Reassessment and business income rules: fresh tangible material can justify reopening, and fixed gross receipts may be taxable revenue.

Reassessment under Sections 147 and 148 is valid where fresh tangible material and recorded reasons show that the true nature of a receipt was not earlier examined; it is not barred by mere change of opinion. On the taxability issue, a contractual entitlement to 35% of gross sale proceeds, independent of project expenses and not linked to profits, is a gross revenue receipt. The receipt is therefore taxable as business income in the assessee's hands and cannot be treated as an exempt share of profit.

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Issues: (i) Whether the reopening of assessments for the relevant assessment years was valid; (ii) Whether the amount received under Clause 7 of the agreement was liable to be taxed in the hands of the assessee as a business receipt.

Issue (i): Whether the reopening of assessments for the relevant assessment years was valid.

Analysis: Reopening under Sections 147 and 148 of the Income-tax Act, 1961 requires reason to believe that income chargeable to tax has escaped assessment, supported by tangible material and backed by recorded reasons. Mere change of opinion is impermissible, but where fresh information emerges showing that the true nature of the receipt was not earlier examined, reassessment is justified. The prior scrutiny assessments did not record any formed opinion on the fundamental character of the receipt from the association, and the survey materials and statement disclosed a basis to believe that the receipt was not profit but revenue.

Conclusion: The reopening for both assessment years was valid and was not vitiated by mere change of opinion.

Issue (ii): Whether the amount received under Clause 7 of the agreement was liable to be taxed in the hands of the assessee as a business receipt.

Analysis: Clause 7 provided for immediate entitlement to 35% of the gross sale proceeds, while expenses were to be met from the remaining 65%. On a plain reading, the arrangement did not make the assessee's entitlement dependent on profits. The receipt was therefore a diversion of income at source by overriding title, but in substance it remained a gross revenue receipt and not a share of profit. Since the amount was insulated from project expenses, it lacked the character of profit and was taxable in the assessee's hands as business income.

Conclusion: The amount was taxable in the hands of the assessee as a business receipt and not exempt as a share of profit.

Final Conclusion: The reopening challenges fail, and the disputed receipt is held taxable in the assessee's hands as revenue arising from the arrangement, with the Revenue succeeding overall.

Ratio Decidendi: A reassessment is valid where fresh tangible material reveals that an earlier assessment never examined the true nature of a receipt, and a contractual entitlement to a fixed share of gross receipts, unrelated to project expenses, constitutes taxable revenue rather than a profit share.

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