Income Tax Appellate Tribunal - Chandigarh
Mrs. Manju Kumar vs Income-Tax Officer on 3 February, 1994
Equivalent citations: [1994]50ITD188(CHD)
ORDER
J. Kathuria, Accountant Member
1. These six appeals by the assessee pertain to assessment years 1985-86 to 1991-92, except assessment year 1987-88. Since these appeals raise common issues, these are disposed of by a consolidated order for the sake of convenience.
2. Brief facts of the case are these: For assessment year 1985-86, original assessment was made on 5-5-1987 vide order under Section 143(1) of the Act. Later on, while scrutinising the case of the assessee for subsequent years, the Assessing Officer found that the assessee had claimed interest on interest on the loans borrowed for the construction of the property which was yielding income to the assessee. He accordingly recorded the reasons, a copy of which has been supplied by the assessee at page 4 of her compilation. The proceedings were reopened by issue of notice under Section 148 sometime in February 1992. In the said reasons the Assessing Officer mentioned that for assessment year 1987-88, the income from property falling to the assessee's share was Rs. 1,34,124 and since the returned income was almost the same, in the earlier years and the deduction on account of interest and other allowances was also almost the same, the income from property for assessment year 1985-86 had escaped assessment to the extent of Rs. 83,301 representing the difference between Rs. 1,35,000 and Rs. 51,690 (as orginally assessed).
3. For assessment year 1986-87 also the original assessment had been made under Section 143(1) of the Act on 30-6-1987 and for similar reasons proceedings under Section 148 were initiated.
4. For assessment years 1988-89, 1989-90 and 1990-91 original assessments had been made under Section 143(3) of the Act. Later on, the Assessing Officer learnt that the assessee had shown only 20% share in the rental income of property known as SCO Nos. 57, 58 and 59 in Sector 17-A, Chandigarh whereas, in fact, the assessee's share was 25%, He accordingly reopened the proceedings for these three assessment years by issue of notice under Section 148.
5. As regards the assessment for assessment year 1991-92, this is the regular assessment as no earlier assessment had been made and hence no notice under Section 148 has been issued. For assessment years 1985-86, 1986-87, 1988-89, 1989-90 and 1990-91, the assessee has challenged the reopening of proceedings under Section 148 of the Act.
6. Shri S.S. Rikhy, the learned Counsel for the assessee, submitted that the computations of income attached with the returns on the basis of which assessments were made originally, clearly showed the amount of interest on loans raised for the purposes of construction. It was pointed out that for assessment year 1985-86, deduction on account of interest alone was claimed at Rs. 1,83,875. It was, therefore, submitted that all the primary facts had been disclosed before the Assessing Officer at the time of original assessments. It was submitted that for assessment years 1988-89 to 1990-91, original assessments had been made under Section 143(3) when mind had been applied by the Assessing Officer while framing the assessments. It was submitted that the Supreme Court decision in the case of Shew Kissen Bhatter v. CIT [1973) 89 ITR 61, on which reliance has been placed by the Revenue authorities in the reassessment proceedings, had been rendered as early as 5-3-1973 and should be deemed to have been within the knowledge of the Revenue authorities. It was submitted that there was no information particularly with regard to assessment years 1985-86 and 1986-87 which could enable the Assessing Officer to reopen the assessments by issue of notice under Section 148.
7. Relying on the Supreme Court decision in ITO v. Lakhmani Mewal Das [1976] 103ITR 437, it was submitted that a mere change of opinion would not empower the Assessing Officer to reopen the assessment by issue of notice under Section 148. Reliance was also placed on the Punjab and Haryana High Court decision in the case of Mukhtiar Singh Sandhuv. ITO [1986] 160 ITR 526. It was submitted that the assessee could not be held guilty of not disclosing truly and correctly the material facts necessary for assessment and, therefore, the notices issued for reassessments were invalid.
8. Reliance was also placed on the Punjab and Haryana High Court decision in the case of Shiv Lal Kanhaya Lal v. CIT [1986] 162 ITR 548 for the proposition that reassessment proceedings on the basis of a mere change of opinion were invalid. It was vehemently argued that no new information had come into possession of the Assessing Officer which would clothe him with the powers to reopen the assessments particularly for assessment years 1985-86 and 1986-87.
9. Another argument raised by the learned Counsel for the assessee only with reference to assessment year 1985-86 was that the originally assessed income for that year was Rs. 48,190 and the reassessed income was of the order of Rs. 72,120. The submission was that the difference between the originally assessed income and the finally assessed income was less than Rs. 25,000 and hence the Assessing Officer could not reopen proceedings for assessment year 1985-86 in view of the clear provisions of Section 149(1)(b)(ii) of the Act.
10. The learned D.R. on the other hand, contended that the assessee had shown one composite figure of interest claimed as a deduction on the loans borrowed but it had not been specifically pointed out by the assessee that the figure included interest on interest as well. It was also submitted that for assessment years 1985-86 and 1986-87, original assessments had particularly been made under Section 143(1) of the Act when no mind had been applied by the Assessing Officer and the income returned had been accepted without any investigation or enquiry. It was vehemently argued that all the primary facts regarding the claim of interest on interest had not been disclosed by the assessee in the returns or computations of income attached with the returns.
11. As regards the additional argument of the learned Counsel for assessment year 1985-86, it was submitted that the provisions of Section 149(1)(b)(ii) were very clear according to which at the time of recording the reasons, the income chargeable to tax which had escaped assessments amounts or is likely to amount to Rs. 25,000 or more for that year. Drawing our attention to the reasons recorded, it was submitted that one has to see the position as on the date of reopening of assessment proceedings. In this context, it was submitted that at the time of recording the reasons, the Assessing Officer had reason to believe that on the basis of subsequent assessments, income to the extent of Rs. 83,310 had escaped assessment. It was submitted that even if the difference between the finally assessed income and the originally assessed income was slightly less than Rs. 25,000 at the time of recording the reasons the Assessing Officer had reasons to believe that the income likely to escape was of the order of Rs. 83,310 and hence the proceedings for assessment year 1985-86 had been correctly reopened. As regards the assessment years 1988-89 to 1990-91, it was submitted that the assessee in the original proceedings had wrongly shown her share of income from the property in question at 20 per cent whereas it was 25 per cent and on that basis alone, the proceedings had been validly reopened. It was also pointed out that there was no change of opinion because the assessee never allowed the Assessing Officer to form an opinion in the first instance. The opinion formed by the Assessing Officer, according to the learned D.R., was on the basis of facts disclosed by the assessee in the original proceedings and hence the proceedings for these years had been validly reopened under Section 148.
12. We have carefully considered the rival submissions as also the facts on record. For assessment years 1985-86 and 1986-87, the assessments had been made under Section 143(1) of the Act when obviously the Assessing Officer had accepted the income as returned without making any enquiry or investigation. There is, therefore, no question of change of opinion for those years. Moreover the assessee in the computation of income nowhere stated that the interest which was being claimed as a deduction from the property income, in fact, represented interest on interest and not simple interest. This was a material fact necessary for making the assessment which had not been disclosed by the assessee in the original proceedings for all the years. For assessment years 1988-89 to 1990-91, the assessee in the original assessments had shown only 20 per cent share from property in question whereas she, in fact, enjoyed 25 per cent share in the said property. So in these years, this further primary fact had also been suppressed by the assessee. The Assessing Officer came to know about the correct state of affairs while finalising the assessments for subsequent years. There was no change of opinion and the Assessing Officer was, therefore, justified in resorting to action under Section 148. We hold accordingly.
13. As regards the additional argument for assessment year 1985-86, the learned D.R. has rightly pointed out that even the likelihood of income escaping assessment for more than Rs. 25,000 would empower the Assessing Officer to reopen the proceedings beyond four years as contemplated under Section 149(1)(b)(ii) of the Act. As referred to above, when the Assessing Officer recorded the reasons, the income which in his opinion had escaped assessment was of the order of Rs. 83,310 which was much more than Rs. 25,000, the limit laid down in the Act for reopening of assessment beyond four years. The mere fact that at the time of final assessment, the difference between the originally assessed income and the finally assessed income is less than Rs. 25,000 is not of any consequence. The crucial point is when the Assessing Officer recorded the reasons. If at that time, he was of the opinion that the income which had escaped assessment or which was likely to escape was less than Rs. 25,000, he could not go beyond the period of four years. But this is not the position in the instant case. We, therefore, do not accept the additional argument of the assessee for assessment year 1985-86. The ground challenging the reopening of assessments for assessment years 1985-86, 1986-87, 1988-89, 1989-90 and 1990-91 is, therefore, rejected.
14. The next ground is on the merits which is common to all the six years under consideration. Shri Rikhy submitted that the Supreme Court decision in the case of Shew Kissen Bhatter (supra) was under the old Act of 1922 whereas the present proceedings are under the Income-tax Act, 1961.
15. The learned D.R. submitted that the provisions of Section 9(1)(iv) of the Indian Income-tax Act, 1922 had in fact been split into three clauses under the Income-tax Act. 1961 as would be clear from Section 24(1)(iv), (v) and (vi). There was no change so far as the basic provisions are concerned and the- provisions of both the Acts were in pari materia. It was, therefore, submitted that the ratio of the Supreme Court decision in the case of Shew Kissen Bhatter (supra) would with equal force apply under the Income-tax Act, 1961.
16. We have carefully considered the arguments of both the sides. The provisions of Section 9(1)(iv) of Indian Income-tax Act, 1922 were as follows:
9. Property(1). The tax shall be payable by an assessee under the head 'income from property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax, subject to the following allowances, namely:
(i)...
(ii)...
(iii) ...
(iv) where the property is subject to a mortgage or other capital charge, the amount of any interest on such mortgage or charge; where the property is subject to an annual charge not being a capital charge, the amount of such charge; where the property is subject to a ground rent, the amount of such ground rent; and where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
The relevant provisions under the Income-tax Act, 1961 are as under:
24.(1) Income chargeable under the head income from house property' shall, subject to the provisions of Sub-section (2), be computed after making the following deductions, namely:
(i)...
(ii)...
(iii)...
(iv) where the property is subject to an annual charge not being a charge created by the assessee voluntarily or a capital charge, the amount of such charge;
(v) where the property is subject to a ground rent, the amount of such ground rent;
(vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with the borrowed capital, the amount of any interest payable on such capital.
Explanation : Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years.
17. A comparison of the above provisions under the two Acts clearly shows that the provisions of Section 9(1)(iv) of the Indian Income-tax Act, 1922 have been split into three clauses under the Income-tax Act, 1961, without bringing about any change in the scheme of the Act. We, therefore, hold that the provisions under both the Acts are in pari material in respect of all essential facts which are before us in these proceedings.
18. The next submission of Shri Rikhy was that interest on interest had to be allowed under Section 24(1)(vi) of the Income-tax Act, 1961. In this regard, it was submitted that if interest on interest could be allowed as a deduction while working out the business income, there was no justification for not allowing the same while computing the income from property. The learned Counsel for the assessee in this regard relied on the Supreme Court decision in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. In that case, the facts were that the assessee was a manufacturer and seller of sugar. It had to pay certain arrears of cess. As these were not paid within the prescribed period, the assessee had to pay interest on the cess. The Supreme Court held that interest was not penalty but was in the nature of compensation which was allowable as a deduction under Section 10(2)(xo) of the Indian Income-tax Act, 1922.
19. From these facts, it is clear that the issue before the Supreme Court was different and the matter before us in the instant proceedings is quite different and the facts of both the cases are distinguishable.
20. The learned Counsel for the assessee also relied on the Punjab and Haryana High Court decision in the case of Kalyan Rice & General Mills v. ITO [1989] 180 ITR 41. This decision is not found relevant to the present controversy and it is not understood as to how the learned Counsel for the assessee placed reliance on this decision.
21. The learned Counsel for the assessee also placed reliance on the Punjab and Haryana High Court decision in the case of CITv. Amritsar Sugar Mills Co. Ltd. [1988] 174 ITR 367. In that case, the Punjab and Haryana High Court followed the decision of the Supreme Court in Mahalakshmi Sugar Mills Co.s case [supra] which has already been discussed above and found distinguishable.
22. In our opinion and as rightly pointed out by the learned D.R., the relevant decision is of the Honble Supreme Court of India in the case of Shew Kissen Bhatter [supra]. In that case, the Supreme Court had an occasion to interpret the provisions of Section 9(1)((iv) of the Indian Income-tax Act, 1922 which have been reproduced supra. In that case also interest on interest had been paid which was claimed as a deduction. The learned Counsel for the assessee in that case raised an argument that the law permitted the client to deduct any interest paid by him on the capital borrowed or charged and 'any interest' included compound interest also. This argument was termed by the Supreme Court as 'fallacious'. The Supreme Court observed that "if we accept Mr. Chagla's contention as correct, then the door will be open for evasion of tax. All that the debtor need do is not to pay interest regularly but utilise that amount for other purposes and make the revenue pay compound interest payable by him and thus derive advantage out of his own omission. Such an interpretation is impermissible". So this argument that interest on interest is allowable to the assessee undei Section 24(1)(vi) has in term been rejected by the Supreme Court in the case of Shew Kissen Bhatter [supra].
23. Even otherwise, the interest is allowable "on such capital" which includes the principal amount which was borrowed for purposes of construction, acquisition, etc., of the property. This argument of the learned Counsel for the assessee is, therefore, repelled.
24. The next submission of Shri Rikhy was that the title deed of the property were lying with the bank and hence payment of interest on interest was also an annual charge which was allowable to the assessee under Section 24(1)(iv) of the Act.
25. The learned D.R. in this regard pointed out that even if it was an annual charge, interest on interest was not an annual charge because it was purely voluntary on the part of the assessee and the amount of charge which was created voluntarily or which was a capital charge was not allowable as a deduction. The learned D.R. also submitted that the Supreme Court in the case of Shew Kissen Bhatter [supra] had clearly laid down that what the assessee was entitled to deduct was the interest payable by him on the capital charged and not the additional interest which because of his failure to pay the interest on the due date had been considered as a part of the loan and in fact the real capital charge was that which was originally due. As regards the Andhra Pradesh High Court, decision in CITv. Rajah Dhanrajgiriji [1985] 154 ITR 719 on which reliance was placed by the learned Counsel for the assessee, the learned D.R. submitted that the facts in that case were different and in that case, the charge had been created either by the pressure of a court sale or under an obligation to create an equitable mortgage and hence the charge was not created by the assessee 'voluntarily'.
26. After carefully considering the rival submissions, we are of the opinion that the matter stands settled by the decision of the Supreme Court in the case of Shew Kissen Bhatter (supra) in which it has been held that "the real capital charge is that which was originally due". Interest on interest had to be paid by the assessee because of the default or the omission by the assessee to pay the instalment of the borrowed amount to the bank in time. This was a creation of the assessee herself. This action of the assessee was purely voluntary. If the assessee did not want to pay interest on interest then nothing prevented her from paying the instalment of borrowed loans in time. No deduction is admissible in respect of an annual charge which is voluntary or capital. The facts in the case of Rajah Dhanrajgiriji [supra) are also distinguishable as pointed out by the learned D.R. In that case, there were two properties. In respect of one property, the mortgage was created under the pressure of a court sale and in respect of the other property, the creditor demanded additional security and the assessee was obliged to create an equitable mortgage. Under these circumstances, the Court held that it could not be said that the charge was created by the assessee voluntarily. The facts of the instant case are, however, quite different and we, therefore, hold that no deduction of interest on interest is allowable to the assessee even under Section 24(1)(iv) of the Act. This ground is also rejected.
27. In the result, all the six appeals are dismissed.