2011 (3) TMI 1437 - HC - Income Tax

Reopening of assessment - usance interest - assessment of the petitioner for the asst. yr. 1994-95 is sought to be reopened by issuing the impugned notice on the ground that the petitioner had paid the usance interest amounting to Rs. 63,18,925 on purchase of ships and had not complied with the provisions of s. 40(a)(i) of the Act Held that - by virtue of Expln. 2 to s. 10(15)(iv)(c) of the Act, which has been made retrospectively effective from 1st April, 1962, usance interest payable outside India by an undertaking engaged in the business of ship-breaking in respect of purchase of ship from outside India is deemed to be interest payable on debt incurred in a foreign country in respect of the purchase outside India and as such the same cannot be included while computing the total income of the petitioner, petition succeeds and accordingly it is allowed - notice issued under s. 148 of the Act quashed.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act for reopening assessment for the assessment year 1994-95.

Analysis:
The petitioner, a company engaged in ship-breaking, challenged a notice issued by the respondent under Section 148 of the Income Tax Act for reopening the assessment for the assessment year 1994-95. The petitioner had filed its return of income for the said year along with necessary documents as required by the Act. Subsequently, an assessment was framed making certain additions and disallowances. The impugned notice sought to reopen the assessment based on the petitioner's payment of usance interest on the purchase of ships, alleging non-compliance with Section 40(a)(i) of the Act. However, Explanation 2 to Section 10(15)(iv)(c) of the Act, inserted with retrospective effect from 1st April, 1962, deemed the usance interest payable by ship-breaking undertakings for purchases from outside India as interest on debt incurred in a foreign country. This meant that such interest could not be included in computing the total income. Consequently, the basis for reopening the assessment was no longer valid, leading the court to quash the notice under Section 148 of the Act.

This judgment highlights the importance of statutory amendments and their retrospective applicability in determining the tax implications of certain transactions. It emphasizes the need for a thorough understanding of relevant provisions and their impact on specific cases to ensure compliance and avoid unnecessary challenges to assessments.