Radhawami Salt Works v. Asst. Commissioner of Income-tax & 1
[Citation -2017-LL-0614]

Citation 2017-LL-0614
Appellant Name Radhawami Salt Works
Respondent Name Asst. Commissioner of Income-tax & 1
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 14/06/2017
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags capital receipt not liable to tax • transfer of capital asset • reopening of assessment • capital gain • audit party
Bot Summary: 143(3) r.w.s. 153A of the I T Act was passed in the case of the assessee on 11.3.2011 accepting the income returned by the assessee. Further, the assessee had subsequently surrendered the said land to the state Government and the necessary order accepting the surrender of land by the assessee was passed by the state Government vide letter / order dated 20.12.2008 of the Collector of Kutch, Bhuj. There could be no dispute about the fact that the said land was given on lease to the assessee by the state government and the assessee has subsequently surrendered it back to the state government and there was no involvement of any other party in respect of these transactions. In the case of the assessee, it is an undisputed fact that, the assessee did not transfer its right in the said land to M/s. CGPL., but has surrendered the same back to the state government. Without prejudice to the above and for the sake of discussion, even if the receipt of the assessee from M/s. CGPL was to be considered as receipt in lieu of transfer of capital asset, it has to be seen whether the profit on the same could be taxed as long term capital gain as claimed by the assessee. It is evident that the asset in the hands of the assessee was a short term capital as it was held by the assessee from 10.2.2006 to 20.12.2008 which is less than 36 months, and the assessee was required to pay tax on the same as applicable in the case of transfer of short term capital asset as against tax as applicable in the case of transfer of long term capital asset claimed by the assessee. The contention of the assessee that the said land was taken over by the state government vide a panchnama dated 13.5.2009, is not relevant for the purpose because, the taking of possession of the land by the state government is a procedural formality which followed from the legal order of the Collector, Bhuj, Kutch dated 20.12.2008 and the rights of the assessee in the land had extinguished with that order and it is immaterial when such procedural formalities were completed by the state government by taking possession of the land.


C/SCA/16644/2012 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 16644 of 2012 With SPECIAL CIVIL APPLICATION NO. 16649 of 2012 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? RADHAWAMI SALT WORKS....Petitioner(s) Versus ASST.COMMISSIONER OF INCOME TA & 1....Respondent(s) Appearance: MR RK PATEL, ADVOCATE with MR.B.D.KARIA, ADVOCATE with MR.DARSHAN R. PATEL for Petitioner(s) MRS MAUNA M BHATT, ADVOCATE for Respondent(s) No. 1 - 2 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Page 1 of 19 HC-NIC Page 1 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT Date : 14/06/2017 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These petitions arise in similar background. We may record leading facts from Special Civil Application 16644 of 2012. Petitioner is partnership firm. For assessment year 2010 11, petitioner had filed return of income which was taken in scrutiny by Assessing Officer. One of issues arising out of such return was petitioner's claim of long term capital gain of Rs.29.92 crores (rounded off). This claim arose in following background. 2. petitioner was granted lease by Government of land admeasuring 350 acres for production of salt by order of Collector dated 10.02.2006 for period of 10 years. This lease was valid upto 31.07.2015. petitioner applied to Collector for surrendering land as petitioner no longer required it. This land was thereafter sold by Government to one Coastal Gujarat Private Limited ('CGPL' for short). CGPL had separately made payment of Rs.29.92 crores to assessee in two Page 2 of 19 HC-NIC Page 2 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT installments i.e. Rs.24 crores in assessment year 2009 10 and Rs.5.92 crores in assessment year 2010 11. For assessment year 2010 11, assessee had showed said sum in its return as long term capital gain received in lieu of transfer of land. 3. During assessment proceedings, assessee however took slightly different stand and contended that such receipt was not in nature of capital gain but was one time receipt which was not taxable. This stand of petitioner could be discerned from communication dated 15.02.2011 made by petitioner to Assessing Officer during course of assessment proceedings. In such communication, assessee contended that transaction in question was in nature of capital receipt not liable to tax and not capital gain. 4. Assessing Officer passed order of assessment on 11.03.2011 and treated said receipt for Rs.29.92 crores as capital gain and taxed it accordingly. Page 3 of 19 HC-NIC Page 3 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT 5. To reopen such assessment, Assessing Officer issued impugned notice dated 20.09.2012. This notice was thus issued within period of four years from end of relevant assessment year. In order to issue notice, Assessing Officer had recorded following reasons: assessee derives its income from production and selling of salt. search under section 132 was carried out at premises of assessee on 18.3.2010. Proceedings u/s. 153A were initiated. assessee filed return of income for AY 2010 11 on 31.5.2010. assessee had shown income of Rs.30,39,58,261/ which included Long Term Capital Gain (LTCG) of Rs.29,43,34,415/ . This LTCG was in respect of transfer of land. facts of case is that, land admeasuring 350 acres was given on lease by state government to assessee, for production of salt, vide Collector's allotment letter No.land/5/salt/vashi/259/06 dated 10.2.2006 for period of 10 years. This lease was renewed upto 31.7.2015. assessee applied (on 11.11.2008) to Collector, Bhuj for surrender of leased land stating that it no longer required it. Collector, vide order No.land/5/vashi/9931/2008 dated 20.12.2008 cancelled lease and took possession of same. On request from Coastal Gujarat Power Ltd (CGPL), this land was sold to them by Collector Bhuj, vide order dated 11.3.2010 for consideration of Rs.37,32,53,785/ (Rs 34,16,80,175 being price of land + Rs 1,41,38,940/ conversion tax and Rs 1,74,35,120/ being stamp duty for industrial use). M/s CGPL paid said amount to State government and land Page 4 of 19 HC-NIC Page 4 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT was handed over to company by Collector, Bhuj. Meanwhile, CGPL separately made payment of Rs.29.92 crores to assessee in two installments, i.e. advance of Rs.24 crores in A. Y. 2009 10 and final amount of Rs.5.92 crores in A.Y. 2010 11. It was noticed that, assessee, in its return, showed same as Long Term Capital Gain being amount received in lieu of transfer of interest in land. order u/s. 143(3) r.w.s. 153A of I T Act was passed in case of assessee on 11.3.2011 accepting income returned by assessee. However, subsequently on analyzing facts of case, it was noticed that amount received by assessee was not in lieu of transfer of any capital asset so that profit from same could be taxed as long term capital gain. Section 45 of Income tax Act, 1961 specifies that any profits or gains arising from transfer of capital asset effected in previous year, shall be chargeable to income tax under head 'Capital Gains' and shall be deemed to be income of previous year in which transfer took place. Hence, in order to treat profit and gains out of such receipts, it is imperative that receipt should be in lieu of transfer of capital asset. In this case, there is no dispute over fact that, land in question belonged to Government of Gujarat and same was given to assessee on lease vide order dated 10.02.2006 and contract was made between assessee and representative of State Government, Collector of Kutch, Bhuj on 23.3.2006. As per terms and conditions of above agreement, assessee was authorized to use above land only for its own business of production of salt and its bye products and it was not authorized to use land for any other purpose and also therefore, not Page 5 of 19 HC-NIC Page 5 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT authorized to assign this land to any third party for their business purposes. As per this agreement, assessee was entitled to surrender land to state government and as per clause (4) of note to agreement, assessee could claim compensation from state government in lieu of premature surrender of land subject to amount decided by Salt Commissioner. Hence, it is evident that, only compensation assessee was entitled for, was what it could claim from state government, subject to decision of Salt Commissioner. In other words, assessee was not authorized to claim any compensation from any other party for either surrendering its interest in said land. Further, as per clause (11) of said note, assessee was not entitled to transfer its right in land, by way of sale or gift or any other mode, without prior permission of lessee i.e., state government. It is evident from above that, assessee did not have any authority or right to transfer above land to any other party or to either sub lease same to some other party. Further, assessee had subsequently surrendered said land to state Government and necessary order accepting surrender of land by assessee was passed by state Government vide letter / order dated 20.12.2008 of Collector of Kutch, Bhuj. assessee has ceased to have any right or authority in respect of said land after above order. Hence, there could be no dispute about fact that said land was given on lease to assessee by state government and assessee has subsequently surrendered it back to state government and there was no involvement of any other party in respect of these transactions. Thus, it can be seen from transactions mentioned above that there was no transfer of interest in land by assessee in favour of CGPL. Since land Page 6 of 19 HC-NIC Page 6 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT was alloted on lease by Government (Collector) assessee had extinguished its interest in land by surrendering land to Collector. Subsequently, this land was transferred by Collector de novo to M/s. CGPL for consideration of Rs.37,32,53,785/ including conversion tax and stamp duty. As such, there was no transfer of either assets or any interest in assets by assessee to CGPL under provisions of Income tax Act, or under provisions of Transfer of Properties Act. While examining this issue, it will be pertinent to refer to decision of Hon. Calcutta High Court in case of Gasper Vs CIT (1979) 117 ITR 581 and to examine whether facts of case of assessee had any similarity with facts of above case so as to decide applicability of above decision of Hon. Calcutta Court, in case of assessee. facts of this case is that, assessee was tenant in premises at AJC Bose road, Calcutta. He was monthly tenant in said property since 1940 under earlier land lords as well. On March 27, 1967, landlords entered into agreement for leasing out property to company namely Associated Batteries, permitting therein to construct building on same premises. assessee was also party to said agreement. As part of agreement, assessee received sum of Rs.4,50,000/ , in consideration of which he permitted new lessee to put up construction. He transferred his tenancy rights to said company and became licensee in respect of premises under same company. It was held by Hon. Court that, that contention of Mr Banerjee that no capital asset has been transferred was to be rejected because, assessee's monthly tenancy rights or lease hold right is capital asset and it has been transferred to Associated Batteries with consent of Page 7 of 19 HC-NIC Page 7 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT landlords and on such transfer, his rights in it stood extinguished. It is evident from above that, in this case there is no dispute about fact that Mr Banerjee had tenancy right in property which he transferred in favour of Associated Batteries and his rights stood extinguished on such transfer. However, in case of assessee, it is undisputed fact that, assessee did not transfer its right in said land to M/s. CGPL., but has surrendered same back to state government. Moreover, MoU between assessee and CGPL has no endorsement or authentication from state government which is sole owner of land. Hence, facts in case of Gasper, as above, is not applicable in case of assesssee and therefore, above decision of Hon. Calcutta High Court could not have any bearing in this issue of taxability of receipts of assessee from M/s. CGPL. In view of this, amount received by assessee from CGPL was to be treated as 'Income from other sources' and not as LTCG as assessee has not sold or transferred any land to CGPL, neither it had any authority or right to transfer land to CGPL. As per section 56(1) of Act, income of every kind which is not to be excluded from total income, shall be chargeable to income tax under head 'Income from other sources' if it is not chargeable to income tax under any of heads specified in section 14, item to E. Whereas, section 45(1) stipulates that any profits or gains arising from transfer of capital asset effected in previous year shall be chargeable to income tax under head 'Capital Gains' and shall be deemed to be income of previous year in which transfer took place. Further, as per section 2(47), 'transfer' in relation to capital Page 8 of 19 HC-NIC Page 8 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT asset, includes sale, exchange, relinquishment of asset or extinguishment of any rights therein. For chargeability of any income under head 'Income from Capital Gain', there ought to be either transfer of capital assets or transfer of any interest in capital assets by assessee. Here assessee had extinguished all its interest and right in land by surrendering land to Collector. This land was later on sold by Collector to CGPL independently and due amount of consideration was also paid by CGPL to State Government authorities as stated earlier. Had assessee got money from government for surrender of lease or had it transferred its lease hold right in favour of CGPL, and got consideration for that, then it would constitute transfer of capital assets or transfer of any interest in capital assets. By surrendering leased land to government it had extinguished all its interest and right in land. As such amount received by assessee from CGPL as per their MOU cannot be termed as 'Income from capital gain' but it has to be taxed as 'Income from other sources'. Without prejudice to above and for sake of discussion, even if receipt of assessee from M/s. CGPL was to be considered as receipt in lieu of transfer of capital asset, it has to be seen whether profit on same could be taxed as long term capital gain as claimed by assessee. As mentioned earlier, there is no dispute about fact that said land was alloted to assessee vide agreement dated 10.2.2006. land was subsequently surrendered by assessee to State Government which was accepted vide order dated 20.12.2008 of Collector, Kutch, Bhuj. With passing of this order by Collector, Kutch, Bhuj, all rights of assessee in said land had extinguished. Page 9 of 19 HC-NIC Page 9 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT As per provisions of sub section (42A) of section 2, short term capital assets means capital asset held by assessee for not more than 36 months immediately preceding date of its transfer. Hence, it is evident that asset in hands of assessee was short term capital as it was held by assessee from 10.2.2006 to 20.12.2008 which is less than 36 months, and assessee was required to pay tax on same as applicable in case of transfer of short term capital asset as against tax as applicable in case of transfer of long term capital asset claimed by assessee. contention of assessee that said land was taken over by state government vide panchnama dated 13.5.2009, is not relevant for purpose because, taking of possession of land by state government is procedural formality which followed from legal order of Collector, Bhuj, Kutch dated 20.12.2008 and rights of assessee in land had extinguished with that order and it is immaterial when such procedural formalities were completed by state government by taking possession of land. Hence, right of assessee in land has got transferred to state government on date of passing of legal order by Collector, Bhuj and not on date on which procedural formality of taking possession of land was completed. Incidentally, even substantial part of payment of RS 24 crores was also received within period of 36 months of surrender of land to state government. Hence, even on this account, there is case of escapement of assessment of income within meaning of clause (c)(ii) of explanation to section 147 as income could be said to have been assessed at too low rate by way of treating same as long term capital gain instead of short term capital gain, as discussed earlier. Page 10 of 19 HC-NIC Page 10 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT However, as discussed in earlier paragraphs, whole receipt in hands of assessee is taxable as income from other sources within meaning of section 56 of Income tax Act as assessee has not transferred any capital asset to M/s. CGPL from whom money has been received by assessee, instead, land which has been claimed as capital asset for which such money has been claimed to have been received by assessee belongs to state government and it was alloted to assessee on lease for its business purposes and same was subsequently surrendered back to state government and said M/s. CGPL was not at all involved in any capacity in surrendering of land. I have, therefore, reasons to believe that assessee's income to above extent has been under assessed leading to escapement of income, within meaning of Explanation 2(c)(ii) to section 147 of I.T. Act, 1961, as assessment in present case for AY 2010 11 has been assessed at too low rate. Hence, notice u/s. 148 is being issued. 6. To briefly summarize long reasons recorded by Assessing Officer, in his opinion, receipt was not in nature of capital gain at all, but was by way of income from other sources. assessee was lease holder and did not have right to transfer land or any rights therein in favour of anyone as per conditions of lease. receipt of Rs.29.45 crores from CGPL was thus, not for purpose of transfer of rights in land. According to Page 11 of 19 HC-NIC Page 11 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT Assessing Officer thus, receipt was not in nature of capital gain. His alternate contention was that if receipt was capital gain, same was short term capital gain. According to him lease was terminated by Collector by order dated 20.12.2008. assessee thus held capital asset for period between 10.02.2006 to 20.12.2008 i.e. for period less than three years. receipt should therefore be taxed as short term capital gain. 7. petitioner opposed notice for reopening by raising objections which were however rejected by Assessing Officer. At which stage this petition came to be filed. In Special Civil Application No.16649 of 2012 facts are similar except that in reasons recorded by Assessing Officer, alternative suggestion that if receipt is in nature of capital gain, same is short term capital gain and not long term, is not taken by Assessing Officer. 8. On basis of such facts, counsel for petitioner has raised following contentions: I. issue was thoroughly scrutinized by Page 12 of 19 HC-NIC Page 12 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT Assessing Officer during original assessment. Reopening would not be permissible under such circumstances. II. notice has been issued by Assessing Officer upon insistence of audit party. Assessing Officer himself was not convinced about reopening assessment. III. ground on which Assessing Officer wishes to reopen assessment, is subject matter of further appeals. On ground of merger therefore reopening would not be permissible. Counsel relied on certain decisions, to which, we would refer at appropriate stage. 9. On other hand, learned counsel Shri Manish Bhatt for department opposed petition contending that; I. order dated 20.12.2008 by Collector canceling lease was not part of original assessment proceedings. II. audit party had merely suggested to Assessing Officer that receipt was not in Page 13 of 19 HC-NIC Page 13 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT nature of capital gain but income from other sources. Even if Assessing Officer was not fully convinced about this element of taxability, he had independently recorded reason of receipt being in nature of short term capital gain. III. Counsel lastly contended that question whether assessee enjoyed lease for period of less than three years or more was never subject matter of appeal proceedings. 10. Facts are not seriously in dispute and may be summarized thus. assessee was granted lease of land by Government for period of 10 years. CGPL was interested in purchasing such land and therefore privately negotiated with petitioner to give up its rights prematurely. For such purpose, CGPL paid Rs.29.92 crores for assessee. According to assessee this receipt was in nature of capital gain and offered to tax after adjusting to cost of acquisition. During assessment proceedings, assessee in fact went step further and tried to urge that receipt is not taxable at all being capital receipt. Assessing Officer did not accept Page 14 of 19 HC-NIC Page 14 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT contention and taxed same as long term capital gain. 11. assessee had filed appeal on this issue before Commissioner (Appeals). We are informed that appeal stands dismissed. Further appeal of assessee before Tribunal is pending. 12. At that stage, Revenue wishes to reopen assessment on grounds that; (i) receipt was not in nature of capital gain but income from other sources and (ii) in alternative, gain was short term capital gain. 13. From above, it can be seen that assessee had in return itself offered receipt to tax as capital gain. In context of assessee's further expectation that same may not be taxed at all, issue was examined by Assessing Officer. Thus, on question of taxability of such receipt, there was scrutiny by Assessing Officer. May be at that time, Assessing Officer had not noticed that Collector had passed order on 20.12.2008 terminating lease. reference to order was very much in document in nature of panchnama Page 15 of 19 HC-NIC Page 15 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT dated 13.05.2009. According to assessee, this was date on which his right to use land got extinguished. If Assessing Officer held different belief or desire to inquire into effect of order of Collector, he could and should have done so during course of assessment. 14. Yet another reason on which we cannot permit reopening on grounds stated in reasons is that assessee carried issue in appeal before Appellate Commissioner and canvassed that to tax income as capital gain was wrong. Commissioner having dismissed appeal, issue is pending before Tribunal in assessee's appeal. Section 147 of Act as is well known, empowers Assessing Officer to reopen assessment, subject to certain conditions. 3rd proviso to section 147 however provides that Assessing Officer may assess or reassess such income other than income involving matters which are subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. When subject matter viz. receipt of transfer of rights in land and income relatable to such matter was Page 16 of 19 HC-NIC Page 16 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT subject matter of appeal and thereafter second appeal, principle of merger would apply. There cannot be two separate considerations to same subject matter relatable to income. One by appellate authority or forum and another by Assessing Officer in fresh assessment. Had material particulars concerning income been withheld by assessee, issue perhaps would stand on different footing. Since such facts are not presented before us, we would not comment any further in this respect. 15. Appeal against order of assessment at hands by assessee would lie before Commissioner (Appeals) in terms of section 246A of Act. Section 250 of Act lays down procedure in such appeal. Section 251 concerns power of Commissioner in such appellate proceedings. As per sub section (1) of section 251, while disposing of appeal, Commissioner would have powers to confirm, reduce, enhance or annul assessment. Thus, while disposing of appeal filed by assessee against order of assessment, Commissioner after following requirement of hearing provided in sub section (2) of section 251 may even enhance Page 17 of 19 HC-NIC Page 17 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT assessment. question of correct taxability of receipt by assessee was thus at large before Commissioner (Appeals) and now is open before Tribunal. At that stage, it would not be open for Assessing Officer to reopen assessment on this matter which is subject matter of appeals. Our attention is drawn to judgment of Division Bench of this Court in case of National Dairy Development Board v. Deputy Commissioner of Income Tax Anand Circle, dated 24.03.2011 passed in Special Civil Application No.14449 of 2010. relevant paragraph of said judgment reads as under: 14. Moreover, insofar as second ground for reopening of assessment is concerned, it may be noted that second proviso to section 147 of Act expressly provides that Assessing Officer may assess or reassess such income, other than income involving matters which are subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Thus by virtue of second proviso to section 147 of Act, income involving matters which are subject matters of any appeal, reference or revision has expressly been taken out of purview of said section. In circumstances, insofar as income stated to have escaped assessment under second ground is concerned, same having been subject matter of appeal would not fall within ambit of section 147 of Act and as such Assessing Officer lacks jurisdiction to reopen assessment on said ground. Page 18 of 19 HC-NIC Page 18 of 19 Created On Mon Jun 19 14:21:01 IST 2017 C/SCA/16644/2012 JUDGMENT 16. In result, petition is allowed. Impugned notice dated 20.09.2012 is set aside. We clarify that we have not expressed any opinion on rival contentions regarding nature of receipt and treatment it should receive for purpose of tax. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) ANKIT Page 19 of 19 HC-NIC Page 19 of 19 Created On Mon Jun 19 14:21:01 IST 2017 Radhawami Salt Works v. Asst. Commissioner of Income-tax & 1
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