2014 (8) TMI 169 - HC - Income Tax

Interest income from sale of securities - Accrual of interest income received as a transferor for Hindustan Steel - Held that - It was as far as back as on 2 January 2001 that the petitioner had made an application to the CBDT seeking condonation of delay and consideration of its application for refund of the TDS of ₹ 32,71,118/-, on merits - petitioner had clearly pointed out the complete nature of the transaction including the fact that the gross amount (including TDS amount) had been paid over by them to Hindustan Steel - The application before the CBDT is still pending - there is no interest income earned by the petitioner on the sale of securities - the interest income which belongs to Hindustan Steel cannot be brought to tax in the hands of the assessee - petitioner has not earned the income as owner and/or holder of securities which had been already sold to Hindustan Steel - The petitioner had received the interest amount in its capacity as a registered holder and/or as a transferor for Hindustan Steel - no income as interest on account of securities has been earned by the petitioner in respect of the interest received on 8 June 1996 on the securities which were already sold to Hindustan Steel. Notice for reopening of assessment u/s 148 - Time-barred notice Held that - Notice has been issued beyond the period of 4 years from the end of the relevant AY - where the assessment which is completed u/s 143(3) of the Act is sought to be reopened beyond the period of 4 years, from the end of the relevant AY, then AO acquires jurisdiction to issue notice for reopening only on the satisfaction of the conditions - interest income received on the securities on 8 June 1996 was never claimed as the petitioner s income is also borne out by its communication dated 2 January 2001 to the CBDT in its application u/s 19(2)(b) of the Act, the occasion to disclose the same never arose - there was no occasion for the petitioner to disclose receipts which was not its income and therefore, not necessary for its assessment it cannot be said that there was failure on the part of the petitioner to make a full and true disclosure for the purposes of its assessment there could be no reason to believe that income chargeable to tax has escaped assessment the order is set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for A.Y. 1997-98.
2. Whether there was a failure on the part of the petitioner to disclose material facts necessary for its assessment.
3. Applicability of the CBDT Circular dated 30 March 1967 and the amendment to Section 199 of the Act by the Finance Act 1968.
4. Jurisdictional requirements for reopening an assessment beyond the period of four years.

Detailed Analysis:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for A.Y. 1997-98:
The petitioner challenged the notice dated 16 March 2004 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for A.Y. 1997-98. The petitioner argued that the notice was not sustainable as no income chargeable to tax had escaped assessment, nor was there any failure on its part to disclose all material facts necessary for its assessment for A.Y. 1997-98.

2. Whether there was a failure on the part of the petitioner to disclose material facts necessary for its assessment:
The petitioner contended that the amount of Rs. 1,32,30,000/- was not its income and was never claimed to be its income. The petitioner had sold securities to Hindustan Steel Ltd. on 10 January 1996, and the interest income belonged to Hindustan Steel. The petitioner received the interest as the change of ownership was not recorded in the RBI records until 8 June 1996. The petitioner paid the entire amount, including TDS, to Hindustan Steel and applied for a refund of the TDS amount. The petitioner argued that there was no failure to disclose material facts as the interest income was not its income.

3. Applicability of the CBDT Circular dated 30 March 1967 and the amendment to Section 199 of the Act by the Finance Act 1968:
The Assessing Officer rejected the petitioner's objections to reopening the assessment, stating that there was a failure to disclose material facts necessary for assessment. The officer held that the CBDT Circular dated 30 March 1967 was inapplicable due to the amendment to Section 199 of the Act by the Finance Act 1968. The petitioner argued that the circular provided that the registered holder would not be charged to tax but would be entitled to a refund of the TDS. The petitioner had applied for a refund under Section 119(2)(b) of the Act due to the delay in receiving the TDS Certificate.

4. Jurisdictional requirements for reopening an assessment beyond the period of four years:
The court noted that the assessment for A.Y. 1997-98 was completed under Section 143(3) of the Act, and the notice for reopening was issued beyond the period of four years from the end of the relevant assessment year. The court emphasized that the Assessing Officer could issue a notice for reopening only if there was a failure on the part of the assessee to make a full and true disclosure necessary for its assessment and if such failure led to a reason to believe that income chargeable to tax had escaped assessment.

The court examined the facts and found that the petitioner had disclosed the complete nature of the transaction, including the payment of the interest amount to Hindustan Steel, in its application to the CBDT. The court concluded that there was no interest income earned by the petitioner on the sale of securities and that the interest income belonged to Hindustan Steel. Therefore, the petitioner had not earned any income from the securities during A.Y. 1997-98, and there was no failure to disclose material facts necessary for its assessment.

Conclusion:
The court set aside the impugned notice dated 16 March 2004 and the order dated 5 April 2005 disposing of the petitioner's objections. The court allowed the writ petition, concluding that there was no reason to believe that income chargeable to tax had escaped assessment and that the petitioner had not failed to disclose material facts necessary for its assessment. No order as to costs.