VEERASWAMI J. - We are in this reference concerned with the assessment year 1955-56 for which the previous year ended on April 30, 1955. The assessee was a registered firm having eight partners of whom four were the relative husbands of other partners. For the year in question, the assessee returned a total income of Rs. 1,21,058 which was accepted by an order of the Income-tax Officer dated October 11, 1956. The assessment was however reopened under section 34 of the Income-tax Act, 1922, and a sum of Rs. 10,000 was added to the chargeable income on the view that it represented undisclosed income of the assessee. The propriety of this order was the subject-matter of an appeal a further appeal, both of which failed. The Tribunal has, under section 66(1) of the Act, refereed to this court the following question :
'Whether, on the facts and in the circumstances of the case, the reassessment on the assessee firm for 1955-56 assessment under section 34 is valid in la ?'
There is some controversy as to the precise scopes of this question to which we will refer in the proper place.
We shall refer to certain further facts in order to appreciate the argument before us for the assessee. As on April 12, 1954, each of the lady partners was credited in the accounts of the firm with a sum of Rs. 15,000 which included a sum of Rs. 2,500. While making the original assessment, the Income-tax Officer noticed these credit and called upon the assessees to file written explanations as to the source of the sum of Rs. 2,500 in leach case. This was on February 7, 1956. The explanation of the assessee dated February 24, 1956, was that the sum of Rs. 15,000 related to the share capital of each of the lady partners, of which Rs. 2,500 had been received from their mothers-in-law in each case in accordance with the wishes of her husband and that the balance was cash that remained with each since their drawal of the amounts from the savings bank account in the name of each lady about December, 1947. The firm also explained that the ladies capital from their own earnings. On September 14, 1956, the books of the assessee were examined and it was also given an opportunity to explain in and prove the nurture and source of credits of Rs. 2,500 in the accounts of each of the ladies. Request for further time was granted and finally on October 11, 1956, the Income-tax Officer recorded that the assessee obviously had no mind to furnish the evidence and was unnecessarily dragging the proceeding and went on to observe that 'the credits will be considered in the hands of the partners and the assessment will be completed.' The notes of the Income-tax Officer dated September 28, 1956, showed that he had before him the savings bank pass book of each of the lady partners with the Madura Mercantile Bank Limited. The pass books did show with draw a by each of the ladies in December, 1947, of a sum of Rs. 2,450 from the bank. We also find that on April 4, 1956, one of the partners, E. A. V. Rangachary, gave a sworn statement before the Income-tax Officer who examined him for the purpose.
On October 30, 1956, the assessment of two of the partners E. A. V. Rangachary and E. A. V. Sundara Rao, were completed by including in each case a sum of Rs. 2,500 standing in the name of the wife of each in the firms books. It does not appear that any such inclusion was made in the assessment of the other two partners. The two partners as individuals appealed to the Tribunal, they having failed before the Appellate Assistant Commissioner. The Tribunal allowed the appeals and directed the direction of the sum or Rs. 2,500 in each case observing :
'These credits have been attempted by the department to be tucked in this assessment to the individual partner. On the other hand, the rational method will be to assess the whole of Rs. 5,000 in both the partners or their wives accounts as income from undisclosed sources of the partnership itself.... So far as this assessment is concerned the addition has no place and is deleted with our direction to the Income-tax Officer to take suitable steps and reassess the escaped income in the hands of the firm in which the credit appears and of which the assessee is a partner if he is so advised.'
That was how the proceedings were initiated by the Income-tax Officer user section 34 of the Act.
This officer referred in his reassessment order dated March 25, 1960, to the earlier history relating to the sum of Rs. 2,500 in the case of each of the lady partners and stated that the old bank accounts in the ladies names were produced to show that were moneys in their names even in earlier years but it was considered that the where with a for the amounts credited in the ladies follows was not satisfactorily established. In the circumstance, these credits were considered on the previous occasion, when the original assessment was made, to be some income from undisclosed sources. However, as appears from the reassessment order, the first Income-tax Officer making the initial assessment thought that these credits should be dealt with in the individual assessments of the respective partners and assessed as the undisclosed income of the partners. The Income-tax Officer, in exercise of his power under section 34, once again examined the matter and said :
'This sum of Rs. 2,450 withdrawn from the bank is said to have been kept on hand by each lay here an made available in 1954 for introduction as credit in her name. I have carefully considered the explanation. No doubt there is proof to show that there was a bank account opened in each ladys name even in 1946 and money were deposited and withdrawn in the account and that in doubt December, 1947, Rs. 2,450 was with drawn from the account of each lady. However, there is no proof that these amounts withdrawn in 1947 were available all these years for being introduced as credits in their names after about seven years in 1954. The time lag is too long to correlate the withdrawal in 1947 with the credit now appearing in 1954. There is absolutely no proof that these money were available all these days....'
On that reasoning, therefore, it appeared to the Income-tax Officer to be clear that any presumption that these credits in the ladies accounts during the period April 10, 1954, to May 10, 1954, could have come out of the with drawals made some seven years previously would not be justified. Accordingly he brought this sum or Rs. 10,000 to charge on the view that the sum was from undisclosed sources and was liable to tax under the head of 'other sources'. The Appellate Assistant Commissioner declined to interfere with this order and so too the Tribunal.
While disposing of the appeal preferred by the firm, the Tribunal stated that no explanation was offered by the credit of each of the lady partners and, after noticing the arguments for the assessee, proceeded to observe :
'It is idle to contend that, in so far as the firms assessments is concerned, there has been a change of opinion on the facts of the case that the credits had been considered at these stage of the original assessment on the firm and as a consequence the additions had not been made. As regards the assessment of two of the partners in which the credits were considered, their explanations having been rejected as unworthy of credence, it can hardly be contended that the department is prevented from reopening the firms assessment.... As regard the alternative contention that, in so far as regards two of the partners in whose assessments the amount safe the credits had not were is that mere non-consideration is not tantamount to acceptance of the credit as genuine, more especially as an identical explanation has been considered and rejected in the other two cases which were considered.'
When the matter came up before this court in the first instance, it was thought that the statement of the case originally submitted by the Tribunal was inadequate to satisfactorily answer the question referred under section 66(1) and a supplementary statement of facts was therefore called for, especially with reference to the facts and circumstance relating to whether the firm had offered an explanation to the Income-tax Officer before he made the initial assessment and whether the explanation, if given in respect of the credits, was considered by the Income-tax Officer while making the assessment order. The supplementary statement has since been submitted and the facts we have related have been partly taken from that statement.
It is clear from the facts on record, particularly the statement and supplementary statement of the case, that the when making the initial order of assessment, the Income-tax Officer had before him the assessees accounts, its explanation in regard to the credit entries of each of the lady partners, their relative savings bank pass books and the sworn statement of the partner, E. A. V. Rangachary. It is further clear that the Income-tax Officer did consider these materials but was of opinion that the credits should be consider these materials but was of opinion that the credits should be considered in the hands of the respective partners. For the assessee as two-fold contention is urged : (1) The assessment, in so far as it was pursuant to a direction given by the Tribunal in the two appeals filed by two of the partners in their status as individuals to reopen the assessment of the firm, is invalid, and (2) in any case, the facts of the case did not justify the application of section 34(1) (b) of the Act. The first limb of the contention is easily disposed of. The scope of the second proviso to section 34(3) is well established : Income-tax Officer v. Murlidhar Bhagwan Das. If the reassessment order had been solely upon the basis of such direction, there can be no doubt that its validity cannot be supported. But the Tribunal in its statement of the case mentioned that the order was fully supportable by reason that action was justified under section 34(1) (b), as evident from the record. It is on this question learned counsel of the assessee mainly concentrated. He says that the Income-tax Officer, while purporting to act under section 34 of the Act, had no fresh information or material which he did not have at the time the original assessment was made and that the view of the Tribunal in the appeals filed by two of the partners as individuals represented nothing more than a change of opinion. On the other hand, for the revenue, Mr. Balasubrahmanyan urges that the findings, so he describes it, of the Tribunal in the appeals field by the partners as individuals, amounted to information within the meaning of section 34(1) (b) of the Act which was not there before the Income-tax Officer while making the initial assessment and that this gave the Income-tax Officer jurisdiction to reopen the assessment. The question, therefore, resolves itself to what was precisely meant by information for the purpose of section 34(1) (b) and whether the finding of the Tribunal aforesaid can be regarded as such information. Section 34(1) vests jurisdiction in the Income-tax Officer to reopen an assessment in two contingencies, one of which is what is contained in clause (b) and that is, though there has been no omission or failure on that part of the assessee as mentioned in cause (a) of sub-section (1) of the section, if the Income-tax Officer has information in his possession in consequence of which he has reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, he can respond the assessment. Two elements are essential for exercise of this power. One is information which obviously means something fresh or new which was not before the Income-tax Officer before and the information should also be such as to relate to income, profits or gains chargeable to income-tax having escaped assessment. The second is that, in consequence of the such information, the Income-tax Officer has reason to believe that income, profits or gains chargeable to income-tax have escaped assessment.
It is strenuously argued, and with some force, that the department while making the assessment had no fresh material which could legitimately be described as information and that, if the Tribunal took a different view on the same materials as were before the Income-tax Officer initially, that meant only a change of opinion which will not be within the purview of information within the meaning of section 34(1)(b).
The only additional material if at all the Income-tax Officer had before him before making the reassessment is the observation of the Tribunal which is this, a part of which we have already extracted :
'Identical amounts credited to the two equal partners on hereby dates must by themselves suggest strongly suppression of business profits and falsity of the credits. This will offer the Income-tax Officer the necessary background also in any penalty proceedings that he may think of in the reassessment proceedings of the partnership. So far as this assessment is concerned, the addition has no place and is deleted with our direction to the Income-tax Officer to take suitable steps and reassess the escaped income in the hands of the firm in which the credit appears and of which the assessee is a partner if he is so advised.'
We recognise that part of this observation was not necessary for the disposal of the appeals. All that was necessary for the Tribunal to consider in the appeals before it was whether the sum of Rs. 2,500 could be properly included in the individual assessment of the appellant-partner. On that matter the Tribunal took the view that the amount should be deleted. This fact of detection, of course, was not before the Income-tax Officer while making the initial assessment. But can this fact be regarded as information that certain income, profits or gains had escaped assessmen
In elucidating this question, citation of authorities has been made on either said of the Bar which we shall notice. In Commissioner of Income-tax v. Janab S. Khaderwalli Sahib, this court was of the view that mere change of opinion on the same facts and figures whichever present in the mind of the Income-tax Officer at the time of the original assessment did not amount to discovery. Apparently this view was expressed with reference to the language of section 34 as it stood before the amendment in this present form. The Income-tax Officer there even at the outset was aware of the fact that the assessee had acquired properties worth Rs. 16,000 and it was on that basis he came to the conclusion that this sum should have come from the assets of the partnership of which the assessee was a member. The Tribunal on appeal, was, however, of a different view and thought that this sum of Rs. 16,000 could not considered to be the assessable income of the firm and accordingly reduced the assessment of the firm. It was thereafter on the basis and in the light of that finding of the Tribunal, the Income-tax Officer purported to reopen the assessment and added the sum of Rs. 16,000 to the income of the assess. This court held that the requisites of section 34 were not satisfied and that the reassessment order was without jurisdiction. It seems to us that this court in that case was mainly concerned with the language that section 34 had employed at that time, particularly the word 'discovery' and it was with reference to that the court considered that the view of the Tribunal on the same facts represented no more than a change of opinion. Though this may appear to be in favour of the assessee in this case, we are of opinion that in the light of subsequent decisions and of the fact that the court in that case was mainly concerned with the section as it then read, we cannot share the view expressed in that case. We do not say that a mere change of opinion will by itself amount to information unless it represented a new fact or circumstance which had a bearing on any income, profit or gain having escaped tax. Several situations are possible which in a certain context may justifiably be said to be no more than a change of opinion. But, in other contexts, they may represent new facts or circumstances. If an Income-tax Officer had all the facts before him and took a certain view of them and made an assessment, but later the same or took a certain view of them and made an assessment, but later the same or succeeding Income-tax Officer was inclined to take a different view of the facts, that by itself would not justify interference under section 34(1) (b) because the change in the situation represented merely change of opinion and not information within the meaning of section 34(1) (b). But if, on the other hand, the appellate authority or the higher tribunal takes a view on the same set of facts different from that of the Income-tax Officer, does it not represent a new fact though of course it may mean a change of opinion not of the Income-tax himself but in the sense that a different opinion not of the Income-tax Officer himself but in the sense that a deferent opinion has been formed by a higher body In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, 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. There the Income-tax Officer omitted to bring to assessment for a certain year a certain amount representing arrears of rent due to the assessee in respect of agricultural lands on the view that the amount was agricultural lands was not agricultural income. Later the Privy Counsel on appeal from the decision ruled that interest on areas of rent payable in respect of agricultural lands was not agricultural income. In view of this decision, the Income-tax Officer made a reassessment under section 34(1)(b) and brought the interest to tax. The validly of this order was upheld by the Supreme Court. The ratio of this decisions strongly pressed before us for the revenue and it is contended that if on the same set of fact a view of the law different from that held by the Income-tax Officer in the initial stage was expressed by as higher forum and such expression of a different view amounted to information within the meaning of the statutory provision, it stands to reason that a different view taken by higher tribunal on the same set of facts as were before the Income-tax Officer at the initial stage should also be logically be held to be information for the purpose of that provision. The question whether if the same or succeeding Income-tax Officer himself changed his mind on the same set of facts this would amount to information was to decided by the Supreme Court in that case. We are, however, of opinion that on principle we can find no substantial or sensible difference between a different view of the law expressed by a higher forum pointed out that an Income-tax Officer was wrong in law in excluding from assessment a certain income and that would be information which would justify the Income-tax Officer in re-opening the assessment so logically follow when the error pointed out by a higher forum on the part of the Income-tax Officer was not one of law but an error in his factual conclusion. In essence both appear, as we think, to stand on the same basis from a rural pointed of view. If an error of law subsequently found by a higher forum is information, the error in factual concluding found by such a forum is equally information within the meaning of section 34(1) (b). R. B. Bhansilal Abirchand Firm v. Commissioner of Income-tax, in our opinion, seems to be in support of this view we have taken. The assessee in that case was firm composed of four partners to which the minor members of the family were also admitted to the benefits of the partnership. There was another firm which included the members of the assessee firm and a certain third person. The assessee-firm had advanced loans to the second firm and received from the second firm during the accounting year a certain sum as interest. In its return, the assessee showed this amount but the Income-tax Officer excluded this from assessment on the view that the claim for exclusion was well founded. In the assessment of the second firm, the Income-tax Officer disallowed the claim of the firm on the ground that it was interest paid to the partners. This view, however, did not prevail with the Appellate Tribunal which was of opinion that the assessee firm and not to its partners, the amount should be deducted in assessing the second firm. Then followed proceedings under section 34(1) (b) upon the assessee-firm. The reassessment order was upheld. This was no doubt a case of a higher Tribunal taking a different view of the law but it may be seen that much depended also on the facts and their effect. For the assessee strong reliance was placed on K. T. Kubal & Co. Private Ltd. v. Commissioner of Income-tax which was cited in R. B. Bansilal Abirchand Firm v. Commissioner of income-tax and distinguished by pointing out :
'It may be mentioned here that the High Court stressed two facts, namely, that the items regarding which the observation was made by the Tribunal were not the subject-matter of the appeal before the Tribunal; in other words, those items being allowed by the Income-tax Officer, the department had not come up in appeal before the Tribunal and, therefore the Tribunals remarks were completely obiter so far as those items were concerned. Secondly, all that the Tribunal did in that case was that upon the same facts and information it changed its view. That, therefore, was held not to be information within the meaning of section 34(1)(b).'
With respect, we entirely agree on the peculiar feature of K. T. Kubal & Co. Private Ltd. v. Commissioner of Income-tax pointed out by the learned judges in R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax. Certain other authorities were brought to our notice but it seems to us that they do not take us further and it is unnecessary to consider them.
On the view we take that an error found by a higher tribunal on the same facts in the factual conclusion of the Income-tax Officer at the initial stage can well be considered to be information within the meaning of section 34(1(b) of the Act, the further question is whether the order of the Tribunal disposing of the appeals of two of the partners in their individual assessment amounts to such information. The effect of that order undoubtedly was to exclude from the individual assessment this sum of Rs. 2,500. We agree with the assessee in its contention that the further observation of the Tribunal an that order that it represented income that had been suppressed and had escaped assessment in the firms assessment was unnecessary for the purpose of the disposal of that appeal and the observations are, therefore, to be taken to have been causally made. Even so, it is obvious that once the Tribunal took the view that the sum of Rs. 2,500 had to be excluded from the individual assessment, it impliedly followed that it had escaped in the hands of the firm, for it was nobodys case that the income belonged to someone other than the lady partners or the other partners of the firm. Looking at it in that way, the order of the Tribunal containing such a view did amount to information which related to part of the firm having prima face escaped assessment. On that view, we are of opinion that the Income-tax Officer was within his jurisdiction under section 34(1) (b) in acting on the information in consequence of which he had reason to believe that the income had escaped assessment. The requisites of section 34(1) (b) were here satisfied and the reassessment, if follows, was within the power of the Income-tax Officer.
For the assessee a further argument is addressed to us, which raised the scope of the question referred to us. Learned counsel for the assessee says that before the Tribunal, apart from the question relating to the jurisdiction of the Income-tax Officer to act under section 34(1) (b), another contention was raised as to whether there were materials before the Income-tax Officer to hold that the income which he included in the assessable income had escaped assessment, that the Tribunal totally failed to consider thin question and that, therefore, the reassessment order should be considered to be invalid. On that basis it is contained that his question referred to us. Mr. Balausbrahamanyan, for the revenue, on the other hand, pressed that the question referred to us was limited to the circumstances, power under section 34(1) (b) to make a reassessment. Mr. Balasubrahmanyan also in support of his contention reefers to the fact that while the assessee wanted two question to be referred to this court, the Tribunal disallowed one and refereed only the question before us and that this would suggest that the question we are called upon to answer solely relates to jurisdiction. On a careful consideration of the rival approaches made before us as to the scope of the question referred to us, we are inclined to think that regarding the language of the question refereed to us, and its ambit, it is possible to take the view that it covers the other matter as to whether the reassessment is not supported by material. That is not to say that the view urged for the revenue is not possible. But we consider that the view are possible in a tax matter, that which is in favour of the assessee should be preferred and that is what we do here.
On that view we proceed to consider the other argument for the assessee as well. The Tribunal in its order set out the fact that two contentions were urged before it, one relating to jurisdiction and the other in its words 'that in any event there is no warrant for the additions made in respect of two of the partners in whose assessments the credits in question had not been added.' This question, while disposing of the appeal, was evidently lost sight of by the Tribunal. Nowhere in its order has it dealt with it. Learned counsel for the revenue could not legitimately urge, therefore, that the appeal was considered on the second contention. The order of the Tribunal is accordingly defective. The disposal of the appeal by the Tribunal without considering all the contentions urged before it cannot be said to be in accordance with law. The Tribunal being the final authority on facts it is necessary and it is the requisite of the law that, in disposing of an appeal, it clearly sets out the facts, the contentions for the assessee as well as the revenue and deals with each of such contentions with reference to the facts, circumstance and relative evidence and records its findings with reasons therefore on each contention. Failure to conform to these minimum requisites in particular circumstance may render the Tribunals order invalid or not in accordance with the law. In that sense the Tribunal will have to dispose of the appeal, in our view, fresh after considering that question on its merits.
Though on the question of jurisdiction, we take a view which is in favour of the revenue, in view of our opinion on the other question, we answer the question referred to us in favour of the assessee with costs. Counsels fees Rs. 250.
Questions answered in favour of the assessee.