1981 (8) TMI 49 - HC - Income Tax

Summary

Issues:
1. Applicability of section 147(a) of the Income-tax Act, 1961 to machinery items.
2. Prohibition on sale of machinery with development rebate under Explanation I to section 10(2)(vib) of the Indian Income-tax Act, 1922.

Analysis:
The case involved a dispute regarding the allowance of development rebate for certain machineries by the Income Tax Officer (ITO) for the assessment year 1958-59. The ITO disallowed the rebate for one machinery item sold in the same year, while allowing it for other items. The assessee appealed to the Appellate Assistant Commissioner (AAC), who upheld the rebate for the sold machinery installed before 1st January 1958. Subsequently, the ITO attempted to withdraw the rebate granted by reopening the assessment under section 147(a) of the Income-tax Act, 1961. The AAC set aside the reassessment, stating that there was no failure on the part of the assessee to disclose material facts. The Revenue appealed to the Tribunal, challenging the AAC's decision.

The Tribunal held that section 147(a) was not applicable in this case as the rebate was forfeited due to subsequent sale by the assessee, not due to failure to disclose facts. The Tribunal also cited a Supreme Court decision to support the finality of the AAC's order regarding the machinery item sold. The Tribunal concluded that the reassessment under section 147(a) was not valid and should be canceled.

The High Court analyzed the provisions of section 147(a) which allow reassessment if income has escaped due to the assessee's failure to disclose material facts. In this case, all machineries were installed in the relevant accounting year, and subsequent sales were not known at the time of filing the return. Therefore, there was no failure to disclose material facts. The Court noted that specific provisions under the Indian Income-tax Act, 1922 allowed for withdrawal of rebate in case of subsequent sales, but those did not apply to machineries installed before 1st January 1958. The Court held that section 147(a) was not attracted, and the reassessment was not valid for the machineries in question.

The Court answered the questions raised in the negative, in favor of the assessee, and concluded that the Revenue should pay costs to the assessee. The judgment clarified the inapplicability of section 147(a) in cases where there was no failure to disclose material facts and highlighted the specific provisions for withdrawal of rebate in case of subsequent sales under the Income-tax Act.