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Commissioner of Income-tax (Central) Vs. Assam Oil Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 374 of 1971
Judge
Reported in[1982]133ITR204(Cal)
ActsIncome Tax Act, 1961 - Section 147
AppellantCommissioner of Income-tax (Central);assam Oil Co. Ltd.
RespondentAssam Oil Co. Ltd.;commissioner of Income-tax (Central)
Advocates:Suhas Sen and ;Mihir Lal Bhattacharjee, Advs. for Commissioner and ;D. Pal and ;M. Seal, Advs. for Assessee
Cases ReferredCommr. of Agrl. I.T. v. Lucy Kochuvareed
Excerpt:
- sabyasachi mukharji, j.1. under section 256(1) of the i.t. act, 1961, this reference has been made for the year 1960-61. it appears that on the 25th january, 1962, the assessee wrote a letter to the assessing ito explaining therein, according to the assessee, the management charges paid by the assessee to the parent company in london. on the 5th march, 1962, the assessee-company by a letter replied to the query made by the ito at the time of the original assessment for furnishing details regarding the various items including the london office management expenses. the company in the said letter referred to its earlier letter dated 25thjanuary, 1962, which we have mentioned hereinbefore. on the 17th march, 1962, the original assessment was made by one sri g. p. gupta, who was, at that time,.....
Judgment:

Sabyasachi Mukharji, J.

1. Under Section 256(1) of the I.T. Act, 1961, this reference has been made for the year 1960-61. It appears that on the 25th January, 1962, the assessee wrote a letter to the assessing ITO explaining therein, according to the assessee, the management charges paid by the assessee to the parent company in London. On the 5th March, 1962, the assessee-company by a letter replied to the query made by the ITO at the time of the original assessment for furnishing details regarding the various items including the London office management expenses. The company in the said letter referred to its earlier letter dated 25thJanuary, 1962, which we have mentioned hereinbefore. On the 17th March, 1962, the original assessment was made by one Sri G. P. Gupta, who was, at that time, the ITO and in the said order the total income computed was Rs. 3,62,36,092. Subsequently, the Rajasthan High Court in the case of CIT v. Gotan Lime Syndicate , a decision to which we will presently refer in detail, held that the sum paid, in that case, by the assessee every year was in consideration of royalty and the same expenditure, was held to be a capital expenditure for acquiring the asset or advantage for the enduring benefit of the assessee's business. On the 13th February, 1964, the ITO rectified the original assessment and computed the income at Rs. 3,63,97,836. On the 15th December, 1964, the ITO issued a notice under Section 147(b) of the I.T. Act, 1961, disallowing a sum of Rs. 14,10,107, being the amount of royalty on crude oil and gas claimed in the original assessment and allowed in the original assessment as a business expenditure. A notice was issued thereafter under Section 147(b) of the I.T. Act, 1961, in consequence of an alleged information which was said to be contained in the decision of the Rajasthan High Court referred to hereinbefore. We must observe that the case proceeded up to the Tribunal on the basis of the decision of the Rajasthan High Court that the ITO had obtained information that the royalty allowed as deduction was not to be allowed as a revenue deduction in computing the income of the assessee. But during the hearing of the reference before us, learned advocate for the revenue sought to urge that the ' real information was contained in the order of the ITO, viz., that as a result of the decision of the Rajasthan High Court, the I.T. Dept. had called for the records for the assessment year 1963-64 and, thereafter, the deed for payment of royalty was examined in detail, which deed was not referred to in the original assessment for the year 1960-61, with which we are concerned. As a result of the examination of the same, the ITO came to the conclusion that the income of the assessee had escaped assessment. But we must point out that before the Tribunal as well as b.efore the AAC, the only basis upon which the case proceeded was that the decision of the Rajasthan High Court referred to hereinbefore, constituted information and as such Section 147(b) of the I.T. Act, 1961, was attracted. The fact that as a result of that decision as for royalty, which was examined for the year 1963-64, was considered also and this constituted information was not canvassed before the authorities below. Therefore, we must proceed to examine on the assumption that the information upon which the ITO sought to reopen the assessment was the decision of the Rajasthan High Court, as mentioned hereinbefore. On the 25th January, 1965, the work study made by the Burma Oil Co., a parent company, in respect of the accounting year 1962-63 showed that the London office managementexpenses for the said two years, 1962 and 1963, were 1,10,000. On the 22nd November, 1965, the I TO made the reassessment under Section 23(3) read with Section 147(b) of the I.T. Act, 1961, overruling the objection that there was no fresh information in consequence of which the ITO could have assumed jurisdiction under Section 147(b) of the I.T. Act, 1961. The ITO in the said reassessment disallowed, (a) the payment of royalty on crude oil and gas; and (b) the sum of 1,50,000 out of 2,50,000 claimed by way of London office management expenses. On 26th September, 1966, the AAC set aside the assessment. He, however, held that the reopening of the assessment under Section 147(b) of the Act was legal and valid. He set aside the assessment and sent the case back to the ITO to redo the assessment after giving the assessee a proper opportunity to explain the reasonableness or otherwise of the London office management expenses.

2. On the 16th May, 1970, the Tribunal held that the action taken under Section 147(b) in respect of royalty payments, though validly taken, did not result in any reassessment as information on the basis of which assessment was reopened, was found to be wrong subsequently by the Supreme Court in the case of Golan Lime Syndicate v. CIT : [1966]59ITR718(SC) , which was an appeal from the Rajasthan High Court's decision referred to hereinbefore. The Tribunal, however, held that the action under Section 147(b)i in so far as it related to the London office management expenses was not validly taken and it could not be sustained as there was no information in the possession of the ITO leading to a reasonable belief that the income chargeable to tax had escaped assessment for the relevant year on account of the allowance of London office management expenses. The Tribunal, on the 26th August, 1970, rectified its appellate order in certain respects in the first miscellaneous application dated 17th July, 1970, with which we are not concerned. Again, on the 7th November, 1970, the Tribunal passed another rectification order in the second application of the assessee dated 29th August, 1970, with which also we are not concerned. The Tribunal, however, rejected the miscellaneous application dated 17th March, 1971, made by the department dated 27th November, 1970, with which also we are not concerned. Upon these facts both at the instance of the assessee and at the instance of the revenue, these two questions have been referred to this court:

' 1. Whether, on the facts and in the circumstances of the case, the, Tribunal was right in holding that the decision of the Rajasthan High Court in the case of Golan Lime Syndicate constituted ' information ' to the Income-tax Officer, on the basis of which proceedings under section 147(b) were validly taken in respect of the claim for royalty payments and that the pronouncement of the Supreme Court rendered, subsequently, in thesame case did not render the proceedings taken by the Income-tax Officer ab initio void ?

2. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that action under section 147(b) of the Income-tax Act, 1961, in so far as it related to the claim for deduction of London office management expenses was not validly taken and could not, therefore, be sustained '

3. So far as the first question is concerned, shortly, the controversy is whether there was any valid information. The scheme of reopening as embodied in Section 148 and Section 147 of the I.T. Act, 1961, has been explained in numerous decisions of the Supreme Court as well as of different State High Courts. A completed assessment, within the time mentioned in the Act, can be reopened by serving a notice under Section 148 of the I.T. Act, 1961. Such a notice, however, can be given only when conditions contemplated either by Clause (a) or Clause (b) of Section 147 of the I.T. Act, 1961, are fulfilled. Clause (a) of Section 147 deals with failure or omission on the part of the assessee to disclose fully or truly all relevant or material facts. We are not concerned with such a situation in the instant case. Clause (b) of Section 147 of the Act, with which we are concerned in this case, enjoins that an assessrnent can be reopened within the time of 4 years provided there is information in the possession of the ITO and as a result of such information the ITO comes to the belief that the income of the assessee has either escaped assessment or has been under-assessed. Therefore, in order to be a valid reopening by virtue of the powers, under Clause (b) of Section 147 of the I.T. Act, 1961, there must be information. It is well settled by numerous decisions that whenever there is reassessment of an escaped income there is bound to be a change of opinion of the ITO, a change in the sense of a different view of the assessment than the view taken at the time of the original assessment. But such a change of opinion cannot be done without a valid cause. Clause (b) contemplates an information, that is to say, an information which must cause such a change of view to occur. If there is such an information in which a new view about the assessment can be taken then there can be a reassessment. It is also well settled that in order to attract the jurisdiction one has to consider the condition as it prevailed on the date of the issuance of the notice under Section 148 of the I.T. Act, 1961. This position was explained in an unreported Bench Decision of this court, viz., the decision in Appeal Mo. 185 of 1962, ITO v. Textile Mills Agents P. Ltd., judgment delivered on 18th March, 1974 (since reported in : [1981]130ITR733(Cal) ) and on which reliance was placed by both sides. Speaking for the Division Bench, which heard an appeal- from a decision under Article 226 of the Constitution, I had observed as follows (pp. 736-737):

' In order to determine whether the ITO had juridiction to issue the impugned notice we must consider the facts as these were on the date when the impugned notice was issued. Subsequent discovery of any new fact would not confer upon the ITO jurisdiction if he did not have the jurisdiction at the time of the issuance of the notice. Similarly, subsequent information regarding the falsity of the case or casting doubt on the genuineness of the information upon which the ITO had acted would not defeat the jurisdiction of the ITO if he had jurisdiction to issue the impugned notice on the materials before him. Subsequent decision of the AAC would not either confer jurisdiction if the ITO had not originally the jurisdictipn at the time of the issuance of the notice or defeat the jurisdiction of the ITO if he had it at the time of the issuance of the notice. This proposition is well settled by the scheme of the Income-tax Act and for this no authority is needed. Indeed, counsel for the respondent did not seriously dispute this proposition. What he contended, however, was that though the subsequent information would not confer or take away the jurisdiction of the ITO, the subsequent determination by a higher authority about the quality of the' information was a relevant factor to be taken into consideration, in determining the nature of materials upon which the ITO acted. In so far as it is stated that the subsequent determination by a higher authority as to the quality of the basis of the information is a relevant factor, in our opinion, cannot be disputed, but in this connection it has to be borne in mind that the AAC, for the assessment year 1964-65, did not make any finding that there was any regular and genuine transaction of money-lending.'

4. The question, therefore, is, was there any valid information On behalf of the assessee, it was contended that the decision of the Rajasthan High Court upon which the ITO purported to rely was not a decision which held that royalties were capital expenditure. It was submitted that the Rajasthan High Court was not dealing with the case of royalty of the type with which the assessee-company was concerned. Our attention was drawn to certain observations of the Tribunal at p. 38 of the paper book, where the Tribunal had observed, inter alia, as follows :

' Subsequent to the completion of the original assessment, the Income-tax Officer became aware of the decision of the Rajasthan High Court in Commissioner of Income-tax v. Golan Lime Syndicate , wherein the High Court had held that payment of royalties by the assessce, in that case, for obtaining mining rights for the mining of limestone was capital in nature and could not be allowed as a deduction in the computation of the income of the assessee, In the case of the assessee before us, there were payments of royalties during the material accounting year on crude oil and gas amounting to Rs. 14,10,107. In the originalassessment the assessee had claimed these payments as a revenue expenditure and the Income-tax Officer had also allowed it as such. In the light of the decision of the Rajasthan High Court, cited above, the successor-Income-tax Officer was of the view that his predecessor had wrongly allowed royalty payments as revenue expenditure..... '

5. According to the Tribunal : ' In the case of the assessee before us, there were payments of royalties during the material accounting year on crude oil and gas, amounting to Rs. 14,10,107. In the original assessment, the assessee had claimed these payments as a revenue expenditure and the Income-tax Officer had also allowed it as such.' Therefore, it was sought to be argued that this was so found by the Tribunal that the royalty, in this case, was only on the amount of crude oil and gas extracted. It was not the royalty or any payment to have access to the source of the oil nor was it a royalty irrespective of the oil extracted. . It was urged that there was no minimum royalty ensured in this case. These findings, however, do not appear from the order of the Tribunal as these aspects were not examined. It was on this basis urged that, even assuming that the decision of the Rajasthan High Court could constitute an information that decision could not properly be applied to the facts and circumstances of this case. Now, in order to appreciate this contention, it would be necessary to refer to the decision of the Rajasthan High Court in the case of CIT v. Gotan Lime Syndicate . There, the assessee-firm which carried on business of manufacturing lime from limestone acquired under a lease from the Govt. of Jodhpur, the right of excavating limestone in certain areas and the monthly right to prepare lime therefrom. That lease was for a period of 5 years from 15th July, 1947, to 14th July, 1952. From 15th July, 1952, the Govt. of Rajasthan granted a few small-term extensions and on 4th October, 1954, the Rajpramukh of Rajasthan conveyed sanction to lease out to the assessee an area of 15 sq. miles of lime deposits on the terms and conditions prescribed under the Jodhpur Division Vindhyan Limestone Mining Leases Rules, 1954. For the period from July, 1952, up to date, a new lease was to be given effect to and a fixed royalty of Rs. 96,000 per year was agreed upon. For the period of the lease, under the rules of 1954, the Schedule to the Rules fixed a royalty of 1 anna 6 pies per maund of lump lime and 1 anna per maund of limestone subject to a dead rent of Rs. 10 per acre. Rule 4 of the Rules defined the meaning of the lease as a lease to mine, quarry, box, dig and search for, win, work and carry away limestone. The mining lease could be granted only to a holder of a certificate of approval from the mining dept. and was transferable only to a holder of a similar certificate. Rule 18 provided that the period for which a mining lease might be granted should be for 5 years. Rule 19 laid down that the lessee should not encroach upon cultivable land or bapi holdings within the lease area without the permission of the Director of Mines and payment of compensation to the holder of such land. No lease deed, however, was in fact executed but the assessee continued to work the quarries. For the accounting year 1953-54 to 1955-56, the royalty fixed by the Schedule being less than the dead rent, the assessee paid a sum of Rs. 96,000 per year to the State Govt. on the basis of the dead rent. It claimed this amount as expenditure allowable under Section 10(2)(xv) of the Indian I.T. Act, 1922. It was held by the Supreme Court that in view of Rule 18 of the Rules the term of the lease in favour of the assessee was one for a period of 5 years certain apart from the lease being renewable for another term of 5 years at the option of the lessee and this position was not altered because no lease deed was in fact executed. It was held that a sum of Rs. 96,000 paid by the assessee was in the nature of royalty. It was held further that though the assessee did not acquire any right in the land as such it had a right to enter into the land and to search for the lime deposits and to quarry or mine' and win them and then to work them to do lime and sell it. The assessee's business was not, therefore, merely to manufacture all lime into limestone but including the prospecting and winning all limestone in the areas granted to it. The assessee acquired by the expenditure not so much the limestone deposits as such as a complex right, viz., the right to search for and win limestone, or, in other words, it acquired a means to acquire raw materials for its business. The expenditure was incurred for the purpose of acquiring an asset or advantage for the enduring benefit of the assessee's business and was, therefore, capital expenditure.

6. The circumstance that the assessee was required to make annual and recurring payment and that this payment might have varied from year to year under certain circumstances did not make any difference in the position. The Rajasthan High Court at pp. 541, 543, 544, 551 to 554 of the report (51 ITR) made repeated references to the nature of the lease and observed that royalty paid in respect of such lease could not be considered to be revenue expenditure. It was sought to be urged on behalf of the assessee that the royalty which was paid as a dead rent or irrespective of production could not be business expenditure. But here, in the instant case, it was sought to be urged that the royalty was in respect of crude oil and gas. On behalf of the revenue, it is sought to be urged that this aspect was not really canvassed before, the Tribunal. From this point of view, we do not think that this is material to go into the question whether this aspect was really canvassed before the Tribunal or not. In this aspect even if it is canvassed that this legal position was not canvassed, we can re-examine this case. The real point in this matter is that the Rajasthan High Court treated both the payment of a dead rent as it called it rent irrespective of productionand the royalty to be paid depending on the manufacture on similar grounds and then proceeded to observe that the payment of such royalty as in the facts found by the Rajasthan High Court could not be considered to be revenue expenditure. But before the decision of the Rajasthan High Court this claim for deduction was not examined by the revenue authorities from this angle. Therefore, in our opinion, if there was a decision by the Rajasthan High Court, this being a relevant judicial decision, the relevant point could have been validly constituted as undisputable information in terms of Clause (b) of Section 147 of the I.T. Act, 1961.

7. Learned advocate for the assessee drew our attention to the decision of the High Court of Travancore-Cochin in the case of Travancore Minerals Co. Ltd. v. CIT , where the Travancore Minerals Co. Ltd., a company formed for the purpose of exploiting for the purpose of sale of monazite sand in the erstwhile State of Travancore, entered into a lease with the State, under which it agreed to pay a minimum royalty at the rate of Rs. 30 per ton of monazitc exported or sold, and if the market price of monazite exceeded 20 per ton, a surplus royalty of 10 per cent. on any excess over 20. It also agreed to pay ' in addition to the royalty fixed as above an additional royalty equal in amount to ten per cent. of the net earnings of the lessee arising out of its operations under this lease '. The lessee was to keep separate accounts relating to its operations and the net earnings were to be ascertained from such accounts. It was held by the Travancore-Cochin High Court that on the true construction of the contract between the parties the payment of the ' additional royalty equal in amount to ten per cent. of the net earnings of the lessee' was an expenditure in the nature of revenue expenditure incurred by the company for the purpose of the business, and not a sharing of the profits of the business, and the expenditure was, therefore, allowable as business expenditure in computing the assessable income of the company. Reliance was also placed on the observation of the court appearing at p. 509 of the report. Reliance was also placed on the observation of the Supreme Court in the case of Pingle Industries Ltd. v. CIT : [1960]40ITR67(SC) . Our attention was also drawn to the observation of the court appearing at p. 93 of the report. It was sought to be urged that even before the Rajasthan High Court had expressed its view in the case of Gotan Lime Syndicate referred to hereinbefore, the Supreme Court had made an observation upon which a view could have been taken as was taken at the time of the original assessment. Such expense could be allowed as proper. It was further urged that this view was also in consonance with the views of the Travancore-Cochin High Court referred to hereinbefore. It appears to us that nothing had been referred to show that the ITO was aware of the observation of the Supreme Court or the views of the Travancore-CochinHigh Court. In our opinion, it cannot be disputed that the decision of the 'Rajasthan High Court, when it was delivered, certainly constituted valid information.

8. But the main question that was urged in this case on behalf of the assessec was that this view of the Rajasthan High Court in Gotan Lime Syndicate's case was reversed by the Supreme Court. The decision of the Supreme Court is Gotan Lime Syndicate v. CIT : [1966]59ITR718(SC) , where the Supreme Court reversed the view of the Rajasthan High Court and observed at p. 725 of the report that there was no doubt that the assessee did derive an advantage by having entered into the arrangement. The Supreme Court had assumed for the sake of the case that the advantage was to last at least for a period of five years. The Supreme Court examined the case in the light of the observation, also referred to in the case of Pingle Industries Ltd. v. CIT : [1960]40ITR67(SC) , referred to hereinbefore, and, at p. 727, observed that the payment of royalty in the facts of that case was not a direct payment for securing an enduring advantage. It had relation to the raw material to be obtained and, therefore, it was a revenue expenditure.

9. It was sought to be urged that the effect of the Supreme Court decision is the declaration of the law as it always was. It is not the fact that the law becomes effective on the date of the decision of the Supreme Court. The Supreme Court declares what is law. Such is the effect of the judgment made by the Supreme Court. In aid of this submission reliance was placed on the observations of the Maharashtra High Court in the case of Walchand Nagar Industries Ltd. v. V. S. Gaitonde, ITO : [1962]44ITR260(Bom) , the decision of the Gujarat High Court in the case of Parshuram Pottery Works Co. Ltd. v. D. R. Trivedi, WTO : [1975]100ITR651(Guj) , the decision of the Madras High Court in the case of R. Kuppuswamy Mudaliar & Sons v. Board of Revenue (Commercial Taxes) [1980] 45 STC 152, the decision of the Madras High Court in the case of K. M. Jamal Mydeen v. State of Madras [1968] 22 STC 45 and also the decision of the Division Bench of the Mysore High Court in the case of M. V. Govindaraju Chetty v. CTO [1968] 22 STC 46, where at p. 52, the Division Bench observed as follows ;

'To say that a decision of the Supreme Court to the effect that a particular levy was wrong or not in accordance with law means that the levy was at no time good, is nothing more than to state in clear terms the real effect of a decision of the court.'

10. Therefore, it was sought to be urged that the law as declared by the Supreme Court is deemed to be the law from its very inception and, therefore, a large number of decisions was cited to emphasize that in the case of rectification it is the law as declared by the Supreme Court that isalways applied. Reliance for this proposition was placed on the observation of the Gujarat High Court in the case of Karamchand Premchand P. Ltd. v. CIT : [1975]101ITR46(Guj) , and also on the observation of the Bombay High Court in the case of Bhagwandas Kevaldas v. N. D. Mehrotra : [1959]36ITR538(Bom) , Learned advocate for the assessee emphasized that in order to be information as to law it must be information as to the true and correct state of the law. To highlight this, our attention was drawn to the observations of the Supreme Court in the case of Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , where at pp. 6 and 7 of the report, the Supreme Court observed as follows :

'It is not disputed that, according to its strict literal meaning, the word 'information ' may include knowledge even about a state of the law or a decision on a point of law. The argument, however, is that the context requires that the word ' information ' should receive a narrower construction limiting it to facts or factual material as distinguished from information as to the true state of the law. In support of this argument Mr. Sastri referred to the marginal notes of Sections 19A and 20A as well as the provisions of Section 22(3) and Section 28 and urged that the information contemplated by these provisions is information as to facts or particulars and has no reference to the state of the law or to any question of law; and so the said word in Section 34(1)(b) should be construed to mean only factual information. We are not impressed by this argument. If the word ' information ' used in any other provision of the Act denotes information as to facts or particulars, that would not necessarily determine the meaning of the said word in Section 34(1)(b). The denotation of the said word would naturally depend on the context of the particular provisions in which it is used. It is then contended that sections 33B and 35 confer ample powers on the specified authorities to revise the Income-tax Officer's orders and to rectify mistakes respectively and so it would be legitimate to construe the word ' information ' in Section 34(1)(b) strictly and to confine it to information in regard to facts or particulars. This argument also is not valid. If the word 'information' in its plain grammatical meaning includes information as to facts as well as information as to the state of the law, it would be unreasonable to limit it to information as to the facts on the extraneous consideration that some cases of assessment which need to be revised or rectified on the ground of mistake of law may conceivably be covered by Sections 33B and 35. Besides, the application of these two sections is subject to the limitations prescribed by them; and so the fact that the said sections confer powers for revision or rectification would not be relevant and material in construing Section 34(1)(b). The Explanation to Section 34 also does not assist the appellant. It is true that under the Explanationproduction before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer would not necessarily amount to disclosure within the meaning of the said section ; but we do not see how this can have any bearing on the construction of Clause (b) in Section 34(1). On the other hand, one of the cases specifically mentioned in Section 34(1)(b) necessarily postulates that the word ' information ' must have reference to information as to law. Where, in consequence of information in his possession, the Income-tax Officer has reason to believe that income has been assessed at too low a rate, he is empowered to revise the assessment; and there can be no doubt that the belief of the Income-tax Officer that any given income has been assessed at too low a rate may in many cases be due to information about the true legal position in the matter of the relevant rates. If the word ' information ' in reference to this class of cases must necessarily include information as to law, it is impossible to accept the argument that, in regard to the 'other cases falling under the same provision, the same word should have a narrower and a more limited meaning. We would, accordingly, hold that the word ' information ' in Section 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions. If that be the true position, the argument that the Income-tax Officer was not justified in treating the Privy Council decision in question as information within Section 34(1)(b) cannot be accepted.'

11. Therefore, it was emphasized that information as to law should be as to the true and correct state of the law. Learned advocate for the revenue, however, emphasized that relevant judicial decisions give information. Reliance in this connection was also placed on the observations of the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , where it was held that the audit report could not be regarded as information on a point of law. Reliance was placed on the observation of the report at p. 1000, where referring to the decision in the case of Maharaj Kumar Kamal Singh : [1959]35ITR1(SC) referred to hereinbefore, it was observed as follows :

' In cases falling under Section 147(b), the expression 'information' prescribes one of the conditions upon which a concluded assessment may be reopened under that provision. It is an indispensable ingredient which must exist before the section can be availed of. What does 'information' in section 147(b) connote? In Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) this court, construing the corresponding Section 34(1)(b) of the Indian I.T. Act, 1922, held the word ' information ' to mean not only facts or factual material but to include also information as to the true and correct state of the law and, therefore, information asto relevant judicial decisions. Thereafter, in CIT v. A. Raman & Co. [1968] 67 ITR 2, the court defined the expression 'information' in Section 147(b) of the I.T. Act, 1961, as 'instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment'. '

12. Then, at p. 1001 of the report, the Supreme Court extends the nature of law and the legal significance of law and observed at p. 1004 of the report as follows :

' It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , CIT v. A. Raman & Co. : [1968]67ITR11(SC) and Bankipnr Club Ltd. v. CIT : [1971]82ITR831(SC) and we do not believe that the law has since taken a different course. '

13. Basing argument on this proposition reliance was also placed on the observations of the Madras High Court in the case of Madras Auto Service v. ITO : [1975]101ITR589(Mad) , where the assessment of the assessee for 1966-67 was sought to be reopened by the ITO on the ground that by reason of the deduction of the entire interest paid on borrowings from the business profits, excessive relief had been granted. The officer proposed to arrive at the net dividend on which alone he held the assessee was entitled to the relief under Sections 80K and 80M. In the writ petition filed for prohibiting the officer from proceeding with the reassessment it was held that the principle of the decision in CIT v. Madras Motor and General Insurance Co. Ltd, : [1975]99ITR243(Mad) , that the relief under Section 99(1)(iv) would be available on the gross dividend income and not on the net dividend income, would apply to the instant case as well, in view of the language of Section 99(1)(iv) and Section 80K being similar, and hence there was no question of any excessive relief having been granted and, accordingly, the proposal for reassessment was not valid.

14. The ITO on a view of law had sought to reopen the assessment of the assessee. At that time such a view of law was possible. But the decision of the Madras High Court which said such a view of law was not possible was rendered subsequently. In that light, the Division Bench of the Madras High Court observed at p. 591 of the report as follows :

'There being no restrictive words similar, to 'net dividend' in the section, we are unable to accept the contention that the rebate is to be allowed only on the net dividend. If this view were to be accepted then we cannot say that there was any excessive relief in respect of any income assessable to tax within the meaning of Section 147(b). The learned counsel for the revenue submitted that at the time when the notice was issued under Section 147(b) our decision was not given and that it cannot be said that the Income-tax Officer had no reason to believe that the income has been made the subject of excessive relief. It is true that our decision was given long subsequent to the notice under Section 147(b) but our decision only declares the law as it stood even at the time when the notice was issued. Therefore, he could not have entertained any reasonable belief that the income chargeable to tax has escaped assessment. '

15. Relying on this proposition, learned advocate for the assessee sought to urge that even if the decision be subsequent to the issue of the notice as it declared the law, as it stood, the notice on that assumption could not be held to have been given on the basis of valid information. In our opinion, on principle it is true that the Supreme 'Court does not make the law from the date it is pronounced but the Supreme Court declares it to be so from the very inception. But the knowledge about that law or the realisation about that law is not always there. Human knowledge is always improving and progressing. The, world was assumed to be flat until it became known that the world is round. That does not mean that gravitation did not exist before Newton's discovery of the law of gravitation. Human knowledge is never static. Theory of evolution of Darwin does not make the previous knowledge non-existent. Human knowledge, as we have mentioned, is always progressing. So, relativity was always there but we became aware only after Einstein. That is the basic difference between discovery and invention. But the information about that law was not there until the Supreme Court says it to be so. Therefore, what the Rajasthan High Court held, in our opinion, at that time, was a relevant judicial interpretation as to the law and constituted valid information. This view is, in our opinion, corroborated by the decision in the case of CIT v. A. Raman and Co. : [1968]67ITR11(SC) and in the case of Family of V. A. M. Sankaralinga Nadar v. CIT : [1963]48ITR314(Mad) and the decision of the Gujarat High Court in the case of CIT v. Maneklal Harilal Spg. & Mfg. Co, Ltd. : [1977]106ITR24(Guj) , where at p. 31, the Gujarat High Court observed as follows :

' We are unable to accept these contentions of the learned Advocate-General because what is necessary is that the proceedings must be validly initiated and as of the moment of initiation it must be considered whether the initiation was valid or not. At the time or on the date on which the Income-tax Officer issued the notice under Section 147 on the footing that the development rebate regarding warp stop motions had been wronglyallowed in the original proceedings, in view of the legal position as it was well understood, it was open to him to initiate proceedings. As at that moment when he decided to issue the notice under Section 148 regarding reassessment proceedings, his action was valid. The decision of the Supreme Court in Mir Mohammad Ali's case : [1964]53ITR165(SC) in the light of which it turned out that the development rebate had been rightly allowed in the original assessment proceeding, was decided nearly a month after the Income-tax Officer issued the notice under Section 148 and though a decision of the Supreme Court declares what the law of the land is, that declaration cannot render invalid the action of the Income-tax Officer in initiating reassessment proceedings though on the date on which the proceedings were initiated, his action was valid. It is because of this initial validity of the action of the Income-tax Officer as on the date on which or the moment at which the proceedings were initiated, that it must be held that once they were validly initiated, the Income-tax Officer had correctly and validly initiated the proceedings. '

17. The same view was reiterated by the Gujarat High Court in the case of CIT v. Ahmedabad . : [1977]106ITR159(Guj) . The Supreme Court also observed in the case of R. B. Bansilal Abirchand Firm v. CIT : [1968]70ITR74(SC) , where generally it dealt with the meaning of the expression 'information ';

18. Learned advocate for the revenue also drew our attention to the observation of the Supreme Court in the case of S. Narayanappa v. CIT : [1967]63ITR219(SC) and relied on the report at p. 222. It was emphasized that there should be belief formed on the basis of information. As we said, the correctness of the information may not be relevant, the information is based reasonably on the basis of limited knowledge which cannot be said to be unreasonable.

19. Our attention was drawn to the unreported judgment of the Division Bench of this court in the case of Jiyajeerao Cotton Mills Ltd. v. ITO (since reported in : [1981]130ITR710(Cal) ). Though the said case dealt with rectification, we do not deal with the observation in the said case.

20. In that view of the matter, we answer question No. 1 in the affirmative and in favour of the revenue.

21. This leads us to answer question No. 2. It was urged that upon the assessment being reopened the entire assessment was at large. It appears to us that it is so. Once an assessment is reopened, a notice is given for a fresh return in respect of all the items. This view is corroborated by the observations of the Supreme Court, though it was made in a different context, in the case of V. Jaganmohan Rao v. CIT : [1970]75ITR373(SC) , where at p. 380, the Supreme Court, inter alia, made the following observations :

' It was stated on behalf of the appellant that in any case the Income-tax Officer could have legitimately assessed one-third share of the income which was due to the assessee, according to the judgment of the Madras High Court and there was escapement only to the extent of two-thirds share of the income. This argument is not of much avail to the appellant because once proceedings under Section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b), the Income-tax Officer had not only the jurisdiction but it was also his duty to levy tax on the entire income that had escaped assessment during that year.'

22. This view was also reiterated by the Division Bench of this court in the case of CIT v. Ramsevak Paul : [1977]110ITR527(Cal) . In the case of CIT v. Bombay Dyeing and . : [1971]82ITR892(SC) , the Supreme Court had left this question open. It appears to us that in view of the scheme of the I.T. Act, once a reopening is made, the entire assessment is set aside and the income which has escaped assessment, even though there is nothing to show the escapement of assessment, it should be examined and even in a case where the assessee is entitled to any deduction which was not granted in the original assessment, the assessee would be so granted the deduction. This view was also reiterated by the Calcutta High Court in the case of Sun Engineering Works (P.) Ltd. v. CIT : [1978]111ITR166(Cal) . The Supreme Court in a sales tax case, in the case of Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 270, expressed the same view as also in the case of State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. : [1977]1SCR1002 . The Andhra Pradesh High Court in the case of CWT v. Subakaran Gangabhishan : [1980]121ITR69(AP) [FB] applied the sales tax principle in the case of a wealth-tax case. Learned advocate for the assessee, however, drew our attention to the observations of the Supreme Court in the case of Commr. of Agrl. I.T. v. Lucy Kochuvareed : [1976]103ITR799(SC) and emphasised that it wasonly the escaped income that could be brought to tax. That is true. Once the information was valid for one item it would be valid in respect of all the items which had escaped assessment. If there had been underassessment,that is to say, there had been deductions which were not warranted, then such deductions would be escapement of tax. But that enquiry has not been made in this case nor the AAC had directed to enquire in this regard. He had, in our opinion, the jurisdiction to do so. Therefore, the Tribunal was in error in its finding on this aspect of the matter. Therefore, question No. 2 is answered in the negative and in favour of the revenue.

23. In the facts and circumstances of the case, each party will pay and bear its own costs.

Sudhindra Mohan Guha, J.

24. I agree.


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