Kerala H.C : These IT references, five in number, have been referred by the Tribunal, Cochin. While the first three references are at the instance of the Department, the subsequent two references are at the instance of the assessee.

Counsel Appeared

P.K. Ravindranatha Menon & George K. George, for the Petitioner : K. Vinod Chandran, for the Respondent

JUDGMENT

S. SANKARASUBBAN, J. :

These IT references, five in number, have been referred by the Tribunal, Cochin. While the first three references are at the instance of the Department, the subsequent two references are at the instance of the assessee. The assessment years for which the Department have preferred reference are for the years 1975-76, 1976-77 and 1977-

78. While the reference by the assessee is concerning asst. yrs. 1978-79 and 1979-80. The question of law referred are as follows : “At the instance of Revenue for asst. yrs. 1975-76 to 1977-78 : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the reassessment is barred by limitation ? Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding : (i). This is not a case where the AO could have reason to believe that escapement of income was on account of the omission or failure of the assessee ? (ii). This is a case where the AO comes to believe on the basis of the subsequent judicial decision that income liable to tax had escaped assessment. (iii). In such a case, the assessment could have been reopened under s. 147(b) only ? and are not the above findings extraneous to the issue and also wrong ?”

At the instance of assessee, for asst. yrs. 1978-79 and 1979-80 : “Whether, on the facts and in the circumstances of the case, the notice under s. 148 of the IT Act issued for asst. yr. 1978-79 was within the time-limit specified under s. 150(2) r/w s. 147(b) of the Act ?”

The facts of the case are as follows : Assessee is a company. 157 acres belonging to the company was acquired on 28th March, 1966. The property is situated in Nagercoil. The assessee has filed an appeal before the Madras High Court challenging the compensation granted. The Madras High Court allowed the appeal by judgment dt. 19th April, 1979. The enhanced amount included an amount of Rs. 1,54,928 as interest received by the assessee on the additional compensation. The amount was received in the asst. yr. 1980-81. For the asst. yr. 1980-81, the assessment was completed on 27th Jan., 1983. The AO relied on the decision of the High Court in Jayaram vs. CIT (1979) 117 ITR 638 (Ker) : TC 39R.679 which stated that the entire amount of interest has to be assessed in the year in which it was received. This view was upheld by the appellate authority. That decision was challenged before the Tribunal and the Tribunal relied on the decision in Peter John vs. CIT (1986) 51 CTR (Ker)(FB) 83 : (1986) 157 ITR 711 (Ker)(FB) : TC 39R.671, a judgment of the Kerala High Court in which it was held that entire interest should not be taxed for one year but the interest should be spread over various years. Accordingly, the Tribunal held that only the interest which accrued that year could be included and the balance should be spread over. The judgment of the Tribunal was on 19th Feb., 1988. So far the year 1980-81 only a portion of the interest was included as income. Taking a clue from the judgment of the Tribunal, the ITO issued notice for the escaped assessment for the years 1975-76, 1976-77, 1977-78, 1978-79 and 1979-80. The AO relied on s. 147(a) of the IT Act. The assessee filed objection and the validity of the notice was questioned. The AO rejected the same on the ground that reassessments were made on the basis of ss. 147(a) and 150(1) of the IT Act. The assessee filed an appeal before the CIT(A), which took the view that reassessment cannot be made under s. 147(a), but it falls under s. 150(a). The reassessments were confirmed. Against that appeals were filed before the Tribunal. The Tribunal also rejected the contention of the Department that reassessments were made on the basis of s. 147(a). It took the view that reassessment could be only under ss. 147(b) and 150. Under s. 150(2) a time is fixed for completing such assessments. According to the Tribunal, this time should be fixed from the date of the assessment order passed for 1980-81. That date is 27th Jan., 1983. It then came to the view that reassessment for the years 1975-76, 1976-77 and 1977-78 were barred while that for 1978-79 and 1979-80, were not barred. It is subsequently the reference is made at the instance of the Revenue as well as the assessee, which are reproduced in para. 1 above.

The learned counsel for the Revenue submitted that reassessments will come under s. 147(a) of the Act. Further, it is submitted that assessee was aware that land acquisition case was pending and it was his duty to inform the ITO about the pendency of such a case. According to the learned counsel for the Revenue, the reassessment comes under s. 147(a). Even if the question comes under s. 147(b), the relevant date to be taken is the date on which the assessment was passed in the year 1981-82. On the other hand, counsel for the assessee submitted that the date is the date on which the assessment or reassessment could not have been made at the time the order which was the subject-matter of appeal, reference or revision as the case may be, was made.

The two questions to be decided in this case are whether the reassessment was under s. 147(a) or s. 147(b) ? The counsel for the Department tried to argue that it comes under s. 147(a). According to them, the assessee has not disclosed about the pendency of the appeal in the Madras High Court for enhanced compensation. This is a circumstance which could be made use of for reopening the assessment. According to us, this submission cannot be accepted. It is an admitted case that the earlier view was that as per the judgment in Jayaram vs. CIT (supra), interest on the compensation amount is liable to be assessed in the year in which it is received. It was only by a later decision in Peter John’s case (supra) a Full Bench of this Court held that interest is liable to be spread over. Hence, we agree with the Tribunal that it cannot be said that the assessee failed to disclose all materials before the AO. If that be so, the assessment cannot be under s. 147(a). Then it can be only under s. 147(b). Here, it was by virtue of the decision of the Tribunal on 19th Feb., 1988, that information was received by the AO that interest can be spread over. There was a contention as to actually whether there is any such direction or finding in the Tribunal’s order. According to us, when the Tribunal hold that only interest that accrued for the year 1980-81 can be assessed for that year, it becomes clear that rest of the interest is spread over to various years and this gives a right to the AO under s. 147(b) to start proceedings for escaped assessment read with s. 150(1) of the Act. Sec. 150(1) says that, 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 proceedings under this Act by way of appeal, reference or revision. Thus, the limitation under s. 149 does not apply to s. 150(1). But sub-s. (2) of s. 150 says that 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 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. The question is what is the meaning of subject-matter of appeal. While the Department contends that subject-matter of appeal refers to order or assessment passed for the year 1980-81, i.e., 27th Jan., 1983; the assessee would contend that assessment order passed on 27th Jan., 1983, was subjected to appeal before the CIT(A) and that appeal was dismissed and against that order, an appeal before the Tribunal was filed. It is the Tribunal which passed the order on 19th Feb., 1988. So, according to the assessee, it is the order of the CIT(A) which was subject-matter of appeal, before the Tribunal which is relevant. That date is 1st March, 1984.

5. Here, so far as the asst. yrs. 1975-76, 1976-77 and 1977-78 is concerned, it has been found by the Tribunal that even if the date is reckoned from 27th Jan., 1983, as pointed out by the Revenue, reassessment cannot be had for these three years viz., 1975-76 to 1977-78. As a matter of fact, the Department can rescue only if the contention under s. 147(a) is accepted. Since that is rejected, we agree with the Tribunal and hold that reassessment for the years 1975-76, 1976-77 and 1977-78 is barred. So, the next two years are 1978-79 and 1979-80. The Department has found that so far as these two years are concerned, there is no bar of limitation if the date is taken from 27th Jan., 1983. But, the assessee contends that if 1st March, 1984, is taken, the reassessment, for 1978-79 and 1979-80 would have been barred. So, the question to be considered is the meaning of the words, “at the time the order which was the subject-matter of appeal, reference or revision”. Learned counsel for the assessee would rely on the decision of the Andhra Pradesh High Court in CIT vs. G. Viswanatham (1988) 73 CTR (AP) 123 : (1988) 172 ITR 401 (AP) : TC 51R.2015. Even though in that case, the Court observed as follows : “The judgment of the Tribunal in second appeal is dt. 9th Sept., 1974. 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 dt. 6th Oct., 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. Four years therefrom would expire on 31st March ,1971. Thus, the impugned initiation of proceedings under s. 147 by a notice issued on a date subsequent to 9th Sept., 1974, would be clearly barred.”

But in that case, the Court found that even if the date is construed as referring to the original order of assessment, the proceedings will be barred. Another decision relied on by the Department is ITO vs. Eastern Coal Co. Ltd. (1975) 101 ITR 477 (Cal) : TC 51R.947. In that case, there is no discussion regarding this aspect. But, it is assumed there that, date mentioned is the date of the original order. According to us, the words “at the time the order which was the subject-matter of appeal, reference or revision, as the case may be, was made…….” in s. 150(2) are significant. It is because of the word “appeal” that, it is contended that the subject-matter should be construed as the original order. There are two tiers of appeals from the assessment order; one to the CIT(A) and another to the Tribunal. But, the next word is reference. Reference is made under s. 256(1) of the Act. What is referred is the subject-matter of the order of the Tribunal. Can we say that when the Tribunal refers the matter to the High Court, the order that was considered by the Tribunal is the order of the AO?. No. It is the order of the Tribunal that is being referred. For example, in this case, where there is a reference to the High Court against the order of the Tribunal, it will be order of the Tribunal that will be material. Further according to us, when an order is passed by the original authority and an appeal is filed, the order passed by the original authority merges with that of the order of the appellate authority. When a second appeal is filed, the subject-matter is the order of the appellate authority. So also, when the order of the Tribunal is challenged, what is the subject-matter, is the order of the Tribunal. If that be so, there is no difficulty in construing s. 150 (2). Then, in this case, the order which was subject-matter of appeal is to be construed as the order passed by the CIT(A), on 1st March, 1984. If so, the reassessment for 1978-79 will also be barred.

6. In the result, the question of law raised at the instance of the Revenue for the years 1975-76 to 1977-78 are answered in the affirmative, in favour of the assessee and against the Revenue. With regard to the question of law raised at the instance of the assessee, we answer the question in the negative, in favour of the assessee and against the Department.

The IT references are disposed of as above.

[Citation : 249 ITR 19]