Kerala High Court
Commissioner Of Income-Tax vs P.N. Sreenivasa Rao on 8 January, 1987
Equivalent citations: [1988]171ITR562(KER)
Author: T. Kochu Thommen
Bench: T. Kochu Thommen
JUDGMENT T. Kochu Thommen, J.
1. The following questions have been referred to us by the Income-tax Appellate Tribunal, Cochin Bench :
" (1) Whether, on the facts and in the circumstances of the case, the reopening of the assessment under Section 147(a) of the Income-tax Act, 1961, is valid ?
(2) If the above question is answered in the negative, whether, on the facts and in the circumstances of the case, it is open to the Department to contend at the appellate stage that the reopening of the assessment is justified under Section 147(b) of the Income-tax Act, 1961 ?
(3) If the second question is answered in the affirmative, whether, on the facts and in the circumstances of the case, the reopening of the assessment under Section 147(b) of the Income-tax Act, 1961, is valid ?
(4) Whether, on the facts and in the circumstances of the case, Rs. 75,417 received by the assessee, being his share of the difference between the market value of the properties of the Ernakulam firm and their book value, on his retirement from the said firm on November 25, 1970, is not liable to be taxed under Section 45 of the Income-tax Act, 1961 ?
(5) Whether, on the facts and in the circumstances of the case, capital gains arising out of the transaction by which the assessee gave up his rights in 13 cents of land in M. G. Road, Ernakulam, on which the New Woodlands Hotel had been constructed, is liable to be taxed under Section 45 of the Income-tax Act, 1961 ? "
2. Except question No. 4 which was referred at the instance of the Revenue, all other questions were referred at the instance of the assessee.
3. During the assessment year 1971-72, the assessee relinquished his half right in respect of 13 cents of land in Ernakulam. The release deed, under which such relinquishment took place, was registered on November 25, 1970, after obtaining the necessary permission of the Department under Section 230A of the Income-tax Act, 1961. On September 15, 1971, the assessee filed his returns for the year in question without disclosing the fact of relinquishment or the capital gains arising from it. The assessment was completed on the basis of the returns by the order of the Income-tax Officer dated January 29, 1974. The Officer also brought to tax under Section 45 a sum of Rs. 75,417 received by the assessee as his share of the difference between the market value of the properties of the Ernakulam firm and their book value on his retirement from the said firm. Subsequently, a notice under Section 148 seeking to reopen the assessment under Section 147(a) was issued to him. The assessee submitted the same returns without disclosing the capital gains. The Income-tax Officer, by his order dated September 13, 1976, brought the amount to tax under the head " Capital gains". The assessee appealed against that order. The Appellate Assistant Commissioner, reversing the order of the Income-tax Officer, held that the assessment was not liable to be reopened under Section 147(a) as the assessee had made full disclosure of all relevant facts at the time of the assessment. The Appellate Assistant Commissioner further held that neither on the sum of Rs. 65,000 nor on the sum of Rs. 75,417 was any tax attracted under Section 45 as both the amounts were realised by the assessee on his retirement from the firm within the meaning of Section 47(ii). The Revenue appealed to the Tribunal. The Tribunal held that the assessment was rightly reopened whether it was done under Clause (a) or Clause (b) of Section 147 as the assessee had failed to disclose the relevant facts and that the Department had received information to that effect from the internal audit. The Tribunal thus upheld the levy on the sum of Rs. 65,000. The Tribunal further held that in respect of Rs. 75,417 received by the assessee towards his share at the time of his retirement from the Ernakulam firm, it was not liable to be taxed under Section 45.
4. It is now contended on behalf of the assessee that the assessee had made full disclosure of all relevant facts before the assessment was completed. The reason for so stating is that, prior to the registration of the release deed on November 25, 1970, permission of the Department had been sought and obtained under Section 230A for releasing the assessee's interest in the co-ownership property having an extent of 13 cents in Ernakulam. Although the assessee did not specifically refer to relinquishment of his right and the capital gains arising therefrom when he filed his returns on January 15, 1971, the fact of release, counsel says, was, as held by the Appellate Assistant Commissioner, part of the record and was, therefore, or ought to have been, known to the assessing authority. In the circumstances, counsel contends, Section 147(a) was not attracted. He further submits that in any case the Department not having initiated any proceeding under Clause (b) of Section 147, there, was no justification for the Tribunal to hold that the reopening was justifiable under Clause (b) as well.
5. The very fact that the assessee had recourse to Section 230A clearly shows that it was the case of the assessee that the property in question was one which was held by him as co-owner and that it was not part of the partnership assets. The assessee had also filed returns under the Wealth-tax Act, 1957, disclosing the amount realised by relinquishment of his right as co-owner in respect of the 13 cents in question. But when the assessee filed his returns under the Income-tax Act on January 15, 1971, he failed to disclose the receipt of income by way of capital gains by reason of the relinquishment. It is not correct, as stated by the Appellate Assistant Commissioner, that the sanction under Section 230A was part of the assessment records. That was completed long prior to the commencement of the assessment in question. Significantly, the Tribunal has found that the assessee did not produce the documents concerning Section 230A in the assessment proceedings. In fact, the case of the assessee throughout the assessment proceeding has been that the property in question was partnership property and not co-ownership property. This shows that the fact of relinquishment was a crucial factor which the assessee failed to disclose at any stage of the assessment proceeding. The Revenue was, therefore, justified in reopening the assessment under Clause (a) of Section 147.
6. Accordingly, we answer question No. (1) in the affirmative, that is, in favour of the Revenue and against the assessee. For the same reason, questions Nos. (2)and (3) do not arise. We answer question No. (4) against the Revenue and in favour of the assessee in the light of the decision of the Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. We answer question No. (5) in the affirmative, that is, in favour of the Revenue and against the assessee.
7. We direct the parties to bear their respective costs in these tax referred cases.
8. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.