Ajit K.Sengupta, J. - (1.) At the instance of the Commissioner of Income-tax, the following two questions of law have been referred to this court under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1959-60 : 1. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessment proceedings under Section 147 (b) of the Income-tax Act, 1961, were infructuous and invalid ? Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,21,331 paid by the assessee for purchase of loom hours was a revenue expenditure deductible in the computation of the assessee's business income ?"
(2.) The facts of the case are that the assessee-company, Lansdowne Jute Company Ltd., was originally assessed to income-tax for the assessment year 1959-60. Later on, the Income-tax Officer believed that the assessee had wrongly claimed and been wrongly allowed depreciation and extra shift allowance on the entire complement of the looms. In fact, a certain number of looms being actually sealed did not work during the relevant year. The Income-tax Officer also found that the amount of Rs. 2,21,331 representing purchase price of loom hours, though in the nature of a capital expenditure, was wrongly allowed in the original assessment as a revenue expenditure. Accordingly, the relevant assessment was reopened under Section 147(b) of the Income-tax Act, 1961. It was contended before the Income-tax Officer that the looms were included in machinery purchased prior to April 1, 1949, and the break-up figures for looms could not be made available. The Income-tax Officer, however, disallowed a portion, that is, Rs. 476, out of the original amount of Rs. 7,616, allowed as depreciation. The ground for disallowance was that 12.5% of the looms were sealed and as such 1/8th of the depreciation was withdrawn after making certain calculation for non-availability of details. As regards the purchase of loom hours, the Income-tax Officer found it to be of a capital nature on the ground that the loom hours, though an intangible asset, formed part of the profit-making apparatus of the assessee-company. He further observed that the right to use the loom hours was a capital advantage, brought in by purchasing rights of an enduring character. It was also held by him that the loom hours constituted fixed capital assets of the business of the assessee-company and not circulating capital. It was also mentioned that the payment made in consideration of acquiring an opportunity to earn profits was not expenditure of a revenue nature. As a result, the sum of Rs. 2,21,331 was included in the reassessment order.
(3.) Being aggrieved, the matter was taken up in appeal before the Appellate Assistant Commissioner challenging the legality and the propriety of the reassessment proceedings on the ground that all the material facts required for raising an assessment were placed before the Income-tax Officer at the time of the original assessment. On his scrutiny of the records, the Appellate Assistant Commissioner found in the director's report relating to the assessment year that there was a mention of certain percentage of looms having been kept sealed in accordance with the working time agreement and the printed account submitted disclosed the purchase of loom hours claimed as a revenue expenditure, As the assessee-company claimed full depreciation in respect of its looms, though a certain percentage thereof was sealed, the Appellate Assistant Commissioner upheld the Income-tax Officer's action in reopening the assessment. But as regards the withdrawal of depreciation allowance originally allowed, he could not sustain the Income-tax Officer's action in view of a circular dated May 28, 1948, issued by the Central Board of Revenue. As regards the purchase of loom hours, he held that the addition was made on a mere change of opinion. As a result, the reassessment made under Section 147(b) was annulled by him as being infructuous and invalid.;