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Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The matter concerns assessments of a firm (originally a sole proprietary business settled inter vivos by a deed described as a will) for the assessment years 1948-49 and 1949-50. The settlement (referred to as a wakf or deed of trust) provided that one-fifth of net income was to be spent on religious and charitable objects; at the time of the deed the net income was computed as Rs. 10,000 and the charitable amount as Rs. 2,000. In earlier years tax authorities and tribunals had variously treated the charitable share either as the fixed Rs. 2,000 or as one-fifth of the actual profits.

In the original assessments for 1948-49 and 1949-50 the assessing officer deducted one-fifth of the net income as exempt under section 4(3)(i). The successor Income-tax Officer concluded that only the amounts actually credited to the charity account (which were one-fifth of the firm's book profits as claimed by the assessee) had been finally set apart for charity, and that the predecessor had allowed a larger deduction (one-fifth of income determined for assessment under the proviso to section 13). The successor issued notices under section 34, treated the difference as escaped income, and included the differences in reassessments.

On appeals the Appellate Assistant Commissioner allowed only the amounts actually set apart, while the Income-tax Appellate Tribunal upheld the successor's action under section 34 (following a precedent). The assessee sought a statement of case to the High Court under section 66(1), posing questions about escapement under section 34 and whether the successor's action was merely a change of opinion and therefore invalid.

Legal Issues Presented

  1. Whether on the facts and circumstances of the case there was escapement of any income in the assessment years 1948-49 and 1949-50 as contemplated under section 34 of the Income-tax Act?
  2. If so, whether the notices issued under section 34 of the Indian Income-tax Act and the proceedings taken are null and void being not covered by the provisions of section 34 of the Act but as a result of mere change of opinion on the part of the successor Income-tax Officer?

Arguments of the Parties

Assessee's Arguments

  • The assessee treated one-fifth of its book profits (the amounts actually credited to the charity account: Rs. 40,291 and Rs. 51,270 in the two years) as having been set apart for charitable purposes and therefore exempt under section 4(3)(i).
  • It was contended before the Tribunal and raised in appeals that the successor's reassessment under section 34 was based on a mere change of opinion on the same facts and therefore invalid.
  • Earlier departmental and judicial proceedings had debated whether the charitable provision was a fixed Rs. 2,000 or a flexible 1/5th of profits; the assessee maintained the view that the charity share varied with profits and the amount actually set apart (book entries) determined the exemption.

Revenue / Department's Arguments

  • The successor Income-tax Officer argued that under section 4(3)(i) only income actually applied or finally set apart for charitable purposes is exempt; the predecessor had allowed one-fifth of the income determined for assessment (larger amounts) without noticing that only the sums actually set apart were exempt.
  • The Department (and the successor Officer) treated the predecessor's allowance of one-fifth of assessed income as an omission to apply the statutory words of section 4(3)(i), and therefore treated the difference as escaped income and issued notices under section 34.
  • The Tribunal, following a Supreme Court decision, held that information may include the state of the law and that the successor had information within section 34(1)(b) that his predecessor had overlooked the correct import of section 4(3)(i).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Chatturam Horilram Ltd. v. Commissioner of Income-tax [1955] 27 I.T.R. 709 Authority held (as read and followed by the Tribunal) concerning the scope of "information" under section 34 and the circumstances in which reassessment may be made. The Tribunal purported to follow this Supreme Court decision to hold that the successor had information within section 34(1)(b) that the predecessor had overlooked the correct import of section 4(3)(i); the High Court analyzed that reliance and treated the reasoning of the successor as pointing to an omission by the predecessor.
Maharaj Kumar Kamal Singh v. Commissioner of Income-tax Established that "information" in section 34(1)(b) may include information as to the true state of the law or judicial decisions, and set two conditions for invoking section 34: (1) the information must come into possession subsequent to the original assessment, and (2) there must be escapement or under-assessment of income. The court treated this authority as settling that "information" can include legal information and used its two conditions to find that the successor did acquire information subsequent to the original assessments and that income had escaped assessment because the predecessor had overlooked section 4(3)(i).
Anderton and Halstead Ltd. v. Birrell (English authority cited) Rowlatt J.'s view that the word "discovers" (in English provision) did not include a mere change of opinion on the same facts (i.e., a change of opinion is not "discovery"). The judgment was discussed to show earlier English authority on "discovers"; the court noted that this view was later overruled in the Court of Appeal in a subsequent English case referred to in the opinion, affecting the weight to be given to the Rowlatt J. statement under earlier law.
Commercial Structures Limited v. R.A. Briggs [1949] 17 I.T.R Suppl. 30 English Court of Appeal decision noted to have overruled Rowlatt J.'s narrower view and relevant to whether a mere change of opinion is caught by provisions like section 34. The opinion cites this authority to show that English jurisprudence evolved to broaden the notion and to undermine the narrower Rowlatt J. approach; the court relied on this line of authority in discussing the scope of "information" and whether change of opinion can fall within the section.
Salem Provident Fund Society v. Commissioner of Income-tax (Madras High Court) Holds that information may be acquired by an officer "informing himself" from a re-examination or closer study of the record. The court cited this High Court view to support that information can be acquired by re-examining the record; although not necessary to decide the present case on that basis, the opinion treated the successor's acquisition of information as extraneous to the predecessor's information and therefore sufficient.

Court's Reasoning and Analysis

The court's analysis proceeds in distinct steps, each grounded in the facts and the statutory language reproduced in the opinion:

  1. Interpretation of the deed and of section 4(3)(i):
    • The deed provided that one-fifth of the income of the firm was to be spent on charitable purposes; the settlor's intention was that one-fifth of whatever the year's actual income was should be spent on religion/charity.
    • However, section 4(3)(i) does not exempt a fixed contractual or theoretical share alone; it exempts only that income which is "applied or finally set apart for application" to charitable purposes. Hence, the entitlement to exemption depends on what was actually applied or finally set apart in each year.
  2. Factual application to the assessment years:
    • The assessee in the years under review had debited to its profit & loss account and credited to the charity account amounts equal to one-fifth of the book profits (Rs. 40,291 and Rs. 51,270), which were smaller than the one-fifth of income determined for assessment under the proviso to section 13 (Rs. 61,018 and Rs. 61,504).
    • The predecessor officer allowed deduction of one-fifth of the assessed income (the larger sums) without considering whether those sums had in fact been applied or finally set apart for charitable purposes — i.e., the predecessor omitted to apply the precise words and requirement of section 4(3)(i).
  3. Whether that omission caused escapement of income:
    • The court held that because the predecessor overlooked the statutory condition, some income escaped assessment (the difference between the larger deduction and the sums actually set apart).
    • The Supreme Court authority in Maharaj Kumar Kamal Singh was interpreted to mean that "escape" is not confined to cases of no return or oversight by others; an inadvertent failure by the assessing authority to tax part of assessable income constitutes escapement within section 34.
  4. Whether the successor had "information" within section 34(1)(b):
    • The court examined the meaning of "information" and relied on precedent (including Maharaj Kumar Kamal Singh) that the word includes legal information or knowledge of the true state of the law and relevant judicial decisions, not merely factual intelligence.
    • Two conditions derived from precedent were applied: (a) the information must have come into the officer's possession after the original assessment; and (b) there must have been escapement or underassessment. Both were satisfied because the successor discovered after the prior orders that the predecessor had overlooked the requirement of section 4(3)(i), and income had in fact escaped assessment.
    • The court analyzed the tribunal's phrasing that the predecessor had "overlooked the correct import" and concluded that, on the facts, the predecessor had in truth overlooked the statutory provision itself (an omission), not merely applied it incorrectly. The successor's awareness of that omission constituted information within section 34(1)(b).
  5. Change of opinion vs. information:
    • The court addressed the argument that a mere change of opinion cannot be treated as information: it held that this was not a case of mere change of opinion but rather of a successor officer acquiring information that the predecessor had omitted to apply a statutory provision.
    • Even where courts had left open whether change of opinion alone could suffice, the present case involved extraneous information to the predecessor's decision (the successor's acquisition of knowledge of omission), and therefore section 34(1)(b) applied.
  6. On whether the Appellate Tribunal or the High Court could inquire into the factual question of whether the officer had information:
    • The court observed such questions are pure questions of fact and could not be decided by this court on reference; but on the facts before the court it was manifest that the successor had acquired information by reading the prior assessment and related orders and thus had jurisdiction to act under section 34(1)(b).
  7. Practical policy and purposive considerations:
    • The court noted that the object of requiring "information" is to avoid reopening on mere suspicion or for re-examination alone. Once, however, the reopening results in a factual finding that income escaped assessment and the proper process under section 34 is followed (notice, assessment), it would be futile to set aside a correct reassessment merely because of a theoretical absence of "information" in some technical sense.

Holding and Implications

Holding: The court answered the reference: the first question in the affirmative (there was escapement of income for the years 1948-49 and 1949-50), and the second question in the negative (the notices and proceedings under section 34 were not null and void as being the result of a mere change of opinion).

Immediate implications and orders:

  • The reference is to be returned to the Income-tax Appellate Tribunal with the court's answers.
  • The department is entitled to its costs of the reference, assessed at Rs. 200.

Broader implications (as discussed in the opinion):

  • The opinion applies and clarifies existing authorities by holding that a successor officer's discovery, after the original assessment, that a predecessor omitted to notice or apply a material statutory provision can amount to "information" within section 34(1)(b), and justify reassessment where income has escaped assessment.
  • The court emphasized that questions of whether the officer had information are factual questions for the assessing process and appellate tribunals; it rejected invalidation of correct reassessments on purely speculative technical grounds about the source of an officer's information.

Additional Notes from the Opinion

- M.C. Desai, C.J., expressly concurred and emphasized that exemption under section 4(3)(i) is limited to income actually applied or finally set apart for charitable purposes; the assessee had set apart one-fifth of its claimed (smaller) income and not of the actual income, so the predecessor's allowance of one-fifth of assessed income resulted in excess deduction and escaped assessment.

- The principal answering judgment was delivered by Brijlal Gupta, J., whose opinion examined the statutory language, factual matrix, and relevant precedents, and concluded the successor had jurisdiction under section 34(1)(b).

Show full summary ...

    Asghar Ali Mohammad Ali v. Commissioner Of Income-Tax.

    M.C Desai, C.J:— I concur in the answers proposed by my learned brother. According to the wakf deed one-fifth of the income was to be spent on religious and charitable objects described in the wakf deed. Though in the wakf deed the income from the wakf property: at the time of the execution of the deed was stated to be Rs. 10,000 and consequently the income set apart for religious and charitable objects was said to be Rs. 2,000, there is no doubt that what the wakif intended was that one-fifth of whatever was the actual income of the year was to be spent on religious and charitable objects in that year. That was what he intended but the amount that he intended to be spent on religious and charitable objects is not the amount allowed to be exempted from the assessable Income; section 4(3)(i) provides that any income derived from property held under trust or other legal obligation wholly or in part for religious or charitable purposes, in so far as it is applied or finally set apart for application thereto, shall not be included in the total income of the person receiving it. It is, therefore, not enough that according to the trust or other legal obligation a certain income must be spent on religious or charitable purposes in order to be exempt from taxation; it must have been applied, or at least finally set apart for application, for such purposes. Now what happened in the present case is that though according to the wakf deed a certain amount (one-fifth of the actual income) was to be spent for religious and charitable purposes, the assessee applied or finally set apart for application, for such purposes, one-fifth of not the income as found to have been actually received by him, but of the income which he claimed to have received. He claimed to have received less income than he actually received.

    2. Since he claimed to have received a smaller amount as income, naturally he applied, or set apart for application, for religious and charitable purposes, one-fifth of only the smaller amount. As he did not apply or set apart for application one-fifth of the actual income, one-fifth of the actual income ought not to have been deducted from the total income for assessment purposes. This Income-tax Officer ignored the provision of section 4(3)(i) and deducted from the total income one-fifth of the actual income. The result was that a larger sum than was legal was deducted from the total income, i.e, some income escaped assessment. This happened in both the assessment years in question.

    3. The successor of the Income-tax Officer learnt of this mistake committed by his predecessor. How he learnt is not known, but there can be not the slightest doubt that he did learn because he issued notice under section 34 for the assessment of the escaped income. It goes without saying that he received some information either orally from some one or through a perusal of the assessment order and the relevant law. He did read the assessment order passed by his predecessor, whether suo motu or on an information given to him by somebody that there was a mistake. In either case on reading the assessment order he acquired the information that his predecessor had allowed a larger deduction on account of which he had a reasonable belief that certain income had escaped assessment and he became invested with jurisdiction to proceed under section 34(1)(b). The information that he acquired by word of mouth of somebody or from perusal was that his predecessor had in contravention of the provisions of section 4(3)(i) allowed deduction of one-fifth of the actual income and not of the amount actually applied or finally set apart for application for religious and charitable purposes. His predecessor had not considered the distinction between the two at all; he had proceeded on the assumption that the assessee was entitled to deduct one-fifth of the actual income regardless of whether the whole of it had been applied (or finally set apart for application) for religious and charitable purposes or not. Information of the mistake committed by him was undoubtedly received by his successor and since the information led to the belief that certain income had escaped assessment, the successor became entitled to proceed under section 34(1)(b). 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. Any knowledge acquired is information, regardless of the source and the manner of acquisition.

    4. It was contended before us that a change of opinion is not information, but the present is not a case of a change of opinion. In the first place the original assessment order was passed by one Income-tax Officer and the other was passed by another. Secondly, if there is information leading to the belief that income has escaped assessment, it does not matter if there is also a change of opinion. One can change one's opinion on account of information. One can receive information that the opinion on a question of law formed by one is erroneous. One can change one's opinion without any aid from outside, simply by adopting a different reasoning; but one can also change one's opinion with outside aid and the outside aid will be nothing but information. If one is informed that the view held previously is erroneous and if the result of this information is the belief that income has escaped assessment, section 34(1)(b) applies. It may not apply only when there is a change of opinion without information.

    5. Whether the Income-tax Officer, whose order is impugned, had received information or not and whether the information resulted in a certain belief or not are pure questions of fact which cannot be referred by the Appellate Tribunal to this court and cannot be answered by this court on reference. Whether what one receives is information or not, within the meaning of section 34(1)(b), may be a question of law, but in the absence of such a question, whether there was information or not is a question of fact. It is not open to this court to go into the question whether the Income-tax Officer, who passed the impugned assessment order, had received anything which might amount to information, and the order cannot be set aside on the sole ground that he had not received any such thing.

    6. It is open to serious question whether an assessment order can be set aside on the mere ground that there was no information within the meaning of section 34(1)(b), to justify the issue of a notice under that provision. If there was no escape of income initially, the second order of assessment will fail on merits. If there was escape of income and the income is assessed under the second order after a notice served upon the assessee as required under section 34(1), I do not see any reason why the Tribunal should at all go into the question whether there had been an information to justify the issue of the notice. It is obligatory to issue a notice and if no notice has been issued, the subsequent assessment order may be declared to be null and void. After the issue of the notice and after a finding that the income had escaped assessment, the question whether there had been information in the possession of the Income-tax Officer before issuing the notice or not becomes a matter of mere academic interest. I do not know how without some kind of information an Income-tax Officer would decide to reopen the matter; ordinarily he will have some information. In a rare case he may act without information on a change of opinion or on second thought. When the reopening is done not by the Income-tax Officer who had passed the initial assessment order, but by his successor, there is no question of his acting on a change of opinion or second thought and he must have acted on information. It is so obvious that any inquiry into the question whether he had information or not must be ruled out as a futile inquiry. It seems to me that the object behind the requirement, that there must be information leading to the belief, is that the matter should not be reopened on mere suspicion or with the simple object of reexamining the matter. The object is fully served when after the reopening it is found as a matter of fact, that the income had escaped assessment. It would not make much sense to set aside the correct order of assessment passed under section 34(1) on the supposed ground that the reopening was done without information.

    7. I agree with the proposed order in respect of the costs.

    Brijlal Gupta, J.:— This is a reference under section 66(1) of the Income-tax Act. The questions which have been referred for the opinion of the court are:

    “1. Whether on the facts and circumstances of the case there was escapement of any income in the assessment years 1948-49 and 1949-50 as contemplated under section 34 of the Income-tax Act?

    (2) If so, whether the notices issued under section 34 of the Indian Income-tax Act and the proceedings taken are null and void being not covered by the provisions of section 34 of the Act but as a result of mere change of opinion on the part of the successor Income-tax Officer?

    8. The facts giving rise to the reference are:

    The assessee is a firm constituted under an instrument of partnership dated February 11, 1943, carrying on the business of manufacture and sale of scent and perfumery. It was originally owned as a sole proprietary business by Sheikh Mohammad Ali. On January 12, 1907, Sheikh Mohammad Ali executed what he described as a will even though as will be shown hereafter it was a deed of settlement or a deed of trust operating inter vivos from the date of its execution. By this document a disposition was made of all the movable and immovable properties including the perfumery business. One Murtaza Khan was appointed the administrator and the “legatee” (corrected to executor under paragraph 4 of the document) of all the properties of the settler. Various annuities were provided for persons described as guzaredars or maintenance-holders out of the income of the perfumery business which was to be managed by the executor. It was provided that the business will continue to be run under the same name Asghar Ali Mohammad Ali and Murtaza Khan was empowered to nominate one of his sons to run the business after him with similar power to his successor to ensure the continuance of the running of the business. After defraying the expenses of the business which were estimated at Rs. 10,000 the net profits of the business were computed at the figure of Rs. 10,000. Out of this amount of Rs. 10,000 a sum of Rs. 2,000 was to be spent on religious and charitable objects which were described in paragraph 3(m) of the document and the remaining amount of Rs. 8,000 was to be paid to the various guzaredars in specified amounts. In paragraph 3(h) of the document it was provided that “persons entitled to annuity shall in the case of improvement in the firm be entitled to an increase in their annuity in the proportion of the amount already fixed and in case of decrease in the firm to a similar decrease in the amount of the annuity”. It will be noticed that the amount of Rs. 2,000 which was to be spent on charity was 1/5th of the amount of Rs. 10,000 which was computed to be the net profit of the business on the date of the document.

    9. In the assessment year 1937-38 the Income-tax Officer excluded 1/5th of the business income of the firm as being exempt under section 4(3)(i) which provides for the exclusion of “…. any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto”. The successor of the Income-tax Officer took the view that no portion of the income was exempt. Accordingly, he took action under section 34 and by an order under that section included the 1/5th of the income of the business in the total income of the firm. On appeal the Appellate Assistant Commissioner allowed exemption only in regard to the amount of Rs. 2,000, presumably on his view that the provision in paragraph 3(h) of the document for increase or decrease in the annuity depending upon increase or decrease in the total income of the firm was to affect the annuity of the guzaredars only and not the amount which was to be spent on charity and which was fixed at Rs. 2,000 per annum. On further appeal to the Tribunal against the order of the Appellate Assistant Commissioner, the Tribunal, by order dated April 9, 1945, held that upon a proper interpretation of the provisions of paragraphs 2 and 3(h) and (m) a 1/5th portion of the net income of the firm was to be spent on charity and was exempt under section 4(3)(i). Presumably a 1/5 the portion of the net income continued to be exempted till the assessment year 1940-41.

    10. In the assessment year 1941-42 the Income-tax Officer exempted a sum of Rs. 2,000 only but the Appellate Assistant Commissioner, on appeal, following the decision of the Tribunal in 1937-38, directed the deduction of 1/5th of the income determined “for the charge of charity.”

    11. From 1942-43 to 1947-48 the Income-tax Officer continued to exempt a Re. 0-3-3 share in the rupee in the net income of the firm determined for assessment purposes year after year as the amount set apart for charity in terms of the will. Even though the Re. 0-3-3 share was slightly more than 1/5th share determined as exempt under order of the Tribunal dated April 9, 1945, the Re. 0-3-3 share continued to be deducted.

    12. In the original orders of assessment for the years 1948-49 and 1949-50 passed on March 22, 1949, and January 18, 1951, respectively the 1/5th share of the net income determined under the proviso to section 13 for assessment purposes was deducted. This share in the two years amounted to Rs. 61,018 and 61,504 respectively. The book profits in the two years were worked out at Rs. 2,01,455 and Rs. 2,56,350 and accordingly 1/5th of these amounts namely Rs. 40,291 and Rs. 51,270 respectively were actually debited to the profit and loss account and credited to the charity account.

    13. The successor of the Income-tax Officer took the view that under section 4(3)(i), only the income “applied or finally set apart for application” to religious or charitable purposes was exempt and as the assessee had set apart only the sums of Rs. 40,291 and Rs. 51,270 respectively in two assessment years in question and as the predecessor had deducted Rs. 61,018 and Rs. 61,504 in the two years, the difference, namely, the sums of Rs. 20,727 and Rs. 10,234 had escaped assessment. Accordingly, he took action under section 34 and included the last two sums in the assessments for the two years.

    14. The assessee went up in appeal to the Appellate Assistant Commissioner who, by order dated December 1, 1956, held that the assessee was entitled to the deduction of only the sums of Rs. 40,291 and Rs. 51,270 credited by it to the charity account on the basis of the figures of net profits worked out by it in its books and not to the larger amounts worked out on the basis of the income determined under the proviso to section 13. It may be stated that the question whether the original assessment could be validly reopened under section 34 and whether a reassessment made under that section was justified, does not appear to have been raised before the Appellate Assistant Commissioner and naturally no finding was recorded by him on the point.

    15. The point was, however, specifically taken in appeals against the two orders under section 34 before the Income-tax Appellate Tribunal. It was urged that the basis of action taken by the successor under section 34 was merely a change of opinion on the same facts and as such reassessment under section 34 was not valid or justified. The Tribunal, by a consolidated order dated December 31, 1958, rejected the contention holding that section 34 as amended by the Act of 1948, applied to the case and the powers given to the Income-tax Officer under the amended provision were wider than the powers which the Income-tax Officer possessed before the amendment. The amended provision only required that the Income-tax Officer should have information in his possession in consequence of which he should have reason to believe that income had escaped assessment. The information was not confined to factual material but included also information as to the state of the law, e.g, where the Income-tax Officer making the original assessment had overlooked a material provision of the Act. Accordingly, purporting to follow the decision of the Supreme Court in Chatturam Horilram Ltd. v. Commissioner of Income-tax [1955] 27 I.T.R 709 they held that the Income-tax Officer had information in his possession within the meaning of section 34(1)(b) that his predecessor had overlooked the correct import of section 4(3)(i) and the action under section 34 was, therefore, justified.

    16. Thereafter, the assessee applied for the statement of a case to this court and the case has accordingly been stated.

    17. Before the law in respect of the questions is examined with a view to answer the questions it is necessary to advert to one or two important points in the case. The first is that the Income-tax Officer who made the original assessments for the two years in question merely followed the view of the Tribunal contained in its order dated April 9, 1945, which has been included in the paper book. From a perusal of this order it is clear that the Tribunal seem to have assumed, rather than to have decided, that a sum of money had been “applied or accumulated or finally set apart for application” to religious or charitable purposes. The point which is sought to be emphasised is that even though in the order of the Tribunal reference is made to section 4(3)(i), it does not appear from the order that the precise words of the section were clearly present before the mind of the Tribunal and upon a consideration of the facts and circumstances of the case by reference to those words the Tribunal consciously came to the conclusion that a 1/5th amount was allowable as an exemption under that provision.

    18. Before the Tribunal everybody including the Tribunal appears to have proceeded on the assumption that a certain amount of the business income of the firm was to be exempted. The only question which appears to have been canvassed was whether the amount to be exempted was a fixed sum of Rs. 2,000 or was an amount representing 1/5th of the business income whatever the figure of that income may be in a particular year. The departmental representative urged that the amount provided for charity under the will was a fixed amount of Rs. 2,000 per year and that that amount was not to increase or decrease with the increase or decrease in the business income of the firm. The argument of the assessee on the other hand appears to have been that the amount provided for charity was to increase and decrease just as the amount payable to the partners was to increase or decrease by reference to the total amount of the business income in a particular year. It has been noticed that the figure of Rs. 2,000 was worked out as 1/5th of the pet income of the year in which the document was executed by the settlor and it was provided in that document that the annuities payable to the “persons” mentioned in that document were to increase or decrease with the increase or decrease in the profits. The question which appears to have arisen, therefore, was whether charity was or was not also a “person” entitled or liable to be dealt with on the same footing on which the “persons” mentioned in the document were entitled or liable to be dealt with in respect of the increase or decrease in the business income of the firm. From this it appears, as already stated above, that there Was no decision of the Tribunal on the question whether having regard to the requirements of section 4(3)(i) a particular amount was or was not allowable in a particular year. In other words even though upon an interpretation of the conditions laid down in the document it was held by the Tribunal that a 1/5th amount of the business profits and not merely the fixed amount of Rs. 2,000 was the share of charity, the question still remained to be determined whether having regard to the provisions of section 4(3)(i) this 1/5th was or was not to be exempted. On this question there was no decision by the Tribunal in their order. Indeed, the Tribunal completely omitted to consider or decide this question.

    19. It is still more clear that in the original assessment orders for the years in question the Income-tax Officer did not at all consider the words of the section referred to above and allowed the exemption merely in pursuance of his duty to follow the decision of a superior authority, namely, the Income-tax Appellate Tribunal, dated April 9, 1945. In the assessment order dated March 22, 1949, for the year 1948-49 the Income-tax Officer merely stated:

    “Deduct 1/5th portion for charity under the will of L. Mohammad Ali exempted from tax.”

    20. In the assessment order dated January 18, 1951, for the succeeding year he similarly observed:

    “1/5th amount is excluded for charity under the will of L. Mohammad Ali.”

    21. Thus from the above two assessment orders it is clear that no attempt was made by the Income-tax Officer to examine the provisions of section 4(3)(i) and to consider the question whether the conditions laid down in that section were fulfilled and then to decide whether to exempt 1/5th amount or not. The conclusion seems to be irresistible that in this case there was a clear omission on the part of the Income-tax Officer to notice and apply the material provision of the law in the light of the requirements of that provision and the facts and circumstances of the case, or the fulfilment or otherwise of those requirements in the facts and circumstances of the case.

    22. The successor of the Income-tax Officer when he initiated the proceedings under section 34 must no doubt have studied the record of the case including the assessment orders passed by his predecessor and also the order of the Tribunal dated April 9, 1945. What he found there has been stated by him in the orders which he made for the two years under section 34. This is what he said:

    “The Income-tax Appellate Tribunal by their order dated April 9, 1945, in Appeal No. 36 of 1943-44 directed that a 5th part of the entire net profit should be treated as exempted under section 4(3)(i).

    In the original assessment the Income-tax Officer allowed the aforesaid deduction of Rs. 61,018, Rs. 61,504 as representing the 1/5th of the income computed for income-tax purposes. He, however, ‘did not notice’ that under section 4(3)(i) only the income applied or finally set apart for application to religious or charitable purposes could be allowed. The assessee actually set apart a sum of Rs. 40,291, Rs. 51,270 only for application to religious and charitable purposes under the will of L. Mohammad Ali. This latter amount actually represents 1/5th of the income according to the books of the firm while the income for assessment purposes was computed by application of a flat rate. Consequently, an excess deduction of Rs. 20,727, Rs. 10,234 was allowed for religious and charitable purposes. Action under section 34 was, therefore, taken to rope in the escaped income.”

    23. It is clear from this quotation that so far as the order of the Tribunal dated April 9, 1945, is concerned the view of the successor Income-tax Officer was that the direction of the Tribunal was for the exemption of a 1/5th part of the entire net profits treating this part as exempt under section 4(3)(i). It appears that this officer advisedly used the word “treated as exempt” and not “held as exempt”. If the latter expression had been used it would have been clear that the Tribunal came to a decision on the point after consideration of the provisions of section 4(3)(i). On the other hand the expression used by the Tribunal, namely, “treated as exempt” may very well imply merely an assumption that the amount was liable to be exempt under that section. It is still more clear from the above quotation that so far as the predecessor Income-tax Officer was concerned he did not notice that under the provisions of section 4(3)(i) only that income which had been actually finally applied or set apart for application to religious and charitable purposes was liable to be exempt. I am of the view that what the successor Income-tax Officer was pointing put was that an omission had been made by his predecessor and not that after a consideration of the material provision the Income-tax Officer had taken a particular view and that on a different interpretation of that provision by the successor the view of the predecessor was wrong. In other words, to my mind, the successor Income-tax Officer proceeded under section 34 on the basis of an omission on the part of his predecessor to notice and apply a particular statutory provision and not on the basis of a change of opinion on the same facts or on the same provision of law or on a closer study of the facts and the law.

    24. The real question, therefore, which arises for decision in the case is whether where in the original assessment an omission is made to consider and apply to the facts of the case the relevant statutory provision, when that omission is noticed by his successor, the successor is entitled to proceed under section 34(1)(b).

    25. The words of section 34 which are relevant for the decision and as it stood at the material time are:

    “34….. the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax has escaped assessment for any year, or have been underassessed,….”

    26. The question is whether the omission to notice or apply the relevant statutory provision on the part of a predecessor and of which a successor becomes aware can be said to be “information in the possession of the successor Income-tax Officer” and whether it can be said that it is “in consequence of such information” that the Income-tax Officer “has reason to believe” that income profits or gains chargeable to income-tax “have escaped assessment” or “have been under-assessed”. It must now be taken to be settled law under the decision of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, that the word “information” in section 34(1)(b) includes not merely factual information but also information as to the true and correct state of the law and information as to a relevant judicial decision. That case also lays down that “escape” in section 34(1)(b) is not confined to cases where no return has 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. Even in a case where return had been submitted, if the Income-tax Officer had inadvertently failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment. The Supreme Court further laid down that for the applicability of section 34(1)(b) two conditions have to be satisfied:

    (1) That the information in his possession in consequence of which he seeks to proceed under section 34(1)(b) should have come into his possession at a point of time subsequent to the making of the original assessment order and,

    (2) That the income has escaped assessment or that it has been underassessed.

    27. At pages 11, 12, the Supreme Court negatived the contention of Sri Sastri based on an observation of Jagannadha Das J. in Chatturam Horilram Ltd. v. Commissioner of Income-tax, that section 34 can be invoked only in cases where income can be shown to have escaped assessment owing to some lacuna other than that attributable to the assessing authorities. It follows that it must be held on the facts and circumstances of the present case that by reason of the Income-tax Officer who originally made the assessment having overlooked the material provision, viz., section 4(3)(i), certain income did escape assessment within the meaning of section 34 of the Income-tax Act.

    28. The next question is whether the successor Income-tax Officer had such “information” in his possession as to justify action under section 34(1)(b). I have endeavoured to show above that in this case the predecessor Income-tax Officer has omitted to notice the provision in section 4(3)(i) while making the assessment. The Tribunal in their appellate order have not correctly understood and precisely expressed the meaning and effect of the statement made by the successor Income-tax Officer in his orders under section 34. While posing the question they have observed as follows:

    “In the instant case the successor Income-tax Officer had got information within the meaning of section 34(1), clause (b) of the Act, when he found that his predecessor had overlooked the correct import of section 4(3)(i).”

    29. This observation implies a confusion of thought. The expression “overlooked the import” might imply that while the predecessor was alive to the provision in section 4(3)(i) he was not alive to its correct import, to which the successor became alive. In other words, the interpretation put by the predecessor on section 4(3)(i) was erroneous and a correct interpretation was subsequently put on that provision by the successor. In this context the use of the word “overlooked” is inconsistent and inaccurate. One overlooks a thing when one is not aware of it and not when one is aware of a thing but the awareness is found to be erroneous. As already pointed out what had happened in the case was that the predecessor entirely overlooked the provision in section 4(3)(i) and not merely the correct import of that provision. The precise question, therefore, is whether where the relevant statutory provision has been overlooked by a predecessor the awareness on the part of the successor that there has been such omission is “information in his possession” within the meaning of section 34 and in consequence of which he comes to have reason to believe that income has escaped assessment. In this very case the Supreme Court pointed out at page 13 that the word “discovers” which occurred in the section prior to 1948, meant something more than “has reason to believe” or “satisfies himself”. In other words the view of the Supreme Court is that by reason of the word “discovers” occurring in the section prior to 1948 the requirement of that section was more rigorous than it is from 1948 when the word “discovers” was omitted from that provision and substituted by the words “has reason to believe”. It may also be pointed out that the words in the section prior to 1948 were “definite information” and not “information” simpliciter as they occur in the section since 1948. It is clear from this also that whereas under the section prior to 1948 a qualified kind of information alone was within the section, since 1948 “information” under the section is not limited by any qualification. Under the English Act in which also the word “discovers” occurred in the paralel provision it was held in Anderton and Halstead Ltd. v. Birrell, by Rowlatt J. that the word “discovers” in section 125 of the English Act does not include a mere change of opinion on the same facts and figures upon the same question of accountancy being a question of information. The Supreme Court observed that this statement of the law by Rowlatt J. was overruled by the Court of Appeal in Commercial Structures Limited v. R.A Briggs [1949] 17 I.T.R Suppl. 30.. It would follow that when under the unamended provision in section 34 information had to be “definite” and the word “discovers” also occurred in the section and accordingly, the requirement of the section was more rigorous than the requirement of the section since the amendment in 1948. It would appear to be the view of the Supreme Court that the section might include also the case of a change of opinion on the same facts and figures. Though the Supreme Court did not express a final opinion and specifically left the question open at page 14 they observed that divergent views have been expressed by the High Courts whether it would be open to the Income-tax Officer to take action under section 34 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 section 34 on the ground that the order of assessment passed by his predecessor was erroneous. Then they referred to the suggestion of counsel for the department that under the provisions of section 34 as amended in 1948 it would be open to the Income-tax Officer to act under the said section even if he merely changed his mind without any information from an external source and came to the conclusion that in a particular case he had erroneously allowed an assessee's income to escape assessment. The Supreme Court left the question open by observing:

    “We do not propose to express any opinion on this point in the present appeal.”

    30. Even though this may have been so but from what has been stated above it is clear that the Supreme Court appear to have been half inclined to hold that even prior to the amendment of 1948 when the requirements of the section were more rigorous than since 1948 a case of a mere change of opinion on the part of the Income-tax Officer without information from an external source might be within the section. If that was so under the unamended law, when the words in the section were the same as in the English Act and which the Supreme Court noticed, it would be much more so under the law since 1948. Be that as it may, as already pointed out, this is not a case of a mere change of opinion but a case of omission to notice the material statutory provision.

    31. Dealing with the meaning and import of the word “information” at page 6, the Supreme Court observed that according to its literal meaning the word “information” might include knowledge about a state of the law or a decision on a point of law. This was in the context of the argument that the word “information” was confined to factual information and not information about law. They ultimately concluded at page 7 that the word “information” in section 34(1)(b) included information as to the true and correct state of the law and also information as to the relevant judicial decisions. The only qualification which they imported with regard to “information” under that section was that the “information” in the possession of the Income-tax Officer should be relevant information and should have come into his possession subsequent to the making of the assessment order in question and this information should lead to the belief that income chargeable to income-tax had escaped assessment. If we apply these principles to the facts of the present case then it is clear that both the conditions implied in these principles are satisfied. The successor of the Income-tax Officer came to know that the provision in section 4(3)(i) had been overlooked by his predecessor. In point of time he came to know of this subsequent to the making of the assessment order by his predecessor. It has already been shown above that escape of income from assessment under section 34 is not merely confined to cases where that escape is owing to reasons other than those attributable to the assessing authorities. The reason for the escape may, therefore, be the omission on the part of the Income-tax Officer himself to notice a material provision of the law and even then it would be within the section. From this it would seem to follow that where subsequently information comes into the possession of the successor of the Income-tax Officer that by reason of an omission on the part of the predecessor to notice a relevant provision of the law income has escaped assessment, action can properly be taken under section 34. The information acquired by a successor is as much information acquired from an extraneous source as information acquired from a decision of the Supreme Court or from a decision of the High Court even in the proceedings in respect of the same assessment. There is nothing in the section to confine information only from an extraneous source. Indeed in Salem Provident Fund Society v. Commissioner of Income-tax the Madras High Court held that information may be acquired by an officer “informing himself” from a re-examination of the record or from a closer study of the record. In this case, however, it is not necessary to go so far as that. Here information was acquired by the successor and as such the information was clearly extraneous to the information possessed by the predecessor Income-tax Officer. As already stated above the Supreme Court, even though they did not decide whether revision of information is permissible as a source of information under section 34, did not overrule the submission made on behalf of the counsel for the department and from an entire reading of their decision they appear to have been half inclined to hold that change of opinion also would be within the section. Here, however, as already stated above, it is not a case of a mere change of opinion but a case of the knowledge of an omission regarding a statutory provision by the predecessor acquired by his successor subsequently in point of time to the making of the assessment order. It follows that the proceedings taken in this case were perfectly valid. The two questions should, therefore, be answered as follows:

    The first question in the affirmative, and the second question in the negative.

    32. The reference should be returned to the Income-tax Appellate Tribunal with the above answers. The department should be entitled to its costs assessed at Rs. 200.

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    Asghar Ali Mohammad Ali v. Commissioner Of Income-Tax.
    (Jul 10, 1962)