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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 ..... e 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 Appellate Assistant Commissioner, for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal 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 liable to excess profits tax and the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision 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 these decisions is that a mere change of opinion based on the same facts which were present to the mind of the Income-tax Officer' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence 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 Excess Profits Tax Officer can be said to have discovered, in consequence of definite information which had come into his possession, that profits chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 standard profits depend upon facts and law. By wrongly appraising the evidence to prove the facts or by applying wrong law to them or by wrongly interpreting the law ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, 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 with information of fact, i.e., with fact itself. There may be materials on the record but the relevant fact which would be deduced from them may not be deduced by the office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 justified on the ground that the subjective finding of the appellate authority that a certain expenditure was business expenditure did not amount to information and that it could not be said that in fact there was escape. If the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 mis-inter preted the law applicable or did a combination of two or more of these acts. He discovers the escape when he finds that the profits of the business should have been charged. He discovers the chargeability of the profits when he is told that the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arises in such cases. An Excess Profits Tax Officer must be informed, but of what ? It is universally agreed that he must be informed of facts and that existence of law or interpretation of law or decision of a court or tribunal is a fact: see Raghavalu Naidu Son's case (supra); Haji Ahmad Haji Esak Co.'s case (supra); Maharaj Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 assessment, i.e., escape. Since the assessing authority is bound by the judgment of the appellate authority it must take the appellate authority's decision on the question of fact as the fact. Just as in regard to a question of law there is no distinction between the existence or non-existence of law and the finding that the law exists or does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits 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 could not be charged at all so long as the partition stood. The partition had not been annulled under section 10A and so long as it had not been annulled the profits were profits of the partnership and could not be deemed to be profits of the assessee-firm. There was consequently no escape within the meaning of section 15 at all on the date on which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion 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 that the machinery which the assessee had said he would not use after the war was actually used by him and the Supreme Court held that it was sufficient information justifying the reopening of the assessment order under section 15. In the case of Chatturam Horilram Ltd.'s case (supra) the information received was about the promulgation with r ..... 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