1989 (10) TMI 86 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the reopening of assessment under section 147(b) of the Income-tax Act, 1961.
2. Applicability of section 64(1)(ii) regarding the inclusion of salary and director's fee in the hands of the assessee or his spouse.

Detailed Analysis:

1. Legality of the Reopening of Assessment under Section 147(b):
The primary issue revolves around whether the reopening of the assessment under section 147(b) was justified. The initial assessment was framed on 23-2-1978, excluding salary and director's fee based on section 64(1)(ii), attributing them to the assessee's spouse. The ITO later reassessed for 1979-80, concluding that these amounts should be taxed in the assessee's hands, forming the basis for reopening the 1977-78 assessment.

The CIT(A) observed that all material facts were disclosed during the original assessment. The ITO's reassessment was based on a change of opinion rather than new information. The Tribunal upheld this view, stating that the reopening was unjustified as it was merely a change of opinion, not based on new external information. This aligns with legal precedents, including CIT v. A. Raman & Co. and Raja Jagdambika Pratap Narain Singh v. CIT, which state that 'information' must be new and external, not a re-evaluation of existing facts.

2. Applicability of Section 64(1)(ii):
The second issue concerns whether the salary and director's fee should be included in the assessee's income or his spouse's. Initially, the ITO included these amounts in the spouse's income, considering the couple's combined voting power in the company. However, upon reassessment for 1979-80, the ITO concluded that these amounts should be taxed in the assessee's hands due to his substantial interest in the company.

The Tribunal noted that the assessee held significantly more shares than his spouse, making the initial exclusion erroneous. However, this error was due to the ITO's misinterpretation, not the assessee's fault. The Tribunal emphasized that the reassessment was based on a mere change of opinion, not new information, thus invalidating the reopening under section 147(b).

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to cancel the reassessment. It concluded that the reopening was based on a mere change of opinion without new information, making it legally unjustified. The Tribunal reaffirmed that all material facts were disclosed initially, and the reassessment was a result of the ITO's error, not the assessee's.