R.R. Rastogi, J. - (1.) THIS is a reference under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). It relates to the assessment year 1963-64. Late Sri Makhan Lal Jain was a partner in the firm of M/s. Daulat Ram Makhan Lal (hereinafter referred to as " the firm "). The other partners of the firm were his wife, Smt. Durga Devi, and his two sons, Nem Kumar Jain and Ratan Kumar. In his return for the assessment year 1963-64, filed on January 22,1964, late Sri Makhan Lal Jain disclosed his share income from the firm at Rs. 19,501 and income from property at Rs. 1,163. In Part III of the return he mentioned the constitution of the firm and his relationship with Smt. Durga Devi, but he did not include the share income of his wife in his return. On the basis of that return, the ITO completed the assessment on a total income of Rs. 23,163 on February 7, 1964. The income was subsequently revised under Section 154 of the Act. Sri Makhan Lal Jain died on November 15, 1962. According to the ITO during the course of the assessment proceedings of the firm for 1963-64 itself he came to know that the assessee's wife, Smt. Durga Devi, was also a partner in the firm and her share income was to be clubbed with the assessee's income. Accordingly, he issued a notice under Section 148 for taking action under Section 147 on September 23, 1968. THIS notice was issued to the heirs and legal representatives of the assessee. Pursuant to that notice they filed a return on March 19, 1969, showing the same income which had been shown in the return as originally filed. They, however, disputed the validity of the reopening of the assessment on the ground that the assessee and his wife had been separately assessed in the preceding years in respect of their share income from the firm and that the assessee was not legally obliged to include in his income the share income of his wife. The ITO did not accept those contentions and he included the share income of the assessee's wife under Section 64(iii) of the Act and the total income thus computed came to Rs. 1,85,666.
(2.) IN appeal, the assessee's contentions found favour with the AAC and he cancelled the reassessment order. Aggrieved, the department went up in appeal to the INcome-tax Appellate Tribunal but remained unsuccessful. The Tribunal, agreeing with the AAC, held that it being a common ground that the assessment had been reopened under Section 147(b) there should have been some information received by the ITO within the meaning of that provision. IN the instant case, there was no material on record to prove that the ITO had received any such information from an external source. They further held that the subsequent realisation by the ITO that he had committed a mistake in not including the income of the assessee's wife in the assessee's hands did not amount to receiving information from some external source and hence Section 147(b) was not applicable. The Tribunal also repelled the department's contention that the assessment could be held valid under Section 147(a) and for its conclusion placed reliance on a decision of this court in Raghubar Dayal Ram Kishan v. CIT [1967] 63 ITR 572 (All). IN the result, the Tribunal dismissed the department's appeal. At the instance of the department and in compliance with the direction of this court, the Tribunal has now referred the following question for the opinion of this court: " Whether, on the facts and in the circumstances of the case, the assessment was validly made under Section 147(b) of the INcome-tax Act?" As has been stated earlier it is not disputed in the instant case that the constitution of the firm was mentioned by the assessee in his original return. He had also mentioned his relationship with Smt. Durga Devi. The submission of the learned counsel for the department was that even where the facts are before the ITO, but he does not apply his mind to the same, Section 147(b) would be attracted. According to the learned counsel, for the applicability of Section 147(b), it is not necessary that some fresh facts should have come to the knowledge of the ITO. On the facts as originally disclosed, which could and should have been considered by the ITO but it was not so done and when the very same facts are subsequently discovered, that would amount to an information within the meaning of Section 147(b). It was an information received by the ITO from the file of the firm and during the reassessment proceedings of the firm for this very year. It was submitted that no finding has been recorded to the effect that the case of the department that such an information was received by the ITO from the file of the firm during the assessment for this very year, was wrong. On the other hand, according to Dr. K.B. Bhatnagar, counsel for the assessee, two conditions are required to be satisfied for the application of Section 147(b) and they are that there should be some information received by the ITO subsequent to the original assessment and, secondly, that should not be as a result of a fresh enquiry or research in respect of questions of fact or law. That was not the position here because all the primary facts were disclosed by the assessee in Ms original return and if there was any mistake or omission committed by the ITO that would not help the department unless it is shown that any further information was received by the I.T. Dept. subsequently. The non-application of mind on the part of the ITO would not justify the reopening of the assessment. In order to appreciate the contentions urged before us by counsel for the parties it would be necessary to refer to the relevant provisions of the Act. Section 147, in so far as it is relevant for our purpose reads, as under ; " 147. If--...... (b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year)."
(3.) TWO conditions precedent must be satisfied before the ITO can take action under Clause (b); (i) he should have reason to believe that income has escaped assessment; (ii) it should be in consequence of the information received after the original assessment that he should have such reason to believe. Both these conditions must be satisfied before an action taken by the ITO under this provision can be justified. The leading case on the subject is that of Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC). While interpreting the meaning of the word " information " their Lordships held (p. 7); "We would accordingly hold that the word 'information' in Section 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions. " ;