TMI Blog1971 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... the application of the assessee is: "Whether, on the facts and in the circumstances of the case, the proceedings initiated under section 34(1)(b) of the Indian Income-tax Act, 1922, for the relevant assessment year have been legally and validly done ? " The facts relevant for the purpose of the application have been set out in the " statement of the case " and may be briefly noted. Reform Flour Mills (Pvt.) Ltd., the assessee herein, is a company carrying on business, among others, in conversion and sale of wheat flour. The assessments for 1945-46 and 1946-47 were completed on June 4, 1946, and December 2, 1946, on incomes of Rs. 96,202 and Rs. 43,973 respectively. In the assessment for the year 1945-46 a sum of Rs. 49,199 paid to Bimal Kumar Nirmal Kumar on account of banian's commission for sale of flour and a sum of Rs. 34,767 paid to Omkarmal Kanailal and Co. for brokerage for purchase of wheat were allowed as deduction. Similarly, in the assessment for the year 1946-47 a sum of Rs. 1,48,663 paid to Bimal Kumar Nirmal Kumar as banian's commission for sale of flour and a sum of Rs. 41,227 paid to Onkarmal Kanailal on account of brokerage for purchase of wheat were allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force at the relevant time for reopening the assessment for 1945-46 and 1946-47. The notices are dated March 30, 1950, for each of these years. The reassessments were made on September 6, 1950, and in the reassessment orders the Income-tax Officer disallowed the banian's commission and brokerage which were allowed in the original assessments. The assessee filed appeals to the Appellate Assistant Commissioner contesting these reassessments. The Appellate Assistant Commissioner rejected the appeals. The assessee had appealed to the Tribunal and before the Tribunal two contentions had been raised--(1) on the applicability of section 34, and (2) on the merits of the claim. Regarding the applicability of section 34, the point urged on behalf of the assessee was that the entire information was available to the Income-tax Officer even at the time of the original assessment and that there was no further information on the basis of which section 34(1)(b) could have been applied. The assessee relied on the correspondence preceding the original assessment for 1945-46, the Bengal Gazette Notifications, dated November 27, 1942, and June 14, 1945, referring to the control over distribution of fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, had no power or jurisdiction to reopen the assessment already made. The learned counsel for the assessee has argued that the information must not only be subsequent to the assessment but also be external to the records. In support of this argument, the learned counsel has referred to the decision of the Supreme Court in the case of Commissioner of Income-tax v. A. Raman and Co. to the decision of the Supreme Court in the case of R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax and to the decision of the Supreme Court in the case of Assistant Controller of Estate Duty v. Nawab Sir Mir Osman Ali Khan Bahadur, the Nizam of Hyderabad. It is the argument of the learned counsel that in the instant case all the materials were there on record and the materials on record clearly indicated and established the existence of the control; and all the necessary information and the materials on the basis of which the original assessments allowing the deductions were made were already there in the possession of the Income-tax Officer at the time of the original assessment. The learned counsel argues that on the same materials, without any further information, the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent reference concerns the validity of the initiation of the reassessment proceedings under section 34(1)(b). He argues that the question that, therefore, arises for consideration is whether there was information within the meaning of section 34(1)(b). He contends that the finding of the Tribunal that the Income-tax Officer came into possession of the relevant facts only in the course of the assessment for the year 1947-48 is a finding of fact which cannot be challenged in the present reference, because no question has been raised on this aspect and the only scope of enquiry is whether the relevant facts mentioned by the Tribunal constitute " information " within the meaning of section 34(1)(b). It is his submission that the fact that there was no need for the services of the banian and the broker in view of the control order the effect of which was that the entire quantity of wheat for manufacture of flour was supplied by the Government to the assessee, came to be discovered in the course of the assessment for the year 1947-48 when the subsequent Income-tax Officer made investigation into these facts and examined the books properly; and these facts, says the counsel, constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer had the necessary information within the meaning of section 34(1)(b) to justify the reopening of the assessment already made. What constitutes information within the meaning of section 34(1)(b) and whether there is such information in any particular case will entirely depend on the facts of the case. It is, however, well-settled that the mere change of opinion on the same materials does not constitute information within the meaning of the said section and, therefore, does not justify the reopening of any assessment. As this proposition is firmly established, we do not consider it necessary to refer to the decisions cited from the Bar on this aspect. In the case of Commissioner of Income- tax v. A. Raman and Co., the Supreme Court held : " The expression ' information ' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment." The Supreme Court further held : " That information must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but even if the information be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or knowledge derived from extraneous sources concerning facts or particulars or as to law relating to a matter bearing on the assessment. The Bombay High Court, in a recent decision, Commissioner of Income-tax v. J. Zaveri, after a discussion of the rele vant case law, came to the conclusion that ' information ' within the meaning of section 34(1)(b) of the Income-tax Act, 1922, may consist of a different view taken of the facts on the record by a higher Tribunal on appeal from the Income-tax Officer's decision. In that case, it was held that the decision of the Income-tax Appellate Tribunal constituted ' information to the Income-tax Officer as to which of the assessable parties was chargeable for a particular item of income. In the latest decision of this court in R.B. Bansilal Abirchand Firm v. Commissioner of Income-tax, 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 gave their decision in the proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment or under-assessment. The real question is not whether section 34 and section 35 are mutually exclusive in their operation, but whether, in a given case, the statutory requirements are satisfied. If in a given case the requirements of both section 34 and section 35 are satisfied, the Income-tax Officer can have recourse to either. That in such a case there is over-lapping will not bar recourse to either section at the choice of the assessing authority. So the real question is whether the requirements of section 34 and in particular the requirements of information were satisfied in this case. We see no justification to accept the contention of the learned counsel for the assessee that to constitute information within the meaning of section 34, it must be wholly extraneous to the record of the original assessment. We hold that the mistake apparent on the face of the order of assessment itself constitutes information : whether some one else gave that information to the Income-tax Officer or whether he informed himself is immaterial, We are further of opinion that in the circumstances of this case, the availability of the powers vested in the Income-tax Officer by section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessing authority should have been satisfied about the escapement of the assessment. It was urged or behalf of the revenue that ' information ' contemplated by section 11A should be from some outside source and not something that could be gathered by the assessing authority from his own records. According to the revenue in the instant case there was no information from any outside source, therefore, it cannot be said that the assessing authority was satisfied about the escapement of tax ' in consequence of any information which has come into its possession '. In our view, this contention is untenable. In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax , this court held that the word ' information ' in section 34(1)(b) of the Indian Income-tax Act, 1922, includes information as to the true and correct state of the law and so would cover information as to the relevant judicial decisions. It was laid down therein that the information need not be about any fact; it may be even as to the legal position in other words, the term ' information ' in section 34(1)(b) of the Indian Income-tax Act, 1922, really means knowledge. In Salem Provident Fund Society Ltd. v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h and the consequent result in the light of the Finance Act, 1957, was information within the meaning of that expression as used in section 34(1) of the Indian Income-tax Act, 1922, and, consequently, the reopening of the assessment under that provision was not illegal. In our judgment, the knowledge of the fact that the appellants had not submitted their quarterly returns as well, as the treasury challans, constituted an information to the assessing authority from which it could be satisfied and in fact it was satisfied that the turnovers with which we are concerned in this case had escaped assessment." The decisions of the Madras High Court and of the Kerala High Court were based on the particular facts of those cases. These two cases were cases of mistakes about which there could be no two opinions. In other words, in these two cases there, was, or could be, no question of any change of opinion on the same materials. As soon as the mistakes were detected, the consequences based upon the rectification of the said mistakes necessarily followed and about such consequences there could be, no divergence or difference of any opinion. The discovery of such mistake, and there could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by brokers and banians and there was therefore no justification for charging in the account any amount under these heads, and getting allowance for such expenses in these assessments. The Income-tax Officer proceeded, therefore, under section 34 of the Income-tax Act after obtaining the Commissioner of Income-tax's satisfaction as contemplated in proviso (i) of section 34(1) of the Act." The order of the Appellate Assistant Commissioner seems to indicate that the finding of the Income-tax Officer at the time of making the assessment for 1947-48 that the company wrongly charged in its accounts amounts under the heads ' Commission ' and " Brokerage " constituted the necessary information. It is, however, to be noted that the validity of the reopening of the assessment already concluded was not specifically challenged before the Income-tax Officer and the Appellate Assistant Commissioner and the legality of the reopening and of the reassessment proceeding came to be challenged before the Tribunal. In justifying the reopening of the assessment under section 34(1)(b) the department had contended before the Tribunal that " as a fact the existence of the controls and the supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aliram Ramjidas Ltd. was a deductible expense, notwithstanding the existence of the control and notwithstanding the fact that Messrs. Mahaliram Ramjidas could not have rendered any effective services. The fact that the Tribunal allowed the appeal of the assessee and allowed the sum paid to Messrs. Mahaliram Ramjidas Ltd., notwithstanding the existence of the control, as deductible expenses, indicates, to our mind, that the question whether these payments made, when the control was in existence, should constitute deductible expenses and should be allowed or not, is a question on which divergence of opinion is permissible and possible and is indeed a matter of opinion founded on one's own understanding, appreciation and interpretation of the materials. In the other order of the Tribunal, with which the present reference is directly concerned, the Tribunal referred to its earlier order and further considered the correspondence which had passed between the Income-tax Officer and the assessee and the Tribunal held : " These, in our opinion, are vague statements on the basis of which the Income-tax Officer could not be expected to go into the question as to whether commission payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is recorded : " Government control on supplies of wheat and disposal of manufactured products continued but the mills worked 90 per cent. of its capacity during the period under review." Before making the original assessments which, a,., we have earlier noted, were completed on June 4, 1946, and December 2, 1946, the Income tax Officer who made the original assessments addressed a letter to the assessee on April 25, 1946. The said letter appears at pages 83 and 84 of the paper book. The assessee sent a reply to the said letter giving its answers to the queries made and supplying the necessary information asked for by the said Income-tax Officer. The said letter addressed by the assessee appears at pages 85 and 86 of the paper book and the portion contained in (3) of the said letter reads ; " (3) share of profit payable to Government of Bengal the production and supply of wheat to our flour mill is controlled by the Government of Bengal and it was agreed that our mills will be allowed 10% guaranteed profit oil capital employed any amount in excess and short of assessed figure will be adjusted by paying or receiving money from the Government of Bengal." The directors' report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of assessment for 1947-48 it was found that the company regularly charged in its account, commission and brokerage and that there was absolutely no necessity for incurring these expenses. As such expenses had already been allowed in the assessment for 1945-46, a notice under section 34 was issued and the company filed a return showing total income of Rs. 96,202 as has already been assessed." In the other assessment order after reopening of the assessment for the year 1946-47 the Income-tax Officer recorded at page 98 of the paper book : " In this case an assessment was completed on December 2, 1946, on a total income of Rs. 43,973. For the reasons given in the assessment order 1945-46 under section 34 a notice under section 34 was issued and a return was filed by the company showing total income of Rs. 43,973 as already assessed." These orders of the Income-tax Officer who reopened the assessments already concluded, therefore, clearly establish that the finding of the Income-tax Officer at the time of the assessment for the year 1947-48 was treated as the information for the reopening of the earlier assessments already made; and it does not appear that the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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