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TMI Blog2024 (3) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. In this case, Section 45 read with Section 47 read with Section 48 of the Act makes it clear that the AO could not have any tangible material to form a belief that income has escaped assessment. On scrutiny of the statutory provisions as the transaction in question does not invite any tax liability, we cannot accept revenue submission that there is some tangible material to form a belief that there is an escapement of income. Section 47 (1)(iii) of the Act, which deals with transactions not regarded as transfer, expressly provides nothing contained in Section 45 shall apply to any transfer of a capital asset under a gift or will or an irrevocable trust. The case in hand, therefore, would be governed by the main body of sub-clause (iii) of Section 47 of the Act. Therefore, even if there is a transfer of a capital asset under a gift, which admittedly in the case herein, it shall not amount to a transfer under Section 45 of the Act. If it does not amount to a transfer under Section 45 of the Act, no capital gains will be payable because Section 45 is the only taxing provision for capital gains. A gift is commonly known as voluntary transfer of property by one to another without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iaries. Petitioner also claimed refund of tax deducted at source of Rs. 547/- in the return of income. In the return of income, petitioner had disclosed the investment of Rs. 8,92,335/- standing as of 31st March 2010 in the balance sheet and also the sum of Rs. 1,02,27,547/- as gift which was debited to the profit and loss account. 4. Petitioner did not receive any communication after the return of income was filed and since no communication or order was received within the prescribed time, petitioner has proceeded on the basis that the said return of income is deemed to have been processed under Section 143(1) of the Act. 5. On or about 19th March 2015 petitioner received a notice dated 12th March 2015 from respondent no. 2 under Section 148 of the Act alleging that there was reason to believe that the income has escaped assessment for Assessment Year 2010-2011. Petitioner was provided with the reasons for initiating the proposed reassessment by a letter dated 7th July 2015 after two reminders. 6. Petitioner, by its letter dated 15th July 2015, filed its objections. The stand of petitioner was as under : (a) On identical issue, this Court had quashed the reopening proceedings init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal asset as a gift. However, the order disposing of the objections does not even refer to the objection based on Section 47(iii) of the Act much less deal with it. Besides nothing has been shown to us which would permit the Assessing Officer to substitute the nil consideration received on gifts by the market value of the shares i.e. movable. 5. Be that as it may, the reasons recorded for issuing the impugned notice, prima facie, do not indicate in the face of Section 47(iii) of the Act that the Assessing Officer could have reason to believe that income chargeable to tax as capital gains has escaped assessment. 6. In the above view, there shall be interim relief in terms of prayer clause(b). 8. Mr. Pardiwalla submitted as under : (a) Before proceedings under Section 148 of the Act could be validly initiated, there are certain jurisdictional preconditions to be complied with one of which is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment prior to the initiation of the proceedings. This condition is not complied with in the present case because there cannot be any reason to believe that income has escaped assessment because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped assessment. 9. Mr. Sharma submitted that that the Court has to only consider whether the Assessing Officer in the reason to believe has relied on some tangible material and if that is the case, assessee should be directed to go through the process of reopening. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. 10. We are conscious that in this case return was accepted under Section 143(1) of the Act. Even in that case, the principle requirement that the Assessing Officer has reason to believe that income chargeable to tax had escaped assessment would still survive. Though this formation of belief by the Assessing Officer must be prima facie and at the stage when the Court is testing validity of such a notice, it would not be necessary for the Assessing Officer to conclusively establish that the income chargeable to tax had escaped assessment, for various reasons we are convinced that the reasons for reopening lack validity. 11. In this case, Section 45 read with Section 47 read with Section 48 of the Act makes it clear that the Assessing Officer could not have any tangible material to form a belief that income has escaped assessment. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer took place. Therefore, (a) there has to be a capital asset, (b) there has to be a transfer of such a capital asset and (c) there has to be a profit or gain arising from the transfer. Only when these three conditions are fulfilled, can the profit or gain be charged to income tax under the head capital gains . 14. Section 47 (1)(iii) of the Act, which deals with transactions not regarded as transfer, expressly provides nothing contained in Section 45 shall apply to any transfer of a capital asset under a gift or will or an irrevocable trust. The proviso in clause (iii) of Section 47 of the Act for apparent reasons is not applicable to the case at hand. This proviso is in the nature of exclusion to main provisions of sub-clause (iii) of Section 47 of the Act. The case in hand, therefore, would be governed by the main body of sub-clause (iii) of Section 47 of the Act. Therefore, even if there is a transfer of a capital asset under a gift, which admittedly in the case herein, it shall not amount to a transfer under Section 45 of the Act. If it does not amount to a transfer under Section 45 of the Act, no capital gains will be payable because Section 45 is the only taxing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be necessary for the Assessing Officer to conclusively establish that the income chargeable to tax had escaped assessment. xxxxxxxxxxxx 10. For multiple reasons we are convinced that these reasons lack validity. The first and foremost, reasons themselves record merely the transaction and nothing more. Quite apart from there not being live link between the first portion of the reasons recorded, namely, by merely duplicating the recording of transaction of transfer of sizable number of shares having considerable market value without consideration and second portion of the reasons where he concluded that the income chargeable to tax had escaped assessment. 11. Quite apart from this, even on greater scrutiny of the statutory provisions, we find that the transaction in question did not invite any tax liability on the petitioner. Section 45 of the Act, as is well known, pertains to capital gains. Sub-section (1) thereof in particular provides for charging of tax on any profit or gain from transfer of capital assets as deemed income of the assessee for the previous year in which transfer took place. Section 47 of the Act pertains to transaction not regarded as transfer. Sub-clause (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section. 13. For the simple reason this proviso would not apply in the case on hand. Firstly section 48 of the Act itself provides for mode of computation of income chargeable as capital gain. Sub-clause (iii) of section 47 of the Act excludes application of section 45 of the Act in case of certain transfers. By no application of section 48 of the Act, such exclusion can be ignored. Section 48 of the Act only aims to provide for formula for computation of income chargeable as capital gain. Further, this proviso provides for computation of income which is referred to in proviso to sub-clause (iii) of section 47 of the Act, and thus, would cover cases which are to be excluded from the purview of sub-clause (iii) of section 47 of the Act. As noted, the case on hand does not fall within the proviso to sub-clause (iii) of section 47 of the Act, and therefore, mode ..... X X X X Extracts X X X X X X X X Extracts X X X X
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