COMMISSIONER OF INCOME-TAX vs. KANCHANJUNGA INVESTMENT PVT LTD

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ITR/195/1984HC GujaratGJHC24011869198420 September 1999Bench: HONOURABLE MR. JUSTICE B.C.PATEL,HONOURABLE MR. JUSTICE P.B.MAJMUDAR4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court found it difficult to answer the reference due to the lack of clarity and documentary evidence. The Court noted that the Tribunal had partially allowed the assessee's appeal, holding that for Sercon Pvt. Ltd., interest was not chargeable, and for Telerad Pvt. Ltd., there was a dispute regarding the rate of interest (11.25% vs. 13.25%). The Tribunal had also held that positive evidence was necessary regarding waiver of interest above 11.25%. However, the High Court pointed out that the Tribunal had ignored a letter indicating that interest did not arise for Sercon Pvt. Ltd. Citing the Supreme Court in CIT v. Indian Molasses Co. Pvt. Ltd., the Court observed that the Commissioner should have remanded the matter to the Assessing Officer without making positive observations or findings. Consequently, the High Court set aside the orders of the authorities below, including the Tribunal and the Assessing Officer, and directed the Assessing Officer to consider the matter afresh. The assessee was granted liberty to produce relevant evidence, and the Assessing Officer was empowered to call for further information. The Assessing Officer was instructed to pass an order without being influenced by previous orders or the Court's observations. The High Court declined to answer the reference.

What were the facts?

This case involves an Income Tax Reference before the High Court of Gujarat at Ahmedabad, arising from an order of the Income Tax Appellate Tribunal. The Commissioner of Income-tax (Revenue) sought to refer three questions, but the Tribunal rejected two. The High Court considered a re-framed question from the Revenue regarding an addition of Rs. 10,52,028 to the assessee's income. The assessee (Kanchanjunga Investment Pvt. Ltd.) also sought to refer 15 questions, but only two were referred by the Tribunal concerning the rate of interest (11.25% vs. 13.25%) and the necessity of positive evidence for waiver of interest. The dispute originated from a revisional order by the Commissioner under Section 263, which was then appealed to the Tribunal.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts of Rs.10,52,028/- should not be added to the assessee's income and setting aside the CIT's order on this point? (Revenue's re-framed question). 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the applicable or effective rate of interest was 13.25% and that there was no variation in the agreement which resulted in continuation of effective rate of interest at 11.25%? (Assessee's question 1). 3. Whether, the Tribunal was justified in holding that the positive evidence was necessary regarding waiver of interest above the rate of 11.25% and in ignoring the entries made in the books of account? (Assessee's question 2). Assessee's Contentions: The assessee argued that the Tribunal was justified in holding the effective rate of interest at 13.25% and that there was no variation leading to a continuation of 11.25%. They also contended that positive evidence was necessary for waiver of interest above 11.25% and that the Tribunal should not have ignored book entries. The assessee also argued that for Sercon Pvt. Ltd., the question of interest did not arise, and the Tribunal ignored a letter to this effect. Revenue's Contentions: The Revenue's primary contention, as reflected in the re-framed question, was that Rs. 10,52,028 should have been added to the assessee's income. The Commissioner, in his revisional order, believed that if the assessee was entitled to interest from Telerad Pvt. Ltd., they should also be entitled to interest from Sercon Pvt. Ltd. The Revenue also argued that the Tribunal erred in its findings regarding the rate of interest and waiver.

Which sections of the Income-tax Act were involved?

Section 263

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 195 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE B.C.PATEL and Sd/-

Hon'ble MR.JUSTICE P.B.MAJMUDAR 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 Civil Judge? : NO 1 to 5 No -------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus KANCHANJUNGA INVESTMENT PVT LTD -------------------------------------------------------------- Appearance: MR BB NAIK with MR MANISH R BHATT for Petitioner MR DA MEHTA for MR KC PATEL for Respondent No. 1

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

CORAM : MR.JUSTICE B.C.PATEL and MR.JUSTICE P.B.MAJMUDAR Date of decision: 20/09/1999

ORAL JUDGEMENT

(Per B.C.Patel, J.)

The present reference arises at the instance of

the Commissioner of Income-tax, Gujarat-I, Ahmedabad and Kanchanjunga Investment Pvt. Ltd., Ahmedabad. It transpires that the Revenue requested the Tribunal to refer three questions. However, Questions Nos.2 & 3 as sought to be referred to this Court have not been referred by the Tribunal and the application qua these two questions have been rejected. So far as Question No.1 is concerned, the Tribunal re-framed the question, which reads as under:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts of Rs.10,52,028/- should not be added to the assessee's income and setting aside the CIT's order on this point?"

2.

So far as the assessee is concerned, in all 15 questions were raised for making a reference to this Court. However, the Tribunal has referred only two questions to this Court, which are referred to in paragraph 11. The said two questions are as under:

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the applicable or effective rate of interest was 13.25% and that there was no variation in the agreement which resulted in continuation of effective rate of interest at 11.25%?

(2) Whether, the Tribunal was justified in holding that the positive evidence was necessary regarding waiver of interest above the rate of 11.25% and in ignoring the entries made in the books of account?"

3.

We were taken through the order passed by the Tribunal and the relevant documents. The question pertains to 'interest'. The Commissioner of Income-tax, while examining the appeal, exercised revisional jurisdiction. and, vide Annexure-E, passed an order rejecting the contention of the assessee holding that: "It is, therefore, not correct for the assessee to argue that the Assignment Deed was made on condition that the term governing interest and repayment will be same as provided in the sale deed when Karamchand Premchand Pvt. Ltd. sold the shares to Sercon Pvt. Ltd.". The Commissioner of Income-tax hearing the appeal and exercising the powers under Section 263 of the Act was of the view that if the assessee company was entitled to receive interest from Telerad Pvt. Ltd. then it cannot

be said that it was not entitled to receive the interest from Sercon Pvt. Ltd.

4.

The matter was remanded for adjudication in accordance with law. It seems that the matter remanded, without any positive observations or findings, probably the assessee would not have preferred an appeal before the Tribunal but as some observations were made without sufficient evidence being placed on record, the assessee was constrained to prefer an appeal before the Tribunal and the Tribunal allowed the appeal in part. The Tribunal considering the documents placed on record found that a doubt is created. The second resolution by Sercon Pvt. Ltd. dated 10.8.1973 mentions the payment of interest and no rate is specified therein. Therefore, on consideration of the date of the deed of assignment and the resolution put together, two views are possible on the question whether interest was payable or not and ultimately held that the benefit must go to the assessee and further held that so far as Sercon Pvt. Ltd. is concerned, the interest is not chargeable. So far as Telerad Pvt. Ltd. is concerned, the assessee on receiving the interest reflected the same in the revised return and according to the assessee, the assessee was liable to pay the tax insofar as Telerad Pvt. Ltd. is concerned on accrual basis. There is a dispute with regard to the rate of interest; whether it should be 11.25% or 13.25%. All these questions are required to be considered.

5.

We find it difficult to answer the reference, more particularly in the instant case when Mr.Mehta, learned Counsel pointed out a letter produced on record indicating that, insofar as Sercon Pvt. Ltd. is concerned, the question of interest does not arise and the Tribunal has ignored that letter. As pointed out by the Apex Court in the case of COMMISSIONER OF INCOME TAX v. INDIAN MOLASSES CO. PVT. LTD. reported in 78 ITR 474, two courses are open. Mr.Naik, learned Counsel also faced difficulties in absence of certain documentary evidence. Under the circumstances, if the Commissioner of Income-tax would have remanded the matter to the Income-tax Officer without making observations or recording findings, possibly, interest of justice would have been served. If the Assessing Officer would have been directed to consider the matter afresh on the basis of the evidence that may be produced by the parties, possibly, in our opinion, there would have been no grievance. It is under these circumstances, we set aside the orders passed by the authorities below including the order of the Tribunal and the Assessing Officer is

directed to consider the matter afresh with a liberty to the assessee to produce the relevant evidence on the record of the case. It goes without saying that it is open for the Assessing Officer to call for the evidence for further information if need arises. It goes without saying that the Assessing Officer will pass an order without being influenced by the orders passed by the Commissioner of Income-tax or the Appellate Tribunal or any observations made by this Court.

6.

Under the circumstances, we direct the Tribunal to pass an appropriate order keeping the aforesaid observations in mind. We decline to answer reference in view of the aforesaid facts and circumstances of the case.

(KMG Thilake) #######

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