TMI Blog1980 (6) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Gotan Lime Syndicate [1964] 51 ITR 533, 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 s. 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 business expenditure. A notice was issued thereafter under s. 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 comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondon office management expenses. On the 16th May, 1970, the Tribunal held that the action taken under s. 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 Gotan Lime Syndicate v. CIT [1966] 59 ITR 718, which was an appeal from the Rajasthan High Court's decision referred to hereinbefore. The Tribunal, however, held that the action under s. 147(b) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the powers under cl. (b) of s. 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 s. 148 of the I.T. Act, 1961. This position was explained in an unreported Bench Decision of this court, viz., the decision in Appeal No. 185 of 1962, ITO v. Textile Mills Agents P. Ltd., judgment delivered on 18th March, 1974 (since reported in [1981] 130 ITR 733) and on which reliance was placed by both sides. Speaking for the Division Bench, Which heard an appeal fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia, as follows : " Subsequent to the completion of the original assessment, the Incometax Officer became aware of the decision of the Rajasthan High Court in Commissioner of Income-tax v. Gotan Lime Syndicate [1964] 51 ITR 533, wherein the High Court had held that payment of royalties by the assessee, 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 original assessment 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 ...... .." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 s. 10(2)(xv) of the Indian I.T. Act, 1922. It was held by the Supreme Court that in view of r. 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n High Court, this being a relevant judicial decision, the relevant point could have been validly constituted as undisputable information in terms of cl. (b) of s. 147 of the I.T. Act, 1961. 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 [1955] 28 ITR 505, 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 monazite exported or sold, and if the market price of monazite exceeded pound 20 per ton, a surplus royalty of 10 per cent. on any excess over pound 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. 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] 44 ITR 260 at p. 265, the decision of the Gujarat High Court in the case of Parshuram Pottery Works Co. Ltd. v. D. R. Trivedi, WTO [1975] 100 ITR 651 at p. 656, 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 at p. 46 and also the decision of the Division Bench of the Mysore High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: " 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] 35 ITR I (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 as to relevant judicial decisions. Thereafter, in CIT v. A. Raman Co. [1968] 67 ITR 11 (SC), 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'. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. " 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. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ender 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." The same view was reiterated by the Gujarat High Court in the case of CIT v. Ahmedabad Manufacturing Calico Printing Co. Ltd. [1977] 106 ITR 159 at p. 164. The Supreme Court also observed in the case of R. B. Bansilal Abirchand Firm v. CIT [1968] 70 ITR 74 at p. 77, where generally it dealt with the meaning of the expression "information ". 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] 63 ITR 219 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 bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. Ramsevak Paul [1977] 110 ITR 527. In the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1971] 82 ITR 892 at p. 895, 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] 111 ITR 166. 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 at p. 280, expressed the same view as also in the case of State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. [1977] 39 STC 340 (SC). The Andhra Pradesh High Court in the case of CWT v. Subakaran Gangabhishan [1980] 121 ITR 69 [FB] applied the sales tax principle in the case of a wealth-tax case. Learned advocate ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
