2007 (11) TMI 12 - SC - Income Tax

Revision Commissioner purported to exercise his power u/s 263 to revise the order of AO on the ground that the order of the AO was prejudicial to the revenue Held that Commissioner not entitled to revise

Summary

Issues: Interpretation of the word "profits" in Section 80 HHC (3) proviso; Scope of Section 263 of the Income Tax Act; Application of the judgment in Malabar Industrial Company Ltd. case; Clarification on the phrase "prejudicial to the interest of the revenue" under Sec. 263; Impact of the 2005 amendment on the Assessing Officer's view; Consideration of the law as it stood at the time of passing the Commissioner's order.

In this judgment by the Supreme Court of India, the primary issue revolved around the interpretation of the word "profits" in the proviso to Section 80 HHC (3) of the Income Tax Act. The Court noted that at the relevant time, two views were possible on the meaning of "profits" in this section. The 2005 Amendment clarified this by inserting the word "loss" with retrospective effect. However, the Court refrained from expressing an opinion on the scope of this amendment. The judgment referenced the case of Malabar Industrial Company Ltd. and the Calcutta High Court case of Russell Properties P. Ltd. v. A. Chowdhuary to support the existence of multiple views on the term "profits" at the time of the Commissioner's order under Section 263.

Regarding the application of Section 263 of the Income Tax Act, the Court clarified that every loss of revenue due to an Assessing Officer's order may not be considered prejudicial to the interest of the revenue. The phrase "prejudicial to the interest of the revenue" must be read in conjunction with an "erroneous" order by the Assessing Officer. The Court emphasized that if the Assessing Officer's view is sustainable in law or if two views are possible, the order cannot be deemed erroneous unless the view taken is legally unsustainable. The Additional Solicitor General argued that the Assessing Officer's view on Sec. 80 HHC (3) was unsustainable, justifying the Commissioner's use of Section 263. However, the Court disagreed, stating that the existence of multiple views on the word "profit" in Section 80 HHC and the complexity of the section's mechanics made it possible to have differing interpretations.

Ultimately, the Court dismissed the civil appeals filed by the Department, indicating that the subsequent retrospective amendment in 2005 did not affect the position of law as it stood when the Commissioner passed the order under Section 263 in 1997. The judgment concluded with no order as to costs, settling the matter in favor of the interpretation that existed at the time of the Commissioner's decision.