2019-VIL-469-KAR-DT
KARNATAKA HIGH COURT
Writ Petition No. 11361 of 2016 (T- IT)
Date: 05.11.2019
P. HEMAMALINI MAIYA
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX
For the Petitioner : A. Shankar , Senior Counsel along with M. Lava , Advocate
For the Respondent : K. V. Aravind , Advocate
BENCH
Mrs. S. Sujatha J.
JUDGMENT
MRS. S. SUJATHA J.-
1. The petitioner has challenged the notice dated March 3, 2015 issued under the provisions of section 148 of the Income-tax Act, 1961 ("Act" for short) relating to the assessment year 2008-09.
2. The petitioner filed the return of income for the assessment year 2008-09 declaring the total income of Rs. 1,86,05,928 which includes the income from the capital gains offered by the assessee, Rs. 1,50,00,000 after claiming the applicable exemptions against the receipt of consideration of Rs. 4,00,00,000 in respect of transfer of part of the rights in the brand name "MTR".
3. The said return of income was selected for scrutiny and order dated December 31, 2010 under section 143(3) of the Act was passed accepting the income returned. Survey proceedings were conducted by the Department on August 22, 2007 in the partnership firm premises, wherein the petitioner was a partner. It is submitted that during the survey proceedings, the petitioner had filed a letter before the Income-tax Officer, Ward-8(1), Bangalore and intimated that the petitioner has received a sum of Rs. 4,00,00,000 from M/s. MTR Food Products and the same is exigible to capital gains tax as long-term capital gains.
4. Subsequently, the learned Assessing Officer had issued the notice dated January 9, 2014 under section 148 of the Act. On the request made by the petitioner, reasons recorded were provided. The petitioner had filed detailed objections dated August 18, 2014 for the notice and to the reasons recorded further, requesting to issue the copy of the audit query and the reply filed by the Department.
5. The petitioner has received yet another notice under section 148 of the Act dated March 3, 2015 issued by the learned Assessing Officer to which reply dated March 30, 2015 was filed requesting the learned Assessing Officer to treat the original return of income filed on July 31, 2008 as return pursuant to the notice issued under section 148 of the Act. The learned Assessing Officer has issued the reasons recorded and issued notice to appear on February 29, 2016 for the assessment proceedings. Hence, this writ petition.
6. Learned senior counsel Sri A. Shankar, representing the learned counsel for the petitioner submitted that the trademark and trade name with all patent rights therein was held by MTR Food Products and the five legal heirs. The Department has accepted the return of the MTR, actual business entity accepting the transaction as capital gains. However, a different stand has been taken in respect of the other five assessees. It was contended that on six occasions, it was brought to the notice of the learned Assessing Officer that the transaction relates to the capital asset and the petitioner has offered tax on capital gains towards the transaction of transfer of part of its rights in the capital assets of trademark. Reasons recorded by the learned Assessing Officer for the notice dated March 3, 2015 under section 148 of the Act impugned herein, is verbatim similar to that of the reasons recorded in the first notice dated March 3, 2015 issued under section 148 of the Act. It is thus submitted that the impugned notice under section 148 of the Act is nothing but change of opinion of the assessing authority.
7. Learned counsel for the Revenue supporting the impugned notice, submitted that the transactions of the petitioner relating to the trademark "MTR" would not come within the ambit of capital asset. The amount of Rs. 4,00,00,000 received by the assessee from M/s. MTR Food Products for patent right is chargeable to tax as income from business as stipulated under section 28(va)(b) of the Act. Considering the same, the notice issued under section 148 of the Act cannot be held to be unjustifiable. The original records are placed before the court.
8. I have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.
9. Section 147 of the Act reads thus :
"Income escaping assessment.
147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceed ings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assess ment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of sec tion 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assess ment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year :
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset [including financial interest in any entity] located outside India, chargeable to tax, has escaped assessment for any assessment year :
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is charge able to tax and has escaped assessment.
Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the fore going proviso.
Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(c) where an assessment has been made, but-
(i) income chargeable to tax has been under-assessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allow ance under this Act has been computed.
(d) Where a person is found to have any asset (including financial interest in any entity) located outside India.
Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the pro ceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.
Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012."
10. It is not in dispute that the notice dated January 9, 2014 was issued under section 148 of the Act for which the reasons recorded for the purpose of reassessment by the assessing authority reads thus :
"On verification of the records, it is seen that the assessee was in receipt of an amount of Rs. 4,00,00,000 from M/s. MTR Food Products for surrendering the patent right.
The assessee has wrongly admitted it as income from capital gains and claimed an amount of Rs. 50,00,000 as deduction under section 54EC. The balance amount of Rs. 3,50,00,000 is admitted as income from long-term capital gains after availing of the indexation benefit. The amount of Rs. 4,00,00,000 received by the assessee from M/s. MTR Food Products for patent right is chargeable to tax as income from business as stipulated under section 28(va)(b) of the Income-tax Act. Whereas the assessee has misrepresented the fact treating the amount received as long-term capital gains instead of income from business.
As the assessee has treated the amount received from MTR Food Products for patent rights as capital gains, investing part of the amount in REC bonds claiming exemption under section 54EC, also indexing the amount received to avail of non-existent indexation benefit, the income chargeable to tax amounting to Rs. 2,50,00,000 has escaped assessment and also the income admitted was assessed at a lower rate of tax. I have reason to believe that the income charge able to tax amounting to Rs. 2,50,00,000 has escaped assessment and the income taxed was also at a lower rate than what it ought to have been charged to tax."
11. The reasons recorded for issue of notice dated March 3, 2015 under section 148 of the Act reads thus :
"On verification of the records, it is seen that the assessee was in receipt of an amount of Rs. 4,00,00,000 from M/s. MTR Food Products for surrendering the trade mark right. The assessee has wrongly admitted it as income from capital gain and claimed an amount of Rs. 50,00,000 as deduction under section 54EC. The balance amount of Rs. 3,50,00,000 is admitted as income from long-term capital gain after availing of the indexation benefit. The amount of Rs. 4,00,00,000 received by the assessee from M/s. MTR Food Products for patent right is chargeable to tax as income from business as stipulated under section 28(va)(b) of the Income-tax Act. Whereas the assessee has misrepresented the fact treating the amount received as long-term capital gains instead of income from business.
As the assessee has treated the amount received from MTR Food Products for patent rights as capital gain, investing part of the amount in REC Bond claiming exemption under section 54EC, also indexing the amount received to avail of non-existent indexation benefit, the income chargeable to tax amounting to Rs. 2,50,00,000 has escaped assessment and also the income admitted was assessed at a lower rate of tax. I have reason to believe that the income chargeable to tax amounting to Rs. 2,50,00,000 has escaped assessment and the income taxed was also at a lower rate than what it ought to have been charged to tax."
12. The reasons recorded by the assessing authority is verbatim similar for issue of both the notices except shown as surrendering the "trademark right" in the subsequent notice dated March 3, 2015 whereas, the reasons recorded relating to the notice dated January 9, 2014 indicates surrendering "patent right".
13. The reply given by the Assessing Officer to the audit query reads thus :
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1 |
Name of the assessee |
P. Hemamalini Maiya |
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2 |
PAN/AY |
ADVPM6914F/2008-09 |
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3 |
No. and date of objection |
18-5-2011 |
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4. |
If the objection is not accepted detailed report giving full facts should be given and the Assessing Officer’s view on most appropriate remedial action. Also mention the limitation date under various sections. |
The assessee vide agreement dated 5-2-2007, received Rs. 4,00,00,000, regarding modification of her right over the trade name MTR. The income was returned under the head capital gains and the same has been accepted as such in the proceedings under section 143(3) of the Income-tax Act, 1961. The audit pointed out that the same was to be taken as business income as non-compete fee. In the light of the query, the following aspects of the transactions are brought for the reference and better understanding of the facts of the case. |
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The extracts of the agreement dated 5th Feb, 2007 are given below : |
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“Whereas the parties agree that each of them shall have the rights to utilize a trade name in accordance with the terms and conditions set forth in the agreement”. (page 6, para No. O) |
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“The parties herein affirm, confirm and agree that the trade name “MTR” belong to both the parties equally and they shall be entitled to use the same in accordance with the terms and conditions contained in this agreement.” (page 8, para No. 2). |
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“The present shareholders of M/s. MTR Foods Ltd., a company belonging to the first party group are in the process of selling their shareholdings to a new shareholder who has a precondition for the purchase of shares has asked for certain modification of rights to the second party as regards the usage of the brand name MTR in its own business as well as in its dealing with third parties. The second party in order to facilitate the proposed purchase of shares is agreeing to the modification of its rights and hence this agreement. It is clearly agreed to between the parties herein that the first party shall pay a sum of Rs. 24,50,00,000 as valid consideration to the second party in lieu of the second party agreeing to the concessions granted under this agreement, which are in the nature of modification of its rights held by it as its capital assets, to be distributed amongst the members of the second party as per Attachment 6”. (pages 9 & 10, para 7). |
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From the above extracted clauses, which clearly and categorically talks about modification of rights in the said trade name and speaks about ceding the rights of the parties in favour of the new party and therefore the same partakes the character of a capital asset and therefore the relinquishment of right therein gives rise to a capital gain, rather than any other business right. It is |
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also important to mention that the parties concerned have held it as their capital asset and have relinquished their rights, partially in favour of the other parties and as such the same is rightfully considered as a capital gain and the same has been accepted as such in the assessment proceedings. |
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Last date for issue of notice under section 148 is 31-3-2013. Last date for passing order under section 263 is 31-3-2013. Tax effect involved is Rs. 1,01,53,800 |
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5 |
(a) if remedial action is taken, details such as section and date of order demand raised D&CR No. date of collection, if any, appeal against the order etc., |
NA |
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(b) if demand varies from the tax effect mentioned in the LAR detailed reasons thereof. |
NA |
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6 |
If the assessee is a firm, whether the assessments of partners are also rectified, whether revised share income communicated to AC/Deputy Commissioner having jurisdiction over the partners. |
NA |
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7 |
If no action has been taken and further if no remedial measures the reasons thereof. |
NA |
Bangalore
Dated : 18-1-2012 (M. Narasimha Raju)
ACIT C-2[1], Bangalore.
Encl : 1 Audit objection copy."
14. The issuance of the second notice under section 148 of the Act dated March 3, 2015 to reassess the income of the assessee for the assessment year 2008-09 on the premise that the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the Act is based on the same reasons recorded for the first notice dated January 9, 2014 issued under section 148 of the Act and no final orders have been passed on the same. The notice impugned does not show the availability of the tangible material to believe the escapement of income from assessment. No new material was available before the Assessing Officer to reissue the second notice. On the contrary, the material was available before the Assessing Officer at the time of passing of the order under section 143(3) of the Act as well as on multiple occasions at the time of filing the returns, original assessment proceedings, reply filed to the first notice under section 148 of the Act and to the reasons recorded by the Assessing Officer as well as at the time of survey conducted.
15. In the case of Asst. CIT v. ICICI Securities Primary Dealership Ltd. [2012] 348 ITR 299 (SC), the hon'ble apex court has observed thus (page 301) :
"The assessee had disclosed full details in the return of income in the matter of its dealing in stocks and shares. According to the asses see, the loss incurred was a business loss, whereas, according to the Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the reopening of the assessment by the Assessing Officer, vide his order dated June 23, 2006, is clearly a change of opinion. In the circumstances, we are of the view that the order reopening the assessment was not maintainable."
16. In BLB Ltd. v. Asst. CIT reported in [2012] 343 ITR 129 (Delhi), it has been observed thus (page 135) :
"The Revenue had the option, but did not take recourse to section 263 of the Act, in spite of audit objection. Supervisory and revisionary power under section 263 of the Act is available, if an order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. An erroneous order contrary to law that has caused prejudice can be corrected, when jurisdiction under section 263 is invoked . . . But initiation of reassessment proceedings will be invalid on the ground of change of opinion."
17. It will be appropriate to reproduce the relevant passage from A. L. A. Firm v. CIT reported in [1991] 189 ITR 285 (SC), it is held that
"'We think there is force in the argument on behalf of the assessee that, in the face of all the details and statement placed before the Income-tax Officer at the time of the original assessment, it is difficult to take the view that the Income-tax Officer had not at all applied his mind to the question whether the surplus is taxable or not. It is true that the return was filed and the assessment was completed on the same date. Nevertheless, it is opposed to normal human conduct that an officer would complete the assessment without looking at the material placed before him. It is not as if the assessment record con tained a large number of documents or the case raised complicated issues rendering it probable that the Income-tax Officer had missed these facts. It is a case where there is only one contention raised before the Income-tax Officer and it is, we think, impossible to hold that the Income-tax Officer did not at all look at the return filed by the assessee or the statements accompanying it.
The more reasonable view to take would, in our opinion, be that the Income-tax Officer looked at the facts and accepted the assessee's contention that the surplus was not taxable. But, in doing so, he obviously missed to take note of the law laid down in G. R. Ramachari and Co. v. CIT [1961] 41 ITR 142 (Mad) in which there is nothing to show, had been brought to his notice. When he subsequently became aware of the decision, he initiated proceedings under section 147(b). The material which constituted information and on the basis of which the assess ment was reopened was the decision in G. R. Ramachari and Co. This material was not considered at the time of the original assessment. Though it was a decision of 1961 and the Income-tax Officer could have known of it had he been diligent, the obvious fact is that he was not aware of the existence of that decision then and, when he came to know about it, he rightly initiated proceedings for reassessment.'
In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/ original proceedings may have examined the subject matter, claim etc., because the aspect or question may be too apparent and obvious. To hold that the Assessing Officer in the first round did not examine the question or subject matter and form an opinion, would be con trary and opposed to normal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction, etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case."
18. It would be apt to refer CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) wherein the hon'ble apex court has held as under (page 564) :
". . . where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assess ment. Therefore, post-April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe' . . . section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on ful filment of certain preconditions and if the concept of 'change of opin ion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
19. This court in T. T. K. Prestige Ltd. v. Deputy CIT [2018] 12 ITR-OL 375 (Karn) ; [2018] 169 DTR Judgments, has held thus (page 402) :
"As discussed in the preceding paragraphs, the assessee has fur nished detailed material on the query made by the Assessing Officer. If such query made is answered by the assessee, but the Assessing Officer does not deliberate on that point in the assessment order and does not make any addition in the assessment order, would show that the issue was examined by the Assessing Officer, but do not find out any ground or reason to make addition or reject the stand of the assessee. In the circumstances, it must be presumed that the Assess ing Officer had formed an opinion while framing the assessment under section 143(3) of the Act. The arguments of the learned counsel for the Revenue that the issue was not addressed by the Assessing Officer, is a case of 'no opinion' cannot be countenanced."
20. It is well settled that no reassessment/reopening can be undertaken on the basis of mere audit objections/query raised by the internal auditors of the Department. The notice impugned dated March 3, 2015 does not indicate any independent application of mind by the Assessing Officer. As could be seen from the records, the audit query vis-a-vis the reply of the Assessing Officer makes it clear that the Assessing Officer was of the opinion that the transaction involved herein relates to capital asset and the tax paid on capital gains towards the same has been accepted to be correct. This issue was examined and analysed by the Assessing Officer on multiple times.
21. The foregoing factors would establish that the Assessing Officer had no "reason to believe" any escapement of income to assessment but is a clear case of change of opinion. Hence, assumption of jurisdiction by the Assessing Officer to invoke section 147 of the Act cannot be sustained. This aspect of "change of opinion" would be suffice to quash the impugned notice without going into the merits of the other arguments advanced by the learned counsel for the petitioner.
Accordingly, the writ petition is allowed.
The impugned notice at annexure-A dated March 3, 2015 issued by the respondent under section 148 of the Act is quashed.
No order as to costs.
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