Madras High Court
M/S.Madras Race Club vs The Deputy Commissioner Of ... on 23 April, 2021
W.P.Nos.3005 of 2013 & 28434 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 23.04.2021
CORAM
THE HONOURABLE MR.JUSTICE S.M. SUBRAMANIAM
W.P.Nos.3005 of 2013 & 28434 of 2014
and M.P.No.1 of 2014
M/s.Madras Race Club,
Rep., by its Additional Secretary,
Mrs.S.Aruna,P.O.Box No.2639,
Race Course Road,
Guindy, Chennai-600 032. .. Petitioner in both W.Ps.
-vs-
The Deputy Commissioner of Income-tax,
Company Circle IV(1),
Room No.430, 4th Floor, Main Building,
'Aayakar Bhavan',
No.121, Mahatma Gandhi Road,
Nungambakkam, Chennai-600 034. .. Respondent in both W.Ps.
Petitions filed under Article 226 of the Constitution of India praying
for issuance of Writ of Certiorari to call for the records in PAN:
AAACM7640R dated 11.01.2013 and 24.10.2014 relating to Assessment
Year 2007-08 on the file of the respondent and quash the same.
For Petitioner : Mr.G.Baskar
(In both W.Ps.)
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W.P.Nos.3005 of 2013 & 28434 of 2014
For Respondent : Ms.Hema Muralikrishnan,
(In both W.Ps.) Senior Standing Counsel
COMMON ORDER
W.P.No.3005 of 2013 is preferred challenging the proceedings dated
11.01.2013 issued by the Deputy Commissioner of Income Tax, Company
Circle IV(1), Chennai regarding proposal to complete the assessment and
calling for objections on initiation of proceedings under Section 147 of the
Income Tax Act, 1961 (hereinafter referred to as “the IT Act”). Notice
under Section 148 of the IT Act was issued on 20.04.2011. On receipt of
the notice under Section 148 of the IT Act, issued for reopening of the
assessment for the assessment year 2007-08, the petitioner sent reply to the
notice requesting for the reasons for reopening. When the writ petition was
taken up for hearing on 06.02.2013, it was admitted and an order of interim
stay of all further proceedings was granted by this Court.
2.The learned counsel appearing on behalf of the petitioner made a
submission that the petitioner-Club is incorporated in terms of Section 25 of
the Indian Companies Act, 1956 and having its registered office at Chennai.
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3.With reference to the disputes raised for reopening of assessment, it
is contended that the very initiation per se untenable in view of the fact that
the reasonings given were already considered by the Assessing Officer
during the original assessment and the appellate authority, viz., the
Commissioner of Income Tax (Appeals)-VI, Chennai (for brevity “the
Commissioner”) also confirmed such findings made by the Assessing
Officer in respect of the said assessment year 2007-08. Thus, there is no
reason to believe for reopening of assessment, but the impugned reasons
amount to change of opinion. Thus, the very initiation of proceedings is not
in consonance with the requirements contemplated under Section 147 of the
IT Act and the same is liable to be set aside.
4.In support of the contention, the learned counsel for the petitioner
solicited the attention of this Court with reference to the computation of
profits for the year ended 31.03.2007 (AY 2007-08 dated 29.10.2007)
wherein, expenses on mutuality basis, income on mutuality basis and the
Guindy Lodge & Club House receipts all such particulars were made
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available and the said particulars were considered by the Assessing Officer
at the time of passing the assessment order dated 29.12.2009 under Section
143(3) of the IT Act. The said assessment order reveals that during the
assessment year 2007-08, it is stated that the Club had received
Rs.1,55,65,851/- as interest income from their Fixed Deposit.
5.The learned counsel for the petitioner relying on the said findings,
made a submission that the very same amount has been taken as a ground
for reopening of assessment and thus, the reopening is untenable. This
apart, there was a consideration in respect of the said amount in the order of
assessment more specifically in paragraph 1.7 where the Assessing Officer
made a finding that the interest income of Rs.1,55,65,851/- is treated as
income from other sources and taxed accordingly. Para 2.1 of the
assessment order was also relied upon, which reads as hereunder:-
“2.1. In the computation, the assessee company
had adjusted the income and expenses pertaining to
Guindy lodge and club house. However, on verifying
the P&L, it was found that the expenses in P&L in the
computation differs. From the details filed it was found
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that the expenses claimed in the Guindy Lodge comes
to Rs.4,20,25,342/- as against the amount of
Rs.3,94,36,300/- and Rs.28,73,507/- as against
Rs.25,56,190/- with respect of Club House. Hence the
difference is also added back to the expenses
respectively. When this was pointed out the AR has not
submitted any reply. Since the assessee company had
filed inaccurate particulars thereby concealing income
penalty u/s 271(1)(c) are separately initiated.”
6.Based on this, the learned counsel for the petitioner in order to
assail the initiation of proceedings for reopening of assessment under
Section 147 of the IT Act has stated that two grounds were raised and both
the two grounds were already adjudicated by the Assessing Officer and
categorical findings were made by the Assessing Officer in his order and
therefore, the said two grounds raised in proceedings under Section 147 of
the IT Act dated 30.05.2011, are untenable. The two grounds, viz., the
income and expenditure account and the Schedule VIII to the balance sheet
shows that the assessee was in receipt of interest income of Rs.1,55,65,851/-
and the profit and account shows the lease rent of Rs.3.90 crores, which
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does not seem to have the character of racing income or mutuality income,
had been adjudicated and a clear finding was provided. Thus, the same
cannot be considered as a new material or otherwise for the purpose of
initiation of proceedings under Section 147 of the IT Act. The assessee
submitted their submissions to the Assistant Commissioner of Income Tax
on 08.06.2011. In the said letter also, the assessee has elaborated the factual
matrix and the details regarding the assessment order already passed.
7.The assessment order was taken by way of an appeal before the
Commissioner and the appellate order was passed on 28.03.2012 wherein,
the said objections stated as reasons in the impugned proceedings were
adjudicated and the Commissioner made the following findings at para 8.1,
which read as hereunder:-
“8.1. The AR filed written submission on
28.11.2011 and objected to the disallowance on the
ground that:
“The Assessing Officer has come to the
conclusion based on and relying the following case
laws, that even in case of mutual agency the interest
income has to be treated as income from other sources
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and to be assessed to tax, as the interest income is not
earned out of mutual agency.
a) Tuticorin Alkall Chemicals and Fertilizers
Ltd. vs. CIT (227 ITR 172)
b) CIT vs. Bokoro Steel Ltd. (236 ITR 315)
Your appellant would like to rely on the interest
received by the club from the fixed deposits with banks
is not taxable on the principles of mutuality as held by
the Supreme Court in the case of CIT vs. Cawnpore
Club Ltd. (Civil Appeal Nos.4777-8 of 1999
(unreported decision) which is followed in the decision
of ITAT Hyderabad. A bench in case of Fateh Maidan
Club vs. Assistant Commissioner of Income Tax
reported in 81 TTJ 831.
In respect of the above matter your appellant
would like to say that various High Courts have given
judgment for and against the issue. In fact the Delhi
Gymkhana Club vs. DCIT in ITA No.3585/Del/21006
has held it in favour of the assessee. The Supreme
Court decision quoted by the Assessing Officer is not
relevant to the facts of the appellant case. Hence, as
the matter has not reached a finality your appellant
prays to consider the interest income under business
income as returned. In any event since Supreme Court
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has held to Bankipur Club that interest income for the
part of mutuality income it cannot be assessed as
income from other sources.
Alternatively, the appellant prays that the
interest income if it is assessable, it has to be assessed
as business income and included in the total income,
the carried forward business loss u/s 72 has to be
allowed against such business income.””
8.Relying on the said portion of the order passed by the
Commissioner, the learned counsel for the petitioner contended that even
the reasons stated as of now are untenable and therefore, the impugned
order is liable to be set aside. The impugned proceedings are nothing, but
change of opinion, as the reasons stated were already elaborately
adjudicated both by the Assessing Officer in his assessment order and by the
Commissioner, who has affirmed the assessment order.
9.With reference to the other reasons stated in the impugned
proceedings dated 11.01.2013, the learned counsel for the petitioner
reiterated that the grounds are raised at the first instance and what is not
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W.P.Nos.3005 of 2013 & 28434 of 2014
stated in the impugned proceedings at the initial stage under Section 148,
cannot be taken. The said grounds are relatable to the Lease Deed entered
into by the assessee with DLF Properties Private Limited. It is contended
that the reasons furnished in the proceedings should stand for its own and it
cannot be substituted by another reason. Thus, any other further reason
provided in the impugned proceedings dated 11.01.2013 are untenable and
not in consonance with the provisions of the IT Act.
10.In support of the claim, the learned counsel for the petitioner is of
an opinion that the very reason constituting ground for initiation of 147
proceedings is untenable and it is only a change of opinion and thus, liable
to be set aside and the writ petition is to be allowed.
11.The learned Senior Standing Counsel appearing on behalf of the
respondent objected the contentions raised on behalf of the petitioner
strenuously by stating that the case on hand is a case to be adjudicated by
the Assessing Officer. The reason to believe is established and the details
and other grounds raised by the petitioner are to be adjudicated by the
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Assessing Officer, as the scope of the writ petition cannot be expanded so as
to adjudicate those disputed facts on merits with reference to the documents
and evidences.
12.The learned Senior Standing Counsel solicited the attention of this
Court with reference to the objections given by the assessee on 08.06.2011.
Based on the said objections, the competent authority issued the impugned
order wherein, paragraph 2 elaborates that the Lease Deed entered into by
the assessee with DLF Properties Private Limited was identified during the
course of proceedings. As far as the first reason is concerned, the assessee
has to place all the documents before the Assessing Officer for the purpose
of adjudication and the factual findings and other relevant factors
considered by the Commissioner on merits, are to be considered by the
Assessing Officer and not by this Court in a writ proceedings.
13.As far as the other reasons stated with reference to the Lease Deed
with DLF Properties Private Limited are concerned, the learned Senior
Standing Counsel relied on Explanation 3 to Section 147, which enumerates
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“for the purpose of assessment or reassessment under the Section 147, the
Assessing Officer may assess or reassess the income in respect of any issue,
which has escaped assessment and such issue comes to his notice
subsequently in the course of the proceedings under Section 147,
notwithstanding that the reasons for such issue have not been included in
the reasons recorded under sub-Section (2) of Section 148. Relying on the
said Explanation, the learned Senior Standing Counsel reiterated that during
the course of proceedings, if any new materials are identified or traced out,
then the said ground also may be included for the purpose of further
adjudication and when the provision of law empowers the authority to
consider those new grounds also, it is for the assessee to submit their
explanation/objection and contest the matter before the authority concerned
and not before the High Court in a writ proceedings.
14.This Court is of the considered opinion that the scope of writ
proceedings cannot be expanded so as to adjudicate the disputed facts
between the parties. The High Court is empowered to scrutinise the process
through which a decision is taken by the competent authority in consonance
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with the provisions of the law and certainly not the decision itself. Thus,
the disputed materials which all are placed in a writ proceedings are to be
adjudicated by the competent authority in view of the fact that it is only the
proceedings initiated for reopening of assessment and the process is in
progress and the very initiation itself is under question in a writ petition and
under these circumstances, an opportunity is to be provided to either of the
parties to place their records, documents and evidences for effective
completion of the proceedings. In the event of any finding on merits, the
same would affect or cause prejudice to either of the parties and the High
Court may not do so. Contrarily, the disputed documents and evidences
with reference to the grounds raised are to be adjudicated in detail both by
the petitioner and the respondent during the course of proceedings and not
before the High Court.
15.As far as the contention raised by the petitioner is concerned, that
a new ground cannot be added, Explanation 3 to Section 147 is
unambiguous and the provision contemplates in respect of any issue which
has escaped assessment and such issue comes to his notice subsequently in
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the course of the proceedings under Section 147, notwithstanding that the
reasons for such issue have not been included in the reasons recorded under
sub-Section (2) of Section 148. Thus, the authorities competent are
empowered to adjudicate those new issues identified during the course of
proceedings and there is no impediment as such and therefore, the grounds
raised in this regard by the petitioner stand rejected.
16.As far as the ground raised regarding change of opinion is
concerned, this Court is of the considered opinion that the petitioner is
bound to establish the reasons stated for reopening of assessment. Certain
intricacies raised by the Department with reference to certain transactions
are to be adjudicated in the manner known to law and the High Court cannot
go into the details of such transactions so as to make a finding, which would
cause prejudice to either of the parties. Such accounting transactions are to
be scrutinised by the experts and such an exercise cannot be done by the
High Court more specifically in a writ proceedings wherein, the very
initiation of proceedings for reopening of assessment is under challenge.
Even the benefit of doubt in this regard should be held in favour of the
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Revenue and not in favour of the assessee. Even in case where the
petitioners are raising certain doubts regarding the reason to believe and if
the Department arrives certain reasons in respect of factual aspects and the
informations provided or the income disclosed then the High Court must in
all fairness allow the Department to conduct an adjudication by affording
opportunity to the assessee, so as to conclude the proceedings, and in this
regard, it is to be reiterated that the benefit of doubt in certain factual
aspects must be held in favour of the Revenue and not in favour of the
assessee. This being the principles to be adopted, this Court has no
hesitation in arriving a conclusion that there is reason to believe for
reopening of assessment and the reasons furnished by the Department can
not be construed as change of opinion.
17.Accordingly, W.P.No.3005 of 2013 fails and stands dismissed.
18.As far as W.P.No.28434 of 2014 is concerned, the learned counsel
for the petitioner mainly raised the ground of limitation. It is contended that
the interim stay granted in W.P.No.3005 of 2013 expired automatically on
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08.06.2014. Relying on Explanation 1 to Section 153, the learned counsel
for the petitioner contended that the assessment order was passed beyond
the period of limitation as contemplated under Section 153 of Explanation 1
to the Act and therefore, the same is to be set aside on the ground of
limitation. It is contended that the interim stay granted by the High Court
on 06.02.2013 was extended till 08.06.2014. On 08.06.2014, the stay
granted by the High Court was not extended and expired. Thereafter, on
04.07.2014, W.P.No.3005 of 2013 was dismissed. Thus, the time limit
prescribed under proviso to Section 153(2) to pass an order of reassessment
expired (60 days from 08.06.2014 as per Explanation 1 to Section 153(2)).
Thus, the reassessment order passed under Section 143(3) read with Section
147 in proceedings dated 24.10.2014 is non est in law and liable to be
quashed.
19.The learned counsel appearing on behalf of the writ petitioner
mainly contended that the issue has been considered by the Allahabad High
Court in the case of Commissioner of Income Tax, Agra vs. Chandra
Bhan Bansal reported in (2014) 46 taxmann.com 108 (All) wherein, a
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finding was made that in such circumstances where the interim order was
not extended, then the period of limitation expired and the order of
reassessment is to be set aside. Para 10 of the judgment, which is relevant,
stands extracted hereunder:-
“10.The above statutory scheme clearly
indicates that for computing the period of limitation the
period during which the assessment proceedings is
stayed shall be excluded. In excluding the above
period, the concept of communication of the order of
the Court cannot be imported. The exclusion of the
period has been provided because of stay or injunction
by any Court during which the assessment proceedings
are stayed. The intention is clear that when the
limitation for assessment has started it can be stayed
only by an order or injunction of any Court and as
soon as the order or injunction of the Court is vacated,
the period of limitation shall re-start since after the
vacation of the order of the Court, there is no embargo
on the authorities to proceed with the assessment. The
submission of Shri Shambhu Chopra learned counsel
appearing for the Revenue that the limitation will start
again only when the order is communicated to the
Department thus cannot be accepted. The other reason
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for not accepting the above submission is also equally
potent. Explanation 1 (v) and (vi) to Section 153 of the
Act, 1961 are also part of the same statutory scheme.
In Explanation 1 (v) and (vi) to Section 153 of the Act,
1961 the statutory scheme provides for computing the
period of limitation from the date when the order under
sub-section (1) of Section 245D and 245Q is received
by the Commissioner. Thus, the legislature has
provided for excluding the period from the date of
communication of the order where they so intended.
The use of concept of communication of receiving the
order in the same provision which is absent in
Explanation 1 (ii) concerned clearly indicates that for
the purposes of Explanation 1 (ii), the communication
of the order of the Court vacating the stay order or
injunction is not contemplated.”
20.In yet another case in CIT vs. Drs. X-Ray & Pathology Institute
(P.) Ltd. reported in (2013) 385 ITR 27 (All), the Allahabad High Court
held as follows:-
“In the present case, the stay was vacated by the
High Court on August 26, 2009. The Assessing Officer
took the date of vacation of the interim order to be the
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date, when it was received by him on November 9,
2009, and passed the assessment order on June 22,
2010, which was clearly beyond two years as limitation
would restart from August 26, 2009, and ended on
April 15, 2010.
Apart from the fact that the Assessing Officer
had sufficient time the Tribunal has held that there is
no procedure in the High Court to communicate the
order to the party to make it effective. The provisions of
the income tax Act for filing of the appeal from the date
of service of the order will not be attracted to calculate
the period of limitation to complete the assessment.
In the present case, we are not concerned with
limitation for any particular act to be performed, but
the arrest of the limitation by an interim order passed
by the High Court. As soon as the order was vacated,
the limitation will restart and will exhaust itself on the
period of limitation provided under the Act.”
21.The learned counsel for the petitioner also relied upon the decision
of the Delhi High Court in the case of Saheb Ram Om Prakash Marketing
Pvt Ltd., vs Commissioner Of Income Tax & Ors., reported in 398 ITR
292. The relevant paragraphs are hereunder:-
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“12. In the counter-affidavit the stand taken by
the Revenue is that the order of this Court dated 9th
November 2016 dismissing the Assessee's writ petition
W.P. (C) No. 1738 of 2013 was received in the office of
Principal CIT-8 only on 2nd December 2016.
Thereafter notice was issued to the Assessee on 6th
December 2016 under Section 142(1) of the Act. Within
60 days of the date of the receipt of the order of the
High Court, the impugned assessment order under
Section 147 read with Section 143 (3) of the Act was
passed on 30th January 2017. It is accordingly
submitted that the assessment order was not issued
beyond the period stipulated under Section 153 (2) of
the Act read with the proviso to Explanation 1 thereof.
13. ............
14. ............
15. ............
16. On the other hand, Mr. Rahul Kaushik,
learned Senior Standing Counsel appearing for the
Revenue, relied on the decision of the Calcutta High
Court in India Ferro Alloy Industry Pvt. Ltd. v.
Commissioner of Income-Tax [1993] 202 ITR 671
(Cal) and of the Madras High Court in Thanthi Trust v.
Income Tax Officer [1989] 177 ITR 307 (Mad) and
urged that the period of limitation of one year in terms
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of Section 153 (2) of the Act should be reckoned only
after the vacation of the stay by this Court, in which
case the impugned order of assessment would be within
time. He submitted alternatively that, in terms of the
first proviso to Explanation 1 to Section 153 of the Act,
the period of limitation got extended by 60 days from
2nd December, 2016, i.e. the date of receipt by the
Revenue of the certified copy of the order of this Court.
17. ..........
18. In any event, clause (ii) to Explanation 1 only
excludes from the computation of limitation "the period
during which the assessment proceeding is stayed by
an order or an injunction of any court." It does not
exclude the period between the date of the order of
vacation of stay by the Court and the date of receipt of
such order by the Department. Therefore, in the
present case, the Revenue cannot take advantage of the
fact that it received a copy of the order dated 9th
November 2016 of this Court only on 2nd December
2016.”
22.Relying on the said decisions, the learned counsel for the
petitioner reiterated that in the present case, it is an admitted fact that the
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order of reassessment was passed after the period of expiry and thus, it is
untenable and liable to be set aside, in view of the limitation clause
contemplated under Section 153(2).
23.The admitted facts are that the writ petition in W.P.No.3005 of
2013 was filed by the petitioner on 14.02.2013 challenging the proceedings
dated 11.01.2013 issued under Section 148 of the IT Act with reference to
the assessment year 2007-08. The High Court admitted the writ petition and
granted interim stay of all further proceedings for the assessment year 2007-
08 on 06.02.2013. Normal limitation under Section 153(2) to pass
reassessment order ended on 31.03.2013. Difference between the above
two dates is only 53 days. In this context, it is contended that interim stay
granted on 06.02.2013 extended till 08.04.2014 thereafter, the interim stay
was not extended and expired on 08.06.2014 and W.P.No.3005 of 2013 was
dismissed on 04.07.2014.
24.The learned counsel for the petitioner is of an opinion that once
the stay expired automatically, then the limitation should be reckoned from
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the date of expiry of the stay and not from the date of communication of the
final order passed in a writ petition as contended by the respondent. The
respondent relied on the final order passed in the writ petition on
04.07.2014. Thus, the very interpretation regarding the period of limitation
as explained by the respondent in their order is untenable.
25.This Court is of the considered opinion that a pragmatic approach
is required in such circumstances and the situations prevailing in the High
Courts are to be considered. High Court cannot close its eyes in respect of
the happenings and the situation prevailing in the matter of dealing with
litigations and on hyper-technical grounds, the liability or the opportunity
cannot be dispensed with. Even in such circumstances, the law of limitation
is to be interpreted in a constructive manner so as to ensure that the purpose
and object of the provisions are dealt with in accordance with the objects
and reasons of the Act.
26.Undoubtedly, as rightly pointed out, if the date of expiry of the
interim stay is taken into consideration, the petitioner may be correct, as the
period of limitation contemplated expired. However, the fact remains that
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the interim order granted initially on 06.02.2013, which was extended up to
08.06.2014 was neither extended nor vacated by the High Court
subsequently. Admittedly, the High Court has not passed any orders either
vacating the stay or extending the stay. Thus, no order has been passed on
the date of expiry. In practice, the cases are not listed on the date of expiry
of interim order in all circumstances by the Registry of High Court, for
which the litigants should not made to suffer. In most of the writ petitions,
even after the expiry of interim orders, the cases are not listed for various
reasons. It is a practical difficulty being faced by the High Courts across the
country, as large number of litigations are pending. When the cases are not
listed on a particular day more specifically on the day of expiry of an
interim order, then the parties cannot be penalised or blamed for non-listing
of the matter for hearing, nor parties should made to suffer for the practical
difficulties being faced by Courts. In this context, it is to be construed that
in the absence of any order passed by the High Court either vacating the
interim order or extending the order, it is to be construed that the same
position as on 08.04.2014 shall continue for all purposes and the assessee
cannot take undue advantages of the situation for the purpose of seeking
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exoneration from the clutches of the proceedings more specifically, under
the IT Act. Such hyper-technical grounds raised cannot be a reason for
granting exoneration. The department admittedly had not received any
orders from the High Court. The only contention is that the counsels were
aware of such orders. Even in such circumstances in the absence of any
order communicated, it may not be possible for the Income Tax Department
to act in a particular manner. In the event of no order, the Department has
to wait for the orders to be received and cannot presume or assume certain
implications and take a decision. Thus, the Income Tax Department has
rightly acted upon based on the final order passed in the writ petition and
the automatic expiry theory as contemplated by the petitioner cannot be
taken into consideration for the purpose of reckoning the period of
limitation with reference to the provisions of the IT Act. This apart,
W.P.No.3005 of 2013 was dismissed on merits. Thus, no further
adjudication on merits is required in respect of the present writ petition, as
the present writ petition has been filed challenging the proceedings dated
24.10.2014, which is the reassessment order passed by the competent
authority.
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27.Accordingly, W.P.No.28434 of 2014 stands dismissed. The
petitioner is at liberty to file a statutory appeal and raise all the grounds
raised in this writ petition before the appellate authority for the purpose of
redressing their grievances in the manner known to law. In the event of
filing any such statutory appeal, the appellate authority is bound to consider
the same on merits and in accordance with law by affording opportunity to
the petitioner.
28.With the above observations, both the writ petitions in
W.P.Nos.3005 of 2013 and 28434 of 2014 stand dismissed. No cost.
Consequently, connected miscellaneous petition is closed.
23.04.2021
Index : Yes
Speaking Order :Yes
abr
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W.P.Nos.3005 of 2013 & 28434 of 2014
S.M.Subramaniam, J.
(abr)
To
The Deputy Commissioner of Income-tax,
Company Circle IV(1),
Room No.430, 4th Floor, Main Building,
'Aayakar Bhavan',
No.121, Mahatma Gandhi Road,
Nungambakkam, Chennai-600 034.
W.P.Nos.3005 of 2013 &
28434 of 2014
23.04.2021
https://www.mhc.tn.gov.in/judis/
