2008 (12) TMI 749 - AT - Income Tax

2014 (5) TMI 316 - AT

Issues Involved:
1. Reopening of assessment under Section 147 of the I.T. Act.
2. Denial of benefit of proviso to Section 112 of the I.T. Act.
3. Denial of option to adopt fair market value as of April 1, 1981, for cost of acquisition under Section 55(2)(b)(i) of the I.T. Act.
4. Taxation of gain on sale of bonus shares.
5. Levy of interest under Section 234B of the I.T. Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the I.T. Act:
The assessee challenged the reopening of the assessment under Section 147, arguing that the original assessment was processed under Section 143(1) and no new material justified the reopening. The CIT (A) upheld the reopening, noting that the assessment was not completed under Section 143(3), and there was no change of opinion. The Tribunal supported this, citing the Supreme Court's decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which clarified that the Assessing Officer only needs a "reason to believe" that income has escaped assessment. The Tribunal found no merit in the assessee's contention and dismissed this ground.

2. Denial of Benefit of Proviso to Section 112 of the I.T. Act:
The assessee argued that the lower tax rate of 10% on long-term capital gains should apply regardless of whether the assessee is a resident or non-resident. The CIT (A) and Assessing Officer denied this benefit, stating it was only for those entitled to the second proviso to Section 48, which the assessee did not qualify for. The Tribunal disagreed, referencing the Mumbai Bench of Tribunal in Alcan Inc. vs. DDIT (IT) and the Authority for Advance Rulings in McLeod Russel Kolkata Ltd., which held that non-residents could also benefit from the lower tax rate. The Tribunal allowed this ground, directing the capital gains tax to be charged at the concessional rate of 10%.

3. Denial of Option to Adopt Fair Market Value as of April 1, 1981, for Cost of Acquisition under Section 55(2)(b)(i) of the I.T. Act:
The assessee sought to adopt the fair market value of shares as of April 1, 1981, as the cost of acquisition. The CIT (A) denied this, arguing that the specific provision of the first proviso to Section 48 overrides the general provision of Section 55. The Tribunal referenced the Mumbai Bench of Tribunal in Alcan Inc. vs. DDIT (IT), which held that Section 55 is an independent provision and not subservient to Section 48. The Tribunal allowed this ground, directing the Assessing Officer to recompute the capital gains using the fair market value as of April 1, 1981.

4. Taxation of Gain on Sale of Bonus Shares:
The assessee contended that the gain on the sale of bonus shares should be taxed at the concessional rate of 10% under the proviso to Section 112. The Tribunal, in line with its decision on the second issue, directed that the gain on bonus shares be taxed at the concessional rate of 10%.

5. Levy of Interest under Section 234B of the I.T. Act:
The assessee argued that as a non-resident, all payments made to it were subject to TDS under Section 195, and hence, no interest under Section 234B should be levied. The Tribunal agreed, citing various decisions, including the Mumbai Bench of Tribunal in Van Oord Dredging and Marine Contractors BV vs. DDIT (IT), which held that non-residents are not liable to pay advance tax if their income is subject to TDS. The Tribunal directed that no interest be charged under Section 234B.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal upholding the reopening of the assessment but granting relief on the issues of tax rate on long-term capital gains, the adoption of fair market value for cost of acquisition, and the non-levy of interest under Section 234B.

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