TaxTMI 
TaxTMI 
2007 (7) TMI 443
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....n the general clauses Act, the words 'serve' give 'send' are all used under section 27 of the Act. The Supreme Court in Banarsi Debi v. ITO [1964] 53 ITR 100 has held that all these words are interchangeable words. The Supreme Court held that the word issued is to be held as served. In the case of Banarsi Debi ( supra) though the notice was served beyond the period of limitation but since the notice was issued prior to that date, the Supreme Court held that issuance should be regarded as equivalent to served. 4. Jurisdiction to re-assess is assumed on the issue of a notice and the time limit for completion of assessment should be reckoned from such assumption. It was argued that the assumption of jurisdiction and the time for completion should be judged from the same yardstick. Once the word 'serve' is taken as equivalent to 'issue' then the assessment should have been completed on or before 31-3-2004. The assessment completed on 30-3-2005 is beyond limit prescribed under the Act and, therefore, the learned CIT(A) should have held the order as barred by limitation. 5. The learned CIT(A) has considered the above submissions of the assessee. The learned CIT(A) observed that the....
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....time limit for completion of assessment should be linked from such date. The law draws a time-frame within which an action by AO has to be completed. It cannot be said that the assumption of jurisdiction should happen by one who yardstick and the time for completion should be judged by another yardstick. It was argued that the time-limit should be linked from the date of assumption of jurisdiction. The learned AR further drew our attention to the decision of the Apex Court in the case of R.K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163, in which, it was held that services is not a condition precedent to conferment of jurisdiction, on the ITO. It is condition precedent only to the making of the order of the assessment. The learned AR pointed out that the decision of the Apex Court is a very short one and the assessee was not represented in that case. In that case ratio of the Supreme Court decision in the case of Banarsi Debi ( supra) was not followed. It was, therefore, submitted that decision of Supreme Court in the case of R.K. Upadhyaya ( supra) is, therefore, regarded as per incuriam. The learned AR submitted the decision of R.K. Upadhyay's case (supra) is by two-member ....
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....should have been issued or the assessment/re-assessment should have been made in that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956. In section 4 of the Amending Act, the word 'issue' was used and, therefore, the plea of service beyond 8 years was raised that the Amending Act will not save the notice. In that context, the learned Apex Court held that the word 'issue' in section 4 of the Amending Act will also include service thereto. It is important to note that while interpreting the word 'issue' under section 4 of the Amending Act, the Apex Court kept in view the indication of Legislature and in order to achieve the objective intended to be achieved. The Apex Court interpreted that the word 'issue' will include service. It will be relevant to quote the following para from the above judgment : "To summarize : The clear intention of the Legislature is to save the validity of the notice as well as the assessment from an attack on the ground that the notice was given beyond the prescribed period. That intention would be effectuated if the wider meaning is given to the expression 'issued'. The dictionary meaning of the expression 'iss....
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....imitation for completion of the proceedings. In the case before the Apex Court revision order was passed beyond the period of 4 years of the order of the authority. However, the records were called within the period prescribed under section 15(4) of the Karnataka Entry Tax Act. Hence, it was held that the order has been passed within the period prescribed under section 15B of the Karnataka Entry Tax Act. It was, therefore, held that Legislature can prescribe different time limit for commencement of the proceedings and completion of the proceedings (2007-TIOL-120-SC-CT-in legal corner). 13. Section 156 of the Income-tax Act provides that whenever any tax, interest, penalty or any other sum is payable in consequence of any order, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. In that case, the word 'served' has been used. Interest under section 220(2) is to be paid in case the sum is not paid within 30 days of the services of notice. It is an accepted proposition that the word 'served' used under section 156 and also used under section 220(1) cannot be equated with the word 'issue'. The assessee cannot b....
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....will have jurisdiction to make re-assessment. The learned Punjab & Haryana High Court has referred to the decision of Banarsi Debi's case (supra). The learned High Court observed that under 1922 Act, limitation for initiation of the reassessment proceedings was linked with the services of notice and, therefore, the Apex Court while upholding validity of the section 4 of the Amending Act equated the word 'issue' with the word 'served'. Punjab & Haryana High Court at page 43 observed :- "The Supreme Court did not laid down that the expression 'issue' whenever and wherever it occurred in the Income-tax Act, carried the wider meaning." 16. The Full Bench of the Patna High Court in the case of CIT v. Sheo Kumari Debi [1986] 157 ITR 13 had an occasion to consider the meaning of issue and service of notice. The learned Patna High Court has considered the decision of the Apex Court in the case of Banarsi Debi (supra) and Kundanlal Beharilal (supra). It will be relevant to quote the following head note from the judgment :- "The words 'issue' and 'serve' are not synonyms. Their plain dictionary meaning runs directly contrary to any such assumption. The gap between the two may be wid....
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....atute or in section 149 of the Act. A judgment of a court of law derives its legal sanctity from the direct canvassing of opposite views in the open court and the adjudication made thereon. An ex parte short order by the Supreme Court declining to grant a discretion any leave to appeal under article 136 is not strictu sensu a judgment which is either binding or within the ambit of article 141. The observations made by the Supreme Court in CWT v. Kundan Lal Behari Lal [1975] 99 ITR 581, were basically under section 17 of the Wealth-tax Act, 1957. Moreover, the Supreme Court passed the order in limine notice to the other side dismissing a special leave petition. The brief observation made in the context of section 17 or section 18 of the Wealth-tax Act are not in any way applicable to the entirely different provision of section 149 of the Income-tax Act, 1961." 17. Under the 1961 Act, notice under section 148 can be issued within the period prescribed under the Act. It is not provided unlike the 1922 Act that it should be served within the period of limitation. It has been held in the following cases that if the notice has been issued within the limit prescribed under the Act t....
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....i) is not complied and why the capital gain should not be taxed in the hands of the firm. The assessee gave the following explanation to the Assessing Officer. 1.The partners of the partnership firm are the shareholders of the company on incorporation and share holding is in proportion to the partners capital account as standing on the date of succession of the partnership firm, i.e., on 30-4-1999. The documentary proof for the partners being the same shareholders the company is by Memorandum and Articles of Association and Returns of Allotments filed with the Registrar of Companies. 2.Series of Returns of Allotment done on different dates to comply with the Companies Act, 1956. (a)The first allotment made by the company of 50 equity shares of Rs. 10 each in equal proportion is a deemed allotment since the shareholders being the subscribers to the Memorandum of Association. (b)The second allotment was made on 1-5-1999 towards the preliminary expenses incurred by the promoters equally to promote the company. Therefore 6000 equity shares of Rs. 10 each was and allotted in equal proportion. (c)The third allotment was made on 11-12-2002 of 4000 equity shares of Rs. 10 ea....
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....any are as follows :- Name Date of Allotment Total Shares Pending allotment to be proposed allotted as below (Rs.) % of shares allotted to ratio as below 4-10-1997 1-5-1999 11-12-02 11-3-03 Surya Prakash 10 1200 800 549635 551645 26907 29.71 Ashok Kumar 10 1200 800 325230 327240 15922 29.71 Harish M 10 1200 800 349085 361095 17579 19.41 Suresh M 10 1200 800 322455 324465 15786 17.43 Rajesh 10 1200 800 293595 295605 14373 15.87 Total 50 6000 4000 1850000 1860050 90567 100.00 24. The Assessing Officer was not convinced with the above explanation. According to the Assessing Officer, the shareholdings in the company by the partners of the firm were not in the ratio of their capital account as appearing in the books of the firm before the succession and this requirement was not complied even by the end of the previous year that is 31-3-2000, therefore, section 45 is applicable and capital gain is chargeable in the hands of the firm. 25. Before the learned CIT(A), it was sub....
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....47(xiii) stand complied. Section 47(xiii) confers an exemption to encourage business reorganization and, therefore, should be interpreted in a manner that promotes the objective to be achieved and not frustrated. Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC). 27. The learned CIT(A) held that legal requirement to comply with the conditions laid down under section 47(xiii) must necessarily be made during the previous year, in which, the transfer took place or the transac-tion has taken place. The learned CIT(A) referred to section 47A(3) of the Income-tax Act. According to which the exemption granted under section 47(xiii) is to be withdrawn, if any of the conditions laid down in the proviso to section 47(xiii) are not complied with. Under such circumstances, the profit and gains is to be taxed in the hands of the successor. The learned CIT(A), therefore, observed that harmonious construction of section 47(xiii) read with section 47A(3) leads to the conclusion that necessary conditions as mentioned in proviso to section 47 (xiii) are to be met during the previous year, in which, the transfer/transaction has taken place. The learned CIT(A) further referred to clause (b) of provis....
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....od of 3½ years and this period should be considered as reasonable time for making compliance to the requirement of clause (b) of proviso to section 47(xiii). For this proposition, the learned AR relied on the following decisions : (a)Under Income-tax Act; (1)Century Textiles & Industries Ltd. v. Dy. CIT [2007] 13 SOT 507 (Mum.) (2)Chimanram Motilal (P.) Ltd. v. CIT [1983] 140 ITR 809 (Bom.) (3)Ram Kishan Baldeo Prasad v. CIT [1967] 65 ITR 491 (All.) (b)Under other statutes ; (1)Turner Morrison & Co. Ltd. v. Collector of Customs 1986 (25) ELT 741 (Bom.-Trib.) (2)Parekh Shipping Corpn. v. Assistant Collector of Customs 1995 (80) ELT 781 (Bom.). 30. The object of section 47(xiii) is to encourage business re-organization and, therefore, such provision is to be liberally construed. 31. On the other hand, the learned DR supported the order of the authorities below : 32. The learned DR drew our attention to the article appearing at 149 CTR Article 257. In that Article it is mentioned that the condition as mentioned in proviso to section 47(xiii) are to be satisfied at the time of succession. Particular reference has been made to clause (b) of the condi....
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....o conversion/succession of business by a company from firm. "The process of globalization has increasingly made business reorganizations inevitable for developing a globally competitive edge and this process has to be given the requisite impetus. The Group, therefore, is of the view that reorganization must be encouraged where they are in consonance with the objective of economic development and not where they are merely devices engineered to secure tax advantage. The need for reorganization for increasing the size of operation, sharpening of technological edge, spurring the urge for enhancing core competence, etc., it is felt should not be impeded because of considerations of provisions in the taxing statute. It is, therefore, proposed that while providing for reorganization without tax consequence, adequate safeguards will be provided to prevent abuse of the provisions. In line with this thinking, the following are proposed : In order to encourage conversion of sole proprietary business and partnership firms into companies, capital gains resulting from such conversion will be exempt from tax." 35. Sections 47(xiii) and 47A were introduced by Finance (No. 2) Bill, 1998. S....
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....d in any previous year the deduction calculated at the prescribed rates as if the reorganization has not taken place." 36. The note on clauses in respect of such amendment is as under : "The proposed new clause (xiii ) provides that nothing contained in section 45 shall apply to transfer of any building, machinery, plant, furniture or intangible asset to the company where a firm is succeeded by a company in the business carried on by it, subject to certain specified conditions. The conditions inter alia are that the assets and liabilities of the firm relating to the business immediately before the succession shall become the assets and liabilities of the company. All the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession. The partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company. The aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting powe....
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....ition. We have to ascertain, as to whether any time limit can be inferred from the provisions contained in the Act. Section 139 provides the time limit for filing the return of income. The firm is required to file return by 31st October of the assessment year. In case, the condition mentioned in proviso to section 47(xiii) are not satisfied then, the assessee-firm cannot claim exemption from capital gain. Whenever some rectification is to be made after compliance of certain condition then, such rectifications are provided under section 155 of the Income-tax Act. Attention is drawn to section 155(11) of the Income-tax Act. The assessment made is to be amended in case the assessee disputes or invests the amount. Such amendment is to be made after the completion of assessment because such condition will be satisfied after the completion of assessment. In respect of compliance to be made under proviso to section 47(xiii), there is no provision in the Act for rectification. This means that conditions are to be satisfied at the time of succession. 39. While deciding the issue, as to whether any time limit is provided for compliance of conditions mentioned in proviso to section 47(xiii....
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....f law, it is clear that conditions mentioned in proviso to section 47(xiii) are mandatory and to be complied at the time of succession. 41. The learned AR relied on the decision of Lalta Prasad Goenka's case (supra). In that case penalty order was held to be not barred by time, as no period of limitation was prescribed in the Act. It was held that penalty order cannot be held invalid merely on account of delay. Such decision is of no help to the assessee, as in the instant case, the assessee is required to satisfy the conditions for claiming that capital gain is not chargeable in the hands of the firm. However, in the instant case, when we consider the provisions of sections 139 and 47A(3), it is clear that time limit is provided for satisfying the requirement. 42. The final allocation of shares has been mentioned by the learned CIT(A) at page 9 of his order. Before, we see as to whether capital accounts of the partners were prepared in accordance with the principle of account-tancy and the requirement as mentioned in clause (b) of proviso to section 47(xiii) is satisfied, it will be relevant to reproduce the following chart. Name of the partner (1) (2) (3) (4)....
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.... It is clearly mentioned in the statement of fact by the assessee-firm that the assessee has transferred the assets other than goodwill and software to the company at a price of Rs. 2,21,72,950 as against written down value of Rs. 1,50,53,446. The software was transferred at Rs. 14 lakhs and goodwill valued for the purpose of transfer of Rs. 48,24,210. On account of these revaluations of the assets at the time of succession of business of the firm by the company, the firm has earned capital gain and the same is to be considered for exemption under section 47(xiii). Hence, this profit of the firm was to be allocated amongst the partners in the profit-sharing ratio. In the memorandum of the association of the company it is clearly mentioned that main object of the company was to takeover the assets and liabilities of the assessee firm. The partnership firm can be constituted to carry a business and if the business is transferred, then the firm is to be treated as dissolved. Section 42 of the Partnership Act says that the partnership firm will stand dissolved, if the adventure or undertaking for which, it was constituted has been completed. When the assets have been sold, the final ac....
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....hare holding should continue to be as such for a period of 5 years from the date of succession. Thus, such condition is to be satisfied for the five years from the date of succession. Section 47A(3) has not satisfied that non-compliance to clause (d) will be applicable for invoking the provisions. The Special Bench in the case of ITO v. Ms. Susheela M. Javeri [2007] 14 SOT 394 (Mum.) had an occasion to consider the meaning of the word 'a' and 'any' as appearing in sections 54 and 54F of the Act. It will be relevant to reproduce the following extract from that order : "Before coming to the context in which word 'a' is used in section 54/55F, we would like to mention that much emphasis was made on the word 'any'. It has been contended that the word 'a' means 'any' which in turn means 'many' or 'more than one'. This appears to be partially true. As per various dictionary meanings, it also includes 'one' or 'one out of many'. According to Law Lexicon, the word 'any' may have several meanings according to the circumstances. It may mean 'all', 'each', 'some' or 'one or more out of several'. It further says that it is not confined to a plural sense. According to illustrated Oxford Dict....
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....st is mandatory the assessee will get consequential relief in respect of interest. ITA Nos. 180 to 182/Bang./2007 55. The company has filed appeals for the assessment years 2001-02 and 2003-04. 56. The grounds of appeal are the same for all the assessment years. The first ground of appeal is against the re-opening of the assessment. 57. For all the three assessment years, returns filed were processed. The Assessing Officer noticed that the assessee-company has claimed depreciation on the revalued value of assets. For the assessment year 2000-01, the company claimed the depreciation by treating the value of the assets as adopted by the firm. The Assessing Officer was of the opinion that the opening W.D.V. of the assets for subsequent year, i.e., 2001-02 should be the same as has been determined in the case of the company for the assessment year 2000-01. The same value is to be adopted for taking opening W.D.V. depreciation in subsequent years. The Assessing Officer was of the opinion that the assessee-company has claimed excessive depreciation and, therefore, issued notices under section 148. The Apex Court in the case of Asstt. CIT v. Rajesh Javeri Stock Brokers (P.) Lt....