SATISHCHANDRA AND CO. Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) FOR the assessment years 1979 -80, 1980 -81 and 1981 -82, the Income Tax Appellate Tribunal, Bangalore, for short "the Tribunal", has referred the following question of law to this court with appropriate statement of case. As the issue involved in the appeals before the Tribunal was the same, the appeals were, for the sake of convenience, consolidated and heard together. One common order was passed in all the appeals. The reference applications were also disposed of by a common order and therefore this order shall dispose of the reference petitions for all the three years by a common order : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order dated December 3, 1985, under Section 154 for the assessment year in question - The assessee is an arrack contractor. It has been assessed in the status of unregistered firm. In the assessment for the assessment year 1979 -80 completed by the Income Tax Officer, on February 15, 1982, the Income Tax Officer computed income under the head "Business income" at Rs. 2,30,758 and income under the head "Income from other sources" at Rs. 1,07,670. The total of the business income and the income from other sources came to Rs. 3,38,428. For the assessment year 1980 -81, the assessment was completed on December 28, 1982. The Income Tax Officer computed income under the head "Income from business" at Rs. 1,33,189 and income under the head "Income from other sources" at Rs. 1,85,103. The total income came to Rs. 3,18,292. Assessment for the assessment year 1981 -82 was made on March 31, 1983. The total income was computed at Rs. 2,99,273 and the income under the head "Income from other sources" at Rs. 1,61,994. For all the three assessment years "the income from other sources", was on account of interest which was earned on the deposits made at the instance of the bank to enable the bank to give bank guarantee for making bids for the contracts.

(2.) THERE was carried forward business loss of Rs. 10,20,700 pertaining to the assessment year 1976 -77. The Income Tax Officer set off this carried forward loss and made the assessment for the assessment years 1979 -80 and 1980 -81 at nil income and the remaining loss of Rs. 3,64,983 against the income of Rs. 4,61,267 for the assessment year 1981 -82. In short, the Income Tax Officer set off the loss suffered for the assessment year 1976 -77 against the income earned for the years 1979 -80, 1980 -81 and 1981 -82.

(3.) BEING aggrieved by the order of rectification passed by the Income Tax Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The argument raised before the first appellate authority was that the deposits which had yielded interest were made at the instance of the bank to enable the bank to give bank guarantee for bidding for the contracts. The deposits were made in the course of the business and as such the interest income arose in the course of the business. It was thus, pointed out that since the interest income was assessable as business income, there was no mistake in the orders of assessment wherein a set off of the carried forward loss had been allowed against interest as well. In the alternative, it was pleaded that in the event two views were possible on the matter of assessability of the interest like, whether it should be assessed as business income or under the head "Income from other sources" was possible, it would not be justified to take recourse to the provisions of Section 154 as it could not be said that the setting off of the carried forward loss against interest income was a mistake that was apparent on the face of records. The Commissioner of Income Tax (Appeals) accepted the contention of the assessee and cancelled the order of rectification by holding that for the limited purpose of appeal it was not necessary to give a finding whether interest income in the present case is a business income. By referring to certain decisions of the High Court it was held that there could be two views on this question, and therefore, under such circumstances, the Income Tax Officer was not justified in resorting to the provisions of Section 154.