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income-tax Officer Vs. K.B. Ramachandraraj Urs - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1983)5ITD384(Bang.)
Appellantincome-tax Officer
RespondentK.B. Ramachandraraj Urs
Excerpt:
.....assessment order dated 1-3-1975 and compute the capital gain by taking into consideration the enhanced compensation of rs. 2,30,738 received by the assessee.5. section 155(7a) which was inserted by the finance act, 1978, reads as under: (7a) where in the assessment for any year, the capital gain arising from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the central government or the reserve bank of india, is computed under section 48 and the compensation for such acquisition or the consideration for such transfer is enhanced or further enhanced by any court, tribunal or other authority, the computation or, as the case may be, computations made earlier shall be.....
Judgment:
1. The respondent-assessee's lands to the extent of 51 acres and 11 guntas in survey No. 1 of Vijayasripura village in Mysore were acquired by the Government for the use of the Mysore University. The preliminary notification under Section 4(1) of the Land Acquisition Act was published in the Mysore Gazette on 13-4-1970. The assessee claimed compensation at the rate of Rs. 12,000 per acre. The Land Acquisition Officer determined the compensation at Rs. 7,500 per acre. Thus, he determined the total compensation including statutory allowance at Rs. 4,94,976. At the request of the assessee, the matter was referred to the District Judge at Mysore under Section 18 of the Land Acquisition Act. The learned District Judge by his order dated 22-6-1976 in IAC No.519 of 1972 accepted the assessee's claim and determined the compensation at Rs. 12,000 per acre as claimed by the assessee. In view of the above order, the additional compensation of Rs. 2,30,738 was received by the assessee.

2. The original assessment was made on 1-3-1975. In the original assessment the compensation as determined by the Land Acquisition Officer as per his award was taken and the capital gain was computed.

After the order dated 22-6-1976 of the District Judge enhancing the compensation by Rs. 2,30,738, the ITO by his order dated 27-2-1979 passed under Section 154 of the Income-tax Act, 1961 ('the Act'), rectified the original assessment order by taking into consideration the additional compensation of Rs. 2,30,738 and determined the capital gain. Against that order, the assessee appealed to the Commissioner (Appeals). He held that Section 155(7A) of the Act came into effect only from 1-4-1974. The additional compensation of Rs. 2,30,738 cannot be brought to tax for the assessment year 1972-73 by an order under Section 154. Thus, he deleted the sum of Rs. 2,30,738 for computing the capital gain. Against the same, the revenue has preferred the present appeal.

3. The learned departmental representative submitted that the District Judge by his order dated 22-6-1976 enhanced the compensation by Rs. 2,30,738. In view of the order dated 22-6-1976 of the District Judge, the ITO has power under Section 154 read with Section 155(7A) to rectify the original assessment made on 1-3-1975. The Commissioner (Appeals) was wrong in holding that Section 155(7A) has no application to the assessment year 1972-73 and thereby deleting Rs. 2,30,738. He relied upon the decision of the Supreme Court in ITO v. T.S. Devinatha Nadar [1968] 68 ITR 252. The learned counsel for the assessee strongly urged that Section 155(7A) has come into effect only from 1-4-1974.

Hence, the ITO has power to rectify the assessment by including the enhanced compesation only from the assessment year 1974-75 but not for the assessment year 1972-73. Hence, the ITO's order made under Section 154 rectifying the assessment order for 1972-73 is not valid and the Commissioner (Appeals) was perfectly justified in deleting the sum of Rs. 2,30,738.

4. We have considered the rival submissions, in the original assessment made on 1-3-1975, the compensation determined as per the award of the Land Acquisition Officer was taken in computing the capital gain.

Subsequently, the District Judge by his order dated 22-6-1976 enhanced the compensation by Rs. 2,30,738. The question for consideration is whether the ITO can rectify under Section 154 the original assessment order dated 1-3-1975 and compute the capital gain by taking into consideration the enhanced compensation of Rs. 2,30,738 received by the assessee.

5. Section 155(7A) which was inserted by the Finance Act, 1978, reads as under: (7A) Where in the assessment for any year, the capital gain arising from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, is computed under Section 48 and the compensation for such acquisition or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority, the computation or, as the case may be, computations made earlier shall be deemed to have been wrongly made and the Income-tax Officer shall, notwithstanding anything contained in this Act, recompute in accordance with Section 48 the capital gain arising from such transfer by taking the compensation or the consideration as enhanced or further enhanced, as the case may be, to be the full value of the consideration received or accruing as a result of such transfer and shall make the necessary amendment; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the previous year in which the additional compensation or consideration was received by the assessee.

The above provision was given retrospective effect from 1-4-1974.

According to the above provision, if the compensation is enhanced, the computation made earlier shall be deemed to have been wrongly made and the ITO shall recompute in accordance with Section 48 of the Act, the capital gain arising from such transfer by taking the compensation as enhanced to be the full value of the consideration received as a result of the transfer and shall make the necessary amendment and the provisions of Section 154 shall apply thereto and the period of four years specified in Sub-section (7) of that section being reckoned from the end of the previous year in which the additional compensation was received by the assessee. The above provision contemplates for rectification of the original assessment order and for recomputing the capital gain by taking the enhanced compensation. The only restriction made is that the period of four years prescribed in Sub-section (7) should be reckoned from the end of the previous year in which the additional compensation was received by the assessee. There is no other restriction. The order of the ITO made under Section 154 for including the additional compensation of Rs. 2,30,738 in computing the capital is within the period of four years from the order dated 22-6-1976 of the District Judge enhancing the compensation. Thus, the ITO was perfectly justified in invoking the provisions of Section 154 read with Section 155(7)(a) and rectifying the original assessment order. The intention of the Legislature appears to be that when the compensation amount is enhanced by any Court or Tribunal, the enhanced compensation should be taken for computing the capital gain and the original figure taken in the assessment should be rectified under Section 154 within four years from the end of the previous year in which the additional compensation was received. Though Sub-section (7A) of Section 155 has been given retrospective effect from 1-4-1974, but still it is applicable to the assessment year 1972-73 also since the order dated 22-6-1976 of the District Judge has been given after 1-4-1974. The ITO has rectified the original assessment order within four years from the order dated 22-6-1976 of the District Judge. In the memorandum explaining the provisions in the Finance Bill, 1978 in para 50 [see [1978] 111 ITR (St.) 173] it is, no doubt, mentioned that the amendment will take effect retrospectively from 1-4-1974 and will apply in relation to the assessment year 1974-75 and subsequent years. But this was not there in the provision when it was enacted. The language in Sub-section (7A) of Section 155 as amended with retrospective effect from 1-4-1974 is very clear. There is nothing to indicate that it is applicable only for the assessment year 1974-75 onwards. The intention is only to amend the original assessment by taking into account the enhanced compensation if it is determined after 1-4-1974. In the instant case, the enhanced compensation has been awarded after 1-4-1974. Thus, the above provision applies even for the assessment year 1972-73. Thus, in our view, the order of the ITO dated 27-2-1979 made under Section 154 is perfectly valid.

6. In T.S. Devinatha Nadar's case (supra) the respondent assessees therein were partners of a registered firm. The assessment of the firm was originally completed on 22-1-1946 and the assessment of the respondent-assessee as individual was completed on 24-1-1946 including his share income from the firm. Subsequently, the assessment of the firm was reopened and a sum of Rs. 90,000 was added to the income of the firm. The notice under Section 34 of the 1922 Act, was issued on 11-9-1952 and the reassessment of the firm took place on 30-5-1959.

Subsequently, on 24-7-1959 a notice under Section 35(5) of the 1922 Act was served for rectification of the assessment as individual and the rectification was ultimately ordered to be made on 31-8-1959. Section 35(5) was brought on the statute book by the Indian Income-tax (Amendment) Act, 1953, which came into force [with retrospective effect] from 1-4-1952. It was contended before the Supreme Court that as the section was brought on the statute book from 1-4-1952, any mistake anterior to that date cannot be rectified. The Supreme Court observed as under : Applying the above principles, we find that the aim of the Legislation was to bring into line the assessment of the individual partner with that of the firm. It was well known that in many cases a firm's final assessment dragged on for years while the assessments of the individuals composing of it were completed long before the assessment of the firm itself because in the case of individuals the matter was fairly simple. It does not stand to reason that if the assessment of the firm is completed long after that of the individual by reason of proceedings under Section 34 or otherwise, the discrepancy in the income of the partner as shown by the assessment of the firm and as an individual should continue or be left untouched and the obvious and logical course should be to rectify the assessment of the individual on the basis of the final assessment of the firm. Sub-section (5) of Section 35 is only a step in that direction but the Legislature in its wisdom thought it best that assessments of individuals which had taken place before the final order in the assessment of the firm should not be disturbed except within four years therefrom. Under the Income-tax Act, 1922, a final assessment could not be altered except under proceedings sanctioned by Section 34 or Section 35 of the Act within the limits of time thereby prescribed. Leaving aside for a moment the point of time when Sub-section (5) came into the statute book, on a plain reading of the provision it appears to us that the Legislature intended that the finding as to the noninclusion of the proper share of the partner in the profit or loss of the firm in the assessment of the partner should excite the power of rectification. The power is to be exercised whenever 'it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm'. The subject matter of rectification is the completed assessment of a partner in a firm. This is brought out by the use of the words 'where in respect of any completed assessment of a partner in a firm'. There is nothing in the section to show that such 'completed assessment' must take place after the provision i.e., Section 35(5) was brought on the statute book. What is to take place to give rise to the power of rectification is the finding on the assessment or reassessment of the firm, etc. The finding alone must be made after the section comes into force. The finding is to be given effect to or made operative on the 'completed assessment' of a partner. As the mischief sought to be rectified was the discrepancy between the income of the partner assessed as an individual and his income as computed on the assessment of the firm, the Legislature must be held to have made the remedy applicable whenever the mischief was discovered. There would have been nothing unjust in making the power of rectification exercisable at any time after the discovery of the discrepancy but the Legislature in its wisdom did not think that the power should be used except within a limited period of four years from the date of the final order. (pp.

257-58) With very great respect, we find ourselves unable to concur. As we have already said, Sub-section (5) becomes operative as soon as it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm that the share of the partner in the profit or loss of the firm had not been included in the assessment of the partner or if included was not correct. The completion of the assessment of the partner as an individual need not happen after April 1, 1952. The completed assessment of the partner is the subject-matter of rectification and this may have preceded the above-mentioned date. Such completion does not control the operation of the Sub-section....(p. 260) It is clear from the above, what is to take place to give rise to the power of rectification is the finding on the assessment or reassessment of the firm. The finding alone must be made after the section comes into force. The finding is to be given effect to or made operative on the 'completed assessment' of a partner.

The power of rectification should be used within a period of four years from the date of final order. In our view, the above ratio squarely applies to the instant case. In the above case the reassessment of the firm was made on 30-5-1959 and the rectification of the assessment of the partner as an individual was made on 31-8-1959 under Section 35(5) even though that provision came into effect from 1-4-1952. In the instant case before us the original assessment was made on 1-3-1975.

The order of the District Judge is dated 22-6-1976. The rectification order dated 27-2-1979 is within the four years period from the order dated 22-6-1976 enhancing the compensation. Thus, the above case before the Supreme Court is on all fours with the instant case. Following with respect the ratio laid down therein, we hold that the order dated 27-2-1979 of the ITO made under Section 154 is perfectly valid. The Commissioner (Appeals) was wrong in holding that the additional compensation received cannot be brought to tax for the assessment year 1972-73 by an order under Section 154 and there- by deleting Rs. 2,30,738. Accordingly, we reverse his order on this point and restore the order of the ITO made under Section 154 by including the enhanced compensation of Rs. 2,30,738 for computing the capital gain.


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