Request to NAMO government: A reasonable view taken by assessee must be respected and un-necessary proceedings and litigation by revenue must be avoided. - Year in which assessable - a case of un-necessary litigation by revenue before High Court and the Supreme court, in respect of interest on statutory trust money deposits out of public issue money before of process of allotment, listing and refund.

[CA DEV KUMAR KOTHARI]

Relevant references and links:

Commnr. of Income Tax Versus M/s. Henkel Spic India Ltd. 2015 (9) TMI 861 - SUPREME COURT  Dated - 04 September 2015

Commissioner of Income Tax Versus Henkel Spic India Ltd.  2003 (12) TMI 45 - MADRAS HIGH COURT   Dated - 16 December 2003

Henkel Spic India Limited. Versus Deputy Commissioner Of Income-Tax.  1997 (1) TMI 139 - ITAT MADRAS-A , Dated - 21 January 1997

Sections 69, 73 of the Companies Act, 1956

Rule 40 of the Companies (Central Government's) General Rules and Forms, 1956,

Section 88 of the Indian Trusts Act, 1882,

Concepts under consideration:

Money held under trust and legal obligations and interest thereon is not income of trustee.

Accrual of interest as income in case of deposits made out of public issue proceeds before completion of allotment, listing and refund as per law.

Chronological events:

Assessment order dt.  10-1-1996 u/s 143.3 / 147 For AY 1992-93

ITAT order dt. - 21 January 1997

High Courts judgment  dt. 16 December 2003

Supreme Courts judgment dt. 04 September 2015

Time gap between date of end of previous year (31.03.1992) and date of judgment of the Supreme Court (04^th September 2015): more than 23 years.

Dispute about:

Taxability in assessment year 1992-93 (as per AO) or in AY 1993-94, as per assessee.

AO and CIT(A) held assessable in AY 1992-93.

ITAT, High Court and the Supreme Court held assessable in AY 1993-94.

Question of fact:

In this case the Tribunal after considering all relevant provisions  (as stated in references above) and judgments on issue of accrual and accrual as income of assessee held that the interest though related with period ending on 31.03.1992 was not income of assessee for AY  1992-93 and only that portion which remained with assessee after discharge of all obligations to pay principal and interest to applicant was income of assessee in for AY 1993-94.

This is pure finding of fact, therefore, revenue should not have challenged order of Tribunal before the High Court and then the judgment of the High Court before the Supreme Court.

Purpose seeking approach should be adopted:

For revenue it does not make much difference if an income is assessed a year before as against income disclosed by assessee just in next year. In such cases, reasonable view taken by assessee should be respected and accepted and proceedings by way of rectification, revision or reassessment should not be initiated.

However, unfortunately we find that even for small sums and on settled legal positions revenue authorities initiate different proceedings on such issues, which involve un-necessary litigation.

Costs should be allowed in favour of tax payers:

It is ground reality that in many such cases, the revenue is litigating up to Supreme Court on issues which are settled or in any case the assessee has taken a reasonable view. 

This case was a fit case, in which the learned AO should have dropped reassessment proceedings for AY 1992-93 because the assessee had taken a very reasonable view  and offered income for taxation, just in next year that is AY 1993-94 and paid tax. It is not a case that income had escaped assessment altogether. The dispute was only about assessment year and time gaps was also of only one year.

Therefore, in fact, there was no adoption of purpose seeking approach while making a reassessment. The learned CIT(A) was also not justified in confirming assessment in AY 1992-93. His order forced assessee to appeal before Tribunal.

The order of Tribunal was purely on facts and legal issues were also well settled. Hence there should not be an appeal before High Court.

Thus the litigation before the High Court and the Supreme Court, on behalf of revenue was avoidable.

In this case the Tribunal, the High Court and the Supreme Court did not award cost in favour of tax payer. Awarding costs in favour of assessee and taking some action against authorities who prompt and advance un-necessary litigation can only reduce such un-necessary litigation.

Litigation by revenue vis a vis tax payer:

It is ground reality that taxpayers always take a reasonable view while determining tax liability. In fact, tax payer has to be so because of statutory obligations and liabilities, and to avoid unfavourable actions and events in case of failure to comply with tax laws. A tax authority is not called for even an explanation for say 99 additions made by him are deleted by appellate authority. However, assessee is required to explain even if a small addition made by the tax authority is ultimately confirmed. The tax payer has to pay tax and interest on one addition (out of 100) confirmed and may have to pay penalty and may have to face imprisonment. Therefore, tax payers are generally very careful while determining tax liability.

Whereas, in majority of cases tax authorities are making additions and disallowances knowingly to be wrong and not as per legal position hence making additions just to raise demand so that assessee can be harassed by collection of demands and other coercive measures. There must be provision to penalise tax officers also for making wrong demands- at least demands which are not as per settled legal position.