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Reform Flour Mills (Pvt.) Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference Nos. 247 and 241 of 1967
Judge
Reported in[1973]88ITR150(Cal)
ActsIncome Tax Act, 1922 - Section 34 and 34(1)
AppellantReform Flour Mills (Pvt.) Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal, ;Sanjib Dutta and ;Neeloo Biswas, Advs.
Respondent AdvocateB.L. Pal and ;Ajoy Mitra, Advs.
Cases ReferredUnited MercantileCo Ltd. v. Commissioner of Income
Excerpt:
- a.n. sen, j.1. this is a reference under section 66(2) of the indian income-tax act, 1922. the question referred under the direction of this court on the application of the assessee is:' whether, on the facts and in the circumstances of the case, the proceedings initiated under section 34(1)(b) of the indian income-tax act, 1922, for the relevant assessment year have been legally and validly done ?'2. the facts relevant for the purpose of the application have been set out in the ' statement of the case ' and may be briefly noted. reform flour mills (pvt.) ltd., the assessee herein, is a company carrying on business, among others, in conversion and sale of wheat flour. the assessments for 1945-46 and 1946-47 were completed on june 4, 1946, and december 2, 1946, on incomes of rs. 96,202 and.....
Judgment:

A.N. Sen, J.

1. This is a reference under Section 66(2) of the Indian Income-tax Act, 1922. The question referred under the direction of this court on the application of the assessee is:

' Whether, on the facts and in the circumstances of the case, the proceedings initiated under Section 34(1)(b) of the Indian Income-tax Act, 1922, for the relevant assessment year have been legally and validly done ?'

2. The facts relevant for the purpose of the application have been set out in the ' statement of the case ' and may be briefly noted. Reform Flour Mills (Pvt.) Ltd., the assessee herein, is a company carrying on business, among others, in conversion and sale of wheat flour. The assessments for 1945-46 and 1946-47 were completed on June 4, 1946, and December 2, 1946, on incomes of Rs. 96,202 and Rs. 43,973 respectively. In the assessment for the year 1945-46 a sun: of Rs. 49,199 paid to Bimal Kumar Nirmal Kumar on account of banian's commission for sale of flour and a sum of Rs. 34,767 paid to Omkarmal Kanailal and Co. for brokerage for purchase of wheat were allowed as deduction. Similarly, in the assessment for the year 1946-47 a sum of Rs. 1,48,663 paid to Bimal Kumar Nirmal Kumar as banian's commission for sale of flour and a sum of Rs. 41,227 paid to Onkarmal Kanailal on account of brokerage for purchase of wheat were allowed as deduction. The assessee was previously managed by Messrs. Andrew Yule and Co. Ltd. On September 9, 1944, Messrs J. K. Eastern Industries Ltd. took over as managing agents. Messrs. Bimal Kumar Nirmal Kumar were appointed as banian under an agreement dated December 28 1944. with effect from September 8, 1944, and Messrs. Omkarmal Kanailal as brokers by Messrs. J. K. Eastern Industries Ltd. after they took over as managing agents. At the time of the original assessment the assessee had filed the balance-sheet which contained the directors' report and in the directors' report the existence of control over the distribution of wheat and wheat flour is referred to. In the course of the original assessment for 1945-46 the Income-tax Officer wrote a letter dated April 25, 1946, to the assessee asking for information about the amount payable to the Government of Bengal. The assessee sent a reply on April 29, 1946, stating that the production and supply of wheat were controlled by the Government and that the mills were allowed guaranteed profits at 10% of the capital employed. It was also stated that as the amount was not assessed in time the profit payable to the Government was not assessed. The assessment for 1945-46 was completed on June 4, 1946, after this correspondence. Similar assessment for 1946-47 followed on December 2, 1946. At the time of the assessment for 1947-48 which was completed on December 7, 1948, the Income-tax Officer found that the assessee regularly charged in its accounts commission and brokerage and that there was no necessity for incurring these expenses. In his order the Income-tax Officer observed:

' While the expenditure of the kind mentioned might have been necessary when the mills were buying and selling their products in open market there was absolutely no necessity of incurring these expenses in the accounting year when the wheat had been supplied to the mills exclusively by the Government and wheat products had been purchased back from the mills either by the Government or by bulk allottees in accordance with the directions issued by the Government.'

3. The amounts claimed in that year in respect of such payments made for banian's commission for sale of flour and for brokerage for purchase of wheat were disallowed. The Income-tax Officer thereafter took proceedings under Section 34 of the Indian Income-tax Act, 1922, which was in force at the relevant time for reopening the assessment for 1945-46 and 1946-47. The notices are dated March 30, 1950, for each of these years. The reassessments were made on September 6, 1950, and in the reassessment orders the Income-tax Officer disallowed the banian's commission and brokerage which were allowed in the original assessments. The assessee filed appeals to the Appellate Assistant Commissioner contesting these reassessments. The Appellate Assistant Commissioner rejected the appeals. The assessee had appealed to the Tribunal and before the Tribunal two contentions had been raised--(1) on the applicability of Section 34, and (2) on the merits of the claim. Regarding the applicability of Section 34, the point urged on behalf of the assessee was that the entire information was available to the Income-tax Officer even at the time of the original assessment and that there was no further information on the basis of which Section 34(1)(b) could have been applied. The assessee relied on the correspondence preceding the original assessment for 1945-46, the Bengal Gazette Notifications, dated November 27, 1942, and June 14, 1945, referring to the control over distribution of flour and flour mills and the directors' report appended to the balance-sheet mentioning the existence of controls. The assessee relied also on the detailed statements of payment furnished to the Income-tax Officer at the stage of original assessment. The contention for the revenue was that the Income-tax Officer came by the information regarding the existence of controls and the absence of service by the banian and the brokers only in the course of assessment for the year 1947-48 completed after the original assessment of these years and that the Income-tax Officer was not aware of them earlier; and it was submitted that the facts covered in the assessment for 1947-48 constituted information so as to justify reopening of the assessment. The Tribunal held that the reopening of the assessments under Section 34(1)(b) was valid and proper and dismissed the appeal of the assessee for reasons stated in the order of the Tribunal.

4. The Tribunal having refused to state a case, the assessee moved this court and as already noted the Tribunal had referred the question which we have earlier set out, as directed by this court.

5. The same contentions which were raised before the Tribunal have been urged before us. On behalf of the assessee it has been contended that there was no information within the meaning of Section 34(1)(b) in the instant case on the basis of which the Income-tax Officer could exercise his jurisdiction under Section 34(1)(b) to reopen the reassessment. It is the contention of the assessee that, unless the requirements of Section 34(1)(b) are satisfied, the Income-tax Officer does not enjoy any power or jurisdiction to reopen an assessment already made. The learned counsel for the assessee argues that the basic requirements of the said section which must be fulfilled before an Income-tax Officer can exercise his power and jurisdiction under the said section to reopen an assessment are : (1) the Income-tax Officer must have information which comes into his possession subsiqent to the making of the original assessment order; and (2) the information so received must lead to the belief that income has escaped assessment.

6. It has been submitted on behalf of the assessee that no information as contemplated in Section 34(1)(b) ot the Act had come into the possession of the Income-tax Officer after the original assessment and the Income-tax Officer, therefore, had no power or jurisdiction to reopen the assessment already made. The learned counsel for the assesses has argued that the information must not only be subsequent to the assessment but also be external to the records. In support of this argument, the learned counsel has referred to the decision of the Supreme Court in the case of Commissioner of Income-tax v. A. Roman and Co., : [1968]67ITR11(SC) to the decision of the Supreme Court in the case of R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax, : [1968]70ITR74(SC) and to the decision of the Supreme Court in the case of Assistant Controller of Estate Duty v. Nawab Sir Mir Osman Ali Khan Bahadur, the Nizam of Hyderabad, [1969] 72 I.T.R. 376. It is the argument of the learned counsel that in the instant case all the materials were there on record and the materials on record clearly indicated and established the existence of the control; and all the necessary information and the materials on the basis of which the original assessments allowing the deductions were made were already there in the possession of the Income-tax Officer at the time of the original assessment. The learned counsel argues that on the same materials, without any further information, the Income-tax Officer subsequently came to a different conclusion and changed his opinion and disallowed the expenses incurred. It is the contention of the learned counsel that there was or could be no information subsequent to the original assessment and the very same materials were subsequently interpreted by the Income-tax Officer who took a different view on the question in the light of his own interpretation and appreciation of the very same materials. The learned counsel has argued that this is basically and essentially a case of change of opinion on the same materials and it is his argument that the change of opinion on the same materials does not constitute information within the meaning of Section 34(1)(b) and does not empower the Income-tax Officer to reopen the assessment under the said provision. In support of this contention, the learned counsel has referred to a number of decisions. The learned counsel has submitted that what constitutes information within the meaning of Section 34(1)(b) is a question of law and has referred to the decision of the Supreme Court in the case of Commissioner of Wealth-tax v. Imperial Tobacco Co. of India Ltd. , : [1966]61ITR461(SC) and has relied on the following observations at page 467:

' There does appear to be divergence of opinion among the High Courtsas to the meaning of the word 'information' in Section 34(1)(b) of theIncome-tax Act, and in view of that divergence we are of opinion that aquestion of law did arise in the present case as to the interpretation of theword 'information' in Section 17(b) of the Act and should have beenreferred by the Tribunal. '

7. The learned counsel has, therefore, submitted that in the instant case the basic requirement of Section 34(1)(b) was not satisfied, as no information within the meaning of Section 34(1)(b) came into the possession of the Income-tax Officer subsequent to the making of the original assessment and the Income-tax Officer subsequently changed his opinion on the same materials and the reopening of the assessment was, therefore, illegal and without jurisdiction.

8. On behalf of the department, it has been submitted that the requirements of Section 34(1)(b) in the instant case have been duly complied with and the reopening of the assessment under the said section is perfectly valid. The learned counsel for the department has argued that the only question that arises for consideration in the present reference concerns the validity of the initiation of the reassessment proceedings under Section 34(1)(b), He argues that the question that, therefore, arises for consideration is whether there was information within the meaning of Section 34(1)(b). He contends that the finding of the Tribunal that the Income-tax Officer came into possession of the relevant facts only in the course of the assessment for the year 1947-48 is a finding of fact which cannot be challenged in the present reference, because no question has been raised on this aspect and the only scope of enquiry is whether the relevant facts mentioned by the Tribunal constitute ' information' within the meaning of Section 34(1)(b). It is his submission that the fact that then was no need for the services of the banian and the broker in view of the control order the effect of which was that the entire quantity of wheat for manufacture of flour was supplied by the Government to the assessee, came to be discovered in the course of the assessment for the year 1947-48 when the subsequent Income-tax Officer made investigation into these facts and examined the books properly; and these facts, says the counsel, constitute information which justifies the reopening of the assessment. The learned counsel has argued that the information need not necessarily be external to the records and a proper appreciation of the relevant records subsequent to the assessment by the Income-tax Officer may constitute information justi-fying the reopening of an assessment under Section 34(1)(b). The learned counsel has referred to the decision of the Madras High Court in the case of Salem Provident Fund Society Ltd. v. Commissioner of Income-tax, [1961] 42 I.T.R. 547 (Mad.) and to the decision of the Kerala High Court in the case of United Mercantile Company Ltd. v. Commissioner of Income-tax, [1967] 64 I.T.R. 218 (Ker.]. The learned counsel has also relied on the decision of the Supreme Court in the case of Anandji Haridas and Company (P.) Ltd. v. S. P. Kushare, Sales Tax Officer, Nagpur, : [1968]1SCR661 in whkh the decision of the Madras High Court and the Kerala High Court have been referred to with approval.

9. An assessment already made cannot be reopened under Section 34(1)(b), unless the requirements of the said section are satisfied. It is well-settled that an Income-tax Officer does not have any power and jurisdiction to reopen an assessment under Section 34(1)(b), it the conditions of the said section are not fulfilled. The necessary compliance with the conditions of the said section is a condition precedent to the exercise of any power and jurisdiction by the Income-tax Officer to reopen an assessment under Section 34(1)(b). The necessary conditions, as clearly mentioned in the section itself and recognised in judicial decisions, are : (1) the Income-tax Officer must have information which comes into his possession subsequent to the making of the original assessment order ; and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, has been under-assessed or assessed at too low a rate, or has been made the subject of excessive relief.

10. Whether these conditions have been satisfied or not will necessarily depend on the facts and circumstances of each particular case. If the Income-tax Officer does not have the necessary information, the question of any information leading to his belief that income chargeable to tax has escaped assessment, has been under-assessed or assessed at too low a rate, or has been made the subject of excessive relief, will not arise at all.

11. The main question to be considered in the present case is whether the Income-tax Officer had the necessary information within the meaning of Section 34(1)(b) to justify the reopening of the assessment already made. What constitutes information within the meaning of Section 34(1)(b) and whether there is such information in any particular case will entirely depend on the facts of the case.

12. It is, however, well-settled that the mere change of opinion on the same materials does not constitute information within the meaning of the said section and, therefore, does not justify the reopening of any assessment. As this proposition is firmly established, we do not consider it necessary to refer to the decisions cited from the Bar on this aspect.

13. In the case of Commissioner of Income-tax v. A. Raman and Co., the Supreme Court held:

' The expression ' information' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment.'

14. The Supreme Court further held:

' That information must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but oven if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, ox the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected.'

15. The Supreme Court reiterated the same view in the case of R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax and quoted the aforesaid observations at page 77.

16. In the case of Assistant Controller of Estate Duty v. Nawab Sir Mir Osman Ali Khan Bahadur the Supreme Court had relied on its earlier decisions in the case of Commissioner of Income-tax v. A. Roman and Co. and in the case of R.B. Bansilal Abirchand Firm v. Commissioner of Income-tax and the Supreme Court observed at pages 379, 380:

' In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, : [1959]35ITR1(SC) it was held that the word 'information' in Section 34(1)(b) included information as to the true and correct state of law, and so would cover information as to relevant judicial decisions. The following observations may be reproduced with advantage:

' If the word ' information ' used in any other provision of the Act denotes information as to facts or particulars, that would not necessarily determine the meaning of the said word in Section 34(1)(b). The denotation of the said word would naturally depend on the context of the particular provisions in which it is used. It is then contended that Sections 33B and 35 confer ample powers on the specified authorities to revise the Income-tax Officer's orders and to rectify mistakes respectively and so it would be legitimate to construe the word ' information' in Section 34(1)(b) strictly and to confine it to information in regard to facts or particulars. This argument also is not valid. If the word ' information ' in its plain grammatical meaning includes information as to facts as well as information as to the state of the law, it would be unreasonable to limit it to information as to the facts on the extraneous consideration that some cases of assessment which need to be revised or rectified on the ground of mistake of law may conceivably be covered by Sections 33B and 35. '

In Commissioner of Income-tax v. A. Raman & Co., it was said that the expression ' information ' in the context of Section 147(b) of the Income-tax Act, 1961, must mean instruction or knowledge derived from extraneous sources concerning facts or particulars or as to law relating to a matter bearing on the assessment. The Bombay High Court, in a recent decision, Commissioner of Income-tax v. A. J. Zaveri, [1968] 68 I.T.R. 594 (Bom.) after a discussion of the relevant case law, came to the conclusion that ' information' within the meaning of Section 34(1)(b) of the Income-tax Act, 1922, may consist of a different view taken of the facts on the record by a higher Tribunal on appeal from the Income-tax Officer's decision. In that case, it was held that the decision of the Income-tax Appellate Tribunal constituted 'information to the Income-tax Officer as to which of the assessable parties was chargeable for a particular item of income. In the latest decision of this court in R.B. Bansilal Abirchand Firm v. Commissioner of Income-tax, when the first assessment of the assessee's income was made by the Income-tax Officer the latter's information was that the assessee was a partner in another concern known as Bisesar House and that the interest had been received from that concern in the capacity of a partner. It was only after the Tribunal and the High Court gave their decision in the proceedings for assessment to tax of Bisesar House that the Income-tax Officer came to know that the interest was not being received by the assessee-firm in the capacity of a partner but in its capacity of a financier advancing monies to Bisesar House as a banker. It was held that the Income-tax Officer had not acted on his own initiative or on the change of his own opinion when he took proceedings under Section 34(1)(b). The correct position had been brought to his notice by the decision of the Tribunal and the High Court and that must be- held to be 'information' as a consequence of which he came to believe that the provisions of Section 34(1)(b) were attracted. '

17. In the case of Salem Provident Fund Society Ltd, v. Commissioner of Income-tax, [1961] 42 I.T.R. 547 (Mad.) the Madras High Court held that 'information' for the purpose of Section 34 need not be wholly extraneous to the record of the original assessment and that a mistake apparent on the face of the order of assessment would itself constitute information. The court observed at pages 564, 565:

'We are unable to accept the extreme proposition, that nothing that can be found in the record of the assessment, which itself would show escape of assessment or under-assessment, can be viewed as information which led to the belief that there has been escape from assessment or under-assessment, Suppose a mistake in the original order of assessment is not discovered by the Income-tax Officer himself on further scrutiny but it is brought to his notice by another assessee or even by a subordinate or a superior officer, that would appear to be information disclosed to the Income-tax Officer. If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. It is difficult to accept the position that while what is seen by another in the record is ' information ' what is soon 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 escape of assessment or under-assessment.

The real question is not whether Section 34 and Section 35 are mutually exclusive in their operation, but whether, in a given, case, the statutory requirements are satisfied. If in a given case the requirements of both Section 34 and Section 35 are satisfied, the Income-tax Officer can have recourse to either. That in such a case there is over-lapping will not bar recourse to either Section at the choice of the assessing authority.

So the real question is whether the requirements of Section 34 and in particular the requirements of information were satisfied in this case. We see no justification to accept the contention of the learned counsel for the assessee that to constitute information within the meaning of Section 34, it must be wholly extraneous to the record of the original assessment. We hold that the mistake apparent on the face of the order of assessment itself constitutes information : whether some one else gave that information to the Income-tax Officer or whether he informed himself is immaterial. We are further of opinion that, in the circumstances of this case, the availability of the powers vested in the Income-tax Officer by Section 35 did not bar recourse to the jurisdiction vested in him by Section 34. The initiation of proceedings under Section 34 was, in our opinion, valid.'

18. In the case of United Mercantile Company Lid. v. Commissioner of Income-tax, [1967] 64 I.T.R. 218 (Ker.) the Kerala High Court referred to the observations of the Madras High Court in the case of Salem Provident Fund Society Ltd. v. Commissioner of Income-tax, which we have earlier noted. The Kerala High Court held at page 222 :

' We consider the awareness of the Income-tax Officer, for the first time, after the assessment order of the 19th November, 1957, that the bonus shares were issued not out of premium received in cash and the consequent result in the light of the Finance (No. 2) Act, 1957, as informa-tion within the meaning of that expression as used in Section 34(1)(b) of the Indian Income-tax Act, 1922 '

In the case of Anandji Haridas and Co. (P.) Ltd. v. S.P. Kushare, Sales Tax Officer, Nagpur, the Supreme Court had to consider the meaning and import of the expression 'information' as used in Section 11A of the Central Provinces and Berar Sales Tax Act, 1947, which were in pari materia with Section 34(1) of the Income-tax Act. The Supreme Court had referred to the decision of the Madras High Coin t in the case of Salem Provident Fund Society Ltd., v. Commissioner of Income-tax and to the decision of the Kerala High Court in the case of United Mercantile Co. Ltd. v. Commissioner of Income-tax. Hegde J., speaking on behalf of the majority, observed at pages 336, 337 :

' This takes us to the next question whether in the instant case the assessing authority can be said to have been satisfied about the escapement of the assessment as a consequence of any information which had come into his possession. From the notices issued in 1955 as well as later on, it is clear that the assessing authorities were satisfied about the escapement of the assessment due from the appellants. But the real question is whether they were so satisfied 'in consequence of any information which had come into their possession.' The assessing authorities knew that the appellants had neither submitted their returns nor treasury challans in proof of the payment of the tax due from them. From that circumstance it is reasonable to hold that in consequence of the information that the appellants had not submitted their returns as well as the treasury challans the assessing authority should have been satisfied about the escapement of the assessment. It was urged on behalf of the revenue that 'information' contemplated by Section 11A should be from some outside source and not something that could be gathered by the assessing authority from his own records. According to the revenue in the instant case there was no information from any outside source, therefore, it cannot be said that the assessing authority was satisfied about the escapement of tax in consequence of 'any information which has come into its possession'. In our view, this contention is untenable. In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, this court held that the word ' information' in Section 34(1)(b) of the Indian Income-tax Act, 1922, includes information as to the true and correct state of the law and so would cover information as to the relevant judicial decisions. It was laid down therein that the information need not be about any fact; it may be even as to the legal position, in other words, the term 'information' in Section 34(1)(b) of the Indian Income-tax Act, 1922, really means knowledge. In Salem Provident Fund Society Ltd, v. Commissioner of Income-tax, a Division Bench of the Madras High Court, interpreting the scope of the words 'information which has come into his possession' found in Section 34 of the Indian Income-tax Act, observed thus:

'We are unable to accept the extreme proposition, that nothing that can be found in the record of the assessment, which itself would show escape of assessment or under-assessment, can be viewed as information which led to the belief that there has been escape from assessment or underassessment. Suppose a mistake in the original order of assessment is not discovered by the Income-tax Officer himself on further scrutiny but it is brought to his notice by another assessee or even by a subordinate or a superior officer, that would appear to be information disclosed to the Income-tax Officer. If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. It is difficult to accept the position that while what was 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 escape of assessment or under-assessment.'

The meaning of the word 'information' came up again for consideration before a Division Bench of the Kerala High Court in United MercantileCo Ltd. v. Commissioner of Income-tax. Their Lordships held that to'inform' means to impart knowledge' and a detail available to the Income-tax Officer in the papers filed before him does not by its mere availabilitybecome an item of 'information.' It is transmuted into, an item ofinformation in his possession only if and when its existente is realised andits implications recognized. Applying that test to the facts of the casebefore them, the court held that the awareness of the Income-tax Officerfor the first time after the assessment order of November 19, 1957, that thebonus shares were issued not out of premiums received in cash and theconsequent result in the light of the Finance Act, 1957, was informationwithin the meaning of that expression as used in Section 34(1) of the IndianIncome-tax Act, 1922, and, consequently, the reopening of the assessmentunder that provision was not illegal.

In our judgment, the knowledge of the fact that the appellants had not submitted their quarterly returns as well, as the treasury challans, constituted an information to the assessing authority from which it could be satisfied and in fact it was satisfied that the turn-overs with which we are concerned in this case had escaped assessment.'

19. The decisions of the Madras High Court and of the Kerala High 'Court were based on the particular facts of those cases. These two cases were cases of mistakes about which there could be no two opinions. In, other words, in these two cases there was, or could be, no question of any change of opinion on the same materials. As soon as the mistakes were detected, the consequences based upon the rectification of the said mistakes necessarily followed and about such consequences there could be no divergence or difference of any opinion. The discovery of such mistake, and there could be no question that it was a mistake, was held to 'constitute ' information ' within the meaning of Section 34(1)(b), although the mistake itself was not extraneous to the record and the informant gathered the information from the record. As the Madras High Court points out :

' If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. 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.'

20. It may be noted that in the present case no question of any mistake arises. In any event, whatever view may be taken, whether information must necessarily be derived from an external source or may arise in cases from materials on record, it is essential that the Income-tax Officer must have information within the meaning of Section 34(1)(b) and it is well-established that a mere change of opinion will not constitute such information. The real question, in the instant case, therefore, is whether the Income-tax Officer had necessary information in his possession or he had acted merely on a change of opinion.

21. The Income-tax Officer in his assessment order dated October 6, 1950, after the reopening of the assessment records (at pages'95-96 of the paper. book):

' At the time of assessment for 1947-48 it was found that the company regularly charged in its accounts commission and brokerage and that there was absolutely not necessity for incurring these expenses. As such expenses had already been allowed in the assessment for 1945-46, a notice under Section 34 was issued and the company filed a return showing total income of Rs. 96,202 as bus already been assessed.'

22. The order of the Income-tax Officer who reopened the assessment already made, therefore, suggests that the finding of the Income-tax Officer at the time of assessment for 1947-48 constituted the necessary information. The Appellate Assistant Commissioner in his order dated March 31, 1951, finds (at page 103 of the paper book):

' At the time of making the assessment for 1947-48, it was found by the Income-tax Officer that the company wrongly charged in its accounts amounts under the lieads ' Commission' and ' Brokerage' when, as a matter of fact,' no service was rendered ' by brokers and banians and there was, therefore, no justification for charging in the account any amount under these heads, and getting allowance for such expenses in these assessments. The Income-tax Officer proceeded, therefore, under Section 34 of the Income-tax Act after obtaining the Commissioner of Income-tax's , satisfaction as contemplated in proviso (i) of Section 34(1) of the Act.'

23. The order of the Appellate Assistant Commissioner seems to indicate that the finding of the Income-tax Officer at the time of making the assessment for 1947-48 that the company wrongly charged in its accounts amounts under the heads ' Commission ' and ' Brokerage ' constituted the necessary information. It is, however, to be noted that the validity of the reopening of the assessment already concluded was not specifically challenged before the Income-tax Officer and the Appellate Assistant Commissioner and the legality of the reopening and of the reassessment proceeding came to be challenged before the Tribunal. In justifying the reopening of the assessment under Section 34(1)(b) the department had contended before the Tribunal that ' as a fact the existence of the controls and the supply of wheat by the Government were not known to the Income-tax Officer and the Income-tax Officer had originally completed the assessment in ignorance of the fact '. The question of legality of the reopening of the assessments already concluded was common to the appeals which had been preferred by the assessee before the Tribunal in respect of the orders made reopening the assessments already concluded. This question has been dealt with by the Tribunal in the two separate orders which appear at pages 141 and 147, respectively, of the paper book. The Tribunal in its first order observed (at page 143 of the paper book):

24. 'If the information regarding the existence of control and the consequent non-rendering of services were available to the Income-tax Officer when the original assessment was completed, then the reopening under Section 34(1)(b) would not be proper even though in the course of the assessments for 1947-48 he may have come by the same facts.' The observation of the Tribunal as to ' consequent non-rendering of services ' .does not seem to be happy, as in the event of the existence of the control being within the knowledge of the Income-tax Officer, any finding of the Income-tax Officer, with knowledge of the existence of the control, on the question of rendering or non-rendering of services, will be a matter of his opinion, based on his understanding and interpretation of the materials available to him. If the fact of the existence of the control was not known to the Income-tax Officer at the time of the original assessment and came to be discovered by him subsequent to the assessment, the discovery of this fact will, however, be information. The Tribunal in the same order held (at page 144 of the paper book):

' Our finding on this aspect is that an examination of the books and ascertainment of the relevant facts in the same year 1947-48 furnished thenecessary information to the Income-tax Officer so as to enable him to reopen the assessment under Section 34(1)(b) in this year.'

25. This finding of the Tribunal appears to be unsatisfactory, as the finding gives no dear indication of what the relevant facts are, or what the information is and as to what constitutes information in the instant case. It is interesting to note that although the Tribunal held that the reopening was justified under Section 34(1)(b) the Tribunal by this order allowed the appeal of the assesssee, holding that the payment to Messrs. Mahaliram Ramjidas Ltd. was a deductible expense, notwithstanding the existence of the control and notwithstanding the fact that Messrs. Mahaliram Ramjidas could not have rendered any effective services. The fact that the Tribunal allowed the appeal of the assessee and allowed the sum paid to Messrs. Mahaliram Ramjidas Ltd., notwithstanding the existence of the control, as deductible expenses, indicates, to our mind, that the question whether these payments made, when the control was in existence, should constitute deductible expenses and should be allowed or not, is a question on which divergence of opinion is permissible and possible and is indeed a matter of opinion founded on one's own understanding, appreciation and interpretation of the materials.

26. In the other order of the Tribunal, with which the present reference is directly concerned, the Tribunal referred to its earner order and further considered the correspondence which had passed between the Income-tax Officer and the assessee and the Tribunal held (at page 150 of the paper book):

' These, in our opinion, are vague statements on the basis of which the Income-tax Officer could not be expected to go into the question as to whether commission payment or brokerage payment were justified or not. We are satisfied that the Income-tax Officer came by the relevant facts only in the course of the assessment for 1947-48.'

27. This finding of the Tribunal in this order again is equally unsatisfactory as this finding does not indicate what the relevant facts are and does not mention what exactly was the information which came into the possession of the Income-tax Officer subsequent to the assessments originally made. It may be mentioned that by this order also the Tribunal allowed the claim for deduction in respect of payment made to Messrs. Mahaliram Ramjidas Ltd. and had disallowed the claims for payment made to Messrs. Bimal Kumar Nirmal Kumar and Messrs. Omkarmal Kanailal and Co. Whether a particular payment is justified or not is a question on which divergence of opinion is possible and the decision of the Tribunal itself, allowing one item and disallowing the others, makes this position abundantly clear.

28. In the facts of the instant case, we have no hesitation in coming to the conclusion that the existence of the control was fully known to the Income-tax Officer who made the original assessments before and at the time of making the said assessments. The directors' reports contained in the balance-sheet which were submitted at the time of the original assessments clearly refer to the fact of control by Government. The directors' report contained in annexure B(1) at page 20 of the paper book states :

' Supplies of wheat and disposal of manufactured products are still under Government control and the working result depends upon the measures taken by the Government to keep the mill employed to full capacity. During the period under review your mill was able to work to capacity.'

29. The other directors' report contained in the same annexure at page 36 of the paper book mentions :

' Supplies of wheat and disposal, of manufactured products are still under Government control and during the period under review your mill worked at about 85 per cent. of its capacity.'

30. In the directors' report in the same annexure at page 52 of the paper book it is stated :

' During the period under review the mills continued to work under the control of the Government of West Bengal and worked at about 78 per cent. of its capacity.'

31. In the other directors' report contained in the same annexure at page 68 of the paper book it is recorded:

' Government control on supplies of wheat and disposal of manufactured products continued but the mills worked 90 per cent. of its capacity during-the period under review.'

32. Before making the original assessments which, as we have earlier noted, were completed on June 4, 1946,and December 2, 1946,'the Income-tax Officer who made the original assessments addressed a letter to the assessee on April 25, 1946. The said letter appears at pages 83 and 84 of the paper t?ook. The assessee sent a reply to the said letter giving its answers to the queries made and supplying the necessary information asked for by the said Income-tax Officer. The said letter addressed by the assessee appears at pages 85 and 86 of the paper book and the portion contained in (3) of the said letter reads ;

' (3) share of profit payable to Government of Bengal--the production and supply of wheat to our flour mill is controlled by the Government of Bengal, and it was agreed that our mills will be allowed 10% guaranteed proiit on capital employed, any amount in excess and short of assessed figure will be adjusted by paying or receiving money from the Goverment of Bengal.'

33. The directors reports and the correspondence between the Income-tax Officer and the assessee prior to the original assessments clearly establish that the Income-tax Officer who made the original assessments had full knowledge of the existence of the control and the said Income-tax Officer with full knowledge of the existence of the control by the Government had made the original assessments and had allowed these deductions. The said Income-tax Officer at the time of these original assessments must have allowed these deductions on the basis of his own opinion formed on his appreciation, interpretation and understanding of the- relevant materials including the fact of imposition of control by the Government.

34. The Income-tax Officer while making the assessments of the company for the year 1947-48 held (at pages 90-91 of the paper book) :

' Banian's commission was paid according to the terms of agreement of 29th December, 1944, which provided for the payment of commission at the rate of' 1 per cent. on sales effected through them. Brokerage was paid on the purchase of wheat. While expenditure of the kind mentioned above might have been necessary when mills were buying wheat and selling their products in the open market, there was absolutely no necessity for incurring these expenses in the accounting year when wheat was supplied to the mills exclusively by the Government and wheat products were purchased back from the mills either by the Government or by bulk allottees in accordance with directions issued by the Government. Under such circumstances any prudent businessman would determine the agreement of banian after giving due notice. It is clear, that payments to banians and brokers were not made for bona fide and sufficient services rendered by them. These payments have, therefore, been disallowed in the assessment.'

35. This finding of the Income-tax Officer at the time of making the assessment of the subsequent year 1947-48 clearly indicates, to our mind, that the officer on his own interpretation and appreciation of the materials formed an opinion different from the one formed by the Income-tax Officer during the assessments of the previous years and came to the conclusion that ' there was absolutely no necessity for incurring these expenses '.

36. The order of the Income-tax Officer who sought to reopen the earlier assessments in question in which these deductions have been allowed specifically mentions (at pages 94 and 95 of the paper book):

' At the time of assessment for 1947-48 it was found that the company regularly charged in its account, commission and brokerage and that there was absolutely no necessity for incurring these expenses. As such expenses had already been allowed in the assessment for 1945-46, a notice under Section 34 was issued and the company filed a return showing total income of Rs. 96,202 as has already been assessed.'

37. In the other assessment older after reopening of the assessment for the year 1946-47 the Income-tax Officer recorded at page 98 of the paper book:

' In this case an assessment was completed on December 2, 1946, on a total income of Rs. 43,973. For the reasons given in the assessment order 1945-46 under Section 34 a notice under Section 34 was issued and a return was filed by the company showing total income of Rs. 43,973 as already assessed.'

38. These orders of the Income-tax Officer who reopened the assessments already concluded, therefore, clearly establish that the finding of the Income-tax Officer at the time of the assessment for the year 1947-48 was treated as the information for the reopening of the earlier assessments already made and it does not appear that the Income-tax Officer who reopened the assessments had any other information in his possession. The finding of the Income-tax Officer who made the assessment for the year 1947-48 to the effect that there was no necessity for incurring these expenses, was necessarily based on his understanding and interpretation of the same materials including the fact of imposition of the control by the Government and was essentially a matter of his opinion; and his opinion was, however, different from the opinion of the Income-tax Officer who had made the original assessment on the basis of the materials available to him, including the fact of imposition of control by the Government. This change of opinion on the part of the Income-tax Officer who made the assessment for the subsequent year 1947-48 on the basis of the same materials, cannot constitute information within the meaning of Section 34(1)(b). The decision of the Income-tax Officer who made the subsequent assessment for the year 1947-48 is not the decision of any higher authority and is merely a finding by an officer of co-ordinate authority on the basis of his own opinion. The Income-tax Officer who made the assessment for the year 1947-48 had formed a different opinion on the same materials on the basis of his own appreciation thereof. In other words, there was only a change of opinion on the same materials on the part of the Income-tax Officer who made the assessment for the year 1947-48, in the light of his own appreciation of the said materials including the existence of the control order and the control by the Government.

39. Whether this change of opinion on the part of the Income-tax Officer who made the subsequent assessment constitutes information within the meaning of Section 34(1)(b) is, undoubtedly, a question of law and it is well-settled that a mere change of opinion does not constitute information within the meaning of Section 34(1)(b). The Income-tax Officer who purported to reopen the assessments did not, therefore, have any information within the meaning of Section 34(1)(b) in his possession, and he, therefore, could not exercise any power or jurisdiction under Section 34(1)(b) to reopen the assessments already made. The reopening of the assessments of the assessee already concluded was, therefore, illegal and nut validly done.

40. We, therefore, answer the question in the negative, in favour of the assessee, against the department. The respondent-Commissioner will pay the costs to the applicant-assessee.

S.P. Mitra, J.

41. I agree.

Question answered in the negative.


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