1975-VIL-451-CAL-DT

Equivalent Citation: [1977] 110 ITR 527

CALCUTTA HIGH COURT

Date: 03.06.1975

COMMISSIONER OF INCOME-TAX, WEST BENGAL III

Vs

RAMSEVAK PAUL AND OTHERS

BENCH

Judge(s)  : S. C. DEB., DIPAK KUMAR SEN

JUDGMENT

DEB J.-In this reference under section 256(1) of the Income-tax Act, 1961, we are concerned with the following question of law:

"Whether, on the facts and in the circumstances of the case and on a proper construction of sections 147 and 148 of the Income-tax Act, 1961, the Income-tax Officer was entitled to recompute the business income of the assessee, the reassessment proceedings having been validly initiated to include property income that had escaped assessment? "

The statement of the case relates to the assessment years 1959-60 and 1960-61. The assessees' income from house property was determined at Rs. 1,243 and Rs. 1,159, respectively, in these two assessment years by the previous tax officer and with regard to the assessees' income from business, in view of the profit-sharing agreement between the assessees and their employees, it was determined at Rs. 8,139 for the assessment year 1959-60 and out of Rs. 25,045 it was determined at Rs. 12,522 for the assessment year 1960-61.

Subsequently, and before the expiry of 4 years, another tax officer came to know that the assessees had a house at Chandernagore and its income had escaped assessment. Accordingly, he started the reassessment proceedings for these two years under section 147(b) of the Act after serving the statutory notice on the assessees. There is no dispute that the income from this property has escaped assessment in the original assessments and the reassessment proceedings are validly initiated.

The tax officer not only included the escaped income of the said property but also recomputed the business income of the assessees for these two years. For the assessment year 1959-60, he enhanced the business income by adopting a different line of computation from the previous tax officer, and in the reassessment proceedings for the assessment year 1960-61 as he found from the records that the assessees were erroneously under-assessed with regard to income from business, he recomputed the said income again.

On appeal by the assessees, the Appellate Assistant Commissioner also found that the assessees were erroneously under-assessed in business income for the assessment year 1960-61, for the previous tax officer had erroneously assumed Rs. 20,745 as the assessees' business profit instead of Rs. 41,489 as shown by the assessees. The Appellate Assistant Commissioner has, however, held that the subsequent tax officer has no jurisdiction to reassess the business income for those two years under section 147(b) of the Act and he directed the tax officer to rectify the mistake in accordance with the law.

The Tribunal has dismissed the appeal filed by the revenue by accepting the reasons of the Appellate Assistant Commissioner including the facts found by him.

The submissions of Mr. Sen, the learned counsel for the revenue, before us are as follows: The original assessments were automatically set aside by the issuance of those notices for reassessment ; reassessment is a fresh assessment and, therefore, the subsequent tax officer is entitled to reassess the business income for these two years ; and the jurisdiction of the tax officer under section 147(b) of the Act is not confined to the grounds stated in the notice, under section 148 of the Act.

In support of his above submissions Mr. Sen cited the decision of the Supreme Court in the the case of V. Jaganmohan Rao v. Commissioner of Income-tax [1970] 75 ITR 373 (SC). In that case, the assessee purchased a spinning mill at the time when a dispute was going on between the vendor and his two sons which was the subject-matter of a suit before the learned district judge. In that suit, the sons, inter alia, claimed that the spinning mill belonged to the joint family and they had 2/3rds share in it. During the pendency of that suit the assessee filed the return of his income in which he did not disclose his income from the said mill. The suit was decreed in favour of the sons, but it was reversed by the High Court on appeal and, thereafter, the Privy Council reversed the decision of the High Court. While the appeal was pending before the Judicial Committee, the assessee became the sole owner of the mill by virtue of a compromise with the sons of the vendor and the said assessment was completed by the tax officer on the basis that the assessee had 1/3rd share in the mill. Thereafter, the proceedings under section 34(1)(a) of the Income-tax Act, 1922, were started by the tax officer on the basis of the decision of the Privy Council. It was contended, on behalf of the assessee, that the proceeding under section 34 of the Act was invalid, but the Supreme Court overruled it, and at pages 379-380 of the report observed as follows:

"But even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment ...... It was stated on behalf of the appellant that in any case the Income-tax Officer could have legitimately assessed one-third share of the income which was due to the assessee according to the judgment of the Madras High Court, and there was escape only to the extent of two-thirds share of the income. This argument is not of much avail to the appellant because once proceedings under section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year."

The submission of Dr. Pal, the learned counsel for the assessee, is that it was unnecessary for the Supreme Court to make the above observations in view of the questions involved in that case, and, according to him, the law is not yet settled, because in the case of Commissioner of Income-tax v. Bombay Dyeing and Manufacturing Co. Ltd. [1971] 82 ITR 892 (SC), at page 895 of the report, the Supreme Court has said as follows :

" It appears to us that the view taken by the Tribunal at that stage was that if notice under section 147(b) is valid in one respect, the same is sufficient to reopen the entire assessment, call for a fresh return and reassess the assessee, ignoring the earlier assessment. We express no opinion as to whether this view is correct or not. All that we need say is that from the order of the Tribunal, it appears, that that was the view taken by it."

No doubt, the point has been left open in the later decision cited by Dr. Pal, but the above observations of the Supreme Court in the case of V. Jaganmohan Rao v. Commissioner of Income-tax [1970] 75 ITR 373 (SC) are binding on us. It has been submitted by Dr. Pal that though the tax officer acting under section 147 of the Act can tax the entire income that has escaped assessment, yet he has no power to recompute the business income de novo. In support of this contention he cited the case of AL. VR. ST. Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116 (Mad), but in that case no such general proposition has been laid down by the Madras High Court and, on the other hand, it has been held that the tax officer must tax the escaped income, except the income for which a notice under section 34(1)(b) of the Act cannot validly be issued after the expiry of four years.

It is unnecessary for us to go into the matter in detail in view of the observations of the Supreme Court in Jaganmohan's case [1970] 75 ITR 373 (SC), namely, that "if the tax officer had erroneously failed to assess a part of the assessable income, it is a case where that part of the income had escaped assessment." It has also been held in that case that once a reopening proceeding is started it is the duty of the tax officer to levy tax on the entire income that has escaped assessment during that year.

There is no finding of the Tribunal that the business income of the assessee has escaped assessment in the assessment year 1959-60 and, therefore, it is not possible for us to answer the question so far as it relates to that assessment year.

In the assessment year 1960-61, the previous tax officer had erroneously failed to tax a part of the assessable business income of the assessee and, therefore, it is a case where that part of the income has escaped assessment and the subsequent tax officer has rightly reassessed it irrespective of his power of rectification under the Act.

In this view of the matter, we return our answer in the affirmative and in favour of the revenue, so far as it relates to the assessment year 1960-61.

In the facts and circumstances of this case, we make no order as to costs.

DIPAK KUMAR SEN J.-I agree.

 

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