COMMISSIONER OF WEALTH TAX WEST BENGAL versus IMPERIAL TOBACCO CO. OF INDIA LID.

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COMMISSIONER OF WEALm TAX WEST BENGAL

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IMPERIAL TOBACCO CO. OF INDIA LID.

April 15, 1966 [K. N. WANCHOO, J. c. SHAii AND s. M. Soon. JJ.J Wealth Tax Act (37 of 1957), ss. 17(b) and 27-Divergence of views in High Courts as to meaning of "lnjormation" in s. 34(1)(b) Income Tax Act which is in pari rnateria 1vith s. 17(b)-Duty of Tri bunal to make re/<!rence to High Court.

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Orders of reassosmnent under s. 16(3) read with s. 17(b) of the 0

Wealth Tax Act were passed by the Wealth Tax Officer in respect of two assessment years. and by those orders, amounts which had total been formerly allowed as deduction were included wealth of the respondent. The orders were set aside by the Tribu- nal on the ground that the reassessment was based on a mere change of opinion on the part of the Officer, because, there was no "informa- tion" in his possession, as required by s. 17(b), which could lead him to believe that chargeable wealth of the respondent had escaped as- D sessment. The appellant's applications to the Tribunal and the High Court, for a reference to the High Court, were dismissed.

the

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In appeal to this Court, HELD: The Tribunal should be directed to make n

reference either to the High Court under s. 27 (I) or to this Court under s. 27 (3A) of the Wealth Tax Act. [179 G].

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There is a divergence cxf opinion among the High Courts as to the E

meaning of the word "information" in s. 34(1)' (b) of the Income-tax Act, and some High Courts have taken the view that a change of opi nion by the Income-tax Officer, in certain circumstances. will justify the issue of notice under s. 34 (l)(b) of the l'ncome-tax :Act. Since that section is in pari materia withs. 17(b) of the Wealth Tax Act, a ques tion of law did arise as to the interpretation of the word "informa tion" in s. 17(b) of the Wealth Tax Act and it should have been re- ferred by the Tribunal to the High Court. [179 El

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C!v!L APPELLATE JURrsmcnos: Civil Appeals Nos. 1062 and

1063 of 1966.

Appeals by special leave from the judgment and order dated February 15. 1965 of the Calcutta High Court in matters Nos. 231 and 232 of J 964.

R. M. l/azarnavis, K. D. Karklranis, R. H. Dlrebar and R. N. G

Sachthey, for the appellant.

A. K. Sen, T. A. Ramachandran, 'J. B. Dadachanji, 0. C.

Mathur and Ravinder Narain, for the respondent. The judgment of the Court was delivered by Wancboo, J. These two appeals by special leave arise out of B

two applications by the appellant

to

the Income-tax Appellate

w. TAX COMMR. v. IMPERIAL TOBACCO (Wanchoo, J.)

175

A Tribunal for reference to the High Court of a question of law,

which was formulated as follows: -

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the reas sessment proceedings under s. 17(b) of the Wealth Tax Act were not validly initiated and in setting aside the same." The facts which led to the

applications for reference are briefly these. The respondent submitted wealth-tax returns for the years 1957-58 and 1958-59. For the year 1957-58 the res pondent claimed that an amount of Rs. 51 lakhs and odd being provision for taxation and another amount of Rs. 37 lakhs and odd being provision for contingencies, being ascertained liability, should be allowed as deduction from the total wealth. For the year 1958-59, the respondent claimed Rs. 31 lakhs and odd being provision for contingencies as ascertained liability as deduction from the total wealth.

Assessment for the year 1957-58 was completed on December 30, 1957 and the Wealth-tax Officer accepted the contention of the respondent and allowed the claim for deduction. Subsequently the Commissioner of Wealth-tax by his order dated December 29, 1958 passed under s. 25(2) of the Wealth Tax Act, No. XXXVII of 1957, (hereinafter referred to as the Act) disallowed the deduc tion of Rs. 51 lakhs and odd being the provision for taxation for the assessment year 1957-58. The order of the Wealth-tax Officer allowing deduction for contingencies for the assessment year 1957-58 however stood. The assessment for the year 1958-59 was completed on December 9, 1958 and deduction was allowed for contingencies only. It may be added that we are not concerned in the present appeals so far as deduction for provision for taxa tion is concerned. On March 22, 1960, the Wealth-tax Officer completed the assessment of the respondent for the year 1959-60 and disallowed the claim for deduction of the provision for con tingencies. On June 2, 1960, the Wealth-tax Officer issued two notices under s. l 7(b) of the Act for reassessment of net wealth for the years 1957-58 and 1958-59. On September 24, 1961 orders of reassessment under s. 16(3) read withs. 17(b) of the Act were passed in respect of the assessment years 1957-58 and 1958-59 and by these orders the amounts which had been formerly allowed as deduction with respect to contingencies were included in the total wealth of the respondent. The respondent then went in ap peal against the two reassessment orders and the Appellate Assis tant Commissioner sustained the decision of the Wealth-tax Officer with respect to the reassessments in question. The case of the res pondent was that the Wealth-tax Officer had no information on the basis of which he could proceed to reassess the net wealth of the respondent and in this connection reliance was placed on the words "in consequence of any information in his possession" ap pearing in s. l 7(b) of the Act.

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~L"PREllE CO\:RT REPORTS

[1966] SL"PP. S.C.R.

in

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The re5pondent then went in appeal to the Appellate Tribu nal and his contention there was that the issue of notices under s. I 7(b) of the Act was invalid as it was based on a mere change of opinion on the part of the Wealth-tax Officer, as at that time there was no informat;on the possession of the Wealth-tax Officer which could lead him to believe that the net wealth charge able to tax h~d escaped assessment. It was contended that such in formation must be information which came into possession of the Wealth-tax Olticer subsequent to the making of the orig;nal assess ment and that the information must lead him to believe that in come chargeable to tax had escaped assessment. The Tribunal accepted this contention of the respondent. It may be pointed out that the assessment made by the Wealth-tax Officer for the year 1959-60 was taken in appeal to the Appellate Assistant Commis respondent's appeal was dis sioner by the respondent and missed in November 1960. The Tribunal pointed out that if the Wealth-tax Officer had waited till after the decision of the Appel late Assistant Commissioner about the assessment for the year I 959-60 and then issued notices there would have been sufficient information for the purpose of s. I 7tb) with the Wealth-tax Officer to authorise him to issue notice thereunder; but as the Wealth-tax Officer issued the notices in June 1960 before that appeal was de cided, it was only a case of change of opinon by the Wealth-tax Officer which did not justify issue of notices under s. I 7(b). The Tribunal also pointed out that the departmental representative was specifically asked what the information was upon which the Wealth-tax Otfaer came to the conclusion that taxable wealth had escaped assessment. The departmental representative was unable to point to any specific information which came into the posses sion of the Wealth-tax Officer and which could lead him to issue the notices in question. The Tribunal therefore held that the reassessment proceedings under s. I 7(b) for the years 1957-58 and 1958-59 were not validly initiated and set them aside. Thereupon the appellant applied to the Tribunal for making references under s. 27(1) of the Act. The Tribunal rejected the applications. The appellant then applied to the High Court under s. 27(3) of the Act for direction to the Tribunal to state a case. The High Court however rejected the appellant applied to thi> Court for special leave which was granted; and that is how the matter has come before us.

summarily. Thereupon

the applications

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The main contention that ha, been urged on behalf of the appellant before us is that there is divergence of opinion among the High Courts on the question as to what constitutes "informa tion" for the purpose of s. 34(1)(b) of the Indian Income-tax Act. No. II of 1922, (hereinafter That section is in pari materia with s. I 7(b) of the Act and therefore a question of law did arise which should have been referred to the

referred to as the Income-tax Act). H

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w. TAX COM1lR. v. IMPERIAL TOBACCO (Wanclwo, J.)

177

High Court for its decision on the question raised by the appel lant. Reliance in this connection is placed on the deci5ion of this Court in Maharajkumar Kamai Singh '" Commissioner of Income /ax Bihar(') where this Court held that "the word 'information' in section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions". A further question was raised in that case, namely, "whether it would be open to the Income-tax Officer to take action under s. 34(1) on the ground that he thinks that his orii:inal decision in making the order of assessment was wrong without any fresh information from an external source or whether the successor of the Income-tax Officer can act under s. 34 on the ground that the order of assessment passed by his predecessor was erroneous". That question was not decided by this Court in that case, though this Court pointed out that in construing the scope and effect of s. 34, the High Courts had expressed divergent It is urged on behalf of the appellant that views on the point. in Maharaj the precise question left undecided by this Court kumar Kamalsingh's case(') arises in the present case, and as there are divergent views taken by the High Courts on that question, a question of law did arise on the order of the Appellate Tribunal and therefore the Tribunal should have made a reference.

In Commissioner of Income-tax Bombay v. Sir Mohomed Yusuf Ismail(') it was held by the Bo:nbay High Court as far back as 19-43 that under s. 34 a mere change of opinion on the same facts or on a question of law or the mere discovery of a mistake of law is not sufficient information within the meaning of s. 34 and that in order to take action under s. 34 there must be some infor mation as a fact which leads the Income-tax Officer to discover that income has escaped or has been under-assessed.

The same view was taken in a later case by the Nagpur High Court in IncomMax A pp~llate Tribunal Bombay v. B. P. Byramji & Co.(') where it was again emphasised that a mere change of opinion by the Income-tax Officer is no ground for taking action under s. 3-4.

Further in Bhimraj Pannalal v. Commissioner of Incometax Bihar(') it was held by the Patna High Court that "an order of assessment made after investigation by a particular officer should not at his sweet will and pleasure be allowed to be revised merely because he changed his opinion and that there must exist some thing either suppressed by the assessee or a fact or a point of law which was inadvertently or otherwise omitted to be considered by the Income-tax Officer, before he can proceed to act under s. 34; and a mere change of opinion on the same facts and law is not covered by tl!at section."

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(') [1959] Supp. I 8.C.R. 10, (19b9) ~5 LT.I\. I. ~u~u~~

178

SUPREllE COURT REPORTS

(1966] SUPP. 8.0.R.

The appellant on the other hand relies on some recent deci sions which show that there is some divergence of opinion in the In Salem Provident F1111d Society High Courts on this question. Limited v. Commissioner of Income-tax Madras(') the Madras High Court held that "information for the purpose of section 34 need not be wholly extraneous to the record of the original assess ment. A mistake apparent on the face of the order of assessment would itself constitute 'information'; whether someone else gave that information to the Income-tax Officer or whether he informed himself was immaterial."

In Commissioner of Income-tax v. Rathinasabhapathy M11da- 1iar(') the Madras High Court again held that "the discovery of the Income-tax Officer after he had made the assessments that he had committed an error in not including the minor's income in the father's assessment was 'information' obtained after the assess ment, and even though all the facts were in the original records. the case was covered by section 34(1)(b) of the Income-tax Act and the reassessment was not invalid, and this was not a case of mere change of opinion on the same facts but a case of getting informa tion that income had escaped assessment."

Jn Canara Industrial and Banking Syndicate Limited v. Com missioner of Income-tax, Mysore,(') the Mysore High Court held that "if income had escaped assessment owing to the failure of the Income-tax Officer to understand the true implication of a notifi cation. and the Income-tax Officer later on finds that on a correct interpretation of liable to be assessed. he can take proceedings under section 34 for assessment of such income; the word is wide enough to apply to such a case."

'information' in section 34

the notification

income was

the

is made

The last case to which reference

is Asghar Ali Mohammad Ali v. Commissioner of Income-tax(') wherein the Allahabad High Court held that "the word 'information' used in received from any the provision covers all kinds of information person whatsoever or in any manner whatsoever; all that is re quired is that the Tncomo-tax Officer should learn something i.e. he should know something which he did not know previously." It was further held that "if there is information leading to the belief that income has escaped assessment, the mere fact that this infor mation has resulted in a change of opinion will not make section 34 inapplicable. A change of opinion is not sufficient for initiat ing proceedings under s. 34, only when such change of opinion is the result of a different method of reasoning. and not based on 'information'".

(') (19BI) 42 I.T.I\ . .'>17. (') (19M) 61 LT.R. 479.

(') (1964) 51 I.T.R. 204. (') (loo.I) 62 I.T.R, 962.

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w. '.!'AX COMMR. v. IM:Pll!\IAL TOBACCO (Wanchoo, J.)

179

It does appear that some High Courts at any rate are taking the view that a change of opinion by the Income-tax Officer in certain circumstances will be sufficient for the purpose of s. 34(1) It may be (b) and will justify the issue of a notice thereunder. added that after the decision of this Court in Maharajkumar Kamal Singh's case(') it is now settled that "information in s. 34(J)(b) included information as to the true and correct state of law, and so would cover information as to relevant judicial deci sions" and that such information for the purpose of s. 34(l)(b) of the Income-tax Act need not be confined only to cases where the Income-tax Officer discovers as a fact that income has escaped assessment. To that extent the decision of the Bombay High Court in Sir Mohamed Yusuf Ismail(') has been over-ruled. That is why the Appellate Tribunal stated in its decision that if the notices in the present case had been issued after the decision of the Appellate Assistant Commissioner in the appeal from: the assessment for the year 1959-60, there would have been informa tion in possession of t1ie Wealth-tax Officer to justify him in issuing notices under s. 17(b) of the Act. But in the Wealth-tax Officer issued notices before that decision was known to him and the question is whether in the circumstances, in view of the later decisions of the High Courts to which we have refer red, a question of law arose or not. The language of s. 17(b) of the Act is in pari materia with the language of s. 3'4(l)(b) of the Income-tax Act and therefore the decisions under s. 34([)(b) of the latter Act would be relevant in construing the scope and effect of s. l 7(b) of the Act. There does appear to be divergence of opi nion among the High Courts as to the meaning of the word "information" in section 34(l)(b) of the Income-tax Act, and in view of that divergence we are of opinion that a question of law did arise in the present case as to the interpretation of the word "information" ins. 17(b) of the Act and should have been referred by the Tribunal.

the present case

We therefore allow the appeals, set aside the order of the High Court and direct the Tribunal to state a case referring the question of law arising in these cases in the form suggested by the appellant. The Tribunal will be free to decide whether to refer the matter to the High Court under s. 27(1) or to this Court under s. 27 (3A) of the Act. Costs of this Court will abide the result of the reference.

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Appeals allowed.

(') [1059] Supp. I S.C.R. 10. Q-1-t. 12 I.T.R. 8. "

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