1995 (7) TMI 370 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessments under section 147(b) for assessments made under section 172(4).
2. Proper application of exchange rates for conversion of income in reassessment.
3. Jurisdiction and authority of the Income-tax Officer to reopen assessments under section 147(b).

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments Under Section 147(b) for Assessments Made Under Section 172(4):

The primary issue was whether an original assessment made under section 172(4) could be reopened under section 147(b). The Commissioner of Income-tax (Appeals) held that section 147 applies only to those orders based upon the returns filed under section 139 and not under any other section. Therefore, the reassessment proceedings were deemed invalid. The Revenue contested this, arguing that the Income-tax Officer had information indicating that income chargeable to tax had escaped assessment, fulfilling the conditions for action under section 147(b).

The Tribunal's Accountant Member disagreed with the Commissioner (Appeals), stating that section 172 is a self-contained section intended for the due recovery of tax from non-resident shipping companies. The non obstante clause in section 172 does not prevent the Income-tax Officer from initiating reassessment proceedings if there is evidence of income escaping assessment under section 147. The Judicial Member, however, argued that section 172 assessments are ad hoc and not based on the previous year concept, thus section 147 does not apply.

The Third Member, agreeing with the Judicial Member, concluded that section 147 could not be applied to assessments under section 172(4) as the latter does not involve a previous year or a return under section 139. Therefore, the reassessment machinery under section 147 cannot be invoked for rectifying mistakes in assessments completed under section 172(4).

2. Proper Application of Exchange Rates for Conversion of Income in Reassessment:

The Income-tax Officer initially used the telegraphic transfer rate from the State Bank of India for converting foreign currency income into Indian currency. Later, a circular from the Central Board of Direct Taxes suggested a different rate, which led to the reopening of assessments under section 147(b).

The Tribunal's Judicial Member pointed out that the telegraphic transfer rate used initially was in accordance with rule 115 of the Income-tax Rules. The reassessment based on the Board's circular was, therefore, unjustified as there was no actual escapement of income chargeable to tax. The Third Member also noted that the Bombay High Court had declared rule 115 ultra vires, further invalidating the reassessment based on the circular.

3. Jurisdiction and Authority of the Income-tax Officer to Reopen Assessments Under Section 147(b):

The Tribunal's Accountant Member believed that the Income-tax Officer had the authority to reopen assessments under section 147(b) if there was evidence of income escaping assessment. This view was supported by the Kerala High Court decision in CIT v. West Coast Industrial Co. Ltd. However, the Judicial Member and the Third Member disagreed, stating that section 147 applies only to assessments involving a previous year and returns filed under section 139, which do not pertain to section 172(4) assessments.

The Third Member concluded that the reassessment machinery under section 147 could not be applied to rectify mistakes in section 172(4) assessments, as these are governed by their own self-contained provisions.

Conclusion:

The Tribunal's final decision, based on the Third Member's opinion, upheld the view that assessments made under section 172(4) cannot be reopened under section 147(b). The reassessment orders passed by the Income-tax Officer were deemed improper and invalid in law. The case was restored to the Commissioner (Appeals) for fresh disposal of the remaining grounds on the merits. The appeals were treated as partly allowed for statistical purposes.