COMMISSIONER OF Income Tax vs FIRST LEASING CO. OF INDIA LTD.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding and had valid materials to hold that the

reassessment made u/s 147(b) of the Income Tax Act was without jurisdiction and, therefore, invalid ?

The assessee filed its return for the assessment year 1976-77 and claimed extra depreciation in respect of certain plant and machinery which were

leased out to Spencer and Co., which is running a hotel, approved by the Central Government. The assessee claimed extra depreciation allowance

at 50 per cent. of the normal depreciation under item No. Ill, Part 1 of Appendix 1 to the Income Tax Rules, 1962. The Income Tax Officer in the

original assessment for the year 1976-77 granted the extra depreciation as claimed by the assessee. Subsequent to the completion of the original

assessment, the audit party had drawn to the attention of the Income Tax Officer that the initial depreciation was wrongly allowed as the assessee

has only leased out the assets belonging to it and the same was neither installed nor used in the assessee''s business premises for its business. It

seems that the audit party brought to the attention of the Income Tax Officer, the relevant provisions of sub-item (iii) of Part I of Appendix 1 of the

Income Tax Rules. The Income Tax Officer on the basis of the report of the audit initiated proceedings for reassessment u/s 147(b) of the Income

Tax Act, 1961 (hereinafter referred to as ""the Act""), and after hearing the objections of the assessee, held that the assessee was not entitled to

extra depreciation allowance as the assessee was not using the machinery in the hotel business run by the assessee, and accordingly he withdrew

the extra depreciation allowance granted earlier and completed the reassessment.

The assessee filed an appeal before the Commissioner of Income tax Appeals-I, Madras, against the order of reassessment and the Commissioner

(Appeals) held that under the relevant rules, the assessee is not entitled to extra depreciation as the rules make it clear that the building should be

used by the assessee as hotel and since that/condition was not satisfied, the withdrawal of extra depreciation was in order. He also held that the

audit party has not interpreted any provisions, of the law and the audit party has only brought to the attention of the Income Tax Officer the

relevant rules for the grant of extra depreciation. The Commissioner of Income Tax (Appeals-,1), confirmed the order of reassessment made by

the Income Tax Officer and dismissed the appeal preferred by the assessee.

Aggrieved by the order of the Commissioner (Appeals), the assessee carried the matter in appeal before the Income Tax Appellate Tribunal and

the Appellate Tribunal held that the audit party has interpreted the law and since there was an expression of an opinion of the law by the audit

party, the opinion expressed by the audit party would not constitute ""information"" within the meaning of section 147(b) of the Income Tax Act, and

placing reliance on the decision of the Supreme Court in the case of Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of

Income Tax, New Delhi, , the Tribunal held that the report of the audit party cannot form the basis for reopening the assessment and in this view,

of the matter. the Tribunal allowed the appeal preferred by the assessee.

Mr, C. V. Rajan, learned counsel for the Revenue, submitted that the order of the Appellate Tribunal is erroneous in point of law as the Tribunal

proceeded on an erroneous basis that the audit party has interpreted the provisions of the law and according to learned counsel for the Revenue,

the audit party has merely brought to the attention of the Income Tax Officer the provisions of law and there is no question of interpretation of law

involved by the audit party.

Mr. Aravind P. Datar, learned counsel for the assessee, has contended that the audit party has interpreted the law and as there was a mistake in

the order of the original assessment made by the Income Tax Officer, it is not open to the Income Tax Officer to resort to reassessment

proceedings. According to learned counsel, the only course open to the Income Tax Officer was to rectify the mistake. u/s 154 of the Income Tax

Act or the Commissioner of Income Tax could have initiated proceedings u/s 263 of the Income Tax Act to revise the order. Since the department

has not taken the proceedings either for rectification, or for revision but resorted to proceedings u/s 147(b) of the Act, the proceedings initiated

were not valid in law and, therefore, there is no basis for interference in the order of the Tribunal.

We carefully considered the submissions made by learned counsel for the assessee. We have set out the facts earlier and it is seen that after the

completion of the original assessment by the Income Tax Officer, the audit party has informed the Income Tax Officer about the provisions of law

in sub-item (iii) of item No. Ill of Part 1 of Appendix 1 of the Income Tax Rules, 1962, which grants extra depreciation allowance for approved

hotels and the provision reads as under :

An extra allowance of depreciation of an amount* equal to one-half of the normal allowance shall be allowed in the case of machinery and plant

installed by an assessee, being an Indian company, in premises used by it as a hotel where such hotel is for the time being approved by the Central

Government for the purposes of section 33 of the Act.

Explanation. For the purposes of this sub-item and sub-item (iv), ,normal allowance'' means the amount of depreciation allowance (other than the

extra depreciation, allowance under this sub-item or the extra shift depreciation allowance under sub-item (iv)) which is allowable under rule 5.

The extra allowance of depreciation of an amount equal to the amount of normal allowance is allowable in the case of machinery and plant installed

by the assessee, being an Indian company in the premises used by it as a hotel, provided such a hotel is approved by the Central Government for

the provisions u/s 33 of the Income Tax Act. A fair reading of the rule shows that to be eligible for extra depreciation allowance, the assessee must

be an Indian company and the machinery and plant should be installed in the premises used by the assessee as an approved hotel. Therefore, the

pre-requisite condition is that the installation of the machinery should be in the premises used by the assessee as a hotel.

It is seen from the facts that the assessee had leased out the air-conditioners and certain other machinery to Spencer and Co. Ltd., and a fair

reading of the rules indicates that unless the assessee uses the plant and machinery in the premises used by it as a hotel and such hotel is approved

by the Government and then only the assessee is entitled to extra depreciation. The audit party has brought to the attention of the Income Tax

Officer the relevant provision of the law, but has not interpreted the said provisions as the said provision is not a complicated provision of law as a

careful reading of the rule shows that the assessee is not entitled to extra depreciation. In our view, there is no question of any interpretation of law

involved in the audit report and the report of the audit has to be construed as if the audit has brought to the attention of the Income Tax Officer the

relevant provision of law. Since the audit party has not interpreted the law but has merely brought to the attention of the Income Tax Officer the

provisions of law, the report of the audit party in our opinion constitutes ""information"" within the meaning of section 147(b) of the Act. The

Supreme Court in Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, , has made a distinction

between the interpretation of the law and bringing to the attention of the Income Tax Officer the relevant provision of law and if the audit party

interpreted the law, then the report by the audit party cannot be regarded as ""information"" for the purpose of reopening an assessment u/s 147(b)

of the Act. However, if the audit party has merely drawn the attention of the Income Tax Officer to the existence of the law, the opinion of the

audit party would be regarded as information and the Supreme Court has made a distinction between the communication of law and interpretation

of law. In our view, as the facts of the case the audit report should be regarded as a communication of law and there is no interpretation of law

involved in the matter. Applying the principles of law laid down by the Supreme Court in Indian and Eastern Newspaper Society, New Delhi Vs.

Commissioner of Income Tax, New Delhi, , we are of the view that the Tribunal was not correct in holding that the audit party has interpreted the

relevant provisions relating to the granting of extra depreciation allowance, and erred in holding that the Income Tax Officer has no jurisdiction u/s

147(b) of the Act to reopen the assessment. We are also not able to accept the contention of learned counsel for the assessee that the department

should have resorted to either rectification proceedings or revisional proceedings. If the statutory conditions prescribed u/s 147(b) are satisfied, it is

permissible for the department to invoke the reassessment proceedings, notwithstanding the fact that other remedies are available to the

department under other provisions of the statute. Since we are not able to uphold the view of the Tribunal that the Income Tax Officer has no

jurisdiction to reopen the assessment necessarily the matter will have to go before the Appellate Tribunal to decide the question on the merits of the

case.

Accordingly, we hold that the Tribunal was not correct in holding that the officer has no jurisdiction to reopen the assessment u/s 147(b) of the Act

and the reassessment consequently made was invalid.

Accordingly, we answer the question of law referred to us in the negative and in favour of the Revenue. However, in the circumstances of the case,

there will be no order as to costs.