1994 (3) TMI 169 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction to reopen the assessment under section 147.
2. Taxability of enhanced compensation and interest thereon.
3. Applicability of section 45(5) of the Income Tax Act, 1961.
4. Directions to reopen assessments for earlier years.

Issue-wise Detailed Analysis:

1. Jurisdiction to Reopen the Assessment under Section 147:
The assessee contended that complete particulars regarding the receipt of enhanced compensation were furnished in the covering letter filed along with the return. There was no failure on the part of the assessee to furnish complete particulars regarding the compensation. The assessee argued that the reopening of the assessment was merely a change of opinion by the ITO based on the assessment proceedings for the assessment year 1988-89, which does not confer jurisdiction to reopen the assessment under section 147(b). The Tribunal agreed with the assessee, stating that there was no failure to disclose material facts, and the reassessment could not be sustained under section 147(a). Furthermore, since the enhanced compensation was still under appeal, no income had accrued to the assessee, and thus, there was no escape of income chargeable to tax.

2. Taxability of Enhanced Compensation and Interest Thereon:
The ITO included the enhanced compensation and interest in the taxable income for the year under appeal. The CIT(A) upheld the taxability of the compensation under section 45(5) but agreed with the assessee that interest should be taxed on an accrual basis. The Tribunal, however, held that since the enhanced compensation was under appeal, no income had accrued to the assessee, referencing the Supreme Court judgment in CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524. Thus, the reassessment was invalid.

3. Applicability of Section 45(5) of the Income Tax Act, 1961:
The ITO applied section 45(5) to tax the enhanced compensation as capital gains. The assessee contended that section 45(5) was not applicable for the assessment year 1987-88 as it was introduced with effect from the assessment year 1988-89. The Tribunal agreed with the assessee, stating that section 45(5) is a substantive provision and cannot be applied retrospectively. The Tribunal emphasized that the law as on the first day of the assessment year governs the assessment, and section 45(5) was not in effect on 1-4-1987.

4. Directions to Reopen Assessments for Earlier Years:
The CIT(A) directed the ITO to reopen earlier assessments to tax the interest income on an accrual basis. The assessee argued that this direction was unnecessary for the disposal of the appeal. The Tribunal upheld the assessee's submission, stating that the direction to reopen earlier assessments was not necessary for disposing of the appeal before the CIT(A). The Tribunal referred to the Supreme Court judgment in Rajinder Nath v. CIT [1979] 120 ITR 14, which held that findings or directions must be necessary for the disposal of the appeal.

Conclusion:
The Tribunal concluded that the reassessment was without jurisdiction and canceled it. The appeal was allowed, and the directions to reopen earlier assessments were expunged. The stay petition became infructuous and was dismissed.