1971 (8) TMI 28 - SC - Income Tax

Reopening of Assessment - Whether Tribunal was competent to rectify its order in respect of the assessment year 1960-61, in regard to the sum of Rs. 1,65,718, being the amount paid by the assessee as consultation fees - Tribunal was wrong in not stating the case and submitting that question to the High Court. We are also of the opinion that the High Court erred in summarily dismissing the application of the department

Summary

Issues:
1. Competency of the Income-tax Appellate Tribunal to rectify its order.
2. Validity of the notice issued under section 147(b) of the Income-tax Act, 1961.
3. Permissibility of deductions claimed by the assessee.
4. Jurisdiction of the Income-tax Officer to reopen the assessment.

Analysis:
1. The Supreme Court addressed the issue of the competency of the Income-tax Appellate Tribunal to rectify its order in response to an appeal by special leave. The department-appellant sought direction for the Tribunal to submit questions of law, specifically focusing on the Tribunal's competence to rectify its order regarding a sum paid as consultation fees. The Tribunal initially refused to state a case, leading to the appeal before the Supreme Court.

2. The Court delved into the validity of the notice issued under section 147(b) of the Income-tax Act, 1961. The Income-tax Officer had reopened the assessment for the previous year, disallowing certain claims made by the assessee. The Tribunal examined whether the Officer had received fresh information justifying the reopening. It concluded that while one claim was validly reopened, the other claim regarding consultation fees did not warrant reopening, leading to a dispute over the validity of the notice under section 147(b).

3. Regarding the permissibility of deductions claimed by the assessee, the Court analyzed the nature of the allowances sought, such as pension payments and consultation fees. The Income-tax Officer disallowed certain claims in a subsequent assessment year, leading to a series of appeals by the assessee. The Tribunal ultimately determined that while the pension payment was a permissible allowance, the consultation fees were deemed capital expenditure and not eligible for deduction.

4. The issue of the Income-tax Officer's jurisdiction to reopen the assessment was also examined. The Tribunal scrutinized whether the Officer had sufficient grounds to issue the notice under section 147(b) based on fresh information. While one claim was deemed justifiably reopened, the Tribunal's decision on the other claim led to a dispute over the Officer's jurisdiction, prompting further legal proceedings and appeals.

In conclusion, the Supreme Court allowed the appeal, directing the Tribunal to state a case and submit the question raised by the department to the High Court. The Court found that the question of law did indeed arise from the Tribunal's order, criticizing the Tribunal's failure to submit the question and the High Court's summary dismissal of the department's application.