Commissioner of Income Tax vs Shantilal Bhogilal Nanavati

Mankad, J.—The property situate in Raikhad in Ahmedabad, owned by the assessee HUF was acquired by the State. Notification u/s 4 of the Land Acquisition Act, 1894 (hereinafter referred to as the "Act") was issued on 16-8-1960 and notification u/s 6 of the Act was issued on 16-2-1964. The award under the Act was passed on 5-3-1965, and the possession of the property was taken on 30-6-1966. Capital gains arising out of the acquisition of the property was included by the ITO in the assessment framed for the asst. yr. 1965-66. The AAC having confirmed the order of the ITO, the assessee carried the matter in appeal before the IT appellate Tribunal. Before the Tribunal, the assessee raised two additional grounds contending to the effect that as the property stood transferred and vested in the State on 30-6-1966, the date on which possession of the property was taken, the capital gains, if any, is not taxable in the asst. yr. 1965-66. It may be mentioned here that the year of account of the assessee is Samvat Year. The Revenue resisted the assessee''s prayer to raise additional grounds as stated above. The Tribunal, however, permitted the assessee to raise additional grounds and on merits held that capital gains was not taxable in the assessment year under appeal i.e. the asst. yr. 1965-66. In the result, the Tribunal allowed the appeal.

The main contention which is raised in this reference is whether the Tribunal was right in permitting the assessee to raise the additional grounds. At the instance of the Revenue, the Tribunal has referred the following two questions to this Court for its opinion :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in permitting the assessee to raise the following additional grounds, namely :

(i) the respondent has erred in holding and/or taxing capital gain on acquisition of immovable property in the year underappeal,

(ii) the respondent has erred in law and on facts and in taxing capital gains on acquisition of immovable property though held that property is transferred on 30-4-1966.

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct deciding the appeal in favour of the assessee on the basis of such additional grounds ?"

In our opinion, no point of law arises for our determination.It was entirely a matter of discretion with the Tribunal, whether or not to allow the assessee to raise additional grounds. As pointed out by the Tribunal in its order, the additional grounds raised to go to the root of the matter in the sense that if transfer of the property in question had not taken place, the assessee cannot be said to have derived any income by way of capital gain, which was taxable in the year under appeal. Revenue is entitled to tax the income which the assessee derives by way of capital gain, provided and only provided such income could be said to have been derived by the assessee in that year. If the assessee had not earned or received this income in the year under appeal, the revenue had no authority in law to tax this income in the year under appeal. Therefore, on the facts admitted by the Revenue, the income gains was not taxable in the year under appeal. We, therefore do not see any infirmity in the order of the Tribunal permitting the assessee to raise additional grounds. In fact, as pointed out above, exercise of discretion in permitting the assessee to raise additional grounds does not raise any question of law. In any case, the Tribunal could not be said to have erred in permitting the assessee to raise additional grounds and in deciding the appeal in its favour on those grounds.

In this result, we answer both the questions referred to us in the affirmative and against the Revenue.

No order as to costs.