Tata Sons Limited v. Dy.CIT

Case snapshot

Sections / provisions: 147

Questions before the Court / Tribunal

• S. 147 : Reassessment – After the expiry of four years – No failure to disclose material facts – Change of opinion – Capital gains or business income – Sale of shares – Reassessment proceedings are quashed. [S. 28(i), 45, 148, 154, Art. 226] The assessment was completed under section 143(3) of the Act and thereafter the rectification order was passed under section 154 of the Act. The assessment was reopened and the order was passed. The assessment was once again reopened beyond period of four years on the ground that there has been an escapement of assessment on the ground the sale of shares of TCS Division by Petitioner was nothing but business income and therefore the profits arising out of the sale of shares held by Petitioner in the group companies would be treated as Petitioner’s income from business, and not profits arising out of sale of investment. On writ the Court held that…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

233-wp-2545-2010.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2545 OF 2010 Tata Sons Limited ...Petitioner vs. Dy. Commissioner of Income Tax Range 2(3), Mumbai and Others ...Respondents Mr. P.J. Pardiwalla, Senior Advocate a/w. Mr. Anil Wani i/b.ANS Law Associates, for the Petitioner. Mr. Arvind Pinto, for the Respondents-Revenue. CORAM : K.R. SHRIRAM & N. J. JAMADAR, JJ. DATE : FEBRUARY 03, 2022 P.C.: 1. Petitioner had filed its return of income on 31 st October, 2005 for A.Y.2005-06 declaring total income of Rs. 880.66 Crores (incorrectly recorded in the reasons as Rs. 808.66 Crores). The return was processed under section 143(1) of the Income Tax Act, 1961 (the said Act) on 27 th March, 2006. Subsequently, the case was selected for scrutiny and an order dated 31 st December, 2007 under section 143(3) of the Act was passed assessing the income at Rs 1160.67 Crores. A rectification order was passed under section 154 of the Act on 6th May, 2009 assessing the income at Rs. 2541.34 Crores under section 115JB of the Act, as tax liability was higher. Subsequently, the assessment was reopened and an order under section 143(3) read with 147 was passed on 18th December, 2009. Vishal Parekar 1/8

233-wp-2545-2010.doc 2. Thereafter, Petitioner received a notice dated 31 st March, 2010 under section 148 of the said Act from Respondent No. 1 alleging that he had reason to believe that Petitioner’s income chargeable to tax for A.Y. 2005-2006 has escaped assessment within the meaning of section 147 of the Act. Petitioner was later provided a copy of reasons recorded for reopening assessment on 18th May, 2010. Petitioner has attacked the notice for re-opening the assessment on various grounds including that it was dispatched by Respondent more than four years after the relevant assessment year and therefore even if the notice is dated within four years of relevant assessment order, the Court should consider it to have been reopened after four years. 3. Mr. Pardiwalla submitted that in any event Petitioner has a cast iron case and the Court will hold on merits in favour of the Petitioner, after considering the reasons recorded for re-opening. 4. We have heard Mr. Pardiwalla, for Petitioner and Mr. Arvind Pinto, for Respondents and having considered the reasons for reopening with their assistance, we are inclined to hold in favour of Petitioner and set aside the notice dated 31 st March, 2010 under sec.148 of the Act impugned in this Petition. Consequently the order Vishal Parekar 2/8

233-wp-2545-2010.doc rejecting the objections of the Petitioner dated 29 th October, 2010 which 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 an escapement of assessment is that, the sale of shares of TCS Division by Petitioner was nothing but ‘business income’ and therefore the profits arising out of the sale of shares held by Petitioner in the group companies would be treated as Petitioner’s income from business, and not profits arising out of sale of investment. Therefore, according to Respdt. No. 1 he had reason to believe that a sum of Rs.22,71,25,79,374/- has escaped assessment. Break up for this 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: Head of Income Name of scrip Cost Sale consideration Profit/Loss Short term capital gains (Annexure D) Tata Mutual Fund 22081463148 22095246862 13783714 Tata Mutual Fund 1600014357 1600000000 -14357 Long terms capital gains (Annexure E) Tata Consultancy Services Ltd. 22419806 12288548600 12266128794 Slump sale of TCS Division

233-wp-2545-2010.doc 6. If we consider the table reproduced above, the sale of shares of TCS Ltd. which according to Respondent No. 1 should be treated as ‘business income’ and not ‘profits arising out of sale of sale of investment’, 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 Consultancy Services Limited”. Mr. Pinto though he made valiant attempt to defend the notice issued for re-opening, in fairness, as an officer of the Court, considering the reasons as recorded agreed that the only item which could have been stated to have escaped assessment would be the Long Term Capital gains in the sale of TCS Ltd. shares amounting to Rs. 19,32,34,27,592/- and Respondent No. 1 was incorrect 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 is based on incorrect facts or conclusions, certainly the notice issued for re-opening cannot be sustained. Moreover, if according to Respondent No. 1 only the sale of shares of TCS was ‘business income’ and not ‘profits arising of sale of investment’ to say that the amount of Rs.22,71,25,79,374/- has escaped assessment, also indicates non- application of mind. We would also go a step ahead and observe that if only the approving authority under section 151 Vishal Parekar 4/8

233-wp-2545-2010.doc of the Act had considered the reasons properly, either he would have directed Respondent No. 1 to re-work on the reasons or would not have granted the approval. Moreover, we may keep in mind this is a case where the scrutiny assessment was completed and order under section 143(3) of the Act has been passed followed by a rectification order under section 154 of the Act. Therefore Petitioner’s case has been considered at two stages, (i) When the assessment order was passed after scrutiny under section 143(3) of the Act and (ii) When an order under section 154 of the Act was passed. 8. The reasons for proposed re-opening clearly indicates that Respondent No. 1 wants to re-open only on the basis of change of opinion which, as held time and again by various Courts, can not be a ground for reopening. This is because in the assessment order dated 31st December, 2007 passed under section 143(3), the same point 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 assessee company for making investment in shares group company was to acquire and retain control of the companies promoted by it. The question that requires to be considered is whether this activity itself constitute a business when the real intention of the company is not to earn profit but to acquire and exercise control of the group companies. In order to constitute activity of the assessee for carrying on Vishal Parekar 5/8

Appellant / petitioner / assessee submissions

The judgment does not separately label this side’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

233-wp-2545-2010.doc of Income Tax & Ors. 1 has laid down the settled principles which read as under: 12. …….. …..Where the assessment is sought to be reopened within a period of four years of the end of the relevant assessment year, the Apex Court in Commissioner of Income Tax V/s. Kelvinator of India Limited2 has laid down the test of the principle which reads as under : "Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" falling which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen.

Operative decision and relief

233-wp-2545-2010.doc (a) For a writ of certiorari or a writ, direction or order in the nature of certiorari or any other appropriate writ, direction or order under Article 226 of the Constitution of India calling for the records of the case pertaining to the impugned notice dated 31.03.2010 issued by the Respondent No. 1 under section 148 of the Act to reopen the assessment for the assessment year 2005-06 and the order dated 29.10.2010 rejecting the objections of the Petitioner to the issuance of the notice under section 148 of the Act and after considering the legality 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.) Vishal Parekar 8/8

Ratio and legal principle

The narrow proposition associated with Tata Sons Limited v. Dy.CIT concerns s. 147 : reassessment – after the expiry of four years – no failure to disclose material facts – change of opinion – capital gains or business income – sale of shares – reassessment proceedings are quashed. [s. 28(i), 45, 148, 154, art. 226] the assessment was completed under section 143(3) of the act and thereafter the rectification order was passed under section 154 of the act. the assessment was reopened and the order was passed. the assessment was once again reopened beyond period of four years on the ground that there has been an escapement of assessment on the ground the sale of shares of tcs division by petitioner was nothing but business income and therefore the profits arising out of the sale of shares held by petitioner in the group companies would be treated as petitioner’s income from business, and not profits arising out of sale of investment. on writ the court held that… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in WRIT PETITION NO.2545 OF 2010.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Quashed / set aside” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: S. 147 : Reassessment – After the expiry of four years – No failure to disclose material facts – Change of opinion – Capital gains or business income – Sale of shares – Reassessment proceedings are quashed. [S. 28(i), 45, 148, 154, Art. 226] The assessment was completed under section 143(3) of the Act and thereafter the rectification order was passed under section 154 of the Act. The assessment was reopened and the order was passed. The assessment was once again reopened beyond period of four years on the ground that there has been an escapement of assessment on the ground the sale of shares of TCS Division by Petitioner was nothing but business income and therefore the profits arising out of the sale of shares held by Petitioner in the group companies would be treated as Petitioner’s income from business, and not profits arising out of sale of investment. On writ the Court held that… Its practical value lies in the way the Bombay High Court connected the governing provisions—147—to the procedural posture and evidence before it.

The authority level is High Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 147 and the decision date 2022-02-03; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Tata Sons Limited v. Dy.CIT, the proceeding is WRIT PETITION NO.2545 OF 2010, and the decision is dated 2022-02-03. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as K.R. SHRIRAM & N. J. JAMADAR, JJ.. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 147. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Quashed / set aside. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 147 — apply the exact version considered in the judgment.

Case network

• Adityaraj Builders v. State of Maharashtra — Bombay High Court · Quashed / set aside
• Sanket Vinayak Nagvekar v. ITO — Bombay High Court · Quashed / set aside
• Hero Products India Pvt. Ltd. v. NFAC — Bombay High Court · Quashed / set aside
• Pr. CIT v. Macleods Pharmaceuticals Ltd. — Bombay High Court · Quashed / set aside

Related Finin2min resources

• Case Law Hub
• Search all 592 judgments
• Explore Reassessment & Reopening

Full judgment and source control

Read / download packaged judgment record

Source class: OFFICIAL_PRIMARY_SEARCH_PENDING · Repository status: PUBLISH_READY