TMI Blog2010 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. J.D.Mistry with Mr.Atul K. Jasani for the Applicant. Mr. Abhay Ahuja with Mr.J. S. Saluja for the Respondent. JUDGMENT PER DR.D.Y.CHANDRACHUD, J. By an order dated 8th August 1989, passed under Section 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has referred the following question of law for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income Tax passed u/s.263 directing the Income tax Officer to include the sum of Rs.1,75,32,600/- in the total income of the assessee under Sec.41(1) of the Income Tax Act on the ground that there had been a complete cessation of liability in regard to this amount in the previous year relevant to the assessment year 1982-83?" 2. Pursuant to its policy to attract industrial investment in the State, the Government of Kerala granted a concession in 1958 to Gwalior Rayon Ltd (the earlier name of the assessee) to fell and remove bamboos from the Nilamber valley for conversion into rayon grade wood pulp. Agreements were entered into between the assessee and the Government of Kerala. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the Petition filed by the Company and set aside the four notifications that were challenged, in so far as they related to the fixation of the selling price of eucalyptus. The High Court held that in fixing the selling price of eucalyptus, the statutory requirement of Sections 3 and 4 had not been complied with and that all materials that were required to be considered had not been placed before the Committee. The Kerala High Court held that the Committee had not looked into relevant matters for recommending the selling price of eucalyptus. The price fixed by the notifications for eucalyptus was, therefore, held to be ultra vires and to that extent, the notifications were quashed. The notifications were upheld for other forest produce. 5. After the judgment of the High Court, the State Government renotified prices/notifications with effect from 1st April 1981. In order to overcome the judgment of the High Court, the Kerala Forest Produce (Fixation of Selling Price) Rules, 1978 appear to have been amended on 28th May 1981. 6. The previous year relevant to the Assessment Year in question, namely 198283, ended on 31st March 1982. According to the Revenue, the result of the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 1981, striking down the notifications under which the assessee was required to pay enhanced seigniorage charges, it was urged that it is wrong to assume that the liability had ceased no sooner than upon the passing of the judgment of the Kerala High Court. The assessee relied upon several circumstances, in order to buttress the submission that it had reason to believe bona fide that the State of Kerala was not inclined to accept the judgment of the High Court. To these circumstances, a reference would be made in a subsequent part of the present judgment. At this stage, it would be necessary to note that the Tribunal rejected the contention of the assessee that there was no remission or cessation of liability during the course of Assessment Year 1982-83. The Tribunal held that the judgment of the High Court was in favour of the assessee and that the time prescribed for filing an appeal before the Supreme Court having expired, the liability had ceased during Assessment Year 1982-83. Since the amount wasnot offered for taxation during the Assessment Year 1982-83, but only subsequently in 1983-84, the Tribunal concurred with the view of the CIT. 9. On behalf of the assessee, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn. Consequently, there was no cessation of liability during the Assessment Year 1982-83 and the provisions of Section 41(1) could not be applied; (ix) In any event, there was a possibility of a revival of the liability having regard to various facts and circumstances; (x) In determining as to whether there was a cessation of liability, it was necessary to consider as to whether the liability could be revived. In the present case, the notifications were only instruments quantifying the liability and the liability per se had never ceased. Even if the notifications had been struck down, a renotification for the same period or an amendment of the law was always open to the State to enforce the enhanced liability; and (xi) The liability of the assessee arises as a result of the supply of forest produce. There was no dispute that such produce had been supplied by the Government and, therefore, the Company had to pay for it. The Kerala Forest Produce Act, 1978 acquired the government to fix the minimum price for produce. The fact that a particular notification has been struck down, would not lead to the conclusion that the liability itself had ceased. All that followed, as a consequence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue is explained in the judgment of the Supreme Court: "The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as rejudicial to the interests of the Revenue. For example, when an Incometax Officer adopted one of the courses permissible and the Incometax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Incometax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co.Ltd. (supra) has been followed and explained in a subsequent judgment of the Supreme Court in Commissioner of Income Tax vs Max India Ltd. 2 While interpreting the provisions of Section 80HHC(3), the Supreme Court noted that the statutory provision had been amended eleven times and different views existed on the day when the Commissioner passed his order under Section 263. The Court observed that "the mechanics of the section have become so complicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Price) Act, 1978. Section 3(1) empowers the Government to fix the selling price of forest produce for the following financial year. Section 5 stipulated that after the publication of the notification under Section 3, no forest produce shall be sold by the Government at a price which is less than the notified selling price. On 9th March 1979, the Government of Kerala issued notifications in exercise of its power under the Act of 1978 for the period ending 31st March 1981 and also for the period commencing from 1st April 1981, being the previous year relevant to Assessment Year 1982-83. The assessee had been allowed a deduction of an amount of Rs.1.75 crores during the Assessment Years 1980-81, 1981-82 and 1982-83. The notifications that were issued by the State Government were challenged by the assessee before the Kerala High Court. By its judgment dated 15th April 1981, the High Court struck down the notifications in so far as they related to eucalyptus, on the ground that in fixing the prices for eucalyptus, the State Government had not followed the procedure prescribed by the Act. The Kerala High Court held that matters which were required to beconsidered had not been placed bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration that the prices fixed of bamboo, reed and eucalyptus were not payable by the Petitioner. The judgment of the Kerala High Court did not conclude the proceedings. Special Leave Petitions were filed before the Supreme Court in which, while granting leave, interim orders were passed by the Supreme Court, directing the assessee to pay the price of forest produce at 60% of the rate fixed in the notification issued by the State Government under Section 3(e) of the Act, less the price already paid. The Bank Guarantees furnished by the assessee were allowed to be encashed to the aforesaid extent. The Supreme Court expressed the hope that the parties would be able to arrive at a settlement which may be "beneficial to all concerned, having regard to the checkered history of the litigation with its attendant uncertainties, and to avoid further long drawn out litigation." Eventually, a settlement was arrived at between the Government of Kerala and the assessee on 27th October 1988. By the settlement, a series of matters set out in the schedule, came to be settled and parties agreed that no payment will be due by either party to the other in respect of any of the matters mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an issue on which a possible view was that there was no final or irrevocable remission or cessation of liability, within the meaning of Section 41(1) of the Act, during Assessment Year 1982-83. This view could not, by any stretch of logic, be regarded as being unsustainable in law. The condition precedent to the exercise of jurisdiction under Section 263, is that the order sought to be revised must be erroneous in so far as it is prejudicial to the interests of the Revenue. Following the judgments of the Supreme Court in Malabar Industrial Co. and Max India Ltd. (supra), it is now a settled principle that where the Assessing Officer has adopted one of the courses permissible in law or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. In the present case, two views were inherently possible and the assessee therefore, cannot be subjected to the exercise of the jurisdiction under Section 263. The Tribunal, with respect, has adopted a rather simplistic view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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