1. This is a reference under section 66 (1) of the Indian Income-tax Act, 1922, and at the instance of the Commissioner of Income-tax, Bombay City II, Bombay, the following question has been refereed to us for our opinion :
'Whether, on facts and in the circumstances of the case, could it be said that the Income-tax Officer had validly reopened the assessment for the assessment year 1957-58 under section 34 (1) (b) ?'
2. The short facts giving rise to this question may be stated : The question relates to the assessment year 1957-58, the accounting year of which was the year which ended on 31st January, 1957. One Maganlal Dahyabhai left will dated 5th July, 1943, in respect of his estate under which he appointed his wife, Smt. Savitagouri, and three others as executors and trustees to manage the estate and to administer it till the residue was handed over to the beneficiaries mentioned therein. The sources of income for the estate were property income, interest on securities, dividends and interest from other sources. The original assessment for the assessment year 1957-58 was completed by the Income-tax Officer on 3rd February, 1958, in such manner that he assessed the property income alone in the hands of Bai Savitagouri an the three trustees in the status of 'association of persons' and allocated the balance of the income from other sources amongst the beneficiaries. Consequently, tax was demanded in respect of the property income alone from the trustees, whereas in regard to the balance, the beneficiaries were called upon to pay the tax. In appeal, which was preferred by the assessee, the Appellate Assistant Commissioner held that section 41 was attracted inasmuch as the trustees had received the income-tax Officer to tax the entire income derived from the estate of the deceased in the hands of the trustees and to levy tax on them in the like manner and to the same extent as it would be leviable upon and recoverable from the beneficiaries on whose behalf such income was receivable. The Income-tax Officer, accordingly, carried out the directions of the Appellate Assistant Commissioner.
3. Later on, another Income-tax Officer, while dealing with the assessment for the assessment year 1961-62, realised that under clause 9 (f) of the will, the sons, who were the beneficiaries, were to get life interest in the trust property, that is to say, they were to enjoy the surplus of the rents out of the trust property during their lifetime. But this life interest was to arise only when the last son would attain the age of 21 years. On inquiries the Income-tax Officer learnt that the testator had left two minor sons, four daughters, and a wife, Bai Savitagouri, and that that the younger son, Mahendrakumar, was to attain the age of 21 on 14th September, 1964. It was, therefore, clear to him that there was no beneficiary in the intervening period upto 14th September, 1964, and hence section 41 of the Income-tax Act need not come into operation till then. In other words, since the administration of the estate was till then not complete, he came to the conclusion that the entire income from the estate was earned by the trustees and executors in their own right and not on behalf of the beneficiaries an as such the entire income in the hands of the trustees and executors was chargeable to tax under section 3 of the Act at the rate applicable to the total income and not under section 41. Consistent with his aforesaid view that he passed an appropriate assessment order on 23rd July, 1962, whereby he charged to tax the entire income from the trust in the hands of the trustees and executors for the assessment year 1961-62 under section 3 of the Income-tax Act the rate applicable to the total income. It appears that during the assessment proceedings that were held by the Income-tax Officer for the assessment year 1961-62, the Income-tax Officer had realised that the life interest was to arise only when the last son was to attain the age of 21 years and since he discovered the fact that the youngest son, Mahendrakumar, would attain age of 21 years on 14th of September, 1964, he took the view that in the original assessment for 1957-58, which was some in compliance with the Appellate Assistant Commissioner's order, the income in the hands of the trustees and executors, which had to be assessed in the same manner as the income in the hands of the beneficiaries and not at the rate applicable to the total income, as held by him for the assessment year 1961-62, had escaped proper assessment and he, therefore reopened the assessment for 1957-58 under section 34(1)(b) of the Income-tax Act after issuing a notice in that behalf on 19th February, 1962. After reopening the assessment in the above manner the Income-tax Officer completed the assessment by levying tax on the entire income from the trust in the hands of the trustees and executors at the rate applicable to the total income. Such assessment for the year 1957-58 under section 23(3) read with section 34(1)(b) of the Income-tax Act was made on 21st February, 1963. Aggrieved by this assessment, made on 21st of February, 1963, the assessee filed an appeal before the Appellate Assistant Commissioner and one of the objection raised in the appeal was that there was no information in possession of the Income-tax Officer in consequence of which he could have come to the conclusion that the income chargeable to tax had escaped assessment or was under-assessed and the re-opening of the assessment was merely based on the change of opinion on the part of the Income-tax Officer and as such the Income-tax Officer had no jurisdiction to reopen the assessment. This contention was rejected by the Appellate Assistant Commissioner and the order passed by the Income-tax Officer was confirmed. In further appeal that was carried to the Tribunal the same contention was raised, viz., that the reopening of the assessment by the Income-tax Officer was without jurisdiction. The Tribunal observed that the original assessment of the assessment year 1957-58 was modified by the Income-tax Officer in accordance with the decision given by the Appellate Assistant Commissioner in the concerned appeal, but that in the assessment order for the assessment year 1961-62, the Income-tax Officer had taken a view different from the one that had been taken by the Appellate Assistant Commissioner in the appeal relating to the assessment of the assessment year 1957-58, and that except a mere change of view in the latter year, there was no fresh information before the Income-tax Officer for coming to the conclusion that income chargeable to tax had escaped assessment or was under-assessed for the assessment year 1957-58. The Tribunal, therefore, accepted the assessee's contention and canceled the said assessment order passed by the Income-tax Officer on 23rd of July, 1963. The Commissioner of Income-tax, Bombay City II, had approached this court by a reference for decision on the question which has been set out at the commencement of this judgment.
4. It cannot be disputed that the assessment of the year 1957-58 was reopened by the Income-tax Officer under section 34(1)(b) of the Act pursuant to the notice issued by him in that behalf on 19th of February 1962, and, therefore the condition precedent indicated in clause (b) of the section 34(1) must be satisfied before the assessment could be reopened and that the Income-tax Officer must have, in consequence of the 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 and the only question that was debated at the Bar before us was whether the Income-tax Officer could be said to have had in his possession fresh or new information in consequence whereof he could come to the conclusion that the income chargeable to tax had either escaped assessment or had been under-assessed or whether the reopening had been done by the Income-tax Officer merely on the basis of change of opinion, the opinion which he had formed during the assessment proceedings for the assessment year 196-62.
5. Mr. Hajarnavis, for the revenue, fairly conceded before us that the will of Maganlal Dahyabhai dated 5th July, 1943, must have been produced by the assessee before the Income-tax Officer when the original assessment for the year 1957-58 was done by him, for obviously without knowing the contents of the will the separate assessments of the income, namely, assessing the property income alone in the hands of the trustees and executors and allocating the balance of the income from other sources among several beneficiaries named in the assessment order, could never have been done by the Income-tax Officer when he passed his initial assessment order on 3rd of February, 1958. If that be so, it would be reasonable to assume that even clause 9 (f), under which life interest created in favour of the sons of the testator was to arise only when the last of the sons attained the age 21, must have been noticed by the Income-tax Officer. However, Mr. Hajarnivas contented that the fact that the younger of the two sons would attain the age of 21 on 14th of September, 1964, had not been disclosed or placed before the Income-tax Officer when he passed the initial assessment order on 3rd February, 1958, and in fact it was on the basis of this fact which was discovered by the Income-tax Officer when he carried out the assessment proceedings for the assessment year 1961-62, that the Income-tax Officer realised that the entire income of the trust property in the hands of the trustees and executors would have to be charged to tax under section 3 of the Act at the rate applicable to the total income and that section 41 was not attracted. He pointed out that in the assessment order passed by the Income-tax Officer on 23rd of July, 1963, for the assessment year 1961-62, the Income-tax Officer has observed as follows :
'..... On enquiries it is learnt that the youngest son, Shri Mahendrakumar, would attain the age of 21 on September 14, 1964. It is, therefore very clear that there are no beneficiaries in the intervening period up to September 14, 1964 and hence section 41 of the Income-tax Act does not come into operation...'
6. And even this aspect of the matter has been alluded to by the Tribunal in drawing up the statement of the case, viz., that it was on the later occassion, that is to say, when the assessment for the year 1961-62 was being put through by the Income-tax Officer that he 'discovered that the eldest (sic younger) son of the testator attained the age of 21 on September 14, 1964, and the administration of the estate was not till then complete...' According to Mr. Hajarnivas, therefore, this was not a case of mere changes of opinion based merely on a proper construction being placed on clause 9 (f) of the will, but it was a case of some information having come into possession of the Income-tax Officer, the information being in fact that the younger of the two dons of the testator was to attain the age of 21 on 14th September, 1964 and which fact came to his notice during the course of inquiries which he conducted during the assessment proceedings for the year 1961-62, and, thereafter, the reopening of the assessment for assessment year 1957-58 was justified. In our, view, it is not possible to accept this submission for the reasons which we shall presently indicate.
7. If the will dated 5th of July, 1943, was before the Income-tax Officer when he carried out the assessment or the assessment year 1957-58 - Mr. Hajarnivas has fairly conceded that it must have been produced before the Income-tax Officer at the time-not only clause 9 (f) of the will would have been present to the mind of that officer, but even the recitals of paragraphs 4 must have been known to him, and even a mere glance at the recitals contained in paragraph 4 of the will would have clearly brought to the notice of the Income-tax Officer that the testator had stated that on the date will he had 7 children in all (one son and six daughters) and that his son, Jayendrakumar, was, at that time, 8 years of age. In other words, the eldest son who was the only son was 8 years old on the date of the will of 5th July, 1943. Obviously, therefore, any son who may have been born to the testator after the making of the will could never have attained the age of 21 in the accounting year 31st January, 1957. It did not require any special enquiries to be conducted by the Income-tax Officer to realise this fact which should become patent to anyone who pressures paragraph 4 and clause 9 (f) of the will. In our view, these facts are patent even on a cursory reading of the relevant paragraphs of the will. Moreover, the fact that during the accounting year ending 31st of January, 1957, the deceased had two sons, one Jayendrakumar, and the younger one, Mahendrakumar, is quite clear from the assessment order itself passed by the Income-tax Officer on 3rd February, 1958, for in the allocation of the other income from other sources among the beneficiaries which he has done, he had mentioned the names of both the sons. Having regard to these facts, it seems to us very clear that the fact that the testator had two sons, the elder being Jayendrakumar and the younger being Mahendrakumar, was known to the Income-tax Officer when he passed the initial assessment order on 3rd February, 1958. The fact that the younger son could not have attained the age of 21 during the accounting year ended on 31st of January, 1957, was also very patent from the recitals contained in paragraphs of the will. If that be the position which emerges from the testamentary document that was produced before the Income-tax Officer when he made the initial assessment order on 3rd February, 1958, it is difficult to accept Mr. Hajarnavis's contention that any fresh or new information came into the possession of the Income-tax office when he issued the notice on 19th of February 1962, for the purpose of reopening the assessment for the assessment year 1957-58 and, in our view, therefore, it is clearly a case of change of opinion and not the case of any information having come into the possession of the Income-tax office consequence of which he could be said to have realised that either the income had escaped assessment or that the same had been under assessed. In this view of the matter, we feel that the Tribunal was right in the view which it took and the question before us will have to be answered in the negative and against the revenue. The revenue will pay the costs of the reference.
8. Question answered in the negative