PETITIONER:
KALYANJI MAVJI & CO
Vs.
RESPONDENT:
C.I.T., WEST BENGAL-II
DATE OF JUDGMENT10/12/1975
BENCH:
FAZALALI, SYED MURTAZA
BENCH:
FAZALALI, SYED MURTAZA
MATHEW, KUTTYIL KURIEN
CITATION:
1976 AIR 203 1976 SCR (2) 966
1976 SCC (1) 985
CITATOR INFO :
O 1979 SC1960 (14)
ACT:
Income Tax Act, 1922-Section 34(1)(b)-Scope, extent and
ambit of, with, particular reference to the connotation and
import of the word "information" used in s. 34(1)(b)-Escaped
assessment-Reopening the original assessment on the basis of
subsequent facts as also on the materials of the original
assessment revealed by more careful and closer
circumspection is "information" within the meaning of s.
34(1) (b) of the Act and not a case of mere change of
opinion.
HEADNOTE:
The appellant company, a registered partnership firm,
filed its income tax returns for the years 1956-57 and also
for 1957-58 respectively showing a total income of' Rs.
7,44,551/-, after claiming a deduction of a sum of Rs.
43,116/-, being the amount of interest paid by the assessee
on the debts incurred for the partnership business along
with the balance sheet in support of the said deductions.
The Income Tax officer accepted the claim on the basis of
the balance sheet. When the assessee filed his return for
the year 1958-59, the Income Tax officer discovered that the
deduction claimed by the appellant was not correct and
called upon the assessee to prove its plea. But, the
assessee did not lead any evidence before him. The Income
Tax officer finding that the deduction of interest claimed
was utilised for giving interest free loans to the partners
for clearing their income-tax dues and, as such, it could
not be said to be a loan incurred for the expenses of the
partnership firm, not only disallowed the deduction claimed
for that assessment year, but also issued a notice under s.
34 (1) (b) for the re-opening of the original assessment of
the previous years on the ground that the deduction having
been wrongly allowed, taxable income escaped assessment.
Accordingly, the Income Tax officer re-assessed him by
including Rs. 43,116 to the total income. The appeal to the
Appellate Assistant Commissioner failed. However, on second
appeal, the Income Tax Appellate Tribunal "B" Bench,
Calcutta, set aside the order of the reassessment opining
that the information resulting in the reassessment notice
under s. 34(1)(b) was not based on any fresh facts, but was
derived from the materials on the record of the original
assessment amounting to a change of opinion and, as such,
was not sufficient to attract the provisions of s. 34(1)(b).
On the application of the respondent-Revenue, the Tribunal
made a reference under s. 66(1) of the Act framing a
question, namely,
"Whether on the facts and in the circumstances of the
case the Tribunal was right in holding that the
reassessment made by the Income Tax officer under s.
34(1)(b) of the Indian Income Tax Act (1922) was
incompetent ?"
to the High Court, which answered it in the negative and
held that the case squarely fell within the ambit of s.
34(1)(b) of the Act inasmuch as the information on the basis
of which the Income Tax officer sought to reopen the
original assessment, was based on subsequent facts' as also
on the materials of the original assessment revealed by more
careful and closer circumspection of these materials.
Negativing the following three contentions of the
assessee appellant, namely,
(i) The information relied upon by the Income Tax
officer not having been derived from external sources, it
amounted to a mere change of opinion on the very facts and
materials that were present on the record of the original
assessment not attracting the provisions of s. 34(1)(b) of
the Act.
967
(ii) It was not open to the Income Tax officer to have
reopened the original assessment merely because he took a
different view of the matter in the assessment year 1958-59.
(iii) That the High Court has not appreciated the ratio
laid down by the Supreme Court in Commissioner of Income-
tax, Gujarat v. A. Raman and Company, 67 I.T.R. 11, and
dismissing the appeal by special leave, the Court
^
HELD: (1) S. 34(1) contemplates two categories of cases
for reopening the previous assessment-(1) where there has
been an omission or failure on the part of the assessee to
make a return of his income under s. 22 or to disclose fully
and truly all materials facts necessary for his assessment;
and (ii) where there has been no such omission on the part
of the assessee but the Income Tax officer, on the basis of
the information in his possession, finds that income
chargeable to tax has escaped assessment for any year. The
first category deals with cases where an assessee is himself
in default and the second category deals with cases where
there is an default on the part of the assessee but where
the income chargeable to tax has actually escaped assessment
for one reason or the other and the Income Tax officer comes
to know about the same[1971 E-F]
(2) The word "information" which has not been defined
in the Act is of the widest amplitude and comprehends a
variety of factors. Nevertheless, the power under s.
34(1)(b), however, wide it may be, is not plenary because
the discretion of the Income Tax officer is controlled by
the words "reason to believe". [973 C & E]
Bhimraj Pannalal v. Commissioner of Income-tax, Bihar
and Orissa, 41 I.T.R. 221 an Bhimraj Panna Lal v.
Commissioner of Income-tax, Bihar & Orissa, 32 I.T.R. 289,
followed.
(3) Since the Income Tax officer was to see that the
tax collecting machinery is made as perfect and effective as
possible so that the tax-payer is not allowed to get away
with escaped income-tax, in view of the difficulty in laying
down any rule of universal application, the following tests
and principles would apply to determine the applicability of
s. 34(1)(b) to the following categories of cases:
(i) Where the information is as to the true and correct
state of law derived from relevant judicial decisions;
(ii) Where in the original assessment the income liable
to tax has escaped assessment duel to oversight,
inadvertence or a mistake committed by the Income Tax
officer on the principle that the tax-payer would not be
allowed to take advantage of an oversight or mistake
committed by the taxing authority;
(iii) Where the information is derived from an external
source of any kind. Such external source would include
discovery of new and important matters or knowledge of
fresh, facts which were not present at the time of the
original assessment; and
(iv) Where the information may be obtained even from
the record of the original assessment from an investigation
of the materials on the record or the facts disclosed
thereby or from other enquiry or research into facts of law.
If these conditions are satisfied, then the Income Tax
officer would have complete jurisdiction to reopen the
original assessment. It is obvious that where the Income Tax
officer gets no subsequent information, but merely proceeds
to reopen the original assessment without any fresh facts or
materials or without any enquiry into the materials which
from part of the original assessment, s. 34(1)(b) would have
no application. [973 C, D, 976 A-E]
Maharaj Kumar Kamal Singh v. The Commissioner of
Income-tax, Bihar & orissa [1959] Supp. (1) S.C.R. 10;
Commissioner of Wealth-tax, West Bengal v. Imperial Tobacco
Company of India Ltd. [1966] Supp. S.C.R. 174; Commissioner
of Income-tax. Excess Profits Tax. Hyderabad, Andhra Pradesh
v. V. Jagan Mohan Rao and ors. [1970] 1 S.C.R. 726 and
Commissioner of Income tax Gujarat v. A. Raman and Company,
67 I.T.R. 11, discussed.
968
(4) In the instant case the subsequent information was
the discovery by the Income Tax officer the deduction was
wrongly claimed and the consequent disallowance of that
deduction and the conduct of the assessee itself in not
adducing any evidence or materials to prove its stand that
the claim was validly made which led to the issue of the
notice under s. 34(1)(b) for reopening the assessment [978
H]
(5) The case really fell within the tests and
principles laid down in A. Raman Company's case and within
the ambit of s. 34(1)(b) inasmuch as the Income Tax officer
proceeded on the basis of the information which came to him
after the original assessment, by fresh facts revealed in
the assessment for the year 1958-59 and consisted of the
conduct of the assessee in not adducing any evidence to
support its plea. It was not a case of a mere change of
opinion by the Income Tax officer on the materials which
were already on record. [1979 B-C]
Commissioner of Income-tax, Gujarat v. A. Raman and
Company, 67 I.T.R. 11, applied.
Bankipur Club Ltd. v. Commissioner of Income-tax, Bihar
and Orissa, 82 I.T.R. 831, 834, distinguished.
[On the question "Whether it is open to the I.T.O. to
change his opinion subsequently on the same materials and
reopen the original assessment" which arose in the decision
in Commissioner of Income Tax, Bombay City-2 v. H. Holck
Larsen, 85 I.T.R. 467, 479, relied on by the appellant
assessee and also on the contention that in fact the amount
sought to be deducted was paid towards the income-tax
liabilities of the partners, the Court applied "Non liquet"]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 522 of
1971. Appeal by special leave from the judgment and order
dated the 26th April, 1968 of the Calcutta High Court in I.
T. Reference No. 50 of 1965.
N. N. Goswamy and Arvind Minocha for the Appellant.
B. B. Ahuja and S. P. Nayar for the Respondent.
The Judgment of the Court was delivered by
FAZAL ALI, J. This appeal by special leave involves the
interpretation of the scope, extent and ambit of s. 34(1)
(b) of the Income-tax Act, 1922 with particular reference to
the connotation and import of the word `information’ used in
s. 34(1) (b). Although the question appears to have been
settled in one form or the other by the decisions of this
Court, the changing and diverse society such as ours’
dealing in complex commercial activities continues to
produce multifarious facts of taxable income which has
escaped assessment cloaked under difficult propositions and
knotty legal problems. It is the onerous task of this Court
to dispel the doubts and resolve and reconcile the differing
views taken by the High Courts in various situations which
every time poses a new problem.
The points involved in the instant case have baffled
many a legal brain so much so that the High Court also
appears to have been in two minds whether to place the
information in the instant case as based on the materials
already on the record of the original assessment of 1956-57
revealed by closer circumspection or to the information
derived from subsequent or fresh facts. Before, however,
examining the legal incidents of s. 34 of the Income-tax
Act, 1922, it may be necessary for us to travel into the
domain of the facts of the present case which are short and
simple.
969
The assessee appellant M/s Kalyanji Mavji & Company is
a registered partnership firm dealing in various commercial
activities. The said firm filed its return for the year
1956-57 corresponding to the accounting Gujarati Diwali Year
2001 showing a total income of Rs. 7,44,551/- after claiming
a deduction of a sum of Rs. 43,116/-being the amount of
interest paid by the assessee on the debts incurred for the
partnership business. The Income-tax officer accepted the
return but on appeal to the Appellate Assistant Commissioner
the assessment was reduced by a sum of Rs. 9,200/- by his
order dated July 3, 1958. For the assessment year 1957-58
the assessee showed the same income and the deduction
claimed was allowed. The next year 1958-59, however,
presented quite a different complexion. While the assessee
filed his return in the year 1958-59, the Income-tax officer
concerned suspected the correctness of the return
particularly the deduction of interest and found that as the
amount of the deduction claimed was utilised for giving
interest-free loans to the partners for clearing up their
income-tax dues it could not be said to be a loan incurred
for the expenses of the partnership business and he
accordingly disallowed the deduction claimed by the
appellant. This discovery led the Income-tax officer to
issue notice to the appellant under s. 34(1) (b) of the
Income-tax Act, 1922-hereinafter referred to as `the Act’-
for reopening the assessment of the year 1956-57-hereafter
to be referred to as `the original assessment’-on the ground
that the deduction having been wrongly allowed, taxable
income and escaped assessment. After hearing the appellant
the Income-tax officer completed the assessment and included
the sum of Rs. 43,116/- to the total income shown, by the
assessee. Thereafter the appellant filed an appeal before
the Appellate Assistant Commissioner against the order of
the Income-tax officer but the appeal was dismissed by the
Appellate authority which confirmed the order of the Income-
tax officer. It may be pertinent to note here, that in his
order the Appellate Assistant Commissioner pointed out that
in the assessment years 1958-59 and 1959-60 the Income-tax
officer found that the appellant had no evidence with him to
show that the funds borrowed on which the interest was paid
were utilised for the purpose of the business and not
diverted to the partners. Thereafter the appellant filed a
second appeal to the Income-tax Appellate Tribunal, “B”,
Bench Calcutta. The Tribunal after having accepted the facts
culminating in the order of the Appellate Assistant
Commissioner was of the opinion that the information of the
Income-tax officer resulting in the notice under s. 34(1)
(b) of the Act to the assessee was not based on any fresh
facts but was derived from the materials on the records of
the original assessment. The Tribunal further found that if
the Income-tax officer while completing the original
assessment would have been careful enough to scrutinise the
balance-sheet he would have at once detected the infirmity
on the basis of which the subsequent Income-tax officer
issued the notice under s. 34(1) (b)` of the` Act to the
appellant. The Tribunal further was of the opinion that the
subsequent Income-tax officer merely changed his opinion on
the basis of the very materials that were before him when
the original assessment was made and that was not sufficient
to attract the provisions of s. 34(1) (b) of the Act. The
Tribunal accordingly allowed the appeal and set aside the
order of the Income-tax officer issuing notice to the
assessee under s. 34(1) (b)
970
for reopening the original assessment. Thereafter the
respondent, namely, the Commissioner of Income-tax
approached the Tribunal for making a reference to the High
Court under s. 66(1) of the Act as a result of which the
Tribunal referred the case to the High Court at Calcutta
after framing the following question:
“Whether on the facts and in the circumstances of
the case, the Tribunal, was right in holding that the
re-assessment made by the Income-tax officer under s.
34(1) (b) of the Indian Income-tax Act, 1922 was
incompetent ?”
The High Court, after hearing the parties, differed from the
view taken by the Tribunal and held that the present case
squarely fell within the ambit of s. 34(1) (b) of the Act
inasmuch as the information on the basis of which the
Income-tax officer sought to re-open the original assessment
was based on subsequent facts as also on the materials of
the original assessment revealed by more careful and closer
circumspection of those materials. The High Court referred
to a number of decisions of this Court as also to the
decisions of the Calcutta High Court. The appellant sought
leave to appeal to this Court against the order of the High
Court, which having been refused, the appellant obtained
special leave from this Court, and hence this appeal.
In support of the appeal it was contended by Mr.
Banerjee that the view taken by the High Court is legally
erroneous inasmuch as the admitted facts of this case would
disclose that the information relied upon by the Income-tax
officer in order to re-open the original assessment was not
derive from external sources but amounted to a mere change
of opinion on the very facts and materials that were present
on the record of the original assessment. It was also
submitted that it was not open to the Income-tax officer to
have re-opened the original assessment merely because he
took a different view of the matter in the assessment year
1958-59. Lastly it was argued that the High Court had not
correctly applied the ratio laid down by this Court in
Commissioner of Income-tax, Gujarat v. A. Raman and
Company(1).
Mr. Ahuja appearing for the Revenue submitted that the
order of the Income-tax officer was fully justified and the
High Court had taken the correct view of the law.
In order to appreciate the contentions advanced by
counsel for the parties, it is necessary to make a brief
survey of the provisions of s. 34(1) of the Income-tax Act,
1922. The section runs thus:
“34. (1) If-
(a) the Income-tax officer has reason to believe
that by reason of the omission or failure on
the part of an assessee to make a return of
his income under section 22 for any year or
to disclose fully and truly all material
facts necessary for his assessment for that
year, income, profits or gains chargeable to
income-tax have escaped assessment for that
year, or have been under-assessed or assessed
at too low a rate, or
971
have been made the subject of excessive
relief under the Act, or excessive loss or
depreciation allowance has been computed, or
(b) 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, or
assessed at too low a rate, or have been made
the subject of excessive relief under this
Act, or that excessive loss or depreciation
allowance has been computed,
he may in cases falling under clause (a) at any time
and in cases falling under clause (b) at any time
within four years of the end of that year, serve on the
assessee, or, if the assessee is a company, on the
principal officer thereof, 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 reassess such income profits or
gains or recompute the loss or depreciation allowance;
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
Provided * * * *”
It would be seen that s. 34(1) contemplates two categories
of cases for re-opening the previous assessment-(1) where
there has been an omission or failure on the part of the
assessee to make a return of his income under s. 22 or to
disclose fully and truly all material facts necessary for
his assessment; and (2) where there has been no such
omission on the part of the assessee but the Income-tax
officer on the basis of information in his possession finds
that income chargeable to tax has escaped assessment for any
year. It is, therefore, manifest that the first category
deals with cases where an assessee is himself in default and
the second category deals with cases where there is no fault
on the part of an assessee but where the income chargeable
to tax has actually escaped assessment for one reason or the
other and the Income-tax officer comes to know about the
same. In the instant case, however, we are concerned with
clause (b) of s. 34(1) extracted supra. Before however
proceeding to interpret the ambit and import of s. 34(1) (b)
it may be necessary to consider the history of s. 34 of the
Act which appears to have passed through different phases
with amendments and additions made to the section from time
to time.
Section 34 as it stood in 1922 was as follows:
“34. If for any reason income profits or gains
chargeable to income-tax has escaped assessment in any
year, or has been assessed at too low a rate, the
Income-tax officer may, at any time within one year of
the end of that year, serve on
972
the person liable to pay tax on such income, profits or
gains, or in the case of a company on the principal
officer thereof, 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 reassess such income, profits or gains, 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:
Provided that the tax shall be charged at the
rates at which it would have been charged had the
income, profits or gains not escaped assessment or full
assessment, as the case may be.”
It would be seen that in the section as it stood in 1922 the
word `information’ was not there at all and the section
merely empowered the Income-tax officer to reopen the
assessment of any year where income chargeable to tax had
escaped assessment. No conditions or limitations on the
power of the Income-tax officer were at all laid down under
the section. It appears that the appropriate Legislature in
its wisdom thought that this would be too wide a power to be
given to the Income-tax officer and may not be workable. In
these circumstances, by the Indian Income-tax (Amendment)
Act, 1939, this section was recast as under:
“34 (1) If in consequence of definite information
which has come into his possession the Income-tax
Officer, discovers that income, profits and gains
chargeable, to income tax have escaped assessment in
any year, or have been under-assessed, or have been
assessed at too low, a rate, or have been the subject
of excessive relief under this Act the Income-tax
officer may, in any case in which he has reason to
believe that the assessee has concealed the particulars
of his income or deliberately furnished inaccurate
particulars 1, thereof, at any time within eight years,
and in any other case at any time within four years of
the end of that year, serve on the person liable to pay
tax on such income, profits or gains, or, in the case
of a company, on the principle officer thereof, 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, profits or gains, 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:
Provided * * * ”
It may be pertinent to note that by virtue of this
amendment the concept of the Income-tax officer deriving
definite information was introduced for the first time. The
word ‘information’ was qualified by `definite’ and an
additional condition was incorporated namely that the
Income-tax officer discovers that income chargeable to tax
had
973
escaped assessment. This provision led the Courts to
approach the provisions of the section with greater
circumspection and stricter scrutiny as a result of which
many cases of escaped assessments had to be set at naught by
some decisions of the Courts. This led the Parliament to
take a fresh view of the situation. Accordingly by the
Income-tax and Business Profits Tax (Amendment) Act, 1948,
the section was re-cast in the present form as quoted above.
There were further amendments in 1954 and 1956 with which we
are not concerned. Ultimately by the Income-tax Act, 1961,
the section underwent a complete transformation and even the
setting of the section was changed which now forms s. 147(a)
& (b) of the Income-tax, 1961. We are now concerned in this
case only with s. 34(1) (b) as it stood after the amendment
of 1948.
Another pertinent fact which may be mentioned here is
that although s. 34 was the subject of several amendments,
yet the word `information’ which was introduced in 1939 has
not been defined at all. Since the word `information’ has
not been defined, it is difficult to lay down any rule of
universal application. At the same time it cannot be
disputed that the object of the Act was to see that the tax
collecting machinery is made as perfect and effective as
possible so that the tax-payer is not allowed to get away
with escaped Income-tax. The fact that the adjective
`definite’ qualified the word `information’ and the word
`discovers’ which were introduced in the Income-tax
(Amendment) Act, 1939 were deleted by the Amendment Act of
1948 would lead to the irresistible inference that the word
`information’ is of the widest amplitude and comprehends a
variety of factors. Nevertheless the power under s. 34(1)
(b), however wide it may be, is not plenary because the
discretion of the Income-tax officer is controlled by the
word “reason to believe”. It was so held by this Court in
Bhimraj Pannalal v. Commissioner of Income-tax Bihar and
Orissa(1), while affirming the decision of the Patna High
Court in Bhimraj Panna Lal v. Commissioner of Income-tax,
Bihar and Orissa(1). This legal proposition, however, is not
disputed. It, therefore, follows that information may come
from external sources or even from materials already on the
record or may be derived from the discovery of new and
important matter or fresh facts. The word `information” will
also include true and correct state of the law derived from
relevant judicial decisions either of the Income-tax
authorities or other courts of law which decide income-tax
matters. Where the ground on which the original assessment
is based is held to be erroneous by a superior court in some
other case, that will also amount to a fresh information
which comes into existence subsequent to the original
assessment. A subsequent Privy Council decision is also
included in the word `information’. Thus it is very
difficult to lay down any hard and fast rule. But this Court
has in two leading cases laid down some objective tests and
principles to determine the applicability of s. 34(1) (b) of
the Act which we shall now discuss.
974
In Maharaj Kumar Kamal Singh v. The Commissioner of
Income-tax, Bihar & Orissa(1) the word “information” fell
for interpretation by this Court, where it was observed
thus:
“We would accordingly hold that the word
“information” in s. 34(1) (b) includes information as
to the true and correct state of the law and so would
cover information as to relevant judicial decisions. If
that be the true position, the argument that the
Income-tax officer was not justified in treating the
Privy Council decision in question as information
within s. 34 (1) (b) cannot be accepted.
* * * * *
In our opinion, even in a case where a 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. The appellant’s attempt to put a very
narrow and artificial limitation on the meaning of the
word “escape” in s. 34(1)(b) cannot therefore succeed.”
It will be seen that this Court was in favour of placing not
a narrow but a liberal interpretation on the provisions of
s. 34(1) (b) of the Act. This decision was considered by
this Court in Commissioner of Wealth Tax, West Bengal v.
Imperial Tobacco Company of India Ltd.(2) where Wanchoo, J.,
speaking for this Court observed as follows:
“It may be added that after the decision of this
Court in Maharaj Kumar Kamal Singh’s case it is now
settled that “information in s. 34(1) (b) included
information as to the true and correct state of law,
and so would cover information as to relevant judicial
decisions” and that such information for the purpose of
s. 34(1) (b) of the Income-tax Act need not be confined
only to cases where the Income-tax officer discovers as
a fact that income has escaped assessment.”
Similarly in Commissioner of Income-tax, Excess Profits
Tax, Hyderabad, Andhra Pradesh v. V. Jagan Mohan Rao and
ors.(3), while following the decision of this Court in
Maharaj Kumar Kamal Singh’s case (supra) it was observed as
follows:
“In these circumstances it was held by this Court
firstly that the word information in s. 34(1) (b)
included information as to the true and correct state
of the law, and so would cover information as to
relevant judicial decisions, secondly that `escape’ in
s. 34(1) was not confined to cases where no return had
been submitted by the assessee or where income had not
been assessed owing to inadvertence or oversight or
other lacuna attributable to the assessing authorities.
But even in a case where a return had been submitted,
if the Income-tax officer had erroneously failed to tax
a part of the assessa-
975
ble income, it was a case where that part of the income
had escaped assessment. The decision of the Privy
Council, therefore, was held to be information within
the meaning of s. 34(1)(b) and the proceedings for re-
assessment were validly initiated.”
The matter was again fully considered by this Court in
A. Raman and Company’s case (supra), where Shah, J.,
speaking for the Court extended the connotation of the word
`information’ to two different categories of cases and
observed as follows:
“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, as to law relating to a matter
bearing on the assessment.
* * * * *
Jurisdiction of the Income-tax officer to reassess
income arises if he has in consequence of information
in his possession reason to believe that income
chargeable to tax has escaped assessment. 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.”
An analysis of this case would clearly show that the
information as contained in s. 34(1) (b) must fulfil the
following conditions:
(1) The information may be derived from an
external source concerning facts or
particulars as to law relating to matter
bearing on the assessment;
(2) That the information must come after the
previous or the original assessment was made.
In fact the words “in consequence of
information” as used in s. 34(1) (b) clearly
postulate that the information must be
subsequent to the original assessment sought
to be reopened; and
(3) That the information may be obtained even on
the basis of the record of 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.
These categories are in addition to the categories laid down
by this Court in Maharaj Kumar Kamal Singh’s case which has
been consistently followed in several decisions of this
Court as shown above.
976
On a combined review of the decisions of this Court the
following tests and principles would apply to determine the
applicability of s. 34(1) (b) to the following categories of
cases:
(1) Where the information is as to the true and
correct state of the law derived from
relevant judicial decisions;
(2) Where in the original assessment the income
liable to tax has escaped assessment due to
oversight, in advertence or a mistake
committed by the Income-tax officer. This is
obviously based on the principle that the
tax-payer would not be allowed to take
advantage of an oversight or mistake
committed by the Taxing Authority;
(3) Where the information is derived from an
external source of any kind. Such external
source would include discovery of new and
important matters or knowledge of fresh facts
which were not present at the time of the
original assessment;
(4) Where the information may be obtained even
from the record of the original 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.
If these conditions are satisfied then the Income-tax
officer would have complete jurisdiction to re-open the
original assessment. It is obvious that where the Income-tax
officer gets no subsequent information, but merely proceeds
to re-open the original assessment without any fresh facts
or materials or without any enquiry into the materials which
form part of the original assessment, s. 34(1) (b) would
have no application.
Learned counsel for the appellant heavily relied on the
decision of this Court in Bankipur Club Ltd. v. Commissioner
of Income-tax, Bihar and Orissa(1) in support of the
proposition that in the instant case the Income-tax officer
has proceeded to re-open the assessment on the basis of the
very materials which formed the subject of the original
assessment. It was submitted that in the original assessment
the assessee had claimed a deduction and had produced the
balance-sheet and these very factors were also present when
the Income-tax officer sought to make the assessment for the
year 1958-59 and 1959-60, and since no fresh facts were
brought to his notice it was not open to him to re-open the
original assessment. The facts of the case relied upon by
the appellant are clearly distinguishable from the facts of
the present case. In Bankipur Club Ltd.’s(1) case it appears
that the Club had in its return placed all the materials
with full details. The facts placed before the Income-tax
officer were self-evident and no calculation or scrutiny was
necessary to find out the effect of the materials
977
placed before the Income-tax officer. In view of this
peculiar situation, Hegde, J., speaking for the Court
observed:
“The fact that the club had received certain
amounts as guests charges from its members had been
placed before the Income-tax officer. It is not the
case of the Income-tax officer that he did not come to
know all the relevant facts when he made the original
orders of assessment. It is also not his case that at
the time he made those orders he was not aware of the
true legal position. It was for the Income-tax officer
to show that he had received some information
subsequent to his passing the original orders of
assessment. No such material was placed before the
Tribunal. That being so, the Tribunal, in our opinion,
was right in holding that the Income-tax officer was
incompetent to initiate proceedings under section 34(1)
(b).”
In the instant case it would appear that three additional
facts had come into existence after the original assessment
for the year 1956-57 was made by the Income-tax officer.
These were-(i) that for the assessment year 1958-59 the
Income-tax officer did not accept the assessee’s plea that
he should be allowed deduction for a sum of Rs. 43,116/-;
(2) that the Income-tax officer came to a finding that the
assessee had not proved that the amount of deduction claimed
was really in connection with the partnership business but
held that this was on account of interest-free advance to
the partners to pay their income-tax dues; and (3) the
conduct of the appellant in not clearing the doubts of the
Income-tax officer when the appellant was given the notice
to contest the assessment merely on the question of law also
spoke volumes against the assessee and was also an
additional factor which weighed with the Income-tax officer.
It would be seen that the Income-tax officer in his order,
which is Annexure-A to the statement of case filed by the
Tribunal, observed as follows:
“In the course of the assessment proceedings for
1958-59 however it was discovered that the assessee’s
claim of payment of interest on money borrowed was not
proper. Inasmuch as the entire money borrowed had been
utilised not for the purpose of business but in giving
interest free advance to the partners of the
firm……………………. In fact no argument as
regards the allowance or disallowance of the interest
amount in question was placed but the entire argument
of the representative proceeded on the basis that the
action u/s 34 itself was
illegal……………………….
There is no doubt that there has been under
assessment in this case and there is also no doubt that
the fact of under assessment has been brought to the
notice of the Income-tax officer only in the course of
the income-tax proceedings for 1958-59.”
Similarly the appellate Assistant Commissioner in his order,
which is Annexure-B to the statement of the case, observed
as follows:
“At the time of the original assessment the
appellant claimed an interest of Rs. 43,116/- which was
allowed by
978
the I.T.O. in full. However, later on, while making the
assessment for the assessment years 1958-59 and 1959-
60, the I.T.O. found that the appellant had no evidence
with him to show that the funds borrowed on which the
interest was paid, in fact, were utilised for the
purpose of the business and not diverted to the
partners.”
These findings by the two authorities have been clearly
mentioned in the order of the Tribunal, which, while
narrating the facts, observed as follows:
“Subsequently, however, when the Income-tax
officer was making the assessment for the assessment
year 1958-59, he discovered that the assessee did not
utilise the borrowed money for the purpose of the
business but for giving interest free advances to its
partners. The Income-tax officer, therefore, had
reasons to believe that income to the extent of Rs.
43,116/- had been under-assessed and he issued notice
under section, 34.”
Thus in view of the findings given by the Income-tax
authorities the following facts emerge:-
(1) that at the time of the original assessment
the appellant had filed his return claiming a
deduction of Rs. 43,116/- and filed the
balance sheet in support of his plea;
(2) that the balance-sheet showed that the
capital of the firm was Rs. 8,70,000/-, total
drawings by the partners stood at Rs.
29,31,998/- and the loans were Rs. 6,63,292/-
The Income-tax officer who completed the
original assessment appears to have accepted
the claim of the appellant because the
balance-sheet without any further scrutiny
and a close calculation would not have
revealed that the amount of deduction claimed
was really in the nature of interest free
loans given to the partners to meet their
income-tax liabilities:
(3) that in 1958-59 the Income-tax officer
discovered that the deduction claimed by the
appellant was not correct and he accordingly
called upon it to prove its plea but the
appellant led no evidence before the Income
tax officer. From this the Income-tax officer
concluded that the amount sought to be
claimed as deduction was not incurred for the
purpose of the partnership business.
Thus, therefore, the subsequent information was-(1) the
discovery by the Income-tax officer that the deduction was
wrongly claimed and his disallowance of that deduction; and
(ii) the conduct of the appellant itself in not adducing any
evidence or materials to prove its stand that the deduction
was validly claimed.
979
We might mention that it was submitted by Mr. Banerjee
that in fact the amount sought to be deducted was paid
towards the income-tax liability of the partners and this
was done to protect the business itself and to improve the
credit of the partners. Even this specific plea does not
appear to have been taken before the Income-tax officer. We
are, however, not concerned with this particular plea
because we are given to understand by the counsel for the
appellant that the appeals against the assessment orders for
the years 1958-59 and 1959-60 are pending before the Income-
tax authorities. In these circumstances we are clearly of
the opinion that the facts of the present case clearly fall
within the tests and principles laid down by this Court in
A. Raman and Company’s case (supra) inasmuch as the Income-
tax officer proceeded on the basis of the information which
came to him after the original assessment by fresh facts
revealed in the assessment for the year 1958-59 and
consisted of the conduct of the appellant itself in not
adducing any evidence to support its plea. We are,
therefore, unable to agree with the view of the Tribunal
that this was a case of a mere change of opinion by the
Income-tax officer on the materials which were already on
the record.
our attention was also drawn by the learned counsel for
the appellant to the decision of the Bombay High Court in
Commissioner of Income-tax, Bombay City II v. H. Holck
Larsen(1). In this case, Chandrachud, J., as he then was,
speaking for the Court after review of the authorities of
this Court and other High Courts, observed as follows:
“What is obligatory in order to apply section
34(1)(b) is that he must have “information” in his
possession in consequence of which he has reason to
believe that the income has escaped assessment or is
under-assessed, etc. The distinction really consists in
a change of opinion unsupported by subsequent
information on the one hand and a change of opinion
based on information subsequently obtained, on the
other. In the former class of cases, the assessment
proceedings are attempted to be re-opened without the
discovery of an error and without receiving any
information as to fact or
law………………………. Such a reopening is
based on a “mere” change of opinion and is without
jurisdiction….. …….. In the latter class of
cases, the reopening is based on information leading to
the requisite belief and is therefore within the
jurisdiction of the officer.”
This decision is really based on the question whether it is
open to the Income-tax officer to change his opinion
subsequently on the same materials and reopen the original
assessment. We are no doubt inclined to agree with the view
expressed by Chandrachud, J., in the aforesaid case, but as
this question is not free from difficulty as there is some
divergence of judicial opinion on the subject, we would
refrain from giving any definite decision on this point,
particularly when in
980
the view we take in the instant case, this point does not
really arise for determination in this case, which is really
based on another principle, namely, that the information was
derived by the Income-tax officer from fresh facts and is
clearly covered by the principles laid down in A. raman and
Company’s case (supra).
For the reasons given above, we find ourselves in
complete agreement with the view taken by the High Court.
Accordingly the appeal fails and is dismissed but without
any order as to costs.
S.R. Appeal dismissed.
981