2010 (7) TMI 1004 - AT - Income Tax

Tribunal rules against assessee's appeal on capital gains treatment for Assessment Year 2004-05. Loss claim denied.

M/s. Karnataka Instrade Corporation Limited, Versus Assistant Commissioner of Income Tax, Central Circle 2 (2), Bangalore.

M/s. Karnataka Instrade Corporation Limited, Versus Assistant Commissioner of Income Tax, Central Circle 2 (2), Bangalore. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee who has voluntarily disclosed an amount as capital gains in the return of income, paid tax thereon, and had the return accepted by the Assessing Officer can subsequently contend that the amount is a capital receipt (non-taxable) and challenge assessment on that basis. 2. Whether the acceptance of a return of income by the Assessing Officer and self-assessment by the assessee operates as an admission barring later challenge by the assessee to the taxability of items declared in that return, absent revision or reassessment. ISSUE-WISE DETAILED ANALYSIS Issue 1: Permissibility of assailing tax treatment of an item voluntarily disclosed and accepted in the return Legal framework: The statutory scheme requires the assessee to file a return disclosing true income, compute tax liability and pay tax; the Assessing Officer may accept or modify the return within statutory powers. An assessee may, in appropriate circumstances, seek revision of a return or invoke remedial provisions if the return is erroneous. Precedent Treatment: The Tribunal relied on the principle in the Supreme Court decision that a return filed and accepted, and taxes paid thereon, amounts to an admission or self-assessment, limiting the assessee's ability to repudiate the return later. A contrasting authority on the substantive character of a receipt (that compensation for loss of a source of income is a capital receipt) was cited by the assessee but was not applied because it presupposes a live challenge to an adverse assessment. Interpretation and reasoning: The Court reasoned that where the assessee voluntarily elected to treat a receipt as capital gains, declared that figure in the return, and paid tax which was accepted by the Assessing Officer without change, the assessee cannot complain of the tax consequences of that voluntary admission. The Tribunal emphasised that acceptance by the Assessing Officer and the absence of any challenge or revision by the assessee leave no locus for the assessee to later recharacterise the receipt before the appellate forum. The Court treated the self-declaration accepted by the revenue as conclusive for purposes of the present dispute. Ratio vs. Obiter: The holding that an assessee cannot challenge the tax treatment of an item voluntarily declared and accepted in the return (absent revision or reassessment) is ratio decidendi as it is essential to the Court's dismissal of the appeal. The observation that substantive characterisation authorities (on whether a receipt is capital) would be relevant only if the assessee had a live grievance is explanatory obiter to the extent it comments on the alternative legal argument without deciding the substantive tax character. Conclusion: The Tribunal concluded that the assessee, having declared the amount as capital gains, paid tax and had the return accepted by the Assessing Officer, has no grievance and cannot successfully contend on appeal that the receipt was a capital (non-taxable) receipt. Issue 2: Effect of admission by return and acceptance by Assessing Officer on subsequent challenges Legal framework: The law treats the filing of a return and payment of self-assessed tax as a statutory obligation and an admission of liability subject to the revenue's powers to examine, assess or reassess. Principles of finality and estoppel operate where the revenue accepts the filed return without change and the assessee takes no remedial steps. Precedent Treatment: The Tribunal followed the principle from higher authority establishing that a filed return which is accepted forms an admission of tax liability, thereby constraining subsequent contrary contentions by the assessee. The decision cited by the assessee on the nature of receipts was distinguished on factual posture - it addresses characterization of receipts but does not counter the estoppel arising from an admitted and accepted return. Interpretation and reasoning: The Tribunal emphasised that the acceptance of the return by the Assessing Officer strengthens the view that the assessee cannot complain; acceptance without alteration means there is no adverse order to challenge. The Court noted the absence of any step by the assessee to revise the return under statutory provisions, thereby foreclosing the appellate challenge. The Court thus applied principles of admission and finality to bar the contention raised at appeal. Ratio vs. Obiter: The statement that acceptance of a return constitutes an admission preventing subsequent contradictory claims by the same assessee (in the absence of statutory revision or reassessment) is ratio. Distinguishing substantive authorities on characterization as inapplicable in the present posture is ancillary and partly obiter. Conclusion: The Tribunal held that the accepted return and self-assessment operate as an admission of tax liability on the declared capital gains; in the absence of revision or reassessment, the assessee cannot challenge the tax treatment on appeal and the appeal is dismissed.