Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the Income-tax Act 1961, we are concerned with the assessments under the Income-tax Act, 1961, for the assessment years 1961-62 and 1962-63, for which the relevant accounting periods ended on 31st March, 1961, and 3Ist March; 1962, respectively. The original assessment for the assessment year 1961-62 was completed on the 30th November, 1962, and thereafter the total income was revised under Section 34 of the Indian Income-tax Act, 1922, determining the assessee's total income as Rs. 4,18,59,438. While making the assessment, the Income-tax Officer had allowed development rebate of Rs. 2,21,48,873 against the development rebate reserve of Rs. 1,66,57,251. Similarly, for the assessment year 1962-63, the total income as per the original assessment was rectified under Section 154 of 1961 Act and revised under Section 250 determining the assessee's total income at Rs. 8,20,77,760. In this case also while making the assessment the Income-tax Officer had allowed development rebate of Rs. 28,79,361 against the creation of additional statutory reserve during this year to the, extent of Rs. 21,57,039. In the course of the proceedings for 1962-63, the Income-tax Officer found that the development rebate had been irregularly allowed inasmuch as there was unauthorised utilisation of statutory development rebate reserve account. The reasons for initiating the proceedings under Section 147(b) of the Income-tax Act, 1961, as mentioned by the Income-tax Officer in the assessment order, were as follows : "From the accounts for the year ended 31st March, 1962, it appears that the company transferred a sum of Rs. 3,32,88,081 from the development rebate reserve (statutory) to the general development reserve which included the reserve of Rs. 1,66,57,251 set aside in the accounts for the year ended 31st March, 1961, as mentioned above. From the general development reserve a sum of Rs. 7,19,013 was appropriated to the profit and loss account out of which dividend was declared."
(2.) The Income-tax Officer, accordingly, was of the opinion that the income had escaped assessment, as a consequence of development rebate having been wrongly allowed, and proceedings under Section 148/147{b) were started and reassessments for the assessment years 1961-62 and 1962-63 were completed, withdrawing the development rebate already granted. The Income-tax Officer considered it necessary to recall the development rebate as mentioned above because, (1) there was inadequate provision in the "statutory reserve account" and, (2) it had been utilised for a prohibited purpose, viz., declaration of dividend, etc. In his opinion, a portion of the development rebate reserve had found its way to the credit balance of profit and loss account which was ultimately used for declaration of dividend. This, according to the Income-tax Officer, constituted contravention of statutory provision which led him to believe that income chargeable to tax had escaped assessment. Thereafter, the assessee appealed against the above assessment orders. The Appellate Assistant Commissioner held that there was no basis or jurisdiction for the Income-tax Officer to re-open the assessments. According to him, the Income-tax Officer had no information in his possession which had given him jurisdiction to invoke the provisions of Section 147(b). The Appellate Assistant Commissioner, accordingly, annulled the assessment orders for the two years and restored the development rebates withdrawn.
(3.) There was further appeal by the revenue before the Income-tax Appellate Tribunal. The Tribunal, in the facts and circumstances of the case, held that the provisions of Section 147(b) were attracted. The Tribunal accepted in principle, however, the assessee's contention that the general development reserve was a free reserve and although a part of it consisted of transfer from the statutory development rebate reserve, any transfer from this free reserve to the revenue account did not, in any way, concern the taxation authority. In the above premises, the following question under Section 256(1) of the Income-tax Act, 1961, has been referred to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no legal justification for withdrawing the development rebate already allowed to the assessee for the assessment years 1961-62 and 1962-63.";