1971 (7) TMI 20 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that it was a case of mere change of opinion on the same facts and the assessment could not be reopened under section 147(b) of the Income-tax Act, 1961 - question is answered in the negative, i.e., in favour of the revenue and against the assessee

Issues Involved:
1. Legality of reopening the assessments under section 147(b) of the Income-tax Act, 1961.
2. Classification of "interest income" as "earned income" or "income under other sources."
3. Allowability of expenditure on salary paid to the assessee's daughter-in-law.

Detailed Analysis:

1. Legality of Reopening the Assessments under Section 147(b) of the Income-tax Act, 1961:
The primary issue was whether the Tribunal was legally justified in holding that the reopening of the assessments for the years 1960-61 and 1961-62 was a mere change of opinion on the same facts, and thus, the assessments could not be reopened under section 147(b) of the Income-tax Act, 1961. The facts reveal that the Income-tax Officer (ITO) initially treated the interest income as "earned income" and allowed the salary paid to the assessee's daughter-in-law as an expenditure. However, upon scrutiny by the revenue audit staff, it was suggested that these treatments were incorrect. Acting on this scrutiny note, the Inspecting Assistant Commissioner directed the ITO to rectify these defects by reopening the assessments under section 147(b).

The Appellate Assistant Commissioner (AAC) and the Tribunal both held that the reopening was illegal because all relevant information was available to the ITO during the original assessments, and there was no new information that came to light subsequently. The Tribunal emphasized that the scrutiny note and the letter from the Inspecting Assistant Commissioner did not constitute "information" within the meaning of section 147(b).

The court had to decide whether the scrutiny note and the letter constituted "information" under section 147(b). It was noted that the term "information" has been a contentious issue, with various interpretations by the Supreme Court and High Courts. The court concluded that the scrutiny note and the letter did qualify as "information" because they brought to the ITO's notice the errors in the original assessments, which he had not identified on his own. This constituted an external source of information, satisfying the criteria laid down by the Supreme Court in previous cases.

2. Classification of "Interest Income" as "Earned Income" or "Income under Other Sources":
The AAC did not delve into the merits of whether the interest income should be classified as "earned income" or "income under other sources." The Tribunal also did not make a definitive ruling on this point, focusing instead on the legality of the reopening under section 147(b). The court noted that the Tribunal had not decided the appeals on merits and had dismissed them based on the legal contention regarding the nature of the "information."

3. Allowability of Expenditure on Salary Paid to the Assessee's Daughter-in-law:
Similarly, the AAC did not address whether the salary paid to the assessee's daughter-in-law was an allowable expenditure. The Tribunal also did not make a clear determination on this issue, as it was not the primary focus of their decision. The court pointed out that the Tribunal had not recorded any findings on the merits of the assessee's claims regarding the salary.

Conclusion:
The court concluded that the scrutiny note from the revenue audit and the letter from the Inspecting Assistant Commissioner constituted "information" under section 147(b) of the Income-tax Act, 1961. Therefore, the reopening of the assessments was justified. The court answered the question in the negative, i.e., in favor of the revenue and against the assessee. The Tribunal was directed to decide the departmental appeals on their merits. The revenue was also awarded costs for the reference, with the pleader's fee fixed at Rs. 250.

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