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Facts
A legal heir (assessee), Nirmal Chand Soni, received proceeds from properties of an insolvent estate, which were sold by a court-appointed Receiver. The assessee initially declared these as capital gains. However, previous ITAT orders established that the properties were not owned by the assessee and the receipt was inheritance, thus not assessable as capital gains or income from other sources. The CIT(A) directed the deletion of the entire capital gain.
Held
The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the entire capital gain. It reiterated that the assessee was not the owner of the property and the proceeds, being inheritance, were not taxable as capital gains or income from other sources. The assessee's cross-objection was also dismissed for statistical purposes.
Key Issues
Whether capital gains from properties sold by a court-appointed Receiver, which are received by a legal heir as inheritance, are assessable in the hands of the assessee. Also, whether the amount constitutes income from other sources under Section 56(2)(v).
Sections Cited
250, 50C, 56(2)(v)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Nirmal Chand Soni, Flat No. 102, Khaitan Mansion, 22, D L Khan Road, Kolkata – 700025 ..............…...…………….... Appellant [PAN: ARLPS4328R] vs. ACIT, Circle-43 Kolkata, 3 No. Government Place, Aayakar Bhawan, Kolkata - 700001 ........…..….................... Respondent Appearances by: Assessee represented by : S.M. Surana, Advocate Sunil Surana, CA Department represented by : Loviesh Shelly, Addl. CIT, Sr. DR Date of concluding the hearing : 03.02.2025 Date of pronouncing the order : 17.02.2025 O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
“In the instant case the appeal order was received on 12-02-2024 The order of the Ld. CIT (A) bearing Appeal No. CIF (A), Kol 13/10081/2019-20 has been perused but found to be dismissed by the LA CIT(A). In view of the same no action was found to be taken at this end in this respect in connection with the sad order of the appellate authority. On further search in the relevant appeal register and CSR portal another order hearing No. CIT(A), Kol 13/10069/2019-20 is found to have been passed by Ld, CIT (A) in faceless mode dated 12 02-2024 in respect of the same assessee for the same assessment year 2007-08. On careful perusal of the said order the text in the said order is found to be almost identical with the earlier one [Appeal No. CIT (A), Kol- 13/10081/2019-20). However, the findings of the order of Led CIT (A) have been factually changed right from Sl. No.4 of the said order under the head appellate findings. Under such a situation efforts were made to locate the relevant assessment record in all possible corners of the office premises, Inspector attached to this office and other staff members also were pressed into service to locate the assessment record on war footing. Even after a great deal of labour, the assessment records remain not traceable for a quite long time. It is pertinent to mention that two other charges namely, ACIT, Circle 4, Kolkata & ACIT, Circle-45. Kolkata have been merged with ACII, Circle 43, Kolkata at the time of departmental restructuring and therefore, reasonably there was a great amount of transition of assessment records related to these charges took place Factually a major chunk of time has been consumed to locate the said assessment record for the AY 2007-08 and finally the mission was fulfilled after a consolidated effort of all the staff members taken together including the Inspector attached to this office on 24-05-2014. In view of the same, a delay of almost 42 days has been resulted into from day I in the hunt of the said assessment record. Thereafter, six days has been expended to prepare the facts of the case which is a fall out of almost 10 to 12 different orders passed at different times by the Assessing Officer, Ld. CII (A) and Hon'ble Tribunal. The extensive studies of the orders practically took a little more time to consider the feasibility of filing further appeal before the Hon'ble Tribunal with a view to contest the order of Ld. CIT (A). In view of the above, I am furnishing the synopsis of delay for filing the same with an earnest request to condone the unwarranted delay considering the facts and circumstances of the case…..” 1.1 Considering the reasons given by the Revenue, the delay is hereby condoned and the appeal is admitted for adjudication.
The present appeals arise from order u/s 250 of the Income Tax Act, 1961 (hereafter ‘the Act’), passed by the Ld. Commissioner of Income Tax CO No. 42/Kol/2024 Nirmal Chand Soni (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereafter ‘the Ld. CIT(A), dated 12.02.2024. In this case, there are two appeals, one filed by the Revenue and another is a CO filed by the assessee in support of the order of Ld. CIT(A). Since, both these appeals pertain to the same set of facts, therefore, they are being disposed of through this single order.
2.1 In this case, there is an unusual set of facts which deserve to be summarized. It is seen from the records that one Seth Bhagchand Soni became insolvent for which suits were filed by the creditors and thereafter his properties got vested in the Receiver appointed by the Court. The said Receiver was directed to sell the properties and out of such sale proceeds the creditors and the legal heirs were to be paid.
The assessment of the assessee was reopened u/s 17 of W T Act for inclusion of the properties lying with the Receiver and assessment was completed. The ITAT (ITA No. WTA/12/Kol/2016 dated 7.6.2017) held that the properties with the Receiver were not held and owned by the assessee and excluded the same from the wealth of the assessee. The said properties were sold by the Receiver and after payment to creditors dues, the remaining amount was distributed to the legal heirs. The assessee allegedly inadvertently declared the amount as capital gain which was increased by the AO on the basis of sec 50C of the Act.
In the second round, the assessee claimed before the Ld CIT(A), that no amount of capital gain was assessable in his hands since the property was held by the Receiver who sold the same and it was only the Receiver who could have been assessed.
The Ld. CIT(A) considered the submissions of the assessee and the order of the ITAT in Wealth Tax proceedings (ITA No. WTA/12/Kol/2016 dated 7.6.2017), and held that capital gain was not assessable in the hands of the assessee. However, the Ld CIT(A) held that that since the money has been received by the assessee, the same has changed colour and is CO No. 42/Kol/2024 Nirmal Chand Soni assessable as income from other sources. Thus, the addition under the head capital gain was deleted in its entirety and the amount received was directed to be assessed as income from other sources. The order of the CIT(A) was accepted by the revenue.
2.1. Being aggrieved, the assessee filed appeal before the ITAT and disputed the direction of the Ld CIT(A) that the said amount was to be assessed as income from other sources. It was held by the ITAT that the amount received was on account of inheritance and cannot be assessed as income from other sources in view of proviso (c) to sec 56(2(v). Admittedly, the ITAT’s order was not disputed by the revenue before the Hon'ble High court and has thus become final.
2.2. While giving effect to the order of the CIT(A) and ITAT the AO allowed deduction only of the capital gain as per enhancement in the assessment order and not the entire capital gain and therefore, allegedly, did not give effect to the order of the appellate authorities in accordance with their directions. Thereafter, the assessee filed appeal against the said appeal effect order of the AO before the Ld. CIT(A). The Ld. CIT(A) following the orders of the appellate authorities, directed the AO to delete the entire capital gain.
Aggrieved with this action of the Ld. CIT(A), the Revenue has filed the present appeal with the following grounds:
“1) Whether the facts and in circumstances of the case, the Ld. CIT (A) has grossly erred in deleting the addition in spite of the fact that the assessee is the owner of the property?
2) Whether the CIT (A) has grossly erred in deleting the addition made by ignoring the fact that the assessee had himself shown the income from Long Term Capital Gam in ha return of income lot the A.Y. 2007-08 which was filed on 29-10-2007 and paid Rs. 70,82,629/- as tax on it? 3) The appellant craves leave to add, alter and modify any of the questions at the time of hearing.”
4.1 The Ld. AR on the other hand strongly argued that the Ld. CIT(A) was merely following the directions of the Hon’ble ITAT in the assessee’s own case and therefore, there is no reason to interfere with it.
We have carefully considered the rival submissions and have been made aware of the fact that the assessee’s case is covered by the ITAT’s order dated 20.07.2018 in assessee’s own case (ITA No. 832/Kol/2018). The Ld. CIT(A) has taken cognizance of the same as under:
4.1 During the course of appeal proceedings, the appellant was issued hearing notice dated 27.01.2021 in response to which the appellant filed submissions on 03.02.2021. A further notices was sent on 25.08. 2021, 4.10.2021 in response to which the appellant resubmitted the information on 05.10.2021 as given earlier. A further notices was again sent on 22.10.2021, 02.11.2021, 20,12,2021 in response to which the appellant filed submissions on 24.12.2021 as given earlier. A further notices was again sent on 18.02.2022, 06.04.2022, 05.07.2022 in response to which the appellant filed submissions on 12.07.2022, 11.11.2022 as given earlier. A further notices was sent on 24.08.2023 in response to which the appellant filed submissions on 25.08.2023 as given earlier. A further notice was again sent on 10.01.2024 in response to which the appellant filed submissions on 13.01.2024 as given earlier. Taking into consideration the Assessment order and the submission filed by the appellant, present appeal is being decided on merits as per discussions as under: 4.2 The Hon'ble ITAT in its order dated 20.07.2018 held that the assessee was not the owner of the property. The Hon'ble Tribunal also held that the view taken by the CIT(A) to assess the receipt as income from other sources was also not correct view, since the money received by the assessee was on account of inheriting property. The Hon'ble Tribunal deleted the addition the entire addition holding that the same was also not assessable as income from other sources. 4.3 Hence there is no debate on the issue that the Capital gains are held to be not assessable in the hands of the assessee. Once this issue is settled, the Assessing Officer should have deleted the entire Capital gains and not just the enhancement made by the AO u/s 500. 4.4 Hence the appeal of the assessee is allowed.
Considering the totality of facts and circumstances of this case, there is no reason to interfere with the order of Ld. CIT(A), hence, the appeal of the Revenue is hereby dismissed.
CO No. 42/Kol/2024 Nirmal Chand Soni 7. Regarding the CO filed by the assessee, since the matter in quantum has already been decided in favour of the assessee and against the Revenue, hence, this CO does not survive for any further adjudication. Accordingly, this CO is dismissed for statistical purposes.
Order pronounced in the court on 17.02.2025