2016 (8) TMI 513 - HC - Income Tax

Validity of notice issued under Section 10 of the Interest Act, 1974 - Held that - The notice issued upon the petitioner is bad in law; inasmuch as, the petitioner had also addressed a letter dated 28/11/1995 to the respondent informing that since the petitioner is not a credit institution, it is not liable to interest tax. Reliance placed upon a decision in case of Khurana Engineering Ltd. (2013 (2) TMI 128 - GUJARAT HIGH COURT ) is also relevant for this purpose because as held therein after the date of amalgamation of the company, the transferor-company is no more in existence on the date of issuance of notice and therefore the said notice issued upon the said company held to be invalid. So far as the argument of the petitioner with regard to the period of limitation of issuance of notice is concerned, the said notice was issued after a period of ten years preceding the letter dated 28/11/1995 issued by the petitioner informing the respondent that it is not a credit institution whereupon only Section 5 of the said Act applies and therefore petitioner did not file the return. Thus, for the period of ten years nothing was turned up and suddenly the notice was issued, which in the opinion of this Court is bad in law. The act of reopening of notice is not within the period of limitation. The petitions deserve to be allowed and the same are allowed. The impugned notice dated 09/03/2005 (ExhibitB to the petition) issued under Section 10 of the Interest Act, 1974 by the respondent is hereby quashed and set aside. Rule is made absolute.

Issues Involved:
1. Validity of the notice issued under Section 10 of the Interest Act, 1974.
2. Time-barred nature of the notice.
3. Applicability of Section 2(5A) read with Section 2(5B) of the Interest Tax Act.
4. Petitioner's status as a credit institution.
5. Reliance on previous legal precedents.

Detailed Analysis:

1. Validity of the Notice Issued under Section 10 of the Interest Act, 1974:
The petitioners challenged the notice dated 09/03/2005 issued under Section 10 of the Interest Act, 1974. The petitioners argued that the notice was "patently bad in law" as the reasons to believe there was an omission or failure on the part of the petitioner were "patently faulty." The court found that the notice was indeed invalid, referencing the petitioner's letter dated 28/11/1995, which informed the respondent that the petitioner was not a credit institution and thus not liable to interest tax.

2. Time-barred Nature of the Notice:
The petitioners contended that the notice was issued nearly 10 years after the assessment year 1995-96, making it time-barred. The court agreed, noting that the notice was issued after a period of ten years, which is beyond the allowable period for reopening assessments. The court emphasized that the act of reopening the notice was not within the period of limitation, thus rendering it invalid.

3. Applicability of Section 2(5A) read with Section 2(5B) of the Interest Tax Act:
The petitioners argued that the requirements of Section 2(5A) read with Section 2(5B) of the Act were not fulfilled, which further invalidated the notice. The court did not delve deeply into this argument but acknowledged it as part of the broader context in which the notice was deemed invalid.

4. Petitioner's Status as a Credit Institution:
The petitioners maintained that they were not a credit institution, as defined under the Act, and thus not liable to file returns under the Interest Tax Act. The court accepted this argument, referencing the petitioner's letter dated 28/11/1995, which had already informed the respondent of their non-liability under the Act.

5. Reliance on Previous Legal Precedents:
The petitioners relied on previous judgments, particularly the case of Khurana Engineering Ltd. v. Deputy Commissioner of Income-Tax (OSD) [2014] 364 ITR 600 (Guj). The court found this precedent relevant, noting that after the date of amalgamation, the transferor company is no longer in existence, making any notice issued to it invalid. The court also referenced the decision in Rustagi Engineering Udyog (P.) Ltd. v. Deputy Commissioner of Income-Tax [2016] 67 taxmann.com 284 (Delhi), which supported the argument that notices issued to non-existent entities or beyond the period of limitation are invalid.

Conclusion:
The court concluded that the notice issued to the petitioner was "bad in law" and "time-barred." It quashed and set aside the impugned notice dated 09/03/2005 issued under Section 10 of the Interest Act, 1974. The petitions were allowed, and the rule was made absolute.

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