B.P. Jeevan Reddy, C.J.
1. The Income-tax Appellate Tribunal, Allahabad, has stated the following question under Section 256(1) of the Income-tax Act, 1961, for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the reopening of the assessment under Section 147(a) of the Income-tax Act, 1961, was not valid and, therefore, the supplementary assessment made in pursuance thereof has to be annulled.'
2. The assessee is a company. In the year 1931, it entered into a contract with a German firm for purchase of machinery. The machinery was delivered in April, 1932. The delivery was not within the time stipulated, nor was it according to specifications. The assessee, therefore, instituted a suit against the said firm in 1935 for recovery of a sum of Rs. 2,05,000. The suit was ultimately decreed in December, 1953, for the said sum plus interest pendente lite. Though the total amount so decreed came to more than rupees three lakhs, the assessee could recover only Rs. 2,20,192 from the Custodian of Enemy Properties. This amount was received by the assessee in the previous year relevant to the assessment year 1961-62. In its return for the said assessment year, the assessee disclosed the said amount, but claimed that it was a capital receipt and hence not taxable. The Income-tax Officer accepted the said claim only in respect of a small portion of the said amount and included the rest in the income of the assessee. On appeal, the amount to be included in the income was reduced substantially. Even so, the assessee filed a further appeal to the Tribunal. The Tribunal allowed the appeal on the only ground that the said amount cannot be included in the assessment year 1961-62 for the reason that the assessee was maintaining its accounts on the mercantile basis and that the said amount must be deemed to have accrued on the date of the decree. It may be noticed that the decree was passed in December 1953, which fell in the assessment year 1955-56. On the basis of the Tribunal's judgment, the Income-tax Officer sought to, and did reopen the assessment for the assessment year 1955-56. He proposed to include the said amount in the income of that year. The assessee objected, but his objections were overruled and the assessment revised. On appeal, two contentions were raised, namely, (i) that the initiation of reassessment proceedings was without jurisdiction and (ii) that the assessment has been revised without giving a reasonable and adequate opportunity to the assessee to put forward its case. The Appellate Assistant Commissioner rejected the first ground, but accepted the second and remitted the matter for a fresh determination. The assessee carried the matter in further appeal to the Tribunal on the aforementioned first question. The Tribunal agreed with the assessee and set aside the reassessment proceedings in their entirety. It is thereupon that the present reference was obtained by the Revenue.
3. The grounds upon which the Tribunal allowed the appeal are to be found in the following words :
'There is no material in these reasons to show that any part of the amount of compensation represented the assessee's income liable to be taxed. The amount of interest was only Rs. 12,500 and this being less than Rs. 50,000 action under Section 147(a) could not have been taken for this year after the expiry of more than eight years. The assessee is, therefore, right in claiming that approval for reopening the assessment for the assessment year 1955-56 could not have been validly accorded on the basis of the reasons recorded by the Income-tax Officer. The letter dated January 13, 1969, written by the Income-tax Officer to the Commissioner of Income-tax further shows that he had taken this action not because of his own belief that any income of the assessee which was taxable in this year had escaped assessment but on the recommendations of Shri D. G. Pradhan, Authorised Representative. The letter further shows that this action was being taken by him only as a protective measure. As claimed by the assessee, the reference to Sections 150(3) and 153 in the letter dated January 13, 1969, also shows that the Income-tax Officer had reopened the assessment in consequence of the order of the Tribunal passed for the assessment year 1961-62, and even though he had mentioned Section 147(a), he was all the time contemplating action under Section 147(b). If the Income-tax Officer really believed that income had escaped assessment because of the failure of the assessee to disclose fully and truly the material facts necessary for assessment, there was no need for him to rely upon Sections 150 and 153(3). We are, therefore, satisfied that the reassessment proceedings were invalid.'
4. The proposal submitted by the Income-tax Officer to the Board for obtaining its sanction contained the following reasons :
'The assesee got a decree for Rs. 2,05,000 as compensation from the Custodian of Enemy Properties on December 15, 1953, and the interest of Rs. 12,500 (approx) became due on that date on the compensation amount The assessee failed to disclose this in the return of income for the previous year relevant to the assessment year 1955-56. Since the assessee failed to disclose true and material facts, the income escaped assessment, and the Board's permission is, therefore, solicited under Section 147(a)/15Q/153(3) to assess the same in the assessment year 1955-56.'
5. The accompanying letter dated January 13, 1969, referred to in the Tribunal's order, in so far as it is relevant, reads as follows :
'Kindly refer to the Tribunal's order dated November 27, 1968, in I. T. A. No. 17355 of 1966-67 for the assessment year 1961-62 in the case of Messrs. Motilal Padampat Sugar Mills Co. (P.) Ltd., Kanpur.
It will be observed from para 20 of the said order that the Tribunal has held that as the assessee was following the mercantile system of accounting, the compensation amount of Rs. 2,20,192 received by the assessee from the Custodian of Enemy Properties during the previous year relevant to the assessment year 1961-62 was recoverable on the date of decree. The date of the decree being December 15, 1953, it was held that the amount was not earned during the previous year relevant to the assessment year 1961-62. In the circumstances, apart from considering the reference over the matter in the assessment year 1961-62, I am proposing action under Section 147(a)/150/153(3)(ii), as a protective measure as recommended by Shri D. G. Pradhan, Authorised Representative, for the assessment year 1955-56 being the relevant previous year for the year from August 1, 1953, to July 31, 1954.'
6. The question that arises in the above circumstances is whether the Tribunal was justified in holding that the reopening of the assessment under Section 147(a), was not valid Admittedly, the action was under Section 147(a) and could not have been under Section 147(b). The action was being taken after the expiry of eight years. Action under Clause (a) of Section 147 could, therefore, be taken only in cases where the income that escaped assessment was in the sum of Rs. 50,000 or above. In this case, the proposal submitted by the Income-tax Officer to the Board clearly says that the assessee received Rs. 2,05,000 as compensation and Rs. 12,500 towards interest thereon. The Tribunal has held that the sum of Rs. 2,05,000 constituted a capital receipt and only the interest of Rs. 12,500 constituted income (revenue receipt). It may be noted that even in the earlier assessment proceedings, there was a controversy as to whether the whole or any part of the compensation amount constituted revenue receipt. The Appellate Assistant Commissioner had opined that out of the amount received, only an amount of Rs. 91,004 constituted revenue receipt. Evidently, the Income tax Officer has not applied his mind to the relevant facts. He seems to have proceeded on the assumption that the entire compensation amount constituted a revenue receipt. In this, he was evidently wrong.
7. The Tribunal has now found that only the sum of Rs. 12,500 representing the interest was includible in the income and that the remaining amount of Rs, 2,05,000 constituted a capital receipt. If so, the reopening of the assessment after eight years was clearly unsustainable under Section 149 of the Act as it then stood ; on this ground alone, we answer the question referred in the affirmative, that is, in favour of the assessee and against the Revenue.
8. We do not think it necessary to express any opinion upon the correctness or otherwise of the other reasons given by the Tribunal in its order.
9. The reference is disposed of accordingly.