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TMI Blog1965 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... rests of its members who deal in cotton and other allied commodities, the maintenance of uniformity in the said trade and the regulating and controlling of transactions in cotton and other commodities. The petitioner-company was incorporated on October 29, 1957. The first year in which it became assessable to income-tax was the assessment year 1959-60, of which the accounting period was from October 29, 1957, to December 31, 1958. The petitioner-company derived income from (1) subscriptions from members, (2) Jagas, (3) powernama lavajam, transfer fees and penalties from members, (4) commission from banks for fixed deposits and interest on fixed deposits and (5) licence fees for cabins and charges for electricity consumed by those using the said cabins. The Income-tax Officer held that income derived from subscriptions and lagas totalling Rs. 38,906 was not taxable on the ground of mutuality, relying upon a decision of the Bombay High Court in the case of Surat District Cotton Dealers' Association, and assessed the petitioner-company to a total loss of Rs. 30,072, presumably treating the activities of the petitioner-company as business and also treating the receipts excluding the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 12. The income-tax Officer rejected the contention that all the expenses shown by the petitioner-company constituted integrated expenditure incurred in carrying out integrated activities of the petitioner-company or that there could be no allocation or bifurcation thereof attributable to activities falling under section 10 and section 12. He also rejected the contention urged by the petitioner-company that all its activities were business activities falling under section 10. The Income-tax Officer assessed the petitioner-company to a total income of Rs. 22,511 as against its claim for assessing it at a loss of Rs. 22,143. The petitioner-company thereupon filed an appeal before the Appellate Assistant Commissioner. In his order dated April 22, 1964, the Appellate Assistant Commissioner analysed the receipts as follows : Rs. I. Subscriptions, lagas, etc. ... 26,766 II. Cabin licence fees, and electric charges ... 23,223 III. Powernama lavajam and power nama transfer fees ... 2,435 IV. Interest on commission and fixed deposits, and ... 19,900 V. Miscellaneous receipts-penalty and defaulter members' account ... 317 He then classified these receipts unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appears from the order passed by him that out of the total receipts of Rs. 89,853 he treated Rs. 44,131 as exempted income. He also treated a sum of Rs. 3,332 as income derived from business and held that the rest, that is, Rs. 42,390, was the amount of cabin fees and electricity charges, though the Appellate Assistant Commissioner had treated for the earlier year this income as income under the head of business under section 10(6) of the 1922 Act. The reason given by him for this departure from the order of the Appellate Assistant Commissioner for the assessment year 1961-62 was that the said report indicated that the cabins in respect of which the petitioner-company was collecting licence fees were temporary structures erected within the rented building near about the ring and that the petitioner-company was actually charging rent which it euphemistically called licence fees presumably to avoid a claim of tenancy rights by the members in respect of those cabins. He observed that the entire building was rented out by the petitioner-company at a rent of Rs. 16,452 and that what the petitioner-company was doing was to sublet part of the said premises to its members. Similarly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated by section 147(b); (2) that the aforesaid notice was issued on the Income-tax Officer taking a different view as regards the bifurcation of expenses between the different activities of the petitioner-company but which would not entitle him to reopen the assessment of the earlier year; (3) that the aforesaid report dated July 8, 1964, regarding the particulars of the cabins, etc., was not relevant in connection with the state of affairs existing during the assessment year 1960-61 and the loss computed in the assessment relating to that year; (4) that the notice was issued mala fide with the ulterior object of enabling himself to adopt for the earlier years the new basis of allocation of expenses attempted by him for the assessment year 1961-62 and approved by the Appellate Assistant Commissioner. As against these contentions, the learned Advocate-General on behalf of the revenue argued that the Income-tax Officer had, since the making of the assessment order for the assessment year 1960-61, received further information in the shape of (i) the report of his ward inspector who after making detailed enquiries into the working of the petitioner-company made the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings for the assessment year 1961-62, the petitioner-company in reply to a query raised by the Income-tax Officer had furnished a statement of the work done by each member of the staff relating to the exempted items of income and the work done by each of them in relation to non-exempted income and it was also shown that in connection with the work relating to the exempted items of income the work done by the said clerk would amount to two hours a day for the whole year. He argued that this information was received by the Income-tax Officer during those proceedings and it was on the basis of that information that he adopted the principle of bifurcation of income and expenses and, therefore, it would not be possible for him to contend that he had any new information on which he could have reason to believe that income had escaped assessment. Mr. Kaji's contention was that having adopted the principle of bifurcation for the assessment year 1961-62, and as that principle was approved by the Appellate Assistant Commissioner in his order dated April 22, 1964, the Income-tax Officer now wanted to reopen the earlier assessment and apply the principle of bifurcation to it also and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumed by those who occupied the cabins should be allowed as deductible expenses incurred for earning that part of the income. The question is whether information in this report constituted information received by the Income-tax Officer since the making of the assessment for the assessment year 1960-61. Mr. Kaji put forward two contentions against the revenue's view that it was : (1) that all this information was before the Income-tax Officer long before the impugned notice was issued and (2) that, in any event, the report dealt with the conditions prevailing at the time when the inspector visited the premises, and, therefore, it could not be applied on the footing that the same conditions prevailed during the assessment year 1960-61. As regards the first contention it is true that the association had produced before the Income-tax Officer the profit and loss account and a statement of accounts and claimed that certain receipts were exempted income. From that fact, the Income-tax Officer must have thought that some expenditure must have been incurred for earning these exempted receipts and yet had allowed the entire expenses. It is possible, however, that in the absence of details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner. Regarding the second contention of Mr. Kaji, it is not possible to say that since the report was made in July, 1964, the details therein contained were relevant only to the conditions prevailing then and not to the conditions prevailing in the year of account relevant to the assessment year 1960-61. The first part of the report dealing with the working of the petitioner-company is obviously general in character and it is not even the case of the petitioner-company that its method of working was any the different in the assessment year 1960-61 than what it was in July, 1964. The same might also be said with regard to the system of maintaining the cabins and collecting licence fees or rent, as the case may be, and the expenditure incurred for electricity, etc. It may be that the number of cabins might perhaps vary, but if that be so it would be possible for the petitioner-company to establish such variations. But the fact that such details might show some variation would not mean that the report did not constitute information which could be the basis for a reason to believe as contemplated by section 147(b). We are, therefore, of the view that the report of the Inspec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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