1963 (7) TMI 95 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under section 34(1)(b) of the Indian Income-tax Act.
2. Whether the Income-tax Officer had "information in his possession" to reopen the assessment.
3. Interpretation of "information" under section 34(1)(b) post-amendment.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 34(1)(b) of the Indian Income-tax Act:
The core issue in this case was whether the notice issued under section 34(1)(b) of the Indian Income-tax Act was valid. The department sought to tax an amount of Rs. 5,10,788 paid as interest in the assessment year 1947-48, which was initially excluded from the assessment. The Kamptee firm had shown this amount in their return but claimed it should not be taxed, as it had already been taxed in the hands of the Bisesar House firm. The Tribunal's order on February 23, 1950, reversed the Income-tax Officer's decision, holding that the Kamptee firm and Bisesar House firm were distinct legal entities, thereby affecting the assessment of the Kamptee firm. Consequently, the Income-tax Officer issued a notice under section 34(1)(b), which was contested by the assessee.

2. Whether the Income-tax Officer Had "Information in His Possession" to Reopen the Assessment:
The assessee contended that the Income-tax Officer did not have any new "information in his possession" to justify reopening the assessment under section 34(1)(b). They argued that all relevant facts were already disclosed in the initial return, and the Tribunal's decision merely reiterated the legal position. However, the court found that the Tribunal's decision, which altered the legal relationship between the Kamptee firm and the Bisesar House firm, constituted new "information." This new information provided the Income-tax Officer with a reason to believe that the income had escaped assessment or was under-assessed.

3. Interpretation of "Information" Under Section 34(1)(b) Post-Amendment:
The court analyzed the changes brought by the amendments to section 34(1)(b) in 1948, which replaced "discovers" with "has in consequence of information in his possession reason to believe." This change meant that the Income-tax Officer did not need to discover something new but could act on any information that gave him a reason to believe that income had escaped assessment. The Tribunal's decision in the Bisesar House firm's case, which clarified the separate legal entities of the two firms, provided such information. The court cited previous cases, including Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, to support the view that judicial decisions could constitute "information."

Conclusion:
The court concluded that the Tribunal's decision constituted "information" under section 34(1)(b), giving the Income-tax Officer a valid reason to believe that the income had escaped assessment. Therefore, the notice issued under section 34(1)(b) was valid. The question posed was answered in the affirmative, and the assessee was ordered to pay the costs of the Commissioner.