Skip to content


Commissioner of Income-tax Vs. Raghunath Pr. Poddar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 118 of 1967
Judge
Reported in[1974]96ITR316(Cal)
ActsIndian Income Tax Act, 1922 - Section 34(1)
AppellantCommissioner of Income-tax
RespondentRaghunath Pr. Poddar
Appellant AdvocateSuhas Sen, Adv.
Respondent AdvocateDipankar Gupta and ;R. Murarka, Advs.
Cases ReferredBansilal Abirchand Firm v. Commissioner of Income
Excerpt:
- .....that it could hardly be stated thatany additional information had come into the possession of the income-taxofficer which was not in his possession when the assessment orders hadbeen made. it was in view of this finding of fact that it was held that section 34(1)(b) of the indian income-tax act, 1922, was not applicable. the supreme court distinguished the facts of the case in k.t. kabul private ltd. v. commissioner of income-tax from the facts before the supreme court in the case of r. b. bansilal abirchand firm v. commissioner of income-tax.4. what is information has been explained by the supreme court in several decisions. it is not necessary for us to refer to the said decisions in detail. in order to reopen an assessment the income-tax officer must have some knowledge or.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred to this Court:

' Whether the order of the Tribunal in annexures ' C-l ' and ' C-2 ' constitute 'information' within the meaning of Section 34(1)(b) so as to justify the assessment in this case being reopened ?'

The assessee is an individual. The assesses carried on business in hessian. The reference relates to the assessment year 1956-57, the relevant year being calendar year 1955. In the hessian business, there were two transactions in one of which the assessee got a profit of Rs. 1,83,062 while in another he sustained a loss of Rs. 2,71,919. The net result of these transactions was a loss of Rs. 88,857 which was shown as such in the profit and loss account. In the course of the assessment proceedings dealing with this claim for allowing this loss, the Income-tax Officer wrote a letterto the assessee on 10th November, 1960, and which contained statements, inter alia, as follows :

' Please adduce evidence fo prove conclusively the claim for loss in the hessian trading account at Rs. 2,71,920; it has to be proved that actual deliveries were taken and given in those transactions. It may also be proved that these transactions are not of a speculative nature,'

The reply of the assessee is dated 29th November, 1960, which contained, inter alia, the following statement :

' That in explaining how the loss of Rs. 2,71,920 was suffered, your petitioner begs to state that the loss arose from transactions where actual delivery was taken and given and full price was paid or received. There was no ultimate settlement but ' ultimate delivery'. In business in jute goods the delivery of P.D.Os. & Mates receipts are treated as actual delivery. In this case there is not a single item where the contract was settled and difference paid or received.

In support of the contention your petitioner herewith produces the books of account contracts, purchase bills, own bill counterparts and three letters from M/s. Lakmidas Vithadas, Harkishore Kejriwal & Co. and Gourishankar & Co. Pvt. Ltd.'

Some time before the correspondence referred to above, the Tribunal had dealt with the appeal relating to the assessment of the assesses for 1954-55. In that year also there were transactions in which delivery orders had changed hands and full price paid or received. There was a similar loss of Rs. 25,363. This loss was disallowed by the Income-tax Officer but was allowed on appeal by the Appellate Assistant Commissioner. The revenue went on appeal to the Tribunal. By its order dated 30th July, 1960, in I.T A. No. 9358 of 1958-59 the Tribunal held that the passing of delivery order was equivalent to giving of actual delivery or transfer of the commodity concerned. The transactions were not considered to be speculative in character. The allowance of the loss as a business loss was confirmed.

2. The assessment for 1956-57 was made on 30th November, 1960, after receipt of the reply of the assessee dated 29th November, 1960, referred to hereinbefore. The loss of Rs. 88,857 was allowed. The Income-tax Officer reopened the assessment made stating that the information was received subsequent to the assessment that the loss of Rs. 2,71,919 did not represent loss from ready business but from speculative transaction. The information relied on is set out in paragraph 7 of the order which runs as follows :

' The explanation given in the original assessment in the written statement referred to above is not full and complete, and does not bring out the facts correctly. The facts as they emerge out now are that actual and physical delivery of the commodity has not been given or taken in thetransactions under consideration. The mere passing of the P.D.Os. would not constitute ' delivery ' within the meaning of the Income-tax Act unless this is accompanied by the delivery of the commodity. This is what has been held by the Benches of the Income-tax Appellate Tribunal in the following cases:

(a) I.T.O. V(1) v. Manickchand Newar (I.T.A. No. 8771 of 1958-59 of Bench A)

(b) Sree Ram Jagannath v. I.T.O. II(1), Calcutta (I.T.A. No. 12900 of 1958-59 of Bench B).'

In the aforesaid cases the Tribunal had held that in the circumstances where actual and physical delivery of a commodity was not taken or given and only P.D.Os. had passed, the transactions would be treated as speculative for the purpose of the Income-tax Act. In effect, these decisions take a view contrary to the decision taken by the Tribunal for the assessment year 1954-55 and overrule the previous decision. The short question is whether the delivery of the pucca delivery order constituted the actual delivery or whether dealing in pucca delivery order constituted a speculative transaction. The previous decision of the Tribunal was that it constituted a genuine transaction while the later decisions were of the view that it was speculative in nature. It is the knowledge of the fact that subsequently the Tribunal had held the aforesaid view about the effect of the delivery of the pucca delivery order that led the Income-tax Officer to reopen the assessment. The question involved before the Tribunal was whether such a knowledge or instruction could be information in terms of Section 34(1)(b) of the Indian Income-tax Act, 1922. The Tribunal was of the opinion that such a knowledge on the same set of facts and on the same controversy which was present before the Income-tax Officer at the time of original assessment was merely a change of opinion and did not constitute an information in terms of the section. Thereafter the Tribunal has referred the aforesaid question to this court. The annexures ' C-1 ' and 'C-2 ', mentioned in the statement of case are the two different views of the Tribunal, viz., decision of the Tribunal for the assessment year 1954-55 as well as the decision of the Tribunal for the subsequent assessment year.

3. The question involved in this reference is whether the view taken by the Tribunal subsequently changing its previous stand on the effect of the delivery of pucca delivery order could constitute an information in terms of Section 34(1)(b) of the Indian Income-tax Act, 1922. Counsel for the assessee contended that a different view taken by the Tribunal subsequently on the same set of facts would be change of opinion and would not be knowledge about new set of facts or law coming from an extraneous source subsequent to the original assessment. In the premises it was contended that the same set of facts upon which this inference had beendrawn were present before the Income-tax Officer at the time of the originalassessment and upon those facts the previous decision of the Tribunal haddrawn a particular inference and, therefore, where on the same set of factswhen the Tribunal had drawn a different inference that would not constitute an information in terms of the section. Reliance was placed in support of this contention on a decision of the Bombay High Court in the caseof K. T. Kubal & Co. Private Ltd. v. Commissioner of Income-tax, [1963] 49 I.T.R. 433 (Bom.). There,the assessee had paid certain amounts by way of commission to one of itsemployees and had claimed the same as business expenditure under Section 10(2)(xv) of the Indian Income-tax Act, 1922. Relying on the factsthat the payment was not made to the employee for any service renderedby him and that the amount represented secret commission in the natureof illegal gratification which had to be passed on to others in the course ofsecuring order, the Tribunal in 1948-49 had disallowed a major portion ofthe expenses and had allowed it to the extent of Rs. 3,000. In view of theTribunal's decision, amounts of Rs. 3,000, Rs. 2,963, Rs. 2,887 andRs. 2,939, respectively, were allowed in each year from 1949-50 to 1952-53as business expenditure in respect of the similar payments. When appealsrelating to these assessment years were heard by a different Bench of theTribunal on the same facts as were found by the Tribunal in 1948-49, itwas held that no deduction at all should have been allowed. Thereupon,the Income-tax Officer started reassessment proceedings in respect of theyears 1949-50 to 1952-53 in order to assess the amounts allowed as businessexpenditure. It was held by the Division Bench of the Bombay HighCourt that the observations made in the order of the Tribunal relating tothe assessment years 1949-50 to 1952-53 did not amount to information inthe possession of the Income-tax Officer and did not entitle him to reopenthe assessment for these years. It was observed that a mere change ofopinion on the part of the Tribunal regarding the admissibility of certainamounts as business expenditure would not constitute information withinthe meaning of Section 34(1)(b) of the Indian Income-tax Act, 1922.Counsel for the assessee further contended that the aforesaid decision hadbeen referred to by the Supreme Court in several cases and had been distinguished on facts. He, for instance, drew our attention to the decisionof the Supreme Court in the case of R.B. Bansilal Abirchand Firm v.Commissioner of Income-tax, : [1968]70ITR74(SC) . of the report the decision of theBombay High Court had been considered by the Supreme Court. TheSupreme Court was of the view that in that case after considering thefacts, the Bombay High Court had held that it could hardly be stated thatany additional information had come into the possession of the Income-taxOfficer which was not in his possession when the assessment orders hadbeen made. It was in view of this finding of fact that it was held that Section 34(1)(b) of the Indian Income-tax Act, 1922, was not applicable. The Supreme Court distinguished the facts of the case in K.T. Kabul Private Ltd. v. Commissioner of Income-tax from the facts before the Supreme Court in the case of R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax.

4. What is information has been explained by the Supreme Court in several decisions. It is not necessary for us to refer to the said decisions in detail. In order to reopen an assessment the Income-tax Officer must have some knowledge or instruction coming from an external source either on fact or on law subsequent to the assessment as a result of which he can reasonably form the belief that the income of the assessee had escaped assessment or had been under-assessed for the relevant assessment year. In the case of Assistant Controller of Estate Duty v. Nawab Sir Osman Ali Khan Bahadur, H.E H. The Nizam of Hyderabad, : [1969]72ITR376(SC) the Supreme Court held, considering its previous decision in the case of Commissioner of Income-tax v. A. Raman & Co., : [1968]67ITR11(SC) that the opinion of Central Board of Revenue regarding the correct valuation of securities for the purpose of estate duty expressed in an appeal prepared by the accountable person was ' information ' within the meaning of Section 59 of the Estate Duty Act, 1953, as amended by the Estate Duty (Amendment) Act of 1958 on the basis of which the Controller could entertain a reasonable belief that property assessed to estate duty had been under-valued. Section 59 of the Estate Duty Act, 1953, is in pari materia with the provision of Section 34 of the Indian Income-tax Act, 1922. At page 379 of the report referring to the decision of Commissioner of Income-tax v. A. Raman & Co. it was observed 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 the facts or particulars or as to law relating to a matter bearing on the assessment. The Supreme Court also referred to the decision in the case of R, 13. Bansilal Abirchand Firm v. Commissioner of Income-tax. In that case 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 had given their decision in the proceedings of the assessment 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 the capacity of a financier advancing moneys to the Bisesar House as a banker. It was heldby the Supreme Court 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. In the case of Commissioner of Income-tax v. Gurbux Rai Harbux Rai, : [1972]83ITR86(SC) at of the judgment after reviewing the previous decisions the Supreme Court observed that the Supreme Court had consistently held that the Income-tax Officer would have jurisdiction to initiate proceedings under Section 34(1)(b) of the Indian Income-tax Act, 1922, if he had acted on information received from the superior authorities or the court even in the assessment proceedings.

5. It appears to us in the instant case also that the Income-tax Officer was inspired or motivated to act by the knowledge that a body competent to hear the appeal for a subsequent year had taken a view contrary to its earlier view and the Income-tax Officer had the knowledge about the true legal character of the transactions in the pucca delivery order which was brought to his knowledge by the information obtained. It must be emphasised that the correctness or otherwise or the validity of the truth of the information is not relevant in considering whether the Income-tax Officer had information or whether such information was sufficient in terms of the provisions of the sectiom. All that is necessary is that there must be some information subsequent to the original assessment from which a reasonable belief could be formed. It may be mentioned here that the facts of the instant case are different from the facts the Division Bench of the Bombay High Court had to deal with. Whether a particular expense is to be allowed as business expenditure under Section 10(2)(xv) is essentially a question of fact to be considered in a particular set of circumstances. The Tribunal had drawn one conclusion on these facts. The Tribunal in the subsequent year had drawn a different conclusion. In the instant case before us, however, it is not only mainly a question of fact because the nature of the pucca delivery order and the effect and consequences of the delivery of the pucca delivery order and the inference to be drawn from such transactions is not primarily or essentially a question of fact but a mixed question of law and fact and the interpretation by the Tribunal on such a question would be knowledge as to the correct nature of the transaction in a particular set of facts and from that point of view the facts of the instant case are different from the facts before the Bombay High Court as mentioned hereinbefore. But if the view of the Bombay High Court in that decision be that change of opinion on the legal character of a transaction in a particular set of facts by a Tribunal subsequent to its original view would not be information upon which the Income-tax Officercould act, we are, with respect, unable to agree with that view of the Bombay High Court and we are of the opinion that, in view of the decisions of the Supreme Court mentioned hereinbefore arid the language of the section, the information in this case was sufficient in terms of the section.

6. In the premises, the question referred to this court must be answered in the affirmative and in favour of the revenue.

7. The Tribunal will now dispose of the matter in accordance with law in the light of the answer given.

8. There will be no order as to costs.

Hazra, J.

9. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //