Commissioner of Income-tax Vs. Vimal Kumar Surana - Court Judgment

V.K. Singhal, J.

1. These reference applications under Section 256(2) of the Income-tax Act, 1961, have been submitted against the order of the Income-tax Appellate Tribunal, Delhi Bench 'C', New Delhi, dated June 28, 1983, in respect of the assessment year 1977-78 on the ground that the Income-tax Appellate Tribunal was not justified in referring the matter to this court under Section 256(1) of the Act, vide its order dated January 10, 1984. The questions which were raised under Section 256(1) were as under :

'Whether, on the facts and in the circumstances of the case, the Tribunal is justified :--

(i) in holding that the proceedings under Section 147(a) of the Income-tax Act, 1961, are not sustainable in law ?

(ii) in holding that there was no information justifying action under Section 147(b) of the Income-tax Act ?

(iii) in holding that the Income-tax Officer could not have made an assessment after having reopened the proceedings under Section 147(a)/147(b) and to give effect to the set (sic) the assessment under Section 263 and consequently in quashing the Income-tax Officer's order dated May 6, 1980 ?'

2. The facts giving rise to the present application are that the assessee is a Hindu undivided family, represented by its karta, Shri Vimal Kumar Surana. The return for the period ending Diwali, 1976, i.e., assessment year 1977-78, was filed on June 29, 1977, declaring a total income ofRs. 44,970. Along with the return, the capital account of the firm, Mannalal Nirmal Kumar Surana and Co., along with other documents was also filed in which the credit entry dated January 4, 1976, was existing and was shown as 'by precious cut stones rupees 15,32,000'. The assessee was asked to explain the said credit entry. A reply dated July 26, 1977, was submitted stating that the said amount has been received on various partial partitions of his father's Hindu undivided family known as Mannalal Nirmal Kumar Surana (hereinafter referred to as the 'bigger Hindu undivided family'). Up to the assessment year 1976-77, the assessee was unmarried and was assessed as an individual in respect of his individual income as well as income derived from the assets received on the partial partitions dated July 1, 1970, April 27, 1971 and January 4, 1976. The assessee married on March 2, 1976 and, therefore, two returns were filed, one in the individual status declaring the income from the share in the firm, Hazarimal Milapchand Surana, and the other in the Hindu undivided family status showing income from assets received on partial partitions of the bigger Hindu undivided family. The amount of Rs. 15,32,000 was received on partial partition on January 4, 1976, which was stated to be in the form of precious cut stones and was contributed by the Hindu undivided family, as capital in the firm, Mannalal Nirmal Kumar Surana and Co., a partnership firm in which the Hindu undivided family became a partner. The assessment was completed by the Income-tax Officer, Special Survey Circle-I, Jaipur, on August 3, 1977. Subsequently, the jurisdiction of the case was assigned under Section 127 to the Income-tax Officer, Central Circle-II, Jaipur. He found that the Income-tax Officer, Special Survey Circle-I, Jaipur, completed the assessment taking that the value of Rs. 15,32,000 fully covered by the voluntary disclosure made by the bigger Hindu undivided family, whereas in accordance with the declarations under section 3(1) of the Voluntary Disclosure of Income and Wealth Act, 1975, the declaration was made on December 30, 1975, in respect of precious cut stones weighing 2,800 carats and were valued at Rs. 23,00,000. On the same day, the said Hindu undivided family revalued those precious stones at Rs. 46,00,000 and thereafter a partial partition was made on January 4, 1976, in which the assessee received cut stones of Rs. 15,32,000. According to the Income-tax Officer, Central Circle, since the disclosure was at 50 per cent, of the value, therefore, the balance 50 per cent, was liable to capital gains. Notice under Section 148 read with Section 147(a)/147(b) for the assessment year 1977-78 were issued on January 4 ,1979. The Income-tax Officer also proposed to the Commissioner of Income-tax to take action under Section 263 of the Act as, according to him, the order passed waserroneous/prejudicial to the interests of the Revenue. The Income-tax Officer passed an order on May 6, 1980, which was the order of reassessment as well as a fresh assessment and subjected the amount of Rs. 7,66,000 to capital gains tax considering the introduction of the precious cut stones into the firm as his capital by the assessee which constituted the transfer Within the meaning of Section 2(47) of the Act which is liable to tax in accordance with the provisions of Section 47 read with Section 49 and it was treated as a short-term capital gain.

3. In appeal, the Commissioner of Income-tax (Appeals) upheld the initiation of proceedings under Section 147(b) but set aside the assessment in respect of the order passed in consequence of the order of the Commissioner of Income-tax under Section 263. The matter was challenged before the Income-tax Appellate Tribunal by the assessee as well as by the Revenue. The Income-tax Appellate Tribunal came to the conclusion that there Was no information in the possession of the Income-tax Officer within the meaning of Section 147(b), and, therefore, the order of the Commissioner of Income-tax (Appeals) was reversed, It was held that the capital gains could be subjected to tax in the assessment year 1976-77 and not in the year 1977-78. The contention of the Revenue that the Income-tax Officer could have taken the action Under Section 147(a)/(b) as well as in compliance with Section 263 in one order was held unjustified and the order of the Commissioner of Income-tax (Appeals) was upheld. The reasoning which was given by the Income-tax Appellate Tribunal was the period of limitation for reopening the assessment under Section 147 and to frame the assessment in accordance with the directions of Section 263 are different and therefore one order could not have been framed.

4. In the reference application submitted under Section 256(1) it was held that a finding has been recorded that the Income-tax Officer had no information, on the basis of which he could have reason to believe that income chargeable to tax had escaped assessment for the year under consideration, The reference application was rejected on the ground that the said finding is a finding of fact.

5. We have considered over the matter. The question as to whether the Income-tax Officer has jurisdiction to reopen the assessment or to initiate proceedings for reassessment could be a question of fact or law depending upon the facts of each case. In the present matter, an appeal was filed by the assessee as well as the Revenue against the order of the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal. Besides the points that the proceedings initiated under Section 147(a), theaction could be justified under Section 147(b) of the Act and in the alternate the action could be taken to give effect to the order passed by the Commissioner of Income-tax under Section 203, wure raised. From these submissions, it is evident that the question of law arises with regard to the scope of jurisdiction of the Income-tax Officer in passing fresh assessment/reassessment order and, therefore, without discussing further the matter on merit, we are of the opinion that the Income-tax Appellate Tribunal was not justified in saying that no question of law arises. The application submitted by the Revenue is accepted and the Income-tax Appellate Tribunal is directed to refer the above question of law. No order as to costs.