High Court Of Karnataka
CIT vs. Infosys Technologies Ltd.
Assessment Years : 1995-96 And 1996-97
Section : 263
D.V. Shylendra Kumar And H.S. Kempanna, JJ.
IT Appeal Nos. 3098 & 3160 Of 2005 And 588 & 589 Of 2006
January 4, 2012
JUDGMENT
Re : ITA Nos. 3098 & 3160 of 2005
1. These two appeals by the revenue are in respect of the very assessee for the two assessment years viz., assessment years 1995-96 and 1996-97 seeking for our answer in respect of the following common questions :-
“1. Whether the Tribunal was correct in holding that the commissioner exercising jurisdiction under Section 263 of the Act by holding that the Assessing Officer should rework the credit in respect of Canadian and Thailand Tax claimed under Double Taxation Avoidance Agreement (DTAA) without specifying the error in the original order sought to be revised and how it was erroneous and prejudicial to the interest of the revenue.
2. Whether the Tribunal committed an error in failing to appreciate that in accordance with the DTAA Clause 23 entered into by the Indian Government with the Canadian Government as well as the Thailand Government the income which fall part of total turnover and the consequential TDS claimed in Canada and Thailand cannot be allowed in India when computing the total deduction.
3. Whether the Tribunal committed an error in holding that the judgment of the Hon’ble Supreme Court in the case of HindWire Industrial Ltd cannot be made applicable when jurisdiction under Section 263 of the Act is invoked.”
2. However, Sri Indrakumar, learned Senior Counsel appearing on behalf of the revenue submits at the time of argument that, it is not necessary for this Court to go into questions 2 and 3 for the purpose of deciding these two appeals as answering the first question alone is sufficient to dispose of these appeals.
3. Submission recorded and therefore, we are confined our examination only in respect of the first question.
4. The brief facts leading to these appeals are that the assessee, an Indian Limited Company, while filing its returns for the assessment years 1995-96 and 1996-97 had claimed certain deductions towards its tax liability, the amounts as had been deducted by way of TDS in respect of payments received by its business activities in Canada and Thailand as under :-
D.T.A. relief in Respect of Canada & Thailand as claimed for the year 1995-96 18,12,897
D.T.A. relief in Respect of Canada & Thailand as claimed for the year 1996-97 48,59,285
4.1 The assessing authority had indicated that, deductions on such amounts were in terms of double taxation agreement relief in existence between our country and the countries of Canada and Thailand and it had been allowed as claimed by the assessee.
4.2 The Commissioner of Income Tax being of the view that these two orders were erroneous and prejudicial to the interest of the revenue exercised his powers u/s.263 of the Act and in terms of his common order dated 20.2.2001 set aside the two assessment orders and remanded the matter to the Assessing Authority particularly, insofar as allowing of such deductions under the DTAAs with Canada and Thailand by verification and computation of the tax liability of the income abroad and under the income tax enactments of the two countries and to ascertain the exact relief that the assessee can claim Article 23(2) of the DTAA with Canada and Article 23(3) of the DTAA with Thailand.
4.3 The assessee being aggrieved with the Revisional Orders passed by the Commissioner, preferred appeals to the Income Tax Appellate Tribunal.
4.4 Assessee urged among other grounds that the Commissioner could not have exercised jurisdiction u/s.263 of the Act for the reason that the order which was sought to be revised was neither shown to be erroneous nor prejudicial to the interest of the revenue and in fact, it is virtually a case of the Commissioner opining differently from the Assessing Authority and therefore, was not amenable to the revisional jurisdiction.
4.5 This argument of the assessee found favour with the Tribunal and therefore, the Tribunal set aside the revisional orders of the Commissioner and restored the assessment order as had been passed by the Assessing Authority, as per its common order dated 2.6.2005. The Tribunal while setting aside the order of the Commissioner opined that there was no need or scope for interference by the Commissioner, in exercise of the revisional jurisdiction to do the same and therefore, allowed the appeals.
5. It is against this common order passed by the Tribunal dated 2.6.2005, not only in respect of these two years, but also for the earlier year, which has been independently disposed of in ITA No.5099/05, the revenue had filed these appeals.
6. As indicated earlier while Mr. Indrakumar, learned counsel for the Revenue, has confined his submission only on the first question and this is not opposed to by the learned counsel for the assessee, the other two questions are deleted and we have heard the learned counsel on the first question in some detail.
7. Mr. Indra Kumar, mainly submits that the Tribunal has committed an error in law in taking the view that the Commissioner was acting beyond the limits of section 263 of the Income Tax Act, 1961 [for short, the Act] because the Tribunal thought the Commissioner had another point of view other than what the Assessing Authority had and therefore, set aside the order passed by the Commissioner. It is submitted that the view of the Tribunal about the Commissioner directing the Assessing Authority to redo the entitlement of the assessee for claiming a benefit in terms of Double Taxation Avoidance Agreements with Canada and Thailand, is virtually a situation where the Tribunal proceeded on an assumption that the commissioner is not enabled to exercise the revisional jurisdiction under section 263 of the Act, where the commissioner can have a view point different from the assessing authority; that when once the question of allowing the deduction which in fact was examined by the Authority and allowed and therefore it was not a situation within the scope of Section 263 of the Act. This assumption on the part of the Tribunal is not warranted or justified either on reading of the Provision under Section 263 of the Act or on an examination of the facts and situations. In this regard Mr. Indra Kumar has drawn our attention to the provision of Section 263 of the Act, which reads as under :-
263. Revision of orders prejudicial to revenue.—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, —
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include—
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A:
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120;
(b) “record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3)Â Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall he excluded:
and submits that the concepts of change of opinion and the Commissioner taking a different view of point docs not come into picture within section 263 of the Act that the Commissioner is enable to exercise the power of revision within his jurisdiction whenever he considers a particular order or a proceeding of a lower authority has resulted in an erroneous order and causes prejudice to the interest of the revenue and if the Commissioner is of such impression that enabled him to exercise within the jurisdiction and it is not one without jurisdiction and one going beyond the jurisdiction in the present case as, the Commissioner though was conscious that the Assessing Authority had allowed certain deductions as had been claimed and the claim though allowed having not been shown to have been subjected to the exercise as was required in terms of the relevant articles of the Double Taxation Avoidance Agreements i.e. in the case of Canada Article 23 which reads as under:
METHODS FOR PREVENTION OF DOUBLE TAXATION
ARTICLE 23 – Elimination of Double Taxation
3. In the case of India, double taxation shall he avoided as follows:
(a) The amount of Canadian tax paid under the laws of Canada and in accordance with the provisions of the Agreement, whether directly or by deduction, by a resident of India, in respect of income from sources within Canada which has been subjected to tax both in India and Canada shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income hears to the entire income chargeable to Indian tax.
and in the case of Thailand Article 23(3)(a), reading as under:
METHODS FOR ELIMINATION OF DOUBLE TAXATION
ARTICLE 23 – Elimination of Double Taxation
4. The amount of Indian tax payable under the law of India and in accordance with the provisions of the Agreement, whether directly or by deduction, by a resident of Thailand, in respect of profits or income arising in India, which has been subjected to tax both in India and Thailand, shall be allowed as a credit against Thai tax payable in respect of such profits or income provided that such credit shall not exceed the Thai tax (as computed before allowing any such credit) which is appropriate to the profits or income arising in India.
and with reference to the said articles, submits that the Assessing Authority had allowed the deductions as claimed by the assessee without any indication of the nature and extent of entitlement with reference to the enabling provision and in the absence of such examination being not made explicit in the order and if the Commissioner considers that, to be a situation as one capable of causing prejudice and also at the same time capable of resulting in an erroneous order, it cannot be said that the Commissioner has not shown his awareness to the requirement of the order being erroneous and prejudicial to the interest of revenue and if the matter is remanded to the Assessing Authority for re-examination only on this aspect and to pass order afresh, the assessee cannot be said to have been aggrieved and the Tribunal assuming that in a situation of this nature the Commissioner has acted without jurisdiction is an error in law committed by the Tribunal and that requires correction.
8. In this regard Mr. Indra Kumar has drawn our attention to the corresponding provision in the Income Tax Act, 1922 namely Section 33(B) of that Act which had come in for Interpretation before the Supreme Court in the case of Commissioner of Income Tax v. Electro House[1971] 82 ITR 824 (SC) and in particular following the passage:
Section 33B(1) reads:
“The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order enhancing or modifying the assessment, or cancelling the assessment and directing afresh assessment.”
This section unlike section 34 does not prescribed any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice. It is unfortunate that the High Court failed to notice the difference in language between sections 33B and 34. For the assumption of jurisdiction to proceed under section 34 the notice as prescribed in that section is a condition precedent. But no such notice is contemplated by section 33B. The jurisdiction of the Commissioner to proceed under section 33B is not dependent on the fulfilment of any condition precedent. All that he is required to be before reaching his decision and. not before commencing the enquiry, is that he must give the assessee an opportunity of being heard and make or cause to make such enquiry as he deems necessary. Those requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. Breach of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner. At present we are not called upon to consider whether the order made by the Commissioner is vitiated because of the contravention of any of the principles of natural justice. The scope of these appeals is very narrow. All that we have to see is whether before assuming jurisdiction the Commissioner was required to issue a notice and if he was so required what that notice should have contained? Our answer to that question has already been made clear. In our judgment no notice was required to be issued by the Commissioner before assuming jurisdiction to proceed under section 33B. Therefore the question what that notice should contain does not arise for consideration. It is not necessary nor proper for us in this case to consider as to the nature of the enquiry to be held under section 33B. Therefore, we refrain from spelling out what principles of natural justice should be observed in an enquiry under section 33B. This court in Gita Devi Aggarwal v. Commissioner of Income-tax ruled that section 33B does not in express terms require a notice to be served on the assessee as in the case of section 34. Section 33B merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under section 34 cannot, therefore, be applied to a proceeding under section 33B.
For the reasons mentioned above, we allow Civil Appeal Nos. 1168 to 1171 of 1971, discharge the answer given by the High Court to the question set out earlier and answer that question as follows: The notice issued did not contravene section 33B and the Commissioner validly exercised his jurisdiction under section 33B. But as the High Court has not considered the other questions referred to it, these cases will now go back to the High Court for considering those questions.
and with reference to the above observations and interpretation of the statutory provisions by the Supreme Court, submits that Section 263 of the Act virtually is in pari materia with Section 33(B) of the 1922 Act and the interpretation and the manner of understanding the scope of Section 263 of the Act is the same as indicated in the case of Electro House (supra) and therefore, submits that the present case is virtually one where no interference was warranted by the Tribunal more so for setting aside the order of the Commissioner, and the Tribunal should have left the matter at that, when the Commissioner had only issued directions to the Assessing Authority to redo or re-compute the entitlement of the relief to the assessee under Double Taxation Avoidance Agreements with Canada and Thailand respectively and therefore submits that the view taken by the Tribunal virtually affects and curtails the jurisdiction of the Commissioner under Section 263 of the Act; that unless the legal position is made clear, the very purpose and object of conferring on the Commissioner the power of revision as under section 263 of the will be defeated.
9. However, per contra, Mr. G. Sarangan, learned senior counsel appearing for the assessee vehemently. urged that it was not open to the Commissioner to examine the matter within the scope of Section 263 of the Act particularly, when the Assessing Authority had in fact shown his awareness for the deductions as claimed by the assessee and had allowed the same and though not necessarily by indicating in the order and submits that the assessee had placed material justifying the claim before the Assessing Authority and in this view of the matter, when the Assessing Authority had consciously allowed the deductions as claimed under the relevant articles of the avoidance agreements with the two countries, it was definitely not open to the Commissioner, in any manner to interfere or undo an order passed by the Assessing Authority, while exercising suo moto revisional jurisdiction.
10. In this regard strong reliance is placed by the learned senior counsel for the assessee on the following decisions:
• CIT v. Max India Ltd.[2007] 295 ITR 282/[2008] 166 Taxman 188 (SC)
• CIT v. Gabriel India Ltd.[1993] 203 ITR 108/ 71 Taxman 585 (Bom.)
• CIT v. Ashish Rajpal[2010] 320 ITR 674 /[2009] 180 Taxman 623 (Delhi)
11. Submission of Sri Sarangan, learned senior counsel appearing for the respondents-assessee, with reference to these decisions, is that the Commissioner can exercise jurisdiction under Section 263 of the Act only when the order is both erroneous and prejudicial to the interest of the revenue: that it should be demonstrable that not only the order passed by the lower authorities, which is sought to be revised, is erroneous, in the sense it is in contravention or at variance with any statutory provisions, but also that it should have resulted in a prejudice to the interest of the revenue and while the first part of this twin requirements should be made good with reference to any statutory provisions, the second part, which has come in for interpretation, is a phrase which is not merely one of a possible loss of revenue, but a situation where it is a definite loss of revenue, in the sense, that on the possibility of a particular liability being fastened and that having not been done by the order or proceeding under revision, it has resulted in some loss of revenue, is a situation which cannot qualify for revision under Section 263 of the Act; that judicial opinion is to the effect that a mere alternative view being possible in respect of a particular statutory provision or a situation cannot be brought within the scope of the phrase ‘prejudicial to the interest of the revenue’, as is indicated in the above referred judgments and therefore submits that the order of the commissioner neither demonstrates that the assessing authority had violated any statutory provision nor having indicated the precise loss of revenue and that was perhaps only a possibility, the order of the assessing authority did not qualify for being subjected to revisional jurisdiction under Section 263 of the Act and therefore submits that the Tribunal was very correct in setting aside the order being of the opinion that the commissioner should not have acted under Section 263 of the Act in a situation of the present nature.
12. Sri Sarangan also submits that it is also not open to the Commissioner to go into the details of lack of jurisdiction when the assessing authority was allowing deduction, as claimed by the assessee in respect of the tax deducted in a foreign country with reference to the relevant articles in the double taxation avoidance agreement and if the assessing authority had opined that the assessee was entitled to claim such deduction, the commissioner cannot opine to the contrary to say that the assessee was either not entitled to some part of it or was not entitled to the entire amount, more so when it was not demonstrated in terms of the order of the commissioner and therefore the Tribunal was fully justified in setting aside the order of the Commissioner.
13. Sri T Suryanarayana, learned counsel for the assessee, supplementing the submissions made by Sri Sarangan, has further drawn our attention to a Division Bench judgment of the Delhi High Court, in the case of Ashish Rajpal (supra), wherein the Delhi High Court had occasion to discuss various authorities on the subject i.e. scope of revisional jurisdiction of Commissioner under Section 263 of the Act and in particular having noticed the decisions which have been referred to and relied upon by the assessee and observed as under:
Before we advert to the submissions made by the learned counsels appearing for the parties, it would be wise to recall the parameters and principles laid down by the courts which govern the exercise of power by the Commissioner under the provisions of section 263 of the Act.
(i) The power is supervisory in nature, whereby the Commissioner can call for and examine the assessment records.
(ii) The Commissioner can revise the assessment order if the twin conditions provided in the Act are fulfilled, that is that the assessment order is not only erroneous hut is also prejudicial to the interest of the Revenue. The fulfilment of both the conditions is an essential prerequisite. (See Malabar Industrial Co. Ltd. v. CIT[2000] 243 ITR 83 (SC).
(iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of the principles of natural justice or is passed without application of mind, that is, is stereo-typed, inasmuch as the Assessing Officer, accepts what is stated in the return of the assessee without, making any enquiry called for in the circumstances of the case, that is proceeds with “undue haste”. (See Gee Vee Enterprises v. Addl. CIT[1975] 99 TTR 375 (Delhi)).
(iv) The expression “prejudicial to the interest of the Revenue” while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue. (See Malabar Industrial Co. Ltd.[2000] 243 1TR 83 (SC)).
(v) Every loss of tax to the Revenue cannot be treated as being “prejudicial to the interest of the Revenue”. For example, when the Assessing Officer takes recourse to one of the two courses possible in law or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss. [See CIT v. Max India Ltd.[2007] 295 TTR 282 (SC)).
(vi) There is no requirement of issuance of a notice before commencing proceedings under section 263 of the Act. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under section 263. (See Electro House[1971] 82 TTR 824 (SC)).
(vii) If the Assessing Officer acts in accordance with law his order cannot be termed as erroneous by the Commissioner, simply because according to him, the order should have been written “more elaborately”. Recourse cannot be taken to section 263 to substitute the view of the Assessing Officer with that of the Commissioner. (See CIT v. Gabriel India. Ltd.[1993] 203 ITR 108 (Bom.)).
(viii) The exercise of statutory power under section 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully eligible was not imposed. (See CIT v. Gabriel India Ltd.[1993] 203 ITR 108 (Bom.)).
14. Sri Suryanarayana submits that even on facts, the present case is almost on par with the case as was examined both by the Bombay High Court and the Delhi High Court in the cases of Gabriel India Ltd. and Ashish Rajpal (supra) respectively, and therefore, submits that the view taken therein should commend for our acceptance and should be applied and the appeals of the revenue should be dismissed.
15. We have perused the orders of the assessing authority, revisional Commissioner and the Tribunal. We have also looked into the relevant statutory provisions and bestowed our attention to the submissions made at the Bar and the authorities relied upon.
16. Sri E R Indra Kumar, learned senior counsel appearing for the revenue has while placed strong reliance on the judgment of the Supreme Court in the case of Electro Housing (supra), as quoted earlier, and has pointed out that the scope of exercise of revisional jurisdiction by the commissioner is not one which is conditioned by any prior requirement; that it is sufficient if he is of the view or he considers that the subject order requires to be revised within the scope of Section 263 of the Act.
17. Insofar as the facts of the present case are concerned, it is not at all in dispute that certain deductions in the nature of tax relief had been claimed by the assessee for the two assessment years in question and with reference to double taxation avoidance agreements in existence between the countries of India and Canada on the one hand and India and Thailand on the other, the assessing authority allowed deductions as claimed. It is true that the order of the commissioner does not make it any explicit as to the manner in which it is either erroneous or prejudicial in so far as the actual amount of deduction is allowed and this is the thrust of the argument on behalf of the assessee and therefore the order of the commissioner is beyond the scope of Section 263 of the Act.
18. We have already noticed the statutory provisions of Section 263 of the Act. Section 263 is a section which enables the commissioner to have a look at the orders or proceedings of the lower authorities and to effect a correction, if so needed, particularly if the order or proceeding is erroneous and prejudicial to the interest, of the revenue. This provision occurs in a taxing statute, the object of which is to raise revenue for the state, and Section 263 is an enabling provision conferring jurisdiction on the commissioner to revise the order of the authorities below in certain circumstances particularly when it is erroneous and prejudicial. One can at once realize that the provision is intended to plug leakage to the revenue by a erroneous orders passed by the lower authorities, whether by mistake or in ignorance or even by design. It makes little difference as to for what reasons the order is passed by the lower authority, so long as it becomes erroneous and prejudicial to the interest of the revenue. Ultimately. the object is to ensure that leakage to the revenue is plugged and some tax due to the state not reaching the coffers of the state is prevented by exercise of revisional jurisdiction of the commissioner.
19. The observation as contained in the case of Electro House (supra), extracted above, and as has been particularly pointed out by Sri Indra Kumar in the case of Malabar Industrial Co. Ltd. v. CIT[2000] 243 ITR 83 / 109 Taxman 66 (SC), though this decision was relied upon on behalf of the assessee, particularly to the passage/observation of the Supreme Court at page 88 reading as under:
Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT[1987) 163 ITR 129 interpreting “prejudicial to the interests of the Revenue.” The High Court held (page 138): “In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration.” In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.
The phrase “prejudicial to the interests of the Revenue” has to he read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT[1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT[1973] 88 ITR 323 (SC).
In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed, before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the Appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified.
The second contention has to be rejected in view of the finding of fact, recorded by the High Court. It was not shown at any stage of the proceedings, the amount in question was fixed or quantified as loss of agricultural income and admittedly it is not so found by the Tribunal. The further question whether it will be agricultural income within the meaning of Section 2(1A) of the Act as elucidated by this Court in CIT v. Raja Benoy Kumar Sahas Roy[1957] 32 ITR 466, does not arise for consideration. It is evident from the Order of the High Court that the findings recorded by the Tribunal that the appellant stopped agricultural operation in November, 1982, and the receipt under consideration did not relate to any agricultural operation carried on by the appellant, were not questioned before it. Though, we do not agree with the High Court that the said amount was paid for breach of contract as indeed it was paid in modification/relaxation of the terms of the contract, we hold that the High Court is justified in concluding that the said amount was a taxable receipt under the head “income from other sources.”
We find no merit in the appeal and dismiss the same with costs.
20. Though it is either vaguely or loosely described by the authorities, even including the tribunal that the commissioner lacked jurisdiction to exercise revisional powers in a situation of the present nature, as it was virtually in the nature of change of opinion on the part of the commissioner, taking a different view from the view taken by the assessee to the effect that the authority taking the view that the assessee was entitled for deduction in full, but the commissioner doubting that, that in itself does not become a situation of the order being erroneous, the question is not one of the order being erroneous directly with reference to the specific statutory provision but could be on a procedural aspect also.
21. In the present case, while there is no doubt that the assessee is entitled to claim deduction in terms of Articles 23(3)(a) and 23(4) of the agreements between India with Canada and Thailand respectively. the question is one of what exactly the entitlement? In the absence of any discussion either in the assessment order or in the computation claim, particularly as the extent of relief that can be claimed under these two articles is only after a specific exercise and though Sri Sarangan has very vehemently urged that it is not necessary for the assessing authority to make all these things explicit, so long as he is satisfied, on the strength of the authority of the Supreme Court not only in the ease of Electro House (supra) and to more so on the basis of the observations and law as declared in the case of Malabar Industrial Co. Ltd. (supra) we are fully satisfied that a situation where a deduction of the present nature is allowed or in the sense deducted from out of the tax liability of the assessee without indicating the basis, can definitely be construed as an order both erroneous and prejudicial, has this is definitely a possibility and it is only because it is per se, not discernible in the revisional order, but definitely gives rise to a situation where the commissioner may consider the order as erroneous and prejudicial and the commissioner having remanded the matter to the assessing authority, we are of the clear opinion that it cannot be characterized as a situation beyond the realm of Section 263 of the Act, as the order being erroneous and prejudicial is a clear possibility particularly the assessing authority not disclosing the basis.
22. To test this proposition, if an order which is explicit is passed by the assessing authority and indicating that the assessee is entitled to a particular extent of relief, but if it is with reference to relevant articles of the double taxation avoidance agreements and if it is not either a proper computation or not fully in consonance with the same and if it has resulted in a situation of granting a greater relief than the assessee is otherwise entitled to under these agreements and if the commissioner can revise such an order without any hassle in the exercise of revisional jurisdiction under section 263 of the Act and can correct the order which is erroneous and prejudice to the interest of the revenue, just because the assessing authority does not spell out the reasons and therefore can avoid scrutiny under Section 263 of the Act, is an argument which is not logical or rational and not acceptable and at any rate on the authority of the Supreme Court in the case of Malabar Industries Co. (supra) is not an acceptable submission.
23. Though learned counsel for the assessee have placed strong reliance on two judgments of the Bombay High Court and the Delhi High Court in the cases of Gabriel India Ltd. and Ashish Rajpal (supra) respectively and the Delhi High Court, in fact, has made reference to the decision of the Supreme Court in the case of Max India Ltd. (supra), with great respect, we are unable to apply the ratio of these two decisions to the present circumstance and we are quite satisfied that the law declared by the Supreme Court not only in the case of Electro House (supra) and also in the case of Malabar Industries Co. (supra) fully covers the situation, no further need to discuss with any greater elaboration on the view expressed by the Bombay and the Delhi High Courts.
24. In the present situation, the Commissioner having only directed the assessing authority to compute it or re-compute it and make it explicit as to the entitlement of the assessee, an order of this nature, in fact, could not have been contended as detrimental to the interest of the assessee, as it was always open to the assessee to justify the claim in terms of the double taxation avoidance agreements. In a situation of this nature, we are also of the opinion that it was not a case which warranted interference by the tribunal, more so for setting aside the order of the commissioner and for ensuring that the order passed by the assessing authority was left in tact.
25. One should bear in mind that a relief which is required to be given to any litigant in any given case should be commensurate to the gravity of the situation, to the needs and necessity of the situation and warranting such relief and with reference to the governing statutory provisions. Just, because the tribunal has appellate jurisdiction over the orders passed by the commissioner, it does not mean that the tribunal should interfere with each and every order of the commissioner when it is really not warranted and in a situation of the present nature, by calling in aid all legal principles, particularly questions of jurisdiction and by interpreting a statutory provision, to limit or curtail the scope and operation of the provision even when there is no need for it.
26. We are also not in a position to accept the submission that, the materials had been placed before the assessing authority and therefore there should be a conclusion that the authority has applied his mind to the same and there was no question of the commissioner interfering by taking a different view etc.
27. Assessing authority performs a quasi-judicial function and the reasons for his conclusions and findings should be forthcoming in the assessment order. Though it is urged on behalf of the assessee by its learned counsel that reasons should be spelt out only in a situation where the assessing authority passes an order against the assessee or adverse to the interest of the assessee and no need for the assessing authority to spell out reasons when the order is accepting the claim of the assessee and the learned counsel submit that, this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied.
28. We are of the clear opinion that, there cannot be any dichotomy of this nature, as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with relevant articles of a double taxation avoidance agreements and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the revenue and therefore while the commissioner was justified in exercising the jurisdiction under Section 263 of the Act, the tribunal was definitely not justified in interfering with this order of the commissioner in its appellate jurisdiction.
29. Therefore, we answer the question posed for our answer in the negative and against the assessee. Both appeals are allowed. Parties to bear their respective cost.
Re: ITA Nos. 588 & 589 of 2006
30. These two appeals are a sequel to the remand order passed by the commissioner, in the sense, the commissioner by exercising his revisional jurisdiction had directed the assessing authority to redo the computation relating to the relief that the assessee was entitled to in respect of the tax paid in the foreign countries and in terms of the provisions of double taxation avoidance agreements for the two assessment years viz., 1995-96 and 1996-97.
31. It is submitted at the Bar that the assessing authority, in fact, had redone the computation pursuant to the remand orders passed by the commissioner and that resulted in some reduction of tax relief that the assessee had claimed as earlier and therefore the assessee had appealed against the redone assessment orders of the assessing authority.
32. The commissioner having dismissed the appeals, the assessee had pursued the matter further to the tribunal and the tribunal taking the view that the tribunal having set aside the original order of the commissioner exercising jurisdiction under Section 263 of the Act, these orders cannot be sustained and therefore having allowed the appeals, and the revenue has carried the matter further to this court by these two appeals.
33. In the light of the view that we have taken in the above two appeals [ITA Nos 3098 and 3160 of 2005] and setting aside the order of the tribunal and sustaining the remand order of the commissioner, though to a limited extent, the orders passed by the tribunal in two appeals before it, which are subject matter of these two appeals, cannot be sustained and are, therefore, set aside, answering the questions in favour of the revenue and against the assessee. In fact, this is only a sequel to the orders that we have passed in the above two appeals, which are against the main orders, and therefore these two appeals are also allowed.
34. However, as the tribunal had not examined the appeals of the assessee on its merits, but had simply allowed the appeals based on the premise that the revisional orders of the commissioner had been set aside by it and the revisional orders having now been restored by us in terms of the judgment in the above two appeals, the matter again has to necessarily go back to the tribunal in respect of the orders passed by the assessing authority on the directions of the commissioner and as affirmed by the appellate commissioner and against which the assessee had filed two appeals, are directed to be restored to the file of the tribunal and the tribunal to proceed in these two appeals and dispose of them in accordance with law.
[Citation : 341 ITR 293]
