Commissioner of Income Tax vs Goyal's International Hotels and Resorts Ltd. (formerly Mumtax Hotels Ltd.)

P.P.S. Janarthana Raja, J.—This appeal is filed u/s 260A of the Income Tax Act, 1961 by the Revenue against the order of the Income Tax Appellate Tribunal, Madras, "C" Bench dated April 24, 2003, passed in I.T.A. No. 1901/Mds/98. On November 11, 2003, this Court admitted the appeal and formulated the following substantial question of law.

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessment cannot be reopened where the assessee had not returned the income which was subjected to tax deducting at source ?

The facts leading to the above substantial question of law are as under:

The assessee is a company incorporated on October 1, 1990. The relevant assessment year is 1992-93 and the corresponding accounting year ended on March 31, 1992. The assessee has not commenced its business activities during the year. Hence no return of income was filed by the assessee. While perusing the return of income filed by the assessee for the assessment year 1993-94, it was noticed that the assessee had deposited a sum of Rs. 65,00,000 with M/s. Classic Financial Services and Enterprises Ltd., Calcutta, during the relevant previous year and that the finance company has credited the account of the assessee a sum of Rs. 2,43,080 as interest on March 31, 1992. This interest related to the period from January 27, 1992, to March 31, 1992. A sum of Rs. 55,909 was also deducted towards Income Tax and remitted to the Government account. Therefore, the Assessing Officer initiated proceedings u/s 147 of the Income Tax Act (hereinafter referred to as "the Act") and notice u/s 148 was issued to the assessee on February 2, 1995. The assessee also filed return on March 10, 1995, admitting a nil total income. The said return was processed on March 17, 1995, and no adjustment was made. Later, notice u/s 143(2) of the Act was issued on the same date. Subsequently, the Assessing Officer completed the assessment u/s 143(3) of the Act, treating the interest income of Rs. 2,43,080 credited to the assessee''s account during the relevant previous year as the income of the assessee from other sources. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) dismissed the appeal and confirmed the order of the Assessing Officer. Aggrieved, the assessee filed an appeal to the Income Tax Appellate Tribunal (hereinafter referred to as "the "Tribunal"). The Tribunal allowed the appeal and set aside the order of the lower authority.

Learned standing counsel appearing for the Revenue submitted that the Tribunal is wrong in holding that the interest income not returned by the assessee cannot be assessed to tax on the reassessment proceedings on the ground that the tax has been deducted at source. Further it is submitted that the tax deducted at source will not absolve the assessee from returning the correct income.

Learned Counsel appearing for the assessee submitted that simply because the assessee has not filed the return for the assessment year 1992-93, it cannot be said that the income has escaped assessment as the TDS was admittedly deducted from the amount paid to the assessee by the investment company. Therefore, that cannot be a reason for reopening the assessment.

Heard counsel. The assessee-company was incorporated on October 1, 1990, and commenced its business activity. The return of income was also not filed for the first two years. The first return of income was filed for the assessment year 1993-94. While processing this return u/s 143(1)(a) of the Act, the Assessing Officer noticed that the assessee had deposited a sum of Rs. 65,00,000 with M/s. Classic Financial Services and Enterprises Ltd., Calcutta during the relevant previous year and the aforesaid company had credited the account of the assessee by a sum of Rs. 2,43,080 as interest on March 31, 1992. It was also noticed that a sum of Rs. 55,909 was also deducted towards Income Tax and paid to the Government account. Based on this information, the Assessing Officer initiated proceedings u/s 147 for failure of the assessee to file the return of income for the assessment year 1992-93 in respect of the aforesaid interest income. It is seen from the copy of the TDS certificate that the amount was duly credited to the account of the assessee on March 31, 1992. The assessee could not substantiate its claim that the interest on deposit was payable only after the expiry of 92 days. The deposit had been renewed on April 30, 1992, and at the time of renewal, the net amount of interest for 94 days was paid to the assessee by cheque dated April 30, 1992, for Rs. 2,70,681 after reducing the amount of TDS of Rs. 80,853 at the rate of 23 per cent. of the total interest amount of Rs. 3,51,534 at the rate of 21 per cent. per annum of the principal amount of Rs. 65,00,000 for a period of 94 days i.e. from January 27, 1992 to April 28, 1992. It is apparent that since the business had not commenced, the amount was deposited on January 27, 1992, and the interest income up to March 31, 1992, accrued to the assessee during the financial year 1991-92. This is an undisputed fact. Hence the interest income was liable to be taxed as income under "other sources" on accrual basis for the previous year for the assessment year 1992-93. The period of deposit was of no relevance as income from "other sources" was to be taxed on the basis of the financial year as the previous year. Since the amount was credited to the account of the assessee on March 31, 1992, itself by the payer, the income has not only accrued but has been received also and the payment by subsequent cheque along with further interest did not change the taxability of the accrued income on financial year basis. It is also relevant to note that the tax was deducted at source only at the particular rate prevailing during the relevant years. The amount of tax deducted at source will always not equal to the tax payable by the assessee. We are of the view that interest income has accrued and also been received during the financial year 1991-92 relating to the assessment year 1992-93 because of the act of crediting interest to the accounts of the assessee on March 31, 1992, by M/s. Classic Financial Services and Enterprises Ltd. So, we are of the view that the Assessing Officer has correctly invoked the provision of Section 148 and rightly assessed the interest income of Rs. 2,43,080 for the assessment year 1992-93. In view of the same, the question referred to us is answered in favour of the Revenue and against the assessee. It is seen from the records that the assessee had raised three issues in the grounds of appeal. The first one relates to reopening of the assessment u/s 148 of the Act. The second one relates to the addition of a sum of Rs. 2,43,080 as income from other sources. The third one relates to the consequential charging of interest under Sections 234A, 234B and 234C of the Act.

The Tribunal has considered the first issue alone holding that reopening of the assessment u/s 148 of the Act, is unsustainable and is not valid in law. In view of the same, the Tribunal did not consider the other two issues. The remaining two issues relate to the merits of the case. As we stated earlier that reopening is valid in law, the Tribunal has to consider the case on the merits, i.e., the other two issues stated above. Hence, we direct the Income Tax Appellate Tribunal to take up the other two issues and decide the same after giving opportunity to both the parties to raise all the contention and pass orders on the merits, in accordance with law, as soon as possible.

With the above observation, the tax case is disposed of. No costs.