2008 (11) TMI 234 - HC - Income Tax

Appeal to ITAT monetary limit CBDT instruction change of head of income income from other sources versus salary income - held that - instruction fixing monetary limit for filing of appeal u/s 268A before the Tribunal has statutory flavour and in the back-ground thereof, we are of the opinion that the appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals) was wholly unjustified - that the Tribunal was justified in affirming the change of head of income, income from other source declared by the assessee to income from salary by the Assessing Officer in exercise of the power under section 143(1)(a) of the Act. The natural corollary of the answer of the aforesaid question is that the finding of the Tribunal in regard to the change of head of the income is legal and valid

Issues Involved:
1. Addition of accrued interest on NSC as a matter of adjustment under section 143(1)(a).
2. Taxation of interest on NSC on accrual basis versus cash system of accounting.
3. Change of head of income from "Income from other sources" to "Salary."
4. Legality of the Tribunal's finding regarding the change of head of income.
5. Justification of the Tribunal's decision in light of CBDT's monetary limit instructions.

Detailed Analysis:

1. Addition of Accrued Interest on NSC as a Matter of Adjustment:
The court considered whether the addition of accrued interest on NSC was a matter of adjustment within the provision of section 143(1)(a). The Commissioner of Income-tax (Appeals) had deleted the adjustment made by the Assessing Officer, stating that the impugned addition was not a matter of adjustment and could not be linked to the rebate under section 88 claimed by the assessee.

2. Taxation of Interest on NSC on Accrual Basis:
The Tribunal upheld the taxation of interest on NSC on an accrual basis, despite the appellant following a cash system of accounting. The court noted that the Assessing Officer had rightly added the interest amount on NSC to the income from other sources of the assessee. This decision was reversed by the High Court, which found that the Tribunal was not justified in allowing the appeal of the Revenue, citing the monetary limit instructions issued by the CBDT.

3. Change of Head of Income from "Income from Other Sources" to "Salary":
The court examined whether the change of head of income from "Income from other sources" to "Salary" by the Assessing Officer under section 143(1)(a) was justified. The Tribunal had affirmed this change, stating that the Chief Minister is a constitutional post, not a political one, and thus the income should be classified as salary. The High Court upheld this view, citing Article 164(5) of the Constitution, which provides for the payment of salary to the Chief Minister, and relevant case law, including the Supreme Court's decision in Justice Deoki Nandan Agarwala v. Union of India.

4. Legality of the Tribunal's Finding Regarding the Change of Head of Income:
The court found that the Tribunal's finding regarding the change of head of income was legal and valid under section 143(1)(a). The Assessing Officer did not err in changing the head of income to salary based on the information provided in the return, which indicated that the assessee was the Chief Minister and received salary from the Government of Bihar.

5. Justification of the Tribunal's Decision in Light of CBDT's Monetary Limit Instructions:
The court addressed whether the Tribunal was justified in entertaining the appeal of the Revenue, given that the tax effect was only Rs. 4,305, which was below the monetary limit of Rs. 25,000 prescribed by the CBDT's instructions. The court concluded that the appeal preferred by the Revenue was wholly unjustified and set aside the Tribunal's order in the appeal preferred by the Revenue. The court referenced section 268A of the Income-tax Act, which gives statutory flavor to the CBDT's instructions on monetary limits for filing appeals.

Conclusion:
The High Court allowed Misc. Appeal No. 170 of 2002, setting aside the Tribunal's order in the appeal preferred by the Revenue. However, Misc. Appeal No. 513 of 2002 was dismissed. The court held that the Tribunal was justified in affirming the change of head of income from "Income from other sources" to "Salary" and found the Tribunal's decision regarding the change of head of income to be legal and valid. The court also emphasized that the Revenue's appeal should not have been entertained due to the CBDT's monetary limit instructions.

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