2017 (7) TMI 964 - HC - Income Tax

Liability to pay interest tax on the interest earned - Held that - Under clause (a) of Section 10, therefore, in case where an Assessing Officer has reason to believe that by reason of omission or failure on the part of the assessee to make a return or to disclose fully all the material facts necessary for the assessment, chargeable interest has escaped assessment or has been under-assessed or is subject to excessive relief, he may at any time serve on the assessee a notice and proceed to assess or reassess the amount chargeable to interest tax in terms of Section 7 of the Act. Clause (a) thus clearly envisages assessment or reassessment where interest chargeable to tax has escaped assessment for the reason of the omission or failure on the part of the assessee to make a return. This is precisely what has happened in the present case. The judgement of the Supreme Court in case of Standard Chartered Finance Ltd. 2016 (3) TMI 150 - SUPREME COURT cannot be seen as laying down the proposition that even if no assessment was on account of return not having been filed by the Assessee, Section 10 would not apply and the Assessing Officer would be precluded from assessing or reassessing the chargeable interest. As noted clause (a) of Section 10 envisages a clear situation where for the reason of omission or failure on the part of the assessee to make a return, the Assessing Officer has reason to believe that chargeable interest has escaped assessment. In such a situation, he has the authority to assess or reassess the chargeable interest. This question, therefore, does not arise and the Civil Application is therefore rejected.

Summary

Issues:
Admission of additional question in Tax Appeal No. 154 of 2007 regarding the validity of reassessment.

Analysis:
1. The applicant sought to admit an additional question in Tax Appeal No. 154 of 2007 related to the validity of reassessment under the Interest Tax Act, 1974. The original appeal questioned the liability to pay interest tax on earned interest.

2. The applicant had not filed a return for the assessment year 1996-97 under the Interest Tax Act, leading to the Assessing Officer issuing a notice for assessing interest tax liability. The assessee later filed a return declaring Nil chargeable interest. The Tribunal appeal raised a question regarding the validity of the notice for reassessment, which was later withdrawn during the appeal process.

3. The applicant now sought to raise a new question on the validity of reassessment based on a Supreme Court decision. The applicant argued that the validity of reassessment is a jurisdictional question that can be raised at any stage, citing a previous court judgment.

4. The High Court analyzed the situation where the assessee had not filed a return, and the Assessing Officer initiated assessment under Section 10 of the Act for escaping interest. Section 10 allows for assessment or reassessment when chargeable interest has escaped assessment due to the assessee's failure to make a return.

5. Referring to the Supreme Court decision in Standard Chartered Finance Ltd. case, the High Court clarified that the judgment's ratio applies to situations where no assessment order was passed initially. If an assessment was not conducted due to the assessee not filing a return, Section 10 empowers the Assessing Officer to assess or reassess the chargeable interest.

6. The Supreme Court's ruling emphasized that the Assessing Officer can reassess chargeable interest even if no assessment was conducted initially due to the assessee's failure to file a return. The judgment distinguished cases where no assessment was conducted at all from cases where the Assessing Officer failed to pass an assessment order despite the assessee filing a return.

7. The High Court rejected the application to admit the additional question on the validity of reassessment, as the situation did not align with the circumstances where the Supreme Court ruled against reassessment due to the absence of an original assessment order. The High Court affirmed the Assessing Officer's authority to reassess chargeable interest in cases where the assessee failed to file a return, as permitted under Section 10 of the Act.