TaxTMI 
TaxTMI 
2013 (7) TMI 317
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....e company is a public financial institution engaged in business of providing finance for rural electrifications. 2. Information was received from Addl. CIT, Karimnagar Range, Karimnagar vide his letter No. Addl. CIT/KNR/Appeals/2010-11 dated 1.11.2010 that the assessee company had advanced a loan to M/s. The Cooperative Electrical Supply Society Ltd., Siricilla. This Society has created a corpus of special fund amounting to Rs.10 crores. The society earned interest on this special fund but did not disclose it in its return for the reason that the money belonged to M/s. REC i.e. Assessee Company and any income earned was also on behalf of Assessee Company. The ITAT, Hyderabad in its consolidated order in ITA No. 1112 to 1115 & 1198 to 1199 of 2005, 1635 of 2008 and 570 of 2009 dated 13.01.2010 for assessment year 1999-00 to 2006-07 had held that this income was not taxable in the hands of the society but ought to be taxed in the hands of the assessee company. The ACIT-Cir-1, Karimnagar vide his letter No.F.No. CESS/ACIT/Knr. has forwarded the details or such income at Rs.73,50,000/- on account of interest on REC Bonds & Rs.9,80,877/- on account of interest from commerc....
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....nding that the same should be taxed in the hands of the petitioner. The exact findings returned by the Tribunal are as under:- "... Applying the aforesaid tests to the facts of the case before us, it is clear that there is no diversion of income by overriding title by M/s. REC in favour of the assessee-society. The income by way of interest, etc. has accrued to M/s. REC in its own right. The amount so collected was retained by M/s. REC and was available with it for use and application as per its directions. The income in this case never reached the assessee by Virtue of any overriding title. A reading of various clauses of the Revised Rules on the Constitution and Administration of Special Fund dated 30.1.1997 makes it clear that the first charge on the Special Fund Account shall be of M/s. REC and that it shall be the outstanding loan against the assessee and the assessee is merely a custodian of the amount in the Special Fund created as per instructions and rules framed by M/s. REC. In these facts of the case, we hold that there is no diversion of income at source by overriding title by M/s. REC in favour of the assessee society and the ownership of the special fund....
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.... may be taken." xxxx xxxx xxxx xxxx xxxx "153. Time limit for completion of assessments and reassessments. - xxxx xxxx xxxx xxxx xxxx (3) The provisions of sub-sections (1), (1A), (1B) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of subsection (2A), be completed at any time - (i) xxxx xxxx xxxx xxxx (ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263, or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act ; (iii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147. xxxx xxxx xxxx xxxx xxxx Explanation 2. - Where, by an order referred to in clause (ii) of sub-section (3), any income is excluded from the total income of the assessee for an assessment year, then, ....
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....ready elapsed: Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made shall apply to a reassessment made under Section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to given effect to any finding or direction contained in an order under Section 31, Section 33, Section 33-A, Section 33-B, Section 66 or Section 66-A. " (underlining added) The said decision was that of a Constitution Bench in which the Supreme Court took the view that the said proviso was applicable in respect of an order passed against the person whose assessment was sought to be reopened and only to such other persons who were intimately connected such as a partner or member of the HUF. The Supreme Court held as under:- "We would, therefore, hold that the expression "any person" in the setting in which it appears must be confined to a person intimately connected in the aforesaid sense with the assessments of the year under appeal." 10. As mentioned above, an illustration of such a category of 'intimately connected' pe....
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.... provision is subject to a proviso that such other person ought to be given an opportunity of being heard before such an order is passed. 12. Coming back to the factual matrix of the present case, Mr Syali submitted that the provisions of Section 150 read with Explanation 3 in section 153 would apply only if an opportunity of hearing had been given to the petitioner herein, before the Tribunal passed the order dated 13.01.2010 in the case of the said society wherein the Tribunal held that the interest income was not taxable in the hands of the said society but ought to have been taxed in the hands of the petitioner herein. Mr Syali submitted that this was a condition precedent before the deeming clause could be invoked and thereby the provisions of Section 150 could be attracted so as to lift the bar of limitation prescribed under Section 149 of the said Act. 13. Mr Syali placed reliance on the decision of the Gujarat High Court in the case of A.B. Parikh vs. Income - tax Officer: 203 ITR 186 (GUJ) . In particular, he placed reliance on the following observations of the said High Court: "Section 149 lays down the time limits for issuance of notice under section 148.....
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....section 153 would come to the rescue of the Revenue and against the assessee. Our analysis of the implications of the provisions of the Act relevant for the purpose of our case, as done above, has left us with no other alternative but to allow this special civil application. Since we have sustained the first point relating to bar of limitation and that has served the cause of the petitioner, we have not gone to the second point. Accordingly, we allow this special civil application and the impugned show cause notice as per annexure A is quashed. We make no order as to costs." 14. It is apparent from the said decision that before a notice under Section 148 can be issued beyond the time limits prescribed under Section 149, the ingredients of Explanation 3 to Section 153 have to be satisfied. Those ingredients require that there must be a finding that income which is excluded from the total income of one person must be held to be income of another person. The second ingredient being that before such a finding is recorded, such other person should be given an opportunity of being heard. In the context of the present case, when the Tribunal held in favour of the said society by concludi....