COMMISSIONER OF INCOME TAX V. SETTLEMENT COMMISSION

OP/14856/2002

AI Insights

The case involves the Commissioner of Income Tax, Calicut, challenging an order by the Settlement Commission which settled the block assessment of the assessee, Sri. P. Mohammed alias Manu, for the assessment years 1986-87 to 1996-97. The dispute centered on the deductions allowed by the Settlement Commission in the computation of long term capital gains for the year 1996-97, specifically the carried forward loss from house property and interest paid on borrowals. The High Court's decision addressed the legal boundaries of the Settlement Commission's discretion under the Income Tax Act, particularly Section 158BB(4), which restricts the set off of carried forward losses in block assessments.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 693636 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 29-07-2009
• Assessment Year: misc
• Other Referred Cases: N.KRISHNAN V. SETTLEMENT COMMISSION (1980) 180 ITR 585, NIRMAL AND NAVIN (P) LTD. AND OTHERS V. D.RAVINDRAN (255 ITR 514)
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: P BALAKRISHNAN
• Assessee Lawyers: P K R M MENON; JOSE JOSEPH
• Keywords: Block assessment; Carried Forward Loss; House property; Long Term Capital Gains; Settlement commission; Interest on borrowals
• Section: 158BC; 158BB(4)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR WEDNESDAY, THE 29TH JULY 2009 / 7TH SRAVANA 1931 OP.No. 14856 of 2002(R) ----------------------- PETITIONER(S): --------------- THE COMMISSIONER OF INCOME TAX,CALICUT. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI. JOSE JOSEPH, SC FOR IT RESPONDENT(S): --------------- 1. SETTLEMENT COMMISSION (IT & WT) ADDITONAL BENCH,488-489,ANNASALAI,CHENNAI-600 035. 2. SRI.P.MOHAMMED ALIAS MANU,PALANTHODI HOUSE,KARUVAMBARAM,MANJERI,MALAPPURAM DISTRICT. ADV. SRI.P.BALAKRISHNAN (E) FOR R2 THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 29/07/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX PETITIONER'S EXHIBITS: P1: TRUE COPY OF ORDER OF THE SETTLEMENT COMMISSION DT.30.8.2001. TRUE COPY PA TO JUDGE C.R. C.N.RAMACHANDRAN NAIR, J. .................................................................... O.P. No.14856 of 2002 .................................................................... Dated this the 29th day of July, 2009. JUDGMENT This O.P. is filed by the Revenue challenging Ext.P1 order issued by the Settlement Commission settling the block assessment of the assessee for the assessment years 1986-87 to 1996-97. A search was made in the residential and business premises of the assessee on 1.2.1996. Pursuant to search, assessee filed a return and revised return. However, pending assessment under Section 158BC of the Income Tax Act, assessee filed application before the Settlement Commission. The Settlement Commission determined the income of the assessee at Rs.79,68,412/-, the break up details of which are available in the Annexure to the Settlement Commission's order produced as Ext.P1. The department's objection is against the set off granted to the assessee of carried forward loss in the computation of long term capital gains for the year 1996-97. The Settlement Commission, though computed long term capital gains at Rs.59,57,984, allowed two items of deductions which were claimed by the assessee under the following heads \"Loss from house property carried forward Rs.5,15,389/- 2 Interest paid on borrowals for previous years Rs.8,20,028/-\" The Settlement Commission allowed both the above items claimed by the assessee in the computation of long term capital gains. It is against this order of the Settlement Commission, the department has filed this appeal. I have heard Standing Counsel for the petitioner and Sri.P.Balakrishnan, appearing for the respondent-assessee. 2. Counsel appearing for the respondent submitted that jurisdiction of the High Court is extremely limited and the limitations are contained in the Karnataka High Court's judgment in N.KRISHNAN V. SETTLEMENT COMMISSION (1980) 180 ITR 585. Counsel also relied on decision of the Supreme Court in NIRMAL AND NAVIN (P) LTD. AND OTHERS V. D.RAVINDRAN (255 ITR 514) wherein the Supreme Court has held that the jurisdiction of the High Court is extremely limited and once the Settlement Commission grants immunity from prosecution, the same should not be reversed by High Court. However, I do not think the decisions cited stand in the way of this court interfering with the impugned order in this case because Settlement Commission has allowed set off of carried forward 3 loss from house property which is impermissible under Section 158BB(4) of the Income Tax Act. Though Settlement Commission enjoys wide discretion in settlement of income tax cases taken by it, it is bound by the statutory provisions and once there is an express bar, Settlement Commission cannot get over it. In fact, the Settlement Commission itself has computed the profit on sale of long term capital asset and further deductions from that could be granted only in accordance with the statutory provisions. Since there is express bar against granting of carried forward loss, except in the case of regular assessment under Section 158BB(4) of the Act, the Settlement Commission should not have allowed deduction of Rs.5,15,389/- claimed by the assessee. Therefore, the Settlement Commission's order is modified disallowing the deduction of Rs.5,15,389/- granted by it from the long term capital gains computed by it. Even though Standing Counsel for the petitioner challenged the order of the Settlement Commission in regard to deduction of Rs.8,20,208/- granted, I find from para 24.2 of the order that assessee furnished details of borrowals from a Co-operative Bank and interest thereon. Though interest on borrowals 4 cannot be strictly set off against long term capital gains, the Settlement Commission could reduce it in the total income computed as if it is found that assessee has really incurred so much of the expenditure on borrowals. In this view of the matter I uphold the order of the Settlement Commission on this issue. The O.P. is, therefore, allowed in part directing the Assessing Officer to treat the Settlement Commission's order modified to the extent indicated above, demand tax, interest etc. thereon. C.N.RAMACHANDRAN NAIR Judge pms "