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Magor Holdings Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1985)14ITD176(Kol.)
AppellantMagor Holdings Ltd.
Respondentincome-tax Officer
Excerpt:
.....the ito, it appears from the original assessment order, treated the capital gain as long-term capital gain and, accordingly, after allowing set off of capital loss of rs. 30,438 determined for the assessment year 1970-71, took the net capital gain of rs. 33,287. it would be relevant to mention at this stage that during the year under appeal, section 2(42a) of the income-tax act, 1961 ('the act') was inserted with effect from 1-4-1974 defining 'short-term capital asset'.the definition indicates that the short-term capital asset means a capital asset held by an assessee for not more than 60 months immediately preceding the date of its transfer. the ito took action under section 147(6) of the act. a notice under section 148 of the act was 'issued and was served upon the assessee.....
Judgment:
1. The assessee is a limited company. The assessee acquired a house property known as 'Sedgomore Cottage at Ootacamund' on 19-10-1968 for Rs. 1,05,000. The assessee further spent an amount on the acquisition of the property at Rs. 16,275. The total cost of the assessee, therefore, was at Rs. 1,21,275. The above house property was sold by a registered conveyance deed dated 17-2-1973 for Rs. 1,85,000. There was a capital gain on the transaction at Rs. 63,725 (Rs. 1,85,000 minus Rs. 1,21,275). The ITO, it appears from the original assessment order, treated the capital gain as long-term capital gain and, accordingly, after allowing set off of capital loss of Rs. 30,438 determined for the assessment year 1970-71, took the net capital gain of Rs. 33,287. It would be relevant to mention at this stage that during the year under appeal, Section 2(42A) of the Income-tax Act, 1961 ('the Act') was inserted with effect from 1-4-1974 defining 'short-term capital asset'.

The definition indicates that the short-term capital asset means a capital asset held by an assessee for not more than 60 months immediately preceding the date of its transfer. The ITO took action under Section 147(6) of the Act. A notice under Section 148 of the Act was 'issued and was served upon the assessee on 8-9-1977. The assessee, through a letter indicated that the return filed earlier may be treated as a return filed pursuant to notice under Section 148. The assessee objected to the proposed reassessment proceeding of the ITO on the ground that the capital gain of the assessee was rightly taken as a long-term capital gain to which the ITO did not agree. There was no dispute about the computation of the capital gain. The ITO took the same figure of the capital gain of Rs. 63,725 but the same was taken as short-term capital gain and the assessee was not allowed the benefit of set off of loss for the assessment year 1970-71.

2. The assessee in appeal before the Commissioner (Appeals) contended that it was not open to the ITO to initiate proceedings under Section 147(6) on the same set of facts which were available in the original assessment. It was indicated that it is a settled proposition of law that an assessment can be reopened under Section 147(6) even in cases where information which came into possession of the ITO subsequent to the completion of the original assessment, related to a point of law.

The Commissioner (Appeals) did not agree to the argument of the assessee. The Commissioner (Appeals) noted the fact that the definition of the 'short-term capital asset' was introduced with effect from 1-4-1974 in Section 2(42A). There was no dispute about the date of acquisition and sale and the asset was held by the assessee for less than 60 months. Therefore, the ITO was justified in taking action under Section 147(6). The Commissioner (Appeals), therefore, rejected the argument of the assessee.

3. Shri Bajoria, the counsel of the assessee, urged that the action taken by the ITO was illegal. Shri Bajoria stated that the facts are not in dispute and the facts are correctly reproduced in the original assessment order. The computation of the capital gain is also not in dispute. He stated that on those facts, the ITO could have not taken action under Section 147(6). Shri Bajoria referring to the decision of the Supreme Court in Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287, urged that the Supreme Court in this decision indicated that Section 34(1)(b) of the Indian Income-tax Act, 1922 ('the 1922 Act')/147(a) of the 1961 Act is applicable where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake. However, the decision of the Supreme Court on this issue was reconsidered in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996. The Supreme Court in its decision in Indian & Eastern Newspaper Society's case (supra) did not approve that Section 34(1)(a) of the 1922 Act/147(a) of the 1961 Act will be applicable in the case of escapement due to oversight, inadvertence or a mistake of the ITO.Shri Bajoria urged that after the decision of the Supreme Court in Indian & Eastern Newspaper Society's case (supra), the decision of the Supreme Court in Kalyanji Mavji & Co.'s case (supra) was not a correct law for holding that Section 147(6) was applicable for reopening of the assessment for a mistake committed by the ITO due to oversight, inadvertence or mistake. Accordingly, he urged that the order of the ITO was illegal. Shri Bajoria in this connection urged that the decision of the Supreme Court in Indian & Eastern Newspaper Society's case (supra) on similar issue came for consideration before the Hon'ble High Court in Sassoon Spg. & Wvg. Co. Ltd. v. CIT [1982] 137 ITR 427 (Bom.), Wyeth (India) (P.) Ltd. v. N.D. Bhatt, IAC [1982] 137 ITR 20 (Bom.) and Century Enka Ltd. v. ITO [1983] 143 ITR 629 (Cal.). The Hon'ble High Courts have taken the decision that the law on this issue stated by the Supreme Court in Kalyanji Mavji & Co.'s case (supra) is no longer a good law after the decision in Indian & Eastern Newspaper Society's case (supra).

4. Shri Dasgupta, the departmental representative, stated that in order to appreciate the reasoning adopted by the ITO for reopening the assessment under Section 147(6) certain dates are necessary. He gave the following dates : (2) The decision in Kalyanji Mavji & Co.'s case (supra) delivered on 10-12-1975 (3) The decision in Indian & Eastern Newspaper Society's case (supra) delivered on 31-8-1979 (5) The date of the order of the Commissioner (Appeals) passed on 28-9-1981 Shri Dasgupta urged that there was no dispute on this fact that the capital gain earned by the assessee was short-term capital gain. The definition of short-term capital asset was introduced for the first time in the assessment year 1974-75 in Section 2(42A). This was the first year of the assessment when the definition of the short-term capita] asset was introduced. The ITO inadvertently committed an error and treated the gain of the assessee as long-term capital gain and allowed set off for the loss incurred by the assessse for the assessment year 1970-71. This was only a mistake of the ITO. The notice under Section 148 was served upon the assessee on 8-9-1977. The assessment was completed on 15-3-1978. Therefore, till the notice was issued by the ITO under Section 148 or the assessment was completed by the ITO under Section 143/147(6) of the 1961 Act on 15-3-1978, the decision of the Supreme Court in Kalyanji Mavji & Co.'s case (supra) which was delivered on 10-12-1975, was a good law. Therefore, the ITO rightly assumed jurisdiction under Section 147(6) for the mistake committed due to 'oversight, inadvertence or mistake'. Once the ITO assumed jurisdiction legally, the jurisdiction of the ITO cannot be challenged and, therefore, the order of the Commissioner (Appeals) should be maintained.

5. Shri Bajoria, the counsel of the assessee, replying to the argument of the departmental representative, urged that the argument of the departmental, representative is not correct. The ITO by taking recourse to Section 147(6) treated the gain of the assessee as short-term capital gain on 15-3-1978. -The assessee did not accept the finding of the ITO on this issue. The assessee came in appeal. The appeal of the assessee was heard on 14-9-1981 and the order was passed by the Commissioner (Appeals) on 28-9-1981. The decision of the Supreme Court in Indian & Eastern Newspapers Society's case (supra) was delivered on 31-8-1979 and by this judgment, the Supreme Court did not approve the law indicated in Kalyanji Mavji & Co.'* case (supra) that action under Section 34(1)(6) can be taken for the mistake committed by the ITO due to oversight, inadvertence or mistake. When the Appellate Commissioner took the appeal for the decision, the law on this particular issue indicated in Kalyanji Mavji & Co'.s case (supra) was not a good law and it was not a law of the land. The law of the land was correctly pronounced in Indian & Eastern Newspaper Society's case (supra) and, therefore, the order passed by the ITO was illegal.

6. The controversy in the present case is limited to whether the order passed by the ITO under Section 147(6) was legal or illegal. The facts of the case had been stated earlier that the assessee sold a property known as 'Scdgomore Cottage at Ootcamund' on which the assessee earned the capital gain of Rs. 63,725. It is correct that after taking into consideration the definition of the short-term capital asset in Section 2(42A), the gain of the assessee was short-term capital gain. The assessee should not have been allowed the set off of loss of the earlier year during the assessment year 1974-75 had the ITO taken correctly the gain of the assessee as short-term capital gain. However, the ITO treated the gain as long-term capital gain and, accordingly, allowed the set off o loss which was determined for the assessment year 1970-71. The decision in Kalyanji Mavji & Co.'s case (supra) no doubt, empowered the ITO to take action under Section 147(6) for the mistake which he committed while passing the original assessment and treating the gain of the assessee as long-term capital gain. However, the fact is that the law on this issue indicated in the decision in Kalyanji Mavji & Co.'s case (supra) was reversed by the Supreme Court in its decision in Indian & Eastern Newspaper Society's case (supra). Shri Dasgupta has referred to certain dates and has indicated' that when the ITO assumed jurisdiction, he assumed legally in view of the decision in Kalyanji Mavji & Co.'s case (supra). The fact as urged by Shri Dasgupta could not be considered in piecemeal. The assessment proceeding is in continuation till it is finally settled. The assessee did not accept the reassessment order passed by the ITO on 15-3-1978 and the assessee was in appeal before the Commissioner (Appeals). The appeal of the assessee was taken up for hearing on 14-9-1981. The decision of the Supreme Court in Kalyanji Mavji & Co.'s case (supra) which was delivered on 10-12-1975, was reconsidered in Indian & Eastern Newspaper Society's case (supra) which was delivered on 31-8-1979. Therefore, when the Appellate Commissioner took up the appeal of the assessee, the ground on which the action under Section 147(6) was taken by the ITO was no longer a good law and was not the law of the land. The Commissioner (Appeals), therefore, could not have taken into consideration the decision in Kalyanji Mavji & Co.'s case (supra) in deciding the issue which by that time was not a good law in view of the decision in Indian & Eastern Newspaper Society's case (supra). However, this point was not argued in the above manner, and consequently, the Commissioner (Appeals) did not consider the same. The appeal of the assessee has been heard by the Tribunal on 11-4-1985 and it is settled that the action under Section 147(6) of the 1961 Act/34(1)(6) of the 1922 Act cannot be taken for a mistake committed by the ITO due to oversight or inadvertence in view of the decision in Indian & Eastern Newspaper Society's case (supra). When the appeal of the assesses is taken up for hearing, the decision according to the Supreme Court is that no action can be taken under Section 147(6) for the mistake committed by the ITO. Under the above circumstances, even after considering the various dates on which the argument was advanced by the departmental representative, the order passed by the ITO under Section 147(6) on 15-3-1978 could not be maintained in view of the decision in Indian & Eastern Newspaper Society's case (supra). As the order of the ITO was illegally passed under Section 147(6), the order of the ITO is set aside and the original order is maintained.


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