Southern Roadways Ltd. vs The Deputy Commissioner of Income Tax

K. Chandru, J.—The writ petitioner is a Public Limited Company and they have filed the present writ petition seeking to challenge the orders of the respondent, Deputy Commissioner of Income Tax, Company Circle-I, Madurai, dated 14.05.2004 and as amended by a further order dated 21.06.2004.

The brief facts leading to filing of the writ petition are as follows;

The Petitioner Company was running a large Passenger Transport Undertaking. The State of Tamil Nadu enacted the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971 taking over a large number of Private Transport Undertakings. The said Act was brought into force with effect from 14.01.1972. The petitioner''s Passengers Transport Undertaking was also acquired by the Government. By virtue of the said enactment, buses run by the petitioner company and its related assets came to be vested with the Government.

The petitioner Company being an assessee under the Income Tax Act filed its return of income for the year ending 31.03.1972 on 15.12.1972. The petitioner company did not offer any amount under the head "capital gains" as well as profits u/s 41(2) of the I.T. Act, out of the compensation amount received from the Government. The Company was of the opinion that since it was a compulsory acquisition and being a slump sale, there was no transfer of assets and therefore, no capital gains or profits u/s 41(2) arose.

The Income Tax Officer Company Circle, Madurai completed the assessment taxing both capital gains as well as profit u/s 41(2) by its order dated 21.08.1973. The petitioner company filed an appeal before the Assistant Appellate Commissioner in I.T.A. No. 2187374. The appellate authority allowed the appeal filed by the company. The department went an appeal to the Tribunal in ITA. No. 855/MTS/77/78. The Tribunal, by its order dated 26.07.1981, decided certain issues and set aside some other issues and remitted the matter to the appellate authority to decide about the liability of the assessee, for capital gains and profits liable to be taxed u/s 41(2) of the I.T. Act.

The Commissioner of Income Tax (Appeals IV) on remand held that the petitioner company was liable to pay tax for the profits u/s 41(2). But, however he held for taxing the profits u/s 41(2), a final determination of compensation was essential. For determining the previous year in which the money is payable becomes due by its order dated 31.03.1986. He also found that the compensation was determined by the State Government vide its notification published on 07.09.1972, which was received by the assessee (the petitioner company) on 24.10.1972. Since the said date fell outside the year i.e. on 31.07.1972, he held that the officer was not justified in taxing u/s 41(2) profits in the assessment for the year 1972-73. He deleted the said addition made by the ITO u/s 41(2). But, however, he made an objection that the amount is taxable in the year 1973-74 and directed the I.T.O to reopen the assessment for the year 1973-74 for taxing this amount.

Both the petitioner company and the department went against this order to the Income Tax Appellate Tribunal. (for short ''I.T.A.T.''). The department''s appeal was No. I 1544/MTS/1986 and the assessee''s appeal was Appeal No. 1503/MTS/1986, respectively were filed against the order of the CIT (Appeals). The Tribunal held that the observations of the CIT (Appeals) regarding Section 41(2) profits were assessable in the assessment year 1973-74 and directed the I.T.O to reopen the assessment which were not "findings" necessary for disposal of the appeal for the year 1973-74. Such findings are incidental and not binding on the officer.

The ITAT at the instance of the department framed the following questions for determination by the High Court u/s 260(1).

Whether on the facts and in the circumstances of the case the Tribunal was correct in law in admitting an additional ground raised by the assessee questioning the CIT(A)''s finding that profits as per Section 41(2) on sale of buses and other assets are properly assessable in the assessment year 1973-74?

Whether on the facts and in the circumstances of the case the Tribunal was correct in law in holding that the CIT(A)''s findings that the profits u/s 41(2) are assessable in the assessment year 1972-73 are only incidental findings and are not legally binding on the Assessing Officer?

Whether on the facts and in the circumstances of the case the Tribunal was correct in law in deleting Rs. 55,21,856/- being profit u/s 41(2) from the total income for the assessment year 1972-73?

The said reference was answered by this Court vide its order dated 21.03.2003 in Tax Case No. 53/1999. The said order of the division bench has since been reported in (2004) 188 CTR 53. With reference to the first question, the answer of this Court is found in paras:.12 & 13, which is as follows:

Thus, the legal effect of the order of that CIT(A) directing the deletion of this amount from the scope of the assessment for this assessment year would be the same, whether or not a direction for including this amount in the succeeding assessment year is included in that appellate order.

Moreover, it is within the jurisdiction of the Tribunal to permit the parties before it to raise additional grounds if the additional grounds can be considered and decided on the basis of the materials already on record. Whether or not to allow additional grounds to be raised is a matter of sound discretion of the Tribunal. The Tribunal had the jurisdiction and had exercised its discretion properly in permitting the assessee to raise the additional ground. We answer the first question in favour of the assessee.

With reference to the question No. 2, this Court observed in para:14:

No answer need be recorded for the second question having regard to Section 153 of the Act. That question is returned unanswered.

With reference to the question No. 3, it was answered in para:27:

We therefore, answer the last question in favour of the assessee and against the Revenue.

While answering the reference, this Court made the following observations in para Nos. 23 & 24 as to the nature of the compensation amount received by way of an agreement during the assessment year 1973-74:

In this case, the amount payable to the assessee for the compulsory acquisition of its buses and other assets relating to the passenger transport buses was required to be determined by way of agreement, and in the event of agreement not being reached, by reference to arbitration. The assets were taken over in the month of January, 1972. In March of that year, when the Government decided to pay a part of the compensation payable for the acquisition of the assessee''s assets, there was no determination of the total amount payable, as such determination could only be the result of an agreement and no such agreement had been reached at that point of time, neither party having sought arbitration. What was disbursed by the Government, therefore, was an amount which was to be adjusted against the amount which was required to be determined either by way of an agreement or by recourse to arbitration. The parties did reach an agreement some months later during the assessment year 1973-74, and it was at that point of time there was a determination of the amount payable for the assets which had been taken over. The amount, therefore, is to be regarded as having become due at that point of time when the agreement was reached.

The term "due" as emphasised in the aforementioned decisions carries with it the implication that the amount which can be said to be due is an amount the recovery of which can be enforeced and that amount is an ascertained sum. Such ascertainment having been made in this case in the succeeding assessment year, it is in that year that the amount is to be brought to tax. The fact that a part of that amount had been disbursed in the earlier year would not make that amount immune from taxation in the succeeding year, nor would that amount become liable for taxation in the year in which it was paid. The terms used in Section 41(2) of the Act do not require that the amount should have been received. The emphasis is on the point of time at which the amount became due and it is that point of time alone which is relevant for the purpose of determining the year in which such amount should be brought to tax.

After this order, the respondent went to the Supreme Court and their SLP was also dismissed. Till the Tax Case was decided by this Court, the Appeal filed by the department was kept pending by the ITAT. Only on 05.01.2004, the I.T.A.T disposed of department''s appeal in I.T.A. No. 1544MVS/1986 with the following observations:

The Hon''ble High Court by judgment dated 21.03.2003 in T.C. No. 53 of 1999 has answered the first and third questions in favour of the assessee and the second question was returned unanswered.

In conformity with the aforesaid judgment of the Hon''ble Madras High Court the order dated 18.11.1996 of the Tribunal stands confirmed without any modification.

After the disposal of the appeal by the Tribunal and after taking cue from the answers made by this Court in the Tax Case, he passed an order, dated 14.05.2005 and added the compensation received for the assessment year 1974-75 and modified the assessment made already and thereby arrived at the tax demand of Rs. 62,48,328/-.

Immediately, on the receipt of this order, the petitioner company wrote to the respondent by a letter dated 04.06.2004, which is as follows;-

Kindly refer to the ''Revision'' order dated 14.05.2004 re-computing the total income determined in the order dated 26.09.1979 which was passed to give effect to the Appellate order passed by the Appellate Assistant Commissioner in ITA No. 22/76-77 dated 17.08.1979. You have re-determined the total income other than Capital Gains at Rs. 1,71,62,519/- by adding a sum of Rs. 91,55,057/- being the net compensation received by us from Tamil Nadu Government for taking over of our bus transport business.

Without prejudice to our right to question the legality of the Revision, we may bring to your kind notice a glaring and patent error in the ''Revision'' in respect of the amount added as ''compensation''. It will be appreciated that the only point in issue is the assessment year in which the balancing charge u/s 41(2) of the Income Tax Act relating to the depreciable assets taken over by the State for which the compensation was awarded is assessable. This balancing charge arising out of the compensation was quantified as Rs. 55,21,056/- in the assessment order dated 21.08.1973 for the Assessment year 1972-73. A copy of the assessment order is enclosed. There was never any dispute with regard to this sum and the only question which was litigated for nearly three decades was whether the sum of Rs. 55,21,056/- was eligible to tax and a subsidiary question was whether it was assessable in the Assessment year 1972-73 or 1973-74 when the compensation was finally fixed. Thus, the question regarding the quantum of 41(2) profit arising out of compensation was never in issue. Therefore, the correct amount to be takes is Rs. 55,21,056/- only and not Rs. 91,55,057/-. In fact the correct amount to be added is not the compensation itself but the profit worked out u/s 41(2) arising out of the compulsory acquisition of the bus transport business representing the excess amount of compensation over and above the written down value of the depreciable assets.

On receipt of this requisition from the petitioner company, the respondent passed an order dated 21.06.2004 and modified the earlier order and brought down the quantum of tax payable to Rs. 38,27,064/-. Thus, by this modification, the petitioner company got a substantial relief even at the hands of the respondent.

But not having satisfied with the substantial benefit granted by the respondent, the petitioner company has chosen to challenge the order dated 14.05.2004 and further modified by an order dated 21.06.2004 in this writ petition. The writ petition was admitted on 06.08.2004 and an interim-stay was granted in favour of the petitioner company. On notice from this Court, a counter affidavit dated 28.01.2005 was filed by the respondent. To which, a reply affidavit, dated 16.08.2005 was filed by the petitioner company.

It was contended by the petitioner that notice u/s 148 proposing to re-open the assessment for the year 1973-74 u/s 148 was issued by the Department on 17.05.1986. The petitioner company challenged the said notice by way of a writ petition. The said writ petition was withdrawn by the company in view of the order passed by the Tribunal. It was contended that by virtue of Section 150(2) of the Act that the notice issued by the respondent was barred by limitation.

The order of the Commissioner for Income tax appeals, dated 31.03.1986 and therefore, by virtue of Section 149, the assessment cannot be reopened. Even if the order of the Tribunal dated 18.11.1996 is taken into account, re-opening u/s 147 is time barred u/s 149. The impugned orders passed by the respondent is not an order of assessment nor re-assessment or recomputation u/s 147 and hence, the demand made barred by limitation.

In the counter affidavit filed by the respondent after controverting the allegations made in the affidavit, the following justification is provided in para:18 of the said counter affidavit:

I submit that Section 153(3)(ii) of the I.T. Act permits assessment, re-assessment and re-computation at any time where it is in consequence of or to give effect to any finding or direction contained inter alia in an order of any court in a proceeding otherwise than by way of appeal or reference under the Act. The assessment is governed by Section 143(3). Re-assessment is governed by Section 147 to 152. However, neither the term re-computation has been defined under the Act nor any specific procedure prescribed. Oxford English dictionary defines the word "computation" would, therefore, mean mathematical re-calclation. This does not involve any complexity procedure. It is probably for this reason that the Act has not stipulated any procedure for re-computation. It would follow that the re-computation will be under the same Section under which the assessment or reassessment was initially completed. Hence, now the non-mention of Section in the impugned order will not vitiate the order as invalid. Further, Explanation(2) below Section 153 cover the case as an inclusion of the profit for the AY 1973-74 was on the basis of the Hon''ble High Court findings that it was not assessable for the AY 1972-73 and was assessable for the AY 1972-73. Hence, the order under consideration is within jurisdiction and is not bad in law. As a procedure, only involved mathematical re-calculation in accordance with the finding of the High Court not giving opportunity to the petitioner, will not make it bad in law... What has been done in the order passed on 14.05.2004 and 21.06.2004 was only a re-computation of the demand payable by the petitioner company and it requires no legal sanction. Further, as already stated the petitioner company is fully aware of the facts of the case that the 41(2) profit is assessable for the AY 1973-74 and not 1972-73. Hence, the revision order passed in conformity with the direction of the Hon''be Court is within the power of the Assessing Officer and it is not bad in law.

Mr. V. Ramachandran, learned Senior Counsel leading Mr. P. Radhakrishnan submitted that the impugned order has been passed by an incompetent authority and no notice was given under Sections 139, 143(2) and 148 of the I.T. Act.

Per contra, Ms. Pushya Sitaraman learned Senior Standing Counsel submitted that the action was initiated pursuant to answers given in the reference made on the appeal filed by the Department. While answering the reference, this Court had concluded the liability of the petitioner to pay tax for the subsequent years. In any event, u/s 153(3)(ii), it has been made that if any assessment is made on a direction given u/s 260 of the I.T. Act, then the requirement of following Sub-sections 1(A), 1(B) and 2 will not apply in making assessment, re-assessment or recomputation.

Further, argument was also placed Explanation-2 to Section 153(3) does not talk about any notice to be given. Further, the Explanation 3 contemplates, a notice to the assessee and therefore, the legislature practically dispensed with a notice. In the present case, the liability to pay the tax is not in dispute and the quantum is also not dispute. Further, the petitioner themselves have addressed to the respondent and got a modification, thereby, substantial tax reduction was obtained by them.

However, Mr. Ramachandran, learned Senior Counsel contended that insofar as the question No. 2, it was not answered and was returned. Hence, it was an ineffectual reference.

The above stand was controverted by the learned Counsel for the respondents. She further stated that the appeal is deemed to be pending till a reference is answered. In the present case, the appeal was disposed of only on 5th January, 2004 and therefore, the question of any limitation does not arise. Even with reference to question No. 2, the Court merely pointed out the provision of 153 of the I.T. Act and therefore, when there is an obvious provision, a question need not be answered in the teeth of a provision.

The learned Senior Counsel for the petitioner referred to the judgment of this Court in Commissioner of Income Tax v. V. Jeyaraman reported in 207 ITR 1038, and submitted that in a case of reassessment u/s 147(a), even if such reassessment is made in consequence of or to give effect to any finding or direction contained in the order passed u/s 250, it is necessary that the ingredients of Section 147(a) has to be satisfied.

He also placed reliance upon a decision of the High Court of Kerala in 249 ITR 19, Commissioner of Income Tax v. Vaigundum Rubber Co. Ltd. He referred to the following passage found in pages: 24 and 25, which is usefully extracted below:

According to us, the words "at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be was made." in Section 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 Commissioner of Income Tax and another to the Tribunal. But, the next word is reference. Reference is made u/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 Income Tax Tribunal refers the matter to the High Court, the order that was considered by the Tribunal is the order of the Assessing Officer? 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 the 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 Section 150(2). Then, in this case, the order which was the subject-matter of appeal is to be construed as the order passed by the Commissioner of Income Tax (Appeals) on March 1, 1984. If so, the reassessment for 1978-79 will also be barred.

Thereafter, reliance was placed upon a judgment of the Supreme Court in K.M. Sharma Vs. Income Tax Officer, Ward 13(7), New Delhi, and it was contended that the fair and just interpretation of Section 150(2) of the I.T. Act could be that the authority under the Act is only to reopen the assessment which have not already been closed and attained finality due to operation and bar of limitation u/s 149.

On the side of the department, reliance was placed upon to the following decisions of the Courts;-

a. In Mysore Tobacco Co. Ltd. Vs. Commissioner of Income Tax,

b. In Mahadeo Prasad Rais (decd. by L.Rs) v. Income Tax Officer, ''A'' Ward, Gorakhpur and Anr. reported in : [1991]192ITR402(SC) .

c. In L. Alagusundaram Chettiar Vs. Commissioner of Income Tax, .

d. In (2006) 103 ITD 81 .

e. In Commissioner of Income Tax Vs. T.P. Asrani, .

f. In State of H.P. and Others Vs. Gujarat Ambuja Cement Ltd. and Another, .

There is no necessity to discuss all the cases referred to above and it is suffice to refer to one or two decisions urge the points submitted by the respondents. In Mahadeo Prasad Rais''s case at page 408, it is observed as follows:

The answer to the second question is furnished by Section 150(1) itself. It removes the bar of time when the reassessment proceedings are initiated in consequence of or to give effect to a finding contained in an order passed by any authority in any proceeding by way of appeal, reference or revision. There is no difficulty here for the orders of the Tribunal and the High Court for the several years between 1949-50 and 1961-62 were passed in proceedings by way of appeals and reference and there is no dispute that the reassessment proceedings have been initiated to give effect to findings in such orders. There is, however, a catch in applying the terms of Section 150(1) to this case. There is no doubt that the whole idea of the sub-section was to lift the embargo placed on initiation of reassessment proceedings and to remove the time limit where the notice of assessment is issued with a view to give effect to a direction or finding contained in an appellate order or an order passed on revision or on reference. Unfortunately, however, in expressing its above intention, the Legislature has worded the exemption from the time-limit so as to cover only cases where the finding or direction is contained in an order passed by any such authority in any such proceeding "under this Act." i.e. 1961, Act.

In L. Alagusundaram Chettiar''s case (cited supra) a Division Bench of this Court observed as follows:

...Therefore, we are of the considered opinion that the limitations prescribed u/s 154 or u/s 147(b) were not meant to be applied to amendments made consequential to the decision of the High Court or the Supreme Court even though the power of the Income Tax Officer to amend the assessments in consequence of these decisions may be traceable to either Section 147(b) or Section 154.

In the light of the above factual matrix and legal precedents, it has to been seen whether the impugned orders suffer from any manifest illegality or irregularity. The bar of limitation raised by the petitioner does not stand in the scrutiny of law. The appeal filed by the department continued till 5th, January, 2004. The Tribunal raised a question No. 2, though it was not answered by the Division Bench, a Division Bench clearly indicated that Section 153 as a complete answer to the issue on hand. The Explanation 2 to 153(3) does not contemplate any notice. In any event, in the present case, the petitioner''s representation was received and a modification was made in reducing the quantum of tax payable. The petitioner is fully aware that he is bound to pay tax on the compensation amount received from the Government and there is no dispute regarding the quantum. The only question was as to which assessment year it should be taken into account. Therefore, the question of any lack of notice or that the petitioner was prejudiced the order passed by the respondent does not arise.

In view of the above, the writ petition stands dismissed. However, there will be no order as to costs. Consequently, connected M.P. is closed.