Bombay High Court
Commissioner Of Income-Tax vs Impaco Limited on 19 September, 1989
Equivalent citations: [1990]186ITR714(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT S.P. Bharucha, J.
1. This reference is made under the provisions of Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue. The questions that are raised read thus :
"(1) Whether, on the facts and in the circumstances of the case, the decision of the Appellate Assistant Commissioner for the year 1966-67 confirming the order of the Income-tax Officer was information within the meaning of Section 147(b) of the Act for the assessment year 1965-66 ?
(2) Whether the definition of 'average rate of tax' in Section 2(10) of the Act applies to the same expression used in Section 85A ?
(3) Whether the average rate of tax in Section 85A is the rate arrived at by dividing the total amount of income-tax chargeable on the total income as reduced by the amount of capital gains, by the total income as reduced by the amount of the capital gains ?"
2. There is no dispute between counsel in regard to the answers to be given to the second and third questions. They are agreed that both these questions must be answered in favour of the Revenue, having regard to the judgment of a Full Bench of this court delivered on September 8, 1989, in Income-tax Reference No. 401 of 1975 CIT v. Central Bank of India Ltd. [1990] 185 ITR 6. The second question is, accordingly, answered in the affirmative and in favour of the Revenue and the third question is answered in the negative and in favour of the Revenue.
3. This brings us to the facts in relation to the first question, the answer to which is contested. The question relates to the assessment year 1965-66. On the dividend income of the assessee for that year it was entitled to relief under Section 85A in respect of inter-corporate dividends. It contended before the Income-tax Officer that the average rate of income-tax under Section 85A meant the rate determined by dividing the amount of income-tax it had to pay on its total income less the amount of its capital gains by the amount of its total income less the amount of its capital gains. The Income-tax Officer made the assessment upon this basis. For the assessment year 1966-67, however, the Income-tax Officer did not accept the indentical contention. He construed the average rate of income-tax under Section 85A to mean the rate determined by dividing the amount of income-tax the assessee company of its total income including its capital gains and he made the assessment accordingly. Against the assessment for the assessment year 1966-67, the assessee preferred an appeal. By a reasoned order, the Appellate Assistant Commissioner upheld the Income-tax Officer's view (This order is now referred to as "the appellate Assistant Commissioner's said order"). The Income-tax Appellate Tribunal, in further appeal, set aside the Appellate Assistant Commissioner's said order and remanded the matter to him for a fresh decision. In freshly deciding the matter, the Appellate Assistant Commissioner accepted the assessee's contention that relief under Section 85A had to be granted in the manner in which it had been granted by the Income-tax Officer for the assessment year 1965-66.
4. While, however, the assessee's appeal to the Tribunal in regard to the assessment for the assessment year 1966-67 was pending, the Income-tax Officer reopened, under the provisions of Section 147(b), the assessment for the assessment 1965-66 to reduce the relief allowed to the assessee under Section 85A. The Income-tax Officer indicated that he had initiated reassessment proceedings on the basis of the appellate Assistant Commissioner's said order. The Income-tax Officer reduced the relief given to the assessee under Section 85A and the assessee preferred an appeal. The Appellate Assistant commissioner rejected the assessee's contention that the reassessment proceedings had not been validly initiated. He accepted the assessee's contention that the relief under Section 85A has to be allowed on the basis that the average rate of income-tax for that purpose was what the assessee claimed it was. The assessee filed a further appeal to the Tribunal against the Appellate Assistant Commissioner's said order because it had rejected the assessee's contention in regard to its capital gains. The Revenue also appealed to the Tribunal against the Appellate Assistant Commissioner's order in so far it had enhanced the relief given to the assessee under Section 85A. The Tribunal found that the Appellate Assistant Commissioner's said order had merely upheld the changed stand of the Income-tax Officer in regard to the assessment year 1966-67 and it did not constitute information for the purposes of Section 147(b). It took the view that what was originally a change of opinion could not stand transformed into information only because the Appellate Assistant Commissioner's said order had confirmed the Income-tax Officer's stand. Accordingly, it held that the reassessment was invalid. It also upheld the assessee's contention in regard to the meaning to be given to "average rate of income-tax" for the purposes of Section 85A.
5. From the judgment of the Tribunal arise the questions that are referred to us.
6. Section 147(b) says that notwithstanding the fact that there has been no omission or failure on the part of the assessee as is set out in Section 147(a), if the Income-tax officer has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may reassess such income.
7. It was submitted by Mr. Jetley, learned counsel for the Revenue, that the Appellate Assistant Commissioner's said order was information in the possession of the Income-tax Officer within the meaning of Section 147(b) which entitled him to reopen the assessment for the assessment year 1965-66. It was contended by Mr. Dastoor, learned counsel for the assessee, that (i) the Income-tax Officer had changed his opinion in regard to the assessment for the assessment year 1966-67 and the Appellate Assistant Commissioner's said order had upheld it. Nothing new had, therefore, come into existence and there was no information in the Income-tax Officer's possession within the meaning of Section 147(b); (ii) the Appellate Assistant Commissioner could not give information as to a matter of law. This was because he was a departmental officer. His powers were coextensive with those of the Income-tax Officer. He could enhance the assessment. He could be moved only in appeal by the assessee. His decision was not binding. He was an officer who functioned under the Union Ministry of Finance as contrasted with the Tribunal which functioned under the Ministry of law.
8. We propose to consider first, whether an Appellate Assistant Commissioner can give information as to law. That an order of the Appellate Assistant Commissioner can give information as to fact is not disputed.
9. We must immediately refer to the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996. The Supreme Court considered the question whether the opinion of an internal audit party of the Income-tax Department on a point of law could be regarded as information within the meaning of Section 147(b). The court approved the meaning given to the word "information" in CIT v. A. Raman and Co. , viz., "instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment". The Supreme Court went on to say this (at page 1001) :
"But when 'information' is regarded as meaning instruction or knowledge as to law the position is more complex. When we speak of 'law,' we ordinarily speak of norm or guiding principles having legal effect and legal consequences. To possess legal significance for that purpose, it must be enacted or declared by a competent authority. The legal sanction vivifying it imparts to it its force and validity and binding nature. Law may be statutory law or, what is popularly described as, judge-made law. In the former case, it proceeds from enactment having its source in competent legislative authority. Judge-made law emanates from a declaration or exposition of the content of a legal principle or the interpretation of a statute, and may in particular cases extend to a definition of the status of a party or the legal relationship between parties, the declaration being rendered by a competent judicial or quasi-judicial authority empowered to decide questions of law between contending parties. The declaration or exposition is ordinarily set forth in the judgment of a court or the order of a Tribunal. Such declaration or exposition in itself bears the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status. Perhaps the only exception is provided by the writings of publicists in international law, for in the law of nations the distinction between formal and material sources is difficult to maintain.
In that view, therefore, when Section 147(b) of the Income-tax Act is read as referring to 'information' as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which, because it issues from a competent Legislature or a competent judicial or quasi-judicial authority, influences the course of the assessment and decides any one or more of those matters which determine the assessee's tax liability."
10. The court considered that its judgment in R. K. Malhotra, ITO v. Kasturbhai Lalbhai , which had reversed the judgment of the Gujarat High Court, which held that the audit department was not a competent authority to pronounce upon the law and invested with authority to do so, was wrongly decided. It noted that the judgment in Kasturbhai Lalbhai's case had been based, inter alia, on its judgment in Asst. CED v. Nawab Sir Mir Osman Ali Khan Bahadur . It observed that the circumstance that in Nawab Sir Mir Osman Ali Khan Bahadur's case, the opinion of the Central Board of Revenue had been rendered in an appeal filed before it under the Estate Duty Act had not been brought to the notice of the court when it heard Kasturbhai Lalbhai's case .
11. In effect, the Supreme Court in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 approved its judgment in Nawab Sir Mir Osman Ali Khan Bhadur's case [1969] 72 ITR 376 and Indian and Eastern Newspaper Society's judgment must be read in the light of the judgment in Nawab Sir Mir Osman Ali Khan Bahadur's case.
12. In Nawab Sir Mir Osman Ali Khan Bahadur's case [1969] 72 ITR 376, the Assistant Controller of Estate Duty had made an assessment under the Estate Duty Act and an appeal had been preferred before the Central Board of Revenue which, under that Act, was the first appellate authority. The Board had observed that the market value of certain securities should have been assessed at the rate of 78% of their face value whereas the Assistant Controller of Estate Duty had come to the conclusion that the market value should have been made at the rate of 52% of the face value. This observation of the Board had been treated as information for the purposes of reopening the assessment. The Supreme Court noted that in A Raman and Co.'s case [1968] 67 ITR 11, the court defined the expression "information" in Section 147(b) of the Income-tax Act as "instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment". Having regard to this, the court found it difficult to see how the determination of value for the purposes of assessment of estate duty would not fall squarely within the meaning of the expression "information" when that expression was understood in the sense of instruction or knowledge derived from an external source concerning facts or particulars or as to law on a matter bearing don the assessment. The opinion expressed by the Board was, on the basis that it was a mixed question of fact and law, held to be information justifying the reassessment.
13. The Gujarat High Court in K. Mansukhram and Sons v. CIT [1982] 133 ITR 65, considered the question in relation to an order passed by the Income-tax Appellate Tribunal. The Income-tax Officer who had made the original assessment on the assessee-firm had allowed deduction of the interest credited to the individual accounts of three partners who were partners representing their Hindu undivided families but had disallowed the interest credited to their respective joint family accounts. After the completion of the assessment he came across a decision of the Tribunal in the case of another assessee where the view taken was that so long as any amount was paid as and by way of interest by a firm to a partner, whatever might be the capacity in which he received the amount, the payment was inadmissible as deduction. This decision of the Tribunal was treated by the Income-tax Officer as information within the meaning of Section 147(b) and he reopened the assessee-firm's assessment. The Gujarat High Court, after an exhaustive survey of the applicable precedents, including the decision in Indian and Eastern Newspaper Society's case , held that the Income-tax Officer had from the judgment of the Tribunal in the unrelated case derived instruction or knowledge from a competent external source on a question of law and had entertained the belief that, in consequence of an error, income had escaped assessment. In so holding, the court said that the Tribunal was a competent quasi-judicial authority constituted under the Act to interpret and apply the law.
14. We may also note a judgment that was delivered by the Calcutta High Court before the Supreme Court delivered the judgment in Indian and Eastern Newspaper Society's case . The reference before the Calcutta High Court also related to a view taken by the Tribunal and it was held that the Income-tax Officer had been inspired and motivated to act by the knowledge that a body competent to hear the appeal for a subsequent year had taken a view contrary to its earlier view and this information was sufficient for reopining an assessment under Section 34(1)(b) of the Indian Income-tax Act, 1922.
15. This discussion leads us to the conclusion that the Appellate Assistant Commissioner hearing an appeal under the Act is a competent quasi-judicial authority who is empowered to decide question of law between contending parties and whose findings influence the course of the assessment by deciding any one or more of those matters which determine an assessee's tax liability. He is the first appellate authority under the Act and the Tribunal is the second. The orders of the Tribunal which have been held, as aforementioned, to give information as to law must stand on the same footing as the orders of the Appellate Assistant Commissioner delivered on first appeal. In our view, therefore, an order of the Appellate Assistant Commissioner can convey information as to law.
16. Mr. Dastoor relied upon the decision of the Gujarat High Court in Shrenik Kasturbhai v. CIT [1974] 95 ITR 326. This was a reference under the Wealth-tax Act. The Wealth-tax Act did not make a provision for service of notice by the Appellate Assistant Commissioner on the Wealth-tax Officer or grant him a right of hearing in that appeal. It was submitted by the assessee that the order of the Appellate Assistant Commissioner was bad in law because the Wealth-tax Officer had not been given an opportunity of being heard. The Gujarat High Court turned down this submission of the assessee and, in so doing, noted that the Appellate Assistant Commissioner was not a court of appeal as understood under the Civil procedure Code and that there were some limitations on his powers on the one hand and, on the other hand, some of his powers were wider. His role was not that of a judge but was more or less akin to that of an Assessing Officer. Mr. Dastoor submitted that this showed that the decision of the Appellate Assistant Commissioner was not given after hearing both sides and that, therefore, he could not be said to be a competent authority to provide information as to law. Whatever may be the position under the Wealth-tax Act, Section 250 of the Income-tax Act makes provision for notice to the Income-tax Officer and given him the right of being heard in the appeal before the Appellate Assistant Commissioner. The order of the Appellate Assistant Commissioner in appeal under the Income-tax Act is, therefore, passed after hearing both the contesting parties. That the Appellate Assistant Commissioner's powers are to some extend co-extensive with those of the Income-tax Officer or that an appeal to him can be preferred only by the assessee does not make any difference to the position that he is a quasi-judicial authority empowered to hear and decide appeals under the Act. His orders in appeal may, therefore, convey information, whether as to law or fact, within the meaning of Section 147(b).
17. This brings us to the last contention of Mr. Dastoor, viz., that the Income-tax Officer had changed his opinion in regard to the assessment of the assessee for the assessment year 1965-66 and that the Appellate Assistant Commissioner's said order had upheld this changed view, so that there had been nothing new that was communicated to the Income-tax Officer thereby. Realisation that tax might have escaped assessment in the earlier year would have come to the Income-tax Officer when he adopted an interpretation Section 85A different from that which he had adopted for the earlier year and not when the Appellate Assistant Commissioner's said order was communicated to him. It was, therefore, a case of a change of opinion by the Income-tax Officer and a change of opinion did not justify the reopening of the assessment.
18. We have held that the Appellate Assistant Commissioner is a quasi-judicial authority empowered by the Act to decide in first appeal all questions that arise in regard to an assessment and that his orders would, therefore, give to an Income-tax Officer information within the meaning of Section 147(b). That would be so regardless of the fact that the Income-tax Officer had already taken the same view of a legal provision as the Appellate Assistant Commissioner and the Income-tax Officer would be justified in reopening an assessment under Section basing himself thereon.
19. In the result, we are of the view that the assessment proceedings were properly reopened. We answer the first question in the affirmative and in favour of the Revenue.
20. There shall be no order as to costs.