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TMI Blog1982 (3) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... de as a consequence of the objection by the audit department. Shri Mittal fairly stated that in light of the decision of Supreme Court in case of Indian Eastern Newspapers Society vs. CIT(1979)12 CTR(SC)190:(1979)119 ITR 996(SC) the reopening would not survive. He, however, had an interesting argument to submit. His submission was that when the ITO reopened the assessment, the decision of the Supreme Court in case of Kasturbhai Lalbhai vs. R. K. Malhotra (1971) 80 ITR 188 (SC) held the field, therefore, in accordance with the said decision of the Supreme Court the ITO had jurisdiction to reopen the assessment as he did. However, a subsequent decision of the Supreme Court overruling the decision in Kasturbhai Lalbhai's case would not take way the jurisdiction of the ITO which he had validly assumed in the light of the earlier decision of the Supreme Court in Kasturbhai Lalbhai's case. Shri Kaji in reply pointed out that the decision in CIT vs. Maneklal Harilal Spg. Mfg. Co. Ltd. (1977)106 ITR 24 (Guj) had no relevance in the instant case. In that case the validity of reopening of assessment was upheld by the Gujarat High Court on the ground that on basis of the information in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the decision of CIT(A) to hold that interest of Rs. 4,21,647 for the asst. yr. 1973-74 and Rs. 4,39,547 for the asst. yr. 1974-75 was allowable. One of the activities of the corporation is to underwrite and if necessary to subscribe preference and equity share capital of the new companies in the State of Gujarat. As per the agreement between the Government of Gujarat and the Corporation, the amount subscribed by the Corporation was to be given as loans to the Corporation. As per the Government resolution sanctioning the loans, when the loans were subscribed in equity share capital, it would not bear any interest. However, if the corporation were to receive any dividend on equity shares in future, the Corporation has to refund 2/3rd of the said amount with the Govt. of Gujarat. Now when the loans were for subscribing preference share capital it would bear a fixed rate of interest as per the Govt. resolution. The interest is to be paid when the corporation receives dividend on preference shares. If the corporation does not receive any dividend on preference shares the corporation has to pay entire accrued and due interest along with the principal amount at the end of 10th y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he receipt of loan, whichever was earlier. The interest was payable by the corporation to the Govt. not later than one month after the receipt by the corporation of the dividend in respect of preference shares provided that along with the final repayment of a loan all interest due shall be payable by the Corpn. irrespective of receipt of outstanding dividends. However, in regard to the underwriting of equity shares no fixed interest was payable on the loan but realisation from investment on account of dividend has to be appropriated in accordance with the terms set out in the agreement, viz., one per cent of the receipt had to be appropriated towards overhead charges. Out of the balance, 2/3rd amount will be paid to the Govt. and 1/3 rd had to be retained by the assessee. On liquidation of the investments by sale or otherwise the losses or gains had to be shared in the same ratio as above, viz., 2/3rd and 1/3rd. Now on a reading of the above conditions set out in the agreement, it is clear that while the loans relating to underwriting of preference shares were to bear interest at 6.5% which was repayable on disposal by the corporation of said shares or within a period of 10 years a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the amount of dividend foregone, cannot be treated as income in the hands of the assessee. the dividend which initially accrued to the assessee was only to be applied in Favour of the State Government or Reserve Bank of India in accordance with the relevant provisions of Financial Corpn. Act. The fact that the amount was given up by the said two parties, was in nature of remission which is to be treated as a capital receipt and can by no stretch of imagination tax on revenue account. The decision of the CIT(A) is accordingly upheld. 11. The next contention is in regard to the payment of guarantee fees to the Reserve Bank of India which amounted to Rs. 1,05,783 for the asst. yr. 1973-74 and Rs. 1,35,902 for the year 1974-75. The assessee had paid guarantee fees to Credit Guarantee Corpn. of India in order to secure credit guarantees in respect of different loans granted. According to the agreement with the borrowers, these expenses were to be recovered from the borrowers. However, the assessee did not recover the amounts in full, therefore, according to the ITO the assessee had wrongly undertaken to bear the liability and, therefore, the amount in question could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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