COMMISSIONER OF WEALTH TAX VS S. MUTHUKUMARASAMY UDAYAR
1999 P T D 977
[232 I T R 864]
[Madras High Court (India)]
Before K.A. Thanikkachalam and S.M. Siddick, JJ
COMMISSIONER OF WEALTH TAX
Versus
S. MUTHUKUMARASAMY UDAYAR and another
T.Cs. Nos.857 to 863 of 1983 (References Nos.432 to 438 of 1982), decided on 18/02/1997.
Income-tax---
----Reassessment---Wealth tax---Information that income and wealth have escaped assessment---Interpretation of law by IAC would not constitute information---Reassessments under Income Tax Act and Wealth Tax Act based on such interpretation are not valid---Indian Income Tax Act, 1961, 5.147---Indian Wealth Tax Act, 1957, S.17.
The interpretation of law by the Inspecting Assistant Commissioner would not constitute "information" within the meaning of section 147(b) of the Income Tax Act, 1961, and section 17 of the Wealth Tax Act, 1957:
Held, that, in the present case, the Income-tax Officer as well as the Wealth Tax Officer, reopened the original assessment to bring to tax the interest accrued on cross gifts made by two of the Kartas of their respective Hindu undivided families. According to the assessee, even at the time when the original assessment was made, all the accounts and necessary particulars were placed before the assessing authority and it was only after perusing all the materials, the assessing authority came to the conclusion that the interest received on the gifts was not taxable under the Income Tax Act and not includible in the net wealth under the Wealth Tax Act. The Inspecting Assistant Commissioner in a memorandum directed the assessing authorities to reopen the assessments and make fresh, assessment. The Tribunal, after perusing the memorandum issued by the Inspecting Assistant Commissioner, came to the conclusion that the Inspecting Assistant Commissioner had interpreted the law and directed the assessing authority to reopen the assessment. The reassessments under the Income Tax Act and the Wealth Tax .pct were not valid.
Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) applied.
Arvind Kumar v. ITO (1984) 146 ITR 437 (MP); Bireswar Sarkar v. GTO (1997) 223 ITR 404 (Cal.); CIT v. Kothari (C.M.) (1963) 49 ITR (SC) 107; Munna Lal and Sons v. CIT (1991) 187 ITR 378 (All.) and Devarajulu Natdu (G.K.) v. CIT (1983) 144 ITR 686 (Mad.) ref.
C.V. Rajan for the Commissioner.
N. Devandhan for the Assessee (in T.Cs. Nos.857 and 858 of 1983).
Philip George for the Assessee (in T.Cs. Nos.859 to 863 of 1983).
JUDGMENT
K.A. THANIKKACHALAM, J.--- At the instance of the Department, the Tribunal referred the following common question for the assessment years 1972-73 to 1974-75, in the case of one assessee and for the assessment years 1972-73 and 1973-74 in the case of another assessee, in both the wealth-tax assessment as well as the Income-tax assessment for the opinion of this Court, under section 256(1) of the Income-tax Act, read with section 27(1) of the Wealth-tax Act.
"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the reassessment made on the basis of the directions issued by the Inspecting Assistant Commissioner of Income-tax are invalid and cannot stand in law?"
In the case of the assessee, Sri S. Subramania Udayar, there are three appeals relating to Income--tax assessments for the assessment years 1972-73 to 1974-75, and two appeals relating to wealth-tax assessments for the years 1972-73 and 1973-74, while in the case of Sri S. Muthukumaraswamy Udayar, there are only two appeals relating to Wealth-tax assessments for the years 1972-is and 1973-74. Both the assessees are Hindu undivided families represented by their respective Kartas. Subramania Udayar and Muthukumaraswamy Udayar, who are brothers. They had moneys in a partnership firm. Udayar and Co., from which they derived share income, they being represented in the firm by their respective Hindu undivided family. The Hindu undivided family of Subramania Udayar made gifts of Rs.10,000 on each day, viz. December 31, 1967 and December 31, 1968 to Smt. Kamalathachi, wife of S. Muthukumaraswamy Udayar, the assessee's brother, Rs.5,000 on each date December 31, 1970 and December 31, 1971 to a minor Somasundaram son of S. Muthukumaraswamy Udayar. The Hindu undivided family of Sri Muthukumaraswamy Udayar correspondingly gifted amounts of Rs.10,000 on each date December 31, 1967 and December 31, 1969 to Smt. Mangalathachi, wife of Subramania Udayar and Rs.5,000 on each date December 31, 1970 and December 31, 1971, to a minor Palanisamy, son of Subramania Udayar. It appears that these amounts transferred to the wife and minor son of the Karta of each Hindu undivided family were fetching interest and that this interest income relatable to each assessment year involved has been sought to be included in the reassessments.
The Income-tax Officer held that the transactions mentioned above clearly amounted to cross gifts made by each family within the meaning of the expression, considered in the Supreme Court decision in CIT v. C.M. Kothari (1963) 49 ITR (SC) 107. According to the Income-tax Officer, the effect of these transfers by way of gifts did in no way result in depletion of the funds of the two families and consequently interest earned out of these funds were liable to be included in the total income in the income-tax assessment. He similarly considered that the amounts gifted by the Hindu undivided family to the members of the other Hindu undivided family, having come back to it by the corresponding gifts of the other Hindu undivided family, are required to be included in the net wealth. It is the Inclusion of the interest income in the income-tax assessment and the amount of gift in the wealth-tax assessment of each of the assessees, which is the subject-matter of reassessments.
The reassessments were challenged by the assessee on the ground that all the relevant facts including the relevant copies of accounts were already before the Income-tax/Wealth Tax Officer, when the assessments were made originally and there was no new information, which came in to the possession of the Income-tax Officer/Wealth-tax Officer, warranting a reopening and that the reopening has been done only on a change of opinion with regard to the law applicable to the facts already on record at the time of the original assessment. The Appellate Assistant Commissioner accepted the assessee's claim and cancelled the reassessments. Aggrieved, the Revenue preferred appeals before the Appellate Tribunal.
The contention of the Department was that the reassessment having been made on the basis of the directions of the Inspecting Assistant Commissioner received in 1974 after the assessments were originally made, whereby he communicated the knowledge of law to the Income-tax Officer/Wealth-tax Officer, the latter had acted within the parameters of his powers in reopening the assessment and bringing to charge additional income/wealth. The assessee's learned counsel contended that the question of the merits of the inclusion does not arise for consideration and need not be gone into. It was his submission that the Inspecting Assistant Commissioner was not competent or entitled to express an opinion with regard to the interpretation of law or application thereof and in this respect he submitted that the judgment of the Supreme Court in Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 would be applicable to the facts of this case. It was thus, submitted that the Inspecting Assistant Commissioner is not competent to interpret or pronounce on a question of law, and hence his directions to the Income-tax Officer cannot constitute information for the purpose of reopening the assessment.
The Tribunal pointed out that a memorandum containing the directions of the Inspecting Assistant Commissioner was furnished before it and the directions clearly contain the views and interpretation of the Inspecting Assistant Commissioner on points of law applicable to the situation and a direction to reopen the assessment to be made afresh. Therefore, the Tribunal came to the conclusion that the reopening in the case of both the income-tax assessment and the wealth-tax assessment was not based upon correct information. Accordingly, the Tribunal agreed with the view taken by the first appellate authority.
Before us, learned standing counsel appearing for the Department submitted that the memorandum of the Inspecting Assistant Commissioner, bearing No. EER 7 of 1973-74, dated October 22, 1974, merely pointed out the law that has got to be applied in the present case. There is no interpretation of the law given by the Inspecting Assistant Commissioner in that memorandum. Therefore, even according to the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996, the information received by the Income-tax Officer is a valid information, on which he can reopen the assessment originally made. On the other hand, learned counsel appearing for the assessee, while supporting the order passed by the Tribunal, submitted that the Inspecting Assistant Commissioner has no jurisdiction to instruct the Income-tax Officer to reopen the assessment. Further, according to learned counsel, the memorandum issued by the Inspecting Assistant Commissioner contained interpretation of law by the Inspecting Assistant Commissioner that has got to be applied in the present case. The Inspecting Assistant Commissioner also has given a direction to reopen the assessment on the lines suggested by him. Therefore, it was submitted that the Tribunal was correct in holding that the reopening was bad.
We have heard both learned standing counsel appearing for the Department as well as learned counsel appearing for the assessee. In the present case, the Income-tax Officer as well as the Wealth-tax Officer reopened the original assessment to bring to tax the interest accrued on cross gifts made by two of the Kartas of their respective Hindu undivided families. According to the assessee, even at the time when the original assessment was made, all the accounts and necessary particulars were placed before the assessing authority and it is only after perusing all the materials, the assessing authority came to the conclusion that the interest received on the gifts is not taxable under the Income-tax Act and not includible in the net wealth under the Wealth-tax Act. Therefore, without proper information, the assessing authority cannot reopen the assessment. In the present case, the Inspecting Assistant Commissioner in a memorandum directed the assessing authorities to reopen the assessments and make fresh assessment. It is no doubt true that generally only the internal audit party would point out the mistake committed by the assessing authority and direct the assessing authorities to reopen the, assessment for making fresh assessments, in accordance with law. In the present case, the Inspecting Assistant Commissioner in his memorandum directed the assessing authorities to reopen the assessment.
The Tribunal had an opportunity of going through the memorandum issued by the Inspecting Assistant Commissioner. On such perusal, the Tribunal found that the directions given by the Inspecting Assistant Commissioner are nothing but interpretation, of law applicable on points arising in this case and a direction was also given to reopen the assessment so as to enable the assessing authorities to make fresh assessments.
The Supreme Court in Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 held that the internal audit party can merely point out the law and cannot interpret the same. If the law is interpreted by the internal audit party, then that would not constitute information so as to enable the assessing authority to reopen the assessment under section 147(b) of the Income-tax Act, 1961. But, in the present case, it is the Inspecting Assistant Commissioner, who is superior to the assessing authorities, who issued directions to reopen the assessment by interpreting the law on this point. Even assuming that the superior authorities can point out the mistake committed by the assessing authority and direct him to reframe the assessment by applying the correct law on the point, in the present case, inasmuch as the Inspecting Assistant Commissioner has interpreted the law on the subject and directed the assessing authorities to reopen assessments on that basis, it would be directly hit by the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996.
In Munna Lal and Sons v. CIT (1991) 187 ITR 378, the Allahabad High Court held that a proceeding or remarks of the Inspecting Assistant Commissioner could not constitute information within the meaning of section 147(b) of the Income-tax Act, 1961. Therefore, the reopening of the assessment was not valid.
A similar view was taken by this Court in G.K. Devarajulu Naidu v. CIT (1983) 144 ITR 686.
In Bireswar Sarkar v. GTO (1997) 223 ITR 404, the Calcutta High Court, held that notice issued by the Inspecting Assistant Commissioner instructing to reopen the assessment is not valid information, so as to enable the Assessing Officer to reopen the assessment.
In Arvind Kumar v. ITO (1984) 146 ITR 437, the Madhya Pradesh High Court held that a letter from the Inspecting Assistant Commissioner, pointing out an omission would constitute information under section 147(b) of the Act.
Inasmuch as the Tribunal being the highest fact-finding authority, after perusing the memorandum issued by the Inspecting Assistant Commissioner, came to the conclusion that the Inspecting Assistant Commissioner has interpreted the law and directed the assessing authority to reopen the assessment, it is not possible to come to a different conclusion as suggested by learned standing counsel for the Department that the Inspecting Assistant Commissioner has merely pointed out the law and not interpreted the law. In view of the foregoing reasons, we consider that the order passed by the Tribunal in the case of both the assessees appears to be in order. In that view of the matter, we answer the question referred to us in the affirmative and against the Department. No costs.
M.B.A./1883/FC???????????????????????????????????????????????????????? Reference answered in affirmative.