TMI Blog2001 (9) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 4th December, 1995 to the assessee after recording the following reasons: "Section 5 of Interest-tax Act defines the scope of chargeable interest as under: 'Scope of chargeable interest. Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on loans and advances made to other credit institutions) accruing or arising to the credit institution in that previous year.' The above provisions of Interest-tax Act explains clearly that the Interest tax Act shall be charged in respect of any chargeable interest accruing or arising at the end of each accounting year but in this case the assessee has computed interest on actual receipt basis which is neither in conformity with the provisions of sections 4 and 5 of Interest-tax Act nor with the system of accounting regularly employed by the assessee i.e. mercantile system of accounting. Further the return of chargeable interest filed on 29-11-1994 is to be regularised and tax to be charged correctly." Similar notice was issued in assessment year 1993-94 except that no reference was made to the return filed for that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanatory notes on the two Acts were explained given as also the charging section, held as under:-- (i) That the credit institution was liable to return interest chargeable to tax subject to certain exceptions as "accruing or arising" to the credit of the institution in the previous year whereas the assessee showed interest on receipt basis, The assessee-appellant, therefore, had failed to disclose fully and truly all material facts necessary for its assessment. There was no change of opinion on the part of the Assessing Officer as facts were not before him. The assessments have rightly been reopened under section 10 of the Interest-tax Act, 1974. (ii) The interest under section 5 of the Interest-tax Act w.e.f. 1-10-1991 was to be charged on accrual basis as it was arising on credit balances subject to few exceptions. Section 21 of the Interest tax Act or section 145 of the Income-tax Act relating to computation of profits and gains of business had no application in this case. (iii) The assessee was liable to pay interest under sections 12A and 12B of the Interest-tax Act on the analogy of sections 234A and 234B of the Income-tax Act. Interest was held to be rightly char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the Assessing Officer." 8. The assessee is aggrieved and has brought the issue in appeal before the Tribunal. Shri P.C. Jain, ld.Counsel for the assessee, strongly assailed the findings of the ld. CIT(A) both on reopening of the assessments as also on merits. He argued that reopening was bad in law as earlier Assessing Officer passing orders dated 4-3-1995 and 10-3-1995 was fully aware of statutory provisions of the Interest-tax Act. After considering the statutory provisions, the returns submitted by the assessee were accepted. Nothing had changed since then except the opinion of the Assessing Officer. On review of the opinion, the Assessing Officer issued notice under section 10 of the Interest-tax Act on 4-12-1995. The notice issued merely on change of opinion, were bad in law. Shri Jain further submitted that appeals in the case of H.P. Financial Corporation for assessment years 1993-94 and 1992-93 were decided by the CIT(A) Shimla on 28-8-1995 wherein she had held that assessment of the assessee whereby chargeable interest on receipt basis was accepted was incorrect order and that remedy lies in correcting the said order. In the light of above order, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that from the speech of the Finance Minister made at the time of introduction of Bill relating to Interest-tax Act explaining in exclutory notes accompanying the bill and similar exclutory notes accompanying the amendment made, the words used were "interest received" in connection with chargeable interest. This clearly showed that interest was to be charged on receipt basis and not on accrual basis. Shri Jain further submitted that the assessee was being financed by IDBI, ICICI and other institutions and was acting as a conduit pipe for giving loans to various parties. The repayment of loans was remitted to the IDBI and other institutions. In other words, the borrowings were being made from IDBI and the assessee was getting only 1 1/2% as commission of total interest receipts. Therefore, interest assessed in the name of the assessee was in fact the income of IDBI and other institutions, having passed to them through an overriding title. Such interest could not be assessed in the hands of the assessee. Shri Jain conceded that the aforesaid plea was being raised for the first time before the Tribunal. But such a plea could be raised having regarding to the pronouncement of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (other than interest on loans and advances made to other credit institutions or to any co-operative society engaged in carrying on the business of banking, accruing or arising to the credit institution in that previous year: Provided that any interest in relation to categories of bad or doubtful debts referred to in section 43D of the Income-tax Act shall be deemed to accrue or arise to the credit institution in the previous year in which it is credited by the credit institution to its profit and loss account for that year or, as the case may be, in which it is actually received by the credit institution, whichever is earlier. Computation of chargeable interest. 6. (1) Subject to the provisions of sub-section (2) in computing the chargeable interest of a previous year, there shall be allowed from the total amount of interest (other than interest on loans and advances made to credit institutions) accruing or arising to the assessee in the previous year, a deduction in respect of the amount of interest which is established to have become a bad debt during the previous year: Provided that such interest has been taken into account in computing the chargeable interest of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier." Interest escaping assessment "10. If-- (a) the Assessing Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return under section 7 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for any assessment year, chargeable interest for that year has escaped assessment or has been under-assessed or has been made the subject or excessive relief under this Act, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has, in consequence of information in his possession, reason to believe that chargeable interest assessable for any assessment year has escaped assessment or has been under-assessed or has been the subject of excessive relief under this Act, he may, in cases failing under clause (a) at any time, and in cases falling under clause (b), at any time within four years of the end of that assessment year, serve on the assessee a notice contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters and the officer is not bound by the method followed in the earlier years." 15. It is clear from the above that the Assessing Officer has ultimately to consider whether or not the income chargeable under the Act can properly be deducted from the accounts and this question has to be decided with reference to relevant material and in accordance with the correct principles. Their Lordships further observed that the Assessing Officer is not duty bound to accept the system of accounting regularly employed by the assessee, correctness of which has not been questioned in the past, if under such system correct income cannot be determined. In our opinion, aforesaid observations of their Lordships of the Supreme Court squarely meet all objections raised on behalf of the assessee regarding the cash system of accounting regularly followed by the assessee. 16. Under the Interest-tax Act, every credit institution has to pay interest-tax on chargeable interest of the previous year. The chargeable interest is defined under section 5 of the Interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting followed by the assessee. If the system of accounting cannot give correct figure of chargeable interest under the Act, such system is to be rejected and correct interest income is to be brought to tax. We fail to understand how figure of correct chargeable interest "accruing or arising in the previous year" could be determined under cash system of accounting. We, therefore, have no hesitation in holding that chargeable interest cannot be computed on the basis of cash system of accounting as was followed by the assessee in the past. Even if, such system was wrongly accepted by the Revenue in the past, there is no estoppel in these matters and the officer is not duty-bound by the method adopted in the earlier assessment years [as per the decision of British Paints India Ltd.'s case] Having regard to clear and unambiguous provisions relating to assessable interest as accruing or arising, not much discussion is necessary to reject the contention of the assessee that return of cash system of accounting was correct. For the above reasons, there is no need to rely on any external aid like speech of the Finance Minister or explanatory notes on the relevant bill to interpret and under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of hearing. On the contrary, it has been the claim of the assessee that the "chargeable interest" is to be disclosed on the basis of cash system of accounting regularly followed by the assessee in the past. This contention of the assessee has already been rejected. We accordingly, hold that the assessee failed to disclose material facts truly, correctly and fully as enjoined under the statute and on account of above failure, the Assessing Officer was justified in initiating reassessment proceedings under section 10(a) of the Interest-tax Act in both the assessment years. (iv) That even on merit the interest is liable to be taxed as accruing or arising in the previous year. The assessee during the course of hearing of appeal did not point out any amount which was wrongly charged by the Assessing Officer and which in fact, had not accrued or arisen on credits maintained by the assessee. (v) That the Id. counsel for the assessee had vehemently contended that reassessment proceedings were initiated merely on change of the opinion of the Assessing Officer regarding interpretation of sections 4 and 5 of the Interest-tax Act. We do not find any substance in the above submission. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no doubt or dispute on this legal proposition advanced before us, but as observed earlier the statutory provision is clear that the total "chargeable interest" is to be returned or assessed as "accruing or arising" to the credit institution in the previous year. There is no scope to give any benefit of doubt to the assessee. Therefore, this contention of assessee is also required to be rejected. It was also contended by Sh. Jain that the Assessing Officer initiated reassessment proceedings and passed re-assessment order making addition in both the years on the basis of direction given by the CIT(A), dated 28-8-1995 in the case of Himachal Pradesh Financial Corporation. The action taken and order passed at the behest of some other authority is totally illegal and without jurisdiction. We are of view that every quasi-judicial action of the Assessing Officer must reflect application of his mind and should not be shown to be based on the directions of his superiors. In the present case, on consideration of reasons recorded and other material, we are unable to accept that the proceedings were initiated not by the Assessing Officer but on the direction of some superior authority. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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