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PETITIONER: COMMISSIONER OF WEALTH TAX WEST BENGAL

       Vs.

RESPONDENT: IMPERIAL TOBACCO CO.  OF INDIA LTD.

DATE OF JUDGMENT: 15/04/1966

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. SHAH, J.C. SIKRI, S.M.

CITATION:  1967 AIR  230            1966 SCR  174  CITATOR INFO :  F          1976 SC 203  (10)

ACT: Wealth Tax Act (37 of 1957), ss. 17(b) and 27-Divergence  of views  in High Courts as to meaning of "Information"  in  s. 34(2)(b)  Income  Tax Act which is in pari materia  with  s. 17(b)-Duty of Tribunal to make reference to High Court.

HEADNOTE: Orders of reassessment under s. 16(3) read with s. 17(b)  of the Wealth Tax Act were, passed by the Wealth Tax Officer in respect  of  two  assessment years,  and  by  those  orders, amounts  which had been formerly allowed as  deduction  were included in the total wealth of the respondent.  The  orders were  set  aside  by the Tribunal on  the  ground  that  the reassessment  was based on a mere change or opinion  on  the part of the Officer, because, there was no "information"  in his  Possession, as required by s. 17(b), which  could  lead him to believe that chargeable wealth of the respondent  had escaped  assessment.   The appellant’s applications  to  the Tribunal  and  the High Court, for a reference to  the  High Court, were dismissed. In appeal to this Court, HELD:     The   Tribunal  should  be  directed  to  make   a reference either to the High Court under s. 27(1) or to this Court under s. 27 (3A) of the Wealth Tax Act. [179 G]. There is a divergence of opinion among the High Courts as to the  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 opinion by the  Income-tax  Officer,  in certain  circumstances,  will justify the  issue  of  notice under  s.  34  (1)(b) of the  Income-tax  Act.   Since  that section  is in pari materia with s. 17(b) of the Wealth  Tax Act, a question of law did irises a,; to the  interpretation of the word "information" in s. 17(b) of the Wealth Tax  Act and it should have been referred by the Tribunal to the High Court. [179 E]

JUDGMENT:

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CIVIL  APPELLATE JURISDICTION: 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 ,in,] 232 of 1964. R.   M. Hazarnavis, K. D. Karkhanis, R. H. Dhebar and R.  N. Sachthey, for the appellant. A.   K.  Sen, T. A. Rancachandran, J. B. Dadachanji,  O.  C. Mathur and Ravinder Narain, for the respondent. The judgment of the Court was delivered by Wanchoo, J. These two appeals by special leave arise out  of two   applications  by  the  appellant  to  the   Income-tax Appellate                             175 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  reassessment 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 respondent  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 deduction 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 contingencies.  On June 2, 1960, the  Wealth- tax Officer issued two notices under s. 17(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 with s. 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 appeal against the two reassessment orders and the Appellate Assistant Commissioner sustained the decision of the Wealth- tax  Officer with respect to the reassessments in  question. The  case of the respondent 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

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of any information in his possession" appearing in s.  17(b) of the Act. 176 The respondent then went in appeal to the Appellate Tribunal and his contention there was that the issue of notices under s.  17(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 information in the possession  of the Wealth-tax Officer which could lead him to believe  that the net wealth chargeable to tax had escaped assessment.  It was  contended  that such information  must  be  information which  came  into  possession  of  the  Wealth-tax   Officer subsequent to the making of the original assessment and that the  information  must  lead  him  to  believe  that  income 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 Commissioner by the respondent and  the respondent’s  appeal  was dismissed in November  1960.   The Tribunal  pointed  out that if the  Wealth-tax  Officer  had waited  till after the decision of the  Appellate  Assistant Commissioner  about the assessment for the year 1959-60  and then  issued  notices  there  would  have  been   sufficient information for the purpose of s. 17(b) 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 decided, it was only a case of change ’of opinion by the Wealth-tax Officer which did not  justify issue of notices under s. 17(b).  The Tribunal also  pointed out  that the departmental representative  was  specifically asked  what  the information was upon which  the  Wealth-tax Officer  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  possession  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. 17(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  applications  summarily. Thereupon  the appellant applied to this Court  for  special leave which was granted; and that is how the matter has come before us. The  main  contention that has 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 "information"  for the purpose of s. 34(1)(b) of the  Indian Income-tax Act.  No. IT of 1922, (hereinafter referred to as the  Income-tax Act).  That section is in pari materia  with s.  17(b)  of the Act and therefore a question  of  law  did arise which should have been referred to the 177 High  Court for its decision on the question raised  by  the appellant.   Reliance  in this connection is placed  on  the decision  of  this  Court in  Maharajkumar  Kamal  Singh  v. Commissioner  of Income-tax Bihar(1) 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,

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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 original 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 views on the point.  It is urged on behalf of the  appellant that  the precise question left undecided by this  Court  in Maharajkumar  Kamalsingh’s  case(1) 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(1)  it was held by the Bombay High Court as far  back as  1943  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 information 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  Income-tax  Appellate Tribunal Bombay  v.  B.  P. Byramji  & Co.(1) where it was again emphasised that a  mere change of opinion by the Income-tax Officer is no ground for taking action under s. 34, Further  in Bhimraj Pannalal v. Commissioner  of  Income-tax Bihar(1) it was held by the Patna High Court that "an  order of  assessment  made  after investigation  by  a  particular officer  should  Jr not at his sweet will  and  pleasure  be allowed to be revised merely because he changed his  opinion and that there must exist something 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 that section." (1) [1959] supp. 1 S.C.R. 10: (1959) 35 I.T.R. 1. (2) (1944) 12 T.T.R. S. (3) (1946) 14 I.T.R. 174. (4) (1957) 32 I.T.R. 289. 178 The appellant on the other hand relies on some recent  deci- sions which show that there is some divergence of opinion in the  High Courts on this question.  In Salem Provident  Fund Society Limited v. Commissioner of Income-tax Madras(1)  the Madras High Court held that "information for the purpose  of section  34 need not be wholly extraneous to the  record  of the original assessment.  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  Muda- liar(1) 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 assessment, and even though all the facts were  in the  original  records,  the case  was  covered  by  section

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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  information  that income had escaped assessment." In  Canara Industrial and Banking Syndicate Limited v.  Com- missioner  of Income-tax, Mysore,(1) 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 notification, and the  Income-tax  Officer later  on  finds  that on a correct  interpretation  of  the notification  the income was liable to be assessed,  he  can take  proceedings  under section 34 for assessment  of  such income; the word ’information’ in section 34 is wide  enough to apply to such a case." The  last  case  to which reference is made  is  Asghar  Ali Mohammad  Ali v. Commissioner of Income-tax(1)  wherein  the Allahabad High Court held that "the word ’information’  used in  the provision covers all kinds of  information  received from any person whatsoever or in any manner whatsoever;  all that is required is that the Income-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 information has resulted in   a   change  of  opinion  will  not  make   section   34 inapplicable.   A  change of opinion is not  sufficient  for initiating proceedings under S. 34, only when such change of opinion  is the result of a different method  of  reasoning, and not based on ’information’ (1) (1961) 42 I.T.R. 547.       (2) (1964) 51 I.T.R. 204. (3) (1964) 51 I.T.R. 479.       (4) (1964) 52 I.T.R.  962. 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)  (b) and will justify the issue  of  a  notice thereunder.  It may be added that after the decision of this Court in Maharajkumar Kamal Sigh’s case(1) it is now settled that "information in s. 34(1)(b) included information as  to the  true  and  correct state of law,  and  so  would  cover information as to relevant judicial decisions" and that such information for the purpose of s. 34(1)(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 Mohanmed Yusuf Ismail(1) has  been  overruled. 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 information in  possession  of  the Wealth-tax  Officer to justify him in issuing notices  under s. 17(b) of the Act.  But in the present case 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 referred,  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.  34(1)(b)  of  the  Income-tax  Act  and  therefore   the decisions  under  s.  34(1)(b) of the latter  Act  would  be relevant  in construing the scope and effect of s. 17(b)  of the  Act.   There does appear to be  divergence  of  opinion among  the  High  Courts  as to  the  meaning  of  the  word "information" in section 34(1)(b) of the Income-tax Act, and in view of that divergence we are of opinion that a question

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of   law   did  arise  in  the  present  case  as   to   the interpretation of the word "information" in s. 17(b) of  the Act and should have been referred by the Tribunal. 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. Appeals allowed. (1)  [1959] Supp.  1 S.C.R. 10. (2)  1944 12 I.T.R. 8. 180