COMMISSIONER OF INCOME-TAX VS R. KRISHNARJUNAN
1999 P T D 544
[225 I T R 510]
[Kerala High Court (India)]
Before V. V. Kamat and P. A. Mohammed, JJ
COMMISSIONER OF INCOME-TAX
Versus
R. KRISHNARJUNAN
I. T. R. No. 146 of 1987, decided on 17/06/1996.
(a) Income-tax---
----Capital gains---Sale of agricultural lands---Gives rise to capital gains-- Not agricultural income---Indian Income Tax Act, 1961, Ss.2(1)(a) & 45.
(b) Income-tax---
----Assessment---Return---Assessing Officer---Power to call for attendance of assessee or production of evidence in support of return--Condition precedent for issuing notice under S.143(2)(b)---Officer must merely find it expedient to ensure correctness of return---No requirement of holding information obtained subsequently as in case of reassessment---Indian Income Tax Act, 1961, S.143(2)(b).
A receipt relatable to the disposal or sale of agricultural land, whether urban or rural, would be a capital receipt, from which capital gains would arise. Such a receipt cannot be considered as agricultural income.
C.I.T. v. T.K. Sarala Devi (1987) 167 ITR 136 (Ker.) fol.
For the Assessing Officer to exercise powers under clause (b) of subsection (2) of section 143 of the Income Tax Act, 1961, all that is required is that the Officer finds it necessary or expedient to verify the correctness and completeness of the return filed by the assessee. There is no statutory requirement for the exercise of powers under section 143(2)(b) of the Act, that the Assessing Officer must have information, gathered subsequently, as in the case of reassessment, leading him to doubt the correctness or completeness of the return:
Held accordingly, on the facts, that the assessment under section 143(1) was incorrect because the amount received as a result of the sale of the agricultural land, urban or rural, could not be understood as agricultural income in any sense, but was capital gain directly flowing from the realisation of the capital assets. The exercise of the powers under section 143(2)(b) of the Act was justified.
Manubhai A. Sheth v. Nirgudkar (N. D.), Second I.T.O. (1981) 128 ITR 87 (Bon.) ref.
P. K. R. Menon and N. R. K. Nair for the Commissioner.
C. Kochunni Nair, M. A. Firoz and Dale P. Kurien for the Assessee.
JUDGMENT
V. V. KAMAT, J.---The question that is required to be considered by us really needs reading of the text of section 143 of the Income-Tax Act, 1961. Although the following two questions expect an answer, what survives is only question No. 1. The two questions are as follows:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal has correctly interpreted the provisions of section 143(2)(b) of the Income-tax Act?"
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that no capital gains would arise on the sale of urban agricultural land?"
Question No.2 relating to receipts as a result of the sale of urban agricultural land, whether can be treated as capital gains or not, gets covered in more than one way. The decision of this Court in C.I.T. v. T.K. Sarala Devi (1987) 167 ITR 136 considers the basic question as regards the source of the amount. If the source of the amount is the realisation of the capital assets---agricultural land---it cannot be considered as anything other than capital gains and would not be income derived from agricultural land and, therefore, not chargeable under the Act. This Court by its decision in C I.T. v. T.K. Sarala Devi (1987) 167 ITR 136 has correctly found out the fallacy that when the land is sold, the sale proceeds cannot be understood to be revenue but capital, obviously because it cannot be understood as income derived from the land as the land itself is realised when it is sold.
The question can yet be seen from another independent angle, referring to section 2(1)(a) telling us what is "agricultural income". There is no dispute that the provision is added with retrospective effect and a bare perusal of the provision would show that the receipt as a result of realisation of the land cannot be considered as agricultural income. Various provisions make it clear that it must be one arising out of the use of the land to gain the character of agricultural income and if the amount of receipt is relatable to the disposal or sale of the land itself, it would naturally amount to be classified and understood as capital gains having direct relationship with the sale of the capital asset in question.
Thus question No. 1 gets answered in the negative, i.e., in favour of the Revenue and against the assessee.
Question No. 1 requires introduction of the factual matrix. The assessment year is 1981-82. The assessee came to be assessed by resort to summary procedure under section 143(1) of the Act by the Income-tax Officer by order, dated April 30, 1983, on the basis of a total income of Rs.33,700. At this time in the return a transaction of sale of the land admeasuring 1 Acre and 15.325 cents sold at Rs.42,250 was shown in the return, with an explanatory note below thereunder that no capital gains arose in view of the judgment of the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second I.T.O. (1981) 128 ITR 87. The assessment under section 143(1) of the Act came to be completed, as stated above.
Thereafter, the Income-tax Officer exercised the powers under section 143(2)(b) of the Income-tax Act, 1961. Naturally a notice thereunder was issued and by the order, dated February 22, 1984, Rs.11,859 came to be demanded as an additional amount on the basis of incorrectness in regard to the assessment completed under section it 143(1) of the Act. In reaching this conclusion, the Income-tax Officer in paragraph 5 of the order held that the assessee admitted that urban agricultural land is a capital asset and sale of such land would give rise to capital receipts by way of sale proceeds. The Income-tax Officer on the strength of the decision of the Supreme Court in regard thereto observed that there is a fundamental distinction between capital receipts and revenue receipts and the distinction is that when one receives the amount from the use of the capital asset and not by its realisation, the amount can be understood as revenue only in the situation. The Income-tax Officer corrected the position and ordered addition as stated above.
The First Appellate Authority---the Appellate Assistant Commissioner of Income-tax, Trivandrum ---considered the question by order, dated December 17, 1985. The Appellate Authority considered the location of the agricultural land being within the municipal limit of Alleppey as well as appreciating the statement accompanying the return, relies on the decision of the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second I.T.O. (1981) 128 ITR 87, what was contended before the First Appellate Authority was that in view of the statement accompanying the return, the necessary facts will have to be understood as being within the knowledge of the Income-tax Officer when, under section 143(1) of the Act, summary procedure was initiated and completed. On the strength of this position, it was sumitted that there was no scope for a fresh look. The First Appellate Authority took the view that the summary assessment was converted into a scrutiny assessment by resorting to the provisions of section 143(2)(b) of the Act. It was also observed that section 143(2)(b) of the Act is not synonymous with the contents of section 147(a) or section 147(b) of the Act.
The Income-tax Appellate Tribunal took up the question for consideration in the impugned order, dated June 12. 1986 (Annexure "D"). The question was taken up for consideration by the Tribunal to paragraph 3 of its order. The submissions with regard to the language of section 143(2)(b) were made to contend that certain inherent conditions, or justification of the action under section 143(2)(b) of the Act are necessary. It was contended that it has to be found that the return is incomplete or incorrect and in regard thereto the Income-tax Officer must have some information on material in his possession as the basis of doubt as to the correctness or completeness of the return.
The Tribunal accepted the contention that in order to embark on the exercise of the powers under section 143(2)(b) of, he Act requiring a foundational existence in relation to the correctness and completeness of the return, the Income-tax Officer should have come into possession of some information about the correctness or completeness of the return. The Tribunal further observes that it is only after the Income-tax Officer is satisfied, resort to exercise of the powers under section 143(2)(b) of the Act can be understood as have justification. The Tribunal emphasised that the return filed by the assessee was neither incorrect nor incomplete and, therefore, the reopening would have to be regarded as impermissible.
We have already shown in relation to our discussion for answering question No.2 that if the land is agricultural land, the amount received by the assessee as a result of sale thereof could not be considered as agricultural income in any sense of the term. We have already observed and held in regard thereto that the receipt of tote amount as a result of the realisation of the capita assets could only be considered as "capital gains". In the process, we have also observed the law laid down by this Court, which we respectfully follow, as different from the Bombay High Court relied upon by the assessee and the taxation authorities below. The law of this State is abundantly clear as stated above.
A bare look at the concerned statutory provision would show requirements necessary to exercise the powers under section 143(2)(b) of the Act as was initiated by the authorities. Section 143(1) of the Act speaks of initiation of summary procedure, which does not require the presence of the assessee or the production, of any evidence in support of the return and requires the Assessing Officer to act in a summary, manner on the basis of the return and it accompaniments. The provision also empowers the Income-tax Officer proceeding with the summary assessment to rectify arithmetical errors in the return, accounts and documents. The power is of a summary nature empowering the Income-tax Officer to deal with cases requiring no further probe in regard thereto.
At the other end, section 143(2) of the Act speaks of a situation section 143(2)(a) seeing the assessee objecting to such assessment within a period of one month from the notice of demand in pursuance thereof placing objections in regard thereto.
Apart there from, the provisions of section 143(2)(b) independently empower the Income-tax Officer, whether or not any assessment is made under section 143(1), to exercise the powers under the provision and all that it requires is that the officer finds it necessary or expedient to verify the correctness and completeness of the return. It must be said that reading the entire provision, there is no statutory requirement for the exercise of the powers under section 143(2)(b) of the Act that the Income-tax Officer must have some information, gathered subsequently, leading him to the situation as regards the correctness and completeness of the return. The plain language of the provision under consideration shows that it is a power given by the statutory provision irrespective of a situation showing exercise of the powers under section 143(1) of the Act, as an independent power and this power is based on the satisfaction for verification of the correctness and completeness. The plain language again does not speak of the requirement of any independent information in regard thereto and subsequent thereto in the context of point of time. The submissions which were made before the Tribunal, and apparently have sweared before the Tribunal, will have to be considered as stemming from the requirements of section 147 and section 148 of the Act dealing with the situation of escapement of assessment and the law in regard thereto. It is not possible to introduce the requirements of section 147 and section 148 of the Act and consequently violate the plain statutory provision of section 143(2)(b) of the Act, for expecting the necessity of some other additional information having a source at a later occasion in the context of point of time. The language of the provision under consideration is more than clear and it is that the Income-tax Officer has to consider it necessary and expedient to verify the correctness and completeness of the return. As is seen hereinbefore, the assessment was incorrect obviously because the amount received as a result of the sale of the agricultural land, may be urban or rural, could not be understood as agricultural income in any sense of the situation, but is capital gain directly flowing from the realisation of the capital assets. If, on the basis of the plain situation of law, treating the amount as income would inevitably result in the conclusion that the return is based on incorrect and incomplete situation.
The result of the above discussion is the negative answer to question No
For the above reasons, question No. 1 is answered in the negative, in favour of the Revenue and against the assessee. Question No.2, as stated above, is answered in the negative, in favour of the Revenue and against the assessee.
A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
M.B.A./1738/FCReference answered,