1. In this reference the two questions which are referred to us are as follows :
'Whether, on the facts and in the circumstances of the case, the assessment was validly reopened under section 148 read with section 147(b)
(2) If the answer to question No. 1 is in the affirmative, whether on the facts and in the circumstances of the case, the company was entitled to the relief under section 15C of the Indian Income-tax Act, 1922 ?'
2. We are concerned with the assessment year 1959-60. The two questions arise from the common order of the Income-tax Appellate Tribunal for the three assessment years 1957-58, 1958-59 and 1959-60. As the Tribunal upheld the submissions made on behalf of the assessee for all these three years, the Commissioner wanted a reference for all the three years, but reference was refused for the first two years, i.e., for assessment years 1957-58 and 1958-59, and the two questions were referred only for the third of the said years, viz., 1959-60. The relevant previous year for that assessment year is the year ended March 31, 1958.
3. A few facts may be stated. The assessee-company is a public limited company established on November 3, 1953. The principal object of the assessee-company was to manufacture and sell sulphur black dyes and the venture was set up in collaboration with an English company, viz., Hickson & Wolch Ltd. The plant and machinery required for manufacture were supplied by the foreign collaborator who received payment in the form of shares of the company. Some shares were also allotted to the collaborator for supply of know-how. The initial subscribed capital of the company was Rs. 5 lakhs. As on December 31, 1958, the fixed assets of the company as shown in the balance-sheet were valued at Rs. 14.43 lakhs. Initially, the company had no land or building of its own when it started, but by the end of December, 1958, it had acquired land valued at Rs. 1.69 lakhs and buildings valued at Rs. 5.06 lakhs. In 1958, the additions to the existing plant and machinery of Rs. 3.88 lakhs, amounted to Rs. 4.18 lakhs.
4. The original assessment for the assessment year 1959-60 was completed on November 7, 1960. For this year, as also for the previous two years, the company had claimed rebate under s. 15C of the Indian I.T. Act, 1922, as a new industrial undertaking. The claim was allowed by the ITO on the basis of the computations furnished by the assessee, subject to some modifications, the details of which are not relevant for our purposes. The assessments for all the three years were subsequently reopened under s. 148 of the I.T. Act, 1961, the object being to withdraw the rebate already granted under s. 15C. For the first two years, the ITO purported to act under s. 148 read with s. 147(a). For the third year, unlike the previous year with which we are concerned, the action was under s. 147(b) and the necessary notice was served on the assessee-company on March 28, 1964. For this year, unlike the previous two, the ITO accepted the position that there was no withholding of any facts by the company. This has been expressly mentioned by the ITO in para. 3 of the assessment order in the following words :
'There has been no omission, admittedly, on the part of the assessee to disclose the fact as stated above; however, the income has been made the subject of excessive relief and hence the provisions of section 147 of the Act are clearly attracted in the present case.'
5. The basis for the purported action of withdrawal of rebate under s. 15C was that when the company was initially formed it had no land or building of its own and hence in order to start manufacture without any delay the company had leased the factory building form a concern known as Mangaldas Jesingbhai & Co. Pvt. Ltd. This was under an agreement dated May 23, 1955, under which the premises were let for a term of five years on a monthly rent of Rs. 2,500 made up of Rs. 1,250 for the land and factory premises and Rs. 1,250 for the use of boiler, electric installations, fittings and fixtures, etc., in the said factory premises. The ITO at the stage of reassessment took the view that the company was formed by the transfer to it of the factory and the boiler belonging to Mangaldas Jesingbhai & Co. Pvt. Ltd. and for that reason it was disentitled to the rebate under s. 15C. Accordingly, in the reassessment order the rebate was withdrawn. This was done for all the three years.
6. Being aggrieved by the reassessment order, the assessee preferred an appeal to the AAC where it was contended that proceedings under s. 148 were wrongly initiated. It was further urged that, on merits, the company was entitled to relief originally allowed in the assessment. Both the contentions were rejected by the AAC. It may be mentioned and it has been so mentioned by the Tribunal that while disposing of the appeals for all three years the AAC has not kept before himself the fact that whereas for the first two years action was initiated under s. 147(a), action for the third year with which we are concerned was under s. 147(b). He has also ignored the statements made by the ITO in para. 3 of the reassessment order. Both on the propriety of the action under s. 148 and on merits the AAC agreed fully with the ITO.
7. The company appealed to the Tribunal where it succeeded for all the three years. This was under the Tribunal's common order dated March 6, 1968. We will, however, restrict ourselves to the portion of the said order dealing with the assessment year with which we are concerned where action was under s. 147(b) of the I.T. Act, 1961. According to the Tribunal, for this year, on the ITO's own showing, the assessment was reopened not by reason of any failure or omission on the part of the company at the time of original assessment, but because in the opinion of the ITO relief under s. 15C was erroneously granted. According to the Tribunal, this was only a change of opinion and, therefore, reassessment was not justified. On merits also the Tribunal held that leasing the factory premises, boiler and other installations from the said Mangaldas Jesingbhai & Co. Pvt. Ltd. would not amount to a transfer. As far as the latter conclusion is concerned, it is clear that the view expressed by the Tribunal is in conflict with the decision of this High Court in Capsulation Services Pvt. Ltd. v. CIT : 91ITR566(Bom) . However, we need not go into this aspect of the matter unless it is possible to justify the reopening of the assessment under s. 147(b). Under s. 147(b) reassessment is permissible if the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. All that the ITO has stated in meeting the objection of the assessee-company to the reopening of the assessment was that excessive relief had been earlier allowed to the company when the assessment was originally completed. The Tribunal has rightly opined that this is a case of change of opinion. In any case, there is nothing on record to suggest that the ITO initiated reassessment proceedings in consequence of any information in his possession. It is now well settled, at least as far as this court is concerned, that an assessment cannot be reopened on a mere change of opinion. We may refer briefly to the decision given by a Division Bench of this court in CIT v. H. Holck Larsen : 85ITR467(Bom) . This decision was referred to by the Supreme Court in Kalyanji Mavji & Co. v. CIT : 102ITR287(SC) , where Justice Murtaza Fazal Ali J., speaking for the Supreme Court, expressed the inclination to agree with the view expressed by Chandrachud J. (of the Bombay High Court, as he then was) in H. Holck Larsen's case : 85ITR467(Bom) . H. Holck Larsen's case has been followed subsequently and applied by another Division Bench of this court (to which I was a party) in CIT v. T. C. Dolwani : 111ITR650(Bom) . The Tribunal has found that this was a case of change of opinion by the ITO. The original assessment was made by the ITO, Shri S. S. Gadgil. His successor was of the view that he had allowed excessive relief and allowed relief under s. 15C which ought not to be allowed. This was the only ground on which reassessment proceedings were initiated for the assessment year 1959-60. This is clear case of a change of opinion and, following the decisions earlier noted, particularly H. Holck Larsen's case : 85ITR467(Bom) , we are of the opinion that reopening of the assessment was not justified.
8. In the view that we take of the propriety and validity of the reopening, question No. 2 is not required to be answered. Accordingly, the questions are answered as follows :
Question No. 1. - In the negative and in favour of the assessee.
Question No. 2. - Not necessary to answer.
9. The Commissioner will pay the costs of the reference to the assessee.