2012 (5) TMI 238 - HC - Income Tax

Reassessment u/s 147 - jurisdictional pre-conditions - full and true disclosure - held that - The assessment orders for the assessment years 1990-91 and 1991-92 clearly indicate that the Assessing Officer was aware of the nature and character of income, which was received by the respondent, i.e., pay- ment was made by the Department of Science and Technology towards maintenance and service charges. The assessee is required to disclose full and true material facts and need not explain or interpret the law. Legal inference has to be drawn by the Assessing Officer from the facts disclosed by the assessee. This is different and cannot be regarded as an omission or failure on the part of the assessee to disclose material facts. Decided in favor of assessee.

Issues Involved:
1. Whether the Tribunal was right in setting aside the reassessment proceedings on the grounds that the jurisdictional pre-conditions mentioned in section 147 of the Income-tax Act, 1961, were not satisfied.
2. Whether there was a failure or omission on the part of the respondent-assessee to disclose fully and truly all material facts.

Issue-Wise Detailed Analysis:

1. Tribunal's Decision on Reassessment Proceedings:
The Revenue challenged the Tribunal's decision to set aside the reassessment proceedings under section 147 of the Income-tax Act, 1961. The Tribunal had held that there was no failure or omission on the part of the respondent-assessee to disclose fully and truly all material facts. The Tribunal's conclusion was based on the scrutiny assessments conducted for the assessment years 1990-91, 1991-92, and 1992-93, during which the Assessing Officer had examined the income and expenses related to maintenance service charges received by the respondent-assessee from the Department of Science and Technology, Government of India.

2. Full and True Disclosure of Material Facts:
The Revenue contended that the respondent-assessee did not file the agreement between the respondent-assessee and the Department of Science and Technology for the assessment years 1990-91 and 1991-92, which allegedly prevented the Assessing Officer from forming an opinion on whether the income received was taxable as business income or as fees for technical services. However, the Tribunal found that the agreement was filed for the assessment year 1992-93 and was available in the assessment records. The Tribunal also noted that the Assessing Officer was aware of the nature and character of the income received by the respondent-assessee and had examined the expenses incurred, thus computing the income/loss accordingly.

Additional Points Considered:
(i) The reasons to believe recorded by the Assessing Officer did not mention the absence of the agreement as a failure or omission on the part of the respondent-assessee to disclose material facts.
(ii) The only activity undertaken by the respondent-assessee in India was related to the maintenance and service of a supercomputer sold to the Government of India, for which service charges were received and expenses incurred.
(iii) The assessment orders for the years in question indicated that the Assessing Officer was aware of the nature and character of the income received.
(iv) No specific clause of the agreement was highlighted as a material fact that would have changed the Assessing Officer's opinion.
(v) The Revenue's argument that the income should have been disclosed as fees for technical services rather than business income was a misunderstanding of the law under section 147. The assessee is required to disclose full and true material facts, not interpret the law.
(vi) The assessment order for 1995-96, which first categorized the payments as fees for technical services, did not mention any new facts or findings from the agreement.
(vii) The letter dated November 12, 1992, from the assessee to the Assessing Officer, referred to the maintenance and operation of the supercomputer as per the agreement, which the Tribunal correctly interpreted as referring to the agreement in question.

Conclusion:
The High Court concluded that there was no failure or omission on the part of the respondent-assessee to disclose fully and truly all material facts. The appeals filed by the Revenue were dismissed as no substantial question of law arose. The Tribunal's decision to set aside the reassessment proceedings was upheld.

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