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TMI Blog1987 (8) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... y are income liable to tax under the Income-tax Act, 1961 ? 3. If the answer to question No. 2 is in the affirmative, whether the Tribunal was right in law in holding that deduction on account of interest payable to the creditors could not be allowed in the computation of the income ? 4. If the answer to question No. 2 is in the affirmative, then: (i) Whether, on the facts and in the circumstances of the case and on a correct interpretation of the terms of the agreement dated October 31, 1955, and the consent decree dated February 25, 1959, the Tribunal is justified in holding that the assessee is not the owner of the Cinema theatre styled 'Maratha Mandir' and the machinery, plant, furniture, etc., installed in the said building by the assessee with its own finances and no depreciation and development rebate is available to it in respect thereof? and (ii) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in rejecting the alternative contention of the assessee that the amount spent by the assessee-company on the construction of the cinema known as Maratha Mandir and in purchasing the movable assets installed therein out of its own fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 12, 1969. The Income-tax Officer completed the assessments for the years 1969-70 to 1971-72 on October 31, 1972. The assessee questioned the validity of these assessments on the ground that these were not completed within the time prescribed in section 153 of the Act. The Revenue's contention was that the assessments were within time after excluding the period during which the proceedings had been stayed by the Rajasthan High Court. The Tribunal has finally held that the assessments for the three assessment years 1969-70 to 1971-72 were made within time as contended by the Revenue. The assessee also contended that the receipts earned after the date of the winding up order passed by the company court were not taxable as income under the Act, since the business was carried on by the official liquidator after the winding up order merely for the beneficial winding up of the company. This contention of the assessee has also been rejected throughout. It has been held that the company in liquidation, after the winding up order, does not lose its distinct character as a legal entity and the receipts earned by carrying on business after the date of the winding up order amount to inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment, reference was made under section 256(1) of the Act to answer some questions of law arising out of the Tribunal's order. The facts on the basis of which those questions were to be answered are the same and some of the questions in the present references are common. The decision of this court in those earlier references is common and is reported in Golcha Properties (P) Ltd. v. CIT [1987] 166 ITR 259 (Raj). It is not necessary to mention the other facts which are common and are mentioned in that decision. Similarly, it is not necessary to reconsider or discuss the questions which are common in these references also. There is no dispute that some of the questions herein being covered by that decision have to be answered following the decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). We shall first dispose of the questions which are covered by this earlier decision. Question No. 1.-This question is covered by the decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). Following that decision, this question is answered in the affirmative and against the assessee. Question No. 4.-We shall discuss questions Nos. 2 and 3 later, but having reached the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the limited purpose of beneficial winding up and not with the motive of earning profit. It is not disputed that the company continues to be a distinct entity and a legal person, even after the winding up order, during this period. It is argued that the absence of any profit motive shows that the receipts earned from the business during this period cannot be treated as income for the purpose of the Act. It is argued that the fact that no dividend is to be declared after the winding up order till the stage contemplated by rule 179 of the Companies (Court) Rules, 1959, is reached, also shows that it is not a business for the purpose of earning profits. Learned counsel added that the receipts earned from the business are mainly for the purpose of making payment to the creditors and not for earning any profits. In our opinion, the Tribunal was justified in rejecting this contention. The definition of " income" contained in section 2(24) of the Act is an inclusive definition and is wide enough to include the receipts earned from the business carried on by the official liquidator after the winding up order. The receipts are definitely profits and gains of the business which is admittedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial provisions are section 139(8)(a) and the proviso thereunder read with rule 117A of the Income-tax Rules, 1962, and section 215(4) read with rule 40 of the Income-tax Rules, 1962. plain reading of these provisions and their harmonious construction lead to the inevitable conclusion that the liability for payment of interest thereunder is incurred automatically in the event of default by the assessee specified therein. This being so, the question of giving any show cause notice prior to fixing the liability for payment of this interest by an order does not arise. This liability for interest is attracted automatically by operation of law without the further requirement of any order to that effect. The order made merely quantifies the amount of interest. However, the Income-tax Officer is empowered to reduce or even waive the interest at the instance of the assessee, if good cause is shown for the same by the assessee. It is, therefore, obvious that no prior show cause notice is required to be given to the assessee, since liability to pay the interest is attracted automatically by operation of law, but the rigour thereof is mitigated by empowering the Income-tax Officer to reduce or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by showing the reason for the failure to apply before the Income-tax Officer. The appeal is a rehearing of the original lis and the power of the appellate authority in this respect is conterminous with that of the original authority. There is neither principle nor authority to support the conclusion that the appellate authority cannot entertain the assessee's request for waiver or reduction of interest and exercise that power given in these statutory provisions. In a case like the present, it would be permissible for the appellate authority to entertain such request and to consider and decide it on merits. This view is also in consonance with the construction we have made of the statutory provisions that no prior show cause notice is necessary, but the assessee can thereafter invoke the power for reduction or waiver of interest. We find that a Division Bench of this court in CIT v. Devichand Pan Mal [1986] 160 ITR 545 (Raj) has taken the view that the Appellate Assistant Commissioner can consider the question of waiver or reduction of penal interest in appeal when the same had not been considered by the Income-tax Officer. This decision also supports the conclusion we have reache ..... X X X X Extracts X X X X X X X X Extracts X X X X
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