COMMISSIONER OF INCOME-TAX VS NOVAPAN INDIA LTD., 2000 PTD-ANDHRA-PRADESH-HIGH-COURT-INDIA 2322 (1998)

Income-tax---

----Reassessment---Information---"Information" includes information as to true and correct state of law and would include information as to relevant judicial decisions---Decision which came to knowledge of ITO after assessment is made is "information"---Reassessment based on such information is valid---Indian Income Tax Act, 1961, S.147(b).

The word "information" in section 147(b) of the Income Tax Act, 1961, includes information as to the true and correct state of the law acid so would cover information as to relevant judicial decisions.

The Income-tax Officer, in the original assessment, brought Rs.80,000 to tax. This amount was by way of interest on short-term deposits out of the assessee's own funds. The Commissioner of Income-tax by his order, dated September 1, 1981, gave relief to the assessee. However, the Department did not accept that decision. Meanwhile, the Income-tax Officer felt that even the original assessment was an underassessment inasmuch as the interest from short-term deposits in the bank out of borrowed funds, had not been taxed at the time of original assessment. Therefore, the Income-tax Officer, following the decision of the Bombay High Court in CIT v. United Wire Ropes Ltd. (1980) 121 ITR 762 and the decision of the Madras High Court in CIT (Addl.) v. Madras Fertilisers Ltd. (1980) 122 ITR 139, reopened the assessment under section 147(b) of the Income-tax Act and held that the entire interest earned during the pre-production period was assessable to tax under the head "other sources" without any set off of interest paid by the assessee on borrowed funds The Commissioner of Income-tax (Appeals) allowed the appeal filed by the assessee. The Tribunal set aside the reassessment on the ground that the judgments of the Bombay High Court and Madras High Court were not applicable to the facts of the case and that there was no information before the Income-tax Officer warranting the reopening of assessment under section 147(b) of the Income-tax Act. At the instance of the Revenue, two questions, viz., (1) whether the Tribunal was justified in upholding the Commissioner of Income-tax (Appeals) orders that the reassessment proceedings were not valid, and (2) whether the Tribunal was justified in holding that the interest on short-term bank deposits could not be considered as assessee's income, were referred for the opinion of the High Court. The High Court by its judgment, dated March 21, 1988, held that the second question was covered by its judgment in CIT v. Nagarjuna Steels Ltd. (1988) 171 ITR 663 and following the same the said question was answered in favour of the assessee and against the Revenue. The High Court also observed that in view of the answer to the second question, the first question did not ;,arise. From the judgment of the High Court the Commissioner of Income-tax filed an appeal before the Supreme Court. The Supreme Court, by its judgment, dated December 11, 1997, while answering question No.2 in favour of the Revenue, remanded the matter to the High Court for considering the first question. On remand, the Revenue contended that in view of the judgment of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd.'s case (1997) 227 ITR 172, the interest earned by the assessee on deposits in bank was income assessable to tax, that since the Income-tax Officer did not include the income, thus, earned by the assessee in the original assessment, he had reopened the assessment following the judgment of Madras High Court in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139, that the said judgment was information within the meaning of section 147(b) of the Income-tax Act, that, therefore, the reassessment proceedings initiated by the Income-tax Officer under section 147(b) were within his jurisdiction:

Held, that a decision which came to the knowledge of the Income tax Officer after the assessment is made, is information within the meaning of section 147(b) of the Act. The Tribunal's order for the assessment years 1977-78 and 1979-80 wherein they had referred to the judgment of the Madras High Court in Madras Fertilisers Ltd's case (1980) 122 ITR 139 was, dated January 19, 1984, whereas the original assessment order was dated September 30, 1980, and the reassessment order was, dated March 26, 1983. Therefore, the Madras High Court judgment in Madras Fertilisers Ltd's case (1980) 122 ITR 139 was not before the Income-tax Officer at the time when he made the original, assessment. Therefore, the reassessment proceedings were valid.

A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC); CIT v. Nagarjuna Steels Ltd. (1988) 171 ITR 663 (AP); CIT v. United Wire Ropes Ltd. (1980) 121 ITR 762 (Bom.); CIT (Addl.) v. Madras Fertilisers Ltd. (1980) 122 ITR 139 (Mad.); Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC); Maharaj Kumar Kamal Singh v. CIT (1959) 35 ITR 1 (SC) and Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) ref.

J. V. Prasad for the Commissioner.

C. Kodanda Ram for the Assessee.

JUDGMENT

MS. S. V. MARUTHI, J.---Before the Supreme Court, in Civil Appeal No.3098 of 1990, two questions were raised for consideration at the instance of the Commissioner of Income-tax, Andhra Pradesh. The two questions read as follows:---

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in upholding the Commissioner of Income-tax (Appeals? orders that the reassessment proceedings are not valid?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the interest on short-term bank deposits cannot be considered as assessee's income?"

The Supreme Court answered question No.2 in favour of the Revenue on the ground that the said question is concluded by a judgment of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172. Accordingly, the appeal was allowed and the matter was remanded by the Supreme Court directing this Court to consider question No. 1. That is how this matter is posted before us.

The fact out of which question No. l was referred are as follows:

The Income-tax Officer, in the original assessment, brought Rs.80,000 to tax. This amount was by way of interest on short-term deposits out of the assessee's own funds. The Commissioner of income-tax, by his order dated September 1, 1981, gave relief to the assessee. However, the Department had not accepted the decision. Meanwhile, the Income-tax Officer felt that even the original assessment was an underassessment, inasmuch as the interest from short-term deposits in the bank out of borrowed funds, has not been taxed by the Income-tax Officer at the time of original assessment. Following the decisions of the Bombay High Court in CIT v United Wire Ropes Ltd. (1980) 121 ITR 762 and of the Madras High Court in CIT (Addl.). v. Madras Frtilisers Ltd. (1980) 122 ITR 139, he reopened the assessment under section 147(b) of the income-tax Act. On appeal, the Commissioner of Income-tax allowed the appeal filed by the assessee following the order of the Tribunal in Nagarjuna Steels Ltd. On a further appeal, the Tribunal set aside the reassessment on the ground that the judgments of the Bombay High Court in CIT v. United Wire Ropes Ltd. (1980) 121 ITR 762 and the Madras High Court in C'IT -(Addl.) v. Madras Fertilisers Ltd. (1980) 122 ITR 139 are not applicable to the facts of the case and that there was no information before the Income-tax Officer warranting reopening of assessment under section 147(b) of the Income-tax Act. At the instance of the Revenue, the two questions were referred for the opinion of this Court. This Court, by a judgment dated March 21, 1988, held that the second question was covered by the judgment of this Court in R. C. No.315 of 1982, dated November 18, 1987 (CIT v. Nagarjuna Steels Ltd. (1988) 1971 ITR 663). Following the same the said question was answered in favour of the assessee and against the Revenue. The learned Judges observed that in view of the answer to the second question, the first question does not arise. Aggrieved by the said judgment of this Court in R.C. No.36 of 1986, dated March 21, 1988, the Commissioner of Income-tax tiled a civil appeal before the Supreme Court. The Supreme Court, by its judgment dated December 11, 1997, while answering question No.2 in favour of the Revenue, remanded the matter to this Court for the purpose of considering the first question.

The main argument of learned counsel for the Revenue is that in view of the judgment of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172, the interest earned by the assessee on deposits in bank is income and, therefore, assessable to tax under the Income-tax Act. Since the Income-tax Officer did not include the income, thus, earned by the assessee in the original assessment, he re-opened the assessment following the judgment of the Madras High Court in CIT (Addl.) v. Madras Fertilisers Ltd. (1980) 122 ITR 139. The said judgment is information within the meaning of section 147(b) of the Income-tax Act. Therefore, the reassessment proceedings initiated by the Income-tax Officer under section 147(b) are within his jurisdiction and in accordance with law. The Tribunal committed a mistake of law in holding that the judgment of the Madras High Court is not relevant to the facts of the case and, therefore, there was no information warranting reopening of assessment under section 147(b). Learned counsel, in support of his contention that a judicial decision is information within the meaning of section 147(b), relied on the decisions of the Supreme Court in Maharaj Kumar Kamal Singh v. CIT (1959) 35 ITR 1 and A.L.A. Firm v. CIT (1991) 189 ITR 285.

On the other hand, Sri C. Kodanda Ram, learned counsel for the assessee, vehemently contended that there was no information before the Income-tax Officer for reopening the assessment and, therefore, he could not have invoked the jurisdiction under section 147(b). Learned counsel submitted that for the assessment year 1977-78, the matter was carried in appeal before the Tribunal and the Tribunal considered the judgment of the Madras High Court in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139 and, therefore, the very same material was before him and on the basis of the very same material, he could not have exercised the power under section 147(a). It is a case where there is a change of opinion and, therefore, the Tribunal was right in holding that the -reassessment was not in accordance with section 147(b).

At this stage, it is necessary to refer to the reassessment order:

"According to the decision of the Bombay High Court in CIT v. United Wire Ropes Ltd. (1980) 121 ITR 762 and the decision of the Madras High Court in the case of CIT (Addl.) v. Madras Fertilisers Ltd. (1980) 122 ITR 139, the entire interest earned during pre -production period is assessable to tax under the head 'other sources' without any set off of interest paid by the assessee on borrowed funds."

In other words, from the order of the Income-tax Officer, it is clear that he has reopened the assessment relying on the judgments of the Bombay High Court and Madras High Court. The Tribunal says that these two judgments are not relevant and, therefore, there is no information before the Income-tax Officer for reopening the assessment. If these two judgments are relevant and if they were not considered by the Income-tax Officer at the time when he made the original assessment, then these two judgments would constitute information within the meaning of section 147(b) of the Income tax Act. If these two judgments were considered by the Income-tax Officer and he expressed an opinion after. considering these two judgments, then it amounts to change of opinion and the Income-tax Officer cannot exercise jurisdiction under section 147(b).

The original order of assessment is not before us. Neither before the Tribunal nor before the Appellate Assistant Commissioner of Income-tax, was it argued that the judgment in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139 (Mad.) was available before the Income-tax Officer at the time of making the original assessment. Therefore, we proceed on the basis that these two judgments, namely, the judgments of the Bombay High Court and Madras High Court, were not before the income-tax Officer.

The next question is whether the said two judgments are relevant for the purpose of considering the issue that arose for consideration.

In the judgment of the Madras High Court in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139, the question that was referred by the Tribunal reads as follows (page 144):

"Whether the Tribunal was right in law in holding that the interest on the dollar deposits was income from any source other than business so that the total interest paid by the assessee during the year was not a permissible deduction against such income?"

Answering that question, the Madras High Court held in the affirmative and against the assessee. In other words, the Madras High Court held that the interest earned on deposits is income from other sources and is taxable under the Income-tax Act. Therefore, the judgment of the Madras High Court is relevant and the finding of the Tribunal that the judgment of the Madras High Court is not relevant is not correct.

We are not referring to the judgment of the Bombay High Court, as in our view, the said judgment is not relevant to the facts of the present case, since the judgment of the Madras High Court in-Madras Fertilisers Ltd.'s case (1980) 122 ITR 139 is relevant and since this judgment .was not available at the time of original assessment, the Income-tax Officer is justified in reopening the assessment under section 147(b). In this context, we may refer to the observations made by the Supreme Court in Maharaj Kumar Kamal Singh's case (1959) 35 ITR 1 (page 7):

"We would accordingly hold that the word information' in section 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decision. If that be the true position, the argument that the Income tax Officer was not justified in treating the Privy Council decision in question as information within section 34(1)(b) cannot be accepted."

The same view is reiterated in A.L.A. Firm's case (1991) 189 ITR 285 wherein the Supreme Court held (page 297):

" ....:.on further research into law, he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147(b) by virtue of proposition (4) of Kalyanji Mavji & Co.'s case (1976) 102 ITR 287 (SC). The fact that the details of sales of house properties were already in the file or that the decision subsequently came across by him was already there, would not affect the position because the information that such facts or decision existed, comes to him only much later. "

In the light of the said decisions, the decision which came to the knowledge of the Income-tax Officer after the assessment is made, is information within the meaning of section 147(b). The argument of learned counsel is that for the assessment years 1977-78 and 1979-80 , the Tribunal, while considering the appeal filed by the Revenue, referred to the two judgments, namely, the judgment of the Bombay High Court in United Wire Ropes Ltd's case (1980) 121 ITR 762 and the judgment of the Madras High Court in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139; that the Income tax Officer is bound by the orders of the jurisdiction Tribunal and, consequently, its order is binding on them. ,Therefore, the judgment of the Madras High Court in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139 was before the Income-tax Officer. In other words, the Income-tax Officer re-opened the assessment on the very same material which was before him. It is difficult to accept the argument of learned counsel for the assessee, as the Tribunal's order for the assessment years 1977-78 and 1979-80, wherein they have referred to the judgment of the Madras High Court in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139, was dated January 19, 1984, whereas the original assessment order was, dated September 30, 1980, and the reassessment order was dated March 26, 1983. Therefore, we are of the view that the Madras High Court judgment in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139 was not before the Income-tax Officer at the time when he made the original assessment. In the light of the above, we answer the question in the negative and in favour of the Revenue.

The reference is accordingly answered.

M.B.A./4164/FC Reference answered.