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TMI Blog1980 (8) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in those questions than would be achieved by a case-by-case disposal. In the present group of references, the consolidation of the statement of the case is related to the same assessee, but the questions referred to us are many and various, and they cover different assessment years. Not all the questions are common to all the years or even to some of the years. The result is, that there was quite a difficulty in unravelling the contentions of the parties and relating them to the particular assessments and particular questions covered by each reference. Five assessment years 1963-64 to 1967-68 are involved in this consolidated reference, and five questions of law have been referred by the Tribunal for our answer. The first four questions look like being applicable to all the five assessment years, since no particular mention is made of any specific assessment years to which they relate. But, on examination, we found that they do not apply generally to all the five assessment years. In this way during the hearing, we have had to do considerable analysis of the facts relating to several assessment years, sift the assessment records and relate each and every question of law to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions as to what considerations are to be taken into account in reckoning an assessee's capital as on the beginning of the accounting year, and what matters have to be left out of consideration in the computation of capital. The provisions in the Second Schedule to the Super Profits Tax Act, 1963, and similar provisions in the Companies (Profits) Surtax Act, 1964, are expressed in almost identical language subject to certain minor variations. Some of the questions referred to us in this consolidated reference involve the interpretation and application of the capital computation provisions under Schedule II. It may be observed that under the very basis of taxation under both these Acts, the tendency of taxpayers would be to so compute the capital as to obtain a larger standard deduction, that is to say, a tendency to swell the figure of capital. The reverse tendency would be discernible in the taxing Department, because the lesser the capital the lesser the standard deduction and the lesser the profits exempt from taxation. Hence, the important part played by the computation provisions is in Schedule II of both these Acts. We may further observe that in both these Acts, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted income and the second time with reference to the capital percentage. In order to avoid this redundant relief, the provisions in Schedule II in both the Acts provide that the capital of the company, made up of paid-up capital plus general reserve, will have to be diminished in cases where there are assets, whose income is exempt from taxation but where there is no corresponding borrowing or other reserve from out of which those assets had been acquired. Thus as a matter of illustration, in a case where there are practically no outside borrowing of the assessee-company and yet a large part of its assets consists of assets, whose income is exempt from taxation, then under the provisions of Schedule II, the cost of those assets will have to be reduced from the capital consisting of its paid-up share capital and reserves. In the present case, the assessee-company, as already observed, is an insurance company. They have a large investment in joint-stock company shares in Indian companies. In the assessment years in question, some of the shares held by the assessees yielded dividends but others did not. Where there were dividends from such shares, those dividends certainly stood ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-65 and while the ITO was at work on the subsequent year's assessment for 1965-66 under the Companies (Profits) Surtax Act, 1964, he found that apart from the shares on which dividends had actually been received, but exempted, the assessee was also holding shares on which no dividends had been declared or paid in the relevant assessment years 1963-64 and 1964-65. He accordingly reopened the assessments for the two assessment years 1963-64 and 1964-65 for the purpose of arriving at the capital computation on a proper basis. The reopening of assessment for the year 1963-64 was made in exercise of the officer's powers under s. 9 of the Super Profits Tax Act, 1963. The reopening for the assessment year 1964-65 was made under s. 8 of the Companies (Profits) Surtax Act, 1964. The question of law, which has been referred by the Tribunal for our consideration relates to the reopening of the assessments for 1963-64 and 1964-65 in the manner we have briefly described above. The question of law is couched in the following terms: Whether, on the facts and in the circumstances of the case, the reassessments under section 9 of the Super Profits Tax Act, 1963, and section 8 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation or other, subsequent to the original assessment, and, on the basis of that information, he must have reason to believe that income has escaped assessment or has been underassessed. The important criterion is that the ITO must have information in his possession. The contention of Mr. Swaminathan, learned counsel for the, assessee, is that the reopening of the assessments by the, officer in the assessee's case both for 1963-64 and for 1964-65 merely reflects a change of opinion on his part without any underlying information in support of it. Learned counsel accordingly submitted that the reopening is wholly invalid. The learned standing counsel for the Department, on the other hand, submitted that the whole basis for the reopening of the assessments by the officer for the two assessment years 1963-64 and 1964-65 was information of which the officer was in possession, he having culled it out from the subsequent year's assessment of the same assessee. According to the Department, what the officer, as an appropriate fiscal authority entrusted by the statutes with the task of doing assessment work, was able to obtain from a subsequent year's assessment records must be regarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is seen by the Income-tax Officer himself is not information to him. In the latter case, he just informs himself. It will be information in his possession within the meaning of section 34. In such cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escapement of assessment or under-assessment." This decision of the Madras High Court was referred to by the Supreme Court in Anandji Haridas Co. (P.) Ltd. v. S. P. Kushare.[1968] 21 STC 326; [1968] 1 ITJ 586. That case arose under the Central Provinces and Berar Sales Tax Act, 1947, which contains a provision for reopening of an assessment, equivalent more or less to s. 34(1)(b) of the Indian I.T. Act, 1922. Section II A of the Central Provinces and Berar Sales Tax Act provided for reopening of a sales tax assessment in consequence of information coming into the possession of the Commissioner of Taxes. Construing that provision as being in Pari materia with s. 34(1)(b) of the Indian I.T. Act, 1922, Hegde J., speaking for the majority of three out of five judges of the Supreme Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the court's observation in Kalyanji's case that where income had escaped assessment due to the oversight or inadvertence or mistake of the ITO, that case would fall within s. 34(1)(b) of the Indian I.T. Act, 1922, was a proposition stated too widely, and went farther than the statute ; in the case before the later Bench in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996, it was held that an error discovered merely on a reconsideration of the same materials and no more would not give the ITO a power to reopen all assessment. The observation of the Supreme Court referred to above and the general trend of the discussion in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, were relied upon strongly by Mr. Swaminathan to put forth the contention that a mere change of opinion on the part of the ITO cannot be the basis for reopening an assessment under s. 34(1)(b) of the I.T. Act, 1961, or its prototype, s. 147(b) of the I.T. Act, 1961, or the provisions which are presently under consideration, namely, s. 9(b) of the Super Profits Tax Act, 1963, and s. 8(b) of the Companies (Profits) Surtax Act, 1964. On a review of the decisions of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ITO in the assessment files for 1965-66 assessment and had found that the capital computation had not been correctly made inasmuch as a diminution of the capital was made only in respect of the shares, which had yielded dividends during the year of account, but which were tax exempt. The Tribunal observed that, while making the capital computation in the original order for 1963-64 and 1964-65, the officer had merely looked into the computation made by the assessee and had adopted the figures without going further into any of the relevant questions under Schedule II. They further observed that there was no discussion anywhere in the records about the nature of the shares and whether there were any dividends which they yielded or not. It was only subsequently revealed to the ITO when making the assessment order for 1965-66 and when he had gone into the matter more fully and found that there were shares held by the assessee from which no dividends had been declared and (the cost of) these shares also had been included by the assessee while reckoning the paid-up capital and general reserve in order to obtain the capital employed in the company's business for the purpose of arrivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl. CIT v. Madras .Motor and General Insurance Co. Ltd. [1979] 117 ITR 354. In that case, the learned judges held that for the purpose of Schedule II, rule 2 of the Companies (Profits) Surtax Act, 1964, holdings of shares from which no dividend whatever had been declared or received during the account year, cannot be deducted from the capital of the company consisting of the paid-up share capital and general reserves. According to the learned counsel, only in cases where during the accounting year in question there were dividends declared and paid by the Indian companies and those shares were held by the assessee during that year in the capital computation can also be taken note of the case of these shares for the purpose of diminishing the aggregate figure for the capital consisting of the paid-up share capital and the reserves. Mr. Swaminathan submitted that in view of the decision in Addl. CIT v. Madras Motor and General Insurance Co. Ltd. [1979] 117 ITR 354, the ITO's action in reopening the assessment on the basis of the information cannot be upheld. We cannot accept this submission as relevant. This submission would be pertinent if we were asked to decide the merits of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the generality of the ambit of the first question of law in this group of references. He urged that, in these events, the assessee is entitled to canvass the validity of the reopening of the assessment for 1965-66 as well in this reference. In this connection he also drew our attention to a distinct question of law, which he propounded in his separate application for reference before the Tribunal relating to the year 1965-66, in R.A. No. 537 (Mds) 73/74 against S.T.A.N. 15(Mds)/71-72. We, however, find from the order of the Tribunal in S.T.A. 15(Mds) for the assessment year 1965-66, that the question relating to the validity of the reopening of the assessment for that year was not seriously urged for the assessee by the assessee's representative before the Tribunal. The order of the Tribunal in S.T.A. No. 15(Mds)/71-72 has not been made an enclosure in the consolidated statement of the case. But we called for the order and we find the following passage in which the Tribunal had dealt with this question : " Mr. Swaminathan, learned counsel, as already indicated, did not seriously argue on the reopening of the assessment as far as this assessment year is concerned, as he did so f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in the appeal, on which we would be in a position to express our opinion on the applicability of s. 8(b) of the Act. These materials have been vouchsafed to us for the two years 1963-64 and 1964-65, in so far as the reassessment proceedings under the Companies (Profits) Surtax Act is concerned. For 1965-66, we are faced, with a complete lack of similar detailed materials. Hence, we are afraid we cannot express our opinion one way or the other on the validity of the reassessment proceedings for 1965-66. Passing to the other questions of law awaiting our consideration, questions Nos. 2 and 3 are in the following form and they relate to the assessment years 1963-64 and 1964-65 : "Whether, on the facts and in the circumstances of the case, the premium deposits could not be taken into account in the capital computation of the assessee-company ?" " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the premium deposits and unearned premium did not fall under either clause (i) or (ii) of rule 2 of the Second Schedule to the Act ? The answer to these questions is covered by the Full Bench decision of this court in Madra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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