1. These appeals of the assessees are directed against the block assessment years each dt. 28th March, 2002 passed by Asstt. GIT, Central Circle-2, Thane, under Section 158BC(c) r/w Section 254 of the IT Act.
2. IT(SS)A Nos. 222 and 223/Mum/2004-The following grounds of appeal (as concised) have been raised in these appeals- 1. The AO exceeded his jurisdiction by not following the directions given to him by the Tribunal in its order in appeal.
2. The AO erred in going beyond the findings of his predecessor's earlier order and thereby sitting in appeal over the said order of his predecessor.
3. The AO ought not to have disturbed the cost of acquisition, the cost of improvement and the development expenses arrived at by his predecessor in the order for giving effect to the directions. In fact, he should have confined himself only to the directions given to him by the Tribunal.
4. The AO erred in computing the capital gains on the sale of various lands.
5. The AO erred in treating the said capital gains as regular profits and again erred in calculating and computing the said alleged profits.
6. The AO erred in assessing the appellant's share in the sale consideration realised on the sale of land to Sweet Home Developers (P) Ltd. without appreciating that the said land was the subject-matter of litigation.
7. The AO erred in taxing profit on sale of lands to Lodha & Kanungo and Prakash Pore without appreciating that the appellant was a tenant of the lands and that originally, his predecessor had assessed the profit on their sale as capital gains.
8. The AO erred in law and on facts in assessing the appellant's total undisclosed income without computing the same assessment yearwise.
9. The AO erred in invoking Chapter XIV-B in respect of incomes from certain transactions without appreciating that the same could not be treated as 'undisclosed income' as defined in Section 158B(b) of the Act.
10. The AO erred in estimating the appellant's income from M/s Dhanesh Bar & Restaurant on a higher side.
11. The AO erred in estimating the appellant's income from transport business on a higher side.
12. The AO erred in denying exemption to the appellant under Section 54F. 13. The AO erred in assessing the appellant to certain income, alleged to have been earned by him under the head 'Income from house property' 14. The AO erred in assessing the appellant to certain income, alleged to have been earned by him as miscellaneous income.
15. The AO erred in levying tax @ 60 per cent on long-term capital gains assessed as business income.
3. The grounds of appeal Nos. 10 and 11 relating to estimation of the assessee's income from M/s Dhanesh Bar & Restaurant and from transport business were not pressed by the learned Counsel of the assessee and the same are, therefore, dismissed.
4. In the 1st ground of appeal it has been contended that the AO exceeded his jurisdiction by not following the direction given to him by the Tribunal vide their order dt. 29th Sept., 1999. In ground of appeal No. 2, it has been stated that the AO has erred in going beyond the findings of his predecessor's earlier order and thereby sitting in appeal over the said order of his predecessor.
5. In this case the original block assessment was completed by the AO on 31st Jan., 1997 under Section 158BG in the case of Shri Parshuram D.Patil (hereinafter referred as P.D. Patil) and on 24th Feb., 1998 in the case of Shri Shantaram D. Patil (hereinafter referred as S.D.Patil). These assessment orders were set aside by the Tribunal on 29th Sept., 1999 and the fresh assessment order was passed on 28th March, 2003. The Tribunal had set aside the original block assessment orders in their combined order by observing as under- We are of the considered opinion that in order to frame proper assessments on proper assessees and in proper status, it is necessary to set aside all the three assessment orders in above appeals for fresh considerations. We accordingly direct and restore the matters back to the file of the AO to take due cognizance of the assessee and their family members status, respective co-ownership rights to give due effect to the cash flow statements and consider the various claims, vis-a-vis capital accounts.
6. The learned Counsel of the assessee contended that in the fresh block assessment order the income as originally assessed could not be enhanced. The learned Counsel contended that the Tribunal has no power to make the enhancement of the assessment in the appeal filed by the assessee. The learned Counsel contended that where a set aside of the entire order of assessment results in an enhancement of assessment under appeal, the Tribunal is not empowered to do indirectly what is cannot directly do. In this regard the learned Counsel referred to the commentary of learned authors Chaturvedi and Pithisaria on Income-tax Law p. 7834 and relied upon Judgment of Allahabad High Court in the case of S.P. Kochhar v. ITO 7. On the other hand, the learned Departmental Representative contended that if the entire assessment order is set aside to the file of the AO for fresh consideration, the fresh assessment order will be perfectly valid even if it results in enhancement of the total income determined in the original assessment.
8. We have carefully considered the rival submissions in the light of the material placed before us. The relevant extracts from the Commentary of Chaturvedi and Pithisaria are reproduced as under- Under Section 254(1), the Tribunal is not competent to give a finding which is adverse to the assessee and make the latter's position worse than before, thus resulting in an enhancement of the assessment Puranmal Radhakishan and Co. v. CIT , v. Ramaswamy Iyengar v. CIT (1960) 40 ITR 377 (Mad), The Motor Union Insurance Co. Ltd. v. CIT (1945) 13 ITR 272 (Bom), F.Y. Khambhaty v. CIT , New India Life Assurance Co. Ltd. v. CITKanpur Industrial Works v. CIT (All), G. Vijayaranga Mudaliar v. CIT (1963) 47 ITR 853 (Mad). Also, see Anand General Store v. CST (1987) 66 STC 349 (All). It is not open to the Tribunal to give a finding adverse to the assessee, which does not arise from any question raised in the appeal nor is it open to it to raise any ground which would work adversely to the appellant and pass an order which makes his position worse than it was under the order appealed against.
In the present case, the entire assessment has been set aside to the file of the AO for making de novo assessment. No finding adverse to the assessee or in favour of assessee has been given by the Tribunal while setting aside this assessment but certain guidelines were given for making the fresh assessment. We are of the opinion that in such circumstances if the fresh assessment results in enhancement of the total income as originally assessed, there is no illegality involved and the fresh assessment order will be perfectly valid. We, therefore, hold that grounds of appeal Nos. 1 and 3 raised by the assessees are without any merit and the same are dismissed.
9. In ground of appeal No. 8 the learned Counsel of the assessee has contended that the AO has erred in law and on facts in assessing assessee's undisclosed income without computing the same assessment yearwise. It is uncontroverted that this is a block assessment for the period 1st April, 1985 to 4th Jan., 1996 and all the undisclosed incomes computed fall in this very block. In view of these facts, we hold that the minor mistake in not computing some of the undisclosed income yearwise is of no consequence. Such a minor mistake is not fatal to the block assessment made by the AO particularly when it is not the case of the assessee that some of the undisclosed income computed falls outside the block period. We, therefore, dismiss ground of appeal No.10. In ground of appeal No. 9 it has been contended that AO has erred in invoking Chapter XIV-B in respect of incomes from certain transactions without appreciating that the same could not be treated as undisclosed income as defined in Section 158B(b) of the Act. This ground of appeal was not argued by the learned Counsel during the course of hearing of the appeal. It, therefore, appears to us that the assessee is not serious to press this ground. Moreover, the ground is of general nature and no specific instances were given by the learned Counsel in support of the contentions raised in the ground. Ground of appeal No. 9, therefore, fails.
10.1 In ground of appeal No. 12 of concised grounds it has been stated that the AO has erred in denying exemption under Section 54F to the assessee from long-term capital gains. The learned Counsel of the assessee pointed out that the assessee is also aggrieved by denial of exemption under Section 54B from long-term capital gain arising on sale of land used for agricultural purposes. The ground in this regard is ground of appeal No. 6 of the original grounds. But it was pointed out that in the concised ground of appeal inadvertently the point relating to denial of exemption under Section 54B was missed out.
11. Having heard both the parties, we are of the opinion that it would meet the ends of justice if these issues are restored to the file of the AO to enable him to examine whether necessary conditions mentioned in Sections 54F and 54B are satisfied. If the necessary conditions mentioned in these sections are satisfied, the AO is directed to allow exemption under Sections 54F and 54B from the long-term capital gains determined on the sale of immovable properties.
12. In grounds of appeal Nos. 13 and 14 it has been contended that the AO has erred in assessing the income alleged to have been earned by the assessee under the heads Income from house property and 'Miscellaneous income', respectively. During the course of hearing of the appeals, the learned Counsel of the assessee did not seriously argue these grounds.
The AO had pointed out in his order that the assessee had become owner or co-owner of certain flats but no income therefrom was shown. The assessee had explained during the course of assessment proceedings that no income was shown as the flats had not been let out. However, the AO worked out the notional income in accordance with the provisions of Chapter IV which covers the income under the head 'Income from house property' also. As the assessee did not argue these grounds and has not pointed out how the notional income worked out by the AO is unreasonable, we dismiss these grounds of appeal of the assessees.
13. In ground of appeal No. 15 it has been contended that the AO has erred in levying tax @ 60 per cent on long-term capital gains assessed as business income. The learned Counsel contended that in the event it is held that assessment be made as long-term capital gains instead of business profits on the sale of certain lands, the tax should be levied @ 20 per cent in accordance with the provisions of Section 112(1)(a)(ii) of the IT Act. It was contended that Section 112 is a special provision specifying the rates of tax to be charged on capital gains. The learned Counsel contended that even though the assessment is a block assessment under Section 158BC, yet provisions of Section 112 will apply. In support of his arguments, the learned Counsel placed reliance upon the decision of Tribunal, Cochin Bench, in the case of P.A. Chandran v. Asstt. CIT 14. On the other hand, the learned Departmental Representative contended that tax is leviable @ 60 per cent as per the provisions of Section 113 even on the capital gains which are included in the undisclosed income determined in the block assessment order passed under Section 158BC. It was submitted by the learned Departmental Representative that Section 112 specifying the lower rate of taxation for the capital gains is applicable only in respect of normal computation of income under normal provisions. It was stated that in respect of block assessment under Section 158BC, the rate has been prescribed in Section 113 which is a special provision. In support of the argument that the special provisions will override the general provisions, the learned Departmental Representative placed reliance on the following decisions- (ii) CIT v. Fertilizers and Chemicals (Travancore) Ltd. CIT v. Indian Molasses Co. (P) Ltd. However, the learned Departmental Representative could not cite any decision contrary to the direct decision of Cochin Bench of Tribunal which is relied upon by the learned Counsel of the assessees. Joining the issue, the learned Counsel of the assessees contended that Section 112 is also a special provision specifying the rate of tax to be charged upon capital gains. The learned Counsel reiterated that the direct decision of Cochin Bench of Tribunal must be followed.
15. We have carefully considered the rival submissions in the light of material placed before us. The decisions relied upon by the learned Departmental Representative pertain to the proposition that special provisions override the general provisions. In the instant case, not only Section 113 is a special provision, but Section 112 is also a special provision specifying the rate of tax to be charged upon capital gains. Therefore, we are of the opinion that the judgments relied upon by the learned Departmental Representative do not assist the case of the Revenue. The Cochin Bench of the Tribunal in the case of P.A.Chandran (supra), has held that tax is leviable @ 20 per cent as provided in Section 112(1)(a)(ii) on the capital gains included in the undisclosed income computed under Chapter XIV-B. We are inclined to agree with the decision of the Cochin Bench which is a direct decision on the point at issue. Respectfully following the precedent on the point at-issue, we hold that tax is leviable @ 20 per cent on the capital gains included in the undisclosed income computed under Chapter XIV-B. The appeals of the assessee, therefore, succeed on this issue.
16. In respect of grounds of appeal Nos. 3 to 7 the learned Counsel of the assessee has filed a chart, pp. 1 and 2 of which pertain to the lands owned by the assessee jointly with Shri S.D. Patil and Ors. and p. 3 pertains'to the lands belonging to Shri S.D. Patil only. To decide the controversy whether the assessee earned capital gains or business profits on the sale of lands, we find it convenient to proceed and deal with the lands itemwise in accordance with the chart filed. The decisions relied upon by the learned Counsel of the assessee as discussed in para 36.1 of this order has also been kept in mind.
17. However, before deciding the controversy item wise, we consider it proper to give some history of the case. The agricultural lands were inherited by the assessees as well as some lands were also purchased by them. The agricultural lands were inherited by the two assessees along with three other brothers from their grandfather Shri Kastu Patil.
After the death of the father of the assessees in 1976, the said agricultural lands were entered in 7/12 extract in the names of five Patil brothers including the 2 assessees, their mother Smt. Bhiwaribai and two sisters Dhakubai and Anandibai, as co-owners. Originally, the block assessments were completed in the hands of the assessees disregarding that agricultural lands so inherited by five brothers, two sisters and mother were jointly held by them as HUF property. The Tribunal had set aside the original assessments vide its order dt. 29th Sept., 1999 to the file of the AO for assessing the relevant income in the hands of the respective HUFs. The fresh assessment orders were passed on 28th March, 2002.
18. The learned Counsel of the assessees explained that Patil family is basically agriculturist family and the persons are illiterate. It was stated that they were wrongly advised by the former ITP that the capital gains arising on the sale of agricultural land are exempt from income-tax. It was stated that on this wrong belief Patil family did not declare any capital gains in the regular IT returns filed by them.
It was stated that only after the search and seizure operation, the new counsel of the assessee came into picture and he advised them that the capital gains made on agricultural lands are subject to tax.
19. The first item on the chart filed by the assessee which is given Sr. No. 3 is the land in survey No. 663 sold to M/s Sweet Home Developers (P) Ltd. Admittedly, the assessees are not the owners of this land and they had only possessory rights. The owners were M/s Estate Investment Co. Ltd. Initially an MoU was entered into by the assessee with Shri R.J. Vaishnav of M/s Sweet Home Developers (P) Ltd. and as per this MoU the total consideration for the transfer of the land was worked out to Rs. 98,40,636. Subsequently, the consideration was reduced to Rs. 60,00,000 owing to the disputes over the title of the property. The assessees admitted that they along with their other brothers had received only an amount of Rs. 30,00,000 in relation to this land, but it was contended by them that the question of taxation of the same did not arise as the receipt merely constituted trust money, liable to be refunded to M/s Sweet Home Developers (P) Ltd. The AO, however, taxed Rs. 6,00,000 in the hands of each of the two assessees being 1/5th share as business profits in the original assessment as well as in the fresh assessment. The learned Counsel of the assessees explained the facts and stated that the land was acquired prior to 1974 and was sold in June, 1994 but it was explained that the assessee being not the owner of the land, only possessory rights could have been sold. The learned Counsel fairly conceded that the amount received by the assessees on the sale of the said plot of land is exigible to long-term capital gain in the light of the decision of Bombay High Court in the case of Cadell Wvg. Mill Co. (P) Ltd. v. CIT as well as, as per amended Section 55(2) of IT Act.
In regard to this land, the learned Counsel has given certain facts in the written submissions and the same are reproduced as under- The five brothers of Patil family were in possession of the land in Survey No. 663. They made an application on 17th April, 1986 to Tahsildar, Thane, to declare them as tenants of land. The Tahsildar by his order dt. 23rd Oct., 1986 declared them as occupants of the land by adverse possession and mutation entry was made in the land record accordingly. The Asstt. Collector, Thane, set aside the mutation entry by his order dt. 12th June, 1989. The real owners M/s Estate Investments Co. Ltd. preferred an appeal to Sub-divisional Officer, Thane, who by his order dt. 11th July, 1994 held that the Patil brothers had no right to defend mutation entry as the same was cancelled by the Asstt. Collector on merits. SDO held that the Tahsildar had no jurisdiction to decide the issue of adverse possession and set aside his order, SDO held that the issue of adverse possession lay within the jurisdiction to decide the issue of adverse possession and set aside his order. SDO held that the issue of adverse possession lay within the jurisdiction of Civil Court and the matter is still pending in the Civil Court. The latest 7/12 extract is in the name of M/s Estate Investment Co. Ltd. It is submitted that the assessees possessed possessory rights in the aforesaid plot of land.
The learned Counsel further explained from the SDO's order available at pp. 23-24 of the paper book that the SDO had held that "the question of adverse possession should be decided on the forum of the Civil Court only." It was pointed out that SDO's order is dt. 11th July, 1994 and hence civil suit No. 522/1986 mentioned by the AO at p. 12 of his order appears to be wrong as no suit could have been filed in 1986, and it could have been filed only after the date of the SDO's order which was dt. 11th July, 1994. Thus, according to the learned Counsel, the assessees could not have supplied the AO the order of the Civil Court in respect of alleged civil suit No. 522/1986 as no such suit was filed. The learned Counsel further contended that the assessees wrongly claimed to be the owner of the land and hence the money received as sale consideration was received as trust money which had to be refunded to the real owner. In this regard reference was made to Section 72 of the Contract Act. As already mentioned above, the learned Counsel has conceded that assessees are exigible to capital gains tax for the transfer of the possessory rights. The learned Counsel referred to the judgment of Bombay High Court in the case of B.G. Shah v. CIT wherein it was held that tenancy is a capital asset and compensation received is a capital receipt.
20. On the other hand, the learned Departmental Representative contended that the AO has rightly taxed the relevant amounts in the hands of the assessees as business profits. The learned Departmental Representative pointed out that the assessees have not so far returned the money received on the sale of the plot of land to the real owner and hence it is wrong to say that the money was held in trust. The learned Departmental Representative strongly supported the order of the AO on this issue.
21. We have carefully considered the rival submissions in respect of land in Survey No. 663 transferred by the assessees. It is uncontroverted that assessees were not the owner of this land and the owner was M/s Estate Investments Co. Ltd. Therefore, we hold that the assessees had only transferred the possessory rights in respect of the said plot of land. We hold that the gains earned by the assessees are taxable as per the amendment of Section 55(2) by the Finance Act, 1994 w.e.f. 1st April, 1995. As the assessee acquired the plot prior to 1974 and transferred the same in June, 1994, the gains are taxable as long-term capital gains. As we have held that the amounts received by the assessee are taxable as long-term capital gains for transfer of possessory rights of the land, it is only academic to consider whether the amounts received were held as trust money. In fact, the learned Counsel of the assessees conceded that the profits or gains are taxable as capital gains in view of the amended Section 55(2). Thus, the issue whether the suit was pending in the Civil Court or not is of academic interest only and it has no bearing on the transfer of possessory rights and taxability of capital gains as long-term capital gains. The SDO had observed that the issue of the adverse possession over the land lay within the jurisdiction of Civil Court. However, as pointed out above, this issue is not relevant for taxing the capital gains on the transfer of possessory rights. The 1/5th share of the sale consideration has been taxed at Rs. 6,00,000 in the hands of the each two of the assessees, but this amount is assessed as business profits but in view of above discussion, the same is directed to be assessed as capital gains. However, the question of granting the benefit of cost indexation does not arise as assessees are not the owner of the plot of land. The AO is, therefore, directed to work out the long-term capital gains in the hands of both the assessees in accordance with the law and in view of our above observations.
22. Items at serial Nos. 7 and 9 of the chart are tenanted lands bearing survey Nos. 193 and 169/9 which were transferred to Lodha and Kanungo and Prakash Pore, respectively. Both these plots of land were acquired by the assessees on 1st April, 1981 and they were transferred on 25th Feb., 1991 and 5th Aug., 1991 respectively. The assessees had shown profit of Rs. 9,50,000 in respect of land in survey No. 193 and Rs. 35,500 in respect of survey No. 169/9. But the AO in the original assessments assessed the profits as capital gains at Rs. 11,00,000 and Rs. 40,000, respectively. In the fresh assessments the AO has taxed the profits as business profits in respect of these two plots of land at Rs. 17,00,000 and Rs. 45,500, respectively. As the share of each of the assessees was 1/6th, the capital gains in the original assessments and business profits in the fresh assessments were determined accordingly.
23. The learned Counsel of the assessee contended that the tenancy rights were sold prior to 1st April, 1994 and. the cost of acquisition of the relevant asset being nil, no capital gains are chargeable in view of the judgment of Supreme Court in the case of CIT v. B.C.Srinivasa Shetty and of Bombay High Court in the case of Cadell Wvg. Mill Co. (P) Ltd. (supra). The learned Counsel further pointed out that in the original assessments, the profits earned by the assessees in respect of the assets under consideration were assessed as capital gains whereas in the fresh block assessments they were assessed as business profits without any justification.
24. On the other hand, the learned Departmental Representative relied upon the order of the AO.25. Having considered the rival submissions in the light of case laws cited before us, we are of the opinion that the plots under consideration having been acquired on 1st April, 1981 and transferred on 25th Feb., 1991 and 5th Aug., 1991, respectively, the gains arising from such capital assets cannot be assessed as business profits and they could at the most be assessed as capital gains as done by the ITO himself in the original assessments. We further hold that the assessee has only tenancy rights in respect of plot in survey Nos. 193 and 169/9 and these tenancy rights were sold prior to 1st April, 1994, the cost of acquisition of the said plots of land cannot be computed and consequently on surrender of tenancy rights, capital gains do not arise. In holding this view, we are fortified by the decisions of Supreme Court in the case of Siinivas Shetty (supra) and of Bombay High Court in the case of Cadell Wvg. Mill Co. (P) Ltd. (supra). The AO is, therefore, directed not to assess any capital gains or business profits in respect of tenanted plots in survey Nos. 193 and 169/9 the tenancy rights of which were transferred or surrendered much before 1st April, 1994.
26. The assets at serial Nos. 4, 5, 6 and 8 of the chart filed by the assessee are the plots of land owned by the assessee and were purchased with the intention to make sales to earn profits therefrom. The plot at serial No. 4 bearing survey No. 165 (Pt) was purchased on 22nd Feb., 1982 and was sold from 21st Dec, 1990 onwards after dividing it into 31 small plots. The plot at serial No. 5 bearing survey No. 114/5 was purchased on 30th Sept., 1985 and was sold to Oswal Builders on 20th Sept., 1989. The plot at serial No. 6 bearing survey No. 486/15 and 16(P) was purchased on 15th Jan., 1990 and was sold to Shri R.J.Vaishnav on 4th March, 1994. Plots at serial No. 8 bearing survey Nos.
114/8, 153/6 and 153/9 consist of three separate sales made to Shivshakti Construction. These plots were purchased on 12th Feb., 1988, 10th July, 1987 and 10th July, 1987 and were sold on 15th Aug., 1990, 20th Aug., 1990 and 22nd Aug., 1990, respectively. In respect of plot at serial No. 8(i) bearing survey No. 114/8, the assessee had himself claimed short-term capital gains. In respect of the remaining plots the assessee claimed long-term capital gains but the AO had treated the surplus arising on the sale of these plots as business profits. In respect of plot at serial No. 5 bearing survey No. 114/5, a sum of Rs. 17.39 lakhs was not paid to the assessee by the purchaser on the ground that the land sold was smaller than the one originally mentioned in the agreement.
27. The learned Counsel of the assessee has filed written submissions and also contended that except for the plot at serial No. 8(i) bearing survey No. 114/8, the surplus arising in respect of the remaining plots should be assessed as long-term capital gains. Alternatively and without prejudice, it was submitted that the surplus arising from these transactions may be taken as trading profits. The written submissions filed by the learned Counsel of the assessee in respect of plots at serial Nos. 4, 5, 6 and 7 of the chart are reproduced as under- (i) The assessees submitted that as the period of holding of the land in question is ranging between three to four years, the surplus realised on the sale of plots of land be treated as capital gain, but in the case of serial No. 8(i), it may be treated as short-term capital gains. Alternatively and without prejudice, it is submitted that these transactions may be taken as trading profits. It is feasible for an assessee to have some assets as capital assets and same type of other assets as stock-in-trade. In this regard, reliance is placed on the decisions of the Supreme Court in the case of CIT v. Madan Gopal Radhey Lal and CIT v. Associated Industrial Development Co. (P) Ltd. . If the said transactions are taken as trading activity, then the following will apply- (a) As the assessees have not been maintaining any books of account, the method of accounting has to be treated on cash basis in terms of the ratio of the decisions of the Gauhati High Court in the case of CIT v. O.T. Rahman and the Allahabad High Court in the case of.Addl CIT v. Viiendia Singh .
(b) As the method of accounting is treated as cash basis, then the unrealized sale proceed of Rs. 17.39 lakhs in respect of sale of land to M/s Shree Oswal Builders (P) Ltd. [serial No. 5 of the chart] cannot be brought to tax in the block period. In fact, Shree Oswal Builders (P) Ltd. have refused to pay the said amount on the ground that the plot was actually smaller than described in the agreement. This will also reduce the capital gains if leviable. We have no objection if this aspect is examined by the AO in setting aside the assessment order.
(ii) The cost of land and development expenses as claimed by the assessee should be allowed. Alternatively, the cost of land and the development expenses as allowed in the original block assessment should be allowed.
(iii) It is submitted that development expenses should be allowed on some consistent basis. In this regard, the block assessment order recently made in the case of Shri Chandrakant D. Patil (being HUF of one of the brothers of the assessee) in which, it is held by the AO that the development expenses have been allowed at the rate of Rs. 100 per square yard or the actual expenses incurred, whichever is less, be allowed.
The learned Counsel further contended that in respect of plot at serial No. 4 bearing survey No. 165 (Pt) of the chart, the cost was claimed by the assessee at Rs. 9,02,000 but was allowed in the original assessment at Rs. 8,00,000 and in the fresh assessment the same has been allowed at Rs. 2,50,000. The learned Counsel of the assessee contended that cost of acquisition in respect of plots of land at serial Nos. 4, 8(i), 8(ii), 8(iii) of the chart [survey Nos. 165(Pt), 114/8. 153/6 and 153/9] should be allowed as claimed by the assessee. Alternatively, it was contended that at least cost of acquisition as allowed in the original assessment should be allowed. It is noted that in respect of Sr. Nos. 5 and 6 of the chart (survey Nos. 114/5 and 486/15 and 16(P), the cost of acquisition claimed by the assessee was allowed in the original block assessment as well as in the fresh assessment.
28. Regarding the development expenditure, the learned Counsel pointed out that there is vast difference in the assessee's claim and the expenditure allowed by the AO. In respect of item No. 4 of the chart [survey No. 165(Pt)], the learned Counsel pointed out that development expenses were claimed by the assessee at Rs. 9,98,300 but in the original assessment they were allowed at Rs. 5,00,000 and in the fresh assessment they have been unjustifiably allowed at Rs. 2,50,000.
Similarly, in respect of Sr. No. 5 (survey No. 114/5), the development expenses were claimed at Rs. 11,68,600 by the assessee, they were allowed at Rs. 2,32,000 in the original as well as in fresh assessment.
In respect of Sr. No. 6 of the chart (survey No. 486/15 and 16), development expenses were claimed by the assessee at Rs. 2,98,950 but they were allowed at Rs. 5,000 in the original as well as in the fresh assessment. In respect of Sr. No. 8(i), 8(ii) and 8(iii), the development expenses were claimed by the assessee at Rs. 55,000, Rs. 77,000 and Rs. 35,000, respectively, they were allowed in the original assessment at Rs. 15,000, Rs. 25,000 and Rs. 20,000 respectively and in the fresh assessment no development expenses were allowed.
29. Referring to p. 78 of paper book, the learned Counsel relied upon the letter dt. 1st Dec, 1989 of Arch-Home, Architects, Engg. Interior Decorators, wherein estimated cost of development expenses in respect of plot bearing survey No. 165(Pt) has been worked out at Rs. 20,57,000 by applying the rate of Rs. 85 per sq. yd. For 24.200 sq. yards. The relevant portion of the architect's letter (written to the assessee) dt. 1st Dec, 1989 is extracted below- This is to inform you that as per our discussion, we have visited the site thoroughly, bearing Land Survey No. 165 (Part), Kharigaon, Bhayandra (East). The plot is in very bad position. Salty water are filled in big pits are noticed, land has very much ups and down, having no level at all. On the basis of above facts, we suggest following- 1. It is not possible to sell the plot as a whole, considering big size and bad shape.
2. It requires to get plot fully developed by filling in stones/red earth by manually or by help of donkeys, to carry red earth.
3. Land level is to be done properly with systematic way by employing qualified professional/experts in the field and with modern equipments to make it usable for building construction in future.
4. Total estimated cost of development expenses is approx. Rs. 85 per sq. yard for 24,200 sq. yards, which comes to nearly Rs. 20,57,000 (Rupees Twenty Lakhs Fifty Seven thousand only).
5, The above total cost includes labour charges, cost of materials, supervision charges, hire of equipments, etc.
The learned Counsel further pointed out that in the case of HUF, development expenses upto Rs. 100 per sq. yd. have been allowed. The learned Counsel stated that in respect of item at Sr. No. 4 of the chart, development expenses claimed by the assessee work out to Rs. 106 per sq. yd. whereas they have been allowed at Rs. 26.60 per sq. yd. In respect of item No. 5, development expenses claimed were stated to be Rs. 503 per sq. yd. but they were allowed at Rs. 100 per sq. yd. In respect of item No. 6, the development expenditure claimed were stated to be Rs. 150 per sq. yd. and they were allowed at Rs. 25 per sq. yd.
In respect of Sr. Nos. 8(i), 8(ii) and 8(iii), the development expenses were stated to be claimed at Rs. 41, Rs. 33.50 and Rs. 33.50 per sq.
yd., respectively but in the fresh block assessment they were not allowed at all.
30. On the other hand, the learned Departmental Representative contended that the profits derived by the assessee by sale of plots at serial Nos. 4, 5, 6 and 8 of the chart are assessable as business profits and not as capital gains. The learned Departmental Representative has summed up his arguments in the note filed before us and these arguments are reproduced as under- 1. The lands that were purchased were, in most of the cases, in the nature of very small plots, in which no regular agricultural activity could have been carried out by the assessee.
2. The assessee and his four brothers and the female members of the family namely, the wife of the assessee Smt. Rukmani Patel and his two sisters Smt. Anandabai and Smt. Dhakubai and his mother Smt.
Bhivaribai - all jointly entered into the purchase and sale of land transactions.
3. Therefore, there was an existence of a clear-cut organized activity of purchase and sale of lands with a view to make profit.
Hence, it has to be treated as a business venture.
4. Numerous transactions-In this block period, the purchase and sale of land transactions were not one or two isolated transactions, but they were the series of transactions.
5. Some of the land sold were not even purchased by them, but they were only having the possession.
7. In some cases, the assessees have sold the lands which were illegally occupied by them.
8. In some cases, as in the case of land at Survey No. 165 (vide para 8 of the assessment order under appeal), the assessee had entered into joint agreement with another group namely, Shri Naveen Shah and family of joint developer and sale of the land at 50 per cent share of each group. This agreement itself shows that there was a clear business motto to carry on the real estate transaction by buying and selling of lands in order to make profit.
Thus, the cumulative effect of all the above said factors of multiplicity of transactions, sale of land of which the assessees are not the owners combining with the other outsiders do clearly demonstrate that the assessee was carrying on the business of real estate of buying and selling of house plots or commercial plots as an organized business venture. Therefore, the AO's action of treating the income as business income is very justified.
The learned Departmental Representative also relied upon the following judicial pronouncements-Smt. Indramani Bai and Anr. v. Addl. CIT Regarding assessee's grievance in respect of quantum of purchase cost as well as quantum of development expenditure allowed by the AO, it was submitted by the learned Departmental Representative that the AO had specifically dealt with each case on the basis of documentary evidence available or made available to him.
31. We have given careful consideration to the rival submissions on the point at issue in the light of material placed before us. We are unable to accept the arguments of the learned Counsel of the assessee that profits earned by the assessee on the sale of plots of land at serial Nos. 4, 5, 6 and 8 of the chart were capital gams. There is a narrow gap in the dates of purchase and dates of sales in respect of most of the plots, Moreover, we find that in respect of plot at Sr. No. 4 (survey No. 165 (PT), the land was divided into 31 smaller plots and these plots were sold to different parties. We are inclined to accept the alternate contention of the learned Counsel of the assessee that the profits earned in respect of plots at Sr. Nos. 4, 5, 6 and 8 of the chart were business profits. To determine the business profits, the cost of acquisition and development expenditure have to be reduced from the sale consideration. While in the absence of records there may be a case for the estimation of development expenditure, but we are unable to find as to why the cost of acquisition has been estimated. These plots were purchased and the cost of acquisition should be the purchase price incurred by the assessee. In respect of plots at Sr. Nos. 5 and 6 there is no dispute regarding the cost of acquisition and the cost of acquisition as claimed by the assessee has been allowed by the AO.However in respect of plots at Sr. Nos. 4 and 8(i), 8(ii) and 8(iii), the cost of acquisition has been changed. In respect of plot at Sr. No.4 of the chart, cost of acquisition was claimed by the assessee at Rs. 9,02,000 while the same was allowed at Rs. 8,00,000 in the original assessment but in the fresh assessment the same has been allowed at Rs. 2,50,000 on estimate basis. In respect of plots at Sr. Nos. 8(i), 8(ii) and 8(iii) of the chart, the cost of acquisition was claimed at Rs. 14,500, Rs. 1,35,177 and Rs. 61,421, respectively, but the same was allowed at Rs. 8,000, Rs. 5,000 and Rs. 20,000, respectively, in the fresh assessment. The AO is directed to allow the cost of acquisition as per the actual purchase price incurred by the assessee as these plots were purchased for the purpose of making sales thereof. For this purpose, agreements or the title deeds of the relevant plots of land may be examined by the AO.31.1 Regarding the development expenditure, we are informed that development expenditure allowed in the fresh assessment on estimated basis in respect of plot at Sr. No. 4 of the chart comes to Rs. 26.60 per sq. yd. as against the assessee's claim of Rs. 106 per sq. yd. On the basis of the certificate of the architect (p. 78 of the paper book), we hold that it will be reasonable to allow development expenditure at Rs. 85 per sq. yd. in respect of plot at Sr. No. 4. In respect of plot at Sr. No. 5 of the chart, the development expenditure allowed by the AO appears to be reasonable and no interference is called for. In respect of plot at Sr. No. 6 of the chart, the development expenditure claimed by the assessee works out to Rs. 150 per sq. yd. and hence the claim appears to be excessive. In respect of plot at Sr. No. 6 of the chart, the development expenditure allowed by the AO works out to Rs. 25 per sq. yd. which appears to be low. The AO is directed to allow the development expenditure in respect of this plot also at Rs. 85 per sq. yd. The development expenditure in respect of plots at Sr. No. 8(i), 8(ii) and 8(iii) of the chart has not been allowed at all in the fresh assessment. We find that the claim of development expenditure in respect of these plots as made by the assessee works out to Rs. 41, Rs. 33.50 and Rs. 33.50, respectively per sq. yd. and hence the claim being reasonable, we are of the opinion that the AO should have allowed the entire claim. We, therefore, direct the AO to allow the development expenditure in respect of plots at Sr.
Nos. 8(i), 8(ii) and 8(iii) as claimed by the assessee.
31.2 In respect of plot at Sr. No. 5 of the chart, there is unrealized sale price of Rs. 17.39 lakhs which was not paid to the assessee by the buyer of the plot on the ground that the land was smaller than the one originally mentioned in the agreement. As, in the absence of accounts, the method of accounting of the assessee is treated as cash basis, we hold that the unrealized sale price of Rs. 17.39 lakhs in respect of land sold to M/s Oswal Builders (Sr. No. 5 of the chart), cannot be brought to tax in the block period. It has been pointed out by the assessee in the written submissions that M/s Oswal Builders has refused to pay the said amount on the ground that the plot was actually smaller than the one prescribed in the agreement. However, this issue of unrealized sale price does not appear to have been examined by the AO.We, therefore, restore the matter to the file of the AO who should examine whether there was unrealized sales price of Rs. 17.39 lakhs in respect of sale of land to M/s Oswal Builders. If, on verification, assessee's claim is found to be correct, then only our above observation regarding the non-taxability of this amount in the block period will hold good.
32. In respect of plot at Sr. No. 10 of the chart (survey No. 214/Pt.
16), which was sold for Rs. 5,79,800 to Shri Ramchandra B. Patil, it is noted that the plot was purchased on 12th July, 1981 but the same was sold on 11th Sept., 1989. Assessee's claim is that this land was being cultivated before it was sold and the profits earned on the sale of this land are claimed as long-term capital gains. However, the AO has taxed the same as business profits.
33. We have given careful consideration to rival submissions in the light of decisions cited before us. For the purpose of deciding whether the lands were purchased with a view to trade or to hold the same as investment, it is noted that in the present case the lands were purchased by the assessees who are agriculturists for the purpose of carrying on agricultural activities which in fact they have done. With increasing urbanization and expanding cities, the builders give attractive offers to develop the lands as building sites which the present assessees, who are basically agriculturists, could not resist.
The resultant gain, in our opinion, can only be realization of capital assets and hence is taxable as capital gains. We order accordingly.
34. Similarly, in respect of plots at Sr. Nos. 11 to 14 of the chart (Survey Nos. 55/2, 292, 240/8 and 220/Pt. 12), the arguments of the assessees are the same as for plot at Sr. No. 10 of the chart. These plots were purchased on 9th Sept., 1985, 9th Dec., 1985, 20th Jan., 1987 and 1st Sept., 1986, respectively and they were sold on 18th July, 1994, 20th July, 1994, 9th Sept., 1994 and 4th Oct., 1994, respectively. The sale consideration of these plots is given in column 5 of the chart. The only controversy in respect of sale of these plots is whether the profits earned on the sale are business profits or long-term capital gains. We find that these plots were also held for long periods and the land was also cultivated before making the sale thereof.
35. Having heard both the parties, keeping in view the decision relied upon by them and in view of the same reasoning as given in para 33 above, we hold that the profits earned by the assessee on the sale of these plots are assessable as long-term capital gains. We may point out that all these plots of land discussed above are the joint lands and the profits pertaining to Shri P.D. Patil and Shri S.D. Patil have to be worked out according to the share of these persons in the property.
In respect of plots at Sr. Nos. 10, 11, 12, 13 and 14, share of each of the assessees is 1/5th as shown in the chart. Similarly, in respect of other plots, the share of the assessees has been shown in column 10 of the chart. The learned Counsel of the assessee has also claimed the indexation of the cost for working out capital gains in the case of the ownership lands. We are of the opinion indexation cannot be allowed for the tenanted lands but as per law the indexation of the cost is allowable for the ownership lands to work out the capital gains. We order accordingly and direct the AO to allow indexation of the cost in respect of the ownership lands while working out the long-term capital gains.
36. Now we come up to p. 3 of the chart which contains details of the lands belonging to Shri S.D. Patil only. Shri S.D. Patil had also some tenanted lands and some purchased owned lands. One plot bearing survey No. 76, date of acquisition of which was 25th Jan., 1989 was sold by Shri S.D. Patil to one Shri Naresh Shah on 20th May, 1994 for a sale consideration of Rs. 19.48 lakhs. This plot was in fact the tenanted land. The AO taxed the profit earned by the assessee as business profit. The learned Counsel of the assessee contended that merely because some development expenditure was incurred to make the plot more easily saleable, it cannot be said that the plot was a trading asset.
The learned Counsel contended that the agricultural income was earned by carrying out agricultural operations on this plot. It was further submitted that the assessee had no intention of dealing in land. It was stated that as the assessee was from the family of agriculturists and the intention was to cultivate the land, hence, according to the learned Counsel, the AO was not justified in treating the profits earned by the assessee as business profits. But the learned Counsel fairly conceded that in view of amendment of Section 55, the profits earned by the assessee are taxable as long-term capital gains.
36.1 The learned Counsel relied upon the following decisions (in respect of both the appeals) on the issue that profits derived by the assessees on sale of lands were long-term capital gains and not business profits- It was pointed out that the Hon'ble Supreme Court has held that cases of realization of investments consisting of purchase and sale, though profitable, are clearly outside the domain of adventures in the nature of trade.
It was pointed out that Hon'ble Bombay High Court has held that one of the essential elements in an adventure in the nature of trade is the intention of trade; that intention must be present at the time of the purchase. It was stated that in the instant case there was no intention to trade when the land was acquired by the assessee as a tenant.
It was pointed out that Hon'ble Bombay High Court has held that the resale of the said land took place a little over six years after the purchase which would militate against any inference being drawn that the purchase itself had been made with the intention of embarking on a venture in the nature of trade.
It was pointed out that Hon'ble Supreme Court has held that the facts that the appellant made a profitable bargain when it purchased the property and that it had a desire to sell the property if a favourable offer was forthcoming could not without other circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of trade.
(i) that where a transaction was not in the line of the business of the assessee but was an isolated or single instance of a transaction, the onus was on the Department to prove that the transaction was an adventure in the nature of trade; (ii) that there was no clear evidence in support of the inference of the Tribunal that the land was purchased with the sole intention of selling it later at a profit; It was stated that the Hon'ble Bombay High Court has held that there has to be an intention to trade at the time of purchase and the onus of establishing it is on the Revenue.
It was stated that in this decision the Hon'ble Bombay High Court has held that in the absence of any evidence to the effect that the land formed part of the business assets of the assessee, the presumption will be that the land was held as a capital asset by the assessee and the income from the transfer thereof was not income from business.
It was stated that Hon'ble Supreme Court has held that in considering whether a transaction is or is not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the legal requirements which are associated with the concept of trade or business.
37. On the other hand, the learned Departmental Representative relied upon the order of the AO as also decisions mentioned in the case of Shri P.D. Patil.
38. Having considered the rival submissions in the light of the material placed before us, we hold that profits earned by the assessee were taxable as long-term capital gains in view of the amended provisions of Section 55. However, we hold that while working out the capital gains, the cost claimed by the assessee at Rs. 4,00,000 cannot be allowed as there cannot be any cost to the tenanted land. We further find that development expenditure was claimed by the assessee at Rs. 3,96,400 for which there was no evidence. The AO had allowed the development expenditure at Rs. 1,00,000. We do not find any infirmity in the order of the AO in this regard.
39. Shri S.D. Patil had sold land bearing survey No. 246/Pt to one Ratan K. Patil for a sale consideration of Rs. 9,15,728. The cost of the land was claimed by the assessee at Rs. 80,000 but was allowed by the AO at Rs. 75,000 as per agreement dt. 5th Aug., 1987 in the original as well as in the fresh assessment. The development expenditure was claimed by the assessee at Rs. 1,25,650 but the same was allowed by the AO at Rs. 42,000 in the original assessment and at Rs. nil in the fresh assessment. The AO taxed the profits earned by the assessee on the sale of this land as business profits. The learned Counsel of the assessee pointed out that the land was purchased on 5th Aug., 1987 and was sold on 16th Sept., 1994. It was stated that agricultural operations were carried out on the land and the land was purchased with the intention to hold the same as capital asset. It was stated that at the time of purchase there was no intention on the part of the assessee to purchase the land as stock-in-trade. The learned Counsel argued that the land having been held by the assessee for more than seven years and there being no intention to trade in land, the profits earned by the assessee could be taxed only as capital gains.
The learned Counsel relied upon same decisions as mentioned in para No.36.1 of this order.
40. On the other hand, the learned Departmental Representative also relied upon the order of the AO and also relied upon the decisions quoted in the case of Shri P.D. Patil.
41. We have given careful consideration to the rival submissions in the light of the decisions relied before us by both the parties. We are of the opinion that for the same reasons as given by us in para 33 above, profits earned by the assessee are taxable as long-term capital gains.
The cost has been rightly adopted by the AO as per the agreement at Rs. 75,000 as against Rs. 80,000 claimed by the assessee. However, development expenditure claimed by the assessee at Rs. 1,25,650 cannot, in our opinion, be allowed in full in the absence of any supporting material. The AO had allowed development expenditure at Rs. 42,000 in the original assessment but did not allow any such expenditure in the fresh assessment. We are of the opinion that development expenditure allowed by the AO in the original assessment was perfectly alright and we direct the AO to allow the development expenditure at Rs. 42,000 for working out the capital gains. The plot under consideration being owned by the assessee, the indexation of the cost has also to be allowed in accordance with the relevant rules.
41.1 Land bearing survey No. 252/7(P) was sold by the assessee to Shri B.R. Patel on 12th Aug., 1994 for sale consideration of Rs. 16 lakhs.
In the course of search, certain receipts were also found from which the AO could find that further amounts were received by the assessee in several instalments aggregating to Rs. 7,25,000 and hence, the AO adopted the sale consideration at Rs. 23,25,000. This land was purchased by the assessee on 10th Jan., 1991 for Rs. 2,00,000. The development expenditure in respect of this land was claimed at Rs. 3,96,500 but the same was allowed at Rs. 1,00,000 in the original assessment and at Rs. 1,42,000 in the fresh assessment.
42. The learned Counsel of the assessee contended that this land was also purchased as a capital asset to carry on the agricultural operations and hence the profits should have been taxed as long-term capital gain and not as business profit. The learned Counsel also contended that development expenditure as claimed by the assessee should have been allowed by the AO. The learned Counsel relied upon the same decisions as mentioned in para 36.1 of this order.
43. On the other hand, the learned Departmental Representative relied upon the order of the AO and contended that profits earned by the assessee on sale of this land were rightly taxed as business profits.
The learned Departmental Representative relied upon same judgments which were quoted in the case of Shri P.D. Patil.
44. Having considered the rival submissions in the light of decisions relied upon by both the parties, we are of the opinion that in respect of this plot of land, the AO has rightly taxed the profits as business profits. The sale consideration has also been rightly adopted by the AO at Rs. 23,25,000 on the basis of the sale consideration declared and the receipts found during the course of search. We further hold that the development expenditure claimed by the assessee at Rs. 3,96,500 cannot be allowed in full in the absence of any evidence. We hold that the AO has rightly allowed development expenditure at Rs. 1,42,000. The order of the AO is, therefore, confirmed in respect of profits earned on the sale of land bearing survey No. 252/7(P).
45. IT(SS)A No. 224/Mum/2004: This appeal of M/s Ganesh Sand Suppliers is directed against block assessment order dt. 28th March, 2002 passed by the AO under Section 158BC(c) r/w Section 254 of the IT Act.
46. The assessee has raised 4 grounds of appeal but the learned Counsel only pressed ground of appeal No. 3 which is reproduced as under- The AO erred in having estimated the alleged net profit @ 12 per cent on the above sales, as a result of which the income of Rs. 3,24,000 and Rs. 4,62,000 has been assessed by him for the said respective assessment years.
47. The facts of the case in brief are that the AO had estimated sales for the asst. yrs. 1995-96 and 1996-97 at Rs. 27,00,000 and Rs. 38,50,000, respectively and by applying the net profit rate of 12 per cent he determined the net profit at Rs. 3,24,000 and Rs. 1,62,000, respectively. Thus, total profit was determined at Rs. 7,86,000.
48. The learned Counsel of the assessee did not dispute the estimate of sales made by the AO for both the years, but he vehemently contended that the net profit rate of 12 per cent applied by the AO is highly excessive and arbitrary. It was stated that the net profit shown by the assessee was 2.43 per cent. The learned Counsel by referring to pp. 63 and 64 of the paper book, contended that in identical case of M/s Bhoir Sand Agency the net profit was shown by the assessee at 4.50 per cent which was accepted by the Department in the order passed under Section 143(1)(a) on 16th Oct., 1996. The order was passed in the case of Shri Shashikant Krishna Bhoir, proprietor of M/s Bhoir Sand Agency. The learned Counsel also referred to the submissions made before the AO by the assessee vide its letter dt. 7th March, 2002 (copy available at pp.
33-36 of the paper book). It was pointed out from para 10(iii) of the letter that the assessee had referred to a parallel case in which assessment was completed with 4.50 per cent net profit on sales. It was stated that this parallel case was of M/s Bhoir Sand Agency only. The learned Counsel stated that he has no objection if net profit rate of 4.50 per cent is applied on the sales estimated by the AO.49. On the other hand, the learned Departmental Representative relied on the order of the AO and contended that net profit rate applied by the AO was reasonable on the facts of the case.
50. We have given careful consideration to the rival submissions. We find from para 10(ii) of the assessee's letter dt. 7th March, 2002 written to the AO (p. 36 of the paper book), that the assessee had stated that "The scrutiny assessment for asst. yr. 1996-97, was completed @ 5.07 per cent net profit by the AO (Dy. CIT, Sp, Range, Thane). Vide assessment order dt. 31st Aug., 1998". Thus, we find that in the scrutiny assessment for asst. yr. 1996-97 the net profit was applied by the AO at 5.07 per cent which does not appear to have been challenged by the assessee in appeal. In these circumstances, we hold that it will be fair and reasonable if net profit rate of 5.07 per cent is applied in the block assessment also on the sales estimated by the AO for the asst. yrs. 1995-96 and 1996-97. The AO is directed to determine the net profit of the assessee by applying the rate of 5.07 per cent on the sales of Rs. 27,00,000 and Rs. 38,50,000 estimated by the AO for the asst. yrs. 1995-96 and 1996-97, respectively in the block assessment. The appeal of the assessee thus stands partly allowed.
51. In the result, all the three appeals of the assessee stand partly allowed as above.Mukul Shrawat, J.M. 29th July,2004 52. I have gone through the draft order authored by my distinguished brother and also had the benefit of discussion with him on certain points. After going through the proposed order and only after having discussed with my learned brother, I could not persuade myself to agree with the finding given in para 15 for the reasons which I propose to set out below.
53. The question is whether undisclosed long-term capital gain is subject to tax @ 60 per cent as provided under Section 113 being assessed under Chapter XIV-B or subject to tax @ 20 per cent as prescribed under Section 112 of IT Act. Learned brother has discussed this issue in para 13 and para 14 and finally arrived at the conclusion vide para 15 that the capital gain is subject to tax @ 20 per cent as provided in Section 112(1)(a)(ii) included in undisclosed income computed under Chapter XIV-B. With utmost regard I do not agree with this finding hence hereby placing on record my dissenting view. I disassociate myself, inter alia, because of the language used in the charging section itself. Section 112(1) states, as follows: 112. Tax on long-term capital gains.-(1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head 'Capital gains', the tax payable by the assessee on the total income shall be the aggregate of,- (ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent: On plain reading of this section it is evident that this section is applicable on capital gain included in the total income of an assessee to be assessed in the general provisions of IT Act. On the other hand, Section 113 of IT Act is applicable on the income not disclosed and assessed in the block period, reads as follows: 113. Tax in the case of block assessment of search cases. The total undisclosed income of the block period, determined under Section 158BC, shall be chargeable to tax at the rate of sixty per cent: So the opening words of Section 113 are unambiguous that the rate of 60 per cent is to be applied in respect of "total undisclosed income of the block period". The distinction between the two sections is manifest and both the sections are special provision specifying the rate of tax to be charged under certain specific circumstances. On one hand Section 112 only speaks about "total income" however, on the other hand, Section 113 speaks about "undisclosed income". As far as the instant appeal is concerned there is no dispute that the assessment was framed under Section 158BC, i.e., under Chapter XIV-B. Further there is no dispute about this fact also that the capital gain remained undisclosed and unearthed only in consequence of search and seizure action. So there is no dispute that the capital gain in question was computed not in the normal course of assessment proceedings but added in the undisclosed income under special conditions, i.e., search and seizure and assessed in the block assessment under Section 158BC. Once it is an admitted fact that the capital gain was not computed as per the normal computation of income, therefore, there is no logic to charge the normal rate of tax as prescribed under Section 112 because this section is in respect of the income assessed under the general provisions of IT Act. Once the capital gain is computed under the special provisions of Chapter XIV-B applicable for assessment of search cases naturally then the special provision has to apply for chargeability of. tax. Due to this basic distinction I am of the opinion that there is sufficient reason to take a view other than already been taken by learned brother.
54.1 have also considered the applicability of special enactment provided in the statute and its importance. I am aware that whenever there is a general enactment as well as special enactment then the said particular or special enactment would override the general enactment.
The underlying principle is that the meaning and intention of a statue must be collected from the plain and unambiguous expression used therein rather than to obviate from the notions. So the rule is that whenever there is a precise and particular enactment and there is a general enactment in the statute then the particular enactment would overrule the general enactment. So a conclusion can be arrived at that the particular enactment must be operative on the income described therein and the general enactment must be taken to effect only on the other income prescribed in the statue to which it may generally apply.
The classic statement of Rowlatt J. in Cape Brandy Syndicate v. IRC (1921) 1 KB 64 at p. 71 still holds the field. It reads:......"In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, one can-only look fairly at the language used", (Reference from Narain Das Paramanand Das v. ITO . It is worth to add further that to arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of such enactment. I hasten to add that the aim and object is unambiguous that Section 112 is in respect of "total income" and Section 113 is in respect of "undisclosed income". In support of the view expressed in this para I take shelter of certain precedents quoted from the side of the Revenue already cited in para 14 of the draft order, hence need not to be reproduced again.
55. The next and utmost important aspect is yet to be seen that my learned brother has relied upon an order of a Co-ordinate Cochin Bench cited as P.A. Chandran v. Asstt. CIT (supra), wherein this issue was dealt with in brief and the relevant para is reproduced below: 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 AO 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 gams, tax is leviable at 20 per cent only as provided in Section 112 and so the AO 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(SS)A No. 26/Coch/1996, r/w MP No. 119/Coch/1997, dt. 8th Dec., 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 AO is therefore, directed to levy tax at the lower rate of 20 per cent as applicable to capital gains.
In my humble view the observation of the Hon'ble Co-ordinate Bench appears to be per incuriam due to the reason of non-citation of both the provisions of IT Act described hereinabove. Rather the Bench has relied upon an unreported decision of the Tribunal cited therein which is not available to us in the instant appeal for our perusal. At this juncture it is worth repetition that Chapter XIV-B provides for special procedure for assessment of undisclosed income detected as a result of search. This special chapter lays down the rules for computation and assessment of such undisclosed income may under any head such as "Property income", "Capital gain", etc. However, the "undisclosed income" as defined in this chapter means such income which is detected as a result of search. Undisputedly the capital gain in the instant appeal is a result of such detection only after the search operation.
Section 158BA(2) provides that such undisclosed income shall be charged to tax at the rate specified in Section 113 of the Act. This section provides to tax undisclosed income @ 60 per cent. On the other hand, Section 112 is in respect of taxing long-term capital gain disclosed in the return of income under the other general provisions of IT Act. This vital distinction has not been addressed to Cochin Bench, therefore, deprived of the benefit of examining the distinction between the two sections. I am aware that a consistency has to be maintained and judicial propriety requires one Bench to follow the decision of another Bench on identical facts and circumstances. But as observed by the Hon'ble apex Court in the case of Distributors (Baroda) (P) Ltd. v.Union of India that there is no heroism to perpetuate an error. To rectify is a compulsion of the judicial consciousness.
Further it can be added that in the name of adhering to the principle of consistency, we cannot leave any scope for perpetuation of errors, hence emboldened to take a view in a deserving case and thus has the liberty of applying the mind afresh to adjudicate upon the matter.
Because of the unambiguous structure of two sections as distinguished above I have strong reason to depart from the stand already taken by my learned brother as well as by the respected Cochin Bench.
56. In view of above discussion and after scrutinizing both the sections a conclusion can be drawn that Section 113 is a special provision applicable on an another special chapter of IT Act, hence override an another special Section 112 which is applicable to the general provisions of IT Act. So both these sections operate on two different directions one on the capital gain assessed in normal course and the other on capital gain, if any, assessed in search and seizure cases. This is a vital distinction more so because these are not liberal provisions to be interpreted liberally but prescribing rate of tax to be applied under specific circumstances on specific income. In other words, Section 113 being a special provision restricted to undisclosed income hence prevails over any other special provision which is applicable upon the income to be taxed in the general provision. A question may be raised or suspicion may arise on the ground that in some cases a view has been taken that the capital gain is to be computed in accordance with the provisions of Chapter IV while computing the undisclosed income of the block period under Section 158BB. But the answer to this apprehension in simple that the view has been taken in respect of the computation of undisclosed income and definitely not on the subject of chargeability of tax so cannot be equated with the issue in hand. On the basis of above discussion this issue can be summarized and a conclusion can be drawn that Section 113 is a specific provision concerning to a specific situation thus having exclusive application on undisclosed income, therefore, in the instant appeal capital gain included in the undisclosed income is subject to tax @ 60 per cent and not @ 20 per cent. Through ground No. 15 the appellants have challenged levy of tax @ 60 per cent on the undisclosed long-term capital gain included in the block period assessment, which is hereby dismissed.
57. The issue discussed hereinabove is not the subject-matter in the appeal of M/s Ganesh Sand Suppliers, bearing IT(SS)A No. 224/Mum/2004 decided by learned brother vide paras 45 to 50 of the consolidated order. As far as this appeal is concerned I hereby endorse the view taken by my learned brother.
We, having differed on the point in the above appeals filed by the assessees, refer the following point of difference to the President under Section 255(4) of the IT Act, 1961: Whether long-term capital gains is subject to tax @ 60 per cent as provided under Section 113 being part of undisclosed income assessed under Chapter XIV-B of IT Act or the same is subject to tax @ 20 per cent under Section 112 which lays down rate of tax on long-term capital gains? 1. This is an order under Section 255(4) of the IT Act. The following question has been referred by Hon'ble Members of the Bench on account of difference of opinion to me for consideration and disposal: Whether long-term capital gain is subject to tax @ 60 per cent as provided under Section 113 being part of undisclosed income assessed under Chapter XIV-B of IT Act or the same is subject to tax @ 20 per cent under Section 112 which lays down rate of tax on long-term capital gains? 2. The dispute as is evident from the question under reference relates only to the rate of tax applicable to income charged under the head "Capital gains". There is no dispute that above income was "undisclosed income" of the assessee. There is further no dispute that income was assessed consequent to a search carried on 4th Jan., 1996 at the premises of the assessee under Section 132 of the IT Act.
3. The two sections of the IT Act, which are to the rate of tax for application, in this case are Sections 112 and 113 of the IT Act. These are as under: 112(1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head 'Capital gain', the tax payable by the assessee on the total income shall be the aggregate of- (ii) The amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent.
113. The total undisclosed income of the block period, determined under Section 158BC, shall be chargeable to tax at the rate of sixty per cent.
4. In his proposed order, the learned Accountant Member (AM) has held that provisions of Section 112 of the IT Act are applicable in this case for following reasons 15. We have carefully considered the rival submissions in the light of material placed before us. The decisions relied upon by the learned Departmental Representative pertain to the proposition that special provisions override the general provisions. In the instant case, not only Section 113 is a special provision, but Section 112 is also a special provision specifying the rate of tax to be charged upon capital gains. Therefore, we are of the opinion that the judgments relied upon by the learned Departmental Representative do not assist the case of the Revenue. The Cochin Bench of the Tribunal in the case of P.A. Chandran v. Asstt. CIT (2000) 69 TTJ (Coch) 566, has held that tax is leviable @ 20 per cent as provided in Section 112(1)(a)(ii) on the capital gains included in the undisclosed income computed under Chapter XIV-B. We are inclined to agree with the decision of the Cochin Bench which is a direct decision on the point at issue. Respectfully following the precedent on the point at issue, we hold that tax is leviable @ 20 per cent on the capital gains included in the undisclosed income computed under Chapter XIV-B. The appeals of the assessees, therefore, succeed on this issue.
5. The learned Judicial Member (JM) did not agree with the above view.
In the proposed order the learned JM gave the following reasons for holding that Section 113 is applicable.
So the opening words of Section 113 are unambiguous that the rate of 60 per cent is to be applied in respect of 'total undisclosed income of the block period'. The distinction between the two sections is manifest and both the sections are special provisions specifying the rate of tax to be charged under certain specific circumstances. On one hand Section 112 only speaks about 'total income' however, on the other hand, Section 113 speaks about 'undisclosed income'. As far as the instant appeal is concerned there is no dispute that the assessment was framed under Section 158BC, i.e., under Chapter XIV-B. Further there is no dispute about this fact also that the capital gain remained undisclosed and unearthed only in consequence of search and seizure action. So there is no dispute that the capital gain in question was computed not in the normal course of assessment proceedings but added in the undisclosed income under special conditions, i.e.. search and seizure and assessed in the block assessment under Section 158BC. Once it is an admitted fact that the capital gain was not computed as per the normal computation of income, therefore, there is no logic to charge the normal rate of tax as prescribed under Section 112 because this section is in respect of the income assessed under the general provisions of IT Act, Once the capital gain is computed under the special provisions of Chapter XIV-B applicable for assessment of search cases naturally then the special provision has to apply for chargeability of tax. Due to this basic distinction I am of the opinion that there is sufficient reason to take a view other than already been taken by learned brother.
54. I have also considered the applicability of special enactment provided in the statute and its importance. I am aware that whenever there is a general enactment as well as special enactment then the said particular or special enactment would override the general enactment.
The underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than to obviate from the notions. So the rule is that whenever there is a precise and particular enactment and there is a general enactment in the statute then the particular enactment would overrule the general enactment. So a conclusion can be arrived at that the particular enactment must be operative on the income described therein and the general enactment must be taken to effect only on the other income prescribed in the statute to which it may generally apply.
The classic statement of Rowlatt J. in Cape Brandy Syndicate v. IRC (1921) 1 KB 64 at p. 71 still holds the field. It reads.... in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, one can only look fairly at the language used'. (Reference from Narain Das Paramanand Das v. ITO . It is worth to add further that to arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of such enactment. I hasten to add that the aim and object is unambiguous that Section 112 is in respect of 'total income' and Section 113 is in respect of 'undisclosed income'. In support of the view expressed in this para I take shelter of certain precedents quoted from the side of the Revenue already cited in para 14 of the draft order, hence need not to be reproduced again.
55. The next and utmost important aspect is yet to be seen that my learned brother has relied upon an order of a Co-ordinate Cochin Bench cited as P.A. Chandran v. Asstt. CIT (2000) 69 TTJ (Coch) 566, wherein this issue was dealt with in brief and the relevant para is reproduced below; '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 AO 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 AO 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 Balaknshnan in IT(SS)A No. 26/Coch/1996, r/w MP No. 119/Coch/1997, dt. 8th Dec, 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 AO is therefore, directed to levy tax at the lower rate of 20 per cent as applicable to capital gains.' In my humble view the observation of the Hon'ble Co-ordinate Bench appears to be per incuriam due to the reason of non-citation of both the provisions of IT Act described hereinabove. Rather the Bench has relied upon an unreported decision of the Tribunal cited therein which is not available to us in the instant appeal for our perusal. At this juncture it is worth repetition that Chapter XIV-B provides for special procedure for assessment of undisclosed income detected as a result of search. This special chapter lays down the rules for computation and assessment of such undisclosed income under any head such as "Property income", "Capital gain", etc. However, the 'undisclosed income' as defined in this chapter means such income which is detected as a result of search. Undisputedly the capital gain in the instant appeal is a result of such detection only after the search operation; Section 158BA(2) provides that such undisclosed income shall be charged to tax at the rate specified in Section 113 of the Act. This section provides to tax undisclosed income @ 60 per cent. On the other hand, Section 112 is in respect of taxing long-term capital gain disclosed in the return of income under the other general provisions of IT Act. This vital distinction has not been addressed to Cochin Bench, therefore, deprived of the benefit of examining the distinction between the two sections. I am aware that a consistency has to be maintained and judicial propriety requires one Bench to follow the decision of another Bench on identical facts and circumstances. But as observed by the Hon'ble apex Court in the case of Distributors (Baroda) (P) Ltd. v. Union of India and Ors.
(p. 124) that there is no heroism to perpetuate an error. To rectify is a compulsion of the judicial consciousness.
Further it can be added that in the name of adhering to the principle of consistency, we cannot leave any scope for perpetuation of errors, hence emboldened to take a view in a deserving case and thus has the liberty of applying the mind afresh to adjudicate upon the matter.
Because of the unambiguous structure of two sections as distinguished above I have strong reason to depart from the stand already taken by my learned brother as well as by the respected Cochin Bench.
56. In view of above discussion and after scrutinizing both the sections a conclusion can be drawn that Section 113 is a special provision applicable on an another special chapter of IT Act, hence override an another special Section 112 which is applicable to the general provisions of IT Act. So both these sections operate on two different directions, one on the capital gain assessed in normal course and the other on capital gain, if any, assessed in search and seizure cases. This is a vital distinction more so because these are not liberal provisions to be interpreted liberally but prescribing rate of tax to be applied under specific circumstances on specific income. In other words, Section 113 being a special provision restricted to undisclosed income hence prevail over any other special provision which is applicable upon the income to be taxed in the general provision. A question may be raised or suspicion may arise on the ground that in some cases a view has been taken that the capital gain is to be computed in accordance with the provisions of Chapter IV while computing the undisclosed income of the block period under Section 158BB. But the answer to this apprehension is simple that the view has been taken in respect of the computation of undisclosed income and definitely not on the subject of chargeability of tax so cannot be equated with the issue in hand. On the basis of above discussion this issue can be summarized and a conclusion can be drawn that Section 113 is a specific provision concerning to a specific situation thus having exclusive application on undisclosed income, therefore, in the instant appeal capital gain included in the undisclosed income is subject to tax @ 60 per cent and not @ 20 per cent. Through ground No. 15 the appellants have challenged levy of tax @ 60 per cent on the undisclosed long-term capital gain included in the block period assessment, which is hereby dismissed. 6. The learned members having differed, the matter has been referred to me under Section 255(4) of the IT Act. Shri Y.P.Trivedi, the learned Counsel for the assessee submitted that there is no reason why provision of Section 112 of the IT Act should not be applied in this case and capital gain charged accordingly. He emphasized that all provisions applicable to a regular assessment are applicable to the assessment made under Chapter XIV-B of IT Act as is clear from Section 158BH of the IT Act. In this connection Shri Trivedi referred to two decisions of Tribunal, Kerala Bench, wherein it was held that even in cases of block assessment, capital gains as part of undisclosed total income, was to be subjected to tax under Section 112 of the IT Act. The cases cited are as under; 2. Smt. Chandra Balaknshnan IT(SS)A No. 26/Coch/1996 r/w MP No.119/Coch/1997, dt. 8th Dec., 1997.
In fact, the first decision followed the second decision. Shri Trivedi further submitted that under the scheme of the IT Act relating to computation of "undisclosed income" the total income is to be charged at the rate of 60 per cent under Section 113 of the IT Act. However, there is nothing to show that provision of Section 113 override the provision of Section 112 specifically made applicable to income under the head "Capital gains".
Shri Trivedi further drew my attention to the decision of the Hon'ble Bombay High Court in the case of CIT v. Hindustan Bulk Carriers (2003) 179 CTR (SC) 362 : (2003) 259 ITR 449 (SC) wherein at p. 465, their Lordships have held that as far as capital gains is concerned, the same is liable to be taxed at the rate of 20 per cent under Section 112 of the IT Act.
Shri Trivedi further drew my attention to decision of Hon'ble Gujarat High Court in the case of Niti Trust and Ors. v. CIT , where in cases of a discretionary trust, the assessee was held to be liable to pay tax on its income at maximum marginal rate. However capital gains included in the total income of the trust was held to be chargeable at the rate of 20 per cent in accordance with provision of Section 112(1)(a) of the IT Act. This clearly showed that as far as capital gain was concerned, the same was to be charged at the rate of 20 per cent under special provision applicable only to capital gains, Shri Trivedi further added.
Shri Trivedi further referred to Form of return No. 2B provided under IT Rules, to be filed in cases of search requiring to disclose "undisclosed income". The Form clearly shows that income was required to be disclosed and assessed under different heads including "capital gains". A copy of prescribed Form No. 2B was placed on record. Now if capital gain was also to be charged at the rate of 60 per cent, there was no need to show and assess it under a different head.
Shri Trivedi further emphasized that even in search cases benefit of Sections 80L, 80HHC and 80-I have been allowed by different Benches of the Tribunal. In other words, specific provision relating to deductions were not excluded. In cases of assessment of capital gain in search cases benefit of Section 54F was allowed as is evident from decision of Tribunal in the case of Devang S. Desai v. Dy. CIT (2004) 84 TTJ (Mumbai) 117 : (2004) 90 ITD 107 (Mumbai).
It was therefore emphasized that even in search cases, capital gain does not lose its character and is required to be assessed under capital gain. Therefore, there is no reason as to why a specific provision relating to tax be not applied or invoked in a search case.
In other words, Shri Trivedi submitted that there is no ambiguity nor there is any problem in the application of provision of Section 112 as far as income under the head "Capital gains" was concerned. It was immaterial that aforesaid income was "undisclosed income" and assessed under Chapter XIV-B of the IT Act.
In the alternative, Shri Trivedi submitted that in case two reasonable views of the matter are possible, then a view in favour of assessee has to be adopted as per the settled law. In this connection. Shri Trivedi referred to and relied upon the following decisions:CIT v. Kulu Valley Transport Co. (P) Ltd. 4. CIT v. Smt Chandia Balakrishnan (2003) 184 CTR (Ker) 353; (2003) 132 Taxman 235 (Ker).
7. The learned Departmental Representative while opposing the submission made on behalf of the assessee, supported the proposed order of the learned JM. He referred to assessment orders dt. 28th March,.
2002 to show that two assessments involved before me were block assessments for several years, Capital gains in dispute was assessed as part of total "undisclosed income". The learned Departmental Representative further drew my attention to provision to Section 158BA(2) of the IT Act which provides that in computing the undisclosed income of the block period, provisions of Sections 68, 69A, 69B and 69C shall so far as may be applied and reference to financial year shall be construed as reference to assessment years falling in the block period including the previous year ending with the date of search. He also pointed out that provisions of Section 113 were introduced in the statute w.e.f. 1st July, 1995 through the Finance Act, 1995. It was a later legislation than Section 112 of IT Act. Therefore, effect has to be given to Section 113 as far as application of rate of tax was concerned in preference to Section 112. The above section was required to be applied along with computation provision for computing undisclosed income. The orders of Tribunal Cochin Bench were to be treated as decision per incuriam. In this connection he drew support from decision in the proposed order of the JM. The learned Departmental Representative further argued that provision involved before me was required to be literally construed. As regards Circular No. 636 referred to by counsel for the assessee, the learned Departmental Representative submitted that the same had no application in this case as Chapter XIV-B had not been brought on statute book when the circular was issued.
8. The learned Departmental Representative also relied upon commentaries of Shri G.P. Singh on "interpretation of statute" to emphasis that a latter provision is required to be applied in preference to a provision earlier brought on the statute when there was a conflict between them. The learned Departmental Representative further argued that Form 2B could not be of any assistance to the assessee as even undisclosed income was required to be computed under different heads and then subjected to charge at a uniform rate.
According to the learned Departmental Representative there was no conflict between Sections 112 and 113 of IT Act in the present case as it was a case of assessment made consequent to search relating to "undisclosed income". Therefore, there was no scope to ignore provision of 113 of IT Act. The learned Departmental Representative also drew my attention to the decision of the Hon'ble Madhya Pradesh High Court in the case of Smt. Harbans Kaur Bhatia v. CIT , which according to the learned Departmental Representative was a direct decision.
9. In rebuttal Shri Trivedi once again referred to Sub-section (2) of Section 158BH which according to Shri Trivedi supported his arguments.
Likewise Shri G.P. Singh's commentaries also supported assessee's case.
The decision of Hon'ble Madhya Pradesh High Court in the case of Smt.
Harbans Kaur Bhatia v. CIT (supra) was a judgment per incuriam as no reference to the relevant sections have been made in that case. The dispute there was whether income was disclosed or not. No question whether Section 113 would apply or not was raised before the Court.
10. I have given careful thought to rival submissions of the parties.
There is no controversy that capital gain in dispute has been assessed under Chapter XIV-B of the IT Act in consequence to a search conducted by the Revenue under Section 132 of IT Act. The dispute is limited to the claim of the assessee that capital gain forming part of total undisclosed income is required to the charged at the rate of 20 per cent as per provision of Section 112 of the IT Act. It is the contention that there is nothing in Section 112 to show that the same would not be applicable to "undisclosed income" computed under Section 115BC or BD of the IT Act. Even in cases where provision of Section 164 of IT Act are applicable and total income is liable to be charged at maximum marginal rate, the capital gain included in such total income was held to be chargeable as per rate prescribed by Section 112 of the Act. The same analogy was applicable to search cases also. It was further emphasized that both provisions of Sections 112 and 113 of IT Act were special provisions and therefore there is no justification to give preference to one over the other. In the end the theory of two reasonable views was pressed with prayer that in such a situation a reasonable view favouring the assessee is required to be adopted.
11. At the first blush, the argument that both the provisions of Sections 112 and 113 are special appears to be attractive. But it is not so, if scheme of IT Act particularly relating to regular assessment and assessment made under Chapter XIV-B is kept in view. A regular assessment is an assessment made under Sections 143(3) and 144 of the IT Act. It can also be said to be a normal assessment. The assessees are normally subjected to regular assessments. Then there are provisions contained in Chapter XIV-B of the IT Act with the following heading: Above title should leave no one in doubt that provisions contained in Chapter XIV-B provide special procedures for assessment in search cases. These have no application in the case of an assessee not subjected to a search. Thereafter in Section 158B, 'block period and 'undisclosed income' is defined. The other relevant provision of Section 115BA is to the following effect: Under the above title Sub-sections (1) and (2) are to the following effect: '158BA. (1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A in the case of any person, then the AO shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.
(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in Section 113, as income of the block period irrespective of the previous year or years to which, such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.
(a) the assessment made under this chapter shall be in addition to the regular assessment in respect of each previous year included in the block period.
(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c) the income assessed in this chapter shall not be included in the regular assessment of any previous year included in the block period.
Thereafter Section 158BB provides for computation of income. The said section is titled as under: 12. A bare reading of aforesaid provisions make it abundantly clear that these are overriding and are applicable 'notwithstanding anything contained in any other provisions of the Act. It is further clear from the statutory provisions that block assessments relate to several years and are different from a regular assessment confined to a particular year, The method of computation of undisclosed income is also different from computation of regular income although machinery relating to regular assessment is also used in the block assessment. The total undisclosed income is required to be charged to tax at the rate specified in Section 113 of IT Act. This is clearly provided in Sub-section (2) of Section 158BA. It is further provided that income which is included in the total undisclosed income of the block period shall not be assessed again in any regular assessment of any previous year included in the block period.
13. Having seen the distinction between the regular assessment, i.e., normal assessment and special assessment under Chapter XIV-B of undisclosed income found as a result of search, it is to my mind easy to find which of Sections 112 or 113 will apply in the present case.
Now considering plain language used in above sections, in the light of above backdrop, it is evident that Section 112 has no application to undisclosed income and whereas Section 113 has been specifically made applicable to such an income. The other Section 112 has to be applied to total income computed in a regular assessment (including reassessment). There is nothing in the provision of Section 112 or any other section to indicate that mandate of Sub-sections (1) and (2) of Section 158BA is not to be carried and given effect to by charging undisclosed income assessed under any head at the rate specified in Section 113 of the Act.
14. Shri Trivedi while supporting the claim that Section 112 is to be applied in this case, as even in cases of block assessment, deductions under Sections 80L, 80HHC and 80-1 have been allowed. Entire gross "undisclosed income" could not be subjected to tax at the rate of 60 per cent. Undisclosed income was also classified under various heads. I have no quarrel with the above proposition. Under Section 158BH all provisions of the Act apply to assessment made under Chapter XIV-B and therefore permissible deductions are to be allowed while computing undisclosed income. But this section states "Save as otherwise provided in this chapter". Therefore while applying other provisions of the Act, we have to see whether there is any conflict with other provisions and provisions contained in Chapter XTV-B of the Act. If there is a conflict, then provisions of Chapter XIV-B are required to be applied in preference to other statutory provisions of the Act. I have already referred to Sub-sections (1) and (2) of Section 158BA specifically providing for charging of tax on total undisclosed income at the rate specified in Section 113 of the Act. Thus application of above section to "capital gains" is "saved" under the provision. After computing income under various sections not in conflict with provisions of Chapter XIV-B, the income left out (balance income) is to be charged to tax at the rate provided in Section 113 of the IT Act. It is immaterial as to under what head the income has been assessed as "undisclosed income". The purpose of provisions sought to be applied for computing income is over as soon as total income is available. Rate of tax to be applied, is a different thing. The total income being "undisclosed income" is charged to tax as per provisions of Section 113 of the IT Act. I see no scope to apply provisions of Section 112.
15. The learned Counsel for assessee had also relied upon two decisions of Tribunal Cochin Bench, wherein it was held that even in search and seizure cases capital gains included in total undisclosed income was liable to be charged to tax as per Section 112 of IT Act. The second decision in the case of P.A. Chandran v. Asstt. CIT (supra) had merely followed earlier decisions' of Tribunal in the case of Smt. Chandra Balakrishnan dt. 8th Dec, 1997 (supra). The learned Counsel for assessee has placed on record copy of order in the case of Smt. Chandra (supra) which shows that the order was set aside on further reference by their Lordships of Cochin High Court for a fresh decision. The case is reported as CIT v. Smt. Chandra Balakrishnan (supra). The net result is that there is no decision supporting the claim of the assessee.
16. Shri Trivedi had also submitted that even in cases where Section 164 of IT Act was applicable and total income was charged at the maximum marginal rate, capital gain included in such total income was held to be chargeable at the rate of 20 per cent under Section 112 of IT Act. There is no doubt about the soundness of the proposition but the same does not advance the case of the assessee for the reasons already given. Even the assessments made with reference to Section 164 of IT Act are regular and normal assessments. These are not special assessments made consequent to a search under Chapter XIV-B of IT Act pertaining to undisclosed income. In such cases there is no provision to rule out application of Section 112 of IT Act like under Chapter XIV-B discussed above. The cited decision is distinguishable.
17. In the above paras, I have discussed arguments raised before me otherwise the matter in my view is concluded as per decision of MP High Court in the case of Smt Harbans Kaur Bhatia (supra) relied upon by the learned Departmental Representative. This is more than clear from the following observations of their Lordships: In our opinion, thus, it was a clear case of income from undisclosed source in the hands of the assessee as defined under Section 158B(b) ibid. It is clear from the fact that firstly, the sale deed recited a sale consideration of Rs. 9 lakhs. Secondly, only a sum of Rs. 9 lakhs was shown to be received by cheque. Thirdly, the balance amount of Rs. 20,60,000 received in cash was not entered in the books of account of any of the trio, nor was it anywhere disclosed in any document such as bank account or in wealth-tax returns or in the form of issuing a receipt in favour of the purchaser against the sale consideration by any of the trio including the assessee to the extent of her 1/3rd share of Rs. 6,66,666. In this view, the intention of the assessee was not to disclose receipt of Rs. 20,60,000 or her 1/3rd share out of Rs. 20,60,000, i.e., Rs. 6,66,666 in her income for the year in question. It was thus a clear case which falls in the wording of Section 158B(b) i.e., 16. In this view of the matter, the income in question had to be taxed in the hands of the assessee as per the provisions applicable to block assessment r/w Section 113 of the Act treating the income to be an income from undisclosed one as defined under Section 158B(b) ibid.
17. Accordingly and in view of the foregoing discussion, we are of the view that no fault can be found in the conclusion arrived at by the AO and that of the Tribunal. Though we uphold their eventual conclusion, but we do so on our own reasoning which we have arrived at on interpretation of the relevant sections referred to supra. In fact, the Tribunal should have examined the case legally on these lines rather than on simple facts and that too without taking recourse to any of the legal provisions which are applicable to the facts of this case.
18. In the light of above discussion, I fully agree with the view taken by the learned JM. Let the matter be placed before regular Bench for disposal of appeals in accordance with law.
In these appeals on account of difference of opinion with regard to ground No. 15 which relate to chargeability of rate of interest on long-term capital gain, which was treated as part of the undisclosed income for the block period, following question was referred to Third Member for his opinion: Whether long-term capital gain is subject to tax at the rate of 60 per cent as provided under Section 113 being part of the undisclosed income assessed under Chapter XIV-B of the IT Act or the same is subject to tax @ 20 per cent under Section 112 which lays down the rate of tax on long-term capital gains.
2. The Third Member has approved the view of the learned, JM that Section 113 of the IT Act is a specific provision concerning to a specific situation, thus having exclusive application on undisclosed income and therefore, this capital gain included in the undisclosed income is subject to tax @ 60 per cent and not 20 per cent. Keeping in view the majority decision on this issue, ground No. 15 is decided against the assessee and the tax would be charged on long-term capital gain @ 60 per cent.
3. In the result, the appeals of the assessee stand partly allowed for statistical purposes.