2014 (2) TMI 535 - HC - VAT and Sales Tax

Assessment made under Section 7-A - Inclusion of value of Gold declared under VDIS scheme of Income Tax Act by the partner in the hands of Firm - Assessing Authority presumed that the old gold disclosed has been brought into the capital account of the partnership firm by one of the partner, on behalf of his wife (who is admittedly not a partner), and thereby estimated the value of the gold and included it as taxable turnover - Tribunal held that Gold jewellery in good condition personally held as on 1987 and brought to the capital account under VDIS and gold jewellery in good condition purchased from other persons who had disclosed the stock under VDIS, when they are sold as such, are not liable to tax either under entry No.3 in Part B of the First schedule as last purchase on worn out jewellery or under Sec.7A of the TNGST Act - Whether on the facts and circumstances of the case, the Tribunal is right in law in deleting the assessment made under Section 7-A on the gold declared under voluntary disclosure of income scheme on turnover. Held that - On a plain reading of Section 34(3)(b) it will appear clear that before that provision can be invoked or applied three conditions are required to be satisfied (a) that the ship, machinery or plant must have been sold or otherwise transferred, (b) that such a sale or transfer must be by the assessee, and (c) that the same must be before the expiry of 8 years from the end of the previous year in which it was acquired or installed. It is only when these three conditions are satisfied that any allowance made under Section 33 shall be deemed to have been wrongly made and the Income Tax Officer acting under Section 155(5) will be entitled to withdraw such allowance. Further, Section 2(47) gives an artificial extended meaning to the expression transfer for, it not merely includes transactions of sale and exchange which in ordinary parlance would mean transfers, but also relinquishment or extinguishment of rights which are ordinarily not included in that concept - While so, there is no question of purchase made by the dealer during the course of its business, as has been made clear under Section 7-A of the Act - Following decision of Malabar Fisheries Co. v. Commissioner of Income Tax, Kerala 1979 (9) TMI 1 - SUPREME Court - Decided against Revenue.

Summary

Issues:
1. Assessment under Section 7-A on gold declared under voluntary disclosure of income scheme.
2. Ignoring the clarification regarding taxation of gold jewellery under Section 7-A of the Act.

Analysis:

1. The revision concerns the assessment year 1997-1998 where a dealer disclosed a turnover of Rs. 11,76,630 under the Voluntary Disclosure Scheme. The Assessing Authority presumed the disclosed old gold was brought into the partnership firm's capital account and estimated its value at Rs. 3,99,964, including it as taxable turnover. However, the Appellate Assistant Commissioner reversed this decision, stating the jewels belonged to the partners' women folk, not old jewels for conversion. The Tribunal upheld this decision, relying on a clarification stating that gold jewellery sold under the disclosure scheme is not taxable under Section 7-A of the Act.

2. The State challenged the Tribunal's decision, arguing that the gold should be taxed under Section 7-A. Section 7-A pertains to the levy of purchase tax, requiring the purchase to be in the course of business. In this case, the wife of a partner disclosed the gold, which was then pooled into the firm's capital. This pooling does not constitute a purchase made by the firm during its business. The concept of "transfer" was discussed, emphasizing the conditions required for invoking such provisions.

3. The Supreme Court's interpretation of transfer under the Income Tax Act was cited to support the argument that the pooling of assets into the firm's capital does not constitute a transfer or purchase in the course of business. Therefore, the Tribunal's decision was upheld, dismissing the revision and answering the questions of law in favor of the assessee. No costs were awarded in this matter.