At, High Court of Kerala
By, THE HONOURABLE MR. JUSTICE V. BALAKRISHNA ERADI & THE HONOURABLE MR. JUSTICE G. VISWANATHA IYER
K. V. R. Shenoi; P. K. Kurian; K. A. Nayar; For Applicant P. A. Francis; P. K. R. Menon; For Respondent
1. The Income-tax Appellate Tribunal, Cochin Bench has referred to this Court under S.256(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) the following question:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer had jurisdiction to act under S.147(b) also although the Act makes a specific provision under S.155(5) for the withdrawal of the Development Rebate?"
For the assessment year 1964 65 the assessee who was an individual carrying on business under the name and style of "Cochin Company" was assessed to tax by an order passed by the Income-tax Officer, Company Circle, Ernakulam dated 27 -71967. In making that assessment the Income-tax Officer had allowed to the assessee a deduction of Rs. 2619/- by way of Development Rebate in respect of certain machinery which the assessee had installed in his business premises on 30 61962. The business of the assessee, which as already noted was proprietary in character was converted into a partnership with effect from 24 81962. It was long after the creation of the part
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ership that the assessment for the year 1964-65 was completed by the Income-tax Officer on 27 71967. But apparently the legal consequences arising from the transfer of assets including the machinery which was necessarily involved in the transformation of the proprietary business into a partnership escaped the notice of the Income-tax Officer while making the assessment This mistake was discovered by the audit party and it was pointed out to the Income-tax Officer in an "enquiry note" dated 19 81968 sent to him by the Audit Department. Thereupon the Income-tax Officer initiated proceedings under S.147(b) of the Act by issuing a notice to the assessee under S.148 on 27 11969. The assessee filed a return in response to that notice, but raised objections to the legality of the proceedings initiated under S.147. The Income-tax Officer rejected those contentions and he completed the assessment by withdrawing the development rebate allowed to the assessee on the ground that when the proprietary business was converted into partnership on 24-8-1962 there was a transfer of the machinery and since the said transfer was within the statutory period of 8 years the development rebate was liable to be withdrawn under S.34(3)(b) of the Act.2. The assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax, Ernakulam. That appeal was allowed by the Appellate Assistant Commissioner holding that the only provision under which the Income tax Officer could validly withdraw the Development Rebate that had been already allowed was S.155(5) of the Act and that inasmuch as the time limit prescribed by the said Section had elapsed long prior to the date on which the order withdrawing the development rebate was passed by the Income-tax Officer in purported exercise of his power under S.143(b) the re-assessment proceedings were illegal. In the view of the Appellate Assistant Commissioner S.155(5) being a special provision specifically dealing with the withdrawal of the development rebate the applicability of S.147 which is a general provision is excluded in respect of cases covered by S.155(5). On this basis the Appellate Assistant Commissioner held that it was not legally open to the Income-tax Officer to take resort to the general provision for assessment of escaped income contained in S.147 when the time limit prescribed by S.155(5) had already expired and and he accordingly cancelled the order of re-assessment passed by the Income-tax Officer.3. The Department took up the matter in further appeal before the Income-tax Appellate Tribunal. The Tribunal held that S.147 (b) and 155(5) are not mutually exclusive and that the Income-tax Officer was not bound to act only under S.155(5) in a case where the development rebate already allowed was found to be liable to be withdrawn on the ground that there was a transfer of the machinery within the stipulated period of 8 years. The assessee put forward a contention before the Tribunal that the conversion of the proprietary business into partnership concern did not involve any transfer. This contention was rejected by the Tribunal. In the light of the aforesaid findings the Tribunal set aside the order of the Appellate Assistant Commissioner and restored the re-assessment order passed by the Income-tax Officer.4. On the application of the assessee the Tribunal has referred to this Court the question which we have already extracted.5. S.155(5) reads: "(5) Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant installed after the 31st day of December, 1957, in any assessment year under S.33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 3922), and subsequently(i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in S.617 of the Companies Act, 1956(1 of 1956), or in connection with any amalgamation or succession referred to in sub-section (3) or sub-section (4) of S.33; or(ii) at any time before the expiry of the eight years referred to in sub-section (3) of S.34, the assessee utilises the amount credited to the reserve account under clause (a) of that sub-section,(a) for distribution by way of dividends or profits; or(b) for remittance outside India as profits or for the creation of any asset outside India; or(c) for any other purpose which is not a purpose of the business of the undertaking;the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of S.154 shall, so far as may be, applied thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the sale or transfer took place or the money was so utilised".This section will get attracted only where the ship, machinery or plant in respect of which a development rebate had been already allowed has been subsequently transferred by the assessee to any person other than the Government, Local Authority, etc. at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or the plant was installed. In order that this section should apply development rebate should already have been allowed to an assessee in respect of the plant or machinery and subsequently, that is after the Development Rebate had been already allowed, such ship, machinery or plant should have been transferred by the assessee to any person other than the Government or a Local Authority, etc. before the expiry of eight year from the end of the previous year in which the plant or machinery was installed. In the present case the Development Rebate in respect of the machinery was allowed to the assessee only on 27-7-1957 when the assessment of the assessee for the year "1964-65 was completed by the Income-tax Officer The transfer of the machinery resulting from the conversion of the proprietary business of the assessee into partnership had taken place much earlier, namely, on 24-8-1962. Thus this is not therefore, a case where, after the making of an allowance by way of development rebate there has subsequently been a transfer by the assessee of the machinery or plant in respect of which such allowance was granted and S.155(5) is not attracted at all. On the other hand this is a plain case where a mistake was committed by the Income-tax Officer in allowing the development rebate to the assessee when on the facts as they existed at the time of making the assessment such rebate was not legally admissible since the assessee had effected a transfer of the machinery within the period of eight years. That when such a mistake in the assessment order is brought to the notice of the Income-tax Officer by an "audit objection" or "enquiry" it will constitute "information in his possession" warranting the initiation of proceedings under S.147(b) of the Act has been held by this Court in Commissioner of Income-tax v. Kelukutty ( (1972) 85 ITR.102). The action taken by the Income-tax Officer under S.147(b) to make a re-assessment by withdrawing the development rebate which had been wrongly allowed to the assessee in the original order of assessment passed by him on 27-7-1967 was therefore fully in accordance with law.6. Inasmuch as we have found that the jurisdictional conditions for invoking the power under S.155(5) were not present in this case the question whether S.147(b) and S.155(5) are mutually exclusive and whether in a case where action could have been taken by the Income-tax officer under S.155(5) it would be open to him to resort to the general provision contained in S.147(b) does not really arise before us for determination. But since arguments on this point have been addressed before us by both sides we may observe that had it been necessary for us to decide this question we would have had no hesitation in adopting with respect the view expressed by the Andhra Pradesh High Court in G. Sreerama Murthy v. Income-tax Officer ((1974) 97 ITR. 290) and by the Gujarat High Court in Commissioner of Income-tax, Gujarat II v. Himatlal Bhagu-bhai ( (1972) 86 ITR. 481) that the two sections aforementioned are not mutually exclusive and that it is open to the Income-tax Officer to resort to either of the two provisions according to the needs arising from the facts and circumstances of the given case. S.147 (b) inter alia authorises the complete re-opening of a prior assessment and for making a re-assessment of the assessee's income for the concerned assessment year whereas the power conferred by S.155(5) is very much more limited in its scope in that it provides only for making an amendment of the original order of assessment to the extent rendered necessary as a result of re-computing the total income of the assessee by withdrawing the development rebate originally allowed. The two sections thus operate in different spheres and if the circumstances of the case warrant the invocation of the wider power conferred by S.147(b) it is perfectly open to the Income-tax Officer to take recourse to the said power even in a case where the re-assessment is necessitated by reason of its being found that the development rebate originally allowed is liable to be withdrawn.We accordingly answer the question referred to us in the affirmative, i.e. against the assessee and in favour of the Department. The parties will bear their respective costs.A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.
"1976 KLT 97"