1978 (8) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer (ITO) in reassessment.
2. Admissibility of development rebate on ships.
3. Validity of withdrawal of development rebate on ships sold for scrapping.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer (ITO) in Reassessment:
The primary issue was whether the ITO, while making reassessment pursuant to the Appellate Assistant Commissioner's (AAC) directions, could reconsider matters not directed to be enquired into by the AAC. The court analyzed various precedents and statutory provisions, concluding that the ITO's jurisdiction in reassessment is confined strictly to the directions given by the AAC. The court disagreed with the broad interpretation in J.K. Cotton Spinning & Weaving Mills Co. Ltd., holding that the ITO cannot conduct a fresh enquiry beyond the AAC's specific directions. The court cited Pulipati Subbarao & Co., emphasizing that the ITO must adhere to the AAC's specific directions and cannot reassess the entire income de novo. Therefore, the court answered the first question in the negative, favoring the assessee.

2. Admissibility of Development Rebate on Ships:
The second issue was whether the ITO could disallow the development rebate on ships during reassessment without following the procedure under section 34(3)(b) read with sections 155(5) and 154(7) and considering the limitation period. The court noted that the AAC's order did not direct the ITO to reconsider the development rebate. Therefore, the ITO overstepped his jurisdiction by disallowing the rebate without specific directions from the AAC. The court reiterated that the ITO's power in reassessment is limited to the AAC's directions and cannot extend to matters not appealed or directed. Consequently, the court answered the second question in the negative, again favoring the assessee.

3. Validity of Withdrawal of Development Rebate on Ships Sold for Scrapping:
The third issue was whether the development rebate could be withdrawn if the ships were sold for scrapping within eight years. The court examined sections 155(5) of the I.T. Act, 1961, and 35 of the Act, 1922, which stipulate that development rebate is deemed wrongly allowed if the ship is sold or transferred within the prescribed period. The court held that the purpose of the sale (scrapping) is immaterial and that the ships were still considered ships at the time of transfer. Therefore, the development rebate was rightly withdrawn. The court answered the third question in the affirmative, favoring the revenue.

Conclusion:
The court concluded that the ITO exceeded his jurisdiction in reassessing matters not directed by the AAC, thus favoring the assessee on the first two issues. However, the court upheld the withdrawal of the development rebate on ships sold for scrapping, favoring the revenue on the third issue. The reference was disposed of accordingly, with no order as to costs.