RAMCHANDRA MARDARAJ DEO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 66(1) of the Indian IT Act by the Tribunal, Madras Bench ' B ', at the instance of the assessee, the Raja Bahadur of Khallikote. The question referred to us is as follows :

(2.) THE assessee is the zamindar of Khallikote, and derives his income, among other sources, from forests. For the asst. year 1939 40, the ITO made an assessment under S. 23(3), the accounting year for the relevant period ended on 31st March, 1939. In the original assessment under S. 23(3) of the Act, the ITO did not take the income from forests into account as till then the Revenue authorities were under the impression that such income was agricultural income and as such was not assessable to income tax. On the 17th of April, 1941, the Patna High Court held in the case of Province of Bihar vs. Maharaja Pratap Udai Nath Sahi Deo of Ratugarh and Another (1941) 9 ITR 313 (Pat) that incomes from forests such as lakhar, bankar and phalkar from forests of spontaneous growth as distinct from forests grown by the process of cultivation were non agricultural incomes, and as such were assessable to income tax. On the 14th Dec., 1942, a notice was issued to the assessee under S. 34, for the asst. year 1939 40 in respect of his income from forests. Apparently the ITO treated the judgment of the Patna High Court as a definite information which had come into his possession, and as a result of which he discovered that the income from forests had escaped assessment, and so he issued notice under S. 34 of the Act. In pursuance to this notice the assessment was completed on the 28th of February, 1944. The assessee filed an appeal against this order. Before the AAC, the assessee raised a point that S. 34 was not applicable in the circumstances of the case, because according to the assessee, the section to be operative contemplated the discovery of a fact, and the ITO did not, in this case, discover any fact, because he already knew at the time of the original assessment that the assessee had forest income as well as interests on arrears of rent etc. This point was overruled by the AAC who held that the Patna High Court for the first time held in the case already referred to that incomes from forests of spontaneous growth, as distinct from forests grown by the process of cultivation and tilling of the soil, were non agricultural incomes, and in the opinion of the AAC this exposition of the correct meaning of agricultural income was a definite information of a fact not possessed by the ITO at the time of the original assessment. Accordingly he held that the ITO was justified in invoking the provisions of S. 34 in this case. On facts, however, certain questions were raised, and in the opinion of the AAC, the quantum for the assessment under S. 34 had to be redetermined as indicated in his order dt. the 29th Nov., 1944, and accordingly the case was remanded to the ITO. Thereafter the ITO made a fresh assessment under S. 34 and S. 23(3). Against this order the assessee again filed an appeal before the AAC. Before him the applicability of S. 34 was again questioned, and the order was also attacked on merits. With regard to the first point, the AAC held that his predecessor in office had already decided the point, and that had become final as no appeal had been filed against that part of the order, and as such the appellant was debarred from raising that point over again before him. He then considered the merits of the assessment, and gave some relief to the assessee by excluding that portion of the income from forests which was the result of agricultural operations. He also gave some other minor relief in respect of house property which it is unnecessary to mention for the purpose of this reference. Against this order the assessee filed an appeal before the Tribunal. The question of the applicability of S. 34 was again raised ; but they held that the AAC was right in holding that that question having finally decided by the first order of the AAC, and that order not having been made the subject of re investigation, and not having been set aside, was final. Although they held that the appeal failed on this point alone, yet they went into the merits of the assessee's contention, and held that if the state of law had been correctly expounded for the first time by the Patna High Court, that itself constituted "definite information" enabling the ITO to act under S. 34. Accordingly they dismissed the appeal. Thereupon the assessee moved the Tribunal to make a reference to this Court, and the Tribunal holding that a question of law does arise out of the said order, has stated a case for decision of the question set forth at the beginning of that order.

(3.) MR . K. Patnaik, learned counsel for the assessee, has drawn our attention to the case of Tribunal, Bombay vs. B. P. Byramji & Co. (1946) 14 ITR 174(). In that case the income of the assessee for the charge year 1939 40 was computed at Rs. 54,024 for the purpose of income tax and super tax. The officer who made the original assessment came to the conclusion that the rate at which the super tax was assessed by virtue of the provisions of S. 6(4)(v) of the Finance Act, 1939, should be the rate prescribed by the Finance Act of the previous year, viz., of 1938, and the assessment was accordingly made on the 16th March, 1940. In the following July, the successor in office of the assessing officer informed the assessee that he proposed to reassess the income in consequence of definite information that had come into his possession. The " definite information" consisted only of his view of the law as to whether the rates of the Finance Act of 1938 or 1939 were applicable and as in his view the rates of the Finance Act of 1939 were applicable that in his view constituted "definite information" so as to attract the operation of S. 34. It was found that the view of the second officer about the legal position was correct ; but the question raised was whether a different view of the law entertained by the ITO at a subsequent stage or by his successor constituted "definite information" within the meaning of S. 34 of the Act. Their Lordships after discussing the entire question came to the conclusion that under S. 34 of the Indian IT Act as amended in 1939, the ITO had no power to reopen the assessment proceedings, unless he acted in consequence of "definite information" which had come into his possession. A mistake of law was not a ground for reopening the assessment. The view of the succeeding officer, even though it was correct, was not based on any definite information coming into his possession, but he only corrected a view of the mistake of law applied by his predecessor, and that was not a sufficient ground for applying S. 34 as amended in 1939.