High Court Of Delhi
CIT vs. Capt. K.C. Saigal
Sections 80VV
Asst. Year 1976-77, 1977-78
D.K. Jain & Ms. Sharda Aggarwal, JJ.
IT Ref. Nos. 230 & 231 of 1983
10th October, 2002
Counsel Appeared
R.C. Pandey with Ajay Jha, for the Petitioner : Ashok Chhabra, for the Respondent
JUDGMENT
D.K. JAIN, J. :
In these two references, at the instance of the Revenue, the Income-tax Appellate Tribunal, Delhi. Bench-C (for short the Tribunal) has referred under s. 256(1) of the IT Act, 1961 (for short the Act) the following question for opinion of this Court: “Whether, on the facts and in the circumstances of the case, the expenditure incurred by the assessee in connection with the writ petition under Art. 226 of the Constitution for quashing proceedings under s. 147 of the IT Act, 1961, and obtaining advice from tax experts in regard thereto fell within the purview of s. 80VV of the IT Act, 1961 ?” Since in both the references, pertaining to asst. yrs. 1976-77 and 1977-78, a common question of law has been referred, these are being disposed of by this common order. Briefly stated the facts leading to the references are: The assessee, an individual, carried the business of arranging charters for ship- owners and earned commission/fees therefrom. While making assessment for the asst. yr. 1976-77, the AO disallowed a sum of Rs. 8,233 out of the expenses claimed by the assessee under the head “legal expenses”. The said amount comprised of payments made to M/s J.B. Dadachanji & Co., Shri N.K. Palkhiwala and Shri H.P.Ranina. Besides the said amount, the assessee had also paid Rs. 5,000 as income-tax representation fees to its legal consultant . According to the AO, the expenses claimed under the said head were to be restricted to Rs. 5,000 in terms of s. 80VV of the Act. Assessee’s appeal to the Commissioner of Income-tax (Appeals) [for short CIT(A)] was partly successful, inasmuch as the CIT(A) held that legal fees of Rs. 1,950 paid to Shri Ranina, not being in anyway connected with the income-tax proceedings could not be disallowed under s. 80VV. However, in respect of the balance amount, he affirmed the view taken by the AO.
4. Similarly, in respect of the asst. yr. 1977-78, the assessee had claimed an expenditure of Rs. 14,166 under the head “legal expenses”. Like in the earlier year, the said expenses also related to the writ petition filed by the assessee challenging the action of the AO under s. 147 of the Act. While completing assessment for the said assessment year, the ITO again disallowed Rs. 10,516 on account of payments made to M/s J.B. Dadachanji & Co., for the services rendered by them and out of pocket expenses incurred by them in connection with the writ petition. Assessee’s appeal to the CIT(A) was unsuccessful.
5. The assessee took the matter for both the assessment years in further appeal to the Tribunal. The Tribunal upheld assessee’s stand that the legal fees paid in each of the years under consideration for filing and prosecuting writ petitions under Art. 226 of the Constitution, challenging the order of the ITO to reopen the assessment for the relevant assessment years, was not hit by the provisions of s. 80VV of the Act. While holding so, the Tribunal observed as under: “Keeping in mind the said conditions, can it be said that any legal fees paid by an assessee to a solicitor or lawyer in prosecuting a writ petition challenging the order of an IT authority the initiation of the reassessment proceedings under s. 147 of the Act (by way of a writ petition) under Art. 226 of the Constitution fall within the four corners of s. 80VV of the Act. Our answer after hearing both the sides is in the negative because the writ proceedings before the High Court under Art. 226 of the Constitution challenging the order of an assessment of an assessee under s. 147 cannot be said to be a proceeding relating to the determination of any liability under the Act by way of tax or penalty or interest. By the said writ petition what is sought for is annulment which is not equivalent to determination of any tax liability under the Act.”
6. The Tribunal having reversed the order of the CIT(A), the aforenoted question has been referred to us for opinion.
7. We have heard learned counsel for the parties.
8. Sec. 80VV of the Act reads as under: “80VV: In computing the total income of an assessee there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before any IT authority or the Tribunal or any Court relating to the determination of any liability under this Act, by way of tax, penalty or interest : Provided that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees.”
9. It is clear from a plain reading of the section that an. expenditure incurred by an assessee in respect of any proceedings before an IT authority, or the Tribunal or any Court relating to the determination, of any liability under the Act by way of tax, penalty or interest is restricted to Rs. 5,000. Obviously, any expenditure incurred in connection with any proceedings other than proceedings relating to the determination of liability under the Act would not fall within the ambit of the constricted restriction laid In s. 80VV of the Act. Thus, the short question for consideration is whether the expenditure incurred by the assessee in resisting the action of the AO, initiated under s. 147/148 of the Act for reopening a completed assessment, can be said to be an expenditure relating to the determination of liability under the Act, falling within the ambit of s. 80VV ?. In our view, answer to the question has to be in the negative. As noted above, the writ petition was filed by the assessee challenging the validity of the initiation of reassessment proceedings after the assessments for the relevant years stood completed. The Act lays down certain essential conditions for re-opening an assessment and an assessee has a. right to object to initiation of reassessment proceedings on the ground that mandatory conditions laid down in s. 147 or s. 148 were not fulfilled. Though in the statement of the case there is no indication about the grounds of challenge to the initiation of reassessment proceedings but it can safely be inferred that the challenge was to unlawful assumption of jurisdiction by the AO. Therefore, the action of the assessee, in respect whereof he has incurred expenditure, may be in a matter connected with the proceedings under the Act but these cannot be described as proceedings “relating to the determination of any liability under the Act by way of tax, penalty or interest”, which presupposes valid proceedings. In fact the filing of the writ petition or consultations on the issue with the lawyer was an attempt by the assessee to prevent the AO from assuming jurisdiction to take fresh proceedings forredetermination of what, according to the assessee, had already been determined.
These were the proceedings challenging the very assumption of jurisdiction by the AO to reopen the assessments to determine any liability under the Act. There is material difference in bare proceedings “in connection with the Act” and proceedings “relating to the determination of liability under the Act”. We are of the view that the expenses in question fell in the former category. We, therefore, hold that the Tribunal was correct in its conclusion that provisions of s. 80VV were not attracted in respect of the expenses incurred by the assessee for challenging the validity of notice issued under s. 147/148 of the Act. Support to this view is lent by a decision of the Calcutta High Court in Grindlays Bank Plc vs. CIT (1994) 207 ITR 454 (Cal) which is the only decision directly on the point at issue. In this case also it has been held that the expenditure incurred by an assessee in connection with challenging the validity of notice issued under s. 148 of the Act could not be disallowed under s. 80VV of the Act. No contrary view by any High Court has been brought to our notice by learned counsel for the Revenue In the result, the question referred is answered in the negative i.e. in favour of the assessee and against the Revenue. There will, however, be no order as to costs.
[Citation : 258 ITR 427]
