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S. Srinivasan (Deceased) (by Legal Representatives) Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 84 of 1969 (Reference No. 5 of 1969)
Judge
Reported in[1975]101ITR94(Mad)
ActsIncome Tax Act, 1961 - Sections 147
AppellantS. Srinivasan (Deceased) (by Legal Representatives)
RespondentCommissioner of Income-tax
Appellant AdvocateS. Narayanaswami and ;T.S. Ramu, Advs.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredVairavan Chettiar v. Commissioner of Income
Excerpt:
.....argued on behalf of assessee was that assessment on company was confirmed by same officer prior to original assessment on assessee - no information coming to possession of income tax officer subsequent to original assessment so as to justify action under section 147 - there was neither any need for calling for supplementary statement nor for directing that matter for reconsideration by tribunal. - - 3,489 claimed by the company as travelling expenses incurred in respect of the visit of the managing director to russia, the income-tax officer was not prepared to consider it as a business expenditure and accordingly disallowed that item as well. on appeal the appellate assistant commissioner upheld the legality of the assessment proceedings as well as the assessment of these four items..........section 148 of the income-tax act, 1961 (hereinafter called 'the act'), proposing to reopen the original assessment completed on the assessee on january 15, 1963, under section 147 to include the following four items as perquisites which had escaped assessment in the hands of the assessee :rs.1. mess expenses 2002.travelling expenses in connection with the assessee's trip to russia3,4893.car expenses 5664.proportionate interest on debit balance inthe assessee's accounts in the company's books8,69712,9523. after hearing the assessee, the income-tax officer, by his order dated july 13, 1964, held that all these items are taxable perquisites which had escaped assessment and accordingly assessed them to tax in the reassessment order. on appeal the appellate assistant commissioner upheld.....
Judgment:

Ramaswami, J.

1. The assessee is the managing director of a private limited company called Anjaneya Motor Transports (Private) Ltd., Erode. The assessment for the previous year ending on September 30, 1961, relevant to the accounting year 1962-63, was completed on January 15, 1963, on an income of Rs. 51,935.

2. In the assessment of the private limited company for the previous year ending on September 30, 1961, the company claimed a sum of Rs, 745 as mess expenses. Considering that the expenses related to that of the directors during their trips to Madras, the Income-tax Officer disallowed a sum of Rs. 200. In respect of another sum of Rs. 3,489 claimed by the company as travelling expenses incurred in respect of the visit of the managing director to Russia, the Income-tax Officer was not prepared to consider it as a business expenditure and accordingly disallowed that item as well. When the business which was originally a partnership was converted into a private limited company all the partners became shareholders. There was an agreement on December 31, 1959, to the effect that the amount outstanding from the partners would be recouped from the amounts payable by the company in the subsequent years without payment of any interest. The total of the debit balance in the accounts of the shareholders amounted to Rs. 2,06,899 ; the total liabilities of the company was Rs, 20,95,415 and it had paid by way of interest Rs. 1,15,511. The Income-tax Officer disallowed a sum of Rs. 11,551 as representing the proportionate interest on the debit balance in the accounts of two directors, one of whom was the assessee. One other item which was disallowed by the Income-tax Officer was a sum of Rs. 566 spent by the company in respect of the motor car used by the managing director in the view that it related to the personal use of the assessee. The assessment on the company was completed on these lines on November 26, 1962. The company preferred an appeal against the disallowance of all these items, except the sum of Rs. 566 claimed towards expenditure on the motor car used by the managing director. The Appellate Assistant Commissioner, allowed the sum of Rs. 200 and Rs. 11,551 but confirmed the disallowance of Rs. 3,489. Thereafter, the Income-tax Officer issued a notice under Section 148 of the Income-tax Act, 1961 (hereinafter called 'the Act'), proposing to reopen the original assessment completed on the assessee on January 15, 1963, under Section 147 to include the following four items as perquisites which had escaped assessment in the hands of the assessee :

Rs.1. Mess expenses 2002.Travelling expenses in connection with the assessee's trip to Russia3,4893.Car expenses 5664.Proportionate interest on debit balance inthe assessee's accounts in the company's books8,697

12,952

3. After hearing the assessee, the Income-tax Officer, by his order dated July 13, 1964, held that all these items are taxable perquisites which had escaped assessment and accordingly assessed them to tax in the reassessment order. On appeal the Appellate Assistant Commissioner upheld the legality of the assessment proceedings as well as the assessment of these four items as taxable perquisites. On a further appeal, though the Tribunal was of the view that reassessment proceedings were legally and validly taken, on merits, it held that the addition of Rs. 200 on account of mess expenses and Rs. 8,697 as proportionate interest on debit balance in the assessee's account in the company's books were not justified. At the instance of the assessee, the following question has been referred under Section 256(1) of the. Act:

'Whether, on the facts and circumstances of the case, the proceedings under Section 147 of the Income-tax Act, 1961 and the reassessment thereon for the assessment year 1962-63 are valid ?'

4. The learned counsel for the assessee strenuously contended that the assessment of the company was completed as early as on November 26, 1962, by the same Income-tax Officer, long prior to the original assessment on the assessee, which was only completed on January 15, 1963, and that the Income-tax Officer could not be said to have come into possession of any information subsequent to the original assessment which would have formed a reason for him to believe that any income chargeable to tax has escaped assessment. There is no material placed, according to the learned counsel, as to what was the information that came subsequent to the assessment which he had failed to consider. The learned counsel also contended that the information which came to his possession must have come not only after the original assessment but also from external sources and there being no evidence to show in this case that the Income-tax Officer had come into possession of any material either on facts or of law from an external source, Section 147(b) was not applicable. The learned counsel had taken us in this connection through a number of decisions rendered both by the Supreme Court and the High Courts in India. But we do not consider it necessary to refer to all the decisions except some of them which have a direct bearing on the question for consideration.

5. In Salem Provident Fund Society v. Commissioner of Income-tax : [1961]42ITR547(Mad) , while considering the scope of Section 34 of the Indian Income-tax Act, 1922, this court held that information for the purpose of Section 34 need not be wholly extraneous to the record of the original assessment. A mistake apparent on the face of the order of assessment would itself constitute information and that whether someone else gave the information to the Income-tax Officer or whether he informed himself was immaterial. The same view was expressed in the subsequent decision in Sankaralinga Nadar v. Commissioner of Income-tax : [1963]48ITR314(Mad) , where the learned judges further stated that income which escapes assessment as a result of lack of vigilance of the Income-tax Officer or due to inadvertence or negligence or to the perfunctory performance of his duties without due care and caution can well be within the ambit of the powers of the Income-tax Officer under Section 34(1)(b) of the Indian Income-tax Act, 1922, provided he had not applied his mind to the chargeability of the income at the time of the original assessment. Similar views have been expressed by the other High Courts as well. But the learned counsel for the assessee contended that the subsequent decision of the Supreme Court in Commissioner of Income-tax v. A. Raman & Co. : [1968]67ITR11(SC) and some other decisions have struck a different note which would doubt the ratio of the judgments of this court. In Commissioner of Income-tax v. A. Raman & Co. the Supreme Court pointed out that the expression 'information' in the context in which it occurs in Section 147(b) of the Act must 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. It would be seen from the facts in that case that the Income-tax Officer had even at the time of the original assessment the necessary facts but considered that income was not taxable, but subsequently on re-perusal of the assessment records wanted to reopen the assessment. It was held in those circumstances that it was not open to the Income-tax Officer to change his opinion, so to say, unless the knowledge on mistake of fact or law comes to his possession from an external source. It is pertinent to point out that the Supreme Court in that case itself had stated that even if the information be such that it could have been obtained during the previous assessment from an investigation of the material on record or the facts disclosed thereby or from other enquiry or research into the facts or law but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected. All those decisions where the necessity for information coming from an external source were considered and cited by the learned counsel are all cases where the Income-tax Officer himself had considered the question at the time of the original assessment and his jurisdiction to reopen the assessment was in question. As pointed out by the learned judges in Commissioner of Income-tax v. Hoick Larsen : [1972]85ITR467(Bom) , with reference to the observations of the Supreme Court in Commissioner of Income-tax v. A. Raman & Co., the information or knowledge from an external source means that there is not a mere internal change of opinion.

6. We have also had an occasion to consider this question in VE. A Vairavan Chettiar v. Commissioner of Income-tax : [1973]92ITR474(Mad) , wherein we have held that unless the Income-tax Officer had originally considered that question and the reopening of the assessment could be characterised as amounting to a change of his view the jurisdiction of the Income-tax Officer to invoke the powers under Section 147(b) cannot be questioned. We have, therefore, no doubt that in this case the Income-tax Officer was within his jurisdiction in invoking his powers under Section 147(b) of the Act.

7. The learned counsel for the assessee also argued that the Tribunal had not given any finding on the question whether the Income-tax Officer did actually apply his mind and omitted to include the said items in the original assessment or merely by inadvertence or negligence or for any other reason he omitted to include those items in the original assessment. Though there is no such specific finding we have to point out that the Tribunal proceeded on the assumption that the Income-tax Officer did not apply his mind on the earlier occasion and the assessee did not appear to have questioned that fact before the Tribunal. The order of the Tribunal also is silent in this regard. We have to, assume, therefore, that the assessee did not raise this question specifically before the Tribunal. The only question that was argued on behalf of the assessee was that the assessment on the company was confirmed by the same officer prior to the original assessment on the assessee and there was no information coming to the possession of the Income-tax Officer subsequent to the original assessment so as to justify action under Section 147. We, therefore, consider that there was neither any need for calling for supplementary statement nor for directing that matter for reconsideration by the Tribunal.

8. For the foregoing reasons, we answer the reference in the affirmative and against the assessee. Revenue will be entitled to its costs. Counsel's fee 250.


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