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T. C. A. Ramanujam

T. C. A. Ramanujam discusses a recent Supreme Court decision on the revisionary powers of the Commissioner

THE finality of a completed assessment can be unsettled either by reopening of the assessment or by the revisionary jurisdiction of the Commissioner of Income-Tax (CIT). The Commissioner's powers are circumscribed by the conditions imposed under Section 263 of the Income-Tax Act, 1961.

This is one section that has seen several radical amendments to the law. These amendments were meant to ensure that the Revenue's right to revise is not challenged on technical grounds. The Supreme Court has upheld all the actions of the Revenue on the basis of such amended law. Thus, the term `record' means not only the record available at the time the assessment was framed by the assessing officer (AO) but also the record subsequently accumulated on the basis of inquiries made after the assessment.

The controversy about merger of the assessment order with the appellate order was also resolved both by way of amendment and interpretation. The Supreme Court, in CIT vs Shri Arbuta Mills Ltd (231 ITR 50), held that as a consequence of the retrospective amendment made in Section 263 with effect from June 1, 1998, the Commissioner's power extended to such matters as had not been considered and decided in an appeal.

Despite such amendments, the Revenue finds itself in a jam in interpreting the term "erroneous and prejudicial to revenue". What is an erroneous assessment? When does an assessment prejudicial to the Revenue? These are matters which require interpretation by the judiciary, which is normally very touchy when it concerns High Courts rulings on any subject.

The Mittal case

In this case (CIT vs G. M. Mittal Stainless Steel Pvt Ltd (SC 263 ITR 255), the company was receiving power subsidy from the government. The company pleaded before the assessing officer (AO) that the subsidy was a capital receipt and not assessable to tax. The AO accepted the claim. Actually, at the time the assessment was framed, the Madhya Pradesh High Court had ruled that power subsidy was a capital receipt not assessable to income-tax.

Unfortunately, the Revenue did not go in appeal against the ruling of the High Court in CIT vs Dusad Industries (1986 162 ITR 784 MP). It so happened that the Supreme Court dealt with different types of subsidies in the leading Sahney Steel and Press Works Ltd vs CIT (1997 228 ITR 253 S C) case. It held that subsidy is received to help the company in their day-to-day trade and should be taxed as revenue receipts. In the course of their lengthy judgment, the Supreme Court incidentally referred to the Madhya Pradesh ruling in the Dusad Industries case (supra) and held that the case was wrongly decided.

In the Mittal Stainless case, the CIT, in exercise of the powers vested in him under Section 263, sought to revise the assessment orders and passed orders in revision observing that the AO had erred in following the decision of the Madhya Pradesh High Court in the Dusad case (supra), thereby failing to bring to tax the quantum of the power subsidy received by the company from the Government.

The MP High Court did not approve the action of the Commissioner and it cancelled the revision order passed by the Commissioner under Section 263.

The Supreme Court's judgment in this case lays down a new path for litigation. Both revenue authorities and the taxpaying public must carefully watch whether a particular judgment of the jurisdictional High Court has been accepted or not or whether it is pending in appeal before the Supreme Court. There can be several reasons for the Revenue accepting an order of a High Court.

The matter may be contested in a similar case from the judgment of another High Court and may be pending in the Supreme Court. Or the Revenue may be waiting for a suitable case to arise where the stakes will be high. To bar jurisdiction under Section 263 merely on the ground of the Revenue having accepted a particular judgment of the jurisdictional High Court does not stand to reason.

Unfortunately, this is a matter which cannot be remedied by way of amendment to the law. A suitable occasion should be found to have the issue reconsidered by the Supreme Court itself.

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