STOCK EXCHANGE VS ASSISTANT COMMISSIONER OF INCOME-TAX
1999 P T D 2391
[227 I T R 9061]
[Gujarat High Court (India)]
Before R. A. Mehta, Actg. C. J. and
R.K. Abichandani, J
STOCK EXCHANGE
Versus
ASSISTANT COMMISSIONER OF INCOME-TAX
Special Civil Application No.2163 of 1996, decided on 03/04/1997.
Income-tax---
----Reassessment---Condition precedent---Reason for believing that income has escaped assessment---Reason must have direct and rational connection with formation of belief---Finding that assessee was not entitled to exemption under S.10(23-A) in relevant assessment years---Reassessment proceedings were validly initiated---Indian Income Tax Act, 1961, Ss. 147 & 148.
The reasons for formation of the belief contemplated by section 147(a) of the Income Tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief.
The petitioner, a stock exchange, in a writ petition, challenged reassessment notices under section 148 of the Act for the five assessment years 1989-90 to 1993-94. For the assessment year 1988-89, no returns had been filed by the petitioner on the ground that its income was exempt under section 10(23-A) of the Act or section 10(23-C)(iv) thereof. For the assessment years 1989-90, 1990-91 and 1993-94, the assessee had claimed exemption under sections 10(23C)(iv) and 10(23-A) of the Act and not under section 11. For the assessment years 1991-92 and 1992-93, the petitioner had claimed exemption under section 11 of the Act and also in the note appended to the returns, exemption under section 10(23-C)(iv) or section 10(23-A) of the Act had been claimed. All the returns which were filed by the petitioner were accepted under section 143(1)(a). The show-cause notices had been separately issued for, all these years under section 148. In the writ petition, it was contended on behalf of the petitioner that in view of the Department's acceptance in the past for the years 1959-60 to 1984-85, that the income of the petitioner was entitled to be exempted under section 11 of the Act and later on, in view of the notification issued by the Central Government under section 10(23-C)(iv) granting exemption to the petitioner for the years 1984-85 to 1988-89, the Assessing Officer did not have any valid reason to form a belief that the assessee's income had escaped assessment in respect of these five assessment years. As regards the assessment years 1990-91 and 1992-93, it was contended that the exemption was claimed by the assessee under section 11 of the Act and the reasons recorded in the notices which were issued in respect of these two years were totally erroneous and proceeded on incorrect facts. As regards the assessment years 1989-90 and 1990-91 which required sanction for issue of notice as contemplated by the provisions of section 151 of the Act, it was contended that the sanction which was granted was a mechanical one without any application of mind by the Deputy Commissioner. It was contended that mere change of opinion was no ground to initiate reassessment proceedings and none of the notices in question disclosed any valid reason, which could enable the Assessing Officer to reopen the assessment under section 148:
Held, dismissing the petition that in the instant case, the returns were accepted as they were, on an assumption that the assessee's claim for exemption was correct and now the Assessing Officer had recorded cogent reasons for issuing notices because it transpired that exemptions under section 10(23-A) or 10(23-C)(iv) were not admissible and as had been recorded in the notice in respect of the assessment years for which exemption under section 11 was claimed, even the application for registration was not found. The fact that the petitioner was in fact registered in the year 1977 under section 12-A of the Act for the purpose of section 11 could always be brought to the notice of the Assessing Officer by responding to these reassessment notices and it could not be expected of the Assessing Officer while dealing with a matter for a particular assessment years to pick up the entire past records and trace out that in the year 1977-78, there was a registration granted to the petitioner under section 12-A of the Act. Therefore, it could not be said that in respect of those two assessment years 1991-92 and 1992-93 for which exemption under section 11 was claimed by the petitioner, the recitation of the fact that registration application was not found, was wholly irrelevant and not germane to the matter. It could also be noticed that in respect of those two years, the petitioner did not claim exemption only under section 11 but also in the note, which was appended to the returns, the terms it referred to exemption being claimed under section 10(23-A). Therefore, when it was not clear that the Assessing Officer had, at the relevant time, applied his mind and granted exemption under a particular provision, when now it transpired that the petitioner was not entitled to any exemption under section 10(23-A), the Assessing Officer had even in respect of those two years issued notices for valid and cogent reasons. As regards the other three assessment years, the petitioner had claimed exemption only under section 10(23-A) and the Assessing Officer had recorded that the claim was wrong and that reason could not be said to be irrelevant or a reason, which could not form the basis for the issuance of notices under section 148. The reasons which had been given in all these notices had direct and rational connection with the formation of the belief by the Assessing Officer under section 148.
Chhugamal Rajpal v. Chaliha (S.P.) (1971) 79 ITR 603 (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Stock Exchange v. CBDT (1997) 225 ITR 761 (Guj.) arid VXL India Ltd. v. CIT (Asst.) (1995) 215 ITR 295 (Guj.) ref.
K.H. Kaji for Petitioner
M.J. Thakore, Senior Advocate instructed by Manish R. Bhatt for Respondent.
JUDGMENT
R.K. ABICHANDANI, J.--- The petitioner, a stock exchange, challenges the reassessment notices issued by the Assistant Commissioner of Income-tax Circle 2(5), Ahmadabad, on July, 20, 1995, for the assessment years 1989-90 to 1993-94.
The case of the petitioner is that its Income was held to be exempt from Income-tax on the ground that it was held for charitable purposes in the past for the assessment years 1959-60 to 1984-85. According to the petitioner, it was entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, and later under section 11 of the Act of 1961. The petitioner contends that it was registered under section 12-A of the Income-tax Act with the Commissioner of Income-tax Ahmedabad, for the purpose of grant of exemption under section 11 of the Act. As it was represented by some of the stock exchanges that they should be recognised as institutions established for charitable purposes under section 10(23-C)(iv) of the said Act also, the Government of India informed some of these stock exchanges including the petitioner by its letter, dated December 18, 1980 that they should submit applications for consideration of issuing Notification under the said provision. Thereafter, a notification came to be issued on September 24, 1987, for granting exemption under section 10(23-C)(iv) of the Act for the assessment years 1985-86 to 1988-89. On the expiry of the said period, the petitioner applied for renewal of exemption under the said provision but no renewal was granted. By letter, dated September 9, 1991. The Central Board of Direct Taxes wrote to the petitioner that it had examined its case and that as the case of the petitioner was covered under the specific provision contained under section 10(23-A), the provisions of section 10(23-C)(iv) which apply to charitable institutions and trusts in general, would not apply in the case of the stock exchanges. Thereupon, the petitioner sent a request that its application for renewal of exemption under section 10(23-C)(iv) should be treated as an application under section 10(23-A) and exemption be continued from the assessment year 1989-90 onwards. By its order, dated September 9, 1991, it was ordered that the exemption under section 10(23-C)(iv) of the Act cannot be continued in favour of the petitioner, stock exchange.. Thereafter, by order, dated October, 31, 1996, the Board deleted from its earlier order, dated September 9, 1991, the words to the effect that the case of the stock exchange was covered by the specific provisions of section 10(23-A) of the Act.
The petitioner had filed Special Civil Application No.2164 of 1996 Stock Exchange v. CBDT (1997) 225 ITR 761 challenging the order, dated September 9, 1991. In that _ petition, since the ground on which the order dated September, 9, 1991, rejecting the petitioner's application was passed, came to be withdrawn, it was held by this Court by its decision, dated January 9, 1997 (see (1997) 225 ITR 761, that the very basis for the decision communicated to the petitioner was withdrawn and, therefore, the order, dated September 9, 1991, became an order giving no reason. It was also held that there was no decision taken by the Central Government on the subject under section 10(23-C)(iv). In this background, the petitioner was permitted to make a fresh application in respect of these relevant assessment years on which the Government was required to take a decision within the stipulated time. The petition came to be disposed of accordingly.
Thereafter, as it is now pointed out to us, the Central Government by its letter, dated March 7, 1997, has communicated to the petitioner its decision that it could not be notified under section 10(23-C)(iv) of the Act, since its activities were mainly intended to protect and regulate the interests of its members, viz. the share brokers only.
It is now contended on behalf of the petitioner that in view of the Department's acceptance in the past for the years 1959-60 to 1984-85 that the Income held by the petitioner-assessee was entitled to be exempted under section 11 of the Act and later on in view of the notification issued by the Central Government under section 10(23-C)(iv) granting exemption to the petitioner for the years 1984-985 to 1988-89, the Assessing Officer did not have any valid reason to form a belief that the assessee's Income had escaped assessment in respect of these five assessment years. As regards the assessment years 1990-91 and 1992-93, it was contended that the exemption was claimed by the assessee under section 11 of Act and the reasons recorded in the notices which are issued in respect of these two years were totally erroneous and proceeded on incorrect facts. As regards the assessment years 1989-90 and 1990-91 which required sanction for issue of notice as contemplated by the provisions of section 151 of the Act, it was contended that the sanction which was granted was a mechanical one without any application of mind by the Deputy Commissioner. It was contended that a mere change of opinion was no ground to initiate reassessment proceedings and none of the impugned notices disclose any valid reason which can enable the Assessing Officer to reopen the assessment under the provisions of section 148. Reliance was placed by, learned counsel for the petitioner i support of his contentions on the following decisions.
(1) VXL India Ltd. v. Asstt. Cl' 1995) 215 ITR 295 (Guj.)
(2) ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)
(3) Chhugamal Rajpal v. S.P. Chaliha (1971) 79 ITR 603 (SC
For the assessment year 1988-89, no returns were filed by the petitioner on the ground that its Income was exempt under section 10(23-A) of the Act or 10(23-C)(iv) thereof. For the assessment years 1989-90, 1990-91 and 1993-94, the assessee had claimed exemption under sections 10(23-C)(iv) and 10(23-A) of the Act and not under section 11 thereof. For the assessment years 1991-92 and 1992-93, the petitioner ?assessee had claimed exemption under section 11 of the Act and also in the note appended to the returns exemption under section 10(23-C)(iv) or section 10(23-A) of the Act. All the returns which were filed by the petitioner were accepted under section 143(1)(a).
The show-cause notices have been separately issued for all these years
The reasons which prompted the Assessing Officer to issue notices under section 148 of the Act are separately stated in respect of each of these five assessment years. For the year 1989-90, the assessee had not filed any return of Income on the ground that its entire Income was exempt under section 10(23-C)(iv). It has been recorded in the notice that the application of the assessee for renewal of exemption under section 10(23-C)(iv) was rejected and though the application for exemption under section 10(23-A) was pending, the Income from house property, from specific services rendered by the assessee or by way of interest or dividend derived from its investment, could not be exempted. It was noted that the claim of the assessee that its Income was not taxable was wrong for the reason that no approval under section 10(23-A) was obtained and even if such an approval was received, the Income from house property, specific services and by way of interest or dividend could not be exempt. It was also noted that the interest Income on investment which was liable to be taxed even if the assessees were to be granted exemption under section 10(23-A) itself, was Rs.13,89,070 besides other Income exigeble to tax. It will, thus, be granted from the notice that the Assessing Officer recorded cogent reasons for reopening the assessment under section 148.
Similarly, for the assessment years 1990-91 and 1993-94; the Assessing Officer separately recorded his reasons for issuing the reassessment notices. For these two years, since the matter fell beyond four years and sanction envisaged by section 151 of the Act was, therefore, required, the sanction was obtained from the Deputy Commissioner for each of these two years, which is on record. The grievance of the petitioner is that merely by saying "yes, I agree with the reasons recorded by the Assessing Officer", it cannot be said that the requirements of the provisions of section 151(2) were fulfilled. Under the said provision, the Deputy Commissioner has to satisfy himself on the reasons recorded by the Assessing Officer as to whether it is a fit case for issuance of notice. Therefore, he is required to apply his mind to the reasons, which have been recorded by the Assessing Officer. In the present case, the endorsements made by the Deputy Commissioner clearly show that he was in agreement with the reasons recorded by the Assessing Officer. Therefore, the requirements of section 151(2) have been clearly satisfied and it cannot be said that the Deputy Commissioner had Acted mechanically in the matter. Reliance placed on behalf of the petitioner on the decision of Chhugamal Rajpal v. S.P. Chaliha (1971) 79 ITR 603 (SC), is wholly misconceived because in that matter the Assessing Officer had not recorded any reason and the authority had affirmed such an Action under section 151(2) of the Act. It was in terms held that the Income-tax Officer had not even come to a prima facie conclusion that the loan transactions to which he referred were not genuine transactions and he only appeared to have a vague feeling that they might be bogus transactions. It was held that such a conclusion did not fulfil the requirements of section 151(2) by which on the basis of the reasons recorded by the Assessing Officer, the Deputy Commissioner was required to decide whether, it was a fit case for issue of the notice. We may note here that in a case where a reasoned order is passed while making an assessment, in subsequent proceedings of issuing reassessment notices it is easier to ascertain whether there was mere change of opinion that in a case where the returns are accepted as they are filed and the Assessing Officer does not express his views explicitly. Thus, if the Assessing Officer had considered as to whether section 11 exemption could be claimed or whether exemption under section 10(23-A) could be granted, and made a speaking order or expressed his opinion while passing the assessment order, then one could have at this point of time perhaps contended that there was a mere change of opinion. But in the instant case, the returns were accepted as they were on an assumption that the assessee's claim for exemption was correct and now the assessing Officer has recorded cogent reasons for issuing notices, because it transpires that exemptions under section 10(23-A) or 10(23-C)(iv) were not admissible and as has been recorded in the notice in respect of the assessment years for which exemption under section 11 is claimed, even the application for registration was not found. The fact that the petitioner was in fact registered in the year 1977 under section 12-A of the Act for the purpose of section 11, can always be brought to the notice of the Assessing Officer by responding to these reassessment notices and it could not be expected of the Assessing Officer while dealing with a matter for a particular assessment year to pick up the entire past records and trace out that in the year 1977-78 there is registration granted to the petitioner under section 12-A of the Act. Therefore, it cannot be said that in respect of those two assessment years 1991-92 and 1992-93 for which exemption under section 11 was claimed by the petitioner, the recitation of the fact that registration application was not found, is wholly irrelevant and not germane to the matter. It will also be noticed that in respect of those two years, the petitioner did not claim exemption only under section 11 but also in the note, which was appended to the returns, in terms it referred to exemption being claimed under section 10(23-A). Therefore, when it is not clear that the Assessing Officer had, at the relevant time, applied his mind and granted exemption under a particular provision', when now it transpires that the petitioner is not entitled to any exemption under section 10(23-A), the Assessing Officer has even in respect of those two years issued notices for valid and cogent reasons, which are therein mentioned.
As regards the other three assessment years, the petitioner had claimed exemption only under section 10(23-A) and the Assessing Officer has recorded that that claim was wrong and that reason cannot be said to be irrelevant or a reason, which cannot form the basis for the issuance of notice under section 148 of the Act.
The reasons which have been given in all these notices have direct and rational connection with the formation of the belief by the Assessing Officer under section 1..48 of the Act. It is not for this Court to go into the sufficiency of these reasons and it cannot be said that the reasons are vague or distant. Under these circumstances, the decision of this Court in XVL India Ltd. v. Asst. CIT (1995) 215 ITR 295, in which it was held that since the order did not say that the basis of valuation adopted in the assessment order was incorrect and did not disclose any reason as to why the Assessing Officer considered that taking into consideration the fluctuations of the exchange rate for the purpose of valuing the exchange rate in that case, it was erroneous, cannot assist the petitioner. The decision of the Supreme Court in ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 laid down that reasons for formation of the belief contemplated by section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. The impugned notices, since they recorded cogent and valid reasons, satisfy the tests which have been laid down by the Supreme Court in the said decision.
In the above view of the matter, the grounds on which the impugned notices are challenged, fail. The impugned notices have been issued in lawful exercise of the jurisdiction by the Assessing Officer and there is absolutely no warrant for interference by this Court with them. The petition is, therefore, rejected with no order as to costs. Interim relief stands vacated.
M.B.A./2057/FC???????????????????????????????????????????????????????????????????????????????? Petition dismissed.