2002-VIL-27-SC-DT

Equivalent Citation: [2003] 263 ITR 255 (SC), 2003 (11) SCC 441

Supreme Court of India

C.A. 1583 OF 2001

Date: 10.12.2002

COMMISSIONER OF INCOME-TAX

Vs

GM MITTAL STAINLESS STEEL P. LTD.

BENCH

Judge(s)  : MRS. RUMA PAL. and B. N. SRIKRISHNA.

JUDGMENT

The assessment years in question are 1985-86 and 1986-87. The Assessing Officer had, by assessment orders dated December 22, 1988, and March 28, 1989, in respect of the respective assessment years, inter alia, allowed power subsidy to be treated as capital receipt instead of revenue. This was also the law as laid down by the jurisdictional High Court in the decision of CIT v. Dusad Industries [1986] 162 ITR 784 (MP).

The Commissioner in exercise of the powers under section 263 of the Income-tax Act, 1961, sought to revise the assessment orders by two identical but separate orders dated March 25, 1991. In each of the orders the Commissioner has merely stated that the Assessing Officer had erred while assessing the income of the assessee without setting out the reasons why the Commissioner was of the view that the Assessing Officer had been erroneous in following the decision in Dusad Industries' case [1986] 162 ITR 784 (MP). The assessee preferred an appeal to the Tribunal. The Tribunal found that the Commissioner had wrongly exercised his power under section 263 of the Income-tax Act on the ground that no reasons had been given by the Commissioner for his conclusion that the assessment order was erroneous and prejudicial to the interests of the Revenue and also on the ground that in view of the decision of the High Court in Dusad Industries' case [1986] 162 ITR 784 (MP), the Assessing Officer could not be said to be in error in making the assessment while following the judgment.

The High Court on a reference made under section 256(2) of the Income-tax Act answered the question framed, viz:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in partly cancelling the order of the Commissioner of Income-tax passed under section 263?"

against the Revenue and in favour of the assessee.

In the appeals before us, it has been contended on behalf of the Revenue authorities that the decision in Dusad Industries' case [1986] 162 ITR 784 (MP) had been subsequently set aside by this court in Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253; [1997] 7 SCC 764 in which this court has clearly come to the conclusion that the power subsidy was not in nature of capital receipt but a revenue receipt. It is also pointed out to us that the decision of the Madhya Pradesh High Court in Dusad Industries' case [1986] 162 ITR 784 had been held to be erroneous by this court. It is contended that, therefore, the Commissioner was correct in revising the decision of the Assessing Officer and coming to the conclusion that the Assessing Officer had erroneously treated the power subsidy as a capital receipt. The appellant has also submitted that the declaration of law by this court, in Sahney Steel's case [1997] 228 ITR 253 could be deemed to have been the law which was at all times operative. In any event, according to the appellant, the Revenue, at least as far as the State of Andhra Pradesh was concerned, had not accepted the principle as enunciated in Dusad Industries' case [1986] 162 ITR 784 (MP) and had challenged the decision of the Andhra Pradesh High Court rendered in 1985 in Sahney Steel's case [1985] 152 ITR 39. The issue was, therefore, according to the appellant, still open and the Commissioner could in the circumstances keep it alive by initiating proceedings under section 263 of the Act. Reliance has been placed on the decision of the Madras High Court in CIT v. Seshasayee Paper Boards Ltd. [1996] 217 ITR 358 and of the Calcutta High Court in CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204.

Although nobody appears on behalf of the respondent despite service of notice of appeal, we are of the view that the High Court was entirely correct in deciding the question framed in favour of the assessee and against the Revenue. Section 263 of the Income-tax Act requires that the Commissioner can call for and examine the record of any proceeding under the Income-tax Act only on the basis of his being satisfied, (1) that the Assessing Officer was erroneous in passing the assessment orders, and (2) that the decision of the Assessing Officer was prejudicial to the interest of the Revenue. Needless to say the satisfaction must be one which is objectively justifiable and cannot be the mere ipse dixit of the Commissioner.

In this particular case, the Commissioner has not recorded any reason whatsoever for coming to the conclusion that the Assessing Officer was erroneous in deciding that the power subsidy was a capital receipt. Given the fact that the decision of the jurisdictional High Court was operative at the material time, the Assessing Officer could not be said to have erred in law. The fact that this court had subsequently reversed the decision of the High Court would not justify the Commissioner in treating the Assessing Officer's decision as erroneous. The power of the Commissioner under section 263 of the Income-tax Act must be exercised on the basis of the material that was available to him when he exercised the power. At that time, there was no dispute that the issue whether the power subsidy should be treated as capital receipt had been concluded against the Revenue. The satisfaction of the Commissioner, therefore, was based on no material either legal or factual which would have given him the jurisdiction to take action under section 263 of the Income-tax Act.

The decisions of the High Courts relied upon by learned counsel appearing for the appellant do not, in our view, assist the Revenue. The Madras High Court in CIT v. Seshasayee Paper Boards Ltd. [1996] 217 ITR 358 considered a situation where the Assessing Officer had relied upon a particular decision in framing the assessment order. The decision relied upon was itself the subject-matter of an appeal before the Supreme Court. In those circumstances, the High Court was of the view, and correctly so, that the Commissioner could have initiated proceedings under section 263. It is nobody's case that the decision in Dusad Industries' case [1986] 162 ITR 784 (MP) was the subject matter of any appeal before this court. As far as the Revenue authorities in Madhya Pradesh were concerned the issue could not be said to be alive.

The Calcutta High Court decision, has in fact held contrary to what is being submitted on behalf of the appellant. In that case the Assessing Officer had initiated reassessment proceedings on the basis of a decision of the Rajasthan High Court. The decision of the Rajasthan High Court was subsequently reversed by this court. The Calcutta High Court held that despite such reversal, it could not be said that reassessment proceedings were without jurisdiction on the basis of the law as it stood when the proceedings were initiated.

Apart from the language of section 263 of the Income-tax Act, if we were to accept the submission of the appellant that the Revenue authorities within the State could refuse to follow the jurisdictional High Court's decision on the ground that the decision of some other High Court was pending disposal by this court, it would lead to an anarchic situation within the State. If at the time when the power under section 263 was exercised the decision of the jurisdictional High Court had not been set aside by this court or at least had not been appealed from, it would not be open to the Commissioner to have proceeded on the basis that the High Court was erroneous and that the Assessing Officer who had acted in terms of the High Court's decision had acted erroneously.

The appeals are, therefore, dismissed without any order as to costs.

 

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