Income Tax Appellate Tribunal - Hyderabad
Justice Sri Motilal B. Naik vs Assistant Commissioner Of Income-Tax on 25 April, 2000
Equivalent citations: [2001]77ITD285(HYD)
ORDER
Dr. O.K. Narayanan, Accountant Member
1.This appeal is filed by the assessee. It is filed against the order of the Commissioner of Income-tax (Appeals)-I, Hyderabad dated 16-5-1996. The relevant assessment year is 1995-96 and this appeal arises out of the proceedings of the Assessing Officer under section 143(1)(a) of the Income-tax Act, 1961.
2. The appellant is a sitting Judge of the Hon'ble High Court of Andhra Pradesh. The appellant filed his return of income for the assessment year 1995-96, declaring a total income of Rs. 1,47,600. The returned income comprised of mainly income from salary and a nominal income from other sources. While filing the return of income as stated above, the appellant has claimed exemption of a net amount of Rs. 4,69,512 received by him during the previous year relevant to the assessment year under appeal. The appellant has stated this claim of exemption in Part 111 of the return of income filed. In support of his claim of exemption, the appellant appended a note to the statement of computation of total income filed along with the return of income. The said note reads as under :
"The assessee is in receipt of net amount of Rs. 4,69,512 towards the past outstandings of fees receivable in discontinued profession as Government Pleader. The assessee has been maintaining cash system of accounting for the professional receipts as a Government Pleader.
The above amount has been received during the financial year ending 31-3-1995, that is after he was elevated (on 5-2-1992) as Judge of Hon'ble High Court of Andhra Pradesh.
The assesses was not carrying on profession in the year of receipt (i.e., previous year ending 31-3-1995) and hence, the amount received docs not relate to Professional Receipts for the said Previous Year ending 31-3-1995 relating to the assessment year 1995-96.
Therefore, the same is claimed as exempted and shown in Part III of the Return of income.' While processing the return of income under section 143(1)(a) of the Income-tax Act, 1961, the Assessing Officer added the net receipt of Rs. 4,69,512 as prima facie adjustment, under the head professional receipt and demanded tax as well as additional tax thereon. This addition made by way of prima facie adjustment was sought to be rectified by the appellant by filing an application under section 154 of the Income-tax Act, 1961. The Assessing Officer rejected the petition whereafter the appellant filed an appeal before the Commissioner of Income-tax (Appeals) challenging the refusal of the Assessing Officer to delete the addition made by way of prima facie adjustment.
3. The learned Commissioner of Income-tax (Appeals)-I, Hyderabad considered the matter in detail and dismissed the appeal through a speaking order. While agitating before the Commissioner of Income-tax (Appeals), contentions were made in the light of the decisions of the Calcutta High Court in the case of CIT v. Justice R. M. Datta [1989] 180 ITR 86 and the Income-tax Appellate Tribunal, Chandigarh Bench in the case of Justice Kuldip Singh v. ITO [1993] 46 ITD 251. But the learned Commissioner of Income-tax (Appeals) found that there is a decision of the jurisdictional High Court available in the case of V. Parthasarathy v. Addl CIT [1976] 103 ITR 508 (AP) wherein the High Court held that the professional fee received by the assessee after the dis-continuance of the profession has to be brought to tax. The learned Commissioner of Income-tax (Appeals) held that as the judgment of the jurisdictional High Court is binding on the assessee, the Assessing Officer was within his rights to carry out the prima facie, adjustment thereby bringing to tax an amount of Rs. 4,69,512. On the basis of the above reasoning the appeal was dismissed. It is against I his order of the Commissioner of Income-tax (Appeals) that the assessee has filed this second appeal before the Tribunal.
4. Following grounds are raised in this appeal before us :
"(i) On the facts and in the circumstances of the ease, the Commissioner of Income-tax (Appeals) erred in dismissing the appeal of the appellant, and in confirming the untenable additions made by the Assistant Commissioner of Income-tax, as also the imposition of additional tax made by the Assistant Commissioner of Income-tax.
(ii) The Commissioner of Income-tax (Appeals) grossly misunderstood the scope of the provisions of section 143(1) of the Income-tax Act. The Commissioner of Income-tax (Appeals) ought to have appreciated that the jurisdiction conferred on the Assessing Officer under the said section is summary in character, and is confined to errors which are arithmetical in nature, and errors which are apparent from the face of the record. The Commissioner of Income-tax (Appeals) ought not to have confirmed an addition which was debatable, and which required an elaborate investigation into the facts of the case in exercise of the power under section 143(1) of the Act.
(iii) The Commissioner of Income-tax (Appeals) ought to have appreciated that the appellant had paid the entire advance tax, and had annexed a statement to the return of income, explaining the basis on which the exemption was sought. The Commissioner of Income-tax (Appeals) ought to have appreciated that the appellant was desirous of having a decision on the legal point in question, inasmuch as there were differing opinions of the Courts/ Tribunal. The interpretation placed by the Commissioner of Income-tax (Appeals) on the provisions of section 143(1) of the Act would eliminate any possibility of debate, if the Assessing Officer is to have a power to determine all questions of law in exercise of a summary jurisdiction.
(iv) The Commissioner of Income-tax (Appeals) erred in relying upon the alleged administrative approval of a superior officer given to the Assistant Commissioner of Income-tax. The Commissioner of Income-tax (Appeals) ought to have appreciated that the provisions of section 176(4) of the Act neither envisaged such a direction being given, nor required any such direction being obtained. The Commissioner of Income-tax (Appeals) should have appreciated that direction if any, given in the circumstances was interfering in the quasi-judicial functioning of the Assistant Commissioner of Income-tax and the Commissioner of Income-tax (Appeals) should have deprecated such a practice.
(v) The Commissioner of Income-tax (Appeals) has hot exercised his mind to the issues in question, and has decided the matter without proper appreciation of the facts of the case."
5. Shri S. Ravi, learned counsel, appearing for the assessee contended that the lower authorities were not right in holding that the amount received by the assessee after discontinuance of his legal profession could be treated as income taxable under section 176(4) and particularly in holding that the amount was available for addition by way of prima facie adjustment as provided in section 143(1)(a) of the Act. The learned counsel submitted that the real issue in this appeal before the Tribunal is not whether the amount received by the assessee was liable to tax or not, but the real issue is whether the amount could be assessed to tax by way of prima facie adjustment. He submitted that the Commissioner of Income-tax (Appeals) was carried away by the issue whether the receipts were taxable or not and thereby he virtually overlooked the issue lying before him whether the amount could be brought to tax by way of prima facie adjustment under section 143(1)(a). In the process of adjudicating the first appeal in the above manner, the Commissioner of Income-tax (Appeals) overlooked the issue whether the taxing of the amount received by the assessee after discontinuance of his profession was debatable and if at all that has to he brought to tax that could be done only through a regular assessment under section 143(3) of the Act. The learned counsel contended that the debatability of the issue involved in this appeal is not a fiction created by the assessee himself but it is apparent from the differing judgments of various High Courts and Tribunal. The learned Counsel submitted that the Calcutta High Court has held in the case of Justice R.M. Datta (supra) that the profits and gains of a profession received in a subsequent year after the discontinuance of the profession cannot be taxed under section 176(4) of the Income-tax Act. He submitted that this decision of the Hon'ble Calcutta High Court was rendered on 4th July, 1989 whereas the judgment of the jurisdictional High Court relied on by the lower authorities in V. Parthasarathy's case (supra) was delivered way back on September 11, 1975. The learned counsel submitted that inspite of the decision of the A.P. High Court delivered as early as on September 11, 1975, the Hon'ble Calcutta High Court has taken a different view in a later decision. The decision of the Calcutta High Court was made on the basis of an earlier decision of the Supreme Court in Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428. The learned counsel also submitted that the latest decision available on the subject is from the Chandigarh Bench of the Income-tax Appellate Tribunal in the case of Justice Kuldip Singh (supra) made on May 12, 1993 wherein it was held that the disputed amount cannot be brought to tax. In arriving at the above decision, the Tribunal has referred to umpteen number of decisions of the various Courts and particularly the decisions of the Calcutta High Court and the Supreme Court mentioned supra. In the light of the above legal position declared by various High Courts and the decision made by the ITAT, he submitted that it is trite for the authorities to argue that the issue was not at all debatable. It is very apparent that in the light of the differing views expressed by various High Courts, the matter is still alive for debate and the issue cannot be decided by the Assessing Officer by way of a routine adjustment available under section 143(1)(a) of the Income-tax Act, 1961. The learned counsel submitted that the scope of prima facie adjustment provided under section 143(1)(a) is very limited and only such adjustments could be made which are apparent on the face of the return and which would not call for any discussion at all. In the present case, the Assessing Officer has taken approval of his higher authority i.e., the Commissioner of Income-tax before making the prima facie adjustment. This reference to the superior officer itself is a candid admission of the lower authorities that the matter was debatable but for which there was no necessity for such an approval. The learned counsel submitted that it is very strange to argue that the matter which called for approval from higher authorities could be a simple matter of prima facie adjustment.
6. On the other hand, the learned Departmental Representative submitted that the Hon'ble High Court of Andhra Pradesh has held in V. Parthasarathy's case (supra) that an assessee is liable to be taxed on the income received by him on account of the profession which he had discontinued. The learned Departmental Representative submitted that the decision of the jurisdictional High Court is binding and as such as far as the Assessing Officer is concerned, the matter is not open for any dispute or debate and therefore, he was correct in making prima facie adjustment and the addition as a result thereof. On the scope of the prima facie adjustment available under section 143(1)(a), the learned Departmental Representative relied on two decisions of the Income-tax Appellate Tribunal, Hyderabad Bench 'B' in the case of Gopikrishna Granites India Ltd. v. by. CIT [IT Appeal No. 195 (Hyd) of 1998, dated 10-12-1999] and the other of Hyderabad Bench 'A' in the case of Prudential Construction Co. Ltd v. Asstt. CIT [IT Appeal No. 666 (Hyd.) of 1999, dated 30-I2-1999].
7. We heard both sides in detail. The appellant in this case is a sitting judge of the High Court of Andhra Pradesh. Before his elevation on 5-2-1992, His Lordship was practising as an advocate and particularly as a Government Pleader. During the previous year relevant to the assessment year under appeal, the appellant received a total amount of Rs. 6,61,610 on settlement of the pending bills for services rendered before his elevation as Judge of the High Court. As against this gross receipt of Rs. 6,61,610, the assessee has claimed expenditure of Rs. 1,92,098 and the balance of Rs. 4,69,512 has been shown as net receipt. This amount has been claimed as exempt by the appellant whereas the Assessing Officer has treated the same as income liable to tax. In this context, the issue to be decided by the Tribunal is not exactly whether the amount of Rs. 4,69,512 is liable to income-tax or not but to be precise, the question is whether this net receipt of Rs. 4,69,512 could be made the subject-matter of a prima jade adjustment while the return of income is processed under section 143(1)(a) of the Income-tax Act, 1961.
8. In this respect, we find that there is a decision of the A.P. High Court in the case of V. Parthasarathy (supra), Hyderabad wherein the Court has held that the assessee was liable to be taxed on the income received by him on account of the profession which he had discontinued. In that case, the assessee who had been practising as an advocate ceased to practise on April 14, 1968 consequent on his elevation as Judge of the A.P. High Court. He retired from the office of judgeship on 6th March, 1972 and thereafter in June 1972 he resumed practice as advocate. After his elevation to the office judge and during the assessment years 1969-70 and 1970-71, the assessee received some amounts by way of fee for professional services rendered during the period prior to his appointment as Judge and the same was assessed to income-tax. A revision petition was filed under section 264 before the Commissioner of Income-tax which was unsuccessful. Thereafter, the assessee filed a Writ Petition under Article 226 of the Constitution of India contending that he had not discontinued the profession, but merely suspended the practice on account of the constitutional disability during the period he held the office Judge and, therefore, there was no discontinuance of practice in his case. The assessee contended that to come within the mischief of section 176(4), the discontinuance must be either by retirement or death and not otherwise and thus section 176(4) had no application to him. It was also contended that section 176(4) would cover only cases of voluntary cessation and not involuntary cessation by virtue of constitutional limitation. The Court held that to come within the mischief of section 176(4), discontinuance of profession need not necessarily be of permanent character. It may be for a short or a long duration. All that the word discontinuance indicates is the factum of stoppage. Length in time for which it was stopped is not one of the elements that enters into the concept of discontinuance. Therefore the Court held that the expressions "discontinuance" and "cessation" in the context in which they are employed take in both temporary and permanent discontinuance. Whether the discontinuance is voluntary or involuntary has no bearing on the applicability of section 176(4) of the Act. On the basis of that finding, the Hon'ble High Court held that the assessee in that case was liable to be taxed on the income received by him on account of the profession which he had discontinued. The above decision of the Hon'ble A.P. High Court was delivered on 11th September, 1975.
9. As stated by the learned counsel for the assessee in a subsequent judgment, the Calcutta High Court held in Justice R.M. Datta's case (supra) that the profits and gains of a profession received in a subsequent year after the discontinuance of the profession cannot be taxed under section 176(4) of the Act. In that case, the issue was considered by the Hon'ble High Court from a different angle. Section 176(4) creates two fictions. The first fiction is that any sum received after the discontinuance of the profession shall be deemed to be the income of the recipient. The second fiction is that the said income shall be charged to tax in the year of receipt if such income would have been included in the total income of the person had it been received before such discontinuance. The legislative intent indicated by the express language of section 176(4) of the Act does not warrant any assumption of a further fiction treating the receipts as income chargeable under the head "profits and gains of business, profession or vocation". Wherever Parliament had the intention to treat a certain amount to be the profits and gains of business or profession and chargeable to tax as income of the relevant previous year, Parliament has specifically created a fiction for such a specific purpose. Income has to be brought under one of the heads falling under section 14 of the Act and can be charged to tax only if it. is chargeable under the computation section corresponding to that head. In the absence of a legislative provision, receipts chargeable as "profits and gains of business, profession or vocation", cannot be treated as income falling under the head "profits and gains of business or profession or vocation" carried on by the assessee during the relevant year, also such receipts cannot be brought to tax under section 56 of the Act as "income from other sources". Therefore, the Hon'ble High Court held that the profits and gains of a profession received in a subsequent year after the discontinuance of the profession cannot be taxed under section 176(4).
10. When we consider the above decisions, we are of the view that the issue whether the professional receipts or the professional fees received after the discontinuance of the profession, could be taxed or not is not free from dispute or debate. According to the general principles of the law of citations and the rules of precedents, the recent judgment of a High Court is valid even though the said High Court is not the jurisdictional High Court. The decision of the A.P. High Court was rendered in 1975 whereas the judgment of the Calcutta High Court was delivered in 1989. The question considered by the A.P. High Court was the interpretation of the word 'discontinuance' used in section 176(4) for which the Hon'ble High Court held that discontinuance may be temporary or permanent in nature. That was the only issue agitated by the assessee in that case whereas in the case decided by the Calcutta High Court, the discussion was made from a very different angle. There the Court found that even though section 176(4) makes professional receipts after discontinuance of the profession as taxable, there is no provision to bring such receipts under a particular head of income which is very necessary for computing income liable to tax. According to the High Court as the receipts cannot be brought under any of the heads of income provided in section 14 of the Income-tax Act, such receipts cannot be computed and therefore, cannot be taxed. For arriving at the above decision, the Hon'ble High Court of Calcutta relied on the decision of the Hon'ble Supreme Court in the case of Nalinikant Ambalal Mody (supra). In that case, considered by the Supreme Court again the facts were similar. There also, the Hon'ble Supreme Court held that as the assessee was not carrying on any profession during the year in which the arrears were received, such arrears cannot be charged to tax. The decision of the Hon'ble High Court of Calcutta has been exactly on the line of the decision rendered by the Hon'ble Supreme Court in Nalinikant Ambalal Mody's case (supra). Therefore, what we find is that the A.P. High Court has considered the matter in one angle and the Calcutta High Court has considered the matter in another angle, which were, of course, on the basis of the contentions raised by the respective assessees before the Courts. One thing is coming clear out of this decision. That is the issue whether the disputed receipt has to be taxed or not has got more than one dimension. One can say that the issue is settled and has become beyond debate or dispute only when the issue has been examined from all dimensions. In the case cited before us i.e., the case decided by the Hon'ble A.P. High Court the assessee therein agitated only one issue which relates to one of the dimensions whereas the Calcutta High Court has decided the matter from another dimension. As there is no decision in favour of the Revenue considered from all angles, it is very difficult to say that the issue is settled and not amenable for any debate or dispute.
11. We again repeat that the issue exactly to be decided by us in this appeal is not the question of taxability of the disputed receipts but its amenability to prima facie adjustment under section 143(1)(a) of the Act. Regarding the substantial question whether the receipts are taxable or not, perhaps the Assessing Officer could be armed with the decision of the jurisdictional High Court in V. Parthasarathy's case (supra), in a proceeding under section 143(3) of the Act. But the issue takes a different angle when we confine our examination to the question whether this is possible through prima facie adjustment in intimation proceedings completed under section 143(1)(a). In a regular assessment under section 143(3) of the Act after debate and discussion still it is possible for the Assessing Officer to go by the decision of the jurisdictional High Court since it is binding on him. But the same logic cannot be extended to an action of prima facie adjustment under section 143(1)(a). This is because the adjustment must be absolutely prima facie and further because the assessee is not given an opportunity of being heard. An issue which is kept alive by differing judgments of different High Courts and one of those decisions supported by an earlier decision of the Supreme Court, it cannot be held as settling the issue and, therefore, one cannot say that the issue is not debatable or disputable. In the circumstances, it is our considered view that the disputed receipts cannot be added as income of the appellant by way of prima facie adjustment carried out under section 143(1)(a) of Income-tax Act, 1961. The issue whether the professional fees received by the assessee after discontinuance of his profession could be taxed or not is not a matter amenable to prima facie adjustment under section 143(1)(a). Therefore, we delete the addition of Rs. 4,69,512 made by the Assessing Officer in his intimation proceedings under section 143(1)(a) and accordingly we cancel the demand for the additional tax.
12. In the result, the appeal is allowed. Order accordingly.