Section 5A not apply to division of assets between spouses governed by Portuguese Civil Code

Section 5A of Income Tax Act is applicable only to division of income between spouses governed by Portuguese Civil Code. Section 5A does not deal with the division of assets.

In a recent judgment, Bombay High Court has held that Section 5A of Income Tax Act 1961 is applicable only to division of income between the spouses who are governed by the Portuguese Civil Code. Section 5A does not deal with the division of assets. 

ABCAUS Case Law Citation:
4297 (2024) (10) abcaus.in HC

In the instant case, the petitioner/assessee had challenged the notice issued u/s 148 of the Income Tax Act, 1961 (the Act) as without jurisdiction without complying with the preconditions required for initiating proceedings u/s 148 of the Act.

The Petitioner had declared capital gain towards sale of properties. A survey operation u/s 133A of the Act was carried out at a builder. In the post survey operation, it was found that by a sale deed cum exchange, the amount paid by the builder to the petitioner was not fully disclosed in the return of income by the Petitioner. Thus, it was the case of the Revenue that Petitioner had failed to disclose fully and truly all the material facts.

In compliance of the notice u/s 148, the Petitioner again filed the return of income declaring the same income and capital gains. Thereafter, the Assessing Officer (AO) issued notice u/s 143(2) giving reasons recorded for reopening. The reason being the assessee did not disclose full amount of consideration received from the builder.

It was the case of the Revenue that the Petitioner did not declare capital gain on the ground that capital asset was agricultural land. However, no documentary evidence was furnished to support the contention.

Thereafter, the Petitioner submitted objections to the reopening stating that she was governed by the Portuguese Civil Code but the objections were rejected by stating that “in the return of income she did not state that she was governed by the section 5A of the Act. The Petitioner was directed to furnish the information as per notice u/s 143(2) of the Act.

Before the Hon’ble High Court it was submitted by the Petitioner that she had only 50% share in the property and the rest 50% belonged to her late husband who was governed by the Portuguese Civil Code. It was contended that this fact was available in the public domain and information regarding would have been transmitted to the Income Tax Department.

The Hon’ble High Court observed that the original petitioners share in the property was only 50%. The revenue was seeking to reopen the assessment on the alleged ground that income chargeable to tax escaped assessment as the Petitioner did not disclose full amount of sale consideration.

The Hon’ble High Court observed that section 5A of the Act deals with the apportionment of the income between spouses governed by Portuguese Civil Code (Communiao dos bens).

The Court observed that the husband of the Petitioner had already passed away and hence there was no question of the original Petitioner being governed by the section 5A of the Act which is applicable only to division of income between the spouses who are governed by the Portuguese Civil Code. Section 5A does not deal with the division of assets.

Moreover, the Hon’ble High Court found that the substantive rights of the original Petitioner were governed by the Portuguese Civil Code. The fact that the original Petitioner was governed by the Portuguese Civil Code was duly brought to the notice of the Revenue therefore mere non mention of the same in the ITR would not give rise to a situation where tha tax on the sale of property beyond the share of the original petitioner could be taxed in her hands.

The Hon’ble High Court further observed that the reason cited by the Revenue that copy of the sale deed was not available at the time of recording reasons was fallacious and not tenable as the information from the office of the Sub-Registrar for any registration is duly transmitted to the Revenue.

The Hon’ble High Court observed that the copy of the sale deed was already on record of the Revenue and if the authorities failed to take note of it, the assumption of jurisdiction was erroneous.

Accordingly, the Hon’ble High Court quashed and set aside the notice u/s 148 and the order rejecting the objections of the assessee.

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