Allahabad High Court
Smt. Maya Rastogi vs Commissioner Of Income Tax & Others on 15 September, 2010
Author: Yatindra Singh
Bench: Yatindra Singh, Rajes Kumar
HIGH COURT OF JUDICATURE AT ALLAHABAD
1. Civil Misc. Writ Petition No. 54 of 2004 Court No. 37
Smt. Maya Rastogi ...................................Petitioner AFR
Vs
Commissioner, Income Tax and others.......Respondents.
2. Civil Misc. Writ Petition No. 991 of 2007
Smt. Maya Rastogi ...................................Petitioner
Vs
Commissioner, Income Tax and others.......Respondents.
3. Civil Misc. Writ Petition No. 994 of 2007
Smt. Maya Rastogi ...................................Petitioner
Vs
Commissioner, Income Tax and others.......Respondents.
HON'BLE YATINDRA SINGH, J.
HON'BLE RAJES KUMAR, J.
(Delivered by Hon'ble Yatindra Singh, J.)
1. The main question involved in these writ petitions is, should the initiation for the assessment of escaped income--on the basis of capital gains due to acquisition of petitioner's land--be nipped in the bud at the threshold?
THE FACTS Relating to acquisition of land
2. The petitioner's 27,225 square yards of land was acquired by the Meerut Development Authority (the MDA) under the Land Acquisition Act in the year 1987.
3. The Special Land Acquisition Officer, Meerut (the SLAO) made an award on 22.2.1990. He awarded Rs. 50 per square yard. In pursuance of the award, the petitioner received Rs. 21,26,757/- as compensation on 30.6.1990.
4. The petitioner filed an application under section 18 of the Land Acquisition Act for referring the matter to the district court for enhancement of compensation. The case was referred and the reference was allowed on 11.5.1992. The IIIrd Addl. District Judge, Meerut (the ADJ) enhanced the rate of compensation to Rs. 240/- per square yard.
5. The MDA filed an appeal against the award of the ADJ dated 11.5.1992. It was numbered as First Appeal No. 1050 of 1992. During pendency of the appeal, the petitioner received the additional compensation, solatium, and interest amounting to Rs. 1,22,56,473/- on 16.8.1993 without any security or guarantee.
6. The appeal filed by the MDA before the High Court was partly allowed on 12.1.1995 and the market value of the land was reduced to Rs. 75/- per square yard.
7. The petitioners as well as some other tenure holders filed appeals before the Supreme Court. Their appeals were allowed on 30.4.1997. The Supreme Court enhanced the rate of compensation to Rs. 175/ per square yards. It was more than the compensation awarded by the High Court but less than that by the ADJ.
Relating to Income Tax
8. The petitioner had neither filed any income tax returns nor was she assessed for any of the years. The income arising out capital gains by compulsory acquisition was also never disclosed to the Income Tax Department by the petitioner.
9. The Commissioner, Income Tax, Meerut (the CIT) initially issued a notice under sub section 6 of section 133 {section 133(6)} of the Income Tax Act (the Act) on 25.4.2003 in respect of assessment year (AY) 1998-99 requiring information from the petitioner about the acquisition of the land and the compensation received in pursuance thereof.
10. The petitioner filed her objection against the notice on 7.7.2003 stating that the initial compensation or the enhanced compensation was received before AY 1998-99. So the question of assessment due to capital gains or payment of tax in AY 1998-99 did not arise.
11. Subsequently, the Assessing Officer (the AO) issued notice under section 148 of the Act on 15.10.2003 for the assessment year 1998-99 stating therein that this was being issued after obtaining the necessary satisfaction of the Addl. Commissioner, Range, Meerut (the Addl. Commissioner).
12. The petitioner filed her returns for assessment year 1998-99 under protest on 17.11.2003 showing nil income
13. Subsequently, the petitioner filed a writ petition no. 54 (Tax) of 2004 (the first WP) challenging the notice under section 148 of the Act for the assessment of the escaped income for AY 1998-99.
14. In the first WP, the notice were issued on 19.1.2004 and the interim order was granted that the proceeding for assessment may go on, however, the final order may not be passed.
15. During pendency of the first WP, the notices dated 1.5.2006 were issued for the AY 1989-90 to 94-95. The petitioner filed her return for the years on 16.6.2006 showing nil income.
16. The petitioner also applied for the reasons for issuing notices for the aforesaid years. The reasons for AY 1989-90 to 93-94 were the same. However, the reason for AY 1994-95 was slightly different.
17. The petitioner filed writ petition no. 991 (Tax) of 2007 (the second WP) against the notices under section 148 of the Act in respect of AY 1994-95 and writ petition no. 994 (Tax) of 2007 (the third WP) against the notices issued under section 148 in respect of AY 1989-90 to 1993-94.
18. The second and third WPs were also entertained and interim orders were granted on 1.8.2007 that the assessment proceedings may go on and the assessment order may be passed but it would not be served upon the petitioner without the leave of the court.
POINTS FOR DETERMINATION
19. We have heard Sri RR Agrawal and Sri Suyash Agrawal, counsel for the petitioner; Sri Shambhu Chopra and Sri Ashok Kumar for the respondents.1 The following points arise for determination in the case.
(i) Whether the Assessing Officer had valid reasons to believe that any income chargeable to tax has escaped assessment;
(ii) Whether the notices are barred by time;
(iii) Whether the notices are required to be issued by Joint Commissioner;
(iv) Whether the notices for assessment year 1989-90 to 94-95 are bad due to lack of satisfaction by the joint commissioner;
(v) Whether section 151 of the Act is applicable to the cases covered under section 150 of the Act;
(vi) Whether the satisfaction/ sanction of the Addl. Commissioner for AY 1998-99 for issuing notice is valid?
1st POINT: HAD VALID REASONS
20. The notices in the three writ petitions relate to AYs 1998-99, 1994-95, and 1989-90 to 1993-94 respectively. The reasons to believe that income had escaped assessment for these years are interconnected, however they are different.
21. In substance, the reason that income has escaped assessment in,
(i) AY 1998-99, involved in the first WP, are as follows:
The compensation of the acquired land was finally settled by the Supreme Court on 10.4.1997. The appeal of the petitioner was partly allowed and the compensation was enhanced to Rs. 175/- per square yard; The income could not be assessed till compensation was finally settled in view of CIT Vs Laxman Das 246 ITR, 622; The petitioner failed to declare and file return of income chargeable to tax (the income as estimated is also indicated in the notice).
(ii) AY 1994-95, involved in the second WP, are as follows:
The compensation of the acquired land was finally settled by the Supreme Court on 10.4.1997. The appeal of the petitioner was partly allowed and the compensation was enhanced to Rs. 175/- per square yard;
The petitioner received the enhanced compensation determined by the ADJ of Rs. 67,24,575/- with interest of Rs. 55,31,898/- from the date of acquisition to the date of payment on 16.8.1993;
In view of section 45(5) of the Act, the additional income is assessable in the year of receipt;
The interest on compensation is assessable on accrued basis in view of Ashwani Dhingra Vs. CIT 276 ITR 98;
The petitioner failed to declare and file return of her income.
(iii) AYs 1989-90 to 1992-94, involved in the third writ petition, are as follows:
The compensation of the acquired land was finally settled by the Supreme Court on 10.4.1997. The appeal of the petitioner was partly allowed and the compensation was enhanced to Rs. 175/- per square yard; The petitioner received the enhanced compensation determined by the ADJ of Rs. 67,24,575/- with interest of Rs. 55,31,898/- from the date of acquisition to the date of payment on 16.8.1993; The accrued interest on the compensation turns out to be Rs. 8,69,950/- per annum. The interest on compensations was chargeable on accrued basis in view of Ashwani Dhingra Vs. CST 276 ITR 98; The petitioner failed to declare and file return of her income for assessment in the year 1989-90 to 1993-94.
22. The counsel for the petitioner submitted that:
The capital gain was to be calculated in accordance with sub-section 5 of section 45 (see below)2 {section 45(5)} of the Act; Under section 45(5) (a), the capital gain was to be calculated with reference to the compensation received at the first instance. It was on 30.6.1990 (AY 1991-92); The assessment of the enhanced compensation was to be done when it was received under section 45(5)(b) of the Act. It was on 16.8.1993 (AY 1994-95) The income could be assessed in the AY 1998-99.
23. The counsel for the respondents submitted that:
The appeal of the MDA was allowed by the High Court on 21.1.1995 and the amount was reduced;
The appeal of the petitioner was allowed by the supreme court on 30.4.1997 and the petitioner was entitled to receive further amount in pursuance of the order of the Supreme Court dated 30.4.1997 in AY 1998-99; The compensation could be assessed in the year 1998-99.
24. The WPs do not arise out of the proceeding against any assessment under the Act. They are against the notice for initiating the assessment proceedings. Whether the petitioner is liable to pay any income tax for the AYs for which notices have been issued is not to be decided in these proceedings. The only question to be decided in the WPs is, whether there was any material before the AO to believe that income had escaped assessment.
25. The Supreme Court decision relating to acquisition of petitioner's land came in the AY 1998-99. By the decision, the appeal of the petitioner was allowed and compensation was enhanced. In view of this, it cannot be said that there was no material before the AO for the AY 1998-99. The notice for AY 1998-99 at this stage cannot be quashed.
26. Admittedly, the petitioner received enhanced compensation alongwith interest on 16.8.1993 (AY 1994-95). The interest under section 34 of the Land Acquisition Act is to be charged accrual basis. In view of this, it cannot be said that there was no material for AY 1989-90 to 1994-95. The notices for these years are also not invalid on this ground.
27. In our opinion the satisfaction of the AO regarding reasons to believe that the income chargeable to tax had escaped assessment is not vitiated. He had valid reasons to issue notice. The notices cannot be quashed on this ground.
2nd POINT: NOTICE NOT BARRED BY TIME
28. In case the income escapes assessment, then the limitation for issuing notice, is provided in the first proviso to section 147 and section 150. The first proviso to section 147 is applicable only where the assessment was made under section 143 (3) or under section 147 of the Act. In this case, no earlier assessment was made and as such the first proviso to section 147 has no application.
29. Section 149 of the Act is titled as 'Time limit for notice'. It provides limitation of 4 years from the end of the relevant assessment year unless the income chargeable to tax which escaped assessment amounts to or likely to amount to rupees one lakh or more. In that event, the time limit is six years.
30. The escaped income chargeable to tax is likely to be more than one lakh for AY 1998-99. In view of this, limitation would be six years. The notice for AY 1998-99 was issued on 15.10.2003 within six years. This is not hit by the time limit under section 149 of the Act.
31. The notice for the AY 1989-90 up to year 1994-95 were issued on 1.5.2006. These notices undoubtedly are beyond six years. However, time limit in the notice for these years or for that matter in the AY 1998-99 is not covered by section 149 but is covered by section 150 of the Act (see below)3, where no limitation is provided for.
32. Section 150 is titled as 'Provision for cases where assessment is in pursuance of an order on appeals, etc'. Sub-section 1 of section 150 {Section 150(1)} begins with 'notwithstanding' clause. It overrides section 149 and provides that notice can be issued at any time or in other words there is no limitation, if assessment, reassessment, or re-computation was being undertaken in order to give effect to any finding or direction contained in any order passed by, Any authority in proceeding under the Act; or A court in proceeding under any other law.
33. This shows that time limit prescribed under section 149 of the Act did not apply, where assessment, reassessment or re-computation was required in pursuance of any finding in any order passed, under the Act, or by a court in any proceeding under any other law.
34. In these cases, the assessment proceeding is being taken in pursuance of the award regarding compensation by the Supreme Court under the Land Acquisition Act. The assessment is in pursuance of the finding recorded by a court under the other law within the meaning of section 150(1) of the Act. This section is applicable to the present proceedings and there is no limitation for issue of notice.
35. In our opinion, The notice for AY 1998-99 is not only covered by section 150(1) of the Act but is also within the limitation provided under section 149 of the Act;
The notices for other AYs 1989-90 to 1994-95 are covered by section 150(1) of the Act, where no limitation is provided for.
3rd POINT: NOTICE NEED NOT BE BY JOINT COMMISSIONER.
36. The counsel for the petitioner cited B. Suman Gala Devi Vs. CIT 2009 (314) ITR 127 (The SumanGala case) and submitted that:
In view of section 151(2) of the Act, the notices could be issued only by the Joint Commissioner; He had not issued any notice;
The notices were illegally issued by the AO, who was subordinate to the Joint Commissioner.
37. In these WPs, the notices were not issued by the Joint Commissioner but were issued by the AO namely the Income Tax Officer, Ward-I (4), Meerut. He is below the rank of the Joint Commissioner. Are the notices invalid for this reasons?
38. Section 151 of the Act is titled as 'Sanction for issue of notices'. Section 151(1) applies to the cases where the assessment under section 143(3) or section 147 was made. Here, no assessment was made and as such, section 151(2) of the Act was applicable.
39. Section 151(2) of the Act (see below)4 provides that no notice under section 148 shall be issued after expiry of four years from the end of the relevant assessment year unless the Joint Commissioner is satisfied on the reasons recorded by Assessing Officer.
40. Section 151 does not provide for the notice to be issued by the Joint Commissioner. It only provides that the Joint Commissioner should be satisfied on the reasons recorded by the Assessing Officer. If the Joint Commissioner was satisfied on the reasons recorded by the AO, then the notice could be issued by the AO.
41. The aforesaid intention is clear from the explanation to section 151 of the Act. It was inserted by the Finance Act, 2008 with effect from 1.10.1998. This further clarifies that the Joint Commissioner or the Chief Commissioner as the case may be should be satisfied on the reasons recorded by the AO and need not issue such notice himself.
42. In the SumanGala case, the Division Bench of the Karnataka High Court did observe that section 151 of the Act required that the notice should be issued by the officer holding the rank not less than that of the Deputy Commissioner (as was the section at that time). However, with due respect to the Judges of that case, this is not correct.
43. In our opinion, notice under section 151 of the Act is not to be issued by the Joint Commissioner but could be issued by the AO. The only requirement is that after expiry of 4 years, the Joint Commissioner should be satisfied on the reasons recorded by the AO.
4th & 5th POINT: NOTICE AYs 1989-90 TO 1994-95--INVALID
44. While deciding the third point, we have indicated that in case notice under section 148 is being issued after four years then the Joint Commissioner should be satisfied on the reasons recorded by the AO (see footnote 3). In this case, the Addl. Commissioner was satisfied under section 151 of the Act for issuing notice for the AY 1998-99. This section uses the word 'Joint Commissioner'. However, this does not make any difference.
45. Section 2 of the Act is the definition section. Its sub section 28C {Section 2 (28C} defines the word 'Joint Commissioner' and explains that it means a person appointed to be Joint Commissioner of Income Tax or Addl. Commissioner of Income Tax under sub-section 1 of section 107. In view of this, the Joint Commissioner includes an Addl. Commissioner as well.
46. There is no illegality in the notice for AY 1998-99 on this account. However, the same cannot be said about the notices for the other years.
47. The notice for the assessment year 1989-90 to 1994-95 are on the record. These notices are printed and the necessary details are filled in. The last paragraph of these notices contains information whether the notice was issued with the satisfaction of the Commissioner or not. This paragraph in the notices for these years has been scored out.
48. In paragraph-64 of the second and third writ petition, it has been stated that the notices were issued without sanction of the Joint Commissioner. This has not been denied in the counter affidavit. In view of this, it is held that these notices have been issued without sanction of the Joint Commissioner.
Section 151 Applies To Case Covered by Section 150.
49. The counsel for the respondents cited BAR Abdul Rahman Saheb Vs. ITO 1975 (100) ITR 541 (The Abdul case), and Sukhdatal Pahwa Vs. CIT 1983 (140) ITR 206 (the Pahwa case) and submitted that:
Sub section 2 of section 149, {section 149(2)} provides that provision of sub section 1 of section {Section 149(1)} is subject to section 151. However, there is no such provision in section 150; Section 151 of the Act applies to section 149 but it does not apply to cases under section 150 of the Act; The notices for AY 1989-90 to 1993-94 fall under section 150 of the Act; and Section 151 of the Act is not applicable.
50. The Abdul case and the Pahwa case were decided by the division benches of the Andhra Pradesh and MP High Courts. There are observations that section 151 of the Act applies to cases under section 149 but not to cases under section 150 of the Act. With due respect to the Judges deciding those cases, we beg to differ. Our reasons are contained in the succeeding paragraphs.
51. Section 148 (see below)5 is titled 'Issue of notice where income has escaped assessment'. The notices are issued in case income escapes assessment. This is irrespective of the fact that the case is covered by section 149 or section 150.
52. Section 151(2) (see foot note 3) provides that 'no notice will issue under section 148 by an Assessing Officer...' This shows that section 148 is subject to section 151 of the Act. The condition mentioned therein will apply to cases covered by section 150 of the Act.
53. The aforesaid intention is also clear from section 150 of the Act. This section provides 'Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time....; subject to the conditions mentioned in section 150. If the legislature wanted section 151 of the Act not to apply to cases covered under section 150 then words would have been 'Notwithstanding anything contained in section 149 and section 151'.
54. The fact that the section 151 as indicated in the preceding paragraph is not mentioned in section 150 shows that section 151 of the Act is applicable to the cases covered not only under section 149 but also to the cases covered under section 150 of the Act.
55. It is correct that Section 149(2) of the Act (see below)6 provides that notice under section 149(1) is subject to section 151 of the Act and there is no such provision in section 150 but it does not make any difference. Section 149(2) of the Act is merely clarificatory even if it was not there, the result would have been the same.
56. In our opinion, if a case falls under section 150 then the notice can be issued at any time, without regard to the time limits mentioned in section 149. However, the previous satisfaction/sanction of the Joint Commissioner must be procured if the notice is issued after the lapse of the specified period mentioned in section 151 of the Act namely four years.
57. The notices for AY 1989-90 to 1994-95 have been issued without satisfaction of Joint Commissioner. They are invalid and are quashed. However, we clarify that quashing of the notices will not prohibit the authorities to issue fresh notice in accordance with law.
6th POINT: SANCTION FOR AY 1998-99 VALID.
58. The counsel for the petitioner cited two division bench cases of our court reported in Munno Lal Kiedar Nath Vs. Union of India; 1978 UPT 563 (The MunnoLal case) and Raj Kishore Prasad Vs. ITO; (1992) 195 ITR 438 (RajKishore case) and submitted that:
There was no application of mind by Addl. Commissioner while being satisfied;
It was mechanical; and It is liable to be set aside.
59. The cases cited by the petitioner are distinguishable on facts. There were special reasons for commenting on the satisfaction recorded. There are no such reasons in the present case. The cases cited and are not applicable.
The MunnoLal Case
60. In the MunnoLal case, first notice for re-assessment was given on two grounds and the reassessment was done on that basis. However, this was set-aside on the finding that the AO had no material for reasons to believe that any income had escaped assessment. Subsequently second notice for reassessment was given. In this notice--apart from two grounds that were previously mentioned--some more grounds were also indicated.
61. The question involved in the MunnoLal case was, whether once an order with reference to some grounds had become final then could on the basis of the same very grounds alongwith some others, a second notice could be given.
62. It is in this light the Division Bench held, '[T]he assessment orders already made by the Income Tax Officer regarding them and others had been quashed. The Commissioner of Income-Tax still gave sanction for starting the proceedings in respect of these two items as well. This clearly shows the non-application of his mind to the controversy, whether the present was a fit case for according sanction or not. Had he applied his mind properly he would have found that as a competent court had already found that the Income Tax Officer did not have justification, to start proceedings of reassessment on their basis, the approval to initiate proceedings afresh in respect of these items could not be given'.
63. The facts of the present case are entirely different. Here the earlier reassessment proceeding were never quashed. On the contrary, it was a case where the petitioner received a huge amount of compensation that was liable to be taxed as capital gains and yet she chose not to disclose the same. The MunnoLal case is not applicable to the present case.
RajKishore case
64. In the RajKishore case, the division bench of our court held that the initiation of proceedings for reopening the assessment was barred by time. The notice for reassessment was quashed on this ground.
65. It was observed by the court as a passing remark (obiter dicta) that when the notice was barred by time then the Commissioner ought not to have been satisfied, or granted sanction/ approval--as the satisfaction is not mechanical.
66. In the RajKishore case, the notice for reassessment was barred by time. This is not the case here. The RajKishore case is distinguishable.
67. In our opinion, satisfaction of the Addl. Commissioner on the reasons recorded by the Assessing Officer is not vitiated.
CONCLUSIONS
68. Our conclusions are as follows:
(i) There is material to believe that income had escaped assessment and the notices are not invalid on this account;
(ii) The notices are not barred by the time;
(iii) In the cases covered under section 151 of the Income Tax Act, the notice is to be issued by the Assessing Officer. They need not be issued by the Joint Commissioner. The only requirement is that the Joint Commissioner should be satisfied on the reasons recorded by the Assessing Officer;
(iv) The satisfaction of the Additional Commissioner on the reasons recorded by the Assessing Officer for the AY 1998-99 is not vitiated. The notice for this year is valid.
(v) Section 151 of the Income Tax Act applies to cases covered by section 150 of the Income Tax Act;
(vi) There is no satisfaction of the Joint Commissioner for the notices for AYs 1989-90 to 1994-95. They are invalid. However, the authorities are at liberty to issue fresh notices in accordance with law.
69. In view of our conclusions,
(i) The writ petition no. 54 (Tax) of 2004 is dismissed. The notice under section 148 for Assessment Year 1998-99 is upheld. The petitioner may file an application alongwith the certified copy of this order and appear before the Assessing Officer in the week commencing 11th October, 2010. Thereafter the Assessing Officer may decide the case in accordance with law.
(ii) The writ petition no. 991 (Tax) of 2007 and 994 (Tax) of 2007 are allowed. The notices for the AY 1989-90 to 1994-95 are quashed. However, it will be open to the respondent to issue fresh notices in accordance with law.
With the aforesaid observations, the writ petition No. 54 (Tax) of 2004 is dismissed and Writ Petition No. 991 (Tax) of 2007 and 994 (Tax) of 2007 are allowed.
Date: 15.9.2010 SKS