RAJAGOPALAN, J. - One of the sources of income of the assessee, an undivided Hindu family which the Rajah of Nilambur represented in the relevant assessment years, was the kuttikanam, which was virtually the sale price of timber from the private forests of the assessee. We are concerned in these proceedings only with that portion of the income which the assessee obtained from his forests that stood on the lands on which he paid land revenue to the Government. It should be convenient to refer to that income in the rest of this judgment as 'forest income'.
Down to and inclusive of the assessment year 1940-41 both the assessee and the department treated this forest income as agricultural income within the meaning of section 2(1) of the Income-tax Act, exempt from income-tax. In the assessment year 1941-42 also the forest income was not taxed. The circumstances under which the income under this head was left untaxed that year were explained by the Income-tax Officer in his assessment order dated 28th February 1942, an extract of which was furnished by the Tribunal in paragraph 2 of its statement.
In 1942-43 the Income-tax Officer included the forest income in the assessable income of the assessee and completed the assessment on 9th March, 1943. He followed the decision of the Patna High Court in Province of Bihar v. Pratap Udai Nath. That judgment was rendered in April, 1941. The Income-tax Officer followed this up by the issued of notices under section 34 of the Income-tax Act to reopen the assessment for the assessment years 1939-40, 1940-41 and 1941-42 and tax the forest income which had escaped assessment in those three years. The objections of the assessee were overruled, and the forest income was taxed. On appeal the Assistant Commissioner modified the quantum of income and the tax for 1939-40 but otherwise confirmed the orders of the Income-tax Officer. A further appeal the Tribunal failed.
Under section 66(1) of the Act Tribunal referred the following questions of law to this court :
(i) Whether the Patna High Courts decision in Province of Bihar v. Pratap Udai Nath constitutes definite information within the meaning of section 34 (as is stood before its amendment in 1948) of the Indian Income-tax Act
(ii) Whether the proceedings taken by the Income-tax Officer to assess forest income on that basis are legally valid, especially as the department had hitherto treated such income as exempt from income-tax
(iii) Whether in the circumstances of the case, the proceedings under section 34 taken by the Income-tax Officer for assessment of 1941-42 are valid in view of the reservation in the original assessment that he would take action under section 34 in due course.
What the Income-tax Officer recorded in his assessment order dated 28th February, 1942, should really be sufficient to answer all the three questions in favour of the assessee. The Income-tax Officer stated :
'In the course of the proceedings, it was found that the family derived kuttikanam from forests on lands assessed to land revenue, which amounted to Rs. 29,853-15-3 in the account year. This amount was not included in the return made by the assessee. The auditor raised a preliminary objection that the income from forests on lands assessed to land revenue is agricultural income and therefore exempt form tax. I differed and held that the said income did not fall within the meaning of agricultural income contemplated by section 2 (1) of the Income-tax Act, and, therefore, such income was taxable. Upon this, Mr. Karikar requested further time to go into the whole question and put in their written objection. Time was granted for filing the objections and also to prepare a fresh allocation of the expenses against the income from forests on both assessed and unassessed lands. The auditors filed their objections in writing but requested that they might be granted further time for preparing a fresh allocation of expenses. We have come almost to the end of the financial year and it is necessary that the assessment should be completed early. I therefore complete the assessment tentatively now leaving the question of assessment of the income from forests on lands assessed to land revenue to be considered later. Action under section 34 of the Act would be taken in due course to assess such income from forests on lands assessed to land revenue as has now escaped assessment.'
The third of the questions referred to this Court under section 66 (1) of the Act is easiest disposed of. It is true that the forest income amounting to Rs. 29,853-15-3 was not taxed in the assessment year 1941-42. But even on 28th February, 1942, the Income-tax Officer knew that this item of income was liable to be taxed but that it has not been taxed. He deferred levying tax on that item of the assessees income till the assessee furnished the further particulars that the Income-tax Officer required. The Income-tax Officer decided that the forest income was assessable, and that it was not agricultural income entitled to exemption from tax. The quantification of the tax, however, was deferred. It was just a case of piecemeal assessment in the course of the proceedings in the assessment year 1941-42. Section 23 of the Act does not provide for such piecemeal assessment. It was true that a portion of the assessees income had not been taxed, and in that sense it had escaped assessment. But that escape was fully known to the Income-tax Officer even before 28th February, 1942, and was the result of a procedure deliberately adopted by the Income-tax Officer, a procedure which turned out to be wrong in law. There could be, in the circumstances of this case, no fresh discovery after 28th February, 1942, that the forest income had escaped assessment in 1941-42. A deferred assessment is not discovery of escaped assessment. Section 34 could not have been called in aid to complete an assessment deliberately deferred. Authority is not wanting either to negative the contention of the department : see Debi Prasad Malviya v. Commissioner of Income-tax where the learned Judges referred to two earlier decisions, Fazal Dhala v. Commissioner of Income-tax and Chuni Lal Nayyar v. Commissioner of Income-tax. We answer the third question in the negative and in favour of the assessee.
The first two questions have, therefore, to be confined to the validity of the recourse to section 34 for the two assessment years 1939-40 and 1940-41. The first question assumes that it had been found by the Tribunal as a fact that the Patna decision in Province of Bihar v. Pratap Udai Nath constituted 'definite information' within the meaning of section 34. That assumption itself appears to be wrong. In paragraph 4 of its appellate order the Tribunal recorded :
'It is perhaps unnecessary to determine whether the Patna ruling in fact constituted some new information as to the state of the law of not because the term 'discover' would include a measure merely of belief, and provided the belief is honest and such as a reasonable person would entertain there would be 'discovery' within the meaning of this section ........ There is no doubt that at least the Income-tax Officer definitely considered the Patna ruling to put an entirely new complexion on the point at issue. In these circumstances we would hold that the Income-tax Officer had definite information which justified the action taken by him.'
No doubt the Patna decision was rendered in April 1941. When that decision was brought to the notice of the Income-tax Officer is not clear from the material placed before us. There was nothing either in the printed record or even in the files of the Income-tax Officer to indicated that, when he recorded in his order dated 28th February, 1942, that in his view that income, that is the income we have referred to for purposes of convenience as forest income, did not fall within the scope of agricultural income exempt from tax, that was on the basis of the Patna decision. That probably explains the findings of the Tribunal in paragraph 4 of its appellate order, that the honest belief entertained by the Income-tax Officer would be sufficient to satisfy the statutory requirement of definite information prescribed by section 34 of the Act. It is true that in assessment order for 1942-43 the Income-tax Officer referred to the Patna decision, and that notices under section 34 of the Act were issued only subsequent to that order of the Income-tax Officer dated 9th March, 1943. But even on 28th February, 1942, the Income-tax Officer had come to the conclusion, possibly without the aid of the Patna decision, that the forest income of the assessee was not agricultural income and was therefore liable to be taxed. If that belief of his was strengthened by the Patna decision which came to his notice subsequently, it cannot be said, either with reference to the income to be assessed in 1942-43 or with reference to the income of any of the preceding years, that the Patna decision constituted definite information within the meaning of section 34 of the Act. The Income-tax Officer himself never treated the Patna decision as the definite information on the basis of which he decided to issue notice under section 34 of the Act. The Tribunal referred to the honest belief on the part of the Income-tax Officer even before 28th February, 1942, that the forest income was taxable. In that case it would amount only to a change of opinion on the part of the Income-tax Officer. No doubt it was on a question of law, but none the less it was only a change of opinion, and that change of opinion was even before 28th February, 1942. It is well settled now that a mere change of opinion on the part of the Income-tax Officer is not definite information within the meaning of section 34 the Act.
In the course of the assessment proceedings for 1941-42 which terminated on 28th February, 1942, the Income-tax Officer came to the conclusion that the forest income of the assessee was taxable income, and that conclusion was reached apparently without any reference to the Patna decision. It is difficult to hold that the Income-tax Officer waited till after 9th March, 1943, to 'discover' that the forest income had escaped assessment in the assessment years 1939-40 and 1940-41. Whether or not the Patna decision was information or definite information within the meaning of section 34, it certainly did not lead to any discovery. The Income-tax Officer knew even on 28th February, 1942, that he had refrained taxing the forest income that year, and he should certainly have realised then that in the previous years the forest income had not been taxed. The realisation that the forest income had escaped assessment therefore preceded any information or knowledge that could be traced to the Patna decision. What section 34 requires is 'definite information', and as a consequence of that definite information a 'discovery' by the Income-tax Officer that a portion of the assessees income had escaped assessment. Neither condition was satisfied in this case.
We are not called upon to consider even with reference to 1939-40 and 1940-41 the legal consequences of the possibility of the Patna decision having come to the notice of the Income-tax Officer before 28th February, 1942. Nor need we decide the question, whether, if the Patna decision constituted definite information as a consequence of which alone the Income-tax Officer discovered that the forest income had escaped assessment in the assessment years in question, the delay in issuing notice under section 34 till 4th May, 1943, made that information any the less definited information or the discovery any the less a consequence of that definited information. On the facts established in this case we have held that the Patna decision came to the notice of the Income-tax Officer only after he had reached the conclusion of his own that the forest income was assessable to tax, and that was in the course of the assessment proceedings for 1941-42.
We therefore refrain from considering the question which was debated at length before us, whether an authoritative pronouncement of a High Court on the interpretation of a statutory provision, whether or not it was a High Court that had territorial jurisdiction over the area in which the assessment proceedings were undertaken, constitutes definite information within the meaning of section 34. We do not pronounce any opinion either on the contention of the learned counsel for the assessee, that, in any event, only a pronouncement of a High Court which had preceded the assessment, which pronouncement had been overlooked by the Income-tax Officer in the relevant assessment years, could at all be brought within the scope of section 34.
Our answer to the first question is in the negative and in favour of the assessee. In our opinion, in the circumstances of this case, the Patna decision referred to in this question did not satisfy the requirement of section 34.
We answer the second question in the negative and in favour of the assessee, though the reason formulated in the question itself, that the department had hitherto treated such income as exempt from income-tax, is not what affects the validity of the proceedings under section 34 of the Act.
The assessee will be entitled to the costs of this reference. Counsels fee Rs. 250.
Questions answered in favour of the assessee.