1. In this reference, by the Income-tax Appellate Tribunal, Bombay Bench 'B', at the instance of the Commissioner of Income-tax Bombay City-I, under s. 256(1) of the I.T. Act, 1961, the following two question have been referred to us for our opinion, namely :
'(1) Whether the provision of section 147(a) of the Income-tax Act, 1961, applied to the items of machinery referred to in para. 1 of the statement of the case ?
(2) Whether clause (i) of Explanation 1 to section 10(2) (vib) of the Indian Income-tax Act, 1922, prohibits the sale of machinery in respect of which development rebate is allowed even when the machinery was installed prior to January 1, 1956 ?'
2. The assessee-company had, in its return for the assessment year 1958-59, claimed development rebate in respect of certain machinery as under :
Machinery Cost of Development Year in whichinstalled machinery rebate the machineryin the installed allowed was soldmonth ofRs. Rs.March, 1957 40,152 10,034 1957April, 1957 1,595 399 1958Dec, 1957 11,605 2,901 1958May, 1957 56,363 14,091 (April) 1962
3. The ITO, while completing the assessment for the said assessment year 1958-59, allowed the assessee development rebate as claimed in respect of the machineries at Items Nos. 2 to 4 but disallowed the same for the machinery at item No. 1, on the ground that the same was sold by the assessee in that very year.
4. In an appeal filed by the assessee to the AAC against the disallowance of the development rebate in respect of the machinery at item No. 1, the AAC allowed the same on the ground that the sale of the machinery date of its installation did not result in the withdrawal of the development rebate. As the revenue did not go in appeal against the said order of the AAC, the same became final.
5. Subsequently, the ITO issued a notice to the assessee-company under s. 148 of the I.T. Act, 1961, for reopening of the assessment for the assessment year 1958-59, which was the year under reference in respect of the all the four items of the machinery on the ground that the development rebate had been wrongly allowed on the said machineries, as they were not installed by the assessee-company for the purposes of its business but were let out on hire. The ITO, however, did not pursue the said line of action any further.
6. Thereafter, with a view to withdraw the development rebate already granted to the assessee-company for the said assessment year 1958-59, the ITO adopted proceedings under s. 147(a) of the I.T. Act, 1961, but the Finance Act of 1958, and the insertion of s. 35(11) therein, providing that when the assets, that its, the machineries, were sold within ten year from the end of the year in which they were installed, the development rebate originally allowed was to be deemed to have been wrongly allowed and, therefore, the total income for the relevant year became recomputable. The ITO, accordingly, withdraw the development rebate allowed to the assessee in the year 1958-59, in respect of all the said four machineries and made an order reassessing the assessee-company for the said assessment year 1958-59.
7. The assessee-company preferred an appeal to the AAC against the said reassessment made by the ITO by resorting to s. 147(a) of the I.T. Act, 1961. The main contention before the AAC was that the ITO could not have reopened the assessment proceedings under s. 147(a) inasmuch as there was no omission or failure on the part of the assessee to disclose the particulars for completing the assessment. The AAC upheld the contention of the assessee. He also held that the prior order of the AAC dated July 6, 1961, allowing a development rabate for the machinery at item No. 1. having become final, the ITO's orders as regards the reopening of the assessment in respect of the said item irregular. He also held that a withdrawal of the development rabate under s. 10(2)(vib) of the Indian I.T. Act, 1922, applied to such machineries as were installed after January 1, 1958, and since in this case all the items of machineries were installed before that date, there was no power to withdraw in this case. Accordingly the, AAC set aside the said order of the ITO.
8. The revenue thereupon preferred an appeal to the Tribunal challenging the correctness of the said order of the AAc on both the grounds.
9. The main contention before the Tribunal was as regards the applicability of the provisions of s. 147(a) of the I.T. Act, 1961, to the facts of this case. The Tribunal observed that when the ITO allowed the development rebate on the facts known to him and when the assessee forfeited its right to the same by a subsequent sale, it would not be a question of income escaping assessment as a result of the assessee's commission or failure to wholly or truly disclose all the material relevant to the assessment. According to the Tribunal, therefore, to withdraw the rebate was provided for under s. 35(11) of the Indian I.T. Act, 1922. The Tribunal, therefore, held that s. 147(a) was not attracted to the present case and the reassessment made with reference thereto was liable to be cancelled.
10. The Tribunal also held, following the decision of the Supreme Court in CIT v. Rao Thakur Narayan Singh : 56ITR234(SC) , that the order of the AAC in respect of the machinery at item No. 1 having become final, the ITO was not competent to withdraw the development rebate in respect of the said machinery.
11. In this case, we would be concerned with the question of a reopening of the assessment by the ITO under s. 147(a) of the I.T. Act, 1961, by withdrawing the development rebate granted to the assessee, only in respect of the machineries at items Nos. 2,3 and 4, as the allowance of such rebate in respect of the machinery at item No. 1 above had become final by the order of the AAC darted July 6, 1961, in appeal, the ITO having no jurisdiction to reopen or rectify the same.
12. Section 147(a) of the I.T. Act, 1961, dealing with the question of income escaping assessment, so far as is relevant, provide :
'147. Income escaping assessment - If -
(a) the Income-tax officer has reason to believe that, by reason of the omission or failure on the part of an assessee... to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for the year, or....
he may... assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned.'
13. A reading of the said provisions show that the ITO can act under the said provisions only if he had reason to believe that some income of the assessee had escaped assessment by reason of an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year.
14. The question, therefore, in this case is whether, on the facts and circumstances of the case, it could be said that the assessee had omitted or failed to disclose fully and truly all the material facts necessary for an assessment of tax for the year in question.
15. In this case, the assessment year is 1958-59, with the accounting year ending on December 31, 1957. As shown above, all the four concerned machineries were installed between March, 1957, and December, 1957, that is, during the relevant accounting year. It is not disputed that the three machineries at items Nos. 2, 3, and 4 with which we are concerned, were not sold during that year or, in any event, at the time when the return was filed by the assessee, though they appear to have been sold in subsequent years. Under the circumstances, therefore, if the said machineries were sold in subsequent years, then at the date of filling the return the assessee could not be credited with the knowledge of the sales which were to take place in the future, so that he could be said to have failed or omitted to disclose truly and fully the facts about such future sales. In that view of the matter, the provisions of s. 147(a) of the I.T. Act, 1961, were not attracted in this case, and the ITO could not have proceeded to reassess the assessee under the said provisions.
16. It appears that if, however, the ITO desirous of the withdrawing the rebate granted under s. 10(2)(vib)(ii) of the Indian I.T. Act, 1922, because of subsequent sales, the said Act had in such a case provided a specific remedy to the ITO under the subsequently added provisions of s. 35(11) of the said Act.
17. The development rebate granted to the newly installed machinery under s. 10(2)(vib)(ii) of the Indian I.T. Act, 1922, was withdrawable under newly added provisions of s. 35(11) of the said Act, if the machinery to which the said provisions of s. 10(2)(vib)(ii) were applicable was sold within ten years from the end of the year in which the machinery was installed. Under the provisions of s. 35(11), the rebate already allowed was to be deemed to have been wrongly allowed and the ITO was given the power to recompute the total income of the assessee for the relevant year as if it were a rectification of a mistake apparent from the record, and the period of limitation of four years, for the rectification under s. 35(11) was to be computed from the end of the year in which the transfer took place. However, that would be the case only if the said provisions were held applicable to the machineries installed before January 1, 1958, as in this case. In the view that we are taking on the first question, however, we do not think it necessary to express our opinion on the other question as to the application of cl. (i) of Expln. 1 to s. 10(2)(vib) to the machineries in this case.
18. We, accordingly, answer the said two question as unde :
Question No. : In the negative and in favour of the assessee.
Question No. : Need not be answered.
19. Revenue to pay costs to the assessee.