Income Tax Appellate Tribunal - Kolkata
Deputy Commissioner Of Income-Tax vs Tollygunj Club on 28 October, 1994
Equivalent citations: [1995]52ITD166(KOL)
ORDER
R.V. Easwar, Judicial Member
1. In this appeal by the revenue the only ground is as under :
That on the facts and in the circumstances of the case and having regard to the provisions of Section 155(7A) read with Section 292B of the Income-tax Act, the Learned Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 42,79,012 by the Assessing Officer towards capital gains while passing order under Section 254 of the Income-tax Act.
2. In the original assessment completed under Section 143(3) on 23-12-1980 the additional compensation of Rs. 42,79,012 received by the assessee in respect of the land compulsorily acquired by the Government under the Land Acquisition Act, 1976 was not brought to assessment under the head 'Capital Gains' because the additional compensation itself was received only in the year 1983. It appears that there were appeals on certain other points which were ultimately decided by the Tribunal by order dated 24-3-1983. This order was recalled by the Tribunal on the assessee's application. Thereafter the Tribunal passed an order on 10-2-1986. It was a common order for the assessment years 1975-76 to 1977-78. In respect of the assessment year 1977-78 with which we are presently concerned, the dispute was with regard to the applicability of Section 74A of the Act and the .allowability of certain expenses under the said provision. After hearing the rival contentions, the Tribunal came to the following conclusion :
12. Having regard to the entire circumstances of the case, we are of the opinion that certain facts are to be brought out correctly on record, particularly when the ITO has not dealt with various points of contention raised by the assessee that Section 74A was not applicable. The CIT (Appeals) to some extent has dealt with this point, as far as the legal implication is concerned. But the factual aspect of the matter has not been dealt with properly. The ITO would also see the constitution or Articles of Association in order to ascertain what were the objects and purpose of the club and what were the activities which were authorised to be carried on by the assessee, particularly when the assessee has been contending all along that all the activities of the assessee constitute a business and some lease land was taken for carrying on such activities by the assessee. It is also necessary to ascertain whether the horses or some of them, if any, were held as stock-in-trade, vis-a-vis, the Balance Sheet for the year in which the horses have been shown in Schedule 'A' of the fixed assets. Basic and relevant facts are necessary to be brought out on this point also. Accordingly we deem fit to set aside the orders of the authorities below in respect of this dispute before us and to restore the matter to the file of the ITO for fresh disposal after bringing all the relevant facts and basic materials on record and after giving the assessee adequate opportunity of being heard. The assessee is at liberty to place any material evidence before the ITO before the case is disposed of afresh as indicated above. We, therefore, set aside the orders of the authorities below for the above purpose.
3. On 18-5-1987 the Assessing Officer passed an order under Section 143(3) read with Section 254. In this order the amount of Rs. 42,79,012 was brought to assessment with the narration "further compensation received during 1983". Against the assessment the assessee filed an appeal to the CIT (Appeals). The CIT (Appeals) held that the Assessing Officer was under the erroneous impression that the entire assessment was open and has proceeded to tax the additional compensation on that footing. According to the CIT (Appeals) the Tribunal set aside the assessment only for the limited purpose of examining the applicability of Section 74A with reference to the facts and that order did not give authority to the Assessing Officer to bring to tax the additional compensation. He, therefore, held that the Assessing Officer cannot bring to tax the additional compensation by the order dated 18-5-1987 passed under Section 254 read with Section 143(3). He further noticed that the entire additional compensation was invested by the assessee in specified assets, i.e., units of Unit Trust of India (Capital Gains Unit Scheme, 1983)in 1983 itself and was, therefore, exempt from capital gains tax. In this view of the matter he deleted the addition of the additional compensation.
4. The revenue is in appeal against the order of the CIT (Appeals). It is contended that the additional compensation is at any rate assessable under Section 155(7A) of the Act read with Section 292B thereof. What the revenue says is that even if it is accepted that the Assessing Officer cannot include the additional compensation in the order dated 18-5-1987 which was passed to give effect to the Tribunal's order, the power to assess the additional compensation must be held referable to Section 155(7A) and should be upheld on that basis. It is further stated that the inclusion of the amount of additional compensation in the order dated 18-5-1987 must be taken as a mere irregularity or a curable defect in view of Section 292B. It is riot possible to accept the contention. Firstly, the CIT (Appeals) is right in his view that the amount of additional compensation cannot be brought to tax in the order passed to give effect to the Tribunal's order since the Tribunal's order gave the Income-tax Officer authority only to examine the applicability of Section 74A with reference to certain facts. The Tribunal did not set at large the entire assessment with unlimited powers to the Assessing Officer. The order of the Tribunal cannot be so understood. It should be understood in the background of the dispute before it which only pertained to Section 74A. The scope of the Tribunal's order cannot be enlarged merely by pointing out to the words used in the operative portion of its order divorced from the context in which the assessment was set aside. The principles laid down by the Calcutta High Court in the case of Surrendra Overseas Ltd. v. CIT [1979] 120 ITR 872 do not authorise the action of the Assessing Officer and exposed the incorrect appreciation of the scope and tenor of the Tribunal's order. We, therefore, agree with the CIT (Appeals) that the inclusion of the additional compensation in the order dated 18-5-1987 was wholly without authority.
5. We cannot also accept the claim of the revenue that to the extent of taxing the additional compensation the order dated 18-5-1987 should be treated as an order passed under Section 155(7A). This section does not dispense with the other requirements of Section 154. It only gives power to the Assessing Officer to treat the omission to tax the additional compensation in the year of transfer as a mistake apparent from record. It also extends the period of limitation prescribed by Section 154(7) for rectifying the assessment by enabling the Assessing Officer to reckon the time limit of four years prescribed in Section 154(7) from the end of the previous year in which the additional compensation was received. Section 155(7A) leaves the other provisions of Section 154 untouched and unmodified. The requirement of giving notice to the assessee and an opportunity of being heard with regard to the proposed rectification, when it involves an enhancement of assessment, prescribed by Section 154(3) is not in any way abridged or taken away. That being so, the entire issue is one of. jurisdiction. If the necessary jurisdictional facts are not present the whole proceedings must be taken to be invalid. We have not been referred to any notice issued by the Assessing Officer before he brought the additional compensation to assessment in his order dated 18-5-1987. There is no discussion in this order regarding the facts relating to the assessment of the additional compensation except that the same has been brought to assessment by a cryptic remark. Therefore, even assuming that the order dated 18-5-1987, insofar as it relates to the assessment of the additional compensation, is construed as an exercise of the power of the Assessing Officer under Section 155(7A) of the Act, the power has not been exercised after following the procedure prescribed by Section 154(3) and, therefore, cannot be upheld. Section 292B does not come to the rescue of the revenue. It only cures or removes any defect or irregularity but it cannot cure or set at right the very lack of jurisdiction to exercise the power under Section 155(7A). It cannot be disputed that Section 155(7A) derives its sustenance only from Section 154. It is, therefore, not possible to accept the revenue's contention that Section 292B saves the exercise of the power to assess the additional compensation.
6. The whole issue, however, becomes academic if regard is had to the fact that the additional compensation has been invested in "specified assets" as prescribed by Section 54E(3) of the Act. The CIT (Appeals) has entered a categorical finding that the additional compensation has been entirely invested in the specified assets, namely, units of UTI (Capital Gains Unit Scheme, 1983). The receipt and investment of additional compensation, both were in the year 1983. These facts have not been challenged by the revenue. However, the contention of the revenue is that the exemption is referable to the Second Proviso to Section 54E(1) and since the same came into the effect only by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1984 the benefit thereof cannot be extended to the assessee for the assessment year 1977-78. We are unable to accept the contention. The Second Proviso only refers to a situation where the full amount of compensation awarded for the acquisition is not received by the assessee on the date of the transfer. It does not apply to a situation where the full amount of compensation originally awarded was received but the additional compensation claimed by the assessee was received at a much later period. Such a situation is governed by Sub-section (3) of Section 54E. This sub-section was introduced by the Finance Act, 1978 with effect from 1-4-1978. The object of the sub-section is clear. Since it is common knowledge that where an assessee claims enhanced compensation for the acquisition it takes a lot of time for him to receive the same but in the meantime the period prescribed by the Act for making investments of the compensation in the specified assets would have lapsed, the Legislature thought that it would be unfair to deprive or deny the benefit of exemption to an assessee who for no fault of his own receives the additional compensation after the period prescribed for making investment has lapsed. It was thought that due provision should be made to benefit such assessees also. Therefore, the Legislature introduced Sub-section (3). Under this sub-section the period of six months prescribed for making the investment would be reckoned from the end of the previous year in which the assessee received the additional compensation. This is a provision basically intended to benefit the assessee. In Circular No. 240 dated 17-5-1978 issued by the CBDT, at paragraphs 17.6 to 17.9, the object of the provision has been explained. In the circular at para 17.9 it is stated that Sub-section (3) would take effect from 1-4-1978. It was suggested on behalf of the revenue that this means that the provision will be applicable only from 1978-79 assessment year. We are unable to accept the contention. The section obviously is a procedural section and not a substantive section. It is a provision intended to mitigate the hardship caused by the delay in receipt of additional compensation and, therefore, has to be treated only as a procedural provision taking retrospective effect. This means that it will apply for the assessment year 1977-78 also since the additional compensation has been received after 1-4-1978. It is to be remembered that the circular advisedly and significantly does not stipulate that Sub-section (3) will be applicable from the assessment year 1978-79, which is normally done in such circulars explaining the newly introduced statutory provisions. It only states that the provision will take effect from 1-4-1978 which means that the benefit thereof is available to all assessees who received additional compensation after that date. Even as a matter of construction Sub-section (3) of Section 54E has to be construed only as procedural and having retrospective application having regard to the object for which it is introduced and having regard to the terms of the circular. In this connection we may refer to a similar provision which was intended to remove the hardship caused to the assessees was construed by the Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676 as taking retrospective effect. The same principle is applicable to the present case also. therefore, hold that at any rate the additional compensation having been invested entirely in specified assets in accordance with Section 54E(3) the capital gains, even if considered assessable, are exempt from income-tax.
7. For the aforesaid reasons we see no merit in the appeal by the revenue. We, therefore, dismiss the same.