1. The contention raised by the assessee in this appeal is that the assessment framed by the ITO under Section 147(6) of the Income-tax Act, 1961 ('the Act") was without jurisdiction since it was founded on a direction given by the AAC in his first appellate order for the assessment year 1977-78, that direction itself being invalid in law, We have carefully considered the facts of the case and have heard the learned Counsel for the assessee and the learned departmental representative.
2. The facts relevant for the determination of the question arising in this case relate to assessment of the profit which arose to the assessee under Section 41(2) of the Act on the sale of his truck used in his transport business. The assessee had disclosed this profit in the return which he filed for the assessment year 1978-79, but the ITO took the view that the income was assessable for the year 1977-78, the assessment for which year was also open before him. He, therefore, did not include this profit in the assessment which he made for 1978-79 but assessed it for the reasons recorded in his order for the assessment year 1977-78. The assessee filed an appeal against the latter year contending that the income had wrongly been treated as assessable for the assessment year 1977-78. The AAC in the appeal for that year considered the assessee's contention in detail and found that the first instalment of the sale price of the truck had been paid to the assessee on 28-4-1976 but the balance of Rs. 10,000 was paid on 31-3-1976 and the transfer of the truck to the purchaser was registered in the RTO's office on 14-1-1977. On these facts, the AAC held that the ITO was mistaken in his view that the sale had been concluded during the previous year relevant to the assessment year 1977-78, all that had happened during that year was that an agreement of sale had been drawn up and a deposit had been made by the prospective buyer in part payment. The title, however, was transferred to the purchaser only on 14-1-1977 upon which date only the transaction was completed. Since that date fell in the next accounting year relevant for the assessment year 1978-79, the income under Section 41(2) could not be assessed to tax for the assessment year 1977-78. Having arrived at this finding, the AAC proceeded to issue a direction to the ITO to exclude the income from the assessment for 1977-78 and to tax the profit for the assessment year 1978-79.
3. The ITO thereupon initiated proceedings under Section 147(b) for the assessment year 1978-79 and made a reassessment for that year by his order dated 20-12-1980 whereby the profit was so assessed. The assessee challenged this reassessment before the AAC on the ground that the direction issued by the AAC which alone constituted the foundation for the reassessment made under Section 141(b) was beyond the AAC's jurisdiction and, therefore, legally invalid. The AAC, however, rejected this contention upholding the validity of the assessment on the strength of the provisions of Section 150 of the Act against which the assessee is in appeal before us.
4. The learned Counsel for the assessee contends that the authorities below were in error to hold that the provisions of Section 150 or Section 153 of the Act could confer validity on the impugned reassessment under Section 147(6). Those provisions, according to the learned Counsel, only lift or remove the bar of limitation within which action under Section 147 could be initiated and completed. Since it is by virtue of the direction issued by the AAC in the appellate order for 1977-78 that the ITO has sought his jurisdiction to take action under Section 147(b), what has got to be seen is whether the AAC could at all have issued such a direction, i.e., in other words, whether the AAC had jurisdiction to do so.
5. Now, the learned Counsel for the assessee further pleads the law as to the meaning given to the terms 'finding' or 'direction' employed in the relevant provisions has been laid down by the Supreme Court in the case of ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335. It would be apt, in our view, to cite the relevant passage from the report where their Lordships have enunciated the law on this point: ... A 'finding', therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression 'direction' cannot be construed in vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give under Section 31. Under that section he can give directions, inter alia, under Section 31(3)(b), (c) or (e) or Section 31(4). The expression 'direction' in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other Tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression 'finding' as well as the expression 'direction' can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein.... (p. 345) The ratio in Murlidhar Bhagwan Das's case (supra) has been further explained by their Lordships of the Supreme Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 14 from where we would now quote the relevant passage: The expressions 'finding' and 'direction' are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A's income. A finding respecting B is intimately involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A's liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only.
It is not a finding necessary for the disposal of the case pertaining to A. The same principles seem to apply when the question is whether the income under enquiry is taxable in the assessment year under consideration or any other assessment year. As regards the expression 'direction' in Section 153(3)(ii) of the Act, it is now well settled that it must be an express direction necessary for the disposal of the case before the authority or Court. It must also be a direction which the authority or Court is empowered to give while deciding the case before it. The expressions 'finding' and 'direction' in Section 153(3)(ii) of the Act must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or Court. It is a provision which merely raises the bar of limitation for making an assessment order under Section 143 or Section 144 or Section 147--ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC) and N.K.T. Sivalingam Chettiar v. CIT [1967] 66 ITR 586 (SC) ... (p. 18) 6. Applying the law as laid down by the Supreme Court in the aforesaid rulings to the facts of the instant case, it is clear to our minds that the AAC had no jurisdiction to issue the direction as she did for assessment of the profit under Section 41(2) for the assessment year 1978-79 while disposing of the appeal before her for the assessment year 1977-78. That, however, does not answer the real question which arises in the instant case. It is to be noted that no question of limitation for the action initiated or completed under Section 147(6) arises in this case, since the action was taken and reassessment completed well within the normal period of four years. The real question to our minds which requires to be decided is whether the finding recorded by the AAC that the profit was assessable not for the year 1977-78 but for 1978-79 could constitute information leading to the ITO having reason to believe that income had escaped assessment so as to confer necessary jurisdiction upon him for making the reassessment under Section 147(6). It may be true, and on the strength of the rulings of the Supreme Court referred to earlier in this order it is not possible to hold otherwise, that for the disposal of the appeal for the assessment year 1977-78, it was sufficient for the AAC to give a finding that the profit was not assessable for the assessment year 1977-78. It is also true that the finding that the profit was assessable for the assessment year 1978-79 was an incidental finding.
But the real question is, would such an incidental finding still constitute information for the purpose of Section 147(b) 7. For an answer to this question, the scope and meaning of the term 'information' used in Section 147(6) has to be kept in view and that has been provided to us in the ruling of the Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 wherein the definition of 'information' in Section 147(6) as given in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11 (SC) has been quoted with approval: ...in CIT v. A. Raman & Co. [1968] 67 ITR 11 (SC) the Court defined the expression 'information' in Section 147(6) of the Income-tax Act, 1961, as 'instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment'.... (p. 1001) ...therefore, when Section 147(6) of the income-tax Act is read as referring to 'information' as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which, because it issues from a competent Legislature or a competent judicial or quasi-judicial authority, influences the course of the assessment and decides any one or more of those matters which determine the assessee's tax liability. (p. 1002) Following the ratio of these rulings, the Madhya Pradesh High Court in the case of Arvind Kumar v. ITO [1983] 13 Taxman 291 has held that decisions of superior authority under the Act constitute information relating to law for reopening assessment under Section 147(6). Now in the instant case, the AAC on consideration of the facts and evidence regarding the transaction of the sale of the truck found that the correct legal position was that the sale was concluded on the transfer of the truck to the purchaser, the registration of transfer being recorded in the RTO's office, and it was only then that profit could be said to have arisen so as to be assessable under Section 41(2) and that since these events occurred in the accounting year relevant to the assessment year 1978-79, the profit was assessable for that year and not for 1977-78. Bearing the principles laid down by the Supreme Court in mind, we have no doubt that this finding of the AAC constituted information for the purpose of Section 147(6) providing reason to believe for the ITO to take assessment proceedings under that section.
We, therefore, hold that the AAC rightly held the impugned assessment to be valid but for the reasons recorded in this order.