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TMI Blog1984 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... tion date for the assessment year 1965-66 is November 4, 1964. The original assessment order under section 16(3) of the Act was made on October 28, 1965, on a total wealth of Rs. 5,27,132. A copy of the original assessment order has been annexed and marked as annexure-A forming part of the statement of the case in Taxation Case No. 52 of 1974. On May 31, 1965, the assessee filed before the Commissioner of Income-tax a petition under the Finance Act, 1965, disclosing unassessed income of Rs. 25 lakhs which was held in the shape of Rs. 3,000 worth of shares in Bank of Bihar Limited, Rs. 9,80,000 worth of Premium Prize Bonds and Rs. 15,17,000 in cash. The Wealth-tax Officer reopened the original assessment under section 17 of the Act and reassessed the total wealth as per his order dated March 25, 1966, at Rs. 20,47,132. The Wealth-tax Officer in his first reassessment order added the value of share of Rs. 3,000 and the cash of Rs. 15,17,000 but he did not include the third item, namely, Rs. 9,80,000 worth Premium Prize Bonds, copy of the first reassessment order of the Wealth-tax Officer has been annexed and marked as annexure-B forming part of the statement of the case in Taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net wealth chargeable to tax had escaped assessment. Accordingly, he rejected the argument of the assessee. A copy of the order of the Appellate Assistant Commissioner has been annexed and marked as annexure-B forming part of the statement of the case in Taxation Case No. 263 of 1976. The assessee then came in appeal before the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") and contended that the second reassessment dated August 31, 1970, made by the Wealth-tax Officer was bad in law. He stated that the assessee disclosed fully and truly all material facts necessary for assessment of his net wealth in his petition dated May 31, 1965, which was even prior to the original assessment made on October 28,1965, and that the assessee owned Rs. 9,80,000 worth of Premium Prize Bonds which was known to the Wealth-tax Officer on March 25, 1966, when he made the first reassessment including two of three items disclosed in the disclosure petition dated May 31, 1965. He, therefore, contended that the Wealth-tax Officer was not justified in resorting to section 17 of the Act for the second time. The asses see contended that section 17(b) of the Act can be invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Dunlop Rubber Co. Ltd. (London) v. ITO [1971] 79 ITR 349 (Cal) and came to the conclusion that the condition precedent for invoking section 17 was not satisfied and the second reassessment order passed by the Wealth-tax Officer was bad in law and so it was cancelled. A copy of the order of the Tribunal has been annexed and marked as annexure-C forming part of the statement of the case in Taxation Case No. 263 of 1976. On these facts, the following question of law has been referred by the Tribunal to this court in compliance with the order passed by this court in Taxation Case No. 263 of 1976 for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding the second reassessment order passed by the Wealthtax Officer under section 17 of the Wealth-tax Act on August 31, 1970, to be bad in law ?" Mr. B. P. Rajgarhia, senior standing counsel for the Revenue, has relied on various decisions for his proposition that reassessment can be made several times. For this purpose, he has relied on the case of Jagmohan Goenka v. K D. Banerjee [1954] 26 ITR 637 (Cal) where it has been held that within the time limit specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bikaner and had not disclosed the income from that shop. Under section 34, he can clearly be proceeded against. The income from, Bikaner shop had escaped assessment but the assessee had also been under assessed. His Lordship of the Calcutta High Court has also pointed out that supposed he was proceeded against under section 34 and his income from the Bikaner shop was taken into consideration and two years later it was discovered that he had a third shop at Indore and had concealed the income. His Lordship held that the authorities were not powerless to take proceedings in respect thereof. His Lordship also considered on supposition that it is subsequently found that in computing the income of the Calcutta shop, he had concealed the fact that it dealt with a lucrative Government contract from which he received substantial income. This income may be said to have escaped assessment and also the result is an underassessment. His Lordship held that although there were previous proceedings, a further action can be taken. His Lordship also took an instance for the purpose of explaining the case. He pointed out supposing that after all the proceedings had been completed, it is discovered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to believe, notwithstanding that there has been no such omission or failure as is referred to in clause (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of underassessment or assessment at too low a rate or otherwise ; he may, in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section." Mr. B. P. Rajgarhia has referred to the original order, annexure 'A', in Taxation Case No. 52 of 1974, which shows that the Wealth-tax Officer, Ward A, Colliery Circle, Dhanbad, assessed the total net wealth of the assessee at Rs. 5,27,132 on October 28, 1965. It is not disputed that on October 28, 1965, the Wealth-tax Officer had no knowledge about the shares of Bank of Bihar Limited, about the cash of Rs. 15,17,000 and about the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad, under section 18(1)(a) of the Act for the assessment year 1965-66. A copy ; of the penalty order of the Wealth-tax Officer has been annexed and is annexure 'A' forming part of the statement of the case in Taxation Case No. 83 of 1974. Annexure 'C' in Taxation Case No. 52 of 1974 is a copy of the second reassessment order which shows that the net wealth as per the first reassessment was Rs. 20,47,132 to which he added the amount of Rs. 9,80,000 as the value of the Premium Prize Bonds, out of which he allowed the wealth-tax liability to the extent of Rs. 6,200 and thus the total net wealth came to Rs. 30,20,932, which he took in a round sum at Rs. 30,20,930. This second reassessment was made on August 31, 1970. The assessee had filed return on February 19, 1970, showing net wealth of Rs. 9,12,932, which shows that the value of Premium Prize Bonds of Rs. 9,80,000 was not shown in this return. Mr. B. P. Rajgarhia on these facts has submitted that neither at the time of original assessment order on October 28, 1965, the amount of Premium Prize Bonds of Rs. 9,80,000 was shown nor was the same shown in the return filed at the time of second reassessment and so the assessee should be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. as the selling agency and also claimed that and Co. were active and doing the same work as all other selling agents, that they were in sole charge of the sales and appointed sub-agents to whom they paid commission from their own pockets, that they were responsible for conducting the sale honestly and diligently and also if there was any loss in delivery. Thus, without specifically discussing the nature and basis for allowing the commission to G and Co., the Income-tax Officer completed the original assessment allowing the commission as a deduction. Thereafter, during the course of proceedings for subsequent assessment years 1951-52 and 1952-53, the Income-tax Officer probed in detail into the nature and basis for allowance of commission to G and Co. and found that : (i) there were no selling agency agreements executed and no terms and conditions had been settled ; (ii) no resolution had been passed by G and Co. agreeing to act as selling agent of the assessee ; (iii) G and Co. were not required to and did not in fact render any service ; (iv) sub-agents communicated directly with the assessees and obtained commission from them and G and Co. possessed no material correspondence t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of change therein could not be said to take place. Under similar circumstances it was held in the case of Basti Sugar Mills Co. Ltd. v. CIT [1983] 142 ITR 487 (Del) that it was rightly held by the Tribunal that the assessee had failed to disclose truly primary facts necessary for assessment and so reassessment proceedings were valid. Thus, it cannot be doubted that if material facts are not fully and truly disclosed by the assessee, then the Wealth-tax Officer will be justified in taking action under section 17(1)(a) of the Act. Mr. K. N. Jain for the assessee has relied on the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), which is a decision of the Supreme Court, where it has been held that it was the duty of the assessee-company to disclose all the facts which had a bearing on the question ; but whether the assessee had the intention to make a business profit as distinguished from the intention to change the form of the investments was really an inference to be drawn by the assessing authority from the material facts taken in conjunction with the surrounding circumstances and that the law did not require the assessee to state the conclusion that could reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, it is evident that if the material facts have been disclosed to the Income-tax Officer or the Wealth-tax Officer, then it is for these officers to draw inferences or conclusions from the facts placed before them on questions of fact and law and it is not the duty of the assessee to tell them what legal inferences have to be drawn It has been held in the case of CIT v. Kallu Babu Lalchand [1969] 73 ITR 138 by the Calcutta High Court that even though there might not have been disclosure by the assessee of the income in his return, inasmuch as the assessee was contending at the time of original assessments that R's remuneration was not the income of the assessee, all the primary facts relating to that income were known to the Income-tax Officer and these facts were in his possession either by disclosure by the assessee or by his own discovery and so there was no omission or failure on the part of the assessee to disclose in terms of section 34(1)(a) of the Indian Income-tax Act, 1922. It has been held in the case of Dunlop Rubber Company Ltd. (London) v. ITO [1971] 79 ITR 349 (Cal) that the Income-tax Officer cannot fall back on section 34(1) to make good his deficiencies i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, take recourse to section 147(a) of the Income-tax Act, 1961, to remedy an error resulting from his oversight. I have already pointed out above that during the first reassessment, vide annexure 'B' in Taxation Case No. 52 of 1974, the Income-tax Officer was aware that the assessee had made disclosures of a cash amount of Rs. 15,17,000, shares of Bank of Bihar Limited worth Rs. 3,000 and the Premium Prize Bonds worth Rs. 9,80,000. The Wealth-tax Officer, in spite of knowing full details, assessed only the cash amount of Rs. 15,17,000 and the shares of Bank of Bihar Limited at face value of Rs. 3,000 and he did not include the Premium Prize Bonds of Rs. 9,80,000 and so for (including) the Premium Prize Bonds of Rs. 9,80,000, he initiated the second reassessment proceeding and included this amount by the second reassessment order dated August 31, 1970, vide annexure 'C' in Taxation Case No. 52 of 1974. Thus, during the first reassessment proceeding, the Income-tax Officer had knowledge that the Premium Prize Bonds of Rs. 9,80,000 had been shown by the assessee in the disclosure petition dated May 31, 1965. From the aforesaid decisions, it is evident that when the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xure 'A' in Taxation Case No. 83 of 1974. Mr. B. P. Rajgarhia has also submitted that annexure 'A' in Taxation Case No. 52 of 1974 clearly shows that the original assessment was completed on October 28, 1965, relating to assessment year 1965-66. He has, therefore, submitted that the second reassessment could be done under section 17(1)(b) of the Act. Under section 17(1)(b) of the Act, the notice could be served within four years from the end of the assessment year 1965-66 and so it has to be held that the second reassessment under section 17(1)(b) of the Act could have ordinarily been made by the Wealth-tax Officer. For this purpose Mr. B. P. Rajgarhia has relied on some decisions. Mr. B. P. Rajgarhia for the Revenue, has relied on the case of Smt Nirmala Birla v. WTO [1976] 105 ITR 483 which is a Full Bench decision of the Calcutta High Court. In this decision, it has been held that the notice that was issued for reassessment was a notice under section 14(2) of the Act and that section 17 provides the machinery for the issue of that notice and that the notice need not specify under which clause of section 14(2) the notice has been issued. In this decision a reference was made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his decision that the instant case was a case of a change of opinion supported by new facts or materials or information hitherto unknown to the officer and if it be ultimately found that a notice could not be supported under section 17(1)(a), there could be no doubt that it would be valid notice under section 17(1)(b) of the Act. Thus, from this decision, it is evident that unless new facts are brought to the notice of the Wealth-tax Officer, he cannot take action under section 17(1)(b) of the Act. Mr. B. P. Rajgarhia has also relied on another Full Bench decision of the Andhra Pradesh High Court in the case of CWT v. Subakaran Gangabhishan [1980] 121 ITR 69 (AP) [FB] where it has been held that once the assessment is validly reopened under section 17(1) of the Act, no distinction can be made between the items falling under clause (a) and those falling under clause (b) and the assessing authority would consequently have jurisdiction to assess the items falling under both the sub-clauses of section 17(1) of the Act. In this decision, it was also held at pages 80 and 81 that when once the assessment is validly reopened under section 17(1)(a) by issuance of a notice thereunder, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the case of Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547 which is a decision of the Madras High Court. In this decision, the first actuarial report of the assessee company, which carried on life insurance business, covered the period May 24, 1935 to March 14, 1941, and disclosed a small surplus. On the basis of that report, the Income-tax Officer arrived at a profit of Rs. 1,238 each year for the accounting years 1942 to 1944, which was computed in accordance with rule 2 (b) of the Schedule to the Income-tax Act. The second actuarial report which related to the inter-valuation period March 14, 1941 to December 31, 1945, disclosed a deficiency of Rs. 86,708 and on the basis of the second report, a sum of Rs. 18,096 was computed under rule 2(b) as the deficiency for the accounting year 1945. The deficiency disclosed by the third report at the end of 1946 was Rs. 77,165 and for the assessment of the accounting year 1946, instead of deducting Rs. 77,165 from Rs. 90,851 which would have resulted in a surplus of Rs. 13,686, the Income-tax Officer by mistake added the two amounts and arrived at a deficiency of Rs. 1,68,016. A similar mistake was committed for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the omission on the part of the Wealth-tax Officer to include this asset was pointed out by the Appellate Assistant Commissioner in the foot-note of the appellate order, the Commissioner of Income-tax instructed the Wealth-tax Officer to reopen the assessment for the said assessment year, and the second reassessment was, accordingly, completed by the Wealth-tax Officer by including Premium Prize Bonds worth Rs. 9,80,000. As regards the allegation in the statement of facts and the application before this court by the Revenue, I find no material in the order of the Appellate Assistant Commissioner to that effect. No mention about it has been made by the Appellate Tribunal. Even the Wealth-tax Officer has not made any such assertion in the second reassessment order. Thus it appears that this plea has been taken for the first time in the statement of facts at page 9 by the Commissioner of Wealth -tax and in the application before this court at page 13. The lower authorities have not applied their minds to these assertions which were never made at any stage up to the Tribunal. The facts require investigation and so these new facts cannot be allowed to be agitated at this stage. Then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment without any fresh facts or materials, section 34(1)(b) would have no application. At page 300 of this decision, reference has been made to the decision of the Bombay High Court in the case of CIT v. H. Holck Larsen [1972] 85 ITR 467 where it was observed as follows (p. 479): "What is obligatory in order to apply section 34(1)(b) is that he must have 'information' in his possession in consequence of which he has reason to believe that income has escaped assessment or is under-assessed, etc. The distinction really consists in a change of opinion, unsupported by subsequent information on the one hand and a change of opinion based on information subsequently obtained, on the other. In the former class of cases, the assessment proceedings are attempted to be re-opened without the discovery of an error and without receiving any information as to fact or law ...... Such reopening is based on a 'mere' change of opinion and is without jurisdiction ......... In the latter class of cases, the reopening is based on information leading to the requisite belief and is, therefore, within the jurisdiction of the officer." Relying on this decision, their Lordships of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corpus and that it was a case of an error apparent on the face of the record which would constitute "information", and so it was held that reassessment proceedings under section 17(1)(b) were, therefore, valid. The decision of the Supreme Court in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) is by two judges of the Supreme Court. Mr. K.N. Jain for the assessee relied on the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 which is a decision of three judges of the Supreme Court where it was held that the proposition in the decision of the Supreme Court in the case of Kalyanji Mavji and Co. [1976] 102 ITR 287 (SC) to the effect that a case where income had escaped assessment due to "oversight, inadvertence or mistake" of the Income-tax Officer must fall within section 34(1)(b) of the Indian Income-tax Act, 1922, is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on re-appraising the material considered by him during the original assessment, the Income-tax Officer discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overruled in the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, as I have mentioned above. Thus, it is evident that the Wealth-tax Officer knew full well about the Premium Prize Bonds of Rs. 9,80,000 which he mentioned in the first reassessment proceeding and so he was not justified in initiating the second reassessment proceeding and making second reassessment for this amount of Rs. 9,80,000. Mr. K.N. Jain, for the assessee, has relied on the case of Johri Lal (HUF) v. CIT [1973] 88 ITR 439 which is a decision of the Supreme Court, where it has been held that where the Income-tax Officer himself proceeds on the basis of section 34(1)(b) of the Indian Income-tax Act, 1922, and not on the basis of section 34(1)(a), in the absence of material on record to show that the Incometax Officer had formed the requisite belief, recorded his reasons for taking action under section 34(1)(a) and obtained the sanction of the Central Board or the Commissioner, as the case may be, it is not open to the Appellate Tribunal to justify the proceedings taken by the Income-tax Officer under section 34(1)(a). It was also held by their Lordships of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y disclosed the material and primary facts relating to Rs. 9,80,000 and so assessment was reopened under section 17(1)(a) of the Act. Under such circumstances, the Tribunal decided the question relating to the validity of the second reassessment under section 17(1)(a) and, in view of the concession by the learned departmental representative, did not consider the applicability of section 17(1)(b) and so this court is not competent to consider the validity of section 17(1)(b) of the Act. The view expressed by the Supreme Court was followed by the Allahabad High Court in the case of CIT v. Shiv Nath Prasad [1970] 77 ITR 378 (All) where it was held that it is only question that has been raised before or decided by the Tribunal that could be said to arise out of its order and be referred to the High Court. It was also pointed out that it was conceded on behalf of the Department before the Tribunal that the amount of sales tax when collected by a dealer did not become his income liable to tax immediately on the, receipt thereof and became his taxable income only when the dealer did not make payment thereof to the Government in the relevant accounting year, and it was, therefore, held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned section 17(1)(a). It was because of the court's direction that section 17 was mentioned without reference to sections 17(1)(a) and 17(1)(b) of the Act. Actually, the Tribunal had decided only the question relating to the validity of the second reassessment under section 17(1)(a) and so this court has only to consider the question as raised before the Tribunal and as decided by the Tribunal under section 17(1)(a) of the Act. It has been held in the case of CIT v. Nathuabhai Desabhai [1981] 130 ITR 238 (MP) that the jurisdiction of the High Court in reference under section 256 of the Income-tax Act, 1961, is only advisory and a question of law has to be answered within the ambit of this jurisdiction and that a departure is allowed within certain permissible limits, inasmuch as an aspect of the same question can be decided by the court even if that aspect is not directly referred to by the Tribunal. It has also been held in this decision that the basic frame of the question cannot be altered nor can the court embark upon the other provisions of the Act to justify the chargeability or otherwise of a particular item of income and that it is imperative that the question itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge number of permanent staff. The company claimed that the entire receipts from the tenant should be treated as income from business as it had been formed for carrying on the business of letting out flats and shops. The Income-tax Officer rejected the claim but split the receipts into two parts, one part being treated as rent and the other as "income from other-sources" taxable under section 12 of the Income-tax Act, 1922. The Appellate Tribunal held that the second part was assessable as income from business under section 10. Neither the department nor the assessee contended that that part was assessable under section 9. The High Court held that the both parts of the receipts (sic) was assessable resident (sic). In these circumstances, their Lordships of the Supreme Court held, reversing the decision of the High Court, that the Department having all along proceeded on the basis that the income of the assessee was from two different sources, it should not have been allowed by the High Court to change its case, and that on the facts since the services rendered by the assessee to its tenants were the result of its activities carried on continuously in an organised manner with a set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As there was delay in filing of the return in response to the notice under section 17, the Wealth-tax Officer initiated proceedings for levy of penalty under section 18(1)(a) of the Act. The penalty order shows that the assessee did not comply with the show cause notice issued by the Wealth-tax Officer and so the Wealth-tax Officer held that the assessee had nothing to urge against the penalty proceedings and so the penalty was leviable. The Wealth-tax Officer accordingly, levied a penalty of Rs. 14,607 for the default from November 18, 1969 to February 18, 1970. A copy of the penalty order has been annexed and marked as annexure-'A' forming part of the statement of the case. The Appellate Assistant Commissioner cancelled the penalty order, holding that the delay was for a reasonable cause. A copy of the order of the Appellate Assistant Commissioner has been annexed and marked as annexure-'B' forming part of the statement of the case. As regards the assessment year 1965-66, the Tribunal found that the reassessment order passed for this year had since been cancelled. Therefore, there was no assessment left on the basis of which penalty for the year could be levied. The Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. The Department came in appeal before the Tribunal and the departmental representative urged before the Tribunal that the liability to pay income-tax on the Premium Prize Bonds did not exist on the relevant valuation date, namely November 15, 1963 and November 4, 1964, because the assessee disclosed the existence of, the concealed wealth only by his disclosure petition dated May 31, 1965. The Tribunal disposed of W.T.A. Nos. 71 and 72 (Pat) of 1971-72 for the assessment years 1964-65 and 1965-66. As regards the assessment year 1964-65, the Tribunal held that the Appellate Assistant Commissioner had rightly allowed income tax payable on the disclosed wealth as a deduction in computation of the assessee's wealth. However, as regards the assessment year 1965-66, the Tribunal has pointed out that it has already passed orders in the assessee's appeal against the second reassessment in the assessment year 1965-66 in W.T.A. No. 69 (Pat) of 1971-72, which is annexure-'C' in Taxation Case No. 263 of 1976, holding that the second reassessment order dated August 31, 1970, for the assessment year 1965-66 was bad in law and so a nullity and in view of the above facts, the Tribunal held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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