Orissa High Court
Sri Ramchandra Mardaraj Deo vs Commissioner Of Income-Tax, Bihar And ... on 28 February, 1955
Equivalent citations: [1955]28ITR136(ORISSA), AIR 1955 ORISSA 106
JUDGMENT
MISHRA, J. - This is a reference under section 66(1) of the Indian Income-tax Act by the Income-tax Appellate Tribunal, Madras Bench B, at the instance of the assessee, the Raja Bahadur of Khallikote. The question referred to us is as follows :- "Whether the reassessment of the income for the assessment year 1939-40 by invoking the provisions of section 34 was correct".
2. The assessee is the zamindar of Khallikote, and derives his income, among other sources, from forests. For the assessment year 1939-40, the Income-tax Officer made an assessment under section 23(3), the accounting year for the relevant period ended on 31st March, 1939. In the original assessment under section 23(3) of the Act, the Income-tax Officer did not take the income from forests into account as till then the revenue authorities were under the impression that such income was agricultural income and as such was not assessable to income-tax. On the 17th of April, 1941, the Patna High Court held in the case of Province of Bihar v. Maharaja Pratap Udai Nath Sahi Deo of Ratugarh and Another that incomes from forests such as lakhar, bankar and phalkar from forests of spontaneous growth as distinct from forests grown by the process of cultivation were non-agricultural incomes, and as such were assessable to income-tax. On the 14th December, 1942, a notice was issued to the assessee under section 34, for the assessment year 1939-40 in respect of his income from forests. Apparently the Income-tax Officer treated the judgment of the Patna High Court as a definite information which had come into his possession, and as a result of which he discovered that the income from forests had escaped assessment, and so he issued notice under section 34 of the Act. In pursuance to this notice the assessment was completed on the 28th of February, 1944. The assessee filed an appeal against this order. Before the Appellate Assistant Commissioner, the assessee raised a point that section 34 was not applicable in the circumstances of the case, because according to the assessee, the section to be operative contemplated the discovery any fact, because he already knew at the time of the original assessment that the assessee had forest income as well as interests on arrears of rent etc. This point was overruled by the Appellate Assistant Commissioner who held that the Patna High Court for the first time held in the case already referred to that incomes from forests of spontaneous growth, as distinct from forests grown by the process of cultivation and tilling of the soil, were non-agricultural incomes, and in the opinion of the Appellate Assistant Commissioner this exposition of the correct meaning of agricultural income was a definite information of a fact not possessed by the Income-tax Officer at the time of the original assessment. Accordingly he held that the Income-tax Officer was justified in invoking the provisions of section 34 in this case. On facts, however, certain questions were raised, and in the opinion of the Appellate Assistant Commissioner, the quantum for the assessment under section 34 had to be redetermined as indicated in his order dated the 29th November, 1944, and accordingly the case was remanded to the Income-tax Officer. Thereafter the Income-tax Officer made a fresh assessment under section 34 and section 23(3). Against this order the assessee again filed an appeal before the Appellate Assistant Commissioner. Before him the applicability of section 34 was again questioned, and the order was also attacked on merits. With regard to the first point, the Appellate Assistant Commissioner held that his predecessor in office had already decided the point, and that had become final as no appeal had been filed against that part of the order, and as such the appellant was debarred from raising that point over again before him. He then considered the merits of the assessment, and gave some relief to the assessee by excluding that portion of the income from forests which was the result of agricultural operations. He also gave some other minor relief in respect of house property which it is unnecessary to mention for the purpose of this reference. Against this order the assessee filed an appeal before the Income-tax Appellate Tribunal. The question of the applicability of section 34 was again raised; but they held that the Appellate Assistant Commissioner was right in holding that that question having finally decided by the first order of the Appellate Assistant Commissioner, and that order not having been made the subject of re-investigation, and not having been set aside, was final. Although they held that the appeal failed on this point alone, yet they went into the merits of the assessees contention, and held that if the state of law had been correctly expounded for the first time by the Patna High Court, that itself constituted "definite information" enabling the Income-tax Officer to act under section 34. Accordingly they dismissed the appeal. Thereupon the assessee moved the Income-tax Appellate Tribunal to make a reference to this court, and the Tribunal holding that a question of law does arise out of the said order, has stated a case for decision of the question set forth at the beginning of that order.
3. For the purpose of this reference we are to construe the provisions of section 34 as it stood before the amendment of 1948. Before the amendment section 34 ran as follows :
"34. (1) If in 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 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 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 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 reasses 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 rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be :"
* * * In order to attract the operation of the section, two things have to be established, one is that some definite information must come into the possession of the Income-tax Officer, and the other is that in consequence of that information, the Income-tax Officer must discover 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 a rate, or have been the subject of excessive relief under the Act. Reading the language of the section as a whole, it seems to us that the section contemplates that the Income-tax Officer must discover some new facts, as a result of which he comes to the conclusion that certain income has either escaped assessment or has been under-assessed or has been assessed at too low a rate, or has been the subject of excessive relief under the Act. The words "definite information" cannot relate to information regarding a new decision as to the interpretation of a section of the Act. It is the established law that decisions of courts of law do not create a new law. The Income-tax Officer may not assess a certain income due to his ignorance of the law; but if he later on finds out that he was under a wrong impression about the existing law, it cannot be said that a definite information has come into his possession by virtue of which he discovers that certain income has escaped assessment. The use of the words "information" and "discovers" suggests that the Income-tax Officer must have some definite information about certain facts as a result of which he discovers that certain income has escaped assessment. Just as the Civil Procedure Code provides that discovery of a new fact which was not within the knowledge of a party after exercise of due diligence, but which has subsequently come to his knowledge gives him a right to ask the court to review its previous decision so also the Income-tax Act provides in section 34 that if the Income-tax Officer comes into possession of definite information of certain facts as a result of which he discovers that a certain income has escaped assessment, he is entitled to reopen the assessment proceedings by issuing a fresh notice under section 22(2) of the Act. That seems to us to be the plain meaning of the section. It may be pointed out that section 34 was once amended in the year 1939. Before the amendment of that year, the section provided that if for any reason income, profits or gains chargeable to income-tax had escaped assessment in any year, or had been assessed at too a rate, the Income-tax Officer might make a fresh assessment. It would be seen under this section before the amendment of 1939, all that had to be shown was that the income had escaped assessment, or had been assessed at too law a rate, and the cases show that that position might arise by a mere error on the part of the Income-tax Officer on a question of law or fact. He might change his opinion and thereupon make a fresh assessment. Apparently, the Legislature thought that it was necessary to curtail the powers of the Income-tax authorities in this respect. Income-tax is a serious item in the expenditure of most people, and an assessee is entitled to know what his liability is, and it certainly seems unreasonable that, if his liability has been fixed at a certain figure, and he has based his further budget on that figure, he should subsequently be told that, owing to some mistake of the Income-tax Officer, he ought to have been charged at a heavier figure, with the result that he may cause considerable embarrassment. Presumably considerations of this nature led to the amendment of section 34 in 1939 by which it was provided that "if in 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 a rate", action may be taken.
4. Mr. K. Patnaik, learned counsel for the assessee, has drawn our attention to the case of Income-tax Appellate Tribunal, Bombay v. B. P. Byramji and Co. In that case the income of the assessee for the charge-year 1939-40 was computed at Rs. 54,024 for the purpose of income-tax and super-tax. The officer who made the original assessment came to the conclusion that the rate at which the super-tax was assessed by virtue of the provisions of section 6(4) (v) of the Finance Act, 1939, should be the rate prescribed by the Finance Act of the previous year, viz., of 1938, and the assessment was accordingly made on the 16th March, 1940. In the following July, the successor in office of the assessing office informed the assessee that he proposed to reassess the income in consequence of definite information that had come into his possession. The "definite information" consisted only of his view of the law as to whether the rates of the Finance Act of 1939 were applicable and as in his view the rates of the Finance Act of 1939 were applicable that in his view constituted "definite information" so as to attract the operation of section 34. It was found that the view of the second officer about the legal position was correct; but the question raised was whether a different view of the law entertained by the Income-tax Officer at a subsequent stage or by his successor constituted "definite information" within the meaning of section 34 of the Act. Their Lordships after discussing the entire question came to the conclusion that under section 34 if the Indian Income-tax Act as amended in 1939, the Income-tax Officer had no power to reopen the assessment proceedings, unless he acted in consequence of "definite information" which had come into his possession. A mistake of law was not a ground for reopening the assessment. The view of the succeeding officer, even though it was correct, was not based on any definite information coming into his possession, but he only corrected a view of the mistake of law applied by his predecessor, and that was not a sufficient ground for applying section 34 as amended in 1939.
5. Mr. Patnaik next referred to the case of Commissioner of Income-tax, Bombay v. Sir Mahomed Yusuf Ismail. In that case under a deed of wakf executed by the assessee in 1929, the trustees paid 21 per cent of the income which was not included in the income of the assessee for the assessment year 1939-40. Later on the superior officer of the Income-tax Officer took the view that the provisions of section 16(3) (b) had been misconstrued, and the Income-tax Officer thereupon proceeded to reopen the assessment under section 34. Under those circumstances it was held that no definite information came into the possession of the Income-tax Officer which resulted in his discovery that income had escaped assessment or had been under-assessed, and he was, therefore, not entitled to reopen the assessment under section 34, there must be some information as to fact which leads the Income-tax Officer to discover that income has escaped assessment or has been under-assessed." Chagla, J., (as his Lordship then was) held that "the word discover in section 34 does not mean a mere change of opinion on the same facts or on a question of law, or the mere discovery of a mistake of law."
6. Mr. G. C. Das, learned counsel for the Income-tax department, contends that the words "definite information" are wide enough to cover not only information on a question of fact, but also information on a question of law, and, therefore, the Income-tax Officer was justified in invoking the provisions of section 34 in reopening the assessment after he received "definite information" that the Patna High Court had held in the case referred to above that income from forests of natural growth was not agricultural income. He relies strongly on the case of Raja Benoy Kumar Sahas Roy v. Commissioner of Income-tax, West Bengal. Undoubtedly that decision is on all fours with the present case, and entirely supports Mr Dass contention. In that case the Income-tax Officer at the time of the original assessment was aware that the assessee had forest-income; but he did not include it in the assessment in the belief that it was not assessable. Subsequently he came to know that such income derived from the sale of forest trees of spontaneous growth was not agricultural income, and, therefore, was not exempt from taxation. He derived this information from the decision in Maharaja of Kapurthala v. Commissioner of Income-tax, U. P. Thereupon he reopened the assessment proceedings under section 34, and issued notice to the assessee under section 22(2). It was this assessment which was the subject-matter of reference to the High Court, and one of the questions referred was "whether on the facts and circumstances of this case section 34 is applicable." Their Lordships, Chakravarti, C.J., and Lahiri, J., held upon a construction of the terms of section 34 that : "Although it may be possible to construe the section by limiting the information to purely factual information in the first, second and fourth cases, the third case (viz., where the income has been previously assessed at too low a rate) clearly suggests that the error may be an error in the application of the appropriate rate and so an error of law, and therefore the information may be an information as to that error. The third case does not contemplate the contingency where a lower rate was applied for the reason that the amount of the assessable income was determined at a lower figure, because that contingency is covered by the second case. In information as to the correct law is proper information in the third case, it must be so in all the four cases." Therefore on this reasoning their Lordships held that in the facts and circumstances of that case the Income-tax Officer had "definite information" in his possession within the meaning of section 34, and action under that section was, therefore, rightly taken. With great respect we are unable to accept the reasoning adopted by their Lordships, because the section contains several clauses, and in respect of one clause, there may be a possibility that income may have been assessed at too low a rate on account of some error of law. It is not safe to presume that the Legislature intended that in all the four cases the "definite information" required under the section should relate to questions of law. Even in respect of the third case, it is difficult to conceive how a mere defect in the knowledge of the law with regard to the rate of tax assessed by an Income-tax Officer which is subsequently found by him to be incorrect can be said to constitute "definite information" within the meaning of section 34 of the Act. Their Lordships pointed out that even in the Bombay case in Commissioner of Income-tax, Bombay v. Sir Mohamed Yusuf Ismail Beaumont, C.J., had observed that "the fact may be as to the state of the law, for instance, that a case has been overruled or that a statute has been passed which has not been brought to the attention of the Income-tax Officer". The Madras High Court also made a similar observation in the case of V. M. Raghavalu Naidu and Sons v. Commissioner of Income-tax, Madras. The observations made in those two cases were in the nature of obiter, and need not be discussed at great length; but even assuming that the said observations were correct, they applied to cases where prior to the date of assessment an earlier exposition of the law containing any decision of court was overruled by a subsequent decision or a new law had been passed replacing the old law on the subject, and the Income-tax Officer had omitted to notice those facts, and when he came to know subsequently that the decision which he had followed at the time of the assessment had been overruled prior to the date of the assessment or that the law on which he proceeded had been replaced by any statute prior to the date of the assessment that fact itself may constitute "definite information" within the meaning of section 34. This view of the matter is amply illustrated by the decision in In re Chatturam Horilram Ltd. In that case the assessee, a resident of Chota Nagpur which was a partially excluded area, was assessed to income-tax for the year 1939-40 on 22nd December, 1939. On appeal the Income-tax Appellate Tribunal set aside the assessment on the ground that the Indian Finance Act, 1939, was not in force in Chota, the Governor of Bihar enacted Bihar Regulation IV of 1942, which received the assent of the Governor-General on 30th June, 1942, and brought into force the Indian Finance Act, 1939, in Chota Nagpur with retrospective effect from 30th March, 1939. Thereafter on 8th of July, 1941, the Income-tax Officer had issued notice to the assessee under section 34 of the Act. On the 8th February, 1944, the Income-tax Officer passed an order cancelling the said notice under section 34. On the 12th February, 1944, the Income-tax Officer again issued a fresh notice under section 34 and reassessed the income for the year 1939-40. The question was whether the notice issued on the 12th February, 1944, was validly issued. The Patna High Court held that the circumstance that the Income-tax Officer came to know that Bihar Regulation IV of 1942 had been promulgated constituted "definite information" in consequence of which the Income-tax Officer discovered that the income which was chargeable in 1939-40 had escaped assessment, and therefore the notice under section 34 issued on the 12th February, 1944, was validly issued. From the above resume of facts it would be seen that the Ordinance in question had been promulgated before the decision on the reference under section 66(1) had been pronounced and the Finance Act of 1939 had been made applicable to Chota Nagpur with effect from 30th March, 1939, i.e., before the close of the financial year 1939-40, by Bihar Regulation IV of 1942. This was a case of change of law by a competent authority prior to the date when the first assessment was completed. This fact of the promulgation of the Ordinance came to the knowledge of the Income-tax Officer much later, and the Patna High Court held that the fact constituted "definite information". For the purpose of the present case it is not necessary to decide that hypothetical question. In the present case the facts are that until the assessment was made, the Income-tax department was under the impression that income from forests was agricultural income and as such was not assessable. It appears from the statement of facts that for the assessment year 1939-40 (accounting year ending with 31st March, 1939), an assessment was made originally under section 23(3). The decision of the Patna High Court in the case of Province of Bihar v. Maharaj Pratap Udai Nath Sahi Deo was pronounced on the 17th of April, 1941. That decision was not a decision under the Income-tax Act. That was a decision under the Bihar Agricultural Income-tax Act. A contention was raised before their Lordships that "Bankar" (income derived from the sale of wood from virgin jungles not actually cultivated), "Lakhar" (income derived from letting land and trees for cultivation of lac) and "Phalkar" (income derived from the fruits of wild jungle trees and bushes) were not agricultural income and therefore could not be taxed under Bihar Agricultural Income-tax Act. Their Lordships accepted that contention and held that Lakhar, Bankar and Phalkar which is income derived from forest of spontaneous growth did not constitute agricultural income and was not assessable to income-tax under the Agricultural Income-tax Act. That case did not overrule any previous decision under section 4 of the Income-tax Act which exempts agricultural income from assessability to tax under the Income-tax Act., that was a decision under the Agricultural Income-tax Act, and the Income-tax Officer in the present case being informed that the Patna High Court had decided in that case that it was not agricultural income liable to be taxed under the Agricultural Income-tax Act, sought to invoke his powers under section 34 of the Income-tax Act. In our opinion, even if the observations made by Beaumont, C.J., in the Bombay case or the observations made by their Lord-ships in the Madras case be held to be good, they do not apply to facts of the present case. In this case, from the statement of facts it is clear that an assessment had already been made for the assessment year 1939-40, and long after that when the decision of the Patna High Court under the Bihar Agricultural Income-tax Act was pronounced, the Income-tax Officer reopened the proceeding under section 34. We are definitely of opinion that that decision of the Patana High Court cannot be said to constitute "definite information" within the meaning of section 34 so as entitle him to reopen the assessment which had already been completed.
7. Mr. Patnaik further contends that whatever be the meaning of the words "definite information" as occurring in section 34, the second condition, viz., that the income had escaped assessment, must be established before the section can come into play. His contention is that the Income-tax department knew the assessee was in receipt of income from his forest, and, in fact, the assessee in his return had mentioned that he was in receipt of income from forests, but as it was agricultural income it was not assessable to tax. Mr. G. C. Das, the learned counsel for the department, contends that the return is not to be found in the paper-book, and therefore, no argument can be built upon it. But he admits that the Income-tax department knew that the assessee was in receipt of income from forests but did not assessee him on that income prior to the issue of the notice under section 34. The words "has escaped assessment" in section 34 have been interpreted by their Lordships of the Judicial Committee in the case of Sir Rajendranath v. Commissioner of Income-tax. Their Lordships pointed out that the income which has been duly returned for assessment cannot be said to have escaped assessment year. The words "has escaped assessment" in section 34 cannot be read as equivalent to "has not been assessed", and the word "assessment" is not confined to the definite act of making an order of assessment. As the learned counsel for the revenue does not admit that it was shown in the return that he was in receipt of income from the forests we have to take his admission that the department knew that the assessee was in receipt of income from his forests, and in any such case, it was always open to the department to assessee the income from forests in the relevant assessment year even if the assessee did not show it in his return. The Act confers wide powers on Income-tax Officers to assessee such incomes which have not been shown by the assessee in his return, provided they come to know of the existence of such incomes through other sources. Therefore, the position is that although the department knew that the assessee was in receipt of incomes from his forests, they did not deliberately assess him, because in their view of the law such incomes were not assessable to tax. Merely because there is a decision of the Court declaring that income from forests of spontaneous growth does not constitute agricultural income, the Income-tax Officer, in our opinion, is not justified in holding that the income from such forests during the relevant assessment year in respect of which assessment has been completed "has escaped assessment" within the meaning of section 34 of the Income-tax Act. Therefore, in our opinion, the second condition for the present case.
8. Mr. G. C. Das, learned counsel for the department, relied upon a decision of this Court in Abdul Sattar Hazi Ahmad v. Commissioner of Income-tax, Bihar and Orissa. In our opinion, that case, the Income-tax Officer had made an assessment on the footing that the assessee was an individual, but the appellate authority took a different view of the evidence and held that the assessee was a firm, and as such the firm had escaped assessment. On a direction from the appellate authority, the Income-tax Officer issued a notice under section 34, and the question which was decided by their Lordships was that the fresh assessment by the original assessing authority was valid when the appellate authority merely took a different view of the evidence as to the ownership of the business, and over and above that converted the individual appeal into an appeal on behalf of the firm without any objection by the partner who thereby escaped assessment. Their Lordships held that the discovery in such a case must be said to be on the basis of "definite information" of a fact. As stated above, that case has no application to the facts of the present case.
For the reasons stated above, we are of opinion that the reassessment of the income for the assessment year 1939-40, in the present case, by invoking the provisions of section 34 was not correct. The question, therefore, should be answered in the negative. The assessee is entitled to his costs. Hearing fee Rs. 200. RAO, J. - I agree.
Reference answered accordingly.
JUDGMENT DAS, C.J. - This matter comes to us for decision on the statement of the case made by the Income-tax Appellate Tribunal in compliance with the directions of this Court dated 28th April, 1950, requiring the Tribunal to state the following case for the decision of the Court, viz., "Whether in the circumstances of this case, the assessment made under section 34 of the Income-tax Act is valid ?" The assessment that is now objected to on behalf of the applicant before us is the assessment for the year 1942-43 on the basis of an accepted return submitted by the assessee with reference to a notice issued on 26th February, 1947, by the Income-tax Officer under section 34 of Income-tax Act. The point urged against the validity of the assessment is that on the facts and in the circumstances of this case, there was no scope for the application of section 34 of the Indian Income-tax Act and that the assessment is consequently invalid. It is necessary to mention that the question thus raised in with reference to section 34 of the Indian Income-tax Act as it stood after the amendment thereof in 1939 and before the amendment of 1948. The relevant portion of section 34(1) during this period, viz., 1939-1948, stood as follows :-"If in 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, the Income-tax Officer may serve on the person liable to pay such income-tax, a notice containing all or any of the requirement which may be included under sub-section (2) of section 22 and may proceed to assessee or reassess such income." The facts of the case have been fully set out in paragraphs 2 to 8 of the statement of the case made to this Court by the Tribunal. They may be summarised as follows : The applicant before us was being assessed until the year 1942-43, as an individual in respect of a business which he was carrying on. For the assessment year 1942-43, he submitted a return as an individual, but stated that the business had become a partnership concern of himself and two others in which he had only a seven-anna share. He filed, therewith, a statement of the account showing the profits of the business and his seven-anna share therein. Along with that return he also made an application for registration of the said firm under section 26A of the Act. The Income-tax Officer held that there was no partnership and refused registration by his order dated 31st October, 1944. He treated the assessee as the proprietor of the entire business, assessed the profits thereof and determined and tax payable on that footing by another order of the same date, i.e., 31st October, 1944. As against these orders, the assessee filed two appeals : (i) with reference to the decision under section 26A declining to register the firm; and (2) in respect of the quantum of the profits assessed against the assessee as an individual owning the entire business. These two appeals were dealt with by different authorities for reasons which it is unnecessary to notice for the present purpose. The appeal relating to registration of the firm under section 26A was dealt with by the Appellate Assistant Commissioner, Central Range, Patna, on 31st March, 1946. It was decided that the business was to be treated as belonging to a firm consisting of this individual assessee and two other partners as claimed by him. Accordingly the firm was ordered to be registered. The appeal as regards the quantum of assessment came up for disposal before another officer, viz., the Appellate Assistant Commissioner, Southern Range, Purulia. The material portion of his order dated 20th December, 1946, was as follows : "Correct status : The Income-tax Officer treated the business as belonging to Abdul Sattar in his individual capacity, but the appellant urges that the business belongs to a firm of three brothers, viz., Abdul Sattar, Abdul Habib, and Haji Gaffoor. An appeal was filed against the refusal of registration and it has been held in that appeal order of the Appellate Assistant Commissioner of Income-tax, Central Range, Patna, dated 31st March, 1946, for the assessment year 1942-43 that the business belongs to the firm as alleged and registration has also been ordered. In these circumstances no separate order is necessary now as the Income-tax Officer has to treat the business as belonging to a firm". The Appellate Assistant Commissioner after dealing with a number of other individual items relating to quantum of profits of the firm, with reference to which objections were raised before him, wound up his order as follows : "The total income is reduced by Rs. 2,132 and enhanced by Rs. 4,500. The Income-tax Officer is further authorised to amend the assessment of the partners accordingly." Thus by this order he determined the assessable income of the firm and directed the income of the partners to be determined and assessed. The Income-tax Officer, Berhampur, appears thereupon, to have taken up the matter. He made the following order on 24th February, 1947, which has led to the assessment now in question : "The assessment for the year 1942-43 in the case of the firm Abdul Sattar Hajee Ahmed, now an excess profits tax case was assessed as an individual. As per order of the Appellate Assistant Commissioner Central Range, No. 66 of 1945-46, dated 31st March, 1946, appeal against the order under section 26A having been allowed, issue notice under section 34 read with section 22(2) to file return of income". Notice was accordingly issued on 26th February, 1947, and the return in compliance with that notice appears to have been filed by the assessee at once. The return was accepted and the petitioner has been assessed by order dated 28th February, 1947, whose validity it now under challenge. It is to be noticed that the return was filed without any objection and that the present objection to the validity of assessment is taken only in appeal. The above are substantially the facts, as stated by the Tribunal in the reference to us.
2. On these facts, it is urged that the fresh assessment made by the Income-tax Officer in the year 1947 against the applicant was merely the result of the view taken by the Appellate authority that on the evidence placed before him, the business belonged not to the applicant as the sole owner, but to a partnership of which the applicant was only a member having a seven-anna share, contrary to what the Income-tax Officer held on the same evidence. It is contended that the fact of the appellate authority having taken a different view of the evidence from that of the original assessing authority does not constitute "definite information" within the meaning of section 34 of the Indian Income-tax Act, so as to entitle the original assessing authority to restart assessment against him. For and against this argument, quite a number of cases have been cited by both sides, of which it is sufficient to mention Commissioner of Income-tax, Bombay v. Sir Mahomed Yusuf Ismail, Fazal Dhala v. Commissioner of Income-tax Bihar and Orissa, V. M. Raghavalu Naidu & Sons v. Commissioner of Income-tax, Madras, Commissioner of Income-tax, Madras v. K. M. S. Lakshmana Iyer, Chowdhary Mitho Missar v. Commissioner of Income-tax, V. P. and C. P., L. Shubhkaran Seksaria v. Commissioner of Income-tax, U. P. & C. P, and Commissioner of Income-tax, Madras v. Janab S. Khadervali Sahib.
3. Before going into the question of law raised in this case, it is desirable to consider what is the view of the facts to be taken as to the course of events relating to the assessment in question with reference to what has been above stated, and keeping in mind the relevant provisions of the Indian Income-tax Act. On the facts found, the assessee is a partner of a registered firm. The procedure for assessment of a registered firm and of its partners is that provided in clause (a) of sub-section (5) of section 23 of the Act, which is as follows : "Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3), or sub-section (4) as the case may be....... the sum payable by the firm itself (in the case of a registered firm) shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined." It would follow therefore that on the finding of the Appellate Assistant Commissioner in this case, dated 31st March, 1946, and on the basis of his direction to register the partnership under section 26A, what has to be determined first is the taxable income of the firm itself; but that the levy of the tax is to be made not on the firm, but as against the individuals who are the partners of the firm. Having regard to this prescribed procedure, and having regard to the fact that there had been by then no return filed by or on behalf of the firm as such, and no assessment of the firm made, the Income-tax authorities might well have started assessment proceedings against the firm and the other two individual partners, and kept the quantum-appeal of this applicant pending until the assessment of the firm and of the other partners was made and dealt with all of them together. But instead of doing that the Appellate Assistant Commissioner who had to deal with the quantum-appeal treated the appeal before him as one relating to the firm itself presumably also treating all the prior proceedings before the Income-tax Officer as taken on behalf of the firm and passed his orders determining the taxable profits of the firm and directed that all the partners were to be individually assessed. It is to be noticed that no objection was raised by the present applicant to the Appellate Assistant Commissioner treating the appeal pending before him as an appeal and the prior proceedings as relating to the firm itself. Such a course also appears to have been justified with reference to section 30(1) of the Income-tax Act, which says that an appeal on behalf of the firm is maintainable by any individual partner. That the quantum-appeal was treated as one relating to the firm and not to the individual with the full knowledge and consent of the present petitioner himself is, to some extent, indicated in the order of the Appellate Assistant Commissioner dated 20th December, 1946, which shows that the "appellant urged that the business belongs to a firm." In any case, this is fully substantiated by the fact that in all the subsequent stages of that appeal, the proceedings relating to the quantum of assessment were treated as on behalf of the firm as shown by the following steps taken. As against the said order of the Appellate Assistant Commissioner, there was an appeal to the Income-tax Appellate Tribunal which was dismissed. On such dismissal, an application was made to the Tribunal under section 66(1) of the Act for a reference to this Court which was also dismissed. Against that dismissal, an application was made to this Court under section 66(2) of the Act, which was dealt with by this Court and dismissed in S. J. C. 86/49. A perusal of these proceedings found in the paper-book of S. J. C. 86/49 shows clearly that the present applicant himself treated the further stages of those proceedings as relating to the firm and not to the individual. It is enough to refer to the very first paragraph of the application to this Court in S. J. C. 86/49 relating to the quantum-appeal which is as follows : "That the petitioner is a partnership firm registered under section 26A read with section 31 of the Act." Thus, what was in the year 1944 treated by the Income-tax Officer, Berhampur, as an assessment proceedings against this individual-petitioner owning the entire business, became, in view of the course that the subsequent stages of those proceedings took in 1946, an assessment of the firm itself which resulted in proceedings determining the taxable income of the firm, but without any tax being levied taxable income of the firm, but without any tax being levied thereupon. It is, in these circumstances, that the Income-tax Officer, Berhampur, initiated fresh assessment proceedings against the petitioner under section 34 and issued notice to him dated 26th February, 1947. It appears to me, therefore, that the only reasonable view to take of the course of the events which have taken place is not that the fresh proceedings were initiated merely because a different view of the evidence was taken by the appellate authority as to the ownership of the business, but because, over and above that, the Appellate Assistant Commissioner who dealt with the quantum-appeal converted the individual appeal into an appeal on behalf of the firm without objection by the petitioner. It is when the quantum-appeal converted the individual appeal into an appeal on behalf of the firm without objection by the petitioner. It is when this fact came to the notice of the Income-tax Officer, Berhampur, and it is in pursuance of the direction contained in the appellate order dated 20th December, 1946, that the fresh assessment proceedings against the petitioner were started. That these fresh assessment proceedings werer the direct result of the order dated 31st March, 1946, notwithstanding that his order dated 24th February, 1947, refers in terms only to the order dated 31st March, 1946, and not to the order dated 20th December, 1946, is a matter of obvious and reasonable inference from the sequence of events. It appears to me, therefore, that the fresh assessment was based on the definite information which the Income-tax Officer, Berhampur, obtained as to the fact that what was originally before him an individual assessment of the petitioner became, by the way in which it was treated in the quantum-appeal, the assessment of the registered firm, the individual thereby escaping assessment. It has not been disputed before us that in the events that have happened, the present applicant has, in fact, escaped assessment by the time the fresh notice dated 28th February, 1947, was issued, and it is only on that footing that the question of law debated before us arises. Indeed, I may mention that the order of the Income-tax Appellate Tribunal under section 66(1) in the present proceedings shows that there was a contention raised before it, as appears from paragraph 3 of its order dismissing that application, that there has been no escapement of tax at all so far as this applicant was concerned; but no such contention has been put forward before us. In the view that I take of the course of events relating to the assessment in question, having regard to the facts stated - a view which is substantially in accord with what the Tribunal has propounded in its statement of the case to us - it appears to me that the discovery must be said to be on the basis of "definite information" of a fact. I am, therefore, of the opinion, that the question of law debated in this case by the citation of various rulings does not arise for consideration. In my opinion the assessment of the applicant under section 34 of the Act is perfectly valid.
4. I may add that there is no merit in the objection taken by the applicant before us. It was taken for the first time in appeal against the assessment challenged and by the very person who has obtained the benefit of having escaped from assessment on account of the course which the proceedings took with his knowledge and consent.
5. I answer the reference by holding that in the circumstances of this case, the assessment under section 34 is valid. The assessee will pay the costs which the fix at Rs. 100.
MOHAPATRA, J. - I agree.
Reference answered accordingly.