific adjudication.
The sole contention of the Ld.DR in ground No. 2 to 4 is whether the cinema theatre can be treated as business asset or capital asset. The Ld.DR argued that the Ld.CIT(A) erred in holding that the cinema theatre is a business asset, whereas, cinema theatre is squarely covered under the definition of ‘capital asset’ as per the provision of sec.2(14) of the Act and sale attracts the provision of sec.50C of the Act. No evidence was furnished to indicate that the same was acquired for business purpose. The Ld.DR also argued that the theatre was acquired through a General Power of Attorney without any sale deed. He further submitted that the assessee himself has shown the asset as capital asset in his return of income. Therefore, the 4 ITA No.654/Viz/2019, A.Y.2009-10 Sri Bhupathi Raju Ravi Varma, Visakhapatnam
Ld.DR pleaded to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue.
On the other hand, the Ld.AR relied on the order of the Ld.CIT(A) and pleaded to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.
We have heard both the parties and perused the material available on record. It is an admitted and undisputed fact that the assessee had purchased a cinema theatre for Rs.23,77,000/- and sold it for an amount of 59,81,000/-, resulting in short term capital gains of Rs.36,04,000/-. The Ld.CIT(A) allowed the appeal of the assessee holding that the test to decide whether the asset is business or capital asset is to examine the nature, use and conduct of assessee or intention of assessee as to how the asset has been used and in the instant case the assessee had applied for license to the authorities to run the theatre and not claimed depreciation on the asset though it was found as fixed asset in the balance sheet as on 31.03.2007. The Ld.CIT(A) held that the AO could not contradict the submissions of the assessee and hence treated the cinema theatre as business asset and held that the provisions of section 50C are not applicable. On the contrary, the Ld.DR argued that cinema theatre is squarely covered under the definition
5 ITA No.654/Viz/2019, A.Y.2009-10 Sri Bhupathi Raju Ravi Varma, Visakhapatnam
of “Capital asset” as per the provision of sec.2(14) of the Act and its sale attracts the provision of sec.50C of the Act. For the sake of clarity, we extract the provision of sec.2(14) of the Act as under :
2(14) "capital asset" means— (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); 7[(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof,] but does not include— (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession ; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes— (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art
On perusal of section 2(14), there is no exemption for business asset. We have also perused the sale deed recitals dated 28.03.2007, which was executed in favour of the assessee. The recitals of the scheduled property are mentioned as under :
6 ITA No.654/Viz/2019, A.Y.2009-10 Sri Bhupathi Raju Ravi Varma, Visakhapatnam
“Name of the Property is Sree Rama Theatre. For the past four years, all licenses, permits and electricity connections were cancelled and as of now the theatre has only ACC roof sheets. Ventex, slide, amplifier, furniture in speaker room, sound system, box2, generator, screen, motor fans etc. are not available in the structure. Apart from this, there is no kind of furniture like, chairs, benches, projector etc. available in the structure. “ The said property was sold on that day. We have also perused the link document executed in favour of the assessee on 30.07.2008. The recitals are as under :
“Name of the Property is Sree Rama Theatre. For the past four years, all licenses, permits and electricity connections were cancelled and as of now the theatre has only ACC roof sheets. Ventex, slide, amplifier, furniture in speaker room, sound system, box2, generator, screen, motor fans etc. are not available in the structure. Apart from this, there is no kind of furniture like, chairs, benches, projector etc. available in the structure. “ Therefore, we are of the view that it is only an ACC roof shed. We cannot call it as a cinema theatre except the name of the theatre as Sree Rama Theatre, when there are no benches, projectors system, screen, sound system etc. Apart from this all kinds of licenses were cancelled and even electricity connection was also disconnected. But the Ld.CIT(A) relied on the letter written by the assessee to the RDO for renewal of license. We have also perused the letter, but there is no acknowledgement, there is no proper proof to establish that he has applied for renewal of license. Therefore, we are of the considered view that simply sending letter to RDO
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without having any furniture, sound system, screen etc. we cannot come to conclusion that it is a cinema theatre. Even otherwise, as per the definition u/s 2(14), the asset which was purchased by the assessee is nothing but a capital asset. Therefore, we fully agree with the submissions of the Ld.DR and we hereby set aside the order passed by the Ld.CIT(A) and allow the grounds raised by the revenue.
In the result, appeal of the revenue is allowed.
Order Pronounced in open Court on 28th July, 2022. (एस बालाकृष्णन) (दुव्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयकसदस्य/JUDICIAL MEMBER Dated : 28.07.2022 L.Rama, SPS
8 ITA No.654/Viz/2019, A.Y.2009-10 Sri Bhupathi Raju Ravi Varma, Visakhapatnam
आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– Sri Bhupathi Raju Ravi Varma, D.No.50-1-23, Flat No.103, KSR Complex, Block A, Seethammadhara, Visakhapatnam 2. रधजस्व/The Revenue – Deputy Commissioner of Income Tax, Circle-3(1) Visakhapatnam 3. प्रधान आयकर आयुक्त / The Principal Commissioner of Income Tax-1, Visakhapatnam 4. आयकर आयुक्त (अपील) / The Commissioner of Income Tax (Appeals)-1, Visakhapatnam 5. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 6.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam