Income Tax Appellate Tribunal - Pune
Fattechand Rajmal Jain vs Inspecting Assistant Commissioner. ... on 13 August, 1996
Equivalent citations: [1997]60ITD47(PUNE)
ORDER
Chander Singh, A.M.
1. These two appeals from the different assessees for the asst. yr. 1987-88 are combined for the sake of convenience.
2. The assessees have filed these appeals against the order under s. 263 of the IT Act, 1961. The assessees before us filed the income-tax as well as wealth-tax returns under the amnesty scheme. Such returns were filed by the assessees in March, 1987. In the income-tax return for the asst. yr. 1972-73, the assessees had disclosed, under the amnesty scheme, that the assessees had purchased silver utensils which were not disclosed to the Department in the relevant assessment year. Similar declarations were filed under the Wealth-tax Act also. The declaration of the assessees under the amnesty scheme was accepted by the AOs for income-tax as well as wealth-tax.
3. For the asst. yr. 1987-88, both these assessees before us had sold the silver utensils of domestic and personal use and claimed it as exempt under the provisions of the IT Act. The assessees had pleaded before the AO that the gains on the sale of silver utensils of domestic and personal use was not liable to be assessed under s. 45 of the IT Act.
4. The AO examined the issue with reference to the assessability of the gains under s. 45 of the IT Act. On examination of the facts, the AO held "in the present case though there is a transfer of the silver utensils, but they are personal assets and, therefore, cannot (sic - be) said to be capital assets. The profit on sale of silver utensils is, therefore, exempt from capital gains". In this regard, the AO relied on the following authorities :
(1) Jhabarmal Balaram Poddar, HUF vs. Tenth ITO [ITA No. 2593/Bom/75-76 (Bombay Bench 'B')] (2) ITO vs. Brij Mohan Bagaria [ITA No. 140/Pat/1980 (Patna Bench)] [since reported at (1980) 10 TTJ (Pat) 57] (3) ITA No. 1207/Bom/1981 (Bombay Bench) (4) ITA No. 1578/Jp/79 (Jaipur Bench).
The AO accordingly did not include the gains on the sale of silver utensils for domestic and personal use as the income of the assessee.
5. The case record of the assessees were thereafter examined by the CIT. After examination of the case records, the CIT was of the view that the order of the AO was erroneous insofar as it was prejudicial to the interest of Revenue. He accordingly issued notice of hearing to the parties.
6. After hearing the assessees, the CIT was of the view that the gains arising from the sale of silver utensils for domestic and personal use, though a transfer within s. 2(47) of the IT Act, was not liable to tax as capital gains under s. 45 of the IT Act. To this extent, the CIT agreed with the finding of the AO. The CIT was, however, of the view that there was a gain in the transaction to the assessees and the assessees were liable to tax on the difference between the cost of acquisition of the silver utensils and the net consideration received on their sale. In the opinion of the CIT, the gain was in the nature of casual and non-recurring. The CIT therefore, held that the assessees were liable to tax under s. 10(3) of the IT Act. It is, however, pertinent to mention that the CIT made the distinction between the gains upto the cost price and the gains between the cost price and the sale price. The CIT, therefore, held that the gains upto the cost price of the silver utensils from domestic and personal use was the capital receipt and the gains after that was in the nature of casual and non-recurring receipt. He was, therefore, of the view that the assessees were entitled to the deduction of Rs. 5,000 under s. 10(3) of the Act and the balance gain was liable to tax. He, accordingly, directed the AO to assess the gains on the sale of silver utensils of domestic and personal use as casual and non-recurring income.
7. The assessees are in appeal before us. The learned counsel Shri G. N. Gadgil pointed out that the assumption of jurisdiction under s. 263 by the CIT was not justified on facts and in law. He has drawn our attention to s. 2(14) of the IT Act and pointed out that though capital asset means property of any kind held by the assessee, whether or not connected with the business or profession, but it does not include the personal effects. The silver utensils for the domestic and personal use were the personal effects of the assessees and, therefore, do not come within the purview of an asset for the purpose of liability to tax under s. 45 of the IT Act. In this connection, the learned counsel has drawn our attention to the following decisions :
Jayantilal A. Shah vs. K. N. Anantharam Aiyar, CIT (1985) 156 ITR 448 (Bom), in which it is held that gains resulting from the sale of silver utensils were not assessable to tax as capital gains. CIT vs. Sitadevi N. Poddar (1984) 148 ITR 506 (Bom). According to the learned counsel, this decision also supports the same view. The AO, in the opinion of the learned counsel, was, therefore, legally right in holding that in sale proceeds of silver utensils for domestic and personal use was not liable to tax under s. 45 of the IT Act.
8. The learned counsel also pleaded that the AO had completed the assessment in accordance with law. His assessment order was justified on facts and in law. There was no error in his assessment which caused prejudice to the Revenue. Such an order, therefore, cannot be revised in view of :
(1) CIT vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom) (2) B. K. Roy P. Ltd. vs. CIT (1995) 211 ITR 500 (Cal) (3) Mannesmann Demag A. G. vs. Dy. CIT (1995) 53 ITD 533 (Del) (4) Venkatakrishna Rice Co. vs. CIT (1987) 163 ITR 129 (Mad).
9. The learned counsel further continued and pointed out that the AO has followed the decisions of the Tribunal referred by him in his assessment order. The decision of the AO was, therefore, passed on the correct interpretation of the provisions of the IT Act. Such an order cannot be termed either erroneous or prejudicial to the interest of Revenue. By drawing our attention to the decision of the Calcutta High Court in the case of Russell Properties (P) Ltd. vs. A. Chowdhry, Addl. CIT (1977) 109 ITR 229 (Cal) and the Allahabad High Court in the case of K. N. Agarwal vs. CIT (1991) 189 ITR 769 (All), the learned counsel pointed out that the powers vested in the CIT under s. 263 can be exercised when the CIT finds the order of the AO to be erroneous insofar as it is prejudicial to the interest of Revenue. However, where there is a decision of the higher appellate authority, the subordinate authority is bound to follow such decisions. Hence, an order passed by the ITO following the decision of the Tribunal cannot be held to be erroneous and such an order cannot be revised. The learned counsel pointed out that the AO had placed reliance on four decisions of the Tribunal, wherein it was held that the sale of a personal asset does not give rise to the accrual of income under any of the heads of income specified under the IT Act. Since the AO had followed the decision of the higher authorities, namely, the Tribunal, the CIT could not assume revisional jurisdiction under s. 263 of the Act.
10. The learned counsel also pointed out that the revisional order of the CIT is invalid. The CIT had given a finding that the assessees are liable to be assessed under s. 10(3) of the IT Act as the income of the assessee was of casual and non-recurring nature. However, in passing the order under s. 263, the CIT gave up the said stand, and instead, held that the gain on the sale of silver utensils for domestic and personal use was assessable under s. 56 as income from other sources. While issuing the notice of hearing, the CIT did not take the stand that the income was to be assessed under s. 56 of the Act. The CIT therefore, was not justified in changing his stand. In this regard, the learned counsel has relied on the ratio of the following decisions :
(1) CIT vs. R. K. Metal Works (1978) 112 ITR 445 (P&H) (2) CIT vs. Chawla Trunk House (1983) 139 ITR 182 (P&H) (3) CIT vs. Shantilal Agarwalla (1983) 142 ITR 778 (Pat).
11. The learned counsel further urged that the realisation of a fixed asset cannot, for all purposes, fall into the category of income liable to tax under any of the heads provided under the IT Act. The assessees have sold the silver utensils of domestic and personal use which were the fixed capital of the assessees. The sale of the fixed asset of the assessee did not give rise to the income to be assessed in the hands of the assessees. The sale of fixed assets resulted in the capital gains under s. 45 of the IT Act and could have been assessed as such. However, the personal asset has been excluded from the definition of a capital asset and by virtue of that exclusion, the receipt could not be taxed even as capital gains. In this regard, the learned counsel has relied on the following decisions :
(1) Karanpura Dev. Co. Ltd. vs. CIT (1962) 44 ITR 362 (SC), (2) D. L. F. Housing & Construction (P) Ltd. vs. CIT (1983) 141 ITR 806 (Del), (3) CIT vs. T. K. Sarala Devi (1987) 167 ITR 136 (Ker), (4) CIT vs. Joy Ice-Creams (Bang.) (P) Ltd. (1993) 201 ITR 894 (Kar), (5) Magnum Exports (P) Ltd. vs. Asstt. CIT (1995) 54 ITD 425 (Cal).
12. The learned counsel has also pointed out that s. 10 deals with incomes which do not form part of the total income. The said section is not a charging section and, therefore, could not be invoked for assessing to tax a receipt. In this regard, the learned counsel has drawn our attention to :
(1) A. Gasper vs. CIT (1991) 192 ITR 382 (SC), (2) B. K. Roy P. Ltd. vs. CIT (supra), (3) CIT vs. Indian Textile Engineers P. Ltd. (1983) 141 ITR 69 (Bom).
13. The learned counsel also pointed out that the direction of the CIT to assess the income under s. 56 of the Act was legally wrong. Once the CIT has given a finding that the gain on the sale of silver utensils for domestic and personal use is assessable as casual and non-recurring income, the CIT could not direct the AO to assess the same as income from other sources. In this regard, the learned counsel has relied on the following decisions :
(1) Nalinikant Ambalal Mody vs. CIT (1966) 61 ITR 428 (SC), (2) CIT vs. Smt. T. P. Sidhwa (1982) 133 ITR 840 (Bom).
14. The learned counsel also pointed out that the reliance by the CIT on the decision of the Allahabad High Court in Gappumal Kanhaiyalal vs. CIT (1961) 43 ITR 46 (All) was misplaced. The said decision, it is contended, does not apply to the facts of the case. The learned counsel, therefore, concluded that the assumption of jurisdiction under s. 263 by the CIT was not justified.
15. The learned senior Departmental Representative, Shri Hari Krishan, on the other hand, supported the decision of the CIT. He pointed out that on the facts and in the circumstances of the case, the gains on the silver utensils for domestic and personal use were in the nature of casual and non-recurring income. In this connection, he has drawn our attention to the decision of the Rajasthan High Court in the case of CIT vs. Moti Chand Khajanchi (1988) 171 ITR 280 (Raj), wherein the income from the sale of paintings was held to be assessable as a casual and non-recurring income. The learned senior Departmental Representative also relied on the ratio of the Rangoon High Court in CIT vs. R. Johnstone (1934) 2 ITR 390 (Rang). He also argued that under the provisions of s. 263 of the IT Act, the CIT need not issue any notice to a party. The only condition precedent for assumption of jurisdiction is that the assessee should be heard. In the case of the assessee, the CIT had given a hearing and the assessability under s. 56 of the Act was discussed. The CIT was, therefore, justified in directing the AO to assess the gains as income from other sources. The learned senior Departmental Representative, therefore, justified the assumption of jurisdiction under s. 263 and also the liability to tax under s. 56 of the Act. He, therefore, prayed that the order of the CIT should be maintained.
16. We have heard the rival submissions in the light of judicial precedence brought to our notice. The power of the CIT under s. 263 of the Act is in the nature of supervisory jurisdiction and can be exercised when the order to be revised is erroneous and also prejudicial to the interest of Revenue. However, it is more or less settled that an order cannot be termed as erroneous, unless it is not in accordance with law. If an AO acting in accordance with law makes certain assessment, the said assessment cannot be branded as erroneous by the CIT merely on the ground that the order should have been written more elaborately. In other words, s. 263 of the IT Act does not empower the CIT to substitute his judgment over the decision of the AO. Cases where the AO while making an assessment examines the accounts, make enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT cannot revise such an order only on the ground that the estimate made by the AO was on lower side. The AO exercises the quasi judicial power vested in him in accordance with law and arrives at a conclusion on the facts and on the law before him. Such a conclusion, in our view, cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusions.
17. The scope of interference under s. 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get a sheer escapement of revenue which is taken care of by other provisions in the Act. In the case before us, the AO has given a finding that the silver utensils sold were the personal asset of the assessees and transfer of such a personal asset did not give rise to the gains to be assessed under s. 45 of the IT Act. For reaching this conclusion, the AO has fully applied his mind and has also applied the decisions of the Tribunal. It may also be mentioned that even the CIT did not disturb the finding of the AO that the silver utensils were for domestic and personal use of the assessees. The CIT also did not doubt that the personal effects was outside the purview of the definition of the capital asset. The CIT has merely revised the order on the ground that the gains on the silver utensils was income in the nature of casual and non-recurring. Such a change of opinion is not justified on the facts of the case. Such a change of opinion is also not warranted in view of the decision of the Bombay High Court in the case of Gabriel India Ltd. (supra)
18. Let us now examine whether the gains on the sale of silver utensils for domestic and personal use were in the nature of casual and non-recurring income. A casual receipts is one which occurs quite accidentally or fortuitously. It comes in without stipulation, contract, calculation or design. It is unanticipated and unforeseen. Sometimes, a casual receipt is described as one that depends upon the caprice or whim of the person who makes the payment. Casual is the antithesis of that which is governed by something more than mere chance, something out of which according to the probabilities of business or to the known course of practical experience, rational expectation of profit arises. The most important guiding factor in determining whether the income is casual and non-recurring is the absence of any contract, stipulation or understanding. A plain reading of s. 10(3) shows that the income should be casual and of a non-recurring nature. With a view to bring to tax such a receipt, both the tests must be satisfied, namely, (i) the income should be casual, and (ii) it should be non-recurring also. Applying these tests, we are of the considered opinion that the income on the sale of the silver utensils cannot be termed as casual and non-recurring income. An accretion to the capital does not become taxable income merely because an asset is acquired in the hope that it may be sold at a profit. The assessee has purchased the silver utensils as a personal asset for the personal use and, therefore, it was his personal capital asset. The assessee had not purchased the said utensils with a view to make the profit out of it. The accretion to this capital asset, therefore, does not automatically become taxable. The sale proceeds of the silver utensils were neither accidental nor gratuitous and therefore, it cannot become as a casual and non-recurring income. In this regard, our view is strengthened by the decision of the Supreme Court in the case of A. K. T. K. M. Vishnudatta Antharajanam vs. Commr. of Agrl. IT (1970) 78 ITR 58 (SC).
19. It is settled that all receipts by an assessee cannot necessarily be deemed to be the income of the assessee for the purpose of income-tax. Under the IT Act, all receipts cannot be subjected to tax. Only those receipts that amount to income is liable to be taxed. In other words, before assessing a receipt it has to be determined that the receipt is of income nature and the said receipt cannot be determined as income unless there is some material to justify the same. From examination of the facts of the case and the law on the issue, we are of the view that the gain on the sale of silver utensils is a capital receipt. As a matter of fact, the CIT has partly accepted this. Upto the cost price, he himself has said that it would be capital receipt and the balance, according to him, is liable to tax as casual and non-recurring income. In our view, the receipt is either capital or revenue. It is well settled that a receipt is not taxable when it is fixed capital, it is taxable as a revenue item when it is referable to circulating capital or stock-in-trade. The taxability of an amount would depend on the nature and character of the receipt of the initial stage.
If the amount initially received partakes the character of a trading receipt, the amount would necessarily be taxable as such. If, however, the amounts are initially not taxable, they cannot be taxed despite the magnitude of the calculation and despite its appropriation by the assessee to its own credit. It may be reiterated that the assessees before us have realised their personal assets which do not give rise either to capital gains or casual and non-recurring income. In our view, therefore, the gains on the sale of silver utensils for domestic and personal use were capital receipts in the hands of the assessees and not liable to tax. There was, thus, no error, which caused prejudice to the Revenue which could be revised under s. 263 of the Act. The assumption of revisional jurisdiction under s. 263 of the IT Act was, therefore, not justified. We, therefore, vacate the order of the CIT.
20. In the result, the appeals are allowed.