DECIDING AUTHORITY: Supreme Court
DATE OF JUDGMENT: 10/02/2000
BENCH: Syed Shah Mohammed Quadri
FACTS: The case relates to the assessment year 1983-84 for which the accounting period of the appellant ended on February 28, 1983. The appellant is a public limited company. It entered into an agreement for sale of the estate of rubber plantation measuring acres 699 of land for consideration of Rs.210 lakhs with M/s. Supriya Enterprises (for short the purchaser) on July 18, 1982. The Agreement provided, inter alia, for payment of the consideration in installments as scheduled therein. However, the purchaser could not adhere to the schedule and on his request the parties agreed to extension of time for payment of the instalments on condition of his paying compensation/damages for loss of agricultural income and other liabilities in a sum of Rs.3,66,649. Accordingly, the appellant passed a resolution also to that effect on September 25, 1983 and the purchaser paid the said amount. In the annexure to the return filed by it for the assessment in question the amount was noted as compensation and damages for loss of agricultural income. By Order dated October 31, 1985, the Income-tax Officer accepted the same and endorsed nil assessment for that year. The Commissioner of Income-tax having examined the records of the assessment found that the nil assessment order passed by the Income-tax Officer was erroneous and it was prejudicial to the interests of the revenue. He issued notice to the appellant, under Section 263 of the Income Tax Act (for short the Act), to show cause why the order of assessment should not be set aside and Rs.3,66,649 should not be assessed under the head income from other sources. After the appellant filed its reply the Commissioner, by order dated February 8/9, 1988, concluded that the said amount was unconnected with any agricultural operation activity and was liable to be taxed under the head income from other sources. Dissatisfied with the Order of the Commissioner, the appellant filed an appeal before the Income-tax Appellate Tribunal, which was dismissed on August 5, 1988.On the application of the appellant under Section 256(1) of the Act, the aforementioned questions were referred to the High Court of Kerala at Ernakulam against which an appeal was preffered before the Hon’ble Supreme Court of India.
JUDGEMENT: The phrase prejudicial to the interests of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax Mr. Abaraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company Vs. Commissioner of Income-tax [163 ITR 129] interpreting prejudicial to the interests of the revenue. The High Court held, In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.
The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi Vs. Commissioner of Income-tax [67 ITR 84] and in Smt. Tara Devi Aggarwal Vs. Commissioner of Income-tax, West Bengal [88 ITR 323]. In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant- company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified. The second contention has to be rejected in view of the finding of fact recorded by the High Court. It was not shown at any stage of the proceedings, the amount in question was fixed or quantified as loss of agricultural income and admittedly it is not so found by the Tribunal. The further question whether it will be agricultural income within the meaning of Section 2(1A) of the Act as elucidated by this Court in Commissioner of Income-tax, West Bengal, Calcutta Vs. Raja Benoy Kumar Sahas Roy [32 ITR 466] does not arise for consideration. It is evident from the Order of the High Court that findings recorded by the Tribunal that the appellant stopped agricultural operation in November 1982 and the receipt under consideration did not relate to any agricultural operation carried on by the appellant, were not questioned before it. Though, we do not agree with the High Court that the said amount was paid for breach of contract as indeed it was paid in modification/relaxation of the terms of the contract, we hold that the High Court is justified in concluding that the said amount was a taxable receipt under the head income from other sources.
Held : Appeal Dismissed.
By Tejasv Anand,IVth Year, AMITY LAW SCHOOL,DELHI.
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