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SCA/5006/2001 4/ 4 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 5006 of 2001
For
Approval and Signature:
HONOURABLE
MS.JUSTICE HARSHA DEVANI
HONOURABLE
MR.JUSTICE H.B.ANTANI
======================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To
be referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
======================================================
BHARAT
SHIP BREAKING CORPRATION
Versus
JOINT
COMMISSIONER OF INCOME - TAX
======================================================
Appearance
:
MR
SN SOPARKAR for Petitioner
MR M.R. BHATT WITH MRS MAUNA M BHATT
for Respondent
======================================================
CORAM
:
HONOURABLE
MS.JUSTICE HARSHA DEVANI
and
HONOURABLE
MR.JUSTICE H.B.ANTANI
Date:
17/03/2011
ORAL
JUDGMENT
(Per:
HONOURABLE MS.JUSTICE HARSHA DEVANI)
1 By
this petition under Article 226 of the Constitution of India, the
petitioner has challenged notice dated 25.05.2001 issued by the
respondent under section 148 of the Income Tax Act, 1961 (“the
Act”) reopening the petitioner’s assessment for the assessment
year 1994 -1995.
The
petitioner, a partnership firm, carries on business of ship
breaking. For this purpose it purchases ships that are not sea
worthy from sellers usually based abroad. The transaction is carried
out through banking channel. The buyer remits a portion of the
amount through the bank and takes over possession of the ship. The
remaining amount is to be paid within 60 days along with interest
now popularly known as “usance interest. The petitioner filed
its return of income on 31.10.1994 for assessment year 1994-95.
Subsequently, assessment came to be framed under section 143(3) of
the Act at an income of Rs. 28,25,963/-. The petitioner carried the
matter in appeal before the Commissioner (Appeals), who vide order
dated 13.01.1999 dismissed the appeal.
Thereafter,
by the impugned notice, the assessment of the petitioner for the
assessment year 1994-95 is sought to be reopened on the ground that
the petitioner had paid interest to non-residents out of the
boundaries of India, therefore, it was required to deduct tax as per
the provisions of section 40(a)(i) read
with Chapter XVII-B of the Act failing which the interest could not
be allowed as a deduction in computation of income chargeable under
the head “Profits and gains from business or profession. The
Assessing Officer formed the belief that in the present case the
petitioner had paid usance interest amounting to Rs.63,18,925/- on
purchase of ships but had not complied with the aforesaid provisions
and as such the petitioner had been allowed deduction against
profits which was contrary to the law in force, resulting in
escapement of income chargeable to tax. Being aggrieved, the
petitioner has filed the present petition.
Mr.
S.N. Soparkar, learned Senior Advocate appearing on behalf of the
petitioner invited attention to the provisions of section 10(15)(iv)
(c) of the Act which provides that the interest payable by an
industrial undertaking
in India on any moneys borrowed or debt incurred by it before
the 1st
day of June, 2001, in a foreign country in respect of the purchase
outside India of raw materials or components or capital plant and
machinery, to the extent to which such interest does not exceed the
amount of interest calculated at the rate approved by the Central
Government in this behalf, having regard to the terms of the loan
or debt and its repayments
shall not be included in computing the total income of the previous
year of any person. It was submitted that the Taxation Laws
(Amendment) Act, 2003 Explanation 2 came to be inserted under clause
(c) with retrospective effect from 1.4.1962, whereby the usance
interest payable outside India by an undertaking engaged in the
business of ship-breaking in respect of purchase of ship from
outside India is deemed to be interest payable on debt incurred in a
foreign country in respect of the purchase outside India. It was
submitted that in the light of the Explanation
2 to clause (c) the usance interest payable by the petitioner would
not be includible in computing the total income of the petitioner
for the year under consideration. It was accordingly submitted that
in the light of the aforesaid amendment, the very foundation of the
show cause notice issued under section 148 of the Act does not
survive.
This
court has also heard Mr. M. R. Bhatt, learned Senior Advocate
appearing on behalf of the respondent.
6 From
the facts noted hereinabove, it is apparent that the assessment of
the petitioner for the assessment year 1994-95 is sought to be
reopened by issuing the impugned notice on the ground that the
petitioner had paid the usance interest amounting to Rs. 63,18,925/-
on purchase of ships and had not complied with the provisions of
section 40(c)(i) of the Act. However, by virtue of Explanation (2) to
section 10(15)(iv)(c) of the Act, which has been made retrospectively
effective from 1.4.1962, usance interest payable outside India by an
undertaking engaged in the business of ship-breaking in respect of
purchase of ship from outside India is deemed to be interest payable
on debt incurred in a foreign country in respect of the purchase
outside India and as such the same cannot be included while computing
the total income of the petitioner. In the circumstances, the very
basis for reopening the assessment no longer survives. The impugned
notice under section 148 of the Act, therefore, cannot be sustained.
7 For
the foregoing reasons, the petition succeeds and accordingly it is
allowed. The impugned notice dated 25.5.2001 issued under section
148 of the Act is hereby quashed and set aside. Rule is made
absolute accordingly with no order as to costs.
(MS.
HARSHA DEVANI, J.)
(H.B.ANTANI,
J.)
pnnair
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