1988 (12) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in holding that there was no information in the possession of the Inspecting Assistant Commissioner to form a reasonable belief that income had escaped assessment.

Detailed Analysis:

Issue 1: Justification of Tribunal's Holding on Reasonable Belief of Escaped Income

The core issue revolves around whether the Tribunal was justified in holding that there was no information in the possession of the Inspecting Assistant Commissioner to form a reasonable belief that income had escaped assessment. The assessee, a non-resident shipping company, had its income initially assessed using rule 10(ii) of the Income-tax Rules, 1962. The assessment was later reopened under section 147(b) of the Income-tax Act, 1961, based on the application of the proviso to section 145(1) in other similar cases, where 1/6th of the freight earnings in India was treated as Indian income.

The Commissioner of Income-tax (Appeals) cancelled the reassessment, agreeing that the change of basis of assessment did not constitute new information but was merely a fresh opinion on the same facts. The Tribunal upheld this view, stating that there was no new information in the possession of the Inspecting Assistant Commissioner to justify a reasonable belief that income had escaped assessment.

The Revenue contended that the appellate order of the Commissioner of Income-tax (Appeals) provided the necessary information to reopen the assessment. However, the Tribunal found that the Assessing Officer's reasons for reopening the assessment were based on the application of a different method of computation rather than any new information or error in the original method applied.

Rule 10 of the Income-tax Rules, 1962, provides three methods for computing income for non-residents, and the Assessing Officer has the discretion to choose any of these methods. The Tribunal noted that the original assessment applied rule 10(ii) correctly and that the mere application of a different method, as upheld by the Commissioner of Income-tax (Appeals), did not constitute new information.

The Supreme Court's ruling in CIT v. Simon Carves Ltd. [1976] 105 ITR 212 was cited, which held that adopting a different permissible method of computation does not justify reopening an assessment if the original method was legally correct. The Supreme Court emphasized that the absence of an error in the original assessment means there is no case of income escaping assessment under section 147(b).

In conclusion, the Tribunal's decision was upheld, affirming that the change in the method of computation did not constitute new information justifying the reopening of the assessment. The question was answered in the affirmative and in favor of the assessee, with no order as to costs.