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Issues Involved:
1. Escapement of income in the assessment years 1948-49 and 1949-50 under section 34 of the Income-tax Act. 2. Validity of notices issued under section 34 of the Income-tax Act and whether the proceedings were a result of mere change of opinion by the successor Income-tax Officer. Issue-wise Detailed Analysis: 1. Escapement of Income: The primary issue was whether any income had escaped assessment in the years 1948-49 and 1949-50 as contemplated under section 34 of the Income-tax Act. The assessee, a firm engaged in the business of manufacturing and selling scent and perfumery, had a portion of its income exempted under section 4(3)(i) due to a wakf deed that mandated one-fifth of the income to be spent on religious and charitable purposes. However, the assessee applied or set apart for application only one-fifth of the income it claimed to have received, which was less than the actual income. This discrepancy led to some income escaping assessment. The successor Income-tax Officer identified that the predecessor had allowed a larger deduction than legally permissible, resulting in the escapement of income. This was discovered upon reviewing the assessment order and realizing that the predecessor had not considered the distinction between the income actually applied or set apart for charitable purposes and the income claimed. Consequently, the successor issued notices under section 34 to assess the escaped income. 2. Validity of Notices under Section 34: The second issue was whether the notices issued under section 34 and the subsequent proceedings were valid or merely a result of a change of opinion by the successor Income-tax Officer. It was argued that the original assessment was based on the Tribunal's earlier decision, which assumed rather than decided the exemption of one-fifth of the income under section 4(3)(i). The successor Income-tax Officer took action under section 34 upon realizing that the predecessor had overlooked the correct application of section 4(3)(i), which mandates that only the income actually applied or finally set apart for charitable purposes is exempt. The Tribunal upheld this action, stating that section 34, as amended, provided broader powers to the Income-tax Officer and included information about the state of the law or judicial decisions. The Supreme Court's decision in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax clarified that "information" under section 34(1)(b) includes knowledge about the law and judicial decisions, and escape of income includes cases where the assessing authorities inadvertently failed to tax a part of the assessable income. Therefore, the successor's awareness of the predecessor's omission to apply section 4(3)(i) constituted "information" justifying action under section 34. Conclusion: The court concluded that the successor Income-tax Officer was justified in reopening the assessment under section 34 based on the information that the predecessor had overlooked the correct application of section 4(3)(i). The proceedings were not merely a result of a change of opinion but were based on the discovery of an omission. The court answered the first question in the affirmative, confirming the escapement of income, and the second question in the negative, validating the notices and proceedings under section 34. The department was entitled to its costs assessed at Rs. 200.
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