Tata Sons Limited v. Dy. Commissioner Of Income Tax Range 2(3), Mumbai And Others

Digitallysigned byVISHALVISHALSUBHASHSUBHASHPAREKARPAREKARDate:2022.02.0917:30:42+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2545 OF 2010 Tata Sons Limited ...Petitioner vs.Dy. Commissioner of Income TaxRange 2(3), Mumbai and Others ...Respondents Mr. P.J. Pardiwalla, Senior Advocate a/w. Mr. Anil Wani i/b.ANS LawAssociates, for the Petitioner.Mr. Arvind Pinto, for the Respondents-Revenue. CORAM :K.R. SHRIRAM &N. J. JAMADAR, JJ.DATE :FEBRUARY 03, 2022 DATE : P.C.: 1.Petitioner had filed its return of income on 31[st] October, 2005for A.Y.2005-06 declaring total income of Rs. 880.66 Crores(incorrectly recorded in the reasons as Rs. 808.66 Crores). Thereturn was processed under section 143(1) of the Income Tax Act,1961 (the said Act) on 27[th] March, 2006. Subsequently, the casewas selected for scrutiny and an order dated 31[st] December, 2007under section 143(3) of the Act was passed assessing the income atRs 1160.67 Crores. A rectification order was passed under section154 of the Act on 6[th] May, 2009 assessing the income at Rs. 2541.34Crores under section 115JB of the Act, as tax liability was higher.Subsequently, the assessment was reopened and an order undersection 143(3) read with 147 was passed on 18[th] December, 2009. 2.Thereafter, Petitioner received a notice dated 31[st] March,2010 under section 148 of the said Act from Respondent No. 1alleging that he had reason to believe that Petitioner’s incomechargeable to tax for A.Y. 2005-2006 has escaped assessmentwithin the meaning of section 147 of the Act. Petitioner was laterprovided a copy of reasons recorded for reopening assessment on18[th] May, 2010. Petitioner has attacked the notice for re-opening theassessment on various grounds including that it was dispatched byRespondent more than four years after the relevant assessmentyear and therefore even if the notice is dated within four years ofrelevant assessment order, the Court should consider it to havebeen reopened after four years. 3.Mr. Pardiwalla submitted that in any event Petitioner has acast iron case and the Court will hold on merits in favour of thePetitioner, after considering the reasons recorded for re-opening. 4.We have heard Mr. Pardiwalla, for Petitioner and Mr. ArvindPinto, for Respondents and having considered the reasons for re-opening with their assistance, we are inclined to hold in favour ofPetitioner and set aside the notice dated 31[st] March, 2010 undersec.148 of the Act impugned in this Petition. Consequently the order rejecting the objections of the Petitioner dated 29[th] October, 2010which is also impugned in the Petition also will have to be set aside. 5.The entire basis of forming an opinion that there has been anescapement of assessment is that, the sale of shares of TCS Divisionby Petitioner was nothing but ‘business income’ and therefore theprofits arising out of the sale of shares held by Petitioner in thegroup companies would be treated as Petitioner’s income frombusiness, and not profits arising out of sale of investment.Therefore, according to Respdt. No. 1 he had reason to believe that asum of Rs.22,71,25,79,374/- has escaped assessment. Break up forthis figure of Rs.22,71,25,79,374/- can be found in reasons itself and it is necessary for us to re-produce the same. The same is as under: rejecting the objections of the Petitioner dated 29[th] October, 2010which is also impugned in the Petition also will have to be set aside. 5.The entire basis of forming an opinion that there has been anescapement of assessment is that, the sale of shares of TCS Divisionby Petitioner was nothing but ‘business income’ and therefore theprofits arising out of the sale of shares held by Petitioner in thegroup companies would be treated as Petitioner’s income frombusiness, and not profits arising out of sale of investment.Therefore, according to Respdt. No. 1 he had reason to believe that asum of Rs.22,71,25,79,374/- has escaped assessment. Break up forthis figure of Rs.22,71,25,79,374/- can be found in reasons itself and it is necessary for us to re-produce the same. The same is as under: 6.If we consider the table reproduced above, the sale of sharesof TCS Ltd. which according to Respondent No. 1 should be treatedas ‘business income’ and not ‘profits arising out of sale of sale ofinvestment’, is only Rs. 19,32,34,27,592/- (12,26,61,28,794 +7,05,72,98,798) i.e.“Long terms capital gains:- Tata ConsultancyServices Limited”. Mr. Pinto though he made valiant attempt todefend the notice issued for re-opening, in fairness, as an officer ofthe Court, considering the reasons as recorded agreed that the onlyitem which could have been stated to have escaped assessmentwould be the Long Term Capital gains in the sale of TCS Ltd. sharesamounting to Rs. 19,32,34,27,592/- and Respondent No. 1 wasincorrect in stating that he had reason to believe that the sum of Rs.22,71,25,79,374/- has escaped assessment. 7.In our view, if the reasons for re-opening the assessment isbased on incorrect facts or conclusions, certainly the notice issuedfor re-opening cannot be sustained. Moreover, if according toRespondent No. 1 only the sale of shares of TCS was ‘businessincome’ and not ‘profits arising of sale of investment’ to say that theamount of Rs.22,71,25,79,374/- has escaped assessment, alsoindicates non- application of mind. We would also go a step aheadand observe that if only the approving authority under section 151 of the Act had considered the reasons properly, either he wouldhave directed Respondent No. 1 to re-work on the reasons or wouldnot have granted the approval. Moreover, we may keep in mind thisis a case where the scrutiny assessment was completed and orderunder section 143(3) of the Act has been passed followed by arectification order under section 154 of the Act. ThereforePetitioner’s case has been considered at two stages, (i) When theassessment order was passed after scrutiny under section 143(3) ofthe Act and (ii) When an order under section 154 of the Act waspassed. 8.The reasons for proposed re-opening clearly indicates thatRespondent No. 1 wants to re-open only on the basis of change ofopinion which, as held time and again by various Courts, can not bea ground for reopening. This is because in the assessment orderdated 31[st] December, 2007 passed under section 143(3), the samepoint raised in the reasons for re-opening has been discussed and considered. The relevant portion reads as under: “As per the submissions, the activity of the assesseecompany for making investment in shares group companywas to acquire and retain control of the companiespromoted by it. The question that requires to be consideredis whether this activity itself constitute a business when thereal intention of the company is not to earn profit but toacquire and exercise control of the group companies. Inorder to constitute activity of the assessee for carrying on considered. The relevant portion reads as under: “As per the submissions, the activity of the assesseecompany for making investment in shares group companywas to acquire and retain control of the companiespromoted by it. The question that requires to be consideredis whether this activity itself constitute a business when thereal intention of the company is not to earn profit but toacquire and exercise control of the group companies. Inorder to constitute activity of the assessee for carrying on the business, it is essential that such activity for carrying onthe business, it is essential that such activity must be with amotive of earning profit. Such earning of profit should be bythe company itself and not by the other group company. Thisissue came to be considered by the Hon’ble Madras HighCourt in the case CIT vs. K.S. Venkatasubbiah Reddiar(1996) 221 ITR 181 where it was held that the income taxAct defines the term “business” only inclusively. The twoessential requirements for an activity to be considered as“business” are (i) it must be continuous course of activityand (ii) it must be carried on with a proft motive. The issuealso came to be considered by the Delhi High Court in thecase in Bharat Development Pvt. Ltd. vs. CIT (1982) 133ITR 4702 where it was observed that the expression“business” is a word of a occupation. In taxing statute, it isused in the sense of a occupation or profession whichoccupies the time, of making proft. To regard an activity asbusiness there must be a course dealings either actuallycontinued or contemplating to be continued with the proftmotive, and not for support or pleasure. Whether a personcarried on business in a particular commodity must dependupon the volume, frequency, continuity and transaction ofpurchase and sale in class of goods and the transaction mustordinarily be entered into with a profit motive. Now whenthe ratio of the aforesaid decisions is to be applied to thefacts of the present case, the actions of the assessee are notactuated by the proft motive. Transactions of purchasingshares to garner controlling interest could not be regardedas carrying on business for the purpose of section 28 of theIncome Tax Act .” 9. It is settled law that review in the garb of reassessment isabsolutely prohibited and the Courts have consistently held thatreassessment cannot be allowed in such situation of change ofopinion and presence of fresh tangible material is a sine qua non fora valid re-assessment. Where the assessment is sought to bereopened within a period of 4 years, of end of relevant assessmentyear, this Court in Jainam Investments vs. Assistant Commissioner of Income Tax & Ors.[1]has laid down the settled principles whichread as under: 12. …….. …..Where the assessment is sought to be reopenedwithin a period of four years of the end of the relevantassessment year, the Apex Court in Commissioner ofIncome Tax V/s. Kelvinator of India Limited[2] has laid downthe test of the principle which reads as under : of Income Tax & Ors.[1]has laid down the settled principles whichread as under: 12. …….. …..Where the assessment is sought to be reopenedwithin a period of four years of the end of the relevantassessment year, the Apex Court in Commissioner ofIncome Tax V/s. Kelvinator of India Limited[2] has laid downthe test of the principle which reads as under : "Therefore, post 1[st] April, 1989, power to reopen is much wider.However, one needs to give a schematic interpretation to thewords "reason to believe" falling which, we are afraid, s. 147would give arbitrary powers to the AO to reopen assessments onthe basis of "mere change of opinion", which cannot be per sereason to reopen. We must also keep in mind the conceptualdifference between power to review and power to reassess. TheAO has no power to review; he has the power to reassess. Butreassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, ascontended on behalf of the Department, then, in the garb ofreopening the assessment, review would take place. One musttreat the concept of "change of opinion" as an inbuilt test tocheck abuse of power by the AO. Hence, after 1[st] April, 1989, AOhas power to reopen, provided there is "tangible material" tocome to the conclusion that there is escapement of income fromassessment. Reasons must have a live link with the formation ofthe belief. Our view gets support from the changes made to s.147 of the act, as quoted hereinabove. Under the Direct TaxLaws (Amendment) Act, 1987, Parliament not only deleted thewords "reason to believe" but also inserted the word "opinion" ins.147 of the Act. However, on receipt of representations fromthe companies against omission of the words "reason to believe",Parliament re-introduced the said expression and deleted theword "opinion" on the ground that it would vest arbitrarypowers in the AO". 10.In the circumstances, we allow the Petition in terms of prayer clause (a), which reads as under: 1[2021] 323 CTR (Bom) 25. 2(2010) 320 ITR 561. (a) For a writ of certiorari or a writ, direction ororder in the nature of certiorari or any otherappropriate writ, direction or order under Article226 of the Constitution of India calling for therecords of the case pertaining to the impugned noticedated 31.03.2010 issued by the Respondent No. 1under section 148 of the Act to reopen theassessment for the assessment year 2005-06 and theorder dated 29.10.2010 rejecting the objections ofthe Petitioner to the issuance of the notice undersection 148 of the Act and after considering thelegality thereof quashing and setting aside the same. 11.Petition disposed accordingly with no order as to costs. (N. J. JAMADAR, J.) (K. R. SHRIRAM, J.)