1. On this reference the assessee challenges an order of re-assessment made under Section 15 of the Excess Profits Tax Act.
2. It would appear that the assessee, which is a dealer in iron and steel, was assessed to excess profits tax on an income of Rs. 4,03,269 and the assessment order under the Excess Profits Tax Act was made on the February 17, 1943, and for the purpose of making this assessment the accounts of the assessee preferred an appeal to the Appellate Assistant Commissioner, its contention being that the Income-tax Officer was wrong in disallowing a sum of Rs. 98,126. In the course of the hearing of this appeal the appellate Assistant Commissioner forwarded the case to the income-tax Officer Mr. D. N. Dastur for a careful scrutiny of the books of account and in this connection Mr. Dastur made his report. At the time that the assessment order under the Excess Profits Tax Act was passed, the Income-tax assessment of the assessee was not completed and this assessment was completed by an order made on the March 24, 1947, and the assessment was made on income-tax not on the basis of the income of Rs. 4,03,269 as has been done under the Excess Profits Tax Act, but was made on the basis of the income of Rs. 13,99,095. This increased assessment was made on the basis of Mr. Dastur's report. On the October 1, 1946, a notice was issued to the assessee under Section 15 of the excess Profits Tax Act. Its assessment was reopened and it was assessed to excess profits tax on the income of Rs. 13,99,095 in place of the original assessment on the income of Rs. 4,03,269. It is this order of re-assessment under Section 15 that is being challenged by the assessee.
3. The first challenge to this order is made on the ground that the Appellate Assistant Commissioner should not have made a reference of the assessee's case to Mr. Dastur who was not seized of the assessment, and it is contended that the dealing by Mr. Dastur of the assessee's case offends against the provisions of the Section 54 of the Income-tax Act. Section 54 safe guards all disclosures made by an assessee in as confidential and it penalizes any public servant who discloses any such information. Now in asking Mr. Dastur to scrutinize the accounts of the assessee the Appellate Assistant Commissioner was not disclosing information to anyone outside the Income-tax Department. If there was any disclosure to Mr. Dastur, it was in connection with the assessment of the assessee. The disclosure which is safeguarded and protected under Section 54 is disclosure for purposes other than the income-tax proceedings. Reliance was placed in this connection on a decision of this Court in Dinshaw Darabshaw Shroff v. Commissioner of Income-tax. In that case Sir John Beaumont, Chief justice, and Mr. Justice Kania took a serious view of the fact that the Income-tax Officer when dealing with the assessment allowed the assessee's partner who was not concerned with the assessment to take part in the proceedings, and the Court took the view that in allowing the partner to be present a disclosure was made under Section 54 of the Act. It is difficult to understand what parallel can be drawn between the case that that Bench was considering and the case that is before us. Whereas the partner had nothing whatever to do with the assessment, Mr. Dastur was an Income-tax Officer who, although not seized with the assessment of the assessee, was asked to look into the accounts for the purposes of the assessment of the assessee. The further irregularity which was severely condemned by Sir John Beaumont and Mr. Justice Kania was the fact that while the assessment was going on and while the Income-tax Officer was questioning the assessee, his official superior was present at these proceedings and put questions to the assessee or put them indirectly through the mouth of the income-tax Officer who was conducting the inquiry, and the reason why this practice was condemned was that the assessment should be the result of the independent and unfettered judgment of the Income-tax Officer and not his judgment controlled by his superior officer. There is no suggestion in this case that the Excess Profits tax Officer, who ultimately assessed the assessee, allowed his judgment to be fettered by the report of Mr. Dastur. The position would have been different if the Excess Profits Tax surrendered his own judgment to the opinion formed by Mr. Dastur as to the merits of the assessee's case. As I shall presently point out, the Excess Profits Tax Officer drew the relevant and important information from the report of Mr. Dastur, but the ultimate assessment order which was passed was the order of the Excess Profits Tax Officer himself and not an order which was in any way influenced by the opinion formed by Mr. Dastur as to the merits of the case. Therefore, in our opinion, this decision which reliance has been placed does not in any way help the assessee. Further, there was nothing irregular in a reference having been made to Mr. Dastur to scrutinize the accounts of the assessee.
4. But the more serious contention that has been urged by Sir Jamshedji on behalf of the assessee is that there has not been a proper compliance with Section 15 of the Excess Profits Tax Act. Section 15 of the Excess Profits tax act is in terms similar to Section 34 of the Income-tax Act is it was before the recent amendment. Section 15, as Section 34, requires, as has been often pointed out, three conditions which have got to be fulfilled before the Excess Profits Tax Officer or the Income-tax Officer is empowered to re-open an assessment already made. There must be a discovery by him that assessment has escaped, or that the assessee has been under assessed, or that he has been the subject of excessive relief, and this discovery must be the result of definite information and this definite information must have come into his possession. The officer cannot act under this section even though assessment has escaped if he is acting on an information which was already in his possession. It must be an information which was not in his possession at the time when the original assessment was made, but an information which has subsequently come into his possession. It is also clear from the plain language of the section that what must come into the possession of the officer is information. Suspicion, opinion, or apprehension is not enough. Information must consist of facts which for the first time he is apprised of, as a result of which he discovers that there has not been a proper assessment.
5. Now if this be the true construction of Section 15, let us see whether it has been complied with on the facts of this case. Mr. Dastur's report, as the statement of the case points out, contained the following important facts : (1) Cash sales were made by the assessee at prices lower than those at which credit sales were made two or three days earlier or later. (2) Stock in account was found to have been undervalued. (3) There were cash credits in the accounts of a dozen non-resident ladies aggregating to Rs. 1,59,400 on which amounts no interest was allowed. (4) Accounts were found not to have been closed, i.e., balances had not been struck. There is a clear and explicit finding by the Tribunal that all these facts were fresh or new facts which came into the possession of the Excess Profits Tax Officer for the first time, as a result of which he made the discovery contemplated by Section 15. It is also clear from the record that all the books which Mr. Dastur inspected and scrutinized were not inspected by Mr. Killawalla who was the Excess Profits Tax Officer and who made the first assessment. Sir Jamshedji's contention is that the books of account were present before the first officer and all the facts which Mr. Dastur elicited from these books could have been elicited by the first officer, and therefore no fresh information came into the possession of the officer who decided to act under Section 34. That raises a very important question. Does Section 34 or Section 15 contemplate that if information could have come into the possession of the officer by due diligence, then although in fact he had no knowledge of that information for the purposes of these two sections it must be deemed that he had the information and he could not act on that information although in fact he came to know of it subsequently. In our opinion, the section does not and cannot bear that interpretation. 'Information' means something that the mind has acquired. The mere fact of the presence of a book before a person does not give him the information or the contents of that book unless he opens the book and reads it. According to Sir Jamshedji, the mere fact that a book was placed before an officer is sufficient to give him information of its contents. That may be constructive notice of the contents, but Section 15 does not deal with constructive notice. Section 15 deals with actual notice, and in order that an officer should be incapacitated from acting under Section 34 or Section 15 he must have actual knowledge of certain facts, which knowledge he is again using for the purpose of acting under those sections. If actual knowledge was absent - it is immaterial how that actual knowledge was absent - then when the actual knowledge does come about it confers jurisdiction upon the officer to act under those two sections.
6. Reliance has been placed on certain observation in certain cases by Sir Jamshedji in support of the proposition he has advanced and to which I have referred. A consideration of these authorities does not bear out that contention. The first is a judgment of our Court reported in Commissioner of Income-tax, Bombay v. Mahomed Yusuf Ismail. That was a case where one Income-tax Officer took a different view of the law from his predecessor, and the question that Sir John Beaumont and myself had to consider was whether a mere change of opinion of the law warranted the Income-tax Officer to act under Section 34, and it was in relation to these facts that certain observations were made by the learned Chief Justice and myself. Sir John Beaumont stated that in order to take action under Section 34, there must be some information as to a fact which leads the Income-tax Officer to discover that income has escaped assessment or has been under-assessed. The emphasis that was being placed by the learned Chief Justice was on 'fact' in contradistinction to 'opinion', and I also stated that the word 'discover' in Section 34 does not mean a mere change of opinion on the same facts or on a question of law, or the mere discovery of a mistake of law. Therefore, this decision does not in any way help the contention of Sir Jamshedji.
7. The other case which is relied on is a judgment of the Allahabad High Court, and that is reported in Kedar Nath v. Commissioner of Income-tax. That was the case of a Barrister who was also dealing in shares, and the Income-tax Officer first took the view that purchase and sale of shares was not the business of the lawyer. In that return the lawyer had shown losses and wanted to set off the losses against his income from his profession and other sources. After the assessment was closed, the subsequent Income-tax Officer issued a notice under Section 34 and took the view that the dealings of the lawyer in shares was his business and that according to him that business had yielded profits. As no proper books were furnished by the lawyer in respect of that business, the assessment was made on the basis of the best judgment assessment. It is in connection with these facts that certain observations were made by Mr. Justice Pathak, who heard the case along with Mr. Justice Braund. At page 233 Mr. Justice Pathak says :-
'In our view, a suspicion or a closer study of the facts which were gone into by the Income-tax Officer at the time of the original assessment or even a fresh investigation by him or by his successor would not bring the case within the purview of the section.'
8. It is clear from this observation that what the learned Judge was emphasising was a closer study of the same facts, facts which were already gone into by the Income-tax Office. It is true that in this case a closer study was made of the books of account by Mr. Dastur, but a close study of the books of account is not the same thing as a closer study of the facts which the books of account revealed. As I have pointed out earlier, there has been a definite finding by the Tribunal that the facts contained in Mr. Dastur's report are facts which were not present to the mind of the officer who first made the assessment. It is also pointed out that in this judgment Mr. Justice Pathak emphasises the fact that it does not appear from the assessment order what was the definite information which had come into the possession of the officer in order to enable him to act under Section 34, and Sir Jamshedji says that in the case before us also it is not clear from the orders made by the officer what was the information which had come into his possession. But it must be noted that in the Allahabad case a special point was made by Mr. Justice Pathak that the Income-tax Appellate Tribunal did not state as to what was the definite information on which the officer had relied. In our case, as I have stated before, there is a specific and clear finding by the Tribunal, not only that there was information with regard to fresh facts, but the Tribunal also points out what those fresh facts were, and as the Tribunal is the final fact-finding tribunal, we must accept that statement as appearing in the statement of the case.
9. Reliance was also placed on a judgment of the Patna High Court reported in Fazal Dhala v. Commissioner of Income-tax, Bihar & Orissa. That was a very strong case, and with respect the only conclusion that could be arrived at on those facts was the conclusion arrived at by the Patna High Court. It would appear that for the assessment year 1937-38 the assessee was assessed on the income of his Madras Branches after notice had been issued under Section 34. For the assessment year 1938-39 the assessment of the assessee was completed without taking into account the earnings of the Madras branches and again a notice had to be issued under Section 34 to include those earnings in the assessment. It was on those facts that the assessee contended that notice under Section 34 was untenable in law. The Court held that the Income-tax Officer, who had himself issued a notice under Section 34 with regard to the assessment of 1937-38, had in mind the existence of the Madras branches of the business, and not withstanding that fact he had not included the earnings of those branches in the assessment made by the officer, and therefore when he issued a notice under Section 34 no information had come into his possession. It is clear that information with regard to the Madras branches was already in the possession of the Income-tax Officer, and it could not be said that when he issued the notice under Section 34 for the assessment year 1938-39 he had made a discovery as a result of any definite information which had come into his possession. This case, therefore, does not carry the matter any further.
10. The short answer to Sir Jamshedji's contention is that mere possession of materials is not information. Information must be a knowledge or a mental awareness of the facts which are revealed by the materials, and if it is established - as it has been established in this case - that there was no awareness on the part of the Income-tax Officer of the various facts embodied in Mr. Dastur's report. Then when the mind of the subsequent officer became aware with regard to those facts he came in possession of those facts which led to the discovery contemplated by Section 34 or Section 15. In our opinion, therefore, the assessment was validly made under Section 15 of the Excess Profits Tax Act.
11. The result is that we must answer the question submitted to us as follows :-
Question (1) in the negative.
Question (2) in the affirmative.
12. Assessee to pay the costs.
13. Reference answered accordingly.