TMI Blog1996 (9) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee and by his order dated 14-7-1975, the assessee became entitled to get additional compensation and also interest but the assessee received the additional compensation and the interest only after filing execution petition on 14-2-1977. While completing the income-tax assessment for the assessment year 1976-77, the Assessing Officer held that interest on the additional compensation from the date of the award till the date of the judgment of the Sub-Court, i.e., 14-7-1975 was assessable in the assessment year 1976-77. The assessment for the assessment year 1976-77 was thus completed with the addition of the entire interest purported to be on the basis of the decision of the Kerala High Court in the case of M. Jairam v. CIT [1979] 117 ITR 638/1 Taxman 379. The assessment for the assessment year 1977-78 was also completed on the same basis. The assessments for both years were confirmed by the CIT (Appeals). Meanwhile the judgment of the Kerala High Court was delivered in the case of Peter John v. CIT [1986] 157 ITR 711 (FB). In the assessee's appeal for the assessment year 1976-77, the Tribunal gave the decision on 28-6-1986 in lTA No. 447/Coch/1984. In that decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act. The assessee was also not successful in its appeal before the CIT (Appeals), who held that the provisions of section 147(a) had been rightly applied as there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessments at the time of the original assessments and thus income chargeable to tax by way of interest for the respective years had escaped assessments. Aggrieved with the order of CIT (Appeals) confirming the reassessments, the assessee has filed these appeals before the Tribunal. 3. Before us the assessee's counsel Shri V. Ramachandran, Advocate, submitted that the CIT (Appeals) was not justified in confirming the reassessments without accepting the assessee's contention that the original assessments had not been validly reopened. Shri Ramachandran submits that the provisions of section 147(a) are not applicable to the facts of this case for any of the years under consideration. It was pointed out that the notice under section 148 was issued on 23-3-1988 and so the provisions as existing prior to the amendment of section 147(a) by the Direct Tax Laws Amendment Act, 1987 with effect from 1-4-1989 are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be placed on the assessee for failure or omission to disclose fully and truly the income chargeable to tax in its hands. Shri Ramachandran contends that after the earlier decision was reversed by the subsequent decision of the Full Bench in the case of Peter John that may give the Assessing Officer jurisdiction to reopen the original assessment under section 147(b) and not under section 147(a) of the I.T. Act. The learned counsel strongly contends that it is a case of invalid assumption of jurisdiction under section 147(a) as there was no failure or omission on the part of the assessee to disclose any of the primary facts relating to the assessment. Shri Ramachandran submits that the time limit of four years for issuing notice to reopen the assessment under section 147(b) had expired long back and so the CIT (Appeals) ought to have annulled the reassessments. 4. As against the contentions of the assessee's counsel, the departmental representative, Shri Kuruvilla M. George submits that it can be clearly seen that the reassessment orders were passed by the Assessing Officer after the Tribunal had given the decision on 28-6-1986 in disposing of the assessee's appeals for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal applies in respect of the assessment years 1976-77 and 1977-78 only which were in appeal before the Tribunal and that the assessments for the earlier years could not be reopened on the basis of such directions when the Tribunal was not concerned with the earlier years. The learned counsel referred to the decision of the Calcutta High Court in the case of Peico Electronics Electricals Ltd v. Dy. CIT [1994] 210 ITR 991 and submitted that in order that section 150 of the I.T. Act, 1961, might apply, the finding and direction of the Tribunal must be a finding or direction necessary for giving relief in respect of the assessment of the year in appeal and not in respect of any other year. It was pointed out that in the case decided by the Calcutta High Court, the reassessment proceedings initiated with reference to the assessment year 1980-81 following the decision of the Tribunal for the assessment year 1978-79, were held to be invalid. Shri Ramachandran further contends that the non obstante clause in section 150(1) applies only in respect of the periods of limitation under section 148 for the issue of notice for reopening the assessments, and that the other conditions regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Taking first the additional ground raised by the assessee's counsel regarding the assessability of the interest on the enhanced compensation, the contention is that the assessee became entitled to receive interest only on account of the compensation amount and the compensation amount being agricultural receipt, interest also partakes the same character of agricultural receipt. In the case of Govinda Choudhury Sons, the question before the Supreme Court was as to whether interest received by the assessee as a contractor on the award given under arbitration was liable to tax as income from business or as income under the head 'Other sources'. In that case the assessee was a firm which carried on business of executing Government contracts. In the course of the execution of the contracts there were disputes with the State Governments and the matter was referred to arbitration. In the arbitration proceedings, the firm was awarded certain amount by the arbitrators which included interest for the delay in payment of the contract amounts. The assessee claimed that the interest was of the same nature as other contract receipts but the Tribunal held that the amount of interest had to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to possession but is paid to the claimant for the use of his money by the State. The statutory interest paid under section 34 of the Land Acquisition Act, 1894, on the amount of compensation awarded for the period from the date the Collector has taken possession of land compulsorily acquired is interest paid for the delayed payment of the compensation and is therefore a revenue receipt liable to tax under the Income-tax Act." In view of the above decisions of the Supreme Court and of the Kerala High Court, we reject the contentions of the learned counsel against the assessment of the interest amount as the income in the hands of the assessee. 8. The other contention of the learned counsel of the assessee is that the reassessments were not validly initiated as the conditions under section 147(a) are not satisfied, in the sense there was no failure or omission on the assessee to disclose any of the primary materials necessary for the assessments. It has already been stated that the Assessing Officer issued notice under section 148 after the Tribunal passed the order on 28-6-1986 in disposing of the assessee's appeals for the assessment years 1976-77 and 1977-78. The claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority hearing the case. This fiction of law removes the bar of limitation irrespective of the question whether the authority has in fact given or can in law, give a finding or direction that the income should be taxed in a specified assessment year, other than the year for which the authority hears the case. The effect of section 150 and Explanation 2 to section 153(3) is that if any income is deleted from assessment in a higher proceeding on the ground that it is not the income of that year, steps may be taken under section 147 to assess it as income of another year, without any limitation applying to the issue of the notice under section 148 or to the completion of the assessment or reassessment. The conditions of section 150(1) are overriding as is clear from the non obstante clause. In the case of Peico Electronics Electricals Ltd. referred to by the learned counsel for the assessee, the Calcutta High Court held that in order that section 150 may apply, the finding and direction that can be given by the Tribunal must be a finding or direction necessary for giving relief in respect of the assessment of the year in question. In that case, reassessment proceedings were initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of the appeal, reference or revision in which the finding or direction is contained. In other words, the exception in sub-section (1) will not apply where the reassessment proceedings would have been barred by time, even at the time when the order (which became the subject-matter of appeal, revision, etc.) was passed. In this context it would be useful to refer to the observations of the Andhra Pradesh High Court in the case of CIT v. G. Viswanatham [1988] 172 ITR 401/38 Taxman 142. The Court observed : "Explanations 2 and 3 to section 153, merely illustrate and clarify the meaning of the words 'in consequence of or to give effect to any finding or direction' contained in an appellate, revisional or any other order. Explanations 2 and 3 do not purport to obliterate or remove the restriction contained in section 150, but for a limited purpose. Hence, initiation of reassessment proceedings would be bad, even when they are initiated in consequence of or give effect to any finding or direction contained in the appellate order, if such initiation or reassessment proceedings is barred by any other provisions of the Act, on the date of the order which was the subject-matter of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court said : "The next question that was urged in this case was that even if section 150(1) of the 1961 Act applied the notice had become barred. it was contended that a notice would become barred even under section 150(1) if on the date of the appellate order the time for taking action for assessment for that year had become barred by the other provisions of the Act. The correct date in this connection would be the date when the order, which is the subject-matter of the appeal, was passed. If on that date the reassessment proceedings could have been validly taken then because of subsequent lapse of time the said reassessment proceedings do not become barred by time. In this case on the 29th of December, 1960, the original order for assessment was passed and, therefore, on that date action could have been taken for reassessment for the assessment year 1958-59. That was the date when the order which was the subject-matter of appeal was passed. In that view of the matter, in our opinion, the provisions of section 150(1) of the Income-tax Act, 1961, would apply on the facts of this case." 11. We may refer to one more decision to make clear the restriction imposed by sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reopen the assessments for the assessment years 1967-68 to 1975-76. As stated earlier, the Tribunal had given the direction to assess the interest income in each year, in its order dated 28-6-1986, in deciding the appeals relating to the assessment years 1976-77 and 1977-78. The assessment order for the assessment year 1976-77 which was the subject-matter of the appeal before the Tribunal, had been passed on 25-3-1983 and the assessment order for the assessment year 1977-78 on 16-11-1982. The question to be considered is as to whether notice under section 148 could be issued on 16-11-1982, for reopening these assessments. Since the order of the assessment for assessment year 1976-77 was made subsequently on 25-3-1983, we are deciding the matter with reference to 16-11-1982. The learned departmental representative is correct in stating that the period of 16 years had not expired as on 16-11-1982, even for the assessment year 1967-68, and so for all the eight years under consideration valid notice could have been issued within that time. But the objection raised by the assessee's counsel is that the period of 16 years would be available only in a case of reassessment under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not informed the Income-tax Officer about the appeal filed before the Sub-Court regarding the enhancement of the compensation and the demand for the interest on it. But then, was the assessee under any obligation to disclose these facts to the Assessing Officer at the time of the original assessments ? It should be borne in mind that the property acquired by the State Government was the agricultural land belonging to the assessee in Tamil Nadu. The compensation amount is not liable to tax, even as capital gains and so the law did not require the assessee to disclose the compensation amount in the return of income. Even the demand for enhanced compensation was not required to be disclosed to the department under any law, as the compensation on agricultural land is not liable to tax. Coming to the interest on the additional compensation, it should be mentioned here that the Sub-Judge passed the order on 14-7-1975 allowing interest and the amount was actually received by the assessee only after filing the execution petition on 14-2-1977. It cannot be said that till 14-7-1975, the assessee had any idea as to whether interest would be allowed by the Court. By that time, the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to each year could not be brought to tax in that year. Even if the assessee wanted to offer for assessment the interest in each assessment year, that could not have been done. There was no law at that time, requiring the assessee to include the interest relating to each year in the return of income for that year. An essential condition for reopening an assessment under section 147(a) is that the Assessing Officer should have reason to believe that the escapment of income was on account of the omission or failure on the part of the assessee to make a true and full disclosure of his income. This is not a case where the Assessing Officer could have come to believe that escapement was on account of the omission or failure of the assessee, rather this is a case where the Assessing Officer could have come to believe on the basis of the subsequent judicial decision that income liable to tax had escaped assessment. In such a case the assessment could have been reopened only under section 147(b). We agree with the learned counsel for the assessee, that in this case, the time limit available for issuing the notice under section 148 was only four years, from the end of the respective asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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