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Commissioner of Income-tax Vs. Abhoji Rao Phalke - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 130 of 1983
Judge
Reported in(1984)42CTR(MP)78; [1985]156ITR604(MP)
ActsIncome Tax Act, 1961 - Sections 54, 147, 148 and 256(2)
AppellantCommissioner of Income-tax
RespondentAbhoji Rao Phalke
Appellant AdvocateH.L. Sharma, Adv.
Respondent AdvocateR.C. Lahoti, Adv.
Cases ReferredShrigopal Rameshwardas v. Addl.
Excerpt:
- - 1. this is an application under section 256(2) of the income-tax act, 1961, by the department for a direction to the income-tax appellate tribunal to state the case and refer the following question law :whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that the reopening of assessment under section 147(b) of the income-tax act, 1961, was bad in law ?' 2. the respondent-assessee is a hindu undivided family and the assessment year in question is 1974-75 for the accounting year ending march 31, 1974. for this year, the assessment was completed on a total income of rs......section 147(b) of the income-tax act, 1961, was bad in law ?' 2. the respondent-assessee is a hindu undivided family and the assessment year in question is 1974-75 for the accounting year ending march 31, 1974. for this year, the assessment was completed on a total income of rs. 23,368 on february 26, 1977, by the income-tax officer. in that year, the assessee had sold certain land measuring 9,800 sq. feet for rs. 66,000 and it claimed that since the land was appurtenant to the residential house and since it has incurred expenditure more than the sale price, the capital gains on the sale of the land was exempt under section 54 of the act. the contention was accepted by the income-tax officer. however, on making enquiry, subsequently in respect of the nature of the land sold by the.....
Judgment:

C.P. Sen, J.

1. This is an application under Section 256(2) of the Income-tax Act, 1961, by the Department for a direction to the Income-tax Appellate Tribunal to state the case and refer the following question law :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reopening of assessment under Section 147(b) of the Income-tax Act, 1961, was bad in law ?'

2. The respondent-assessee is a Hindu undivided family and the assessment year in question is 1974-75 for the accounting year ending March 31, 1974. For this year, the assessment was completed on a total income of Rs. 23,368 on February 26, 1977, by the Income-tax Officer. In that year, the assessee had sold certain land measuring 9,800 sq. feet for Rs. 66,000 and it claimed that since the land was appurtenant to the residential house and since it has incurred expenditure more than the sale price, the capital gains on the sale of the land was exempt under Section 54 of the Act. The contention was accepted by the Income-tax Officer. However, on making enquiry, subsequently in respect of the nature of the land sold by the assessee and the legal position in respect of applicability of Section 54, it was found that the land was not appurtenant to the house and Section 54 has no application to a Hindu undivided family. It appears that during audit inspection, a note was appended by the auditor that Section 54 has no application to a Hindu undivided family. Accordingly, a notice under Section 148 read with Section 147(b) was issued to the assessee. In response to this notice, the assessee did not file any fresh return but relied on the return already filed. The Income-tax Officer held that the land was not appurtenant to the house and Section 54 was not applicable to a Hindu undivided family and, therefore, a reassessment was made. Aggrieved by this order, the assessee preferred an appeal before the Appellate Assistant Commissioner who by his order dated September 16, 1980, held that it was not open to the Income-tax Officer to reopenthe question as to whether the land was appurtenant to the house or not as reopening cannot be based on mere reappraisal or reappreciation of the same facts. But (according to the Appellate Assistant Commissioner), it appears that the correct position of law that Section 54 does not apply to a Hindu undivided family was rightly pointed out by the auditor to the Income-tax Officer and this constituted a patent error of law which can justify reopening of the case under Section 147(b). The assessee preferred an appeal before the Income-tax Tribunal who on July 17, 1982, reversed the findings of the Appellate Assistant Commissioner by holding that though the Appellate Assistant Commissioner referred to the decision in Indian & Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , reopening on the sole ground of audit pointing out a mistake was not justified under Section 147(b). The Department then filed an application for reference which has been rejected by the Tribunal on February 14, 1983. So the present application has been filed.

3. The learned counsel for the Department contended that the audit only pointed out the correct position of law and not interpreted the law and, therefore, this amounts to information within the meaning of Section 147(b) and the case could be reopened by the Income-tax Officer. According to the learned counsel for the assessee, there is no question of making a reference as no question of law arises in view of the decision of the Supreme Court in Indian & Eastern Newspaper Society Ltd. v. CIT : [1979]119ITR996(SC) . Further, there is a finding of fact recorded by the Tribunal that the Income-tax Officer reopened the assessment solely on the basis of the note of the audit objection which is not permissible in view of the aforesaid decision of the Supreme Court.

4. After having heard the parties, we are of the opinion that a question of law does arise and requires to be referred by the Tribunal to this court for opinion. It is true that the Supreme Court in Mathura Prasad v. CIT : [1966]60ITR428(SC) , has held that the Tribunal is entitled to reject an application for reference, if the question of law, even though arising from its order, is academic or is concluded by a judgment of the highest court. The same view has been taken by the Supreme Court in CGT v. Smt. Kusumben D. Mahadevia : [1980]122ITR38(SC) , that there must be a question of law arising out of the order of the Tribunal before a reference can be made, but it is not every question of law that is required to be referred by the Tribunal to the High Court. Where the answer to the question is self-evident or is concluded by a decision of the Supreme Court, it would be futile to make a reference and, in such a case, the Tribunal would be justified in refusing to refer the question to the High Court. It is also true that unless a finding of fact is specifically challenged by the assessee and aquestion is raised and referred incorporating such challenge, the courtwould not suo motu go into the validity of the finding of fact: Shanti DeviJalan v. CIT : [1983]139ITR288(Cal) . The same is the view taken in Addl.CIT v. R.D. Ramnath & Co. : [1983]141ITR897(Delhi) , that when thefinding of the Tribunal that business was not distinct was not challenged,the Tribunal's order cannot be set aside even if the court held the transaction to be speculative. The question referred was academic and cannotbe answered. So we have to see whether the decision of the SupremeCourt in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) ,concluded the matter. The Supreme Court, in that case, held that theopinion of an internal audit party of the Income-tax Department on apoint of law cannot be regarded as 'information' within the meaning of Section 147(b) of the Income-tax Act for the purposes of reopening theassessment. But although an audit party does not possess the power topronounce on the law, it nevertheless may draw the attention of theIncome-tax Officer to it. Law is one thing and its communication another.If the distinction between the source of the law and the communication of the law is carefully maintained, the confusion which often resultsin applying Section 147(b) may be avoided. While the law may be enactedor laid down only by a person or body with authority in that behalf, theknowledge or awareness of the law may be communicated by any one. Noauthority is required for the purpose. That part alone of the note of anaudit party which mentions the law which escaped the notice of theIncome-tax Officer constitutes 'information' within the meaning of Section 147(b). In view of this observation, the Appellate Assistant Commissioner rightly held that the audit party only brought to the notice of theIncome-tax Officer the correct position of law and this constitutes 'information' and on this basis the Income-tax Officer could act upon. Therefore, it was not correct on the part of the Income-tax Tribunal to hold that,in fact, the audit party has given its opinion on a point of law. There isno question of any finding of fact. The observation of the Tribunal thatthe Income-tax Officer reopened the assessment on the sole ground of auditpointing out a mistake that the assessee being a Hindu undivided family wasnot entitled to exemption from capital gains under Section 54, helps theRevenue and not the assessee and there is no question of disturbing thefinding of fact. This court in Shrigopal Rameshwardas v. Addl. CIT : [1979]119ITR980(MP) has held that the word 'assessee' occurring in Section 54 is applicable only to a living person and not to an artificial juridical person. In that case, the assessee, a Hindu undivided family, soughtexemption on capital gains in respect of a house property and it was heldthat the same is not allowable.

5. Accordingly, the application is allowed and the Tribunal is directed to refer the case to this court for its opinion on the question mentioned above. Under the circumstances, there shall be no order as to costs.


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