1975 (5) TMI 12 - HC - Income Tax

Assessment Year Burden Of Proof Income Tax Jurisdiction Of High Court Notice Of Reassessment Previous Year Works Contract

Issues Involved:

1. Jurisdiction under section 147(a) of the Income-tax Act, 1961.
2. Assessment of interest income for the assessment year 1957-58.

Issue-wise Detailed Analysis:

1. Jurisdiction under section 147(a) of the Income-tax Act, 1961:

The primary issue is whether the Income-tax Officer (ITO) rightly assumed jurisdiction under section 147(a) of the Income-tax Act, 1961, for the assessment year 1957-58. Section 147 deals with income escaping assessment, where clause (a) applies if the escapement is due to the assessee's failure to file a return or disclose fully and truly all material facts. Clause (b) applies where the escapement occurs without such failure. The limitation period for reassessment under clause (a) is 8 or 16 years, depending on the amount of escaped income, while under clause (b), it is 4 years.

The assessee argued that clause (a) was inapplicable as there was no omission or failure on their part to file the return or disclose all material facts. Although the assessee filed the return for the year 1957-58, they did not include interest received on advance tax in their total income. The court had to determine whether this omission constituted non-disclosure of material facts under section 147(a).

The court held that the primary duty to disclose all income lies with the assessee. The fact that the ITO could have discovered the true income with due diligence does not absolve the assessee from this duty. In this case, the assessee did not dispute that the interest was their income or claim it was non-taxable. The omission to include this income led to its escapement from assessment, directly resulting from the assessee's default. Therefore, the case was covered by clause (a) of section 147.

The court distinguished this case from Commissioner of Income-tax v. Hemchandra Kar, where the Supreme Court held that escapement resulted from the ITO's mistake, not the assessee's non-disclosure. Similarly, the court found that the case of Modi Spinning & Weaving Mills Co. Ltd. v. Income-tax Officer was not applicable, as it involved an error in calculating depreciation, not non-disclosure of income. The court concluded that the escapement of interest income resulted from the assessee's failure to include it in their return, justifying the ITO's jurisdiction under section 147(a).

2. Assessment of interest income for the assessment year 1957-58:

The second issue is whether the interest payments of Rs. 9,696 for 1951-52 and Rs. 5,083 for 1952-53 could be treated as income for the assessment year 1957-58. The assessee followed the mercantile system of accounting, under which income accrues when the right to receive it arises, even if not actually received.

The court examined when the interest income arose. Under section 18A(5) of the Indian Income-tax Act, 1922, interest on advance tax is payable from the date of deposit to the date of assessment, provisional or regular. The right to receive interest arises only after the assessment is made. In this case, the assessments for 1951-52 and 1952-53 were made on 20th and 29th March, 1956, respectively, within the previous year relevant to the assessment year 1957-58. Therefore, the interest could only be assessed in the year 1957-58.

The court referred to Commissioner of Income-tax v. A. Gajapathy Naidu, where the Supreme Court held that income accrues when the assessee acquires a right to receive it. The court emphasized that the ITO cannot relate back income to an earlier year based on the transaction date. Applying this principle, the interest income arose when the regular assessments were made, falling within the previous year relevant to the assessment year 1957-58.

The court also cited Nonsuch Tea Estate Ltd. v. Commissioner of Income-tax, where the Supreme Court held that an accrued liability for deduction arises only when the condition for the liability is met. Similarly, in Commissioner of Income-tax v. Sampangiramaiah, the Mysore High Court held that interest should be assessed in the year it accrues, not when received. The Orissa High Court in Joyanarayan Panigrahi v. Commissioner of Income-tax followed the same principle.

In conclusion, the court answered both questions in the affirmative, in favor of the department and against the assessee. The Commissioner was entitled to costs assessed at Rs. 200.

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