Double Taxation on Capital Gains: Andhra Pradesh HC Orders Refund, Holds CBDT Circular Not Binding on High Court

Case Background

Case Name: Srirama Pankajam Vs Union of India (Andhra Pradesh High Court)

The Andhra Pradesh High Court recently adjudicated a significant writ petition involving a case of double taxation arising from a property development transaction. The matter revolved around the correct assessment year in which capital gains ought to have been taxed — and more critically, the relief available to an assessee who had already discharged tax liability for both years on the same underlying transaction.

Facts of the Case

The petitioner, Srirama Pankajam, had inherited a one-third undivided share in a property situated at D.No.10-4-18/B, Layout No.218/61 of Town Survey No.1041, Waltair Ward, within the limits of Greater Visakhapatnam Municipal Corporation. The property devolved upon her jointly with her son and daughter following the demise of her husband, who was the original owner.

In February 2011, the petitioner and her co-heirs executed a Development Agreement-cum-General Power of Attorney dated 24.02.2011 in favour of M/s. Sri Lakshmi Vallabha Constructions, Visakhapatnam, for the construction of flats on the said land.

The petitioner computed and reported capital gains arising from this transaction under the financial year 2012-2013, i.e., Assessment Year (AY) 2013-2014. Accordingly, she paid ₹11,08,486 as capital gains tax for AY 2013-2014.

The Department's Contrary Position

The Income Tax Department took a divergent view. It initiated separate assessment proceedings for the financial year 2010-2011, corresponding to AY 2011-2012, on the premise that capital gains from the development agreement transaction had actually crystallised in that earlier financial year. These proceedings concluded with an assessment order dated 13.12.2018.

Aggrieved by this order, the petitioner preferred an appeal before the Commissioner of Income Tax (Appeals)-1, Visakhapatnam.

Settlement Under Vivad Se Vishwas Scheme

While the appeal remained pending, the petitioner opted to resolve the dispute by availing the Vivad Se Vishwas Scheme introduced by the Central Government. On 22.02.2021, she paid ₹9,55,706 as full and final settlement of the tax dues arising from the AY 2011-2012 assessment proceedings.

This created a situation where the petitioner had effectively discharged tax on the same capital gains transaction twice — once for AY 2013-2014 (₹11,08,486) and again for AY 2011-2012 under the Vivad Se Vishwas Scheme (₹9,55,706).

Application Under Section 119(2)(b) and Its Rejection

Following settlement of the AY 2011-2012 dispute, the petitioner filed an application before the Chief Commissioner of Income Tax seeking refund of ₹11,08,486 paid for AY 2013-2014. The application was made under Section 119(2)(b) of the Income Tax Act, 1961.

Section 119(2)(b) reads as follows: