Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the initiation of reassessment proceedings was valid on the ground that the finding given in its order dated September 9, 1974, in I.T.A. No. 1229/ Hyd/1972 was a finding necessary for the disposal of that appeal?

High Court Of Andhra Pradesh

CIT vs. G. Viswanatham

Section 150(2), 153(3), 153 Expln. 2, 153 Expln. 3

Asst. Year 1966-67

B.P. Jeevan Reddy & Upendralal Waghray, JJ.

Revision Case No. 236 of 1982

27th November, 1987

Counsel Appeared

M. Suryanarayana Murthy & A.V. Krishna Koundinya, for the Revenue : Y. Ratnakar, for the Assessee

B.P. JEEVAN REDDY, J.:

Two questions are referred under s. 256(1) of the IT Act, 1961, one at the instance of the assessee and the other at the instance of the Revenue. The question referred at the instance of the assessee is :

” Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the initiation of reassessment proceedings was valid on the ground that the finding given in its order dated September 9, 1974, in I.T.A. No. 1229/ Hyd/1972 was a finding necessary for the disposal of that appeal?”

2. At the instance of the Revenue, the following question is referred:

” Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment for 1966-67 made under s. 147 r/w s. 150(1) is liable to be quashed ? “

3. The assessee, as the Karta of a joint family, was a partner in a firm, M/s Gotturi Veeranna & Sons. Disputes arose between the partners which led to the institution of a civil suit. Under the decree passed in the suit, the assessee was held entitled to a sum of Rs. 1,10,949 with interest at 6 per cent per annum from the date of the decree. This decree was made in the accounting year relevant to the asst. yr. 1966-67. The break-up of the said amount is: (i) Rs. 48,949-Capital; (ii) Rs. 62,000-Interest at the rate of 12 per cent from 5-8-1954 to 25-2-1965.

The assessee claimed that the said amount of interest should be spread over and divided between the relevant years. On that basis, he returned an amount of Rs. 5,138 for the said assessment year. The ITO, however, did not agree. He adopted a different procedure altogether. He found that during the accounting year relevant to the said assessment year, the assessee has realised a sum of Rs. 48,929. He divided the said amount into principal and interest in the same proportion as they represented in the total decretal amount. On that basis, he allocated a sum of Rs. 27,342 towards interest and included the same in the income of the said assessment year. On appeal, the AAC confirmed the same. He made a slight modification, in that he directed the costs to be deleted from the total amount, on which basis the interest amount includible came to Rs. 25,700. The assessee carried the matter in further appeal to the Tribunal. His contention before the Tribunal again was that the interest amount of Rs. 62,000 should be spread over and divided between the relevant years and that only the proportionate amount should be included in the income of the concerned assessment year. The Tribunal rejected the said argument. It held that the principle of the decision of this Court in CIT vs. Sankari Manickyamma (1976) 105 ITR 172 (AP) applies to this case and on that basis the entire interest amount of Rs. 62,000 must be held to have accrued to the assessee during the previous year relevant to the asst. yr. 1966- 67 and ought to have been assessed accordingly. However, there was no appeal by the Department before the Tribunal. In the circumstances, the Tribunal merely dismissed the appeal preferred by the assessee, confirming the order of the AAC.

In view of the finding recorded by the Tribunal in its order aforesaid (dated September 9, 1974), the ITO reopened the assessment under s. 147 of the Act, with a view to include the balance of the interest amount in the income of the said assessment year. The assessee objected to the reopening of the assessment unsuccessfully. His appeal to the AAC was also unsuccessful. The matter was then carried to the Tribunal. Two questions were urged before, and considered by, the Tribunal, viz., (i) that the finding recorded by the Tribunal in its order dated September 9, 1974, that the entire interest amount of Rs. 62,000 accrued to the assessee during the accounting year relevant to the asst. yr. 1966-67 and that it ought to have been assessed as such, was a finding which was not necessary for an effective disposal of the appeal before it, and (ii) that the reassessment proceedings initiated under s. 147 are barred by virtue of sub-s. (2) of s. 150. The Tribunal held on the first question that ” the finding is irretrievably linked up with the contention raised by the assessee. It is, therefore, evident that what the Tribunal decided is a necessary finding for the purpose of the effective disposal of the appeal before it. To our mind, therefore, the case clearly comes within the purview of s. 150(1). ” On the second question, it found that the reassessment proceedings in this case are barred by sub-s. (2) of s. 150. Accordingly, it allowed the appeal and set aside the reassessment proceedings. Thereupon, both the Revenue and the assessee asked for referring a question each, which has been done by the Tribunal.

For the sake of convenience, we shall dispose of the question referred at the instance of the assessee, first. We agree with the Tribunal that he finding recorded in the order of the Tribunal dated September 9, 1974, was necessary for a proper and effective disposal of the appeal before it. The main question urged before it by the assessee was that the interest amount of Rs. 62,000 cannot be included in the income of the year in which the decree was passed, i.e., in the year of accrual, but that it must be spread over and divided between all the years for which it has been awarded. This contention was dealt with by the Tribunal and was rejected holding that on the principle of the decision of this Court in Sankari Manickyamma’s case (supra), the entire interest amount is liable to be assessed in the year in which it has accrued. We, therefore, answer the question referred at the instance of the assessee in the affirmative, i.e., in favour of the Revenue and against the assessee.

The more important question, however, is the one referred at the instance of the Revenue. The question is whether the reassessment proceedings were barred by virtue of sub-s. (2) of s. 150. The Tribunal has observed in its judgment—and it is also stated by counsel for both the parties before us—that there is no authority of any Court on this aspect. It is necessary, therefore, to examine the said question with reference to the relevant provisions of law.

8. Sec. 147 provides for assessing or reassessing the income which has escaped assessment in any of the two situations mentioned in cls. (a) and (b). The reassessment is, however, subject to the provisions contained in ss. 148 to 153. Sec. 148 provides that before making an assessment, reassessment or recomputation under s. 147, the ITO shall serve on the assessee a notice containing the relevant particulars. Sec. 149 provides the time limit for issuance of notice, i.e., for initiation of the proceedings under s. 147. In cases falling under cl. (a) of s. 147, it is either eight years or sixteen years, as the case may be, while in a case falling under cl. (b), it is four years. According to it, in a case falling under cl. (b) of s. 147, ” no notice under s. 148 shall be issued …… at any time after the expiry of four years from the end of the relevant assessment year “. Sec. 151 provides for obtaining the prior sanction of the Board or the CIT, as the case may be, in certain cases. Sec. 150 is in the nature of a proviso to s. 149. It reads thus : ” 150. (1) Notwithstanding anything contained in s. 149, the notice under s. 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision. (2) The provisions of sub-s. (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken.

9. A reading of sub-s. (1) of s. 150 shows that where the reassessment proceedings are initiated ” in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision “, the time limits prescribed in s. 149 shall not apply and that notice under s. 148 can be issued at any time. Sub-s. (2), however, is again in the nature of a proviso to sub-s. (1). It says that the provisions of sub-s. (1) shall not apply where, by virtue of any other provision limiting the time within which action for assessment, reassessment or recomputation may be taken, such assessment, reassessment or recomputation is barred on the date of the order which is the subject-matter of the appeal, reference or revision in which the finding or direction is contained.

10. Sec. 153 provides the time limits for completion of assessments and reassessments. Sub-s. (1) says that an order of assessment under s. 143 or s. 144 shall not be made after the expiry of certain periods prescribed therein (at present, it is two years). Sub-s. (2) similarly provides that no order of assessment, reassessment or recomputation shall be made beyond the periods prescribed therein. In the case of proceedings under cl. (a) of s. 147, they must be completed within four years from the end of the assessment year in which notice under s. 148 was served. In the case of proceedings under cl. (b) of s. 147, the proceedings must be concluded either within four years from the end of the assessment year in which the income was first assessable, or within one year from the date of service of the notice under s. 148, whichever is later. Sub-s. (3) is in the nature of a proviso to sub-ss. (1) and (2). It says that the provisions contained in sub-ss. (1) and (2) of s. 153 shall not apply in certain cases. Clause (ii) of sub-s. (3) provides one such situation, viz., ” where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under s. 250, 254, 260, 262, 263 or 264 or in an order of any Court in a proceeding otherwise than by way of appeal or reference under this Act. ” In other words, according to sub-s. (3), where proceedings are taken under s. 147 in consequence of or to give effect to any finding recorded by any appellate or revisional authority, or by any Court in any proceeding, the time limit prescribed in sub-s. (2) shall not apply.

Explanation 1 in this section provides for exclusion of certain periods in computing the period of limitation prescribed therein. It is not necessary to notice this Explanation for our purpose.

Explanations 2 and 3, however, must be referred to since they are strongly relied upon by the Revenue.

Explanations 2 and 3 read as follows :

“Explanation 2.—Where, by an order referred to in cl. (ii) of sub-s. (3), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of s. 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.

Explanation 3.—Where, by an order referred to in cl. (ii) of sub-s. (3), any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of s. 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed.

A reading of these Explanations clearly shows that they merely illustrate and clarify the meaning of the words ” in consequence of or to give effect to any finding or direction ” contained in an appellate, revisional or any other order. Explanation 2 says that where an appellate, revisional or other order excludes any income from the total income of the assessee for an assessment year, the assessment of such income for another assessment year shall, for the purposes of both s. 150 and s. 153, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the order. Similarly, Explanation 3 says that where by an appellate, revisional or other order any income is excluded from the total income of one person and held to be the income of another person, the assessment of income of such other person shall, both for the purposes of s. 150 and s. 153, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the order, provided, of course, such other person was given an opportunity of being heard before the said order was made. What is, however, clear is that Explanations 2 and 3 do not purport to obliterate or remove the restriction contained in sub- s. (2) of s. 150. They, no doubt, refer to s. 150, but for a limited purpose, mentioned above. A review of the above provisions makes it clear that the Act provides certain time limits both for initiation of proceedings under s. 147 as well as for completion of such proceedings. The time limits for initiation of such proceedings are contained in ss. 149 and 150, while the time limits for completion of such proceedings are mentioned in sub-ss. (2) and (3) of s. 153. Just as s. 150 is a proviso to s. 149, sub-s. (3) of s. 153 is a proviso to sub-s. (2) thereof. Explanations 2 and 3, no doubt, are relevant both for s. 150 and s. 153(3), but their purpose is merely to illustrate certain words occurring therein, and not to remove or obliterate the time limits prescribed in the several provisions referred to above.

Learned standing Counsel for the Revenue brought to our notice certain decisions, all of which appear to have been rendered with reference to Explanation 2 in s. 153. In B. A. R. Abdul Rahman Saheb vs. ITO (1975) 100 ITR 541 (AP), a Bench of this Court held that the effect of s. 150 and sub-s. (3) of s. 153 r/w Explanation 2 is that, if any income is deleted from assessment by the order of a higher authority, on the ground that it is not the income of that year, steps may be taken under s. 147 to assess it as the income of another year, without any limitation prescribed under s. 149 as regards the issue of notice under s. 148 or as to the completion of the assessment or reassessment prescribed by s. 153. The Bench read sub-s. (2) of s. 150 as providing that the provisions of sub-s.(1) thereof will not apply to a case of assessment, reassessment or recomputation of income, if it related to an assessment year in respect of which assessment, reassessment, etc., could not have been made at the time when the order, which was the subject-matter of appeal, reference or revision, was made, by reason of the time limits fixed under s. 153 for making the assessment, reassessment, etc. (vide paragraph 2 at page 545). It would immediately be seen that sub-s. (2) of s. 150 does not refer to s. 153. It only refers to “any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken “. The word ” taken ” refers only to initiation of proceedings and not to completion. Similarly, at page 547, the Bench observed: ” the effect of s. 150 and this sub-s. (s. 153(3)) r/w Explanation 2 is that if any income is deleted from assessment in a higher proceeding on the ground that it is not the income of that year, steps may be taken under s. 147 to assess it as the income of another year, without any limitation applying to the issue of notice under s. 148 or to the completion of the assessment or reassessment…” With great respect, we think that this observation overlooks the provisions contained in sub-s. (2) of s. 150. However, inasmuch as the case before us is not one falling under Explanation 2 to s. 153, we do not think it necessary to refer the matter to a larger Bench.

14. In Ambaji Traders P. Ltd. vs. ITO (1976) 105 ITR 273 (Bom), the Bombay High Court held that the effect of Explanation 2 in s. 153 is, where the income of an assessee has been excluded from assessment for one assessment year, its inclusion in another assessment year has been treated as having been made in consequence of or to give effect to a finding or direction, covered by cl. (ii) of sub-s. (3) of s. 153, and that for such a purpose, the bar of limitation contained in s. 153(2) will not apply. They approved the view taken by this Court in B.A.R. Abdul Rahman Saheb vs. ITO (supra) with respect to the legal position resulting from a reading together of s. 150, s. 153(3) and Explanation 2 thereto. On a reading of the decision, we find that the Bench has not paid due attention to the language of s. 150(2) which deals with initiation of proceedings under s. 148.

15. In ITO vs. Eastern Coal Co. Ltd. (1975) 101 ITR 477 (Cal), the Calcutta High Court considered the effect of sub-s. (2) of s. 150, among other provisions. This is what the Court said (p. 487): “The next question that was urged in this case was that even if s. 150(1) of the 1961 Act applied, the notice had become barred. It was contended that a notice would become barred even under s. 150(1) if on the date of the appellate order the time for taking action for assessment for that year had become barred by the other provisions of the Act. The correct date in this connection would be the date when the order, which is the subject-matter of the appeal, was passed. If on that date the reassessment proceedings could have been validly taken, then because of subsequent lapse of time, the said reassessment proceedings do not become barred by time. In this case, on 29th December, 1960, the original order of assessment was passed and, therefore, on that date action could have been taken for reassessment for the asst. yr. 1958-59. That was the date when the order which was the subject-matter of appeal was passed. In that view of the matter, in our opinion, the provisions of s. 150(1) of the IT Act, 1961, would apply on the facts of this case…”

16. It may be mentioned that December 29, 1960, is the date on which the assessment for the asst. yr. 1956-57 was completed and certain income was included therein. In the second appeal before the Tribunal, it was held by the Tribunal (in the year 1965) that the said income could not have been included in the asst. yr. 1956-57. It was held that the income must be deemed to have accrued when the sale deed was executed on September 28, 1957, which fell in the accounting year relevant to the asst. yr. 1958- 59. Pursuant to the order of the Tribunal, the ITO issued a notice under s. 148 on December 7, 1965, proposing to reopen the assessment for the asst. yr. 1958-59 and to include the said income in the income of that year. This was objected to by the assessee, inter alia, on the ground that the notice was barred by virtue of sub-s. (2) of s. 150. It is relevant to mention that the expression ” the order which was the subject- matter of the appeal, reference or revision, as the case may be ” was understood as the original order from which the appeal, reference or revision arises, and not the order which was the immediate subject-matter of the appeal or reference, as the case may be. In other words, the said expression was not understood as referring to the order of the AAC against which the appeal before the Tribunal was preferred, but to the original order of assessment. This decision, in fact, supports our proposition rather than militate against it. We must also point out that Explanation 2 to s. 153 was also referred to and relied upon for the purpose of rejecting the argument of the assessee relating to the bar of limitation.

17. The next decision relied upon by learned standing counsel for the Revenue is of the Gujarat High Court in Addl. CIT vs. New Jehangir Vakil Mills Co. Ltd. (1979) 10 CTR (Guj) 61 : (1979) 117 ITR 849 (Guj). On a perusal of the decision, we find that the main question that arose for consideration in the said decision, is: in which year is the compensation (for the land acquired) to be included ? It was answered that it should be included in the year in which possession is taken, i.e., when the transfer takes place. In that connection, sub-s. (7A) of s. 155 and s. 48 were referred to. Only towards the end of the judgment, a reference was made to sub-ss. (2) and (3) of s. 153, and it was observed that where the assessment, reassessment, etc., is made in consequence of or to give effect to any finding or direction contained in an order … or in an order of any Court in a proceeding otherwise than by way of appeal or reference under this Act, the limitation provided in sub-s. (2) of s. 153 does not apply. We must therefore, say that this decision is not relevant to the question in issue before us.

The next decision cited by learned standing counsel is of the Karnataka High Court in Mysore Tobacco Co. Ltd. vs. CIT (1985) 48 CTR (Kar) 278 : (1986) 157 ITR 606 (Kar). That was again a case arising under Explanation 2 to s. 153. A perusal of the judgment shows that there is no reference to sub-s. (2) of s. 150, nor was its effect considered. It does not even appear that it was relied upon for the assessee. The learned Judges referred to Explanation 2 in s. 153 and held that the bar of limitation does not apply. It cannot, therefore, be said that this decision is a relevant authority on the question before us.

On the other hand, a passage from Sampath Iyengar’s Commentary on the Law of Income Tax, Vol. IV, at p. 3584, which has been relied upon by the Tribunal in its judgment, lends support to our view. (Of course, the Tribunal took the extract from the Sixth Edition, i.e., from Vol. II). The learned author has expressed the view that sub-s. (2) of s. 150 is intended to preserve the finality of the orders made in earlier assessment years and that the bar contained therein has to be given effect to.

Now, coming to the facts of the case before us, the finding in consequence of which notice under s. 148 has been given, was recorded by the Tribunal at the stage of the second appeal. In this case, it is relevant to notice that the assessee did not file a return within the prescribed period. It was filed only on February 5, 1971. Inasmuch as this return was invalid in the eye of law, a notice under s. 148 was issued by the ITO on March 1, 1971, and the assessment was completed on March 29, 1972. Against the said order of assessment, the assessee filed an appeal, which was disposed of by the AAC on October 6, 1972. The judgment of the Tribunal in the second appeal is dated September 9, 1974. Now, according to sub-s. (2) of s. 150, the initiation of reassessment proceedings would be bad, even when they are initiated in consequence of or to give effect to any finding or direction contained in the appellate order, if such initiation of reassessment proceedings is barred by any other provision of the Act on the date of the order which was the subject-matter of appeal. In this case, the second appeal in which the finding was recorded arose from the order of the AAC dated October 6, 1972. The question is, whether on that date the initiation of reassessment proceedings is barred by any provision of law ? According to s. 149(1)(b), reassessment proceedings cannot be initiated after the expiry of four years from the end of the relevant assessment year. The relevant assessment year in this case is 1966-67. Four years therefrom would expire on March 31, 1971. Thus, the impugned initiation of proceedings under s. 147 by a notice issued on a date subsequent to September 9, 1974, would be clearly barred. Even if we construe the expression ” the order which was the subject-matter of the appeal, reference or revision, as the case may be ” occurring in sub-s. (2) of s. 150 as referring to the original order of assessment, as has been understood by the Calcutta High Court in ITO vs. Eastern Coal Co. Ltd. (supra), even then the result would not be different, because the order of assessment in this case was made on March 29, 1972, which too is beyond March 31, 1971.

For the above reasons, we answer the question referred at the instance of the Revenue in the affirmative, though for reasons different from those assigned by the Tribunal. Our answer shall be in favour of the assessee and against the Revenue on this question.

22. Reference is answered accordingly. No costs.

[Citation : 172 ITR 401]

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