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TMI Blog1964 (5) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ing June 21, 1944, and July 10, 1945. The assessee represented that the Farrukhabad business no longer belonged to it. This was also pointed out in the income-tax assessment for the previous year 1943-44, relevant to the assessment year 1944-45. The Income-tax Officer, however, made an assessment order on November 22, 1946, holding that there had been no partition in the family of Gurbux Rai and that the Farrukhabad business had not been transferred by the assessee, and, therefore, included the income from the Farrukhabad business in the total income of the assessee. The excess profits tax assessment for the chargeable accounting period ending June 21, 1944, was also made accordingly. Against the assessment order made by the Income-tax Officer the assessee filed an appeal, and the Appellate Assistant Commissioner while disposing of the appeal held that the family of Gurbux Rai had indeed partitioned its movable property somewhere near Asadh Samvat 2000, and that from that date the Farrukhabad business was continued by a separate firm consisting of Harbux Rai, Smt. Chameli and Gopaldas. The income-tax assessments were consequently modified, in view of the observations of the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instance of the assessee, the Appellate Tribunal has referred the following two questions by this reference: "(1) Whether, on the facts and in the circumstances of this case, there was any definite information within the meaning of section 15 by virtue of which the Excess Profits Tax Officer was competent to reopen the excess profits tax assessments ? (2) Whether, in the circumstances of this case, the Excess Profits Tax Officer was competent to apply the provisions of section 10A and make necessary adjustments in pursuance thereto in the revised assessment under section 15 ?" Section 15 of the Excess Profits Tax Act, 1940, provides: "If, in consequence of definite information which has come into his possession, the Excess Profits Tax Officer discovers that profits of any chargeable accounting period chargeable to excess profits tax have escaped assessment, or have been under-assessed, or have been the subject of excessive relief, he may at any time .... serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section 13, and may proceed to assess or reassess the amount of such profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Income-tax Act, which has been set out above, and the consensus of opinion appears to be that the subjective decision of the same or higher or another authority cannot constitute "definite information" for the purpose of re-opening proceedings under section 34(1). Some of these decisions are Commissioner of Income-tax v. Mahomed Yusuf Ismail [1944] 12 ITR 8 , Fazal Dhala v. Commissioner of Income-tax [1944] 12 ITR 341 , Raghavalu Naidu and Sons v. Commissioner of Income-tax [1945] 13 ITR 194 , L. Shubhkaran Seksaria v. Commissioner of Income-tax [1950] 18 ITR 773 , Commissioner of Income-tax v. Janab S. Khaderwalli Sahib [1951] 20 ITR 208, Chunilal Nayyar v. Commissioner of Income-tax [1951] 20 ITR 568 , New Victoria Mills Co. Ltd. v. Commissioner of Income-tax [1953] 24 ITR 388, Ananthalakshmi Ammal v. Commissioner of Income-tax [1955] 28 ITR 178 and T. Manavedan Tirumalpad v. Commissioner of Income-tax [1955] 28 ITR 615. All these are to the effect that the Income-tax Officer is not seized of "definite information" if it comprises of a change of opinion on his own part or that change of opinion flows from the decision of a higher authority. The basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legislature from section 34(1)(b) when referring to the information upon which the Income-tax Officer was empowered to reopen the assessment proceedings. Reference was also made to Raja Mohan Raja Bahadur v. Commissioner of Income-tax [1963] 49 ITR 801 , but in that case the court proceeded upon the basis that it was section 34(1)(a) which applied. It considered the applicability of section 34(1)(b) merely because the point had been argued before it, but even the provisions of section 34(1)(b) considered were those which had been inserted in the Act after the amendment of section 34 in 1948. Inasmuch as in the instant case the Excess Profits Tax Officer purported to reopen the assessment under section 15 of the Excess Profits Tax Act only because of the order of the Appellate Assistant Commissioner holding that the Farrukhabad business was no longer the business of the assessee and that the family of Gurbux Rai had indeed partitioned its movable property, all of which proceeded upon material which was already initially before the Excess Profits Tax Officer and to which he had applied his mind when he made the original assessment, it seems to me that it is not a case where the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen all of the following circumstances exist: Firstly, there was escape of profits of any chargeable accounting period chargeable to excess profits tax, secondly, the Excess Profits Tax Officer received certain definite information, and thirdly, in consequence of the information, he discovered the escape. Under section 4 of the Act there must in respect of any business to which the Act applies be charged, levied and paid on the amount of the profits exceeding the standard profits a tax called excess profits tax at a certain rate. Section 5 states the businesses to which the Act applies and "profits" and "standard profits" are defined in sub-sections (19) and (20) of section 2. Chargeability of excess profits tax on a business is a subjective fact, and not an objective fact which can be perceived by any of the senses; it has to be ascertained by a mental process. The assessing authority has first to determine whether the business is one to which the Act applies, then to ascertain its profits and standard profits and then to apply to the balance the prescribed rate of tax. Whether the business is one to which the Act applies and what are its profits and standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials. Further in some of the cases there were materials on the record but the assessing authority's attention was not specifically drawn to them and, therefore, as far as he was concerned they simply did not exist. The judgment in the case of Fazal Dhala's case (supra)is not full and it is not exaplained how the income of the Madras branch escaped assessment in the first instance, how the mistake was discovered by the Income-tax Officer and whether the discovery resulted from any information received by him or not. There is no discussion of the facts or the law in the judgment and I do not think any assistance can be derived from it. In the case of Haji Ahmad Haji Esak & Co. v. CIT [1951] 19 ITR 331, 338 , Chagla C.J. and Tendolkar J. observed: "The officer cannot act under this section even though assessment has escaped if he is acting on an information which was already in his possession. It must be an information which was not in his possession at the time when the original assessment was made, but an information which has subsequently come into his possession ". With great respect I cannot agree. The learned judges have identified materials on the record wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. It could be said that the subjective finding did not amount to information and he could not reopen the assessment. The decision of the learned judges could be justified thus, but not on the ground that the materials on which the appellate authority based its decision were present before him in the first instance or that there was no discovery. Chuni Lal Nayyar's case (supra) is a case in which the Income-tax Officer admittedly certainly did not have information before him. Khosla and Harnam Singh JJ. stated that there must be a fresh piece of definite information and that the Income-tax Officer cannot act on the same data. The information that is required under section 15 or section 34 is about escape and not about new facts relating to assessability. There was escape and it was discovered subsequently and information was required simply to connect the escape with the discovery. In the case of New Victoria Mills Co.'s case (supra), Malik C.J. and V. Bhargava J. stressed the fact that no new facts were brought to the knowledge of the Income-tax Officer. The facts were similar to those in the case of Kaderwalli Sahib's case (supra), and the decision could be justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision that it was not assessable and the Supreme Court observed that it was a case of escape because it was assessable. Gajendragadkar J. said at page 8: "We see no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted………if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment." In Dharam.Vir Virmani v. Commissioner of Income-tax [1962] 46 ITR 602 , Falshaw and Tek Chand JJ. applied section 34 even though no new materials were placed before the Income-tax Officer. The escape that was not noticed when it took place must be discovered before the Excess Profits Tax Officer proceeds under section 15. Once it is understood how escape takes place it should not be difficult to understand how it can be discovered. Escape may take place because certain materials were not placed before the officer or because he misunderstood them or wrongly disbelieved them or believed false evidence or applied wrong law or mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion based on the same facts and figures does not amount to a discovery. Similarly, in the case of Khaderwalli Sahib's case (supra) the learned judges said at page 213 that a mere change of opinion does not amount to discovery and that it must be the result of the new information. The discovery of escape, i.e., acquiring knowledge of the chargeability of the profits, must result from a definite information. There must be causal connection between the information and the acquisition of knowledge that the profits were chargeable, as was pointed out in the case of L. Shubhkaran Seksaria's case (supra). The provision regarding definite information requires that the information must be specific and certain and not vague. The adjective "definite" qualifies the noun "information". I respectfully agree with the statement of Braund and Malik JJ. in Badar Shoe Store's case (supra) that the. requirement of the information being definite is for protection of the subject against an assault by an Income-tax Officer based upon mere suspicion and that it must be more than a mere gossip or rumour. What is meant by "information" is the real question that ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I said earlier, a judgment only decides that a fact is proved or not proved to exist or not to exist and is not evidence of the existence or non-existence of the fact itself. That the fact is proved or not proved to exist or not to exist is only an opinion about the existence or non-existence of the fact. The only fact that is proved by a judgment is that a certain fact is proved or not proved to exist or not to exist but not that it exists or does not exist. Now whether a fact relevant to the question of chargeability of profits is proved or not proved to exist or not to exist before another person, howsoever high he may be placed, is irrelevant; an assessing authority is to proceed on the basis that it exists or does not exist and not on the basis that it is proved or not proved to exist or not to exist before another authority. The chargeability of profits may depend upon whether the fact exists or does not exist but cannot depend upon whether it is proved or not proved to exist or not to exist before another authority. The position is different when an assessing authority's finding on a question of fact is reversed by the appellate authority resulting in the quashing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re fact that a different opinion on the same facts was taken by somebody else is not definite information leading to discovery on the part of the Income-tax Officer . . . ." The question before the Excess Profits Tax Officer in the instant case was of fact whether the Hindu undivided family had partitioned its movable property or not. The Excess Profits Tax Officer following the decision of another authority held that it had partitioned its movable property and that the business had ceased to belong to the assessee-firm and assessed the latter after excluding the profits of the business. Subsequently, he reopened the assessment proceeding under section 15, annulled the partition and reassessed it after including the profits of the business in its income. There was no information received by him after assessing the assessee-firm and before reopening the assessment proceeding under section 15. It was on the basis of the judgment of the appellate authority in the income-tax matter that he excluded the profits of the business from the assessee's income but thereafter he got no information at all and started proceedings under section 15. He had not charged the profits but they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him before the profits escaped assessment. He had assessed them and on receipt of the information he set aside the assessment; so the escape followed the receipt of the information and was in spite of it. *** It was held to be wrong also in the case of Chuni Lal Nayyar's case (supra) , but I do not rely upon that decision because in my opinion there was information leading to the discovery of escape within the meaning of section 34. I now mention cases in which the reopening of a proceeding under section 34 or 15 was held to be valid. In In re Badar Shoe Stores's case (supra) there was information not of the fact leading to discovery of escape but of circumstances from which this fact could be inferred. There was only suspicion at the back of the reopening of the assessment and with great respect I doubt if it could have justified the reopening. In Haji Ahmad Haji Esak & Company's case (supra) information that the income-tax was assessed on a higher income was treated as information of a relevant fact justifying the reopening of the assessment under the Excess Profits Tax Act. In the case of India United Mills Ltd.'s case (supra)the information received was t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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