2014 (9) TMI 572 - HC - Income Tax

Validity of reopening of assessment Failure to disclose the material fact Interpretation of Clause 14 DTA - Liability to pay capital gain tax Held that - The assessee is a resident of India - the AO did not apply his mind and moreover, it was an assessment u/s 143(1) of the Act, the return was accepted - Once this mistake was noticed, proceedings were initiated and the amount was brought to tax - All the three authorities have concurrently held that it is not a case of change of opinion and the levy of tax is proper relying upon CIT v. Rinku Chakraborthy 2011 (1) TMI 1160 - Karnataka High Court Decided against assessee.

Summary

Issues:
1. Appeal against order confirming liability to pay capital gain tax.
2. Reopening of assessment under Section 148 of the Income Tax Act.
3. Interpretation of Double Taxation Avoidance Agreement (DTA) Clause 14.
4. Application of domestic law for taxation of capital gains.
5. Justification of the Tribunal's decision.

Analysis:

1. The appellant filed an appeal against the order confirming their liability to pay capital gain tax on a transaction, which was upheld by the Income Tax Appellate Tribunal. The Assessing Officer initially accepted the return under Section 143(1) of the Income Tax Act but later issued a notice under Section 148, alleging that income had escaped assessment. The appellant contended that no new material was presented beyond what was already disclosed. The lower authorities ruled against the appellant, leading to the present appeal.

2. The issue of reopening the assessment under Section 148 was raised, challenging the justification for initiating the proceedings. The appellant argued that there was no failure to disclose all relevant facts. However, the Assessing Officer and subsequent authorities upheld the reopening, asserting that the capital gain tax was due as per domestic law. The Tribunal also dismissed the appeal, prompting the appellant to challenge the decision.

3. The Court considered the interpretation of Clause 14 of the Double Taxation Avoidance Agreement (DTA) between the UK and India, which allows each contracting state to tax capital gains according to its domestic law. The appellant, a resident of India, claimed that since the capital gain arose in the UK, it should not be taxable in India. However, the Court clarified that as per the DTA and domestic law, the appellant was liable to pay capital gains tax in India.

4. The application of domestic law for taxation of capital gains was a crucial aspect of the case. Despite the appellant's argument that the capital gain was not taxable in India due to its origin in the UK, the Court emphasized that as an Indian resident, the appellant was obligated to pay tax on capital gains as per the domestic law of India. The Court referenced relevant precedents to support the position that the Assessing Officer had the jurisdiction to reopen the assessment for income that had escaped taxation.

5. The Tribunal's decision was challenged regarding the justification for upholding the reopening of the assessment and the interpretation of the DTA. The Court, after considering the arguments and precedents, found no merit in the appeal. It ruled in favor of the Revenue, affirming that the capital gain tax was properly levied as per domestic law and the DTA. Consequently, the substantial questions of law were answered in favor of the Revenue and against the appellant, leading to the dismissal of the appeal.