1979 (9) TMI 29 - HC - Income Tax

Invalid Assessment Reopening under Income-tax Act Section 147(b)

The High Court ruled that the reopening of the assessment under section 147(b) of the Income-tax Act was invalid. The court held that the Income-tax ... Reassessment Issues Involved:1. Validity of reopening assessment under section 147(b) of the Income-tax Act, 1961.2. Interpretation of 'information' under section 147(b).3. Application of section 64(iii) for clubbing spouse's income.Detailed Analysis:1. Validity of reopening assessment under section 147(b) of the Income-tax Act, 1961:The Income-tax Officer (ITO) issued a notice under section 148 for reopening the assessment of the deceased assessee for the assessment year 1963-64, based on the information that the assessee's wife, Smt. Durga Devi, was also a partner in the firm, and her share income should have been clubbed with the assessee's income. The ITO included the share income of the assessee's wife under section 64(iii) and revised the total income. The Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT) held that there was no new information received by the ITO from an external source, and the reopening under section 147(b) was invalid. The Tribunal dismissed the department's appeal, leading to the reference for the High Court's opinion on whether the assessment was validly made under section 147(b).2. Interpretation of 'information' under section 147(b):The court examined the meaning of 'information' under section 147(b), referencing several Supreme Court decisions. It was emphasized that for section 147(b) to apply, the ITO must have received information from an external source after the original assessment. The court referred to the leading case of Maharaj Kumar Kamal Singh v. CIT, which held that 'information' includes the true and correct state of the law, covering relevant judicial decisions. In CIT v. A. Raman and Co., it was ruled that 'information' must be derived from an external source concerning facts or law. The court noted that the latest Supreme Court decision in Indian and Eastern Newspaper Society v. CIT clarified that 'information' as to law must come from a formal source, like legislative or judicial authority.3. Application of section 64(iii) for clubbing spouse's income:The court acknowledged that the assessee had disclosed the constitution of the firm and his relationship with his wife in the original return. The ITO failed to include the wife's share income under section 64(iii) during the original assessment. The court held that the ITO's failure to apply the law correctly does not justify reopening the assessment under section 147(b). The ITO's subsequent realization of the mistake does not constitute new 'information' as required by section 147(b). The court concluded that the reopening of the assessment was invalid as it was based on a fresh look at the same facts, not on new information from a formal source.Conclusion:The High Court answered the question in the negative, ruling that the assessment was not validly made under section 147(b). The court agreed with the Tribunal's view that the ITO's non-application of mind to the legal provisions during the original assessment did not justify reopening the assessment. The respondents were entitled to their costs, assessed at Rs. 200, and counsel fee in like figure.