1983 (7) TMI 80 - AT - Income Tax

Issues Involved:
1. Legality of reopening the assessment under Section 147(b) of the Income-tax Act, 1961.
2. Inclusion of interest on sticky loans in the total income.
3. Deduction under Section 80M for dividend income.
4. Allowance of development rebate.
5. Treatment of guarantee commission.
6. Enhancement of income based on the Integration and Development Fund under the State Bank of India Act, 1955.
7. Allowance of loss on revaluation of shares and securities.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147(b):
The assessee, State Bank of India, challenged the reopening of the assessment for the year 1972-73, arguing that the Income Tax Officer (ITO) did not have any fresh information after the original assessment. The ITO had issued a notice under Section 148 based on an audit note, which the assessee contended was not valid information. The Supreme Court's decision in Indian & Eastern Newspaper Society v. CIT was cited to support this argument. The Tribunal concluded that the ITO did not have an honest belief that income had escaped assessment, as the decision of the Calcutta High Court in favor of the assessee was binding. Therefore, the reassessment under Section 147(b) was deemed illegal.

2. Inclusion of Interest on Sticky Loans:
The IAC included interest on doubtful debts in the total income, which the assessee had credited to a suspense account. The Commissioner (Appeals) upheld this inclusion. The Tribunal, however, held that only real income can be taxed, and since the interest on sticky loans was not realizable, it should not be included in the taxable income. The Tribunal also considered the CBDT's circular, which was in force during the relevant years, indicating that such interest should not be taxed.

3. Deduction under Section 80M for Dividend Income:
The IAC had deducted interest on borrowed capital from the gross dividend income, which the Commissioner (Appeals) modified by allowing a deduction for collection charges. The Tribunal found no evidence that the shares were purchased with borrowed funds and concluded that collection charges should be treated as business expenditure, not deductible from dividend income. The Tribunal upheld the Commissioner (Appeals)'s decision that the amount received from the Unit Trust of India was dividend income.

4. Allowance of Development Rebate:
The assessee claimed development rebate during reassessment proceedings, which was initially disallowed. The Tribunal held that once an assessment is reopened, the assessee can claim deductions not claimed earlier. The Tribunal allowed development rebate on certain items like typewriters and calculators used in business premises but not on office appliances. The Tribunal also allowed development rebate on storewels but not on cupboards and counters, considering them as furniture and fixtures.

5. Treatment of Guarantee Commission:
The Commissioner (Appeals) included the entire guarantee commission in the income for the year, rejecting the assessee's method of spreading it over the duration of the guarantees. The Tribunal upheld this decision, stating that under the mercantile system, the entire commission accrued in the year it was received.

6. Enhancement of Income Based on the Integration and Development Fund:
The IAC sought to enhance the income by excluding losses reimbursed from the Integration and Development Fund. The Commissioner (Appeals) rejected this, stating that under Section 36(4) of the State Bank of India Act, such reimbursements should not be treated as income. The Tribunal upheld this view, concluding that deducting the reimbursed amount from losses would indirectly tax the amount received from the fund, which is not permissible.

7. Allowance of Loss on Revaluation of Shares and Securities:
The assessee claimed a loss on revaluation of shares held as stock-in-trade, which the Commissioner (Appeals) allowed. The Tribunal upheld this decision, stating that the shares and securities held by a banker are stock-in-trade, and the loss on revaluation should be considered to determine the correct income. The Tribunal supported its decision with relevant case laws and previous Tribunal decisions.

Conclusion:
The Tribunal provided a detailed analysis of each issue, ultimately ruling in favor of the assessee on most points, including the illegality of the reassessment, the non-inclusion of interest on sticky loans, the proper treatment of dividend income and development rebate, and the allowance of loss on revaluation of shares. The Tribunal also upheld the Commissioner (Appeals)'s decision on the treatment of guarantee commission and the non-enhancement of income based on the Integration and Development Fund.

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