1974 (7) TMI 47 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment for the assessment year 1957-58 under section 34(1)(b) of the Indian Income-tax Act, 1922.

Detailed Analysis:

Validity of Reopening the Assessment for the Assessment Year 1957-58

The core issue revolves around whether the Income-tax Officer (ITO) validly reopened the assessment for the assessment year 1957-58 under section 34(1)(b) of the Indian Income-tax Act, 1922. The original assessment for the year 1957-58 was completed on 3rd February 1958. The ITO assessed the property income in the hands of the trustees as an "association of persons" and allocated the balance of income from other sources among the beneficiaries. This was later modified by the Appellate Assistant Commissioner, who directed the ITO to tax the entire income in the hands of the trustees.

In the assessment year 1961-62, another ITO realized that under clause 9(f) of the will, the life interest for the sons was to arise only when the last son attained the age of 21 years. The youngest son, Mahendrakumar, would attain this age on 14th September 1964. Consequently, the ITO concluded that there were no beneficiaries until that date, and thus, the entire income should be taxed in the hands of the trustees under section 3, not section 41. This led to the reopening of the assessment for 1957-58 on 19th February 1962, with the assessment completed on 21st February 1963.

The assessee appealed, arguing that the reopening was based merely on a change of opinion and not on new information. The Appellate Assistant Commissioner rejected this contention, but the Tribunal accepted it, stating that the reopening was not justified as it was based on a mere change of view without any fresh information.

The court examined whether the ITO had any new information that led to the belief that income had escaped assessment. It was conceded that the will of Maganlal Dahyabhai was produced during the original assessment. The ITO must have been aware of clause 9(f) and the ages of the sons. The fact that the youngest son would not attain the age of 21 by the end of the accounting year 1957 was evident from the will itself. Therefore, no new information had come into possession of the ITO; it was merely a change of opinion based on the same facts.

The court concluded that the reopening of the assessment was not justified as it was based on a change of opinion and not on any new information. The Tribunal's decision to cancel the assessment order was upheld, and the question was answered in the negative, against the revenue.

In conclusion, the reopening of the assessment for the year 1957-58 under section 34(1)(b) was invalid as it was based on a change of opinion rather than new information. The revenue was directed to pay the costs of the reference.