COMMISSIONER OF INCOME TAX, BOMBAY CITY-II Vs. BAI SAVITAGOURI AND ORS. (TRUSTEES OF THE ESTATE OF LATE M. DAHYABI)

JUDGEMENT

(1.) This is a reference under Sec. 66 (1) of the Indian Income Tax Act, 1922, and at the instance of the Commissioner of Income Tax, Bombay City II, Bombay, the following question has been refereed to us for our opinion :

(2.) The short facts giving rise to this question may be stated : The question relates to the assessment year 1957 -58, the accounting year of which was the year which ended on 31st January, 1957. One Maganlal Dahyabhai left will dated 5th July, 1943, in respect of his estate under which he appointed his wife, Smt. Savitagouri, and three others as executors and trustees to manage the estate and to administer it till the residue was handed over to the beneficiaries mentioned therein. The sources of income for the estate were property income, interest on securities, dividends and interest from other sources. The original assessment for the assessment year 1957 -58 was completed by the Income Tax Officer on 3rd February, 1958, in such manner that he assessed the property income alone in the hands of Bai Savitagouri and the three trustees in the status of "association of persons" and allocated the balance of the income from other sources amongst the beneficiaries. Consequently, tax was demanded in respect of the property income alone from the trustees, whereas in regard to the balance, the beneficiaries were called upon to pay the tax. In appeal, which was preferred by the assessee, the Appellate Assistant Commissioner held that Sec. 41 was attracted inasmuch as the trustees had received the Income Tax Officer to tax the entire income derived from the estate of the deceased in the hands of the trustees and to levy tax on them in the like manner and to the same extent as it would be leviable upon and recoverable from the beneficiaries on whose behalf such income was receivable. The Income Tax Officer, accordingly, carried out the directions of the Appellate Assistant Commissioner.

(3.) Later on, another Income Tax Officer, while dealing with the assessment for the assessment year 1961 -62, realised that under clause 9 (f) of the will, the sons, who were the beneficiaries, were to get life interest in the trust property, that is to say, they were to enjoy the surplus of the rents out of the trust property during their lifetime. But this life interest was to arise only when the last son would attain the age of 21 years. On inquiries the Income Tax Officer learnt that the testator had left two minor sons, four daughters, and a wife, Bai Savitagouri, and that that the younger son, Mahendrakumar, was to attain the age of 21 on 14th September, 1964. It was, therefore, clear to him that there was no beneficiary in the intervening period upto 14th September, 1964, and hence Sec. 41 of the Income Tax Act need not come into operation till then. In other words, since the administration of the estate was till then not complete, he came to the conclusion that the entire income from the estate was earned by the trustees and executors in their own right and not on behalf of the beneficiaries an as such the entire income in the hands of the trustees and executors was chargeable to tax under Sec. 3 of the Act at the rate applicable to the total income and not under Sec. 41. Consistent with his aforesaid view that he passed an appropriate assessment order on 23rd July, 1962, whereby he charged to tax the entire income from the trust in the hands of the trustees and executors for the assessment year 1961 -62 under Sec. 3 of the Income Tax Act the rate applicable to the total income. It appears that during the assessment proceedings that were held by the Income Tax Officer for the assessment year 1961 -62, the Income Tax Officer had realised that the life interest was to arise only when the last son was to attain the age of 21 years and since he discovered the fact that the youngest son, Mahendrakumar, would attain age of 21 years on 14th of September, 1964, he took the view that in the original assessment for 1957 -58, which was some in compliance with the Appellate Assistant Commissioner's order, the income in the hands of the trustees and executors, which had to be assessed in the same manner as the income in the hands of the beneficiaries and not at the rate applicable to the total income, as held by him for the assessment year 1961 -62, had escaped proper assessment and he, therefore reopened the assessment for 1957 -58 under Sec. 34(1)(b) of the Income Tax Act after issuing a notice in that behalf on 19th February, 1962. After reopening the assessment in the above manner the Income Tax Officer completed the assessment by levying tax on the entire income from the trust in the hands of the trustees and executors at the rate applicable to the total income. Such assessment for the year 1957 -58 under Sec. 23(3) read with Sec. 34(1)(b) of the Income Tax Act was made on 21st February, 1963. Aggrieved by this assessment, made on 21st of February, 1963, the assessee filed an appeal before the Appellate Assistant Commissioner and one of the objection raised in the appeal was that there was no information in possession of the Income Tax Officer in consequence of which he could have come to the conclusion that the income chargeable to tax had escaped assessment or was under -assessed and the re -opening of the assessment was merely based on the change of opinion on the part of the Income Tax Officer and as such the Income Tax Officer had no jurisdiction to reopen the assessment. This contention was rejected by the Appellate Assistant Commissioner and the order passed by the Income Tax Officer was confirmed. In further appeal that was carried to the Tribunal the same contention was raised, viz., that the reopening of the assessment by the Income Tax Officer was without jurisdiction. The Tribunal observed that the original assessment of the assessment year 1957 -58 was modified by the Income Tax Officer in accordance with the decision given by the Appellate Assistant Commissioner in the concerned appeal, but that in the assessment order for the assessment year 1961 -62, the Income Tax Officer had taken a view different from the one that had been taken by the Appellate Assistant Commissioner in the appeal relating to the assessment of the assessment year 1957 -58, and that except a mere change of view in the latter year, there was no fresh information before the Income Tax Officer for coming to the conclusion that income chargeable to tax had escaped assessment or was under -assessed for the assessment year 1957 -58. The Tribunal, therefore, accepted the assessee's contention and canceled the said assessment order passed by the Income Tax Officer on 23rd of July, 1963. The Commissioner of Income Tax, Bombay City II, had approached this court by a reference for decision on the question which has been set out at the commencement of this judgment.