RAKESH SHANTILAL MARDIA vs. ASST. COMMISSIONER OF I.T.'

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SCA/316/2005HC GujaratGJHC24007415200521 April 2005Bench: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the impugned notices under Section 148 of the Income Tax Act, 1961, for both Assessment Years 1999-2000 and 2000-2001, could not be sustained. This decision was based on the Court's judgment in Tax Appeal No. 328 of 2000, pronounced on the same day. The Court found that the Tribunal had erred in permitting the spread-over of interest income over six years in the hands of the recipient assessee. Consequently, if the entire interest income was brought to tax in the initial year of debenture allotment, the assessee would not be entitled to receive any further interest in subsequent years. Therefore, it could not be stated that any income had escaped assessment for the years under consideration. The notices under Section 148 were quashed and set aside. The Court explicitly left undecided any issue related to the merits of the original assessment or the taxability of interest income if it were to be taxed in the initial year.

What were the facts?

The assessee, Rakesh Shantilal Mardia, filed two Special Civil Applications before the High Court of Gujarat. SCA No. 316 of 2005 pertains to Assessment Year (AY) 1999-2000, and SCA No. 317 of 2005 pertains to AY 2000-2001. Assessments were initially framed under Section 143(3) of the Income Tax Act, 1961. Subsequently, the Assistant Commissioner of Income Tax issued notices under Section 148 of the Act for both years, dated December 4, 2003. The reason for reopening was the belief that interest income from debentures was proportionately taxable over six years, and the assessee had failed to declare this proportionate interest income, leading to an alleged escapement of assessment of Rs. 48,37,500/- for each year.

What were the issues?

1. Whether the notices issued under Section 148 of the Income Tax Act, 1961, for AY 1999-2000 and AY 2000-2001 are valid, considering the assessee's contention that no income escaped assessment as the debentures were prematurely redeemed on July 6, 1998, and the principal amount was repaid, thus precluding any further interest accrual. The assessee argued that once the borrowing instruments were redeemed and the principal repaid, no interest could arise or accrue, negating any failure to disclose interest income. 2. Whether the proportionate interest income from debentures should be taxed over a period of six years, as directed by a previous Tribunal order dated October 28, 1999, which is a prerequisite for the current controversy to survive. The revenue's implicit contention, based on the reopening notice, is that the proportionate interest income was indeed taxable over six years and had escaped assessment.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 148

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CIVIL APPLICATION No 316 of 2005

with

SPECIAL CIVIL APPLICATION No 317 of 2005

For Approval and Signature:

HON'BLE MR.JUSTICE D.A.MEHTA Sd/- and HON'BLE MS.JUSTICE H.N.DEVANI Sd/-

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals?

-------------------------------------------------------------- RAKESH SHANTILAL MARDIA Versus ASST. COMMISSIONER OF I.T.' -------------------------------------------------------------- Appearance: 1. Special Civil Application No. 316 of 2005 MRS SWATI SOPARKAR for Petitioner No. 1 MR MANISH R BHATT for Respondent No. 1 NOTICE SERVED for Respondent No. 1 2. Special Civil Application No. 317 of 2005 MRS SWATI SOPARKAR for Petitioner No. 1 MR MANISH R BHATT for Respondent No. 1

--------------------------------------------------------------

CORAM : HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI

Date of decision: 21/04/2005

COMMON JUDGEMENT (Per : HON'BLE MR.JUSTICE D.A.MEHTA) 1 As both these petitions are interlinked with Tax Appeal No.328 of 2000 they have been taken up for final hearing and disposal together. Rule. Mr.M.R.Bhatt, learned Senior Standing Counsel for the respondent revenue waives service of Rule.

2 In Special Civil Application No. 316 of 2005 the Assessment Year is 1999-2000 while in Special Civil Application No.317 of 2005 the Assessment Year is 2000-2001. Assessments were duly framed under Section 143(3) of the Act on 13th March,2002 and 27th February,2003 respectively for both the years in question. The respondent issued notices under Section 148 of the Act for both the years dated 4th December,2003.

3 As can be seen from the reasons recorded the assessments have been reopened on the ground that interest income arising from debentures was proportionately taxable over a period of six years and hence, there was failure on part of the assessee petitioner in not returning the proportionate interest income for the two years under consideration. Accordingly, interest income to the tune of Rs.48,37,500/- had escaped assessment for each of the year under consideration.

4 The contention of the petitioner is that no income as such has escaped assessment in light of the fact that debentures are prematurely redeemed on 6th July,1998. That once the instruments under which borrowing had been effected are redeemed and the principal amount repaid by the company there can be no question of any interest arising or accruing. Therefore, there was no failure on part of the assessee in not returning the interest income.

5 It is an accepted position between the parties that the controversy for these years would survive only in the event the order of the Tribunal made in assessee's case on 28th October,1999 is upheld, whereby the Tribunal

had directed that proportionate amount of interest income should be brought to tax in each of the years over a period of six years which was the original term for which debentures were floated.

6 Having heard the learned Counsel appearing for the respective parties it is apparent that the impugned notices under Section 148 of the Act dated 4.12.2003 for both the Assessment Years in question cannot be permitted to hold the field in light of the judgment and order made today in Tax Appeal No.328 of 2000. This Court has held that the Tribunal was in error in permitting spread over of interest income over a period of six years in hands of recipient assessee. In these circumstances, once the entire interest income is brought to tax in the initial year viz. year of allotment of debenture the assessee is not entitled to receive any further interest in any of the subsequent years. Therefore, it cannot be stated that any income has escaped for any of the years under consideration. Accordingly impugned notices under Section 148 of the Act for Assessment Year 1999-2000 (Annexure-A) and for Assessment Year 2000-2001 (Annexure-A) are quashed and set aside. The petitions are allowed accordingly. Rule made absolute. There shall be no order as to costs. Sd/- (D.A.Mehta,J) Sd/- (H.N.Devani,J)

m.m.bhatt

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