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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Ajit K. Sengupta
  • Shyamal Kumar Sen, JJ.
Acts
  • section 144B(1) of the Income-tax Act, 1961,
  • section 256(1) of the Income-tax Act, 1961,
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Ajit K. Sengupta
  • Shyamal Kumar Sen, JJ.
Acts
  • section 144B(1) of the Income-tax Act, 1961,
  • section 256(1) of the Income-tax Act, 1961,
See more information ...
Smart Summary

Judgment Summary — Ajit K. Sengupta, J. (with Shyamal Kumar Sen, J. concurring)

Factual and Procedural Background

This reference arises under section 256(1) of the Income-tax Act, 1961, and involves two questions referred by the Tribunal — one at the instance of the assessee relating to the assessment year 1981–82, and the other at the instance of the Revenue relating to the assessment year 1982–83.

First reference (assessment year 1981–82): The assessee filed the return on July 30, 1983. Because the Income-tax Officer (ITO) proposed income differing from the return, the ITO forwarded a draft under section 144B(1) on September 6, 1983. The assessee submitted objections by letter dated September 12, 1983. The Inspecting Assistant Commissioner communicated directions on September 24, 1984, received by the ITO the same day. The assessment was completed on September 25, 1984. The normal time-limit for completing the assessment expired on March 31, 1984. The assessee contended that clause (iv) of Explanation 1 to section 153 did not apply because the period between forwarding the draft and receipt of directions exceeded 180 days, thereby rendering the assessment time-barred.

Second reference (assessment year 1982–83): This issue concerns interest of Rs. 2,69,338 on a fixed deposit of Rs. 25 lakhs which a court order dated August 25, 1980, had directed to be kept in a separate fixed deposit account and not to be dealt with (principal or interest) by the voluntary liquidator without prior leave of the court on notice. The Assessing Officer included the interest in the assessee's income; the Commissioner of Income-tax (Appeals) confirmed that inclusion. On appeal, the Tribunal held that because the funds (and interest) were under the control of the High Court and the assessee had no enforceable right to them until the court released them, the interest did not accrue in the year under appeal and its inclusion was not proper. The present court considered that finding on reference.

Legal Issues Presented

  1. “Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the assessment has been made after the expiry of the period of limitation prescribed by section 153?” (Assessment year 1981–82)
  2. “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest on fixed deposit amounting to Rs. 2,69,338 did not accrue during the year under appeal and the inclusion thereof was not proper?” (Assessment year 1982–83)

Arguments of the Parties

Assessee's Arguments

  • In respect of AY 1981–82: Clause (iv) of Explanation 1 to section 153 does not apply because the period from the date the ITO forwarded the draft order (September 6, 1983) to the date the ITO received directions from the Inspecting Assistant Commissioner (September 24, 1984) exceeded 180 days (a period of 385 days). The assessee's position was that where this interval exceeds 180 days, the clause cannot be invoked to extend the limitation period and therefore the assessment was made after the expiry of the limitation period.
  • In respect of AY 1982–83: The assessee contended (through production of the court order and submissions) that the High Court order deprived the assessee of any enforceable right to the principal or interest until the court released the amounts, and therefore the interest did not accrue to the assessee in the year under appeal.

Revenue / Assessing Officer / Commissioner of Income-tax (Appeals)

  • In respect of AY 1981–82: The assessing authorities and the Commissioner did not accept the assessee's contention and treated the exclusion provided by Explanation 1(iv) as operative — effectively applying the statutory cap of 180 days as the period to be excluded for computing limitation.
  • In respect of AY 1982–83: The Assessing Officer assessed the interest of Rs. 2,69,338 as income of the assessee, and the Commissioner of Income-tax (Appeals) confirmed that inclusion on the basis that the interest had accrued to the assessee.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Hindusthan Housing and Land Development Trust Ltd., [1977] 108 ITR 380 (Cal); affirmed by the Supreme Court in CIT v. Hindustan Housing and Land Development Trust Ltd., [1986] 161 ITR 524 (SC). Principle that "accrual" of income requires creation of an enforceable right in favour of the person to whom the income is said to have accrued; income does not accrue where the recipient has no enforceable right to receive the amount. The court relied on this authority to support the Tribunal's conclusion that, because the High Court order prevented the liquidators from dealing with the deposit or interest and the assessee had no enforceable right to the sums, the interest did not accrue during the year and its inclusion was improper.

Court's Reasoning and Analysis

Issue 1 (limitation under section 153 read with Explanation 1(iv) and section 144B):

  1. The court examined Explanation 1(iv) to section 153 which, in computing the period of limitation, excludes "the period (not exceeding one hundred and eighty days) commencing from the date on which the Income-tax Officer forwards the draft order under sub-section (1) of section 144B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-section (4) of that section."
  2. On a plain reading, Explanation 1(iv) extends the limitation by the time taken by the Inspecting Assistant Commissioner to give directions, but such extension is capped at 180 days ("not exceeding one hundred and eighty days").
  3. The ordinary time-limit for completing the assessment was two years from the end of the assessment year (i.e., two years from March 31, 1982, expiring March 31, 1984).
  4. The actual period between forwarding the draft (September 6, 1983) and receiving directions (September 24, 1984) was roughly 384–385 days. However, Explanation 1(iv) limits the exclusion to a maximum of 180 days; therefore, the period to be excluded when computing the limitation is 180 days, not the full 384 days.
  5. Adding the capped 180-day exclusion to the two-year ordinary period extends the date for completing the assessment beyond March 31, 1984 — the court calculated that the assessment could validly be completed by on or before September 27, 1984.
  6. Since the assessment was made on September 25, 1984, it fell within the extended period and was therefore in time.

Issue 2 (accrual of interest on fixed deposit):

  1. The court examined the High Court order dated August 25, 1980, which directed that Rs. 25 lakhs be kept in a separate fixed deposit account and prohibited the liquidators from dealing with the deposit or the interest without prior leave of the court on notice to the respondents or other parties as directed.
  2. Because of that direction, the fixed deposit and the interest were under the control of the High Court; the assessee had no enforceable right to the principal or to the interest until and unless the High Court released the amounts.
  3. The court adopted the legal understanding of "accrual" as requiring the creation of an enforceable right in favour of the person whose income is said to accrue. Where no enforceable right exists, the income cannot be treated as having accrued.
  4. Relying on the cited authority (CIT v. Hindusthan Housing ...), the court agreed with the Tribunal's conclusion that the interest did not accrue in the year under appeal and, consequently, its inclusion in the assessee's income was improper.

Holding and Implications

First question (AY 1981–82): The court answered the question in the negative and against the assessee. The court held that the exclusion under Explanation 1(iv) to section 153 is limited to a maximum of 180 days; applying that cap to the facts meant the assessment dated September 25, 1984 was within the extended limitation period and therefore valid. Direct effect: the assessment for AY 1981–82 was not time-barred and stands.

Second question (AY 1982–83): The court answered the question in the affirmative and against the Revenue. The court held that because the High Court order left the principal and interest under the control of the court and the assessee had no enforceable right to them, the interest of Rs. 2,69,338 did not accrue during the year under appeal and its inclusion in the assessee's income was improper. Direct effect: the Revenue's inclusion of that interest is overturned. The opinion records that "There will be no order as to costs."

No broader or novel legal principle was announced by the court beyond application of the statutory cap in Explanation 1(iv) and affirmation of the established principle (as cited) that accrual requires an enforceable right; the court applied those principles to the facts at hand.

Show full summary ...

    Arrah Sasaram Light Railway Co. Ltd. v. Commissioner Of Income-Tax.

    Ajit K. Sengupta, J.:— In this reference under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred two questions, one relating to the assessment year 1981–82 and the other relating to 1982–83.

    2. The first question that relates to the assessment year 1981–82 is referred at the instance of the assessee and is as under:

    “Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the assessment has been made after the expiry of the period of limitation prescribed by section 153?”

    3. The facts leading to the question are as under:

    The return for the assessment year 1981–82 was filed on July 30, 1983. As there was a variation between the income shown in the return and the income proposed, the Income-tax Officer drew up a draft under section 144B(1) of the Income-tax Act, 1961, on September 6, 1983. The assessee submitted its objection by a letter dated September 12, 1983. The Inspecting Assistant Commissioner communicated his directions on September 24, 1984, which were received by the Income-tax Officer on the same day. The assessment was made on September 25, 1984. The normal period within which the assessment ought to have been made expired on March 31, 1984.

    4. The assessee's contention was that clause (iv) of Explanation 1 to section 153 is not available in this case. According to the assessee, clause (iv) of the said Explanation 1 requires that the period, commencing from the date on which the Income-tax Officer forwards the draft order and ending with the date on which he receives the directions from the Inspecting Assistant Commissioner shall not exceed 180 days. If the period as aforesaid does exceed 180 days, clause (iv) of the said Explanation 1 does not come into operation. In the present case, the date onwhich the Income-tax Officer forwarded the draft order is September 6, 1983, and the date on which he received the directions is September 24, 1984, a period of 385 days. The Commissioner of Income-tax (Appeals) did not accept this contention of the assessee. Before the Tribunal, it was urged that the finding given by the Commissioner is incorrect. The Tribunal, following its earlier order, maintained the order of the Commissioner of Income-tax (Appeals) on this point.

    5. The assessee's contention is that the extension of limitation by 180 days in terms of clause (iv) of Explanation 1 below section 153 does not come into operation, where the Inspecting Assistant Commissioner takes more than 180 days. The same contention has been reiterated before us; clause (iv) of Explanation 1 reads as under:

    “In computing the period of limitation for the purposes of this section,—….

    (iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income-tax Officer forwards the draft order under sub-section (1) of section 144B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-section (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days.”

    6. On a plain reading of the said Explanation 1, it is clear that the provisions thereof extend the limitation by the time which the Inspecting Assistant Commissioner may take in giving directions to the Income-tax Officer but such extension shall not exceed 180 days. Explanation 1 provides that in computing the period of limitation for the purpose of section 153, the period as mentioned in sub-section (4) of section 144B shall be excluded. The ordinary time-limit for completing the assessment in this case is two years from the end of the assessment year, in which the income is first assessable, i.e, two years from March 31, 1982. The question is, which period is to be excluded. If we omit the expression “not exceeding one hundred and eighty days”, which is within the brackets, the period to be excluded is the period that commences from the date on which the Income-tax Officer forwards the draft order to the assessee and ends with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner. In this case, the draft assessment order has been forwarded to the assessee on September 6, 1983, and the directions have been received from the Inspecting Assistant Commissioner on September 24, 1984. Ordinarily, therefore, the period to be excluded is the period from September 6, 1983, to September 24, 1984, i.e, 384 days. However, the expression within the brackets, referred to above, provides that the period of exclusion in terms of Explanation 1(iv) cannot exceed one hundred and eighty days. In other words, where the period taken from the date on which the Income-tax Officer forwards the draft order to the party to the date he receives the directions from the Inspecting Assistant Commissioner is less than one hundred and eighty days, the period to be excluded would be that period otherwise it will be one hundred and eighty days. In any event, the period to be excluded has to be added to the period of two years so that this will extend the period of limitation beyond the last date on which the assessment could have been completed under section 143 or 153. If that is done, the assessment could have been completed in this case on or before September 27, 1984, and, therefore, the assessment made as on September 25, 1984, is very much in time.

    7. The assessee's contentions, therefore, have no merit. We accordingly answer the question for the assessment year 1981–82 in the negative and against the assessee.

    8. The second question referred at the instance of the Revenue relating to the assessment year 1982–83 is as under:

    “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest on fixed deposit amounting to Rs. 2,69,338 did not accrue during the year under appeal and the inclusion thereof was not proper?”

    9. Shortly stated, the facts relating to the question are as under:

    This court, vide order dated August 25, 1980, directed the volun-tary liquidator to keep a sum of Rs. 25 lakhs so transferred to them deposited in a separate fixed deposit account and not to deal with the said fixed deposit account or with the interest that will accrue thereon without obtaining the prior leave of the court on notice to the respondents or to such other parties as the court may direct. The Assessing Officer found that the fixed deposit had been deposited and interest accrued on the said amount at Rs. 2,69,338. The Assessing Officer was of the opinion that this amount accrued to the assessee and so he included the same in the total income of the assessee. The order of the Assessing Officer on this issue has been confirmed by the Commissioner of Income-tax (Appeals).

    10. On appeal to the Tribunal, the Tribunal found that the fixed deposit has been lying with the High Court. The direction of the court was that the liquidators shall not deal with the fixed deposit and the interest unless they take the prior permission of the court on notice to the respondents or to such other parties as the court may direct. Thus, it is clear from the direction of the court that the assessee has not got any enforceable right against the interest or the principal amount. The word “accrual” denotes accrual of income for which an enforceable right is created in favour of the person in whose favour the income accrues. The interest accruing is under the control of the High Court and unless an order is passed by the High Court releasing the amount, it cannot be available to the assessee. Therefore, after considering the decisions cited by the parties, the facts and circumstances of the case and particularly the order of the High Court, the Tribunal held that the amount did not accrue during the year under appeal and, subsequently, the inclusion thereof was not proper.

    11. Learned counsel appearing for the assessee filed before us a copy of the order of this court. On perusal, we find that the Tribunal's finding that the said order did not create any right which the assessee could enforce is correct. The assessee had no enforceable right to receive either the principal or the interest on the amount lying in the fixed deposit. The right to receive any part or whole of such amount is totally unsettled. Therefore, the Tribunal was correct in holding that the amount of interest on the principal sum did not accrue during the relevant previous year. Reliance has been placed on the decision of this court in CIT v. Hindusthan Housing and Land Development Trust Ltd., [1977] 108 ITR 380 (Cal) af-firmed by the Supreme Court in its decision in CIT v. Hindustan Housing and Land Development Trust Ltd., [1986] 161 ITR 524 (SC).

    12. In the premises, we answer the question relating to the assessment year 1982–83 in the affirmative and against the Revenue. There will be no order as to costs.

    Shyamal Kumar Sen, J.:— I agree.

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    Comments

    Arrah Sasaram Light Railway Co. Ltd. v. Commissioner Of Income-Tax.
    (Apr 7, 1992)