Unless the matter of transfer is capital assets, there cannot be any demand under Chapter IV of the Income Tax Act: High Court of Karnataka

Chapter IV of the Income Tax Act deals with all forms of income that does not form a part of the total income. For this reason unless the matter of transfer is capital assets, no demand can be made under this chapter of this Act. This was held in the judgement passed by a bench of the High Court of Karnataka consisting of Justice B.V. Nagarathna and Justice Hanchate Sanjeevkumar in the case of Nataraja v Pr. Commissioner of Income Tax, Mysuru [Writ Appeal No. 1078/2018 T-IT] pronounced on 15th of July 2021.

The appellant, Nataraja filed the writ appeal under Section 4 of the Karnataka High Court Act praying for order by the single judge in WP No. 54836837/2017 (T-IT) to be set aside. The impugned order observed that the appellants had bye-passed the remedy available to them under Section 246A of the Income Tax Act 1961 and had availed the revisional remedy under Section 264 of the Act and concluded that there was no infirmity the said order and had the writ petition dismissed. For this reason the appellant decided for the present appeal. It was held that if an assessee is aggrieved by an assessment order, he has the option of either an appeal before the commissioner under Section 246A of the Income Tax Act or a revision reition under Section 264 of the Act before the revisional authority.

The appellant’s grievance was that the lands in question situated in Vajamangala Village in Mysore attracted tax on capital gains in as much as the mentioned lands were capital assets. It was contended that in Chapter-IV of the Act which deals with computation of income from capital gains, it is held that such gains are to be calculated by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, certain amounts. In the immediate case, it was found that the aforesaid provisions were not applied to the facts of the case.

Justice B.V. Nagarathna can be quoted as saying “Although, there is a detailed discussion with regard to the nature of the transaction, as to whether it is a transfer or not, we find there is no application of mind as to whether the subject lands are capital asset or not. We reiterate that unless the subject matter of transfer are capital assets, there cannot be any demand under Chapter-IV of the Act. Therefore, the assessees herein preferred a revision under Section 264 of the Act. It was consequently decided “In the circumstances, we set aside the order of the revisional Authority, as well as the order of the Assessing Authority, dated 27.3.2017 and 21.3.2014 respectively” and the appeal was thereby allowed.

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