Bombay High Court
Commissioner Of Income-Tax vs Caixa Economica De Goa on 17 December, 1993
Equivalent citations: [1994]210ITR719(BOM)
Author: Sujata V. Manohar
Bench: Sujata V. Manohar
JUDGMENT
Mrs. Sujata Manohar, Actg. C.J.
1. This reference pertains to the assessment year 1970-71. The assessee, Caixa Economica De Goa, was formerly a Portuguese bank. At the time of liberation of Goa, it lost all its assets. The President of India promulgated the Goa, Daman and Diu (Banks Reconstruction) Regulation, 1962, for the reconstruction, inter alia, of the assessee-bank in the interest of the general public in exercise of his powers under article 240 of the Constitution of India. Regulation 6 is as follows :
"6. (1) For the purposes of enabling the Custodian to discharge the obligations imposed on him under this Regulation, the Central Government may, after due appropriation made by Parliament by law in this behalf, grant to the Custodian such loans on account of either of the banks as it may deem fit.
(2) The terms and conditions on which such loans may be granted shall be determined by the Central Government from time to time, and it shall be competent for the Central Government, if it is necessary so to do, to adjust any loan or any portion thereof against any subsidy which the Central Government may, after due appropriation made by Parliament by law in this behalf, grant to the Custodian for discharging the liabilities and obligations of the banks or of either of them."
2. The assessee-bank accordingly received a subsidy in the relevant assessment year from the Central Government to cover the amount of interest paid by the assessee-bank to the Government of India in respect of loans granted by the Government of India to the bank.
3. In respect of the assessment year 1970-71, the relevant accounting year ended on December 31, 1969. The assessee-bank's income for the assessment year 1970-71 was originally assessed under section 143. The bank in its original return had declared a loss of Rs. 11,837 on the basis of its profit and loss account which included as part of its income a sum of Rs. 3,50,238 received as subsidy from the Government of India. The subsidy of Rs. 3,50,238 exactly corresponds to the interest of Rs. 3,50,238 paid by the bank to the Central Government on the loans received by it from the Central Government.
4. The assessee, thereafter filed a revised return claiming a loss of Rs. 3,46,952 on the basis of its profit and loss account in which the subsidy received from the Central Government was not shown as income. The subsidy amount was taken directly to the balancesheet. The Income-tax Officer completed the assessment under section 143(3) on "nil" income on November 11, 1970. The assessee did not challenge this order.
5. On March 22, 1976, a notice under section 148 of the Income-tax Act was issued for reopening the assessment, inter alia, for the assessment year 1970-71. In the reassessment proceedings, the Income-tax Officer held that the subsidy of Rs. 3,50,238 was the assessee's income. The Income tax Officer did not take into account the loss or the expenditure shown in the revised return or the original return. In appeal the Commissioner of Income-tax upheld the Income-tax Officer's finding that the subsidy was the assessee's income. He, however, directed the Income-tax Officer to take into consideration the loss of Rs. 3,46,952 for the purpose of reassessment. The Tribunal has upheld the order of the Commissioner of Income-tax and has dismissed the appeal. The following question arising from the Tribunal's order is referred to us :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing the Income-tax Officer to consider the loss as per the assessee's account books in the reassessment proceedings though the said loss had been disallowed in the original assessment and the original assessment had become final ?"
6. The scope of reassessment proceeding is now covered by the decision of the Supreme Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. . The Supreme Court has held that where the reassessment is made under section 147 in respect of income which had escaped tax, the Income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. The entire assessment is not set aside when reassessment proceedings are initiated. The Supreme Court has further observed that claims which have been disallowed in the original assessment cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which has escaped assessment. The Supreme Court has further said (at page 321) "Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to the assessee to put forward claims for deduction of any expenditure in respect of that income. . . . ." In other words, while the assessee cannot reagitated claims already assessed, it is open to the assessee in reassessment proceedings to put forward claims for deductions for any expenditure which is relatable to the income which is sought to be assessed as escaped income in the reassessment proceedings.
7. In the present case, the income in the form of subsidy is paid to the assessee in connection with the assessee's liability to incur the expenditure of paying interest on the loans which the assessee has taken from the Central Government. This is clear from the returns which are filed by the assessee which show the interest paid by the assessee on Central Government loans on the expenditure side of its profit and loss account for the said year at Rs. 3,50,238.02. The subsidy is for this exact amount of Rs. 3,50,238.02. Therefore, the expenditure incurred by the assessee in paying the interest on Central Government loans is directly relatable to the subsidy income. Hence, it is open to the assessee to put forward this expenditure and any other expenditure which may be directly connected with the subsidy in the reassessment proceedings though the assessee cannot reagitate any other claim which is already considered in the assessment proceedings.
8. The Tribunal, however, has directed the Income-tax Officer to consider the loss as per the assessee's books of account as filed in its revised return while considering the escaped income in the reassessment proceedings. These directions cannot be sustained in view of the decision of the Supreme Court in the above case. The question, therefore, is answered in the negative and in favour of the Revenue. The assessee, however, will be entitled to put forward in the reassessment proceedings expenditure relatable to the subsidy in the light of our above observations.
9. No order as to costs