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TMI Blog1971 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 as deduction. The assessee was previously managed by Messrs. Andrew Yule and Co. Ltd. On September 9, 1944, Messrs J. K. Eastern Industries Ltd. took over as managing agents. Messrs. Bimal Kumar Nirmal Kumar were appointed as banian under an agreement dated December 28, 1944, with effect from September 8, 1944, and Messrs. Omkarmal Kanailal as brokers by Messrs. J. K. Eastern Industries Ltd. after they took over as managing agents. At the time of the original assessment the assessee had filed the balance-sheet which contained the directors' report and in the directors' report the existence of control over the distribution of wheat and wheat flour is referred to. In the course of the original assessment for 1945-46 the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 flour and flour mills and the directors' report appended to the balance-sheet mentioning the existence of controls. The assessee relied also on the detailed statements of payment furnished to the Income-tax Officer at the stage of original assessment. The contention for the revenue was that the Income-tax Officer came by the information regarding the existence of controls and the absence of service by the banian and the brokers only in the course of assessment for the year 1947-48 completed after the original assessment of these years and that the Income-tax Officer was not aware of them earlier; and it was submitted that the facts covered in the assessment for 1947-48 constituted information so as to justify reopening of the assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 subsequently came to a different conclusion and changed his opinion and disallowed the expenses incurred. It is the contention of the learned counsel that there was or could be no information subsequent to the original assessment and the very same materials were subsequently interpreted by the Income-tax Officer who took a different view on the question in the light of his own interpretation and appreciation of the very same materials. The learned counsel has argued that this is basically and essentially a case of change of opinion on the same materials and it is his argument that the change of opinion on the same materials does not constitute information within the meaning of section 34(1)(b) and does not empower the Income-tax Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 information which justifies the reopening of the assessment. The learned counsel has argued that the information need not necessarily be external to the records and a proper appreciation of the relevant records subsequent to the assessment by the Income-tax Officer may constitute information justifying the reopening of an assessment under section 34(1)(b). The learned counsel has referred to the decision of the Madras High Courtin the case of Salem Provident Fund Society Ltd. v. Commissioner of Income-tax and to the decision of the Kerala High Court in the case of United Mercantile Company Ltd. v. Commissioner of Income-tax. The learned counsel has also relied on the decision of the Supreme Court in the case of Anandji Haridas and Company (P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 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 such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is, not affected." The Supreme Court reiterated the same view in the case of R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax and quoted the aforesaid observations at page 77. In the case of Assistant Controller of Estate Duty v. Nawab Sir Mir Osm,an Ali Khan Bahadur the Supreme Court had relied on its earlier decisions in the case of Commissioner of Income-tax v. A. Raman and Co. and in the case of R.B. Bansilal Abirchand Firm v. Commissioner of Income-tax and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceedings for assessment to tax of Bisesar House that the Income-tax Officer came to know that the interest was not being received by the assessee-firm in the capacity of a partner but in its capacity of a financier advancing monies to Bisesar House as a banker. It was held that the Income-tax Officer had not acted on his own initiative or on the change of his own opinion when he took proceedings under section 34(1)(b). The correct position had been brought to his notice by the decision of the Tribunal and the High Court and that must be held to be ' information ' as a consequence of which he came to believe that the provisions of section 34(1)(b) were attracted." In the case of Salem Provident Fund Society Ltd. v. Commissioner of Income-tax, the Madras High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 35 did not bar recourse to the jurisdiction vested in him by section 34. The initiation of proceedings under section 34 was, in our opinion, valid. " In the case of United Mercantile Company Ltd. v. Commissioner of Income-tax, the Kerala High Court referred to the observations of the Madras High Court in the case of Salem Provident Fund Society Ltd. v. Commissioner of Income-tax, which we have earlier noted. The Kerala High Court held at page 222 : " We consider the awareness of the Income-tax Officer, for the first time, after the assessment order of the 19th November, 1957, that the bonus shares were issued not out of premium received in cash and the consequent result in the light of the Finance (No. 2) Act, 1957, as, information within the meaning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22, 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 of Income-tax, a Division Bench of that Madras High Court, interpreting the scope of the words ' information which has come into his possession ' found in section 34 of the Indian Income-tax Act, observed thus: ' We are unable to accept the extreme proposition, that nothing that can be found in the record of the assessment, which itself would show escape of assessment or under-assessment, can be viewed as information which led to the belief that there has been escape from assessment or under-assessment. Suppose a mistake in the original order of assessment is not discovered by the Income-tax Officer himself on further scrutiny but it is brought to his notice by another assessee or even by a subordinate or a superior officer, that would appear to be information d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 be no question that it was a mistake, was held to constitute information " within the meaning of section 34(1)(b), although the mistake itself was not extraneous to the record and the informant gathered the information from the record. As the Madras High Court points out : " If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. It is difficult to accept the position that while what is seen by another in the record is ' information ' what is seen by the Income-tax Officer himself is not information to him." It may be noted that in the present case no question of any mistake arises. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wheat by the Government were not known to the Income-tax Officer and the Income-tax Officer had originally completed the assessment in ignorance of the fact ". The question of legality of the reopening of the assessments already concluded was common to the appeals which had been preferred by the assessee before the Tribunal in respect of the orders made reopening the assessments already concluded. This question has been dealt with by the Tribunal in the two separate orders which appear at pages 141 and 147, respectively, of the paper book. The Tribunal in its first order observed : " If the information regarding the existence of control and the consequent non-rendering of services were available to the Income-tax Officer when the original assessment was completed, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or brokerage payment were justified or not. We are satisfied that the Income-tax Officer came by the relevant facts only in the course of the assessment for 1947-48." This finding of the Tribunal in this order again is equally unsatisfactory as this finding does not indicate what the relevant facts are and does not mention what exactly was the information which came into the possession of the Income-tax Officer subsequent to the assessments originally made. It may be mentioned that by this order also the Tribunal allowed the claim for deduction in respect of payment made to Messrs. Mahaliram Ramjidas Ltd. and, had disallowed the claims for payment made to Messrs. Bimal Kumar Nirmal Kumar and Messrs. Omkarmal Kanailal and Co. Whether a particular payment is justified or not is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads ; " (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' reports and the correspondence between the income-tax Officer and the assessee prior to the original assessments clearly establish that the Income-tax Officer who made the original assessments had full knowledge of the existence of the control and the said Income-tax Officer with full knowledge of the existence of the control by the Government had made the original assessments and had allowed these deductions. The said Income-tax Officer at the time of these original assessments must have, allowed these deductions on the basis of his own opinion formed on his appreciation, interpretation and understanding of the, relevant materials including the fact of imposition of control by the Government. The Income-tax Officer while making the assessments of the company for the year 1947-48 held : " Bania ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal 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 Officer who reopened the assessments had any other information in his possession. The finding of the Income-tax Officer who made the assessment for the year 1947-48 to the effect that there was no necessity for incurring these expenses, was necessarily based on his understanding and interpretation of the same materials including the fact of imposition of the control by the Government and was essentially a matter of his opinion; and his opinion was, however, different from the opinion of the. Income-tax Officer who had made the original assessment on the basis of the materials available to him, including the fact of imposition of control by the Government. This change of opinion on the part of the Income-tax Officer who made the assessment for the subsequent year 1947-48 on the basis of the same ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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