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Ark Investments Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)13ITD65(Mad.)
AppellantArk Investments Ltd.
Respondentincome-tax Officer
Excerpt:
.....that would be an admission as to a state of fact. but whether the receipt can be considered as taxable income is quite another matter, and consideration of that question leads into the realm of law. if the income-tax officer assesses an assessee upon a receipt which is not taxable in law, it is always open to the assessee to take the case in appeal or in revision thereafter. it is then for the appellate assistant commissioner or the commissioner of income-tax, as the case may be, to examine the matter and determine whether, although the money has been received by the assessee, it is taxable in law. the assessee is then within his rights in requiring the appellate or the revisional authority to examine the validity of the assessment to tax of a receipt which, though admitted by him,.....
Judgment:
1. The assessee, Ark Investments Ltd., in this appeal, objects to the order of the Commissioner (Appeals) dismissing its appeal as incompetent on the ground that the appellant assessee has no reason to be aggrieved by the order of the ITO against which the appeal was preferred. The facts and circumstances giving rise to the dispute are as under.

2. The assessee, which is said to be carrying on business in dealing in shares, had filed a return originally declaring a loss of Rs. 1,08,220.

Subsequently, it filed a revised return showing an income of Rs. 2,39,861. In arriving at this income, the assessee had included as part of its income certain amounts due to share brokers written back to the accounts aggregating to Rs. 3,00,127 as considered liable under Section 41(1) of the Income-tax Act, 1961 ('the Act'). In response to the requirement of the ITO to support the return under Section 43(2) of the Act, the assessee had filed copy of a letter of the stock exchange and a copy of an award in the dispute between B.M. Choksey & Co. and the assessee, under which the assessee is seen to have paid a sum of Rs. 35,000 in full and final settlement of all the claims of the said B.M.Choksey & Co. As a consequence, it wrote back a sum of Rs. 2,99,285 originally due to them in the profit and loss account which it sought to return as liable under Section 41(1) in the revised return as already stated. The ITO accepted the return and made the assessment on the total income of Rs 2,39,861 as per the return. It appears, the assessee was, subsequently, advised that the amount of Rs. 2,99,285 may not fall within the scope of Section 41(1) and, consequently, not liable to be included in the total income of the assessee. Subsequent to this advice, the assessee filed an appeal against the assessment and it is in these circumstances that the Commissioner (Appeals) has dismissed the appeal.

3. The assessee's submission before us in this appeal is that the Commissioner (Appeals) was not justified in refusing to entertain the appeal at the very thereshold as incompetent. It was submitted that the amount returned under Section 41(1) was under an impression that it would be liable under Section 41(1) but as it subsequently obtained legal advice that it may not fall within the scope of Section 41(1) and it would not be liable, it was entitled to dispute the inclusion of the amount in the appeal notwithstanding the fact that it had erroneously returned the amount as forming part of the total income. The departmental representative, however, vehemently contested the assessee's stand. It was submitted that as the assessee had returned the amount as part of its income and the ITO had accepted what the assessee itself returned, the assessee cannot be said to be aggrieved by the order and, consequently, it was not entitled to agitate the claim in appeal. Reference was made and reliance was placed on the following decisions--Ramanlal Kamdar v. CIT [1977] 108 ITR 73 (Mad.), Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 (SC) and CIT v.Alchemic (P.) Ltd [1981] 130 ITR 168 (Guj).

4. According to us, the cases relied on by the departmental representative are clearly distinguishable, both on facts and on points that arose for consideration, and therefore, the ratio of the decisions do not apply to negative the claim of the assessee in this case. The decision of the Madras High Court in Ramanlal Kamdar's case (supra) was concerned with the assessee's agreement to the rectifying of a mistake in the assessment order originally made and then disputing the order of rectification going back on such agreement. It was held that as the assessee agreed to the rectification, he cannot be said to be aggrieved by the order. The decision in Gurjargravures (P.) Ltd.'s case (supra) is concerned with a claim made by the assessee for the first time in the appeal proceedings as to exemption under Section 84 of the Act without there being any material on record which may support the claim and without any claim in that respect having been preferred before the ITO. It is in such circumstances, the Supreme Court held that it was not open to the AAC to enter into the question of relief under Section 84 before him. In the decision in Alchemic (P.) Ltd.'s case (supra), the Court upheld the Tribunal's order, refusing to allow the revenue to go into the question arising under Section 41(1) on the ground that extensive investigation into facts is necessary and the Tribunal acting in exercise of its jurisdiction was justified in refusing to do so. In that case, here it is seen that the revenue sought to raise a contention for the first time before the Tribunal, which required examination of facts not already on record before it, but required investigation.

5. In the present case, as we have already stated, the assessee had furnished the requisite information and particulars concerning the nature of the receipt, which, according to it, had been included in its income wrongly as taxable. The provisions of Section 246 of the Act, providing for appeal, entitle an assessee to file an appeal against the order of the AAC under Clause (c) denying the liability to be assessed or against an order under Section 143(3) of the Act where he objects to the amount of income assessed or the amount of tax determined. The right of appeal against an order under Section 143(3), as in this case, is an absolute right not hedged with any limitations or restrictions except that the assessee must be aggrieved by the amount of income assessed or tax determined. The assessee's state of being aggrieved by an order, which is appellable under Section 246(c), cannot be held to be confined only to a case where the ITO in the assessment brings into charge amounts considered by him as income which have not been returned or offered for assessment, in which case it would mean that even where an ITO makes an assessment under Section 143(3) after examining the return and evidence adduced by it in support of it, accepting the income so returned, the assessee will not be competent to appeal notwithstanding the fact that an assessment under Section 143(3) can be a subject-matter of the appeal in regard to the amount of income assessed or tax determined thereon. The state of assessee being aggrieved by an order, therefore, also comprehends assessment of receipts or amounts which the assessee, under a mistake or erroneous view of the law, considers to be liable to tax and wrongly offers it for taxation without a proper application of law to the facts relevant to such receipts or amounts. In this connection, we can do no better than quote an extract from the judgment of the Allahabad High Court in Pt. Sheo Nath Prasad Sharma v. CIT [1967] 66 ITR 647: ... But it may be that the assessee may have committed a mistake in treating a certain receipt as taxable. The mere circumstance that he has shown that receipt as income in his return does not make him liable to tax thereon. An assessee is liable to tax only upon such receipt as can be included in his total income and is assessable under the Income-tax Act. The law empowers the Income-tax Officer to assess the income of an assessee and determine the tax payable thereon. In doing so, he may proceed on the basis that, where an assessee discloses that a certain sum of money has been received by him, the fact of that receipt may be accepted without anything more as constituting an admission on the part of the assessee. That would be an admission as to a state of fact. But whether the receipt can be considered as taxable income is quite another matter, and consideration of that question leads into the realm of law. If the Income-tax Officer assesses an assessee upon a receipt which is not taxable in law, it is always open to the assessee to take the case in appeal or in revision thereafter. It is then for the Appellate Assistant Commissioner or the Commissioner of Income-tax, as the case may be, to examine the matter and determine whether, although the money has been received by the assessee, it is taxable in law.

The assessee is then within his rights in requiring the appellate or the revisional authority to examine the validity of the assessment to tax of a receipt which, though admitted by him, is not taxable in law . ...

6. Clearly, in the present case, the circumstances under which the assessee considered itself not bound to pay the amount to the creditor, namely, B.M. Choksey & Co., have been made known to ITO and also the necessary evidence in support thereof. The amount concerned was not receipt of any amount, but represented the write back of a sum considered not liable to be paid to the share brokers concerned.

Whether the amount in the circumstances, is taxable or not is a matter falling in the realm of law and if the ITO, in including the amount in the total income even though on the basis of its return, is found to have taxed what is not really taxable in law, then clearly it must be said that the assessee was aggrieved by the order in determining the total income to this extent and tax payable thereon entitling it to file an appeal. The assessee can only plead the facts and the evidence to support them and it is the duty of the ITO to apply the law correctly and if an amount not taxable is found to have been taxed, the assessee is entitled to agitate the assessment thereof notwithstanding that it had itself, under an erroneous or mistaken view of law, declared it as its income as held by the Allahabad High Court. This is not to say that on the facts of this case, the amount returned and assessed is not taxable, which has got to be examined. All that we have stated above is only to emphasise the fact that an assessee, if he considers himself to be aggrieved by the total income assessed or tax determined on account of some amount of income having been taxed which he believes is not taxable even though he has returned it as his income under an erroneous or mistaken view of the law, is competent to file an appeal and such appeal must be disposed of on merits.

7. In the circumstances stated above, we set aside the order of the AAC and direct him to consider the assessee's grounds of appeal on merits and then dispose of the appeal according to law.


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