TMI Blog1962 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... perty held under trust or other legal obligation wholly or in part for religious or charitable purposes, in so far as it is applied or finally set apart for application thereto, shall not be included in the total income of the person receiving it. It is, therefore, not enough that according to the trust or other legal obligation a certain income must be spent on religious or charitable purposes in order to be exempt from taxation; it must have been applied, or at least finally set apart for application, for such purposes. Now what happened in the present case is that though according to the wakf deed a certain amount (one-fifth of the actual income) was to be spent for religious and charitable purposes, the assessee applied or finally set apart for application, for such purposes, one-fifth of not the income as found to have been actually received by him, but of the income which he claimed to have received. He claimed to have received less income than he actually received. Since he claimed to have received a smaller amount as income, naturally he applied, or set apart for application, for religious and charitable purposes, one-fifth of only the smaller amount. As he did not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Income-tax Officer should learn something, i.e., he should know something which he did not know previously. Any knowledge acquired is information, regardless of the source and the manner of acquisition. It was contended before us that a change of opinion is not information, but the present is not a case of a change of opinion. In the first place the original assessment order was passed by one Income-tax Officer and the other was passed by another. Secondly, if there is information leading to the belief that income has escaped assessment, it does not matter if there is also a change of opinion. One can change one's opinion on account of information. One can receive information that the opinion on a question of law formed by one is erroneous. One can change one's opinion without any aid from outside, simply by adopting a different reasoning; but one can also change one's opinion with outside aid and the outside aid will be nothing but information. If one is informed that the view held previously is erroneous and if the result of this information is the belief that income has escaped assessment, section 34(1)(b) applies. It may not apply only when there is a chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or not must be ruled out as a futile inquiry. It seems to me that the object behind the requirement, that there must be information leading to the belief, is that the matter should not be reopened on mere suspicion or with the simple object of re-examining the matter. The object is fully served when after the reopening it is found as a matter of fact, that the income had escaped assessment. It would not make much sense to set aside the correct order of assessment passed under section 34(1) on the supposed ground that the reopening was done without information. I agree with the proposed order in respect of the costs. Brijlal Gupta, J.- This is a reference under section 66(1) of the Income-tax Act. The questions which have been referred for the opinion of the court are : (1) Whether on the facts and circumstances of the case there was escapement of any income in the assessment years 1948-49 and 1949-50 as contemplated under section 34 of the Income-tax Act ? (2) If so, whether the notices issued under section 34 of the Indian Income-tax Act and the proceedings taken are null and void being not covered by the provisions of section 34 of the Act but as a result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing exempt under section 4(3)(i) which provides for the exclusion of . . . . any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto . The successor of the Income-tax Officer took the view that no portion of the income was exempt. Accordingly, he took action under section 34 and by an order under that section included the 1/5th of the income of the business in the total income of the firm. On appeal the Appellate Assistant Commissioner allowed exemption only in regard to the amount of ₹ 2,000, presumably on his view that the provision in paragraph 3(h) of the document for increase or decrease in the annuity depending upon increase or decrease in the total income of the firm was to affect the annuity of the guzaredars only and not the amount which was to be spent on charity and which was fixed at ₹ 2,000 per annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t up in appeal to the Appellate Assistant Commissioner who, by order dated December 1, 1956, held that the assessee was entitled to the deduction of only the sums of ₹ 40,291 and ₹ 51,270 credited by it to the charity account on the basis of the figures of net profits worked out by it in its books and not to the larger amounts worked out on the basis of the income determined under the proviso to section 13. It may be stated that the question whether the original assessment could be validly reopened under section 34 and whether a reassessment made under that section was justified, does not appear to have been raised before the Appellate Assistant Commissioner and naturally no finding was recorded by him on the point. The point was, however, specifically taken in appeals against the two orders under section 34 before the Income-tax Appellate Tribunal. It was urged that the basis of action taken by the successor under section 34 was merely a change of opinion on the same facts and as such reassessment under section 34 was not valid or justified. The Tribunal, by a consolidated order dated December 31, 1958, rejected the contention holding that section 34 as amended by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm was to be exempted. The only question which appears to have been canvassed was whether the amount to be exempted was a fixed sum of ₹ 2,000 or was an amount representing 1/5th of the business income whatever the figure of that income may be in a particular year. The departmental representative urged that the amount provided for charity under the will was a fixed amount of ₹ 2,000 per year and that that amount was not to increase or decrease with the increase or decrease in the business income of the firm. The argument of the assessee on the other hand appears to have been that the amount provided for charity was to increase and decrease just as the amount payable to the partners was to increase or decrease by reference to the total amount of the business income in a particular year. It has been noticed that the figure of ₹ 2,000 was worked out as 1/5th of the net income of the year in which the document was executed by the settlor and it was provided in that document that the annuities payable to the persons mentioned in that document were to increase or decrease with the increase or decrease in the profits. The question which appears to have arisen, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements in the facts and circumstances of the case. The successor of the Income-tax Officer when he initiated the proceedings under section 34 must no doubt have studied the record of the case including the assessment orders passed by his predecessor and also the order of the Tribunal dated April 9, 1945. What he found there has been stated by him in the orders which he made for the two years under section 34. This is what he said : The Income-tax Appellate Tribunal by their order dated April 9, 1945, in Appeal No. 36 of 1943-44 directed that a 5th part of the entire net profit should be treated as exempted under section 4(3)(i). In the original assessment the Income-tax Officer allowed the aforesaid deduction of ₹ 61,018, ₹ 61,504 as representing the 1/5th of the income computed for income-tax purposes. He, however, 'did not notice' that under section 4(3)(i) only the income applied or finally set apart for application to religious or charitable purposes could be allowed. The assessee actually set apart a sum of ₹ 40,291, ₹ 51,270 only for application to religious and charitable purposes under the will of L. Mohammad Ali. This latt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y his successor, the successor is entitled to proceed under section 34(1)(b). The words of section 34 which are relevant for the decision and as it stood at the material time are : 34 . . . . . .the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax has escaped assessment for any year, or have been underassessed, . . . . The question is whether the omission to notice or apply the relevant statutory provision on the part of a predecessor and of which a successor becomes aware can be said to be information in the possession of the successor Income-tax Officer and whether it can be said that it is in consequence of such information that the Income-tax Officer has reason to believe that income profits or gains chargeable to income-tax have escaped assessment or have been under-assessed . It must now be taken to be settled law under the decision of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax [1959] 35 ITR 1 ; [1959] Supp. 1 SCR 10 , that the word information in section 34(1)(b) includes not merely factual information but also informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en he found that his predecessor had overlooked the correct import of section 4(3)(i). This observation implies a confusion of thought. The expression overlooked the import might imply that while the predecessor was alive to the provision in section 4(3)(i) he was not alive to its correct import, to which the successor became alive. In other words, the interpretation put by the predecessor on section 4(3)(i) was erroneous and a correct interpretation was subsequently put on that provision by the successor. In this context the use of the word overlooked is inconsistent and inaccurate. One overlooks a thing when one is not aware of it and not when one is aware of a thing but the awareness is found to be erroneous. As already pointed out what had happened in the case was that the predecessor entirely overlooked the provision in section 4(3)(i) and not merely the correct import of that provision. The precise question, therefore, is whether where the relevant statutory provision has been overlooked by a predecessor the awareness on the part of the successor that there has been such omission is information in his possession within the meaning of section 34 and in consequence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh information from an external source or whether the successor of the Income-tax Officer can act under section 34 on the ground that the order of assessment passed by his predecessor was erroneous. Then they referred to the suggestion of counsel for the department that under the provisions of section 34 as amended in 1948 it would be open to the Income-tax Officer to act under the said section even if he merely changed his mind without any information from an external source and came to the conclusion that in a particular case he had erroneously allowed an assessee's income to escape assessment. The Supreme Court left the question open by observing : We do not propose to express any opinion on this point in the present appeal. Even though this may have been so but from what has been stated above it is clear that the Supreme Court appear to have been half inclined to hold that even prior to the amendment of 1948 when the requirements of the section were more rigorous than since 1948 a case of a mere change of opinion on the part of the Income-tax Officer without information from an external source might be within the section. If that was so under the unamended law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erly be taken under section 34. The information acquired by a successor is as much information acquired from an extraneous source as information acquired from a decision of the Supreme Court or from a decision of the High Court even in the proceedings in respect of the same assessment. There is nothing in the section to confine information only from an extraneous source. Indeed in Salem Provident Fund Society v. Commissioner of Income-tax [1961] 42 ITR 547 the Madras High Court held that information may be acquired by an officer informing himself from a re-examination of the record or from a closer study of the record. In this case, however, it is not necessary to go so far as that. Here information was acquired by the successor and as such the information was clearly extraneous to the information possessed by the predecessor Income-tax Officer. As already stated above the Supreme Court, even though they did not decide whether revision of information is permissible as a source of information under section 34, did not overrule the submission made on behalf of the counsel for the department and from an entire reading of their decision they appear to have been half inclined to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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