Reassessment and accrual basis taxation upheld for compensation interest not disclosed in original returns.
Reassessment under section 147(a) was treated as valid where interest income had not been disclosed in the original returns, and the proceedings were regarded as saved by section 150 read with Explanation 2 to section 153; section 144B was also held not to vitiate the reassessments. The interest on compensation was characterised as revenue income, not capital accretion, and was treated as accruing from year to year on the basis of retrospective legislation and the earlier appellate finding. On that footing, the income was assessable in the proper years of accrual rather than wholly in one year, and the Revenue's position was accepted.
Issues: (i) Whether the reassessment proceedings for the assessment years 1968-69 and 1969-70 were valid under section 147(a) and were saved by section 150 read with Explanation 2 to section 153 of the Income-tax Act, 1961. (ii) Whether section 144B of the Income-tax Act, 1961 vitiated the reassessments. (iii) Whether the interest received on compensation was taxable as revenue income on accrual basis from year to year.
Issue (i): Whether the reassessment proceedings for the assessment years 1968-69 and 1969-70 were valid under section 147(a) and were saved by section 150 read with Explanation 2 to section 153 of the Income-tax Act, 1961.
Analysis: The assessee had not disclosed the interest income in the original returns. For the assessment year 1969-70, the compromise decree fixing the compensation and interest had been passed during the pendency of the original assessment, yet the fact was not disclosed. For the assessment year 1968-69, the later retrospective amendment created a statutory right to interest from an earlier date, and that deemed position governed the escapement analysis. The finding in the later appellate order that the interest accrued from year to year supplied the basis for reopening, and the reassessments were also treated as made in consequence of that finding. The time bar objection under section 150(2) did not apply on the facts.
Conclusion: The reassessment proceedings were valid and were sustained in favour of the Revenue.
Issue (ii): Whether section 144B of the Income-tax Act, 1961 vitiated the reassessments.
Analysis: The objection that reassessment under section 147 could not be processed through section 144B was rejected in view of the Tribunal's earlier special bench view relied upon by the Revenue.
Conclusion: Section 144B did not invalidate the reassessments, against the assessee.
Issue (iii): Whether the interest received on compensation was taxable as revenue income on accrual basis from year to year.
Analysis: The interest was held to be compensation for being kept out of the undertaking and the compensation money, and not a capital accretion. The statutory amendment was treated as retrospectively creating a right to interest from an earlier date, while the appellate finding in the earlier year had already determined that the income accrued from year to year. The assessee was not permitted to resile from the earlier stand on which it had already obtained relief. On that basis, the income could not be taxed wholly in one year and was assessable year by year.
Conclusion: The interest was taxable as revenue income on accrual basis from year to year, in favour of the Revenue.
Final Conclusion: The assessee's challenge to the reassessments and to the inclusion of the interest income failed, and the Revenue's position on validity of reassessment and taxability of the interest was accepted.
Ratio Decidendi: Where income is found, on a binding prior finding and on the effect of retrospective legislation, to have accrued from year to year and the assessee had not disclosed the source in the original return, reassessment can be sustained and the income must be brought to tax in the proper years of accrual.