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Judgment
Kuldip Singh, J.—The learned Counsel for the parties have submitted that in IT Appeal Nos. 1 of 2002 and 2 of 2002 common substantial questions of law are involved, similarly in IT Appeal Nos. 9 of 2004 and 10 of 2004 identical questions of law are involved. On the joint request of learned Counsel for the parties, all the four appeals were heard together, hence this judgment shall dispose of IT Appeal Nos. 1 of 2002 and 2 of 2002, 9 of 2004 and 10 of 2004.
The brief facts of each appeal are given hereinbelow separately.
IT Appeal No. 1 of 2002
This appeal has been filed u/s 260A of IT Act, 1961 r/w Section 21 of the Interest-tax Act, 1974 (for short, Act) against the order dt. 11th Sept., 2001 passed by Income Tax Appellate Tribunal (Tribunal), Chandigarh Bench passed in Interest-tax Appeal Nos. 1, 2/Chd/2000 for the asst. yr. 1993-94. The further facts are that assessee filed the return for the asst. yr. 1993-94 (1st Oct., 1992 to 31st March, 1993) of chargeable interest Rs. 6,00,48,248 on 31st Dec, 1993 and the interest tax was charged at the rate of 3 per cent on the basis of interest actually received during the previous year relevant to asst. yr. 1993-94. The assessment was completed u/s 8(2) of the Act vide order dt. 10th March, 1995 of Dy. CIT, Special Range, Solan. The AO issued notice u/s 10 of the Act for reopening of the assessment on 4th Dec, 1995. The reassessment proceedings u/s 8(2) r/w Section 10 of the Act were completed vide order dt. 20th Feb., 1998 passed by Dy. CIT, Special Range, Solan vide which chargeable interest was assessed at Rs. 11,62,76,000. The order dt. 20th Feb., 1998 was assailed in appeal which was dismissed by CIT(A) on 10th Feb., 2000. The order dt. 10th Feb., 2000 was further assailed by way of appeal before Tribunal, which was dismissed on 11th Sept., 2001. The order dt. 11th Sept., 2001 has been assailed by the assessee in this Court by way of IT Appeal No. 1 of 2002.
IT Appeal No. 2 of 2002
This appeal has been filed u/s 260A of IT Act, 1961 r/w Section 21 of the Interest-tax Act, 1974 (for short, Act) against the order dt. 11th Sept., 2001 passed by Income Tax Appellate Tribunal (Tribunal), Chandigarh Bench passed in Interest-tax Appeal Nos. 1, 2/Chd/2000 for the asst. yr. 1992-93. The further facts are that assessee filed the return for the asst. yr. 1992-93 (1st Oct., 1991 to 31st March, 1992) of chargeable interest Rs. 2,33,23,994 on 29th Nov., 1994 and the interest-tax was charged at the rate of 3 per cent on the basis of interest actually received during the previous year relevant to asst. yr. 1992-93. The assessment was completed u/s 8(2) of the Act vide order dt. 14th March, 1995 of Dy. CIT, Special Range, Solan. The AO issued notice u/s 10 of the Act for reopening of the assessment on 4th Dec, 1995. The. reassessment proceedings u/s 8(2) r/w Section 10 of the Act were completed vide order dt. 20th Feb., 1998 passed by Dy. CIT, Special Range, Solan vide which chargeable interest was assessed at Rs. 5,12,39,000. The order dt. 20th Feb., 1998 was assailed in appeal which was dismissed by CIT(A) on 10th Feb., 2000. The order dt. 10th Feb., 2000 was further assailed by way of appeal before Tribunal, which was dismissed on 11th Sept., 2001. The order dt. 11th Sept., 2001 has been assailed by the assessee in this Court by way of IT Appeal No. 2 of 2002.
IT Appeal No. 9 of 2004
This appeal has been filed u/s 260A of IT Act, 1961 r/w Section 21 of the Interest-tax Act, 1974 (for short, Act) against the order dt. 9th Dec, 2003 passed by Income Tax Appellate Tribunal (Tribunal), Chandigarh Bench passed in Interest-tax Appeal No. 2/Chd/2003 for the asst. yr. 2000-01. The further facts are that assessee filed the return for the asst. yr. 2000-01 of chargeable interest Rs. 5,70,73,965 on 18th March, 2002 and the assessment was completed u/s 8(2) of the Act on 14th June, 2002 by Dy. CIT, Circle, Shimla. The order dt. 14th June, 2002 was assailed by the assessee before CIT(A) , Shimla which was dismissed on 12th Dec, 2002. The assessee filed appeal against the order dt. 12th Dec, 2002 before Tribunal which was dismissed on 9th Dec, 2003. The assessee has filed appeal against the order dt. 9th Dec, 2003 in this Court.
IT Appeal No. 10 of 2004
This appeal has been filed u/s 260A of IT Act, 1961 r/w Section 21 of the Interest-tax Act, 1974 (for short, Act) against the order dt. 9th Dec, 2003 passed by Income Tax Appellate Tribunal (Tribunal), Chandigarh Bench passed in Interest-tax Appeal No. 1/Chd/2003 for the asst. yr. 1996-97. The further facts are that assessee filed the return for the asst. yr. 1996-97 of chargeable interest Rs. 71,99,503 on 30th Nov., 1996 and the assessment was completed u/s 8(2) of the Act on 8th Jan., 2002 by Dy. CIT, Circle, Shimla. The order dt. 8th Jan., 2002 was assailed by the assessee before CIT(A), Shimla which was dismissed on 21st Nov., 2002. The assessee filed appeal against the order dt. 21st Nov., 2002 before Tribunal which was dismissed on 9th Dec, 2003. The assessee has filed appeal against the order dt. 9th Dec, 2003 in this Court.
The IT Appeal Nos. 1 and 2 of 2002 were admitted on identical five substantial questions of law but at the time of hearing, learned Counsel for the appellant in both the appeals has confined his submissions only on following substantial questions of law:
Whether under the facts and circumstances of the case the Tribunal is justified as per provisions of law in upholding the action of the learned assessing authority in initiating the reassessment proceedings u/s 10 of the Interest-tax Act of 1974 and in consequence of the same made thereby upholding the reassessment ?
Whether, under the facts and circumstances of the case the Tribunal was not justified by not giving any relief in respect of the interest earned on refinance operations and the said interest being payable to various financial institutions like IDBI, ICICI, IFCI, UTI and apex financial institutions wherein the said institutions have an overriding title as getting the refinance and lending of money to its constituents are integrated transactions and the interest payable to the said institutions need to be excluded from the taxable interest ?
The IT Appeal Nos. 9 and 10 of 2004 have been admitted on following identical substantial questions of law:
Whether, under the facts and circumstances of the case the Tribunal was not justified by not giving any relief in respect of the interest earned on refinance operations and the said interest being payable to various financial institutions like IDBI, ICICI, IFCI, UTI and apex financial institutions wherein the said institutions have an overriding title as getting the refinance and lending of money to its constituents are integrated transactions and the interest payable to the said institutions need to be excluded from the taxable interest ?
That there is no judgment on the said issue by this Hon''ble Court and the Hon''ble Supreme Court of India ?
We have heard Mr. Vishal Mohan, learned Counsel for the appellant in each appeal and Mr. Vinay Kuthiala, learned Counsel for the respondent and gone through the record. On behalf of the appellant it has been submitted that Tribunal was not justified in not giving relief to the assessee in respect of interest earned on refinance operations, as the interest was payable by the various financial institutions like IDBI, IFCI, ICICI, UTI, SIDBI and apex financial institutions who have overriding title and the interest payable to those institutions needs to be excluded from the taxable interest. In IT Appeal Nos. 1, 2 of 2002 it has been additionally submitted that reopening of the case in both the appeals by the Revenue against the assessee was illegal and not sustainable. The assessment orders passed by the AO could not have been reopened and therefore, reassessment orders of the assessee in IT Appeal Nos. 1, 2 of 2002 are wrong and not sustainable. The learned Counsel for the respondent in each appeal has supported the impugned order.
Substantial question of law No. 1 in IT Appeal Nos. 1 and 2
In CIT v. British Paints India Ltd. : (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) it has been held that AO has to determine the fact whether or not the books disclose the true state of accounts and the correct income can be deduced from the books of account, and this question has to be decided with reference to relevant material on record. The AO is not duty bound to accept the system of accounting regularly employed by the assessee, correctness of which has not been questioned in the past, if under such system correct income cannot be determined. Tribunal has noticed : (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) (supra), in the order dt. 11th Sept., 2001. Tribunal after noticing Sub-section (3) of Section 7 of the Act has further observed that assessee is obliged and is duty bound to submit the return of the chargeable interest by the date mentioned in Section 7. According to Tribunal chargeable interest means amount of interest accruing or arising to the credit institution in the previous year. The AO is duty bound to tax the correct chargeable income as per law irrespective of the system of accounting followed by the assessee. If the system of accounting cannot give correct figure of chargeable interest under the Act such system is to be rejected and correct interest income is to be brought to tax. Tribunal has returned the findings that chargeable interest cannot be computed on the basis of cash system of accounting as was followed by the assessee in the past. Tribunal has also held that return filed by the assessee on 29th Nov., 1994 for the asst. yr. 1992-93, was invalid return as it was filed beyond the time prescribed under the statute. The AO on the basis of such a return could not proceed and assessment based upon such return is also void and without jurisdiction and could be reopened u/s 10(a) of the Act.
The learned Counsel for the appellant has submitted that AO vide order dt. 14th March, 1995 and order dt. 10th March, 1995 had accepted the returns of the assessee for the asst. yr. 1992-93 and the asst. yr. 1993-94 respectively. The return for the asst. yr. 1992-93 was filed on 29th Nov., 1994 and that of asst. yr. 1993-94 on 31st Dec., 1993. He has submitted that Tribunal has misinterpreted Section 7 of the Act. According to Sub-section (1) of Section 7 the financial institution shall furnish a return of the chargeable interest of the credit institution of the previous year in the prescribed form before 31st of December of the assessment year. The Sub-section (3) of Section 7 further prescribes that any assessee who has not furnished a return within the time allowed under Sub-section (1) or Sub-section (2), or having furnished a return under Sub-section (1) or Sub-section (2), discovers any omission or wrong statement therein, may furnish a return or a revised return, as the case may be, at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. It is clear from Sub-section (3) of Section 7 that an assessee who has not furnished a return within the time allowed under Sub-section (1) or Sub-section (2), discovers any omission or wrong statement therein may furnish a return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. In case of asst. yr. 1992-93 under Sub-section (1) of Section 7 the date of filing of the return was 31st December of that assessment year. This period under Sub-section (3) of Section 7 was extendable before the expiry of one year from the end of the relevant assessment year. The assessee for asst. yr. 1992-93 could file the return before 31st March, 1994 but assessee filed the return for asst. yr. 1992-93 on 29th Nov., 1994 and was thus beyond prescribed limit. The assessee filed the return of asst. yr. 1993-94 on 31st Dec, 1993, under Sub-section (3) of Section 7; this return could be filed by the assessee till 31st March, 1995, hence the assessee filed the return for asst. yr. 1993-94 within prescribed limit. Tribunal has also not held that return filed by the assessee for the asst. yr. 1993-94 was not as per Section 7. The question is whether for the reasons stated in assessment reopening orders dt. 20th Feb., 1998 assessment orders for the asst. yr. 1992-93 and asst. yr. 1993-94 could be reopened by the AO u/s 10 of the Act.
The AO in separate reopening orders dt. 20th Feb., 1998, for asst. yr. 1992-93 and for asst. yr. 1993-94 after noticing judgment dt. 28th Aug., 1995 in M/s Himachal Pradesh State Financial Corporation Ltd. of CIT(A), Shimla rejected the contention of assessee to assess the chargeable interest on the basis of cash system of accounting i.e. receipt basis on the ground that the same will be levied on interest income accruing or arising. The AO in the reopening order dt. 20th Feb., 1998 has not recorded a finding that chargeable interest cannot be computed on the basis of cash system of accounting adopted by the assessee, nor a finding has been given that returns filed by the assessee for the asst. yr. 1992-93 and asst. yr. 1993-94 were factually incorrect. Late filing of return for asst. yr. 1992-93 had not affected the merits of the decision dt. 10th March, 1995 of the AO. The original assessment orders were opened on the basis of decision dt. 28th Aug., 1995 of CIT(A), Shimla in M/s Himachal Pradesh State Financial Coorporation.
The apex Court in Kerala State Industrial Development Corpn. Ltd. Vs. Commissioner of Income Tax, after considering the findings of the High Court that the chargeable interest, in terms of Section 5 of the Act was the total amount of interest accruing in the relevant previous year and that there was no scope in the section to read ''chargeable interest'' as meaning the amount actually received in the relevant previous year, has held as follows:
The assessee, in the case before us, has followed the cash system of accounting in respect of the interest income. The learned Counsel appearing on behalf of the assessee, therefore, has, in our opinion rightly, contended that Section 5 of the Interest-tax Act would in the circumstances allow the calculation or computation of chargeable interest on the basis of the amount of interest actually received.
In view of the law laid down by the apex Court , the AO in the reassessment orders dt. 20th Feb., 1998 has wrongly rejected the contention of the assessee to assess the chargeable interest on the basis of cash system of accounting i.e. receipt basis. The AO in reopening orders dt. 20th Feb., 1998 has not held that interest could not be computed on the basis of cash system of accounting adopted by assessee.
The assessment was reopened on the basis of another order of CIT(A), Shimla in M/s Himachal Pradesh Financial Corporation Ltd. where the plea of assessee that the chargeable interest may be assessed on cash system was not accepted. The learned Counsel for the Revenue has submitted that order of CIT(A), Shimla in M/s Himachal Pradesh Financial Corporation Ltd. came to the notice of AO after passing the assessment orders for the asst. yr. 1992-93 and asst. yr. 1993-94, therefore, said order is an information under Clause (b) of Section 10 of the Act. There is no substance in this submission of the learned Counsel for the Revenue. The apex Court in Kerala State Industrial Development Corporation Ltd. v. CIT (supra) has held that Section 5 of the Act allows the calculation or the computation of the chargeable interest on the basis of amount of interest actually received. In these circumstances, the assessment could not have been reopened on the basis of judgment of CIT(A), Shimla in another case holding that the chargeable interest cannot be assessed on the basis of cash system of accounting. In Commissioner of Income Tax, Shillong Vs. Tarajan Tea Co. (P) Ltd., after noticing Section 147(a)/(b) of the IT Act ,1961 which was similar to Section 10(a)/(b) of the Act, it has been held that order passed by the Asstt. CIT, in another case is not information within the meaning of the Section 147, hence neither Clause (a) nor Clause (b) of Section 147 would apply. Therefore in view of Commissioner of Income Tax, Shillong Vs. Tarajan Tea Co. (P) Ltd., , the decision of CIT(A), Shimla in M/s Himachal Pradesh Financial Corporation Ltd. cannot constitute ''information'' u/s 10 of the Act for reopening the assessment.
Tribunal in the impugned order has also observed that the return filed by the assessee for asst. yr. 1992-93 was not filed within the time, therefore, it was no return and any order passed on the basis of such return is non est and could be reopened. The AO has not reopened the assessment for asst. yr. 1992-93 on the ground that assessment was non est as the assessee had filed return for asst. yr. 1992-93 beyond time, nor the late filing of the return has affected the decision on merits. In view of the findings recorded above, the reopening orders of assessments for asst. yrs. 1992-93 and 1993-94 are not sustainable and the impugned orders in IT Appeal Nos. 1 and 2 are liable to be set aside. The substantial question of law No. 1 in IT Appeal Nos. 1 and 2 of 2002 is decided in favour of the assessee and against the Revenue.
Substantial question of law No. 2 in IT Appeal Nos. 1 and 2 of 2002 and substantial question of law No. 1 in IT Appeal Nos. 9 and 10 of 2004
The learned Counsel for the assessee has submitted that Tribunal has erred in not giving any benefit to assessee in respect of interest earned on refinance operation and the said interest being payable to various financial institutions under different schemes. The assessee acts as a channelising agency and the financial institutions have overriding title to the interest which is chargeable from the loanee. The interest payable to the financial institutions needs to be excluded from taxable interest. The learned Counsel for the Revenue has submitted that as per Sub-section (2) of Section 4 of the Act there shall be charged on every credit institution for every assessment year commencing on and from the 1st day of April, 1992, interest-tax in respect of its chargeable interest of the previous year at the rate of 3 per cent of such chargeable interest. The assessee being credit institution is liable to pay interest-tax under the Act. In Commissioner of Income Tax Vs. State Bank of Travancore, one of the questions for consideration was:
Whether, on the facts and in the circumstances of the case, the interest earned on refinancing operations is to be excluded from the taxable interest ?
A Division Bench of Kerala High Court after noticing Industrial Development Bank of India Refinance Scheme has held that amount of interest represents the aspect of rediscounting and, therefore, cannot form part of the interest income of the assessee as chargeable under the provisions of the Act and answered the above question in affirmative against the Revenue and in favour of the assessee. The Revenue has not taken the stand that in the present case terms and conditions of refinance of the assessee by the financial institutions during the relevant period were different from the terms and conditions noticed in Commissioner of Income Tax Vs. State Bank of Travancore, hence judgment of Kerala High Court is fully applicable in the present case and substantial question of law No. 2 in IT Appeal Nos. 1 and 2 of 2002 and substantial question of law No. 1 in IT Appeal Nos. 9 and 10 of 2004 are decided in favour of the assessee and against the Revenue.
The question No. 2 in IT Appeal Nos. 9 and 10 of 2004 is no substantial question of law and is decided against the assessee.
No other point was urged.
The result of the above discussion, IT Appeal Nos. 1 of 2002, 2 of 2002, 9 of 2004 and 10 of 2004 are allowed. Tribunal order dt. 11th Sept., 2001 for the asst. yr. 1993-94, Tribunal order dt. 11th Sept., 2001 for the asst. yr. 1992-93, Tribunal order dt. 9th Dec, 2003 for the asst. yr. 2000-01 and Tribunal order dt. 9th Dec, 2003 for the asst. yr. 1996-97 are set aside with no order as to costs.