M. C. DESAI C.J. - I agree with the answers proposed by my learned brother whose judgment I had the privilege to read.
As regards the first question not only do I see no defect in the initiation of the proceedings under section 34(1)(b) but also I do not see why the question should be allowed to be raised at all after an assessment order is passed under section 34. There may be justification for entering into the question whether the initiation of the proceedings was legal or not while the proceedings are pending, but after the proceedings have terminated income has been proved to have escaped assessment earlier and had been assessed under section 34 and the initiation of the proceedings has been justified by the result, the question loses all importance. I would oppose the quashing of an order of assessment under section 34, of income, which under the law was assessable, but had escaped assessment, simply on the ground that there was some defect in the initiation of the proceedings may be reopened under section 34(1)(b) when the Income-tax Officer on the basis of information believes that income has escaped assessment, is only a caution provision and not one going to the root of the Income-tax Officers jurisdiction. It is the object behind the Act that income which could legally be assessed to tax must be assessed and it could never have been within the contemplation of the Legislature that if income by mistake of the Income-tax Officer escaped assessment and the mistake was discovered later, the assessment was reopened under section 34 by the issue of a notice contemplated by the section and income was assessed to tax, still the assessment order should be quashed because of some imaginary defect such as that the reopening was not done on the basis of any information. What the Legislature obviously contemplated by saying that the reopening of assessment proceedings should be done when the Income-tax Officer on the basis of information believes that income has escaped assessment is that he should act not on mere suspicion or surmise that income might have escaped assessment or simply with a view to re-examine the matter and to find whether it had escaped assessment or not.
The argument that has been frequently advanced that a change of opinion cannot sustain the reopening of the assessment proceedings under section 34(1)(b) is hardly intelligible. If even after income has been proved to have escaped assessment it was necessary to consider whether the reopening of the assessment proceedings was legal or not, the question that will be considered by the court is whether there was information in the possession of the Income-tax Officer who reopened the proceedings. The question is of his jurisdiction and the court will consider why he reopened the proceedings, rather, how he reopened the proceedings. It is, in my opinion, a mistake to proceed first by finding what had happened in the earlier assessment proceedings resulting in the escape of income from assessment. What is required for the validity of the reopening of the proceedings is : (1) escape of income from assessment, (2) belief that it has escaped assessment, and (3) information resulting in the belief. In considering none of the three requirements, is it relevant to see what had happened in the earlier proceedings. It is enough that the earlier proceedings resulted in escape of income from assessment, how and why it escaped is wholly irrelevant and an inquiry into it a waste of time and labour. In every case there is escape of income; otherwise the question of the applicability of section 34(1)(b) will not arise. If income had not escaped assessment, even if the assessment proceedings are reopened under section 34 they will end in nothing and if they wrongly end in an assessment order it will be set aside on merits. So in every case one starts with the fundamental facts that income has escaped assessment and that the assessment proceedings are reopened. The very fact that the reopening is justified by the result will normally show that the reopening was done on account of belief that income had escaped assessment. It is a question of fact why the proceedings are reopened and the fact is within the exclusive knowledge of the income-tax Officer, who reopens them. An inquiry into the reason for the reopening should be addressed to him and there should not be any occasion for inference. But since it is the assessee who generally challenges the order of assessment or reassessment passed under section 34, it is for him to show, at least prima facie, that the reopening of the proceedings was illegal. It cannot be assumed that the reopening was done without any belief formed in the mind of the Income-tax Officer that income had escaped assessment; if any presumption is to be made it must be as I said above, that the reopening was done on the basis of the belief. Then there remains the last and troublesome question of how the belief was formed. This again is a question of fact, to be answered by the Income-tax Officer, who alone knows how he believed that income had escaped assessment. No question of fact can be dealt with by this court in a reference under section 66. No question of fact can be referred at all by the Appellate Tribunal to this court and even if some question of fact is illegally referred, it would be entitled to refuse to answer it. Therefore, this court should not go into the question how the Income-tax Officer formed the belief. It is appears from the record that he formed the belief on the basis of a certain thing, a question of law arises whether it amounts to the forming of the belief on the basis of information in his possession or not. But no such question will arise if the record does not disclose how or why he formed the belief. The record before us does not disclose how or why the Income-tax Officer formed the belief and, therefore, no question whether he had formed the belief on the basis of information in his possession or not arises before, or can be answered by, us. It will not be possible for us to assume that he had no information in his possession and that, consequently, he did not form the belief in the only manner contemplated by the law. For all we know he might have received some information on the basis of which he formed the belief and reopened the proceedings by issuing a notice to the assessee. If the assessee challenged his Jurisdiction to do so she should have done so at the earliest opportunity when she appeared before him in response to the notice and asked him how he had formed the belief. It is too late for her now to seek to have the assessment order made under section 34 quashed on the assumed ground that he had no information to justify the belief. If she had challenged his jurisdiction while the assessment proceedings were going on, he might have been under an obligation to explain how he had assumed jurisdiction but once he was allowed to complete the assessment on her without protest and she filed an appeal from the assessment order, he ceased to be under any onus and the onus lay upon her to satisfy the Appellate Assistant Commissioner that the assessment order was vitiated by lack of jurisdiction on his part. It is well known that an appellant has the onus of satisfying the appellate authority that the order of the inferior authority was wrong. For discharging this onus he must rely only upon the record and he cannot assume facts though he may resort to presumptions which can reasonably be drawn from the facts on the record.
It is a mistake to say that change of opinion does not justify reopening of proceedings under section 34. There must be a change of opinion when the Income-tax Officer himself had failed to assess the income now believed by him to have escaped assessment. The fact that he himself had not assessed it and that he now believes it to be assessable means nothing else than that he has changed his opinion. I do not understand how else he can form the belief required by section 34(1)(b) and reopen the assessment proceedings. If he had assessed the income but the assessment was quashed by an appellate authority, he may reopen the proceedings in respect of the income without change of opinion but when he had himself refrained from assessing it initially there must be a change opinion on his part if he is to act under section 34(1)(b). Thus change of opinion, instead of being a bar, is a requisite condition in such circumstances.
If a change of opinion is brought about by information not only is it not a bar but also it is exactly what the Legislature expects in such cases. Information which makes the Income-tax Officer change his opinion does not cease to be information because of this result; if it is there, all that is required by section 34(1)(b) is there and he has jurisdiction to reopen the proceedings. The word 'information' means 'knowledge communicated concerning some particular fact, subject or event; that of which one is apprised or told; intelligence, news' (see Murrays Dictionary). It should be noticed that neither the source nor the manner of acquisition enters into the meaning of information. Whether what one has is information or not does not depend upon either the source or the manner. If one has learnt or has been told about something, one is informed, no matter how or by whom. The source may be another person standing in any or no relationship or an inanimate thing such as a book or a paper and manner of acquisition may be hearing or reading or seeing. If an Income-tax Officer hears or reads something which he had not heard or seen previously, he is informed. He cannot be informed by his own self; he must he informed by somebody else or something such as a book or a judgment. So, saying that a mere change of opinion will not justify the reopening of proceedings may be true only when an Income-tax Officer without any extraneous aid and simply by giving a second thought, forms the view that income was assessable but had not been assessed by him. If without reading anything and without hearing from any person he himself on reconsidering the facts finds that income has escaped assessment, it may be said to be a case of his forming the belief without information in his possession. If, on the other hand, he forms the belief on reading some book or document it is a case of his forming the belief or information. It is immaterial that the book or document existed when he had passed the assessment order initially or had an opportunity of reading it or had even read it. Information, it has been held by the Supreme Court, can be in respect of law also. If there can be information in respect of law, even though it existed when the assessment order was initially passed, there is no justification for saying that an information on a matter of fact must be on a fact which did not exist previously. Existence of a fact must not be confused with knowledge of the existence; a fact may exist but without its existence being known. If an Income-tax Officer did not know of a fact at the time when he passed an assessment order initially, even though it existed then, his receiving information about its existence later on is information within the meaning of section 34(1)(b) if it leads to the belief that income has escaped assessment. The assessee had mentioned in her ledger the receipt of the two items of income and they were even seen and initialled by the Income-tax Officer when he passed the assessment order initially. He had also seen the corresponding entries in the cash book. Yet he did not include the income in the total income because he thought that it was capital income and not revenue income. The assessee did not expressly write in the entries that the receipts were of dividends or of revenue income; on the other hand, the entries were so worded as to suggest that the receipts were of capital income. Anyhow the Income-tax Officer thought that the receipts were not assessable income and did not include them in the total income. Later he learnt that they were dividend income and, therefore, assessable and reopened the proceedings under section 34. It has not been disclosed on the record from whom or how he learnt this, but there is no doubt that he learnt it because otherwise it is not understood how he reopened the assessment. His learning that the receipts were dividend income amounted to his having information in his possession within the meaning of section 34(1)(b). In R. G. S. Naidu & Co. v. Commissioner of Income-tax, an assessment or reassessment made under section 34 was upheld even though there was no evidence of any information having been received by the Income-tax Officer to justify the reopening of assessment.
The scope of section 34(1)(b) has been made wider now; previously the requirement was that the Income-tax Officer must have definite information in his possession; now any information which makes him believe that income has escaped assessment is enough.
The stock argument, which did not fail to be advanced before us also, that there was no fresh information in the Income-tax Officers possession has three replies, each one of which is sufficient. One is that it is a question of fact. Another is that it is not supported by any material that there is generally no evidence that the Income-tax Officer did not receive any fresh information. The assessee usually assumes that he had no fresh information. I have not come across any case in which he was ever questioned either by the assessee during the proceedings under section 34 or by the Appellate Assistant Commissioner or the Appellate Tribunal hearing an appeal from his assessment order about the information in his possession. Lastly, the argument proceeds on the fallacy that existence of a fact is the same thing as knowledge of its existence and the fallacy that information that a certain view either of facts or of law taken previously was erroneous is no information within the meaning of section 34(1)(b).
Question No. I, therefore, must be answered in the affirmative.
I have nothing to add to what my learned brother has said in respect of questions Nos. 2 and 3; question No. 2 must be answered in the affirmative. The first part of question No. 3 should be answered in the affirmative and the second part in the negative. I agree with the proposed order in respect of the costs of the reference.
BRIJLAL GUPTA J. - This is a reference under section 66(1) of the Income-tax Act. The questions which have been referred for opinion to this court are :
'(1) Whether, on the facts and circumstances of the case, the proceedings initiated under section 34 of the Income-tax Act were valid in law (2) Whether Messrs. Rama Investment Corporation Ltd. and Messrs. Rama Commercial Co. Ltd. having their registered offices in erstwhile Rajasthan were Indian companies as contemplated under the Indian Income-tax Ac
(3) Whether the two sums of Rs. 26,834 and Rs. 24,424 constituted dividends within the meaning of section 2(6A)(c) of the Income-tax Act If so, whether they were liable to be grossed under section 16(2) of the Income-tax Act
The reference relates to the assessment year 1954-55, corresponding to the previous year which was the financial year ending March 31, 1954. By order dated March 19, 1955, the assessee was assessed to Income-tax in the status of an individual on a total income of Rs. 19,517. In this total income, the income from property was Rs. 200 and interest income was Rs. 19,317.
During the course of examination of the account books of the assessee the Income-tax Officer looked into the 'capital account' and initialled it. In this capital account there were two entries of two sums of monies, viz., Rs. 26,834 and Rs. 24,425. The narration against these entries was as follows :
'Received towards final payment at eleven per cent. on 24,395 shares of Rama Commercial Co.' and 'Received towards final payment at nine per cent. on 25,715 shares from Rama Investment Corporation Ltd.'
Having regard to the account in which the entries occurred, namely, the capital account, and having regard to the narration in those entries, prima facie the two sums of monies represented receipt of capital as the word 'dividend' nowhere occurred in the narration. Actually, however, these two sums represented distribution by the two companies of the accumulated profits and were received by the assessee on December 1, 1953, in the accounting period relevant to the assessment year in question.
The two companies had their head offices at Charu, Rajasthan, and were incorporated in Bikaner State. Both the companies went into liquidation on September 20, 1951. The accumulated profits of the two companies up to March 31, 1951, amounted to Rs. 35,784 and Rs. 29,163 respectively. The two amounts mentioned above received by the assessee out of these accumulated profits were not included in her original assessment. Subsequently, proceedings under section 34 were initiated by the same Income-tax Officer to assess the said two sums of monies and the assessment was completed on January 30, 1956, in which the two sums were included.
Against the assessment under section 34 the assessee went up in appeal to the Appellate Assistant Commissioner. The assessment was challenged on the ground that the Income-tax Officer who had made the original assessment had knowledge of all the facts and in particular of the fact that the two sums of monies had been received by the assessee during the previous year. This was borne out by the fact that the Income-tax Officer had initialled the capital account in which the entries occurred and also the corresponding entries in the cash book. It was argued that therefore it would be 'assumed' that the Income-tax Officer had 'applied his mind' to the facts and had 'come to the conclusion' that the sums were not taxable. As such the proceeding under section 34 was based upon a mere 'change of opinion' and not on 'information' with regard to any facts, on the basis of which alone an assessment under section 34 could, if at all, be justified. The argument was overruled by the Appellate Assistant Commissioner. It was also argued before the Appellate Assistant Commissioner that the Income-tax Officer should have 'grossed' the amount of dividend which the two sums included in the assessment represented and credit should have been given for the difference between the grossed amount and amount of dividend received. Lastly, it was contended that the two amounts represented capital receipts and not revenue receipts liable to income-tax. These other grounds were also overruled by the Appellate Assistant Commissioner.
It may be stated that two certificates were filed by the assessee before the Appellate Assistant Commissioner from the liquidators of the two companies. The certificates were in similar terms and may be reproduced by giving alternative figures for the two years in question respectively :
'It is hereby certified that this company has already paid income-tax at full Indian rates on the disbursement of surplus funds of the company made at the time of final winding up to shareholders on December 1, 1953, at 11%/9% of the face vas receiving a salary. In these circumstances, it is not possible for us to hold that there was no material before the Tribunal for arriving at the finding which the Tribunal did. It may be that on that material two opinions might have been possible. As we have stated earlier, the question that arose was essentially a question of fact to be decided on the facts and circumstances found. While we find that there was material for arriving at the view which the Tribunal did, it is not possible for us to set aside the finding recorded by the Tribunal. We may, in this connection, refer to a decision of this court in Commissioner of Income-tax v. I. D. Varshani where, in similar circumstances, it was held by this court that a finding having been recorded that certain income was salary was a finding of fact on the material and, consequently, it could not be set aside by this court.
We may, however, add that, apart from the ground mentioned above, there is another reason why we must hold that in this case the view taken by the Tribunal is correct. We have mentioned earlier that, in the statement of the case, the Tribunal has stated that the assessee is a Hindu undivided family and its karta, Seth Lal Chand, was appointed Government Treasurer. Though this is the statement contained in the statement of the case, the appeal before the Tribunal appears to have been decided on a different basis. The Judicial Member and the Accountant Member constituting the Tribunal differed and thereafter the case was referred to the President of the Tribunal and the President in his appellate order mentioned that the assessee Hindu undivided family itself was appointed Government Treasurer. The President also mentioned that in the year 1944 the family was also appointed as treasurer of Sambhal Treasury and the Sub-Treasury at Panchabhadra. The case at the stage of appeal before the Tribunal was, therefore, decided on the basis that the person appointed as treasurer was the assessee Hindu undivided family and not the karta, Seth Lal Chand, in his individual capacity. Apart from this fact mentioned by the President of the Tribunal, there is the circumstance that the question that has been referred to us arose in proceedings for the assessment to tax of the income of the assessee Hindu undivided family and not in the proceedings for assessment to tax of the income of the individual, Seth Lal Chand. The income could be taxed as income received from the Government by virtue of appointment as Government Treasurer in the hands of the assessee family only on the basis that the income accrued to and was received by the family and it appears that it was for this reason that the question referred to us was also framed by the Tribunal in the manner reproduced above. The amount, which was received by the assessee, was no doubt mentioned in the question as remuneration received by the assessees karta as Government Treasurer of Ajmer-Merwara. But the question asked was whether it fell to be charged as salary under section 7 or should be regarded as income from business and chargeable under section 10. Such a question in the proceedings for assessment of the assessee Hindu undivided family could only arise if the income was sought to be charged as income of the Hindu undivided family. It seems that, from the very first stage when the proceedings started before the Income-tax Officer, the case was dealt with on the basis that both parties admitted that the remuneration being paid to the Government Treasurer on appointment as such was income being received by the assessee family and not income received by Seth Lal Chand in his individual capacity. Some confusion, however, appears to have occurred in the statement of the case wherein the Tribunal proceeded to mention that Seth Lal Chand was appointed as Government Treasurer. But in these proceedings for assessing the Hindu undivided family, the question could only arise on the basis that the appointment as Treasurer was really that of the Hindu undivided family. It was for this reason that the President of the Tribunal in his appellate order clearly stated that the family was appointed Government Treasurer, Ajmer-Merwara. At this stage when the case has already proceeded up to its decision by the Income-tax Appellate Tribunal in proceedings for assessment of the assessee on the basis that the family was appointed as Government Treasurer, though in the name of Seth Lal Chand, it is not open to this court to go behind this fact and the question has to be answered on the basis that it is an admitted fact.
The fact that the appointment as treasurer was that of the Hindu undivided family and not of Seth Lal Chand as an individual is of great importance because it appears to us that, from the very nature of the person appointed as treasurer, it cannot be accepted that the appointment was as a servant and not as an independent contractor. A Hindu undivided family carrying on business can easily enter into a contract to work as an independent contractor in the course of its business or by starting that business. A Hindu undivided family, on the other hand, it appears to us, cannot as such accept service or be appointed as servant. In this case, it is not known who were the various persons constituting this Hindu undivided family but there can be cases were a Hindu undivided family may consist of adult male members, minor male members, adult females and minor females. The number of members may also fairly be large. If, in such a case, appointment as treasurer were to be treated as appointment of a servant, it would mean that all these adult and minor male and female members of the family would jointly become Government Treasurer and servant of the Government so that one post of treasurer is filled by a large number of persons jointly together. It would also result in acceptance of the principle that the karta of a Hindu undivided family would, acting in such capacity, be capable of making all such members of the family servants of the Government. That the status of the person appointed is a relevant consideration when interpreting the nature of that appointment was laid down by this court in Inderchand Hari Ram v. Commissioner of Income-tax. In that case, the question that had come up for consideration was, 'Whether a partnership firm acting as managing agents was working in the capacity of a servant or was carrying on its business.' It was held by this court that a partnership firm under the Indian Partnership Act is constituted for the purpose of carrying on a business only and is not constituted for the purpose of entering into service. This circumstance itself showed that the work of managing agents was being carried on by the partnership firm as a business and the appointment as such was not appointment of a servant to a post. The principle laid down in that case was approved by the Supreme Court in Lakshminarayan Ram Gopal and Son Ltd. v. The Government of Hyderabad. The Supreme Court laid down the principle in the following words :
'When a partnership firm comes into existence, it can be predicated of it that it carries on a business, because partnership according to section 4 of the Indian Partnership Act is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.'
After laying down this principle their Lordships of the Supreme Court referred to the case of Inderchand Hari Ram v. Commissioner of Income-tax cited above by us. In the present case also it is, therefore, a relevant consideration to see whether when a contract for accepting appointment as treasurer is entered into by the karta on behalf of a Hindu undivided family, it can be held that the family accepted a contract of service and was not entering into a contract of business to work as an independent contractor. As we have said earlier, a Hindu undivided family, which may consist of numerous persons cannot as a whole become a servant of the Government nor can it be held that every single member of the family, whether that member be a female or male or whether the member be an adult or a minor would become a servant and all of them would hold the same post. There is the further consideration that there is nothing in Hindu law which indicates that the karta, as manager of a Hindu undivided family, has the authority to enter into a contract by which all members of the family jointly would become servants under a contract of service with the Government or any other person. On the other hand, a karta has authority to enter into contracts for business on behalf of the Hindu undivided family, to deal with the property of the Hindu undivided family and to incur debts. In the present case, therefore, when the karta, Seth Lal Chand, accepted the appointment on behalf of the family, it must be held that what he accepted was work as an independent contractor. As a manager of the business of the Hindu undivided family he had a right to enter into contracts and he could deal with all the properties of the Hindu undivided family on their behalf. This consideration of the facts found in this case can only lead to the inference that the appointment of the family as Government Treasurer was accepted as work of an independent contractor and not as an appointment in the capacity of a servant. The first part of the question which has been referred to us for opinion is, therefore, answered in the negative and the second part in the affirmative. The assessee will be entitle to the costs of this reference which we fix at Rs. 300. The same amount shall be treated as fees payable to learned counsel for the Department for the purposes of calculation of costs.
Reference answered accordingly.