J.B. Mehta, J.
1. The Tribunal has posed the following questions in the present reference :
I. Assessment year 1963-64 (R. A. No. 276 (AHD) /73/74) :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the initiation of reassessment proceedings under section 9(b) of the Super Profits Tax Act, 1963, was not valid as there was no 'information' ?' II. Assessment years 1965-66 and 1966-67 : R. As. Nos. 277, 278, 279 and 280 (AHD) /73-74) : 'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that rehabilitation reserve, reserve for doubtful debts and gratuity reserve created by the assessee were includible in computing the capital base for determining the statutory deduction ?'
2. For the assessment year 1963-64 the assessment was sought to be reopened under section 9(b) of the Super Profits Tax Act, 1963 on the ground that certain reserve created for specific purposes and the excess of the development reserve were considered for the purpose of capital computation for determining the standard deduction under the rule 1 of Second Schedule to the Super Profits Tax Act, 1963, hereinafter referred to as the 'S. P. T. Act'. The assessee's contention that there was no information to warrant the reopening of the assessment under section 9(b) as there was a case of mere change of opinion. That contention had been accepted by the Appellate Assistant Commissioner and the Tribunal had also as per the settled legal position in Kasturbhai Lalbhai's case : [1971]80ITR188(Guj) agreed with that view and, therefore, the revenue has come in this reference. The second question arises for the assessment years 1965-66 and 1966-67 as the Tribunal had as per the settled legal position disposed of the question in favour assessee. Therefore, the revenue has come in this reference even on the second question.
3. The relevant section 9(b) of the Super Profits Tax Act, 1963, provides as under :
'If - ...
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that chargeable profits assessable for any assessment year have escaped assessment or have been under-assessed or assessed at too low a rate or have been the subject of excessive relief under this Act,
he may, in cases falling under clause (a) at any time, and in cases falling under clause (b) at any time within four years of the end of that assessment year, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under section 6, and may proceed to assess or reassess the amount chargeable to super profits tax, and the Provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section.'
4. The relevant provision is in pari materia with the same language as it is in other corresponding provisions providing for reopening of assessment in cases of such escaped income. The relevant two conditions precedent for the application of section 9(b) have been laid down by way of safeguards when the high power of reopening the final assessment is conferred. That is why the legal position is well settled as to the connotation of this term 'information'. In Commissioner of Income-tax v. A. Raman and Co. : [1968]67ITR11(SC) , the expression 'information' in the context was held to mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. Their Lordships held that jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected. This decision in Raman's case : [1968]67ITR11(SC) has been consistently followed. Thus, elaborating this concept of information as per the settled legal position, my learned brother P. D. Desai J., speaking for the Division Bench, in Bai Aimai Gustadji Karaka v. Gift-tax Officer : [1975]99ITR257(Guj) referring to identical two conditions under section 16(1)(b) of the Gift-tax Act, 1958, held that, (i) the Gift-tax Officer should receive information after original assessment, and (ii) in consequence of such information he should reasonably believe that taxable gift has escaped assessment. Elucidating the term 'information' my learned brother rightly pointed out that 'information' means instructive knowledge concerning a matter bearing on the assessment received from an external source after the completion of the original assessment. The external source was emphasised in contradistinction to a mere change of opinion on the part of the officer concerned, which would never constitute requisite information. It was, therefore, held at page 262 that the 'information' may be as to the correct state of facts or law relating to the taxable gift and it must capable of arousing or suggesting ideas or notions not before existent in the mind of the recipient. In other words, it must be of such a nature as to acquaint, enlighten or instruct the mind of the officer for the first time concerning the matter pertaining to the taxable gift so that he could form a reasonable belief that there has been as escapement of tax which requires to be set right by taking steps for reopening the assessment. The aspect of the definiteness of the information was emphasised by observing that 'information' must be derived from a source which has some authenticity and it must be precise and certain and must have relation or nexus with the taxable gift which was alleged to have escaped assessment. That is why any wayside gossip, any inference or surmise drawn by a person from certain facts assumed to exist and not supported by any data or any general opinion expressed by a person not qualified, experienced or acquainted with the subject-matter was held to amount to 'information' on which the officer might act for reopening a completed assessment. This view was taken because otherwise the salutary safeguards would be rendered illusory and the action of reassessment would result in considerable anxiety and harassment to the assessee, if these conditions precedent were not strictly complied with. That is why even the bare opinion of the Inspecting Assistant Commissioner based on generalisation was held not to constitute 'information' as it would not amount to instructive knowledge concerning the taxable gift on the basis of which only requisite belief could be formed. This decision, therefore, clearly settles the question as to the connotation of the term 'information' which in its essential nature must be such as to enlighten or instruct the mind of the officer concerned for the first time. The officer by having second thoughts on the same material could never be said to have any information as envisaged by this salutary provision for the simple reason that it would not be information which enlightens his mind for the first time. In the decision in Kasturbhai Lalbhai v. R. K. Malhotra, Income-tax Officer : [1971]80ITR188(Guj) , Bhagwati C.J. (as he then was) speaking for the Division Bench elaborately examined this question in the light of the binding Raman : [1968]67ITR11(SC) ratio in the context of a case where assessment was sought to be reopened as a result of the audit note. At page 191, following the Raman : [1968]67ITR11(SC) ratio, it was held that 'information' in the context in which it occured in section 147(b), must mean 'instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment'. Mere change of opinion on the part of the Income-tax Officer cannot constitute 'information' so as to entitle the officer to initiate proceedings under section 147(b).
5. Thereafter distinction was made between 'information' which may be as to facts or particulars or as to the correct state of law. But in both the case, it was held as per the binding Raman : [1968]67ITR11(SC) ratio, that it must be from external source as distinguished from a mere change of opinion. If the 'information' was as to any facts, it may be received from any person who know the facts. It could not be limited any particular person, body or authority, since such fact may be within the knowledge or in the possession of anyone and it may be received by the Income-tax Officer from any source. But so far as information as to correct state of the law is concerned, the external source from which it might be received must necessarily be of a limited character. It was held that opinion as to the state of the law by any and every person could not constitute 'information' so as to entitle the officer to reopen the assessment for the purpose of this section. It must be a statement or expression of the correct state of the law by a person, body or authority competent and authorised to pronounce upon the law, so that it was invested with some definiteness and authority. The information by was of audit note from the audit department as to the correct state of the law could never justify initiation of proceedings under section 147(b) of the Income-tax Act. Therefore, besides definiteness, an element of authority was emphasised in this decision when the opinion was to the correct state of law, because otherwise all distinction between the external source and mere change of opinion would be lost. Even in the latest decision in Kalyanji Mavji & Co. v. Commissioner of Income-tax : [1976]102ITR287(SC) , where the Division Bench consisted only of two judges, this binding ratio of Raman's case : [1968]67ITR11(SC) by the larger Bench, which consisted of three judges, was in terms followed, and this Kalyanji Mavji's case : [1976]102ITR287(SC) was decided by their Lordships only on the basis of tests and principles laid down in Raman's case [1968] 67 ITR (SC). After quoting the aforesaid passage laying down the connotation of the term 'information' in Raman's case [1968] 67 ITR (SC) and after referring also to the case in Maharaj Kumar Kamal Singh [1968] 67 ITR (SC), where 'information' was even as to the correct state of the law, on a combined review of all the decisions, the following tests and principles were laid down to determine the applicability of the corresponding section 34(1)(b) of the Indian Income-tax Act, 1922, to the following categories of cases - See : [1976]102ITR287(SC) :
'(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions;
(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority;
(3) where the information is derived from an external source of any kind, such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment;
(4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from the enquiry or research into facts or law.'
6. If these conditions are satisfied then the Income-tax Officer would have complete jurisdiction to reopen the original assessment. It is obvious that where the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application. Therefore, this decision only clarifies the Raman [1968] 67 ITR(SC) ratio that the information may come from external source or even from materials already on the record or may be obtained from discovery of new and important matters or knowledge or may include from relevant judicial decision either income-tax authority or other courts of law which decided the income-tax matters. As laid down in Maharaj Kumar Kamal Singh's case [1959] 35 ITR (SC) even subsequent Privy Council decision was included in the word 'information'. Therefore, even their Lordships held that no hard and fast rule can down by the broad objective testa and principles were to be borne in mind to determine the applicability of the relevant clause (b). In Bankipur Club Ltd. v. Commissioner of Income-tax : [1971]82ITR831(SC) , where the facts place before the Income-tax Officer were self-evident and no calculation or scrutiny was necessary to find out the effect of the materials. Their Lordships in terms held that it was not the case of the Income-tax Officer that he did not come to know all the relevant facts when he made the original orders of assessment. It was also not his case that at the time he made those orders he was not aware of the true legal position. Therefore, that was not a case where any information had been received subsequent to the original assessment on the basis of which it was completent for him to initiate these proceedings of reassessment. The context of Kalyanji Mavji's case : [1976]102ITR287(SC) was where a further scrutiny of the balance-sheet and a close calculation had revealed that the assessee had not only wrongly claimed but was also allowed a deduction on what was really in the nature of interest-free loans given to the partners to meet their income-tax liabilities. Therefore, this was not a case of mere change of opinion but fresh facts were revealed in the assessment of the subsequent years, which when taken with the conduct of the assessee, informed the mind of the officer for the first time that the deduction was wrongly claimed and allowed to the assessee. When their Lordships' attention was drawn to the decision of the Bombay High Court in Commissioner of Income-tax v. H. Holck Larsen : [1972]85ITR467(Bom) , where the distinction was made between a changed of opinion based on information subsequently obtained, on the other, their Lordships, even though prima facie inclined to agree to the distinction, had not expressed a final opinion and had rested the case only on the Raman : [1968]67ITR11(SC) .
7. We have gone through this settled line of decisions as a vehement attempt was made by the learned standing counsel to persuade us that Kalyanji Mavji's case [1967] 102 ITR 287 has overruled the decision in Kasturbhai Lalbhai's case [1971] 90 ITR 188 . This contention is based on a complete misapprehension of the aforesaid settled legal position. If the 'information' is understood as definite information which informs the mind of the officer concerned for the first time as explained by my learned brother in Karaka's case : [1975]99ITR257(Guj) . it is obvious that while applying the Raman : [1968]67ITR11(SC) ratio, this distinction of external source when applied to matters of facts or particulars and matters as to the correct state of law would have a great bearing to distinguish the case of the mere change of opinion. The concerned officer is not entitled to proceed on mere second thoughts on the same materials when he had already applied his mind and he does not rely on any subsequent information falling within the aforesaid test. When information is relied upon for invoking this power for reopening assessment which is a separate special power in addition to the power of revision or rectification, it is obvious that when it is invoked on the ground of correct state of law being not appreciated, the external source must consist of the relevant judicial decision, which would have the element of authority as earlier explained. That is why the external source aspect was so well emphasised by Bhagwati C.J. (as he then was) in Kasturbhai's case : [1971]80ITR188(Guj) while dealing with this question of information in the context of 'information' as to the correct state of law for initiating the proceedings of reassessment. On the other hand, when the context was of external source of information as to the matters of facts and particulars, Bhagwati C.J. (as he then was) was very particular to emphasise in view of Raman's decision : [1968]67ITR11(SC) itself that that information could be from any source as explained by him and could be even from the same record. It is only this latter aspect which is elaborately dealt with in Kalyanji Mavji's case : [1976]102ITR287(SC) . Therefore, all these decisions are merely emphasising one or the other aspect for laying down these two statutory safeguards which are conditions precedent for exercising this wide power of reopening of a finally concluded assessment which is a power in addition to the power of rectification or revision. All the same, the decisions have never permitted this wide power to be lightly exercised by proceeding on mere second thoughts on the same materials or the same facts as this would be a case of mere change of opinion without receiving any subsequent information to enlighten his mind or to make him aware that at the time of the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer, which came to light for the first time only on subsequent closer scrutiny even of the same materials on the record of facts disclosed thereby or from other enquiry or research into facts or the law. The learned standing counsel also vehemently relied upon the latest decision of this court in Wealth-tax Reference No. 1 of 1974 decided on April 6, 1977 [Commissioner of Wealth-tax v. Arundhati Balkrishna Trust : [1977]108ITR78(Guj) , where the learned Chief Justice had invoked the ratio of Kalyanji Mavji's case : [1976]102ITR287(SC) , in the context of the special facts of that case where, at the time of the original assessment, the Wealth-tax Officer had not applied his mind to the relevant clauses and was not at all aware of the right of the concerned assessee being only a right limited to half of the corpus and that too on fulfilment of certain conditions and not to the whole of corpus. Therefore, when this subsequent information came to light, the mind of the Wealth-tax Officer was informed or he was made aware or there was enlightenment for the first time of this relevant aspect on the basis of which rational belief could be formed on that part of the net wealth having escaped assessment. This was not a case of mere change of opinion but a case falling clearly on the aforesaid ratio. It is true that the learned Chief Justice has widely observed that the Supreme Court in Kalyanji Mavji's case : [1976]102ITR287(SC) , although did not refer to Kasurbhai Lalbhai's case : [1971]80ITR188(Guj) , was not of the view that the Income-tax Officer should receive information from external source after original assessment as held by Bhagwati C.J. He, therefore, observed that it was manifest from what the Supreme Court has ruled in Kalyanji Mavji's case : [1976]102ITR287(SC) that it was not necessary, as has been laid down by this court in Kasturbhai Lalbhai's case : [1971]80ITR188(Guj) , that the Income-tax Officer should receive 'information' from an external source. In Kasturbhai Lalbhai's case : [1971]80ITR188(Guj) , Bhagwati C.J. had made this distinction of an external source for distinguishing the case of mere change of opinion and that is why the external source was held as one importing element of authority when the information related to matters regarding the correct state of the law, and that view is even now approved specifically in Kalyanji Mavji's case : [1976]102ITR287(SC) as is clear from the aforesaid passages. As to the external source, so far as the matters of facts, on the other hand, are concerned, Bhagwati C.J. (as he then was) had clearly stated in Kasuturbhai Lalbhai's case : [1971]80ITR188(Guj) that 'information' could come from any source as explained by him. In fact, this latest decision in Smt. Arundhati Balkrishna's case : [1977]108ITR78(Guj) was not in the context of information as regards the state of the correct law. Therefore, the ratio in Kastubhai Lalbhai's case : [1971]80ITR188(Guj) is not in any manner undermined even by the recent decision in Kalyanji Mavji's case : [1976]102ITR287(SC) and the whole contention of the learned standing counsel is wholly misconceived.
8. Coming to the facts of the present case, the very original order of the Income-tax Officer makes it in terms clear that this was a case of mere change of opinion because he was only proceeding on second thoughts on the same material. The Income-tax Officer in his order in terms stated that the action under section 9(b) was initiated as it was found that the chargeable profits had escaped assessment in view of the information that the company had claimed (and the same was taken into consideration) for the purposes of computation of standard deduction, development rebate reserve in excess of what was statutorily required to be created under the Income-tax Act. Therefore, what he had already taken into consideration and to what he had already applied his mind, there were added second thoughts and on a mere change of the opinion, he attempted to initiate these proceedings or reopening assessment. It is true that the Tribunal has in paragraph 4 of its order stated.
'It was faintly suggested on behalf of the revenue that the Income-tax Officer had made a mistake in computing the working of the capital computation in the course of the original assessment. This mistake was detected as a result of the audit inspection and the Income-tax Officer had set right the said mistake by taking recourse to the provisions of section 9(b) of the Act.'
9. The learned standing counsel mentioned that this was not a true statement of facts. No such grievance was ever made and no such question of wrong assumption of facts was raised and this being the contention of the revenue itself as set out by the Tribunal, the revenue is precluded from going behind the statement of the facts. The whole attempt of the standing counsel on this behalf is because that aspect was completely concluded by Kasturbhai Lalbhai's case : [1971]80ITR188(Guj) , that on such mere audit note the officer concerned could not on mere change of opinion initiate this proceeding of reassessment. But even apart from that, the standing counsel, in view of the very order of the Income-tax Officer, is unable to point out any case of subsequent information. This was admittedly not a case of the correct state of law being not known to the concerned officer. No new information enlightening his mind for the first time was ever suggested. Therefore, the Tribunal was completely justified on the facts and circumstances of the case in holding that the initiation of reassessment proceeding under section 9(b) was not warranted as this was a case of mere change of opinion and there was no information as required under section 9(b) of the S.P.T. Act, 1963. Therefore, this reference must be answered on the first question in the affirmative, i.e., in favour of the assessee and against the revenue.
10. So far as the second question is concerned, the legal position as to what constitutes reserve for the computation of the capital base is well-settled for working out the standard deduction under rule 1 of the relevant Schedule. In Commissioner of Income-tax v. Mafatlal Chandulal & Co. Ltd. : [1977]107ITR489(Guj) , after following the decision of the Supreme Court, it was laid down that the expression 'reserves' meant something specifically kept apart for future use or for a specific occasion by someone who was possessed of requisite authority. The matter was to be looked from substance rather than from the form by taking into account even the accountancy practice and also he requirements of the statute which the assessee-company would be required to follow. It was further held that even though under the Companies Act the practice would be to show the amount under the heading 'provisions', the matter would have to be decided rom substance for determining whether the amount should be treated as a 'reserve' as known to the accountancy practice as laid down by the Supreme Court in Metal Box Company of India Ltd. v. Their Workmen : (1969)ILLJ785SC . That is why a distinction was also made between reserves and provisions by pointing out that as per the settled accountancy practice reserves are appropriations out of profits whereas provisions are charges against profits. Provision would be really a provision where the amount is set apart to meet present liability or anticipated liability which is known to exist at the date of the balance-sheet. But other provisions set aside out of profits and other surpluses, not designed to meet a liability know to exist at the date of the balance-sheet would have to be treated as reserve, notwithstanding the momenclature of 'provisions' under the Companies Act. That is why in that decision the real provision was held to be of the taxation reserve where amount was setapart for the liability known to exist at the date of the balance-sheet, which could not be treated as reserve. On the other hand, so far as the proposed dividend account on December 31, 1961, was held to be a reserve, includible in computing the capital base of the company, even though the directors had merely made a recommendation and the authority for the reserve came subsequently by resolution of the general board which would take back effect for creation of the reserve. The whole law has been exhaustively dealt with and the decisions of the various High Courts were examined, including those in the context of doubtful debts reserves and gratuity provisions. So far as the present case is concerned, regarding all these reserves, the aforesaid ratio clearly concluded the question that these reserves were includible in the computation of capital base. So far as the rehabilitation reserve is concerned. The Tribunal has in terms found that it was a part and parcel of the general reserve which was given only a different name and was not intended as a provision against any anticipated liability and, therefore, it was clearly in the nature of reserve. Similarly, the reserve for doubtful debts was found to have been created without any reference to the outstanding sundry debtors in the balance-sheet and was not created with a view to meeting any anticipated for known existing liability and, therefore, that reserve was also rightly included in the computation of the capital base. So far as the gratuity reserve was concerned, even in that connection, the Tribunal has found that the reserve in the present case was merely the reserve which was kept back for future years without reference to any ascertained liability. There was no actuarial valuation and there was no case of a provision being made for anticipated known liability and, therefore, this was in the nature of reserve which was includible in the computation of the capital base. Therefore, even on the second question, the answer must be in the affirmative, that is to say, against the revenue and in favour of the assessee. Therefore, this reference must be answered accordingly on both the questions in the affirmative, i.e., against the revenue and in favour of the assessee with costs.