1981 (9) TMI 56 - HC - Income Tax

Summary

Issues: Challenge to legality of notice under s. 148 of the I.T. Act, 1961; Interpretation of s. 80MM of the Act for deduction calculation; Validity of assumption of jurisdiction under s. 147 of the Act.

Analysis:

The petitioners, a private limited company providing consultancy services, challenged the legality of a notice served by the ITO under s. 148 of the I.T. Act, 1961. The notice was related to the deduction claimed under s. 80MM of the Act for the assessment year 1974-75. The petitioners had received fees from consultancy contracts but had not obtained approval from the Board for claiming the benefit under s. 80MM by the time of filing the return. The ITO initially allowed a deduction of 40% of the gross fees but later restricted it to a lower amount. The petitioners appealed this decision, and the ITO made further rectifications to the deduction amount. Subsequently, the ITO issued a notice questioning the deduction calculation methodology. The petitioners argued that the ITO's assumption that deductions under s. 80MM should be based on net receipts was incorrect, citing Supreme Court decisions supporting their position. They also contended that the ITO's exercise of power under s. 147 was baseless and amounted to a change of opinion. The Court agreed with the petitioners, emphasizing that deductions under s. 80MM should be based on gross income, not net receipts, as per Supreme Court rulings. The Court found the notice to be unsustainable and lacking valid reasons for reopening the assessment, ultimately quashing the notice under s. 147 of the Act. The Court ruled in favor of the petitioners, holding that the notice was to be struck down due to the incorrect assumptions made by the ITO and the lack of valid grounds for reopening the assessment.

In conclusion, the Court found in favor of the petitioners, ruling that the notice under s. 148 of the I.T. Act challenging the deduction calculation under s. 80MM was unsustainable and lacked valid reasons for reopening the assessment. The Court emphasized that deductions under s. 80MM should be based on gross income, as per Supreme Court decisions. The Court quashed the notice under s. 147 of the Act, agreeing with the petitioners' arguments that the ITO's assumptions were incorrect and lacked a valid basis, ultimately granting relief to the petitioners and ruling in their favor.