TIOL Update - 2018-TIOL-INSTANT-ALL-536

2018-TIOL-145-SC-IT

MAHAVEER KUMAR JAIN Vs CIT: SUPREME COURT OF INDIA (Dated: April 19, 2018)

Income Tax - Sections 5 & 80TT - Sikkim State Income Tax Rules, 1948 - Constitution of India - Article 371F

Keywords: Double taxation - Foreign territory - Lottery prize.

The Assessee-individual won a prize of Rs. 20 lakhs in Sikkim State Lottery and received the sum after deduction of Rs. 2 lacs being agent’s commission and Rs. 1,79,088/- being Income Tax under the Sikkim State Income Tax Rules, 1948. Thereafter, he filed his return for the relevant AY disclosing the income from lottery at Rs. 20 lakhs and deducting the agent commission of Rs. 2 lakhs out of the same. He claimed deduction u/s 80 TT.

On scrutiny, the AO allowed the deduction on Rs. 18 lakhs instead of Rs. 20 lakhs while holding that the Government of Sikkim, had deducted the tax at source from the lottery amount of Rs. 18 lakhs as Rs. 2 lakhs have been paid to the agent directly. On Assessee's appeal, the CIT(A) confirmed the decision of the AO. On appeal, the Tribunal partly allowed the same and the High Court concurred with the view of the lower authorities.

On hearing the parties, the Apex Court held that,

Whether when an Indian taxpayer wins a lottery prize in Sikkim which became a part of India in 1975 vide Constitutional Amendment, the prize money can be subjected to tax twice, one under Sikkim Income Tax Rules and the other under the I-T Act, 1961 - NO: SC

Whether the non-obstante clause under Article 371F prevails over the Indian I-T Act, 1961 and makes it clear that only Sikkim Income tax would be applicable - YES: SC

++ prior to 26.04.1975, Sikkim was not considered to be a part of India. Any income accruing or arising therefrom would be treated as income accruing or arising in any foreign country. However, by the 36th amendment to the Indian Constitution in 1975, Sikkim became a part of the Indian Union. This, amendment was effected by introducing Article 371F in the Constitution. All laws which were in force prior to April 26, 1975, in the territories now falling within the State of Sikkim or any part thereof were intended to continue to be in force until altered or repealed. Therefore, the law in force prior to the merger, continued to be applicable. As a matter of fact, the I-T Act was made applicable only by Notification made in 1989 and the first assessment year would be 1990-91 and by the application of this Act, the Sikkim State Income Tax Manual, 1948 stood repealed. The law corresponding to the I-T Act, which immediately was in force in the relevant State was Sikkim State Income Tax Rules, 1948. Hence, there can be two situations, first is that the person was a resident of Sikkim during the time period of 1975-1990 and the income accrues and received by him there only. In such a case, no question of applicability of the I-T Act arises. However, the problem arises where the income accrues to a person from the State of Sikkim who was not a resident of Sikkim but of some other part of India. The question that arises is whether the provisions of the I-T Act are applicable to such income and whether the same can be subjected to tax under the said Act especially in light of the fact that the income has already been subjected to tax under the Sikkim State Income Tax Rules, 1948;

++ the assessee, being a resident of Rajasthan, received the income arising from winning of lotteries from Sikkim during the Assessment Year in question was liable to be included in the hands of the Assessee as resident of India within the State of Rajasthan where I-T Act was in force notwithstanding that the same had accrued or arisen to him at a place where the I-T Act was not in force even in respect of income accruing to him without taxable territory. While Section 5 of the IT Act would not be applicable, the existing Sikkim State Income Tax Rules, 1948 would be applicable. Thus, on then income, it would appear that Income tax would be payable, under Sikkim State Income Tax Rules, 1948 and not under the I-T Act. Since Sikkim is a part of India for the accounting year, there would appear to be, on the same income, two types of income taxes cannot be applied;

++ there is no prohibition as such on double taxation provided that the legislature contains a special provision in this regard. Now, the only question remains to be decided is whether in fact there is a specific provision for including the income earned from the Sikkim lottery ticket prior to 01.04.1990 and after 1975, in the income-tax return or not. Tthere seems to be no such provision in the I-T Act wherein a specific provision has been made by the legislature for including such an income by an assessee from lottery ticket;

++ in the absence of any such provision, the assessee in the present case cannot be subjected to double taxation. Furthermore, a taxing Statute should not be interpreted in such a manner that its effect will be to cast a burden twice over for the payment of tax on the taxpayer unless the language of the Statute is so compelling that the court has no alternative than to accept it. In a case of reasonable doubt, the construction most beneficial to the taxpayer is to be adopted. So, it is clear enough that the income in the present case is taxable only under one law. By virtue of clause (k) to Article 371F of the Constitution which starts with a non-obstante clause, it would be clear that only the Sikkim Regulations on Income-tax would be applicable in the present case. Therefore, the income cannot be brought to tax any further by applying the rates of the I-T Act. Once the assessee has paid the income tax at source in the State of Sikkim as per the law applicable at the relevant time in Sikkim, the same income was not taxable under the IT Act, 1961.

Assessee's appeal allowed

2018-TIOL-763-HC-MAD-IT + Story

AGASTHIYA HOLDINGS PVT LTD Vs CIT: MADRAS HIGH COURT (Dated: April 13, 2018)

Income Tax - Writ - Sections 222, 226, 228A, 271(1)(a), 271(1)(d) & 273; Rules 11, 16(1) & (2) & 68-B(1)

Keywords - Attachment of property - Sale of property - Void transaction.

THE assessee company, engaged in the real estate business, purchased some property during the relevant AY. The purchase was made from the legal representatives of the deceased person. The assessee also obtained several encumbrance certificates pertaining to different periods, to ensure that the property had no encumbrances. However, some other individuals later claimed a stake in the property, and pointed out that the daughter of the deceased owner of the property, had executed a release deed in their favor. Thereupon, the assessee company was served an SCN proposing to declare the sale of property in its favor as being null & void.

The assessee later claimed that after over two years since the date of sale of the disputed property, search proceedings were conducted against the assessee. It sent its replies stating that the encumbrance certificates did not show any encumbrances against the property and that the assessee was the bona fide purchaser. Thereupon, an assessment order was passed attaching the disputed property. The assessee contested the attachment on grounds that it was unaware of the prior encumbrances since the same were not mentioned in the encumbrance certificates. The Revenue later stated that assessee had been given an opportunity of personal hearing before passing the order. It also claimed that no sale of immovable property could be made after expiry of three years from the end of the FY in which an order raising duty demand with interest, fine, penalty for the recovery of a sum for which immovable property had been attached, became conclusive. The assessee filed an appeal, but was directed to approach the Tax Recovery Officer to adjudicate its claim over the property.

In a writ, the High Court held that,

Whether in case of purchase of a property as per the provisions of the Transfer of Property Act, the Revenue has the authority under the I-T Act to declare such transfer as null and void merely because it had a charge on the same - NO: HC

Whether in such a case the Tax Recovery Officer is required to file a suit u/s 281 in a Civil Court to declare the same as null and void - YES: HC

++ the order of attachment was made on 18.12.1987 and as per the additional affidavit of the second appellant, dated 12.12.2011, filed in W.P.(MD)No.10885 of 2011, the intimation was sent to the Joint Sub-Registrar, Tuticorin, on 28.09.2007 and it was acknowledged by him on 03.10.2007 and notice for settling a sale proclamation under Section 53 of the Second Schedule of the Income Tax Act was served on the legal heirs of the original assessee as such the sale of the property to the assessee was to be held as null and void on 09.08.2011 which was the subject matter of challenge in the writ petition;

++ admittedly, the entry relating to attachment is not reflected in the encumbrance certificates issued by the Joint Sub-Registrar, Tuticorin and the stand taken by the assessee in W.P. (MD)No.10885 of 2011 that he has purchased of the said suit property, vide a registered sale deed bearing Document No. 2212/2008, dated 18.06.2008, after verifying the encumbrance and was not seriously disputed by the revenue in their counter affidavit, but they would contend the operation of law, alienation by the legal representatives of the deceased assessee is declared as null and void;

++ in the light of the ratio laid down by the Supreme Court of India in Tax Recovery Officer Vs. Gangadhar Viswanath Ranade (Decd.,), it is not open to the Tax Recovery Officer to declare the said sale as null and void. The above said decision also held that "the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment. If the Department desires to have the transaction of transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281.";

++ it is not open to the Tax Recovery Officer to declare the said transfer/alienation as null and void as per the provisions of the Income Tax Act. It is also brought to the knowledge of this Court by the Counsel appearing for the assessee that he also sought information under the Right to Information Act, from the Public Information Officer - the Joint Sub-Registrar, Tuticorin, as to the order of attachment by the Income Tax Officer in respect of the property concerned in registered document No. 2212/2008, dated 18.06.2008 and vide communication dated 24.05.2011 bearing No. 2099/mggp/2011,, the said official informed that no such document is available on file. Therefore, this Court is of the considered view that it is for the Income Tax Department, to file a suit to hold the transaction declared as null and void as per the ratio laid down by the Supreme Court of India reported in Tax Recovery Officer Vs. Gangadhar Viswanath Ranade (Decd.,). Hence W.A.(MD)No.1186 of 2017 is partly allowed and the order of the Judge in granting liberty to the assessee to move the Tax Recovery Officer under Rule 11 of the Second Schedule seeking adjudication of his claim is set aside and the Revenue is granted liberty to file a civil suit to declare the sale transaction/sale deed in favour of the assessee as null and void.

Assessee's Writ partly allowed

2018-TIOL-600-ITAT-DEL + Story

PTC IMPEX INDIA PVT LTD Vs CIT: DELHI ITAT (Dated: April 3, 2018)

Income Tax - Sections 10B & 263.

Keywords: Fixed deposit receipt - Inadequate inquiry - Interest income - Lack of inquiry - Loan repaid - Narration in the bank statement & Undisclosed sales.

The assessee company, engaged in the business od trading and processing of dry fruits, spices. It filed the return for the relevant AY decalring its income of Rs. 96,450/–. The AO had completed the assessment proceeding u/s 143(3) by making addition on account of suppression of sales and disallowed the deduction claimed u/s 10B. Consequently, the AO assessed the assessee's total income at Rs. 232,28,035/-. On appeal, the CIT(A) granted complete relief to the assessee.

Meanwhile, the CIT issued a SCN u/s 263 on examination of the records. The CIT found that the assessee had filed the bank statement without any narration and hence, the AO failed to verify the bank statement. Further, the CIT also noticed that the assessee had paid Rs. 4 Lacs to one party but the same was not credited to the party's account. Again, the AO failed to examine the fact that the assessee had made one fixed deposit receipt but no interest income in this regard was declared in its return. Lastly, the CIT also noted that the assessee had made sales in cash on 4 different dates amounting in all to only Rs. 26963/- whereas on various date the assessee has deposited cash of Rs. 16,55,000/-. In reply, the assessee placed its submission but, the same was not accepted by the CIT. Accordingly, the CIT directed the AO to verify the source of the cash deposited in the bank account. With respect to the fixed deposit receipt, the CIT also directed the AO to examine this issue. Subsequently, the CIT passed the order u/s 263 by stating that the assessment order was erroneous and prejudicial to the interest of the Revenue.

On appeal, the Tribunal held that,

Whether if AO fails to conduct inquiry, it is a fit case for invocation of provisions of u/s 263 - YES: ITAT

++ according to Sec. 263, the CIT can resort to corrective measures by revising the assessment order passed by the AO, if after examining records such assessment order passed by the AO, the CIT found that such an order is erroneous and prejudicial to the interest of Revenue. In Malabar industrial Co Ltd's case, the Supreme Court held the Commissioner has satisfied of twin conditions namely (i) that the order is erroneous, (ii) that it is prejudicial to the interest of Revenue. As held in several judicial precedents that Commissioner does not have power to revise the order of the AO where there are two views possible and the AO has taken one of the possible view. Further, where the AO has made some enquiry and has reached at a conclusion. Therefore, on debatable issues and where there is absence of "Lack of Inquiry", the powers of the CIT cannot be exercised u/s 263. There exists a difference between "Lack of Inquiry" and "inadequate Inquiry";

++ in the present case, we did not find that the AO has made any enquiry on all the 4 issues. Therefore, according to us there is no inquiry made by the AO on the issues raised by CIT in proceedings u/s 263. The arguments of the Counsel for the assessee on the issue with respect to cash deposited in the bank account, loan repaid, bank interest on fixed deposit receipt and absence of narration in the bank statements were more on the aspect that no such addition can be made in the hands of the assessee;

++ however, nothing is lead before us that makes us to ascertain that the AO during the course of assessment proceedings, have inquired about all those things at all. Merely because there are disallowances u/s 10B and addition on account of undisclosed sales which is precisely made on the basis of the information available with the AO in tax audit report only, it cannot be said that on these 4 issues the AO has made any enquiry. The AO notes in the assessment order that despite request, the assessee has not produced the complete books of accounts along with the bills and vouchers before him;

++ the assessment in the present case was framed u/s 143(3) on 31/12/2007. This itself shows that the AO has not looked at the books of accounts which are allegedly produced before AO as per version of the assessee on 26/12/2007. This too is the submission of the assessee before CIT(A) which has not been adjudicated by CIT(A). Even otherwise, mere production of books of accounts does not make the issues before us fall in to the category of "inadequate inquiry". If we agree to such an argument then, in all cases where the books of accounts were produced before the AO, then the case would fall outside the purview of Sec. 263. Further, no records of communication by the AO to assessee and reply by assessee to AO was shown to us to show on these four issues that the AO had applied his mind on any of them. According to us, case before us is of "lack of inquiry" and not absence of any inquiry. All judicial precedents relied up on before us related to "absence of adequate inquiry" but none of them dealt with the issues of complete lack of inquiry as in case before us. Hence, we do not have any hesitation in upholding action of the CIT in invoking his jurisdiction u/s 263. Hence, order passed u/s 263 by the CIT is upheld.

Assessee's appeal dismissed