Income Tax Appellate Tribunal - Jaipur
Kishore Textiles vs Income Tax Officer. on 5 May, 1995
Equivalent citations: (1995)52TTJ(JP)464
ORDER
PRADEEP PARIKH, A.M. :
In this appeal by the assessee for asst. yr. 1985-86, two grounds have been raised against the order of the learned CIT(A), dt. 20th June, 1991. The two grounds are as under :
"1. That Hon'ble CIT(A) erred on the facts and circumstances and in law in upholding the reassessment proceedings under s. 148 of the IT Act.
2. That Hon'ble CIT(A) erred on the facts and circumstances of the case and in law in upholding that Rs. 2,90,000 received by the appellant is a receipt liable to tax.
2. The Government of Rajasthan had granted leasehold rights to the assessee in 1975 vide lease deed dt. 17th December, 1975, on a piece of land at Alwar.
3. The salient features of the lease deed, in brief, were as follows :
(1) The lease was to be for ninety nine years.
(2) The lease rent was to be Rs. 55.35 per year exclusive of local taxes which were to be borne by the lessee.
(3) The lessee was to pay Rs. 26,114.80 towards development charges along with the rent for the first year.
(4) The lessee was under an obligation to put up a shoddy yarn plant within a period of two years from the date of taking the possession.
(5) The lessee had no right to sublet, underlet or sell its leasehold rights under the lease deed without the written consent of the lessor.
(6) The lessee, however, could assign or mortgage its leasehold rights in favour of any financial or other institution for the purposes of availing financial assistance for the industry to be put up on the said land.
(7) The financing institution was at liberty to enforce its rights as mortgagees under the law and convey a good title.
(8) In case of any default by the lessee in respect of any terms and conditions of the lease deed, the land was to revert to the lessor.
4. The assessee then put up a shoddy yarn plant on the said land as per the terms of the lease deed. For this financial assistance of around Rs. 8 lacs was availed from the Rajasthan Finance Corporation (RFC) for which the leasehold rights in the land in question were assigned in favour of RFC. The assessee, subsequently ran into financial crises and defaulted in the repayment of loan to RFC. The assessee, therefore, surrendered a part of the land to RFC during the accounting year under consideration. RFC, in turn, sold the said land and realised Rs. 2,90,000 which was adjusted in the loan account of the assessee.
5. In the meanwhile, the assessee had submitted its return of income showing only business income. In the depreciation chart, which was a part of the statement of income accompanying the return of income, the assessee had put a note informing about the surrender of the part of the land to RFC and that a sum of Rs. 2,90,000 recovered by RFC had been adjusted against the loan account. The assessment was completed originally under s. 143(1) accepting the returned income of the assessee.
6. Subsequently, the Assessing Officer wrote a letter dt. 28th July, 1986, to the assessee informing him that Rs. 2,90,000 realised by RFC attracted capital gains tax and the assessee was asked to give explanation therefor. A notice dt. 11th November, 1987, was issued under s. 148 proposing to reassess the income. In reply to this notice, the assessee, vide its letter dt. 7th December, 1987 replied that the return originally filed be treated as return filed in response to the notice under s. 148.
7. The Assessing Officer, thereafter, reassessed the income on 9th March, 1990, computing the capital gains at Rs. 2,05,200 after granting deduction of Rs. 84,800 under s. 80T from the sale proceeds of Rs. 2,90,000. The Assessing Officer mentioned the cost of land to be 'Nil' in the computation of capital gains.
8. The assessee has challenged the legality of the assessment so made as well as the taxability of the capital gains.
9. So far as legality is concerned, it was argued on behalf of the assessee that the information as regards realisation of Rs. 2,90,000 was given in the statement of income and, hence, it could not have escaped the attention of the Assessing Officer while completing the original assessment. The action of the Assessing Officer to reassess the income was, therefore, on account of the change in his opinion, which is not permissible in law. Moreover, it was submitted that the original order made under s. 143(1) was a valid order which could not be reopened on account of such a change in the opinion.
10. The learned Departmental Representative supported the orders of the lower authorities.
11. With regard to the legality of issuing notice under s. 148, we are unable to accept the contention of the assessee. This is because the original assessment made under s. 143(1) was made in a summary manner. The returned income was accepted in a mechanical manner without even writing a formal order. The original record was produced by the learned Departmental Representative before us for verification from which it was observed that merely a rubber stamp was put on the acknowledgment slip signing that the assessment is done. At the relevant time the scheme of assessment was also such that if no formal order or notice is received within a specified time, the acknowledgement was to serve as an assessment order. This is also evident from the letter of the assessee dt. 7th December, 1987 written to the Assessing Officer informing about the non-receipt of the original assessment order. Thus, the Assessing Officer, in fact had never formed any opinion about it and, hence, there was no question of changing the same. Our attention was drawn to the decision of the Supreme Court in the case of Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190 : (1979) 119 ITR 996 (SC). However, a later decision of the Supreme Court in the case of A. L. A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC) considered this and many other decisions and affirmed the view of the Madras High Court as follows :
"... the position as summarised by the High Court in the following words represents, in our view, the correct position in law :
"The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the ITO (now Assessing Officer) subsequent to the original assessment. If the ITO (now Assessing Officer) had considered and formed an opinion on the said material in the original assessment itself, then the ITO (now Assessing Officer) had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of s. 147(b) of the Act."
12. Thus considering the facts of the case and the position of law as enunciated by the apex Court, we hold that the reopening of the assessment was valid. The first ground is accordingly rejected.
13. Coming to the merits of the case, in our view, the Assessing Officer and the learned CIT(A), both proceeded on the wrong premise that the assessee was the de facto as well de jure owner of the land. The fact that the said land was shown in the balance sheet, does not confer a title to the assessee over an asset which is not there. To show it in the balance sheet is a mere compliance of the accounting principles and the Companies Act, 1956. Just as the taxability of an income does not depend on as to how it is accounted for in the books, so also leasehold land shown in the balance sheet does not make the holder of such land its owner. What the assessee held in reality and was dispossessed of was the leasehold right over that land, viz., to use the land for the purpose for which it was allotted to it at a specified rent. The assessee, therefore, merely possessed tenancy rights over the land which it relinquished in favour of RFC.
14. Having concluded that the assessee held tenancy right, the question arises about the taxability of gains arising from the transfer thereof. It is not in dispute that the tenancy right is a capital asset. It is also not in dispute that there was transfer of the tenancy right, but the issue arises as regards computing the capital gains arising from the transfer thereof.
15. It was contended by the learned counsel that the cost of acquisition was nil whereas the contention of the Department was that the development charges paid by the assessee should be taken as the cost of acquisition.
16. We are unable to accept the contention of the Department. Development charges signify nothing but cost of improvement but cost of improvement cannot be equated with cost of acquisition. In this case, the cost of acquiring tenancy rights was nil and the yearly rent paid was merely for using those rights. This principle has been well enunciated by the Hon'ble Karnataka High Court in the case of CIT vs. Jay Ice-cream (Bang.) Pvt. Ltd. (1993) 109 CTR (Kar) 33 : (1993) 201 ITR 894 (Kar).
17. Further, it has been held in innumerable decisions, including that of the Supreme Court in the case of B. C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) that in computing the capital gains, it is a condition first to determine the cost of acquiring the asset transferred. Where such determination fails, there can be no capital gains.
18. In the instant case also, there is no cost of acquiring the leasehold rights and, hence, the computation of capital gains fails. We, therefore, cancel the order of the learned CIT(A) on this aspect and hold that no capital gains accrued to the assessee on surrender of its leasehold rights over the land in question.
19. In the result, the appeal is partly allowed.