In Radhawami Salt works v. ACIT, a division bench of the Gujarat High Court held that re-assessment under s. 147/148 of the Income Tax Act cannot be made when the original assessment order is challenged on appeal and is not yet disposed.
Assessee took 350 acres of land on lease from the Government for the production of land. Coastal Gujarat Private Limited (CGPL) was interested in purchasing such land and therefore privately negotiated with the petitioner to give up its rights prematurely. Accordingly, assessee surrendered the lease to the Government. This land was thereafter sold by the Government to CGPL. CGPL had separately made payment of Rs.29.92 crores to the assessee in two installments. Assessee in its return, shown the amount as long term capital gain received in lieu of transfer of land. However, during the assessment proceedings, the assessee contended that such receipt was not in the nature of capital gain but was one time receipt which was not taxable. The Assessing Officer, however, rejected the contention and treated the same as capital gain. A second appeal filed against the order is pending for disposal before the ITAT.
In the meanwhile, AO re-opened the assessment and held that the said receipt would not amount to capital gain but constitute “income from other sources”. He was of the view that being a leaseholder, he does not have the right to transfer the land. He also too an alternative contention that the same can be treated as short term capital gain since the assessee thus held the capital asset for a period between 10.02.2006 to 20.12.2008 i.e. for a period less than three years. At this stage, the assessee approached the High Court against the assessment proceedings.
The bench noted that Section 147 of the Income Tax Act empowers the Assessing Officer to reopen the assessment, subject to certain conditions. “3rd proviso to section 147 however provides that the Assessing Officer may assess or reassess such income other than the income involving the matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. When the subject matter viz. the receipt of transfer of rights in land and the income relatable to such matter was the subject matter of appeal and thereafter second appeal, the principle of merger would apply. There cannot be two separate considerations to the same subject matter relatable to the income.”
Allowing the petition in the light of the decision in National Dairy Development Board v. Deputy Commissioner of Income Tax Anand Circle, the bench said that “the question of correct taxability of the receipt by the assessee was thus at large before the Commissioner (Appeals) and now is open before the Tribunal. At that stage, it would not be open for the Assessing Officer to reopen the assessment on this matter which is a subject matter of the appeals.”
Read the full text of the Judgment below.
