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Commissioner of Income-tax Vs. Satya Paul Virmani - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Case No. 11 of 1965
Judge
Reported in[1970]77ITR212(P& H)
ActsIncome Tax Act, 1922 - Sections 34(1), 66(1) and 66(2)
AppellantCommissioner of Income-tax
RespondentSatya Paul Virmani
Appellant Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Respondent Advocate S.L. Puri and; Munishwar Puri, Advs.
Cases ReferredAssistant Controller of Estate Duty v. Nawab Sir Mir Osman Ali Khan Bahadur
Excerpt:
.....filed an appeal against the order of the appellate assistantcommissioner to the income-tax appellate tribunal which was dismissed by the tribunal on february 29, 1964. the tribunal held as under :there was no information in the possession of the income-tax officer in consequenee of which he initiated the proceedings under section 34(1)(b) on march 21, 1960. the mere fact that the department bad filed an appeal to the tribunal against the order of the appellate assistant commissioner for 1957-58 directing the income-tax officer to treat the lease income as an income from business would not amount to any information in the possession of the income-tax officer leading him to believe that the assessee had been granted excessive relief. the facts of the case as mentioned above go..........filed an appeal against the order of the appellate assistantcommissioner to the income-tax appellate tribunal which was dismissed by the tribunal on february 29, 1964. the tribunal held as under : 'there was no information in the possession of the income-tax officer in consequenee of which he initiated the proceedings under section 34(1)(b) on march 21, 1960. the mere fact that the department bad filed an appeal to the tribunal against the order of the appellate assistant commissioner for 1957-58 directing the income-tax officer to treat the lease income as an income from business would not amount to any information in the possession of the income-tax officer leading him to believe that the assessee had been granted excessive relief. the facts of the case as mentioned above go.....
Judgment:

Bal Raj Tuli, J.

1. The respondent, Shri Satya Paul Virmani, is a Hindu undivided family, which derives its income from various businessesbesides property and dividend on shares. It owns a flour mill at Amritsar known as Jawala Flour Mills, Amritsar, which was leased out to M/s. S. P. Virmani and Sons Ltd., Amritsar, on the terms and conditions contained in the lease deed dated January 10, 1947. For the assessment year 1955-56 the Income-tax Officer made the assessment of the respondent on November 21, 1955; in which the income from the lease of the flour mill was determined at Rs. 36,609.00 and was treated as income from business. This income, along with some other income from business, was adjusted against the loss from some other business and the net income after adjustment was determined at Rs. 26,198-00. For the assessment year 1957-58, the Income-tax Officer treated the lease money of the flour mill as income from other sources and not as income from business. The assessee (respondent) filed an appeal before the Appellate Assistant Commissioner of Income-tax, who accepted the appeal by order dated July 24, 1959, and held that the income from the lease of Jawala Flour Mills, Amritsar, was liable to be assessed under the head 'business'. The Commissioner of Income-tax directed the Income-tax Officer on October 17, 1959, to file an appeal against the order of the Appellate Assistant Commissioner of Income-tax before the Tribunal. The appeal was accordingly filed but was withdrawn later on. On March 21, 1960, the Income-tax Officer issued a notice under Section 34(1)(b) of the Indian Income-tax Act, 1922 (hereinafter called 'the Act'), to the respondent for the assessment year 1955-56 and made a reassessment order on March 20, 1961, In this order, he assessed the income from the lease of Jawala Flour Mills, Amritsar, under the head 'other sources' instead of the head 'business' with the result that the brought forward business loss which had been set off in the original assessment dated November 21, 1955, was not set off against the income from business in the order of reassessment. The respondent filed an appeal from that order before the Appellate Assistant Commissioner of Income-tax on the ground that at the time of issuing the notice under Section 34(1)(b) of the Act, the Income-tax Officer had no additional information in his possession on the basis of which he could issue such a notice. The Appellate Assistant Commissioner of Income-tax accepted that contention and held that the decision of the department to go in appeal to the Tribunal against the order of the Appellate Assistant Commissioner of Income-tax for the assessment year 1957-58 did not amount to any fresh information within the meaning of Section 34(1)(b). He accordingly held by his order dated April 10, 1962, that the notice issued under Section 34(1)(b) to the respondent was based on a mere change of opinion by the Income-tax Officer on the, same set of facts and the notice was, therefore, invalid. He cancelled the reassessment made by the Income-tax Officer. The Commissioner of Income-tax filed an appeal against the order of the Appellate AssistantCommissioner to the Income-tax Appellate Tribunal which was dismissed by the Tribunal on February 29, 1964. The Tribunal held as under :

'There was no information in the possession of the Income-tax Officer in consequenee of which he initiated the proceedings under Section 34(1)(b) on March 21, 1960. The mere fact that the department bad filed an appeal to the Tribunal against the order of the Appellate Assistant Commissioner for 1957-58 directing the Income-tax Officer to treat the lease income as an income from business would not amount to any information in the possession of the Income-tax Officer leading him to believe that the assessee had been granted excessive relief. The facts of the case as mentioned above go clearly to show that there was no information whatsoever in the possession of the Income-tax Officer in consequence of which he initiated proceedings under Section 34(1)(b). All the facts pertaining to the point at issue were before the Income-tax Officer who made the original assessment and it appears from the assessment order that he applied his mind to the question as to whether the income from lease money was to be treated as income from business or income from other sources. He then arrived at the finding that the income from lease money is to be treated as income from business. The belief of the Income-tax Officer who initiated the proceedings under Section 34(1)(b) that income from lease money should be treated as income from other sources is based on no information whatsoever, but is merely a change of opinion by the successor Income-tax Officer on absolutely the same set of facts on which his predecessor had come to a finding that the income was from business. It would thus be seen that the proceedings under Section 34(1)(b) have been instituted merely because of a change of opinion. Since there was no information in the possession of the Income-tax Officer in consequence of which he had reason to believe that the assessee had been granted excessive relief, the Appellate Assistant Commissioner was justified in holding that the proceedings under Section 34(1)(b) were bad in law. His order is, in the circumstances, affirmed.'

2. Against that order, the Commissioner of Income-tax made an application. Before the Income-tax Appellate Tribunal under Section 66(1) of the Act for drawing up the statement of the case and to refer to this court the following question of law :

'Whether, on the facts and in the circumstances of the case, notice under Section 34(1)(b) was validly issued for the assessment year 1955-56 ?'

3. The Tribunal, by its order dated February 9, 1965, dismissed theapplication observing as under:

'The finding that there was no information in the possession of the Income-tax Officer in consequence of which he initiated the proceedingsunder Section 34(1)(b) is a finding of fact based on the material on record and no question of law in respect thereof arises.'

4. The Commissioner of Income-tax has made the present petition under Section 66(2) of the Act for directing the Income-tax Appellate Tribunal to state the case to this court and to refer the following question of law which is said to arise out of the Tribunal's order:

'Whether, on the facts and in the circumstances of the case, notice under Section 34(1)(b) was validly issued for the assessment year 1955-56 ?'

5. The learned counsel for the petitioner has contended before us that the direction given by the Commissioner of Income-tax to the Income-tax Officer to file an appeal against the order of the Appellate Assistant Commissioner of Income-tax for the assessment year 1957-58 amounted to information which was in the possession of the Income-tax Officer which led him to believe that the income of the respondent had been underassessed or had escaped assessment and, therefore, the notice under Section 34(1)(b) of the Act was validly issued. He has relied on the judgment of their Lordships of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, [1959] 35 I.T.R. 1; [1959] Supp. 1 S.C.R. 10. in which it was held that the word 'information' in Section 34(1 )(b) included information as to the true and correct state of the law, and so covered information as to relevant judicial decisions. In that case, the notice under Section 34(1)(b) was issued on the basis of a Privy Council judgment and the law laid down by the Privy Council was held to be 'information' within the meaning of that section.

6. The next case relied upon by the learned counsel for the petitioner is Salem Provident Fund Society Ltd. v. Commissioner of Income-tax, [1961] 42 I.T.R. 547, in which the facts were that while passing the assessment order, the Income-tax Officer had added two sums whereas one should have been subtracted from the other. Later on this mistake was discovered and it was held that a mistake apparent on the face of the order of assessment would itself constitute 'information' ; whether some one else gave that information to the Income-tax Officer or whether he informed himself was immaterial. It was also held that the availability of the powers to rectify the mistake under Section 35 of the Act did not bar recourse to the jurisdiction of issuing notice under Section 34,

7. In Commissioner of Wealth-tax v. Imperial Tobacco Co. of India Ltd., [1966] 61 I.T.R. 461, 466, 467 (S.C.), their Lordships of the Supreme Court, while considering the scope of Section 17(1)(b) of the Wealth-tax Act, referred to the decisions under 34(1)(b) of the Act, as the two sections were in pari materia. Having referred to some judgments of the various High Courts, their Lordships observed as under :

'It does appear that some High Courts at any rate are taking the view that a change of opinion by the Income-tax Officer in certain circumstances will be sufficient for the purpose of Section 34(1)(b) and will justify the issue of a notice thereunder. It may be added that after the decision of this court in Maharaj Kumar Kamal Singh's case it is now settled that ' information in Section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions, and that such information for the purpose of Section 34(1)(b) of the Income-tax Act need not be confined only to cases where the Income-tax Officer discovers as a fact that income has escaped assessment. To that extent the decision of the Bombay High Court in Sir Mahomed Yusuf Ismail, [1944] 12 I.T.R. 8 has been overruled. That is why the Appellate Tribunal stated in its decision that if the notices in the present case had been issued after the decision of the Appellate Assistant Commissioner in the appeal from the assessment for the year 1959-60, there would have been information in the possession of the Wealth-tax Officer to justify him in issuing notices under Section 17(1)(b) of the Act. But, in the present case the Wealth-tax Officer issued notices before that decision was known to him and the question is whether, in the circumstances, in view of the later decisions of the High Courts to which we have referred, a question of law arose or not. The language of Section 17(1)(b) of the Act is in pari materia with the language of Section 34(1 )(b) of the Income-tax Act and, therefore, the decisions under Section 34(1)(b), ibid would be relevant in construing the scope and effect of Section 17(1)(b) of the Act. There does appear to be divergence of opinion among the High Courts as to the meaning of the word ' information' in Section 34(1)(b) of the Income-tax Act, and in view of that divergence we are of opinion that a question of law did arise in the present case as to the interpretation of the word 'information' in Section 17(1)(b) of the Act and should have been referred by the Tribunal.'

8. On the basis of this judgment, the learned counsel for the petitioner has emphatically urged that we should direct the Tribunal to state the case and refer the question of law stated above for decision as there is a conflict of judicial opinion on the point whether the change of opinion by the Income-tax Officer amounts to 'information' within the meaning of Section 34(1)(b) of the Act which entitles him to issue the notice under that section. The change of opinion may come about on his own study of the law and the cases or his attention having been drawn to the correct state of law by any other person.

9. The last case relied upon by the learned counsel for the petitioner isthe judgment of their Lordships of the Supreme Court in Assistant Controller of Estate Duty v. Nawab Sir Mir Osman Ali Khan Bahadur, [1969] 72 I.T.R. 376 (S.C.) in which it was held that the opinion expressed by the Central Board of Revenue regarding the correct valuation of securities for purposes of estate duty, expressed in an appeal preferred by the accountable person, is 'information' within the meaning of Section 59 of the Estate Duty Act, 1953, as amended by the Estate Duty (Amendment) Act of 1958, on the basis of which the Controller can entertain a reasonable belief that property assessed to estate duty has been under-valued.

10. At this stage we are only concerned with the question whether a question of law arises out of the order of the Income-tax Appellate Tribunal and are not concerned with answering the same. It was so held by their Lordships of the Supreme Court in Commissioner of Income-tax v. Jai Parkash Om Parkash Company Ltd., [1964] 52 I.T.R. 23 (S C ) In that case the Tribunal had declined to state a case to the High Court whereupon the Commissioner moved the High Court under Section 66(2) of the Act for an order directing the Tribunal to state a case and refer the question whether the sum of Rs. 94,253'00 or any part of it accrued or arose or could be deemed to have accrued or arisen to the assessee during the accounting year. The High Court refused to direct the Tribunal to state a care on the grounds: (i) that no amount could be said to have accrued; and (ii) that the question whether an entry, which was made, was in respect of profits accrued or not, was a question of fact. On appeal to the Supreme Court it was held : (i) that when an application was .made under Section 66(2) to the High Court for an order directing the Tribunal to state a case and refer a question of law arising out of its order, the High Court could not deal with it by answering that question; (ii) that the question whether, on the facts as ascertained, certain income could be said to have accrued to the assessee, was a question of law and that, therefore, the question raised by the Commissioner ought to have been referred.

11. The learned counsel for the respondent has brought to our notice a judgment of their Lordships of the Supreme Court in Commissioner of Income-tax v. Rao Thakur Narayan Singh, [1965] 56 I.T.R. 234 (S.C.) in which it was held that 'if the Appellate Tribunal committed a mistake, under Section 35 it can be rectified within four years from the date of the order. In the present case it was a clear case of mistake, for the Tribunal set aside the order of reassessment in respect of the interest income, though its validity to that extent was not disputed. But, for one reason or other, the revenue did not resort to the obvious remedy and allowed the mistake to remain uncorrected. In these circumstances, can Section 34 of the Act be resorted to 'The answer to the question posed was given in the following words :

'It could not have been the intention of the legislature by amending the section to enable the Income-tax Officer to reopen final decisions made against the revenue in respect of questions that directly arose for decision in earlier proceedings. The Tribunal held in the earlier proceedings that the Income-tax Officer knew all the facts at the time he made the original assessment in regard to the income he later on sought to tax. The said finding necessarily implies that the Income-tax Officer had no reason to believe that because of the assessee's failure to disclose the facts, income has escaped assessment. The earlier finding is comprehensive enough to negative 'any such reason' on the part of the Income-tax Officer. That finding is binding on him. He could not on the same facts reopen the proceedings on the ground that he had new information. If he did so, it would be a clear attempt to circumvent the said order, which had become final. We are not concerned in this appeal with a case where the Income-tax Officer got new information which he did not have at the time when the Tribunal made the order. The finding of the Tribunal is, therefore, binding on the Income-tax Officer and he cannot, in the circumstances of the case, reopen the assessment and initiate proceedings over again. If that was not the legal position, we would be placing an unrestricted power of review in the hands of an Income-tax Officer to go behind the findings given by a hierarchy of tribunals and even those of the High Court and the Supreme Court with his changing moods.'

12. On the basis of this judgment, it has been submitted by the learned counsel for the respondent that in all the previous years and subsequent years the income from the lease of Jawala Flour Mills was considered by the department as income from business and the appeal filed before the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner of Income-tax for the year 1957-58 was withdrawn with the result that it has been accepted throughout by the department that the income from the lease of the mill was income from business. In view of that consistent decision for various assessment years it was not open to the Income-tax Officer to treat that income as income from other sources and not income from business. It is, therefore, contended that no question of law arises in the present case out of the order of the Tribunal. By this approach we shall be answering the question that arises in the case which we cannot do at this stage. At. this stage we have only to find out whether a question of law arises and not to answer it, as was held in Commissioner of Income-tax v. Jai Parkash Om Parkash Company Ltd.

13. As observed above, their Lordships of the Supreme Court held in Commissioner of Wealth-tax v. Imperial Tobacco Co. of India Ltd, that there was conflict of judicial opinion on the point whether change of opinionamounted to information within the meaning of Section 34(1)(b) of the Act and, therefore, we are of the opinion that a question of law as formulated by the petitioner does arise in the present case which the Tribunal ought to have referred under Section 66(1) of the Act to this court. We accordingly direct the Income-tax Appellate Tribunal to state the case and refer the question of law, set out above, to this court for decision. In the circumstances of the case, we make no order as to costs.

Mehar Singh, C.J.

14. I agree.


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