Sri B Subramani V. The Commissioner of Income Tax Bangalore-III and The Income Tax Officer Ward-7(4)

WP/56595/2014

AI Insights

The case involves Sri B Subramani, the petitioner, challenging the order of the Commissioner of Income Tax, Bangalore-III, which dismissed his revision petition against the Income Tax Officer's assessment order for the year 2005-06. The dispute arose from the reassessment of capital gains tax on 14 flats acquired by the petitioner under a joint development agreement. The Income Tax Officer had reopened the case, alleging escapement of income chargeable to tax under the head 'Capital Gains'. The petitioner contested the valuation year for calculating the indexed cost of acquisition and sought deductions under Section 54F of the Income Tax Act, which were not accepted by the Commissioner. The High Court found that the Commissioner had not adequately considered the legal precedents and arguments presented by the petitioner, leading to the decision to remit the matter back for a thorough re-evaluation.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 794060 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 18-02-2015
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX VS. SMT. ASHA MACHAIAH, COMMISSIONER OF INCOME TAX AND ANOTHER VS. D ANANDA BASAPPA
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: ASHOK KULAKARNI
• Keywords: Assessment Year; Capital Gains; Escapement of income; Indexed cost of acquisition; Joint Development Agreement; Revision petition
• Section: 147; 48; 54F; 264; 49; 226; 227

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF FEBRUARY, 2015 BEFORE THE HON’BLE MR.JUSTICE B.S.PATIL W.P.No.56595/2014 (T-IT) BETWEEN SRI B SUBRAMANI AGED ABOUT 59 YEARS, NO.111, SAFARI PARK APARTMENTS, NEAR ASHRAYA ENGLISH SCHOOL, RAMAMURTHY NAGAR, BANGALORE-560016. ... PETITIONER (By Sri.ASHOK A. KULAKARNI, ADV.) AND 1. THE COMMISSIONER OF INCOME TAX BANGALORE-III, C.R.BUILDING 1ST FLOOR, QUEENS ROAD, BANGALORE-560001. 2. THE INCOME TAX OFFICER WARD-7(4), 4TH FLOOR, KENDRIYA SADAN, KORAMANGALA, BANGALORE-560034. ... RESPONDENTS (By Sri.PADMABHUSHAN N., ADV. FOR Sri K V ARAVIND, ADV. FOR RESPTS) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER OF THE R-1 IN ANNEX-F DTD.11.9.2014 AND ETC. 2 THIS PETITION COMING ON FOR PRELIMINARY HEARING THIS DAY, THE COURT MADE THE FOLLOWING: ORDER 1. A short question falls for consideration in this case. Hence, with the consent of learned counsel for both parties, the matter is taken up for final disposal. 2. Petitioner is calling in question order dated 11.09.2014 passed by the 1st respondent - Commissioner of Income Tax, Bangalore - III, thereby dismissing the revision petition filed invoking Section 264 of the Income Tax Act, 1961 (for short ‘the Act’) against the order passed by the 2nd respondent – Income Tax Officer dated 15.03.2013. 3. Dispute pertains to assessment year 2005-06. The Income Tax Officer having noticed that assessee had not filed his returns for the year 2005-06 pertaining to 14 flats acquired by him under a joint development agreement dated 07.02.2005 entered into with M/s. Srinidhi Constructions by transferring 19.5 guntas of land in their favour, has held that there was escapement of income chargeable to tax under the head “Capital Gains”. Accordingly, the Assessing Officer reopened the case under Section 147 of the Act recording reasons. Assessee 3 filed objections contending inter alia that Cost Inflation Index was adopted as on 01.04.1981 when the asset was acquired by the previous owner (father of the assessee). The property was inherited by the assessee by virtue of a Will executed by his father on 24.02.1996 and the assessee became the owner of the property upon the death of the father during the year 1996. The Assessing Officer has taken 1996 as base year for the purpose of computing indexed cost of acquisition based on the cost inflation index. The Assessing Officer concluded that the total tax and interest payable by the petitioner was Rs.33,74,924/-. Aggrieved by the same, petitioner preferred a revision petition before the Commissioner of Income Tax. 4. Petitioner has contended in the revision petition that there was no transfer of subject land resulting in capital gains prior to the assessment year. He has also alternatively contended that deduction as provided under Section 54F of the Act was required to be allowed apart from contending that fair market value of the subject asset as obtained on 01.04.1981 had to be adopted for the purpose of working out capital gains as against 1996 value adopted by Assessing Officer. The Commissioner of Income Tax has repelled these contentions. 4 5. Learned counsel for the petitioner has placed strong reliance on the decision of the Division Bench of this Court in the case of COMMISSIONER OF INCOME TAX VS. SMT. ASHA MACHAIAH – ITA No.633/2013 c/w 634/2013 disposed of on 06.06.2014 to contend that when an assessee acquires a capital asset by way of succession, inheritance or devolution, then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner. In the said decision, in paragraph 9, this Court has held that a harmonious reading of Sections 48 and 49 of the Act was necessary and if the same was done, it would make it clear that for the purpose of Indexed Cost of Acquisition, the first year in which the previous owner held the said property had to be reckoned and not the date of inheritance. It is urged by the learned counsel for the petitioner that this position in law has not been taken into consideration by the Commissioner. 6. It is next urged by the learned counsel for the petitioner that the Commissioner for Income Tax has seriously erred in repelling the contention regarding the deduction claimed on the 5 basis of the provisions contained under Section 54F holding that as per the said provision, the assessee in order to claim deduction should have purchased only one house within the specified period, whereas in the case on hand the assessee had purchased 14 flats in the newly constructed complex. It is urged in this regard that the Commissioner has not taken into consideration the position of law as it stood prior to the amendment by which the expression ‘a residential house’ occurring in Section 54(1) has been substituted by the expression ‘one residential house’. Indeed, this Court in the judgment in the case of COMMISSIONER OF INCOME TAX AND ANOTHER VS. D ANANDA BASAPPA – (2009) 309 ITR 329 (KAR) has held that the phrase ‘a residential house’ cannot be understood as ‘one residential house’. The expression ‘a residential house’ should be understood in a sense that building should be residential in nature. 7. The judgment of the Division Bench supports the contention urged by the petitioner. However, it is not necessary to pronounce on all these aspects on merits because the Commissioner has not applied his mind to the various decisions on which reliance is now placed by the petitioner. Indeed, these 6 decisions are very relevant for the purpose of deciding the issue that has cropped up. In the circumstances, I am of the view that the matter has to be reconsidered by the Assessing Officer after providing opportunity to the assessee and by passing a speaking order, particularly, with regard to the aspects adverted to above. 8. It is urged by the learned counsel for the revenue that all aspects may be kept open including the right of the assessing officer to raise such demands as are legally permissible. 9. It is needless to observe that the Assessing Officer is at liberty to raise such demands as are permissible in law apart from reconsidering the entire matter. All issues, are, therefore, left open. The Assessee - petitioner is directed to appear before the 2nd respondent - Income Tax Officer on 09.04.2015. 2nd respondent is directed to dispose of the matter expeditiously. 10. Accordingly, this petition is allowed. Impugned orders are set aside. Matter is remitted back to the 2nd respondent for reconsideration. Sd/- JUDGE VP "