Madras Auto Service vs Income Tax Officer

Ramaswami, J.—This is a petition for issue of a writ of prohibition directing the Income Tax Officer, Circle II, not to proceed with the

proposed revised assessment for the assessment year 1966-67, in pursuance of his notice dated March 2, 1971, in G.I. No. l-M/1966-67.

The petitioner was assessed for the assessment year 1966-67 by an order dated November 26, 1966, as rectified in the order dated 27th May,

1968. The assessee claimed deduction in respect of interest on borrowings from the business income. Treating the entire borrowings as relatable to

the business, originally the Income Tax Officer allowed deduction in respect of the entire interest from the business income. In the income from

other sources"" was included dividend income received by the assessee from certain other associated companies. While assessing for the

assessment year 1970-71, the Income Tax Officer considered that the entire borrowings had not been for the purpose of business but a portion of

it went for purchase of shares in the other companies and that, therefore, the entire interest paid on the borrowings could not be deducted from the

business profits but has to be apportioned between the business income and the dividend income. Though in the resultant figure of the total

assessable income no change happened because of this reallocation, the result of such reallocation deprived the assessee of the benefit of Sections

85 and 85A in respect of the dividend income. After this assessment for the assessment year 1970-71, the Income Tax Officer issued a notice u/s

147(b) proposing to revise the assessment for the year 1966-67 and calling for objections. The assessee had filed this petition against this proposal

to revise the assessment. A number of objections have been taken in the affidavit filed in support of the petition relating to the jurisdiction of the

Income Tax Officer in issuing this notice. But it is not necessary for us at this stage to go into all those objections in view of the fact that we are

inclined to accept the argument of the learned counsel for assessee in one respect. It is seen from the assessment order for the year 1970-71 that

the Income Tax Officer by applying the provisions of Sections 80M and 80K, which correspond to the old Sections 85 and 85A, has deducted

the proportionate interest which was apportioned by him from the dividend income. The Income Tax Officer was further of the view that the relief

available under Sections 80M and 80K in respect of dividend income is with reference to only the net income and not the gross dividend. It is in

this view he considered that income has been made the subject of excessive relief in the assessment year 1966-67. In a recent judgment in

Commissioner of Income Tax v. Madras Motor and General Insurance Co. Ltd., [1975] 99 1TR 243 (T.Cs.Nos. 119 and 120 of 1968) we have

held that u/s 99(1)(iv), which was similar to Section 80K, only ""dividend"" will have to be taken into account and not ""net dividend "" for the purpose

of giving rebate under that provision. On this interpretation no ground of excessive relief for assessment year 1966-67 would arise. The learned

counsel for the revenue pointed out that the decision in Commissioner of Income Tax v. Madras Motor and General Insurance Co. Ltd. (T.Cs.

Nos. 119 and 120 of 1968) related to a general insurance business and it is because of the nature of the business we have taken the view that the

income cannot be split up into dividend income and business income and that decision will not apply to the assessee''s case. But we are unable to

agree with this distinction made by the learned counsel. The language in Section 99(1)(iv) and Section 80K are similar and in both cases the rebate

is to be allowed on the dividend income. There being no restrictive words similar to ""net dividend "" in the section we are unable to accept the

contention that the rebate is to be allowed only on the net dividend. If this view were to be accepted then we cannot say that there was any

excessive relief in respect of any income assessable to tax within the meaning of Section 147(b), The learned counsel for the revenue submitted that

at the time when the notice was issued u/s 147(b) our decision was not given and that it cannot be said that the Income Tax Officer had no reason

to believe that the income has been made the subject of excessive relief. It is true that our decision was given long subsequent to the notice u/s

147(b) but our decision only declares the law as it stood even at the time when the notice was issued. Therefore, he could not have entertained any

reasonable belief that the income chargeable to tax has escaped assessment. Further, at this stage even after our judgment, we cannot allow the

assessment to be proceeded with when clearly there would not be any grant of excessive relief in the light of the judgment in Commissioner of

Income Tax v. Madras Motor and General Insurance Co. Ltd. (T.Cs. Nos. 119 and 120 of 1968).

This ground itself is enough to issue the writ of prohibition prayed for. We are, therefore, not going into other questions particularly as to

whether the Income Tax Officer could be said to have changed his opinion and, therefore, Section 147(b) is not attracted.

This writ petition is allowed and the rule nisi is made absolute. There will be no order as to costs.