2000-(158)-CTR -0590 -AP

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165

COMMISSIONER OF INCOME-TAX v. NOVAPAN INDIA LTD.

Case Refd. No. 36 of 1986, decided on October 5, 1998.

HIGH COURT OF ANDHRA PRADESH

J. V. Prasad, for the Revenue : C. Kodanda Ram, for the Assessee

JUDGMENT

S. V. MARUTHI, J. :

Before the Supreme Court, in Civil Appeal No. 3098 of 1990, two questions were raised for consideration at the instance of the CIT, Andhra Pradesh. The two questions read as follows :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the CIT(A) orders that the reassessment proceedings are not valid ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the interest on short-term bank deposits cannot be considered as assessee’s income ?”

2. The Supreme Court answered question No. 2 in favour of the Revenue on the ground that the said question is concluded by a judgment of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC). Accordingly, the appeal was allowed and the matter was remanded by the Supreme Court directing this Court to consider question No. 1. That is how this matter is posted before us.

3. The facts out of which question No. 1 was referred are as follows :

The ITO, in the original assessment, brought Rs. 80,000 to tax. This amount was by way of interest on short-term deposits out of the assessee’s own funds. The CIT, by his order dt. 1st September, 1981, gave relief to the assessee. However, the Department had not accepted the decision. Meanwhile, the ITO felt that even the original assessment was an underassessment, inasmuch as the interest from short-term deposits in the bank out of borrowed funds, has not been taxed by the ITO at the time of original assessment. Following the decisions of the Bombay High Court in CIT vs. United Wire Ropes Ltd. 1978 CTR (Bom) 622 : (1980) 121 ITR 762 (Bom) : TC 41R.744 and of the Madras High Court in Addl. CIT vs. Madras Fertilisers Ltd. (1979) 13 CTR (Mad) 261 : (1980) 122 ITR 139 (Mad) : TC 41R.734, he reopened the assessment under section 147 (b) of the IT Act. On appeal, the CIT allowed the appeal filed by the assessee following the order of the Tribunal in Nagarjuna Steels Ltd. On a further appeal, the Tribunal set aside the reassessment on the ground that the judgments of the Bombay High Court in CIT vs. United Wire Ropes Ltd. (supra) and the Madras High Court in Addl. CIT vs. Madras Fertilisers Ltd. (supra) are not applicable to the facts of the case and that there was no information before the ITO warranting reopening of assessment under section 147 (b) of the IT Act. At the instance of the Revenue, the two questions were referred for the opinion of this Court. This Court, by a judgment dt. 21st March, 1988, held that the second question was covered by the judgment of this Court in R.C. No. 315 of 1982 dt. 18th November, 1987 [CIT vs. Nagarjuna Steels Ltd. (1988) 171 ITR 663 (AP)]. Following the same the said question was answered in favour of the assessee and against the Revenue. The learned Judges observed that in view of the answer to the second question, the first question does not arise. Aggrieved by the said judgment of this Court in R.C. No. 36 of 1986, dt. 21st March, 1988, the CIT filed a civil appeal before the Supreme Court. The Supreme Court, by its judgment dt. 11th December, 1997, while answering question No. 2 in favour of the Revenue, remanded the matter to this Court for the purpose of considering the first question.

4. The main argument of learned counsel for the Revenue is that in view of the judgment of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (supra), the interest earned by the assessee on deposits in bank is income and, therefore, assessable to tax under the IT Act. Since the ITO did not include the income thus earned by the assessee in the original assessment, he reopened the assessment following the judgment of the Madras High Court in Addl. CIT vs. Madras Fertilisers Ltd. (supra). The said judgment is information within the meaning of section 147 (b) of the IT Act. Therefore, the reassessment proceedings initiated by the ITO under section 147 (b) are within his jurisdiction and in accordance with law. The Tribunal committed a mistake of law in holding that the judgment of the Madras High Court is not relevant to the facts of the case and, therefore, there was no information warranting reopening of assessment under section 147 (b). Learned counsel, in support of his contention that a judicial decision is information within the meaning of section 147 (b), relied on the decisions of the Supreme Court in Maharaj Kumar Kamal Singh vs. CIT (1959) 35 ITR 1 (SC) : TC 51R.1317 and A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC) : TC 51R.1413.

5. On the other hand, Sri C. Kodanda Ram, learned counsel for the assessee, vehemently contended that there was no information before the ITO for reopening the assessment and, therefore, he could not have invoked the jurisdiction under section 147 (b). Learned counsel submitted that for the asst. yr. 1977-78, the matter was carried in appeal before the Tribunal and the Tribunal considered the judgment of the Madras High Court in Madras Fertilisers Ltd.’s case (supra) and, therefore, the very same material was before him and on the basis of the very same material, he could not have exercised the power under section 147 (a). It is a case where there is a change of opinion and, therefore, the Tribunal was right in holding that the reassessment was not in accordance with section 147 (b).

6. At this stage, it is necessary to refer to the reassessment order :

“According to the decisions of the Bombay High Court in CIT vs. United Wire Ropes Ltd. 1978 CTR (Bom) 622 : (1980) 121 ITR 762 (Bom) : TC 41R.744 and the decision of the Madras High Court in the case of Addl. CIT vs. Madras Fertilisers Ltd. (1979) 13 CTR (Mad) 261 : (1980) 122 ITR 139 (Mad) : TC 41R.734, the entire interest earned during pre-production period is assessable to tax under the head ‘Other sources’ without any set off of interest paid by the assessee on borrowed funds.”

In other words, from the order of the ITO, it is clear that he has reopened the assessment relying on the judgments of the Bombay High Court and Madras High Court. The Tribunal says that these two judgments are not relevant and, therefore, there is no information before the ITO for reopening the assessment. If these two judgments are relevant and if they were not considered by the ITO at the time when he made the original assessment, then these two judgments would constitute information within the meaning of section 147 (b) of the IT Act. If these two judgments were considered by the ITO and he expressed an opinion after considering these two judgments, then it amounts to change of opinion and the ITO cannot exercise jurisdiction under section 147 (b).

7. The original order of assessment is not before us. Neither before the Tribunal nor before the AAC, was it argued that the judgment in Madras Fertilisers Ltd.’s case (supra) was available before the ITO at the time of making the original assessment. Therefore, we proceed on the basis that these two judgments, namely, the judgments of the Bombay High Court and Madras High Court, were not before the ITO.

8. The next question is whether the said two judgments are relevant for the purpose of considering the issue that arose for consideration.

In the judgment of the Madras High Court in Madras Fertilisers Ltd.’s case (supra), the question that was referred by the Tribunal reads as follows:

“Whether the Tribunal was right in law in holding that the interest on the dollar deposits was income from any source other than business so that the total interest paid by the assessee during the year was not a permissible deduction against such income ?”

Answering that question, the Madras High Court held in the affirmative and against the assessee. In other words, the Madras High Court held that the interest earned on deposits is income from other sources and is taxable under the IT Act. Therefore, the judgment of the Madras High Court is relevant and the finding of the Tribunal that the judgment of the Madras High Court is not relevant is not correct.

9. We are not referring to the judgment of the Bombay High Court, as in our view, the said judgment is not relevant to the facts of the present case, since the judgment of the Madras High Court in Madras Fertilisers Ltd.’s case (supra) is relevant and since this judgment was not available at the time of original assessment, the ITO is justified in reopening the assessment under section 147 (b). In this context, we may refer to the observations made by the Supreme Court in Maharaj Kumar Kamal Singh’s case (supra) :

“We would accordingly hold that the word ‘information’ in section 34(1) (b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions. If that be the true position, the argument that the ITO was not justified in treating the Privy Council decision in question as information within section 34(1) (b) cannot be accepted.”

The same view is reiterated in A. L. A. Firm’s case (supra) wherein the Supreme Court held :

“. . . on further research into law, he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147 (b) by virtue of proposition (4) of Kalyanji Mavji & Co. vs. CIT 1976 CTR (SC) 85 : (1976) 102 ITR 287 (SC) : TC 51R.1379. (SC). The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there, would not affect the position because the information that such facts or decision existed, comes to him only much later.”

10. In the light of the said decisions, the decision which came to the knowledge of the ITO after the assessment is made, is information within the meaning of section 147 (b). The argument of learned counsel is that for the asst. yrs. 1977-78 and 1979-80, the Tribunal, while considering the appeal filed by the Revenue, referred to the two judgments, namely, the judgment of the Bombay High Court in United Wire Ropes Ltd.’s case (supra) and the judgment of the Madras High Court in Madras Fertilisers Ltd.’s case (supra); that the ITO is bound by the orders of the jurisdictional Tribunal and, consequently, its order is binding on them. Therefore, the judgment of the Madras High Court in Madras Fertilisers Ltd.’s case (supra) was before the ITO. In other words, the ITO reopened the assessment on the very same material which was before him. It is difficult to accept the argument of learned counsel for the assessee, as the Tribunal’s order for the asst. yrs. 1977-78 and 1979-80, wherein they have referred to the judgment of the Madras High Court in Madras Fertilisers Ltd.’s case (supra), was dt. 19th January, 1984, whereas the original assessment order was dt. 30th September, 1980, and the reassessment order was dt. 26th March, 1983. Therefore, we are of the view that the Madras High Court judgment in Madras Fertilisers Ltd.’s case (supra) was not before the ITO at the time when he made the original assessment. In the light of the above, we answer the question in the negative and in favour of the Revenue.

The reference is accordingly answered.

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