Reassessment on existing record and treaty-based capital gains taxability under domestic law upheld for a resident assessee.

Processing a return under section 143(1) is not a substantive assessment, so reopening is permissible where income escaped assessment through omission or oversight and the Assessing Officer relied on material already on record; the reassessment was therefore upheld and not treated as a mere change of opinion. On treaty interpretation, Article 14 permitted capital gains to be taxed by each Contracting State according to its domestic law, so a resident assessee's gains were taxable in India rather than only in the United Kingdom; that contention was rejected. The Revenue's stand on both reassessment and taxability was sustained.

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Issues: (i) Whether reassessment was valid when the return had been processed under section 143(1) and no new external material was shown; (ii) Whether capital gains of a resident assessee were taxable in India under Article 14 of the treaty or only under the domestic law of the country where the gain arose.

Issue (i): Whether reassessment was valid when the return had been processed under section 143(1) and no new external material was shown.

Analysis: Processing under section 143(1) does not amount to a substantive assessment after application of mind. The record showed that the income chargeable to tax had escaped assessment because the Assessing Officer had accepted the return without noticing the taxability of the capital gains. Reopening on the basis of the material already on record was held to be permissible, and the case was not one of impermissible change of opinion.

Conclusion: The reopening was valid and was upheld in favour of the Revenue.

Issue (ii): Whether capital gains of a resident assessee were taxable in India under Article 14 of the treaty or only under the domestic law of the country where the gain arose.

Analysis: Article 14 provided that capital gains may be taxed by each Contracting State in accordance with its domestic law. As the assessee was a resident of India, the domestic law of India governed the taxability of the capital gains. The contention that taxation could arise only in the United Kingdom was rejected.

Conclusion: The capital gains were taxable in India, against the assessee.

Final Conclusion: The appeal failed on both questions of law, and the Revenue's stand on reassessment and taxability of the capital gains was sustained.

Ratio Decidendi: Where income escapes assessment due to omission or oversight in processing a return under section 143(1), reassessment is permissible on the basis of the existing record, and a treaty clause allowing each Contracting State to tax capital gains according to its domestic law enables taxation in India of a resident assessee's gains under Indian law.

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