1980 (7) TMI 273 - HC - Income Tax

Validity of reassessment upheld under Income-tax Act; Tribunal decision deemed valid source for reassessment

K. Mansukhram & Sons Versus Commissioner of Income-tax

The High Court upheld the validity of reopening assessments under section 147(b) of the Income-tax Act, 1961. The court determined that the Income-tax ... - Issues Involved:1. Validity of reopening assessments under section 147(b) of the Income-tax Act, 1961.2. Whether the decision of the Income-tax Appellate Tribunal, Bombay Bench, constituted 'information' under section 147(b).Issue-wise Detailed Analysis:1. Validity of Reopening Assessments under Section 147(b):The assessee, a registered partnership firm, had its assessments for the years 1966-67, 1968-69, and 1969-70 reopened by the Income Tax Officer (ITO) under section 147(b) of the Income-tax Act, 1961. The original assessments allowed deductions under section 40(b) for interest paid to individual accounts of partners, who were representatives of their respective Hindu Undivided Families (HUFs). Later, the ITO discovered a decision by the Income-tax Appellate Tribunal, Bombay Bench, which held that interest paid to a partner, irrespective of the capacity in which it was received, was inadmissible as a deduction under section 40(b). Based on this, the ITO issued notices under section 148 and reassessed the income by disallowing the interest deductions previously allowed.The assessee appealed, arguing that the ITO had no jurisdiction to reopen the assessments as no new 'information' had come into his possession. The Appellate Assistant Commissioner (AAC) rejected this contention, and the Income-tax Appellate Tribunal upheld the reassessments, stating that the Tribunal's decision constituted 'information' under section 147(b).At the High Court, the primary question was whether the ITO's reopening of assessments based on the Tribunal's decision constituted acting on 'information' within the meaning of section 147(b). The court referred to several precedents, including CIT v. A. Raman & Co., Kasturbhai Lalbhai v. R. K. Malhotra, and Indian and Eastern Newspaper Society v. CIT, to determine the scope of 'information'. It was established that 'information' could include knowledge of law derived from judicial decisions by competent authorities.In this case, the Tribunal's decision was considered a competent source of law, and the ITO's subsequent action based on this decision was deemed valid. The court concluded that the ITO had validly initiated proceedings under section 147(b) as the Tribunal's decision provided new information regarding the interpretation of section 40(b).2. Whether the Decision of the Income-tax Appellate Tribunal Constituted 'Information':The assessee did not press for an answer to the second question during the hearing. However, the court's analysis indicated that the Tribunal's decision did constitute 'information' under section 147(b). The court reiterated that 'information' must be derived from an external source and must be capable of influencing the assessment. The Tribunal's decision, being a pronouncement by a competent quasi-judicial authority, met these criteria.The court referred to the Supreme Court's decision in Indian and Eastern Newspaper Society v. CIT, which clarified that 'information' as to law must come from a formal source competent to declare the law. The Tribunal's decision on the interpretation of section 40(b) was a valid source of such information.Conclusion:The court concluded that the proceedings under section 147(b) were validly initiated. The ITO had acted on new information derived from a competent judicial authority, which justified the reassessment. The first question was answered in the affirmative, and the second question was not pressed by the assessee and thus was not required to be answered. The assessee was ordered to pay the costs of the reference to the Commissioner.