Income tax Law vs. Property Law- A Case (Law) Study

PROLOGUE:

The topic calling for a critical analysis is the Judgment of the SC recently delivered in a dispute between a property owner and the IT Department (the Revenue). The issue is centred on the jurisdictional validity of the AO’s Order passed in that case under Section 143, r.w. Section 147 of the IT Act (the Act). A close study might be worthwhile mainly for two reasons:

1.  The view the apex court has taken, as critically studied, has the inherent potential and possible effect of de-simplifying the enactment of a recent origin brought in by way of modifying the erstwhile “procedure of assessment” under the Act. And that is likely to have the not-so-obvious consequence of resulting, unintended though, in defeating the very objective of the reform(s) resorted to by the legislature  in simplifying the procedure to make an ‘assessment’ and thereby minimise the scope for litigation.

2. The dispute as well as the judicial reasoning followed for settling the dispute brings to surface yet again similar controversies, rather intricacies of the law deserving an in-depth consideration and incisive conclusions, same way as an earlier verdict of the apex court , in Podar Cement’s case  has given rise to.

INTRODUCTION

The discussion herein is of the SC judgment in the case of,

 DCIT vs. Zuari Estate Development & Investment Co Ltd   (Supreme Court)

The SC has, reversing the Bombay HC judgment (reported in 271 ITR 269 (Bom) ; also, @http://indiankanoon.org/doc/524673/ ) decided the dispute in Revenue’s favour.

FACTUAL MATRIX

Reproduced below, are selected portions from the HC Judgment:

1. The petitioner by an Agreement, dated June 28, 1982, entered into with Prerna Premises Private Limited, agreed to purchase three office premises, in Maker Chambers III, at Nariman Point, Bombay.

It subsequently became a member of the Maker Chambers III Premises Co-operative Society Limited. 

By an Agreement, dated June 19, 1984, entered into between the Petitioner and the Bank of Maharashtra, the Petitioner agreed to sell and the Bank agreed to purchase the said property.

Clause 5 provided that the sale of the premises would be completed only after the expiry of five years from the date of the agreement but before the expiry of the sixth year from the date of the agreement, time being the essence of the contract. The agreement further provided that the Bank WOULD HAVE AN OPTION EITHER TO COMPLETE THE TRANSACTION OR RESCIND THE SAME AND, IN THE EVENT THE BANK RESCINDED THE AGREEMENT, the Petitioner would refund the entire amount that may have been paid by the Bank to the Petitioner WITHIN ONE YEAR OF THE RESCISSION ON RETURN OF POSSESSION OF THE PREMISES BY THE BANK. IT WAS FURTHER AGREED THAT THE PARTIES WOULD SIGN SUCH PAPERS AND DOCUMENTS AS WERE NECESSARY FOR COMPLETION OF THE SALE ON PAYMENT OF THE FULL PURCHASE PRICE PAYABLE BY THE BANK TO THE PETITIONER.

AFTER THE BANK HAD PAID TO THE PETITIONER, ON JUNE 20, 1984, THE SUM OF RS. 84,47,111, BEING 95 PER CENT, OF THE CONSIDERATION AGREED UPON, THE PETITIONER PUT AND HANDED OVER POSSESSION IN PART PERFORMANCE OF THE AGREEMENT OF SALE TO THE BANK ON JUNE 20,1984, ITSELF. (Paragraph 1)

2. By letter of June 12, 1990, in terms of clause 5 of the agreement of sale, dated June 19, 1984, the Bank called upon the petitioner to complete the transaction and convey the property to the Bank by June 18, 1990.

By letter of June 16, 1993, the Petitioner confirmed thatTHE PETITIONER HAD PUT THE PREMISES IN POSSESSION OF THE BANK AND THAT THE PETITIONER WOULD TAKE ALL NECESSARY STEPS FOR TRANSFER OF THE SAID PREMISES ON OR BEFORE SEPTEMBER 30, 1993. It is the case of the Petitioner that even thereafter, the petitioner was unable to complete the transactions and there were demands by the Bank on the petitioner to thePETITIONER HAD ALSO RECORDED, CONFIRMED AND ASSURED THE BANK THAT IT WOULD TAKE ALL STEPS FOR TRANSFER OF THE PROPERTY ALONG WITH THE SHARE CERTIFICATES ON OR BEFORE SEPTEMBER 30, 1997.

In view of the uncertainties prevailing and the fact that the transfer of premises had not been completed, the petitioner in the accounts of the year 1991 had disclosed the amount of Rs. 84,47,111 received by it as a current liability under the heading "Advance against deferred sale of building". Note No. 2 of the notes of accounts forming part of the balance-sheet as on March 31, 1991, reads as under:

"..... The purchasers though have exercised the option to purchase the same, the execution of the sale and conveyance is not completed pending negotiations with the purchasers and hence no adjustments in this regard have been made in the books of account of the company." (Paragraph 2)

3. The petitioner filed its return of income for the assessment year 1991-92 on December 31, 1991. Along with the return, the profit and loss account as well as the balance-sheet was also enclosed. The Notes on accounts referred to earlier, according to the Petitioner, made a full and true disclosure of all the relevant facts. It is the case of the Petitioner that till date it has not received any Intimation or assessment order from Respondent no. 1 in respect of the return of income filed for the assessment year 1991-92. It is the case of the petitioner that thereafter it filed its return for the assessment years 1992-93, 1993-94 and 1994-95, wherein a similar note appeared in the accounts of the respective years. (Paragraph 3)

4. In the course of the assessment proceedings for the assessment year 1994-95, Respondent No. 1 raised a query as to why the capital gains arising on the sale of the premises should not be taxed in the assessment year 1991-92. The petitioner in reply to the query filed a detailed letter, dated October 18, 1996, wherein the relevant facts were set out exhaustively.

IT WAS ALSO POINTED OUT THAT THE AMENDMENTS BROUGHT ABOUT IN SECTION 2(47) BY THE INSERTION OF SUB-CLAUSES (V) AND (VI) WERE APPLICABLE ONLY TO TRANSACTIONS ENTERED INTO AFTER THE ASSESSMENT YEAR 1988-89. THE PETITIONER ALSO POINTED OUT THAT POSSESSION OF THE PREMISES HAD BEEN HANDED OVER PRIOR TO APRIL 1, 1987,

Respondent No. 1 had fixed a hearing on October 29, 1996. The Petitioner appeared before the Commissioner and as desired furnished details under cover of letter dated November 5, 1996. Respondent no. 1 thereafter completed the assessment for the assessment year 1994-95 by an order dated December 4, 1996, under section 143(3) and assessed the Petitioner to the income returned. (Paragraph 4)

5. On December 12, 1996 a Notice under section 148 dated December 4, 1996, by which Respondent No. 1HAD RECORDED THAT HE HAD REASON TO BELIEVE THAT THE PETITIONER'S INCOME CHARGEABLE TO TAX FOR THE ASSESSMENT YEAR 1991-92 HAD ESCAPED ASSESSMENT AND, THEREFORE, PROPOSED TO REASSESS THE INCOME FOR THE ASSESSMENT YEAR 1991-92.

The Petitioner contends that till date the Petitioner, has not received any reply to the said Notice. The Petitioner thereafter filed the present petition on January 13, 1997. The petition came up for admission before this court on January 27, 1997,  on which date, the learned Bench granted rule. However, this court permitted Respondent No. 1 to proceed with the assessment but further ordered that the demand, if any, on the basis of such assessment, could be raised only after obtaining an order of this court. The Petitioner filed a return of income pursuant to Notice, dated February 12, 1997.

Respondent No. 1 thereafter completed the assessment under section 143(3) read with section 147 by an order dated January 28, 1999. Respondent no. 1 held that on construction of the relevant clauses of the agreement, it was clear that clause 5 was inserted only with a view to avoiding payment of capital gains tax immediately. Respondent no. 1 TOOK THE VIEW THAT TILL THE PERIOD THE BANK OF MAHARASHTRA EXERCISED THE OPTION OF PURCHASE, THE AGREEMENT WAS A LEAVE AND LICENCE AGREEMENTbetween the Petitioner and the Bank of Maharashtra. He also came to the conclusion that the sale price was fixed not on the rates prevailing on June 19, 1994, but the price which was estimated to be the prevailing price in 1989-90.

RESPONDENT NO. 1 HELD THAT THE CONTRACT TO SELL THE PROPERTY BECAME EFFECTIVE FROM JUNE 12, 1990, THAT IS, THE DATE ON WHICH THE BANK EXERCISED ITS OPTION TO PURCHASE THE PROPERTY. RESPONDENT NO. 1 ALSO HELD THAT THE PETITIONER ALLOWED THE BUYER TO RETAIN THE PROPERTY IN PART PERFORMANCE FROM JUNE 12, 1990, AND HENCE THE TRANSFER TOOK PLACE IN TERMS OF SECTION 2(47)(V) AND ON THAT DATE CAPITAL GAINS WERE CHARGEABLE.(Paragraph 5)

6....

Arguments of both sides, and Court’s observations and Findings:

7. At the hearing of the petition on behalf of Respondent No. 1 learned counsel has raised a preliminary objection as to the maintainability of the petition.

Submitted that this court should not exercise its extraordinary jurisdiction on the facts and circumstances of the case. Reliance has been placed....(Paragraph 7 )

8. On the other hand, on behalf of the Petitioners their learned counsel contends that this court has admitted the petition and once it has admitted the petition, the issue of jurisdiction is alive for consideration by this court and in these circumstances, the mere fact that the Respondents were permitted to carry on the assessment proceedings should not result in this court declining to exercise its extraordinary jurisdiction. .....(Paragraph 8)

9. CONSIDERING THE ARGUMENTS ADVANCED, IN OUR OPINION, IT WOULD BE INAPPROPRIATE AT THIS STAGE AFTER HAVING ADMITTED THE PETITION AND FURTHER HAVING PASSED EARLIER A CONDITIONAL ORDER DIRECTING THE ASSESSMENT OFFICER TO PROCEED WITH THE ASSESSMENT BUT TO MAKE A DEMAND ON THE BASIS OF SUCH ASSESSMENT ONLY AFTER OBTAINING AN ORDER FROM THE COURT, TO DISMISS THE PETITION ON THAT COUNT AFTER SIX YEARS..... it would be too late in the day, to tell the Petitioner to proceed with the appeal before the Income-tax Appellate Tribunal.... The preliminary objection raised by counsel for the respondents has to be rejected. (Paragraph 9)

10. COMING TO THE MERITS OF THE MATTER, on behalf of the petitioner, it is submitted that the reopening for the reasons recorded are erroneous and bad in law.

The assessing officer must have valid "reasons to believe", which reasons must have a rational and direct nexus and be intelligible and acceptable in law and not amount to a change of opinion.

It is the duty of the assessee only to disclose primary facts and not inferences...

UNDER THE SCHEME OF THE ACT FOR THERE TO BE A VALID RE-OPENING, INFORMATION MUST COME FROM EXTRANEOUS SOURCE.

SUBMITTED THAT THE POSITION OF LAW PRE-1988 AND POST-1988 IS THE SAME QUA THE FACT THAT THERE CANNOT BE A CHANGE IN THE OPINION ON THE SAME FACTS IRRESPECTIVE OF WHETHER AN ASSESSMENT IS MADE UNDER SECTION 143(1) OR OTHERWISE. Reliance for that is placed on the judgment of the full bench of the Delhi high court in CIT v. Kelvinator of India Ltd. [2002] 256 ITR..

IN EITHER CASE IT IS CONTENDED THAT THE EXERCISE IN 1996 WAS AN ATTEMPT TO INVOKE THE JURISDICTION BASED ON THE SAME DOCUMENTS FROM THE RETURN OF INCOME CLEARLY DISCLOSES CHANGE OF OPINION ON THE SAME FACTS AND MUST BE HELD TO BE CONTRARY TO LAW.

(Paragraph 10)

11. It is then submitted that the reasoning of the officer that sub-clause (v) of section 2(47) would apply is erroneous for the following reasons:

(1) in respect of premises of a co-operative society represented by shares of the society sub-clause (v) has no application and for there to be a valid transfer there must be a transfer of shares of a society and thereafter sub-clause (vi) of section 2(47) would apply. Reliance is placed on the circular explaining the provision at the time of introduction of sub-clauses (v) and (vi) issued by the central board of direct taxes ;

(2) when the officer himself accepts in the reasons for re-opening that the agreement to sell coupled with possession as contemplated in Section 53 A is done in 1984 when sub-clause (v) was not on the statute, the question of that sub-section applying does not arise; (3) option exercised by the purchaser is merely to complete formalities to sell, it does not amount to an agreement to sell for the following reasons, namely, that for a valid agreement under Section 53A it must be signed by the transferor, it should be a contract for consideration, should be in writing and the transferor should deliver possession subsequent to the agreement for sale.

It is further submitted that Section 53 A applies where possession already exists in a character other than under the agreement to sell which changes the character and therefore possession must always follow an agreement or change character post agreement. Reliance is placed .....

Prior to the amendment in Section 2(47)(v) in respect of immovable property, an agreement to sell coupled with possession without execution of a conveyance did not amount to a transfer under the income-tax act rendering income chargeable to tax under the head "capital gains". Reliance is placed on the judgment of Alapati Venkataramiah v. CIT and India Finance and Construction Co. Pvt Ltd. V. B. N. Panda, Deputy CIT[1993] 200 ITR 710 (Bom).

(Paragraph 11)

12. On the other hand, ON BEHALF OF THE RESPONDENT- REVENUE, IT IS CONTENDED THAT THE PRESENT CASE IS NOT A CASE OF ISSUING OF NOTICE AFTER SCRUTINY ASSESSMENT UNDER SECTION 143(3), BUT NON-SCRUTINY ASSESSMENT UNDER SECTION 143(1) AND IT IS THEN SUBMITTED THAT .......AS SUCH THE EXTENDED PERIOD OF LIMITATION IS AVAILABLE UNDER SECTION 149 OF THE INCOME-TAX ACT AND, IN ANY CASE, IT HAS BEEN EXERCISED WITHIN 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THAT IS, WITHIN FOUR YEARS FROM 1991-92. Petitioner has not disclosed any jurisdictional error committed by the assessing officer while issuing the impugned notice and as such the challenge for quashing the impugned notice does not survive. (Paragraph 12)

13. IN THE LIGHT OF THE ABOVE, IT WILL HAVE TO BE DECIDED WHETHER BEFORE THE ASSESSING OFFICER THERE WAS MATERIAL TO HOLD THAT HE HAD REASON TO BELIEVE, WHILE ISSUING TO THE PETITIONER THE NOTICE DATED DECEMBER 4, 1996.

Section 2(47) of the income-tax act came to be amended by the Finance Act, 1987, with effect from April 1, 1988. Two sub-clauses were added, namely, (v) and (vi) of which sub-clause (v) reads as under:

"(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882)." (Paragraph 13)

14. THE POSITION BEFORE THE AMENDMENT IS AS CAN BE SEEN FROM THE JUDGMENT OF THE APEX COURT IN THE CASE OF ALAPATI VENKATARAMIAH V. CIT [1965] 57 ITR 185.

.......

(Paragraph 14)

15. Having seen what is required under Section 53A of the Transfer of Property Act, let us now examine whether there was material before the Assessing Officer for "reasons to believe" that the income chargeable with tax has escaped assessment for any assessment year. The question then is what is the meaning of the expression "reason to believe".

,,,,prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of issuing of Notice.

There should have been failure to disclose material facts necessary for assessment and mere production of balance-sheet or account books would not amount to disclosure of material facts necessary for assessment.

WHAT IS MATERIAL TO NOTE IS ...THAT "REASON TO BELIEVE" HAS TO BE A REASON OF A PRUDENT PERSON. THAT REASON SHOULD BE FAIR AND NOT NECESSARILY DUE TO FAILURE OF THE ASSESSEE TO DISCLOSE FULLY OR PARTIALLY SOME MATERIAL FACTS RELEVANT FOR ASSESSMENT.

The belief entertained by the Income-tax Officer MUST NOT BE ARBITRARY OR IRRATIONAL. IT MUST BE REASONABLE OR IN OTHER WORDS IT MUST BE BASED ON REASONS WHICH ARE RELEVANT AND MATERIAL. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the income-tax officer in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 147(a). IF THERE IS NO RATIONAL AND INTELLIGIBLE NEXUS BETWEEN THE REASONS AND THE BELIEF, SO THAT, ON SUCH REASONS, NO ONE PROPERLY INSTRUCTED ON THE FACTS AND LAW COULD REASONABLY ENTERTAIN THE BELIEF, THE CONCLUSION WOULD BE INESCAPABLE THAT THE INCOME-TAX OFFICER COULD NOT HAVE REASON TO BELIEVE THAT ANY PART OF THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT AND SUCH ESCAPEMENT WAS BY REASON OF THE OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS AND THE NOTICE ISSUED BY HIM WOULD BE LIABLE TO BE STRUCK DOWN AS INVALID. WHAT THE COURT IS REQUIRED TO EXAMINE IS WHETHER SOME MATERIAL EXISTS ON RECORD FOR THE ASSESSING OFFICER TO FORM THE REQUISITE BELIEF AND THE REASONS FOR THE BELIEF HAVE A RATIONAL NEXUS OR A RELEVANT BEARING TO THE FORMATION OF SUCH BELIEF AND ARE NOT EXTRANEOUS OR IRRELEVANT FOR THE PURPOSE OF THAT SECTION.  (Paragraph 15)

16......

17......

18. Two things emerge from this, firstly, based on this material, could it be said that any prudent or reasonable person, reasonably instructed in law, could have come to the conclusion that an agreement as contemplated bySection 53A of the Transfer of Property Act had been entered into for the assessment year 1991-92? And secondly, whether, even if an agreement had been entered into, the predicates of section 2(47) as noted by this court in the judgment in the case of Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 were met? In the first instance there is no dispute that the only agreement between the parties is an agreement of 1984. In the agreement under clause (5) the conveyance was agreed to be completed after the expiry of the fifth year and before the expiry of the sixth year from the date of the agreement. At the relevant time, considering the clause in the agreement, to take possession by paying 95 per cent, of the consideration, the bank of Maharashtra paid to the petitioners 95 per cent, of the consideration and the Petitioners also put the Bank of Maharashtra in possession. It is pursuant to this agreement of 1984 that the Bank of Maharashtra continued to be in possession. CLAUSE 5 BY ITSELF GAVE AN EXERCISE OF OPTION TO THE PURCHASER TO CALL ON THE PETITIONER TO SPECIFICALLY PERFORM THE CONTRACT CANNOT BY ANY STRETCH OF IMAGINATION BE SAID TO MEAN AND INCLUDE THAT A CONTRACT -HAD COME INTO EXISTENCE ON THE DATE THE BANK OF MAHARASHTRA ISSUED NOTICE TO THE PETITIONER FOR SPECIFIC PERFORMANCE OF THE CONTRACT.

However, IN THE INSTANT CASE THERE WAS NO MATERIAL FOR THE ASSESSING OFFICER TO HAVE REASON TO BELIEVE THAT THE AGREEMENT TO SELL HAD BEEN ENTERED INTO IN THE ASSESSMENT YEAR 1990-91, WHICH HAD ESCAPED ASSESSMENT.

(Paragraph 18)

19. In our opinion, therefore, the entire exercise of jurisdiction by the Assessing Officer is without jurisdiction. Once that be the case, the Notice issued will have to be quashed. It is true that in the meantime Orders have been passed including in the appeal but, in our opinion, those orders will have to be set aside, as being orders without jurisdiction.

(Paragraph 19)

20.....

In summing up as above, FONT is supplied for highlighting as considered fit. There have been numerous cases decided by HCs and the SC which have been cited and relied upon by both sides, to support their respective pleas.  In the above narration, however, unless considered absolutely necessary for the present discussion, case law citations have been omitted; done so, if not for any other reason, to lessen the drudgery and monotony otherwise the job of reading by a modern day reader of the judgment entails.

Recommend, however, to read full text of the reported judgment @http://indiankanoon.org/doc/524673/ (apart from  elsewhere in public domain).

3. The selected portions of the SC Judgment setting out the grounds of its verdict are reproduced below:

> The admitted facts are that the income tax return filed by the respondent- assessee for the assessment year 1991-92 was accepted under Section 143(1) of the Income Tax Act.  After sometime, the assessing officer came to know that there was a sale agreement dated 19.06.1984 entered into.....

(The other facts as further summed up are noted to be no different from those as set out in the HC judgment, in detail; hence not reproduced so as to save repetition) 

> The High Court has allowed the writ petition vide the impugned orders which are subject matter of challenge in the present appeal. AFTER GOING THROUGH THE DETAILED ORDER PASSED BY THE HIGH COURT, WE FIND THAT THE MAIN ISSUE WHICH IS INVOLVED IN THIS CASE IS NOT AT ALL ADDRESSED BY THE HIGH COURT.  A CONTENTION WAS TAKEN BY THE APPELLANT-DEPARTMENT TO THE EFFECT THAT SINCE THE ASSESSEE'S RETURN WAS ACCEPTED UNDER SECTION 143(1) OF THE INCOME TAX ACT, THERE WAS NO QUESTION OF “CHANGE OF OPINION” IN AS MUCH AS WHILE ACCEPTING THE RETURN UNDER THE AFORESAID PROVISION NO OPINION WAS FORMED AND THEREFORE, ON THIS BASIS, THE NOTICE ISSUED WAS VALID. WE FIND THAT THIS ASPECT IS SQUARELY COVERED BY THE JUDGMENT OF THIS COURT IN ASSISTANT COMMISSIONER OF INCOMETAX V. RAJESH JHAVERI STOCK BROKERS PRIVATE LIMITED [2008(14) SCC 208] IN THE FOLLOWING MANNER: -

“15. In the scheme of things, as noted above, the intimation under Section 143(1) (a) cannot be treated to be an order of assessment.  The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under Section 143(1)(a) as it stood prior to 1-4-1989, the assessing officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent.  Various circulars sent by the Central Board of Direct Taxes spell out the intent of the legislature i.e. to minimise the departmental work to scrutinise each and every return and to concentrate on selective scrutiny of returns.  These aspects were highlighted by one of us (D.K. Jain, J.) in Apogee International Ltd. v. Union of India.

16. It may be noted above that under the first proviso to the newly substituted Section 143(1), with effect from 1-6-1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under Section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him.  It is significant that the acknowledgment is not done by any assessing officer, but mostly by ministerial staff.  Can it be said that any “assessment” is done by them?  The reply is an emphatic “no”. 

The intimation under Section 143(1)(a) was deemed to be a notice of demand under Section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable.  By such application only recovery indicated to be payable in the intimation became permissible.  And nothing more can be inferred from the deeming provision.  Therefore, there being no assessment under Section 143(1) (a), the question of change of opinion, as contended, does not arise.”

The offshoot of the aforesaid discussion is to hold that judgment of the High Court is erroneous and warrants to be set aside.  We allow this appeal setting aside the impugned judgment of the High Court.

> We find that pursuant to the notice issued under Section 143 of the Income Tax Act, the assessing officer had computed the income by passing the assessment orders on merits and rejecting the contention of the respondent that the aforesaid transaction did not amount to a sale in the assessment year in question.  Against that assessment order, the respondent had preferred the appeal before the Commissioner of Income Tax (Appeals) which was also dismissed.  Further appeal was preferred before the Income Tax Appellate Tribunal.  This appeal, however, has been allowed by the Tribunal vide orders dated 29.01.2004, simply following the impugned judgment of the High Court, whereby the assessment proceedings itself were quashed. Since we have set aside the judgment of the High Court, as a result, the orders dated 29.01.2004 passed by the Income Tax Appellate Tribunal also stands set aside.  The matter is remitted back to the Income Tax Appellate Tribunal to decide the appeal of the respondent on merits.

OWN OBSERVATIONS and INDEPENDENT VIEWPOINTS

4. According to a well thought out and balanced  view, as discussed and sought to be canvassed herein, however, going by one’s own firm conviction, the line of reasoning cogently addressed on assessee’s behalf, and accepted and adopted by the HC, cannot be faulted, even remotely, to be illogical or being not reconcilable with the commonly prevailing better understanding of the relevant provisions of the law. For an appreciation in proper light and adequate support for the reasoning behind, a close reading of HC’s Judgment, with special focus on the forceful arguments advanced and case law cited on assessee’s behalf might help. 

4.1. The opinion the apex court has handed out,- in a manner of critical viewing, to say the least, without any intent whatsoever to offending or questioning the judicial wisdom, – is considered to have the effect of setting at naught the very objective of simplification (that is, ‘de-simplifying’, unwittingly or otherwise,), – obviously sought to have been achieved through the scheme of the provisions of relevance herein, as significantly modified from time to time, governing the procedure for making an assessment.

4.2. The SC in its judgment, as has been highlighted herein before, set aside the HC’s judgment allowing the assessee’s writ petition on the stated ground. That is, that a contention raised by the Department, referred to by it as the ‘main issue’ “has not at all been addressed by the High Court”. And, that relates to the point of issue which has been decided by the apex court in Department’s favour in the case of   Rajesh Jhaveri Stock Brokers.

As sincerely viewed, for any further deliberation and discussion in legal circles, - especially by those having some reasonable knowledge of, and hand-on experience in, the subject matter (that is,, the not-so-readily-perceptible implications and nuances of the apex court judgment on hand), the foregoing feedback input may be found to be of help and useful guidance.

4.3. The purport or import, much less legal significance/ contextual importance of the above ground of decision is not readily understood by one, or fully appreciated, for more than one reason: 

(A) It is true that the Department has raised such a contention; but it is equally true that the assessee does have and countered that contention, and argued at length, by relying on the Delhi HC (FB) judgment in the case of Kelvinator of India Ltd. (ref. the highlighted portions of paragraph 10 of the HC judgment); a portion again, but selectively, may be reproduced:

 “...  THAT THE POSITION OF LAW PRE-1988 AND POST-1988 IS THE SAME QUA THE FACT THAT THERE CANNOT BE A CHANGE IN THE OPINION ON THE SAME FACTS IRRESPECTIVE OF WHETHER AN ASSESSMENT IS MADE UNDER SECTION 143(1) OR OTHERWISE. Reliance for that is placed on the judgment of the full bench of the Delhi high court in CIT v. Kelvinator of India Ltd. [2002] 256 ITR..

IN EITHER CASE IT IS CONTENDED THAT THE EXERCISE IN 1996 WAS AN ATTEMPT TO INVOKE THE JURISDICTION BASED ON THE SAME DOCUMENTS FROM THE RETURN OF INCOME CLEARLY DISCLOSES CHANGE OF OPINION ON THE SAME FACTS AND MUST BE HELD TO BE CONTRARY TO LAW.”

According to anyone’s clear understanding, the referred discussion of the contentions /arguments of both sides came to be addressed only having regard to the fact that the stance taken by the AO was to the effect that the year for taxing the income from the sale transaction was the assessment year 1991-92. All those, however, have lost significance and importance, consequent upon the given opinion of the HC holding to the effect that, if at all, in any view, the assessment year 1991-92 was not the relevant year in which any such income could conceivably be regarded to have “escaped assessment”.

(B) The opinion of the HC is to the effect  that the impugned assessment order for the assessment year 1991-92 has no legal sanction / validity; that is, essentially on the ground that the crucial test/requirement of “reason to believe” has not at all been satisfied / fulfilled by the Department.

(C)  As anyone is expected to be aware, under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the corporate world against omission of the words “reason to believe”, Parliament, in its wisdom, re-introduced the said expression; and further, deleted the word “opinion”, notably on the ground that it would vest arbitrary powers in the Assessing Officer.

Suggest, for better clarity, to refer and read the relevant portion of the official Circular No.549 dated 31st October, 1989 ([1990] 182 ITR (St.) 1, 29).

Having regard to the foregoing, in one’s perspective, rather firm conviction, for any assessment year governed by the so amended law – as is the case herein - for AO to invoke Section 147 (r.w. Section 148) the only applicable criterion, rather the essential precondition to be satisfied is, – “reason to believe”; and NOT the concept of ‘opinion’ or its derivative being ‘change of opinion’, which has been given a go by. To make it explicit and better appreciated, the point is, with the removal of the concept of ‘opinion’, hence no longer coming into play, scope for anybody to plead by invoking , in defence, the facet of ‘change of opinion’ has been automatically rendered a non-starter.

5. That, however, is not to be mistaken as the end of the discussion. For, there is yet another aspect, which is, being more crucial, of every relevance to the dispute; to be precise, that concerns as to which year of transaction in which ‘transfer’  giving rise to taxable income can rightly be regarded to take place;  hence, cannot prudently be left untouched, but necessarily requires be covered, at least briefly :

5.1. The subject matter of the ‘sale and purchase’ transaction in the instant case is prima facie an ‘immovable property’. That has, in the nature of things, the peculiar characteristics of so called ‘FLAT’, for use as ‘office.’, in a building complex comprising ‘units’. As such, for all purposes, including ‘transfer’ of the attendant property rights under a transaction, it calls for a special noting, is governed by the Maharashtra State special law, being Maharashtra Ownership Flats Act (in brief, MOFA) (r.w. the specific Rules framed there under). Further, that has to be compulsively read together with the Maharashtra Co-operative Societies Act (in brief MCSA) applicable to co-operative societies formed and registered under, and in accordance with, the provisions of the said Act. Under the scheme of the law, purchaser of a flat is required to be admitted as ‘member’ of the registered society, for which purpose issue of a ‘Share Certificate’, under the name and seal of the society is a pre-condition. And, on a resale, as likewise mandated by the law, the transferee is entitled to be admitted as member, in place / substitution of his transferor, provided the society is satisfied that the transferor –member is ‘prima facie’ eligible to a physical transfer of his “Shares and interest in the Capital / Property of the Society”.

Obviously, that is precisely the reason why, having in mind / due regard to the above stated procedural legal formalities requiring strict compliance, that the transferor-company, - while objecting to the impugned action of the AO under Section 147 (r.w. section 148), - has pleaded to the effect that pending compliance with the formality of transfer of its “Shares”, there could be no “transfer” within the meaning of the special law , so as to attract taxation. Needs to be noted, in the HC judgment , in paragraph 2, explaining the transferor- company’s case, it has been observed “…that the petitioner had also recorded, confirmed and assured the bank that it would take ALL STEPS FOR TRANSFER OF THE PROPERTY ALONG WITH THE SHARE CERTIFICATES on or before September 30, 1997”. (FONT supplied)

5.2. The HC has not been taken into/through, hence obliged to consider and give its opinion on, this particular aspect; that is, presumably because it was not considered necessary for deciding the main issue on hand, rightly so. Be that as it may, now that as a result / in consequence of the SC judgment the matter is remitted back to the ITAT, it may be hoped that also the above referred aspect, apart from quite a few other related and equally crucial ones, will be duly gone into in-depth, in deciding the entire matter, ‘on merits’ as directed, in a wholesome manner.

Summing up: To highlight, without dubiously mincing words, as is readily gathered from the judgments of both the High Court and the SC, at no point of time in the course of the entire proceedings, either side of the Bar, i.e. the representing lawyers, have drawn the attention, much less advanced any argument to the effect that for deciding whether or not on the admitted facts there could be one more ground coming in the way  the AO claiming to have had “reason to believe” that there has been an escapement f income as envisaged.

To dilate:

In the course of the whole of the assessment, appeal and other proceedings, both sides, so far as is to be seen, are noted to have chosen to advance their respective pleas, simply by resting on the familiar plank, following the ‘beaten track’ so to say. That is, in having proceeded on the premise, wrongly so, that for deciding the disputed point(s) concerning “transfer” of property within its legal meaning, it would suffice for the court to interpret and adjudicate the issue (s) having regard to/in accordance with merely the provisions of the IT Act; that is, without having to go into the special law provisions, even if any applicable as afore said.

5,3. It is in this context, pointed attention requires to be drawn to the several aspects of the special law, the implications /intricacies whereof have been discussed in some detail in published articles, etc., made available in public domain.

For ready reference, one such published Article that instantly comes to mind is HERE:

LAW and ('vs'?) CASE LAW On “FLATS” – A Criminal Analysis

In that Article, a critical study has been made, of the SC judgment in the case of Podar Cement company. That is a case in which, similarly as in the instant case (of Zuari), the issues were on a tax cum property (Flat) law related matter, but not gone  into at any stage.

On the premise that the viewpoints put across therein are not without substance hence deserve to be looked into in-depth, it is imperative that whether or not on the factual matrix in a given case there has been a “transfer”, so as to attract taxation, has to be necessarily decided having due regard also to the legal implications of the special enactment governing ‘transfer’ of a property of the kind, - ‘Flat’ (or ‘Apartment’).

5.4. Now, turning to the HC Judgment in the case of Zuari, the verdict has gone in assessee’s favour. The decision has been rendered primarily on the ground that the AO could not be regarded to have had “reason to believe” that income has escaped assessment for the impugned assessment year 1991-92. Even had the implications of the special law, as required, been duly considered, at best, that would have been an additional ground for the court to have held against the validity of the impugned assessment. Sadly, however, that has not happened, 

Be that as it may, now that by virtue of the SC Judgment the ITAT Order has been set aside, thereby obliging the tribunal to go into and decide afresh the issues, on merits as directed, it is to be fervently hoped that, counsel engaged, if duly equipped, will surely advance all such arguments as are open, should due regard be had to the implications and intricacies of the MOFA (and the rules there under); so that, the adjudicating authorities, including the judiciary, are enabled to adjudicate all such issues, wherever pending, in proper light, at least in future.

Disclaimer:The foregoing brief analysis is intended to convey own perceptions and viewpoints, based on an independent study of the covered limited aspects. Welcome to share, should anyone, especially a competent law expert in field practice, entertain any doubt or has a better view to offer after an independent study, so as to serve the objective of common good. 

Related

On a quick search, one will find a long line of reported case law on both concepts, @http://indiankanoon.org/search/…

http://indiankanoon.org/search/…

It might be worthwhile, hence recommend, to go through those case law; essentially,, on the SC judgment in re.  http://indiankanoon.org/doc/2919661/

In the separate Order appended to the referred SC Judgment, R V Easwar J has discussed his views, in which he has laid great stress on the concept / precondition of, - “reason to believe” ; also, his view, seemingly with a different stoke,  on both the concepts, -'opinion' and ‘change of opinion’, deserving a special focus for further study.
 

Extracts(selective):

 ......To argue or hold that when the assessing officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion, notwithstanding that the assessee had made a full and true disclosure and notwithstanding that the assessment was completed under section 143 (3) and to further hold that it would be a case of ―no opinion,      would be to fly in the teeth of the two rulings. It is not even open to the revenue to urge such a proposition.   
 

20. However, the further observations of the Supreme Court in A.L.A. Firm (supra) broadly support the view taken by the Full Bench of this court. These observations are as under: -

"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 contained a large number of documents or the case raised complicated issues rendering it probable that the Income- tax Officer had missed these facts. >UQUQ

Tail Piece:

As pinpointed in the itatonline*  Editor’s Note,, the most crucial , rather the now only criterion, of “reason to believe” finds no discussion by SC in Zuari ‘s case; that is possibly due to a glaring but vital  oversight.

A Tale of the TWO SC Verdicts, -in Podar Cement  and Zuari Estate cases might prove quite a useful comparative study; so invite to !

*DCIT vs. Zuari Estate Development & Investment Co Ltd ...