Commissioner of Income Tax vs Bush Boake Allen (India) Ltd

K.A. Thanikkachalam J.

At the instance of the Department, the Tribunal referred the following question for the opinion of this court u/s 256(2) of the Income Tax Act,

1961 (hereinafter referred to as ""the Act"") :

Whether, on the facts and in the circumstances of the case and having regard to section 36(1)(iv) of the Income Tax Act, 1961, the reassessment

made u/s 147(b) of the Act for the assessment year 1972-73 was properly cancelled ?

The assessee is a company in which the public are not substantially interested. The assessment for the assessment year 1972-73 was originally

completed on November 21, 1974. Subsequently the audit party pointed out that in the original assessment, the depreciation on roads was

wrongly allowed and that 80 per cent. of the initial contribution of Rs. 46,950 to the superannuation fund was wrongly deducted u/s 36(1)(iv) of

the Act in computing the income of the assessee. The Income Tax Officer, therefore, reopened the assessment u/s 147(b) of the Act. In the

reassessment, he held that the assessee was not entitled to the depreciation on roads amounting to Rs. 53. He further held that what was allowable

as initial contribution to the superannuation fund u/s 36(1)(iv) was only 1/5th of 80 per cent. of the initial contribution and not 80 per cent. of the

initial contribution itself. He, therefore, held that the amount admissible was only Rs. 9,390 being 1/5th of Rs. 46,950, representing 80 per cent, of

initial contribution of Rs. 58,687. Thus, he disallowed a sum of Rs. 37,560 and the reassessment was completed on a total income of Rs.

35,32,840 against Rs. 34,64,650 originally determined.

On appeal, the Appellate Assistant Commissioner upheld the validity of the reopening of the assessment u/s 147(b) of the Act, relying upon the

decision of the Supreme Court in R.K. Malhotra, ITO, Group Circle II(1), Ahmedabad Vs. Kasturbhai Lalbhai (Huf), , and also the disallowance

made by the Income Tax Officer.

Aggrieved, the assessee went on appeal before the Appellate Tribunal. The Appellate Tribunal, relying upon the decision of the Supreme Court

in Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, , cancelled the reassessment, holding that the

reopening was invalid as the audit note cannot be construed as information. According to the Appellate Tribunal, the view of the audit party could

not be said to represent the correct state of law unless it is supported by decisions of courts.

On the basis of the audit note, the Income Tax Officer came to the conclusion that initial contribution to superannuation fund u/s 36(1)(iv) of the

Act was only 1/5th of 80 per cent. of the initial contribution and not 80 per cent. of initial contribution itself. This view was taken on the basis of the

notification issued by the Central Board of Direct Taxes. In Commissioner of Income Tax Vs. Hyderabad Asbestos Cement Products Ltd., , the

Andhra Pradesh High Court held that conditions numbers 2 and 3 laid down in the Central Board of Direct Taxes Notification No. S.O. 3433,

dated October 21, 1965, had to be disregarded. In accordance with section 36(1)(iv) of the Act and rule 88 of the Income Tax Rules, the

assessee is entitled to claim deduction of the entire sum contributed to the approved superannuation fund during the previous year relevant to the

assessment year. In so far as depreciation withdrawn on roads is concerned, it is also not the correct view taken by the Income Tax Officer on the

basis of the audit report because the Supreme Court in Commissioner of Income Tax, Bombay Vs. Gwalior Rayon Silk Manufacturing Co. Ltd.,

held that roads are buildings for the purpose of depreciation, and, therefore, the assessee is entitled to depreciation u/s 32 of the Act. The audit

note relied upon by the Income Tax Officer is an erroneous one. Therefore, on the basis of the erroneous report, reopening cannot be made, since

it would not constitute information u/s 147(b) of the Act. Accordingly, we answer the question referred to us in the affirmative and against the

Department. No costs.