1. This reference at the instance of the assessee arises under Sections 256(1) of the I.T, Act. The following are the questions which are referred:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer validly assumed jurisdiction under the provisions of Section 147(b) as far as the assessment years 1967-68, 1968-69 and 1969-70, are concerned ?
2. If the answer to question No. 1 is in the affirmative, whether the Tribunal was justified in holding that, on the facts and in the circumstances of the case, the Income-tax Officer can review his earlier decision whereby he had, while completing the original assessments, applied the provisions of Section 183(b)?'
2. The relevant facts are in a short compass. The original assessment for the assessment year 1967-68 was made on the 20th February, 1969, and for the years 1968-69 and 1969-70, on February 13, 1970. For the assessment year 1967-68, the firm was not registered under Section 185(1)(a) but the provisions of Section 183(b) were applied. It was also mentioned in the assessment order that the assessee had filed a declaration under Section 184(7) requesting continuation of registration. But as it was seen from the records of the earlier years that registration had not been granted to the firm at any time, there was no question of continuing the registration. The firm was, therefore, treated as an unregistered firm subject to the application of Section 183(b).
3. For the assessment year 1968-69, in the assessment order it is expressly stated that the status was being taken as an unregistered firm because though the assessee had claimed that an application for registration had been filed before March 31, 1968, in spite of opportunities being given, the partners did not prove that such an application was filed and that too within time. The ITO accordingly mentioned at the top of the assessment order that the provisions of Section 183(b) were applied. For the assessment year 1969-70, the status was taken as that of an unregistered firm and the provisions of Sections 183(b) were again applied.
4. Subsequently, the ITO, Trichur, wrote a letter on August 14, 1970, to the ITO assessing the assessee. That letter of the ITO, Trichur, showed that one of the partners of the firm, P. S. Kalyanaraman, had, in the assessment years under consideration, a share income from another firm also known as Cochin Power Industrials, Trichur. The share income figures were communicated to the ITO assessing the assessee-firm in order to enable the ITO to consider the question of the applicability of Sections 183(b). The ITO, Trichur, appeared to have proceeded on the basis that the assessments of the firm had not been completed and he, therefore, called for the share income (c)f the partner of Pattabiraman and Co. communicated to him on completion of the firm's assessment.
5. The ITO reopened the assessment under Sections 147(b) and in the assessment order, which subsequently followed, he stated that from a letter Received from the ITO, Trichur, it was found that the provisions of Sections 183(b) were not applicable for the assessment years under consideration and that, therefore, the assessee had been assessed at too low a rate and consequently action under Sections 147(b) was to be taken for the said assessment years. In the reassessment, the ITO treated the firm as an unregistered firm, withdrew the application of Sections 183(b) and raised a demand on the firm itself and the taxes demanded were Rs. 10,122 for the assessment year 1967-68, Rs. 24,920 for the assessment year 1968-69 and Rs.26,226 for the assessment year 1969-70. In the original assessments as made, no tax was payable by the firm, as, by the application of Sections 183(b), it is the partners who were to be assessed on the share income, as if the firm was a registered firm.
6. The assessee appealed to the AAC who confirmed the assessments. Appeals were thereafter filed before the Tribunal contending that the ITO was not justified in reopening the assessments for the reason that the provisions of Sections 183(b) were not applicable. Several other objections against the reassessment also were set out in the grounds of appeal filed before the Tribunal.
7. The Tribunal held that there was no absolute bar to the ITO reviewing his decision to apply the provisions of Sections 183(b) of the Act. It then proceeded to examine whether the provisions of Sections 147(b) were applicable, and for the reasons stated in its order, came to the conclusion that the ITO had validly assumed jurisdiction for the assessment years 1967-68 to 1969-70 under reference. The assessments were accordingly upheld. It is this order of the Tribunal that has given rise to the questions already extracted.
8. It is clear from the facts mentioned above that the ITO assessed the firm as an unregistered firm because the assessee had not taken proper steps for obtaining registration. He applied also the provisions of Section 183(b), which to the extent relevant, runs as follows:
' In the case of an unregistered firm, the Income-tax Officer--... (b) if, in his opinion, the aggregate amount of the tax payable by the partners if the firm were treated as a registered firm would be greater than the aggregate amount of the tax which would be payable by the firm under Clause (a) and the tax which would be payable by the partners individually, may proceed to make the assessment under Clause (ii) of Subsection (1) of Section 182 as if the firm were a registered firm ; and where the procedure specified in this clause is applied to any unregistered firm, the provisions of Sub-sections (2), (3) and (4) of section 182 shall apply thereto as they apply in the case of a registered firm.'
9. This provision envisages 'the ITO exercising an option in a case where he was satisfied that the aggregate tax payable by the partners individually if the firm were registered, would be greater than the amount of the tax payable by the firm if it was assessed directly as an unregistered firm. It involves a comparison of two sets of figures, namely, the tax payable by all the partners of the registered firm on the share income, and the tax payable by the unregistered firm. It is only in the light of the figures that he could have exercised the option. At the time when the ITO completed the original assessments, it is clear that he did not have the figures which were subsequently furnished by the ITO, Trichur, with reference to the income of one of the partners. The letter from the ITO dated 14th August, 1970, thus constituted information which came into the possession of the ITO subsequent to the original assessment as a result of which he could be satisfied that the income assessable to tax had been assessed at too low a rate. The provisions of Sections 147(b) were squarely attracted here by reason of the communication received from the ITO, Trichur, which constituted the information.
10. Learned counsel for the assessee, however, contended that when once the ITO had exercised the option, he could not subsequently revise that option by taking proceedings under Sections 147. Reliance for this purpose was placed on the following passage from the Law of Income Tax by V. S. Sundaram (10th edn.), Vol. I, at page 1185:
'The Income-tax Officer is not concerned with the motives of thepartners, and all that he is concerned with is which course would be moreadvantageous to the revenue. If his estimate or opinion is wrong, therevenue suffers, and he has no right, it is submitted, to correct his mistakeunder Section 147 and go back on his option at a later stage. But ft maybe open to the Commissioner to act under Section 263.'
11. The learned author has not given any reason why he has taken this particular view. There is no authority to support it and we are not satisfied with its correctness, So long as the ITO had some information which came into his possession subsequent to the assessment and which showed that the income chargeable to tax has escaped assessment or has been assessed at too low a rate, he can take proceedings to reopen the assessment. There is nothing in the language of Sections 147(b) or in Sections 183 which provides any restriction on the power of the ITO to do so.
12. Learned counsel for the assessee next sought to rely on a decision of this court in CIT v. Blue Mountain Engineering Corporation : 112ITR839(Mad) . In that case, the assessment of a partner of an unregistered firm was made under Sections 144 of the I.T. Act, 1961, including therein an estimate of his share income from the firm in which he was a partner. Thereafter, the assessment on the firm was made by the same officer on an estimate as no return was filed and treating it as an unregistered firm. The claim of the firm that once an assessment had been made on the partner including his share income from the firm, no assessment on the firm could thereafter be made was negatived by the Officer and the AAC, but upheld by the Tribunal. On a reference to the High Court, it was held that in spite of the slight change in phraseology between Sections 3 of the Indian I.T. Act, 1922, and Section 4 of the I.T. Act, 1961, the ITO continues to have an option to assess either the unregistered firm or the individual partners thereof and the assessment of a firm after a partner has been assessed on his share income from the firm, would not be legal. For this purpose, certain decisions of the Supreme Court and of the Patna High Court were applied or followed.
13. This decision has no scope for application to the problem before us. In the present case, it was not the contention of the assessee at any stage that the ITO had exercised any option to assess any partner so that he could not have assessed the firm. Further, the option contemplated by Sections 183(b) is a different option from the option to assess either the unregistered firm or the partners. The option here is between treating the firm as registered firm or as unregistered firm on the basis of the comparison of the figures of tax payable by the firm and by the partners. It is on this aspect that subsequently information came into the possession of the ITO which showed that his early exercise of the option was such as to result in the assessee being taxed at too low a rate. The ITO had, therefore, power to reopen the assessment which was done in accordance with the provisions of Sections 147(b). There is no error of law committed by the ITO. The first question is, answered in the affirmative and in favour of the revenue.
14. As far as the second question is concerned it merely challenges the power of the ITO to go back on his earlier decision whereby he had, while completing the original assessment, applied the provisions of Sections 183(b). This power to go back is available under certain circumstances contemplated by Sections 147(b). Therefore, there is no error committed by the ITO in reopening the assessment in, the present case. This is not a case of a mere review of his own decision by the ITO as is assumed in the question. It is a case where, as a result of information, the ITO found that the income assessable to tax of the assessee had either escaped assessment to some extent or had been assessed at too low a rate. This is not a case of change of opinion. Originally, he formed an opinion on the basis of the materials before him. Subsequently, fresh materials came to him to show that the earlier inference was wrong. There is no change of opinion on the same facts. Therefore, he had power to reopen the assessment and reassess the tax in accordance with the correct information before him. The second question is also, accordingly, answered in the affirmative, and against the assessee. The Commissioner will be entitled to costs. Counsel's fee Rs. 500.