9911796707
TMI Blog1987 (1) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... g 30-9-1977 relevant to the assessment year 1978-79, which is under appeal, the return was filed on 29th June, 1978 disclosing income under the following heads : Rs. (i) Interest on securities 2,136 (ii) Profits & Gains of business or Profession 10,19,542 (iii) Capital gains relating to short-term capital assets 14,848 (iv) Other assets 7,867 (v) Dividends 25,339 The business income was reduced to nil by setting it off against the brought forward losses of the earlier years. Thus, only long-term capital gain of Rs. 7,867 was shown as taxable income. Claim under sections 80-G and 80-M of the Income-tax Act were also made. The assessment was completed on 28th August, 1981 by the Income-tax Officer, Cent. Circle XI, New Delhi, by which taxable income was computed at Rs. 94,02,670 after getting approval from the Inspecting Asstt. Commissioner under sec. 144-B(4) of the Act. The Commissioner of Income-tax (A) gave part relief of Rs. 39,03,738 and that is how both the parties are before us. 3. Taking first the assessee's appeal though there were as many as 11 grounds as per Memorandum, Shri Hari Har Lal, Advocate submitted that issues raised were only in the first eight grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Appellate Tribunal in the assessee's own case, though it must be stated for records that there was no concession and the issues were alive. For the Revenue we were assisted by Shri K.K. Sharma, Sr. Departmental Representative and later by Shri D.K. Sharma, Sr. Departmental Representative. 5. Regarding ground No. 1(a) above, para 7 of the Tribunal's order dated 12th October, 1984 in I.T.A, No. 2905(Del.)/82, which is in the assessee's own case for assessment year 1976-77, reading as below, is followed as no new arguments were addressed and the disallowance of Rs. 9,51,627 is confirmed : " Litigation expenses of Rs. 2,87,088 against the National Bank of Pakistan. This is covered against the assessee vide para 8 of Tribunal's order for assessment year 1975-76. This ground accordingly stands rejected." 6. The expenses of Rs. 1,02,332 also related to fees for written and verbal opinion, holding meetings and appearance before the Court of Appeal, details of which are given at page 89 along with the fees and other expenses of Rs. 9,51,627 and, therefore, cannot be bifurcated and given a different treatment than the related expenses. Therefore, disallowance of both the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, it did not come within the scope of sec. 37(3). In the said case, the Hon'ble High Court referred to the meaning of a guest house and the applicability of Rule 6-C at page 623 as follows : " We have, therefore, to examine as to what a guest house is. The term has not been defined In the Act. The dictionary meaning of ' guest house ' is ' an inn, a home separate from a main dwelling for the use of guest '. In the Shorter Oxford Dictionary, 3rd Edn., the meaning of 'guest house' is given as 'An inn---A house or apartment for the reception of strangers or guests.' From the language of R. 6C it appears that the rule-making authority considered that even the employees of a company would be guests because provision is made for the category of employees, who would use the guest house in places other than the principal place of business of the assessee or the factory premises of the assessee. In such cases, as already seen, the guest house must be maintained exclusively for the benefit of the employees (see clause (d) of r. 6C)." 10. Even after the omission of Rule 6-C to say that the assessee's burden is reduced to prove an expenditure on a residential accommodation maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation because the assessee's assertion contained in its communications have not been rejected in so many words though the decision arrived at by the lower authorities has the same effect. Though initially we were inclined to take a different approach than the one taken by the CIT(A) and even the Tribunal, but considering that from the assessment year 1975-76 onwards when the law was similar and the arguments advanced also were the same, the assessee's claim has been rejected, we like to be consistent. While upholding the CIT(A)'s order, we like to observe that no precedent is being set for future and to repeat we are following the earlier year orders because the evidence produced by the assessee is not substantially different than in the earlier years. Even the pattern of detail of expenditure in the year under appeal was the same as in the earlier years." 9. The disallowance is upheld. 10. Ground No. 3 regarding deduction of interest of Rs. 25,97,816 and such other figure, which may be modified, is rejected for which we make para 15 of the Tribunal order in respect of assessment year 1977-78 as the basis and part of which is noticed below :---- " Interest which an assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riodically on any earlier date. In the event of premature encashment of the fixed deposit, the bank was entitled to charge certain amount of penalty. On such facts the assessee's case in respect of assessment years 1977-78 and 1978-79, i.e., the year before us, has been that interest for the entire period of 18 months became due and payable and accrued only on 7-11-1977, on which date the fixed deposit matured and that accordingly the entire amount of interest for the full period of 18 months has been offered in its total income for the accounting year ending 30th September, 1978, relevant for the assessment year 1979-80 and due tax paid. 13. The Tribunal after considering all aspects and also a certificate issued by Bank of India, confirming that the date of maturity of the fixed deposit was only on 7-11-1977 and no interest accrued or was payable before that date, held that no interest accrued in respect of the said fixed deposit before 7-11-1977 and accordingly the Proportionate addition of Rs. 24,54,270 came to be vacated. The issue has been dealt with by the Tribunal for that year in paras 35 to 39 but for the sake of brevity we only notice relevant portion of para 39 as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st payable under sec. 215 or sec. 217 in the cases and under the circumstances mentioned below, namely :--- (1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. (2) Where a person is under sec. 163 treated as an agent of another person and is assessed upon the latter's income. (3) Where the assessee has income from an unregistered firm assessed under the provisions of clause (b) of section 183. (4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to section 211 applies), in circumstances which could not be foreseen. (5) Any case in which the Inspecting Assistant Commissioner, considers that the circumstances are such that a reduction or waiver of the interest payable under sec. 215 or sec. 217 is justified." We do not notice or find any mandate in the above Rule that in order to exercise discretion of waiving or reducing interest, first assessment must be completed and interest charged. On the other hand, the use of the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the case warranted levy of interest, its waiver or reduction. Since we are of the considered view that it is the assessing officer who must exercise discretion, we direct that if he has not gone through the exercise, he should do it even now and if he has processed the matter, the first appellate authority should entertain the appeal on the question and adjudicate whether discretion has been properly exercised or not. 18. At this stage we like to refer to the judgment of the Delhi High Court in the case of CIT v. Mahabir Parshad & Sons [1980] 125 ITR 165. The Hon'ble Delhi High Court has held that what section 246(c) provides is for an appeal by the assessee to the Appellate Asstt. Commissioner against an order of assessment. The Qualifying words setting out the four categories of objections are only to indicate the conditions precedent for the filing of an appeal. The object is that a purely academic appeal should be avoided. That is why the clause says that a person can appeal against an order of assessment only when he has a real grievance there against, such grievance being in relation to income-tax, loss or status ; it does not mean that the grounds for considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustification as to why there should be no projection of the assessing officer mind in that regard in the assessment itself. Holding that the process of levy of interest under sec. 215 and/or under sec. 217(a) is of similar nature and Rule 40 of the IT Rules would apply in both the situations, following the Tribunal order for the earlier year the matter is restored to the first appellate authority with similar directions as given for that year. Therefore, for the purpose of statistics the assesses shall be deemed to have succeeded on the issue. 21. Coming to the Revenue's Memorandum of appeal (having 5 grounds), in the first ground the contention is that addition of Rs. 7,00,557 made in the assessment on account of sales tax liability wrongly came to be deleted. The dispute travels from the assessment year 1974-75 and has been consistently decided in assessee's favour. In respect of assessment year 1977-78 the Tribunal after looking to the details and history in paras 27 and 28 held that the facts being the same as in the earlier years and there being no fresh arguments coming from the Revenue, there was no reason to depart from the view being consistently taken. The position remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decree dated 14-4-76 and deposited by the National Bank of Pakistan in the company's account with Bank of India, London on 4-5-1976. 33,073.43 5,00,695 (B) (i) Costs awarded and received by the company's solicitors in London M/s Stocken & Co. and remitted to India during the year 1976-77 on 17-8-1977. 1,40,000.00 21,19,446 (ii) Cost awarded and received by M/s Stocken & Co. and retained by them for adjustment towards their bills for legal expenses. 22,000.00 3,33,055 In this case litigation expenses including connected travelling expenditure incurred by the company in its litigation with PPCI/NBP to the tune of Rs. 46,36,368 have been disallowed from the assessment years 1967-68 to 1979-80. In respect of assessment year 1977-78 such disallowance amounted to Rs. 19,07,511 and for the year under appeal, while dealing with the assessee's appeal, we have confirmed disallowance of Rs. 9,51,627 and Rs. 1,02,332. The figure of disallowances in the other years is given at page 123 of the assessee's paper book. Since litigation expenses have been disallowed, there is certainly no case for the Revenue to plead that the cost awarded in relation to such disallowed expenses were taxable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive ITA Nos. being 3018 (Del)/82 and 3906 (Del)/83), which were pending before the ITAT, may be restored to the file of the CIT (Appeals) in order to give effect to the following findings of the ITAT, Delhi Bench ' B ' in para 18 of its order dated 14-1-1986 on the assesses company's appeal in ITA No. 5718 (Del)/84 in respect of assessment year 1980-81 : " 18. The next relevant date was 20-7-1977 when the House of Lords refused leave to appeal to the National Bank of Pakistan. It is on this date that the right to receive the decretal amount and the interest up to that date arose as per the order of the High Court in London referred to above. The date 20-7-77 does not fall in the accounting year relevant to the assessment year 1980-81 but in the accounting period relevant to the assessment year 1978-79 (1-10-1976 to 30-9-1977). Thus, income by way of outstanding price, contractual interest and interest as per the awards upto 20-7-77 arose in the assessment year 1978-79 and, therefore, the question of taxability of the amount computed on that basis could not arise for consideration in the assessment year 1980-81 in question. The right to receive interest on the fixed deposits also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the point raised in the additional ground of appeal were not borne on the record of the case for that year ; (v) whether the Revenue can or needs to invoke the forum of the Appellate Tribunal to give effect in a year to any finding or direction of the Appellate Tribunal in an order for any other year, when the Legislature has made separate enabling provisions in the matter in the Income-tax Act, 1961 vide Explanation 2 to sec. 153 (3) read with sec. 150 of the Act ; (vi) whether the prayer in the Revenue's additional ground of appeal for restoration to the CIT(A) or the ITO of the point regarding the assessability in the assessment year 1978-79 of Rs. 1,45,60,141 in view of the observations in the matter in para 18 of the Appellate Tribunal order for the assessment year 1980-81, is not calculated to bring about an enhancement of the assessment of the assessee-company for the assessment year 1978-79 by the said amount by using the instrumentality of the Appellate Tribunal and, if so, whether the giving of any finding or direction by the Tribunal in this behalf in disposing of Revenue's appeal in respect of assessment year 1978-79 would not have the effect of enhancement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter to the assessing officer or the CIT(Appeals) and that is how it is the judgment in the case of Rai Bahadur Hardutroy Motilal Chamaria which would be applicable. 30. Independent of the above, the Tribunal while passing order in respect of the assessment year 1977-78 dealt with the issue regarding taxability of Rs. 2,11,51,264 and admittedly the amount mentioned in the additional ground is in relation to the said larger amount. For that year the Bench consisting of one of us---Judicial Member---and Shri K.C. Srivastava dealt with the entire spectrum in paras 40 to 50 and it is considered expedient to reproduce such paragraphs, with the exception of a part of para 44, which gives certain statistics, to project that the issue was decided in no uncertain terms by the Tribunal that the interest income was taxable on yearly accrual basis, which was the posture taken by the Revenue itself right from the beginning and not on the basis that after adjustment of the assessed interest the balance should be brought to tax : " 40. In ground No. 6 the issue is whether the addition of Rs. 2,11,51,264 added in the assessment as interest income has been rightly deleted or the CIT (A)'s order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of interest was taxable in this year, but as only a sum of Rs. 12,25,922 had been taxed in this year the inclusion of this amount in the asstt. of this year should be confirmed." 33. Now it is important to remember that the abovesaid order of the Tribunal has become final. When the Revenue got that decision by submitting that interest accrued from day-to-day, i.e., on accrual basis or alternatively it accrued from the date the assessee went to the International Chamber of Commerce, the posture adopted in the year under appeal is considered rather strange. Here, interest on accrual basis has been taxed and additionally amount of Rs. 2,11,51,264 has been added on protective basis which shows that the Revenue even at this juncture is not sure as to what its stand should be. In this context to blame the assessee of not having a clear stand is not appreciated. 34. The following graphical chart would show the relevant periods, interest under the contract and under first and second awards as also the pattern of assessment and the decisions of the CIT(A) in various years : 35. For the Revenue Shri Bara submitted that if any averment had been made to the Enforcement Directorate by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cannot with very great respect, be followed because before the Tribunal the two Awards were not produced and it was not brought to the notice of the Tribunal or their Lordships of the High Court and the Supreme Court that the purchase consideration and interest had been actually received ... Thus, we are unable to accept the submission for the assessee, because of the frustration of the Sale Agreement and the Sale Deed, no interest accrued or arose to the assessee in this year." 38. In paragraph 32 the Tribunal observed that the main question for consideration was whether the interest received by the assessee was taxable under the Income-tax Act and it was of the clear opinion that such was the case. The following observations in paragraph 36 are considered important and clincher with regard to the question in the present appeal : " The next question that arise for consideration is whether any interest accrued or arose to the assessee in this year and whether any income from interest can be taxed in this year because the interest was credited in the assessee's bank account in London on 3-5-1976 and the judgment of the London High Court is dated 27-2-1976 .... On the question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal's order for 1973-74 as the basis, we hold that only interest on accrual basis, which could be said to be related to the year under appeal was taxable and, therefore, the order of the CIT(A) is correct. It must also be borne in mind that the Revenue tried to tax interest on accrual basis in certain years. It is different matter that re-assessment proceedings came to be struck down by the Hon'ble High Court. This aspect of the case has also been dealt with by the Tribunal in the assessment year 1973-74. and in spite of striking down of the re-assessment proceedings, the Tribunal held and for valid reasons as given in the order that the interest was assessable only on de diem en diem basis. 41. In view of the above, we decline the Department's request to restore the issue regarding taxability of interest income, which was not processed and/or assessed by the assessing officer or dealt with by the first appellate authority on several counts, independent of each other, as mentioned above. 42. In the result, whereas the assessee partly succeeds, the revenue's appeal in relation to its Memorandum is dismissed and further requests made on 24th March, 1986 as also on 22nd August, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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