TMI Blog1963 (7) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... the four Daga brothers, the major partners of the Kamptee Firm, were partners along with a fifth partner, the late Sir Manekji Dadabhoy, who owned an eight annas' share, while the Daga Brothers owned the remaining eight annas' share. The assessee made a return of income-tax for the assessment year 1947-48, wherein they showed a total net loss of business of ₹ 1,09,311. This figure was worked out after showing certain receipts and payments on account of interest. The total receipts of interest shown were ₹ 4,87,129 from which were deducted certain payments on account of interest to the extent of ₹ 22,398 leaving a net income from interest of ₹ 4,64,731. Adjusting this income against the profit and loss account statement of that year the assessee showed a net loss of ₹ 1,09,311 as stated above. In the return the assessee firm had undoubtedly shown the amount of ₹ 5,10,788 paid as interest by the Bisesar House firm but it appears that they had excluded it from assessment upon certain grounds. The Income-tax Officer accepted the return and excluded the amount of ₹ 5,10,788 from the tax. In the meanwhile, proceedings for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o invest him with jurisdiction to issue notice under section 34(1)(b) of the Income-tax Act? Now, it is not in dispute in the present case that the amount is liable to tax. The only contention that has been taken before the Tribunal and as appears from the reference made was that the action taken by the Income- tax Officer was bad in law in so far as it was not in compliance with the requirements of section 34(1)(b). The point as it is adumbrated in the question referred is that the mere fact that the Tribunal sitting in judgment over the assessment of the Bisesar House firm altered the order of the income-tax authorities below and held that the amount of ₹ 5,10,788 was paid not to the partners but to the Kamptee firm, did not amount to information in his possession so far as the Income-tax Officer was concerned nor could it be said that in consequence he had reason to believe and that, therefore, there was no jurisdiction in him to proceed under section 34(1)(b). It is not in dispute that the relevant provision of law which is attracted in the present case is section 34(1) as it stood before the amendment in 1956, but after the amendments of 1948. The relevant provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect as if for the periods of eight years and four years a period of one year was substituted. The contention that has been raised on behalf of the assessee is that the facts and circumstances established do not warrant the conclusion that the Income-tax Officer had information in his possession that income, profits and gains have escaped assessment for any year or have been underassessed. In the first place, the present section makes a considerable departure from the law as it stood prior to its amendment in 1948. Prior to that amendment the section ran as follows: 34. (1) 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bisesar House firm and, therefore, the amount of ₹ 5,10,788 could not be claimed by the Bisesar House firm as a legitimate expense for the simple reason that the payment of interest to partners could not be an expense made by the firm to which the partners belong. Upon this view, undoubtedly the Income-tax Officer who decided the assessee firm's assessment could not have any information , because the facts as they were already known were indicated in the return of the assessee firm. But it was later on when the Bisesar House firm filed its appeal before the Income-tax Appellate Tribunal that the legal position was completely altered. According to the Tribunal, R.B. Bansilal Abirchand firm was a completely different legal entity from the Bisesar House firm, and, therefore, what was originally not allowed as a legitimate expense could thereafter be allowed as a legitimate expense. In that event, and upon that view inevitably the payment of ₹ 5,10,788 became an income of the Kamptee firm because that firm was not a part and parcel of the Bisesar House firm but was a different legal entity. Now, it was these facts and this legal position which for the first time were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mistaken view of the law applicable, setting his own opinion against that of his predecessor, and that was not a sufficient ground for re-opening the assessment under section 34 as amended in 1939. The circumstances here are wholly different. In the present case, what has been found is based on the facts and circumstances of the assessment of the Bisesar House firm and upon those facts it was found that the Kamptee firm was not a partner of the Bisesar House firm, and the circumstances therefore upon which that finding was reached would constitute information. Similarly, in the case of New Victoria Mills Co. Ltd. v. Commissioner of Income-tax [1953] 24 I.T.R. 388 the department had sought to bring to tax an item which had previously been adjudicated upon by the Tribunal and it was held that since the Tribunal had held that the sum was an allowable expenditure of the company that alone would not be said to be definite information which led to the discovery that the assessee's income had escaped assessment and therefore the revision of the assessment under section 34 was not justified. It may incidentally be mentioned also that the words which fell for interpretation in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case by the Tribunal in the Bisesar House assessment would be an effective or operative order and to that extent alter the rights of the parties. Therefore, that order showing that alteration would constitute information within the meaning of section 34(1)(b). It seems to us that upon the facts stated here there is not the slightest doubt that the altered situation as indicated in the order of the Tribunal dated February 23, 1950, showing the true relationship between the assessee firm and the Bisesar House firm affected the assessment of the assessee firm and gave information to the Income-tax Officer upon which he could have reason to believe that the assessee firm had not been assessed on this item or had been under-assessed. In our opinion an alteration of the legal position of an assessee firm in consequence of an order passed in an ancillary proceeding of another firm having common partners would itself constitute information , within the meaning of section 34(1)(b). In a recent decision of their Lordships of the Supreme Court of India in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax [1959] 35 I.T.R. 1 ; [1959] Supp. 1 S.C.R. 10. , it has been held that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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