M.C. Agarwal, J.@mdashThese are references by the Income Tax Appellate Tribunal, Allahabad, made u/s 256(1) of the Income Tax Act, 1961.
2. In Income Tax Reference No. 100 of 1982, the Tribunal has referred the following questions stated to be of law and to arise out of its order
dated October 31, 1980, passed in ITA No. 1532 (Alld.) of 1975-76 for the assessment year 1964-65 :
1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the Income
Tax Officer was justified in initiating reassessment proceedings u/s 147(a) of the Income Tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in restoring the matter to the
Appellate Assistant Commissioner to decide on merits the question of includibility of the remuneration payable to the assessee for the assessment
year 1964-65 as a trustee of the Sherwani Charitable Trust ?
3. In Income Tax Reference No. 285 of 1981, the following questions arising out of the Tribunal''s order dated December 12, 1980, in ITA Nos.
1864, 1865 and 1866 of Allahabad of 1979 for the assessment years 1965-66, 1966-67 and 1968-69 have been referred :
1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the Income
Tax Officer was justified in initiating reassessment proceedings u/s 147(a) of the Income Tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in restoring the matter to the
Appellate Assistant Commissioner to decide on merits the question of includibility of the remuneration payable to the assessee for the assessment
years 1965-66, 1966-67 and 1968-69 as a trustee of the Sherwani Charitable Trust ?
4. Thus, the controversy in both the references is similar. The facts of the case are that the assessee was a trustee of a trust named ""Sherwani
Charitable Trust"". Under a clause of the trust deed, one-third of the income of the trust was to be paid to the trustees as their remuneration. The
trustees had, however, by a resolution given up their right to receive the remuneration and had resolved that that part of the income of the trust be
also spent on the charitable objects of the trust. The resolution was adopted several years prior to the accounting years relevant to the assessment
years in question and the question of the taxability of remuneration had been agitated in some earlier years and it was held that the same was not
taxable. Subsequently, the Assessing Officer of the present assessee received a communication dated March 28, 1973, from the Income Tax
Officer, ""A"" Ward, Allahabad, that it had been held in the case of another trustee that such remuneration was taxable. On receipt of the said
information, the Assessing Officer proposed to reopen the assessee''s assessments u/s 147(a) of the Income Tax Act, 1961, and issued notices u/s
148 of the Act after obtaining sanction from the Commissioner of Income Tax. In pursuance of the notices u/s 148, the assessee returned the
income that had originally been assessed and contended that there was no income by way of remuneration from the aforesaid trust. The Income
Tax Officer did not discuss the details for his reasons to assume that there was an income by way of remuneration. In the assessment order for the
assessment year 1964-65, he followed his order for the assessment year 1972-73 and in the other assessment order, he followed his order for the
assessment year 1964-65. The matter was carried in appeal to the Appellate Assistant Commissioner who held that there was no failure on the
part of the assessee to disclose the material facts which were already known to the Department and, therefore, the assessment could not be
reopened u/s 147(a) and if at all a reassessment was necessary, it could be done only u/s 147(b) for which the limitation had expired. The
Appellate Assistant Commissioner, therefore, held that the assessments were without jurisdiction. The Assessing Officer took the matter in appeal
to the Tribunal which has reversed the appellate order by observing as under in its order dated October 31, 1980, for the assessment year 1964-
65 :
After carefully examining the facts of the case, we do feel that the learned Appellate Assistant Commissioner has erred in holding that the
assessee''s case stood covered by the provisions of Clause (b) of Section 147. Admittedly, the assessee is one of the trustees of the Shervani
Charitable Trust and as per the original deed, remuneration was payable to him and as such it was the assessee''s duty to place primary facts
necessary for the determination of this question in his return or in the course of his assessment proceedings. By not placing it on record, he clearly
erred and it is of no consequence in this connection that the reopening was done by the Income Tax Officer on receipt of information from another
Income Tax Officer. So long as, it can be shown that the original return filed by the assessee did not contain information with regard to
remuneration derivable by the assessee from Shervani Charitable Trust, the failure would be of the assessee and reopening u/s 147(a) alone would
be possible. We, ''therefore, reverse the order of the learned Appellate Assistant Commissioner and restore the case back to him to determine the
includibility or otherwise of the income from the aforesaid source in the assessee''s total income on merits.
5. For the other years, the Tribunal followed its order for the assessment year 1964-65.
6. As is evident from the questions, reproduced above, the controversy is whether the assessments were rightly reopened u/s 147(a) of the Act
which provides that if the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a
return u/s 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for the assessment for that
year, income chargeable to tax had escaped assessment for that year, he may subject to the provisions of Section 148 to 153, assess or reassess
such income or recompute the loss ... In this case the assessee had admittedly filed his returns of income for the four years and the reopening was
based on the alleged failure of the assessee to disclose fully and truly all material facts necessary for his assessment for the respective years. The
material facts were, (1) that the assessee was a trustee of Shervani Charitable Trust, (2) that under one of the clauses of the trust deed, a part of
the income of the trust was to be distributed to the trustees as remuneration, (3) by a resolution passed several years before, the trustees had given
up their right to remuneration and it was provided that the part of the income of the trust would also be spent for charitable purposes, and (4)
whether any remuneration was actually received by the assessee.
7. The contention of learned counsel for the assessee was that all the facts were on the assessment records of the assessee for the earlier years and
were in the knowledge of the Revenue and it had already been held in several assessment orders that the assessee did not derive any income by
way of remuneration from the said trust and no such income was taxable in the hands of the assessee and, therefore, there was no obligation on the
assessee to disclose these facts over and over again in the various following years. We have reproduced the relevant portion of the Tribunal''s
order to show that although the Appellate Assistant Commissioner had mentioned that the material facts were already on record and had been
considered in the assessment for the assessment years 1957-58, 1958-59 and 1959-60, the Tribunal has failed to demonstrate how the omission
of the assessee to make any mention of the relevant facts in the returns of income for the years under consideration amounted to a failure on the
part of the assessee to disclose fully and truly all material facts. The Tribunal has given a go-by to the resolution of the trustees by which the right to
remuneration was given up and to the fact that no remuneration was actually received and in earlier years, it had been held that no assumed
remuneration was taxable in the hands of the assessee.
8. In Jagdish Prasad v. CIT [1976] 104 ITR 214 , a Division Bench of this court held that where the Income Tax Officer had become aware of all
the material facts, failure on his part to take necessary action could not result in escapement that could be attributed to any default on the part of
the assessee and, therefore, initiation of action u/s 34(1)(a) of the 1922 Act was not permissible. Reliance was placed on a judgment of the
Supreme Court in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , in which the Supreme Court
had held that once all the primary facts were before the assessing"" authority, it was for him to decide what inferences of facts could reasonably be
drawn and what legal inferences had ultimately to be drawn. It was not for anybody else--far less the assessee--to tell the assessing authority what
inferences, whether of facts or law, should be drawn.
9. In Gemini Leather Stores Vs. The Income Tax Officer, ''B'' Ward, Agra and Others, , though the assessee did not disclose certain transactions
evidenced by certain drafts, the officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by
certain bank drafts to tax as the income of the appellant. Subsequently, the Income Tax Officer initiated action u/s 147(a) of the Income Tax Act,
1961, with a view to assess the amounts as the appellant''s income from undisclosed sources. The Supreme Court held that in such circumstances
action u/s 147(a) could not be taken, In our view, therefore, the question of taxability of the assumed amount of remuneration having been thrashed
out in the earlier assessment years and there being no change in the circumstances, it was not necessary for the assessee to disclose any fact in the
assessment proceedings for the years under consideration and it could not be said that the. assessee failed to disclose fully and truly any material
fact necessary for the assessment of the disputed income. Therefore, the reopening of the assessment by recourse to Section 147(a) of the Income
Tax Act, 1961, was not permissible and the Appellate Assistant Commissioner had rightly held that the action taken by the Assessing Officer was
without jurisdiction.
10. For the above reasons, we answer the first question in the two references in the negative, i.e., in favour of the assessee and against the
Commissioner, and hold that the Income Tax Appellate Tribunal was not justified in holding that the Income Tax Officer was justified in initiating
reassessment proceedings u/s 147(a) of the Income Tax Act, 1961.
11. Question No. 2 is consequential and as a result of the answer to question No. 1, this question has also to be answered in the negative and we
answer the same accordingly holding that the Income Tax Appellate Tribunal was not justified in restoring the matter to the Appellate Assistant
Commissioner to decide on merits the question of includibility of the remuneration from Shervani Charitable Trust.
12. The references are answered accordingly.
13. An authenticated copy of this judgment be transmitted to the Appellate Tribunal for further action in accordance with law.