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TMI Blog1978 (11) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the Tribunal was justified in law in refusing to entertain the additional ground of appeal filed on 26th June, 1973 ? 4. Whether the Tribunal was justified in holding that the assessment has not been vitiated by reason of mistake in the reassessment order ? " The facts in this case as admitted and not disputed are as follows: The assessee is M/s. Stewarts Lloyds India (P.) Ltd. In respect of the assessment year 1965-66, the ITO made an assessment order in respect of surtax on 31st July, 1967, under the provisions of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as " the Surtax Act "). In this assessment order, he allowed standard deduction for a sum of Rs. 12,79,284, which was calculated at the rate of 10% of capital and reserves, being Rs. 1,27,92,837. It will appear from the connected statement showing computation of standard deduction, that to compute the statutory deduction, dividend reserve was taken into consideration. In respect of the said assessment year 1965-66, there was a reassessment by the ITO on 7th October, 1969, under s. 6(2) read with s. 8 of the Surtax Act. In the capital computation some change was made, but the figure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue of his notice dated 20th March, 1970, under section 8 of the said Act calling for return had been satisfied." The Tribunal came to the conclusion that the ITO was justified in initiating reassessment proceedings under s. 8 of the Surtax Act. The plea of the assessee's representative that the ITO was not in possession of any information was held to be without any substance. In this context, it was observed as follows : " The information must come to his knowledge either from external or internal source after the original assessment has been completed. In the instant case, two assessments had already been made and the Income-tax Officer, therefore, came to know that the dividend reserve was not excluded from the capital computation." The Tribunal referred to a decision in the case of CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) and held that the ITO's action was in accordance with the decision of the Supreme Court. The Tribunal further held that the additional ground of appeal could not be entertained. On the merits of the case the Tribunal observed that the Income-tax Appellate Tribunal, Calcutta Bench, have consistently held that the dividend reserve cannot be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position in law. So far as question No. 3 is concerned, Dr. Pal has submitted that this strictly does not arise for our consideration because though the Tribunal has refused to entertain the additional ground, the Tribunal has gone into the merits of the contention of the assessee regarding the validity of the initiation of proceedings under s. 8(b) of the Surtax Act. The first question arises from that finding of the Tribunal, and accordingly, it is not necessary to go into this question separately. On the second question, that is on the question as to whether the Tribunal was right in law in holding that the dividend reserve, could not be taken into account in the computation of the capital case, Dr. Pal has submitted that if we answer the first question in the negative and in favour of the assessee, then this question would not arise. In any event, in this connection, he has relied on the following decisions: Braithwaite and Co. (India) Ltd. v. CIT [1978] 111 ITR 729 (Cal), CIT v. Aryodaya Ginning and Mfg. Co. Ltd [1957] 31 ITR 145 (Bom) and CIT v. Mafatlal Chandulal Co. Ltd. [1977] 107 ITR 489 (Guj). So far as the 4th question is concerned, Dr. Pal has submitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he length of the previous year of the longest duration. " " 4. Charge of tax.-Subject to the provisions contained in this Act, there shall be charged on every company for every assessment year commencing on and from the 1st day of April, 1964, a tax (in this Act referred to as the surtax) in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule." " 8. Profits escaping assessment.-If (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return under section 5 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for any assessment year, chargeable profits for that year have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT [1967] 64 ITR 218 (Ker) was cited by Mr. Balai Pal, appearing on behalf of the revenue. The facts of this case are as follows, The assessee was a public limited company doing business in printing and paper. For the assessment year in question, the assessee filed a return showing an income of Rs. 2,016. Along with the return, the assessee also produced the printed balance-sheet as at the 31st December, 1956, and the profit and loss account for the twelve months ended on that date. The assessment was completed on the 19th November, 1957, under s. 23(3) of the Indian I.T. Act, 1922, on an income of Rs. 3,789 after adding back some items considered by the ITO as inadmissible items of expenditure. The tax was worked out after allowing rebate, on the said sum of Rs. 3,789, at the rate of 35%. During the accounting period the assessee had issued bonus shares, not out of premiums received in cash, to the extent of Rs. 42,500. Under the Finance (No. 2) Act, 1957, such an issue would reduce the rebate from 35% to 5%. The papers produced before the ITO did indicate that the bonus shares were not issued out of premiums received in cash and that only a 5% rebate and not 35% rebate w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Berar Sales Tax Act, 1947, which provides that if in consequence of any information which has come into his possession, the Commissioner was satisfied that any turnover of a dealer during any period has been under assessed or has escaped assessment, etc, he may, at any time, after following certain procedure, reassess the tax payable. In this connection, the Supreme Court observed that information need not be about any fact, it may be even as to the legal position. In this connection, the Supreme Court observed as follows (p. 337) : " In our judgment, the knowledge of the fact that the appellants had not submitted their quarterly returns as well as treasury challans, constituted an information to the assessing authority from which it could be satisfied and in fact it was satisfied that the turnovers with which we are concerned in this case had escaped assessment. " In the case of CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC), cited by Dr. Pal, the facts were as follows: The assessees in that case, M/s. A. Raman Company, were dealers in mill stores. In the course of their business they used to sell 'mill stores' to other dealers including two concerns trading in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case before the Supreme Court only the second branch of the condition was involved. In this connection, it was observed as follows (p. 15 16): " The expression 'information' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. If, as a result of information in his possession, the Income-tax Officer has reason to believe that income chargeable to tax had escaped assessment, the Income-tax Officer has jurisdiction to assess or reassess income under section 147(b) of the Income-tax Act, 1961. Information in his possession that income chargeable to tax has escaped assessment furnishes a starting point, for assessing or reassessing income. If he has that information, the Income-tax Officer may commence proceedings for assessment or reassessment. To commence the proceeding for reassessment it is unnecessary that on the materials which came to the notice of the Income-tax Officer, the previous order of assessment was vitiated by some error of fact or law-...Jurisdiction of the Income-tax Officer to reassess income arises if h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and that the same was liable to be taxed. Aggrieved by the orders of the ITO, the assessee took up the matter in appeal to the AAC. The AAC affirmed the orders of the ITO. A further appeal was taken by the assessee to the Income-tax Appellate Tribunal. The Tribunal upheld the contentions of the assessee and came to the conclusion that the notices issued under s. 34(1)(b) were incompetent notices as the ITO cannot be said to have received any information after he made the assessments in question. The Supreme Court observed that the ITO had not placed any material before the Tribunal to show that he had received any fresh information either on questions of fact or on questions of law subsequent to the date on which he passed the original assessment orders. In this connection it was pointed out as follows (p. 834) : " This court has repeatedly ruled that the information referred to in section 34(1)(b) must be what the Income-tax Officer receives after he makes the original order of assessment. It must come to his knowledge subsequent to the assessment sought to be reopened. In these cases it is submitted that all the facts were placed before the Income-tax Officer when he pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that he had a share in the profits of the Madras firm and was also entitled to interest on the capital invested therein. The ITO, however, completed the assessment for the aforesaid year, as also the subsequent assessment year, in which also the share of income from the Madras firm had not been included. The assessee went up in appeal to the AAC which was allowed on the ground that the ITO had no additional information either externally or internally which came into his possession subsequent to the making of the assessment to justify the action taken under s. 34(1)(b). The revenue appealed to the Appellate Tribunal which reversed the decision of the AAC in respect of the assessment year 1955-56. The view of the Tribunal was that the information on the record in respect of the share of profit assessable to tax had escaped the notice of the ITO and, therefore, he was justified in taking action under s. 34(1)(b). Two questions were referred for the opinion of the High Court but we are only concerned with the first question which is as follows: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the action under section 34(1)(b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. K. Eastern Industries Ltd. took over as managing agents. Messrs. Bimal Kumar, Nirmal Kumar were appointed as banian under an agreement dated December 28, 1944, with effect from September 8, 1944, and M/s. Omkarmal Kanailal as brokers by M/s. J.K. Eastern Industries Ltd., after they took over as managing agents. At the time of the original assessment, the assessee had filed the balance-sheet which contained the director's report and in the director's report the existence of control over the distribution of wheat and wheat flour is referred to. In the course of the original assessment for 1945-46, the ITO wrote a letter dated April 25, 1946, to the assessee asking for information about the amount payable to the Government of Bengal. The assessee sent a reply on April 29, 1946, stating that the production and supply of wheat were controlled by the Government and that the mills were allowed guaranteed profits at 10% of the capital employed. It was also stated that as the amount was not assessed in time the profit payable to the Government was not assessed. The assessment for 1945-46 was completed on June 4, 1946, after this correspondence. Similar assessment for 1946-47 followed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any power and jurisdiction by the Income-tax Officer to reopen an assessment under section 34(1)(b). The necessary conditions, as clearly mentioned in the section itself and recognised in judicial decisions, are: (1) The Income-tax Officer must have information which comes into his possession subsequent to the making of the original assessment order; and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, has been under-assessed or assessed at too low a rate, or has been made the subject of excessive relief. Whether these conditions have been satisfied or not will necessarily depend on the facts and circumstances of each particular case. If the Income-tax Officer does not have the necessary information, the question of any information leading to his belief that income chargeable to tax has escaped assessment, has been under-assessed or assessed at too low a rate, or has been made the subject of excessive relief, will not arise at all." It was pointed out that it was well settled that a mere change of opinion on the same materials does not constitute information within the meaning of the said section and, therefore, does not justify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment. The learned judge held that that would be a mere change of opinion and not acting on information in terms of the section, In ITO v. Panama P. Ltd. [1974] 97 ITR 210 (Cal), it was an appeal in a writ matter challenging five notices issued under s. 148 of the I.T. Act, 1961, for the assessment years 1964-65, 1965-66, 1966-67, 1967-68 and 1968-69. It was the case of the assessee that in respect of the said assessment years the assessee had filed its returns of income along with and supported by the audited profit and loss accounts, depreciation statements, various other statements in detail. The assessee claimed under r. 5 of the I.T. Rules, 1962, read with App. I, Pt. I, under item III(ii), 1O% depreciation and was allowed the same. According to the assessee, this was allowed after consideration of the relevant facts as this had already been allowed since the assessment year 1961-62. Thereafter, the assessments were sought to be reopened by the aforesaid notices and the petitioner challenged the said reopening by this application under art. 226 of the Constitution. In the affidavit-in-opposition, in answer to the rule nisi, the ITO stated that the reasons for the reo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I.T, Act, 1961. Sabyasachi Mukharji J., in his judgment, referred to his earlier decision in Diamond Sugar Mills Ltd. v. ITO [1973] 89 ITR 171 (Cal), where he had laid down the conditions to be fulfilled in order that it may amount to "information" in terms of s. 147(b) of the Act. The learned judge held that the decision of the ITO in respect of another assessee for another assessment year was not a decision of any higher authority and it was merely the opinion of an officer of co-ordinate authority on the basis of the facts of the case and that cannot be considered to be an information in terms of cl. (b) of s. 147 of the I.T. Act, 1961. The next case we shall refer to is the case of Kalyanji Mavji Co. v. CIT [1976] 102 ITR 287 (SC), which has been strongly relied upon by Mr. Balai Pal. In that case, Fazal Ali J., after referring to the various decisions of the Supreme Court, held as follows (p. 296): " On a combined review of the decisions of this court the following tests and principles would apply to determine the applicability of section 34(1)(b) to the following categories of cases : (1) where the information is as to the true and correct state of the law derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the proceedings. The accountable person filed a reply stating that there was no new information in the possession of the Asst. Controller and, therefore, he had no jurisdiction to reopen the assessment under cl. (b) of s. 59. The Asst. Controller repelled the preliminary objection. He held that according to Hindu law the correct share of the deceased in the bigger HUF would be one-half and not one-fourth. He further held that in this case the correct position of law came to the notice of the Asst. Controller, subsequent to the completion of the original assessment and information, that is, the correct position of law so known led to the belief that the property had escaped assessment on account of adopting wrong share of the deceased in the bigger HUF. He, accordingly, included one-half share for assessment purposes. The accountable person went up in appeal. The Zonal Appellate Controller held that the facts of the case clearly go to establish that subsequent to the order of assessment on 24th July, 1963, there was no information obtained. This notice for reassessment was invalid and bad in law. He further held that in view of the fact that the reopening of the assessment itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as unaware of the legal position on the basis of which he initiated reassessment proceedings at the time of drawing up the original assessment. He became aware of the legal position as a result of his research into law subsequent to the assessment order. The question that requires consideration is whether this acquisition of knowledge as to the true legal position applicable to the facts of the case is information in the possession of the Assistant Controller within the meaning of clause (b) of section 59." The next case we shall refer to is the case of R. K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537 (SC). The facts of this case are as follows : The assessee owned two house properties, one in Ahmedabad and the other in Bombay. During the relevant assessment year 1965-66, both the properties were occupied by the respondent. The ITO treated the properties as self-occupied property. The respondent claimed that a sum of Rs. 4,052 being the municipal taxes be deducted in determining the annual valuation of the properties under s. 23(2) of the I.T. Act. The ITO allowed the claim. Subsequently, after a lapse of over 3 years, the ITO, by a letter dated July 15, 1969, calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the assessee was not entitled to development rebate and, therefore, the grant of the same had resulted in the income being under assessed. The Madras High Court examined the scope of s. 147(b) of the 1961 Act. The first question which was considered by the High Court was whether the ITO had come to possess information subsequent to the original assessment or not. In that case, there was an assessment order in which the ITO referred to the circumstances under which the case was reopened. In this connection, it was observed by the Madras High Court as follows (p. 570): " Apart from stating, 'subsequently it came to notice that development rebate was wrongly allowed', the Income-tax Officer in his order does not state as to how it came to his notice. On the other hand, the rest of the order of the Income-tax Officer will make it clear that he did not have any external information and that he came to the conclusion that development rebate was wrongly allowed solely on the basis of reconsideration of the original order made by his predecessor. " It was further pointed out that from the assessment order it was clear that the ITO acted solely on the basis of bestowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As such no such material is disclosed by the ITO in his order and no such material is disclosed from the order of the Tribunal. The passage relied on by Mr. Pal as the basis of such information does not help the revenue. If that is to be treated as information it is not an information within the meaning of s. 8(b) of the Act. We cannot draw the presumption as sought for by Mr. Pal. We do not find any material on the basis of which we can come to the conclusion that the ITO on the basis of further enquiry has found out some other facts or law on the basis of which he found out that there was any mistake or inadvertence made in the earlier order. In the absence of any such material we cannot speculate regarding the same. For the aforesaid reasons, we must hold that the condition precedent to the exercise of power under s. 8(b) has not been satisfied in the facts of this case. In the facts and circumstances of this case, there is no provision within the meaning of s. 8(b) which would empower the ITO to reopen the assessment as he has sought to do. For the aforesaid reasons, we answer the first question in the negative and in favour of the assessee. We hold that, on the facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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