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PETITIONER: KALYANJI MAVJI & CO

       Vs.

RESPONDENT: C.I.T., WEST BENGAL-II

DATE OF JUDGMENT10/12/1975

BENCH: FAZALALI, SYED MURTAZA BENCH: FAZALALI, SYED MURTAZA MATHEW, KUTTYIL KURIEN

CITATION:  1976 AIR  203            1976 SCR  (2) 966  1976 SCC  (1) 985  CITATOR INFO :  O          1979 SC1960  (14)

ACT:      Income Tax Act, 1922-Section 34(1)(b)-Scope, extent and ambit of, with,  particular reference to the connotation and import of the word "information" used in s. 34(1)(b)-Escaped assessment-Reopening the original assessment on the basis of subsequent facts  as also  on the  materials of the original assessment   revealed    by   more    careful   and   closer circumspection is  "information" within  the meaning  of  s. 34(1) (b)  of the  Act and  not a  case of  mere  change  of opinion.

HEADNOTE:      The appellant  company, a  registered partnership firm, filed its  income tax returns for the years 1956-57 and also for 1957-58  respectively showing  a total  income  of’  Rs. 7,44,551/-, after  claiming a  deduction of  a  sum  of  Rs. 43,116/-, being  the amount of interest paid by the assessee on the  debts incurred  for the  partnership business  along with the  balance sheet  in support  of the said deductions. The Income  Tax officer  accepted the  claim on the basis of the balance  sheet. When  the assessee  filed his return for the year 1958-59, the Income Tax officer discovered that the deduction claimed  by the  appellant  was  not  correct  and called upon  the  assessee  to  prove  its  plea.  But,  the assessee did  not lead  any evidence  before him. The Income Tax officer  finding that  the deduction of interest claimed was utilised  for giving interest free loans to the partners for clearing  their income-tax  dues and,  as such, it could not be  said to  be a  loan incurred for the expenses of the partnership firm,  not only disallowed the deduction claimed for that  assessment year, but also issued a notice under s. 34 (1)  (b) for the re-opening of the original assessment of the previous  years on  the ground that the deduction having been wrongly  allowed, taxable  income  escaped  assessment. Accordingly, the  Income  Tax  officer  re-assessed  him  by including Rs.  43,116 to the total income. The appeal to the Appellate Assistant  Commissioner failed. However, on second appeal,  the   Income  Tax  Appellate  Tribunal  "B"  Bench, Calcutta, set  aside the  order of  the reassessment opining that the  information resulting  in the  reassessment notice

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under s.  34(1)(b) was not based on any fresh facts, but was derived from  the materials  on the  record of  the original assessment amounting  to a  change of  opinion and, as such, was not sufficient to attract the provisions of s. 34(1)(b). On the  application of  the respondent-Revenue, the Tribunal made a  reference under  s.  66(1)  of  the  Act  framing  a question, namely,      "Whether on  the facts  and in the circumstances of the      case  the  Tribunal  was  right  in  holding  that  the      reassessment made  by the  Income Tax  officer under s.      34(1)(b) of  the  Indian  Income  Tax  Act  (1922)  was      incompetent ?" to the  High Court,  which answered  it in  the negative and held that  the case  squarely fell  within the  ambit of  s. 34(1)(b) of the Act inasmuch as the information on the basis of which  the  Income  Tax  officer  sought  to  reopen  the original assessment,  was based on subsequent facts’ as also on the materials of the original assessment revealed by more careful and closer circumspection of these materials.      Negativing  the  following  three  contentions  of  the assessee appellant, namely,      (i) The  information relied  upon  by  the  Income  Tax officer not  having been  derived from  external sources, it amounted to  a mere  change of opinion on the very facts and materials that  were present  on the  record of the original assessment not  attracting the  provisions of s. 34(1)(b) of the Act. 967      (ii) It  was not open to the Income Tax officer to have reopened the  original assessment  merely because  he took a different view of the matter in the assessment year 1958-59.      (iii) That the High Court has not appreciated the ratio laid down  by the  Supreme Court  in Commissioner of Income- tax, Gujarat  v. A.  Raman and  Company, 67  I.T.R. 11,  and dismissing the appeal by special leave, the Court ^      HELD: (1) S. 34(1) contemplates two categories of cases for reopening  the previous  assessment-(1) where  there has been an  omission or  failure on the part of the assessee to make a return of his income under s. 22 or to disclose fully and truly  all materials facts necessary for his assessment; and (ii)  where there  has been no such omission on the part of the  assessee but the Income Tax officer, on the basis of the  information   in  his  possession,  finds  that  income chargeable to  tax has  escaped assessment for any year. The first category deals with cases where an assessee is himself in default  and the  second category  deals with cases where there is  an default  on the  part of the assessee but where the income chargeable to tax has actually escaped assessment for one reason or the other and the Income Tax officer comes to know about the same[1971  E-F]      (2) The  word "information"  which has not been defined in the  Act is  of the  widest amplitude  and comprehends  a variety  of   factors.  Nevertheless,  the  power  under  s. 34(1)(b), however,  wide it  may be,  is not plenary because the discretion  of the  Income Tax  officer is controlled by the words "reason to believe". [973 C & E]      Bhimraj Pannalal  v. Commissioner  of Income-tax, Bihar and  Orissa,   41  I.T.R.   221  an  Bhimraj  Panna  Lal  v. Commissioner of  Income-tax, Bihar  & Orissa, 32 I.T.R. 289, followed.      (3) Since  the Income  Tax officer  was to see that the tax collecting machinery is made as perfect and effective as possible so  that the  tax-payer is  not allowed to get away with escaped income-tax, in view of the difficulty in laying

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down any  rule of universal application, the following tests and principles would apply to determine the applicability of s. 34(1)(b) to the following categories of cases:      (i) Where the information is as to the true and correct state of law derived from relevant judicial decisions;      (ii) Where in the original assessment the income liable to  tax   has  escaped   assessment   duel   to   oversight, inadvertence or  a  mistake  committed  by  the  Income  Tax officer on  the principle  that the  tax-payer would  not be allowed  to  take  advantage  of  an  oversight  or  mistake committed by the taxing authority;      (iii) Where the information is derived from an external source of  any kind.  Such  external  source  would  include discovery of  new and  important  matters  or  knowledge  of fresh, facts  which were  not present  at the  time  of  the original assessment; and      (iv) Where  the information  may be  obtained even from the record  of the original assessment from an investigation of the  materials on  the  record  or  the  facts  disclosed thereby or from other enquiry or research into facts of law.      If these  conditions are satisfied, then the Income Tax officer would  have  complete  jurisdiction  to  reopen  the original assessment. It is obvious that where the Income Tax officer gets  no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or  without any  enquiry into  the materials which from part of the original assessment, s. 34(1)(b) would have no application. [973 C, D, 976 A-E]      Maharaj  Kumar  Kamal  Singh  v.  The  Commissioner  of Income-tax, Bihar  & orissa  [1959]  Supp.  (1)  S.C.R.  10; Commissioner of  Wealth-tax, West Bengal v. Imperial Tobacco Company of  India Ltd. [1966] Supp. S.C.R. 174; Commissioner of Income-tax. Excess Profits Tax. Hyderabad, Andhra Pradesh v. V.  Jagan Mohan  Rao and  ors. [1970]  1 S.C.R.  726  and Commissioner of  Income tax Gujarat v. A. Raman and Company, 67 I.T.R. 11, discussed. 968      (4) In  the instant case the subsequent information was the discovery  by the   Income Tax officer the deduction was wrongly claimed  and the  consequent  disallowance  of  that deduction and  the conduct  of the  assessee itself  in  not adducing any  evidence or  materials to prove its stand that the claim  was validly  made which  led to  the issue of the notice under  s. 34(1)(b)  for reopening the assessment [978 H]      (5)  The   case  really   fell  within  the  tests  and principles laid  down in  A. Raman Company’s case and within the ambit  of s. 34(1)(b) inasmuch as the Income Tax officer proceeded on  the basis of the information which came to him after the  original assessment,  by fresh  facts revealed in the assessment  for the  year 1958-59  and consisted  of the conduct of  the assessee  in not  adducing any  evidence  to support its  plea. It  was not  a case  of a  mere change of opinion by  the Income  Tax officer  on the  materials which were already on record. [1979 B-C]      Commissioner of  Income-tax, Gujarat  v. A.  Raman  and Company, 67 I.T.R. 11, applied.      Bankipur Club Ltd. v. Commissioner of Income-tax, Bihar and Orissa, 82 I.T.R. 831, 834, distinguished.      [On the  question "Whether  it is open to the I.T.O. to change his  opinion subsequently  on the  same materials and reopen the  original assessment" which arose in the decision in Commissioner  of Income  Tax, Bombay  City-2 v.  H. Holck Larsen, 85  I.T.R. 467,  479, relied  on  by  the  appellant assessee and  also on the contention that in fact the amount

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sought to  be  deducted  was  paid  towards  the  income-tax liabilities of the partners, the Court applied "Non liquet"]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 522 of 1971. Appeal  by special  leave from  the judgment and order dated the  26th April, 1968 of the Calcutta High Court in I. T. Reference No. 50 of 1965.      N. N. Goswamy and Arvind Minocha for the Appellant.      B. B. Ahuja and S. P. Nayar for the Respondent.      The Judgment of the Court was delivered by      FAZAL ALI, J. This appeal by special leave involves the interpretation of  the scope,  extent and  ambit of s. 34(1) (b) of the Income-tax Act, 1922 with particular reference to the connotation and import of the word ‘information’ used in s. 34(1)  (b). Although  the question  appears to  have been settled in  one form  or the  other by the decisions of this Court, the  changing  and  diverse  society  such  as  ours’ dealing  in   complex  commercial  activities  continues  to produce multifarious  facts  of  taxable  income  which  has escaped assessment  cloaked under difficult propositions and knotty legal  problems. It is the onerous task of this Court to dispel the doubts and resolve and reconcile the differing views taken  by the  High Courts in various situations which every time poses a new problem.      The points  involved in  the instant  case have baffled many a  legal brain  so much  so that  the High  Court  also appears to  have been  in two  minds whether  to  place  the information in  the instant  case as  based on the materials already on  the record of the original assessment of 1956-57 revealed by  closer circumspection  or  to  the  information derived from  subsequent or  fresh facts.  Before,  however, examining the  legal incidents  of s.  34 of  the Income-tax Act, 1922,  it may  be necessary  for us  to travel into the domain of  the facts of the present case which are short and simple. 969      The assessee  appellant M/s Kalyanji Mavji & Company is a registered  partnership firm dealing in various commercial activities. The  said firm  filed its  return for  the  year 1956-57 corresponding to the accounting Gujarati Diwali Year 2001 showing a total income of Rs. 7,44,551/- after claiming a deduction  of a  sum of  Rs. 43,116/-being  the amount  of interest paid  by the assessee on the debts incurred for the partnership business.  The Income-tax  officer accepted  the return but on appeal to the Appellate Assistant Commissioner the assessment  was reduced  by a  sum of Rs. 9,200/- by his order dated  July 3,  1958. For  the assessment year 1957-58 the assessee  showed  the  same  income  and  the  deduction claimed  was   allowed.  The  next  year  1958-59,  however, presented quite  a different  complexion. While the assessee filed his return in the year 1958-59, the Income-tax officer concerned  suspected   the   correctness   of   the   return particularly the deduction of interest and found that as the amount of  the deduction  claimed was  utilised  for  giving interest-free loans  to the  partners for  clearing up their income-tax dues  it could  not be said to be a loan incurred for  the   expenses  of  the  partnership  business  and  he accordingly  disallowed   the  deduction   claimed  by   the appellant. This  discovery led  the  Income-tax  officer  to issue notice  to the  appellant under  s. 34(1)  (b) of  the Income-tax Act,  1922-hereinafter referred  to as ‘the Act’- for reopening  the assessment  of the year 1956-57-hereafter

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to be referred to as ‘the original assessment’-on the ground that the  deduction having  been  wrongly  allowed,  taxable income and  escaped assessment.  After hearing the appellant the Income-tax officer completed the assessment and included the sum  of Rs.  43,116/- to  the total income shown, by the assessee. Thereafter  the appellant  filed an  appeal before the Appellate  Assistant Commissioner  against the  order of the Income-tax  officer but  the appeal was dismissed by the Appellate authority which confirmed the order of the Income- tax officer.  It may  be pertinent to note here, that in his order the  Appellate Assistant Commissioner pointed out that in the  assessment years  1958-59 and 1959-60 the Income-tax officer found that the appellant had no evidence with him to show that  the funds borrowed on which the interest was paid were utilised  for the  purpose  of  the  business  and  not diverted to  the partners.  Thereafter the appellant filed a second appeal  to the  Income-tax Appellate  Tribunal,  "B", Bench Calcutta. The Tribunal after having accepted the facts culminating  in   the  order   of  the  Appellate  Assistant Commissioner was  of the opinion that the information of the Income-tax officer  resulting in  the notice  under s. 34(1) (b) of  the Act  to the  assessee was not based on any fresh facts but  was derived  from the materials on the records of the original  assessment. The Tribunal further found that if the  Income-tax   officer  while   completing  the  original assessment would  have been careful enough to scrutinise the balance-sheet he  would have  at once detected the infirmity on the  basis of  which the  subsequent  Income-tax  officer issued the  notice under  s. 34(1)  (b)‘ of  the‘ Act to the appellant. The  Tribunal further was of the opinion that the subsequent Income-tax  officer merely changed his opinion on the basis  of the  very materials  that were before him when the original assessment was made and that was not sufficient to attract  the provisions  of s.  34(1) (b) of the Act. The Tribunal accordingly  allowed the  appeal and  set aside the order of  the  Income-tax  officer  issuing  notice  to  the assessee under s. 34(1) (b) 970 for  reopening   the  original  assessment.  Thereafter  the respondent,   namely,   the   Commissioner   of   Income-tax approached the  Tribunal for  making a reference to the High Court under  s. 66(1)  of the  Act as  a result of which the Tribunal referred  the case  to the  High Court  at Calcutta after framing the following question:           "Whether on  the facts and in the circumstances of      the case,  the Tribunal,  was right in holding that the      re-assessment made  by the  Income-tax officer under s.      34(1) (b)  of  the  Indian  Income-tax  Act,  1922  was      incompetent ?" The High Court, after hearing the parties, differed from the view taken  by the  Tribunal and  held that the present case squarely fell  within the  ambit of  s. 34(1) (b) of the Act inasmuch as  the information  on  the  basis  of  which  the Income-tax officer sought to re-open the original assessment was based  on subsequent  facts as  also on the materials of the original  assessment revealed by more careful and closer circumspection of  those materials.  The High Court referred to a  number of  decisions of  this Court  as  also  to  the decisions of  the Calcutta  High Court. The appellant sought leave to  appeal to this Court against the order of the High Court, which  having been  refused, the  appellant  obtained special leave from this Court, and hence this appeal.      In support  of the  appeal  it  was  contended  by  Mr. Banerjee that  the view  taken by  the High Court is legally erroneous inasmuch  as the admitted facts of this case would

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disclose that  the information relied upon by the Income-tax officer in  order to re-open the original assessment was not derive from  external sources  but amounted to a mere change of opinion on the very facts and materials that were present on the  record of  the  original  assessment.  It  was  also submitted that  it was not open to the Income-tax officer to have re-opened  the original  assessment merely  because  he took a  different view  of the matter in the assessment year 1958-59. Lastly  it was  argued that  the High Court had not correctly applied  the ratio  laid down  by  this  Court  in Commissioner  of   Income-tax,  Gujarat   v.  A.  Raman  and Company(1).      Mr. Ahuja  appearing for the Revenue submitted that the order of  the Income-tax officer was fully justified and the High Court had taken the correct view of the law.      In order  to appreciate  the  contentions  advanced  by counsel for  the parties,  it is  necessary to  make a brief survey of  the provisions of s. 34(1) of the Income-tax Act, 1922. The section runs thus:           "34. (1) If-           (a)  the Income-tax  officer has reason to believe                that by  reason of the omission or failure on                the part  of an  assessee to make a return of                his income  under section  22 for any year or                to disclose  fully  and  truly  all  material                facts necessary  for his  assessment for that                year, income,  profits or gains chargeable to                income-tax have  escaped assessment  for that                year, or have been under-assessed or assessed                at too low a rate, or 971                have  been  made  the  subject  of  excessive                relief under  the Act,  or excessive  loss or                depreciation allowance has been computed, or           (b)  notwithstanding  that   there  has   been  no                omission or  failure as  mentioned in  clause                (a) on  the part of the assessee, the Income-                tax officer has in consequence of information                in his  possession  reason  to  believe  that                income,  profits   or  gains   chargeable  to                income-tax have  escaped assessment  for  any                year,  or   have  been   under-assessed,   or                assessed at too low a rate, or have been made                the subject  of excessive  relief under  this                Act, or  that excessive  loss or depreciation                allowance has been computed,      he may  in cases  falling under  clause (a) at any time      and in  cases falling  under clause  (b)  at  any  time      within four years of the end of that year, serve on the      assessee, or,  if the  assessee is  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  reassess such  income profits or      gains or  recompute the loss or depreciation allowance;      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  *    *    *    *" It would  be seen  that s. 34(1) contemplates two categories of cases  for re-opening  the previous  assessment-(1) where there has  been an  omission or  failure on  the part of the assessee to  make a  return of  his income under s. 22 or to disclose fully  and truly  all material  facts necessary for his assessment;  and  (2)  where  there  has  been  no  such

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omission on  the part  of the  assessee but  the  Income-tax officer on  the basis of information in his possession finds that income chargeable to tax has escaped assessment for any year. It  is, therefore,  manifest that  the first  category deals with cases where an assessee is himself in default and the second category deals with cases where there is no fault on the  part of  an assessee but where the income chargeable to tax has actually escaped assessment for one reason or the other and  the Income-tax  officer comes  to know  about the same. In  the instant  case, however,  we are concerned with clause (b)  of s.  34(1)  extracted  supra.  Before  however proceeding to interpret the ambit and import of s. 34(1) (b) it may  be necessary to consider the history of s. 34 of the Act which  appears to  have passed  through different phases with amendments  and additions made to the section from time to time.      Section 34 as it stood in 1922 was as follows:           "34. If  for any  reason income  profits or  gains      chargeable to  income-tax has escaped assessment in any      year, or  has been  assessed at  too low  a  rate,  the      Income-tax officer  may, at any time within one year of      the end of that year, serve on 972      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 reassess  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      rates at  which it  would have  been  charged  had  the      income, profits or gains not escaped assessment or full      assessment, as the case may be." It would be seen that in the section as it stood in 1922 the word ‘information’  was not  there at  all and  the  section merely  empowered  the  Income-tax  officer  to  reopen  the assessment of  any year  where income  chargeable to tax had escaped assessment.  No conditions  or  limitations  on  the power of  the Income-tax officer were at all laid down under the section.  It appears that the appropriate Legislature in its wisdom thought that this would be too wide a power to be given to  the Income-tax officer and may not be workable. In these circumstances,  by the  Indian Income-tax  (Amendment) Act, 1939, this section was recast as under:           "34 (1)  If in consequence of definite information      which has  come  into  his  possession  the  Income-tax      Officer,  discovers  that  income,  profits  and  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 1, 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  principle  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 re-assess such

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    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  *    *    *    "      It may  be pertinent  to note  that by  virtue of  this amendment the  concept of  the Income-tax  officer  deriving definite information  was introduced for the first time. The word  ’information’  was  qualified  by  ‘definite’  and  an additional  condition   was  incorporated  namely  that  the Income-tax officer  discovers that  income chargeable to tax had 973 escaped  assessment.   This  provision  led  the  Courts  to approach  the   provisions  of   the  section  with  greater circumspection and  stricter scrutiny  as a  result of which many cases of escaped assessments had to be set at naught by some decisions  of the  Courts. This  led the  Parliament to take a  fresh view  of the  situation.  Accordingly  by  the Income-tax and  Business Profits  Tax (Amendment) Act, 1948, the section was re-cast in the present form as quoted above. There were further amendments in 1954 and 1956 with which we are not  concerned. Ultimately  by the Income-tax Act, 1961, the section underwent a complete transformation and even the setting of the section was changed which now forms s. 147(a) & (b)  of the Income-tax, 1961. We are now concerned in this case only  with s. 34(1) (b) as it stood after the amendment of 1948.      Another pertinent  fact which  may be mentioned here is that although  s. 34  was the subject of several amendments, yet the  word ‘information’ which was introduced in 1939 has not been  defined at  all. Since  the word ‘information’ has not been  defined, it  is difficult  to lay down any rule of universal  application.  At  the  same  time  it  cannot  be disputed that  the object of the Act was to see that the tax collecting machinery  is made  as perfect  and effective  as possible so  that the  tax-payer is  not allowed to get away with  escaped   Income-tax.  The  fact  that  the  adjective ‘definite’ qualified  the word  ‘information’ and  the  word ‘discovers’  which   were  introduced   in  the   Income-tax (Amendment) Act,  1939 were  deleted by the Amendment Act of 1948 would  lead to the irresistible inference that the word ‘information’ is  of the  widest amplitude and comprehends a variety of  factors. Nevertheless  the power  under s. 34(1) (b), however  wide it  may be,  is not  plenary because  the discretion of  the Income-tax  officer is  controlled by the word "reason  to believe".  It was  so held by this Court in Bhimraj Pannalal  v. Commissioner  of Income-tax  Bihar  and Orissa(1), while  affirming the  decision of  the Patna High Court in  Bhimraj Panna  Lal v.  Commissioner of Income-tax, Bihar and Orissa(1). This legal proposition, however, is not disputed. It,  therefore, follows  that information may come from external  sources or even from materials already on the record or  may be  derived from  the discovery  of  new  and important matter or fresh facts. The word ‘information" will also include  true and correct state of the law derived from relevant  judicial   decisions  either   of  the  Income-tax authorities or  other courts  of law which decide income-tax matters. Where  the ground  on which the original assessment is based is held to be erroneous by a superior court in some other case,  that will  also amount  to a  fresh information which  comes  into  existence  subsequent  to  the  original assessment. A  subsequent Privy  Council  decision  is  also included  in   the  word  ‘information’.  Thus  it  is  very difficult to lay down any hard and fast rule. But this Court has in  two leading cases laid down some objective tests and

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principles to determine the applicability of s. 34(1) (b) of the Act which we shall now discuss. 974      In Maharaj  Kumar Kamal  Singh v.  The Commissioner  of Income-tax, Bihar  & Orissa(1)  the word  "information" fell for interpretation  by this  Court, where  it  was  observed thus:           "We  would   accordingly  hold   that   the   word      "information" in  s. 34(1)  (b) includes information as      to the  true and  correct state of the law and so would      cover information as to relevant judicial decisions. If      that be  the  true  position,  the  argument  that  the      Income-tax officer  was not  justified in  treating the      Privy  Council  decision  in  question  as  information      within s. 34   (1) (b) cannot be accepted.           *    *    *    *    *           In our  opinion, even in a case where a 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. The  appellant’s  attempt  to  put  a  very      narrow and  artificial limitation on the meaning of the      word "escape" in s. 34(1)(b) cannot therefore succeed." It will be seen that this Court was in favour of placing not a narrow  but a  liberal interpretation on the provisions of s. 34(1)  (b) of  the Act.  This decision  was considered by this Court  in Commissioner  of Wealth  Tax, West  Bengal v. Imperial Tobacco Company of India Ltd.(2) where Wanchoo, J., speaking for this Court observed as follows:           "It may  be added  that after the decision of this      Court in  Maharaj Kumar  Kamal Singh’s  case 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."      Similarly in Commissioner of Income-tax, Excess Profits Tax, Hyderabad,  Andhra Pradesh  v. V.  Jagan Mohan  Rao and ors.(3), while  following the  decision  of  this  Court  in Maharaj Kumar  Kamal Singh’s case (supra) it was observed as follows:           "In these  circumstances it was held by this Court      firstly that  the word  information  in  s.  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, secondly that ‘escape’ in      s. 34(1)  was not confined to cases where no return had      been submitted  by the assessee or where income had not      been assessed  owing to  inadvertence or  oversight  or      other lacuna attributable to the assessing authorities.      But even  in a  case where a return had been submitted,      if the Income-tax officer had erroneously failed to tax      a part of the assessa- 975      ble income, it was a case where that part of the income      had escaped  assessment.  The  decision  of  the  Privy      Council, therefore,  was held  to be information within      the meaning  of s. 34(1)(b) and the proceedings for re-      assessment were validly initiated."      The matter  was again fully considered by this Court in A.  Raman  and  Company’s  case  (supra),  where  Shah,  J., speaking for  the Court extended the connotation of the word ‘information’ to  two  different  categories  of  cases  and

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observed as follows:           "The expression  "information" in  the context  in      which it occurs must, in our judgment, mean instruction      or knowledge derived from an external source concerning      facts or  particulars, as  to law  relating to a matter      bearing on the assessment.           *    *    *    *    *           Jurisdiction of the Income-tax officer to reassess      income arises  if he  has in consequence of information      in  his   possession  reason  to  believe  that  income      chargeable  to   tax  has   escaped  assessment.   That      information, must,  it is  true,  have  come  into  the      possession of the Income-tax officer after the previous      assessment,‘but even if the information be such that it      could have been obtained during the previous assessment      from an  investigation of  the materials on the record,      or the facts disclosed thereby or from other enquiry or      research into  facts  or  law,  but  was  not  in  fact      obtained, the jurisdiction of the Income-tax officer is      not affected." An analysis  of  this  case  would  clearly  show  that  the information as  contained in  s. 34(1)  (b) must  fulfil the following conditions:           (1)  The  information   may  be  derived  from  an                external   source    concerning   facts    or                particulars as  to  law  relating  to  matter                bearing on the assessment;           (2)  That the  information  must  come  after  the                previous or the original assessment was made.                In  fact   the  words   "in  consequence   of                information" as  used in s. 34(1) (b) clearly                postulate  that   the  information   must  be                subsequent to  the original assessment sought                to be reopened; and           (3)  That the  information may be obtained even on                the basis  of  the  record  of  the  previous                assessment  from   an  investigation  of  the                materials  on   the  record,  or  the  facts-                disclosed thereby  or from  other enquiry  or                research into facts or law. These categories are in addition to the categories laid down by this  Court in Maharaj Kumar Kamal Singh’s case which has been consistently  followed in  several  decisions  of  this Court as shown above. 976      On a combined review of the decisions of this Court the following tests  and principles would apply to determine the applicability of s. 34(1) (b) to the following categories of cases:           (1)  Where the  information is  as to the true and                correct  state   of  the   law  derived  from                relevant judicial decisions;           (2)  Where in  the original  assessment the income                liable to  tax has  escaped assessment due to                oversight,  in   advertence  or   a   mistake                committed by  the Income-tax officer. This is                obviously based  on the  principle  that  the                tax-payer  would   not  be  allowed  to  take                advantage  of   an   oversight   or   mistake                committed by the Taxing Authority;           (3)  Where the  information  is  derived  from  an                external source  of any  kind. Such  external                source would  include discovery  of  new  and                important matters or knowledge of fresh facts                which were  not present  at the  time of  the

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              original assessment;           (4)  Where the  information may  be obtained  even                from the  record of  the original  assessment                from an investigation of the materials on the                record, or  the facts  disclosed  thereby  or                from other  enquiry or research into facts or                law. If  these  conditions  are  satisfied  then  the  Income-tax officer would  have complete  jurisdiction  to  re-open  the original assessment. It is obvious that where the Income-tax officer gets  no subsequent information, but merely proceeds to re-open  the original  assessment without any fresh facts or materials or without any enquiry into the materials which form part  of the  original assessment,  s. 34(1)  (b) would have no application.      Learned counsel for the appellant heavily relied on the decision of this Court in Bankipur Club Ltd. v. Commissioner of  Income-tax,  Bihar  and  Orissa(1)  in  support  of  the proposition that  in the instant case the Income-tax officer has proceeded  to re-open the assessment on the basis of the very materials  which formed  the subject  of  the  original assessment. It was submitted that in the original assessment the assessee  had claimed  a deduction  and had produced the balance-sheet and  these very factors were also present when the Income-tax officer sought to make the assessment for the year 1958-59  and 1959-60,  and since  no fresh  facts  were brought to  his notice it was not open to him to re-open the original assessment.  The facts  of the  case relied upon by the appellant  are clearly distinguishable from the facts of the present case. In Bankipur Club Ltd.’s(1) case it appears that the  Club had  in its  return placed  all the materials with full  details. The  facts placed  before the Income-tax officer were self-evident and no calculation or scrutiny was necessary to find out the effect of the materials 977 placed before  the  Income-tax  officer.  In  view  of  this peculiar  situation,  Hegde,  J.,  speaking  for  the  Court observed:           "The fact  that  the  club  had  received  certain      amounts as  guests charges  from its  members had  been      placed before  the Income-tax  officer. It  is not  the      case of  the Income-tax officer that he did not come to      know all  the relevant  facts when he made the original      orders of  assessment. It  is also not his case that at      the time  he made  those orders he was not aware of the      true legal  position. It was for the Income-tax officer      to  show   that  he   had  received   some  information      subsequent  to  his  passing  the  original  orders  of      assessment. No  such material  was  placed  before  the      Tribunal. That  being so, the Tribunal, in our opinion,      was right  in holding  that the  Income-tax officer was      incompetent to initiate proceedings under section 34(1)      (b)." In the  instant case  it would  appear that three additional facts had  come into existence after the original assessment for the  year 1956-57  was made  by the  Income-tax officer. These were-(i)  that for  the assessment  year  1958-59  the Income-tax officer  did not  accept the assessee’s plea that he should  be allowed  deduction for  a sum of Rs. 43,116/-; (2) that  the Income-tax  officer came to a finding that the assessee had not proved that the amount of deduction claimed was really  in connection  with the partnership business but held that  this was  on account  of interest-free advance to the partners  to pay  their income-tax  dues;  and  (3)  the conduct of  the appellant  in not clearing the doubts of the

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Income-tax officer  when the  appellant was given the notice to contest the assessment merely on the question of law also spoke  volumes   against  the   assessee  and  was  also  an additional factor which weighed with the Income-tax officer. It would  be seen  that the Income-tax officer in his order, which is  Annexure-A to  the statement  of case filed by the Tribunal, observed as follows:           "In the  course of  the assessment proceedings for      1958-59 however  it was  discovered that the assessee’s      claim of  payment of interest on money borrowed was not      proper. Inasmuch  as the entire money borrowed had been      utilised not  for the purpose of business but in giving      interest  free   advance  to   the  partners   of   the      firm......................... In  fact no  argument  as      regards the  allowance or  disallowance of the interest      amount in  question was  placed but the entire argument      of the  representative proceeded  on the basis that the      action        u/s         34         itself         was      illegal............................           There is  no  doubt  that  there  has  been  under      assessment in this case and there is also no doubt that      the fact  of under  assessment has  been brought to the      notice of  the Income-tax officer only in the course of      the income-tax proceedings for 1958-59." Similarly the appellate Assistant Commissioner in his order, which is  Annexure-B to  the statement of the case, observed as follows:           "At  the  time  of  the  original  assessment  the      appellant claimed an interest of Rs. 43,116/- which was      allowed by 978      the I.T.O. in full. However, later on, while making the      assessment for  the assessment  years 1958-59 and 1959-      60, the I.T.O. found that the appellant had no evidence      with him  to show  that the funds borrowed on which the      interest was  paid, in  fact,  were  utilised  for  the      purpose  of  the  business  and  not  diverted  to  the      partners." These findings  by the  two authorities  have  been  clearly mentioned  in  the  order  of  the  Tribunal,  which,  while narrating the facts, observed as follows:           "Subsequently,  however,   when   the   Income-tax      officer was  making the  assessment for  the assessment      year 1958-59,  he discovered  that the assessee did not      utilise the  borrowed money  for  the  purpose  of  the      business but  for giving  interest free advances to its      partners.  The   Income-tax  officer,   therefore,  had      reasons to  believe that  income to  the extent  of Rs.      43,116/- had  been under-assessed  and he issued notice      under section, 34." Thus in  view  of  the  findings  given  by  the  Income-tax authorities the following facts emerge:-           (1)  that at  the time  of the original assessment                the appellant had filed his return claiming a                deduction  of  Rs.  43,116/-  and  filed  the                balance sheet in support of his plea;           (2)  that  the   balance-sheet  showed   that  the                capital of the firm was Rs. 8,70,000/-, total                drawings  by   the  partners   stood  at  Rs.                29,31,998/- and the loans were Rs. 6,63,292/-                The  Income-tax  officer  who  completed  the                original assessment  appears to have accepted                the  claim   of  the  appellant  because  the                balance-sheet without  any  further  scrutiny                and  a   close  calculation  would  not  have

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              revealed that the amount of deduction claimed                was really  in the  nature of  interest  free                loans given  to the  partners to  meet  their                income-tax liabilities:           (3)  that  in   1958-59  the   Income-tax  officer                discovered that  the deduction claimed by the                appellant was  not correct and he accordingly                called upon  it to  prove its  plea  but  the                appellant led  no evidence  before the Income                tax officer. From this the Income-tax officer                concluded  that   the  amount  sought  to  be                claimed as deduction was not incurred for the                purpose of the partnership business. Thus, therefore,  the  subsequent  information  was-(1)  the discovery by  the Income-tax  officer that the deduction was wrongly claimed  and his disallowance of that deduction; and (ii) the conduct of the appellant itself in not adducing any evidence or  materials to prove its stand that the deduction was validly claimed. 979      We might  mention that it was submitted by Mr. Banerjee that in  fact the  amount sought  to be  deducted  was  paid towards the  income-tax liability  of the  partners and this was done  to protect  the business itself and to improve the credit of  the partners.  Even this  specific plea  does not appear to  have been taken before the Income-tax officer. We are,  however,  not  concerned  with  this  particular  plea because we  are given  to understand  by the counsel for the appellant that the appeals against the assessment orders for the years 1958-59 and 1959-60 are pending before the Income- tax authorities.  In these  circumstances we  are clearly of the opinion  that the facts of the present case clearly fall within the  tests and  principles laid down by this Court in A. Raman  and Company’s case (supra) inasmuch as the Income- tax officer  proceeded on the basis of the information which came to  him after  the original  assessment by  fresh facts revealed  in   the  assessment  for  the  year  1958-59  and consisted of  the conduct  of the  appellant itself  in  not adducing  any   evidence  to   support  its  plea.  We  are, therefore, unable  to agree  with the  view of  the Tribunal that this  was a  case of  a mere  change of  opinion by the Income-tax officer  on the  materials which  were already on the record.      our attention was also drawn by the learned counsel for the appellant  to the  decision of  the Bombay High Court in Commissioner of  Income-tax, Bombay  City  II  v.  H.  Holck Larsen(1). In  this case,  Chandrachud, J.,  as he then was, speaking for  the Court  after review  of the authorities of this Court and other High Courts, observed as follows:           "What is  obligatory in  order  to  apply  section      34(1)(b) is  that he  must have  "information"  in  his      possession in  consequence of  which he  has reason  to      believe that  the income  has escaped  assessment or is      under-assessed, etc. The distinction really consists in      a  change   of  opinion   unsupported   by   subsequent      information on  the one  hand and  a change  of opinion      based on  information  subsequently  obtained,  on  the      other. In  the former  class of  cases, the  assessment      proceedings are  attempted to  be re-opened without the      discovery  of   an  error  and  without  receiving  any      information        as         to        fact         or      law............................  Such  a  reopening  is      based on  a "mere"  change of  opinion and  is  without      jurisdiction.....  ........  In  the  latter  class  of      cases, the reopening is based on information leading to

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    the  requisite  belief  and  is  therefore  within  the      jurisdiction of the officer." This decision  is really based on the question whether it is open  to  the  Income-tax  officer  to  change  his  opinion subsequently on  the same  materials and reopen the original assessment. We  are no doubt inclined to agree with the view expressed by  Chandrachud, J., in the aforesaid case, but as this question  is not  free from difficulty as there is some divergence of  judicial opinion  on the  subject,  we  would refrain from  giving any  definite decision  on this  point, particularly when in 980 the view  we take  in the  instant case, this point does not really arise for determination in this case, which is really based on another principle, namely, that the information was derived by  the Income-tax  officer from  fresh facts and is clearly covered  by the principles laid down in A. raman and Company’s case (supra).      For the  reasons given  above,  we  find  ourselves  in complete agreement  with the  view taken  by the High Court. Accordingly the  appeal fails  and is  dismissed but without any order as to costs. S.R.                                       Appeal dismissed. 981