Wp(C)/28098/2022 Of Oravanthuruthil Chandran Joji v. Income Tax Officer

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH THURSDAY, THE 7TH DAY OF DECEMBER 2023 / 16TH AGRAHAYANA, 1945 WP(C) NO. 28098 OF 2022 PETITIONER/S: ORAVANTHURUTHIL CHANDRAN JOJI,AGED 50 YEARSTHULASI BHAVAN ,V.R. PURAM ,CHALAKKUDY, POTTA ASHRAM ROAD , THRISSUR , KERALA-680722.BY ADVS.ANIL D. NAIRTELMA RAJUEDATHARA VINEETA KRISHNANMOHAMMED SAVAD K.P.K.BIJU RESPONDENT/S: INCOME TAX OFFICER,WARD 1 (1), AAYAKAR BHAVAN, THRISSUR - 680001. OTHER PRESENT: SRI.JOSE JOSEPH-SC, INCOME TAX DEPARTMENTTHIS WRIT PETITION (CIVIL) HAVING COME UP FORADMISSION ON 07.12.2023, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: J U D G M E N T The present writ petition has been filedimpugning Ext.P9 order dated 25.7.2022 underSection 148A(d) of the Income Tax Act, 1961 (“Act”,for short) in respect of the assessment year 2013-14, issued to the petitioner. The main ground forchallenge of the said order is that the property,which was received by the petitioner from thepartnership firm as a result of its dissolution on15.7.2011, could have been taxed for capital gainin the said year when the partnership firm wasdissolved and the assets in the hands of thepartnership firm came to be distributed between thepartners. However, the said capital gain was nottaxed at the hands of the dissolved partnershipfirm, and therefore, the subsequent transfer by thepetitioner also could not have been taxed.2.It is further submitted that the reopeningof the assessment for the assessment year 2013-14had become time barred, in as much as the notice, Ext.P2, for reopening was issued on 28.6.2021 inrespect of the said assessment year. 3.On the other hand, Sri.Jose Joseph,learned Senior Standing Counsel for the Income TaxDepartment, has submitted that the firm was afamily partnership firm, consisting of five (5)partners. All the partners had undivided shares inthe land, which was introduced as capital in thepartnership firm. The partnership firm gotdissolved on 15.7.2011 in terms of the dissolutiondeed of the same date, Ext.P1. As a result of thedissolution of the partnership firm, the land gotvested with the petitioner and two other partners.Mr.Jose Joseph submits that this vesting of theland/capital asset in the hands of the petitionerand two other partners could have been taxed forcapital gain, but it could not be taxed as itbecame time barred. However, the petitioner hadtransferred the land, which got vested in his nameas a result of dissolution of the partnership firm,through registered sale deed dated 3.7.2012, and the sale proceeds were shown as capital gaintreating it to be an agricultural land and claimingdeductions under Sections 54B and 54F of the Act.Since the said land was not an agricultural land,as trees standing there were removed, and it wasused for access and another facilities to thehospital building, the assessing authority was ofthe view that deduction claimed by the petitionerunder Sections 54B and 54F of the Act were noteligible. Therefore, notice under Section 148 forreopening the assessment under Section 147 of theAct was issued on 28.6.2021. This was done withinthe time limit as per Section 149 of the Act andthe various notification/ordinance extending thetime limit from 31.3.2020 to 30.6.2021. The noticewas well within the extended period up to30.6.2021. The petitioner/assessee filed return ofhis income against the notice under Section 148 on4.11.2021 declaring a total income of Rs.9,30,080/-and mentioning the sale consideration atRs.2,36,64,300/- with the same cost of acquisition of the capital asset bringing the short termcapital gain to nil. 4.The reasons for reopening the assessmentwere also provided along with notice under Section148 of the Act, which would read as under: of the capital asset bringing the short termcapital gain to nil. 4.The reasons for reopening the assessmentwere also provided along with notice under Section148 of the Act, which would read as under: “Assessee has sold an immovable property forRs.2,35,00,000/- vide document dated 03.07.2012(1/3[rd] share of total sale consideration ofRs.7,05,00,000/-) and declared Rs.9,10,379/- asShort Term Capital Gain and Rs.Nil as Long TermCapital gain after claiming deductions u/s.54Band 54F. But the sale deed does not prove thatit is an agricultural land. In the descriptionof the property, it is shown as dry land withhospital building. As such the claim ofdeduction u/s.54B is not in order.” 5.Thereafter, considering the reply and giving an opportunity of hearing to the petitioner,Ext.P9 order impugned herein has been passed. Section 45(1) of the Act would read as under: “Capital gains : 45 (1) Any profits or gainsarising from the transfer of a capital asseteffected in the previous year shall, save asotherwise provided in Sections 54, 54B, 54D,54E, 54EA, 54EB, 54F, 54G and 54H, bechargeable to income-tax under the head "Capital gains", and shall be deemed to be theincome of the previous year in which thetransfer took place.” 6.Therefore, what is to be considered is thepoint of sale of the capital asset, which is ataxable event for the purposes of capital gain.After vesting the property in the hands of thepetitioner as a result of dissolution of the firmon 15.7.2011, the petitioner became the owner ofthe said asset, which he had sold on 3.7.2012 infavour of Catholic Syrian Bank. The petitioner'sshare would come to Rs.2,35,00,000/-. What isbeing shown to be taxed is sale by the petitionerand not the sale/vesting of the asset as a resultof the dissolution of the firm. Therefore, I dofind that the contention raised by Sri.Anil D.Nair,learned counsel for the petitioner, that since thedissolved partnership was not taxed when the assetcame into the hands of the petitioner as a resultof dissolution of the partnership firm, subsequent sale by the petitioner is not liable to be taxedfor capital gain, is unconvincing. 7.It is also not in dispute that the noticedated 28.6.2021 under Section 148 of the Act forreopening the assessment was issued within theextended period up to 30.6.2021. Thus I find nosubstance in the present writ petition, which ishereby dismissed. The petitioner is permitted tofile his return in response to final notice underSection 148 of the Act within a period of thirty(30) days from today. After the petitioner filesthe return in pursuance to the notice under Section148 of the Act, the assessing authority willproceed to determine the tax liability, inaccordance with law. Pending interlocutory application, if any, inthe writ petition stands dismissed. Sd/-DINESH KUMAR SINGH JUDGE WP(C) NO. 28098 OF 2022 APPENDIX OF WP(C) 28098/2022 PETITIONER EXHIBITSExhibit P1TRUE COPY OF THE DEED OF DISSOLUTION DATED 15.07.2011Exhibit P2TRUE COPY OF THE NOTICE DATED 28.06.2021 ISSUED BY THE RESPONDENT.Exhibit P3TRUE COPY OF THE REVISED RETURN DATED 04.11.2021Exhibit P4TRUE COPY OF THE NOTICE DATED 25.02.2022 ISSUED BY THE RESPONDENT.Exhibit P5TRUE COPY OF THE REPLY DATED NIL FILED BY THE PETITIONER.Exhibit P5(a)TRUE COPY OF ACKNOWLEDGMENT DATED 14-03-2022 BY THE RESPONDENT.Exhibit P6TRUE COPY OF THE NOTICE DATED 30.05.2022 ISSUED BY THE RESPONDENT.Exhibit P7TRUE COPY OF THE REPLY DATED NIL FILED BY THE PETITIONER.Exhibit 7(a)TRUE COPY OF ACKNOWLEDGMENT DATED 13-06-2022 BY THE RESPONDENT.Exhibit P8TRUE COPY OF THE REPLY WP(C) NO. 28098 OF 2022 Exhibit P9 DATED 27.06.2022 FILED BYTHE PETITIONER. TRUE COPY OF THE ORDER DATED 25.07.2022 ISSUED BY THE RESPONDENT.