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1990 (3) TMI 51
Issues: Challenge to tax demand under guarantee given under section 230(1) of the Income-tax Act, 1961.
Analysis: The petitioner challenged a tax demand made by the Tax Recovery Officer under a guarantee given under section 230(1) of the Income-tax Act, 1961. The guarantee was given on behalf of a Canadian citizen conducting business in India, who required an income-tax clearance certificate before leaving the country in 1966. The petitioner undertook to pay all taxes on behalf of the Canadian citizen, covering various tax acts. Years later, in 1983, the petitioner received a notice to pay a sum of Rs. 25,222 for assessment years 1969-70 to 1972-73. The petitioner contended that the guarantee only covered taxes up to the date of the citizen's departure and not for subsequent years. The court noted that section 230(1) requires a tax clearance certificate for liabilities outstanding at the time of departure or with reference to that date. The court rejected the argument that satisfactory arrangements or guarantees should extend beyond the period of departure. The court emphasized that the guarantee's scope cannot exceed the requirements of section 230(1) and ruled in favor of the petitioner, making the rule absolute in her favor.
In summary, the court held that the guarantee given under section 230(1) of the Income-tax Act, 1961, is limited to liabilities outstanding at the time of departure or with reference to that date. The court emphasized that satisfactory arrangements or guarantees cannot extend beyond the period of departure. The court ruled in favor of the petitioner, stating that the guarantee's scope cannot exceed the requirements of section 230(1) and made the rule absolute in her favor.
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1990 (3) TMI 50
Issues: Challenge to notice under section 148 of the Income-tax Act for assessment year 1962-63 based on lack of reason to believe income escaped assessment. Allegation of fully disclosing all relevant facts during original assessment. Invocation of section 52 of the Act for taxing alleged capital gains. Contention of understatement of consideration to invoke section 52. Comparison with legal precedents like K. P. Varghese case and CIT v. Shivakami Co. (P.) Ltd. Interpretation of conditions for initiating proceedings under section 148. Dispute over applicability of section 52 for assessing capital gains. Examination of recorded reasons for issuing notice. Jurisdictional aspect of the impugned notice under section 148.
Analysis: The judgment involves a challenge to a notice issued under section 148 of the Income-tax Act for the assessment year 1962-63. The petitioner contested the notice on the grounds that there was no valid reason to believe that any income had escaped assessment and that all relevant facts were fully disclosed during the original assessment. The petitioner argued against the invocation of section 52 of the Act for taxing alleged capital gains, emphasizing the need for understatement of consideration to apply this provision. Legal precedents such as the K. P. Varghese case and CIT v. Shivakami Co. (P.) Ltd. were cited to support the petitioner's position.
The court considered the conditions for initiating proceedings under section 148, emphasizing the requirement of an omission or failure to disclose material facts leading to income escapement. The dispute centered on the applicability of section 52 for assessing capital gains and the necessity of establishing understatement of consideration. The court examined the recorded reasons for issuing the impugned notice and the jurisdictional aspect of invoking section 148.
The judgment highlighted the principle that the writ court would not interfere unless the impugned orders were perverse or beyond jurisdiction. The court emphasized that the decision-making process would be scrutinized rather than the merits of the recorded reasons. Ultimately, the court found no merit in the writ petition and discharged the rule, vacating all interim orders without costs. The court upheld the issuance of the impugned notice as a bona fide belief based on fulfilling conditions for escaping proper assessment, indicating no inherent defect warranting interference by the writ court.
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1990 (3) TMI 49
Issues: 1. Legality of recovery proceedings against the petitioner's property. 2. Validity of the sale of the property. 3. Jurisdiction over the vendors in obtaining tax clearance certificate. 4. Application of rule 16 of Schedule II to the Income-tax Act.
Analysis: 1. The petitioner challenged the legality of recovery proceedings against his property known as "Janki Niwas" by the Tax Recovery Officer. The petitioner claimed to have purchased the property in good faith for Rs. 80,000 and had taken necessary steps before the purchase, including obtaining a tax clearance certificate. The Tax Recovery Officer initiated recovery proceedings and proposed to sell the property through auction.
2. The Income-tax Officer stated that the vendors were in arrears, and the property had been attached in 1976. The Income-tax Officer alleged that the vendors obtained the tax clearance certificate through misrepresentation. The court found that the property was under attachment and the tax clearance certificate was obtained from the wrong jurisdiction, rendering the sale void under rule 16 of Schedule II to the Income-tax Act. The Tax Recovery Officer was deemed entitled to proceed with recovering taxes from the vendors through the property.
3. The court assumed that the petitioner purchased the property in good faith and may not have been aware of the attachment or the jurisdictional issues with the tax clearance certificate. However, the court held that the sale was void due to the attachment and incorrect tax clearance certificate. The court could not delve into disputed facts but directed the Commissioner of Income-tax to hear the petitioner's appeal if filed within 30 days against the Tax Recovery Officer's order, as per rule 86 of Schedule II.
4. The court discharged the rule, indicating that the sale was void, and no costs were awarded. The judgment emphasized the application of rule 16 of Schedule II to declare the sale as invalid due to the property's attachment and the incorrect tax clearance certificate obtained by the vendors. The petitioner was granted the opportunity to appeal the Tax Recovery Officer's decision to the Commissioner of Income-tax within the specified timeframe.
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1990 (3) TMI 48
Issues: 1. Quashing of exhibits P-3, P-4, and P-7 related to agricultural income-tax arrears and property attachment. 2. Applicability of Section 23 of the Agricultural Income-tax Act in the case. 3. Liabilities of transferor and transferee in case of land transfer. 4. Requirement for proper assessment and notification in tax recovery proceedings.
Analysis:
The petitioner sought to quash exhibits P-3, P-4, and P-7 concerning agricultural income-tax arrears and property attachment. Exhibit P-3 notified the petitioner of a recovery amount due from a third party, while exhibit P-4 and P-7 involved property attachment and sale notices. The petitioner argued that Section 23 of the Act was not strictly applicable to the case, which governs assessments in cases of land transfer for agricultural income. The court referred to previous judgments emphasizing the need to establish the transferor's unavailability before holding the transferee liable for tax liabilities. The court highlighted the importance of satisfying the proviso to Section 23 before recovery from the transferee can be pursued.
The third respondent, as the transferor, admitted liability for the tax before the land transfer but claimed non-receipt of the assessment order. The court directed the tax authority to provide a copy of the assessment order to the third respondent for contestation. The third respondent expressed willingness to discharge any liability if properly assessed and requested an opportunity to challenge the assessment for the relevant year. The court emphasized the necessity for a fair assessment process and the opportunity for the taxpayer to contest the validity of assessments.
In light of the circumstances and the third respondent's admission of liability for the tax year in question, the court quashed exhibits P-3, P-4, and P-7. It further directed that no further actions be taken against the petitioner for tax recovery related to the property in question. The court instructed the tax authority to send the assessment order to the third respondent for potential revision proceedings. The judgment concluded by disposing of the original petition without costs, ensuring fairness in the assessment and recovery process while upholding the rights of the parties involved.
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1990 (3) TMI 47
Issues involved: Challenge to validity of notice u/s 148/147(b) of Income-tax Act, 1961 based on withdrawal of approval for deduction u/s 35(1)(ii) for donation to institution.
Summary: The petitioners challenged the notice issued by the Income-tax Officer u/s 148/147(b) of the Income-tax Act, 1961, regarding the assessment year 1982-83, after the approval for deduction u/s 35(1)(ii) for a donation was withdrawn with retrospective effect. The key issue was whether the withdrawal of approval provided a valid basis for believing that income had escaped assessment. Referring to the Supreme Court decision in ITO v. Lakhmani Mewal Das, it was established that the material forming the basis of belief must have a rational connection with the formation of belief. The court examined whether the subsequent notification could be a valid basis for forming such belief, emphasizing the need for a direct nexus with the belief formation.
Regarding the retrospective withdrawal of approval, it was noted that the prescribed authority's power to approve institutions did not explicitly include the power to withdraw approval with retrospective effect. The court highlighted the limitations on retrospective actions, as reiterated in previous Supreme Court decisions. It was concluded that the retrospective cancellation of approval was invalid and unreliable, rendering the belief of income escaping assessment unjustified based on such information.
The court also considered the argument put forth by the Income-tax Department regarding the conditions for deduction u/s 35(1)(ii) and the impact of retrospective cancellation of approval. However, the court found these submissions lacking merit, as the fundamental issue was whether the withdrawn approval provided a valid basis for believing income had escaped assessment. As the answer was negative, the petition was allowed, and the rule was made absolute in favor of the petitioners.
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1990 (3) TMI 46
The High Court of Bombay quashed a notice issued by the Income-tax Officer under section 148 of the Income-tax Act for the assessment year 1980-81. The petitioner had filed a return but assessment was pending, making the notice without jurisdiction. The court ruled in favor of the petitioner. (Case citation: 1990 (3) TMI 46 - BOMBAY High Court, Judge: T. D. SUGLA)
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1990 (3) TMI 45
Issues: Challenge to order for exemption from TDS on interest payment to foreign supplier under section 10(15)(iv)(c) of the Income-tax Act, 1961.
Analysis: The petitioner, a public limited company, contested an order dismissing their application for exemption from Tax Deduction at Source (TDS) on interest payable to a foreign supplier of raw material. The petitioner relied on section 10(15)(iv)(c) of the Income-tax Act, 1961, for the exemption. The respondent, however, citing the proviso to sub-section (2) of section 195 of the Act, rejected the application for exemption. The petitioner imported spin finish oil from Japan and was required to pay interest on the value of imports. The interest amount was claimed to be exempt from income tax under the Act. The petitioner applied for exemption using the prescribed Form No. 'B' on February 24, 1989. The respondent's refusal was communicated on March 7, 1989, leading to the present writ petition challenging the order.
The court issued an interim order allowing the petitioner to remit the interest amount to the foreign supplier without deducting any tax, subject to further court orders and on depositing a specified amount with the court. The court found no fault in the respondent's decision, citing the relevant provisions of the Act and a previous Division Bench decision. It was established that the interest amount would be deemed to accrue or arise in India, making the proviso to sub-section (2) of section 195 of the Act applicable, thus justifying the respondent's denial of the exemption certificate.
The court also noted that the petitioner could potentially be considered an agent in relation to a non-resident under sections 160 and 163 of the Act, allowing for the submission of a return of income as a representative assessee and the possibility of refund of the tax deducted at source. As the writ petition was dismissed, the court directed the amount deposited by the petitioner to be paid to the respondent, clarifying that the petitioner would not face any liability for depositing the amount with the court instead of the Central Government as required by the Act.
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1990 (3) TMI 44
The petition was against a notice under section 143(3) of the Income-tax Act for the assessment year 1987-88. The petitioner claimed the notice was mala fide due to complaints by a previous advocate. The court found no merit in the petition and dismissed it summarily. (Case: 1990 (3) TMI 44 - High Court ALLAHABAD)
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1990 (3) TMI 43
The High Court of Allahabad heard a writ petition seeking to quash a notice under section 148 of the Income-tax Act. The court directed the petitioner to file a return and ordered the respondent to disclose the material afterward. The court did not interfere with the notice and disposed of the petition accordingly. A certified copy of the order was to be issued to the petitioner's counsel within 24 hours. (Case Citation: 1990 (3) TMI 43 - Allahabad High Court)
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1990 (3) TMI 42
The High Court of Allahabad directed the Income-tax Officer to dispose of the petitioner's representation within two days, adjust the refund and recovery amounts, and grant consequential relief. The Officer must issue a revised notice of demand after the representation is disposed of. The writ petition was disposed of with these directions.
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1990 (3) TMI 41
The High Court of Delhi directed the Tribunal to refer a question of law regarding the interpretation of section 64(1)(ii) to the court. The Tribunal followed the Andhra Pradesh High Court's decision over the Karnataka High Court's decision on the requirement of a diploma or degree for the respondent's wife. The petition was disposed of with no costs. (Case citation: 1990 (3) TMI 41 - DELHI High Court)
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1990 (3) TMI 40
Issues involved: Challenge to the validity and legality of an order passed u/s 264 of the Income-tax Act, 1961 regarding the inclusion of interest income in the assessment of a Hindu undivided family for the assessment year 1976-77.
Summary: The petitioner, a Hindu undivided family, challenged the inclusion of interest income in its assessment for the year 1976-77, claiming that the debt had become bad and there was no chance of recovery. The Income-tax Officer rejected the claim, but the Commissioner of Income-tax (Appeals) directed a fresh assessment. The Commissioner, however, upheld the inclusion of interest income, citing the principles of real income theory. The petitioner contended that the interest income should not be taxed on an accrual basis due to a bona fide change in accounting method and ongoing disputes in the debtor family. The court noted that it would interfere only if there was an apparent error of law, and found no such error in the Commissioner's order.
The court rejected the petitioner's claim regarding the change in accounting method, as it was not raised during the assessment proceedings. Regarding the accrual of interest income, the court considered the concept of real income as per Supreme Court precedents, emphasizing that income accrual must be real and based on the actual situation. The court found that the evidence presented by the petitioner was insufficient to conclusively prove that the interest income had not accrued. Therefore, the court upheld the Commissioner's order and dismissed the petition, with no costs awarded.
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1990 (3) TMI 39
Issues Involved: 1. Validity of proceedings initiated under section 201 of the Income-tax Act. 2. Attribution of operations and services rendered by foreign companies in India. 3. Interpretation of agreements regarding technical personnel and income earned in India. 4. Agency relationship and tax liability of the assessee concerning payments made to foreign technicians.
Detailed Analysis:
Issue 1: Validity of Proceedings under Section 201 of the Income-tax Act The court examined whether the proceedings initiated under section 201 of the Income-tax Act were unwarranted and invalid. The Income-tax Officer treated the assessee (FACT Ltd.) as an assessee in default for failing to deduct tax at source on payments made to non-residents under section 195(1) of the Act. The Appellate Assistant Commissioner and the Appellate Tribunal had conflicting views on this matter. The Tribunal ultimately held that no operations were carried out in India by the foreign companies, making the proceedings under section 201 unjustified. However, the High Court found that the Tribunal failed to properly consider whether services were rendered in India, leading to the decision to remand the case for fresh consideration.
Issue 2: Attribution of Operations and Services Rendered by Foreign Companies in India The Tribunal held that the foreign companies did not carry out any operations in India and that the services rendered by the technical personnel were not attributable to any operations of the foreign companies. The Tribunal referenced similar cases, including Carborandum Co. v. CIT and CIT v. Fried Krupp Industries, to support its decision. The High Court, however, noted that the Tribunal did not adequately address whether the foreign collaborators rendered any service in India as per the agreements. The High Court emphasized the need to determine if any portion of the income accrued in India due to services rendered in India.
Issue 3: Interpretation of Agreements Regarding Technical Personnel and Income Earned in India The agreements between FACT Ltd. and the foreign companies included clauses for the supply of technical personnel for supervision and commissioning of plants in India. The Tribunal concluded that the technical personnel became employees of FACT, and no profits were attributable to the foreign companies in India. The High Court criticized the Tribunal for not thoroughly analyzing the agreements to determine if any services were rendered in India that would result in income accruing in India. The High Court directed the Tribunal to reconsider the agreements and the associated income implications.
Issue 4: Agency Relationship and Tax Liability of the Assessee The Tribunal held that FACT could not be treated as an agent of the foreign companies and assessed to tax for payments made to foreign technicians. The High Court found that the Tribunal did not adequately consider whether the foreign collaborator rendered any service in India, which would affect the tax liability under section 195(1). The High Court directed the Tribunal to re-evaluate this aspect based on the agreements and the services rendered.
Conclusion: The High Court declined to answer the questions referred by the Tribunal and directed the Tribunal to restore the appeals to its file and reconsider the matters afresh in accordance with the law. The Tribunal's failure to pose the proper questions and adequately analyze the agreements led to this decision. The references were disposed of with instructions for a thorough re-evaluation of the agreements and the services rendered by the foreign companies.
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1990 (3) TMI 38
Issues: 1. Application under section 27(3) of the Wealth-tax Act, 1957 for direction to the Income-tax Appellate Tribunal. 2. Legality of confirming the order of the Appellate Assistant Commissioner regarding penalty imposition. 3. Application of the decision of the Hon'ble Supreme Court of India in a specific case. 4. Consideration of default under section 18(1)(a) as a continuing default for penalty imposition.
Analysis: The judgment delivered by the High Court of Madhya Pradesh pertains to two Miscellaneous Civil Cases involving the Commissioner of Wealth-tax and an individual assessee. The Commissioner filed applications seeking directions to the Income-tax Appellate Tribunal under section 27(3) of the Wealth-tax Act, 1957. The issues raised included the legality of confirming the Appellate Assistant Commissioner's order on penalty imposition, the application of a Supreme Court decision, and the consideration of default as a continuing default for penalty calculation.
The facts leading to the applications involve the individual assessee filing wealth-tax returns late for multiple assessment years. The Wealth-tax Officer initiated penalty proceedings under section 18(1)(a) and imposed penalties. The Appellate Assistant Commissioner directed computation of penalties at 2% of the assessed tax for each month of default. Subsequent appeals by the Department to the Income-tax Appellate Tribunal were dismissed, leading to the application seeking reference to the High Court on legal questions.
In its judgment, the High Court noted that a previous decision involving the same parties had held that the Tribunal's view did not require interference. The Tribunal had based its decision on a Supreme Court case, concluding that the legal questions raised by the Department had been settled by the Supreme Court precedent. The High Court had also previously followed the same Supreme Court decision in a similar case. Therefore, the High Court found no grounds for admitting the applications for final hearing and dismissed the Revenue's applications, with no order as to costs.
In conclusion, the High Court's judgment emphasized the precedence set by the Supreme Court's decision and the consistent application of that decision in previous cases. The dismissal of the applications underscored the settled nature of the legal questions raised and the lack of grounds for further review.
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1990 (3) TMI 37
The petitioner sought extension to file tax return for 1986-87 but filed late. Court held subsequent application made earlier one irrelevant. Amendment removed officer's discretion to grant extension. Petition rejected.
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1990 (3) TMI 36
The High Court of Bombay ruled in favor of the petitioner, holding that the notice for acquisition of property under section 269D was out of time and lacked clarity on the understatement of value. The judgment cited a similar case where the court ruled in favor of the petitioner. The petition was allowed, and the Competent Authority's actions were deemed fatal to assuming jurisdiction under section 269D.
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1990 (3) TMI 35
Issues: 1. Validity of reopening assessment under section 147(a) of the Income-tax Act. 2. Treatment of amounts misappropriated by directors as business loss in computing income. 3. Establishment of loss by the assessee.
Analysis: The High Court of Kerala addressed three questions referred by the Income-tax Appellate Tribunal. The first issue was regarding the validity of reopening the assessment under section 147(a) of the Income-tax Act. The court found that the assessee had not disclosed all material facts in the original assessment, resulting in an escape of Rs. 2.5 lakhs from taxation. The Tribunal's decision to reopen the assessment was deemed warranted and justified based on the undisclosed profit made by the company over six years.
Moving on to the second issue, the court considered whether the misappropriated amounts by the directors should be treated as a business loss in computing the income of the company. The assessee argued that the diverted profit should be considered a business loss, citing a Supreme Court decision. However, the court rejected this argument, stating that the income was earned by the company and assessable in its hands, regardless of the unauthorized appropriation by one of the directors. The court concluded that no loss was incurred by the company as the income was merely appropriated by the director.
Lastly, the court addressed the third issue of whether the assessee had established incurring any loss. Given the findings related to the misappropriated income and lack of evidence of loss incurred by the company, the court answered in favor of the Revenue, stating that the assessee had not demonstrated any loss. The judgment emphasized that the company's failure to disclose all material facts led to the initiation of proceedings under section 147(a) and affirmed the Tribunal's decision on the matter.
In conclusion, the High Court of Kerala upheld the Tribunal's decisions on all three issues, affirming the validity of reopening the assessment, rejecting the treatment of misappropriated amounts as business loss, and ruling that the assessee had not established any loss incurred. The judgment was delivered by K. S. PARIPOORNAN J., with detailed analysis and legal reasoning provided for each issue raised in the case.
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1990 (3) TMI 34
Issues Involved:
1. Whether section 273A(5) excludes the power of the Commissioner under section 154 to rectify an order passed by his predecessor under section 273A. 2. Whether the order passed by the predecessor-Commissioner under section 273A suffered from a mistake apparent from the record.
Issue-wise Detailed Analysis:
1. Exclusion of Power under Section 154 by Section 273A(5):
The primary issue was whether section 273A(5) excluded the power of the Commissioner to rectify an order under section 154. Section 273A(5) states: "Every order made under this section shall be final and shall not be called into question by any court or any other authority." The court noted that the Legislature intended to make the order final and not subject to questioning by any court or other authority. However, the Commissioner is not considered a court or another authority but the authority that passed the order. Therefore, the Commissioner's power to rectify his own order under section 154 was not excluded by section 273A(5). The court held that the Commissioner could rectify an order if it contained a glaring and obvious mistake of fact or law, and after rectification, only the rectified order would remain.
2. Apparent Mistake in the Predecessor-Commissioner's Order:
The second issue was whether the predecessor-Commissioner's order under section 273A contained a mistake apparent from the record. The successor-Commissioner believed that the predecessor-Commissioner's reliance on Explanation 2 to section 273A was incorrect. The court examined whether the conditions laid down in section 273A were satisfied based on the facts on record. It was noted that the predecessor-Commissioner's conclusion was based on two reasons: (i) disclosures were found to be full and true, and (ii) Explanation 2 deemed the disclosure voluntary and made in good faith.
The court referred to various High Court decisions to interpret the conditions of section 273A, particularly clauses (a) and (c). The Karnataka High Court in several cases held that the dates of filing returns were not very material if full disclosure was made. The Punjab and Haryana High Court also held that the words "voluntarily and in good faith" qualified the disclosure of income, and merely being asked to file returns did not negate the voluntary nature of the disclosure.
Given the conflicting views among High Courts and the possibility of two conceivable views, the court held that the predecessor-Commissioner's finding that the conditions of section 273A were satisfied was supportable. It could not be said to suffer from a mistake of law, let alone a mistake apparent from the record.
Conclusion:
The court concluded that a mistake about which there could conceivably be two opinions could not be the subject-matter of rectification under section 154, as established by the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers and this court in CIT v. K. Subnani Construction Co. Therefore, the impugned order was quashed, the petition succeeded, and the rule was made absolute in terms of prayer (a), with no order as to costs.
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1990 (3) TMI 33
Issues Involved: 1. Computation of capital gains under section 46(2) of the Income-tax Act, 1961. 2. Deduction of the cost of acquisition in the context of distributions by a liquidator. 3. Applicability of the Income-tax Act, 1961, to distributions made before its enactment.
Detailed Analysis:
1. Computation of Capital Gains under Section 46(2) of the Income-tax Act, 1961: The core issue was whether the Appellate Tribunal was correct in holding that the capital loss qualifying for set-off was Rs. 13,99,887, despite the original assessment adopting a loss of Rs. 13,028 under the head "Capital gains." The Tribunal concluded that while computing the capital gain under section 46(2) for the assessment year 1968-69, the cost of acquisition should be deducted from the full value of consideration, which was the second and final distribution made by the official liquidator in March 1968. This computation led to an aggregate capital loss of Rs. 14,06,300, less a profit of Rs. 6,413 from Binny shares, resulting in a net capital loss of Rs. 13,99,887.
2. Deduction of the Cost of Acquisition in the Context of Distributions by a Liquidator: The assessee contended that the cost of acquisition should be deducted from the full value of consideration during the second distribution in March 1968. The Tribunal agreed, stating that since the first distribution occurred in 1960, before the Income-tax Act, 1961, came into force, the cost of acquisition could not be deducted then. Therefore, the full cost of acquisition should be deducted during the second distribution in 1968. This was supported by the Tribunal's interpretation that the first occasion for such deduction arose only after the enactment of the 1961 Act.
3. Applicability of the Income-tax Act, 1961, to Distributions Made Before Its Enactment: The Department argued that the cost of acquisition should have been deducted from the first distribution in 1960. However, the Tribunal and the court held that since the 1961 Act was not in force in 1960, the concept of capital gains and cost of acquisition did not apply. The court cited the Supreme Court decision in CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45, which held that the distribution of assets by a company in liquidation did not amount to a transaction of sale, exchange, relinquishment, or transfer under the 1922 Act. Thus, the first distribution in 1960 could not be considered for capital gains computation under the 1961 Act.
Conclusion: The court upheld the Tribunal's decision, affirming that the cost of acquisition should be deducted from the full value of consideration during the second distribution in 1968. The reframed question was answered in the affirmative and against the Revenue, confirming that the Tribunal correctly computed the capital gains by deducting the cost of acquisition from the second distribution. The assessee was entitled to costs, with counsel's fee set at Rs. 500.
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1990 (3) TMI 32
Issues: Validity of notice under section 148 for reopening assessment beyond four years
Analysis: The petitioner, a partnership firm engaged in supplying laborers abroad, challenged a notice issued under section 148 of the Income-tax Act, 1961, for the assessment year 1978-79. The assessment was originally completed under section 144, reopened under section 146, and fresh assessment made under section 143(3) read with section 144B. The notice was issued beyond four years after the assessment year, necessitating it to be valid under section 148 read with section 147(a).
The Income-tax Officer sought rectification under section 154/155 based on internal audit objections and general observations post-assessment. The petitioner contended that the audit objections were unfounded and constituted a change of opinion on mixed questions of fact and law. Citing the Supreme Court decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, the petitioner argued that audit objections were an invalid basis for reopening the assessment.
Conversely, the Department argued that the audit objections pertained to facts, not law. They contended that the petitioner's failure to deduct tax from salaries paid to laborers constituted valid grounds for reopening the assessment. The Department suggested that the petitioner could provide an explanation to potentially avoid adverse consequences.
The court held that the notice under section 148 was to be quashed. It noted that the internal audit's opinions on the assessment were incorrect, and the objections raised were not valid grounds for reopening the assessment. The court emphasized that the audit objections involved questions where law needed to be applied to facts, falling within the scope of the Supreme Court decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996. Consequently, the notice issued under section 148 was deemed without jurisdiction and quashed.
In conclusion, the court ruled in favor of the petitioner, quashing the notice under section 148 for reopening the assessment beyond four years, citing the improper basis of internal audit objections and the application of law to factual questions.
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