2019 (8) TMI 229 - AT - Income Tax

Determination of capital gain in the hands of company who has succeeded partnership firm - cost of acquisition - Applicability of a subsequent amendment brought after the filing of the return of income - scope of amended provisions of section 49(1)(iii)(e) - retrospective or prospective - Addition of capital gain arising from sale of immovable property - considering the cost of acquisition as in the hand of the predecessor partnership firm which was succeeded by the assessee - Assessee claimed that cost of acquisition will the value on which assets was taken from partnership firm - HELD THAT - Since the transfer of capital asset by a firm to the company as a result of succession of the firm by the company falls under section 47(xiii) was not covered by the pre amended provisions of section 49, and therefore, to bring the nature of transfer as provided under section 47(xiii), the amendment was brought into Statute whereby sub-clause (e) to section 49(1)(iii) was inserted. In the absence of this amendment, the case of transfer falling under section 47(xiii) was outside the ambit of mischief of deeming fiction of section 49. Therefore, the purpose of the amendment was to bring all these cases in the ambit of deeming fiction as provided u/s 49. It is also not in dispute that at the time of filing the return of income on 30th September, 2009 the law which was amended by Finance Act, 2012 was not in the Statute. Hon ble Supreme Court in case of CIT vs. Hindustan Electro Graphites Ltd 2000 (3) TMI 2 - SUPREME COURT while dealing with the question of applicability of a subsequent amendment brought after the filing of the return of income has held that the law prevailing at the time of filing of the return has to be applied and the amendment which could not have been known before the Finance Act came into force cannot be applied for additional tax liability to be levied. It will amount to punishing the assessee for no fault of his. Law to be applied which is in force in the relevant assessment year unless and otherwise provided expressly or by necessary implication a clarificatory amendment by insertion of an explanation can be read into the main provision but if a change is brought in the existing law by insertion of a new provision then the same cannot be applied in the case when no such law was in force at the relevant point of time and, therefore, a new tax liability cannot be created by a subsequent amendment in respect of a transaction as well as the return of income filed when such law was not in the Statute book. Hence we hold that the amended provisions of section 49(1)(iii)(e) cannot be applied in the case of the assessee simply because at the time of filing of the return of income the said provision was not in force. Accordingly, the addition sustained by the ld. CIT (A) by applying the amended provisions of section 49(1)(iii)(e) is not sustainable and liable to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:

1. Applicability of amendment in section 49(1)(iii)(e) and clause (xiii) of section 47.
2. Conversion of Short Term Capital Loss into Long Term Capital Gain.
3. Levy of interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Applicability of Amendment in Section 49(1)(iii)(e) and Clause (xiii) of Section 47:

The primary issue was whether the amendment in section 49(1)(iii)(e) inserting clause (xiii) of section 47, which was introduced by the Finance Act, 2012 with retrospective effect from 1st April 1999, could be applied to the assessee's case. The assessee argued that the amendment could not be applied retrospectively to a transaction and return of income filed before the amendment was enacted. The Tribunal noted that the amendment was not in the statute at the time of the transaction or the filing of the return of income, and thus, it could not be applied to the assessee's case. The Tribunal emphasized that the law prevailing at the time of filing the return should be applied, and a subsequent amendment cannot create a new tax liability retrospectively. The Tribunal cited several Supreme Court judgments, including CIT vs. Hindustan Electro Graphite Ltd., CIT vs. Vatika Township Pvt. Ltd., and Sedco Forex International Drill vs. CIT, to support its conclusion that retrospective amendments cannot impose new liabilities on past transactions. Consequently, the Tribunal held that the addition sustained by the CIT (A) based on the amended provisions of section 49(1)(iii)(e) was not sustainable and ordered its deletion.

2. Conversion of Short Term Capital Loss into Long Term Capital Gain:

The assessee had declared a short-term capital loss from the sale of an immovable property, which was revalued by the predecessor partnership firm before being taken over by the assessee company. The AO rejected the revaluation and recomputed the capital gain by considering the original cost of acquisition in the hands of the partnership firm. The CIT (A) upheld the AO's action by applying the amended provisions of section 49(1)(iii)(e). However, the Tribunal found that the amended provisions could not be applied retrospectively to the assessee's case. Therefore, the Tribunal concluded that the cost of acquisition should be the amount at which the assessee acquired the property, not the cost in the hands of the predecessor firm. The Tribunal ordered the deletion of the addition made by the AO and sustained by the CIT (A).

3. Levy of Interest Under Section 234B:

The assessee argued against the levy of interest under section 234B, contending that the amendment in the statute was retrospective and the assessee had denied its liability for such interest. The Tribunal noted that the Coordinate Bench had previously dismissed this ground as consequential in nature. However, in light of the decision that the amended provisions of section 49(1)(iii)(e) could not be applied retrospectively, the Tribunal found that the levy of interest under section 234B was not justified. The Tribunal emphasized that the assessee could not be held liable for interest based on a subsequent amendment that was not in force at the time of filing the return. Consequently, the Tribunal ordered the deletion of the interest levied under section 234B.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the retrospective amendment in section 49(1)(iii)(e) could not be applied to the assessee's case, and ordered the deletion of the addition and interest levied by the AO and sustained by the CIT (A). The Tribunal's decision was based on the principle that a subsequent amendment cannot impose new liabilities on past transactions and the law prevailing at the time of filing the return should be applied.