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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE K. RAVIRAJA PANDIAN & THE
HONOURABLE MRS. JUSTICE CHITRA VENKATARAMAN
M/s. Madathil Brothers
Versus
The Deputy Commissioner of Income Tax,
Special Range – VI, 122, Uttamar Gandhi Road, Chennai
Tax Case (A) No.45 of 2004
Decided On : 23-10-2007
INCOME TAX - CAPITAL GAINS - SALE OF IMMOVABLE PROPERTY - LONG-TERM CAPITAL GAINS - TRANSFER OF PROPERTY ACT, 1882, SECTION 53-A - INCOME TAX ACT, 1961, SECTIONS 2(14), 2(42A), 2(47), 45, 68.
Fact of the Case:
The assessee, a firm engaged in the business of distribution and exhibition of films, purchased the negative rights of two feature films from its sister concern in 1986. The films were released in 1972 and 1976 respectively. The assessee claimed a loss of Rs.20,68,830/- on the exhibition of the films. The assessing officer rejected the claim and treated the collection of Rs.1.26 lakhs for the exhibition of the movies as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The assessee also claimed a loss of Rs.1,53,534.57 on the film "Kasthuri Vijayam", which was purchased by its sister concern under the banner "Moogambika Films". The assessing officer rejected the claim as there was no credit of collection during the period. The assessee further claimed a short-term capital loss of Rs.3,60,000/- arising out of the sale of shares purchased from its sister concern M/s.Sudarsan Clay and Ceramics Limited. The assessing officer held that the claim was deliberately incurred to avoid capital gains tax. The assessee also claimed long-term capital gains on the sale of an immovable property at 35, Nungambakkam High Road, Chennai. The assessing officer held that the sale resulted in short-term capital gains as the assessee did not have title to the property for more than 36 months.
Finding of the Court:
1. The Tribunal was right in rejecting the assessee's claim of loss on the exhibition of the films as the assessee could not produce any evidence as to the identity of the middle men and the exhibitors. The Tribunal also rightly upheld the assessing officer's order to treat the collection of Rs.1.26 lakhs as unexplained cash credits. 2. The Tribunal was right in upholding the assessing officer's order to reject the assessee's claim of loss on the film "Kasthuri Vijayam" as there was no credit of collection during the period. 3. The Tribunal was right in upholding the assessing officer's order to disallow the assessee's claim of short-term capital loss on the sale of shares of M/s.Sudarsan Clay and Ceramics Limited as the transaction lacked rational commercial principles and was deliberately made to avoid tax on capital gains. 4. The Tribunal erred in holding that the sale of the immovable property at 35, Nungambakkam High Road, Chennai resulted in short-term capital gains. The assessee had an agreement for sale in 1975 and was put in possession in 1976. The sale deed was executed and registered in 1986. The Tribunal should have considered the assessee's possessory right under the agreement for sale and treated the sale as resulting in long-term capital gains.
Issues: 1. Whether the Tribunal was right in rejecting the assessee's claim of loss on the exhibition of the films? 2. Whether the Tribunal was right in upholding the assessing officer's order to treat the collection of Rs.1.26 lakhs as unexplained cash credits? 3. Whether the Tribunal was right in upholding the assessing officer's order to reject the assessee's claim of loss on the film "Kasthuri Vijayam"? 4. Whether the Tribunal was right in disallowing the assessee's claim of short-term capital loss on the sale of shares of M/s.Sudarsan Clay and Ceramics Limited? 5. Whether the Tribunal was right in holding that the sale of the immovable property at 35, Nungambakkam High Road, Chennai resulted in short-term capital gains?
Ratio Decidendi: 1. The assessee could not produce any evidence as to the identity of the middle men and the exhibitors. The Tribunal rightly upheld the assessing officer's order to treat the collection of Rs.1.26 lakhs as unexplained cash credits. 2. There was no credit of collection during the period. The Tribunal rightly upheld the assessing officer's order to reject the assessee's claim of loss on the film "Kasthuri Vijayam". 3. The transaction lacked rational commercial principles and was deliberately made to avoid tax on capital gains. The Tribunal rightly upheld the assessing officer's order to disallow the assessee's claim of short-term capital loss on the sale of shares of M/s.Sudarsan Clay and Ceramics Limited. 4. The assessee had an agreement for sale in 1975 and was put in possession in 1976. The sale deed was executed and registered in 1986. The Tribunal should have considered the assessee's possessory right under the agreement for sale and treated the sale as resulting in long-term capital gains.
Final Decision: The Tax Case (Appeal) stands partly allowed. No costs.
Chitra Venkataraman, J.
This Tax Case (Appeal) is preferred by the assessee against the order of the Income Tax Appellate Tribunal relating to the assessment year 1987-88.
2. In the grounds of appeal, the assessee raised five questions of law. Except the one on the question of capital gains arising out of the sale of an immovable property at 35, Nungambakkam High Road, Chennai, four questions of law were admitted by this Court under order dated 24. 2004.
3. It is stated that subsequent to the disposal of the appeal, the applicant filed M.P.Nos.21 & 87 (MDS)/2003 before the Tribunal seeking a decision again on the question of capital gains arising thereon treated as a short-term gain and not a long term one. The appellant also sought for reconsideration on the question of loss arising from the film "Kasthuri Vijayam". By order dated 9. 2003, the Tribunal allowed the M.P on the question of capital gains on the sale of the immovable property accepting the same as long-term capital gains. It is stated that the Revenue filed an appeal in Tax Case No.272 of 2004. By order dated 8. 2004, this Court took the view that the order of the Tribunal granting the relief on capital gains amounted to review of the order earlier passed rejecting the said plea. This Court took the view that the Tribunal had no authority under law to review its order. Hence, in the said view of the matter, considering the prejudice that might be caused to the appellant herein on the question of capital gains on the sale of immovable properties, the appellant was permitted to raise the question on capital gains as a question of law for consideration along with other questions admitted earlier under order dated 24. 2004.
4. Accordingly, the appellant filed T.C.M.P.No.50 of 2007 seeking the following question also to be raised to consider:
"Whether in law in holding that the capital gains arising on the sale of immovable property at 35, Nungambakkam High Road is a short term capital gain and not a long term one?"
By order dated 18. 2007, this Court ordered the T.C.M.P. Thus, the said question is also considered as part of the questions raised and admitted by this Court.
5. Hence, the questions of law that arise for consideration as admitted by this Court are as follows:
"1. Whether on facts and in the circumstances of the case, the Tribunal was right in law in rejecting the appellants claim of loss arising from two movies by name "Kannamma" and "Uzaikum Karangal"?
2. Whether the Tribunal was right in holding that the sum of Rs.1,26,000/-is unexplained cash credit under Section 68 of the Income Tax Act, 1961?
3. Whether the Tribunal was right in law in upholding the disallowance of loss arising from "Kasturi Vijayam", without dealing with the said grounds of appeal?
4. Whether the Tribunal was right in disallowing the claim of loss of Rs.3,60,000/-arising out of sale of shares of M/s. Sudershan Clay and Ceramics Limited? 5. Whether in law in holding that the capital gains arising on the sale of immovable property at 35, Nungambakkam High Road is a short term capital gain and not a long term one?"
6. The assessee is a firm engaged in the business of distribution and exhibition of films. It is stated that the appellant herein had purchased the negative rights of two feature films, namely, "Kannamma" and "Uzaikum Karangal" from its sister concern M/s. Kamakshi Agencies Private Limited for a consideration of Rs.5,76,000/-and Rs.12,01,000/- on 28. 1986 and 10. 1986 respectively. These two films were released as early as 1972 and 1976 respectively. The vendor, in turn, had purchased the rights in the year 1982 and 1983 respectively from another sister concern of the assessee, i.e., M/s.Sudarsan Agencies, which is the proprietary concern of M/s. Sudarsan Trading Company. It is stated that ever since the purchase of the two movies in 1982 and 1983, the vendor, M/s. Kamakshi Agencies Private Limited had not exploited these two movies in any manner and were
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