COMMISSIONER OF INCOME-TAX VS FIRST LEASING CO. OF INDIA LTD.
2001 P T D 1784
1241 ITR 2481
[Madras High Court (India)]
Before N. V. Balasubrmnanian and P. Thangavel, JJ
COMMISSIONER OF INCOME‑TAX
Versus
FIRST LEASING CO. OF INDIA LTD.
Tax Case No. 522 of 1986 (Reference No. 357 of 1986), decided on 19/12/1997.
Income‑tax‑‑--
‑‑‑‑Reassessment‑‑‑Information that income had escaped assessment‑‑‑Extra depreciation allowed‑‑‑Revenue audit drawing attention to relevant provision‑‑‑Reopening of assessment on basis of audit report‑‑‑Report of audit constituted "information"‑‑‑Reopening of assessment was valid‑‑ Indian Income Tax Act, 1961, S. 147(b)‑‑‑Indian Income‑tax Rules, 1962, Append. I, Part 1, Item No. III.
For the assessment year 1976‑77, the assessee. claimed extra depreciation in respect of certain plant and machinery leased out to S which was running a hotel and the same was allowed by the Income‑tax Officer. Subsequently, the audit party found that the assets belonging to the assessee were leased out and not used in the assessee's business. Sub‑item (iii) of item No. III of Part I of Appendix I to the Income‑tax Rules, 1962, was brought to the notice of the Income‑tax Officer by the Revenue audit. The Income‑tax Officer on the basis of the audit report initiated reassessment proceedings under section 147(b) of the Income Tax Act, 1961, to withdrew the extra depreciation allowance. The Tribunal held that the report of the audit party could not form the basis for reopening the assessment and allowed the appeal of the assessee. On a reference:
Held, that since the audit party had not interpreted the law but had merely brought to the attention of the Income‑tax Officer, the provisions of law, the report of the audit party constituted "information" within the meaning of section 147(b) of the Act. Accordingly, the reassessment was valid.
Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) ref.
C.V. Rajan for the Commissioner.
Arvind P. Datar for the Assessee.
JUDGMENT
In pursuance of the directions of this Court in T.C.P. No. 198 of 1984, dated January 29, 1985, the Income‑tax Appellate Tribunal has referred the following question of law for our consideration under section 256(2) of the Income Tax Act, 1961:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding and had valid materials to hold that the reassessment made under section 147(b) of the Income‑tax Act was without jurisdiction and, therefore, invalid?"
The assessee filed its return for the assessment year 1976‑77 and claimed extra depreciation in respect of certain plant and machinery which were leased out to Spencer & Co., which is running a hotel, approved by the Central Government. The assessee claimed extra depreciation allowance at 50 per cent. of the normal depreciation under item No. III, Part I of Appendix I to the Income tax Rules, 1962. The Income‑tax Officer in the original assessment for the year 1976‑77 granted the extra depreciation as claimed by the assessee. Subsequent to the completion of the original assessment, the audit party had drawn to the attention of the Income‑tax Officer that the initial depreciation was wrongly allowed as the assessee has only leased out the assets belonging to it and the same was neither installed nor used in the assessee's business premises for its business. It seems that the audit party brought to the attention of the Income‑tax Officer, the relevant provisions of sub‑item (iii) of Part I of Appendix I of the Income‑tax Rules, The Income tax Officer on the basis of the report of the audit initiated proceedings for reassessment under section 147(b) of the income Tax Act, 1961 (hereinafter referred to as "the Act"), and after hearing the objections of the assessee, held that the assessee was not entitled to extra depreciation allowance as the assessee was not using the machinery in the hotel business run by the assessee, and accordingly he withdrew the extra depreciation allowance granted earlier and completed the reassessment.
The assessee filed an appeal before the Commissioner of Income‑tax Appeals‑1, Madras, against the order of reassessment and the Commissioner, (Appeals) held that under the relevant rules, the assessee is not entitled to extra depreciation as the rules make it clear that the building should be used by the assessee as hotel and since that condition was not satisfied, the withdrawal of extra depreciation was in order. He also held that the audit party has not interpreted any provisions of the law and the audit party has only brought to the attention of the Income‑tax Officer the relevant rules for the grant of extra depreciation. The Commissioner of Income‑tax (Appeals‑I),. confirmed the order of reassessment made by the Income Tax Officer and dismissed the appeal preferred by the assessee.
Aggrieved by the order of the Commissioner of Income‑tax (Appeals), the assessee carried the matter in appeal before the Income‑tax Appellate Tribunal and the Appellate Tribunal held that the audit party has interpreted the law and since there was an expression of an opinion of the law by the audit party, the opinion expressed by the audit party would not constitute "information" within the meaning of section 147(b) of the Income- tax Act, and placing reliance on the decision of the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996, the Tribunal held that the report of the audit party cannot form the basis for reopening the assessment and in this view of the matter, the Tribunal allowed the appeal preferred by the assessee.
Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the order of the Appellate Tribunal is erroneous in point of law as, the Tribunal proceeded on an erroneous basis that the audit party has interpreted the provisions of the law and according to learned counsel for the Revenue, the audit party has merely brought to the attention of the Income‑tax Officer the provisions of law and there is no question of interpretation of law involved by the audit party.
Mr. Aravind P. Datar, learned counsel for the assessee, has contended that the audit party has interpreted the law and as there was a mistake in the order of the original assessment made by the Income‑tax Officer, it is not open to the Income‑tax Officer to resort to reassessment proceedings. According to learned counsel, the only course open to the Income‑tax Officer was to rectify the mistake under section 154 of the Income‑tax Act or the Commissioner of Income‑tax could have initiated proceedings under section 263 of the Income‑tax Act to revise the order. Since the Department has not taken the proceedings either for rectification, or for revision but resorted to proceedings under section 147(b) of the Act, the proceedings initiated were not valid in law and, therefore, there' is no basis for interference in the order of the Tribunal.
We carefully Considered the submissions made by learned counsel for the assessee. We have set out the facts earlier and it is seen that after the completion of the original assessment by the Income‑tax Officer, the audit party has informed the Income‑tax Officer about the provisions of law in sub‑item (iii) of item No. III of Part I of Appendix I of the Income‑tax Rules, 1962, which grants extra depreciation allowance for approved hotels and the provision reads as under:
"An extra allowance of depreciation of an amount equal to one‑half of the normal allowance shall be allowed in the case of machinery and plant installed by an assessee, being an Indian company, in premises used by it as a hotel where such hotel is for the time being approved by the Central Government for the purposes of section 33 of the Act.
Explanation. ‑‑‑For the purposes of this sub‑item and sub‑item (iv), normal allowance means the amount of depreciation allowance [other than the extra depreciation allowance under this sub‑item or the extra shift depreciation allowance under sub‑item (iv)] which is allowable under rule 5."
'The extra allowance of depreciation of an amount equal to the amount of normal allowance is allowable in the case of machinery and plant installed by the assessee, being an Indian company in the premises used by it as a hotel, provided such a hotel is approved by the Central Government for the provisions under section 33 of the Income‑tax Act. A fair reading of the rule shows that to be eligible for extra depreciation allowance, the assessee must be an Indian company and the machinery and plant should be installed in the premises used by the assessee as an approved hotel. Therefore, the pre requisite condition is that the installation (if the machinery should be in the premises used by the assessee as a hotel.
It is seen from the facts that the assessee had leased out the air conditioners and certain other machinery to Spencer & Co. Ltd., and a fair reading of the rules indicates that unless the assessee uses the plant and machinery in the premises used by it as a hotel and such hotel is approved by the Government and then only the assessee is entitled to extra depreciation. The audit party has brought to the attention of the Income‑tax Officer the relevant provision of the law, but has not interpreted the said provisions as the said provision is not a complicated provision of law as a careful reading of the rule shows that the assessee is not entitled to extra depreciation. In our view, there is no question of any interpretation of law involved in the audit report and the report of the audit has to be construed as if the audit has brought to the attention of the Income‑tax Officer the relevant provision of law. Since the audit party has not interpreted the law but has merely brought to the attention of the Income‑tax Officer the provisions of law, the report of the audit party in‑our opinion constitutes "information" within the meaning of section 147(b) of the Act. The Supreme Court in Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996, has made a distinction between the interpretation of the law and bringing to the attention of the Income‑tax Officer the relevant provision of law and if the audit party interpreted the law, then the report by the audit party cannot be regarded as "information" for the purpose of reopening an assessment under section 147(b) of the Act. However, if the audit party has merely drawn the attention of the Income‑tax Officer to the existence of the law, the opinion of the audit party would be regarded as information and the Supreme Court has trade a distinction between the communication of law and interpretation of law. In our view, as the facts of the case the audit report should be regarded as a communication of law and there is no interpretation of law involved in the matter. Applying the principle of law laid down by the Supreme Court in Indian and Eastern Newspapers Society v. CIT (1979) 119 ITR 996, we are of the view that the Tribunal was not correct in holding that the audit party has interpreted the relevant provisions relating to the granting of extra depreciation allowance, and erred in holding that the Income‑tax Officer has no jurisdiction under section 147(b) of the Act to reopen the assessment. We are also not able to accept the contention of learned counsel for the assessee that the Department should have resorted to either rectification proceedings or revisional proceedings. If the statutory conditions prescribed under section 147(b) are satisfied, it is permissible for the Department to invoke the reassessment proceedings, notwithstanding the fact that other remedies are available to the Department under other provisions of the statute. Since we are not able to uphold the view of the Tribunal that the Income‑tax Officer has no jurisdiction to reopen the assessment necessarily the matter will have to go before the Appellate Tribunal to decide the question on the merits of the case.
Accordingly, we hold that the Tribunal was not correct in holding that the officer has no jurisdiction to reopen the assessment under section 147(b) of the Act and the reassessment consequently made was invalid.
Accordingly, we answer the question of law referred to us in the negative and in favour of the Revenue. However, in the circumstances of the case, there will be no order as to costs.
M.B.A./579/FCReference answered