Commissioner of Income Tax vs Rasiklal C. Nagri

R.C. Mankad, J.—The assessee is an individual and the assessment years under reference are 1968-69 to 1970-71. The assessee and his wife Savitaben were partners in the firm of Pan Chimanlal Harilal. In his return of income for each of the assessment years under reference, the assessee had appended a note to the effect that interest income earned by his wife Savitaben from the firm of Pari Chimanlal Harilal was not shown relying on the decision of the Tribunal for the assessment year 1960-61. The ITO while framing income tax assessments, included the charge income which Savitaben had received from Pari Chimanlal Harilal in the total income of the assessee in each of the years under reference. He, however, did not include the interest received by Savitaben from the said firm in the assessee''s total income. After the income tax assessments were completed, the ITO issued notice u/s 148 read with section 147 of the income tax Act, 1961 (''the Act'') seeking to reopen income tax assessments for the years under reference. There is controversy as to whether the reopening of the assessment was under clause ( a) or clause (b) of section 147. According to the revenue, the assessments were sought to be reopened under both the said clause. The assessee resisted the action of the ITO to reopen his income tax assessments and contended that he had disclosed all the primary facts fully and truly and, therefore, there was no justification to reopen the assessments. The ITO in his assessment orders passed u/s 143(3) read with section 148 of the Act, held that, in the instant case, "the capital investment made by Smt. Savitaben in the firm of Pari Chimanlal Harilal was her capital with the firm and interest was paid by the firm on the said capital. The income, is therefore, derived by her as she is partner in the firm in which her husband is a partner". The ITO held that, in these circumstances, the interest paid to Savitaben by the firm is taxable in the hands of the assessee. The ITO held that as the assessee had not disclosed all primary facts for the purpose of assessment, the proceedings were rightly initiated.

In the appeal preferred by the assessee, the AAC held that the assessee had in his returns of income attached note referred to above and the ITO had, after applying his, mind to the returns so filed by the assessee, completed the assessments without assessing interest income received by Savitaben from the firm as part of the income of the assessee. The ITO had, in the assessments framed against the assessee, included the share income received by Savitaben in the assessee''s total income. The assessee had not included the interest income received by Savitaben from the firm relying on the decision of the Tribunal for the assessment year 1960-61. In the light of the above facts, the AAC held that the assessee had disclosed all the primary facts in the course of original assessment proceedings. He further held that the ITO had not relied on any new information or fact apart from the facts which were before him in the original assessment proceedings. Under the circumstances, the AAC held that the action of the ITO in resorting to the provisions of section 147( a) was bad in law and not sustainable. In the result, the AAC cancelled the reassessments made by the ITO. In the appeals preferred by the revenue, the Tribunal confirmed the view taken by the AAC.

Being aggrieved by the decision of the Tribunal, the revenue sought reference and, at its instance, the following questions have been referred to us, for our opinion u/s 256(1) of the Act:

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that reopening of the original assessment u/s 147( a) of the income tax Act, 1961 was not justified ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in not entertaining the ground regarding validity of reopening of assessment u/s 147( b) of the income tax Act, 1961 ?

If question No. 2 is answered in the negative and in favour of the revenue, was the Tribunal on the facts and circumstances of the case right in law in holding that reopening of assessment was not sustainable even u/s 147( b) of income tax Act?"

It is clear from the facts stated above that while filing the returns of income for the years under reference, the assessee had included in his total income the share income received by his wife Savitaben from the firm of Pari Chimanlal Harilal and not included interest income received by her from the said firm, stating in the note appended to the returns that such interest income was not included in his total income in view of the decision of the Tribunal for the assessment year 1960-61. It would, thus, appear that ( i) the assessee had included Savitaben''s share income from the firm in his total income, and ( ii) he had not included interest income received by Savitaben from the said firm. The assessee had declared that Savitaben had received both the share income and the interest income from the firm. In other words, the ITO while framing the original assessments had known that the assessee''s wife Savitaben had received two kinds of income, namely, share income and interest income from the firm of Pari Chimanlal Harilal. He also knew that, while the assessee had included Savitaben''s share income in his total income, he had not included her interest income in His total income. Therefore, as rightly held by the Tribunal, all the primary facts necessary for his assessment were disclosed by the assessee in the original assessment proceedings. The ITO, as it clearly appears from the reasons recorded by him while reopening the income tax assessments for the year under reference in his reassessment orders passed u/s 143(3) read with section 148, had reopened the assessments on the ground that the assessee had not fully and truly disclosed the primary facts when original assessments were made.

As already pointed out above, the assessee had disclosed all the primary facts necessary for his income tax assessments and, therefore, there was no reason or justification to reopen the assessment u/s 147(a). The ITO had not received any new information which would have justified reopening of the assessments u/s 147(b). Therefore, assuming for the sake of argument that the ITO had also sought to reopen the assessments u/s 147(b), there is nothing on record to show that the ITO received some information, which was not known to him at the time of making original assessments, which would justify reopening of the assessments under the said provision. The ITO has nowhere stated what information he received after he had completed the original assessments. There is, therefore, no doubt that there is no reason for justification to reopen the assessments u/s 147( b) also.

In the result, we answer all the three questions referred to us in the affirmative and against the revenue. Reference answered accordingly with no order as to costs.