TMI Blog1967 (9) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... der the name of "The Mehta Medical Stores, Bhavnagar", on 30th June, 1949, from one Hiralal Vrajlal Mehta. Subsequent to the said purchase the assessee appears to have been assessed as the owner of this business for the assessment years 1950-51 and 1951-52. The return for the year 1951-52 was signed and submitted by Mr. Mehta, who was the son of the original vendor as the power of attorney agent of the assessee. This return was accepted by the department as a valid return and assessment was made on the assessee in respect of the income of the business called the Mehta Medical Stores. For the said assessment years 1950-51 and 1951-52, therefore, the Income-tax Officer had accepted the case of the assessee that he had purchased the medical stores from Vrajlal Mehta and had become the owner thereof. For the subsequent assessment years 1952-53 and 1953-54, with which we are concerned in the present reference, returns were filed by the assessee. The return for the first year was signed by Mehta as in the earlier year as the power of attorney agent of the assessee and the return for the later year was signed by the assessee himself. In both these returns the income received from the medi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34(1)(a) on the ground that for the said assessment year the assessee had failed to submit a return since the return which he had purported to submit for that year, having been signed by Mehta as the power of attorney agent, was not a proper and valid return. For the second year, viz., the assessment year 1953-54, he took action under section 34(1)(b) on the ground that in consequence of the information which had come in his possession he had reason to believe that the income of the assessee had escaped assessment. The assessee protested and questioned the maintainability and validity of the action of the Income-tax Officer in respect of these two years. He, however, filed the returns for the said years under protest. In the said assessment proceedings, it was contended by the assessee that action under section 34(1)(a) was not competent because he had not failed to submit a return and action under section 34(1)(b) was also not competent as no income had escaped assessment and also because the assessee having apprised the Income-tax Officer of all the facts and circumstances of the transaction of the purchase of the business from Hiralal Vrajlal Mehta at the time of the original a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Income-tax Officer subsequent to the original assessment but was the result of a change of opinion on his part. The Tribunal pointed out that for the year 1953-54 the income was returned by the assessee in respect of this business as his income and he had apprised the Income-tax Officer of the entire facts and circumstances in regard, to his purchase of the medical stores from Mehta and it was on a consideration of all the facts which were placed before him that the Income-tax Officer had held that it was the income of Mehta and not of the assessee. The Tribunal's decision to the contrary was also based on the same identical facts and constituted merely a different view of the facts taken by the Tribunal. In the circumstances, according to the Tribunal, the order of the Tribunal could not be said to have conveyed any information to the Income-tax Officer which was not already before him. According to the Tribunal, therefore, the action of the Income-tax Officer could properly be regarded as not in consequence of any information that had come to him but on his adopting a different view of the same facts, which were before him at the time of the original assessment. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was not, therefore, possible for the department to treat it as no return or an invalid return so as to permit it to take action under section 34(1)(a). The first question, therefore, will have to be answered in the negative. Coming now to the second question, the material part of section 34(1)(b) of the Income-tax Act, 1922, as it stood at the relevant time was as follows : "Notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed . . . . . he may in cases falling under . . . . clause (b) at any time within four years of the end of that year, serve on the assessee . . . a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or re-assess such income . . . . . and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section." As pointed out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessable income, it is a case where the said part of the income has escaped assessment. What is seriously argued is whether there was information in the present case, which had come into the possession of the Income-tax Officer subsequent to his making the original assessment, which could lead to his belief that income had escaped assessment. It is urged by Mr. Joshi, learned counsel for the revenue, that the Tribunal's decision constitutes information. The decision of the Tribunal is subsequent to the making of the original assessment by the Income-tax Officer and that information is sufficient to lead him to the belief that income has escaped assessment. The argument of the learned counsel is that "information" within the meaning of section 34(1)(b) may be information with regard to new or fresh facts or even information not with regard to the new or fresh facts, but with regard to the facts already on record. The information again, says the learned counsel, need not be confined to information as to facts but may even be information as to the true state of law. If a conclusion as to the legal effect of a statutory provision arrived at by the Income-tax Officer at the time of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rue state of law would also amount to information. If a decision of the Privy Council or other higher Tribunal on the correct state of law would amount to information, there is no reason why a similar decision, on a set of facts, could also not amount to information. In the first case it is a declaration as to the true state of the law and, in the other case, it is a declaration as to the true state of facts. In either case, the declaration supplies information. Mr. Joshi, therefore, says that, although in the present case the decision of the Tribunal was as to whether the business belonged to Mehta or to Jheveri, its decision that it belonged to one and not to the other, did supply information to the Income-tax Officer whereby he could realise that the view that he had taken was wrong. The next case referred to by him was Jawahar Lal Mani Ram v. Commissioner of Income-tax which is a case decided by the Allahabad High Court. In that case a Hindu undivided family, which for some years was being assessed as such, claimed to have disrupted in May, 1945, into two smaller undivided families. A claim as to disruption was made under section 25A and for the years subsequent to the alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of salary received by him from the undivided family. The Income-tax Officer was of the view that the income from salary shown in the individual return was also the income of the family and had to be assessed as the income of the Hindu undivided family. He, accordingly, included the said income in the income of the said Hindu undivided family and did not pass any order on the individual return as there was no other income returned therein. In the appeals preferred by the family, the Appellate Assistant Commissioner passed orders excluding the salary income from the income of the family and directing that the income was to be taxed as the income of the assessee as an individual. Consequent upon this decision of the Appellate Assistant Commissioner, the Income-tax Officer issued a notice under section 34 on the assessee as an individual and passed orders of assessment including the salary amount as income of the assessee as an individual. It was contended on behalf of the assessee that the notices could not be issued under section 34(1)(b) because they were not based on any information, which was not in the Income-tax Officer's possession previously. The contention was not accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest on the loans was received by it. In their returns both had shown the amounts of interest, the former firm showing it as interest received by it and the latter showing it as interest paid and claiming deduction in respect thereof. In the assessment of the second firm, which was made first, the Income-tax Officer disallowed the claim made by the firm for the deduction of the amount on the ground that it was interest paid to partners. In view of that conclusion, in the assessment of the former firm the amount was not subjected to tax. Now, in the appeal, which the latter firm took to the Tribunal, the Tribunal held that the two firms were different from each other and the payment of interest made to the firm could not be regarded as payments made to its partners and the amount, therefore, was deductible in assessing the latter firm. A notice thereafter was issued under section 34(1)(b) to the former firm for assessment of the said amount of interest on the ground that it had escaped assessment. It was contended on behalf of the assessee that the fact that a Tribunal sitting in judgment over the assessment of the other firm altered the order of the Income-tax Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee-company under section 10(2)(vii) as result of the sale transaction amounted to Rs. 4,88,386 and setting off the unabsorbed depreciation carried forward upto the date of sale, he determined the total income of the assessee-company at Rs. 4,48,893. The assessee-company contended that all primary facts regarding the sale of the assets of the assessee-company were placed before the Income-tax Officer ; and the question whether, out of the transaction, profits taxable under section 10(2)(vii) arose or not was a question of merely an inference to be drawn from these primary facts ; and if the Income-tax Officer had failed to draw the proper inference, that could not be a good reason for reopening the assessment under section 34(1)(a) of the Act. The department contended that there had not been a full and true disclosure of all material facts necessary for the assessment of the assessee and, consequently, action under section 34(1)(a) was justified. It was contended in the alternative that even if action could not be justified under section 34(1)(a), it was clearly justifiable under section 34(1)(b). We are not here concerned with the first part of the argument, which relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 34(1)(b) and it was, therefore, competent to the Income-tax Officer to initiate reassessment proceedings under section 34(1)(b). The ratio of the decision was that, even if on reconsideration of the material on record the Income-tax Officer realises, subsequent to the original assessment, that he had committed an error, which has resulted in the escapement of tax or under-assessment, that amounts to an information within the meaning of the section. This court was not prepared to go to that extent, and observed that the view taken in that case would virtually mean that section 34(1)(b) confers a power on the Income-tax Officer enabling him to correct his own mistakes by reviewing his own decision on the same set of facts, which are clearly patent on the record. However, after considering the Supreme Court case in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, this court took the view that since the factual position as to whether the transaction of sale had resulted in the assessee obtaining a price for building, machinery and plant in excess of the written down value had not been clearly stated on the record, and the information that the sale price of these items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the original assessment and it must lead him to the belief that income has escaped assessment. What would constitute information would even be a decision of an appellate authority under the Act on the question as to which assessable entity is chargeable in respect of a particular income. In the present case before us, the Income-tax Officer had at the time of the original assessment, on the facts before him, taken the view that the income though claimed by the assessee as his income was in fact the income of Mehta. He accordingly included it in the assessment of Mehta and brought it to tax. It was later on that the Tribunal's decision revealed that in so doing the Income-tax Officer had committed an error inasmuch as he had assessed the income in the hands of the wrong person, with the result that it had escaped from being assessed in the hands of the proper person. The decision of the Tribunal, in the present case, constituted information to the Income-tax Officer as to which of the assessable parties was chargeable for this income and constituted information within the meaning of section 34(1)(b). Mr. Mehta for the assessee has argued that this view of what may constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to proceed under section 34. In our opinion, this case would not help Mr. Mehta in support of the submission, which he has made before us. It may be pointed out that there was no decision or conclusion of the Tribunal in this case on the state of the facts, which were necessary for the decision of the case. The firm had complained about the inclusion of the amount in its income and the Tribunal had held that there was no evidence showing that it was the income of the firm. The casual observation of the Tribunal in the course of its order that there may be good grounds for treating the surplus credit as the income of the assessee himself was nothing beyond a mere expression of an opinion and did not constitute information within the meaning of section 34(1)(b). It was neither necessary for the Tribunal in that case to hold whether it was the income of the assessee, nor had it in fact held it so. We do not, therefore, think that this case would help Mr. Mehta in urging the submission that a conclusion of a higher Tribunal on a conclusion of fact different from that arrived at by the Income-tax Officer on the same set of facts would not constitute information but merely a change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as to the error committed by him, which had resulted in the escapement of income from assessment, which is the information under section 34(1)(b) entitling the Income-tax Officer to initiate proceedings under section 34 of the Act. The mere circumstance that the facts were disclosed in the original assessment is not sufficient to take away the application of section 34(1)(b), if on the facts the Income-tax Officer had erroneously allowed a part of the income to escape assessment and has subsequently come to realise his error as a result of a decision of the higher Tribunal pointing out the said error. Mr. Mehta has then argued that the view that we are taking would lead to the Income-tax Officer's reopening the assessments under section 34(1)(b) merely on a change of opinion treating the earlier view taken by him as erroneous and making the realisation of the error on his part as constituting information for the purpose of commencing reassessment proceedings. The question as to whether the Income-tax Officer, on a change of his opinion, may be entitled to reopen the assessment under section 34(1)(b) was framed in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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