1983 (5) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Whether the net sale proceeds of timber constituted capital receipts or revenue receipts.
2. Whether the Tribunal was right in refusing to entertain the alternative plea of the Department regarding capital gains.
3. Validity of reopening the assessment for the year 1963-64 based on findings for subsequent years.

Summary:

Issue 1: Capital Receipts vs. Revenue Receipts
The petitioner, a public limited company, filed its return for the assessment year 1963-64, disclosing income from the sale of timber as agricultural income not chargeable to tax. The ITO, however, treated the sum of Rs. 11,91,508 as "revenue receipt" and taxable under the I.T. Act, 1961. The AAC upheld this decision. On appeal, the ITAT ruled that the receipt was a capital receipt and not chargeable to income-tax under the Act.

Issue 2: Tribunal's Refusal to Entertain Alternative Plea
The Revenue's alternative plea that the amount should be assessed as capital gains was not entertained by the Tribunal, which held that its appellate powers were confined to the subject-matter of the appeal before it. This court concurred with the Tribunal, stating that the question of capital gains did not arise in the appeal and the Tribunal's powers were limited to the issues presented in the appeal.

Issue 3: Reopening of Assessment for 1963-64
For subsequent assessment years (1964-65, 1965-66, and 1966-67), the ITO initially treated similar receipts as revenue, but the AAC ruled them as capital receipts. The Tribunal later held these receipts as capital gains. Based on this, the ITO sought to reopen the assessment for 1963-64 under s. 148, with approval from the CIT and CBDT. The petitioner challenged this notice under article 226 of the Constitution.

The court examined the reasons recorded by the ITO and found that the reopening was based solely on the Tribunal's findings for subsequent years. The court held that s. 150(1) of the Act, which allows reopening to give effect to any finding or direction in an order, must relate to the same assessment year. The court concluded that the impugned notice was without jurisdiction and illegal, and quashed the notice.

Conclusion:
The court ruled in favor of the petitioner, quashing the notice issued u/s 148 for the assessment year 1963-64, and held that the Tribunal's findings for subsequent years could not justify reopening the earlier concluded assessment. The rule issued was made absolute, with parties bearing their own costs.