TMI Blog1982 (3) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... 5%. As regards precision machinery, the ITO allowed depreciation allowance at the rate of 12% and the general purpose machinery at the rate of 10%. During the assessment proceedings for the year 1965-66, the ITO discovered that the assessee bad claimed and obtained excess depreciation in respect of administrative buildings. He, therefore, reopened the assessments under s. 147(a) of the I.T. Act, 1961 (called " the Act "). In the reassessment proceedings the ITO held that the assessee was entitled to depreciation in respect of the administrative buildings only at the rate of 2 1/2% and not at the rate of 5% originally allowed on the ground that the administrative buildings formed part of the factory buildings. Though the assessment was reopened under s. 147(a) of the Act on the ground that the assessee had obtained depreciation allowance in respect of administrative buildings, in the reassessment proceedings the ITO also noticed that the assessee was not entitled to 10% depreciation allowance in respect of general purpose machinery. He accordingly restricted depreciation allowance in respect of general purpose machinery to 7% as against 10% originally granted. The income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of law for our opinion as directed by this court under s. 256(2), of the Act at the instance of the Revenue. 1961-62, 1962-63 and 1963-64 : " (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the 'Administrative Buildings' at Vandalur form part of 'factory buildings' and depreciation at the rate of 5% should be allowed thereon ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provisions of section 147(a) cannot be invoked for withdrawing the excess depreciation allowed originally on certain machineries for the assessment years 1961-6211962-63/1963-64 ?" 1965-66 to 1970-71 : " (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the 'Administrative Buildings' at Vandalur form part of 'factory buildings' and depreciation at the rate of 5% should be allowed thereon? " For the assessment year 1964-65 also the ITO reopened the assessment under s. 147(a) of the Act. He restricted the depreciation allowance in respect of general purpose machinery to 7% and administrative block and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire income that had escaped assessment during that year and pass an order of reassessment. In other words, the contention of the learned standing counsel is that the ITO is not confined to reassessing only the items thought to have escaped assessment when he issued the notice under s. 148 of the Act. On the other hand, the submission of Mr. Uttam Reddi, the learned counsel for the assessee, is that the provisions under s. 147(a) and (b) of the Act fall under two distinct heads. Separate periods of limitation are prescribed for the reopening of assessments under ss. 147(a) and 147(b) of the Act. The learned counsel referred to s. 149 of the Act which prescribes two distinct periods of limitation for cases falling under cl. (a) of s. 147 and cases falling under cl. (b) of s. 147 in respect of which notice may be issued under s. 148. In this connection, the learned counsel laid emphasis upon the fact that s. 147 is subject to ss. 148 to 153. The learned counsel also referred to the distinct periods of limitation prescribed for cases falling under s. 147(a) and s. 147(b) or under s. 153(2) of the Act. In the present cases, according to Mr. Uttam Reddi, the assessment regarding gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classes, viz., (a) those due to the non-submission of return of income or non-disclosure of true and full facts ; and (b) other instances. Explanation I defines what constitutes escape of assessment. In order to invoke jurisdiction under the Act, the ITO must have reason to believe that income chargeable to tax has escaped assessment. He must have also reason to believe that such income has escaped assessment by reason of the omission or failure on the Part Of the assessee either to make a return under s. 139 for the assessment year or to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must be present before the ITO would exercise jurisdiction under s. 147(a) of the Act. Section 148 reads as follows : " 148. (1) Before making the assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139 ; and the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. (2) The Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed. The provisions of the Act should be applied as if the notice were a notice issued under s. 139(2) of the Act. Section 147 of course is subject to ss. 148 to 153 of the Act. The effect would then be that, when once a notice is issued on the above lines under s. 148 of the Act, the assessee would be called upon to file a fresh return as if it was a return that would have to be filed in response to a notice under s. 139(2) of the Act. That, in turn, would mean that the assessee would be under an obligation to disclose his total income. It would not be open to him to omit any part of his income except under peril of being made subject to the penal provisions of the Act for failure to furnish a full and true disclosure of his income. It would certainly not be open to the assessee to contend that he need only to file a return of such portion of income which was not included in the original return. In other words, once an assessment is reopened the initial order of assessment stands automatically cancelled. The order of reassessment will have to take the place of the original order of assessment. The initial order of assessment cannot be said to be operative even for a limited purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause 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 under-assessment 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 his duty to levy tax on the entire income that had escaped assessment during that year." A similar question arose for consideration in Commissioner of Sales Tax v. H. M. Esufali, H. M. Abdulali [1973] 90 ITR 271 ; 32 STC 77 (SC). The case arose under the M.P. General Sales Tax Act, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. As it is, we find that in the present case the assessment orders made under section 12A were comprehensive orders and were not confined merely to matters which had escaped assessment earlier." The learned judge followed the decisions in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 (SC) and Commr. of Sales Tax v. H.M. Esufali, H. M. Abdulali [1973] 90 ITR 271 ; [1973] 32 STC 77 (SC). In Dy. Commr. (C.T.) v. Indian Refrigeration Industries P. Ltd. [1980] 46 SIC 264 (Mad), the question arose whether an assessee could in an appeal filed under s. 31 of the Tamil Nadu General Sales Tax Act, 1959, against re-assessment order challenge the assessability of a sum which had been included in the original assessment against which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the reassessment. One of us, Balasubrahmanyan J., after referring to the above contentions of the learned Addl. Govt. Pleader and the two decisions relied upon by him observed as follows (p. 276) : " The views expressed by this court in the two cases, aforesaid, do not seem to reflect the latest learning on the subject. In two recent decisions of the Supreme Court, it has been held that a reassessment once made no longer leaves the original assessment at large, but altogether supplants it." After extracting certain passages from the decisions of the Supreme Court in Dy. CCT v. H. R. Sri Ramulu [1977] 39 STC 177 and Commissioner of Sales Tax v. H. M. Esufali, H. M. Abdulali [1973] 32 STC 77; 90 ITR 271, the learned judge proceeded to observe as follows (p. 276 of 46 STC) : " It seems to me that in the face of these clear enunciations by the Supreme Court of the legal position as to the precise scope and effect of reassessments, the view expressed by this court in State of Tamil Nadu v. C. M. Tiles [1976] 38 STC 440 (Mad) and State of Madras v. Mettur Industries Ltd. [1973] 32 STC 239 (Mad), can no longer be regarded as authoritative. The, Bench decisions of this court were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, which is invariably tested at the High Court level and at the Supreme Court level, a procedural distinction is maintained between the original assessment and an assessment reopened under section 16 of the Act. The reopening of an assessment is occasioned because the initial order of assessment projects a mistake which is apparent on record. Even while issuing notice of reassessment, it is not in dispute that a reference has to be made to the original order and the word ' reassessment ' by itself suggests that there is an effacement by necessity of the original assessment order. It is in this sense the Supreme Court in Dy. CCT v. H. R. Sri Ramulu [1977] 39 STC 177, categorically said that if a reassessment is made, the original order ceases to be operative. The excerpt cited above from Dy. CCT v. H. R. Sri Ramulu, in my view, is the latest pronouncement on this subject which is directly in conflict with the opinion expressed by our court in State of Madras v. Mettur Industries Ltd. [1973] 32 STC 239 (Mad) and State of Tamil Nadu v. C. M. Tiles [1976] 38 STC 440 (Mad). Even more distinctive and conspicuous is the opinion expressed by the Supreme Court again in Commissioner of Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other items and pass reassessment orders regarding those other items even though they were not included in the notice under s. 148. A direct answer to the poser raised by Mr. Uttam Reddi that once an assessment is validly reopened under s. 147(a) items that would fall under s. 147(b) and which will be barred by limitation, could not be reopened in the reassessment proceedings is found in Pulavarthi Viswanadham v. CIT [1963] 50 ITR 463 (AP). The decision of the Andhra Pradesh High Court turned upon the interpretation to be placed on s. 34(1)(a) and 34(1)(b) of the 1922 Act. There, the ITO initiated proceedings under s. 34(1)(a) of the 1922 Act as it came to light that the assessee was indulging in moneylending and other business activities without disclosing them to the Department. On behalf of the assessee it was contended that a particular item should not be included in the revised assessment as it was barred by limitation. The contention was rejected by the Bench. After referring to ss. 34 and 22 of the 1922 Act, Chandra Reddy C.J. observed as follows (p. 466) : " The question that falls to be decided on the language of these two sections is whether after notice is issued und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Al. Vr. St. Veerappa Chettiar v. CIT [1973] 91 ITR 116 (Mad.). In that case, the assessee was originally assessed in the status of an HUF for the year 1953-54 on a total turnover of Rs. 4,915 and for the year 1954-55 on a total loss of Rs. 4,087. In the original assessment the assessee had claimed losses of Rs. 9,167 and Rs. 19,283 for the assessment years 1953-54 and 1954-55, respectively, from its Thatchanallur sugar mill business. Those losses were allowed as claimed in the original assessment. Further, in the original assessment the interest received by the assessee from one of the debtors, Sri RM. AR. AR. RM. Ramanathan Chettiar had not been disclosed and the assessments were completed without including these interest receipt. Thereafter, in the course of the assessment for the year 1955-56, it was found that one of the debtors, the said Ramanathan Chettiar had credited the assessee with Rs. 24,165 as interest for a number of years. Similarly, during the assessment proceedings for the year 1957-58, the ITO found that the loss claimed by the assessee from the sugar mill could not be allowed as that business had become defunct even prior to the assessment year 1953-54. In thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned judges. The learned judges have followed the Supreme Court decision in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 (SC), and laid down the ratio as already quoted that when once reassessment proceedings are validly initiated by the ITO either under s. 34(1)(a) or under s. 34(l)(b), his jurisdiction is not confined to items of income in respect of which notice has been issued but extends to all items of income which have escaped assessment and which may fall either under s. 34(1)(a) or s. 34(l)(b). It may be mentioned that the learned judges have noticed the principle laid down by the Supreme Court in V. Jaganmohan Rao v. CIT to the effect that once an assessment is reopened by issuing notice under s. 22(2) of the 1922 Act the previous under-assessment is set aside and the whole assessment proceedings start afresh and the ITO had not only the jurisdiction, but it was his duty to levy tax on the entire income that had escaped assessment during the previous years. In the light of the above ratio of the Supreme Court decision, it is not open to the court to go beyond the scope of the said decision and hold that notwithstanding the fact that the entire original assessment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 1963-64 to 1967-68 and to disallow the claim for bad debt in the reassessment for the years 1966-67 and 1967-68 when the period of limitation under s.17(1)(b) had expired in respect of two items. Admittedly, the notice of reassessment was issued under s. 17(1)(a). On behalf of the assessee, it was contended that in reassessment proceedings the WTO could not exercise the jurisdiction vested in him under s. 17(1)(b) after the expiry of the period of four years prescribed for proceedings under s. 17(1)(b). Reliance was placed on a Bench decision of this court in Al. Vr. St,. Veerappa Chettiar v. CIT [1973] 91 ITR 116 (Mad). The matter was referred by the Bench to a Full Bench in view of the apparent inconsistency between the ratio laid down in Pulavarthi Viswanadham v. CIT [1963] 50 ITR 463 (AP) and Al. Vr. St. Veerappa Chettiar v. CIT. Kondaiah C.J., after referring to the decision of the Supreme Court, among others, observed as follows : " From the aforesaid decisions, it is clear that reassessment wipes out the original assessment and the reassessment must be in respect of not only the items that escaped assessment but the entire assessment for the year. The assessing authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court of Appeal followed its earlier decision notwithstanding the fact it was contrary to a decision of the House of Lords. In this context it will be useful to refer to the observation of Lord Wright, at p. 392 : " On the judge's findings, the case fell precisely within the ruling of M'Ferrin's case [1926] AC 377, and the judge properly so held. His decision was, however, overruled by the Court of Appeal, not on the facts, which it was not competent to the court to question, but, so far as I can understand, on grounds completely inconsistent with what this House decided in M'Ferrin's case. I feel no doubt that the decision of the Court of Appeal was wrong. I can understand the difficulty in which both the county court judge and the Court of Appeal were placed in the present case. What a court should do, when faced with a decision of the Court of Appeal manifestly inconsistent with the decisions of this House, is a problem of some difficulty in the doctrine of precedent. I incline to think that it should apply the law laid down by this House, and refuse to follow the erroneous decision." In Cassell Co. Ltd. v. Broome [1972] 1 All ER 801 at 874; [1972] 2 WLR 645, 724, Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not stand consistently with the decision of the Supreme Court in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373. Mr. Uttam Reddi then sought to make out a distinction on the Wording of the language of s. 34(1) of the 1922 Act and the language of s. 147 of the 1961 Act. In this connection, the learned counsel laid emphasis upon the words " subject to the provisions of sections 148 to 153" found in s. 147 of the 1961 Act, which were not present in s. 34 of the 1922 Act. This, in our opinion, cannot in any manner affect the decision that we may have to arrive at in this case. Section 153 only prescribes the time-limit for completing the assessment and reassessment. Section 153(2) reads as follows : " No order of assessment, reassessment or recomputation shall be made under section 147 (a) where the assessment, reassessment or recomputation is to be made under clause (a) of that section, after the expiry of four years from the end of the assessment year in which the notice under section 148 was served ; (b) where the assessment, reassessment or recomputation is to be made under clause (b) of that section, after (i) the expiry of four years from the end of the assessment year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Rules refers to buildings. In respect of first class substantial buildings of selected materials, the rate of depreciation is 2.5%. The third column states that an assessee will be entitled to depreciation allowance at double the rates for factory buildings excluding offices, godowns, offices and employees' quarters. There is no definition of a factory building in the Act or in the Rules, In the circumstances, the contention of the learned standing counsel is that in order to constitute a factory building actual manufacturing business should be carried on. It cannot be said that in the administrative block, with which we are concerned, or the canteen, any manufacturing is being carried on. It is equally argued that the compound walls are not a necessary adjunct to the factory buildings inasmuch as they are not in any way needed for carrying on a manufacturing process. We are unable to accept the argument of the learned standing counsel. From the very nature of things and from the very object which they are intended to subserve, we have no doubt that a canteen, fire service station pump house, overhead tank and wells, overhead line and street lights, new stores and co-operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Rules, 1922 (which allows, a depreciation of 15 per cent. in respect of such buildings) is a question of fact. A cinema studio building consisted of studio sheds, painting and make-up work, laboratory for editing films, synchronising sound, etc., and a carpentry section, where there were lathes, sawing machines, etc., which were operated by electric motors, were factory buildings. " The test to find out whether a particular building is a factory building or not has been again laid down by a Bench of this court in CIT v. Engine Valves Ltd. [1980] 126 ITR 347 (Mad). The headnote of the decision reads as follows., " The proper view-point from which one must approach the question of interpretation of the term factory building with respect to depreciation allowable under the Income-tax Act and Rules, would be to look at the operative words functionally as intending to provide for wear and tear of depreciable assets. Therefore, one must exclude from consideration judicial interpretation of the term ' factory ', occurring in other enactments such as the Factories Act, 1948. A canteen, by virtue of its purpose and function, is susceptible to higher rate of wear and tear than ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
