KUMARA PILLAI, J. - This is a reference under section 66(2) of the Indian Income-tax Act made by the Madras Bench of the Income-tax Appellate Tribunal in compliance with the direction in the order of the High Court of Travancore-Cochin in O.P. Nos. 146, 147 and 148 of 1954. All the three original petitions were filed by the same assessee, and they related to his assessments under the Travancore Income-tax Act for the years 1122, 1123 and 1124 M.E. He was first assessed for these three years by the Income-tax Officer, Salary and Non-resident Refund Circle, Alleppey. Later, acting under section 47 of the Travancore Income-tax Act, the Income-tax Officer issued a notice to him for re-opening the three assessments, and after hearing his objections re-assessed him for considerably larger amounts in respect of all the three years by a consolidated order dated December 10, 1949. These re-assessments were taken by him in appeal to the Appellate Assistant Commissioner of Income-tax, Ernakulam, and the Appellate Assistant Commissioner quashed all the three assessments on the ground that there was no definite information before the Income-tax Officer leading to the discovery that income during the three years in question had escaped assessment and therefore the proceedings for re-assessments were wrongly initiated by him. The Appellate Assistant Commissioner did not go into the question whether the additional amounts for which the re-assessments were made by the Income-tax Officer were really the income of the assessee or not. On appeal by the Department the Income-tax Appellate Tribunal set aside the Appellate Assistant Commissioners order and remanded the appeals from the three assessments to the Appellate Assistant Commissioner for a rehearing and fresh disposal holding that there was definite information before the Income-tax Officer enabling him to reopen the assessments. Thereupon, the assessee asked for references to be made to the High Court under section 66(1), and, on the refusal of the Appellate Tribunal to make such references, he filed the original petitions mentioned above in the High Court of Travancore-Cochin and obtained the order directing the Tribunal to make the references.
A consolidated case has been stated by the Appellate Tribunal referring to this court one common question in respect of all the three assessments, and that question is :
'Whether on the facts and in the circumstances of the case, it could, in law, be held that there was definite information before the Income-tax Officer leading to the discovery of under-assessments to enable the Income-tax Officer to start proceedings under section 47 of the Travancore Income-tax Act ?'
The notices for re-opening the assessments under section 47 were sent to the assessee with a covering letter from the Income-tax Officer. In that covering letter the Income-tax Officer had informed the assessee that on enquiries he understood that he (the assessee) had made huge investments during the three years as deposits in banks and by purchase of shares in companies, and he called upon the assessee to make a correct return of his income disclosing all the deposits in banks and shares in companies. It was admitted by the assessee before the Income-tax Officer that he had made large investments as deposits in banks and by purchases of shares in companies, to the extent of about Rs. 80,000, and he put forward a case that they were made partly with the savings from his salary in the past years and partly with amounts entrusted with him and with the sale proceeds of ornaments entrusted with him by his mother for the benefit of his daughters to whom she had given them as sthreedhanam. These amounts or the income therefrom had not been disclosed in the returns for the years 1122, 1123 and 1124. Before issuing the notices under section 47 there was some correspondence between the Income-tax Officer and the Inspecting Assistant Commissioner about this case, and during the course of that correspondence the Income-tax Officer had written to the Inspecting Assistant Commissioner :
'...I write to inform you that as a result of the enquiries made by me it is understood that the party (the reference is to the assessee in this case) has in recent years considerable wealth and has made some investments which do not bear any proportion to the monthly salary that he was drawing from the company. Mr. Krishnaswamy Iyer (the assessee) is the agent of the company at Alwaye and all goods supplied to the company by the several contractors have to be certified by him. My information is that he was in receipt of a commission of eight annas per bag of the goods certified by him. The fabulous amount of savings he has made during these years is from this source.'
If this information was before the Income-tax Officer at the time he issued the notices under section 47, that, coupled with his knowledge which he had obtained after the first assessment that the assessee had large deposits in banks and had also purchased shares in companies to a great extent, is undoubtedly 'definite information' within the meaning of section 47, which has come into the possession of the Income-tax Officer leading to the discovery that income, profits or gains chargeable to income-tax had escaped assessment during the years of the assessments already made.
Whether the information is definite and it would lead to the discovery that income had escaped assessment must largely depend upon the facts and circumstances of each case. Admittedly, there are deposits and investments in the name of the assessee, and those deposits and investments were not within the knowledge of the Income-tax Officer at the time of the first assessment, and he came to know of them only after those assessments. The Income-tax Officer says that on making enquiries he has also obtained information that the assessee was getting commissions from contractors on the goods they supplied to the company in which he was employed and that these deposits were being made with those commissions. That he had such information is clear from the fact that he had made reference to it even in the letter written to the Inspecting Assistant Commissioner before the issue of notices.
It would appear from the re-assessment orders that some of the persons who gave the information to the Income-tax Officer before the issue of the notices were not prepared at the time of the assessments to give evidence on oath that they had paid commissions to the assessee. Learned counsel for the assessee contended before us that from this circumstance we should infer that there was no definite information as to the receipt of commissions by the assessee and that there were only vague and indefinite rumours to that effect. What section 47 says is not that the Income-tax Officer should have legal evidence before him but only definite information before he issues the notice. The fact that his informants subsequently refused to give legal evidence would not make the information which he had got from them in the first instance indefinite information, if he had reasons to believe that what they had told him in the first instance was true and he had believed it bona fide. He could not have anticipated that the persons who had given the information would refuse to give legal evidence if, on the issue of the notices under section 47, the assessee denied their statement to him that he had received commissions from them. Having regard to the fact that the assessee had large deposits in the bank which were not disclosed at the time of the first assessments the reliance place by the Income-tax Officer, at the time of the issue of the notices, on the information first supplied to him cannot be said to have been made recklessly or without good faith. No doubt, the assessees case is that the Income-tax Officer had no further materials for making the re-assessments after he appeared in pursuance of the notices and disputed the correctness of the information obtained by the Income-tax Officer and that he had not, as a matter of fact, received any commission and the Income-tax Officer was, therefore, wrong in making the re-assessments. These are matters which should have been considered by the Appellate Assistant Commissioner in the appeal filed by the assessee, but the Assistant Commissioner did not elect to consider them and quashed the assessments solely on the preliminary ground that the very issue of the notices was not justified under section 47. In the view that it took, that the Income-tax Officer was justified in issuing the notices, the Appellate Tribunal has only remanded the case to the Appellate Assistant Commissioner without expressing any opinion on the assessees further case that he had no additional income which could be re-assessed.
The Supreme Court has observed in Lakshman Shenoy v. Income-tax Officer :
'It is to be remembered that there is a distinction between receipt of definite information as a consequence of which a discovery is made and a notice is issued, and the final determination as to the liability or extent of liability for escaped assessment, etc. We accept as correct the view expressed in Firm Jitanram v. Commissioner of Income-tax, that the phrase definite information cannot be construed in a universal sense and its meaning must depend on and vary with the circumstances of each case. There is no doubt, however, that the information must be definite, that is, more than mere guess, gossip or rumour. There must also be a casual connection between the information and the discovery; but discovery in the context of the section does not mean a conclusion of certainty at the stage of notice. What is necessary at that stage is that the Income-tax Officer should have formed an honest belief upon materials which reasonably support such belief. This, in our opinion, is the correct view, and judged from that standpoint, Exhibit VIII (the notice in that case) fulfilled the requirements of section 44 of the Cochin Act and section 47 of the Travancore Act.'
Judged in the light of the principles laid down in the above passage by the Supreme Court there can be no doubt that there was definite information before the Income-tax Officer which justified the issue of the notices in the present case. The fact that the Income-tax Officer was unable to confront the assessee with legal evidence when the latter questioned the correctness of the information at the second stage when he appeared in pursuance of the notices under section 47 would not be sufficient to hold that the information which the Income-tax Officer had before issuing the notices was indefinite. For deciding whether that information was definite or indefinite what is to be looked into is only the materials which the Income-tax Officer had before him at the time of the issue of the notices and not the facts and circumstances disclosed as the result of the proceedings following the notices. If the materials before the Income-tax Officer at the time of the issue of the notices were such as to give reasonable grounds to a reasonable person for believing bona fide that a part of the income of the assessee which was chargeable to income-tax had escaped assessment, he would be justified in issuing the notices under section 47 even if it subsequently turned out that the information which he had was not correct.
In view of the circumstances of this case already referred to, the question referred to us has to be answered in the affirmative, and we answer it accordingly. The assessee will pay the costs of the Department including an advocates fee of Rs. 150.
Question answered in the affirmative.