Bookmark
PDF
Share
CaseIQ

B.K Roy Pvt. Ltd. v. Commissioner Of Income-Tax And Others.

Calcutta High Court

Aug 5, 1993

Judgment

Subsequent
References

CaseIQ

Important Paras

Please sign up to view Important Paras.

Smart Summary (Beta)

Structured Summary of the Opinion (Suhas Chandra Sen, J.)

Factual and Procedural Background

During the relevant previous year the petitioner received Rs. 21,20,000 from Messrs. Shaw Wallace and Company Limited as compensation on surrender of a monthly tenancy. That monthly tenancy was treated as the petitioner's capital asset and no cost of acquisition was incurred for it. In assessment proceedings the Assessing Officer accepted that the sum could not be assessed to tax as capital gains because there was no ascertainable cost of acquisition. The assessment was completed under section 143(3)/144A on January 2, 1991, with the petitioner's total income assessed at Rs. 81,900.

The Commissioner issued a notice proposing revision under section 263 of the Income-tax Act, stating that the Assessing Officer had erred in law in excluding the compensation from computation of total income and relying on the Allahabad High Court decision in CIT v. Gulab Chand to treat the receipt as a casual and non-recurring receipt under section 10(3). The petitioner filed a writ petition in this Court challenging the notice under section 263.

Legal Issues Presented

Whether a capital receipt which is not assessable as a capital gain (because no cost of acquisition can be ascertained) can nevertheless be assessed as a casual and non-recurring receipt under section 10(3) of the Income-tax Act, 1961.
Whether the Commissioner was entitled to issue a notice under section 263 on the ground that the assessment was "erroneous and prejudicial to the interest of the Revenue" by excluding the sum of Rs. 21,20,000 from the computation of total income.
Whether the writ petition challenging the section 263 notice is maintainable in view of the availability of alternative remedies (i.e., whether extraordinary writ jurisdiction should be exercised when alternative statutory remedies exist).

Arguments of the Parties

Writ Petitioner (Assessee)

The Assessing Officer's view (that the receipt could not be assessed as capital gains due to lack of cost of acquisition) is in consonance with decisions of this Court, other High Courts and the Supreme Court (the Division Bench decision in Commissioner Of Income-Tax v. Mangtu Ram Jaipuria was cited).
The proceedings initiated by the Commissioner under section 263 are wholly without jurisdiction and illegal; the condition precedent for exercise of revisionary power (that the assessment be erroneous and prejudicial to the revenue) does not exist.
No disputed questions of fact arise; the controversy is one of pure law going to jurisdiction. The alternative remedy is onerous and would cause undue hardship.
The central legal contention is that a capital receipt not assessable as a capital gain cannot be recharacterised and taxed as a casual and non-recurring receipt under section 10(3). The petitioner contends that the Allahabad High Court decision in Gulab Chand is erroneous and contrary to well-settled principles.

Respondents (Revenue / Commissioner)

The writ petition is not maintainable because an adequate alternative remedy exists; the Commissioner relied on precedent to contend there was no jurisdictional error in issuing the section 263 notice.
The Commissioner is not disputing that the amount could not be assessed as capital gains but seeks to treat the receipt as casual and non-recurring under section 10(3), relying on the Allahabad High Court decision in CIT v. Gulab Chand.
Reliance was placed on Supreme Court authority (CIT v. Ramendra Nath Ghosh) and a Calcutta High Court decision (Samnuggar Jute Factory Co. Ltd. v. CIT) to support the principle that high courts should not ordinarily exercise extraordinary jurisdiction where adequate statutory remedies are available.
The respondents argued that prior decisions cited by the petitioners deal with whether a lump sum receipt is taxable as capital gains where cost cannot be ascertained and are not authority for treating the surrender value of a tenancy right as a casual and non-recurring receipt under section 10(3).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner Of Income-Tax v. Mangtu Ram Jaipuria, [1991] 192 ITR 533	Cited by the assessee as a Division Bench decision of this Court consistent with the Assessing Officer's view that the compensation could not be assessed as capital gains when no cost of acquisition is ascertainable.	The opinion records that the assessee relied on this decision to support the view of the Assessing Officer; it forms part of the factual matrix the Court considered in evaluating whether the Commissioner was right to issue the section 263 notice.
CIT v. Gulab Chand, [1991] 192 ITR 495 (Allahabad)	Held by the Allahabad High Court that money received on surrender of tenancy rights is a receipt of casual and non-recurring nature within the meaning of section 10(3) of the Income-tax Act.	The Commissioner relied on this decision in the section 263 notice as the legal basis for treating the Rs. 21,20,000 as taxable (i.e., not excluded) by characterising it as casual and non-recurring. The Court analysed and rejected that approach as erroneous in law for reasons explained in the judgment.
CIT v. Ramendra Nath Ghosh, [1971] 82 ITR 888 (Supreme Court)	Principle that the High Court should not invoke extraordinary jurisdiction where there is an adequate statutory remedy; parties should ordinarily pursue appeals provided by the Act.	Respondents relied on this authority to argue the writ petition was not maintainable. The Court considered this authority but concluded that in the peculiar facts of the present case there was no adequate alternative remedy, permitting interference.
Samnuggar Jute Factory Co. Ltd. v. CIT, [1990] 181 ITR 221 (Calcutta High Court)	Similar view to Ramendra Nath Ghosh concerning restraint on exercise of extraordinary jurisdiction when alternative remedies exist.	The Court noted this decision as a supporting authority for the respondents' contention on maintainability, but nevertheless held that in the peculiar facts of the present case no adequate alternative remedy existed.
A. Gasper v. Commissioner Of Income Tax, Calcutta, [1979] 117 ITR 581 (Calcutta) and reported on appeal [1991] 192 ITR 382 (Supreme Court)	The Calcutta Reference Bench held the assessee's monthly tenancy was a capital asset and amounts received on its transfer were assessable as capital gains under section 45(1); on appeal the Supreme Court affirmed the judgment (noting the point about cost of acquisition was not argued before it).	The Court treated A. Gasper and the Supreme Court's affirmation as authority inconsistent with the Allahabad decision in Gulab Chand on the characterisation of receipts on surrender/transfer of tenancy rights; the Court relied on A. Gasper to hold that the revenue's approach to recharacterise the capital receipt under section 10(3) was unsustainable.

Court's Reasoning and Analysis

The Court's analysis proceeded by focusing on statutory interpretation and the proper characterisation of the receipt under the Income-tax Act.

The Court emphasized that the compensation was received on surrender of a tenancy which the parties and earlier decisions treated as a capital asset and that the Assessing Officer accepted the sum could not be assessed as a capital gain because no cost of acquisition was ascertainable.
The Commissioner did not contend that the sum was taxable as capital gains; instead he sought to tax it as a casual and non-recurring receipt under section 10(3), relying on the Allahabad High Court decision in Gulab Chand.
The Court analysed the statutory scheme: capital gains are governed by sections 45 to 55 of the Income-tax Act, and section 10(3) lists categories of income that are not included in total income, including clause (3) for casual and non-recurring receipts subject to limits and provisos. The proviso to section 10(3)(i) expressly excludes "capital gains chargeable under the provisions of section 45" from the benefit of clause (3).
From these textual provisions the Court concluded that section 10 is not a charging provision; it merely excludes certain incomes from the computation of total income. The existence of exclusions in section 10 does not mean that amounts that are excluded from capital gains must necessarily fall within section 10(3) as casual receipts when they are not chargeable as capital gains for some reason.
The Court pointed out the logical absurdity of the Revenue's approach: if any capital receipt not taxed as capital gain were to be treated as a casual and non-recurring receipt, that would render the special provisions dealing with capital gains ineffective and would produce anomalous results (illustrated by the example of sale proceeds reinvested in another house being treated as casual receipts).
The Court observed that the ratio of Gulab Chand could not be reconciled with the view taken in A. Gasper (and its affirmation by the Supreme Court), which treated such tenancy rights as capital assets and assessed amounts under capital gains provisions. Thus reliance by the Commissioner on Gulab Chand as a basis for revision under section 263 was misplaced.
On maintainability, although the Court acknowledged the general rule that writ jurisdiction should not be exercised where adequate alternative remedies exist (citing Ramendra Nath Ghosh and Samnuggar Jute Factory), it concluded that the present case raised a pure question of law that could not be decided by the Commissioner because the Commissioner could not accept the contention that Gulab Chand was wrongly decided; that point required determination by the Court. In the peculiar facts of the case the Court found there was no adequate alternative remedy and thus exercised jurisdiction.
The Court therefore concluded that the approach of the Commissioner in proposing to revise the assessment under section 263 by treating the receipt as a casual and non-recurring income under section 10(3) was erroneous in law.

Holding and Implications

Core Ruling: The notice issued under section 263 of the Income-tax Act was quashed.

Implications:

The Court held that the Commissioner's attempt to treat the Rs. 21,20,000 received on surrender of the tenancy as taxable by characterising it as a casual and non-recurring receipt under section 10(3) was legally erroneous.
Consequently the notice under section 263 was quashed; the Court further ordered that if any order had been passed pursuant to the impugned notice that order would also stand quashed.
There was to be no order as to costs.
The opinion does not purport to lay down a general new precedent beyond the immediate decision; the Court confined its decision to the view that, in the facts of this case, the Commissioner's reliance on Gulab Chand was legally unsustainable and intervention by this Court was appropriate because no adequate alternative remedy existed under the peculiar facts before the Court.

Show all summary ...

Suhas Chandra Sen, J.:— The relevant facts are that during the previous year relevant to the said assessment year, the petitioner received a sum of Rs. 21,20,000 from Messrs. Shaw Wallace and Company Limited as compensation on surrender of its monthly tenancy. The said tenancy was the capital asset of the petitioner and no cost of acquisition was incurred for its acquisition. In the assessment proceedings, the Assessing Officer accepted that the said sum could not be assessed to tax since there was no cost of acquisition of the said monthly tenancy.

2. The contention made on behalf of the assessee is that the view of the Assessing Officer is in consonance with the Division Bench decision of this court and other High Courts and the Supreme Court. The decision of the Division Bench of this court is in the case of Commissioner Of Income-Tax v. Mangtu Ram Jaipuria., [1991] 192 ITR 533. The Commissioner in the notice initiating the proceedings is not disputing this aspect and is accepting the fact that the said sum could not be assessed as there was no cost of acquisition of the monthly tenancy. The Commissioner, however, is seeking to hold that though the said sum was not assessable as capital gains it could be assessed as a casual and non-recurring receipt under section 10(3) of the Act. For this proposition, he is seeking support from a decision of the Allahabad High Court in the case of CIT v. Gulab Chand, [1991] 192 ITR 495.

3. It is submitted on behalf of the writ petitioner that the proceedings initiated are wholly without jurisdiction and illegal. The proposed action is contrary to the law laid down by this court and the Supreme Court and against the basic principles of the income-tax law. No disputed questions of fact are involved. The issue is one of pure law going to the root of the jurisdiction. The condition precedent for exercise of the power, namely, the order of the Assessing Officer being erroneous and prejudicial to the Revenue does not exist. The alternative remedy is onerous and would cause undue hardship. A wholly unjust and arbitrary demand for huge amount would be raised and no justice can be expected from the Commissioner in the purported proceedings. The only basic and fundamental issue involved is whether a capital receipt which is not assessable as a capital gain can be assessed as a non-recurring and casual income by reference to section 10(3) of the Act. The case of the assessee is that the decision of the Allahabad High Court in Gulab Chand's case, [1991] 192 ITR 495 is erroneous and contrary to well-settled principles of law.

4. As against this contention of the respondent, the writ petition is not maintainable. The respondents submit that the instant application is not maintainable as it is barred, inter alia, by the availability of alternative remedy. There was no jurisdictional error in issuing the impugned notice under section 263 of the Income-tax Act. The impugned notice is the last annexure to the petition.

5. Strong reliance has been placed on the case of CIT v. Ramendra Nath Ghosh, [1971] 82 ITR 888, where the Supreme Court observed (at page 891): “The Income-tax Act provides for an appeal against the order under section 33B. Normally, the assessee should have gone up in appeal against the order under section 33B. They should not have been allowed to invoke the extraordinary jurisdiction of the High Court. This court has emphasised that aspect in more than one decision…. The High Court should not have exercised its discretion in favour of the assessee in view of the adequate alternative remedy they had”.

6. A similar view was taken by the Calcutta High Court in the case of Samnuggar Jute Factory Co. Ltd. v. CIT, [1990] 181 ITR 221.

7. Referring to the decision cited on behalf of the petitioners, it has been contended on behalf of the respondents that the above decisions deal with the question whether a lump sum receipt is taxable as capital gains in the event the actual cost of acquisition cannot be ascertained. The said decisions are not an authority for the proposition whether the surrender value of a tenancy right is a casual and non-recurring receipt within the meaning of section 10(3) of the Income-tax Act, 1961.

8. Dealing with this decision of this court in the case of A. Gasper v. Commissioner Of Income Tax, Calcutta, [1979] 117 ITR 581, it was argued that the reference Bench of the Calcutta High Court held that the assessee's monthly tenancy was a capital asset and it had been transferred to a third party with the consent of the landlords and on such transfer his rights stood extinguished. The amounts received by the assessee from the third party was assessable as capital gains under section 45(1). In appeal, the assessee argued for the first time before the Supreme Court in A. Gasper v. Commissioner Of Income Tax, Calcutta, [1991] 192 ITR 382, that the monthly lease was not acquired by the assessee at any ascertainable cost and even assuming that it was a capital asset, it was of such a nature that its actual cost of acquisition could not be ascertained. The Supreme Court dismissed the appeal and affirmed the judgment of the Calcutta High Court. The Supreme Court held that the point of cost of acquisition of capital assets was not argued and relied upon the admission of learned counsel in the third paragraph of page 386 of the report.

9. It has been stated by the Commissioner in the notice under section 263

“Your income-tax assessment for the assessment year 1989–90 was completed under section 143(3)/144A on January 2, 1991, on a total income of Rs. 81,900. Scrutiny of your assessment records reveals that during the relevant previous year you received a sum of Rs. 21,20,000 from one Messrs. Shaw Wallace and Co. as compensation towards surrender of tenancy rights. Income arising out of such surrender was assessable in your hands in the assessment year 1989–90. In this connection, I am to invite your attention to the decision of the Allahabad High Court in the case of CIT v. Gulab Chand, [1991] 192 ITR 495 : [1991] 103 Taxation 196. The High Court has held that money received on surrender of tenancy rights is a receipt of casual and non-recurring nature within the meaning of section 10(3) of the Income-tax Act, 1961. The Assessing Officer has obviously erred in law in excluding the amount of compensation received by you in the computation of your total income. The assessment is, therefore, erroneous and prejudicial to the interest of the Revenue. I, accordingly, propose to pass an order under section 263 cancelling the aforesaid assessment and to direct the Assessing Officer to make a fresh assessment.”

10. The main reason for the proposed revision as stated in the notice is that “the Assessing Officer has obviously erred in law in excluding the amount of compensation received by you in the computation of your total income”. For this conclusion reliance has been placed on the decision of the Allahabad High Court in the case of Gulab Chand, [1991] 192 ITR 495.

11. The advocate on behalf of the assessee has rightly contended that the ratio of the decision of Gulab Chand's case, [1991] 192 ITR 495 (All), cannot be reconciled with the view taken by this court in the case of A. Gasper, [1979] 117 ITR 581, which was ultimately affirmed by the Supreme Court. Moreover, the amount received as capital gain cannot be taxed as casual and non-recurring income. The argument on behalf of the Revenue if taken to its logical conclusion would mean that everything that is exempted from the capital gain by the statute will be taxed as a casual and non-recurring receipt.

12. If an assessee sells a house property and utilises the receipt for purchase of another house property, the sale proceeds cannot be treated and taxed as a casual and non-recurring receipt. Capital gains have been specifically dealt with in sections 45 to 55 of the Income-tax Act. Whether any amount received on transfer of a capital asset is liable to be taxed or not will be decided in accordance with the specific provisions of sections 45 to 55 of the Income-tax Act. If any amount of capital gain is not taxable as capital gain for any reason, that amount cannot be treated as a casual and non-recurring receipt under section 10(3) of the Income-tax Act, 1961. Moreover, section 10(3) provides:

“Incomes not included in total income.—In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

(1) agricultural income;

(2) subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family;

(3) any receipts which are of a casual and non-recurring nature, not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate:

Provided that this clause shall not apply to—

(i) capital gains chargeable under the provisions of section 45; or

(ii) receipts arising from business or the exercise of a profession or occupation; or

(iii) receipts by way of addition to the remuneration of an employee;”

13. Proviso (i) to sub-section (3) of section 10 clearly recognises that capital gain chargeable under section 45 will not come within its ambit. Moreover, section 10 lays down that certain categories of income will not be included in the computation of total income of a person. A casual and non-recurring receipt not exceeding Rs. 1,000 will not be taxed. From these it does not follow that any capital receipt over and above Rs. 1,000 will have to be taxed. If a person receives Rs. 10,000 by way of legacy, the amount cannot be brought to charge on the ground that it is a casual and non-recurring receipt above Rs. 1,000. Section 10 is not a charging section. It merely specifically excludes certain types of income from the ambit of “total income” as defined under the Act. The case of the Commissioner as stated in the notice is not to bring the sum of Rs. 21,20,000 to tax as capital gain but to treat it as taxable otherwise on the strength of the aforesaid decision of the Allahabad High Court in the case of Gulab Chand, [1991] 192 ITR 495.

14. In my judgment, the approach of the Commissioner is erroneous in law and the notice under section 263 must be quashed.

15. The question of alternative remedy in a case like this is meaningless. The Commissioner has given notice to revise this case on the basis of the judgment of the Allahabad High Court in the aforesaid case of Gulab Chand, [1991] 192 ITR 495.

16. A pure question of law has been raised. Any contention before the Commissioner that Gulab Chand's case, [1991] 192 ITR 495 (All) was wrongly decided cannot possibly be accepted by the Commissioner. This point can only be decided by this court. Although as a matter of rule, I do not intervene at this stage of issuance of a notice under section 263, I am of the view that in a case like this there is no adequate alternative remedy for the petitioner. Therefore, in the peculiar facts of this case, this writ petition succeeds. The notice under section 263 is quashed. If any order has been passed pursuant to the impugned notice, that will also stand quashed.

17. There will be no order as to costs.