1983 (2) TMI 100 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessments made by the Income-tax Officer (ITO) under section 147(a) of the Income-tax Act, 1961.
2. Whether the Tribunal was right in not converting the provisions of section 147(a) into provisions of section 147(b) of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Validity of the Assessments Made by the Income-tax Officer Under Section 147(a) of the Income-tax Act, 1961:

The Hon'ble High Court answered the first question in favor of the assessee. The assessments made by the ITO under section 147(a) were canceled by the Appellate Tribunal. The Tribunal found that the ITO's action was not warranted because the conditions for invoking section 147(a) were not satisfied. Specifically, the ITO had calculated the annual letting value of the property based on a rent of Rs. 3,212.50 per month, which was the rent previously received from the American Embassy. The ITO later initiated proceedings under section 147(a) after discovering that the rent fixed by the Government was Rs. 4,658 per month. However, the Tribunal noted that the annual value of the property should be based on the sum for which the property might reasonably be expected to let from year to year, not the actual rent received. The Tribunal cited the Supreme Court's decisions in Dewan Daulat Rai Kapoor v. NDMC and Mrs. Sheila Kaushish v. CIT, which held that the annual letting value should be determined based on a notional rent, not the actual rent received. Consequently, the Tribunal concluded that there was no material to hold that any income had escaped assessment under section 147(b), and thus, section 147(b) had no applicability.

2. Whether the Tribunal Was Right in Not Converting the Provisions of Section 147(a) into Provisions of Section 147(b) of the Income-tax Act, 1961:

The Hon'ble High Court answered the second question in the negative, i.e., in favor of the department and against the assessee, subject to certain directions. The Tribunal initially held that it had no jurisdiction to convert or alter the assessments made by the ITO under section 34(1)(a) to an assessment under section 34(1)(b). The High Court directed the Tribunal to consider all contentions and determine whether the material conditions required for notice under section 147(b) were fulfilled. The Tribunal observed that section 147(b) postulates that the ITO can reopen a completed assessment if he has reason to believe that income has escaped assessment in consequence of information received after the original assessment. The Tribunal noted that the annual value of the property should be based on the sum for which the property might reasonably be expected to let from year to year, not the actual rent received. The Tribunal concluded that the reassessment order made under section 143(3)/147(a) was based on the award of an arbitrator, which fixed the rent at Rs. 4,658 per month. However, this award could not be the basis for determining the annual letting value, as the property had previously been leased out to the American Embassy at Rs. 3,212.50 per month. The Tribunal held that the annual letting value should be based on the reasonable sum for which the property could be let out, which could not have been more than Rs. 3,212.50 per month. Consequently, the Tribunal concluded that there was no material to hold that any income had escaped assessment under section 147(b), and thus, section 147(b) had no applicability. The Tribunal reiterated its earlier decision to cancel the assessments made under section 147(a).

Conclusion:

In conclusion, the Tribunal held that the assessments made by the ITO under section 147(a) were invalid, as the conditions for invoking section 147(a) were not satisfied. The Tribunal also held that there was no basis for converting the provisions of section 147(a) into section 147(b), as the necessary ingredients and prerequisites of section 147(b) were not fulfilled. The Tribunal's decision was made under section 260(1) read with section 254(1) of the Income-tax Act.