2015 (10) TMI 1746 - AT - Income Tax

Reopening of assessment - enhancement of taxable income - taxation income from transfer of assets - Held that - The impugned order of the Commissioner of Income Tax (Appeals) needs to be set aside on the reason that the Commissioner of Income Tax (Appeals) considered the income under the head income from business and invoked the provision of section 50C to determine the sale consideration at E64 crores on the basis of guideline adopted for stamp valuation purposes by State Government. On analyzing the language used by the legislature in Sec. 50C, following prominent aspect can be seen that the said section specifically deals with the transfer of the capital asset being land or building or both and it provides for replacing the value adopted or assessed for the purpose of stamp duty more particularly under sec. 48 in place of value or sale consideration shown by the assessee. It is to take note that the expression capital asset has specific relevance with sec. 45 which provides for brining to tax on transfer of capital asset as capital gain. It is abundantly clear from the explanation given in circular No.8 of 2002, dated 27th Aug, 2002 that the basic intention to insert sec. 50C is for the purpose of determining full value of sale consideration for the purpose of computation of capital gains under sec. 48. The issuing of notification or circular is good guide of contemporaneous exposition of the position of the law and this rule is popularly known as contemporanea expositio . There should not be any cloud of doubt that sec. 50C has application only to the extent of determining sale consideration for computation of capital gain under Chapter IV-E of the Act and it cannot be applied for determining the income under other heads. Therefore, when admittedly in the present case the sale of the property is treated as the business income and not as a capital gain, the provision of Sec.50C is not applicable. Being so, considering the entire facts and circumstances of this case, we are of the opinion that the Commissioner of Income Tax (Appeals) is not justified in enhancing the assessment.

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax (Appeals) to enhance the assessment.
2. Ownership and tax liability on the sale of the Adyar property.
3. Validity of the reopening of assessment.
4. Application of Section 50C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax (Appeals) to Enhance the Assessment:
The crux of the appeal was whether the Commissioner of Income Tax (Appeals) had the jurisdiction to enhance the assessment by considering a new source of income not originally assessed by the Assessing Officer. The tribunal held that the first appellate authority has wide powers under Section 251(1)(a) of the Income Tax Act and can correct the Assessing Officer on any matter considered during the assessment. However, the appellate authority cannot introduce a new source of income not previously considered by the Assessing Officer. In this case, the Commissioner of Income Tax (Appeals) assessed the entire surplus income from the sale of the property as business income, which was not considered by the Assessing Officer. The tribunal concluded that the Commissioner of Income Tax (Appeals) exceeded his jurisdiction by introducing a new source of income, thus invalidating the enhancement.

2. Ownership and Tax Liability on the Sale of the Adyar Property:
The property in question was originally owned by Mrs. Meerabai Dawson and was auctioned by the Debts Recovery Tribunal (DRT) and purchased by the assessee. However, the ownership was contested by the estates of Mrs. Meerabai Dawson, leading to a compromise agreement where the estates were treated as the legal owners, and the assessee as the confirming party. The tribunal noted that the sale transaction was a single transaction, and taxing the same transaction in the hands of both the estates of Mrs. Meerabai Dawson and the assessee would amount to double taxation. The tribunal held that the tax liability on the sale of the property should rest with the estates of Mrs. Meerabai Dawson, as agreed upon by all parties involved.

3. Validity of the Reopening of Assessment:
The tribunal examined the validity of the reopening of the assessment under Section 148 of the Income Tax Act. The initial reopening was based on the non-disclosure of the sale transaction, leading to the issuance of a notice under Section 148. The assessee challenged the reopening, and the tribunal found that the Assessing Officer's reopening was influenced by the intention to enhance the assessment, despite the matter being sub judice before the High Court. The tribunal held that the reopening was not valid as it was not based on new material facts but rather an attempt to reassess the same income.

4. Application of Section 50C of the Income Tax Act, 1961:
The tribunal addressed the application of Section 50C, which pertains to the determination of the sale consideration for capital gains tax based on the stamp duty value. The Commissioner of Income Tax (Appeals) applied Section 50C to determine the sale consideration at Rs. 64 crores. The tribunal clarified that Section 50C applies only to the computation of capital gains and not to business income. Since the sale of the property was treated as business income and not capital gains, the application of Section 50C was deemed inappropriate. The tribunal concluded that the Commissioner of Income Tax (Appeals) was not justified in enhancing the assessment based on Section 50C.

Conclusion:
The tribunal allowed the appeal of the assessee, concluding that the Commissioner of Income Tax (Appeals) exceeded his jurisdiction by enhancing the assessment based on a new source of income, improperly applied Section 50C, and that the reopening of the assessment was invalid. The tribunal emphasized that the tax liability should rest with the estates of Mrs. Meerabai Dawson, as per the compromise agreement, and not with the assessee.