Back
2011 Supreme(Gau) 455
IN THE HIGH COURT OF GAUHATI
Hrishikesh Roy, J.
Steel Worth Pvt. Ltd. (M/s.) and Anr.
Vs.
Commissioner of Income Tax and Anr.
W.P. (C) No. 1821 of 2004
Decided On: 26.05.2011
For Appellant/Petitioner/Plaintiff:Mr. G.K. Joshi, Sr. Advocate, Mr. R.K. Joshi and Mrs. U. Chakraborty, Advocates
For Respondents/Defendant:Mr. U. Bhuyan, Sr. Advocate
Headnote:
Income Tax Act 1961 - Sections 143(1) and 147 - Assailing the re-assessment - Claimed Transport Subsidy - In their reply made on assesses stated that they had credited Transport Subsidy for relevant year to capital receipt account, on the basis of the decision of this Court in case of Commissioner of Income-Tax Assam Asbestos Ltd. reported in - It was further claimed that since Transport Subsidy is being given as an incentive for capital investment in North Eastern region and considering purpose for which subsidy is given it cannot be considered as revenue receipt and shouldn’t therefore be subjected to income tax - Held, When any State subsidy is given character of subsidy in hands of assesses-whether Capital or revenue-will have to be determined by taking into account the purpose for which the subsidy is given - It is held in Steel & Press Works that if it is given by way of assistance to assessee in carrying out their trade or business it should be treated as trading receipt source of fund being quite immaterial - But when subsidies are granted only after industry is set up and production commences such subsidy is of revenue in character and will have to be taxed accordingly - Of course these observations were made when Court was examining incentives offered by Andhra Pradesh Government to new undertaking by way of refund of sales tax on raw material machinery and finished goods - Writ Petition dismissed
Hrishikesh Roy, J.
1. Heard Mr. G.K. Joshi, learned senior counsel appearing for the petitioners. The respondents are represented by Mr. U. Bhuyan, learned senior counsel. The petitioner filed his return for the assessment year 1999-2000, where he claimed Transport Subsidy (Rs. 18,58,842/-) received from the Government as capital receipt. An intimation under Section 143(1) of the Income Tax Act 1961 (hereinafter referred as the IT Act) was sent on 5.12.2000 to the assessee, in respect of the return filed by them on 29.12.1999.
2. Subsequently the Assistant Commissioner of Income Tax, Tinsukia issued notice on 31.5.2002 (Annexure-III) intimating that he has "reason to believe" that the income of the assessee has escaped assessment within the meaning of Section 147 of the IT Act and accordingly re-assessment was proposed for the assessment year 1999-2000.
3. In their reply made on 16.1.2004, the assessee stated that they had credited the Transport Subsidy for the relevant year to the capital receipt account, on the basis of the decision of this Court in the case of Commissioner of Income-Tax Vs. Assam Asbestos Ltd. (hereinafter referred to as the "Assam Asbestos-I"), reported in 1995 (215) ITR 847. It was further claimed that since Transport Subsidy is being given as an incentive for capital investment in the North Eastern region and considering the purpose for which the subsidy is given, it cannot be considered as revenue receipt and shouldn't therefore be subjected to income tax.
4.1. The Asstt. Commissioner of Income Tax (Asstt. CIT) rejected the reply of the assessee through the communication dated 28.1.2004 and intimated the reason recorded in the file, for the impugned decision. The reasons being relevant, are extracted hereunder:
From the Balance sheet as at 31.03.1999, it is evident the assessee disclosed a sum of Rs. 18,58,842.00 being Transport Subsidy receivable as on 31.03.1999, which was credited to Capital Reserve A/C, instead of crediting the sum in P/L Amount as on 31.03.1999.
The amount of Transport Subsidy receivable of Rs. 18,58,842.00 is a Revenue Receipt taxable under IT Act, 1961.
I have, therefore, reasons to believe that this sum of Rs. 18,58,842.00 has escaped within the meaning of Section 147 of the Act Issue notice under Section 148 of the Act.
4.2. The Asstt. CIT claimed support for the re-assessment notice, by referring to the law laid down by the Apex Court on the taxability of State Subsidy in Sahney Steel & Press Works Ltd. Vs. CIT. reported in (1997) 228 ITR 253 (SC), and also the second decision on the point of this Court, in Deputy C.I.T. Vs. Assam Asbestos Ltd. (hereinafter referred to as the "Assam Asbestos-II") reported in (2003) 263 ITR 357.
5.1. Assailing the re-assessment proceeding initiated under Section 147 of the IT Act, Mr. G.K. Joshi, learned senior counsel contends that Section 147 of the IT Act permits reassessment only when, the Assessing Officer (A.O.) has 'reason to believe' that any income chargeable to tax, has escaped assessment. He points out that there is no authoritative pronouncement by any competent Court to the effect that Transport Subsidy cannot be included as capital receipt and accordingly he submits that, there can be no justification for the A.O. to take a view that the Transport Subsidy received by the assessee, has escaped assessment.
5.2. Referring to the interpretation of the Apex Court of the expression 'reason to believe' of Section 147 of the IT Act, in the decision of the Apex Court in Calcutta Discount Co. Ltd. Vs. Income Tax Officer reported in (1961) 41 ITR 191, Mr. Joshi contends that believe must be in good faith and cannot merely be a pretence and the expression does not imply a subjective satisfaction of the A.O. and cannot be based on mere suspicion and it must be founded upon information.
5.3. The decision of the Supreme Court in Ganga Saran & Sons Pvt. Ltd. Vs. Income Tax Officer reported in (1981) 130 ITR 1, is cited by Mr. Joshi to project that t
