2009 (2) TMI 390 - HC - Income Tax

Reassessment- Capital gains- An item of property belonging to the assessee was notified for acquisition on June 31, 1986. Possession was taken over on October 24, 1987, and the initial compensation was paid to the assessee on January 17, 1989. Even though the assessee filed income-tax return for the year 1988-89 the assessee did not include any income from capital gain. The Assessing Officer issued notice under section 147 and completed the assessment for the assessment year 1989-90. The assessee filed appeal against the assessment which was allowed by the commissioner of Income-tax (Appeals) holding that the amendment of the statute will not justify reopening of assessment under section 147. This order is confirmed by the Tribunal. Held that-(i) that the property transferred was not agricultural land thus claiming exemption on the ground that the property taken over was agricultural land and hence there was no liability for tax on capital gains.(ii) That section 147 was not controlled by the amendment that was applicable in the case. Since the assessee did not concede the income on capital gain either under the unamended provision or under the amended provision the recourse open to the Department was to bring to tax income escaping assessment u/s 147 which was not time barred to follow the law in force as on the date of initiation of proceeding.

Summary

Issues:
Validity of income escaping assessment under section 147 of the Income Tax Act, 1961 for the year 1989-90.

Analysis:
The appeal raised the issue of whether the Tribunal was justified in holding the income escaping assessment under section 147 of the Income Tax Act, 1961, for the year 1989-90 as invalid. The case involved the acquisition of property belonging to the assessee, with possession taken over in 1987 and initial compensation paid in 1989. The amendment introduced by the Finance Act, 1991, retrospectively levied income tax on capital gains from land acquisition. The Assessing Officer completed the assessment for the year 1989-90 under section 147. The Commissioner of Income-tax (Appeals) and the Tribunal held that the amendment did not justify reopening the assessment. The key contention was whether the assessment under section 147 was valid, considering the retrospective amendment and the date of property transfer.

The primary argument of the appellant was that the revised assessment was legal as there was no challenge against it. The respondent contended that under the unamended law, capital gains should have been assessed for the year 1988-89, as the property transfer occurred earlier. The respondent claimed exemption due to the property being agricultural land, but this claim was found baseless by the authorities. The crucial question was the validity of the assessment completed under section 147 for the year 1989-90, considering the retrospective amendment and the date of compensation receipt. The High Court emphasized that even without the amendment, the assessment could have been made for the year 1988-89. The Court dismissed the argument that section 147 proceedings cannot be initiated based on a retrospective amendment, stating that the amendment was a beneficial provision to tax capital gains only on consideration received.

Another issue was whether the Assessing Officer was bound to follow the amended provisions or the law prevailing at the time of property transfer. The Court held that since the amendment was in force at the initiation of section 147 proceedings, the Assessing Officer was required to follow the law as on that date. Consequently, the Court allowed the Department's appeal, reversing the Tribunal and restoring the assessment completed under section 147. The orders of the Commissioner (Appeals) and the Tribunal were set aside in this regard.