Gauhati High Court
Commissioner Of Income-Tax vs Bongaigaon Refinery And Petrochemical ... on 29 July, 1998
Equivalent citations: [2000]245ITR708(GAUHATI)
Author: H.K.K. Singh
Bench: H.K.K. Singh
JUDGMENT
V.D. Gyani, Actg. C.J.
1. The following question of law has been referred for this court's opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the items of income derived by the assessee during the formation period for the main business, were not taxable income but were to be adjusted against the project cost for the oil refinery and petrochemicals, the main business for which the company was set up ?"
2. A few basic facts may now be noted. The assessee-company commenced its business during the assessment year 1980-81 and the reference application relates to the assessment years 1975-76 to 1979-80. The company was incorporated on February 20, 1974. Being a Government of India undertaking the assessing authority noted that the company had not started its business operation as it was under construction stage. Referring to a judgment of the Supreme Court as reported in CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478 in the computation of income, the Assessing Officer included the income from interest in addition to the income from house property. The assessment was accordingly completed under Section 143(3) for all the years under consideration in the same manner by the Assessing Officer except the variation in the actual amount of interest and the amount of house property income for the assessment years 1978-79 and 1979-80 in addition to the income from interest and house property. There were hire charges income and also miscellaneous income.
3. Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) against the order of assessment mainly on the ground that the receipts of the assessee did not constitute its income as the same pertained to the fixed structure of the business which was being set up and was prior to the setting up of the business and as such it would not be justifiable to treat such income as taxable. The assessee has strongly relied on a judgment of the Tribunal in the case of Arasan Alluminium Industries Put Ltd. v. ITO (First) [1982] 1 ITD 10 (Mad) which incidentally considered a judgment of the Supreme Court as reported in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. The Commissioner of Income-tax (Appeals) sustained the assessee's claim by its consolidated order. The Revenue came up in appeal before the Tribunal contending that the Commissioner of Income-tax (Appeals) erred in holding that the income of the assessee for the years under consideration should be nil. This ground was common to all the assessment years. The Tribunal held that the judgment in Challapalli Sugars Ltd.'s case [1975] 98 ITR 167 (SC) was applicable to the facts of the case as held in a similar situation by a Special Bench of the Tribunal in the case of Arasan Alluminium Industries Pvt. Ltd. [1982] 1 ITD 10 (Mad). The Tribunal held that there was no merit in the appeal preferred by the Revenue and accordingly dismissed the same.
4. The question as set forth above has now been referred for this court's opinion. Dr. A. K. Saraf, learned standing counsel appearing for the Revenue, contended whether a particular receipt is of the nature of income is not a question raised before this court. It was further contended that Challapalli Sugars Ltd.'s case [1975] 98 ITR 167 (SC) has been explained and distinguished by the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172. The Supreme Court in this case held that taxability or non-taxability of income is to be decided only in accordance with the statutory provisions and not on the basis of equity and accountancy practice. In the circumstances, the concept of equity is inapplicable. This was a case where interest earned by an incorporated com pariy during its formative period by investing part of its borrowed funds was held taxable as income from other sources and not adjustable from the interest paid from the funds. The Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd.'s case [1997] 227 ITR 172 in clear terms held (page 183) :
"It is difficult to follow this reasoning. If a person borrows money for business purposes but utilises that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilised by the assessee whichever way he likes. He may or may not discharge his liability to pay interest with this income. Merely because it was utilised to repay the interest on the loan taken by the assessee, it did not cease to be his income. The interest earned by the assessee could have been used for many other purposes. If the assessee purchased a house or distributed dividend or paid salary to its employees with the money received as interest, will the interest amount be treated as not his income ? This is not a case of diversion of income by overriding title. The assessee was entirely at liberty to deal with the interest amount as he liked. The application of the income for payment of interest could not affect its taxability in any way."
5. Mr. Talukdar, learned counsel appearing for the assessee, placing reliance on the following judgments :
(1) CIT (Addl) v. Indian Drugs and Pharmaceuticals Ltd. [1983] 141 ITR 134 (Delhi) ;
(2) CIT v. Bokaro Steel Ltd. (No. 1) [1988] 170 ITR 522 (Patna) ;
(3) CIT v. Nagarjuna Steels Ltd. [1988] 171 ITR 663 (AP) ;
(4) CIT v. Electrochem Orissa Ltd. [1995] 211 ITR 552 (Orissa) ; and (5) CIT v. Maharashtra Electrosmelt Ltd. [1995] 214 ITR 489 (Bom), contended that the view taken by the Tribunal in the face of these authorities was a justifiable view, and should not, therefore, be upset or interfered with, The judgment in Tuticorin Alkali Chemicals and Fertilizers Ltd.'s case [1997] 227 ITR 172 (SC) was not available to the Tribunal or the appellate authorities as indeed, it could not be, as it was decided on July 8, 1997, and can only have prospective effect and operation.
6. This necessarily takes me to the question of the jurisprudence of precedents. When the court decides and particularly the apex court, decides that the interpretation of a particular provision of law as g'iven earlier was not legal, it in effect clears that the law as it stood from the beginning was as per its decision and that it was never the law otherwise. This being the case, since the Supreme Court has taken a view that the interpretation placed on the, provisions of law of the High Court was erroneous, it will have to be held that the action based on the erroneous view of law was also equally erroneous.
7. In view of the legal position as explained by the apex court, there is no force in the submissions made by learned counsel appearing for the asses-sec. Our answer to the question as referred is in the negative, that is to say, in favour of the Revenue and against the assessee.