Srichand Lalchand Talreja vs Assistant Commissioner of Income Tax

A.P. Shah, J.—By this petition under article 226 of the Constitution of India, the petitioner has questioned the legality and validity of notice dated 19-3-1996 issued by the Asstt. Commissioner u/s 148 of the income tax Act, 1961. Briefly, the facts are that the petitioner is carrying on business as a trader in food colours and is assessed to tax in the status of an individual. For the assessment year 1992-93, the assessment was completed under an order dated 27-1-1993. For the assessment year 1995-96, the assessment was completed by an order dated 29-3-1996. During the assessment year 1995-96, the petitioner had sold the commercial premises on the ground floor of the building known as ''Sana'' at Santacruz (West), Mumbai-400 054 for a consideration of Rs. 4.85 crores. Before the Assessing Officer, it was claimed by the petitioner that he acquired the said premises pursuant to an agreement dated 10-10-1988 between the petitioner and the landlord Yusuf M. Lakdawala. It was also claimed by the petitioner that the landlord had given possession to him on 10-6-1991. In computing the capital gain, the petitioner had claimed that the market value of the premises as on 10-6-1991 should be taken as the cost of acquisition. However, the Assessing Officer rejected the claim. He found that the actual amount paid by the petitioner to the landlord was Rs. 8,26,000. He, therefore, took only Rs. 8,26,000 to be the cost of acquisition of the premises. The Assessing Officer observed in the order that since the tenancy rights, cost nothing to the petitioner, the entire value of Rs. 2,83,57,500 became the assessee''s tangible gain. The Assessing Officer relied upon the judgment of the Allahabad High Court in the case of Commissioner of Income Tax Vs. Gulab Chand, . He also referred to the judgment of the Tribunal, Bombay in the case of Cadell Wvg. Co. Ltd. wherein it has been held by the Tribunal that the tenancy rights did not constitute capital asset unless the tenant had a documentary power to subject the premises and if such power was not enjoyed by the tenant, any amount that he received in lieu of such tenancy rights had to be taken as casual income. The Assessing Officer further observed in the order that the assessee had scored out Part IV of the income tax return filed by him for the assessment year 1992-93 meaning thereby that there was no income received by him that he claimed to be exempt. The Assessing Officer observed that this vital information was withheld by the assessee from the department. Had the assessee disclosed in that year''s return of income that he had acquired property worth Rs. 2,83,57,500 in lieu of his tenancy rights which cost him nothing and for which he did not have any subletting rights, the department would have tried to bring the said amount to tax in that year. The Assessing Officer also observed that the situation has been so created that neither the assessee nor the landlord has to pay any substantial sum by way of tax to the Government. This is all due to creation of certain documents by virtue of which the assessee became the alleged owner of the reconstructed property as on 10-6-1991. Finally, the Assessing Officer allowed only the actual cost that the assessee has paid to the landlord as the cost of acquisition and on that basis fixed Rs. 4,74,24,955 as the long-term capital gain. Thereafter, the Assessing Officer issued the impugned notice u/s 148 dated 19-3-1996 for reassessment u/s 147 of the Act for the assessment year 1992-93. Aggrieved by the said notice, the petitioner has filed the present petition under article 226 of the Constitution. It is the case of the petitioner that the only possible basis for issuing the impugned notice u/s 148 is the view expressed by the first respondent in the assessment order for the assessment year 1995-96 that the market value of the new premises acquired by the petitioner on 10-6-1991 on surrender of tenancy rights in the old premises in the building ''Praveen Villa'' in accordance with the agreement dated 10-10-1988 is assessable to tax in the assessment year 1992-93. It is contended by the assessee that the view of the Assessing Officer is patently illegal and contrary to the decisions of this Court as well as the Supreme Court. It is further contended by the assessee that the question whether a compensation or an alternative accommodation for surrender of tenancy right would constitute or give rise to income chargeable under the Act is settled by the two Division Bench judgments of this Court reported in Commissioner of Income Tax, Bombay Vs. Shirinbai P. Pundole, and Nila Products Ltd. v. CIT [1984] 148 ITR 99/[1983] 13 Taxman 42. It is, therefore, prayed by the assessee that the impugned notice u/s 148 is liable to be quashed and set aside.

In contesting the petition, the department has filed the counter-affidavit of K.R. Sreenivasan, Asstt. Commissioner. It is averred in the affidavit that the impugned notice u/s 148 has been issued to the petitioner in the light of the disclosures made by the petitioner during the course of assessment proceedings for the assessment year 1995-96. It is further averred that these disclosures were not made in the relevant assessment year 1992. Therefore, after recording reasons and obtaining necessary approval, the said notice u/s 148 has been issued. It is averred that it is evident that the assessee claims to have acquired a capital asset in the assessment year 1992-93, but these facts were not disclosed in the assessment year in question. It is not known as to how much area was surrendered and what was the actual consideration. Under the circumstances, it is contended that it is just and proper for the Assessing Officer to adjudicate the matter in accordance with the law. It is also contended that merely because it is stated that amount received on surrender of tenancy rights is taxable as casual income, it cannot be said that the investigation itself need not be carried out. It is averred that the question of taxability of the amount on surrender of tenancy rights will arise only after genuineness of the transaction is established by the assessee. It is stated that the matter is still at the investigation stage and in view of the admitted facts regarding non-disclosure of acquiring a capital asset, it is absolutely essential in the interests of justice to allow the respondents to investigate the nature of the transaction pursuance to the notice u/s 148.

Mr. Bhujle for the petitioner strenuously contended that the petition raises pure questions of law. He urged that the only basis for issuance of the notice u/s 148 is the view of the department that compensation and/or alternative accommodation for surrender of tenancy rights constitutes income chargeable under the Act. The counsel urged that the department''s view is contrary to the judgments of this Court in Mrs. Shirinbai P. Pundole''s case (supra) and Nila Products Ltd.''s case (supra). It was also urged by the counsel that the decision of Allahabad High Court in Gulab Chand''s case (supra) does not lay down the correct legal position. He brought to my notice the judgment of Calcutta High Court in B.K. Roy Pvt. Ltd. Vs. Commissioner of Income Tax and Others, , wherein Suhas Chandra Sen, J. as he then was, held that the judgment of the Allahabad High Court has not been correctly decided and the acquisition of the premises in lieu of surrender of tenancy rights cannot constitute income in the hands of the assessee. The counsel urged that the only object of issuing the notice is to tax the assessee on the basis of the judgment of Allahabad High Court which is squarely contrary to the view of this Court. The counsel also brought to my notice the order passed by the Division Bench of Dr. Saraf and Dhanuka, JJ. in IT Reference No. 289 of 1983, wherein the Division Bench followed the earlier decision in the case of Mrs. Shirinbai P. Pundole (supra). The counsel also pointed out that the department did not rely upon the judgment of the Allahabad High Court before the Division Bench. The counsel, therefore, urged that the impugned notice is totally without jurisdiction.

Mr. Balsubramaniam, the learned counsel for the department, did not address this Court on the question of taxability of the income on the amount or property received by the tenant in lieu of tenancy rights, but he strenuously contended that the relevant facts were not disclosed by the assessee during the relevant assessment year 1992-93. He pointed out that the vital information about the acquisition of an asset worth more than Rs. 2 crores was not disclosed in the return. He, therefore, urged that an enquiry is necessary in to the assessee''s claim that he acquired a property worth more than Rs. 2 crores in lieu of tenancy rights. Mr. Balsubramaniam also pointed out that a property which was allegedly worth rupees two crores and odd was sold for more than rupees four crores within a period of two years. Mr. Balsubramaniam urged that this Court should not shut out the enquiry in the matter in view of the admitted position that the assessee had failed to disclose the acquisition of the asset during the relevant year.

The only question which falls for my consideration is whether this is a fit case for interference under article 226 at this stage. It is true that certain decisions relied upon by Mr. Bhujle support the assessee''s contention that compensation or alternative property received by the tenant in lieu of surrender of tenancy rights is not taxable. However, I do not see anything wrong if the department wants to examine the question of genuineness of the transactions since admittedly this information was not available to the Assessing Officer during the relevant year. In M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, , the Supreme Court while discussing the nature and scope of the power of the ITO to reopen an assessment u/s 147(a) observed :

An income tax Officer acquires jurisdiction to reopen an assessment u/s 147(a) only if, on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons - which he must record - to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but one of acting on fresh information.

It is well-settled that the belief is that of the ITO and sufficiency of the reasons for forming belief is not for the Court to judge although it is open to the assessee to establish that there in fact existed no belief or that the belief was not bona fide one or based on vague, irrelevant and non-specific information. Considering the facts and circumstances of the case, it cannot be said that the belief of the Assessing Officer is not bona fide or that he has acted on vague, irrelevant or non-specific information. It is an admitted fact that the information regarding acquisition of the asset was not available with the Assessing Officer during the relevant assessment year 1992-93. The information is disclosed in the return submitted for the assessment year 1995-96. It may be that the petitioner was not bound to disclose this information in the return for the assessment year 1992-93, but nevertheless if the information is now made available to the Assessing Officer and if on that basis, he bona fide believes that there is escapement of income, the notice issued by him u/s 148 cannot be regarded as invalid. Considering the facts and circumstances of the case, I am of the opinion that no interference is warranted at this stage under article 226.

In the result, the petition is dismissed. It is clarified that the observations made in this judgment are only tentative observations and all the contentions of the parties are kept open.

At the oral request of Mr. Bhujle, the interim relief is continued for a period of four weeks from today.