INCOME TAX ACT, 1961

Section 3(1)(b)

Assessment - Previous year - Effective date of settlement agreement whether effective from 26-12-1983 or 1-4-1984 - Admission of additional ground of appeal

Assessee, at the relevant time, was a wholly owned subsidiary of the Oil and Natural Gas Commission of India (ONGC). The assessee was incorporated with the main object of taking over the right and interest of Oil and Natural Gas Commission of India available to it under the 'joint structure agreement' (JSA) dated 17-1-1965. The assessee entered into a settlement on 26-12-1983 with National Iranian Oil Company through Government of India and under the said settlement it was sought to compensate the assessee towards 'immobilization and sterilization' of its business assets. Assessee was following accounting year as ending with calendar year. AO framed the assessment for 1984-85 on 20-3-1987 after making certain additions in terms of settlement agreement and CIT(A), partly allowed assessee's appeal. Both the assessee and the revenue approached the Tribunal and the Tribunal, partly allowed the assessee's appeal and dismissed the appeal of the department. Still aggrieved, both the parties approached the High Court of Delhi. Both the assessee as well as the Revenue sought reference of five-five questions and the Tribunal, vide Order, dated 2-9-1992 referred the questions of law of both the parties for adjudication before the High Court of Delhi. The High Court further noted that one of the questions referred to it by assessee had a larger impact on the disposal of the appeals before it. The Tribunal held that the additional ground of appeal cannot be admitted for the reason that no doubt the previous year is the calendar year, i.e., from 1-1-1983 to 31-12-1983 for the business of the assessee but for different source of income, there can be different previous years. Therefore, the additional ground cannot be admitted. Further, it will necessitate investigation of facts. In view of this, the additional ground is rejected. High Court makes it clear that the High Court had categorically held that in the original round of proceedings, the Tribunal had erred in not admitting and adjudicating upon the additional ground of appeal. Considering the directions, wherein it is categorically held by the High Court, '. . . The Tribunal having found in favour of the assessee that the settlement agreement was operable from 1-1-1984, it ought to have taken this fact into account and entertain the plea of the assessee to agitate the additional ground of appeal. Calendar year as the 'previous year' was specifically exercised by the assessee in its return of income. AR submitted that since, undisputedly, the date of settlement with National Iranian Oil Company was 1-1-1984 the AO had erred in making the impugned additions in terms of settlement agreement in assessment year 1984-85. Held: Undisputedly, for the twelve months period relevant to assessment year 1984-85 the assessee had drawn up its accounts as year ending 31-12-1983. Therefore, the assessee had validly, exercised its option as envisaged in section 3(1)(b). The Tribunal, therefore, found considerable merit in the additional ground of appeal and the same was, therefore, allowed. The AO was therefore, accordingly directed to assess the taxable total income of the assessee for the assessment year 1984-85 with taking the 'previous year' as ending with calendar year i.e. from 1-1-1983 to 31-12-1983 and considering the effective date of settlement agreement as 1-1-1984. However, the AO was given the liberty to take necessary remedial steps as per law for assessment of compensation flowing to the assessee under the settlement agreement in the appropriate assessment year. As the additional ground raised by the assessee stands allowed and the issue is restored to the file of the AO in terms of observations as aforementioned, the entire issues raised before the Bench by both the parties will also have to be necessarily re-examined afresh by the AO.

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