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Bankipur Club Ltd., Patna v. Cit, Bihar And Orissa, Patna .
Factual and Procedural Background
The assessee is a Members’ Club incorporated under the Indian Companies Act. For the assessment years 1956-57, 1957-58, 1958-59 and 1959-60 (corresponding accounting years 1955-1958) it filed “Nil” returns in response to notices under Section 22(2) of the Indian Income-tax Act, 1922 (“the Act”), asserting that receipts from members were exempt from tax. The Income-tax Officer (ITO) initially accepted this position.
Subsequently, the ITO issued notices under Section 34(1)(b) and reassessed the Club on the footing that amounts collected from members as “guest charges” constituted taxable income, assessing sums of Rs 7,526, Rs 3,521, Rs 5,313 and Rs 6,881 for the four years respectively.
The Club’s appeals to the Appellate Assistant Commissioner were dismissed, but the Income-tax Appellate Tribunal (ITAT) allowed the appeals, holding that the ITO lacked “information” subsequent to the original assessments and therefore could not invoke Section 34(1)(b). At the department’s instance, the ITAT referred three questions to the Patna High Court under Section 66(1) of the Act. The High Court answered all questions in favour of the department.
Two sets of appeals reached the Supreme Court: (i) Civil Appeals 2157-2160 of 1968, based on High Court certificates later held defective and therefore dismissed as non-maintainable, and (ii) Civil Appeals 1304-1307 of 1971, brought on special leave granted by the Court to challenge the same High Court judgment.
Legal Issues Presented
- Whether, for Assessment Year 1956-57, the ITO validly invoked Section 34(1)(b) when no new information had come to his knowledge after the original assessment.
- For Assessment Years 1957-58, 1958-59 and 1959-60:
- whether reassessment could be made when the ITO had passed no orders on the original returns, and
- whether, in any event, Section 34(1)(b) was properly invoked in the absence of subsequent information.
- Whether the High Court’s certificates, lacking reasons, could sustain Civil Appeals 2157-2160 of 1968.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Bidhu Bhusan Sarkar, AIR 1967 SC 916; (1967) 63 ITR 278 | Determines the validity of reassessment where no formal assessment order was passed on the original return. | The assessee conceded that Question 1 (relating to years 1957-58 to 1959-60) was governed by this precedent; the Supreme Court therefore declined to examine that question further. |
Court's Reasoning and Analysis
Addressing the questions concerning Assessment Year 1956-57 and the second question for the subsequent years, the Court observed:
- Section 34(1)(b) authorises reassessment only when the ITO receives information—whether of fact or law—after the original assessment.
- The ITO had already been fully apprised of the Club’s guest-charge receipts during the original proceedings; no additional facts or legal developments had emerged thereafter.
- No material was produced before the ITAT, the High Court, or the Supreme Court to show that the ITO had obtained any fresh information post-assessment.
- Consequently, the ITAT correctly held the reassessment notices incompetent; the High Court erred in reversing that finding without assigning reasons demonstrating the existence of new information.
Regarding Civil Appeals 2157-2160 of 1968, the Court ruled that High Court certificates unsupported by reasons are legally defective, rendering the appeals non-maintainable.
Holding and Implications
Civil Appeals 1304-1307 of 1971 ALLOWED IN PART. The Supreme Court set aside the High Court’s answers (a) for Assessment Year 1956-57 and (b) to the second question for Assessment Years 1957-58 to 1959-60, substituting answers in favour of the assessee. The High Court’s answer to Question 1 for the latter years, sustained by CIT v. Bidhu Bhusan Sarkar, remains undisturbed. Costs were awarded to the assessee.
Civil Appeals 2157-2160 of 1968 DISMISSED as non-maintainable, without costs.
Implications: The ruling re-affirms that reassessment under Section 34(1)(b) demands post-assessment information; mere reappraisal of existing facts or law is insufficient. While no new precedent is set, the judgment reinforces existing jurisprudence and provides direct relief to the assessee for the affected assessment years.
K.S Hegde, J.— There are two sets of appeals in this case both arising from the same judgment. The first set of appeals came to be filed under the following circumstances:
2. Civil Appeals Nos. 2157-2160 of 1968 were brought to this Court on the strength of certificates issued by the High Court of Patna. The High Court while granting those certificates did not give any reason in support of them. That being so, those certificates cannot be considered as having been given according to law. Hence the appeals brought on the strength of those certificates must be held to be non-maintainable. It is under those circumstances the assessee-appellant applied to this Court to grant special leave against the judgment of the High Court. We granted the special leave asked for. On the basis of the special leave granted by this Court Civil Appeals Nos. 1304-1307 of 1971 have been filed.
3. The assessee is a Members' Club incorporated under the Indian Companies Act. We are concerned with its assessment for Assessment Years 1956-57, 1957-58, 1958-59 and 1959-60 the corresponding accounting years being the calendar years 1955, 1956, 1957 and 1958.
4. In response to a notice issued by the Income Tax Officer under Section 22(2) of the Indian Income Tax Act, 1922 — to be hereinafter referred to as “the Act” the assessee filed “Nil” returns for all the four years. It claimed that it was not liable to pay income tax as it was a Members' Club. Before the Income Tax Officer the balance-sheets and profits and loss Accounts of the assessee for the relevant accounting years were produced. After perusing those records, the Income Tax Officer came to the conclusion that the assessee was not liable to pay any tax in respect of the amounts realised by it from its members. Sometime thereafter the Income Tax Officer issued notices to the assessee under Section 34(1)(b). In response to those notices the assessee again filed “Nil” returns but the Income Tax Officer did not accept those returns. He assessed the assessee for Assessment Years 1956-57, 1957-58, 1958-59 and 1959-60 on Rs 7,526, Rs 3521, Rs 5313 and Rs 6881 respectively. He came to the conclusion that the amounts received from the members of the Club as guests charges must be considered as the income of the assessee and that the same is liable to be taxed.
5. Aggrieved by the orders of the Income Tax Officer, the assessee took up the matters in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner affirmed the orders of the Income Tax Officer. A further appeal was taken by the assessee to the Income tax Appellate Tribunal. The Tribunal upheld the contentions of the assessee and came to the conclusion that the notices issued under Section 34(1)(b) were incompetent notices as the Income Tax Officer cannot be said to have received any information after he made the assessments in question.
6. At the instance of the department the Tribunal referred to the High Court, under Section 66(1) of the Act, one question relating to Assessment Year 1956-57 and two questions relating to Assessment Years 1957-58, 1958-59 and 1959-60. In respect of Assessment Year 1956-57, the question referred was:
“Whether on the facts and circumstances of these cases, the Tribunal erred in holding that the provisions of Section 34(1)(b) were not properly invoked and the re-assessment proceedings for the Assessment Year 1956-57 were invalid.”
In respect of the remaining assessment years, the questions referred are:
“(i) Whether on the facts and circumstances of these cases, the Tribunal was justified in holding that the re-assessments for the years 1957-58, 1958-59 and 1959-60 under Section 34 were invalid on the ground that the Income Tax Officer had passed no orders of assessment on the original returns? and
(2) Whether on the facts and circumstances of these cases, the Tribunal erred in holding that the provisions of Section 34 were not properly invoked and the re-assessment proceedings for Assessment Years 1957-58, 1958-59 and 1959-60 were invalid?”
7. The High Court answered all those questions in favour of the department. The learned counsel for the assessee did not challenge the correctness of the answer given by the High Court in respect of Question 1, relating to Assessment Years 1957-58, 1958-59 and 1959-60. He submitted that that question is concluded by the decision of this Court in CIT v. Bidhu Bhusan Sarkar. AIR 1967 SC 916, (1967) 1 SCR 685, (1967) 63 ITR 278 In view of that submission we do not propose to go into that question.
8. Now, coming to the question referred in respect of Assessment Year 1956-57 and the second question referred in respect of the subsequent years, the Income Tax Officer has not placed any material before the Tribunal to show that he received any fresh information either on questions of facts or on questions of law subsequent to the date he passed the original assessment orders. This Court has repeatedly ruled that the information referred to in Section 34(1)(b) must be what the Income Tax Officer receives after he makes the original order of assessment. It must come to his knowledge subsequent to the assessment sought to be reopened. In these cases it is submitted that all the facts were placed before the Income Tax Officer when he passed the original orders of assessment. The fact that the Club had received certain amounts as guests charges from its members had been placed before the Income Tax Officer. It is not the case of the Income Tax Officer that he did not come to know all the relevant facts when he made the original orders of assessment. It is also not his case that at the time he made those orders he was not aware of the true legal position. It was for the Income Tax Officer to show that he had received some information subsequent to his passing the original orders of assessment. No such material was placed before the Tribunal. That being so, the Tribunal, in our opinion, was right in holding that the Income Tax Officer was incompetent to initiate proceedings under Section 34(1)(b). The High Court has given no reason to come to the conclusion that there was any subsequent information on the basis of which the Income Tax Officer could have re-assessed the assessee under Section 34(1)(b).
9. For the reasons mentioned above, we allow Civil Appeals Nos. 1304-1307 of 1971 to the extent mentioned above, discharge the answer given in respect of the question relating to Assessment Year 1956-57 as well as the answer given to the second question relating to the subsequent years and answer those questions in favour of the assessee. The answer given by the High Court in respect of the first question relating to Assessment Years 1957-58, 1958-59 and 1959-60 stands. The assessee is entitled to its costs in these appeals in this Court. Hearing fee one set.
10. Now coming to Civil Appeals Nos. 2157-2160 of 1968 they are dismissed as not being maintainable. In these appeals, there will be no order as to costs.
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