18. Tapan Kumar Dutta vs. Commissioner of Income
Tax, West Bengal (24.04.2018) (2018) 404 ITR 28 (SC)
Search and seizure – Assessment of third person – A notice u/s.
158BD could be issued to a person with respect to whom search was not conducted
but undisclosed income was found as belonging to such person from the material
seized from the residence or business premises of the person with respect to
whom search was made u/s. 132 – Notice issued u/s. 158BC together with notice
issued on the person searched not valid – Subsequent notice u/s. 158BD was
valid
The Appellant was a partner in a
Partnership Firm by name “Nityakali Rice Mill” (in short ‘the Firm’).
On 06.11.1998, a search was conducted at the business premises of the Firm by
the Income Tax Department and several documents/books including a sum of Rs. 34
lakh were seized.
Thereafter, on 09.09.1999, a notice
was issued to the Appellant by the Assessing Officer u/s. 158BC of the Income
Tax Act, 1961 (in short ‘the IT Act’) to prepare and file a true and correct
return of his total income including the undisclosed income in respect of which
he was assessed for the block period 1989-90 to 1999-2000. On the very same
day, a separate notice u/s. 158BC was issued in the name of the said Firm by
the very same Assessing Officer. Pursuant to the same, the Appellant filed his
block return for the aforesaid period on 08.11.1999 declaring his aggregate
undisclosed income at Rs. 14 lakh.
Meanwhile, an application was filed
by the Appellant before the Additional Commissioner of Income Tax, Asansol,
praying for his intervention and issue of necessary direction to the Assessing
Officer u/s. 144A of the IT Act. On 14.08.2000, the Additional Commissioner
perused the records and directed the Assessing Officer to take appropriate
steps in order to determine the income of the Assessee. The Additional
Commissioner issued separate directions u/s. 144A of the IT Act in the cases of
Nitya Kali Rice Mill, Kartick Dutta, Shambhu Mondal and Tamal Mondal and the
Draft Assessment Order u/s. 158BC of the IT Act was sent to the Joint
Commissioner of Income Tax, Burdwan, Range-2 for approval which was returned by
the Joint Commissioner on 16.11.2000 stating that no warrant for authorisation
was issued in the names of the persons mentioned in the Draft Assessment Order.
On 20.11.2000, Block Assessment
Order was passed by the Deputy Commissioner of Income Tax stating that the
return filed in the case of the Firm should be accepted as ‘Nil’ income and
also directed to initiate proceedings against the Appellant for the assessment
of undisclosed income for the block period u/s. 158BD of the IT Act. Pursuant
to the order dated 20.11.2000, a fresh notice u/s. 158BC read with section
158BD of the IT Act was issued to the Appellant to file the block return for
the period 1989-90 to 1999-2000. Consequently, the Appellant intimated the
Assessing Officer through a letter dated 21.10.2002 that the block return has
already been filed for the aforesaid period on 08.11.1999. Further, the issue
of fresh notice does not extend the time allowed for completion of the
assessment under Chapter XIV of the IT Act.
On 29.11.2002, the Assessing
Officer passed the assessment order while assessing the undisclosed income of
the Appellant to the tune of Rs. 3,48,56,430/. Being aggrieved, the Appellant
preferred an appeal before the Commissioner of Income Tax (Appeals). Vide order
dated 18.09.2003, the Commissioner of Income Tax (Appeals) held that the
undisclosed income of the block period in the instant case should be taken in
the aggregate sum of Rs. 66,55,911/- as against Rs. 3,48,56,430/- as assessed
by the Assessing Officer.
Being aggrieved, the Appellant
preferred an Appeal before the Tribunal. At the same time, the Revenue also
went in appeal before the Tribunal. The Tribunal, vide order dated 29.04.2005,
dismissed the appeal filed by the Appellant while partly allowing the appeal
filed by the Revenue. Being aggrieved, the Appellant filed an appeal before the
High Court. Vide judgment and order dated 17.11.2005, the Division Bench had
dismissed the appeal filed by the Assessee.
Being aggrieved by the judgment and
order dated 17.11.2005, the Appellant has preferred this appeal before the
Supreme Court.
According to the Supreme Court, the
only point for consideration before it was whether in the facts and
circumstances of the present case, the issue of second (fresh) notice u/s.
158BD of the IT Act was valid or not?
The Supreme Court noted that in the
instant case, it was a matter of dispute that second notice issued on
20.11.2000 was not valid and competent since the first notice issued by the
same Assessing Officer dated 09.09.1999 u/s. 158BC was valid and the assessment
ought to be made in pursuance of that notice and, therefore, the Assessing
Officer had no authority to issue the second notice.
The Supreme Court considered the
provisions of section 158BD and observed that a notice u/s. 158BD could be
issued to a person with respect to whom search was not conducted but
undisclosed income was found as belonging to such person from the material
seized from the residence or business premises of the person with respect to
whom search was made u/s. 132.
Section 158BD speaks of the
condition that “where the Assessing Officer is satisfied that any
undisclosed income belongs to any person other than the searched person”,
which means that the Assessing Officer must have to be satisfied that any
undisclosed income belongs to any person other than the searched person.
According to the Supreme Court, in
the present case, it was not in dispute that the Assessing Officer, who was
assessing the Firm as well as the Appellant, was the same person. In other
words, the same Assessing Officer having jurisdiction over the searched person
could proceed against the present Appellant. Therefore, the present Assessing
Officer had jurisdiction to proceed against the present Appellant to make a
block assessment under Chapter XIV-B of the IT Act, in case the Assessing
Officer was prima facie satisfied that any undisclosed income belonged
to the present Appellant.
The Supreme Court held that at the
time when notice u/s. 158BC was issued by the Assessing Officer to Nitya Kali
Rice Mill, it was not necessary for the Assessing Officer to arrive at a
satisfaction that any undisclosed income belongs to Nitya Kali Rice Mill. A
search was conducted against Nitya Kali Rice Mill under section 132 of the Act.
Since the notice u/s. 158BC issued to Nitya Kali Rice Mill and the notice u/s.
158BC issued to the Appellant were on the same day i.e., on 09.09.1999, the
question of coming to a satisfaction that any undisclosed income based on
seized books of accounts or documents or assets belonged to the present
Appellant did or could not arise inasmuch as no reasonable or prudent man can
come to such satisfaction unless the seized books of accounts or documents or
assets are perused, examined and verified.
Therefore, the Assessing Officer
was right in arriving at a decision that the notice u/s. 158BC issued to the
present Appellant on 09.09.1999 did not satisfy the requirement of section
158BD of the Act. He, therefore, rightly proceeded to issue fresh notice
(second Notice) u/s. 158BD on 20.11.2000 after recording a satisfaction that
any undisclosed income based on seized books of account or document or assets
or other materials may belong to the Appellant. In fact, in the present case,
the AO had himself come to a conclusion that the notice issued u/s. 158BC on
09.09.1999 to the Assessee was not in conformity with the requirement of
section 158BD of the Act. The Assessing Officer had proceeded u/s. 158BD of the
Act not in pursuance of any direction by the Joint Commissioner but after being
satisfied that the case squarely fell within the ambit of section 158BD of the
Act.
The Supreme Court, therefore,
dismissed the appeal concluding that the High Court was right in passing the
judgment and order dated 17.11.2005.
19. Addl. Commissioner of Income Tax vs. Bharat
V. Patel (24.04.2018) (2018) 404 ITR 37 (SC)
Perquisite – The Respondent got the Stock Appreciation Rights
(SARs) and, eventually received an amount on account of its redemption prior to
01.04.2000 on which date the amendment of Finance Act, 1999 (27 of 1999) came
into force – In the absence of any express statutory provision regarding the
applicability of such amendment from retrospective effect, the said amount was
not liable to pay tax
The Respondent was employed as the
Chairman-cum-Managing Director of the (P&G) India Ltd., at the relevant
time and the said company is the subsidiary of (P&G) USA through Richardson
Vicks Inc. USA and that (P&G) USA owned controlling equity. The Respondent
was working as a salaried employee. The (P&G) USA was the company who had
issued the Stock Appreciation Rights (SARs.) to the Respondent without any
consideration from 1991 to 1996. The said SARs were redeemed on 15.10.1997 and
in lieu of that the Respondent received an amount of Rs. 6,80,40,724/- from
(P&G) USA. However, when the Respondent filed his return for the Assessment
Year:1998-99, he claimed this amount as an exemption from the ambit of Income
Tax.
The Tribunal was of the view that
the stock options are capital assets and such assets in the instant case
acquired for consideration, hence, gain arising therefrom is liable to capital
gain tax. However, the stand of the Revenue before the Tribunal was that the
amount in question is taxable as perquisite u/s. 17(2)(iii) of the Act or in
alternatively u/s. 28(iv) of the Act instead of capital gains. The High Court
also upheld the view of the Tribunal but the High Court disagreed that such
capital gains arose to the Respondent on redemption of Stock Appreciation
Rights since there was no cost of acquisition involved from the side of the
Respondent.
The Supreme Court, before examining
the case at hand, considered the meaning of the words “Perquisite”
and “Capital Gains”. According to the Supreme Court, the word “Perquisite”
in common parlance may be defined as any perk or benefit attached to an
employee or position besides salary or remuneration. Broadly speaking, these
are usually non-cash benefits given by an employer to an employee in addition
to entitled salary or remuneration. It may be said that these benefits are
generally provided by the employers in order to retain the talented employees
in the organisation. There are various instances of perquisite such as
concessional rent accommodation provided by the employer, any sum paid by an
employer in respect of an obligation which was actually payable by the employee
etc. Section 17(2) of the Act was enacted by the legislature to give the broad
view of term perquisite. On the other hand, the word ‘Capital Gains’ means a
profit from the sale of property or an investment. It may be short term or long
term depending upon the facts and circumstances of each case. This gain or
profit is charged to tax in the year in which transfer of the capital assets
takes place.
According to the Supreme Court, in
the instant case, the fundamental question which arose for its consideration
was with regard to the taxability of the amount received by the Respondent on
redemption of Stock Appreciation Rights (SARs.).
The Supreme Court noted that,
particularly, in order to bring the perquisite transferred by the employer to
the employees within the ambit of tax, legislature brought an amendment u/s. 17
of the Act by inserting clause (iiia) in section 17(2) of the Act through the
Finance Act, 1999 (27 of 1999) with effect from 01.04.2000, which was later on
omitted by the Finance Act, 2000.
According to the Supreme Court, the
intention behind the said amendment brought by the legislature was to bring the
benefits transferred by the employer to the employees as in the instant case,
within the ambit of the Income Tax Act, 1961. It was the first time when the
legislature specified the meaning of the cost for acquiring specific
securities. Only by this amendment, legislature determined what would
constitute the specific securities. By this amendment, legislature clearly
covered the direct or indirect transfer of specified securities from the
employer to the employees during or after the employment. On a perusal of the
said clause, it was evident that the case of the Respondent fell under such
clause. However, since the transaction in the instant case pertained to period
prior to 01.04.2000, hence, such transaction could not be covered under the
said Clause in the absence of an express provision of retrospective effect.
The Supreme Court did not find any
force in the argument of the Revenue that the case of the Respondent would fall
under the ambit of section 17(2)(iii) of the Act instead of section 17(2)(iiia)
of the Act. The Supreme Court held that it is a fundamental principle of law
that a receipt under the Act must be made taxable before it can be treated as
income. Courts cannot construe the law in such a way that brings an individual
within the ambit of Income Tax Act to pay tax who otherwise is not liable to
pay. In the absence of any such specific provision, if an individual is
subjected to pay tax, it would amount to the violation of his Constitutional
Right.
The Supreme Court observed that on
the point of applicability of clause (iiia) of section 17(2) of the Act, it had
settled the position in Infosys Technologies Ltd. (297 ITR 167).
The Supreme Court further held that
the High Court had rightly rejected the stand of the Revenue that the amendment
brought in by section 17(2) of the Act was clarificatory, hence, retrospective
in nature.
Further, according to the Supreme
Court Circular No. 710 dated 24.07.1995 prima facie dealt with the cases
where the employer issued shares to the employees at less than the market
price. In the instant case, the Respondent was allotted Stock Appreciation
Rights (SARs.) by the (P&G) USA which was different from the allotment of
shares. Hence, such Circular had no applicability on the instant case.
Moreover, a Circular could not be used to introduce a new tax provision in a
Statute which was otherwise absent.
On the alternate contention of the
Revenue that the case of the Respondent would come within the ambit of the
28(iv) of the IT Act, the Supreme Court held that such benefit or perquisite
should have arisen from the business activities or profession whereas in the
instant case there was nothing as such. The applicability of section 28(iv) was
confined only to the case where there was any business or profession related
transaction involved. Hence, the instant case could not be covered u/s. 28(iv)
of the Act for the purpose of tax liability.
The Supreme Court summed up by
holding that, the Respondent got the Stock Appreciation Rights (SARs) and,
eventually received an amount on account of its redemption prior to 01.04.2000
on which date the amendment of Finance Act, 1999 (27 of 1999) came into force.
In the absence of any express statutory provision regarding the applicability
of such amendment from retrospective effect, it did not find any force in the
argument of the Revenue that such amendment came into force retrospectively. It
is well established Rule of interpretation that taxing provisions shall be
construed strictly so that no person who is otherwise not liable to pay tax, be
made liable to pay tax.
20. Commissioner of Income Tax vs. Container
Corporation of India Ltd. (2018) 404 ITR
397 (SC)
Infrastructure facility – Inland Container Depots (ICDs) are
Inland Ports and subject to the provisions of the section 80IA and deduction
could be claimed for the income earned out of these Depots
Container Corporation of India Ltd.
(CONCOR)-the Respondent herein, a government Company, was engaged in the
business of handling and transportation of containerised cargo and was under
the direct administrative control of Ministry of Railways. Its operating
activities were mainly carried out at its Inland Container Depots (ICDs),
Container Freight Stations (CFSs) and Port Side Container Terminals (PSCTs)
spread all over the country.
The Respondent herein filed its
returns of income for the assessment years 2003-04 to 2005-06 claiming
deduction under various heads including deduction u/s. 80-IA of the Act.
This issue is with regard to the
deduction claimed u/s. 80-IA on the profits earned from the Inland Container
Depots (ICDs) and on rolling stocks. The claim for deduction on the profits
earned from the ICDs and further the deduction on account of rolling stocks had
been rejected by the Assessing Officer.
The Respondent herein, being aggrieved with the aforesaid order,
filed an appeal to the Commissioner of Income Tax (Appeals). Learned CIT
(Appeals), partly allowed the appeal while rejecting the deduction claimed u/s.
80-IA of the Act. Being aggrieved, the Respondent herein further preferred
appeal before the Tribunal. The Tribunal, partly allowed the appeal and held
that the deduction u/s. 80-IA could be claimed with regard to the rolling stocks
of the company but not with regard to the ICDs.
Being aggrieved, the Respondent herein challenged the same before
the High Court. The Division Bench of the High Court, allowed the appeals and
held that the Respondent herein was entitled to claim deduction on the income
earned from the ICDs for the relevant period under consideration u/s. 80-IA of
the IT Act.
Being aggrieved by the judgment and
order of the High Court, the Revenue has preferred this appeal before the
Supreme Court.
According to the Supreme Court, the
only point for consideration before it was whether in the facts and
circumstances of the case the Inland Container Depots (ICDs) under the control
of the Respondent, during the relevant period, qualified for deduction u/s.
80-IA(4) of the Act or not.
The Supreme Court noted that the
ICDs function for the benefit of exporters and importers located in industrial
centers which are situated at distance from sea ports. The purpose of
introducing them was to promote the export and import in the country as these
depots acts as a facilitator and reduce inconvenience to the person who wishes
to export or import but place of his business is situated in a land locked area
i.e., away from the sea. These depots reduce the inconvenience in import and export
in the sense that it reduces the bottlenecks that are arising out of handling
and customs formalities that are required to be done at the sea ports by
allowing the same to be done at these depots only that are situated near to
them. The term ICDs was inserted in 1983 u/s. 2(12) of the Customs Act, 1962
which defines ‘customs port’ and by the provisions of section 7(1)(aa) of the
Customs Act, 1962 power has been given to the Central Board of Excise and
Custom(CBEC) to notify which place alone to be considered as Inland Container
Depots for the unloading of imported goods and the loading of export goods by
Notification in the official Gazette.
With the purpose of boosting
country’s infrastructure and specially the transport infrastructure, the
Finance Act, 1995 which came into effect from 01.04.1996 brought an amendment
to the provisions of section 80-IA of the Act. Section 80-IA of the Act talks
about deduction in respect of profits and gains from industrial undertaking or
enterprises engaged in the infrastructure development etc. The said amendment
for the first time brought a provision under which a percentage of profits
derived from the operation of infrastructure facility was allowed a deduction
while computing the income of the Assessee. A ten years tax concession was
allowed to the enterprises in accordance with the provisions of the section
subject to fulfillment of conditions given therein, which develops, maintains
and operates any new infrastructure facility such as roads, highways,
expressways, bridges, airports, ports and rail system or any other public
facility of similar nature as notified.
The said provision gives the power
to the Board to notify certain other enterprises which can avail the benefit of
section 80-IA of the Act, which do not fall within any of the specified
categories but carries out activities of similar nature.
Further, Central Board of Direct
Taxes (CBDT), in exercise of its power u/s. 80-IA(12)(ca), vide Notification
dated 01.09.1998 notified ICDs and CFSs as infrastructure facility.
In addition to the above, the
Finance Act, 1998, which came into effect on 01.04.1999, made a change in the
definition of ‘Infrastructure facility’ as is relevant to the present case. The
words ‘Inland water ways and inland ports’ were added in the definition of
infrastructure facility. A noticeable change was further
brought by the Finance Act, 2001, which came into effect from 01.04.2002, in
the terms that the power of the Board to extend the benefit of the said
provisions to any infrastructure facility of similar nature by issuing a Notification
was taken away. The new explanation to section 80-IA(4) of the Act was
substituted by the Finance Act, 2001 which defined “infrastructure
facility”.
It was contended on behalf of the
Appellant that the High Court erred in relying on the Notification issued by
CBDT to hold that the enterprises holding ICDs are allowed to claim deductions
u/s. 80-IA of the Act. As the said power of the Board was specifically taken
away by the amendment made by Finance Act, 2001, in light of the said
amendment, the Notifications which were issued by the CBDT would cease to
operate after the Assessment Year 2002-03.
The Supreme Court held that the
aforesaid argument did not have much force as the said amendment was silent
with regard to any effect it would have upon the Notifications issued earlier
by the Board in due exercise of its power. Had it been the intention of the
legislature that the Notifications issued by the Board earlier were of no
effect after 2002-03, it would have had found a place in the said amendment. In
the absence of the same, the Supreme Court was unable to concur with learned
Senior Counsel that the Notifications which were issued in legitimate exercise
of the power conferred on the Board would cease to have effect after the
Assessment Year 2002-03.
It was also contended on behalf of
the Appellant that the High Court committed a grave error in holding ICDs as
Inland Ports. It was further contended that the ICDs were never understood to
fall in the category of ‘Inland Port’ under the scheme of the Act. The argument
in support of this contention was that if the word ‘Inland Port’, as used in
the Explanation attached to section 80-IA(4) of the Act defining
‘infrastructure facility’ included ICDs, there would have been no need for the
CBDT to separately exercise its power given. The Supreme Court held that the
Notification which was issued by the CBDT came into effect on 01.09.1998 i.e.,
the time when the term ‘Inland Port’ was not in itself inserted in the
provisions of Explanation attached to section 80-IA(4) of the Act defining the
term ‘infrastructure facility’. It was inserted through Finance Act, 1998 which
came into effect from 01.04.1999. So there seems to be no conflict within the
Notification issued by the Board and the fact that the ICDs are Inland Ports or
not.
The Supreme Court further held that
the Respondent has been held entitled for the benefit of section 80IA of the
Act much before the Finance Act, 2001 which came into force on 01.04.2002 and
exemption for the period of 10 years could not be curtailed or denied by any
subsequent amendment regarding the eligibility conditions under the period is
modified or specific provision is made that the benefit from 01.04.2002 onwards
shall only be claimed by the existing eligible units if they fulfill the new
conditions.
The Supreme Court thereafter dealt
with the issue as to whether the ICDs could be termed as Inland Ports so as to
entitle it for deduction u/s. 80-IA of the Act. The Supreme Court observed that
term port, in commercial terms, is a place where vessels are in a habit of
loading and unloading goods. The term ‘Port’ as is used in the Explanation
attached to section 80-IA(4) seems to have maritime connotation perhaps that is
the reason why the word airport is found separately in the Explanation.
Considering the nature of work that is performed at ICDs, they cannot be termed
as Ports. However, taking into consideration the fact that a part of activities
that are carried out at ports such as custom clearance are also carried out at
these ICDs, the claim of the Respondent herein could be considered within the
term ‘Inland port’ as is used in the Explanation.
The Supreme Court noted that the
term ‘Inland Port’ has been defined nowhere. But the Notification that has been
issued by the Central Board of Excise & Customs (CBEC) dated 24.04.2007 in
terms holds that considering the nature of work carried out at these ICDs they
can be termed as Inland Ports. Further, the communication dated 25.05.2009
issued on behalf of the Ministry of Commerce and Industry confirming that the
ICDs are Inland Ports, fortified the claim of the Respondent herein. The
Supreme Court held that though both the Notification and communication are not
binding on CBDT to decide whether ICDs can be termed as Inland Ports within the
meaning of section 80-IA of the Act, the Appellant herein was unable to put
forward any reasonable explanation as to why these notifications and
communication should not be relied to hold ICDs as Inland Ports. Unless shown
otherwise, it could not be held that the term ‘Inland Ports’ is used
differently u/s. 80-IA of the Act. All these facts taken together clear the
position beyond any doubt that the ICDs are Inland Ports and subject to the
provisions of the section and deduction could be claimed for the income earned
out of these Depots. However, the actual computation is to be made in
accordance with the different Notifications issued by the Customs department
with regard to different ICDs located at different places.
The Supreme Court, in view of
foregoing held that the judgment of the High Court did not call for any
interference and, hence, the appeal was accordingly dismissed.
___________________________________________________________________________________________________
Corrigendum
Namaskaar printed
on Page 5 of August, 2018 Journal was contributed by K C Narang, Chartered
Accountant and not by Mukesh Trivedi, Chartered Accountant. This inadvertent
error is regretted.
