B S Shantharaju V. Commissioner of Income Tax Circle-14(1)

ITA/705/2008

AI Insights

The case revolves around an appeal by B S Shantharaju against the decision of the Income Tax Appellate Tribunal, which confirmed the tax liability on capital gains arising from the sale of shares in the UK. The primary legal contention was whether the capital gains were taxable in India under the domestic law, despite the assessee's claim of tax liability in the UK. The Tribunal and the lower authorities had previously held that the assessee was liable to pay capital gains tax in India. The High Court examined the applicability of the Double Taxation Avoidance Agreement (DTAA) between India and the UK and the provisions of the Income Tax Act, particularly focusing on the interpretation of Article 14 of the DTAA and the implications of Sections 143(1) and 148 of the Act regarding the reopening of assessments.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 807615 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 22-07-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax and Another vs. Rinku Chakraborthy
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI
• Assessee Lawyers: PRAVEEN HIREMATH
• Keywords: Capital Gain Tax; Double Taxation Avoidance Agreement; Income chargeable to tax; Reopening of assessment; Domestic law
• Section: 147; 148; 143(1); 260-A

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 22ND DAY OF JULY 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AND THE HON’BLE MR.JUSTICE B. MANOHAR INCOME TAX APPEAL NO.705 OF 2008 BETWEEN: B S SHANTHARAJU NO.34/41, 15TH MAIN ROAD PADMANABHANAGARA BANGALORE-70 ...APPELLANT (BY SRI PRAVEEN KUMAR HIREMATH, ADV. FOR M/S. K.R.PRASAD, ADV.) AND: COMMISSIONER OF INCOME TAX CIRCLE-14(1) CENTRAL REVENUE BUILDING QUEENS ROAD, BANGALORE-1 …RESPONDENT (BY SRI JEEVAN J NEERALGI, ADV.) THIS ITA FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31-01-2008 PASSED IN ITA NOS.793 & 794/BNG/2006, FOR THE ASSESSMENT YEAR 2000- 2001, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: - 2 - i. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ii. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NOS.793 & 794/BNG/2006 DATED 31-01-2008 IN THE INTEREST OF JUSTICE AND EQUITY. THIS APPEAL COMING ON FOR ORDERS THIS DAY, N. KUMAR J., DELIVERED THE FOLLOWING: J U D G M E N T The assessee has preferred this appeal against the order passed by the Income Tax Appellate Tribunal, Bangalore, confirming the order of the lower authorities where the assessee was held to be liable to pay the capital gain tax on the transaction in question. 2. The assessee along with his return enclosed a note stating that, he is liable to pay capital gain tax in the United Kingdom as per domestic law and not taxable in India. Acting on the said note, when the return was processed under Section 143(1) of the Income Tax Act (hereinafter referred to as ‘the Act’), the Assessing Officer accepted the return. However, - 3 - subsequently he issued a notice under Section 148 of the Act, on the ground that he has reason to believe that any income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act. The assessee appeared and contended that there is no other material other than what was produced along with the return, which is the basis for coming to such conclusion and therefore, he stated that the proceedings initiated for re-opening the assessment is bad. The objections were overruled. The Assessing Officer held that capital gain tax is liable to be paid by the assessee according to the domestic law of his country. Aggrieved by the same, he preferred an appeal to the first appellate court, which dismissed the appeal. The assessee preferred an appeal to the Income Tax Appellate Tribunal against these two orders. The Tribunal has also dismissed the appeal. Aggrieved by the same, the present appeal is filed. - 4 - 3. The appeal was admitted on 16.6.2009 to consider the following substantial questions of law: (i) Whether or not the Tribunal was justified in upholding the reopening of the assessment when it has given a categorical finding that there is no failure on the part of the assessee to disclose fully and truly all material facts relevant to the assessment? (ii) Whether or not the Tribunal was justified in interpreting Clause 14 of the DTA to mean that the domestic law of the assessee is applicable and not the domestic law of the land where the income accrues is applicable? 4. We have heard the learned Counsel for the parties. - 5 - 5. Article 14 of the Double Taxation Avoidance Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of India, reads as under: “Capitals gains – Except as provided in Article 8 (Air transport) and 9 (Shipping) of this Convention, each Contracting State may tax capital gains in accordance with the provisions of its domestic law.” The assessee under the scheme exercised option for sale of 1556 shares in November 1999 resulting in capital gains of Rs.4,52,931/-. 6. It is not in dispute that the assessee is a resident of India. On the ground that the capital gain has arisen in United Kingdom, he contended that, it is not taxable in India. As is clear from Article 14, as he is a resident of India, in terms of the domestic law in this country, he has to pay capital gains, which he did not - 6 - pay. Though he gave a note along with the returns, as the Assessing Officer did not apply his mind and more over, it was an assessment under Section 143(1) of the Act, the return was accepted. Once this mistake was noticed, proceedings were initiated and the said amount was brought to tax. All the three authorities have concurrently held that it is not a case of change of opinion and therefore, the levy of tax is proper. In fact, this Court had an occasion to consider in similar situation in the case of Commissioner of Income Tax and Another –vs- Rinku Chakraborthy reported in (2011) 242 CTR 0425 wherein after noticing various judgments of the Supreme Court, it was held as under: “From the aforesaid judgments it is clear that, though the word ‘opinion’ is deleted and is now substituted by the words ‘reason to believe’, the concept of change of opinion is not obliterated w.e.f. 1st April, 1989 after substitution of S.147 of the IT Act, 1961 by - 7 - the Direct Tax Laws (Amendment) Act, 1987. However, where in the original assessment the income liable to tax has escaped assessment due to oversight and in advertence or a mistake committed by the ITO, the ITO has the jurisdiction to reopen the original assessment. It is not necessary that for such reopening of such assessment the information is to be derived from external source of any kind or disclosure of new and important matters subsequent to the original assessment. Even if the information is obtained from the record of the original assessment after a proper investigation from the materials on record or the facts disclosed thereby or from any enquiry or research into facts or law, reassessment is permissible. Income may escape assessment as a result of lack of vigilance of the ITO or due to perfunctory performance of his duties without due care and caution. Even in a case where a return has been submitted to the ITO who erroneously fails to tax a part of the assessable income, it is a case of the said - 8 - part of the income as having escaped assessment and the AO has jurisdiction under s.147 to reopen the assessment and bring to tax the income that has escaped assessment. A taxpayer cannot be allowed to take advantage of any of those lapses, as ultimately if such a advantage is allowed, it would be prejudicial to the interests of the Revenue and public interest”. 7. In that view of the matter, we do not see any merit in this appeal. Accordingly, the substantial questions of law are answered in favour of the Revenue and against the assessee. Ordered accordingly. Sd/- JUDGE Sd/- JUDGE KNM/- "