Commissioner Of Income-Tax v. C.V Jayachandran

C.N Ramachandran Nair, J.:— The question raised in the appeal filed by the Revenue is whether the Tribunal was justified in holding that the income escaping assessment completed under section 147 of the Income-tax Act, 1961, in the case of the respondent-assessee for the year 1989-90 is invalid. An item of property belonging to the assessee was notified for acquisition on June 31, 1986. Possession was taken over on October 24, 1987, and the initial compensation was paid to the assessee on January 17, 1989. Even though the assessee filed income-tax return for the year 1988-89 the assessee did not include any income from capital gain. Though the transfer took place in the previous year relevant for the said assessment year. By Finance Act, 1991, an amendment was introduced to section 45(5)(a) providing for levy of income-tax on capital gains arising out of compulsory acquisition of land on receipt of initial compensation. Since the assessee received initial compensation only on January 17, 1989, and under the amended provisions which came into force retrospectively with effect from April 1, 1988, the income by way of capital gain was assessable for the assessment year 1989-90. The Assessing Officer issued notice under section 147 and completed the assessment for the assessment year 1989-90. The assessee filed appeal against the assessment which was allowed by the Commissioner of Income-tax (Appeals) holding that the amendment of the statute will not justify reopening of assessment under section 147. This order is confirmed by the Tribunal in the second appeal filed by the Revenue against which this appeal is filed under section 260A of the Income-tax Act.

2. We have heard senior counsel appearing for the Revenue and Shri P. Balakrishnan appearing for the respondent.

3. The contention of the appellant is that since there is no challenge against the assessment completed under section 147, the Commissioner of Income-tax (Appeals) as well as the Tribunal went wrong in holding that the revised assessment is illegal.

4. The case of the respondent/assessee is that under the unamended law capital gains, if any, ought to have been returned and assessed for the assessment year 1988-89 as the transfer took place by way of compulsory acquisition and taking over of possession in the previous year relevant for the said assessment year. The specific case of the asfeessee is that the assessee did not file return because the property taken over was agricultural land and so much so there is no liability for tax on capital gains. However, there is nothing to indicate that there is any bona fides in this claim because land was not agricultural and even if it is agricultural land it was situated within the municipality and so much so there is no justification for claiming exemption on this ground. Further, this ground was found against the assessee by all the authorities and the assessee is not in appeal before us. Therefore, the only question to be considered is whether the assessment completed under section 147 for the assessment year 1989-90 is valid or not. Even though transfer took place on October 24, 1987, by virtue of the retrospective amendment to section 45(5)(a) of the Act the capital gains on account of compulsory acquisition of land should be assessed in the year which the original compensation is received. Admittedly, the assessee received compensation on January 18, 1989, and under the amended provision which came into force from April 1, 1988, capital gains is first assessable for the year 1989-90. The assessee has no case that even under the unamended provision the proceedings initiated and completed under section 147 is time barred. In other words, even if there was no amendment income by way of capital gain could have assessed under section 147 for the assessment year 1988-89. The counsel for the assessee has relied on the decision of the Gujarat High Court in Denish Industries Ltd. v. ITO [2004] 271 ITR 340 and that of the Punjab and Haryana High Court in M/S. Mahavir Spinning Mills Ltd.… v. Commissioner Of Income-Tax-I, Ludhiana…. [2004] 270 ITR 290 and contended that section 147 proceedings cannot be initiated based on a retrospective amendment. We are unable to uphold this argument because section 147 is not controlled by the amendment that is applicable in this case. The amendment is a beneficial provision by which the assessees are required to pay tax on capital gain only in respect of consideration received. The provision prior to the amendment by virtue of section 45(5)(a) was to levy tax in the assessment year relevant for the previous year in which the transfer took place. All that has happened in this case is the assessee did not concede any income on capital gain either under the unamended provision or under the amended provisions. Therefore, the recourse open to the Department is to make income escaping assessment under section 147 which is not time barred or otherwise invalid. The next question to be considered is whether while making assessment under section 147 the Assessing Officer is bound to follow the amended provisions of the law or the law prevailing as on the date the transfer of property took place. The amendment has taken effect with retrospective effect. Since the amendment introduced by Finance Act, 1991, with retrospective effect from April 1, 1988, was in force as on the date of initiating proceedings under section 147 the Assessing Officer is bound to follow the law in force as on the date of initiation of proceedings. We, therefore, allow the Department's appeal by reversing the order of the Tribunal and the first appellate authority and by restoring the assessment completed under section 147 of the Act. Consequently, we set aside the orders of the Commissioner (Appeals) and that of the Tribunal.