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TMI Blog2010 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... concession in 1958 to Gwalior Rayon Ltd (the earlier name of the assessee) to fell and remove bamboos from the Nilamber valley for conversion into rayon grade wood pulp. Agreements were entered into between the assessee and the Government of Kerala. The Company purchased three lakh acres of private forest and planted eucalyptus for use as raw material on an undertaking by the Government not to acquire the forest for a period of sixty years. In 1963, the Company set up a plant at Calicut for the manufacture of rayon grade wood pulp. The raw material required for the plant consisted of forest produce, namely, bamboo, reed and eucalyptus. The Government of Kerala agreed to provide any shortfall in the raw material from other areas. The rate of seigniorage was fixed at Re. 1 per ton. In 1971, private forests in the State of Kerala were nationalized by the Kerala Private Forests (Vesting and Assignment) Act, 1971. Upon the enforcement of the Act, there was no private forest in the State of Kerala and all forest produce had to be purchased from the Government alone. On 10th July 1971, an agreement was entered into between the Company and the State Government for the supply of raw mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been amended on 28th May 1981. 6. The previous year relevant to the Assessment Year in question, namely 198283, ended on 31st March 1982. According to the Revenue, the result of the notifications, which had been issued by the State of Kerala in the first instance, was to saddle the assessee with an additional liability of Rs.1,75,32,600/- for three Assessment Years 1980-81, 1981-82 and 1982-83. The claim in regard to these liabilities was allowed into the regular assessments on the basis of the provision made by the assessee. According to the Revenue, as a consequence of the judgment of the Kerala High Court, striking down the notifications, the liability of the assessee for the aforesaid three years, stood reduced by a corresponding amount. However, though the judgment of the High Court was delivered in the early part of the accounting year, relevant to Assessment Year 1982-83, the liabilities which ceased as a result of the judgment, were not written back to the profit and loss account for the Assessment Year1982-83. The amount was offered for taxation in the Assessment Year 1983-84. 7. On this basis, the Commissioner of Income Tax initiated proceedings under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount wasnot offered for taxation during the Assessment Year 1982-83, but only subsequently in 1983-84, the Tribunal concurred with the view of the CIT. 9. On behalf of the assessee, it has been submitted that (i) The jurisdictional condition precedent to the application of Section 263 is that the order sought to be revised must be erroneous in so far as it is prejudicial to the interests of the Revenue and neither of these conditions is satisfied; (ii) The order of the Assessing Officer dated 23rd February 1985 was upon accepting the written contention of the assessee that the liability had not irrevocably ceased to exist by virtue of the judgment of the Kerala High Court. This was a possible view and when the view taken by the Assessing Officer is possible to be taken, such an order cannot be held to be erroneous or prejudicial to the interests of the Revenue so as to invoke the revisional jurisdiction under Section 263; (iii) In view of various circumstances, which are relied upon by the assessee, the view of the assessee was a possible view and bona fide; (iv) There must be material before the CIT to hold that an order is "erroneous and prejudicial to the interests of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice for produce. The fact that a particular notification has been struck down, would not lead to the conclusion that the liability itself had ceased. All that followed, as a consequence of the striking down of the notifications, was that the price would have to be fixed afresh in accordance with law. 10. On the other hand, it was urged on behalf of the Revenue that the liability of the assessee under the notifications issued by the Government of Kerala, came to an end with the judgment of the High Court dated 15th April 1981. Even if fresh notifications were to be issued, that would amount to the imposition of a fresh liability upon the assessee. Consequently, during the period which is relevant to Assessment Year 1982-83, the liability had ceased to exist, the State Government having not filed any appeal before the Supreme Court within the prescribed period of limitation. The assessee was, therefore, duty bound to offer the amount for taxation in Assessment Year 1982-83, whereas the assessee had done so only in the following Assessment Year. 11. Section 263 of the Income Tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... times and different views existed on the day when the Commissioner passed his order under Section 263. The Court observed that "the mechanics of the section have become so complicated over the years that two views were inherently possible." Consequently, the subsequent amendment to the statutory provision, even though it was retrospective, would not attract the provisions of Section 263 particularly when the provision of law, as it stood, on the date when the Commissioner passed the order under Section 263, would have to be taken into account. 12. In Commissioner of Income Tax vs. Gabriel India Ltd., a Division Bench of this Court observed that Section 263 does not confer an arbitrary or uncharted power on the Commissioner. In considering as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, the Commissioner must be guided by the material on the record. The power of suo motu revision under Section 263(1), is in the nature of supervisory jurisdiction. Two circumstances must exist in order to enable the Commissioner to exercise the power, namely, (i) the order must be erroneous; and (ii) by virtue of the order being erroneous, prejudice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yptus, the State Government had not followed the procedure prescribed by the Act. The Kerala High Court held that matters which were required to beconsidered had not been placed before the Committee which was statutorily to be constituted under the provisions of the Act and the Committee had failed to consider relevant material before making its recommendations, in regard to the price of eucalyptus. The judgment of the Kerala High Court, therefore, set aside the notifications on the ground that the mandate of the Act in fixing the price of forest produce had not been followed and that relevant consideration had not been borne in mind by the Committee. The liability of the assessee to pay arose by virtue of the provisions of Section 5 of the Act, under which, no forest produce could be sold by the Government at a price, which was less than the selling price; the selling price being defined to mean that the price of forest produce fixed by the Government under Section 3. The judgment of the Kerala High Court did not prohibit the government from issuing a fresh notification. After the decision of the Kerala High Court, the Expert Committee constituted under the provisions of Section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries of matters set out in the schedule, came to be settled and parties agreed that no payment will be due by either party to the other in respect of any of the matters mentioned in the schedule. 14. The narration of facts would thus show that the liability of the assessee in respect of the payment due for the supply of forest produce, under the Kerala Forest Produce (Fixation of Selling Price) Act, 1978, was not concluded by the judgment of the Kerala High Court dated 15th April 1981. The notifications fixing the price of eucalyptus were set aside by the Kerala High Court, on the ground that the Committee statutorily constituted under the Act, had not applied its mind to the relevant material. The liability of the assessee to pay at the price notified, arose under the Act, for the supplies of forest produce effected by the State Government to the assessee. The liability arose as a result of the supply of forest produce the quantification of liability was liable to be made by the instrument of the notifications issued in accordance with the provisions of the Act. The view that there was no remission or cessation of the liability during the previous year, relevant to Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible and the assessee therefore, cannot be subjected to the exercise of the jurisdiction under Section 263. The Tribunal, with respect, has adopted a rather simplistic view of the matter, in coming to the conclusion that the liability had ceased to exist, consequent upon the judgment of the Kerala High Court, dated 15th April 1981. This clearly overlooks the checkered history of the litigation. The fact that the litigation had a checkered history was noted in the interim order of the Supreme Court, which also referred to the "attendant uncertainties" and to the possibility of a "further long drawn out litigation". 16. For all these reasons, we are of the view that the order of the Tribunal was unsustainable. The reference would, consequently, be answered with the finding that the Tribunal was not justified in upholding the order of the Commissioner of Income Tax, passed under Section 263, directing the Assessing Officer to include the sum of Rs.1,75,32,600/- in the total income of the assessee under Section 41(1), in the previous year, relevant to Assessment Year 1982-83, on the ground that there had been complete cessation of the liability during that period. The reference ..... X X X X Extracts X X X X X X X X Extracts X X X X
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