A FOOTNOTE CANNOT GUIDE OR CONTROL A RETURN FILED BY AN ASSESSEE.

[Mr. M. GOVINDARAJAN]

                        A footnote is used to be given at the end of the printed page to give amplification of the subject dealt.  A footnote if at all can be for the purpose of amplification or for further reference or any such thing but not to include a stand contrary to the main thing.   How a footnote, appended to the income tax return filed by the assessee, will be helpful to the assessee?  A footnote cannot guide or control a return filed by an assessee.   This has been elaborately discussed in the case law ‘Karnataka Instrade Corporation Limited V. Assistant Commissioner of Income Tax’ – 2012 (4) TMI 90 (HC). 

                        The assessee is a public limited company registered under the Companies Act, 1956.  The assessee company, it was claimed, was a sick company and had kept its manufacturing activity only to meet certain commitments and otherwise was dominant.   The assessee company filed a return of income for the financial year 2004-05 and had, amongst others, offered an income of Rs.11,15,44,005 as capital gains.  The Assessing Authority finalized the assessment on such premise, but found occasion to add back certain other sums under other heads and arrived at the taxable income as Rs.5,02,09,941/- and raised a demand and also directed initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, separately.

                        In the appeal the assessee contended that out of Rs.11,15,44,005 as capital gain as has been declared by the assessee, while only a sum of Rs.31,60,000 was assessable to tax being attributable to transfer of some capital assets, the balance sum  of Rs.10,83,84,005 could not be assessed as income attributable to capital gain, as the amount had been transferred to capital reserve account in terms of the footnote appended to the return.  The appellate authority opined that though the ground is considered, having regard to the fact that the assessee had voluntarily shown the amount as capital gain and also had claimed a loss of Rs.5,17,69,775 and the assessing authority had accepted the return as filed, but having added back certain deductions which were not allowable, the ground cannot be sustained and, therefore, dismissed the appeal.   The Tribunal also found that the assessing authority had in no way altered or disallowed the claim of the assessee in so far it mentioned in the return of income relating to capital gain and if the version of the assessee in terms of its return had been accepted and if the assessing authority had finalized the same, the assessee cannot make a grievance out of such a situation and seek for relief in appeal etc.,   The Tribunal opined that the assessee’s contention is not tenable and rejected the appeal. 

                        The assessee therefore approached the High Court and raised the following question of law:

• Whether the Tribunal was justified in law in not treating the income of Rs.11,15,44,005 being offered as capital gains as capital receipts on the facts and circumstances of the case?
• Whether the Tribunal was justified in law in not passing a speaking order in relation to the contention of the appellant regarding the issue of capital receipt on the facts and circumstances of the case?
• Whether the Tribunal was justified in law in not holding that consent cannot confer jurisdiction and a mere admission cannot be held against the appellant?

The present appeal is only relating to the income attributable to capital gain as had been revealed by the assessee in its return of income.   The assessee raised the following contentions:

• The Appellate Commissioner and the Tribunal had committed a mistake in not examining the case of the assessee that the entire amount of capital gain though has been offered so in the return of income, was not taxable as income;
• It did not represent capital gain which was taxable;
• Some part of it was taxable as had been offered by the assessee itself but the amount had been transferred to the capital reserve was not an amount which was, per se taxable as capital gain;
• The matter has to be remanded to the authorities below for examination of this appeal.

The assessee further contended that there cannot be any estoppel against an assessee if an exemption or a deduction which the assessee is otherwise entitled to make in law had been wrongly omitted to be made or if the assessee had offered to tax certain turnover which was not otherwise taxable, to get necessary corrections made at the appeal stage etc., and, therefore, submitted that when the assessee had made a positive effort to seek correction of the assessment order in so far as it relates to the question of treating the entire capital gain as offered by the assessee to be taken as the income of the assessee and to finalize the return, the appellate authorities were bound to examine this aspect, but having dismissed the appeals only on the principle of estoppel as the assessee had voluntarily offered, the judgment cannot be sustained etc.,

                        The High Court made it clear that a footnote cannot guide or control a return which is filed by an assessee.   The High Court held that when the assessee filed its return of income, which is a statutory requirement the assessee is expected to make whole and true disclosure and when the assessee indicates a particular amount as capital gain but in the footnote indicates that it is merely transferred to capital reserve and therefore claimed not a taxable capital gain, the question is not really as is put forth by the assessee during the course of argument in the present appeal.  The Court further held that whether capital gain arises or not is a question statutorily regulated but is not further conditioned or regulated as to in what manner the assessee treats a capital receipt and in what manner the assessee further makes use of the receipt, whether it is transferred to capital reserve or deployed as capital investment or utilizes in any other manner that does not control the amount becoming capital gain.

                        In this background, the Court held that if the assessee had not made good as to for what reasons and in what manner the amount cannot be treated as capital gain before the Appellate Authorities but merely raised a ground that it is not per se capital gain, though offered, the assessee had failed in making good the ground and, therefore, cannot be said that the Tribunal committed a mistake in law in rejecting the ground urged by the assessee.   The Court further held that the present case was not one of the principle of estoppel being put against the assessee to deny any examination but it was a more a case of non production of relevant material by the assessee which would have compelled the Tribunal to examine and opine on that and merely raising a ground is not substitute for material to make good the ground.   It is the conspicuous absence of such material which left no choice for the Appellate Commissioner and Tribunal to reject the ground.  The High Court dismissed the appeal.