TMI Blog1991 (10) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... was owning a rubber estate called " Skinnerpuram Estate ". During the relevant accounting period, on July 18, 1982, the assessee-company entered into an agreement with a firm by name " Supriya Enterprises " for the sale of the estate for a consideration of Rs. 210 lakhs. It was agreed that 699 acres of rubber-plantation would be transferred to the purchaser either in portions or as a whole. As per clause 2 of the agreement, the buyer paid Rs. 5 lakhs on March 19, 1982, as advance and this amount is to be forfeited in case of default. The balance of the sale consideration should be paid in instalments-on or before September 22, 1982, Rs. 90 lakhs, on or before December 31, 1982, As. 70 lakhs and the balance of Rs. 45 lakhs on or before April 30, 1983. In proportion to the payment of instalments, the release of the estate was also contemplated in portions at three stages 191 acres in the first instance, next 200 acres, and 306 acres last. The buyer was required to settle all the benefits due to the employees. The agreement is annexure A, dated July 18, 1982. The buyer (purchaser) could not adhere to the terms of the agreement. By letter dated August 13, 1983, the purchaser prayed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income-tax, by annexure D order dated February 9, 1988, held that the receipt of Rs. 3,66,649 by the assessee-company from Messrs. Supriya Enterprises is totally unconnected with any agricultural operations or activities and that the same should have been assessed as income from other sources and that the loss of revenue in the form of escapement of tax arises in the instant case as a result of the wrong decision of the Income-tax Officer by negligence or by incorrect application of law which is prejudicial to the interests of the Revenue within the meaning of section 263 of the Act. The assessee carried the matter by way of appeal before the Tribunal and assailed the suo motu order of revision passed by the Commissioner of Income-tax under section 263 of the Income-tax Act. Two fold contentions were urged before the Tribunal: (1) the proceedings initiated by the Commissioner of Incometax under section 263 of the Income-tax Act is illegal and unauthorised ; (2) on merits, the receipt under consideration is really agricultural income in nature and could not have been brought to tax as income from other sources. After exhaustively considering the matter, the Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal for the decision of this court. We heard counsel. The two aspects stressed before the Tribunal were again stressed before us. Mr. P. Balachandran, counsel for the assessee, contended that the initiation of suo motu revisional proceedings under section 263 of the Income-tax Act by the Commissioner of Income-tax was unauthorised and uncalled for. The expression "prejudicial to the interests of the Revenue" occurring in section 263 of the Income-tax Act should be understood as a "prejudice to the Revenue administration" and should involve acts or orders which were subversive of the administration of the Revenue. There must be some grievous error in the order passed by the Income-tax Officer which might set a bad trend or a pattern for similar assessment order and an order passed by the Income-tax Officer cannot be said to be prejudicial to the interests of the Revenue merely because it was in the assessee's favour and failed to bring to tax some more money. In this connection, reliance was placed on a Bench decision of the Madras High Court in Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129, at pages 137 and 138. The second point raised by counsel was that the accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests of the Revenue are not tied up merely with realising as much revenue as possible, willy-nilly, merely looking to the productivity aspect of taxation. The jurisdiction of the Commissioner under section 263 is undoubtedly a supervisory jurisdiction. It is intended for interference in special cases to counteract orders which are erroneous as well as prejudicial to the interests of the Revenue. In this context, therefore, the expression 'prejudicial to the interests of the Revenue' must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration. There might be cases where the Commissioner might wish to interfere with an order of the Income-tax Officer in order to safeguard the fair name and reputation of the Income-tax Department without any thought of going into the particular aspects of the assessment. Assessments which are mala fide, politically and communally motivat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue " that occurred in section 33B of the Indian Income-tax Act, 1922. In that case, an assessee was assessed on an income voluntarily returned by him. As a matter of fact, income was not earned by the said person and was not assessable. It was found that the assessee in that case returned the income in order to assist someone else who would have been assessed to larger amounts. The question arose whether, in a case where an assessee is assessed on an income voluntarily returned, the assessment can be said to be prejudicial to the interests of the Revenue. A plea was put forward that the Commissioner had no jurisdiction to cancel the assessment made by the Income-tax Officer inasmuch as it cannot be said that, in a case where an assessee has been assessed to tax, the assessment or proceeding was prejudicial to the interests of the Revenue on the ground that no assessment could have been made in respect of the income of which the assessee had made a voluntary return. Repelling the plea, the Supreme Court held in the said decision, Smt. Tara Devi Aggarwal's case [1973] 88 ITR 323, at page 328, thus : "The words of the section enable the Commissioner to call for and examine the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epend upon the facts of each case and there can be no universal formula applicable to finding out any such prejudicial error. The court further observed thus (at page 558) : " It would be seen that the prejudice to the Revenue was inferred in that case not from any finding that there was a loss of revenue, but from the mere fact that the procedure employed was defective." Perhaps, this earlier Bench decision of the Madras High Court in Hindu Bank Karur Ltd. v. Addl. CIT [1976] 103 ITR 553, was not brought to the notice of the judges in the latter case, Venkatakrishna Rice Co.'s case [1987] 163 ITR 129 (Mad). With great respect to the learned judges of the Madras High Court, we are unable to persuade ourselves to the view expressed by the Bench decision in Venkatakrishna Rice Co.'s case [1987] 163 ITR 129 (at pages 137 and 138) In the light of the above reasoning, we are of the view that the Tribunal was justified in holding that the Income-tax Officer, when he passed the order on October 31, 1985, did not make proper enquiries called for in the circumstances of the case, and the assessment order, quoted in paragraph 13 of the order of the Tribunal, did not show that the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract. In other words, it is clear front the assessee's own version of the nature of the income that the amount represented compensation for loss of agricultural income, but it does not 'mean that itself is agricultural income in nature.... In this case, admittedly, the agricultural operations by way of tapping stopped in November, 1982, and, therefore, the receipt under consideration did not relate to any agricultural operations carried on by the assessee after that date." After stating as above, the Tribunal held that the source and basis of the amount obtained is obviously the agreement dated July 18, 1982. It was further held that the damages to be paid by the purchaser, Messrs. Supriya Enterprises, under clause 17 of the agreement arose directly from the failure of the terms and conditions of the payment of the sale consideration by the purchaser to the assessee-company and the amount of Rs. 3,66,649.29 represented compensation for the delay in receiving the instalments of sale consideration from the purchaser. It was further found that the assessee-company, admittedly, stopped the agricultural operations by way of tapping in November, 1982, and the receipt under considerati ..... 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