JAGDISH SAHAI J. - In compliance with the direction of this court made under section 66(2) of the Indian Income-tax Act of 1922 (hereinafter referred to as the Act), a statement of the case and the following question of law has been referred to this court by the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad (hereinafter referred to as the Tribunal) :
'Whether, in the circumstances of the case, the Income-tax Officer had information in his possession in consequence of which he could have reason to believe that income, profits or gains in the sum of Rs. 20,762 has escaped assessment ?'
The instant reference has been made at the instance of the department. The assessee is a limited liability company styled as M/s. India Reconstruction Corporation Ltd., Kanpur (hereinafter referred to as the assessee).
The assessee filed its return for the assessment year 1948-49, declaring a total income of Rs. 48,487. In Part VII of the return, the assessee had disclosed that it had made a profit of 20,762 as capital gains on the sales of certain securities.
The income-tax Officer did not accept the case of the assessee that the sum of Rs. 20,762 was capital gains but held that it was income received from business and liable to be taxed under section 10 of the Act. The Income-tax Officer, therefore, included this sum in the assessment of the assessee.
The assessee filed an appeal before the Appellate Assistant Commissioner on the ground that the sum of Rs. 20,762 should not have been and could not be assessed as income from business. The Appellate Assistant Commissioner dismissed the appeal and confirmed the order of the Income-tax Officer.
The assessee then filed a second appeal before the Tribunal which by means of its order dated April 29, 1952, as modified subsequently, under section 35 of the Act on April 16, 1956, held that the sum mentioned above could not be included in the business income of the assessee for purposes of taxation under section 10 of the Act and, while allowing the appeal, directed the Income-tax Officer to exclude that amount from the assessable business income of the assessee.
After the receipt of the Tribunals order, the Income-tax Officer issued on December 24, 1952, a notice to the assessee under section 34(1)(b) of the Act calling upon him to show cause as to why the assessee should not be taxed on Rs. 20,762 on the footing that it represented capital gains.
The Income-tax Officer then passed an order under section 12(b) of the Act treating the sum of Rs. 20,762 as capital gain and assessing the assessee accordingly.
The assessee appealed to the Appellate Assistant Commissioner and challenged the validity of the proceedings started under section 34 of the Act. It was contended that no new facts had come to the knowledge of the Income-tax Officer on the basis of which he could take action under section 34 of the Act. The Appellate Assistant commissioner upheld the order of the Income-tax Officer passed under section 12(b) of the Act and dismissed the appeal.
The assessee then filed a second appeal before the Tribunal and, repeated before it the submission that was made before the Appellate Assistant Commissioner.
On May 16, 1957, the Tribunal allowed the appeal of the assessee and while doing so, observed as follows :
'The question which we have to consider is whether the assessment proceedings were legal and valid and were justified. It is clear from the evidence that the assessee had stated categorically that the sum of Rs. 20,762 was capital gains liable to tax under the Income-tax Act. He invited the Income-tax Officer to tax this amount under section 10. The Tribunal on second appeal, held that the amount did not fall to be computed under section 10 was not applicable, was to contend before the tribunal that, if section 10 was not applicable, the amount still fell to be computed under section 12(b). It appears that no such request was made before the Tribunal. The department could have also preferred an application under section 35 stating that, although the inclusion of the amount was not proper under section 10, it was proper under section 12(b). It appears that no such application was given before the Tribunal. There was yet one more way of getting the amount taxed and that was to approach the High Court in reference. The department seems to have omitted to take the proper course. In our opinion, there was no justification in resorting to section 34. All the necessary information for the making of a complete assessment was already supplied by the assessee to the Income-tax Officer. The amount has already been taxed by the Income-tax Officer himself. The inclusion was deleted by the Tribunal on the ground that section 10 could not be invoked for subjecting the amount to tax. If section 10 was not applicable, the amount could have been included under section 12(b). These facts clearly show that there were no laches on the part of the assessee. The Income-tax Officer had known all the information that was requisite for the making of a proper assessment. Section 34 is not, therefore, applicable in this case.' Admittedly the case cannot fall under section 34(1)(a) of the Act. The case of the department is that it fall under clause (b) of that provision. That provision so far as relevant for our purposes reads :
'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, 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, ...
proceed to assessee or reassess such income, profits or gains or recompute the loss or depreciation allowance...'
In the present case the assessee had disclosed receipt of the sum of Rs. 20,762 in Part VII of the return as his capital gains. It has been contended on behalf of the assessee and it was also held by the Tribunal that the amount having been disclosed and there being no laches on the part of the assessee it was the mistake of the Income-tax Officer not to assess it in the original assessment order as capital gains. It is further contended that this amount not having been taxed in the original assessment order is capital gains. It cannot now be so taxed under the provisions of section 34(1)(b) of the Act. Jurisdiction under section 34(1)(b) is attracted if the Income-tax Officer 'has in consequence of information in his possession reason to believe'. The question that requires consideration is as to what does the expression 'in consequence of information in his possession' mean. In our judgment the expression is comprehensive enough to include information of fact as also information of law. We find support for our view from Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, as also Maharajdhiraj Sir Kameshwar Singh v. State of Bihar. In the first case Gajendragadkar J., who spoke for the Supreme Court while dealing with the scope of section 34, observed :
'It is not disputed that, according to its strict literal meaning, the word : 'information' may include knowledge even about a state of the law or a decision on a point of law... If the word 'information' used in any other provision of the Act denotes information as to facts or particulars, that would not necessarily determine the meaning of the said word in section 34(1)(b). The denotation of the said word would naturally depend on the context of the particular provisions in which it is used... If the word 'information' in its plain grammatical meaning includes information as to facts as well as information as to the state of the law, it would be unreasonable to limit it to information as to the facts on the extraneous consideration that some cases of assessment which need to be revised or rectified on the ground of mistake of law may conceivably be covered by section 33B and 35 .... We would accordingly hold that the word 'information' in section 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions.'
In the second case the Supreme Court followed the first case.
In the present case the Income-tax Officer had the actual information that the assessee had received the sum of Rs. 20,762 on the date of the assessee filing the return, but the information that it could not be treated as a business income but only as capital gains came to the Income-tax Officer only when the Tribunal on April 29, 1952/April 16, 1956, allowed the second appeal filed by the assessee and held that this sum was a receipt in the nature of capital gains and not in the nature of business profits. There is nothing in section 34(1)(b) of the Act which militates against the view that it was only after the judgment of the Tribunal that the Income-tax Officer had the legal information that the sum, mentioned above, should be assessed as capital gains. Mr. Gupta contends that the present case is one of change of opinion and not receiving any information. His argument is that the information was received by the Income-tax Officer when the assessee filed his return and the Income-tax Officer did not act on that information to assessee the sum of Rs. 20,762 as capital gains because he did not consider it as capital gains. The submission is that now the Income-tax Officer has changed his opinion and wants to tax the aforesaid sum as capital gains though originally he had taxed it as business receipt. In support of his contention the learned counsel has placed reliance upon Bhimraj Panna Lal v. Commissioner of Income-tax. The decision was recorded before Maharaj Kumar Kamal Singh v. Commissioner of Income-tax. We are of opinion that it is not a case of change of opinion on the part of the Income-tax Officer. It is a clear case of the Income-tax Officer having received information through the judgment of the Tribunal that in law this amount should be treated as capital gains and taxed accordingly. In our judgment section 34(1)(b) of the Act is also meant for such purposes. Learned counsel contended that the Tribunal held that the Income-tax Officer failed to take the proper step of assessing this amount under section 12(b) of the Act as capital gains at the time of the passing of original assessment order. But that does not debar him from not taxing it as capital gains. It was only through the judgment of the Tribunal that he got the information that the amount was capital gains and should be taxed as such. The language of section 34(1)(b) is comprehensive enough to include an information received through the judgment of the Tribunal. We derive support for our conclusion from R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax. In that case the assessee was a firm composed of four brothers, A, B, C and D to which the minor members of the family were also admitted for the benefits of the partnership. There was another firm consisting of A, B, C, and D, and a third person E. The assessee-firm had advanced loans to the second firm and received from the second firm during the accounting year a sum of Rs. 5,10,788 as interest. In its return the assessee had shown this sum of Rs. 5,10,788. In the assessment of the second firm the Income-tax Officer disallowed the claim made by this firm for deduction of this sum of Rs. 5,10,788 on the ground that it was interest paid to the partners but the Appellate Tribunal held that the assessee was a different firm altogether and as the payment was made to the assessee-firm and not to its partners, the amount should be deducted in assessing the second firm. This led to proceedings under section 34(1)(b) of the Act against the assessee-firm for the assessment of this sum of Rs. 5,10,788. The assessees contention was that merely because the Tribunal sitting in judgment over the assessment of the second firm altered the order of the income-tax authorities below and held that the amount of Rs. 5,10,788. The assessees contention was that merely because the Tribunal sitting in judgment over the assessment of the second firm altered the order of the income-tax authorities below and held that the amount of Rs. 5,10,788 was paid not to the partners but to the assessee-firm, it did not amount to 'information in his possession' nor could it be said that in consequence he (the Income-tax Officer) had 'reason to believe', and, therefore, there was no jurisdiction in him to proceed under section 34(1)(b) of the Act. This submission was rejected by the Bombay High Court and it was held that : '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) of the Act.' Our case is very similar to this Bombay case. We would also like to point out that in this case the Bombay High Court has distinguished their earlier decision in K. T. Kubal & Co. Pvt. Ltd. v. Commissioner of Income-tax, on which Mr. Gupta, learned counsel for the assessee, has placed reliance.
For the reasons mentioned above, we answer the question referred to us in the affirmative in favour of the department and against the assessee. The assessee shall pay a sum of Rs. 200 as costs of this reference to the department. The fee of the learned counsel for the department is also assessed at the same figure.
Question answered in the affirmative.