T MANAVEDAN TIRUMALPAD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ONE of the sources of income of the assessee, an undivided Hindu family which the Rajah of Nilambur represented in the relevant assessment years, was the kuttikanam, which was virtually the sale price of timber from the private forests of the assessee. We are concerned in these proceedings only with that portion of the income which the assessee obtained from his forests that stood on the lands on which he paid land revenue to the Government. It should be convenient to refer to that income in the rest of this judgment as " forest income " Down to and inclusive of the assessment year 1940-41 both the assessee and the department treated this forest income as agricultural income within the meaning of section 2(1) of the Income Tax Act, 1961, exempt from income-tax. In the assessment year 1941-42 also the forest income was not taxed. The circumstances under which the income under this head was left untaxed that year were explained by the Income-tax Officer in his assessment order dated 28th February 1942, an extract of which was furnished by the Tribunal in paragraph 2 of its statement In 1942-43 the Income-tax Officer included the forest income in the assessable income of the assessee and completed the assessment on 9th March, 1943. He followed the decision of the Patna High Court in Province of Bihar v. Pratap Udai Nath. That judgment was rendered in April, 1941. The Income-tax Officer followed this up by the issue of notices under section 34 of the Income Tax Act, 1961 to reopen the assessment for the assessment years 1939-40, 1940-41 and 1941-42 and tax the forest income which had escaped assessment in those three years. The objections of the assessee were overruled, and the forest income was taxed. On appeal the Assistant Commissioner modified the quantum of income and the tax for 1939-40 but otherwise confirmed the orders of the Income-tax Officer.

(2.) A further appeal to the Tribunal failedUnder section 66(1) of the Act the Tribunal referred the following questions of law to this court (i) Whether the Patna High Court's decision in Province of Bihar v. Pratap Udai Nath constitutes definite information within the meaning of section 34 (as it stood before its amendment in 1948) of the Indian Income Tax Act, 1961 " (ii) Whether the proceedings taken by the Income-tax Officer to assess forest income on that basis are legally valid, especially as the department had hitherto treated such income as exempt from income-tax " (iii) Whether in the circumstances of the case, the proceedings under section 34 taken by the Income-tax Officer for assessment of 1941-42 are valid in view of the reservation in the original assessment that he would take action under section 34 in due course What the Income-tax Officer recorded in his assessment order dated 28th February, 1942, should really be sufficient to answer all the three questions in favour of the assessee. The Income-tax Officer stated

(3.) IN that case it would amount only to a change of opinion on the part of the INcome-tax Officer. No doubt it was on a question of law, but none the less it was only a change of opinion, and that change of opinion was even before 28th February, 1942. It is well settled now that a mere change of opinion on the part of the INcome-tax Officer is not definite information within the meaning of section 34 of the ActIN the course of the assessment proceedings for 1941-42 which terminated on 28th February, 1942, the INcome-tax Officer came to the conclusion that the forest income of the assessee was taxable income, and that conclusion was reached apparently without any reference to the Patna decision. It is difficult to hold that the INcome-tax Officer waited till after 9th March, 1943, to " discover " that the forest income had escaped assessment in the assessment years 1939-4o and 1940-41. Whether or not the Patna decision was information or definite information within the meaning of section 34, it certainly did not lead to any discovery. The INcome-tax Officer knew even on 28th February, 1942, that he had refrained taxing the forest income that year, and he should certainly have realised then that in the previous years the forest income had not been taxed. The realisation that the forest income had escaped, assessment therefore preceded any information or knowledge that could be traced to the Patna decision. What section 34 requires is " definite information ", and as a consequence of that definite information a " discovery " by the INcome-tax Officer that a portion of the assessee's income had escaped assessment.