TMI Blog1993 (11) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of interest payable on the instalments was Rs. 2.18 crores. The company also executed a separate agreement dated 22-10-1980 by which it leased out its registered trade mark "Gopi" to M/s BVM for 4 years and the royalty payable for each quarter was to be calculated with reference to the cloth on which the trade mark was used. The company received Rs. 62 lakhs as advance licence fee which was required to be adjusted against royalty/licence fee payable for user of the trade mark 'Gopi' over the period of four years. 2.1 The company, after the sale of the land, building, machinery, etc. in the year 1980, earned income from sale of cloth to some extent, royalty/licence fees from the leasing of the trade mark 'Gopi', interest income received/receivable from M/s BVM on the deferred payment of instalments towards the sale proceeds of the fixed assets and some other miscellaneous income. For assessment years 1982-83 to 1984-85 the assessee-company was being assessed on these incomes by treating the same as income from business and the benefit of carry forward of past unabsorbed depreciation and unabsorbed business losses were allowed to be carried forward and set off against the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h on a small scale done in the year under consideration should be treated as a business activity or not. He observed that in order to decide this question one has to understand the reason for which the manufacturing business in textile industry was closed. The manufacturing activity was closed and the fixed assets were sold to meet the challenge caused by general recession in the textile industry and to obviate further loss. He then came to the conclusion that the company never had the intention to permanently closing the business nor they thought of winding up of the company. This activity was also, therefore, held to be a part of the same business activity. He also observed that the assessee-company had been carrying on the business of trading in cloth even while it was carrying on manufacturing activity. The income derived from small quantum of trading done in assessment years 1982-83 to 1984-85 was also treated as income from business. 4.4 In para 20 the CIT (Appeals) deleted the addition of Rs. 10 lakhs made on account of estimated royalty income from the leasing out of the trade mark 'Gopi Fabrics'. It was observed that since M/s BVM did not exercise the option to extend th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer to examine the point in issue afresh in accordance with the provisions of law. Assessment for each year is separate and distinct and the Assessing Officer was fully justified in giving a fresh look to the same facts once again and the view taken by the Assessing Officer is fully justified and valid. 6. The learned counsel for the assessee supported the order of the CIT (Appeals). He submitted that the learned CIT (Appeals) has considered all the aspects relating to the aforesaid matter and has given elaborate reasons in support of the view taken by him. It is an undisputed fact that the facts pertaining to the year under consideration are absolutely similar as that in assessment years 1982-83 to 1984-85. He invited our attention towards the judgment of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 to support his contention that although strictly speaking, res judicata does not apply to income-tax proceedings, there must be a point of finality in all legal proceedings. In the absence of any change in the facts and the circumstances, the revenue should have felt bound by the previous decisions which still subsists and no attempt should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (Appeals) has also rightly held that the same business continued to exist in the year under consideration as was carried on prior to sale of fixed assets. 6.2 The learned counsel also submitted that the CIT (Appeals) has rightly deleted the addition of Rs. 10 lakhs made on account of hypothetical and estimated royalty income for the use of trade mark 'Gopi'. 6.3 He also supported the order of the CIT (Appeals) directing the ITO to assess only the net amount of interest receivable from M/s BVM. He relied on the detailed reasons mentioned in the order of the CIT (Appeals) in relation to the aforesaid points. 7. We have carefully considered the submissions made by the learned representatives and have also gone through the orders of the departmental authorities as well as all the judgments to which our attention was drawn during the course of hearing. Our findings in relation to the various points requiring our consideration in this appeal are as under: 7.1 The view taken by the learned CIT (Appeals) in para 14 of his order that assessee's claim for set off of the unabsorbed depreciation of earlier years against the income of this year, irrespective of whether such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assets of the company. Such interest income has been treated as income from business in assessment years 1982-83 to 1984-85 i.e., after the sale of the factory. Those decisions have become final. The learned Sr. D.R. has not pointed out as to whether any effort was made by the department to cancel those assessments by resort to section 263 or under any other appropriate provisions of law. The facts pertaining to the year under consideration are identical with the facts as were existing in assessment years 1982-83 to 1984-85. Even at the time when the company was carrying on manufacturing activities, it also derived income by way of interest, which was assessed to tax under the head 'Income from business'. The interest income has increased considerably from assessment year 1982-83 because of the sale of fixed assets to M/s BVM on deferred instalment basis. The CIT (Appeals) has given very convincing reasons in para 16 of his order for holding that such interest income should be treated as coming from the same business and the same should be assessable under the head 'Income from business'. There is absolutely no reason or justification in interfering with such findings given by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able from M/s BVM, income from dealing in textile goods on a smaller scale, etc. have been treated as income assessable under the head 'Profits and gains of business' and these activities have been treated as constituting the same business. The assessee's claim for grant of carry forward and set off in respect of unabsorbed depreciation and unabsorbed business loss of earlier years has been accepted in assessment years 1982-83 to 1984-85. Nothing has been brought to our notice indicating that the department made any effort to revise, cancel or modify those completed assessments by resort to provisions such as section 263 or section 147 or any other provisions of law. It is true that, strictly speaking, res judicata does not apply to income-tax proceedings. Each assessment year being a unit what is decided in one year may not necessarily apply in the following year but where a fundamental aspect permeating through the different years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year. The parties are not permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee-company. Such a view taken by the CIT (Appeals) is perfectly valid and justified. No such addition could have been validly made in respect of a notional or hypothetical income, which in fact did not accrue or materialise to the assessee. The view taken by the CIT (Appeals) in relation to this point is also, therefore, confirmed. 9. The last ground taken by the revenue relates to reducing the addition on account of interest income receivable from M/s BVM from Rs. 18,14,610 to Rs. 3,82,954. The Assessing Officer has discussed this point in para 9 of the assessment order. The assessee was entitled to receive interest from M/s BVM on the deferred amount of sale consideration in quarterly instalments as per the agreement of sale of fixed assets made to them. The assessee-company accounted for only the net amount of interest after adjustment of interest on certain expenses incurred for the assessee by M/s BVM, for three quarters only as under: 24-5-1984 Rs. 4,90,791 24-8-1984 Rs. 4,69,292 24-11-1984 Rs. 4,07,921 The assessee-company, in a note, submitted that the net amount of interest accrued for the fourth quarter from 25-11-1984 to 25-2-1985 was Rs. 3,82,954 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee all along in the past and the same has been accepted by the department as the correct interest income. This issue became final inasmuch as even after the revision order under section 263, the Dy. CIT has taken the net interest and this issue was neither raised nor disturbed by the CIT. The assessee has submitted a chart showing details relating to such net interest income shown by the assessee with respect to M/s BVM starting from quarter ended on 24-2-1981 to 24-11-1984. It has been mentioned that interest charged by M/s BVM on Rs. 28.34 lakhs on the loan advanced by them at the time of sale of fixed assets, is an undisputed amount of interest payable by the assessee to M/s BVM. Interest on current account charged by M/s BVM was disputed by the assessee. The aggregate of these two interests payable to M/s BVM was reduced out of the amount of interest payable by M/s BVM to the assessee on the unpaid sale price of the fixed assets and thereafter the net amount of interest was credited in the profit and loss account of all the relevant years. It has been further stated that when the matter was finally settled the assessee has offered for taxation under section 41(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 384 (Cal.). Since the copy of the suit filed by the assessee disputing the liability was not available in the compilation submitted before us nor the departmental authorities had an occasion to go through the plaint and the reply of the respondent in the civil case it would be just and proper to set aside this issue and restore the same back to the Assessing Officer for examining all the relevant facts and circumstances pertaining to this claim. The matter relating to allowability of interest payable to M/s BVM is, therefore, restored back to the Assessing Officer with a direction that the matter will be decided afresh in accordance with the provisions of law after giving reasonable opportunity to the assessee. It may also be clarified that in case the amount in question has already been subjected to tax in assessment year 1987-88, any decision by the Assessing Officer should not result in levy of tax on the same amount of income in more than one year. The Assessing Officer may also examine as to whether the shifting of the year of allowability of such interest expenditure from the year under consideration to assessment year 1987-88 will result in any gain to the revenue. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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