COMMISSIONER OF INCOME TAX,COCHIN vs. M/S.RAM BAHADUR THAKUR LTD

PDF · subscribers
ITA/74/2001HC KeralaKLHC01019044200130 January 2008Bench: HONOURABLE MR.JUSTICE T.R.RAMACHANDRAN NAIR,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR7 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal's order cancelling the rectification was unsustainable. The Court found that the assessment of short-term capital gains had become final, as it was not disputed by the assessee in the appeal against the fresh assessment. The Court reasoned that applying a tax rate contrary to the statute is an apparent mistake, which is rectifiable under Section 154. The assessing officer had merely corrected the error where 50% was applied instead of the applicable 60% for short-term capital gains. The Court noted that the sale of the property on 4.4.1983 was within 36 months of its acquisition (agreement dated 5.12.1980), confirming it as short-term capital gains. Therefore, the rectification order was valid and restored. The appeal was allowed by vacating the Tribunal's order.

What were the facts?

The assessee, a plantation company, had its assessment for Assessment Year 1985-86 set aside by the Commissioner under Section 263. In the fresh assessment, short-term capital gains were computed on the sale of a commercial building. While the capital gains were treated as short-term, the assessing officer mistakenly applied a 50% tax rate instead of the applicable 60%. The Commissioner (Appeals) remanded the matter. Subsequently, the assessing officer issued a notice under Section 154 to rectify this error in the tax rate. The assessee's objections were overruled, and a revised order was issued. The appeal against this rectification before the Commissioner (Appeals) was unsuccessful, but the Income Tax Appellate Tribunal (ITAT) allowed the assessee's second appeal, setting aside the rectification order. The revenue has filed this appeal against the ITAT's order.

What were the issues?

1. Whether the Income Tax Appellate Tribunal was justified in cancelling the rectification order issued by the assessing officer under Section 154 of the Income Tax Act, 1961, to apply the correct rate of tax on short-term capital gains? (Question of law) Assessee's Contentions: The judgment does not record any specific contentions made by the assessee before the High Court. However, the ITAT had allowed the assessee's appeal, implying the assessee argued that the rectification under Section 154 was not permissible. Revenue's Contentions: The revenue contended that the mistake in applying the wrong rate of tax (50% instead of 60%) on short-term capital gains was an apparent mistake that could be corrected under Section 154 of the Income Tax Act. They argued that the classification of gains as short-term had become final after the appeal process, and only the rate was incorrect.

Which sections of the Income-tax Act were involved?

Section 263,Section 154

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 30TH JANUARY 2008 / 10TH MAGHA 1929 ITA.No. 74 of 2001() -------------------- ITA.603/COCH/1993 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: ----------------- THE COMMISSIONER OF INCOME TAX, COCHIN BY ADV. SRI.P.K.R.MENON(SR.),SC FOR IT SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: ------------- M/S. RAM BAHADUR THAKUR LTD., COCHIN BY ADV. SRI.JOSEPH MARKOSE SRI.THOMAS VELLAPPALLY THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 30/01/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C .N. RAMACHANDRAN NAIR & T.R. RAMACHANDRAN NAIR, JJ. -------------------------------------------- I.T.A. No. 74 OF 2001 -------------------------------------------- Dated this the 30th day of January, 2008 JUDGMENT C.N. Ramachandran Nair,J. The respondent-assessee is essentially a plantation company. The original income tax assessment completed for the assessment year 1985-86 was set aside by the Commissioner under Section 263 of the Income tax Act with direction to the assessing officer to redo the entire assessment after hearing the assessee's objections. While making fresh assessment pursuant to the order of the Commissioner under Section 263, the assessing officer, among other things, held that the assessee was liable to pay tax on short-term capital gains for the sale of a commercial building at Bombay. Even though the assessee filed appeal against the assessment so issued, the assessment of capital gains as short-term capital gains was not disputed at all. The Commissioner (Appeals), decided various other issues and remanded the matter back to the assessing officer. In the course of giving effect to Commissioner of Income tax (Appeals) ' order, the assessing officer noticed that even

2 though short-term capital gains was assessed in the assessment completed pursuant to revisional order issued by the Commissioner under Section 263, the rate applied was wrong in as much as, as against 60 per cent applicable to short-term capital gains, the officer applied 50 per cent which is a rate applicable to long term capital gains. Therefore he issued notice under Section 154 to correct the mistake in regard to rate of tax applied on short term capital gains computed. Even though the assessee objected against the proposal for rectification, the assessing officer overruled the same and issued revised orders applying the rate of tax on short-term capital gains and along with it giving effect to the direction of the CIT (Appeals) contained in the appellate order. The appeal filed against the rectification before the CIT (Appeals) was unsuccessful and consequently assessee filed second appeal which was allowed by the Tribunal. It is against this order by the Tribunal that the revenue has filed this appeal. 2. We have heard senior counsel appearing for the revenue and counsel appearing for the assessee. We are unable to uphold the order of the Tribunal in cancelling rectification order issued by the officer

3 under Section 154 of the I.T. Act to apply the correct rate of tax on short term capital gains. The admitted facts are that the original assessment was set aside in it's entirety by the Commissioner under Section 263 of the Act. Pursuant to the same, the Officer made assessment afresh in which he computed short term capital gains on the sale of property made by the assessee during the previous year. Even though there was no discussion as to the rate of tax on capital gains, the finding by the assessing officer that capital gains is short term capital gains was not questioned by the assessee in the appeal filed against the said assessment. In fact in the appeal filed by the assessee before the CIT (Appeals), even though modification is ordered, the finding in the original assessment that the capital gains is short term in nature was not interfered with. Therefore the assessment of short term capital gains has become final even after one round of appeal against the assessment. The remaining question is whether the wrong rate of tax applied on short term capital gains assessed could be corrected in proceedings under Section 154 of the Act. There can be no dispute that the rate applied contrary to the rate provided under the statute is an apparent

4 mistake which could be corrected under Section 154 of the Act. All what the assessing officer has done is only correcting the mistake in regard to rate of tax on short term capital gains which was originally applied at 50% as against applicable rate of tax of 60%. We do not find any justification for the Tribunal to interfere with the rectification order confirmed by CIT (Appeals) in first appeal. We also find that the Commissioner (Appeals) has recorded in Annexure F first appellate order that copy of the agreement dated 5.12.1980 by which assessee acquired right, title and interest over the property later sold was available in the assessment record. In fact the sale admittedly made on 4.4.1983 was within 36 months from the date of acquisition of property and therefore capital gains arising under the sale is obviously short term capital gains. The finding of the CIT (Appeals) that the assessing officer gave a finding that the capital gains is short term in nature is based on records even though there was no discussion in the assessment order. In any case since the finding in the assessment order that the capital gains is short term in nature, mistake in regard to rate of tax adopted in the original assessment could be corrected under Section

5 154 of the Act. Therefore the Officer is right in doing so. We do not find any justification for the Tribunal to reverse the rectification order confirmed by the CIT (Appeals). We therefore allow the appeal by vacating the order of the Tribunal and by restoring the rectification order issued by the officer. (C.N.RAMACHANDRAN NAIR) Judge. (T.R.RAMACHANDRAN NAIR) Judge. kk

More judgments on Section 263

All 13,616 judgments and leading authorities on Section 263 →

Recent GST High Court judgments

Search GST case law →