Justice Rajiv Shakdher of Madras High Court today stayed the reassessment proceedings and demand notices against the former Union Finance Minister P Chidambaram and his family.
The issue relates to a family-held 200-acre coffee estate in Coorg, which was inherited by Chidambaram from his grandfather Raja Annamalai Chettiar in 1956, when Chidambaram was aged barely 11 years.
The estate has since been partitioned and divided into five units of 40 acres each, in the name of Chidambaram, his wife Nalini Chidamabram, son Karti Chidambaram, daughter-in-law Srinidhi and granddaughter. All along it had been shown as generating agricultural income for the stake-holders, and hence it had been exempted from income tax since then.
The assesses disclosed agricultural income in the income tax returns for the assessment year 2009-10, which was reopened by the Income Tax Department six years observing that the assessee had escaped assessment and asked them to file the returns afresh.
Impugning the proceedings and demand of 5 lakhs from each members, Chidambaram and his family moved to High Court seeking to quash the same.These writ petitions challenged the demand notices saying they sold coffee grown in their estates as raw coffee, after pulping and drying the raw coffee. They said they did do curing of the coffee, but pulping and curing was necessary to prevent deterioration before the sale of coffee to curing houses.
Under Rule 7B(1) of Income Tax Rules, income derived from the sale of coffee grown and cured by sellers in India shall be computed as if it were income derived from business and 25% of such income shall be deemed to be income liable for tax, said the petitions, adding the family members did not cure the coffee before sale, so Rule 7B(1) was not attracted. Therefore, Chidambaram and his family members claimed exemption of the entire income derived from the sale of coffee and pepper during the accounting year 2008-09 as agricultural income under Section 10(1) of the Income Tax Act, in the returns filed for assessment year 2009-10.
The bench posted the matter to March 16 for further proceedings.
