Vildirect: IncomeTax-caselaws-1987-VIL-46-ITAT-DEL

1987-VIL-46-ITAT-DEL

Equivalent Citation: ITD 022, 061, TTJ 028, 227,

Income Tax Appellate Tribunal DELHI

Date: 17.03.1987

MOHAMMED HAROON JAPANWALA.

INCOME-TAX OFFICER.

BENCH

Member(s) : ANAND PRAKASH., S. S. MEHRA.

JUDGMENT

Per Shri S.S. Mehra, Judicial Member --- Appellant assessee by his present appeal challenges order dated 19-1-1985 of the learned CIT(A), New Delhi for the assessment year 1976-77, inter alia, on the following grounds :

" 1. The learned CIT (Appeals) has erred on facts as well as in law in not holding that notice issued under section 148 was illegal and invalid and without any information on the record and also in spite of the fact that the very same ITO has also started Gift-tax proceedings against Mohd. Suleman. This tantamounts that even the department had no material for holding that any capital gain has escaped.

2. The learned CIT (Appeals) has erred in holding that there was no dispute in the family over the distribution of the property.

3. The learned CIT (Appeals) has erred in ignoring valuation report of property dated26-6-1982which he himself referred in his letter dated 10/11-2-84. It is, therefore, prayed that the proceedings under section 147(b) may kindly be quashed or in the alternative it may be ordered that no capital gain has been arisen in this case."

2. By status the assessee is an individual and the accounting period was the year ending31-3-1976. The assesses receives income from house property and dividends. Assessment was originally completed under section 143(1) of the Income-tax Act, 1961 on8-3-1979. Subsequently on20-3-1981the learned ITO issued notice under section 148, after reopening the assessment under section 147(b) of the Act. The reasons recorded for reopening the assessment are as under :

" There have been exchange of properties within the meaning of section 45 of the Income-tax Act and the assessee has received consideration of Rs. 5,26,800 in value for Alipur Road property in exchange of properties at 1/2 share 58 Janpath, 1/2 share Gali Batsshan, 1/2 share Noor Building, 1/2 share Sultan Building, 1/2 share 1249 Ballimaran and 1/2 share 1212, Ballimaran, Delhi the value of each transfer was, worked out to Rs. 1,43,150. Thus there is element of capital gain under section 45 of the IT Act for the value received in kind. Start proceedings under section 147(b) of the IT Act, 1961 for taxation of the capital gain escaping assessment which is estimated at Rs. 3,83,650. . . ."

3. It is seen as if after the original assessment the learned ITO came to possess information in the form of valuation report wherein the value of share of the assessee's property at6 Alipur Road,New Delhiwas determined at Rs. 5,26,800. The learned ITO appears to have noted the value of the property in the assessment order dated28-3-1980in the assessee's case for asstt. year 1975-76. Thus on the basis of the valuation report and the asstt. order the reopening appears to have been attempted.

4. After the reopening proceedings the assessment was completed on18-3-1982under section 147(b)/144 of the Act. The said assessment was subsequently reopened on19-3-1982under section 146 of the Act.

5. While hearing the proceedings after the application under section 146, the learned ITO had given notice and in reply thereto the assessee filed letter dated 5-3-1984 stating that action under section 147(b) was invalid and void as there was no fresh information, before the learned ITO to take action. The learned ITO considered that there was no force in the stand taken by the assessee and that the assessee was under a legal obligation to disclose all material and necessary information for framing a complete and fair assessment. He thus held that proceedings under section 147(b) were lawful and valid. He also brought to tax an amount of Rs. 283988 on account of capital gain, vide order dated9-3-1984, under section 143(3)/147(b)/146 of the Act with the following observation :

" Now coming to the taxability of the capital gain it will be seen even from the settlement deed page 4 ' that deed parties should be entitled to receive and recover rents and profits of their respective properties from the date of decision ', I therefore hold that this act of interest on properties is clearly a transfer within the meaning of section 45 of the IT Act and capital gain is clearly chargeable in this case."

6. The order dated9-3-1984mentioned hereinabove was contested by the assessee. Before the learned CIT(A) on behalf of the assessee the following contentions appeared to have been made (a) proceedings under section 147(b) were illegal as there was no new information available to the learned ITO after the original assessment was completed and it was a case of mere change of opinion ;

(b) that assessment of income from capital gain was invalid as there was no evidence that the value of properties representing the share of the assessee was more than the value of the property given in lieu thereof to his brother.

7. The learned CIT(A) noted that the assessee had given the following note in the statement of assessable income :

" Division of immovable property has taken place between the assessee and his brother Mohd. Suleman Japanwala as per orders of the Delhi High Court dated13-8-1975."

In the learned CIT(A)'s view the learned ITO did not make any enquiry and income as returned was accepted under section 143(1) vide assessment order dated 8-3-1979 and that after the date of that order the learned ITO came into possession of information contained in the valuation report dated 20-4-1977 said to have been submitted by the DVO for the asstt. year 1965-66. He thus upheld the validity of the reopening with the following observation :

" In all these cases assessments were reopened under section 147(b) on the basis of the material or on the basis of opinion as in the Supreme Court's case at 119-996 concerning state of law of the Revenue Audit Party. On the other hand the law has been well established and is now fully settled that where information comes to the ITO's possession after the date of previous assessment be can reopen the assessment under section 147(b) even though such information existed in the records of the case and could have been pulled out before the previous assessment was completed. This is evident from the following observation of the Hon'ble Supreme Court on page 16 in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11. The information must, it is true, have come into possession of the ITO after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on record on the facts disclosed thereby or from other enquiry or research to facts or law, but was not in fact obtained, the justification of the Income-tax Officer is not affected. Another case in this line is of the Hon'ble Supreme Court in Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287. For these reasons I hold that the reassessment proceedings under section 147(b) were validly initiated by the learned ITO."

8. Thereafter the learned CIT(A) also examined the includibility and the quantum of capital gains arising as a result of exchange of the said properties. He in fact after confirming the inclusion set aside the matter to the file of the learned ITO with a direction that he would revive the question of valuation of the properties and after getting ascertained the fair market value of each of the properties involved in the exchange would arrive at the finding if there was any capital gains liable to tax. He thus set aside the assessment after confirming the reopening and the includibility on account of capital gains as a result of exchange of properties.

9. Assessee's above grounds before us are against that action of the learned CIT(A).

10. On behalf of the appellant the learned counsel Shri K.R. Manjani, detailed the facts and reiterated all the submissions earlier made before the lower authorities. It was Shri Manjani's contention that the learned ITO was not justified to initiate proceedings under section 147(b) of the Act and that in any case the learned CIT(A) should have held that reopening was bad in law. In support the learned counsel placed reliance on the ratios in the following cases :

(a) in the case of Suganchand Chandanmal v. ITO [1976] 105 ITR 743 (Cal.) ;

(b) in the case of H. Noronha v. ITO [1982] 133 ITR 199 (Kar.)

11. It was contended by the learned counsel that all details necessary for framing the proper assessment were placed in the record and filed along with the return. Mention was also made of the statement of income, copy of which is placed at page 1 of the paper book. It was the assessee's case that all details necessary for framing a proper assessment were placed in the record and the reopening was not justified. It was also contended that the so-called information said to have been noted by the learned ITO was already in existence and, therefore, the same could not be the basis for initiating the opening proceedings.

12. Shri Manjani's next contention was that in the present case the family dispute regarding property was settled through the Hon'ble High Court on the basis of a compromise submitted by the parties and that on account of that section 45 of the Act being inapplicable in the facts of the assessee's case, no capital gain arose for taxation. According to Shri Manjani there were disputes between the two brothers and the same were carried into the court and settled through a family settlement, one brother had taken one set of properties and the other had taken another set of properties and in those circumstances there was no question of any transfer. By the learned counsel reliance in this connection was placed on ratios in the following cases :

(a) in the case of CIT v. Rasiklal Maneklal (HUF) [1974] 95 ITR 656 (Bom.) ;

(b) in the case of Ziauddin Ahmed v. CGT [1976] 102 ITR 253 (Gauhati) ;

(d) in the case of CIT v. Pradyuman Kumar Kachhawa [1985] 156 ITR 105 (Raj.).

13. on the basis of the above ratios it was Shri Manjani's contention that not only the reopening was not justified but no capital gains also arose in the transaction for being brought in the tax net in the manner pursued by the revenue authorities. It was submitted that in the assessee's circumstances there was no transfer of any type or nature.

14. It was further argued by the learned counsel that the revenue have treated the whole process of transaction as a gift as was clear from the order dated.18-3-1985of the learned GTO, Distt. III-A (10),New Delhiin the ease of Mohammed Suleman Japanwala, assessee's brother for the asstt. year 1976-77, whereby a taxable gift of Rs. 3,78,650 was determined. According to Shri Manjani even if there was some gift the same as well could not be considered as transfer under section 45 of the Act on account of section 47(iii) of the Act. In this connection reliance by the learned counsel was placed on the ratio in the case of Addl. CIT v. Mrs. Avtar Mohan Singh [1982] 136 ITR 645 (Delhi).

15. On the basis of the above submissions it was the learned counsel's case that reopening was bad and no capital gain was required to be taxed and that the learned CIT(A) should have knocked off the order of the learned ITO.

16. On behalf of the revenue the learned departmental representative Shri O.S. Bajpai, besides supporting the orders of the authorities below argued that the family settlement was not be a genuine transaction and that the assessee got properties of much higher value from his brother and parted with the properties of much less value. According to the learned departmental representative it was a mere cover to disguise the real transaction and intention. It was the revenue's case before us that it was an exchange of properties between the two brothers and the assessee having got the assets of higher value the capital gain was rightly assessable in the assessee's hands. Reliance by the learned departmental representative in this connection was placed on the ratio in the case of CIT v. Motors & General Stores (P.) Ltd. [1967] 66 ITR 692 (SC) for the proposition that in the peculiar circumstances of the assessee's case the transaction was definitely, an exchange and thus covered under section. 45 read with section 2(47) of the Act. Thus according to him the capital gain was rightly exigible.

17. In fact to start with the learned departmental representative contended that the learned ITO was in possession of the information in the form of the valuation report and the assessment order for the asstt. year 1975-76 to enable him to form the opinion that income assessable to tax in the form of capital gains had escaped assessment and thus were the reopening proceedings rightly initiated and finalised. According to Shri Bajpai page 1 of the paper book being statement of income of the assesses did not specifically disclose all details necessary to infer that the transaction had taken place resulting in capital gains of the assessee. Thus according to the learned departmental representative the reopening proceedings were rightly initiated and finalised and the learned CIT(A) was fully justified to endorse such action of the learned ITO.

18. Shri Bajpai also contended that in suitable cases the gift-tax could be levied on one part of the transaction and capital gain tax, on the other. Thus according to him the revenue's case does not suffer on account of the gift-tax proceedings said to have been finalised in the case of the assessee's brother.

19. In reply it was submitted by the learned counsel that the DVO's report dated 17-3-1982, copy placed at page 31 of the paper book showed that the value of the subject matter could be Rs. 2,98,000 also as on 12-12-1975 and that on the basis of the application of Rule 1BB of the WT Rules, 1957 the value could be even less i.e. at Rs. 48,000. According to the learned counsel the value could not be definite and thus on mere estimate proceedings should have not been undertaken. It was Shri Manjani's contention that in any case the family settlement or arrangement could not result in any capital gain.

20. Submissions made and contentions raised on behalf of the rival parties have been heard and considered and record carefully perused. A copy of the statement of income of the assessee for the asstt. year 1976-77, accounting period1-4-1975to31-3-1976is placed at page 1 of the paper book. In the said copy besides other small details and figures there is a note to the following effect :

" Division of immovable properties has taken place between the assessee and his brother Mohammed Suleman Japanwala, as per orders of the Delhi High Court dated13-8-1975."

21. It was not the assessee's case that the copy of the order dated13-8-1975of the Hon'ble Delhi High Court was made available to the learned ITO at the time of framing the assessment. It was also not the contention that the settlement which was arrived at between the two brothers before the Court order was also put across to the learned ITO. The statement at page 1 speak neither of exchange nor of gift. The word ' transfer ' is also not used. In the said statement the word used is ' division '. What preceded before this division and in what manner the assets of higher value were acquired by the assessee by giving the assets of lower value is not at all inferable. So, to say the least it could not be possible for the learned ITO to be able to conversant with all the aspects of the assessee's case merely by having a look at page 1 of the paper book. The assessment was framed in those circumstances. The learned ITO thereafter received the information through the DVO's report and in the order and report there was a vast difference between the value of the assets received and parted by the assessee. That was the starting point before the learned ITO to have initiated reopening proceedings under section 147(b) of the Act. A copy of the reasons recorded for reopening is placed in the paper book wherein it is definitely mentioned that on account of the valuation report dated 20-4-1977, which was noted by the learned ITO after the assessment, the value of the property received by the assessee was Rs. 5,26,800 and the assessee had parted with the property worth Rs. 1,43,150. The exigibility of capital gain was inferred in those circumstances and the reopening proceedings were initiated. We are satisfied that in the facts of the assessee's case the learned ITO was definitely justified to initiate the reopening proceedings as he had sufficient material to form an opinion that income assessable to capital gain bad escaped assessment. Thus on account of that it is difficult to find fault with the learned CIT(A)'s action in confirming initiation and reopening of the case.

22. On behalf of the assessee reliance was placed on the ratio in the case of Suganchand Chandanmal. It is sufficient to say that the facts in that case were altogether different and the learned ITO had no material for forming the belief that the income of the firm had escaped assessment. It was on account of the confessional statement of the partners which could bind the partners in their individual cases and not the firm. Thus we are of the view that the ratio in the said case does not in any manner enhance the assessee's case. Similarly the ratio in the case of H. Noronha also has no relevance for the case before us. The learned ITO was in possession of sufficient material to formulate opinion and initiate proceedings. Full details of information was conveyed through the reasons recorded. The facts in the case of H. Noronha being different the ratio is of no help. Another case in this connection relied upon by the assessee was of British Insulated Callendars' Cables Ltd.'s case. According to the said case before initiating 147(b) proceedings the learned ITO must have information which could give him a reason to believe that income chargeable to tax had escaped assessment and such information must have been acquired by the learned ITO after the assessment order, sought to be reopened had been passed. In the case before us all these conditions are seen to have been satisfied. Thus the ratio in this case also is of no help. Thus in the light of the above discussions and in fact agreeing with the reasons of the learned CIT(A) we hold that the reopening proceedings were justified and the learned CIT(A) correctly confirmed the reopening. On account of this we see no error or mistake in the finding of the learned CIT(A).

23. Next we take up the matter on merit i.e. as to whether even after having reopened the case the learned ITO was at all justified to tax the same at Rs. 2,83,988 as capital gains. The facts by and large are not seen to be in dispute to the extent that the assesses and his brother Shri Sheikh Haji Mohammed Suleman Japanwala received some property from their ancestors and with regard to the division of the same there was some dispute between the brothers and suit No. 201/75 is seen to have been filed by the assessee's brother against the assessee before the Hon'ble Delhi High Court as is clear from the copy of the plaintiff placed at page 26 of the paper book. It is further seen that the application under order 23, Rule 3 read with section 151 Civil Procedure Code was filed by the parties as is clear from the copy placed in the paper book, on 9-8-1975, pointing out to the Hon'ble High Court that the parties have come to settlement in the above case on terms and conditions incorporated in the application. It is the assessee's case that the said suit, after the application, was decreed in terms of the contents of the application and that the properties were received by the parties under that arrangement known as the family settlement. The revenue's case here is that the suit and settlement were less than genuine and that in fact a cover was sought to be given to deal transaction to avoid the incidence of tax and stamp duty. Revenue's contention is that the whole transaction, being exchange was covered under section 45 read with section 2(47) of the Act and thus capital gain was rightly leviable. Revenue's reliance in this connection was on the ratio in the case of Motors & General Stores (P.) Ltd. wherein it was observed that the presence of money consideration as essential element in a transaction of sale and if the consideration was not money but some other valuable consideration it might be an exchange or barter but not the sale.

24. It is sufficient to say that the facts in the said case were altogether different where there were dealings between the company and the Directors whereas in the case before us we are concerned with a family dispute between the two real brothers. It is, therefore, difficult to say that in the present case there was anything other than a family settlement. On the basis of the undisputed facts and in fact without fear of contradiction we are in a position to hold that the whole arrangement was finalised to settle the family dispute and, therefore, the application before the Hon'ble High Court resulted in a decree and family settlement. Now the issue before us is whether any benefit arising to the assessee on operation of the family settlement was taxable as capital gain under the Income-tax Act. The answer is in the negative in view of the ratio in the case of Ziauddin Ahmed wherein the Hon'ble Gauhati High Court held that no capital gain was taxable in the similar facts, with the following observation :

" Courts give effect to a family settlement upon the broad and general ground that the object is to settle existing or future disputes regarding property amongst members of a family. A family settlement entered into by the parties who are members of a family bona fide to put an end to disputes among themselves is not a transfer. It is not also the creation of an interest. For, in a family settlement, each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have under the law, a claim to a share in the property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection. Where at a family settlement, a father transferred some shares to some of his sons at a consideration which was less than the market value, as he wanted to have peace in the family and the transaction was bona fide, the transaction was not a transfer. In order to bring a case within the scope of Section 4(1)(a) of the Gift-tax Act. 1958, there must be a transfer for consideration and such consideration must have been found to be inadequate. Therefore. the provisions of Section 4(1)(a) were not attracted to the facts and circumstances of the case."

25. A similar view is seen to have been taken by the Hon'ble Bombay High Court in the case of Rasiklal Maneklal, (HUF) where there was a scheme of amalgamation of the two companies where the shares of one company were acquired by the other. It was held by theHon'ble Courtthat it constituted neither exchange nor relinquishment. In that case there was a scheme of amalgamation whereas in the case before us is a family settlement. We thus draw an analogy and see support for our conclusion. In our view the assessee's case definitely gets support from this ratio.

26. The ratio in the case of K.P. Varghese also supports the assessee's stand as nothing is seen to have been shown as received by the assessee and in fact the process was finalised on the basis of family settlement. The ratio in the case of Pradyuman Kumar Kachhawa says that capital gain could be relevant if it was proved that the consideration actually received was greater than disclosed. This ratio, in our view, is of help to the assessee.

27. In the light of the preceding paragraphs we are satisfied that in the facts of the assessee's case the learned ITO was not justified to tax the difference in the value of two assets, as capital gains.

28. The learned CIT(A) should have not confirmed this part of the learned ITO's action.

29. It is also seen that the revenue treated the transaction as gift as is clear from page 7 of the paper book being copy of the gift-tax assessment in the case of Mohd. Suleman Japanwala for the asstt. year 1976-77 wherein a taxable gift of Rs. 3,78,650 was determined with the following observation :

" The assessee had transferred to his brother 1/2 share of his property atAlipur Roadof the value of Rs. 526800 and received the properties of the value of Rs. 143150 as per original asstt. order of W. Tax for year 75-76 and became full owner of the above property vide Court's order registered with Registrar of Properties in Dec. 1975. By this exchange and transfer of properties there was clearly an element of gift involved and the assessee was required to file the return of gift. The assessee's case is that all the properties were family properties, that till partition his share in the family properties was indeterminate and he became entitled to a definite share only after partition and, therefore, there was no case of either diminishing directly or indirectly the value of his properties or increasing the value of property of his brother Mohd. Haroon Japanwala. He was relied on the decision in the case of CGT v. N.S. Getti Chettiar [1971] 82 ITR 599. However, that rule pertains to partition in the family and the facts of the present case seem to be not an all fours with the facts of the case relied upon by the assessee."

30. In addition to our finding that on account of the transactions being based on the family settlement no capital gain was taxable, it is further seen that in view of the Gift-tax assessment Section 47(iii) of the Act the gift transaction could not be considered as transfer under section 45 of the Act. Thus even if there was some sort of deemed gift, Section 47 debars the operation of Section 45 and even if proceedings under section 147(b) were valid, the taxing as capital gain could not be justified. For this proposition besides the bare language of this Section being against the revenue's action the help is also available from the ratio in the case of Mrs. Avtar Mohan Singh. Thus the revenue's action in taxing was bad on account of this discussion also.

31. In the light of the preceding paragraphs we confirm the confirmation of the reopening but vacate the confirmation of the learned CIT(A) in agreeing with the learned ITO that capital gain was taxable.

32. No other ground was raised before us. The paper book has been considered.

33. In the result the assessee's appeal is allowed in part.

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