K.S. Paripoornan, J.@mdashAt the instance of the Revenue, the Income Tax Appellate Tribunal, Cochin Bench, has referred the following questions of law for the decision of this court :
"1. Whether, on the facts and in the circumstances of the case, and also in the light of the principle laid down in
(i) it cannot be said that there was any information which would justify the reopening of the assessment ;
(ii) it appears to be only a change of opinion on the part of the Income Tax Officer ;
(iii) no income had escaped assessment and for this reason also the reopening of the assessment cannot be sustained ;
(iv) the reopening of the assessment is not legally sustainable ?
2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction for gratuity at the rate of 8 --per cent. of the salary ?"
2. The respondent/assessee is a public limited company. We are concerned with the assessment year 1975-76. The assessee publishes a Malayalam daily and also periodicals. For the relevant assessment year, for which the accounting period ended on December 31, 1974, the assessee claimed a deduction of Rs. 3,39,873 being the actuarial valuation of the liability for payment of gratuity. In the original assessment, an amount of Rs. 93,024 was disallowed and the balance of Rs. 2,46,849 was allowed as deduction. The disallowance of Rs. 93,024 was affirmed by the Appellate Assistant Commissioner and by the Income Tax Appellate Tribunal. The order of the Appellate Tribunal is dated July 13, 1978. In the meanwhile, the Revenue audit pointed out, by a note dated August 12, 1977, that the contribution to a recognised gratuity fund is regulated by Rule 103 of the Income Tax Rules and so the allowance already made in the sum of Rs. 2,46,849 requires further appraisal. Thereafter, the Income Tax Officer found that the assessee was required to make only a contribution of five per cent. of the salary paid to the employees covered by the fund and on that basis only a sum of Rs. 1,66,930 could have been allowed as deduction. The deduction allowed was in excess of Rs. 79,919. The Income Tax Officer reopened the assessment on March 28, 1980, and made an addition of Rs. 79,919. In appeal, the Commissioner of Income Tax (Appeals) held that the reopening of the assessment was uncalled for in view of the decision of the Tribunal dated July 13, 1988, and that this was only a case where the audit took a different view of the matter and no "information" is involved to justify the reopening of the assessment. He also opined that the matter is governed by Section 40A(7) of the Income Tax Act, and deduction was allowable. The order of the Commissioner of Income Tax (Appeals) is dated October 8, 1982 (annexure-B). In further appeal by the Revenue, the Appellate Tribunal held that the gratuity trust was created in the year 1969 and the application for approval of the gratuity fund was filed before the Income Tax Officer on December 15, 1969. The instrument of trust and copy of the rules were also filed before the Income Tax Officer along with a covering letter dated March 11, 1970, and a copy of the application for sanction of initial contribution of 8.5 per cent. was filed before the Commissioner of Income Tax (Appeals) on November 5, 1973. On the basis of the above facts, the Appellate Tribunal found that the matter regarding the contribution to the approved gratuity fund was being considered by the Income Tax Officer every year since 1970-71, that the Income Tax Officer had all the relevant materials (including the trust deed) before him when he made the original assessment for this year (1975-76) and that, for reopening the assessment, it was only a case of change of opinion on the part of the Income Tax Officer, on the basis of what was pointed out by the Revenue audit, namely, that the deduction on account of gratuity liability should be confined to an amount worked out at five per cent. of the salary as per the gratuity trust deed. The Appellate Tribunal held that there was no information to justify the reopening of the assessment.
3. On the merits, the Appellate Tribunal held that, before the introduction of Section 40A(7) of the Act by Finance Act, 1975 (Act 25 of 1975), with retrospective effect from April 1, 1973, Section 36(1)(v) of the Income Tax Act along with Rule 103 of the Income Tax Rules, applied and after the introduction of Section 40A, the deduction should be worked out on the basis of Section 40A(7). Under the said provision, the admissible amount as defined in Explanation 1 is up to 8 1/3 per cent. and Section 36(1)(v) and Rule 103 will not apply. In this view, the deduction allowed in the original assessment was held to be correct and the Tribunal concluded that no income has escaped assessment and the reopening was not valid. Accordingly, the appeal filed by the Revenue was dismissed. It is, thereafter, at the instance of the Revenue that the questions of law, formulated hereinabove, have been referred for the decision of this court.
4. We heard counsel for the Revenue, Mr. P. K. R. Menon, as also counsel for the respondent/assessee.
5. Both sides placed reliance on the observations of the Supreme Court in
6. On hearing the rival pleas, we are of the view that the plea of the assessee should succeed. In its appellate order dated December 31, 1984, the Appellate Tribunal has dealt with the matter in paragraphs 4.4 and 5.4 rather elaborately. The Appellate Tribunal has observed thus in paragraph 4.4 :
"In the objections filed by the assessee on March 26, 1980, to the draft assessment order issued in connection with the reassessment, the assessee stated that the gratuity trust was constituted in the year 1969, that application for approval was filed before the Income Tax Officer on December 15, 1969, that the copy of the instrument of the trust and copy of the rules were also filed along with the application, that these have been acknowledged on December 17, 1969, and that the original deed was filed before the Income Tax Officer with the covering letter dated March 11, 1970, which was acknowledged on March 16, 1970. It is also stated in the letter that the copy of the application for sanction of initial contribution at 8.5 per cent. made before the Commissioner of Income Tax on November 5, 1973, was also filed before the Income Tax Officer and that the contribution to the approved gratuity fund was being considered by the Income Tax Officer year after year from 1970-71. These facts are not disputed by the Department."
7. In the light of the above facts, it is clear that the entire materials were before the Income Tax Officer when he made the original assessment. It is really a case where the contribution to the approved gratuity fund was being considered by the Income Tax Officer year after year since 1970-71 and the Income Tax Officer had before him the relevant copy of the trust deed, copy of the rules and also copy of the application for sanction of initial contribution at 8.5 per cent. when he passed the order for this year (1975-76). From the year 1970-71, the matter was being considered and allowed. The Income Tax Officer had all such relevant materials before him when he made the original assessment and held that the assessee was entitled to deduction not exceeding 8.5 per cent. It was only the audit which alerted the Income Tax Officer that the gratuity liability should be confined to an amount worked out at five per cent. of the salary, since it is regulated by Rule 103 of the Income Tax Rules.
8. In the light of the facts admitted by the Department (Revenue)--not disputed--it is evident that all the relevant materials were before the Income Tax Officer when he made the original assessment. He merely changed the opinion solely on the basis of the audit report. The Appellate Tribunal was justified in holding that there was no information which will justify the reopening of the assessment. The order of the Appellate Tribunal does not disclose any error of law. We are of the view that the decisions relied on by the Revenue have no application on the facts of this case. We hold so. This is a case of "mere change of opinion" on the same materials and so the officer was incompetent to reopen the assessment. (See
9. Even on the merits, the applicability of Rule 103 will arise only when deduction had to be allowed in conformity with Section 36(1)(v) of the Income Tax Act. After the introduction of Section 40A of the Act, Rule 103 of the Income Tax Rules will have no application. The claim for deduction has to be worked out solely u/s 40A(7) of the Act which came into effect from April 1, 1973, by the retrospective effect given to Act 25 of 1975. The Appellate Tribunal held so in paragraph 5.4 of the order. The Department has no case that the assessee has not satisfied the conditions 1 to 3 as envisaged by Sub-clause (ii) of Clause (b) of Sub-section (7) of Section 40A. The only question is that is the "admissible amount" as defined in Explanation 1 and the Appellate Tribunal held that it will be an amount which does not exceed an amount calculated at the rate of 8 1/3 per cent. of the salary of each employee. In this perspective, the Tribunal held that it will be incorrect to reduce the quantum of the "admissible amount" as defined in Explanation 1 by resorting to Rule 103. The said Explanation does not make any reference to the limitation imposed by Rule 103. We are of the view that the Appellate Tribunal was justified in holding so. So, even on the merits, the plea of the assessee was well-founded, as held by the Appellate Tribunal.
10. We, therefore, answer question No. 1 in the affirmative, against the Revenue and in favour of the assessee. We answer question No. 2 in the affirmative, in favour of the assessee and against the Revenue.
11. A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.
