Case Note & Summary
The petitioner, M/s. Jai Trust, a trust incorporated under the Indian Trust Act, 1882, challenged the legality and validity of a notice dated 12 March 2015 issued under Section 148 of the Income Tax Act, 1961 by the Income Tax Officer seeking to reopen the petitioner's assessment for Assessment Year 2010-2011, and the order dated 18 August 2015 rejecting the petitioner's objections against the reopening. The petitioner had, during the previous year relevant to AY 2010-2011, transferred 30,65,600 shares of United Phosphorus Limited (UPL) and 3,06,560 shares of Uniphos Enterprises Limited (UEL) to Nerka Chemicals Private Limited (NCPL) by way of a gift deed dated 26 February 2010. No consideration was received for the transfer. The cost of the shares to the petitioner was Rs.1,02,27,547/-. The petitioner filed its return of income on 22 July 2010 declaring total income as Nil, as the income was distributed to beneficiaries, and claimed a refund of TDS of Rs.547/-. The return disclosed the investment of Rs.8,92,335/- and the gift of Rs.1,02,27,547/- debited to the profit and loss account. Since no communication was received within the prescribed time, the return was deemed processed under Section 143(1). On 19 March 2015, the petitioner received a notice under Section 148 dated 12 March 2015, seeking to reopen the assessment on the ground that the gift of shares without consideration resulted in income escaping assessment. The petitioner filed objections, which were rejected by the Assessing Officer on 18 August 2015. The petitioner then filed a writ petition challenging the notice and the rejection order. The court held that the reopening was invalid because the gift of shares without consideration does not give rise to any income under the Act. Section 56(2)(vii) was not applicable as it was inserted with effect from 1.10.2009 and the gift was made before that date. Section 50CA applies only to transfers for consideration, not gifts. Section 47(iii) exempts gift of capital assets from capital gains. The Assessing Officer had no reason to believe that income had escaped assessment; the reopening was based on a mere change of opinion. The court quashed the notice and the rejection order.
Headnote
A) Income Tax - Reopening of Assessment - Section 147/148 - Reason to Believe - The Assessing Officer must have a reason to believe that income has escaped assessment based on tangible material. A mere change of opinion or suspicion is insufficient. The notice must be based on objective material and not on a mere possibility. (Paras 1-15) B) Income Tax - Gift of Shares - No Income - Sections 56(2)(vii), 47(iii), 50CA - A gift of shares without consideration does not give rise to any income under the Income Tax Act, 1961. Section 56(2)(vii) was not applicable for gifts before 1.10.2009. Section 50CA applies only to transfers for consideration, not gifts. Section 47(iii) exempts gift of capital assets from capital gains. (Paras 2-10) C) Income Tax - Reopening - Change of Opinion - Section 147 - Where the Assessing Officer had earlier accepted the return and processed it under Section 143(1), reopening on the same facts without new tangible material amounts to a change of opinion and is invalid. (Paras 11-15)
Issue of Consideration
Whether the notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for AY 2010-2011 was valid when the alleged escapement of income was based on a gift of shares without consideration, which does not constitute income under the Act.
Final Decision
The court allowed the writ petition, quashed the notice dated 12 March 2015 under Section 148 of the Income Tax Act, 1961 and the order dated 18 August 2015 rejecting the petitioner's objections.
Law Points
- Reopening of assessment under Section 147/148 requires reason to believe that income escaped assessment
- based on tangible material
- mere change of opinion not sufficient
- gift of shares without consideration does not give rise to income under the Act
- Section 56(2)(vii) not applicable to gifts before 1.10.2009
- Section 50CA not applicable to gifts
- Section 47(iii) exempts gift of capital assets from capital gains.
