1. This is a reference at the instance of the Commissioner under S. 256(1) of the I.T. Act, 1961. The question referred to us is as follows :
'Whether, on the facts and in the circumstances of the case, the reassessment made under section 147(b) of the Act was valid ?'
2. The assessee is a company and the accounting year ended on 31st December, 1960. The assessee-company owned 10,000 preference shares of another company, viz., Messrs. Elphinstone Spinning & Weaving Mills Co. Ltd. (hereinafter referred to as 'Elphinstone Mills'). The Elphinstone Mills deducted a sum of Rs. 63,000 from the amount of dividend as income-tax and super-tax and paid the assessee-company the balance amount of Rs. 1,47,000. Pursuant to S. 18(9) of the Indian I.T. Act, 1922, the necessary certificate was also issued by the Elphinstone Mills to the assessee-company. At the time when the assessee-company get its income assessed by the ITO, the certificate was produced before the ITO who gave credit to the assessee for tax deducted at source amounting to Rs. 63,000. It appears that subsequently the ITO, Company Circle 1(6), who was the assessing officer for the Elphinstone Mills, gave information to the ITO of the assessee-company that Elphinstone Mills had not paid the tax deducted at source to the account of the Central Government as required under S. 18(5) of the Indian I.T. Act, 1922. Thereupon, the ITO initiated proceedings under S. 147(b) of the I.T. Act, 1961, and reopened the assessment. In the reassessment proceedings the chief accountant of the assessee-company submitted that the default, if any, was that of Elphinstone Mills and the assessee-company could not be regarded as being at fault in any manner. Accordingly, it was submitted that the assessee-company should not be deprived of the benefit of the tax deducted at source. The ITO found that this submission was untenable in view of S. 18(5) of the Indian I.T. Act, 1922, or the corresponding section, viz., S. 199 of the I.T. Act, 1961. The credit of Rs. 63,000 was accordingly withdrawn by the ITO.
3. Being aggrieved by the decision of the ITO in the reassessment proceedings, the assessee went in appeal to the AAC. In was contended that the Elphinstone Mills had given a certificate of deduction as provided under S. 18(9) of the Indian I.T. Act, 1922, and on production of this certificate before the ITO the assessee-company was entitled to deduction of the equivalent amount from the tax payable. Other arguments were also advanced. Finally, it was submitted that in any event recourse to S. 147(b) was not proper inasmuch as income chargeable to tax could not be said to have escaped assessment either by reason of under-assessment or being assessed at too low a rate or on account of excessive relief being granted. The AAC accepted both the principal contentions raised on behalf of the assessee. In his view the assessee-company was not at fault and as it had produced the necessary certificate under S. 18(9), credit to it could not be denied. Further, according to the AAC, the ITO had no jurisdiction to reopen the assessment under S. 147(b). The department then carried the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal rejected the arguments of the department and upheld the conclusions which earlier had been reached by the AAC. It is from the decision of the Tribunal that the reference has been made to us.
4. It was submitted by Mr. Joshi that the conclusions reached by the Tribunal on the provisions of S. 18(5) of the Indian I.T. Act, 1922, were not warranted and were contrary to the express language of the provision. However, in the view that we take of the other conclusion which is to be found in para. 5 of the order of the Tribunal dated 28th April, 1969, which was that S. 147(b) was not attracted, was are inclined not to consider this aspect which is also involved in the question referred to us. If the correct position in law is that action under S. 147(b) was not warranted, it is unnecessary in our view to consider whether if such action had been warranted then which of the rival contentions as to the effect of S. 18(5) is the correct one.
5. Before setting down the appropriate statutory provision, para. 2 of the order of the ITO in the reassessment proceedings may be extracted. That gives the basis for the action under S. 147(b). Paragraph 2 of the said order dated 30th September, 1966, reads as follows :
'Subsequently, information was received from the ITO assessing the Elphinstone Spg. & Wvg. Mills Ltd. that though this company (Elphinstone) had deducted tax from the dividends of its shareholders, it had not paid these amounts to the credit of the Central Govt. Therefore, in view of the section 18(5) of the I.T. Act, 1922, credit for the tax deducted at source should not have been given in the shareholders' assessment. The assessment was, therefore, reopened u/s. 147(b).'
6. Now assuming that credit for tax deducted at source should not have been given to the shareholder, viz., the assess-company, the question that arises is whether this excess allowance brings the matter within the four corners of S. 147(b).
7. Action under S. 147(b) is permissible to the ITO where in consequence of information in his possession he has reason to believe that income chargeable to tax has escaped assessment for any assessment year. The question is whether it can be said on the facts of this case that income chargeable to tax has escaped assessment for the assessment year with which we are concerned. Now, for the purposes of this section the legislature has enacted Expln. 1 to the provision where it is clarified that various situations therein indicated will be deemed to be within the compass of the expression 'income chargeable to tax has escaped assessment'. The entire Explanation may now be set down :
'Explanation 1. - For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-
(a) where income chargeable to tax has been under-assessed; or
(b) where such income has been assessed at too low a rate; or
(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance has been computed.'
8. It is obvious that items (a), (b) and (d) of this Explanation are totally inappropriate and Mr. Joshi did not make even a faint attempt to utilise these in support of the stand of the department. He, however, submitted, though without his usual vehemence, that item (c) could be pressed into service in the instant case.
9. Item (c) speaks of income having been made the subject of excessive relief under the Act. Now, it has been found by the AAC and confirmed by the Tribunal that in the reassessment proceeding the figure of income as originally computed in the assessment has remained the same. It was found further that the rate of tax has remained the same and the only fault found with the original assessment in the reassessment proceeding was that the assessee had been given excessive credit in the matter of tax deducted at source which was the credit for the amount of Rs. 63,000 for which necessary certificate issued by Elphinstone Mills had been produced before the ITO. The question then is whether this falls within the ambit of item (c) of Expln. 1. The question was considered by the Supreme Court in P.S. Subramanyan, ITO v. Simplex Mills Ltd. : 48ITR182(SC) , which was an appeal to the Supreme Court from the decision of the Bombay High Court which is reported in this very volume of the ITR at p. 980. The relevant facts involved in the said appeal were that at the time of assessment it was ascertained that a part of the tax paid by the assessee in advance for the assessment year was found refundable. The ITO allowed interest under S. 18A(5) of the Indian I.T. Act, 1922, on the amount of the advance tax, but by reason of a subsequent change in law the payment of interest became excessive. The ITO sought to recover the excess amount of interest by recourse to reassessment proceedings under S. 34(1)(b) of the Indian I.T. Act, 1922, which provision is in pari materia with S. 147(b). It was held by a single judge of the Bombay High Court Simplex Mills Ltd. v. P.S. Subramanyan, ITO : 34ITR711(Bom) , subsequently by a Division Bench in appeal, and finally by the Supreme Court that the original assessment could not be reopened under S. 34 and that this could not be considered to be a case of under-assessment of the income or excessive relief being granted whilst computing the income. The relevant observations of the Supreme Court decision are to be found at pages 184 and 185 of the report : 48ITR182(SC) . It may be pertinent to point out that in the opinion of the Division Bench of the Bombay High Court : 48ITR980(Bom) the reliefs referred to in S. 34(1)(b) can only be such reliefs as are granted to the assessee by reason of his income, profits and gains being chargeable to tax. Accordingly, the Division Bench considered that this expression would normally refer to such reliefs as are contemplated under Ss. 15A, 15C, 49A, 49B, 49C, 49D, and 60 of the Indian I.T. Act, 1922.
10. On a fair reading of item (c) of Expln. 1 to S. 147, it is clear to us that the alleged excess tax credit given to the assessee cannot be regarded as equivalent to a case where his income has been made the subject of excessive relief. This is clear from the fact that the income on which tax is computed has remained unaltered in the reassessment. If that is so, then item (c) of Expln. 1 is not applicable and the submissions made on the basis thereof by the learned counsel for the revenue must stand rejected.
11. In the view that we have taken of the propriety of the action under S. 147(b), it is unnecessary to express any opinion as to the other aspect on which the AAC and the Tribunal held in favour of the assessee.
12. In the result, the question referred to us is answered in the negative and in favour of the assessee. The Commissioner will pay to the assessee the costs of the reference.