Oravanthuruthil Chandran Joji V. Income Tax Officer, Ward 1 (1)

WP(C)/28098/2022

AI Insights

The case involves Oravanthuruthil Chandran Joji, the petitioner, who challenged an order under Section 148A(d) of the Income Tax Act, 1961, concerning the assessment year 2013-14. The dispute centered on the taxability of capital gains from a property received by the petitioner upon the dissolution of a partnership firm in 2011 and subsequently sold in 2012. The Income Tax Department argued that the property, although initially not taxed when it vested in the petitioner, became taxable upon its sale, as it was not agricultural land and did not qualify for deductions under Sections 54B and 54F of the Act. The court dismissed the petition, agreeing with the department's view on the taxability of the capital gains from the sale of the property.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 681840 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 07-12-2023
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: ANIL NAIR; TELMA RAJU; EDATHARA KRISHNAN; MOHAMMED SAVAD; K P BIJU
• Keywords: Assessment Year; Capital Gain; Partnership firm dissolution; Reopening of assessment; Tax liability
• Section: 147; 54B; 54F; 149; 148A(d); 45(1)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH THURSDAY, THE 7TH DAY OF DECEMBER 2023 / 16TH AGRAHAYANA, 1945 WP(C) NO. 28098 OF 2022 PETITIONER/S: ORAVANTHURUTHIL CHANDRAN JOJI, AGED 50 YEARS THULASI BHAVAN ,V.R. PURAM ,CHALAKKUDY, POTTA ASHRAM ROAD , THRISSUR , KERALA-680722. BY ADVS. ANIL D. NAIR TELMA RAJU EDATHARA VINEETA KRISHNAN MOHAMMED SAVAD K. P.K.BIJU RESPONDENT/S: INCOME TAX OFFICER, WARD 1 (1), AAYAKAR BHAVAN, THRISSUR - 680001. OTHER PRESENT: SRI.JOSE JOSEPH-SC, INCOME TAX DEPARTMENT THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 07.12.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 28098 OF 2022 2 J U D G M E N T The present writ petition has been filed impugning Ext.P9 order dated 25.7.2022 under Section 148A(d) of the Income Tax Act, 1961 (“Act”, for short) in respect of the assessment year 2013- 14, issued to the petitioner. The main ground for challenge of the said order is that the property, which was received by the petitioner from the partnership firm as a result of its dissolution on 15.7.2011, could have been taxed for capital gain in the said year when the partnership firm was dissolved and the assets in the hands of the partnership firm came to be distributed between the partners. However, the said capital gain was not taxed at the hands of the dissolved partnership firm, and therefore, the subsequent transfer by the petitioner also could not have been taxed. 2. It is further submitted that the reopening of the assessment for the assessment year 2013-14 had become time barred, in as much as the notice, WP(C) NO. 28098 OF 2022 3 Ext.P2, for reopening was issued on 28.6.2021 in respect of the said assessment year. 3. On the other hand, Sri.Jose Joseph, learned Senior Standing Counsel for the Income Tax Department, has submitted that the firm was a family partnership firm, consisting of five (5) partners. All the partners had undivided shares in the land, which was introduced as capital in the partnership firm. The partnership firm got dissolved on 15.7.2011 in terms of the dissolution deed of the same date, Ext.P1. As a result of the dissolution of the partnership firm, the land got vested with the petitioner and two other partners. Mr.Jose Joseph submits that this vesting of the land/capital asset in the hands of the petitioner and two other partners could have been taxed for capital gain, but it could not be taxed as it became time barred. However, the petitioner had transferred the land, which got vested in his name as a result of dissolution of the partnership firm, through registered sale deed dated 3.7.2012, and WP(C) NO. 28098 OF 2022 4 the sale proceeds were shown as capital gain treating it to be an agricultural land and claiming deductions under Sections 54B and 54F of the Act. Since the said land was not an agricultural land, as trees standing there were removed, and it was used for access and another facilities to the hospital building, the assessing authority was of the view that deduction claimed by the petitioner under Sections 54B and 54F of the Act were not eligible. Therefore, notice under Section 148 for reopening the assessment under Section 147 of the Act was issued on 28.6.2021. This was done within the time limit as per Section 149 of the Act and the various notification/ordinance extending the time limit from 31.3.2020 to 30.6.2021. The notice was well within the extended period up to 30.6.2021. The petitioner/assessee filed return of his income against the notice under Section 148 on 4.11.2021 declaring a total income of Rs.9,30,080/- and mentioning the sale consideration at Rs.2,36,64,300/- with the same cost of acquisition WP(C) NO. 28098 OF 2022 5 of the capital asset bringing the short term capital gain to nil. 4. The reasons for reopening the assessment were also provided along with notice under Section 148 of the Act, which would read as under: “Assessee has sold an immovable property for Rs.2,35,00,000/- vide document dated 03.07.2012 (1/3rd share of total sale consideration of Rs.7,05,00,000/-) and declared Rs.9,10,379/- as Short Term Capital Gain and Rs.Nil as Long Term Capital gain after claiming deductions u/s.54B and 54F. But the sale deed does not prove that it is an agricultural land. In the description of the property, it is shown as dry land with hospital building. As such the claim of deduction u/s.54B is not in order.” 5. Thereafter, considering the reply and giving an opportunity of hearing to the petitioner, Ext.P9 order impugned herein has been passed. Section 45(1) of the Act would read as under: “Capital gains : 45 (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head WP(C) NO. 28098 OF 2022 6 \"Capital gains\", and shall be deemed to be the income of the previous year in which the transfer took place.” 6. Therefore, what is to be considered is the point of sale of the capital asset, which is a taxable event for the purposes of capital gain. After vesting the property in the hands of the petitioner as a result of dissolution of the firm on 15.7.2011, the petitioner became the owner of the said asset, which he had sold on 3.7.2012 in favour of Catholic Syrian Bank. The petitioner's share would come to Rs.2,35,00,000/-. What is being shown to be taxed is sale by the petitioner and not the sale/vesting of the asset as a result of the dissolution of the firm. Therefore, I do find that the contention raised by Sri.Anil D.Nair, learned counsel for the petitioner, that since the dissolved partnership was not taxed when the asset came into the hands of the petitioner as a result of dissolution of the partnership firm, subsequent WP(C) NO. 28098 OF 2022 7 sale by the petitioner is not liable to be taxed for capital gain, is unconvincing. 7. It is also not in dispute that the notice dated 28.6.2021 under Section 148 of the Act for reopening the assessment was issued within the extended period up to 30.6.2021. Thus I find no substance in the present writ petition, which is hereby dismissed. The petitioner is permitted to file his return in response to final notice under Section 148 of the Act within a period of thirty (30) days from today. After the petitioner files the return in pursuance to the notice under Section 148 of the Act, the assessing authority will proceed to determine the tax liability, in accordance with law. Pending interlocutory application, if any, in the writ petition stands dismissed. Sd/- DINESH KUMAR SINGH JUDGE jg WP(C) NO. 28098 OF 2022 8 APPENDIX OF WP(C) 28098/2022 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE DEED OF DISSOLUTION DATED 15.07.2011 Exhibit P2 TRUE COPY OF THE NOTICE DATED 28.06.2021 ISSUED BY THE RESPONDENT. Exhibit P3 TRUE COPY OF THE REVISED RETURN DATED 04.11.2021 Exhibit P4 TRUE COPY OF THE NOTICE DATED 25.02.2022 ISSUED BY THE RESPONDENT. Exhibit P5 TRUE COPY OF THE REPLY DATED NIL FILED BY THE PETITIONER. Exhibit P5(a) TRUE COPY OF ACKNOWLEDGMENT DATED 14- 03-2022 BY THE RESPONDENT. Exhibit P6 TRUE COPY OF THE NOTICE DATED 30.05.2022 ISSUED BY THE RESPONDENT. Exhibit P7 TRUE COPY OF THE REPLY DATED NIL FILED BY THE PETITIONER. Exhibit 7(a) TRUE COPY OF ACKNOWLEDGMENT DATED 13- 06-2022 BY THE RESPONDENT. Exhibit P8 TRUE COPY OF THE REPLY WP(C) NO. 28098 OF 2022 9 DATED 27.06.2022 FILED BY THE PETITIONER. Exhibit P9 TRUE COPY OF THE ORDER DATED 25.07.2022 ISSUED BY THE RESPONDENT. "