2008 (4) TMI 673 - HC - Income Tax

Court rules in favor of assessees, sets aside Tribunal judgments. Kar Vivad Samadhan Scheme applies to revenue's appeals.

Bhawaralal (HUF) Versus Assistant Commissioner of Income-tax, Circle-2(2), Bangalore

Bhawaralal (HUF) Versus Assistant Commissioner of Income-tax, Circle-2(2), Bangalore - TMI Issues Involved:1. Validity of the Tribunal's decision on the revenue's appeal regarding the receipt of Rs. 16,85,000.2. Maintainability of the revenue's appeal despite the assessees' declaration under the Kar Vivad Samadhan Scheme (KVSS), 1998.3. Applicability of CBDT/Finance Department instructions under section 96(1) of the Finance Act, 1998.4. Applicability of the Delhi High Court's decision in All India Federation of Tax Practitioners v. UOI to both assessees' and the Department's appeals.5. Classification of the amount of Rs. 5,61,666 received by the appellants as capital receipt.Detailed Analysis:1. Validity of the Tribunal's decision on the revenue's appeal regarding the receipt of Rs. 16,85,000:The Tribunal reversed the first appellate authority's decision and held that any consideration received by an owner of property in return for the occupation and permission for usage of the property is taxable as rent receipts under the Income-tax Act and cannot be taken to be capital in nature. The appellants contended that the Tribunal erred in treating the receipt of Rs. 16.85 lakh as a revenue receipt, arguing it was a lump-sum payment for a convenience provided to the tenant and was in the nature of a capital receipt.2. Maintainability of the revenue's appeal despite the assessees' declaration under the Kar Vivad Samadhan Scheme (KVSS), 1998:The Tribunal opined that the settlement preferred by an assessee in relation to its own appeal does not affect the cross-appeal filed by the revenue unless the assessee opts to settle the issue under the scheme even in respect of such other cross-appeal of the revenue. The assessees argued that the Tribunal failed to consider the Delhi High Court's decision, which held the proviso to section 92 of the Act ultra vires article 14 of the Constitution, and that the scheme should apply to both the assessees' and the revenue's appeals pending.3. Applicability of CBDT/Finance Department instructions under section 96(1) of the Finance Act, 1998:The appellants relied on a clarification issued by the Central Board of Direct Taxes (CBDT) and the decision in All India Federation of Tax Practitioners v. UOI, which stated that the scheme is a package for the settlement of tax arrears of a particular assessment year in entirety. The Tribunal's decision was challenged on the grounds that it did not apply the instructions of the CBDT/Finance Department issued under section 96(1) of the Finance Act, 1998.4. Applicability of the Delhi High Court's decision in All India Federation of Tax Practitioners v. UOI to both assessees' and the Department's appeals:The Delhi High Court held that the proviso to section 92 is ultra vires article 14 of the Constitution, as it creates two artificial classes within the same class of assessees. The Central Government accepted this decision and issued instructions to implement the scheme accordingly. The appellants argued that the Tribunal should have applied this decision and dismissed the revenue's appeal as infructuous.5. Classification of the amount of Rs. 5,61,666 received by the appellants as capital receipt:The appellants contended that the amount received for permitting the tenant to create an opening in the wall should be classified as a capital receipt rather than a revenue receipt. The Tribunal's decision to treat it as taxable rent receipts was challenged on the grounds that it was a lump-sum payment for a convenience provided to the tenant.Conclusion:The appeals were allowed, and the judgments of the Tribunal were set aside. The Karnataka High Court held that the questions of law were answered in favor of the assessees and against the revenue. The Court emphasized that the scheme should apply to both the assessees' and the revenue's appeals pending, and the revenue's insistence on separate declarations for the appeals was not tenable. The decision of the Delhi High Court in All India Federation of Tax Practitioners v. UOI was upheld, and the classification of the amount received as a capital receipt was recognized.