ASSAM OIL CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Under Section 256 (1) of the Income Tax Act, 1961 this reference has been made for the year 1960-61. It appears that on the 25th January, 1962 the assessee wrote a letter to the assessing Income Tax Officer explaining therein, according to the assesee, the management charges paid by the assessee to the parent company in London. On the 5th March, 1962, the assessee company by a letter replied to the query made by the Income Tax Officer at the time of the original assessment for furnishing details regarding the various items including the London Office management expenses. The company in the said letter referred to tits earlier letter dated 25th January, 1962, which we have mentioned hereinbefore. On the 17th March, 1962 the original assessment was made by one Sri G. P. Gupta, who was at that time the Income Tax and in the said order the total income computed was Rs. 3,62,36,092.00. The Rajasthan High Court in the case of Commissioner of Income Tax, Delhi & Rajasthan vs. Goten Lime Syndicate, 51 ITR 533, a decision to which we will presently refer in detail, held 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 acquiring the asset or advantage for enduring benefit to the assessee's business. On the 13th February, 1964, the Income Tax Officer rectified the original assessment and computed the income at Rs. 3,63,97,836. On the 15th December, 1964 the Income Tax Officer issued a notice under Section 147 (b) of the Income Tax 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 a business expenditure. A notice was issued thereafter under section 147(b) of the Income Tax 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 upto the Tribunal on the basis of the decision of the Rajathan High Court that the Income Tax Officer had obtained information that the royalty allowed as deduction was not to be allowed as a revenue deduction was not to be allowed as a revenue deduction in computing the income of the assesee. But during the hearing of the reference before us learned advocate for the Revenue ought to urge that the real information was contained in the order of the Income Tax Officer, viz. that as a result of the decision of the Rajasthan High Court the Income Tax Department had called for the records for the assessment year 1963-64 and thereafter the deed for payment of royalty was examined in detail, which deed was not referred to in the original assessment for the year 1960-61 with which we are concerned. As a result of the examination of the same, the Income Tax Officer came to the conclusion that the income of the assessee had escaped assessment. But we must point out that before the Tribunal as well as before the Appellate Assistant Commissioner the only basis upon which the case proceeded was that the decision of the Rajasthan High Court referred to hereinbefore, constituted the information and as such Section 147(b) of the Income Tax Act, 1961 was attracted. The fact that as a result of that decision as for royalty which was examined for the year 1963-64 was considered also and this constituted information was not canvassed before the authorities below. Therefore, we must proceed to examine on the assumption that the information upon which the Income Tax Officer sought to reopen the assessment was the decision of the Rajasthan High Court, as mentioned hereinbefore. On the 25th January, 1965 the work study made by the Burma Oil Co. a parent company, in respect of the accounting years 1962-63 showed that the London Office management expenses for the said two years 1962 and 1963 were - 1,10000. On the 22nd November, 1965 the Income Tax Officer made the reassessment under Section 23(3) read with Section 147(b) of the Income Tax Act, 1961 overruling the objection that there was no fresh information in consequence of which the Income Tax Officer could have assumed jurisdiction under Section 147(b) of the Income Tax Act, 1961. The Income Tax Officer in the said re-assessment disallowed (a) the payment of royalty of crude oil and gas and (b) the sum of - 1,50,000 out of 2,50,000 claimed by way of London Office management expenses. On 26th September, 1966, the Appellate Assistant Commissioner set aside the assessment. He however held that the reopening of assessment under Section 147(b) of the Act was legal and valid. He set aside the assessment and sent the case back to the Income Tax Officer to redo the assessment after giving the assessee proper opportunity to explain the reasonableness or otherwise of the London Office management expenses.

(2.) On the 16th May, 1970 the Tribunal held that the action taken under Section 147(b) in respect of royalty payment though validly taken did not result in any re-assessment 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 vs. Income Tax Commr. 59 ITR 718 which was an appeal from the Rajasthan High Court decision referred tot hereinbefore. The Tribunal, however, held that the action under Section 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 Income Tax Officer leading to a reasonable belief that the income chargeable to tax had escaped assessment for the relevant year on account of 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 which we are not concerned. Again on the 7th November, 1970 the Tribunal passed another rectification order in the 2nd Application of the assessee dated 29th August 1970 with which also we are not concerned. The Tribunal, however, rejected the miscellaneous application dated 17th March, 1971 made by the Department dated 27th November, 1970 with which also we are not concerned. Upon these facts both at the instance of the assessee and at the instance of the revenue, these two question have been referred to this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the decision of the Rajasthan High Court in the case of gotan Lime Syndicate constituted information to the Income Tax Officer, on the basis of which proceedings under Section 147(b) were validly taken in respect of the claim for royalty payments and that the pronouncement of the Supreme Court rendered subsequently in the same case did not render the proceedings taken by the Income Tax Officer abinitio void " 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that action under Section 147(b) of the Income Tax Act, 1961, in so far as it related to the claim for deduction of London Office Management expenses was not validly taken and could not therefore be sustained ".

(3.) So far as the first question is concerned, shortly the controversy is whether thee was any valid information. The scheme of reopening as embodied in Section 148 and Section 147 of the Income Tax Act, 1961 has been explained in numerous decisions of the Supreme Court as well as of different State High Courts. A completed assessment within the time, mentioned in the Act, can be reopened by serving of a notice under Section 148 of the Income Tax Act 1961. Such a notice, however, can only be given when conditions contemplated either by clause (a) or clause (b) of Section 147 of the Income Tax Act, 1961 are fulfilled. Clause (a) of Section 147 deals with failure or omission on the part of the assessee to disclose fully or truly all relevant or material facts. We are not concerned with such a situation in the instant case. Clause (b) of Section 147 of the Act with which we are concerned in this case enjoins that an assessment can be reopened within the time of 4 years provided there is information in the possession of the Income Tax Officer and as a result of such information the Income Tax Officer come to the belief that the income of the assessee has either escaped assessment or has been under assessed. Therefore, in order to be a valid reopening by virtue of the powers under clause (b) of Section 147 of the Income Tax 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 Income Tax Officer, a change in the sense 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 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 the reassessment. It is also well-settled that in order to attract the jurisdiction one has to consider the condition as it prevails on the date of the issuance of the notice under Section 148 of the Income Tax Act, 1961. This position was explained in an unreported Bench Decision of this Court, viz. the decision in Appeal No. 185 of 1962 Income Tax Officer, M ward, Companies Dist. IV and Ors vs. Textile Agent Pvt. Ltd. judgment delivered on the 18th March, 1974 and on which reliance was placed by both sides. Speaking for the Division Bench, which heard an appeal from a decision under Article 226 of the Constitution, I had observed as follows: "In order to determine whether the Income Tax Officer had jurisdiction to issue the impugned notice we must consider the facts as this were on the date when the impugned notice was issued. Subsequent discovery of any new fact would not confer upon the Income-tax Officer jurisdiction if he did not have the jurisdiction at the time of the issuance of the notice. Similarly subsequent information regarding the falsity of the case or casting doubt on the genuineness of the information upon which the Income-tax Officer had acted would not defeat the jurisdiction of the Income Tax Officer it he had jurisdiction to issue the impugned notice on the materials before him. Subsequent decision of the Appellate Assistant Commissioner would not either confer jurisdiction if the Income Tax Officer had not originally the jurisdiction at the time of the issuance of the notice or defeat the jurisdiction of the Income Tax Act if he had at the time of the issuance of the notice. This proposition is well settled by the scheme of the Income Tax Act and for this is not authority is needed. Indeed Counsel for the respondent did not seriously dispute the proposition. What he contended, however, was that though the subsequent information would not confer or take away the jurisdiction of the Income Tax Officer, the subsequent determination by a higher authority about the quality of the information was a relevant factor to be taken into consideration, in determining the nature of materials upon which the Income Tax Officer acted. In so far as it is a stated that the subsequent determination by a higher authority as to the quality of the basis of the information is a relevant factor, in our opinion, cannot be disputed but in this connection it has to be borne in mind that the Appellate Assistant Commissioner for the assessment year 1964-65 did not make any finding that there was any regular and genuine transaction of money lending."