This is an appeal arising out of the order passed by, the Asst. CIT, (Inv) Circle- 1, Dvn. 1, Trichur, under section 158BC of the Income Tax Act on the assessee, Shri P.A. Chandran, Trichur, for the block period from 1-4-1986, to 12-12-1996.
The assessee is a Government servant employed as Excise Inspector in the Kerala State Excise department. On 12-12-1996, the IT department conducted a search in the residence of the assessee under section 132 of the Income Tax Act. In response to a notice issued under section 158BC, the assessee filed the return of income in Form No. 213 on 17-6-1997. In the course of the assessment proceedings the assessing officer found that the assessee received Rs. 70,000 on the sale of an immovable property. On the transfer of the property the capital gains assessable in the hands of the assessee was determined at Rs. 21,375.
There was also a gross salary of Rs. 34,903 received during the previous year relevant for the assessment year 1994-95. After allowing the statutory deductions the net income under the head 'salary' was assessed at Rs. 23,270. The assessing officer thus arrived at the total income for the assessment year 1994-95 at Rs. 44,650, As no returns had been filed by the assessee prior to the search, the total sum of Rs. 44,650 was treated as the undisclosed income of the block period, in respect of which tax was to be levied at 60 per cent. Aggrieved with the assessment of the undisclosed income at Rs. 44,650, the assessee has filed this appeal before the Tribunal.
At the time of hearing of this case, Shri M. Vijayagopal, chartered accountant appeared on behalf of the assessee and Shri Amba Sankar Dev, the senior departmental Representative, on behalf of the revenue .
The first ground raised by the assessee in this appeal is that the assessing officer was not correct in treating the salary income of Rs. 23,270 as the undisclosed income of the block period. On behalf of the assessee Shri Vilayagopal submitted before us that as a Government employee the assessee was in receipt of salary income and there could be no question of non-disclosure of such income, which was being regularly received from a Government department and so the assessing officer was, not correct in treating the said sum of Rs. 23,270 as undisclosed income in the hands of the assessee. The learned representative further stated that as the salary income was below taxable limit, the assessee had not filed the return of income and in any case, such income would not amount to undisclosed income for the purpose of block assessment. Shri Vijayagopal also raised another contention that the assessing officer was not justified in denying the basic exemption available for the assessment year 1994-95. It was his submission that the tax at 60 per cent was leviable only on the income above the basic limit included in the gross total income.
We do not agree with the learned representative that in computing the undisclosed income of the block period exemption is to be allowed for the basic amount. The basic exemption is available only at the time of levying tax at the rates as provided in the Finance Act for the respective assessment year. In respect of undisclosed income of the block period, tax is levied not in accordance with the Finance Act, but as provided under section 112 of the Income Tax Act. There is no provision either in Chapter XIV or in section 112 providing for basic exemption and restricting the levy of tax on the excess amount alone.
The contention of the learned counsel to allow basic exemption was thus rightly rejected by the assessing officer. As regards the claim that the salary income of Rs, 23,270 is to be excluded from the undisclosed income, the assessee's contention is based on the plea that salary income from Government department could not be concealed and that return of income for the assessment year 1994-95 was not filed because the income was below the taxable limit. Evidently, for the assessment year 1994-95 the assessee had not filed the return of income. There is no merit in the contention that the income for the assessment year 1994-95 was below taxable limit and so there was no need to file the return of income. The question whether the return is to be filed does not depend on the quantum of income under each head. If the total income of an assessment year is liable to tax, the assessee ought to have filed the return, With the capital gains of Rs. 21,375 includible for the assessment year 1994-95, it would not be correct on the part of the assessee to claim that there was no obligation to file the return of income. This ground is thus decided against the assessee.
The next ground in this appeal is regarding the tax rate to be applied in respect of the income by way of capital gains on the sale of the immovable property. In the assessment the assessing officer included the capital gains of Rs. 21,375 as undisclosed income and subjected the same to tax at the rate of 60 per cent. The assessee's claim is that on the capital gains, tax is leviable at 20 per cent only as provided in section 112 and so the assessing officer was not correct in adopting the tax rate of 60 per cent. As regards the tax rate to be applied on the capital gains, in view of the decision of this Tribunal in the case of Smt. Chandra Balakrishnan in IT(S&S)A. No. 26/Coch/96, read with M.P. No. 119/Coch/1997, dated 8-12-1997, we hold that tax is leviable at 20 per cent as provided in section 112(1)(a)(ii) on the capital gains included in the undisclosed income. The assessing officer is, therefore, directed to levy tax at the lower rate of 20 per cent as applicable to capital gains.
In this appeal the assessee has also made another request for giving credit for a sum of Rs. 1,362 paid as tax on 20-10-1997. It was pointed out that tax was remitted on the basis of the income returned by the assessee on 17-6-1997, in Form No. 2B. In view of the claim that there was tax payment on the basis of the income declared in the return, the assessing officer will look into the fact and give credit for the actual amount of tax paid by the assessee.
In the result, this appeal filed by the assessee is partly allowed. The assessing officer will revise the assessment accordingly.