IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 09.10.2006 Coram : THE HONOURABLE MR.JUSTICE R.BALASUBRAMANIAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.191 of 2003 Commissioner of Income Tax-I, Chennai. ..Appellant Vs M/s.Goyal's International Hotels and Resorts Ltd, Chennai ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras, 'C' Bench dated 24.04.2003 in I.T.A. No.1901/Mds/98 for the assessment year 1992-93. against the order of the Commissioner of Income Tax (Appeals) - IV Chennai - 34 dated 31.08.1998 in IT Appeal No 155/97-98 against the order of the Assistant Commissioner of Income Tax Central Circle I (3) Madras - 34 dated 25.03.1997 in PANGIR NO for the Asst. year 1992-93 For Appellant : Mr.J.Narayanaswamy For Respondent : Mr.R.Sivaraman JUDGMENT (Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.) This appeal is filed under Section 260A of the Income Tax Act, 1961 by the Revenue against the order of the Income Tax Appellate Tribunal, Madras, 'C' Bench dated 24.04.2003 passed in I.T.A. No.1901/Mds/98. On 11.11.2003, this Court admitted the appeal and formulated the following substantial question of law. "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessment cannot be reopened where the assessee had not returned the income which was subjected to Tax Deducting at Source." https://hcservices.ecourts.gov.in/hcservices/ 2. The facts leading to the above substantial question of law are as under: The assessee is a company incorporated on 01.10.1990. The relevant assessment year is 1992-93 and the corresponding accounting year ended on 31.03.1992. The assessee has not commenced its business activities during the year. Hence no return of income was filed by the assessee. While perusing the return of income filed by the assessee for the assessment year 1993-94, it was noticed that the assessee had deposited a sum of Rs.65,00,000/- with M/s.Classic Financial Services and Enterprises Ltd., Calcutta during the relevant previous year and that the finance company has credited the account of the assessee a sum of Rs.2,43,080/- as interest on 31.03.1992. This interest related to the period from 27.1.92 to 31.3.92. A sum of Rs.55,909/- was also deducted towards Income-tax and remitted to the Government Account. Therefore, the Assessing Officer initiated proceedings under Section 147 of the Income-tax Act (hereinafter referred to as the "Act") and notice under Section 148 was issued to the assessee on 02.02.1995. The assessee also filed Return on 10.03.1995 admitting a Nil total income. The said Return was processed on 17.03.1995 and no adjustment was made. Later, notice under Section 143(2) of the Act was issued on the same date. Subsequently, the Assessing Officer completed the assessment under Section 143(3) of the Act, treating the interest income of Rs.2,43,080/- credited to the assessee's account during the relevant previous year as the income of the assessee from other sources. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income-tax (Appeals). The C.I.T.(A) dismissed the appeal and confirmed the order of the Assessing Officer. Aggrieved, the assessee filed an appeal to the Income-tax Appellate Tribunal (hereinafter referred to as the "Tribunal"). The Tribunal allowed the appeal and set aside the order of the lower authority. 3. Learned Standing Counsel appearing for the Revenue submitted that the Tribunal is wrong in holding that the interest income not returned by the assessee cannot be assessed to tax on the reassessment proceedings on the ground that the tax has been deducted at source. Further it is submitted that the tax deducted at source will not absolve the assessee from returning the correct income. 4. Learned counsel appearing for the assessee submitted that simply because the assessee has not filed the return for the assessment year 1992-93, it cannot be said that the income has escaped assessment as the TDS was admittedly deducted from the amount paid to the assessee by the investment company. Therefore, that cannot be a reason for reopening the assessment. https://hcservices.ecourts.gov.in/hcservices/ 5. Heard the counsel. The assessee company incorporated on 01.10.1990 and commenced its business activity. The Return of income was also not filed for the first two years. The first Return of income was filed for the assessment year 1993-94. While processing this Return under Section 143(1)(a) of the Act, the Assessing Officer noticed that the assessee had deposited a sum of Rs.65,00,000/- with M/s.Classic Financial Services & Enterprises Ltd., Calcutta during the relevant previous year and the aforesaid company had credited the account of the assessee by a sum of Rs.2,43,080/- as interest on 31.03.1992. It was also noticed that a sum of Rs.55,909/- was also deducted towards income-tax and paid to the Government Account. Based on this information, the Assessing Officer initiated proceedings under Section 147 for failure of the assessee to file the Return of income for the assessment year 1992-93 in respect of the aforesaid interest income. It is seen from the copy of the TDS Certificate that the amount was duly credited to the account of the assessee on 31.03.1992. The assessee could not substantiate its claim that the interest on deposit was payable only after the expiry of 92 days. The deposit had been renewed on 30.04.1992 and at the time of renewal, the net amount of interest for 94 days was paid to the assessee by cheque dated 30.04.1992 for Rs.2,70,681/- after reducing the amount of TDS of Rs.80,853/- at the rate of 23% of the total interest amount of Rs.3,51,534/- at the rate of 21% p.a. of principal amount of Rs.65,00,000/- for a period of 94 days i.e. From 27.1.1992 to 28.04.1992. It is apparent that since the business had not commenced, the amount was deposited on 27.1.1992 and the interest income upto 31.03.1992 accrued to the assessee during the financial year 1991-92. This is an undisputed fact. Hence the interest income was liable to be taxed as income under "other sources" on accrual basis for the previous year for the assessment year 1992-93. The period of deposit was of no relevance as income from "other sources" was to be taxed on the basis of financial year as previous year. Since the amount was credited to the account of the assessee on 31.03.1992 itself by the payer, the income has not only accrued but has been received also and payment by subsequent cheque along with further interest did not change the the taxability of the accrued income on financial year basis. It is also relevant to note that the tax was deducted at source only at the particular rate prevailing during the relevant years. The amount of tax deducted at source will always not equal to the tax payable by the assessee. We are of the view that interest income has been accrued and also received during the financial year 1991-92 relating to the assessment year 1992-93 because of the act of crediting interest to the accounts of the assessee on 31.03.1992 by M/s.Classic Financial Services & Enterprises Ltd. So, we are of the view that the Assessing Officer has correctly invoked the provision of Section 148 and rightly assessed the interest https://hcservices.ecourts.gov.in/hcservices/ income of Rs.2,43,080/- for the assessment year 1992-93. In view of the same, the question referred to us is answered in favour of the Revenue and against the assessee. It is seen from the records that the assessee had raised three issues in the grounds of appeal. The first one relates to reopening of the assessment under Section 148 of the Act. The second one relates to the addition of a sum of Rs.2,43,080/- as income from other sources. The third one relates to the consequential charging of interest under Sections 234A, 234B and 234C of the Act. 6. The Tribunal has considered the first issue alone holding that reopening of the assessment under Section 148 of the Act, is unsustainable and is not valid in law. In view of the same, the Tribunal did not consider the other two issues. The remaining two issues relates to the merits of the case. As we stated earlier that reopening is valid in law, the Tribunal has to consider the case on merits, i.e., the other two issues stated above. Hence, we direct the Income-tax Appellate Tribunal to take up the other two issues and decide the same after giving opportunity to both the parties to raise all the contention and pass orders on merits, in accordance with law, as soon as possible. 7. With the above observation, the tax case is disposed of. No costs. km Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar To 1. The ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL BEACH 'C' CHENNAI 2. THE COMMISSIONER OF INCOME TAX (APPEALS) II CHENNAI 3. THE ASSISTANT COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE I(3) MADRAS - 34 4. THE COMMISSIONER OF INCOME TAX I CHENNAI https://hcservices.ecourts.gov.in/hcservices/ 5. THE ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL RAJAJI BHAVAN III FLOOR BESANT NAGAR CHENNAI 90 + ONE CC TO M/S. PUSHYA SITARAMAN, SENIOR STANDING COUNSEL FOR INCOME TAX SR NO. 47117 bv(co) nm(26.10.2006) TC (A). 191 of 2003 https://hcservices.ecourts.gov.in/hcservices/