COMMISSIONER OF INCOME TAX Vs. ASSEMBLY ROOMS

JUDGEMENT

(1.) IN compliance with the directions of this court in T. C. P. Nos. 542 to 544 of 1985 and 310 of 1984, dated December 10, 1984, the following question of law in relation to the assessment of income of the assessee for the assessment years 1971-72 to 1974-75 under Section 256(2) of the INcome-tax Act has been referred to us for our opinion :

(2.) THE assessee, Assembly Rooms, is a trust founded by Lord Wellington on November 3, 1923. According to the Appellate Tribunal, the assessee was treated as a public institution. THE assessee derived income in a theatre popularly known as "Assembly Rooms". Besides, it had income from investments. THE Income-tax Officer originally completed the assessment for the assessment years 1971-72 to 1974-75 treating the assessee as a charitable trust and granted exemption of the income of the assessee. After the completion of the original assessment, the Revenue audit party brought to the notice of the Income-tax Officer that the exhibition of cinema films involved by it would constitute to carrying on an activity for profit and, therefore, the income derived by the assessee was not exempt under Section 11 of the Income-tax Act. On the basis of the report of the internal audit party, the Income-tax Officer issued the notice of reassessment under Section 147(b) of the Act and after hearing the objections, he found that the assessee was not entitled to the exemption granted under Section 11 of the Act inasmuch as the assessee did not fulfil the requirements contemplated under Section 11 of the Act warranting such an exemption. THE Income-tax Officer thus in the proceedings initiated under Section 147(b) of the Act, withdrew the exemption and completed the assessment. After the reassessment, the assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax and contended that the reopening of the assessment was not valid and questioned the reassessment on the merits of the case.

(3.) WE have carefully considered the submissions of learned counsel on both sides. If the audit party has merely brought to the attention of the Income-tax Officer, the provisions of the law there can be no objection to hold that the report of the audit could constitute information for the purpose of reopening the assessment under Section 147(b) of the Act. The Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, drew the distinction between the source of the law and the communication of the law. If the audit party has drawn to the attention of the Income-tax Officer, the correct provisions of the law, then the Assessing Officer on the basis of the report, can reopen the assessment under Section 147(b) of the Act. The audit party, in the instant case, according to the Appellate Tribunal, has not merely brought to the attention of the Income-tax Officer the relevant provisions of the law, but interpreted the provisions of the law. No doubt the audit party has drawn to the attention of the Income-tax Officer, the decision of the Supreme Court in the case of Indian Chamber of Commerce v. CIT [1975] 101 ITR 796, but the finding of the Appellate Tribunal is that the audit party has applied the law laid down by the Supreme Court to the facts of the case.