Skip to content


Commissioner of Income-tax, Bombay Vs. A.J. Zaveri - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 87 of 1962
Judge
Reported in[1968]68ITR594(Bom)
ActsIncome Tax Act, 1922 - Sections 34(1)
AppellantCommissioner of Income-tax, Bombay
RespondentA.J. Zaveri
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateS.P. Mehta, Adv.
Excerpt:
central provinces and berar municipalities act (ii of 1922), sections 48(1), 66(1) (b) - government of india act [25 & 26 geo. 5, ch. 42], section 142-a(2)--constitution of india, article 276--municipality enhancing rate of tax imposed under section 66(1)(b) and seeking to recover it in excess of amount specified in section 142-a(2) of government of india act--whether such act of recovery of tax can be regarded as having been done or purported to be done within section 48(1) of act ii of 1922.;the mere fact that the rate of taxes payable in respect of professions, trades, callings or employments prevailing before march 31, 1939, is varied or increased after that date cannot make the imposition of such taxes invalid as contravening the provisions of section 142-a(2) of the government.....v.s. desai, j.1. the questions raised on this reference relate to the validity of the proceedings of assessments under section 34(1) (a) for the assessment year 1952-53 and under section 34(1) (b) for the subsequent assessment year 1953-54 and are as follows : '(1) whether, on the facts and in the circumstances of the case, proceedings for the assessment year 1952-53 were validly initiated under section 34(1) (a) of the income-tax act ?' (2) whether, on the facts and in the circumstances of the case, proceedings for the assessment year 1953-54 were validly initiated under section 34(1) (b) of the income-tax act ?' 2. the facts briefly stated are as follows : the assessee, arvindrai jamnadas zaveri alias bhuta, purchased a running medical store run under the name of 'the mehta medical.....
Judgment:

V.S. Desai, J.

1. The questions raised on this reference relate to the validity of the proceedings of assessments under section 34(1) (a) for the assessment year 1952-53 and under section 34(1) (b) for the subsequent assessment year 1953-54 and are as follows :

'(1) Whether, on the facts and in the circumstances of the case, proceedings for the assessment year 1952-53 were validly initiated under section 34(1) (a) of the Income-tax Act ?'

(2) Whether, on the facts and in the circumstances of the case, proceedings for the assessment year 1953-54 were validly initiated under section 34(1) (b) of the Income-tax Act ?'

2. The facts briefly stated are as follows :

The assessee, Arvindrai Jamnadas Zaveri alias Bhuta, purchased a running medical store run under the name of 'The Mehta Medical Stores, Bhavnagar', on 30th June, 1949, from one Hiralal Vrajlal Metha, subsequent to the said purchase the assessee appears to have been assessed as the owner of this business for the assessment years 1950-51 and 1951-52. The return for the year 1951-52 was signed and submitted by Mr. Mehta, who was the son of the original vendor as the power of attorney agent of the assessee. This return was accepted by the department as a valid return and assessment was made on the assessee in respect of the income of the business called the Mehta Medical Stores. For the said assessment years 1950-51 and 1951-52, therefore, the Income-tax Officer had accepted the case of the assessee that he had purchased the medical stores from Vrajlal Mehta and had become the owner thereof. For the subsequent assessment years 1952-53 and 1953-54, with which we are concerned in the present reference, returns were filed by the assessee. The return for the first year was signed by Mehta as in the earlier year was as the power of attorney agent of the assessee and the return for the later year was signed by the assessee himself. In both these return the income received from the medical stores was offered for assessment as the assessee's income. The Income-tax Officer, however, took the view that the business of the Mehta Medical Stores really belonged to Hiralal Vrajlal Mehta and the income from the said stores, therefore, had to be assessed in the hands of Mehta. According to the Income-tax Officer, the alleged purchase of the said medical stores by the assessee was not a real and genuine purchase, which was intended to be acted upon. In the view that he took, the Income-tax Officer assessed the income of the Mehta Medical Stores in the hands of Mehta for both the year and made no assessments on the assessee, not even a protective assessment, stating that as the income was assessed in the hands of Mehta, no demand was made no assessments on the assessee, not even a protective assessment, stating that as the income was assessed in the hands of Mehta, no demand was made on the assessee. These assessments of the assessee with no demand were dated 31st January, 1953, and 31st December, 1953, respectively. Hiralal Vrajlal Mehta, who was assessed in respect of the income of the Mehta Medical Stores, preferred appeals against the orders of assessments made against him to the Appellate Assistant Commissioner. In the appeal against the assessment order for the assessment year 1952-53, the Appellate Assistant Commissioner confirmed the Income-tax Officer's action. Against the said appellate order Mehta preferred an appeal to the Income-tax Appellate Tribunal. This appeal was allowed by the Tribunal on the 6th February, 1956. The Tribunal held that the business belonged to Arvindrai Jamnadas Bhuta, that is, the present assessee, and directed that the addition of the income thereof in Mehta's assessment should be deleted. As a result of this decision of the Tribunal, the Appellate Assistant Commissioner in the appeal preferred by Mehta against the assessment order for the subsequent assessment year 1953-54, accepted Mehta's contention and allowed the appeal. The result of these appeals was that the income from the medical stores was deleted from the assessments of Hiralal Vrajlal Mehta for the assessment years 1952-53 and 1953-54. Having learnt of these decisions relating to the assessment of Mehta for the assessment years 1952-53 and 1953-54, the Income-tax Officer had reason to believe that the assessee's income for the said two years had escaped assessment and he, therefore, proceeded to take action against him under section 34(1). For the first year 1952-53, he took action under section 34(1) (a) on the ground that for the said assessment year the assesssee had failed to submit a return since the return which he had purported to submit for that year, having been signed by Mehta as the power of attorney agent, was not a proper and valid return. For the second year, viz., the assessment year 1953-54, he took action under section 34(1) (b) on the ground that in consequence of the information which had come in his possession he had reason to believe that the income of the assessee had escaped assessment. The assesee protested and questioned the maintainability and validity of the action of the Income-tax Officer in respect of these two years. He, however, filed the returns for the said years under protest. In the said assessment proceedings, it was contended by the assessee that action under section 34(1) (a) was not competent because he had not failed to submit a return and action under section 34(1) (b) was also not competent as no income had escaped assessment and also because the assessee having apprised the Income-tax Officer of all the facts and circumstances of the transaction of the purchase of the business from Hiralal Vrajlal Mehta at the time of the original assessment, there was no information, which had come in the possession of the Income-tax Officer subsequently which could lead him to believe that income of the assessee had escaped assessment. The Income-tax Officer did not accept these contentions. He held that there was no legal and valid return filed for the first year of assessment, viz., 1951-52, because the return purported to be filed by the assessee for the said year was invalid inasmuch as it was not signed by the assessee. According to the Income-tax Officer, therefore, action under section 34(1) (a) was competent for the said year. As to the subsequent year, his view was that the order of the Income-tax Appellate Tribunal in Mehta's appeal holding that the income from the medical stores was the income of the assessee and not of Mehta constituted information within the meaning of section 34(1) (b) justifying action to be taken under the said provision. In taking that view he sought to rely on the decision of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax The orders made by the Income-tax Officer were confirmed in appeal by the Appellate Assistant Commissioner. The appeal preferred by the assessee to the Tribunal, however, succeeded for both the years. The Tribunal held that the original return for the assessment year 1952-53, which was signed by Mehta as the power of attorney agent of the assessee, was accepted as a valid return by the Income-tax Officer, although in the assessment proceedings taken thereon he had that the assessment in respect of the income returned therein could not be made on the assessee. According to the Tribunal for the earlier year also viz., assessment year 1951-52, the assessee had filed a return in the same manner and that return had been accepted by the Income-tax Officer as a valid return and assessment actually made on the income returned therein. In view of these circumstances, the Tribunal took the view that it was not open to the department to contend that there was not return filed by the assessee for the relevant assessment year and proceed to take action against him under section 34(1) (a). As to the assessment under section 34(1) (b) for the subsequent year 1953-54, the Tribunal held that the action purported to be taken against the assessee under section 34(1) (b) was not in consequence of any information that had come into the possession of the Income-tax Officer subsequent to the original assessment but was the result of a change of opinion on his part. The Tribunal pointed out that for the year 1953-54 the income was returned by the assessee in respect of this business as his income he had apprised the Income-tax Officer of the entire facts and circumstances in regard to his purchase of the medical stores from Mehta and it was on a consideration of all the facts which were placed before him that the Income-tax Officer had held that it was the income of Mehta and not of the assessee. The Tribunal's decision to the contrary was also based on the same identical facts and constituted merely a different view of the facts taken by the Tribunal. In the circumstances, according to the Tribunal, the order of the Tribunal. In the circumstances, according to the Tribunal, the order of the Tribunal could not be said to have conveyed any information to the Income-tax Officer which was not already before him. According to the Tribunal, therefore, the action of the Income-tax Officer could properly be regarded as not in consequence of any information that had come to him but on his adopting a different view of the same facts, which were before him at the time of the original assessment. The Tribunal, therefore, was of the view that the Income-tax Officer was proceeding to take action on a change of opinion which he was not entitled to do under section 34(1) (b). It was contended by the department that the Tribunal's order itself was information within the meaning of section 34(1) (b) and reliance was sought to be placed in support of that submission on Maharaj Kumar Kamal Singh v. Commissioner of Income-tax. The Tribunal pointed out that the case before the Supreme Court was different from the case before them, inasmuch as the information in that case could be said to have reached the Income-tax Officer subsequent to the original assessment. In the case before them the information contained in the order of the Tribunal was already in the possession of the department when the original assessments were made. It pointed out that the information that the assessee was the proprietor of the said business was not information, which the Income-tax Officer had become aware of as a result of the decision of the Tribunal but, on the other hand, the said information was before him when he made the original assessment and even previously to that when he had made the assessment of the previous year, viz., 1951-52. According to the Tribunal, therefore, the Income-tax Officer was not justified in invoking his powers under section 34(1) (b) in respect of the assessment for the assessment year 1953-54. In view of these conclusions, the Tribunal allowed the assessee's appeals and thereafter at the instance of the department, it drew up a statement of the case and referred the two questions of law arising out of its order, which we have already set out, under section 66(1) of the Income-tax Act to this court.

3. So far as the first question is concerned, Mr. Joshi, learned counsel appearing for the revenue, has made no serious attempt to press the same. In view of the circumstances pointed out by the Tribunal, there can be no doubt whatsoever that the assessee could not be said to have omitted or failed to make a return of his income. It may be that the returns filed by him may not have been in strict compliance with the formalities. There is, however, no doubt that the irregularities, if there were any, in the filing of the said return, were ignored by the department and the same was accepted as a valid return on which further process of assessment could be gone into. It was not, therefore, possible for the department to treat it as no return or an invalid return so as to permit it to take action under section 34(1) (a). The first qeustion, therefore, will have to be answered in the negative.

4. Coming now to the second question, the material part of section 34(1) (b) of the Income-tax Act, 1922, as it stood at the relevant time was as follows :

'Notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed....... he may in cases falling under...... clause (b) at any time within four years of the end of that year, serve on the assessee..... a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or re-assess such income..... and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'

5. As pointed out by the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax two conditions must be satisfied before the Income-tax Officer can act under section 34(1) (b). He must have information, which comes into his possession subsequent to the making of the original assessment order and that information must lead to his belief that income chargeable to tax has escaped assessment, or has been under-assessed or assessed at two low a rate or has been made the subject of excessive relief. The question to be considered is whether two conditions have been satisfied in the present case. It may be pointed out straightaway that there is not much dispute as to the satisfaction of one of the conditions, viz., that income had escaped assessment. The income of the assessee from the medical stores for the assessment year 1953-54 was liable to tax and no assessment had been made of the same. The same income, however, was assessed in the hands of Mehta, but that assessment had been set aside by the decision of the Tribunal. The income, therefore, which was liable to assessment had in this process escaped assessment. It was sought to be argued that this is not a case of income having escaped, because the income was offered for the process of assessment and it was in the assessment proceedings that no assessment was made on it. It was not, therefore, a case of escapement from assessment but merely a case of no assessment and there is a distinction between a case of income escaping assessment and a case of no assessment. The argument, however, has not much substance in view of the decision of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax already referred to. One of the arguments that was urged in that case was that, where income has been duly returned for assessment and an assessment order has been passed by the Income-tax Officer, it cannot be said that any income has escaped assessment within the meaning of section 34(1). It was sought to be argued that, if income had been returned and subjected to the process of assessment, it cannot be said to have escaped assessment because a part of it has been erroneously held to be not liable to tax. This contention, however, was negatived by the Supreme Court and it was held that, even in a case where a return has been submitted and the Income-tax Officer erroneously fails to tax a part of the assessable income, it is a case where the said part of the income has escaped assessment.

6. What is seriously argued is whether there was information in the present case, which had come into the possession of the Income-tax Officer subsequent to his making the original assessment, which could lead to his belief that income had escaped assessment. It is urged by Mr. Joshi, learned counsel for the revenue, that the Tribunal's decision constitutes information. The decision of the Tribunal is subsequent to the making of the original assessment by the Income-tax Officer and that information is sufficient to lead him to the belief that income has escaped assessment. The argument of the learned counsel is that 'information' within the meaning of section 34(1) (b) may be information with regard to new or fresh facts or even information not with regard to the new or fresh facts, but with regard to the facts already on record. The information again, says the learned counsel, need not be confined to information as to facts but may even be information as to the true state of law. If a conclusion as to the legal effect of a statutory provision arrived at by the Income-tax Officer at the time of the original assessment is later on found to be erroneous by reason of a decision of a higher Tribunal, the decision would constitute information within the meaning of section 34(1) (b). Similarly, if a conclusion on a set of facts on record arrived at by the Income-tax Officer at the time of the original assessment is found to be wrong as a result of a decision of a higher Tribunal on the same set of facts, that would also constitute information within the meaning of section 34(1). In the present case the learned counsel has argued that it is no doubt true that in the original assessment the assessee had returned the income as his income, but the Income-tax Officer had erroneously taken the view that it was not the income of the assessee but the income of some other person. The result of the Tribunal's decision in the appeal preferred by the other person was that the income was not of the other person but of the assessee. This, according to the learned counsel, conveyed the information to the Income-tax Officer that he had committed an error in treating the income not as of the assessee but as of the other person. It was this information that he had committed an error, which was responsible for creating a belief in him that he had committed an error, which was responsible for creating a belief in him that the income had escaped assessment as a result of the said error having been committed by him. The information came in his possession when the Tribunal gave its decision in Mehta's assessment, which was subsequent to the original assessment made by him in the assessee's case. Since the information had come into his possession subsequently and was sufficient to lead him to the belief that income had escaped assessment, the required conditions of section 34(1) (b) were satisfied. In support of his submission, Mr. Joshi has invited our attention to some cases. He has, in the first place, referred us to Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, wherein it has been held that the word 'information' in section 34(1) (b) included information as to the true and correct state of law and so would cover information of relevant judicial decisions. Mr. Joshi has pointed out that in that case the argument advanced was that the relevant information meant information as to facts and could not include the decision of the Privy Council on a point of law. It was in the context of this argument that the Supreme Court held that a decision as to the true state of law would also amount to information. If a decision of the Privy Council or other higher Tribunal on the correct state of law would amount to information, there is no reason why a similar decision, on a set of facts, could also not amount to information. In the first case it is a declaration as to the true state of the law and, in the other case, it is a declaration as to the true state of facts. In either case, the declaration supplies information. Mr. Joshi, therefore, says that, although in the present case the decision of the Tribunal was as to whether the business belonged to Mehta or to Jheveri, its decision that it belonged to one and not to the other, did supply information to the Income-tax Officer whereby he could realise that the view that he had taken was wrong. The next case referred to by him was Jawaharlal Mani Ram v. Commissioner of Income-tax, which is a case decided by the Allahabad High Court. In that case a Hindu undivided family, which for some years was being assessed as such, claimed to have disrupted in May, 1945, into two smaller undivided families. A claim as to disruption was made under section 25A and for the years subsequent to the alleged disrupion, viz., the assessment years 1946-47 to 1949-50, returns were filed by the smaller Hindu undivided families of the entire income and the bigger Hindu undivided family had filed returns showing no income. The Income-tax Officer having disallowed the claim of disruption, assessed the bigger family for the entire income and did not make any assessment on the smaller family. In the appeals filed by the bigger family, the Tribunal reversed the Income-tax Officer's order disallowing its claim under section was 25A and directed the Income-tax Officer to make a fresh assessment. It was in pursuance of this decision of the Tribunal that the Income-tax Officer issued notice under section 34 against the smaller families and made fresh assessments on them for the four years, viz., 1946-47 to 1949-50. The smaller families contended that the assessments were invalid as they had made returns showing the income and, consequently, there was no information in consequence of which the Income-tax Officer could have formed the belief that income had escaped assessment and proceed under section 34(1) (b) of the Income-tax Act. It was held by the Allahabad High Court that a judgment of the Income-tax Tribunal or even of the Appellate Assistant Commissioner in an appeal from an assessment order taking a different view of the facts of the case constitutes information within the meaning of section 34. It was pointed out that on principle there could be no distinction in this respect between information derived from a judgment of the Privy Council rendered on appeal and that from an order of the Tribunal or from an answer given by the High Court in a reference or from an order recorded by the Appellate Assistant Commissioner against the assessment orders in the same assessment proceedings. It held that when the Tribunal in the case before it took the view that the claim of the assessee to portion should recognised with effect from 1945, it was information within the meaning of section 34 and proceedings could properly be taken under that section. The next case referred to by him was also of the Allahabad High Court in Raghunath Prasad Tandon v. Commissioner of Income - tax. In this case a karta of a Hindu undivided family had filed separate returns; one on behalf of the Hindu undivided family and the other as an individual and in the latter return he had shown the income by way of salary received by him from the undivided family. The Income-tax Officer was of the view that the income from salary shown in the individual return was also the income of the family and had to be assessed as the income of the Hindu undivided family. He, accordingly, included the said income in the income of the said Hindu undivided family and did not pass any order on the individual return as there was no other income returned therein. In the appeals preferred by the family, the Appellate Assistant Commissioner passed orders excluding the salary income from the income of the family and directing that the income was to be taxed as the income of the assessee as an individual. Consequent upon this decision of the Appellate Assistant Commissioner, the Income-tax Officer issued a notice under section 34 on the assessee as an individual and passed orders of assessment including the salary amount as income of the assessee as an individual. It was contended on behalf of the assessee that the notices could not be issued under section 34(1) (b) because they were not based on any information, which was not in the Income-tax Officer's possession previously. The contention was not accepted. It was pointed out that what gave jurisdiction to the Income-tax Officer was the possession of information about the income having escaped assessment. Possession of knowledge of a claim, it was observed, was not the same thing as possession of information. The learned judges pointed out that during the earlier assessment proceedings completed on September 30, 1955, the Income-tax Officer had in his possession the claim of the assesssee that he had earned the income but he did not believe the claim and thought that the income had been earned not by him but by the Hindu undivided family. He assessed the income as in the hands of the Hindu undivided family. Consequently, it was not then a case of income escaping assessment and there could be no question of his being then in possession of information about its having escaped assessment. This information was acquired by him later, when he received a copy of the Appellate Assistant Commissioner's order. It was through this order that he learnt that the incomes were really of the assessee and that they had escaped assessment on account of the Appellate Assistant Commissioner having reduced the assessable income of the Hindu undivided family. The income escaped assessment in consequence of the order of the Appellate Assistant Commissioner and it was only after the order was passed that the Income-tax Officer could possibly have any information of the income having escaped.

7. It would be seen from these two decisions, which Mr. Joshi has cited, that information within the meaning of section 34(1) (b) may even consist of a different view taken of the facts on record by a higher Tribunal resulting in the escapement of assessment, and a decision of the appellate authority as to which assessable entity is chargeable may constitute information within the meaning of section 34(1) (b).

8. In R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax which is a case of this court, referred to by Mr. Joshi, there were two firms which had four common partners. In the first firm the four partners were brothers and the minor members of the family were admitted to the benefits of the partnership. In the other firm the said four brothers and a fifth stranger were partners, the four brothers together being entitled to 8 annas share and the stranger to the remaining 8 annas share. Moneys were lent by the former firm to the latter and interest on the loans was received by it. In their returns both had shown the amounts of the interest, the former firm showing it as interest received by it and the latter showing it as interest paid and claiming deduction in respect thereof. In the assessment of the second firm, which was made first, the Income-tax Officer disallowed the claim made by the firm for the deduction of the amount on the ground that it was interest paid to partners. In view of that conclusion, in the assessment of the former firm for the amount was not subjected to tax. Now, in the appeal, which the latter firm took to the Tribunal, the Tribunal held that the two firms were different from each other and the payments made of its partners and the amount, therefore, was deductible in assessing the latter firm. A notice thereafter was issued under section 34(1) (b) to the former firm for assessment of the said amount of interest on the ground that it had escaped assessment. It was contended on behalf of the assessee that the fact that a Tribunal sitting in Judgment over the assessment of the other firm altered the order of the Income-tax Officer and held that the amount was paid not to the partners but to the assessee-firm did not amount to information in his possession so far as the Income-tax Officer was concerned nor could it be said that in consequence he had 'reason to believe' that the income had escaped assessment. The contention was not accepted and it was held that the altered situation as indicated by the order of the Tribunal showing the true relationship between the assessee-firm and gave information to the Income-tax Officer upon which he could have reason to believe that the assessee-firm had not been assessed on this item or had been under-assessed. Alteration of the legal position of an assessee-firm in consequence of an order passed in an ancillary proceeding of another firm having common partners would itself constitute information within the meaning of section 34(1) (b).

9. Mr. Joshi argues that the question as to whether the two firms were distinct and different was a question to be determined on the facts of the case and the decision of the Tribunal with regard to the correct position vis-a-vis the two firms was a conclusion on the state of facts. Mr. Joshi has, therefore, argued that a mere circumstances that the facts were before the Income-tax Officer at the time of the original assessment is not sufficient to say that the different conclusion arrived at on the facts by the higher Tribunal resulting in the escape of assessment did not constitute information within the meaning of section 34(1) (b) fo the Act.

10. In Commissioner of Income-tax v. Malegaon Electricity Co. Pvt. Ltd. which was a case of this court, it was held that, although the essential fact could have been ascertained by correlating the various documents on record, working on them, making arithmetical calculations and thus ascertaining the resultant position, the mere failure on the part of the Income-tax Officer to correlate these various materials could not entitle the assessee to claim that assessment could not be reopened under section 34(1) (b). In that case, some time after completing the original assessment of the assessee, the Income-tax Officer realised that profits falling within the ambit of section 10(2) (vii) had not been assessed and he started proceedings against the assessee company under section 34 of the Act. He found that the profits made by the assessee-company under section 10(2) (vii) as result of the sale transaction amounted to Rs. 4,88,386 and setting off the unabsorbed depreciation carried forward upto the date of sale, he determined the total income of the assessee-company at Rs. 4,48,893. The assessee-company contended that all primary facts regarding the sale of the assets of the assessee-company were placed before the Income-tax Officer; and the question whether, out of the transaction, profits taxable under section 10(2) (vii) arose or not was a question of merely an inference to be drawn from these primary facts; and if the Income-tax Officer had failed to draw the proper inference, that could not be a good reason for reopening the assessment under section 34(1) (a) of the Act. The department contended that there had not been a full and true disclosure of all material facts necessary for the assessment of the assessee and, consequently, action under section 34(1) (a) was justified under section 34(1) (a), it was clearly justifiable under section 34(1) (b). We are not here concerned with the first part of the argument, which related to the application of section 34(1) (a). With regard to the latter part, namely, that action was justifiable under section 34(1) (b), it was contended on behalf of the revenue that the expression 'in consequence of information coming into his possession, the Income-tax Officer has reason to believe that income, profits or gains chargeable to income-tax has either escaped assessment or has been under-assessed' permits the Income-tax Officer on a re-examination of the material on record to come to the conclusion that income chargeable to tax has escaped assessment and such a conclusion would amount to information within the meaning of section 34(1) (b). Counsel for the assessee, on the other hand, argued that 'information' contemplated by section 34(1) (b) must be some new information, which was not already there on record. At any rate, the information must be from an extraneous source and de hors the record. In support of his submission the learned counsel for the revenue relied on the case of the Madras High Court in Commissioner of Income-tax v. Rathnasabapathy Mudaliar. In that case there was partition between a Hindu father and his sons, one of whom was a minor and the business carried on by the father was continued by a firm consisting of the father and his major sons, to the benefits of which the minor son was also admitted. The partition was recognised by an order under section 25A and the firm was also registered for the purposes of income-tax. In his return, the father did not include the income of the minor son from the minor's share in the firm and an assessment was made on the father's income without including in it the minor's income. The minor included his income in his own return and was assessed on this income. Subsequently, the Income-tax Officer discovered that he had committed an error and made a reassessment under section 34 including the minor's income in the father's total income was 'information' within the meaning of section 34(1) (b), and the Madras High Court held that the realisation of the mistake was 'information' obtained by the Income-tax Officer after completing the original assessment within the meaning of section 34(1) (b) and it was, therefore, competent to the Income-tax Officer to initiate reassessment proceedings under section 34(1) (b). The ratio of the decision was that, even if on reconsideration of the material on record the Income-tax Officer realises, subsequent to the original assessment, that he had committed an error, which has resulted in the escapement of tax or under-assessment, that amounts to an information within the meaning of the section. This court was not prepared to go to that extent, and observed that the view taken in that case would virtually mean that section 34(1) (b) confers a power on the Income-tax Officer enabling him to correct his own mistakes by reviewing his own decision on the same set of facts, which are clearly patent on the record. However, after considering the Supreme Court case in Maharaj Kumar kamal Singh v. Commissioner of Income-tax, this court took the view that since the factual position as to whether the transaction of sale had resulted in the assessee obtaining a price for building, machinery and plant in excess of the written down value had not been clearly stated on the record, and the information that the sale price of these items was in excess of the written down value could not be said to be patently available to the Income-tax Officer, it could not be said that the Income-tax Officer had knowledge at the time when he made the original assessment that the price fetched in respect of the said items of assets had exceeded the written down value. The said knowledge had been subsequently obtained by the Income-tax Officer on correlating various facts and ascertaining the resultant position after the completion of the original assessment. Thus, the knowledge as to the correct position of factual matters had been obtained by the Income-tax Officer subsequent to the completion of the original assessment and that, it was held, amounted to information within the meaning of section 34(1) (b).

11. The last case referred to by Mr. Joshi is a Madras decision reported in E. A. Venkataramier & Sons v. Commissioner of Income-tax. The material facts of that case were that certain credits found in the name of the lady partner in the books of the firm were excluded from the assessment of the firm but assessed in the hands of the husband of the partner. On appeal the Tribunal deleted the amount from the assessment of the husband but directed such assessment on the firm. The Income-tax Officer reopened the assessment of the firm under section 34(1) (b) for inclusion of these credits. It was contended that it was not a case of information having come in possession of the Income-tax Officer leading him to the belief that income had escaped assessment but a mere change of opinion. It was held that the error found by a higher forum in the factual conclusion of the officer at the initial stage on the same facts can be considered to be 'information' within the meaning of section 34(1) (b) of the Indian Income-tax Act, 1922, and, consequently, the order of the Tribunal deleting the amounts from the assessment of the husband was information within the meaning of section 34(1) (b) justifying the reassessment.

12. The result of the cases discussed by us could be stated thus :

'Information' within the meaning of section 34(1) (b) does not necessarily imply any new facts or new material. Information may be as to a fact but the word also includes information as to the true state of law. The conditions that are required to be satisfied are that the information must come in the possession of the Income-tax Officer subsequent to the original assessment and it must lead him to the belief that income has escaped assessment. What would constitute information would even be a decision of an appellate authority under the Act on the question as to which assessable entity is chargeable in respect of a particular income. In the present case before us, the Income-tax Officer had at the time of the original assessment, on the facts before him, taken the view that the income though claimed by the assessee as his income was in fact the income of Mehta. He accordingly included it in the assessment of Mehta and brought it to tax. It was later on that the Tribunal's decision revealed that in so doing the Income-tax Officer had committed an error inasmuch as he had assessed the income in the hands of the wrong person, with the result that it had escaped from being assessed in the hands of the proper person. The decision of the Tribunal, in the present case, constituted information to the Income-tax Officer as to which of the assessable parties was chargeable for this income and constituted information within the meaning of section 34(1) (b).

13. Mr. Mehta for the assessee has argued that this view of what may constitute information may lead to the reopening of an assessment under section 34(1) (b) on a mere change of opinion. Mr. Mehta says that the view taken by the Tribunal on the same facts was only a different view on the same set of facts, which were before the Income-tax Officer, and in adopting the said view and proceeding on that basis, the Income-tax Officer was doing nothing more than proceeding on a change of opinion. Whether the view on the same set of facts on which he wanted to proceed for the purpose of reopening the assessment, was his own view or the one which he adopted from the diocesan of the Tribunal, did not make any difference. The contention that a conclusion of the Tribunal, did not make any difference. The contention that a conclusion of the Tribunal or the higher authority on the same set of facts, which is different from the conclusion arrived at by the Income-tax Officer, does not constitute information is sought to be supported by the learned counsel on the basis of an reported judgment of this court in Commissioner of Income-tax v. Zy Khatib. The facts of the case were that the assessee was assessed to tax as an individual and the firm in which he was a partner was also assessed to tax. In the books of the firm there was an account of the assessee and in that account a sum of Rs. 1,02,118 stood to the credit of the assessee. The Income-tax Officer took the view that this represented the concealed income of the firm and assessed the firm to tax on that amount. When the matter went before the Tribunal, it expressed the opinion that there was no information to hold that the surplus credit in the assessee's account was the income of the assessee-firm although there may be good grounds for treating the surplus credit as the income of the assessee himself. The Income-tax Officer thereupon proceeded to take action against the assessee under section 34 to reassess the said amount as the escaped income of the assessee and the question that arose for decision was whether the Income-tax Officer had any definite information which alone would entitle him to act under section 34 of the Act. It may be pointed out that the decision was under section 34 as it stood after the amendment of 1939 and before the amendment of 1948. This court took the view that the opinion expressed by the Tribunal as to the liability of the assessee was not information at all much less definite information and consequently the Income-tax Officer was not entitled to proceed under section 34. In our opinion, this case would not help Mr. Mehta in support of the submission, which he has made before us. It may be pointed out that there was no decision or conclusion of the Tribunal in this case on the state of the facts, which were necessary for the decision of the case. The firm had complained about the inclusion of the amount in its income and the Tribunal had held that there was no evidence showing that it was the income of the firm. The casual observation of the Tribunal in the course of its order that there may be good grounds for treating the surplus credit as the income of the assessee himself was nothing beyond a mere expression of an opinion and did not constitute information within the meaning of section 34(1) (b). It was neither necessary for the Tribunal in that case to hold whether it was the income of the assessee, not had it in fact held it so. We do not, therefore, think that this case would help Mr. Mehta in urging the submission that a conclusion of a higher Tribunal on a conclusion of fact different from that arrived at by the Income-tax Officer on the same set of facts would not constitute information but merely a change of opinion. Mr. Mehta has then urged that in order that section 34(1) (b) my apply, the information must have come into the position of the Income-tax Officer subsequent to the original assessment. In the present case, he says, the information which the Tribunal's decision could be said to have conveyed to the Income-tax Officer is that the income in question was the income of the assessee, but this would not constitute any information which had come in the possession of the Income-tax Officer subsequent to the original assessment, because at the very firms stage when the return was filed by the assessee, he had disclosed the income and claimed the income as his own. In the present case, he says, the information which the Tribunal's decision could be said to have conveyed to the Income-tax Officer is that the income in question was the income of the assessee, but this would not constitute any information which had come in the possession of the Income-tax Officer subsequent to the original assessment, because at the very first stage when the return was filed by the assessee, he has disclosed the income and claimed the income his own. In the present case therefore, at any rate, says Mrs. Mehta, the requirement of section 34(1) (b) was not satisfied inasmuch as the information, on the basis of which the reassessment proceeding is sought to be initiated, had not come into the possession of the Income tax Officer subsequent to the original assessment.

14. We are not inclined to accept this submission. It is no doubt true that the assessee had claimed the income as his own in the original assessment. The Income-tax Officer, however, s had not accepted the said claim and, contrary to the said claim, had come to the conclusion that the income was not of the assessee but of Mehta. In other words, the facts accepted by the Income-tax Officer on which he proceeded, were not the facts as alleged by the assessee, but as found by him, and according to him, the true factual position was that the income belonged to Mehta and not to the assessee. On that basis, he had assessed the income in the hands of Mehta and had not assessed it in the hands of the assessee. The Tribunal in the appeal preferred by Mehta, on the facts which had already been considered by the Income-tax Officer, held that the income truly belonged to the assessee and did not belong to Mehta and could not, therefore, be assessed in the hands of Mehta. In other words, according to the Tribunal, the Income-tax Officer had committed an error in holding that the income belonged to Mehta and not to the assessee. The information conveyed by this decision to the Income-tax Officer was that he had erred in holding that the income belonged to Mehta and not to the assessee, and in consequence of his error he had allowed to the income of the assessee top escape assessment. It is the information as to the error committed by him, which had resulted in the escarpment of income from assessment, which is the information under section 34(1) (b) entitling the Income-tax Officer to initiate proceedings under section 34 of the Act. The mere circumstance that the facts were disclosed in the original assessment is not sufficient to take away the application of section 34(1) (b), if on the facts the Income-tax Officer had erroneously allowed a part of the income to escape assessment and has subsequently come to realise his error as a result of a decision of the higher Tribunal pointing out the said error.

15. Mr. Mehta has then argued that the view that we are taking would lead to the Income-tax Officer's reopening the assessments under section 34(1) (b) merely on a change of opinion treating the earlier view taken by him as erroneous and making he realisation of the error on his part as constituting information for the purpose of commencing reassessment proceedings. The question as to whether the Income-tax Officer, on a change of his opinion, may be entitled to reopen the assessment under section 34(1) (b) was framed in Mahraj Kumar Kamal Singh v. Commissioner of Income-tax which was decided by the Supreme Court. The Supreme Court, however, did not decide the said question and left it open. There has been different views on the question in different High Courts and in some of them the view has been expressed that the Income-tax Officer would be entitled to do so. This court, however, has not been prepared to go so far and has been always inclined to take the view that a mere change of opinion on the part of the Income-tax Officer or by his successor in office will not amount to information within the meaning of section 34(1) (b) entitling him to repent the assessment. Our decision in the present case does not travel any further for what we are holding in this case is that a decision of a higher Tribunal as to the correct factual or legal conclusion would constitute information within the meaning of section 34(1) (b). We need not, therefore, further consider Mr. Mehta's apprehension that the view that we are taking may lead top the reopinion of the assessment under section 34(1) (b) on a mere change of opinion.

16. In the result, therefore, the second question will have to be answered in the affirmative.

17. We, accordingly, answer the first question referred to us in the negative and the second question in the affirmative. The assessee will pay the costs of the department.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //