2023 (12) TMI 134 - AT - Income Tax

Treatment to income Declared under IDS-2016 - character of the income - undisclosed income U/s. 68 r.w.s 115BBE OR capital gains - as in Statement of undisclosed income the assessee has declared an amount as income from capital gains - treatment of the capital gains as undisclosed U/s. 68 r.w.s 115BBE of the Act and levying a higher tax rate of 60% - HELD THAT - As per section 197(b) of IDS, 2016 where the assessee fails to pay the tax as per the income declared under IDS, 2016 the undisclosed income shall be chargeable to tax in the previous year in which such declaration is made. We find force in the argument made by the Ld. AR that non-payment of tax under the IDS, 2016 against the income declared cannot change the character of the income declared under IDS, 2016 with respect to character of income assessable in the previous year in which such declaration was made under the Income Tax Act, 1961. In response to the show cause notice assessee has submitted its reply stating that it was the capital gains which was declared under the IDS, 2016 after availing the deduction U/s. 54F of the Act. These facts were not disputed by the Ld. Revenue Authorities. AO while framing the assessment has stated the same as undisclosed income U/s. 68 r.w.s 115BBE of the Act instead of taxing the same under capital gains. Merely because the assessee failed to discharge the tax liability under IDS-2016 as declared cannot change the character of the income under which it was declared under the IDS-2016. Further, IDS-2016 is also silent on the nature of income to be taxed in the event of failure by the declarant to pay the taxes. Thus the income of the assessee shall be taxed as capital gains in the hands of the assessee we therefore direct the Ld.AO to compute the taxes applicable with respect to capital gains disclosed by the assessee. Appeal of assessee allowed.

Summary

Issues involved:
The judgment involves the appeal against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre regarding the treatment of capital gains as undisclosed income and the levy of a higher tax rate, as well as the imposition of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Treatment of Capital Gains as Undisclosed Income:
The assessee filed a declaration under the Income Declaration Scheme, 2016, disclosing an amount as income from capital gains but failed to pay the taxes as required by the scheme. The Assessing Officer treated the declared income as undisclosed income under section 68 r.w.s 115BBE of the Act, instead of taxing it as capital gains. The appellant contended that the income declared as capital gains should be taxed under the provisions of capital gains in the hands of the assessee, especially since the nature of the income declared in the IDS, 2016 was not specified. The Tribunal found that the failure to pay taxes under the IDS, 2016 does not alter the character of the declared income, which should be taxed as capital gains. The Tribunal directed the Assessing Officer to compute the taxes applicable with respect to the capital gains disclosed by the assessee.

Levy of Interest under Sections 234A, 234B, and 234C:
The issue of interest under sections 234A, 234B, and 234C was raised in the appeal. The Tribunal deemed this issue to be consequential in nature and required no separate adjudication, as the primary issue of the treatment of capital gains had been resolved in favor of the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to tax the disclosed income as capital gains and compute the applicable taxes accordingly. The decision was pronounced in the open court on the 10th of August, 2023.