Rajes Kumar, J. - (1.) IN the present writ petition, the petitioner prays for a writ of certiorari for quashing the notice dated 28.3.2003 issued by the respondent No. 2 under Section 148 of the INcome Tax Act, 1961 (hereinafter referred to as the "Act") for the assessment year 1996-97.
(2.) THE petitioner is an assessee under the Act, assessed to tax in the status of HUF and filed return for the assessment year 1996-97 declaring therein income of Rs. 1,80,570/-: THE said return was subjected to scrutiny. THE assessing authority had passed the assessment order under Section 143 (3) of the Act on 26.10.1998. THEreafter, respondent No. 2 issued a notice on 28.3.2003 under Section 148 of the Act With the view to re-open the proceedings and re-assess under Section 147 of the Act. In pursuance of the said notice, the return was filed on 24.4.2003. THE assessing authority had supplied the reasons recorded for the issue of notice under Section 148 of the Act, which are as follows: "THE assessee had filed a return of income for the assessment year 1996-97 on 1st July, 1996 showing total income at Rs. 1,80,570/-. THE same was assessed under Section 143(3) on 26.10.1998 on total income of Rs. 1,80,750/-. THE assessee had sold 75,000 shares of M/s Kothari Products Ltd. during the financial year 1995-96 and claimed expenses of Rs. 6,92,687/ - on the same THE net consideration was shown as Rs. 1,43,07,103/- (shares sold 75,000 @ 200 per share i.e. Rs. 1,50,00,000/- minus expenses claimed Rs. 6,92,897/-) and an amount of Rs. 1,44,63,525/-was invested in residential house at 7/23, Tilak Nagar, Kanpur and claimed exemption from the capital gains Under Section 54 F. Neither particulars of these expenses were filed with the return of income of the assessee for A.Y. 1996-97 nor were they submitted during the course of assessment proceedings. THE various expenses had been reportedly incurred by Company M/s Kothari Products Ltd., in which the assessee was a promoter director and whose shares were sold as per the directions of SEBI. M/s Kothari Products Ltd. reportedly apportioned the total expenses to the persons who were the holder of the shares. However, M/s Kothari Products Ltd. performed these entire acts as an agent of the assessee who had given a power of attorney to that company for this effect. It is observed that on the application money received from purchasers of shares on behalf of the assessee and the other offerers, a sum of Rs. 28,84,943/- had been received as interest from the bank deducted from overall expenses on sale of shares. Since no particulars of expenses incurred for sale of shares were furnished by the assessee, the income by way of interest could not be put to tax under Section 56 of the Income Tax Act, 1961, the escapement has been on account of failure of the part of assessee to disclose fully and truly all material facts necessary for his assessment. This amount being in the nature of a revenue receipt should have been offered for tax by the assessee under the head income from other sources in respect of his shares. But the assessee had failed to do. HONOURABLE Supreme Court in 227 ITR 172 has held that interest income is always of a revenue nature unless it is received by way of damage of compensation. On this reasoning it held that the interest derived by the assessee from the borrowed fund which were invested in short terms deposit with bank would be chargeable to tax under the head income from other sources. Same would not go to reduce the interest payable by the assessee on the loans secured by it (which may be capitalized after the commencement of commercially production). Similarly, in 248 ITR 449 the Supreme Court has reaffirmed its view in the CITv. V.P. Gopinathan, that the gross interest received on any deposit is liable to be taxed as income from other sources and it cannot be reduced by the amount of interest paid on the loan taken on the security of such deposit. Thus it is clear that any interest income received is taxable as income from other source Whether it arises out of borrowed funds or from any source. It has also been clearly held that for such interest would not go on to reduce any amount of interest of other expenditure during the course of which this income has been earned irrespective of the Act whether the expenditure or interest so incurred was a deductible expenditure or not. In the case of assessee an expenditure of Rs. 1,44,33,221.73 had been incurred for the purposes of making public issue/offer for sale of shares held by the assessee and his associates. This was an expenditure, which has been wholly, and exclusively in connection with transfer/sale of shares. THE gross amount, therefore, was deductible under Section 48 (i) for the purposes of computing capital gains. THEre is however, no provision in the statute for reducing the amount of interest received in the course of such public issue from the expenses incurred for the purposes of transfer. THE same was liable to be taxed separately under the head income from other sources. Atotal of 12,50,000 shares had been offered for sale against which the application money was received on which this interest had been earned, the assessee had offered for sale 75,000 shares and accordingly his proportionate shares in the total interest comes to Rs. 1,73,097/-. I have, therefore, reason to believe that income for tax as a result of which, the income has escaped assessment. Accordingly, the assessee is required to be reopened under Section 147 of the Income Tax Act, 1961. Since the matter pertains to A.Y. 1996-97, approval of Ld. Commissioner of Income-tax (Central), Kanpur, is required before issuing notice under Section 148." Heard Sri V.K.Upadhyaya, learned Senior Advocate assisted by Sri Ritvik Upadhyaya, learned counsel for the petitioner and Sri Ashok Kumar, learned Standing Counsel. Learned counsel for the petitioner submitted that: (i) In the return, under the head "Capital Gains", the petitioner had disclosed the sales of shares and its sale proceeds at Rs. 1,43,07,103/- and claimed exemption of the same amount on the ground that the sale proceeds Rs. 1,43,07,103/- have been invested in the residential house, 7/23, Tilak Nagar, Kanpur and excess amount of Rs. 1,56,422/- invested under under Section 54-F of the Act and accordingly, NIL capital gain has been shown. (ii) A sum of Rs. 1,93,572/- has also been shown under the head "Income from other sources" as interest income chargeable to tax. (iii) Alongwith the return a chart of computation of income and tax has been filed, which was clearly mentioned in Part 4 of the return which provides, list of the documents attached alongwith the return. In chart of computation of income and tax a complete details of the shares sold by the petitioner was shown, under the head "Capital Gain", wherein sales of 75,000 shares of Ml s Kothari Products Limited @ Rs. 200/- for Rs. 1.50 crores, the deduction of amount of expenses at Rs. 6,92,897/-; and the net amount received at Rs. 1,43,07103/-, which has been claimed to have been invested in the residential house of 7/23, Tilak Nagar, Kanpur have been shown. The interest income at Rs. 1,93,572/- has also been shown as income from other sources. (iv) The petitioner also had filed the chart alongwith the return giving details of total number of shares sold and expenses incurred on the sales of the aforesaid shares. In the details of number of shares sold, the name of share holders, number of shares and the amount on which shares were sold was given. The total number of shares were 12,50,000, which include 75,000 shares of the petitioner, 5,00,000 shares of M.M.Kothari (HUF), 3,00,000 shares of Vikram Kothari (Individual), 3,12,500 shares of Deepak Kothari (HUF) and 62,500 shares of Deepak Kothari (Individual). The total expenses in selling the shares was Rs. 1,44,33,221.03p. In the aforesaid details, the petitioner had disclosed the receipt of Rs. 28,84,943/- as interest from bank on temporary deposit of the application money in respect of the aforesaid shares. In the said details of the expenses incurred on the sale of aforesaid shares, the aforesaid interest income at Rs. 28,84,943/- was deducted bringing expenses to the figure of Rs. 1,15,48,278.73p. The said expenses relating to the sales of the aforesaid shares were apportioned amongst the share holders whose shares had been sold. The proportionate expenses in the case of the petitioner was Rs. 6,92,897/-, which had been duly shown in the computation chart of the income and tax. (v)Complete details relating to the sales of the shares, the sales proceeds and expenses have been furnished before the assessing authority alongwith the return and on scrutiny of the return various other details as required by the assessing authority have also been furnished during the course of assessment proceeding and on consideration of such details, the assessment order has been passed under Section 143 (3) of the Act. (vi) The perusal of the assessment order also reveals that under the head "Capital gains", the shares sold by the petitioner has been referred. The sale proceeds, expenses and the investment in the residential house at 7/23, Tilak Nagar, Kanpur have also been referred in the order, which clearly reveals that the sales of the shares was duly considered in the assessment order. (vii) In the reasons recorded, the allegation is that on the application money received from the purchasers of the shares on behalf of the assessee and other offerer a sum of Rs. 28,84,943/- had been received as interest from the bank deducted from overall expenses of sale of shares. Since no particulars of expenses incurred for the sales of shares were furnished by the assessee, the income by way of interest could not be put to tax under Section 56 of the Act, 1961, the escapement has been on account of the failure on the part of the assessee fully and truly all material fact necessary for the assessment, is absolutely wrong. (viii) Alongwith the return, details of the expenses made for the sale of the shares have been duly given. These expenses were relating to the sales of 1250000 shares including the sales of the 75000 shares of the petitioner. The interest from the bank was received at Rs. 28,84,943/- on the temporary deposit of the application money in respect of the entire shares of 1250000 and, therefore, from the expenses incurred at Rs. 1,44,33,721.23p. on the sale of 1250000 shares including the share of 75000 of the petitioner, the interest received at Rs. 28,84,943/- was deducted. (ix) During the course of assessment proceedings, the queries were made in respect of the Sale of shares vide notice dated 7.8.1998 and in pursuance thereof, the complete details have been furnished, which were duty examined before passing the assessment order. These facts have been averred in paras 4, 5,6,7 and 8 of the writ petition. The averments made in the writ petition have not been disputed in the counter-affidavit and it has only been stated that these details have not been examined and considered in the assessment order. (x) There was a complete disclosure of the material facts, which were necessary for the assessment and there was no failure on the part of the petitioner to disclose truly and fully all material facts which are necessary for the assessment. (xi) After the disclosure of the fully and truly facts relating to the sales of shares, the responsibility of the petitioner was over and it was on the assessing authority how to pass the assessment order. (xii) Since there was no failure on the part of the assessee to disclose fully and truly all material facts, the limitation to take action under Section 147 of the Act was four years. In the present case, the notice was issued on 29.3.2003, which was beyond four years and therefore, it was barred by limitation. (xiii) Moreover, interest received at Rs. 28,84,943/- was deducted from the expenses incurred relating the amount of expenses which has been further deducted from the total sale proceed. There was no escapment at all. Learned Standing Counsel submitted that no question was asked relating to the sale of shares. Regarding the sales of shares, the petitioner did file the letters on his own motion on 26.10.1998. However, these facts were not gone through and the assessment order was passed on the same date. Thus, it is a case of failure on the part of the assessee to disclose fully and truly material facts. He submitted that in the present case the escaped income was more than one lakh and, therefore, the limitation to issue the notice under Section 148 of the Act was six years under Section 149 (1 )(b) of the Act and since, the notice was issued within six years, it was within time.
(3.) WE have considered the rival submissions and perused the contents of the writ petition and the counter-affidavit. It would be appropriate to re-produce the relevant provisions of the Act. Section 147 of the Act reads as follows: If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assessee or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings, under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in Sections 148 to 153 referred to as the relevant assessment years): Provided that where an assessment under sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assessee or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relied in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. Explanation 3. For the purpose of assessment or reassessment under this section, 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 this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of Section 148." Issue of notice where income has escaped assessment. Section 148 (1) Before making the assessment, reassessment or re-computation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139:) Provided that in a case (a) where a return has been furnished during the period commencing on the 1 st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) subsequently a notice has been served under sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of Section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Provided further that in a case- (a) where a return has been furnished during the period commencing on the 1 st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of Section 143, but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice. [Explanation For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.] [(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.] Time limit for notice. Section 149. [(1) No notice under Section 148 shall be issued for the relevant assessment year [(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.] Explanation.In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of Section 147 shall apply as they apply for the purposes of that section.) (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of Section 151. (3) If the person on whom a notice under Section 148 is to be served is a person treated as the agent of a non-resident under Section 163 and the assessment, reassessment or re-computation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year." ;