TMI Blog1992 (7) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1965-66. The jurisdiction was then transferred to the Income-tax Officer, B-Ward, Companies Dist. IV, Calcutta. The Union Carbide Corporation rendered technical services to Union Carbide India Ltd. (hereinafter referred to as "the U.C.I.L.") under two separate technical service agreements. One is dated November 7, 1950, and relates to the manufacture of electric batteries. The second relates to the manufacture of chemicals and plastics and was executed on November 1, 1956. The Union Carbide Corporation received technical service fees from the Union Carbide India Ltd. The technical service fees received from the Union Carbide India Ltd. were not included in the total income but these fees were regularly and consistently shown by the assessee year after year in the part of the return showing exempted receipts. Thus, for the assessment year 1965-66, the assessee showed in section 'F' of the return Rs. 8,16,000 as the technical service fees in respect of batteries and Rs. 5,77,416 in respect of chemicals and plastics. The original assessment for 1965-66 was completed by Shri R. Kannan, Income-tax Officer, Bombay, who, however, did not include these service fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls generally with the admissibility and taxation of royalties, service fees, etc., in the case of foreign collaboration agreements. The assessee challenged before the Appellate Assistant Commissioner that the said circular could not have induced any belief about escapement of income and that the Income-tax Officer had not stated in his order in a detailed way as to why he entertained such a belief. It was argued that the circular was only general in nature and no particular information in the sense of a judicial pronouncement was available to the, Income-tax Officer in that circular. It was admitted that, in subsequent years the assessee agreed to be taxed on a part of the technical service fees in order to buy peace and avoid litigation. It was, however, pointed out that the reassessment proceedings were invalid and illegal as they were based on a mere change of opinion. The Appellate Assistant Commissioner turned down the assessee's plea but reduced the quantum in line with the agreement between the assessee and the Department for subsequent years. On appeal by the assessee, the Tribunal, on hearing the rival contentions, observed as follows: "We have carefully considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of this circular which is fresh information coming into my possession, I have reason to believe that income has escaped assessment for the assessment year 1965-66. The assessment, therefore, requires to be reopened. Issue notice under section 148 read with section 147(b)." The Income-tax Officer recording the reason has observed that he had been guided by the correct position of law enunciated by the Central Board of Direct Taxes with regard to the assessment of non-resident assessees entering into technical collaboration with resident assessees in consideration of technical service fees received from such resident assessees. The explanation as contained In the said circular of the Central Board of Direct Taxes has been treated by the officer as the proclamation of law. Learned counsel for the assessee has concentrated his contentions on the point that the Central Board of Direct Taxes cannot be a formal source of law and its opinion as to that the law is cannot be treated as a declaration of law. It is argued that, unless the construction of law comes from a formal source, such opinion cannot constitute "information" within the meaning of section 147(b). According to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en parties, the declaration being rendered by a competent judicial or quasi-judicial authority empowered to decide questions of law between contending parties. The declaration or exposition is ordinarily set forth in the judgment of a court or the order of a Tribunal. Such declaration or exposition in itself bears the character of law. In every case, therefore, to be law it must be creation by a formal source, either Legislative or judicial authority. statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status. Perhaps the only exception is provided by the writings of publicists in international law, for in the law of nations the distinction between formal and material sources is difficult to maintain. In that view, therefore, when section 147(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause of the audit of income-tax receipts being entrusted to the Comptroller and Auditor-General of India from 1960, it is intended as an exercise in removing mistakes and errors in income-tax records before they are submitted to the scrutiny of the Comptroller and Auditor-General. Consequently, the nature of its work and the scope of audit have assumed dimension co-extensive with that of Receipt Audit. The nature and scope of Receipt Audit are defined by section 16 of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971. Under that section, the audit by the Comptroller and Auditor General is principally intended for the purposes of satisfying him with regard to the sufficiency of the rules and procedures prescribed for the purpose of securing an effective check on the assessment, collection and proper allocation of revenue. He is entitled to examine the accounts in order to ascertain whether the rules and procedures are being duly observed, and he is required, upon such examination, to submit a report. His powers in respect of the audit of income-tax receipts and refunds are outlined in the Board's Circular No. 14/19/56-II dated July 28, 1960 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainment of the objectives incorporated therein. Neither the statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to information within the meaning of section 147(b) of the Income-tax Act, 1961." It is true that the Supreme Court, in the said judgment, qualified its construction of the word "information" only to the extent that, where an extra-judicial authority like the audit party merely brings to the Assessing Officer's notice a particular provision of law, that might very well be information provided such a course does not involve any pronouncement or declaration of the law. Even any note drawing the Assessing Officer's attention to a particular fact would also constitute "information" irrespective of whether the note comes from a non-judicial authority. In any case, if the Central Board of Direct Taxes, while explaining the law, engages in a forensic exercise and wants the officers to understand its view of the provision of law as though it was declaring law as a competent judicial or quasi-judicial authority empowered to decide questions of law between contending parties, that would be of no effect and the instr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonable belief that property assessed to estate duty had been undervalued. The circumstance that the opinion of the Board was rendered in an appeal filed before it under the Estate Duty Act against the assessment made by the Assistant Controller of Estate Duty was apparently not brought to the notice of this court when it heard R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537 (SC). The opinion of the Board represented its view as a quasi-judicial authority possessing jurisdiction to lay down the law. Although the Board did not enhance the valuation of the securities in the appellate proceedings because of the argument advanced by the appellant, none the less its observations amounted to information as to the law. It was not a case where the Board was functioning as a extra-judicial authority, performing administrative or executive functions, and not competent or authorised to pronounce upon the law. " The initiation of the proceedings under section 147(b) in this case cannot be saved from its infirmity being contrary to the requirement of section 147(b), also on the ground that the Income-tax Officer's own discovery of the wrong appreciation of law in the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the same plane as judge-made law which could authorise him to initiate the reassessment proceeding. Even the proceeding cannot be justified under section 147(a) since it has never been the case of the Department that there was non-availability of any of the particulars that constitute primary facts in the nature of materials necessary for proper assessment. It is only on a changed view of the true effect of the law that the Income-tax Officer proceeded in the case under section 147(b). The view is changed not because of the pronouncement on law by a court or any authority formally empowered to interpret law. The first circumstance under section 147(b) necessary to exist as a condition precedent is the fact that there should be an information subsequent to assessment. If that information itself is not existing, the other conditions precedent are immaterial. There are three categories for the opinions on law which may be expressed by the Central Board of Direct Taxes. Where the opinion is expressed by the Central Board of Direct Taxes as an appellate authority, the said opinion will constitute information, as happened to be the case in Asst. CED v. Nawab Sir Mir Osman Ali Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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