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1997 (11) TMI 527 - MADRAS HIGH COURT

1997 (11) TMI 527 - MADRAS HIGH COURT - [2003] 185 CTR 199 - Tax Case No. 498 of 1984 - Dated:- 8-11-1997 - N. V. Balasubramanian And P. Thangavel, JJ. For the Applicant : C. V. Rajan JUDGMENT N. V. Balasubrahmanyan, J. In compliance with the directions of this Court dt. 15th Feb., 1983, the Tribunal, Madras, has stated a case and referred the following questions of law under s. 256(2) of the IT Act, 1961, for our opinion : "1. Whether, on the facts and in the circumstances of the case, the .....

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assessee has derived interest income which was chargeable under the heads, 'Interest on securities', 'House property', 'Capital gains' and 'Other sources'. The assessee during the previous year relevant to the asst. yr. 1972-73 borrowed a sum of ₹ 11.5 lakhs on 16th Oct., 1971, from the Canara Bank repayable with interest at 11.5 per cent p.a. on the said sum. The said sum was utilised by the assessee as under : 1. Advance to Madurai South India Corporation .....

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1/2 per cent on the sum of ₹ 5 lakhs advanced to Madurai South India Corporation Ltd. and held that the entire interest cannot be allowed and he disallowed the difference of the amount between 6 per cent and 11-1/2 per cent. Accordingly, the ITO disallowed a sum of ₹ 22,258 out of the claim made by the assessee. 3. The assessee appealed to the CIT(A), who confirmed the findings of the ITO. The assessee preferred a further appeal before the Tribunal, Madras. The Tribunal, by order dt. .....

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orporation, the assessee had borrowed a sum of ₹ 1 lakh from one Segappi Achi at the interest rate of 3 per cent on 16th Oct., 1971. The report of the auditor pointed out that the entire sum of ₹ 6 lakhs was utilised by the assessee for payment of ₹ 4,70,113 as advance to the estate of her late husband, Kumararajah M.A.M. Muthiah Chettiar for the payment of estate duty and wealth-tax of the estate and a sum of ₹ 1,16,521 was drawn for the payment of her own wealth-tax. Th .....

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her return. The assessee objected to the proposal for re-assessment both on the ground of jurisdiction and on merits. The ITO overruled the objections of the assessee on the ground that the borrowed amounts were utilised by the assessee for the payment of wealth-tax of her own assessment and payment of estate of her late husband, Kumararaja M.A.M. Muthiah Chettiar and, therefore, the interest at 11-1/2 per cent as well as the interest at 3 per cent on the loan from Sigappi Achi cannot be allowed .....

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rt of the ITO in making the reassessment. The AAC also held that the information received did not relate to the interpretation of the provision of law and the ITO became aware of the fact only after the completion of the assessment as the withdrawal of the sum from M/s Madurai South India Corporation (P) Ltd. was not shown before the ITO at the time of completion of assessment. He also noticed the letter of the assessee dt. 17th Sept., 1974, and found that the original assessment was completed w .....

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a new information. The Tribunal, therefore, held that there was no new information available with the ITO who invalidly reopened the assessment. Applying the principles laid down by the Supreme Court in the case of Indian and Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190: (1979) 119 ITR 996(SC) the Tribunal held that the ITO had no jurisdiction to reopen the assessment. In this view of the matter, the Tribunal did not go into the merits of the matter. Aggrieved by the order of the Tri .....

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nue. 9. Mr. C.V. Rajan, learned counsel appearing for the Revenue submitted that the audit party has not interpreted any question of law and the audit party has merely brought to the knowledge of the ITO certain new facts which were not before the ITO at the time of completion of the original assessment. According to the learned counsel for the Revenue, no legal issue was involved when the audit party has pointed out that the sums deposited in M/s Madurai South India Corporation (P) Ltd. were dr .....

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ribunal proceeded on a wrong basis that it was a case of allowance of business expenditure against the business income and the decisions relied upon by the assessee before the Tribunal have no application. Learned counsel submitted that the decision of the Supreme Court in Indian and Eastern Newspaper Society's case (supra) really supports the case of the Department. 10. We have carefully considered the submission of the learned counsel for the Revenue and we have also perused the records in .....

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unal, therefore, held that the earlier decision should not likely be disturbed unless there were now facts which would unsettle the earlier decision. 11. There can be no quarrel over the proposition laid down by the Tribunal that a decision given by the Tribunal should not likely be disturbed by the ITO and there must be positive materials before the ITO to hold that there is a case of escapement. However, the Tribunal has not examined the question whether there were new facts for the ITO or not .....

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Canara Banking Corporation and the interest paid to M/s Madurai South India Corporation (P) Ltd. and the question whether the interest can be allowed or not was not the subject-matter of consideration either before the AO or before the CIT(A) or before the Tribunal. It is only in the light of the objection raised on the audit party the ITO has received information that the moneys borrowed were utilised for the payment of taxes and since that information was received subsequent to the order of t .....

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The second reason given by the Tribunal was that the use of a part of the money deposited with Madurai South India Corporation (P) Ltd. was not so relevant as to make the original borrowing from Canara Banking Corporation as a non-business one. The Tribunal, apparently has proceeded on the wrong assumption as income was not assessed under the head 'Business' but interest of the income was assessed only under the head 'Income from other sources' and it is not the case of deduction .....

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ond reason given by the Tribunal also is not justified. 13. The other reason given by the Tribunal is that there was a mixing up of the fund between the assessee's own money and the money held in investment and, therefore, no disallowance is called for. This finding, in our view, is not based on any material and there were no materials placed either before the ITO or even before the CIT(A) by the assessee to show that there was mixing up of funds. On the other hand, there was a clear finding .....

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assessee. The order of the Tribunal does not indicate that any new material was placed by the assessee before it to show that there was mixing up of the assessee's own funds with the money deposited with the said Corporation. The Tribunal has proceeded to record such a finding without any material or evidence on record that there was mixing up of funds. The Tribunal should have realised that it was dealing with the case of jurisdiction of the ITO to reopen the assessment and in consideration .....

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Court in CIT vs. H.H. Maharani Shri Vijaykuverba Saheb of Morvi & Anr. (1975) 100 ITR 67(Bom) where it was held that there was no cause for reopening the assessment. Here also the Tribunal has gone into the merits of the case in considering the question of jurisdiction of the ITO. The Tribunal should have noticed that the facts in H.H. Maharani Shri Vijaykuverba Saheb of Morvi's case (supra) are entirely different and the assessee therein was a trustee created by Maharaja Shri Mahendrasi .....

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e by the trustees for the purpose of meeting the estate duty liability attached to the property and to maintain the property of the trust, the trustees borrowed money and therefore, the interest paid on the borrowings during the concerned years was an expenditure incurred solely for the purpose of earning income and would fall within s. 12(2) of the Indian IT Act, 1922. The facts of the case are entirely different. In the case on hand, the assessee is not a trustee, but she advanced money for th .....

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a disputable proposition of law involved on the report of audit party and therefore, the ITO was not justified in reopening the assessment. We are of the view that the final conclusion of the Tribunal is not warranted on the basis of the reasoning given by it. The Tribunal has clearly misdirected itself in law in holding that there was no information before the ITO to reopen the assessment. The only question that was in issue before the Tribunal was whether the reopening was justified on the bas .....

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t justified on the facts of the case. 16. It is seen from the order of the CIT(A) that when the ITO made assessment, he had no information that the sum of ₹ 5 lakhs deposited by the assessee with M/s Madurai South India Corporation (P) Ltd. was withdrawn for the payment of taxes. The CIT(A) also referred to the letter dt. 17th Sept., 1974, of the assessee wherein the assessee made a reference to the payment of estate duty on the estate of her late husband and in that letter, and explanatio .....

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d not have those information at the time of completion of assessment and it is only by virtue of the report of the audit party, the information came out. The audit party, by informing the ITO of the withdrawal of deposit of ₹ 5 lakhs and the utilisation of the same for the payment of her tax liability and also the estate duty liability of her late husband, has not interpreted any law, but informed the ITO of certain new facts which were not available to him at the time of completion of ori .....

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Newspaper Society vs. CIT (supra) and A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133: (1991) 189 ITR 285(SC), has held that if the audit party brings to the notice of the ITO certain facts overlooked by him, he could change his opinion on the basis of the new facts and reassessment proceedings in such a case would be justified. In the case on hand, the ITO had no occasion to apply his mind on the question of disallowance of interest with reference to the material fact of withdrawal of deposit amount .....

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