Case: – Kamano Pinto v/s Deputy Commisioner of Income Tax & Ors.; Income Tax Appeal No.2610 of 2018
The High Court of Bombay recently ruled that an amount received in satisfaction of inheritance rights is not taxable income.
In this case involving the partnership firm M/s. P. N. Writer & Co., formed in 1954, the appellant, Charles D’Souza’s daughter, became entitled to a 25% share in the firm following her father’s demise in 1997. Disputes arose, leading to an arbitration award in 2009, which stipulated a payment of Rs. 28 Crores to the appellant in exchange for relinquishing all claims.
The Income Tax Department reopened the case in 2014, alleging income escapement for the assessment year 2010-2011. Despite the appellant’s initial non-taxable claim being accepted, the department later determined her total income at Rs. 28,18,91,590, adding Rs. 28 Crores as business income or capital gains.
The appellant contested the reassessment, arguing that the amount was related to her retirement and was not taxable. The court found that the jurisdictional pre-conditions for reassessment were not fulfilled, emphasizing the lack of a valid belief by the Assessing Officer that income had escaped assessment.
Additionally, the court analyzed the nature of the amount received, concluding that it was capital in nature, related to the settlement of partnership interests and inheritance rights, and thus not taxable. The court criticized the Tribunal’s classification of the amount as “special income,” stating it had no basis in the law.
In the above matter the Hon’ble High Court has observed as below:-
“21 The law as regards jurisdiction under Section 148 of the Act is very clear. The following jurisdictional pre-conditions are required to be fulfilled:

  • the assessee’s income chargeable to tax has escaped assessment;
  • the Assessing Officer must have formed a belief that the assessee’s income chargeable to tax has escaped assessment;
  • the belief as formed by the Assessing Officer that the assessee’s income chargeable to tax has escaped assessment must not be based on a change of opinion;
  • his belief must not be based on same material as was available with him in the original proceedings i.e., some fresh tangible material should come to his notice subsequent to the framing of the intimation/assessment;
  • the Assessing Officer cannot initiate reassessment proceedings with a view to make further enquiries or investigation into the facts of the case without forming the belief that the assessee’s income chargeable to tax has escaped assessment.
    In our view, the said jurisdictional pre-conditions have not been fulfilled. Therefore, it can be stated that the assumption of jurisdiction by respondent no.1 under Section 148 of the Act to reassess appellant’s income is without jurisdiction.”

Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate

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