1. Re-assessment proceedings under Section 17(b) of the Wealth Tax Act initiated following the disallowance of deductions for contingencies in subsequent assessment years. (Para 2 , 3 )
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1966 Supreme(SC) 132
SUPREME COURT OF INDIA
K.N. WANCHOO, J.C. SHAH AND S.M. SIKRI, JJ.
Commissioner of Wealth Tax, West Bengal, Calcutta, Appellant
Versus
Imperial Tobacco. Co .of India Ltd., Respondent.
Civil Appeals Nos. 1062 and 1063 of 1966 , D/- 15-4-1966.
Advocates appeared
Mr. R. M. Hazarnavis Senior Advocate (M/s.N. D. Karkhanis,R. H. Dhebar and R. N. Sachthey, Advocates, with him), for Appellant, Mr. A. K. Sen, Senior Advocate, Mr. T. A. Ramachandran Advocate and M/s. T. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., with him J. for Respondent.
Advocates:
A.K.SEN GUPTA, J.B.DADACHAN, N.D.Karkhanis, O.C.MATHUR, R.H.Dhebar, R.M.Hajarnavis, R.N.SACH, Ravindra Narayan, T.A.Ramachandran
A.K.SEN GUPTA, J.B.DADACHAN, N.D.Karkhanis, O.C.MATHUR, R.H.Dhebar, R.M.Hajarnavis, R.N.SACH, Ravindra Narayan, T.A.Ramachandran
Divergence of opinion among High Courts regarding whether "information" for re-assessment includes a change of opinion or internal discovery of error constitutes a question of law that must be referred to the High Court.
Headnote:(A) Wealth Tax Act, 1957 - Section 17(b) - Income-tax Act, 1922 - Section 34(1)(b) - Re-assessment - Meaning of "information" - Whether a mere change of opinion by the assessing officer on the same facts or law constitutes "information" to justify re-assessment - Divergence of opinion among various High Courts on whether "information" must be from an external source or can include a discovery of error or a different interpretation of law (Paras 5-13).
(B) Reference to High Court - Question of law - Where there is a conflict of judicial opinion on the interpretation of a statutory term, a question of law arises which warrants a reference by the Tribunal (Para 13).
Facts of the case:
The respondent claimed deductions for provisions for contingencies in wealth-tax returns for two assessment years, which were initially allowed. Later, the assessing officer disallowed similar claims for a subsequent year and issued notices for re-assessment of the previous years. The respondent contended that the notices were based on a mere change of opinion and not on any new "information" in the possession of the officer. The Tribunal and High Court upheld the respondent's view, setting aside the re-assessment.
Findings of Court:
The court observed that while some courts hold that a mere change of opinion is not sufficient "information" for re-assessment, others have held that a discovery of error or a different method of reasoning can constitute "information."
Issues: Whether the re-assessment proceedings were validly initiated under Section 17(b) of the Act, specifically whether the term "information" encompasses a change of opinion by the assessing officer.
Ratio Decidendi: Given that the relevant sections of the Wealth Tax Act and the Income-tax Act are pari materia and there is a clear divergence of opinion among various High Courts regarding the meaning of "information," a question of law arises. Consequently, the Tribunal should have referred the matter for decision.
Result: Appeal allowed.
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2. Whether re-assessment notices were based on new information or a mere change of opinion, and whether divergent High Court views constitute a question of law. (Para 4 , 5 )
3. High Courts diverge on whether a change of opinion or discovery of an error constitutes information for initiating re-assessment proceedings under pari materia provisions. (Para 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 )
4. Divergent interpretations by High Courts on the meaning of information under pari materia provisions justify the referral of the issue as a question of law. (Para 13 )
5. Appeals allowed; High Court order set aside; Tribunal directed to state a case on the question of law. (Para 14 )
6. What constitutes information for the purpose of initiating re-assessment under Section 17(b) of the Wealth Tax Act or Section 34(1)(b) of the Income-tax Act?
Information includes the true and correct state of the law and relevant judicial decisions. While some courts hold a mere change of opinion is insufficient, others suggest that discovering an error or a mistake apparent on the face of the record may constitute information. (Para 6 , 9 , 10 , 11 , 12 , 13 )
7. Does a mere change of opinion by a tax officer justify the issuance of a re-assessment notice?
There is a divergence of opinion among High Courts. Some hold that a mere change of opinion on the same facts or law is insufficient, while others hold that if the change results from learning something new, it may be valid. (Para 6 , 7 , 8 , 12 , 13 )
8. When does a divergence of opinion among High Courts necessitate a reference to the High Court by a Tribunal?
When there is a clear divergence of opinion among High Courts on the interpretation of a legal provision, a question of law arises, which justifies the Tribunal making a reference for decision. (Para 13 )
Judgment
WANCHOO, J. : These two appeals by special more leave arise out of two applications by the appellant to the Income-tax Appellate Tribunal for reference to the High Court of a question of law, which was formulated as follows :-
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the re-assessment proceedings under S. 17 (b) of the Wealth Tax Act were not validly initiated and in setting aside the same."
2. The facts which led to the applications for reference are briefly these. The respondent submitted wealth-tax returns for the years 1957-58 and 1958-59. For the year 1957-58 the respondent claimed that an amount of Rs. 51 lakhs and odd being provision for taxation and another amount of Rs. 37 lakhs and odd being provision for contingencies being ascertained liability, should be allowed as deduction from the total wealth. For the year 1958-59, the respondent claimed Rs. 31 lakhs and odd being provision for contingencies as ascertained liability as deduction from the total wealth.
3. Assessment for the year 1957-58 was completed on December 30, 1957 and the Wealth-tax Officer accepted the contention of the respondent and allowed the claim for deduction. Subsequently the Commissioner of Wealth-tax by his order dated December 29, 1958 passed under S. 25 (2) of the Wealth Tax Act, No. XXXVII of 1957, (hereinafter referred to as the Act) disallowed the deduction of Rs. 51 lakhs and odd being the provision for taxation for the assessment year 1957-58. The order of the Wealth-tax Officer allowing deduction for contingencies for the assessment year 1957-58 however stood. The assessment for the year 1958-59 was completed on December 9, 1958 and deduction was allowed for contingencies only. It may be added that we are not concerned in the present appeals so far as deduction for provision for taxation is concerned. On March 22, 1960, the Wealth-tax Officer completed the assessment of the respondent for the year 1959-60 and disallowed the claim for deduction of the provision for contingencies. On June 2, 1960, the Wealth-tax Officer issued two notices under S. 17 (b) of the Act for re-assessment of net wealth for the years 1957-58 and 1958-59. On September 24, 2961 orders of re-assessment under C 16 (3) read with S. 17 (b) of the Act were passed in respect of the assessment years 1957-58 and 1958-59 and by these orders the amounts which had been formerly allowed as deduction with respect to contingencies were included in the total wealth of the respondent. The respondent then went in appeal against the two re-assessment orders and the Appellate Assistant Commissioner sustained the decision of the Wealth-tax Officer with respect to the re-assessment in question. The case of the respondent was that the Wealth-tax Officer had no information on the basis of which he could proceed to reassess the net wealth of the respondent mod in this connection reliance was placed on the words "in consequence of any information in his possession appearing in S. 17 (b) of the Act.
4. The respondent then went in appeal to the Appellate Tribunal and his contention there was that the issue of notices under S. 17 (b) of the Act was invalid as it was based on a mere change of opinion on the part of the Wealth-tax Officer, as at that time there was no information in the possession of the Wealth-tax Officer which could lead him to believe that the net wealth chargeable to tax had escaped assessment. It was contended that such information must be information which came into possession of the Wealth-tax Officer subsequent to the making of the original assessment and that the information must lead him to believe that income chargeable to tax had escaped assessment. The Tribunal accepted this contention of the respondent. It may be pointed out that the assessment made by the Wealth-tax Officer for the year 1959-60 was taken in appeal to the Appellate Assistant Commissioner by the respondent and the respondent s appeal w
