TMI Blog1975 (11) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... we are concerned with the assessment year 1961-62, the relevant previous year being the calendar year 1960. The assessee is a limited company running a textile mill. The original assessment of this company for the assessment year 1961-62 was completed on June 16, 1962. Thereafter, it came to the notice of the Income-tax Officer, firstly,that rebate on account of corporation tax had not been withdrawn to the extent of Rs. 42,300 and, secondly, that the profit under section 10(2)(vii) of the Indian Income-tax Act, 1922, to the extent of Rs. 38,465 had escaped assessment. The Income-tax Officer also noticed that action under section 147 of the Income-tax Act, 1961, had already been initiated in the case of the assessee in connection with the assessment year 1961-62 as regards withdrawal of development rebate in connection with some other items on which development rebate had been inadvertently allowed. Notice under section 147 was thus already issued by the Income-tax Officer on March 28, 1964. On April 24, 1964, the Supreme Court decided the question regarding the particular aspect of development rebate which was the crucial question in the instant case. The decision was in Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer recorded his reasons for reopening the assessment under section 147 of the Act, he had noted : " The development rebate claimed by the assessee on item of machinery known as 'warp stop motions' worth Rs. 38,015 was inadvertently allowed. The recovery of development rebate of Rs. 38,015 at 25% amounts to 9,504. Issue notice u/s. 148 of the I.T. Act, 1961. This was noticed while submitting remand report in this case. " It may be pointed out at this stage that in view of certain earlier decisions and particularly a decision of the Bombay High Court, the view which prevailed regarding development rebate on machinery was that the development rebate could be allowed only on one complete machine and not on separate parts of a machine. Warp stop motions was a mere part of a machine and was not a complete machine by itself. Following that earlier view, the Income-tax Officer, when he realised that what was known as warp stop motions machine as not a separate machine by itself but was a part of a machine, issued this notice under section 148 proposing to reopen the assessment proceedings on the ground that the development rebate regarding stop motions was wrongly allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. " The Madras High Court in AL. VR. ST. Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116 (Mad) has summarized the position correctly and at page 123 the proposition of law has been stated as follows : " It is clear that once the reassessment proceedings are validly initiated by the Income-tax Officer in respect of an item of income either under section 34(1)(a) or under section 34(1)(b), the jurisdiction of the Income-tax Officer to reassess is not confined to the 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 section 34(1)(a) or section 34(1)(b). " In Controller of Estate Duty v. N. A. Merchant [1975] 101 ITR 270 (Guj), we ourselves have held that the decision of the Madras High Court in AL. VR. ST. Veerappa Chettiar's case [1973] 91 ITR 116 (Mad) correctly summarizes the legal position regarding the power of the authority concerned in reassessment proceedings. A Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been pointed out by the Supreme Court in Sowdagar Ahmed Khan v. Income-tax Officer [1968] 70 ITR 79, 84 (SC) : " In the context of these facts we are of opinion that there was some material before the Income-tax Officer on which he formed the prima facie belief that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such non-disclosure income had escaped assessment. It follows that the Income-tax Officer had jurisdiction to issue notices under section 3(1)(a) of the Act. " As a matter of fact, after the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC), the subsequent decisions both of the Supreme Court and High Courts have elaborated upon or explained the implications of the principle laid down in Calcutta Discount Company's case [1961] 41 ITR 191 (SC). It may also be observed that even before the decision of the Supreme Court in V. Jagan Mohan Rao s case. [1970] 75 ITR 373 (SC), the different High Courts, particularly, Punjab, Andhra Pradesh, Madras and Calcutta High Courts had taken a similar view regarding the powers of the Income-tax Officer in reassessment proceedings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of initiating the reassessment proceedings was no information at all in the eye of the law or looked at from any other angle, it cannot be said that the Income-tax Officer had reason to believe that the development rebate regarding warp stop motions had been incorrectly allowed in the original assessment proceedings. According to the learned Advocate-General whether the case is considered from the point of view of no information or from the point of view of reason to believe, ultimately it would mean that the proceedings were not validly initiated. 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 wrongly allowed 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re because of a retrospective amendment in legislation and the legal fiction which goes with the retrospective legislation, the Income-tax Officer had to exercise discretion and the discretion was confered with retrospective effect by legislation. Though the effect of the Supreme Court decision by virtue of the provisions of the Constitution is that the Supreme Court declares the law of the land and it must be held to have been always the law of the land, once it has so declared, it cannot be placed on the same footing as a retrospective piece of legislation and the legal fiction which goes with retrospective legislation cannot arise in the case of the decision of the Supreme Court declaring what the law of the land is. In the instant case it cannot be said, therefore, that the reason for the belief of the Income-tax Officer did not exist at all at the time when he initiated the proceedings though it may turn out subsequently that the view of law on which he initiated the reassessment proceedings subsequently turned out to be erroneous in the light of the decision of the Supreme Court in Mir Mohammed Ali's case [1964] 53 ITR 165 (SC). We, therefore, hold that the Tribunal erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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