Shri J Krishna Palemar Jappinamogaru V. The Assistant Commissioner of Income Tax, Circle 1(1) and TPS

WP/19323/2022

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The case involves Shri J Krishna Palemar Jappinamogaru, the petitioner, who sought to quash an order from the Assistant Commissioner of Income Tax, the respondent, which rejected his request for an NOC to withdraw unutilized funds from his Capital Gains Account. The funds were initially deposited following the sale of a residential property, with the intention of claiming an exemption under Section 54 of the Income Tax Act for reinvestment in residential property. The respondent rejected the request on grounds that the petitioner did not satisfy the conditions of Section 54, as he had purchased two residential houses. The court found that the respondent overstepped by determining eligibility for exemption at this stage, which should be reserved for assessment proceedings.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 798733 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-12-2022
• Assessment Year: misc
• Other Referred Cases: Professor P. N. Shetty v. Officer of Income Tax Officer - W.A.No.3031/2019 dated 09.10.2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: VIKRAM HUILGOL
• Keywords: Capital Gains Account Scheme; Exemption under section 54; Long Term Capital Gain; NOC for withdrawal
• Section: 54; 139(1); 226; 227

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 9TH DAY OF DECEMBER, 2022 BEFORE THE HON'BLE MR.JUSTICE S.R.KRISHNA KUMAR WRIT PETITION No. 19323 OF 2022 (T-IT) BETWEEN: SHRI J KRISHNA PALEMAR JAPPINAMOGARU, S/O J. MALLAPPA, AGED ABOUT 67 YEARS, OFFICE ADDRSS LAND LINKS, 5-7-708/1, NO.9, CITY POINT, MANGALORE 575003. RESIDING AT D NO.4-3-298/12, KODIALGUTHU EAST, BEJAI CHURCH CROSS ROAD, MANGALORE-575004. ...PETITIONER (BY SRI. VIKRAM.A. HUILGOL., SENIOR COUNSEL FOR SMT. SHEETAL.S. BORKAR., ADVOCATE) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1) AND TPS, CENTRAL REVENUES BUILDING, N.G.ROAD, ATTAWARA,MANGALURU KARNATAKA - 575 001. …RESPONDENT (BY SRI.E.I.SANMATHI., ADVOCATE ) THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED DIN AND LETTER BEARING NO.ITBA/ASK/F/73/2022- 23/1044528448(1) DTD.5.8.2022 ISSUED BY THE CONCERNED RESPONDENT AUTHORITY VIDE ANNEXURE-J AND ETC. THIS W.P. COMING ON FOR ORDERS, THIS DAY, THE COURT MADE THE FOLLOWING:- 2 ORDER In this petition, petitioner seeks quashing of the impugned Communication / Order dated 05.08.2022 at Annexure-J, by which the respondent rejected the petitioner’s request for issuance of an NOC for closure of his deposits under the Capital Gains Account Scheme. 2. Brief facts of the case leading to the case are as under:- The Petitioner is an individual assessee under the Income Tax Act, 1961 (for short, ‘the I.T.Act’) and had acquired certain residential property on 31.03.2015 and then sold the said property vide a registered Sale Deed dated 27.08.2020. The Petitioner computed the long-term capital gain arising on account of sale of the said residential property and the petitioner declared the long-term capital gain in his Income Tax Returns filed under Section 139(1) of the I.T.Act on 06.03.2022 for the Assessment Year 2021- 22 by claiming exemption under Section 54 of the Act. 2.1 Accordingly, the petitioner deposited a sum of Rs. 15,00,00,000/- under the Capital Gains Account 3 Scheme, 1988 in Capital Gain Account No.: 40179979297 maintained at the State Bank of India, Lalbagh Branch, Mangalore. Out of the aforesaid deposited amount, the petitioner withdrew from the Capital Gains Account a sum of Rs.7,44,81,478/- towards purchase of residential property on 31.05.2022. Thereafter, the petitioner sought issuance of an NOC from the respondent vide a representation dated 12.07.2022 for withdrawal of the unutilized money in the capital gains account amounting to Rs.7,55,18,522/- after payment of tax of Rs.1,80,65,000/- on the deemed capital gain on pre-closure of the investment under the Capital Gains Account Scheme as advance tax for the Assessment Year 2023-24. 2.2 The respondent rejected the petitioner’s request vide impugned letter/order dated 05.08.2022, primarily on the ground that the petitioner has not satisfied the condition of purchase / construction of a residential house, as required under Section 54 of the Act. The respondent further observed that the advance income tax of Rs. 1,80,65,000/- paid by the petitioner pertains only to the balance unutilized amount of Rs.7,55,18,522/- and that the 4 assessee is liable to pay capital gains tax on the entire amount of Rs.15,00,00,000/-. Aggrieved by the impugned order, the petitioner is before this Court by way of the present petition. 3. Heard learned Senior counsel appearing for the petitioner and learned counsel for the respondent-revenue. 4. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner submitted that the impugned order passed by the respondent is illegal, arbitrary and erroneous and without jurisdiction or authority of law and contrary to the provisions of the I.T.Act. It is submitted that while considering the petitioner’s request for NOC to withdraw the balance unutilized amount from under the Capital Gains Scheme, the respondent could not have gone into the question, as to whether the petitioner is eligible for exemption under Section 54, since the same can only be the subject matter of assessment. He further submits that the respondent has usurped the jurisdiction of 5 the assessing authority under the Act by determining whether the petitioner is eligible for exemption or not. 4.1 It is submitted that as the petitioner has already paid tax of Rs. 1,80,65,000/- on the balance unutilised portion of Rs.7,55,18,522/- the respondent could not have denied the request for withdrawal of the balance amount. Learned Senior Counsel placed reliance upon the judgment of the Hon’ble Division Bench of this Court in the case of Professor P. N. Shetty v. Officer of IncomeTtax Officer - W.A.No.3031/2019 dated 09.10.2019, in order to point out that under the statutory scheme of Section 54-F of the I.T. Act, the petitioner was entitled to withdraw the amount deposited in the Capital Gains Account, subject to payment of the applicable tax on the amount sought to be withdrawn. 4.2 It is further submitted that since the petitioner has already paid the full amount of tax on the unutilized balance amount that is sought to be withdrawn, the respondent ought to have permitted him to withdraw the balance amount without demanding payment of tax on the utilized amount. It is therefore submitted that the impugned letter/order deserves to be quashed. 6 5. Per contra, learned Counsel for the respondent- revenue, in addition to reiterating the various contentions urged in the statement of objections, submit that the writ petition is not maintainable, since it is only a letter that was issued and a final assessment order has not yet been passed and that the officer had jurisdiction to reject the petitioner’s request for the issuance of NOC. It is therefore submitted that there is no merit in the petition and the same is liable to be dismissed. 6. I have given my anxious consideration to the rival submissions and perused the material on record. 7. A perusal of the impugned order dated 05.08.2022 indicates that that the primary ground for rejection of the request for refund of the balance unutilised amount is that the petitioner is not eligible for exemption under Section 54 of the I.T.Act, as the condition for claiming the exemption is that the asset sold should be a “residential house” but the petitioner has purchased / constructed two residential houses. 7 8. As rightly submitted by the learned Senior counsel appearing for the petitioner, the question as to whether exemption can be claimed by the petitioner is not an issue that the respondent is required to examine at this stage, where the petitioner is only seeking to withdraw the balance unutilized amount lying in his Capital Gains Account. 9. It is also relevant to state that the question / issue as to whether the petitioner is eligible for exemption under Section 54 or not can only be taken up in assessment proceedings and the same was neither relevant nor germane to consider the request of the petitioner. It is therefore clear that the respondent authority did not have jurisdiction or authority of law to determine or come to the conclusion that the petitioner is ineligible to claim exemption under Section 54 of the I.T.Act and consequently, the impugned order deserves to be quashed. 10. It is also relevant to state that the material on record in the instant case clearly establishes that there was no loss of revenue whatsoever, if the petitioner is permitted 8 to withdraw the balance unutilized amount, since he has admittedly paid the income tax amount of Rs. 1,80,65,000/- in full on the balance unutilized amount sought to be withdrawn, particularly when this fact has been acknowledged by the respondent in the impugned order. However, the respondent has proceeded to erroneously hold that the petitioner is liable to pay tax on the entire amount of Rs. 15,00,00,000/-, which is contrary to law and the facts of the instant case and on this score also, the impugned order deserves to be quashed. 11. The findings recorded in the impugned order are also contrary to the dictum of the Division Bench of this Court in P.N.Shetty’s case (supra), wherein it is held that an assessee would be eligible to withdraw any balance unutilized amount from his capital gains account, subject to payment of applicable tax, which has admittedly been done by the petitioner in the instant case. Under these circumstances also, the impugned order deserves to be quashed. 9 12. In the result, I pass the following:- ORDER (i) Petition is hereby allowed. (ii) The impugned order at Annexure-J dated 05.08.2022 passed by the respondent is hereby quashed. (iii) The respondent is directed to permit the petitioner to withdraw the balance amount of Rs. 7,55,18,522/- from his Capital Gains Account by issuing the appropriate permission / NOC within a period of four weeks from the date of receipt a copy of this order. (iv) However, liberty is reserved to the revenue to decide the issue, as to whether the petitioner is eligible for exemption under Section 54 of the Income Tax Act on the utilized amount of Rs.7,44,81,478/-, in accordance with law in appropriate assessment proceedings. Sd/- JUDGE SV/SRL "