S. 132B(4)(b)/ 240/ 244A: Assessee is entitled to interest on cash appropriated during search even if refund is directed in appeal proceedings

The department’s argument that the refund of excess amount is governed by s. 240 and that s. 132B(4)(b) has no application is not acceptable. S. 132B(4)(b) deals with pre-assessment period and there is no conflict between this provision and s. 240 or for that matter s. 244(A). The former deals with pre-assessment period in the matters of search and seizure and the later deals with post assessment period as per the order in appeal. The department’s view is not right on the plain reading of s. 132B(4)(b) and the assessee is entitled to simple interest at the rate of 15% per annum u/s 132B(4)(b) from 1.12.1990 to 4.3.1994. The interest shall be paid within two months from today.

S. 133(6): AO empowered to launch fishing and roving enquiry with a view to detect tax evasion

The legislative intention behind s. 133(6) was to give wide powers to the income-tax department to gather general particulars in the nature of survey and store those details in the computer so that the data so collected can be made use of for checking evasion of tax effectively. It would not fall under the restricted domains of being “area specific” or “case specific.” S. 133(6) does not refer to any enquiry about any particular person or assessee, but pertains to information in relation to “such points or matters” which the assessing authority issuing notices requires. This clearly illustrates that the information of general nature can be called for and names and addresses of depositors who hold deposits above a particular sum is certainly permissible (Karnataka Bank Ltd vs. Government of India (2002) 9 SCC 106 followed; M.V. Rajendran vs. ITO 260 ITR 442 (Ker) approved)

Under Explanation 1 to s. 271(1)(c), voluntary disclosure of concealed income does not absolve assessee of s. 271(1)(c) penalty if the assessee fails to offer an explanation which is bona fide and proves that all the material facts have been disclosed

The Tribunal has not properly understood or appreciated the scope of Explanation 1 to s. 271(1)(c). The AO shall not be carried away by the plea of the assessee like “voluntary disclosure”, “buy peace”, “avoid litigation”, “amicable settlement”, etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to s. 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise

S. 10A/10B (when an “exemption” provision): Unabsorbed depreciation (and business loss) of same (s. 10A/10B) unit brought forward from earlier years have to be set off against the profits before computing exempt profits

The assessee set up a 100% EOU in AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994-95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred “exemption” for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set-off against income from other sources. It was also claimed that the profits had to be computed on a “commercial” basis. The AO accepted the claim though the CIT revised his order u/s 263 and directed that the exemption be computed after set-off. On appeal by the assessee, the Tribunal reversed the CIT. On appeal by the department, the High Court (CIT vs. Himatasingike Seide Ltd 286 ITR 255 (Kar)) reversed the Tribunal and held that the brought forward depreciation had to be adjusted against the profits of the EOU before computing the exemption allowable u/s 10B. On appeal by the assessee to the Supreme Court HELD dismissing the appeal

(i) Q whether income has accrued must be considered from a realistic & practical angle (ii) If Dept has accepted adverse verdict in some years, it cannot be allowed to challenge verdict in other years (iii) disputes as to the year of taxability with no/ minor tax effect should not be raised by Dept

Three tests have been laid down by various decisions of the Supreme Court to determine when income can be said to have accrued: (a) whether the income is real or hypothetical; (b) whether there is a corresponding liability of the other party to pay the amount to the assessee & (c) the probability or improbability of realisation of the income by the assessee has to be considered from a realistic and practical point of view. Applying these tests, on facts, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. Also, from a realistic and practical point of view (the assessee may not have made imports), no real income accrued to the assessee in the year of exports and s. 28(iv) would be inapplicable. Essentially, the AO is required to be pragmatic and not pedantic (Shoorji Vallabhdas 46 ITR 144 (SC), Morvi Industries 82 ITR 835 (SC) & Godhra Electricity Co 225 ITR 746 (SC) followed)

S. 234D does not apply to an assessment year commencing pre 1.6.2003 if the assessment order is passed prior to that date

Explanation 2 to s. 234D makes it clear that the provisions of the section shall not apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed before the said date. As the assessment order in the present case was passed before 1.6.2003, the question of retrospectivity of s. 234D does not arise.

S. 244A: The department is not obliged to pay interest on interest as that is not provided in the law. Sandvik Asia 280 ITR 643 (SC) awarded compensation for inordinate delay on its facts

The judgment in Sandvik Asia 280 ITR 643 (SC) has been misquoted and misinterpreted by the assessees and also by the Revenue. Their view that in Sandvik case this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment and that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period is not correct. In Sandvik Asia, the Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court came to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same but not an interest on interest. S. 244A provides for interest on refunds under various contingencies. It is clarified that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest.

Occupancy rights in flat conferred by Articles of Association confer ownership rights in flat. Restriction in Articles on transferability is void

The right, title & interest over a flat conveyed is a species of property, whether that right has accrued under the provisions of the Articles of Association of a Company or through the bye-laws of a Cooperative Society. Flat owners’ right to dispose of its flat is also well recognized, and one can sell, donate, leave by will or let out or hypothecate his right. By purchasing the flat, the purchaser, over and above his species of right over the flat, will also have undivided interest in the common areas and facilities, in the percentage as prescribed. Flat owners will also have the right to use the common areas and facilities in accordance with the purpose for which they are intended. It is too late in the day to contend that flat owners cannot sell, let, hypothecate or mortgage their flat for availing of loan without permission of the builder, Society or the Company. Neither the Companies Act nor any other statute make any provision prohibiting the transfer of species of interest to third parties or to avail of loan for the flat owners’ benefit. A legal bar on the saleability or transferability of such a species of interest will create chaos and confusion. The right or interest to occupy any such flat is a species of property and hence has a stamp of transferability. The Articles of Association of a Company have no force of a Statute and the right of the shareholder to mortgage could not have been restricted by the Articles of Association (Ramesh Himatlal Shah Vs. Harsukh Jadhavji Joshi (1975) 2 SCC 105 followed).

The Income-tax Act provides a complete machinery for the assessment/re-assessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities. The assessee cannot be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he has adequate remedy open to him by an appeal to the Commissioner of Income-tax (Appeals). As the said statutory remedy is an effectual and efficacious one, the Writ Court ought not to have entertained the Writ Petition filed by the assessee

While it is true that a fiscal statute has to be construed strictly and nothing should be added to or subtracted from it, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. From a bare reading of s. 36(1)(v), it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees. On facts, it is evident that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the
assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the CIT. Thus, the conditions stipulated in s. 36(1)(v) were satisfied