1992 (4) TMI 15 - HC - Income Tax

Summary

Issues Involved:

1. Validity of assessment orders without tax computation in the body.
2. Legality of returns signed by liquidators and assessability of a company in liquidation.
3. Deduction of expenses from interest income.
4. Legality of reference u/s 144B and its impact on the limitation period.

Summary:

1. Validity of Assessment Orders Without Tax Computation:
The Tribunal held that non-computation of tax in the body of the assessment order u/s 143(3) did not invalidate the assessment orders for the assessment years 1979-80 and 1980-81, as the amount of tax was mentioned in the demand notice. This was affirmed by the Supreme Court's decision in Kalyankumar Ray v. CIT [1991] 191 ITR 634. The first question was answered in the affirmative and in favor of the Revenue.

2. Legality of Returns Signed by Liquidators and Assessability of a Company in Liquidation:
The Tribunal rejected the assessee's stand that the return of income signed and verified by one of the liquidators was non est in law and that the assessment made on that basis was ab initio void. The Tribunal also rejected the contention that the company in liquidation had no taxable income within the meaning of section 5 of the Income-tax Act, 1961, and that no capital gains tax could be levied post winding up. Additionally, the Tribunal dismissed the argument that no income could be charged to tax due to the absence of a prescribed tax rate for companies in liquidation. These questions were answered in favor of the Revenue, following the decisions in United Provinces Electric Supply Co. Ltd. (in liquidation) v. CIT [1993] 204 ITR 794 and I.T. Reference No. 319 of 1982.

3. Deduction of Expenses from Interest Income:
The Tribunal held that the assessee was not entitled to deduction of the entire expenses on salaries, audit fees, miscellaneous expenses, and bank charges out of the income of interest assessed under the head "Income from other sources" except the proportionate expenses incurred for earning that income. This was consistent with the decision in United Provinces Electric Supply Co. Ltd. (in liquidation) [1993] 204 ITR 794, where it was held that deductions are allowed only to the extent that they were wholly and exclusively spent for making and earning the income from other sources. The third question was answered in the affirmative and in favor of the Revenue.

4. Legality of Reference u/s 144B and Limitation Period:
The Tribunal held that the reference u/s 144B was legally made by the Income-tax Officer and thus the assessment was not barred by limitation. The assessee contended that the Income-tax Officer, after receiving directions u/s 144A, had no jurisdiction to proceed u/s 144B. However, the court noted that sections 144A and 144B serve different purposes and can operate independently. Section 144A allows the Inspecting Assistant Commissioner to issue pre-assessment directions, while section 144B provides a check against high-pitched assessments. The court concluded that section 144A does not preclude the operation of section 144B, and the Income-tax Officer's actions were within jurisdiction. The fourth question was answered in the affirmative and in favor of the Revenue.