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TMI Blog1997 (2) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for the years 1950-51 to 1956-57 some aspects were decided in favour of the assessee/appellant. On a consolidated reference made by the Income-tax Appellate Tribunal in respect of the assessment years 1950-51 to 1961-1962, seven questions of law were referred for the decision of the High Court. Out of the same the following five questions of law, namely, questions Nos. 1, 2, 5, 6 and 7, which were answered against the assessee, are still in appeal before us : " 1. Whether, on the facts and in the circumstances of the case, the reassessments for the years 1950-51 to 1956-57, were validly made under section 34(1)(a) of the Indian Income-tax Act, 1922 ? 2. Whether, on the facts and in the circumstances of the case, the Revenue was entitled to contend that reassessments for the years 1954-55, 1955-56 and 1956-57 were validly made under section 34(1)(b) of the Act ? 3. Whether an appeal can lie against an order levying penal interest under section 18A of the Act for the assessment years 1957-58 to 1961-62 ? 4. Whether the assessee-company was entitled to a credit of the amount of excess royalty paid which is held to be in lieu of the income-tax and super-tax liability of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than with effect from April 1, 1950. The assessee-company submitted an application to the Commissioner of Income-tax for a declaration that it was exempt from the payment of income-tax in accordance with the terms of the lease granted to it by the then Maharao of Kotah. But the aforesaid application was rejected. Thereafter, the assessee-company filed a civil suit in the court of the District Judge, Kotah, against the Union of India and the State of Rajasthan, seeking a declaration that it was exempt from payment of income-tax and that the royalty paid by it in excess of the minimum amount of Rs. 1,50,000 was in lieu of income-tax, super-tax, etc. The learned district judge by his decree and order dated August 23, 1957, held that the royalty which was paid by the assessee-company to the State of Rajasthan, in accordance with the provisions of clause 18 of the grant, consisted of two parts, namely, the sum of Rs. 1,50,000 represented royalty proper, while the remaining amount of royalty paid by the assessee-company was in lieu of income-tax, super-tax and excess profits-tax. According to the learned district judge, the State of Rajasthan was entitled to the minimum royalty of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred appeals before the Appellate Assistant Commissioner against the aforesaid orders of reassessment passed by the Income-tax Officer, Kotah, but the appeals were dismissed. Then the assessee-company filed appeals before the Income-tax Appellate Tribunal, which disposed of the seven appeals relating to the reassessment proceedings made under section 34(1)(a) of the Act, for the assessment years 1950-51 to 1956-57, by one consolidated order dated September 7, 1968. The Tribunal held that the proceedings under section 34 of the Act could not be initiated in view of the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191. It was held by the Tribunal that the assessee-company had disclosed all relevant or material facts and as there was no failure on the part of the assessee-company to disclose fully and truly any relevant material necessary for the assessments in respect of the years in question, the necessary pre-requisite conditions for invoking the jurisdiction for reassessment under section 34(1)(a) of the Act were absent. The Tribunal further held that the proceedings for reassessment for the assessment years 1954-55, 1955-56 and 1956-57, alth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee. On question No. 1, the High Court held that the reassessment proceedings for the years 1950-51 to 1956-57 were initiated and concluded validly under section 34(1)(a) of the Act. On question No. 2, concerning the assessment years 1954-55, 1955-56 and 1956-57, the High Court found on the alternate plea, that the reassessments of the appellant-company for the said years could be justified under section 34(1)(b) of the Act. On question No. 5, the High Court held that the penal interest calculated and charged under section 18(6) or 18A(8) could only be challenged in an appeal against the order of assessment to tax and the assessee would be entitled to deny his liability to payment of penal interest also while denying his liability to be assessed to tax under the Act. It also agreed with the view expressed by the Allahabad, Andhra Pradesh, Madras, Karnataka, Gujarat, Gauhati and Bombay High Courts which held that no appeal lies against the order levying penal interest. The matter was left vague, without applying the law laid down by the High Court, to the facts of the case. On question No. 6, the High Court held that the assessee-company was not entitled to get cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y disclose all material facts. The expression "material facts" contained in section 34(1)(a) of the Act refers only to primary facts, and the duty of the assessee is to disclose such primary facts. There is no duty cast on the assessee to indicate or draw the attention of the Income-tax Officer what factual or legal, or other inferences can be drawn from the primary facts disclosed. (see-Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191). In this case, the Appellate Tribunal found in paragraph 12 of its order (page 321 of the paper book) thus : " The primary fact in this case was the lease agreement and the terms and conditions thereof. This was before the Income-tax Officer from the beginning. He was aware of the triangular dispute between the assessee-company, the State of Rajasthan and the Union Government pending before the District Court, Kotah. He was served with an interim injunction to refrain from proceedings with the assessments. He had got the said injunction modified. In these circumstances, the charge against the assessee-company that it had omitted or failed to fully and truly disclose any material fact fails completely. We are, therefore, of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o any particular clause or portion of the document and invite him to draw any particular inference therefrom. Moreover, in the suit the Union of India and the State of Rajasthan were parties. The interim injunction passed by the court from assessing or levying any income-tax against the assessee-company was varied on the representation made by the Union of India, by later orders. Indeed, the Union of India and the Commissioner of Income-tax have filed written statements in the suit. The order of injunction was within the knowledge of the Income-tax Officer, as could be seen from the original assessments. The Income-tax Officer was aware of the triangular dispute between the assessee-company, the State of Rajasthan and the Union of India pending before the District Court. What is more, the order of injunction to refrain from proceeding with the assessments was served on the Income-tax Officer which was later modified. In view of these salient features, the High Court totally erred in holding that there was any omission on the part of the appellant-company to fully and truly disclose material or primary facts necessary for the assessments for the years in question. We, therefore, hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid by the assessee-company in excess of the minimum of Rs. 1,50,000 was refundable to it. The Income-tax Officer held that the amount of royalty paid by the appellant-company in excess of Rs. 1,50,000 being in lieu of income-tax, super-tax and excess profits tax could not be allowed as deduction. In the reassessment proceedings, the amount of excess royalty allowed earlier as deduction was disallowed and added back to the income of the assessee-company. The appeals filed by the appellant-assessee before the Appellate Assistant Commissioner were dismissed. The Appellate Tribunal held that the proceedings are invalid under section 34(1)(a) of the Act for the years 1950-51 to 1956-57 and alternatively that the proceedings for reassessment for the years 1954-55, 1955-56 and 1956-57 though initiated within a period of four years from the date of the original assessment for those years, could not be sustained under section 34(1)(b) of the Act, since the proceedings were initiated under section 34(1)(a) of the Act. The Tribunal also held that the portion of the excess royalty paid by the assessee-company to the State Government which was equivalent to the tax liability of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the District Judge were already available at the time of original assessment and cannot be considered to be fresh material or information sufficient to attract section 34(1)(b) of the Act. A look at section 34, clauses (a) and (b), will show that the said clauses deal with two different situations. Section 34 is only a machinery section. They cover different contingencies and situations, but they do not deal with two distinct and separate jurisdictions. Section 34 as a whole clause (a) or clause (b) deals with cases of reopening of income escaping assessment. Whereas section 34(1)(a) requires the formation of a belief by the Income-tax Officer, that there is a failure or omission on the part of the assessee to disclose fully and truly all material facts and there must be some material to form such a belief, that the failure or omission on the part of the assessee has led to the escapement or under-assessment of income of the assessee, section 34(1)(b) requires that even if there was no omission or failure on the part of the assessee, but the Income-tax Officer has information and he could form the belief that the income has escaped assessment, he could do so within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a writ petition filed to strike down notices issued under section 148 of the Income-tax Act. The other decisions which take similar view are T. M. Kousali v. Sixth ITO [1985] 155 ITR 739 (Kar), CIT v. Banwari Lal and Sons Ltd. [1982] 137 ITR 91 (Delhi) ; Mysore Tobacco Co. Ltd. v. CIT [1986] 157 ITR 606 (Kar) and CIT v. Surendra Kumar Bhadani [1987] 164 ITR 323 (Patna). Regarding the second plea, it is now fairly settled that the information obtained by the Income-tax Officer need not be one outside the record ; it may be one obtained from the assessment records already available. The law on this point has been laid down in Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547 (Mad) and United Mercantile Co. Ltd. v. CIT [1967] 64 ITR 218 (Ker). These decisions have been quoted with approval by a Constitution Bench of this court in Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO, AIR 1968 SC 565 ; [1968] 21 STC 326, 336. At page 573, the court observed thus : " In Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547 (Mad), a Division Bench of the Madras High Court interpreting the scope of the words 'information which has come into his possession' found in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Raghubar Dayal Ram Kishan v. CIT [1967] 63 ITR 572 is not good law. We are next concerned with question No. 5 which deals with the appealability of an order levying penal interest under section 18A of the Act for the assessment years 1957-58 to 1961-62. The High Court has rightly answered question No. 5, stating that the penal interest calculated and charged under section 18A(6) or 18A(8) can be challenged in an appeal filed by the assessee against the order of assessment to tax and the assessee would be entitled to deny his liability to payment of penal interest also, while denying his liability to be assessed to tax, under section 18A of the Act. It was opined that no appeal would lie against the order levying interest under section 18A(6) or 18A(8) of the Act. The law so stated by the High Court is not open to objection. Under the Indian Income-tax Act, 1922, there was no specific right of appeal against an order levying interest. But, if an appeal is preferred against an order of assessment and interest is levied by the assessment order itself, the assessee can raise the question regarding the exigibility of interest. In this connection, the High Court has concurred with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to have been paid by the assessee-company to the State Government. In answering question No. 7, the High Court held that the amount equal to the tax liability of the appellant-company for the relevant years, out of the excess royalty, was not a permissible deduction. The remaining portion or residue out of the excess royalty would partake of the same character as the minimum royalty of Rs. 1,50,000 and is a permissible deduction. It was made clear that the amount equal to the tax liability of the assessee-company, out of the excess royalty, said to have been paid in lieu of income-tax, super-tax, etc., is not a permissible deduction. It was argued before us that the High Court erred in answering questions Nos. 6 and 7 in the above manner ignoring the orders passed by the court wherein the Union of India and the State Government were parties and vital materials were available in that regard. Counsel submitted the arguments thus : The amount of excess royalty was clearly towards the payment of income-tax and super-tax liability of the assessee-company. The aforesaid amount was received by the State of Rajasthan on behalf of the Union of India with the consent of the Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant assessment years, the High Court ought to have held that payment of the aforesaid amount was made to the Union of India and the assessee-company was entitled to the credit of the amount from the income-tax authorities. It was also stated that the High Court has not considered the matter from the point of view of section 10(2)(xv) of the Indian Income-tax Act, 1922, nor was the earlier decision of this court inter-parties (Associated Stone Industries (Kotah) Ltd. v. CIT [1971] 82 ITR 896) adverted to in this regard. (The earlier decision reported in [1971] 82 ITR 896 was relating to the assessment years 1948-49 and 1949-50, when there was no law imposing income-tax, super-tax, etc., in the State of Kotah and this court held that the excess royalty paid cannot be in lieu of income-tax, super-tax, etc., and was a payment on the terms of a contract. This is an important aspect to be borne in mind). The above aspects have not been adverted to by the High Court in the judgment rendered. If, as a matter of fact, the above materials were available before the High Court, along with the statement of the case submitted by the Tribunal to the High Court, we should say that the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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