1972 (7) TMI 4 - HC - Income Tax

Change of opinion - petitioner in this application challenges a notice under section 148 of the Income-tax Act, 1961 - assessment is reopened to dissallow development rebate on second-hand machinery and interest on arrears of income-tax allowed in the original assessment - condition precedent for issuing notice u/s 148 has not been fulfilled in this case

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act, 1961.
2. Grounds for reopening the assessment under clause (b) of section 147 of the Income-tax Act, 1961.
3. Definition and scope of "information" under section 147(b) of the Income-tax Act, 1961.
4. Jurisdiction of the Income-tax Officer to issue the notice based on "information."

Detailed Analysis:

1. Validity of the notice under section 148 of the Income-tax Act, 1961:
The petitioner challenged the notice issued under section 148 of the Income-tax Act, 1961, for the assessment year 1969-70, dated 27th February 1971. The petitioner alleged that there were no grounds or materials for reopening the assessment and that the income had not escaped assessment. The court noted that the reopening was sought under clause (b) of section 147 of the Income-tax Act, 1961.

2. Grounds for reopening the assessment under clause (b) of section 147 of the Income-tax Act, 1961:
The reopening of the assessment was based on two counts:
- Development rebate on second-hand machinery.
- Interest charged on arrear of income-tax amounting to Rs. 19,054.12.
It was contended that these allowances were not permissible and that the petitioner had obtained excessive relief. The court emphasized that for action under section 148 to be taken, two conditions must be satisfied: either there was omission or failure on the part of the assessee to disclose fully or truly all material facts at the time of the assessment (clause (a)), or there was information in the possession of the Income-tax Officer (clause (b)).

3. Definition and scope of "information" under section 147(b) of the Income-tax Act, 1961:
The court analyzed the term "information" and its judicial interpretation. It referred to several Supreme Court cases, including Commissioner of Income-tax v. A. Raman & Co., which stated that "information" must be instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment. The court outlined the conditions for "information" under section 147(b):
- Knowledge or instruction must be subsequent to the original assessment.
- Must be derived from an external source.
- Must lead to the formation of the belief that income had escaped assessment.
- The proximate or immediate source of such information must be external.
- The fact that such knowledge could have been derived during the previous assessment from an investigation of the materials on record but was not in fact derived would not prevent it from being considered as "information."

4. Jurisdiction of the Income-tax Officer to issue the notice based on "information":
The court concluded that in this case, there was no knowledge derived from any external source; the knowledge was sought to be derived from a new look at the old facts of the assessment. This constituted a mere change of opinion and not acting on "information" as required by section 147(b). Therefore, the conditions precedent for the issue of notice under section 148 were not fulfilled.

Conclusion:
The court held that the notice under section 148 of the Income-tax Act was without jurisdiction and quashed it. The respondents were restrained from giving effect to the notice. However, the court allowed the possibility for the respondents to proceed afresh under section 148 of the Income-tax Act, 1961, either under clause (a) of section 147 or if there is any fresh instruction under clause (b) of section 147. The rule was made absolute to the extent indicated, with no order as to costs, and a stay of operation of the order was granted for eight weeks.

← Previous Next →