Bombay HC quashed the order of Income Tax issued U/S 148 of Income Tax Act against SBI

Issue

Petition filed before Bombay HC under Article 226 of the Constitution of India, petitioner seeks quashing of notice dated 30.03.2001 issued by respondent under section 148 of the Income Tax Act, 1961 (briefly ‘the Act’ hereinafter) for the assessment year 1990-91 and subsequent notices issued under sections 143(2) and 142(1) of the said Act.

Whether respondent could form an opinion that he had reason to believe that income of the petitioner chargeable to tax for the assessment year 1990- 91 had escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment?

Facts

• Petitioner is the State Bank of India. It is a corporation established by and under the State Bank of India  Act, 1955 having its corporate office at Mumbai.
• Petitioner is assessed to income tax under the Act with respondent for the assessment year 1990-91, petitioner filed its return of income declaring total income of Rs.230,49,30,716.00.
• It has been noted that in the course of the assessment proceeding, respondent had written to the petitioner on 14.08.1992 calling upon the petitioner to explain that borrowed funds were not used for making investments to earn income, exemption of which was sought under section 10.
• Petitioner vide letter dated 22.08.1992 submitted necessary details with regard to interest claimed as exemption under section 10(15)(iv)(c), (d), (e) and (f) of the Act. Besides furnishing copies of loan agreements, branch-wise details in respect of the borrowers, clause under which exemption for interest income was sought and the amount of interest earned from each of the parties were pointed out.
• Petitioner claimed that exemption in respect of eligible interest was claimed on the gross amount. As interest received from each of the parties was disclosed separately, exemption was claimed on the basis of the total amount without reducing any expenditure.
• It was thereafter that assessment order was passed on 26.03.1993 under section 143(3) of the Act. While determining the total income of the petitioner at Rs.10,51,38,85,506.00, claim of the petitioner to exemption under section 10(15)(iv) was overlooked on the ground that though petitioner had stated in the return of income that it would be filing relevant details and information in support of such claim, no such details and information were filed.
• When the petitioner brought to the notice of respondent No.1 the details and information furnished by it vide letter dated 22.08.1992, respondent No.1 rectified the assessment order by an order dated 23.06.1993 passed under section 154 wherein it was held that relevant details were filed by the petitioner and after going through the documents, allowed exemption under section 10(15)(iv) of the Act to the extent of Rs.2,58,45,37,461.00.
• Thereafter notice under section 148 of the Act was issued to the petitioner on 23.12.1993 for re-opening the assessment for the assessment year 1990-91. Pursuant thereto petitioner filed its return of income wherein it claimed exemption of interest under section 10(15) (iv)(c), (d), (e) and (f) of the Act to the extent of Rs.4,69,92,61,038.00; besides claiming exemption in respect of interest on tax free bonds of Rs.20,58,08,915.00. On completion of re-assessment proceeding, respondent No.1 passed order dated 31.03.1994 under section 143(3) read with sections 147 and 154 of the Act determining revised total income at Rs.7,46,80,10,649.00.
• Thereafter respondent No.1 passed the consequential order on 20.11.1995 giving effect to the order of the appellate authority. By the said order, he allowed further deduction of Rs.119,20,47,306.00 under section 10(15)(iv) of the Act.

Findings

In Indian Bank Limited (supra), Supreme Court had held that no general principle is deductible for the proposition that if a part of the income of a business is tax free, expenditure incurred for the purpose of earning its income is outside the purview of section 10.

In New Great Insurance Company Limited (supra). Court held that the assessee company was entitled to a rebate on the gross dividends and not on the net dividends i.e., not after deducting proportionate management expenses.

Judgement

Bombay HC held that as per the condition precedent for re-opening the concluded assessment of the petitioner is absent in the present case. In such circumstances, issuance of the impugned notice under section 148 of the Act is clearly without jurisdiction and is therefore illegal and invalid.

Consequently, the impugned notice dated 30.03.2001 issued by respondent No.1 under section 148 of the Act as well as the subsequent notices issued under sections 143(2) and 142(1) of the Act are hereby set aside and quashed.

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