(Judgment of the Court was delivered by the Honble the Chief Justice.)
The assessee are the executors of the will of one V. M. Seshachalam Naidu, who dies in the year 1936. By his will he directed that his executors should pay to his widow monthly for the maintenance of herself and her children. In accordance with these directions, the executors paid to the widow Rs. 12,156 in the year of account. The Income-tax Officer assessed the executors on the footing that the estate belonged to the joint Hindu family, but on appeal the Appellate Assistant Commissioner said that the status was that of an 'association of individuals', and directed the Income-tax Officer to make the assessment on this basis. The Income-tax Officer did so and again allowed the deduction of the Rs. 12,156. In the following year, another Income-tax Officer decided that his predecessor was wrong in allowing the deduction of Rs. 12,156 and decided to reopen the assessment under Section 34 of the Indian Income-tax Act Consequently he issued a notice to the assessee and in due course levied the tax on this amount. The assessee appealed to the Appellate Assistant Commissioner who agreed with the Income-tax Officer. On a further appeal, the Income-tax Appellate Tribunal held that the Income-tax Officer had power to reopen the assessment under Section 34 and that the tax was chargeable on the Rs. 12,156. At the instance of the assessee, the Tribunal has, under Section 66 (1) of the Act, referred to this Court, the following questions :-
'(1) Whether in the circumstances of the case, the assessment proceedings were validly initiated under Section 34; and
(2) Whether in the circumstances of the case, the sum of Rs. 12,156 was rightly included in the assessment.'
Section 34 was substantially amended in 1939. The relevant portion of the old section read as follows :-
'If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year or has been assessed at too low a rate, the Income-tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22, and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'
The new section says,
'If in consequence of definite information which has come into his possession the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under-assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act, the Income-tax Officer may, in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22, and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'
By reason of the amendment of the section, the Income-tax Officer is not entitled to reopen the assessment merely because he changes his mind on a question of law. Before he can act under the section, he must receive definite information from which it is apparent that income in the previous year has escaped assessment. The effect of the amendment was discussed by the Bombay High Court in a recent case Commissioner of Income-tax, Bombay v. Sir Mahomed Yusuf. A Division Bench there held that Section 34 as amended does not empower the Income-tax Officer to reopen an assessment on the ground that income has escaped assessment or has been under-assessed owing to a mistake of law or misconstruction of a provision of law by the Income-tax Officer. The word 'discovers' implies something more than a mere change of opinion on the same facts. It was said that the expression 'definite information' denotes that there must be some information as to a fact; but it was recognised that there might be border line cases and the fact might be as to the state of the law, for instance, that a case had been overruled, or that a statue had been passed which had not been brought to the attention of the Income-tax Officer. But there must be some information which leads the Income-tax Officer to discover that income has escaped assessment, or been under-assessed. A similar opinion has been expressed by the Patna High Court in Fazal Dhala v. Commissioner of Income-tax, Bihar and Orissa.
It is very desirable to avoid conflict on such a question and we will follow the judgment of the Bombay High Court. In view of the opening words of the amended section 'in consequence of definite information which has come into his possession,' it is obvious that the word 'discovers' which follows means something more than 'has reason to believe' or 'satisfies himself' and consequently we do not regard the English decision on the meaning of the word 'discovers' as being in point.
We wish to make it clear that in following the Bombay decision we do not imply that the 'definite information' must relate to a pure question of fact. It is impossible to lay down a rule to cover all cases in which the section can be invoked. The application of the section must depend on the particular circumstances of the case, but definite information with regard to the state of the law will bring the section into operation. We are convinced that in this case the Income-tax Officer was not justified in reopening the assessment because he disagreed with his predecessors interpretation of the law.
The answer which we give on the first question is that the assessment proceedings were not validly initiated under Section 34. In these circumstances, it is unnecessary to answer the second question.
The assessee is entitled to his costs which we fix at Rs. 250. He is also entitled to the refund of the reference fee of Rs. 100.
Reference answered accordingly.