1981 (9) TMI 164 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment under Section 147(a) of the Income Tax Act.
2. Validity of reassessment under Section 147(b) of the Income Tax Act.
3. Taxability of income from the property under Section 22 of the Income Tax Act.

Detailed Analysis:

1. Validity of reassessment under Section 147(a) of the Income Tax Act:

The Income Tax Officer (ITO) reopened the assessments for the years 1970-71 to 1977-78 under Section 147(a), believing that the assessee failed to disclose fully and truly all material facts necessary for the assessments. Specifically, the ITO contended that the assessee did not disclose his 1/4th ownership in the cinema building used by the partnership firm, M/s Ganesh Talkies. However, the Tribunal found that the assessee had already disclosed his ownership of the 1/4th share in the cinema building in his return for the assessment year 1967-68, which included the profit and loss account, capital account, and balance sheet. The ITO, while assessing the firm and the assessee, was aware of the relevant clauses in the partnership deeds dated 30th April, 1966, and 10th February, 1972, which stated that the partners were equal owners of the cinema and no lease money would be charged individually from the partnership business. Therefore, the Tribunal concluded that there was no omission or failure on the part of the assessee to disclose material facts, rendering the reopening under Section 147(a) invalid and bad in law.

2. Validity of reassessment under Section 147(b) of the Income Tax Act:

For the assessment years 1974-75 to 1977-78, the Department argued that the reassessments could be upheld under Section 147(b) based on the information secured from the partnership deed of M/s Ganesh Talkies. However, the Tribunal noted that the information regarding the assessee's ownership of the 1/4th share in the cinema property was already disclosed to the ITO during the original assessments. Since this information was already in possession of the ITO and not sourced externally, the reopening under Section 147(b) was also deemed invalid and illegal.

3. Taxability of income from the property under Section 22 of the Income Tax Act:

The ITO assessed the income from the cinema property on a notional annual letting value basis under Section 22. The assessee argued, relying on the Gujarat High Court decision in CIT vs. Rasiklal Balabhai and the Madras High Court decision in CIT vs. K.G. Sadagopan, that no income could be assessed on a notional basis as the property was used for business purposes. The Tribunal agreed, stating that the property used by the partnership firm should be considered as used for the business carried on by the assessee. Consequently, the annual letting value of the property owned by the assessee and used for the business carried on by him in partnership was not liable to be included in his total income under Section 22. Therefore, the second condition for reopening under Section 147(a)/147(b) that income chargeable to tax has escaped assessment was also not satisfied.

Conclusion:

The appeals by the revenue were dismissed, with the Tribunal holding that the reassessments under Sections 147(a) and 147(b) were invalid and that the income from the cinema property was not taxable under Section 22 of the Act.