1984 (12) TMI 139 - AT - Income Tax

Summary

Issues Involved:

1. Legality of the reassessment under section 147(b) of the Income-tax Act, 1961.
2. Entitlement to development rebate and initial depreciation.
3. Levy of interest under section 139(8) of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality of the Reassessment under Section 147(b):

The primary issue was whether the Income Tax Officer (ITO) had jurisdiction to reopen the assessment under section 147(b). The Commissioner (Appeals) concluded that the reassessment was based on a mere change of opinion, not on any new information. The ITO had initially allowed a development rebate at 25% and initial depreciation on the machinery, which he later revised to 15% after reassessment. The Commissioner (Appeals) annulled the reassessment on the grounds that all material facts were already available during the original assessment, and no new information had surfaced. The Tribunal upheld this view, stating that the ITO's action was without jurisdiction as it was merely a second look at the existing facts.

2. Entitlement to Development Rebate and Initial Depreciation:

The ITO restricted the development rebate to 15% and withdrew the initial depreciation, arguing that the assessee's spinning mill did not manufacture 'textiles' as defined in the Fifth and Ninth Schedules of the Act. The Commissioner (Appeals) and the Tribunal, however, held that the assessee was entitled to the higher rate of development rebate and initial depreciation. This decision was based on the Tribunal's earlier ruling in the assessee's case for the assessment year 1976-77, which included 'yarn' under 'textiles'. The Tribunal emphasized that the term 'textiles' in the relevant schedules included 'cotton yarn', thereby entitling the assessee to the benefits claimed.

3. Levy of Interest under Section 139(8):

For the assessment year 1978-79, the issue was the cancellation of interest levied under section 139(8). The Commissioner (Appeals) canceled the interest, referencing decisions from the Madras High Court which indicated that if no tax was payable, interest under section 139(8) could not be levied. The Tribunal agreed, noting that the assessee had paid excess advance tax, resulting in a refund. Hence, no tax was due, and the levy of interest was not justified. The Tribunal maintained that interest under section 139(8) was compensatory for the delay in filing returns and paying due taxes. Since the assessee had already paid excess tax, the interest levy was unwarranted.

Separate Judgment by Judicial Member:

The Judicial Member disagreed with the majority regarding the assessment year 1975-76. He argued that the spinning of cotton resulting in 'kachha thread' did not constitute the manufacture of 'yarn' or 'textiles' for higher development rebate and initial depreciation. He held that the ITO's original allowance was due to a failure to apply his mind and that the reassessment was justified. However, the Third Member, Vice President, resolved the difference by supporting the majority view that 'yarn' included 'kachha thread' and that the assessee was entitled to the claimed benefits.

Conclusion:

The Tribunal dismissed the revenue's appeals, upholding the Commissioner (Appeals)'s decisions on all issues. The reassessment under section 147(b) was deemed without jurisdiction, the assessee was entitled to the higher development rebate and initial depreciation, and the levy of interest under section 139(8) was canceled.