1. The Income-tax Appellate Tribunal, Madras, has sent us a consolidated statement of the case covering many references. We believe there might be occasions when the mechanics of a consolidated reference on different questions of law covering more than one assessment of the same assessee, or covering more that one assessee on identical question of law, would be a convenient procedure for dispatch of judicial business both by the Tribunal and by the High Court and the Supreme Court. But there are occasions when a groupal reference turns out to be a positive handicap for a proper determination of the questions at issue. In our view, consolidation of cases should not be resorted to merely for their labour-saving propensity alone. The purpose of consolidation must be to ensure a better appreciation of the legal perspectives involved in the questions referred and a more satisfactory determination of the baisc principles involved in those questions than would be achieved by a case-by-case disposal. In the present group of references, the consolidation of the statement of the case is related to the same assessee, but the questions referred to us are many and various, and they cover different assessment years. Not all the questions are common to all the years or even to some of the years. The result is, that there was quite a difficulty in unraveling the contentions of the parties and relating them to the particular assessments and particular questions covered by each reference.
2. Five assessment years 1963-64 to 1967-68 are involved in this consolidated reference, and five questions of law have been referred by the Tribunal for our answer. The first four questions look like being applicable to all the five assessment years, since no particular mention is made of any specific assessment years to which they relate. But, on examination, we found that they do not apply generally to all the five assessment years. In this way during the hearing, we have had to do considerable analysis of the facts relating to several assessment year, sift the assessment records and relate each and every question of law to the appropriate assessment or assessments. This process really involved 'unconsolidating' the consolidated statement of the case. For the sake of clarity of discussion, therefore, we propose to take up the questions of law one by one, state for which assessment year or years each one relates and consider the contentions of the parties bearing on that question and then proceed to set out own opinion on that question.
3. Before, however, we go into the details of each and every one of the questions referred to us, we may observe that the assessee in this case is a general insurance company carrying on fire, accident and other non-life business of insurance. The company was liable for Super profits tax for the assessment year 1963-64 and for the companies (profits) surtax for the assessment years 1964-65 to 1967-68. Broadly speaking, the scheme behind the two taxes, namely, the super profits tax and the companies (profits) surtax, is to charge to tax the excess of a company's yearly profit over a particular statutory limit. That limit or standard is called the 'standard deduction' under the Super Profits Tax Act, 1963, and 'statutory deduction' under the Companies (Profits) Surtax Act, 1964. The standard or statutory deduction (or to give it its mere popular expression 'exemption limit') is a deduction from the actual profits of the year. It has to be worked out at a certain percentage fixed under the statute. The percentage will have to be applied to the capital of the company. The idea obviously seems to be to cast the tax burden only on the excess rate of return on capital, which is the 'super' profit as it is called by the experts. That profit, which is in excess of what the Legislature regards as a normal rate of return for a business or industry i the chargeable profit. In the Super Profits Tax Act, 1963, the Legislature considered 6 per cent. on capital to be the standard profit. In the Companies (Profits) Surtax Act, 1964, the Legislature raised the standard deduction to 10% on the capital of the company. This percentage was subsequently increased to 15% in 1977. Both the Super Profits Tax Act and the Companies (Profits) Surtax Act contain elaborate provisions for computation of capital. The computation provisions are found incorporated in a schedule. It is the Second Schedule of the statute under both the Acts. The Schedule contains detailed provisions as to what considerations are to be taken into account in reckoning an assessee's capital as on the beginning of the accounting year, and what matters have to be left out of consideration in the computation of capital. The provisions in the Second Schedule to the Super Profits Tax Act, 1963, and similar provisions in the Companies (Profits) Surtax Act, 1964, are expressed in almost identical language subject to certain minor variations. Some of the questions referred to us in this consolidated reference involve the interpretation and application of the capital computation provisions under Schedule II.
4. It may be observed that under the very basis of taxation under both these Acts, the tendency of taxpayers would be to so compute the capital as to obtain a larger standard deduction, that is to say, a tendency to well the figure of capital. The reverse tendency would be discernible in the taxing Department, because the lesser the capital the lesser the standard deduction and the lesser the profits exempt from taxation. Hence, the important part played by the computation provisions is in Schedule II of both these Acts. We may further observe that in both these Act, there are detailed provisions to be found which lay down how the chargeable profits are to be computed. The principles for computation of chargeable profits are set out in Schedule I in both these Acts. Broadly speaking, chargeable profits are worked out on the basis of the income of the assessee as computed for regular income-tax purposes in the relevant assessment year. From this base, however, the profits are to be worked out, subject to certain exclusions and exceptions set out under the various suburbs in Schedule I. One of the items of income, or receipt, to be excluded from income already arrived at for the purpose of income-tax represents dividends from shares held by the assessee in Indian companies. This exemption of dividends, as of other categories of receipts in Schedule I, which are to be excluded form the computation of chargeable profits, has its echo or repercussion in the capital computation under Schedule II as well. This is because under Schedule II, an assessee's capital to start with is taken to be its paid-up capital plus general reserve, but the aggregate of the paid-up capital and the general reserves has got to be diminished in cases where the cost of any assets, the income from which source is excluded from chargeable profits, exceeds the amount of its borrowings. In such cases, the amount of capital and general reserves has got to be diminished by the excess of such assets over borrowings and other reserves. Apparently, this provision for diminishing the capital under given situations is based on the the realities of business investment. For instance, where a company acquires assets, the income wherefrom is to be excluded from computation of chargeable profits under Schedule I, the assessee would certainly be relieved from taxation on that income by the very force of the exemption provisions under Schedule I. If that part of the capital which had gone in for the acquisition of that income is also taken into consideration for the purpose of computing the capital, then that amount also will come in for exemption since for the purpose of computation of chargeable profits, the statutory percentage will be applied with respect to that part of the capital employed in the acquisition of assets whose income is excluded from assessment. Thus, there will be a double deduction with reference to the same subject-matter, once with reference to the exempted income and the second time with reference to the capital percentage. In order to avoid this redundant relief, the provisions in Schedule ll in both the Act provide that the capital of the company, made up of paid-up capital plus general reserve, will have to be diminished in cases where there are assets, whose income is exempt from taxation but where there is no corresponding borrowing or other reserve from out of which those assets had been acquired. Thus, as a matter of illustration, in a case where there are practically no outside borrowing of the assessee-company and yet a large part of its assets consists of assets, whose income is exempt from taxation, then under the provisions of Schedule II, the cost of those assets will have to be reduced from the capital consisting of its paid-up share capital and reserves.
5. In the present case, the assessee-company, as already observed, is an insurance company. They have a large investment in joint-stock company shares in Indian companies. In the assessment years in question, some of the shares held by the assessees yielded dividends but others did not. Where there were dividends from such shares, those dividends certainly stood excluded from the chargeable profits. This was on the basis of r. 1(viii) of Schedule I to the Super Profits Tax Act, 1963, and a similar provision in r. 1(viii) of Schedule I to the Companies (Profits) Surtax Act, 1964. This was also the basis on which the chargeable profits were computed by the ITO in the original assessment. But when the ITO proceeded to compute the capital for the purpose of arriving at the standard deduction or the statutory deduction, as the case may be in the same assessment, he took into consideration the figures of capital furnished by the assessee for the two years 1963-64 and 1964-65. As we have observed earlier; the shares held by this company during the relevant years consisted also of shares from which no dividends at all were received during the relevant years of account, and also shares from which dividends were received, but which were nevertheless exempted from Income-tax. The ITO was not made aware of this distinction. When the assessees disclosed, for the purpose of capital computation, their holding of equity shares in Indian companies from which they received dividends but which were exempt from tax, they did not at the same time show any of the shares in Indian companies on which no dividends had actually been declared or paid during the accounting year. For instance, in connection with the assessment year 1963-64, the assessee showed, for the purpose of capital computation, a holding of Rs. 24,23,761 worth of equity shares in Indian companies, and claimed that the dividends from these shares alone were exempt and hence those shares alone must be deducted form the capital of the company consisting of paid-up share capital and reserves. The ITO adopted this figure of the assessee on the method of calculation urged by the assessee, when he completed the original assessment for 1963-64 on February 5, 1965, and levied Super Profits Tax on the basis of that capital computation. Similarly, in making the original assessment, under the companies (profits) surtax for the next year 1964-65 which was also completed on February 5, 1965, the ITO accepted the basis on which the assessee furnished the figures of cost of shares which had to be deducted in the computation of capital. The deduction was restricted only to those shares from which dividends were exempted from tax. Subsequent to the completion of this assessment for 1964-65 and while the ITO was at work on the subsequent year's assessment for 1965-66 under the Companies (Profits) Surtax Act, 1964, he found that apart form the shares on which holding shares on which dividends had actually been received, but exempted, the assessee was also holding shers on which no dividends had been declared or paid in the relevant assessment years 1963-64 and 1964-65. He accordingly reopened the assessments for the two assessment years 1963-64 and 1964-65 for the purpose of arriving at the capital computation on a proper basis. The reopening of assessment for the year 1963-64 was made in exercise of the officer's powers under s. 9 of the Super Profits Tax Act, 1963. The reopening for the assessment year 1964-65 was made under s. 8 of the Companies (Profits) Surtax Act, 1964.
6. The question of law, which has been referred by the Tribunal for our consideration relates to the reopening of the assessments for 1963-64 and 1964-65 in the manner we have briefly described above. The question of law is couched in the following terms :
'Whether, on the facts and in the circumstances of the case, the reassessments under section 9 of the Super Profits Tax Act, 1963, and section 8 of the Companies (Profits) Surtax Act, 1964, were justified in law ?'
7. It may be observed that s. 9 of the Super Profits Tax Act, 1963, and s. 8 of the Companies (Profits) Surtax Act, 1964, contain two limbs. We are concerned in the present case only with the second limb, which is contained in clause (b) of the relevant sections. Clause (b) of s. 9 of the Super Profits Tax Act, 1963, is in the following terms :
'9. Profits escaping assessment : If - .......
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that chargeable profit assessable for any assessment year have escaped assessment or have been underassessed or assessed at too low a rate or have been the subject of excessive relief under this Act, he may,........... and in cases falling under clause (b) at any time within four years of the end of that assessment year, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under s. 6, and may proceed to assess or reassess the amount chargeable to super profits tax, and the provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section.'
8. Clause (b) of s. 8 of the Companies (Profits) Surtax Act, 1964, is also in the same terms, but the first part of the section, which is relevant for the purposes of the present discussion, may be extracted and reproduced.
'8. Profits escaping assessment : - If - ........
(b) 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 chargeable profits assessable for any assessment year have escaped assessment or have been under-assessed or assessed at too low a rate or have been the subject of excessive relief under this Act, he may.......'
9. It may be observed that the two provisions contained in the two Acts are more or less identical with s. 147(b) of the I.T. Act, 1961, which itself is a rehash of s. 34(1)(b) of the Indian I.T. Act, 1922. All these provisions are enabling provisions for reopening assessments and for levying 'back duty'. A common feature of these provisions is that the ITO must have come by some information or other, subsequent to the original assessment, and, on the basis of that information, he must have reason to believe that income has escaped assessment or has been underassessed. The important criterion is that the ITO must have information in his possession.
10. The contention of Mr. Swaminathan, learned counsel for the assessee, is that the reopening of the assessments by the officer in the assessee's case both for 1963-64 and for 1964-65 merely reflects a change of opinion on his part without any underlying information in support of it. Learned counsel accordingly submitted that the reopening is wholly invalid. The learned standing counsel for the Department, on the other hand, submitted that the whole basis for the reopening of the assessments by the officer for the two assessment years 1963-64 and 1964-65 was information of which the officer was in possession, he having culled it out from the subsequent year's assessment of the same assessee. According to the Department, what the officer, as an appropriate fiscal authority entrusted by the statutes with the task of doing assessment work, was able to obtain from a subsequent year's assessment records must be regarded as information, which he was entitled to make use of for the purpose of reopening the assessments of the earlier years.
11. Although the enabling provisions in the several direct taxes Acts for reopening assessments for the purposes of back duty do not involve any complexity of language, the concerned provisions have nevertheless together a considerable abundance of case-law. In Maharaj Kumar Kamal Singh v. CIT : 35ITR1(SC) , the Supreme Court has held that 'information' within the meaning of s. 34(1)(b) of the Indian I.T. Act, 1922, can be information as to a fact as well as information as to the state of the law. The Supreme Court in that case held that where for a given year the original assessment was completed on a particular basis and on a particular understanding of a provision of law by the ITO and subsequently there comes a decision of the Privy Council giving a different interpretation to the statutory provision, the ITO would be well within his rights in reopening the original assessment, since the decision of the Supreme Court on a construction of a particular statutory provision would constitute 'information', which would enable the ITO to reopen the assessment under s. 34(1)(b) of the Act.
12. There have been innumerable other decisions of courts which have applied the Privy Council's interpretation of s. 34(1)(b) of the Indian I.T. Act, 1922. It is sufficient to refer to only one of them, that of a Division Bench of our court in Salem Provident Fund Society Ltd. v. CIT : 42ITR547(Mad) . In that case, the Bench had occasion to construe the expression 'information' occurring in s. 34(1)(b) and contrast the provision from another provision in the same Act, namely s. 35, which was concerned with rectification of mistakes apparent from the record. Rajagopalan J., speaking for the Bench, expressly stated that a mistake in the original assessment, if pointed out by an extraneous authority, would be information within the meaning of s. 34(1)(b). Likewise, where the ITO himself, subsequent to the original assessment, comes to know that that assessment contains a mistake and he comes to know of it by a subsequent study of the records, then, according to the learned judge, it would be an information. The learned judge observed (p. 565) :
'It is difficult to accept the position that while what is seen by another in the record is 'information', what is seen by the Income-tax Officer himself is not information to him. In the latter case, he just informs himself. It will be information in his possession within the meaning of section 34. In such cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escapement of assessment or underassessment.'
13. This decision of the Madras High Court was referred to by the Supreme Court in Anandji Haridas & Co. (P.) Ltd. v. S. P. Kushare  21 STC 326;  1 ITJ 586. That case arose under the Central Provinces and Berar Sales Tax Act, 1947, which contains a provision for reopening of an assessment, equivalent more or less to s. 34(1)(b) of the Indian I.T. Act, 1922. Section 11A of the Central Provinces and Berar Sales Tax Act provided for reopening of a sales tax assessment in consequence of information coming into the possession of the Commissioner of Taxes. Construing that provision as being in pari materia with s. 34(1)(b) of the Indian I.T. Act, 1922, Hegde J., speaking for the majority of three out of five judges of the Supreme Court, observed that the knowledge of a fact that the assessee had not submitted his quarterly returns as well as the contents of the treasury challans would constitute information to the assessing authority. The learned judge cited, apparently with approval, the decision of this court in Salem Provident Fund Society Ltd. v. CIT : 42ITR547(Mad) .
14. In Kalyanji Mavji & Co. v. CIT : 102ITR287(SC) , the Supreme Court had a direct opportunity to construe the expression 'information' occurring in s. 34(1)(b) of the Indian I.T. Act, 1922. Murtaza Fazal Ali J., speaking for the court, observed that the expression 'information' in s. 34(1)(b) was of the widest amplitude, and it comprehends a variety of situation. According to the learned judge, the only limiting factor was that the power under that section, however wide it may be, is not plenary. On the contrary, he said, the discretion of the ITO was controlled by the words 'reason to believe'. The learned judge further observed that information on which the ITO can act under this section may come in and flow from external source; or it may be found from materials already available on record; or it may be derived from the discovery of new and important matter or fresh facts. In the course of his judgment, the learned judge further observed that even where income liable to tax had escaped assessment due to inadvertence or oversight or mistake committed by the ITO, s. 34(1)(b) would be applicable on the principle that the taxpayer would not be allowed to take advantage of such oversight or mistake committed by the taxing authority. It was, however, clearly laid down by the learned judge that where the ITO gets no subsequent information on the subject, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, s. 34(1)(b) would have no application.
15. The observations last mentioned were the subject of subsequent comment in Indian and Eastern Newspaper Society v. CIT : 119ITR996(SC) , which is a decision by three judges of the Supreme Court. In that case, after referring to Maharaj Kumar Kamal Singh's case : 35ITR1(SC) and subsequent decisions of the Supreme Court, the learned judges referred to the decision of the Supreme Court in Kalyanji Mavji's case : 102ITR287(SC) . It was observed that the court's observation in Kalyanji's case that where income had escaped assessment due to the oversight or inadvertence or mistake of the ITO, that case would fall within s. 34(1)(b) of the Indian I.T. Act, 1922, was a proposition stated too widely, and went farther that the statute; in the case before the later Bench in Indian and Eastern Newspaper Society's case : 119ITR996(SC) , it was held that an error discovered merely on a reconsideration of the same materials and no more would not give the ITO a power to reopen an assessment.
16. The observation of the Supreme Court referred to above and the general trend of the discussion in Indian and Eastern Newspaper Society v. CIT : 119ITR996(SC) , were relied upon strongly by Mr. Swaminathan to put forth the contention that a mere change of opinion on the part of the ITO cannot be the basis for reopening an assessment under s. 34(1)(b) of the I.T. Act, 1961, or its prototype, s. 147(b) of the I.T. Act, 1961, or the provisions which are presently under consideration, namely, s. 9(b) of the Super Profits Tax Act, 1963, and s. 8(b) of the Companies (Profits) Surtax Act, 1964.
17. On a review of the decisions of the Supreme Court, the position is fairly clear. A mere change in the opinion on the part of the ITO, without anything more, cannot provide a basis for reopening an assessment under these provisions. If information is on a matter of law, the source of that information must be from an authority which is authorized and accredited to lay down the law, such, for instance, as the Supreme Court in Maharaj Kumar Kamal Singh v. CIT : 35ITR1(SC) , or the Central Board of Revenue acting as an appellate authority in estate duty cases, as elucidated in CIT v. Holck Larsen : 85ITR467(Bom) . Where, however, the ITO seeks to proceed on a different interpretation of law, he being prompted to do so by a note prepared by the Internal Audit Party of the Income-tax Department, that cannot be regarded as 'information' for the simple reason that the Internal Audit Party is not charged under the statute with laying down the law or making decisions binding on the ITO. This last principle is derived from a recent decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT : 119ITR996(SC) . In cases where the ITO is moved to reopen an assessment on the basis of information as to a fact, it is essential that the information must be subsequent to the conclusion of the original assessment. But it is not necessary that the information should have an outside source. The information may be found in the assessment records themselves. Without information of this kind, the ITO cannot go over the same ground of the original assessment, but seek to reopen it under the enabling provisions of the statute merely on the score that he had rendered a wrong decision on the facts or on a wrong understanding of the facts relevant to the assessment, while making the original order of assessment.
18. In the present case, the Tribunal, which had the advantage of perusing the records of the original assessment and also the circumstances under which the original assessments for 1963-64 and 1964-65 were made and the records which showed the circumstances under which those assessments were reopened, had clearly found in its order that there was information, which came into the officer's possession subsequent to the original assessment, from which alone he had reason to believe that the earlier computation of capital was based on incorrect data. The Tribunal had referrred to the notings made by the ITO in the assessment files for 1965-66 assessment and had found that the capital computaton had not been correctly made inasmuch as a diminution of the capital was made only in respect of the shares, which had yielded dividends during the year of account, but which were tax exempt. The Tribunal observed that, while making the capital computation in the original order for 1963-64 and 1964-65, the officer had merely looked into the computation made by the assessee and had adopted the figures without going further into any of the relevant questions under Schedule II. They further observed that there was no discussion anywhere in the records about the nature of the shares and whether there were any dividends which they yielded or not. It was only subsequently revealed to the ITO when making the assessment order for 1965-66 and when he had gone into the matter more fully and found that there were shares held by the assessee from which no dividends had been declared and (the cost of) these shares also had been included by the assessee while reckoning the paid-up capital and general reserve in order to obtain the capital employed in the company's business for the purpose of arriving at the statutory deduction. In this way, the officer found that by merely adopting the figures furnished by the assessee for the purpose of capital computation, shares of the value of Rs. 44,33,169 were not deducted from the sum total of paid-up share capital and reserves (for 1963-64). Likewise, for the assessment year 1964-65, the shares of the value of Rs. 58,00,472 were not excluded from the capital computation even though they were shares held by the assessee in the Indian companies and they should have been so excluded, according to the ITO. The Tribunal were conscious of the fact that the officer, who made the original assessment, was the same individual who subsequently sought to reopen the assessments. But the notice issued by the ITO for 1964-65, according to the Tribunal, made it quite clear that during the original assessments, there was no information on which he could apply his mind on the question about the nature of the shares, whether they yielded dividends or not, for the purpose of capital computation.
19. Learned standing counsel for the Department submitted that this part of the findings of the Tribunal in which they had clearly concluded that the information at the disposal of the ITO subsequent to the completion of the original assessment for 1963-64 and 1964-65 was not available with him at the earlier point of time, must be reagrded as a finding of fact, which this court must accept without question considering that the assessee had not sought to challenge that finding by any relevant question suitably phrased for that purpose. We accept this contention of the learned counsel for the Department, having particular regard to the frame of the question of law before us. The real scope of the question for our consideration is whether there was information before the ITO, which had subsequently come into his possession after the completion of the original assessment, from which the ITO can form a reasonable belief that chargeable profits had escaped assessment On the finding of the Tribunal, our answer to the question must be in the affirmative.
20. Mr. Swaminathan, learned counsel for the assessee, pointed out that the view that even the shares which had yielded no income whatever must go in for a diminution of the capital under Schedule II of the two Acts, is a proposition which has been discredited by a recent judgment of this court in Addl. CIT v. Madras Motor and General Insurance Co. Ltd. : 117ITR354(Mad) . In that case, the learned judges held that for the purpose of Schedule II, rule 2 of the Companies (Profits) Surtax Act, 1964, holdings of shares from which no dividend whatever had been declared or received during the account year, cannot be deducted from the capital of the company consisting of the paid-up share capital and general reserves. According to the learned counsel, only in cases where druing the acccounting year in question there were dividends declared and paid by the Indian companies and those shares were held by the assessee during that year in the capital computation can also be taken note of the case of these shares for the purpose of diminishing the aggregate figure for the capital consisting of the paid-up share capital and the reserves. Mr. Swaminathan submitted that in view of the decision in Addl. CIT v. Madras Motor and General Insurance Co. Ltd. : 117ITR354(Mad) , the ITO's action in reopening the assessment on the basis of the information cannot be upheld.
21. We cannot accept this submission as relevant. This submission would be pertinent if we were asked to decide the merits of the computation of capital of the company, since for doing so, we will have to necessarily abide by the Bench decision in Addl. CIT v. Madras Motor and General Insurance Co. Ltd. : 117ITR354(Mad) . It must, however, be observed that this court's decision, which was rendered on November 16, 1977, was unavailable to the ITO at the time he reopened the assessment for the years 1963-64 and 1964-65. Before that decision was rendered, the view that even shares, which yielded no income during the accounting year, would come in for the purpose of diminishing the capital consisting of paid-up share capital and general reserve cannot be dismissed outright as wholly untenable in view of r. 2 of Schedule II. In any case, if the ITO can entertain such a view of the law, then he would be entitled to apply that view to the facts of the case, which facts were not within his knowledge at the time when the original assessments were made by him. This was because he had accepted without question the computation furnished by the assessee at the time of the original assessment. We are, therefore, satisfied that the Tribunal was correct in upholding the reopening of the assessment for the two years 1963-64 and 1964-65, under s. 9(b) of the Super Profits Tax Act, 1963, and under s. 8(b) of the Companies (Profits) Surtax Act, 1964, respectively. Our answer to the first question, therefore, is in the affirmative and against the assessee. The effect of this answer is that Tribunal's decision to go into the merits of the reassessments for the two assesssment years was quite justified.
22. One argument which was pressed into service in connection with the format of the above question needs to be mentioned. According to Mr. Swaminathan, there was another assessment in this group of assessments, covered by the consolidated statement of the case in which also, the question of reopening the assessment figured. He submits that that question is still at large and must be gone into by this court in the present proceedings. He referred to the fact that for the assessment year 1965-66 also, the ITO had reopened the original assessment in exercise of his powers under s. 8(b) of the Companies (Profits) Surtax Act, 1964. Therefore, he said, our answer must cover the question of the validity of the reassessment for that year 1965-66 too. According to the learned counsel, this issue also is comprehended within the generality of the ambit of the first question of law in this group of references. He urged that, in these events the assessee is entitled to canvass the validity of the reopening of the assessment for 1965-66 as well in this reference. In this connection, he also drew our attention to a distinct question of law, which he propounded in his separate application for reference before the Tribunal relating to the year 1965-66, in R.A. No. 537 (Mds) 73/74 against S.T.A.N. 15 (Mds)/71-72.
23. We, however, find from the order of the Tribunal in S.T.A. 15 (Mds) for the assessment year 1965-66, that the question relating to the validity of the reopening of the assessment for that year was not seriously urged for the assessee by the assessee's representative before the Tribunal. The order of the Tribunal in S.T.A.No. 15(Mds)/71-72 has not been made an enclosure in the consolidated statement of the case. But we called for the order and we find the following passage in which the Tribunal had dealt with this question :
'Mr. Swaminathan, learned counsel, as already indicated, did not seriously argue on the reopening of the assessment as far as this assessment year is concerned, as he did did so for the earlier two assessment years.'
24. There is another passage in paragraph 1 of the Tribunal's order relating to the same point under discussion. That passage reads as under :
'Before us, Mr. Swaminathan relied on the same arguments as were advanced for the assessment years 1963-64 and 1964-65, and did not specially advance any argument even though the reassessment proceedings were based on different grounds.'
25. These observations of the Tribunal show clearly how the assessee's contentions regarding this aspect of the case were put forward before the Tribunal for the assessment year 1965-66. It was because no special arguments were addressed with particular reference to the assessment year 1965-66, that the Tribunal also did not refer particularly to the assessment year 1965-66, in the consolidated statement of the case, as having any special features on the question of validity of the reopening of the assessment. Mr. Swaminathan referred to the following further passage in order of the Tribunal :
'In a nutshell his case was that here also there was a change of opinion. However, we find there is nothing on record to show that here again the Income-tax Officer had already applied his mind in this direction. In our opinion, for this assessment year also, there is no change of opinion by the Income-tax Officer. Hence, we reject this contention of the assessee.'
26. What we find is that in contrast to the elaborate materials found in the Tribunal's order relating to the reopening of the assessments for 1963-64 and 1964-65, there are no (such materials for) the reopening of the assessment for 1965-66. All we have is the conclusion of the Tribunal that the ITO could not be held to have acted merely on a whim or a mere change of opinion. This finding as respects the reassessment for 1965-66 was in tune with the conclusion which the Tribunal had arrived at in regard to the reopening of the assessments for the two earlier years 1963-64 and 1964-65. In the absence of any other or further discussion in the Tribunal's order, and in the absence of any question of law challenging the basis of the conclusion arrived at by the Tribunal for 1965-66, we do not think we will be justified in going into the matter any further. It is on the materials, which are found available in the consolidated statement of the case and also in the several orders passed by the Tribunal in the appeal, on which we would be in a position to express our opinion on the applicability of s. 8(b) of the Act. These materials have been vouchsafed to us for the two years 1963-64 and 1964-65, in so far as the reassessment proceedings under the Companies (Profits) Surtax Act is concerned. For 1965-66, we are faced with a complete lack of similar detailed materials. Hence, we are afraid we cannot express our opinion one way or the other on the validity of the reassessment proceedings for 1965-66.
27. Passing to the other questions of law awaiting our consideration, questions Nos. 2 and 3 are in the following form and they relate to the assessment years 1963-64 and 1964-65 :
'Whether, on the facts and in the circumstances of the case, the premium deposits could not be taken into account in the capital computation of the assessee-company
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the premium deposits and unearned premium did not fall under either clause (i) or (ii) of rule 2 of the Second Schedule to the Act
28. The answer to these questions is covered by the Full Bench decision of this court in Madras Motor and General Insurance Co. Ltd. v. CIT : 117ITR354(Mad) . The Full Bench held that in determining the capital of an insurance company, premium deposits and unearned premium cannot be called as reserves and taken into account for determining the capital of the company for the purpose of r. 2 of Schedule II to the Companies (Profits) Surtax Act, 1964. Following the decision of the Full Bench, these two questions are answered against the assessee.
29. The fourth question for our consideration related to the assessment year 1965-66 alone, and it is framed in the following terms :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the amount representing provision for taxation and the amount set apart for proposed dividends in the balance-sheet could not be regarded as a fund, surplus or reserve under rule 2, clause (ii) ?'
30. This question involves two amounts. One is a provision for taxation made in the balance-sheet and the other an amount set apart for proposed dividends. The Full Bench, to which we have made reference earlier, has dealt with these two questions as well. Their decision was that in determining the capital of an insurance company, provision for taxation cannot be regarded as a reserve in view of clause 2, r. 2 of Schedule II. Similar was their decision in regard to the amount set apart for proposed dividends in the balance-sheet. Hence, this question of law must be answered against the assessee following the Full Bench decision.
31. The fifth and the last question for our consideration in this consolidated reference relates to another component in the computation of capital under Schedule II, r. 2 of the Companies (Profits) Surtax Act, 1964. The question of law is in the following terms :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the provision for the outstanding claims for the assessment years 1964-65, 1965-66, 1966-67 and 1967-68 was not a fund, surplus or reserve under rule 2(ii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?'
32. The answer to this question is also to be found in the decision of the Full Bench in Madras Motor and General Insurance Co. Ltd. v. CIT : 117ITR534(Mad) , in which it was held that the provision for outstanding claims cannot be regarded as a fund, surplus or reserve within the meaning of r. 2(ii) of the Second Schedule to the same Act. Following the Full Bench decision, we must answer this question also against the assessee.
33. In the result, the reference is answered accordingly. The Department will have its costs. Counsel's fee Rs. 500 (one set).