1982 (6) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of income accrued in Daman in the total income for determining the rate of tax under the I.T. Act, 1961.
2. Challenging the levy of penal interest under sections 139(1) and 217 of the I.T. Act in an appeal against the assessment order.

Issue-wise Detailed Analysis:

1. Inclusion of Income Accrued in Daman:

The primary issue was whether the income accrued to the assessee in Daman (a Union Territory) should be included in the total income for determining the rate of tax under the I.T. Act, 1961, and the Taxation Concessions Order, 1964. The assessee, a resident of Daman, was dealing in foreign goods. The ITO had included certain sales as being effected in Bombay and estimated the gross profit accordingly, adding a significant amount to the disclosed income.

The assessee contended that the income arising in Daman should not be taxed under the I.T. Act due to the Taxation Concessions Order, 1964. The Tribunal accepted this contention, interpreting that the income assessed under the local law should not be included for determining the rate of tax under the I.T. Act. The court noted that Daman, previously a Portuguese territory, had local laws with lower tax rates. The Taxation Concessions Order aimed to alleviate hardships due to the extension of the I.T. Act to Daman, which resulted in higher tax liabilities.

The court examined the relevant statutory provisions, including the definitions of "Union territory," "local law," "local rate of tax," and "Indian rate of tax." It focused on para. 5(1) of the Taxation Concessions Order, 1964, which stated that income chargeable to tax under the local law and already assessed under it should not be assessed under the I.T. Act. The court concluded that this income should not be included in the total income for rate determination purposes, supporting the assessee's contention. The court also referenced a Division Bench decision in CIT v. N. M. Raiji, which supported the exclusion of exempted income from the total income for rate determination. Thus, question No. 1 was answered in the affirmative and in favor of the assessee.

2. Challenging the Levy of Penal Interest:

The second issue was whether the assessee could challenge the levy of penal interest under sections 139(1) and 217 of the I.T. Act in an appeal against the assessment order. The Tribunal held that the appeal was maintainable as it was filed against the entire assessment order, including the levy of interest. This decision aligned with the Full Bench ruling in CIT v. Daimler Benz A. G., which supported the assessee's right to challenge the interest levy in such appeals. Consequently, question No. 2 was also answered in the affirmative and in favor of the assessee.

Conclusion:

Both issues were resolved in favor of the assessee. The income accrued in Daman was not to be included in the total income for determining the tax rate, and the assessee was entitled to challenge the levy of penal interest in the appeal against the assessment order. The Commissioner was ordered to pay the costs of the reference.