Case: R. B. Bansilal Abirchand Firm Vs. Commissioner of Income Tax, M. P

rm consisted of four partners, who were all brothers belonging to the Daga family, and three minor sons of one late Narsingdas Daga were also admitted to the benefits of the partnership. This firm was financing another firm known as Bisesar House in which anshare belonged to one late Shri Manekji Dadabhoy, an outsider, while the remainingshare belonged to the four Daga brothers. Bisesar House used to pay interest on advances made to it by theirm was assessed in the relevant assessment yearon the amount of interest received from Bisesar House, treating it as income accruing to thein the capacity of a partner in Bisesar House. There were then proceedings for the assessment of Bisesar House and, in those proceedings, theOfficer first disallowed the interest paid to theas an expenditure on the ground that it was interest paid to a partner. The proceedings of assessment of Bisesar House came up before the Tribunal which, by its order dated 23rd February, 1950, allowed the claim for interest as an expenditure to the extent of Rs. 5, 10, 788, holding that this payment of interest was a payment to a banker as thehad financed Bisesar House and its various business and that thewas not a partner in the Bisesar House firm. This decision of the Tribunal was upheld by the High Court in the reference made to it those proceedingsThein its original return of total income for this assessment year, had declared a business loss of Rs. 1, 09, 311. In calculation of this business loss, the interest received from Bisesar House was not taken into account, as it was not treated as business income of theand was shown as receipt of income by thein the capacity of a partner in Bisesar House. When the Tribunal and the High Court held that thewas not a partner in Bisesar House and had been receiving interest in the capacity of a banker, theOfficer decided to take action under section 34(1)(b) of theAct in order to include this amount of interest in calculating the taxable profits and losses of theThe assessee objected on the ground that all the facts, on the basis of which theOfficer was reopening the assessment under section 34(1)(b), were already in the possession of theOfficer when he first made the assessment and, consequently, it could not be held that there was any information in his possession at the time of issuing the notice under section 34(1)(b) in consequence of which he could have reason to believe that income, profits and gains chargeable tohad escaped assessment or wereor had been made the subject of excessive relief. The Tribunal and the High Court both held that theOfficer was justified in resorting to section 34(1)(b), because of the information which came into his possession as a result of the decision of the Tribunal and the High Court in the proceedings for assessment to tax of Bisesar House which showed that the interest, which was being received by thewas not in the capacity of a partner, but as business income. It is against this decision that the assessee has come up to this court in this appea

Reasoning: 3. These principles clearly support our view that in this case theOfficer had jurisdiction to proceed under section 34(1)(b), because he had reason to believe that income chargeable to tax had escaped assessment, or had beenor excessive relief had been granted as a consequence of the information which came to him from the external source, of the decisions of the Tribunal and the High Court in the assesssment proceedings of Bisesarthat case, therefore, the information which came into the possession of theOfficer was held to justify resort to sectionwas in view of this finding of fact that it was that section 34(1)(b) was not applicable. In the present case, we have already indicated that the judgments of the Tribunal and the High Court in the assessment proceedings of Bisesar House did result in theOfficer coming into possession of information on the basis of which he could initiate proceedings under section 34(1)(b)We, consequently, hold that the decision given by the High Court was correct. The appeal is dismissed with costs