1986 (6) TMI 87 - AT - Income Tax

Agricultural Income, Agricultural Land, Assessment Year, Lease Rent, Question Of Law, Special Audit, Total Income

Summary

Issues Involved:
1. Validity of reassessment under section 147(a) for assessment years 1971-72 and 1972-73.
2. Validity of reassessment under section 147(b) for assessment year 1974-75.
3. Nature of lease rent as agricultural income or interest income.
4. Applicability of section 58(c) of the Transfer of Property Act, 1882.

Detailed Analysis:

1. Validity of Reassessment under Section 147(a) for Assessment Years 1971-72 and 1972-73:

The revenue challenged the cancellation of reassessments under section 147(a) on the grounds that the agreement to reconvey the property was not disclosed to the Income Tax Officer (ITO) during the original assessments. The Commissioner (Appeals) found that no material was suppressed by the assessee, and the agreement to reconvey did not constitute a primary fact having a material bearing on the assessment. The Tribunal upheld this view, stating, "It is only those primary facts which have a bearing on the assessment that have to be disclosed to the ITO, the non-disclosure of which would empower the taxing authority to initiate reassessment proceedings under section 147(a)."

2. Validity of Reassessment under Section 147(b) for Assessment Year 1974-75:

For the assessment year 1974-75, the reassessment was initiated based on the audit party's observations. The Commissioner (Appeals) applied the Supreme Court's decision in Indian & Eastern Newspaper Society v. CIT, holding that the audit party's opinion on a point of law could not amount to 'information' for initiating reassessment under section 147(b). The Tribunal agreed, stating, "We are in complete agreement with him on this. We uphold his order."

3. Nature of Lease Rent as Agricultural Income or Interest Income:

The revenue argued that the lease rent received by the assessee was in the nature of interest income and not agricultural income, as the transaction was a mortgage by conditional sale under section 58(c) of the Transfer of Property Act, 1882. The Tribunal examined the documents and found that the agreement to reconvey the property did not constitute primary facts to be disclosed to the ITO. The Tribunal concluded, "Therefore, we reject the contention of Shri Santhanam in this behalf."

4. Applicability of Section 58(c) of the Transfer of Property Act, 1882:

The Tribunal analyzed whether the transaction constituted a mortgage by conditional sale under section 58(c). It concluded that the proviso to section 58(c) was significant and that the conditions for re-transfer were not embodied in the initial sale document. The Tribunal stated, "In this view of the matter, we hold that there was absolutely no basis for the view entertained by the audit party that the entire transaction is one coming within the purview of section 58(c)."

Conclusion:

The Tribunal dismissed the appeals of the department, upholding the order of the Commissioner (Appeals) that the reassessment proceedings under section 147(a) for assessment years 1971-72 and 1972-73 and under section 147(b) for assessment year 1974-75 were invalid. The Tribunal concluded that the lease rent was agricultural income and not interest income, and the transaction did not constitute a mortgage by conditional sale under section 58(c) of the Transfer of Property Act, 1882.