1992 (7) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Legality of proceedings initiated under Section 147 of the Income-tax Act, 1961.
2. Interpretation of "information" under Section 147(b) of the Income-tax Act, 1961.
3. Role of Central Board of Direct Taxes (CBDT) Circulars in reassessment proceedings.

Issue-wise Detailed Analysis:

1. Legality of proceedings initiated under Section 147 of the Income-tax Act, 1961:
The Tribunal had to determine whether the Income-tax Officer (ITO) was correct in initiating reassessment proceedings under Section 147(b) of the Income-tax Act, 1961. The ITO had originally not included technical service fees received by Union Carbide Corporation (U.C.C.) from Union Carbide India Ltd. (U.C.I.L.) in the total income for the assessment year 1965-66. The reassessment notice was issued based on a CBDT Circular explaining the taxability of such fees. The Tribunal found that the reassessment was based on a mere change of opinion and not on any new information. The Tribunal held that the reassessment proceedings were illegal and vacated the order under Section 147(b).

2. Interpretation of "information" under Section 147(b) of the Income-tax Act, 1961:
The core issue was whether the CBDT Circular constituted "information" under Section 147(b). The Tribunal and the High Court both referenced the Supreme Court's decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC), which clarified that "information" must come from a formal source of law, either legislative or judicial. The High Court emphasized that the CBDT Circular could not be considered a formal source of law and thus could not constitute "information" for the purposes of Section 147(b). The ITO's belief that income had escaped assessment based on the circular was not valid as it was not derived from a judicial or quasi-judicial authority.

3. Role of Central Board of Direct Taxes (CBDT) Circulars in reassessment proceedings:
The High Court examined the role of CBDT Circulars in reassessment proceedings. It was argued that the CBDT Circular could not induce a belief about the escapement of income as it was general in nature and did not provide new factual information. The High Court noted that the CBDT cannot be treated as a source of law unless it acts in an appellate capacity. The High Court cited the Supreme Court's observation that any statement by a person or body not competent to create or define the law cannot be regarded as law. The High Court concluded that the CBDT Circular did not constitute "information" within the meaning of Section 147(b) and thus could not justify the reassessment proceedings.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the reassessment proceedings initiated under Section 147(b) were invalid. The Court emphasized that the CBDT Circular could not be considered "information" for the purposes of initiating reassessment and that the ITO's actions were based on a mere change of opinion rather than new information. The question of law was answered in the affirmative and against the Revenue, with no order as to costs.