ORDER–Subsidy from govt.–ITO not including in total income–Order erroneous and prejudicial to revenue.
HELD :
The CIT was right in holding that the ITO erred in
omitting to bring the amount to tax and that error
operated to the prejudice of the interests of revenue. The
Tribunal was not justified in holding that the requirements for
invoking the powers under s. 263 by the CIT were not satisfied.
Income Tax Act 1961 s.263
Business income–PROFITS CHARGEABLE TO TAX UNDER S. 41(1)–Subsidy from government–Assessable under s. 41(1).
Income Tax Act 1961 s.41(1)
JUDGMENT
V. Sivaraman Nair, J.
1. The Commissioner of Income-tax, Andhra Pradesh-II, has referred the following two questions for the opinion of this court :
“1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the requirement for invoking the powers under section 263 by the Commissioner of Income-tax were not satisfied for the assessment year 1980-81 ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the subsidy received from the Government of Andhra Pradesh amounting to Rs. 87,655 is not assessable to tax under section 41(1) of the Income-tax Act, 1961 ?”
The fact which are necessary are the following :
The assessee-firm had received from the Government of Andhra Pradesh as subsidy an amount of Rs. 87,655 during the accounting year relevant to the assessment year 1980-81. It did not disclose the amount in its taxable income, even though, in the profit and loss account, that amount was credited as subsidy from the Government of Andhra Pradesh and was included in the net profits as per books. The assessee firm claimed that the above amount was not taxable as it was not a trading receipt. The Income-tax Officer accepted the claim of the assessee and did not assessee the amount of Rs. 87,6755. In exercise of his powers under section 263 of the Income-tax Act, 1961, the Commissioner issued notice proposing revision of the assessment so as to enhance the assessable income by the amount of Rs. 87,655 under section 28(i), (iv) and 41(1) of the Income-tax Act, 1961. In reply to the notice, the assessee relied on the order dated January 24, 1981, of the Special Bench of the Income-tax Appellate Tribunal, Hyderabad Bench ‘B’ in the case of Sahney Steel and Press Works Ltd. v. ITO in support of the exclusion of the above amount from the taxable income, even though the Income-tax Officer had not adverted to that order. The Commissioner, in his order dated February 4, 1983, held that the non-inclusion of the above amount was erroneous and was prejudicial to the interests of the Revenue. He also noticed that the order by the assessee, was not accepted by the Department which had filed an application for reference and the same was pending before this court. He also took note of the fact that the period of limitation within which he could exercise power under section 263(2) of the Income-tax Act, 1961, was about to be over. It was in these circumstances that the Commissioner revised the assessment so as to bring to tax the amount of Rs. 87,655 which represented refund of sales tax and power subsidy granted to the assessee by the Government of Andhra Pradesh.
2. The assessee filed an appeal before the Income-tax Appellate Tribunal. The Tribunal found that the exercise of the power under section 263 by the Commissioner was not justified, since the Income-tax Officer had not made the assessment erroneously to the prejudice of the Revenue. The Tribunal held that the Income-tax Officer passed the order of assessment in conformity with the ratio of the decision rendered by the Special Bench of the Tribunal, according to the best of his understanding of the law and it could not be held that he decided erroneously in so far as it prejudiced the interests of the Revenue. On these grounds, the Tribunal held that the Commissioner of Income-tax was not justified in revising the order of assessment as it could not be said to be erroneous or prejudicial to the interests of the Revenue, as the requirements for invoking his powers under section 263 by the Commissioner were not satisfied in the present case. It is that decision of the Tribunal which has provoked the Department to seek reference of the questions mentioned above.
3. Counsel for the Revenue submitted that the order of assessment did not indicate that the Income-tax Officer followed the order of the Special Bench of the Tribunal in relation to non-taxability of subsidy paid by the Government to industrial units like the present assessee. He submitted further that even assuming that he followed the decision of the Special Bench of the Tribunal, it is quite clear from the present order of the Tribunal itself that there were conflicting decisions of the Tribunal on this question and the Income-tax Officer was not right in following one of those orders, particularly, since the Department had not accepted the order of the Special Bench of the Tribunal, and that decision has since been upset by this court in CIT v. Sahney Steel and Press Works Ltd. . According to his, the Commissioner was right in assuming that the law as declared by this court in that decision was the law at all relevant times. His further submission is that it was more likely that the Income-tax Officer did not include the amount of subsidy as taxable income in the order of assessment because the assessee had not disclosed that amount as part of its taxable income.
4. Counsel appearing for the assessee submitted that, if the Income-tax Officer followed a decision of the Tribunal on an identical question, it cannot be held that he decided the assessment erroneously and to the prejudice of the interests of the Revenue. Accordingly to him, the Income-tax Officer was bound to follow the decisions of the Tribunal and he did not err in following the same.
5. Counsel for the assessee placed reliance on the decision of the Calcutta High Court in Russell Properties (P). Ltd. v. A. Chowdhury to the effect that if the Income-tax Officer followed the order of the Appellate Tribunal, his decision cannot be held to be erroneous and cannot be revised under section 263 of the Act. Had the Income-tax Officer adverted to and followed the decision of the Special Bench of the Tribunal in Sahney Steel and Press Works Ltd., the above decision would have applied, but what one finding from the order of assessment is that the Income-tax Officer had not adverted to that order at all. The principle of the decision in Russell Properties (P). Ltd. , cannot, therefore, apply to the facts of this case.
6. Counsel for the assessee relied on the decision in CIT v. Kanda Rice Mills of the Punjab and Haryana High Court. The observations contained in that decision clearly indicate that the Commissioner of Income-tax had not expressed any opinion as to whether the Income-tax Officer had made the assessment erroneously to the prejudice of the Revenue. At best, the opinions which he had expressed were ad hoc, indeterminate and inchoate. The court held that unless the Commissioner found that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue, he could not have revised that order. We are of the opinion that no reliance can be placed on that decision for purposes of the present case because the Commissioner had entered definite findings that the order of assessment was erroneous and prejudicial to the interests of the Revenue in the present case.
7. Counsel for the Revenue submitted that even assuming that the Appellate Tribunal had rendered a particular decision in respect of one assessment year, it is open to the Assessing Officer to take a different position for a subsequent year. He referred us to the decision in Minerals and Metals Trading Corporation of India Ltd. v. Deputy Commissioner, Commercial Taxes [1978] 42 STC 372 of this court in support of this submission. We are of the opinion that we need not consider that aspect in the present case because the decision of the Special Bench of the Tribunal on which counsel for the assessee sought to place reliance was not even referred to by the Income-tax Officer. Apart from that, the decision of the Special Bench of the Tribunal was not final at the time, because the Department was maintaining that the Tribunal had decided wrongly, and was pursuing remedies before this court in applications for reference. He also referred us to the decision in CIT v. Sahney Steel and Press Works Ltd. which according to him has vindicated the position taken up by the Department.
8. Counsel for the assessee raised a further submission that in cases where reassessment may be called for under section 147 of the Income-tax Act, 1961, the Commissioner is not entitled to exercise his power under section 263 of the Income-tax Act, 1961. He relied on the decision of Madras High Court in Venkatakrishna Rice Co. v. CIT in support of his proposition. Apart from stray observations, we do not find any definite opinion expressed to the effect that in cases where proceedings under section 147 also can be initiated, the Commissioner is precluded from acting under section 263 of the Income-tax Act, 1961.
9. Counsel for the Revenue submitted that the Appellate Tribunal proceeded on a wrong assumption that the Income-tax Officer had referred to and relied on the order of the Special Bench in Sahney Steel’s case in making the assessment. That assumption being contrary to records, the only questions which it should have considered, according to counsel, was whether the Commissioner had reason to exercise his powers under section 263 of the Income-tax Act, 1961.
10. On a perusal of the assessment record, we are of the opinion that the Commissioner of Income-tax was right in holding that the Income-tax Officer erred in omitting to bring the amount of Rs. 87,655 to tax and that error operated to the prejudice of the interests of the Revenue. In so far as the Income-tax Officer had not adverted to or followed the decision of the Special Bench of the Appellate Tribunal in Sahney Steel Co.’s case, we need not consider the other submissions of counsel on either side. The decision of the Commissioner that the order of the Assessing Officer was erroneous in so far as it was prejudicial to the interests of the Revenue was wrong in setting aside that order. In this view, we answer the first question in favour of the Revenue and against the assessee, namely, that the Income-tax Appellate Tribunal was not justified in holding that the requirements for invoking the powers under section 263 by the Commissioner of Income-tax were not satisfied for the assessment year 1980-81.
11. Counsel for the assessee submitted that the second question is covered by the order of this court in CIT v. Sahney Steel and Press Works Ltd. . He submitted that the decision and the matter is pending before that court. Counsel for the Revenue also brought to our notice the fact that a large number of reference applications and referred cases have been disposed of on the basis of Sahney’s case [1985] 152 ITR 29 (AP) and it is not desirable that the matter is reopened at this distance of time. We agree with these submissions and, therefore, answer the second question in favour of the Revenue and against the assessee.
12. Parties will suffer their respective costs.