IN HIGH COURT AT CALCUTTA Constitutional Writ Jurisdiction Original Side Present :- Hon ble Mr. Justice Md. Nizamuddin W.P. No. 719 of 2014 Calcutta Club Limited Vs. Income Tax Officer, Ward-12 (3), Kolkata & Ors. For Petitioner :- Mr. J.P. Khaitan, Sr. Adv. Mr. Prasanta Kr. Dutta, Adv. Mr. Agnibesh Sengupta, Adv. Mr. Susanta Kr. Dutta, Adv. For Respondent :- Mr. P.K. Bhowmick, Adv. Judgement On :- 14.02.2020 MD. NIZAMUDDIN, J. Heard Learned Counsel appearing for parties. petitioner has challenged initiation of impugned reassessment proceeding under Section 147 and notices dated 26th March, 2014 under Section 148 of Income Tax Act, 1961 relating to assessment years 2007-08 and 2008-09. issue required to be adjudicated in this Writ Petition is about legality of impugned proceeding initiated under Section 147 and notices under Section 148 of Income Tax Act issued after expiry of four years from end of relevant assessment year on basis of subsequent decision of Hon ble Supreme Court reversing legal position existing at time of passing of regular assessment under Section 143 (3) of Income Tax Act, 1961, and in absence of specific allegation by Assessing Officer against assessee about failure on part of assessee in disclosing fully and truly any material fact necessary for assessment as appears from recorded 1 reason for reopening of assessment under Section 147 of Income Tax Act, 1961. Facts in brief on perusal of relevant records available emerge hereunder. According to petitioner it is member s club and is registered as company limited under provisions of Section 25 of Companies Act, 1956 and its objects are to provide its members all useful privileges, advantages, conveniences and accommodation of club and it is case of petitioner that no person other than member or guest accompanied by member or his wife can use facilities of club and no outsider is permitted to use such facilities of club. Each member of club is member of company and each of company is member of club and there is complete identity between members of club and members of company. It is case of petitioner that member s club (not proprietor club) was excluded from taxation on principle of mutuality in relevant assessment years 2007-08 and 2008-09. petitioner contended that it filed its original return on 24th October, 2007 and on 19th September, 2008 for assessment years 2007-08 and 2008-09 respectively. petitioner being member s club filed revised return in respect of assessment year 2007-08 claiming that interest on fixed deposits with bank security deposits with CESC Limited aggregating to Rs. 65,17,692/- was outside purview of taxation on principle of mutuality. Assessing Officer passed assessment orders under Section 143 (3) of Income Tax Act on December 3, 2009 relating to assessment year 2007-08 and passed assessment order in respect of assessment year 2008- 09 on 30th December, 2010 accepting petitioner s claim of interest on fixed deposits and did not subject interest income of Rs.1,13,56,044/- to tax. On March 26, 2014 Assessing Officer issued notices under Section 148 of Income Tax Act, 1961, relating to assessment years 2007-08 and 2 2008-09 respectively by saying that he had reason to believe that income chargeable to tax has escaped assessment within meaning of Section 147 of Income Tax Act. petitioner by letter dated April 19, 2014 objected to aforesaid impugned notices under Section 148 and requested respondents for furnishing copies of recorded reasons and which were furnished to petitioner on June 2nd, 2014. It appears from recorded reasons by Assessing Officer that reopening of assessment of relevant assessment years are based on subsequent judgment dated 14th January, 2013, of Hon ble Supreme Court in case of M/s Bangalore Club -vs- Commissioner of Income Tax & Anr. reported in (2013) 350 ITR 509 (SC) holding that income earned by way of interest from corporate members of club is taxable income and does not come under ambit of mutuality principle, therefore, tax on said income should be paid and in view of aforesaid subsequent decision of Hon ble Supreme Court interest earned on deposits with Bank which were members of club was taxable and not covered by principle of mutuality and for aforesaid reason Assessing Officer stated that he had reason to believe that assessment was required to be reopened under Section 147 of Income Tax Act, 1961. Recorded reasons for reopening of assessment in respect of both relevant assessment years are almost same and one of which is hereunder: In instant case I.T. Return was originally submitted on 24.10.2007. Subsequently, assessee company filed revised return on 07.07.2008 showing total income at Rs. 10,11,926/-. return was duly processed u/s. 143 (1). Thereafter, order u/s. 143 (3) for A.Y. 2007-08 was passed in this case on 13.12.2009 assessing total income at Rs. 10,11,928/-. In meantime Hon ble Supreme Court of India has opined in its order in Civil No. 124 of 2007 (M/s. Bangalore Club vs. Commissioner of Income Tax), dated 14 January 2013 that income earned by way of interest from corporate members of Club is taxable income 3 and does not come under ambit of mutuality principle and therefore income tax should be paid. In instant case, scrutiny assessment for assessment year 2007-08 was completed u/s. 143 (3) of Act on 03.12.2009. From record it is seen that assessee has filed submission dated 25.11.2009 where by assessee has disclosed interest income of Rs. 65,17,692/- and at same time has considered as exempt income on basis of Principles of Mutuality concept. assessee has enclosed various judicial pronouncements to back his claim. These are (i) Chelmsford Club Vs CIT, Reported in 243 ITR page 89(SC), (ii) CIT Vs Beniapukur Club Ltd reported in 226 ITR page 97(SC), (iii) Full Bench decision of Patna High Court in case of CIT Vs Ranchi Club reported in 196 ITR page 137. assessee has stated that Hon ble Supreme Court has approved same in 226 ITR at page 97, (iv) ITAT, Rajkot Bench Vs Kahiwar Gymkhana & Community Hall reported in 78 ITD 130 (Rajkot), where Hon ble Tribunal has considered judgment of Ranchi Club Ltd. (supra). Jamshedpur Co-operative Stores Ltd Vs CIT (Patna High Court) reported in 157 ITR page 127, where Hon ble Patna High Court has considered judgment of Hon ble Supreme Court (supra). computation sheet contains note stating that return is being revised considering judgments of various H.C. and ITAT where it has been held that interest income of Club from deposits of Surplus Funds is exempt on Principle of Mutuality. Accordingly Bank FD interest and security deposit with CESC totalling to Rs. 65,17,692/- has been claimed as exempt income and shown in Schedule EI of ITS 6 at page 25. .. Therefore, in view of order passed by Hon ble Supreme Court, it is held that income of assessee has escaped assessment to tune of Rs. 65,17,692/- while passing order u/s. 143 (3) dt. 13.12.2009. Considering above facts, I have reasons to believe that case is required to be reopened u/s 147 of I.T Act 1961.) Factual and legal position as appears on perusal of relevant records including recorded reason and various judicial precedents relied upon by petitioner which were existing at time of passing assessment order under Section 143 (3) of Income Tax Act are as follows: 4 (i) impugned notices under Section 148 of Income Tax Act had been issued after expiry of 4 years from end of relevant assessment year. (ii) From recorded reason it appears that income in question claimed for exemption was already considered and allowed by Assessing Officer as exemption at time of assessment under Section 143 (3) of Income Tax Act, 1961 and it is not that information of alleged escaped income in question came to knowledge of Assessing Officer for first time subsequent to assessment passed under Section 143 (3) of Act. (iii) Nowhere in recorded reason Assessing Officer has specifically stated that there was any omission or failure on part of assessee in disclosing fully and truly material facts necessary for assessment under Section 143 (3) of Act. (iv) At time of passing assessment order under Section 143 (3) of Income Tax Act, 1961 it was settled legal position by various judicial precedents that income in question of petitioner was not liable to be taxed. Learned Counsel appearing for petitioner challenging initiation of impugned proceedings under Section 147 and notices under Section 148 of Income Tax Act, 1961, contends hereunder. Admittedly notices under Section 148 of Act for both assessment years were issued after expiry of four years from end of relevant assessment year and there is no specific allegation in reasons recorded reason that there was any failure on part of petitioner to disclose fully and truly any material fact necessary for its assessment. He contended that in order to reopen assessment made under Section 143 (3) of Act after expiry of four years from end of relevant assessment year, reasons recorded must allege that there was any failure 5 on part of assessee to disclose fully and truly material facts necessary for its assessment. Such allegation is necessary since it is condition precedent to assumption of jurisdiction. In absence of such allegation, reassessment proceedings have to be held as without jurisdiction. In support of his contention, has relied on following judgments: (a) Tantia Construction Co. Ltd. vs Deputy Commissioner of Income Tax, (2002) 343 ITR 84 (Cal); (b) Titanor Components Ltd. vs Assisstant Commissioner of Income Tax, (2012) 343 ITR 183 (Bom). He further contended that at time when petitioner s assessment was completed, law as declared by this Hon ble Court and some other High Courts was that such interest income was to be excluded from taxation. Even in December 2010 (the same month in which petitioner s assessment for assessment year 2008-09 was completed), Hon ble Delhi High Court in CIT vs Delhi Gymkhana Club Ltd., (2011) 339 ITR 525 (Del) took same view. Such view was squarely reversed by judgment of Hon ble Supreme Court in Bangalore Club s case (supra). He submitted that subsequent reversal of legal position by judgment of Hon ble Supreme Court does not authorise Department to reopen assessment, which stood closed on basis of law as it stood at relevant time. In such case, there cannot even be allegation of failure to disclose fully and truly any material fact necessary for assessment and in support of his contention has relied upon judgment of Hon ble Supreme Court in case of Deputy Commissioner of Income Tax vs Simplex Concrete Piles (India) Ltd., (2013) 358 ITR 129 (SC). Learned Advocate for petitioner contends that reliance of revenue on judgments of Hon ble Supreme Court in A.L.A. Firm vs CIT, (1991) 189 ITR 285 (SC), Income Tax Officer vs Saradbhai M. Lakhani, (2000) 243 ITR 1 (SC) and Maharaj Kumar Kamal Singh vs CIT, (1959) 35 ITR 1 (SC) and of 6 Hon ble Andhra Pradesh High Court in Little Angels Educational Society vs Income Tax Officer (2011) 336 ITR 413 (AP) are misplaced. All three decisions of Hon ble Supreme Court relate to reopening of assessment within period of four years on basis of information, being decision which came to notice of Assessing Officer subsequent to assessment. decision of Hon ble Andhra Pradesh High Court has also been relied upon for same proposition. He submitted that said principle will not apply where assessment is sought to be reopened after expiry of four years from end of relevant assessment year on basis of subsequent judgment of Hon ble Supreme Court reversing legal position and in such case Assessing Officer will have to establish failure on part of assessee to disclose fully and truly all material facts necessary for its assessment. No such allegation can be made where original assessment is made upon due consideration of facts and law on issues he wants to reopen assessment by simply on ground that there is subsequent reversal of legal position by Court. That is why Hon ble Supreme Court in Simplex Concrete s case (supra) held that reassessment proceedings initiated after expiry of four years were without jurisdiction. He submits that there is no conflict between judgments of Hon ble Supreme Court relied upon on behalf of revenue and decision in Simplex Concrete s case (supra). Judgments relied upon by Learned Counsel appearing for assessee/petitioner in support of aforesaid proposition of law are briefly referred hereunder. Relevant portion of judgment in case of Commissioner of Income Tax -vs- Delhi Gymkhana Club Ltd. reported in (2011) 339 ITR 525 (Delhi) which quoted hereunder. Admitted facts are that assessee company is running recreation club for its members. It has been claiming exemption of income earned from their members on basis 7 of doctrine of mutuality and by accepting this doctrine, assessee has been given exemption from paying income tax on income from their members. In assessment year which is in question, i.e., 2003- 04, question arose as to whether assessee would be entitled to claim exemption even in respect of income generated by investing surplus funds. case of assessee was that income from FDRs in bank, dividend income, income from Government securities and profit on sale of invest, etc. would also attract doctrine of mutuality and therefore, no tax was payable thereupon. Assessing Officer (AO) as well as Commissioner of Income Tax (Appeals) did not accept this submission of assessee. However, assessee succeeded before Income Tax Appellate Tribunal (hereinafter referred to as Tribunal ), as by impugned order dated 30.09.2009, Tribunal has allowed appeal of assessee holding that doctrine of mutuality shall apply even on aforesaid income. After hearing learned counsel for both parties at length, we are of opinion that aforesaid finding of Tribunal is correct on facts and in law, which does not call for any interference. . Relevant portion of judgment in case of Tantia Construction Co. Ltd. -vs- Deputy Commissioner of Income Tax & Ors reported in (2002) 257 ITR 84 (Cal) which quoted hereunder. But, in present case, reasons disclosed with affidavit-in-opposition admittedly only show escapement of assessment and that too according to explanation of law by apex court subsequent to assessment. There is no material that second requirement of failure on part of petitioner to disclose fully and truly any material fact, has even been alleged. Learned counsel for respondents relied on law as decided by apex court in case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 for showing that this court, at this stage of issuance of notice, is not to assess correctness or sufficiency of materials. But this contention cannot be accepted as at this stage not correctness or sufficiency of materials but very existence of allegation is being considered and that is within power of court when notice is challenged. 8 .............. But in present case respondents have failed to show that second condition was satisfied at all. Therefore, in such circumstances, I am of opinion that in absence of satisfaction of one of statutory requirements as contained in Section 147, notices impugned under Section 148 cannot be held to be valid as they were issued after expiry of four years from last date of concerned assessment year and there was assessment under Section 143(3) in respect of assessee. . Relevant portion of judgment in case of Titanor Components Ltd. -vs- Assisstant Commissioner of Income Tax, reported in (2012) 343 ITR 183 (Bom) which quoted hereunder. ........... Nowhere has Assessing Officer stated that there is any failure on part of assessee to disclosed fully and truly all material facts necessary for assessment. Having regard to purpose of section, we are of view that power conferred by Section 147 does not provide fresh opportunity to Assessing Officer to correct incorrect assessment made earlier unless mistake in assessment so made is result of failure of assessee to fully and truly disclose all material facts necessary for assessment. Indeed, where assessee has fully disclosed all material facts, it is open for Assessing Officer to reopen assessment on ground that there is mistake in assessment. Moreover, it is necessary for Assessing Officer to first observe whether there is failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such failure to proceed under Section 147. It must follow that where Assessing Officer does not record such failure he would not be entitled to proceed under Section 147. As observed earlier, Assessing Officer has not recorded failure on part of petitioner to fully and truly disclose all material facts necessary for assessment year 1997-98. What is recorded is that petitioner has wrongly claimed certain deductions which he was not entitled to. There is well known difference between wrong claim made by assessee after disclosing all true material facts and wrong claim made by assessee by withholding material facts fully and truly. It is only in latter case that Assessing Officer would be entitled to proceed under Section 147. We are supported in this view by decision of Division Bench of this Court in 9 Hindustan Lever Ltd. vs R.B. Wadkar, Asst. CIT (No. 1) (2004) 268 ITR 332 (Bom) where in similar case Division Bench held that reason that there was failure to disclose fully and truly that all material facts must be read as recorded by Assessing Officer and it would not be permissible to delete or add to those reasons and that Assessing Officer must be able to justify same based on material record. Division Bench observed as follows: He must disclose in reason as to which fact or material was not disclosed by assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between reasons and evidence. We find in circumstances that impugned notice is not sustainable and is liable to be quashed and set aside. Accordingly, writ petition is allowed in terms of prayer clauses (a) and (c). Relevant portion of judgment in case of Simplex Concrete Piles (India) Ltd. -vs- Deputy Commissioner of Income Tax & Ors reported in (2013) 358 ITR 129 (SC) which quoted hereunder. We see no error in observation made by Division Bench of High Court in impugned period of four years provided under Section 147/149 (1A) of Income Tax Act, 1961, (for short, Act ) expires then question of reopening by Department does not arise. In any event, at relevant time, when assessment order got completed, law as declared by jurisdictional High Court, was that civil construction work carried out by assessee would be entitled to benefit of Section 80HH of Act, which view was squarely reversed in case of CIT vs N.C. Budharaja and Co. reported in (1993) 204 ITR 412. subsequent reversal of legal position by judgment of Supreme Court does not authorise Department to reopen assessment, which stood closed on basis of law, as it stood at relevant time. Learned Counsel appearing for revenue opposing Writ Petition has defended and justified impugned action of reopening of assessment under Section 147 and issuance of notices under Section 147 of Income Tax Act, 1961. In its affidavit-in-opposition to Writ Petition respondents/revenue has simply denied allegations made in Writ 10 Petition and could not substantiate same with any material and it appears that there are bare denial of allegations made by petitioner in Writ Petition and have no answer to legal issues as well as admitted facts raised by petitioner in Writ Petition. respondents could not establish that alleged escaped income in question was not disclosed during course of original assessment proceeding or that it was not taken into consideration by Assessing Officer at time of passing of assessment order under Section 143 (3) of Act or that proceeding for reassessment under Section 147 of Act was initiated within four years or that recorded reason has specifically stated that there was any omission or failure on part of assessee to disclose fully and truly all material facts necessary for assessment in relevant assessment year. He also could not satisfy me by any provisions of law or any decisions that impugned proceeding of reopening of assessment under Section 147 of Income Tax Act, 1961 could be initiated beyond four years from end of relevant assessment year even in case where there is no omission or failure on part of assessee to disclose fully and truly all material facts necessary for relevant assessment years or that alleged escaped income was detected subsequent to assessment order and same was not within knowledge of Assessing Officer at time of regular assessment. Learned Counsel appearing for respondent also could not satisfy as to how subsequent decision of Hon ble Supreme Court reversing legal position existing at time of passing of assessment order can be called omission or failure on part of assessee to disclose fully and truly material fact necessary for relevant assessment and particularly in case where four years have expired from end of relevant assessment year. Learned Counsel for revenue simply defended and justified initiation of reassessment proceeding under Section 147 of Act and issuance of impugned notices under Section 148 of Act by reiterating recorded reasons for reopening of assessment by Assessing Officer. 11 Before coming to conclusion on legal issues involved in Writ Petition I would like to discuss following provisions of law which are relevant for adjudication for same: Section 149 (1) (b) of I.T. Act 1961 prescribes time limit for issue of notice. This section states that no notice under section 148 shall be issued for relevant assessment year (a) If four years have elapsed from end of relevant assessment year, unless case falls under clause (b) [or clause (c)]. (b) Clause (b) states that, if four years, but not more than six years, have elapsed from end of relevant assessment year unless income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Explanation to Section 149 (1) of I.T. Act 1961 provides that, In determining income chargeable to tax which has escaped assessment for purpose of this sub-section, provision of Explanation 2 of section 147 shall apply as they apply for purpose of that section. Sub-section (2) of section 149 provides that, that provision of sub- section (1) as to issue of notice shall be subject to provision of section 151 of Income Tax Act, 1961. Considering relevant provisions of I.T. Act 1961 as stated hereinabove, and as reference has been made to other provisions of act, it is pertinent to mention those sections, which are under:- In Explanation to section 149 (1) of Act, reference has been made to Explanation 2 to section 147 and applicability of same to said section. Before coming to Explanation to section 2 to section 147, provision of Section 147 with regard to income escaping assessment needs to be referred to. 12 Section 147 provides that, if Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of proceedings under this section. first proviso to section 147 states that, where assessment under sub-section (3) of section 143 or this section has been made for relevant assessment year, no action shall be taken under this section after expiry of four years from end of relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under Section 139 on in response to notice issue under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Considering submission of parties, relevant records, Provisions of law and decisions relied upon by parties, in my considered view impugned notices under Section 148 of Income Tax Act, 1961 and proceedings under Section 147 of Act are not sustainable in law and should be quashed for reason that admittedly impugned proceeding initiated under Section 147 and notices issued under Section 148 of Income Tax Act, 1961, which were issued after expiry of four years from end of relevant assessment year and in view of fact that there is no whispering in recorded reason that there was any omission or failure on part of assessee in disclosing fully and truly material facts for assessment and in view of fact that Assessing Officer could not establish that information of alleged escaped income was not within his knowledge and was not considered at time of passing of assessment order under Section 143 (3) of Income Tax Act, 1961 and it came to his knowledge subsequent to assessment order passed under Section 143 (3) of Income Tax Act, 1961 13 and that subsequent decision of Hon ble Supreme Court reversing legal position prevailing at time of regular assessment cannot be called omission or failure on part of assessee in disclosing fully and truly material facts necessary for relevant assessment. In view of discussion made above this Writ Petition is allowed and impugned proceeding under Section 147 and notices dated March 26, 2014 under Section 148 of Income Tax Act, 1961 are quashed. Accordingly this Writ Petition W.P. No. 719 of 2014 is allowed and there will be no order as to costs. Urgent certified photocopy of this judgment, if applied for, be supplied to parties upon compliance with all requisite formalities. (MD. NIZAMUDDIN, J.) 14 Calcutta Club Limited v. Income-tax Officer, Ward-12(3), Kolkata & Or