2018 (2) TMI 877 - HC - Income Tax

Reopening of assessment - Privilege fee paid by the petitioner/Corporation to the State Government to enjoy the exclusive privilege to sell liquor in the State of Tamil Nadu - allowable deduction in terms of Section 37 - change of opinion - Held that - Impugned reopening proceedings and the consequential assessment orders pertain to the very same assessment years, which were subject matter of appeals before the Tribunal, in which the assessee has succeeded. Thus, for the above reason, hold that these writ petitions are maintainable. In terms of the decision in GKN Driveshafts (India) Ltd. vs. ITO reported in 2002 (11) TMI 7 - SUPREME Court the respondent/assessing officer was expected to pass a speaking order and if aggrieved, the assessee is entitled to challenge the same. This procedure has been given a go-by. This defect committed by the assessing officer goes to the root of the matter thereby affecting the very validity of the impugned assessment order. Thus, when the Tribunal has held in favour of the petitioner in respect of the similar issue for the very same assessment year, would the present reassessment amount to a change of opinion is the question to be considered. Identical issue came up for consideration before the Hon ble Division Bench of the Karnataka High Court in the case of Karnataka State Beverages Corporation Ltd. vs. Commissioner of Income Tax reported in 2016 (3) TMI 461 - KARNATAKA HIGH COURT wherein the Court held that privilege fee payable by the petitioner therein viz., Karnataka State Beverages Corporation Ltd., which is some what similar to the petitioner/Corporation, to the State Government would be taxable with effect from 01.04.2004 and not prior thereto - Decided in favour of assessee

Summary

Issues involved:
1. Maintainability of writ petitions challenging reopening of assessment orders.
2. Allowability of privilege fee as deduction under Section 37 of the Income Tax Act.
3. Change of opinion in reassessment proceedings.
4. Compliance with legal principles in reopening assessment.

Issue 1: Maintainability of writ petitions challenging reopening of assessment orders:
The petitioner, a State-owned Corporation, challenged the orders of reopening of assessment for the assessment years 2007-08 and 2009-10 by the fourth respondent. The Revenue argued that the petitioner should have filed regular appeals against the assessment orders instead of bypassing the appellate remedy. The High Court held that the writ petitions were maintainable as the impugned reopening proceedings and consequential assessment orders pertained to the same assessment years in which the petitioner had succeeded before the Tribunal.

Issue 2: Allowability of privilege fee as deduction under Section 37 of the Income Tax Act:
The core issue revolved around whether the privilege fee paid by the petitioner to the State Government for the exclusive privilege to sell liquor in Tamil Nadu was an allowable deduction under Section 37 of the Income Tax Act. The Tribunal had already ruled in favor of the petitioner for the same assessment years. The assessing officer sought to reopen the assessment, claiming that the fee was not deductible. The High Court, following legal precedents, concluded that the impugned reopening and assessment orders were a clear case of change of opinion and not sustainable in law.

Issue 3: Change of opinion in reassessment proceedings:
The assessing officer's attempt to reword the reasons for reopening the assessment, despite the Tribunal's previous decision in favor of the petitioner, raised the question of whether the reassessment amounted to a change of opinion. The High Court emphasized that the assessing officer should have reason to believe that income had escaped assessment, rather than merely suspecting it. The Court found that the impugned reopening and assessment orders were indeed a clear case of change of opinion, rendering them unsustainable in law.

Issue 4: Compliance with legal principles in reopening assessment:
The High Court highlighted that the assessing officer failed to follow the guidelines set by legal precedents, specifically the requirement to pass a speaking order and communicate it to the petitioner before making the assessment orders. This failure was considered a defect affecting the rights of the assessee and the validity of the assessment. The Court concluded that the impugned reopening proceedings were not in compliance with legal principles, leading to the allowance of the writ petitions and closure of connected miscellaneous petitions.

This detailed analysis of the judgment from the Madras High Court covers the various issues involved, the legal arguments presented, and the Court's reasoning in arriving at its decision.