1. This is a reference under section 66 (1) of the Income-tax Act, 1922, and the question which we have to consider is whether the Income-tax Officer had jurisdiction to re-open the assessment proceedings of the assessment years 1957-58 and 1958-59, under section 34 (1) (b) of the Act.
2. The assessee had shown the profit arising from the sale of shares held by him in M/s. Larsen & Toubro Ltd., as capital gains, on the footing that the shares were held by him as investment. The claim of the assessee that he was an investor was accepted by the Income-tax Officer, as, indeed, a similar claim was accepted in the previous years. The assessments of the two years were completed by the Income-tax Officer on the 29th of January, 1958, and the 9th of October, 1958, respectively.
3. The very same Income-tax Officer then took up assessment proceedings of assessment years 1959-60 and 1960-61. In those proceedings, he reviewed the entire course of transactions from the year 1946, and held that though the assessee was an investor till the 31st of March, 1954, he had converted his investment shares into stock-in-trade after the 1st of April, 1954, and had become a dealer in shares. Accordingly, the Income-tax Officer brought to tax the profits made by the assessee by the sale of shares, as a business profit.
4. In the light of the finding recorded by him in the assessment years 1959-60 and 1960-61, the Income-tax Officer re-opened the assessments of the assessment years 1957-58 and 1958-59, under section 34 (1) (b) of the Act. The assessee raised an objection to the jurisdiction of the Officer to re-open the assessments but the objection was rejected and a decision was recorded that the assessee was a dealer in shares in the assessment years 1957-58 and 1958-59.
5. The assessee filed appeals to the Appellate Assistant Commissioner against the assessment orders passed by the Income-tax Officer under section 34 (1) (b). In the meanwhile, the Income-tax Officer had passed orders for the assessment years 1959-60 and 1960-61 and the assessee filed appeals against those orders also. The Appellate Assistant Commissioner consolidated the four appeals, heard them together and disposed of them by a common judgment. He dismissed the appeals relating to the assessment years 1959-60 and 1960-61, confirming the finding of the Income-tax Officer that the assessee was a dealer in shares. In regard to the finding recorded by the Income-tax Officer in the reassessment proceedings of the assessment years 1957-58 and 1958-59, he agreed on merits that the assessee was a dealer and not an investor. He, however, held that the Income-tax Officer had acted without jurisdiction in re-opening the assessments of these two years and on that ground, he set aside the fresh orders of assessment passed under section 34 (1) (b).
6. We are concerned here with the assessment years 1957-58 and 1958-59 only, for we have just disposed of the reference relating to the assessment years 1959-60 and 1960-61, and have held that the tax authorities and the Tribunal were wrong in holding the assessee was a dealer in shares in those two years. In regard to the assessment years 1957-58 and 1958-59, the department filed appeals to the income-tax Appellate Tribunal challenging the order of the Appellate Assistant Commissioner that the Income-tax Officer had acted without jurisdiction in re-opening the assessment proceedings of those years. These appeals were consolidated by the Tribunal and have been disposed of by a common judgment. The Tribunal has confirmed the view of the Appellate Assistant Commissioner that section 34 (1) (b) was not attracted. It has, however, not dealt with the question whether the assessee was an investor or a dealer in the two years.
7. Section 34 of the Income-tax Act, 1922, provides by sub-section (1) that if the Income-Officer has reason to believe that by reason of his the omission or failure on the part of the assessee to make a return of his income or to disclose full and truly all material facts necessary for his assessment, the income has escaped assessment or has been under-assessed or has been assessed at too low a rate, etc., he may reopen the assessment proceedings. Section 34 (1) (b) of the Act which is relevant for our purpose reads thus :
'34. Income escaping assessment. - (1) If - (a) ....
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, in 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, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,
he may.... serve on the assessee.... a notice..... and may proceed to assess or reassess such income, profits or gains.....'
8. It is clear from a reading of this provision that two condition which are in the nature of conditions precedent must be satisfied before the Income-tax Officer takes action under it : (1) He should have reason to believe that the income has escaped assessment or has been under-assessed, etc., and (2) it should be in consequence of information in his possession that he should have reason so to believe. If either of these conditions is not satisfied, the reopening of assessment would be invalid.
9. Turning to the order of reassessment passed by the Income-tax Officer, after stating that the assessee had shown capital gains arising from the sale of shares on the footing that those shares were held by him as investment, the Income-tax Officer says :
'This statement of the assessee was accepted and I did not make further investigations regarding the true intention of the assessee in the sale of shares, i.e., whether there was a motive of making business profit. In the course of the assessment for 1959-60, this question, viz., whether the assessee was an investor or whether he was a dealer in shares was gone into in detail and in that order I have held that all the purchases of shares made by the assessee after March 31, 1954, were with the intention of treated as business profits. In the light of that finding, a notice under section 34 (1) (b) was issued for this year as well as the subsequent year.'
10. The question that arises for consideration is whether the two preconditions of section 34 (1) (b) are satisfied. Now, it does appear that the Income-tax Officer had reason to believe that the income had escaped assessment or was under-assessed but that is not sufficient to attract section 34 (1) (b). The two conditions of that provision are cumulative and it is necessary not only that the Income-tax Officer should have reason to believe that income has escaped assessment or is under-assessed but it must be in consequence of some 'information' in his possession that the belief should be formed. In this case, it seems to us impossible to take the view that the Income-tax Officer had any information at all in his possession so as to justify the reopening of assessment proceedings.
11. It is not suggested that on the face of the record of the original assessment proceedings a mistake, either of fact or of law, was apparent. It is also not suggested that by reason of any previous or subsequent decision of a higher Tribunal the order rendered by the Income-tax Officer was found to be or had become illegal, making it necessary to re-open the assessment proceedings. It would therefore be correct to say that the original order of assessment was not vitiated by an error, properly so called, of fact or law.
12. It is not necessary to pursue this process of elimination any further for, fortunately, the Income-tax Officer has given his reason for re-opening the assessments. The reason cited by him is that he had recorded a finding in the assessment proceedings of the subsequent years that the assessee was a dealer in shares. This, in our opinion, is no justification for re-opening the old assessments. The fact that the Income-tax Officer had recorded a different decision in the assessment proceedings of subsequent years can not, in our opinion, constitute 'information' within the meaning of section 34 (1) (b), so as to give him jurisdiction to re-open the assessments.
13. The Appellate Assistant Commissioner says in paragraph 11 of his order that it was not disputed by the department and the record bore it out that 'the assessee had fully disclosed all the material particulars regarding the purchases and sales of shares' effected during the relevant accounting years. In paragraph 12, Appellate Assistant Commissioner says that 'all the facts were present to the mind of the Income-tax Officer when he farmed the original assessments', but the Income-tax Officer held that the excess realised by the sale of shares was a gain on capital account. The Judicial Member of the Tribunal has likewise stated in paragraph 4 of his judgment that 'all the facts which were placed in the assessment year 1959-60 were within the knowledge of the Income-tax Officer at the time of making the original assessments for the two assessment years under appeal.'
14. In Commissioner of Income-tax v. A. Raman and Co., the Supreme Court took the view that :
'Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information, must, .... have come into the possession of the Income-tax Officer after the previous assessment ....'
15. In the instant case, the facts and circumstances on which the Income-tax Officer purported to act under section 34 (1) (b) were already before him during the original assessment proceedings of 1957-58 and 1958-59. He had consciously applied his mind to that data and he had co-related the various facts. In other words, he was not only aware of that data but he had realised it implications. It was, therefore, not open to him to fall back upon the same facts and circumstances and re-open the assessments.
16. A few more facts must be stated for appreciating what the Appellate Assistant Commissioner and the Judicial Members of the Tribunal meant by saying that all the facts which were on the record of the assessment year 1959-60 were the knowledge of the Income-tax Officer when he made the original assessments of the two previous years. In the assessment orders relating to assessment years 1959-60 and 1960-61, the Income-tax Officer held, on a review of the transactions commencing from 1946, that the assessee was an investor till 31st on March, 1954, but that he became a trader thereafter. The relevant facts pertaining to the transactions beginning with 1946 and ending with 31st March, 1960, were all before the Income-tax Officer held in the assessment proceedings on the basis of which the Income-tax Officer held in the assessment proceedings of 1959-60 and 1960-61 that the assessee had become a dealer in shares after 31st of March, 1954. There is tangible evidence that during, the proceedings of the two earlier years which are sought to be re-opened, the Income-tax Officer was aware of the facts which were on the record of the subsequent assessments and he had consciously applied his mind to those facts.
17. It is, therefore, clear that the assessment proceedings were re-opened by the Income-tax Officer, not in consequence of data - factual or legal - received by him after the completion of those proceedings but for the reason, merely, that he wanted to adopt a different approach to the same set of facts on an application of the self-same principles of law. The only subsequent 'information' which the Income-tax Officer has was that in later assessments he had himself taken a different view of the same facts. Information as to the state of law and information regarding relevant judicial decisions is undoubtedly information within the meaning of relevant judicial decisions is undoubtedly information within the meaning of section 34 (1) (b) (See Maharaj Kumar Kamal Singh v. Commissioner of Income-tax), but informing oneself of one's own subsequent decision, a decision that has yielded no new facts, is based on no new law nor has revealed a new awareness of what already was law, is not receiving 'information' such as would justify the re-opening of an assessment.
18. There is a divergence of opinion among the High Courts as to the true meaning and content of the expression 'information' occurring in section 34 (1) (b). According to some, the information must come from an 'external source'. In this context, a mere change of opinion would appear to have been treated as something not emerging from an external source. Others take the view that so long as the Income-tax Officer acts on information which leads him to a reasonable belief that the income has escaped assessment or is under-assessed, etc., it does not matter from what source the information stems. In the view we have taken, it is not necessary to go into this controversy, it is clear that the information must have been received or obtained after the original assessment was made and, as stated earlier, it was not so obtained here.
19. Learned counsel have, however, taken us through the controversy and as the decisions bearing on the point may assume relevance if we are not right in the conclusion that the information ought to have been but was not obtained subsequently, we would like to refer to those decisions.
20. In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, the Supreme Court noticed the conflicting decision on the point but it expressly left the question open, as it was unnecessary to decide it. We will makes a brief survey of the High Court decisions but before that, we would like to draw attention to two decisions of the Supreme Court which bear on the point but which contain, with respect, apparently contradictory observations. Those two decisions, properly understood, would help resolve the controversy.
21. In Commissioner of Income-tax v. A. Raman and Co., the Supreme Court was dealing with a case in which the Income-tax Officer had issued notices for re-opening assessment proceedings under section 147 of the Income-tax Act of 1961, on the ground that the he felt satisfied from a perusal of the assessment records of the assessees, their partners and their individual Hindu undivided families that the partners of the assessees had contrived to divert profits of the assessee to their respective Hindu undivided families and had tried to evade proper taxation. The validity of those notices was challenged by the assessee by a petition under article 226 of the Constitution. The High Court allowed the petition and quashed the notices. The Commissioner of Income-tax appealed against that decision with special leave. The question before the Supreme Court was whether the notices could be upheld under section 147(b) of the Act of 1961 (corresponding to section 34 (1) (b) of the 1922 Act).
23. After stating that the condition which invests the Income-tax Officer with jurisdiction under section 147(b) had two branches : (i) that the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment, and (ii) that it is in consequence of information which he has in his possession that he has reason so to believe, Shah J., who delivered the judgment of the court, observed :
'The expression 'information' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment.'
24. Holding that the Income-tax Officer, on the materials on record, had no reason to believe that income chargeable to tax had escaped assessment, the Supreme court confirmed the conclusion of the Hindu Court that notices for reopening the assessments were without jurisdiction.
25. The other decision of the Supreme Court is in Anandji Haridas & Co. v. S. P. Kushare, Sales Tax Officer, Nagpur. The main question involved in that case was as regards the constitutional validity of section 11 (4) (a) of the C. P. and Berar Sales Tax Act, 1947, which in view of the provisions of section 11A (3) of that Act, was said to be violative of article 14 of the Constitution. The majority consisting of Wanchoo C.J., Mitter and Hegde JJ. upheld the constitutional challenge and struck down section 11(4) (a) as being discriminatory.
26. The majority judgment, delivered by Hedge J., has also discussed the question whether the assessing authority could be said to have been satisfied about the escapement of the assessment as a consequence of information which had come into his possession. (This question is not considered in the minority judgment). Section 11A of the C. P. and Berar Act gave to the Commissioner of Sales Tax the power of reassessment within three years, 'if in consequence of any information which has come into his possession', he was satisfied that any turnover was under-assessed or had escaped assessment, etc. That section, according to the majority, was in pari materia with section 34 (1) of the Act and, therefore, the decisions under the letter section were noticed.
27. The majority rejected as 'untenable' the contention of the revenue that information contemplated by section 11A should be from some outside source and not something that could be gathered by the assessing authority from his own records. It was held that 'knowledge' of the fact that the assessees had not submitted their quarterly returns and the treasury challans constituted 'information' within the meaning of that section.
28. Hegde J. has cited, with approval, the judgment of the Madras High Court in Salem Provident Fund Society Ltd. v. Commissioner of Income-tax, and of the Kerala High Court in United Mercantile Co. Ltd. v. Commissioner of Income-tax. In the Madras case it was held that if the Income-tax Officer discovers a mistake apparent on the face of the record of assessment, that record can be a source of information. In the Kerala case it was held that to 'inform' means to 'impart knowledge' and a detail available to the Income-tax Officer from the papers filed before him does not by its mere availability become an item of information. It is transmuted into an item of information in his possession only if and when its existence is realised and its implication recognised.
29. As stated earlier, it is not necessary for our purpose to deal with the question whether the information can be sought in the record itself, because the basic condition of the application of section 34 (1) (b), namely, that the information must be obtained after the original assessment is made, has not been satisfied in this case. It, however, appears to us that there is no real conflict between the two decisions of the Supreme Court. Though in Raman's case, it was said that 'information' must mean 'instruction or knowledge derived from an external source' (page 15), it is clear that information obtained from the record itself was not considered as information not obtained from an external source. The view taken by the High Court was that the relevant information on the Income-tax Officer from the record itself and, therefore, it was not open to him to utilise that information for reopening the assessment proceedings. This view was specifically disapproved and the Supreme Court characterised that consideration as 'irrelevant' (page 16 of the report). It observed :
'That information, must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected.'
30. This observation leaves no doubt that all that the Supreme Court meant by saying that the information must be in the nature of some 'instruction or knowledge derived from an external source' is that a mere internal change of opinion would not justify the reopening of an assessment. As the Income-tax Officer had not obtained any information at all which would give him reason to believe that the income chargeable to tax had escaped assessment, the notices for reopening the assessments were quashed by the Supreme Court as without jurisdiction.
31. Thus there is no real conflict between the two decisions of the Supreme Court. In both the case, it was recognised that it is permissible to the Income-tax Officer to gather information from his own record. But, whereas in Raman's case, no such information was in fact available or was relied upon, in Anandji Haridas's case, such information was subsequently gathered from the record and could be relied upon as leading to the belief that the turnovers had escaped assessment.
32. In view of these two decisions, the cleavage of opinion among the High Courts becomes a matter of academic importance and so we will indicate but briefly the nature of that cleavage.
33. In Commissioner of Income-tax v. Mahomed Yusuf Ismail, a Division Bench of this court had to construe section 34 as it stood prior to its amendment in 1948. The requirement of that section then was that in consequence of 'definite information' the Income-tax Officer 'discovers' that the income had escaped assessment, etc. Beaumont C.J. held that 'definite information' denoted that there must be some information as to a fact, though the fact may be as to the state of the law, as for example, that a case has been overruled or that a statute has been passed which had not been brought to the attention of the Income-tax Officer. By a separate concurring judgment, Chagla J. expressed the view that information on questions of law was outside the purview of the section, but that view has been rejected of law was outside the purview of the section, but that view has been rejected by the Supreme Court in Commissioner of Wealth-tax v. Imperial Tobacco Co. of India Ltd.
34. In Income-tax Appellate Tribunal v. B. P. Byramji and Co., the Nagpur High Court held, while construing the same provision, that a mere change of opinion was not information within the meaning of that section.
35. In Bhimraj Panna Lal v. Commissioner of Income-tax, the High Court of Patna held that an order of assessment made after investigation by an Income-tax Officer should not at his sweet will and pleasure be allowed to be revised merely because he changed his opinion and that there must exist sometimes, either suppressed by the assessee or a fact or a point of law which was inadvertently or otherwise omitted to be considered by the Income-tax Officer before he could proceed to act under section 34. 'A mere change of opinion on the same facts and law is not covered by that section.'
36. In Asghar Ali Mohammad Ali v. Commissioner of Income-tax the Allahabad High Court held that though the word 'information' covers all kinds of information received from any person or in any manner whatsoever and though all that was required was that the Income-tax Officer should learn something or know something which he did not know previously, a mere change of opinion was not sufficient to justify reopening of assessment proceedings under section 34. Such a change of opinion would be the result of adopting a different method of reasoning and could not be said to be based on information.
37. In commissioner of Income-tax v. Malegaon Electricity Co. Private Ltd. a Division Bench of this High Court had to consider the question whether a reassessment made by the Income-tax Officer could be sustained under section 34 (1) (b) though it was apparently made under section 34 (1) (a) of the Act. Counsel appearing for the assessee contended in that case that information contemplated by section 34 (1) (b) was 'new information which is not there on the record' and in support of this proposition he relied on an earlier decision of the Bombay High court in Dr. M. R. Dalal v. Commissioner of Income-tax. On the other hand, the department relied on the decision of the Madras High Court in Commissioner of Income-tax v. Rathinasabapathy Mudaliar in which it was held that even inadvertence or error subsequently discovered would amount to information justifying the application of section 34 (1) (b). The Division Bench did not agree with this letter decision and observed that it was difficult to equate 'in consequence of information in his possession' with 'in consequence of discovery of an error on re-examination of the record.' On the facts of the case it was held that though there were documents on the records of the assessment proceedings pointing to a certain position, it could not be said that the Income-tax Officer had knowledge was information within the meaning of section 34 (1) (b).
38. The last of the decision in this class of cases is Ramkrishna Ramnath v. Income-tax Officer, Central Circle III, Nagpur. A Division Bench of this court held in that case that information which is relied upon by the Income-tax Officer for issuing the notice under section 148 of the Income-tax Act, 1961 (which corresponds to section 34 (1) of the Income-tax Act, 1922), must be information which he has obtained aliunde and not merely by looking at his own order made in proceedings for a subsequent year. Further, that the information must relate to the assessment year of which the assessment proceedings were intended to be reopened.
39. On the other side of the line are the decisions of the Madras High Court in Salem provident Fund Society Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Rathinasabapathy Mudaliar, the decision of the Mysore High Court in Canara Industrial and Banking Syndicate Ltd. v. Commissioner of Income-tax and of the Kerala High Court in United Mercantile Co. Ltd. v. Commissioner of Income-tax. Broadly, these cases have taken the view that if an Income-tax officer discovers an error committed by him in the original assessment proceedings, what is seen by him would be information to himself and such information would fall within section 34 (1) (b). In Salem Provident Fund Society's case, which has been cited with approval by the Supreme Court in Anandji Haridas's case, it was observed that :
'In such cases of obvious mistakes apparent on the fact of the record of the assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment or under-assessment.'
40. The Kerala decision, it may be recalled has also been cited with approval in Anandji Haridas's case. In the Mysore decision, a failure to understand the true implication of a notification at one stage and a correct understanding thereof at a later stage was held to constitute 'information' within the meaning of section 34 (1) (b).
41. The two decisions of the Supreme Court must be deemed to have set this conflict at rest and those cases which takes the view that information cannot be obtained by the Income-tax Officer from his own record must be deemed to have been overruled. But, it is still true to say that a mere change of opinion would not justify the reopening of an assessment under section 34 (1) (b) of the Act. It does not matter whether the Income-tax Officer obtains information from his own record or whether he receives information from an outside source. What is obligatory in order to apply section 34 (1) (b) is that he must have 'information' in this possession in assessment or is under-assessed, etc. The distinction really consists in a change of opinion unsupported by subsequent information on the one hand and a charge of opinion based on information subsequently obtained, on the other. In the former class of cases, the assessment proceedings are attempted to be reopened without the discovery of an error and without receiving any information as to fact or law. The Income-tax Officer has a fresh look at the earlier assessment order and he decides to adopt a different approach to the matter. Such a reopening is based on a 'mere' change of opinion and is without jurisdiction. The Income-tax Officer cannot reopen an assessment at his 'sweet will and pleasure'. In the letter class of cases, the reopening is based on information leading to the requisite belief and is therefore within the jurisdiction of the officer. It is then not for the High Court to determine whether the assessment souls be reopened, for it is for the Income-tax Officer to administer the Act.
42. The facts on the basis of which the Income-tax Officer reopened the assessment proceedings in the instant case were all on the record of the original assessment. The Income-tax Officer had consciously applied his mind to those facts. It was on a co-relation and evaluation of these facts and on an application of the true legal principles that he had come to the conclusion that the assessee was an investor and not a dealer in shares in the assessment years 1957-58 and 1958-59. On the very same facts and the basis of the very same principles of law the officer reopened the assessments. That can only mean that the proceedings were re-opened, not because the officer had information in his possession as a consequence of which he had reason to believe that the income was under-assessed or had escaped assessment but as a result of a mere change of opinion. That is impermissible.
43. For these reasons, we answer the question in the negative. The Commissioner will pay to the assessee the costs of this reference.