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Judgment
H.R. Khanna, J.—This judgment will dispose of two Letters Patent Appeals No.88-D and No 89-D of 1963 by Hari brothers Private limited against the judgment of learned Single Judge where by he dismissed the two petitions under Article 226 and 227 of the Constitution of India filed by appellant Company against the Income Tax Officer, Special Investigation, Delhi respondent No.1 and the commissioner of Income -Tax Delhi and Rajasthan respondent No.2
(2) It will be convenient to give the facts of the petition out of which appeal No.88-D of 1963 arises because, according to the learned counsel for both the parties, the decision in that appeal would govern the other-appeal also. The Appellant -company is carrying on business as managing agents of Dalmia Cement Limited and Dalmia Cement (Bharat) Limited. Besides that the appellant company deals in shares. In respect of the assessment year 1957-58 corresponding to the calendar year 1956, the appellant-Company was assessed to tax on an income of Rs.4,50,496 which included a sum of Rs.43,190 alleged to be profits on the sale of shares of Orissa cement Limited. The case of appellant-company during the assessment proceedings was that and were not meant for the purpose of dealing in them and Therefore the profit, if any, on the sale of the said shares was not business profit and taxable, as such. The income Tax Officer repelled this contention and his decision was affirmed on appeal by the Appellate Assistant Commissioner.
On second appeal the income Tax Appellate Tribunal held that the difference between the price on which those shares were sold and the cost of shares, did not arise in the course of assessee''s business activity, and Therefore, the profits were not taxable. Another item which was included in the assessable income of the appellant, was that of Rs.341,355 as the amount realised on the sale of the right to subscribe for the shares of Dalmia cement (Bharat) Limited. The appellant-company received that amount because it had renounced its right to the allotment of those shares in favor of the other share holders when the Dalmia cement(Bharat) Limited as permitted to issue further capital. The case of the appellant company before the income Tax Officer was that the sum of Rs.31,355 was a receipt of a casual and non--recurring nature and as such was not taxable. In the alternate, the appellant-company took the stand that the receipt of the aforesaid sum should not be treated as revenue receipt but as capital gains. The income Tax Officer repelled the contention advanced on behalf of the appellant- company and included the above mentioned amount as business income. This order was affirmed on appeal by the Assistant Commissioner. The appellant then preferred a second appeal which was allowed by the Appellant Tribunal and it was held that the amount of Rs.31,355 was not taxable as income.
(3) A notice dated 7th March 1962 u/s 34(1)(b) of the Income Tax Act 1922 hereinafter referred to as the Act) was issued by the Income tax Officer respondent No.1 and was served upon the appellation 9th March 1962. In the aforesaid notice the appellant-Company was informed that it was proposed to reassess the excess realizations mentioned above as capital gains. The appellant-company sent a reply under protest and claimed that the notice u/s 34(1) (b) of the Act was without jurisdiction as the circumstances justifying the issue of such a notice did not exist. The present petition was filed by the appellant on 24th May 1962 praying for the issuance of a wit directing the respondents to forbear from taking any action on the notice u/s 34(1)(b) of the Act. According to the appellant-Company full facts had been placed by the appellant before the Income Tax authorities and the fact that those authorities drew a wrong legal inference from those facts did not justify resort to the provisions of section 34(1)(b) of the Act.
(4) The petition was resisted by the respondents and its was pleaded that action taken by re No.1 was justified because respondents No.1 had in his possession information which came in to his possession subsequent to his making the original assessment order and that information was such as led him to believe that income chargeable to tax had escaped assessment. The information, according to the respondents, was in the form of the order of the Income tax Appellate Tribunal dated 30th December 1961 in which the tribunal as an appellate Court had laid down the true import of the transaction in law on the basis of which the Income Tax Officer had reason to believe that the income had escaped assessment.
(5) The learned Single Judge, after referring to the various changes made in law and the authorities on the subject, found that the contention advanced on behalf of the appellant-Company was not well founded. He accordingly, dismissed this petition as well as the connected petition.
(6) The material portion of section 34(1) (b) of the Act, under which the impugned notice was issued to the appellant, at the relevant time read as under:-
"34(1) if---
(a)........
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessed 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 (a) at anytime and in cases falling under clause (b) at "any time within four years of the end of that years, serve on the assessee, or if the assessee is a company, on the principal officer thereof a notice
Prior to 1939 the relevant provision in this respect read as under:
" 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 rte, the Income tax officer may at any time within one year of the end of that year serve on the person liable...." As the result of the Indian income Tax (Amendment) Act, 1939, the relevant portion of the section red as under:
" If the consequence of definite information which has come into his possession the Income Tax Officer discovers that income, profits or gains chargeable to income tax have escaped assessment in any year, or have been under assessed or have been assessed at too low rate..... the Income Tax officer may, in any case in which he has reason to believe that the assessee has concealed the particulars............... at any time within four years, and in any other case at any time within eight years of the end of that year serve on the person.
A new section 34 was substituted by the income Tax and business Profits Tax (Amendment) Act, 1948 (48 of 1948). As a result of that amendment the section in the form, it has been reproduced earlier, was enacted. There were some subsequent amendments made in the section but we are not concerned with them
(7) Section 34 empowers the income Tax officer to reopen assessment in case of income, profits or gains chargeable to Income Tax having escaped assessment. A distinction is, however, made by the section between two types of cases. One type consists of case in which the income, profits or gains have escaped assessment because of omission or failure on the part of the assessed to make return of his income or to disclose fully and truly all material facts necessary for assessment. In respect of this type of cases the power of the Income Tax Officer to reopen assessment is much wider and the Legislature provided either a much longer period or no period of limitation for initiating action. We are, however, in the present case not dealing with that type of case. The second category relates to cases of reopening assessment where income-profits or gains chargeable to Income Tax have escaped assessment for no omission or default of the assessee. The present case belongs to this category, and it is with this aspect of the statute that we are concerned with.
(8) From the reproduction of the relevant provision of law it would appeal that before 1939 the Income Tax Officer could invoke the provision of law if for any reason income, profits or gains chargeable to income tax had escaped assessment. A limitation f time was, however, imposed and it was made imperative to take action within one year of the end of the year. As a result, of the change in law in 1939, although the period was enlarged to four years in cases of other than those of deliberate concealment of particular by the assessee, the law required that the income Tax Officer could t if in consequences of definite information which come into his possession the Income tax officer discovered that income, profits or gains chargeable to income tax had escaped assessment. Consequent upon the amendment made in 1948 the word "definite" as qualifying the information was omitted as also the word "discovers" and the Income Tax officer could act if he had as a result of information in his possession reason to believe that income, profits or gains chargeable to income tax had escaped assessment. Such a power was vested in the Incomes Tax Officer notwithstanding that there was no omission or failure on the part of the assessee as mentioned in clause (a). This limitation for taking action under the above provision remained to be four years.
(9) There is no dispute that the Income Tax Officer in the present case has served notice within the statutory period of four years. The only question on which the parties are at variance is whether the income tax Officer has acted in consequence of information in his possession/ this takes us to the meaning and import of the word "information" Does it can note factual information, or does it also cover enlightenment on a question of law? Whatever doubts might have existed earlier on the scope of the world "information" the matter was set at rest by their lordships of the Supreme court in the case of Maharaj Kumar Kamal Singh Vs. The Commissioner of Income Tax, Bihar and Orissa, . In the case the income Tax Officer following a decision of Patna High court in an earlier case of RAJA BAHADUR KAMAKSHYA NARAIN SINGH Vs. COMMISSIONER OF Income Tax, BIHAR AND ORISSA., omitted to bring to assessment for the year 1945-46, the sum of Rs.93,604 representing interest on arrears of rent due to the assessee in respect of agricultural land on the ground that the amount was agricultural income. Subsequently, the judicial Committee on appeal from the decision of Patna High Court held that interest on arrears of rent payable in respect of agricultural land was not agricultural income. As a result of this decision, the income Tax Officer initiated re-assessment proceedings u/s 34(1)(b) of the income Tax Act and brought the amount of Rs.93,604 to tax. It was held that the word ''information'' in section 34(1)9b0 of the Income Tax Act included information as to the true and correct state of law, and so would cover information as to relevant judicial decisions. Agreement was advance before their lordships that the word ''information'' should receive a narrower construction in limiting it to facts or factual materials distinguished from information s to the true state of the law. This argument was repelled Argument was further advanced that section 33B and 35 of the Act conferred ample powers on the specified authorities to rectify mistakes and so it would be legitimate to construe the word "information" strictly and to confine it to information in regard to facts or particulars. Gajendragakar, J (as he then was ) who spoke for the Court observed-
" This argument also not valid. If the world "information" in its plain grammatical meaning includes information as to facts as well as information as to be the state of law, it would be unreasonable to limit it to information as to the facts on the extraneous consideration that some cases of assessment which need to be revised or rectified on the ground of mistake of law may conceivably be covered by sections 33B and 35". It was further observed-
"We would accordingly hold that the word "Information" in section 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 would be true position the argument that the Income Tax Officer was not justified in treating the Privy Council decision in question as information within section 34(1)(b) cannot be accepted". In view of the above authoritative pronouncement on the subject by their lord ships of the Supreme court it is not necessary to deal with the earlier cases decided by the different High Courts about the scope of section 34(1)(b) of the Act.
(10) In the present case the Income Tax Appellant Tribunal observed that the amounts in question were not revenue receipts but were ordinarily capital receipts. According to the case of the respondents the pronouncement of an authoritative decision by the Tribunal n regard to the true import of the transaction in question was information which entitled the Income Tax officer to reopen the assessment. The learned single judge accepted the position taken by the respondents and in doing so relied upon the dictum laid down in Maharaj Kumar Kamal Singh Vs. The Commissioner of Income Tax, Bihar and Orissa,
(11) Mr. Ved Vyasa on behalf of the appellant-Company has tried to distinguish the case of Maharaj Kumar Kamal Singh Vs. The Commissioner of Income Tax, Bihar and Orissa, on the ground that the exposition of law, which was considered to be information in that case, had been made by the Privy council, while in the present case the exposition which was sought to be used as information had been made by the Income Tax Appellant tribunal. It is urged that an observation made or a finding given by the Appellate Income Tax Tribunal cannot be deemed to be authoritative because it is liable to be reversed on a reference made to high court or in appeal to the Supreme Court. We are however, not impressed by this argument. It is no doubt true that a decision on a question of law of the Appellant Income Tax Tribunal is not final and can be assailed by a reference to the High Court or in appeal to the Supreme Court against the decision of the high Court, all the same the fact remains, that if no reference is made to the high Court and no appeal is filed to the supreme Court, the decision of the Tribunal becomes final so far as that case is concerned.
In the present case it is not disputed that no reference was made to the high Court against the decision of the Tribunal and the question of filling an appeal to the Supreme Court also, in the circumstances did not arise. As such, the decision of the Tribunal was stamped with finality and acquired a binding force. The material question in a case like the present , in our opinion, is not whether a further reference or appeal lies against the order of the Tribunal but whether in case no such reference is made or appeal filed the order of the Tribunal is binding on the Income Tax officer. If the answer to this question to be in the affirmative, the decision of the Tribunal would constitute information and the fact that the decision is not by the highest Court in the hierarchy of Tribunals and Courts would not detract from its authenticity or prevent it from Constituting information.
(12) In the case of JAWAHAR LAL MANI RAM Vs. COMMISSIONER OF Income Tax, U. P., a Division bench of Allahabad High Court held that a judgment of the Income Tax Appellate Tribunal or even of the Appellate Assistant Commissioner in an appeal from an assessment order taking a different view on the facts of the case, constitutes information within the meaning of section 34. It was further held that on principle there can be no distinction in this respect between information derived from a judgment of the Privy Council rendered on appeal either from an order of the Tribunal or from an answer given in a reference by the High Court and a judgment recorded by the Tribunal or an appellate Assistant Commissioner against an assessment order in the same assessment proceedings. The above case of JAWAHAR LAL MANI RAM Vs. COMMISSIONER OF Income Tax, U. P., was followed by a Division bench of Kerala High Court in A.V. Thomas and Co. Ltd., Alleppey Vs. The Commissioner of Income Tax, Kerala, Ernakulam, and it was held that the statements of the Appellant Tribunal in its appellate orders constituted information in consequence of which the Income Tax officer could initiate proceedings u/s 34(1)(b) of the Act.
R.B. Bansilal Abirchand Firm Vs. Commissioner of Income Tax, M.P., a case decided by a Divisional bench of Bombay high Court is another authority for the proposition that an order of the Tribunal showing the true relationship between the assessed firm and a second firm would constitute information upon the basis of which an Income Tax Officer could have reason to believe that the assessee firm had not been assessed or had been under-assessed.
(13) Mr. Ved Vayasa has been argued that the information on the basis of which the Income Tax officer stars proceedings u/s 34(1)(b) of the Act, should be of an extraneous character. If the material already exists on the record from which the Income Tax authorities could derive that information, the fat that they did not choose to utilize that material, would not ,according to the learned counsel. Justify the subsequent use of that material as information. Reference in this connection has been made to be case of he appellant-Company before the Income Tax Officer at the time of original assessment. On that occasion the appellant-Company took the stand that the receipt of the amounts in question was of a casual and non-recurring nature. In the alternative the appellant-Company stated that the receipt of the afore said sum should not be treated as revenue receipt but a s capital gain.
The submission in this respect made on behalf of the appellant-Company, in our opinion is not well founded. The appellant, as would appear from the above did not take an unequivocal stand that the receipt of the amounts in question should be treated as capital gain. On the contrary this stand was taken by the appellant only in the alternative. The Income Tax officer, however did not accept the stand of the appellant-Company and treated the receipt of the amounts in question as revenue, receipts. This decision was affirmed on appeal y the Assistant Commissioner, and it was only in second appeal that the Appellate Tribunal observed that such a receipt was a capital gain. The Income Tax officer had issued notice by treating the decision of the Tribunals information and we find no legal infirmity in the course adopted by him.
The argument that the information received by the Income Tax officer, should be of an extraneous character, cannot hold good. In view of the following observations of the Supreme Court in the case of Maharaj Kumar Kamal Singh Vs. The Commissioner of Income Tax, Bihar and Orissa, .
" 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. In our opinion even in a case where a return has been submitted. I the 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". In the case of Salem Provident Fund Society Ltd. Vs. Commissioner of Income Tax, Madras, a Divisional bench of the Madras High Court held that "information" for the purposes of section 34 need not be wholly extraneous to the record of the original assessment, and a mistake apparent on the face of the order of assessment, would itself constitute information. It was added that whether someone else gave information to the Income Tax officer or whether the informed himself was immaterial. The above case was followed by the Allahabad High Court in ASGHAR ALI MOHAMMAD ALI Vs. COMMISSIONER OF Income Tax., Commissioner of Income Tax, Madras Vs. Rathinasabapathy Mudaliar (Deceased), decided by a Division Bench of the Madras High Court is another authority for the proposition that the information relevant to section 34(1)(b) need not be wholly extraneous to the record of the assessment itself, as for instance, an error or inadvertence in assessment by which income had escaped assessment is discovered after the assessment.
(14) Argument has then been advanced on behalf of the appellant Company that according to the observations of the Supreme Court in the case of Maharaj Kumar Kamal Singh Vs. The Commissioner of Income Tax, Bihar and Orissa, the information, on the basis of which the Income Tax officer initiates action u/s 34(1)(b) must be subsequent to the original assessment order. It is urged that the information which led the Income Tax officer to initiate action, was already available when the case was argued before the Income Tax Tribunal. The remedy of the department it is submitted, was to represent to the Tribunal to make the assessment on the basis of that the receipt of the amounts was capital gain. In this respect we are of the view that what constitutes information. In the present case is not the argument advanced before the Tribunal but the auction order of the Tribunal. Till such time as the Tribunal had expressed its view on the nature of the receipt by giving its decision it cannot be said that the information was available to the Income Tax authorities. As the order of the Tribunal was subsequent o the order o the Income Tax officer the information must beheld to have been derived subsequent to the original assessment order. The contention, that the original assessment order made by the Income Tax officer had merged in the order of the Tribunal and Therefore the information cannot be regarded to be subsequent, has not impressed us. The information referred to by section 34(1)(b) is that which is in the possession case indicate that the Income Tax officer did not have that information earlier when is made original assessment order and that he got it when the Appellate Tribunal laid down the true import of the transaction in law. As such we find no force in the contention that the information on the basis of which the Income Tax officer took action was not subsequent.
(15) Reference has also been made on behalf of the appellant-Company to the case of Commissioner of Income Tax, New Delhi Vs. Rao Thakur Narayan Singh, . In that case the assessed preferred an appeal to the Appellate Tribunal from an assessment order bringing to tax certain forest income and interest income. In the appeal, the assess objected to the Income Tax officer''s jurisdiction to initiate reassessment proceedings in respect of the forest income on the ground that he had knowledge of such income when the original assessment was made. The Appellant Tribunal upheld the assessed''s contention but by mistake set aside the entire reassessment order and restored the original assessment order. No step was taken u/s 35 to rectify the mistake nor was reference sought to be made to the High Court against the order of the Appellate Tribunal. Subsequently, the Income Tax officer initiated fresh reassessment proceedings u/s 34 with respect to the interest income and made a fresh reassessment order to include the interest income. It was held that as the order of the Appellate Tribunal had become final, the finding of the Tribunal, even though by mistake, was binding on the Income Tax Officer and he could not reopen the assessment over again to include the interest income. It was further observed that it was not the intention of law to lace an unrestricted power of review in the hand of the Income Tax Officer to go behind the findings given by a hierarchy of Tribunals and even those f the High Courts and the Supreme Court with his changing moods. The appellant - Company in our opinion cannot derive much assistance from the above authority because the Income Tax officer in the cited case sought to set at naught the decision of the Tribunal while in the present case the Income Tax officer accepts as correct and seeks to enforce the view taken by the Tribunal.
(16) Some reference has also been made to English authorities but as those authorities are in the context of statute couched in different languages, they cannot afford much guidance. I may in this context refer to the case of Commissioner of Income Tax, Hyderabad-deccan Vs. Vazir Sultan and Sons, . Where in the Supreme Court struck a note of caution in relying upon English cases in Income Tax matters when the provisions of the Income Tax Act were not in pari materia with the British Income Tax Statutes.
(17) As a result of the above, we dismiss the two appeals, but in the circumstances, leave the parties to bear their own costs.
I.D. Dua, Actg. C.J.
(18) I agree
(19) Appeal dismissed.