Madras High Court
Virudhunagar Co-Operative Milk Supply ... vs Commissioner Of Income-Tax on 17 April, 1989
Equivalent citations: [1990]183ITR545(MAD)
JUDGMENT Ratnam, J.
1. These two references relating to the assessment years 1968-69 and 1969-70 raise a common question of law. The assessee is a co-operative society. Besides carrying on business in the supply of milk it runs a canteen and also raises grass for the use of cattle as part of salvage farm, poultry dairy farm and livestock unit. In respect of the assessment years in question, a claim was made by the assessee for the loss incurred by it in the salvage farm and this was allowed by the Income-tax Officer. Subsequently, while making the assessment for the assessment year 1970-71, the Income-tax Officer came into possession of information that there was an underassessment of the total income of the assessee for the two years in question. Thereupon, the Income-tax Officer initiated action under section 147(b) of the Income-tax Act, 1961 (hereinafter referred to as "the Act" ), and brought to tax the loss allowed under salvage farm, after holding that under section 10(27) of the Act, the income derived by the assessee from the salvage farm, poultry dairy farm and livestock until carried on by the assessee was exempt from tax and that consequently the losses incurred in the salvage farm operation should not have been allowed. On appeals before the Appellate Assistant Commissioner by the assessee, it was contended that all facts relating to the salvage farm operations carried on by the assessee had been placed before the Income-tax Officer, who made the original assessment and only after consideration thereof, the loss was allowed in the original assessment and, therefore, it was not open to the successor-officer, on a mere change of opinion, to initiate proceedings for reassessment. It was also contended that section 10(27) of the Act would not apply, as the assessee was not running a dairy farm. The Appellate Assistant Commissioner upheld the reopening of the assessment on the ground that the Income-tax Officer, who made the original assessment, was unaware of the fact that the assessee was maintaining stud bulls and such expenditure had been debited to the profit and loss account and that only in the course of the assessment proceedings for the subsequent year, the successor-officer found that the assessee's activity included livestock breeding and dairy farming and maintenance of bulls and the income therefrom was exempt under section 10(27) of the Act and under these circumstances, the loss under this business should not have been allowed. On further appeal by the assessee before the Tribunal, reiterating its objection that there was only a mere change of opinion and that section 10(27) of the Act would not apply, the Tribunal, relying upon Kalyanji Mavji and Co. v. CIT , held that the reopening of the assessment for the assessment years in question was justified and that on the other question of applicability or otherwise of section 10(27) of the Act, the matter had to be remitted to the Appellate Assistant Commissioner for going into that question, giving liberty to the assessee to produce whatever evidence it wanted in support of that contention.
2. At the instance of the assessee, under section 256(2) of the Act, the following common question of law for the two assessment years in question, has been referred to this court for its opinion:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer acted properly in invoking the provisions of section 147(b) of the Income-tax Act?"
3. Learned counsel for the assessee strenuously contended that the reassessment proceedings had been initiated merely on the basis of the change of opinion on the part of the successor-officer and that that would not in any manner justify the reopening of the assessment. Reference in this connection was also made to several decisions holding that a mere change of opinion on the part of the officer concerned would not justify the reopening of the assessment already completed. On the other hand, learned counsel for the Revenue, inviting attention to Kalyanji Mavji and Co. v. CIT , Indian and Eastern Newspaper Society v. CIT and United India Fire and General Insurance CO. Ltd v. CIT Ltd. v. CIT [1985] 153 ITR 81 (Mad), submitted that in this case, from the assessment records the officer obtained information on an investigation of the materials that the claim for the loss made by the assessee had been wrongly allowed, as the income from the salvage farm, livestock breeding unit, poultry and dairy farms carried on by the assessee was exempt from tax and consequently losses should not have been allowed and it was, therefore, not a mere change of opinion on the part of the successor-officer which made him to resort to the reopening of the assessment.
4. Before proceedings under section 147(b) of the Act can be taken, the Income-tax Officer must have information in his possession and he must also have reason to believe that income chargeable to tax has escaped assessment. No doubt such information must have come into the possession of the officer after the assessment. In this case, it is seen that the Income-tax Officer became aware of the disallowability of the losses claimed by the assessee for the assessment years in question while making the assessment for the assessment year 1970-71, when the loss claimed by the assessee in respect of the salvage farm was disallowed and that assessment order had also been accepted by the assessee. It is thus seen that information had been obtained in this case from the assessment year 1970-71. We are therefore, unable to accept the contention of learned counsel for the assessee that purely prompted by a change of opinion, reassessment proceedings had been resorted to. Though a number of decisions were referred to by learned counsel for the assessee, we are of the view that there is no need for making any detailed reference to all of them, excepting Indian and Eastern Newspaper Society v. CIT , as it was also relied on by learned counsel for the Revenue, though for a different purpose. In this connection, we may first refer to Kalyanji Mavji's case [1976] 102 ITR 287, where the Supreme Court, with reference to section 34(1) (b) of the Indian Income-tax Act, 1922, comparable to section 147(b) of the Act, dealt with the applicability of that provision to certain categories of cases. The Supreme Court enumerated the following categories of cases as covered by section 34(1)(b) of the Indian Income-tax Act, 1922 (headnote):
"(1) Where the information is as to the true and correct state of the law derived from relevant judicial decisions;
(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer;
(3) where the information is derived from an external source of any kind; such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment; and (4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law."
5. The case of the assessee would fall within category (4) enumerated above, in that, the information had been obtained by the officer from the record of the assessment proceedings in connection with the assessment year 1970-71. We may now notice Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, where the Supreme Court has pointed out at page 1004, referring to Kalyanji Mavji's case [1976] 102 ITR 287, that the categorisation in that decision under category (2) thereof, i.e., that income liable to tax has escaped assessment due to oversight, inadvertence or mistake would also fall within section 34(1)(b) of the Indian Income-tax Act, 1922, has been stated rather too widely and broadly and goes even further beyond what is warranted by the statute and that an error discovered, would not give the officer the power to resort to a reopening under section 147(b) or the Act. Though Indian and Eastern Newspaper Society's case has taken the view that oversight, inadvertence or mistake, would not fall within section 34(1)(b) of the Indian Income-tax Act, 1922, nothing has been said by way of disapproval of the other categories enumerated in Kalyanji Mavji's case , particularly with category (4), within which the present case would fall. We are, therefore, of the view that the case of the assessee would fall within category (4) as per the decision in Kalyanji Mavji's case [1976] 102 ITR 278 (SC), and that that would justify the reopening of the assessment. We may also in this connection refer to United India Fire and General Insurance Co. Ltd. v. CIT [1985] 153 ITR 81 (Mad), where the court considered the propriety of the reopening of an assessment in a case where the Income-tax Officer, at the time of the completion of the assessment, was unaware of the fact that the shares held by the assessee were such that some of them yielded dividends, while others did not yield dividends and that fact came to his knowledge only in the course of the assessment for another assessment year. Referring to Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547 (Mad), to the effect that by looking into the records, the officer informs himself and that record would be a source of information, if that information lead to the discovery of an escapement of assessment or underassessment, it was pointed out that is is not necessary that such information should be from an outside source, but that it may be found in the assessment records themselves. In this case, the assessment records, in the process of finalisation of the assessment for the assessment year 1970-71 gave information to the officer that losses claimed by the assessee in respect of the assessment years 1968-69 and 1969-70, which should have been disallowed, had been countenanced, and it was on the basis of this information, that the officer proceeded to reopen the assessment by resorting to section 147(b) of the Act. We are, therefore, of the view that the reopening of the assessment was not the outcome of a mere change of opinion on the part of the successor-officer, but owing to his having come into possession of information with reference to the erroneous allowance of the losses claimed by the assessee during the assessment years in question while finalising the assessment for the year 1970-71. The question whether section 10(27) of the Act would apply or not, has been remitted for on investigation and the assessee has also been given an opportunity of placing such evidence as it may have in support of its stand. We, therefore, hold that on the facts and in the circumstances of the case, section 147(b) of the Act was properly invoked and the Tribunal was which in the view in took on that question. We, therefore, answer the question referred to us in the affirmative and against the assessee. The Revenue will be entitled to the costs of this reference. Counsel's fee Rs. 500 (one set).