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Diamond Sugar Mills Ltd. Vs. Income-tax Officer, c Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 46 of 1972
Judge
Reported in[1973]89ITR171(Cal)
ActsIncome Tax Act, 1961 - Sections 147 and 148
AppellantDiamond Sugar Mills Ltd.
Respondentincome-tax Officer, "c" Ward and ors.
Cases Referred(Private) Ltd. v. Commissioner of Income
Excerpt:
- .....to the rule nisi, affidavit-in-opposition has been filed by one mandayam nayaka krishnaswamy, income-tax officer, 'i' ward, companies district iv, calcutta. in paragraph 12 of the said affidavit he has stated as follows :' (a) at the time of original assessment of the petitioner for the assessment year 1969-70 along with various papers and documents produced by and/or on behalf of the petitioner before the assessing income-tax officer was a document described as 'depreciation schedule' and a document described as ' interest and discount account'. (b) the said depreciation schedule contained various items of properties and/or assets as well as plant and machinery, both new and second, hand. one of such items in the said depreciation schedule was a second-hand centrifugal pump valued.....
Judgment:

Sabyasachi Mukharji, J.

1. The petitioner in this application challenges a notice under Section 148 of the Income-tax Act, 1961, for the assessment year 1969-70. The said notice is dated 27th February, 1971. Originally there was assessment for the said year. Thereafter, there was an appeal and certain allowances were allowed to the petitioner. The said assessment had been sought to be reopened in this case under Clause (b) of Section 147 of the Income-tax Act, 1961. The petitioner alleges that there were no grounds or materials for the reopening of the said assessment and the income of the petitioner had not escaped assessment. In answer to the rule nisi, affidavit-in-opposition has been filed by one Mandayam Nayaka Krishnaswamy, Income-tax Officer, 'I' Ward, Companies District IV, Calcutta. In paragraph 12 of the said affidavit he has stated as follows :

' (a) At the time of original assessment of the petitioner for the assessment year 1969-70 along with various papers and documents produced by and/or on behalf of the petitioner before the assessing Income-tax Officer was a document described as 'depreciation schedule' and a document described as ' interest and discount account'.

(b) The said depreciation schedule contained various items of properties and/or assets as well as plant and machinery, both new and second, hand. One of such items in the said depreciation schedule was a second-hand centrifugal pump valued at Rs. 3,500. Development rebate was allowed in the original assessment also oh this second-hand centrifugal pump and as such development rebate was allowed in excess of the amount allowable to the petitioner.

(c) In the said details of interest and discount account various items of interest and discount alleged to have been paid by the petitioner were included. One of such items was interest charged on arrear of income-tax of a sum of Rs. 19,054.12, The amount of interest was not an allowable deduction in the assessment but the said sum was not added to the income of the petitioner in the original assessment.

(d) The said documents were merely produced by and/or produced by the petitioner before the assessing Income-tax Officer in the original assessment but his attention was not drawn to the said items by and/or on behalf of the petitioner.

(e) In the premises the income of the petitioner was under-assessed. '

2. It appears that on two counts it is alleged that the income of the petitioner has escaped assessment. One was development rebate on secondhand machinery and the second was interest charged on arrear of income-tax of a sum of Rs. 19,054.12. It was contended that such allowances were not permissible and the petitioner had obtained excessive relief thereby. Whenever there is a challenge to reopening of an assessment under Section 148 of the Income-tax Act, 1961, two conditions have to be satisfied. It is necessary first to establish either under Clause (a) of Section 147 of the Act that there was omission and/or failure on the part of the assessee to disclose fully or truly all material facts at the time of the assessment or under Clause (b) there was information in the possession of the Income-tax Officer, and, secondly, it has to be established that either the knowledge that there was omission or failure as mentioned in Clause (a) or the information mentioned in Clause (b) has led to the escapement or underassessment of income chargeable to tax. These are two essential ingredients before action under Section 148 can be taken subject to certain conditions to be fulfilled as required in the subsequent sections. In this case, as mentioned hereinbefore, reopening was not sought to be done due to omission or failure on the part of the assessee. Clause (a) of Section 147 of the Income-tax Act was thus not attracted. Reopening was done on the basis, it is alleged, of the information.

3. ' Information ', it was argued, would be in this case the new knowledge derived from reading the old records with the new perspective. In other words, it was contended that even if from the old facts new revaluation was done that would be ' information ' and would, subject to other conditions being fulfilled, justify action under Clause (b) of Section 147 of the Income-tax Act, 1961. The expression 'information' under Section 34 of the Indian Income-tax Act, 1922, and Section 147 of Income-tax Act, 1961, has been the subject of judicial scrutiny and interpretation in several decisions. In the case of Commissioner of Income-tax v. A. Raman and Co., : [1968]67ITR11(SC) the Supreme Court observed that the expression ' information ' in the context in which it occurred in Section 147(b) of the Income-tax Act, 1961, 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. At page 16 of the report the Supreme Court further observed that the jurisdiction of the Income-tax Officer to reassess income arose if he had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment. That information must, it was true, come into the possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer was not affected. Therefore, it appears to me that the Supreme Court in the aforesaid decision decided the following points : (1) the instruction or knowledge must be subsequent to the original assessment, (2) the knowledge or instruction must be derived from an external source, (3) the fact that such knowledge or instruction could have been derived during the previous assessment from an investigation of the materials on record or fact disclosed thereby or from other enquiry but was not in fact derived would not prevent such knowledge or instruction from being considered as ' information ' in terms of Clause (b) of Section 147 of the Income-tax Act, 1961, (4) the knowledge or instruction must be such which must lead to the formation of the belief that income of the assessee had escaped assessment in the original assessment. In the case of Anandji Haridas and Co. (P.) Ltd. v. S.P. Khushare, : [1968]1SCR661 the Supreme Court had to construe the expression ' information ' in the C. P. and Berar Sales Tax Act, 1947 (21 of 1947). The expression ' information' in the said Act was considered to be in pari materia with the expression ' information ' in the Income-tax Act. It was contended before their Lordships of the Supreme Court on behalf of the revenue that ' information ' under Section 11A should be one from outside agency and not something appearing from the records of the assessment. According to their Lordship's view this contention was unacceptable. The fact that the knowledge or the instruction could have been derived from the facts on record of the original assessment would not prevent that knowledge or instruction from being considered as ' information '. In appears that the decision in the case of Commissioner of Income-tax v. A, Raman & Co. was not referred to or relied on. The Supreme Court in the aforesaid case referred to and relied on the decision of the Madras High Court in the case of Salem Provident Fund Society Ltd. v. Commissioner of Income-tax, [1961] 42 I.T.R. 547 (Mad.) and the decision of the Kerala High Court in the case of United Mercantile Co. Ltd. v. Commissioner of Income-tax, [1967] 64 I.T.R. 218 (Ker.). In the case of R. B. Bansilal Alirchand Firm v. Commissioner of Income-tax, : [1968]70ITR74(SC) the Supreme Court again had to consider the expression ' information '. There the Supreme Court found that if the facts had been properly considered at the time of the first assessment, the Income-tax Officer might have discovered the correct position and might have come to the conclusion that the assessee-firm in that case was not receiving interest as a partner, but the circumstance that such a decision could have been arrived at did not mean that, at the time when the Income-tax Officer started proceedings under Section 34(1)(b), he was not acting on information received from the decisions of the Tribunal and the High Court in the assessment proceedings of Bisesar House. The Supreme Court further held that that was not a case where the Income-tax Officer on his own initiative and on the material which was before him at the time of the first assessment had changed his opinion and come to a different conclusion. The Supreme Court found the correct conclusion was brought to the notice of the Income-tax Officer by the decision of the Tribunal and the High Court and that was information as a consequence of which he came to believe that the provisions of Section 34(1)(b) were attracted. In those circumstances it was held that the Income-tax Officer had, therefore, jurisdiction to issue the notice under Section 34(1)(b). In the case of Assistant Controller of Estate Duty v. Nawab Sir Mir Osman Ali Khan Bahadur, : [1969]72ITR376(SC) the Supreme Court held that the opinion of the Central Board of Revenue regarding the correct valuation of securities for the purpose of estate duty, expressed in an appeal preferred by the accountable person, was ' information ' within the meaning of Section 59 of the Estate Duty Act 1953, as amended by the Estate Duty (Amendment) Act of 1958, on the basis of which the Controller could entertain a reasonable belief that property assessed to estate duty had been under-valued. There the Supreme Court at page 380 of the report reiterated the view that the expression 'information' was understood in the sense of instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment. In the case of Commissioner of Income-tax v. Dinesh Chandra H. Shah, : [1971]82ITR367(SC) the Supreme Court observed that mere change of opinion could not be a valid ground for reopening an assessment under Section 34(1)(b) of the Indian Income-tax Act, 1922. The Supreme Court referred to the decision in the case of Commissioner of Income-tax v. A. Raman & Co. The Supreme Court did not find it necessary to go into the question whether an inadvertent omission in the original assessment would justify the reopening of the assessment under Section 34(1)(b) on its subsequent discovery by the Income-tax Officer.

4. Decisions of the several High Courts have also considered this aspect of the question and have arrived at different conclusions depending upon the facts and circumstances of the respective cases. It will not, therefore, be necessary to refer to all of them including the decision upon which reliance was placed by counsel for the revenue, namely, the decision in the case of Commissioner of Income-tax v. Rathinasabapathy Mudaliar, [1964] 51 I.T.R. 204 (Mad.) and the decision in the case of Thakurdas Tej Prakash v. Income-tax Officer, ' C ' Ward, Dehra Dun, : [1970]75ITR523(All) . Counsel for the revenue also referred to the decision in the case of Sundaram & Co; (Private) Ltd. v. Commissioner of Income-tax, : [1967]66ITR604(SC) . There the Supreme Court had not specifically given any view as to what was the meaning of ' information ' as such. It is, therefore, not necessary to consider the aforesaid decision. It is, however, necessary, in my opinion, to refer to one decision of the Delhi High Court, namely, the decision in the case of Commissioner of Income-tax v. H. H. Smt. Chand Kanwarji, : [1972]84ITR584(Delhi) . There what had happened was that for the assessment years 1960-61 and 1961-62 the original assessments of the assessee had been made by the Income-tax Officer treating the assessee's income from bank deposits as earned income and accepting her claim for deduction of salary paid to her daughter-in-law as expenditure. Thereafter, the revenue audit staff working under the Comptroller and Auditor-General of India, while scrutinising these assessments, brought to the notice of the department that the Income-tax Officer had wrongly treated the interest income as business income and had wrongly allowed the assessee's claim with regard to the salary paid to her daughter-in-law. Acting upon the scrutiny note of the Revenue Audit, the Inspecting Assistant Commissioner wrote to the Income-tax Officer to rectify the defects by reopening the assessment under Section 147(b) of the Income-tax Act, 1961. Thereupon, the Income-tax Officer issued notices under Section 147(b) and made reassessments. It was held by the Division Bench of the Delhi High Court that the scrutiny note of the Revenue Audit and the letter of the Inspecting Assistant Commissioner constituted ' information ' within the meaning of Section 147(b) from an ' external source ' and the assessments were, therefore, valid. It was further held that the expression ' external source ' used by the Supreme Court in the case of Commissioner of Income-tax v. A. Raman & Co. could not be restricted to opinions expressed or findings given by courts of law or the Tribunal or other authorities under the Income-tax Act, that though the reassessment might be the result of a change of opinion on the part of the Income-tax Officer, the change of opinion was not on his own initiative or on his own reconsideration of his available material; it was one brought about as a result of information from an ' external source ' which came into his possession subsequent to the original assessment. Reading the expression in the context of the section, in the context of the scheme of the Act and in the light of the decisions of the Supreme Court referred to above, it appears to me, that in order to be information in terms of Clause (b) of Section 147 of the Income-tax Act, 1961, the following conditions must be fulfilled :--(i) it must be knowledge or instruction concerning facts or particulars, or as to law relating to a matter bearing on the assessment, (b) such knowledge or instruction must come into the possession of the Income-tax Officer after the previous assessment, (c) the knowledge or information must be such which leads to the formation of the belief that the income of the assessee had escaped assessment or had been under-assessed, (d) the proximate or immediate source of such information and knowledge must be external, but (e) the fact that such knowledge or information could have been derived during the previous assessment from an investigation of the materials on record or facts disclosed thereby or from other enquiry but was in fact not derived would not prevent such knowledge or instruction from being ' information ' in terms of the section, (f) a case where the Income-tax Officer on his own initiative and on material which was before him at the time of the original assessment changed his opinion and came to a different conclusion, that would not be acting on information in terms of the section.

5. From the above point of view it appears from the facts of this case that there was no knowledge derived from any external source; the knowledge was sought to be derived from a new look at the old facts of the assessment. That would be mere change of opinion and not acting on ' information ' in terms of the section.

6. In the aforesaid view of the matter the conditions precedent for the issue of notice under Section 148 of the Income-tax Act have not been fulfilled. The notice is, therefore, without jurisdiction and the same is hereby quashed and set aside and the respondents are restrained from giving any effect to the same. Let writs in the nature of certiorari and mandamus issue accordingly. If any assessment has been made pursuant to the said notice, the same is quashed and set aside and the respondents are restrained from proceeding in pursuance thereof. Let writs in the nature of certiorari and mandamus issue accordingly. This, however, will not prevent the respondents from proceeding afresh in respect of the self-same year under Section 148 of the Income-tax Act, 1961, either under Clause (a) of Section 147 or if there is any fresh instruction under Clause (b) of Section 147 of the Act.

7. The rule is made absolute to the extent indicated above. There will be no order as to costs of this application. Stay of operation of this order is granted for eight weeks.


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