Retrospective tax amendment defeats reassessment reopening where the statutory basis for alleged usance-interest income no longer exists.

Retrospective Explanation 2 to section 10(15)(iv)(c) treated usance interest paid outside India by a ship-breaking undertaking on purchase of ships from abroad as interest on foreign borrowing, excluding it from total income. Because the reassessment notice under section 148 rested on the premise that such interest was taxable and that section 40(a)(i) had not been complied with, the statutory amendment removed the very foundation for reopening. The Gujarat HC therefore quashed the reassessment notice as unsustainable.

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Issues: Whether the notice reopening the assessment under section 148 of the Income-tax Act, 1961 was sustainable when Explanation 2 to section 10(15)(iv)(c), inserted retrospectively, deemed usance interest payable by a ship-breaking undertaking on purchase of ships from outside India to be interest on foreign borrowing and therefore excluded it from the total income.

Analysis: The notice to reopen was founded on the premise that the assessee had paid usance interest and had not complied with section 40(a)(i) of the Income-tax Act, 1961. However, Explanation 2 to section 10(15)(iv)(c), made operative retrospectively from 1 April 1962, specifically treated such usance interest paid outside India by an undertaking engaged in ship-breaking as interest payable on debt incurred in a foreign country for purchase outside India. On that statutory footing, the amount could not be included in computing the total income, with the result that the original basis for reopening ceased to exist.

Conclusion: The reassessment notice under section 148 of the Income-tax Act, 1961 was not sustainable and was quashed in favour of the assessee.

Final Conclusion: The petition succeeded and the impugned reassessment notice was set aside because the retrospective statutory amendment removed the very basis on which the reopening was initiated.

Ratio Decidendi: Where a retrospective amendment expressly excludes the income on which reassessment is founded, the reopening notice cannot survive because its legal basis is extinguished.

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