COMMISSIONER OF INCOME-TAX, EXCESS PROFITS TAX, HYDERABAD, ANDHRA PRADESH versus V. JAGAN MOHAN RAO & ORS.

Citation: [1970] 1 S.C.R. 726 · Decided: 31-07-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Case Partly allowed

Judgment (excerpt)

726 
COMMISSIONER OF INCOME-TAX, 
EXCESS PROFITS 
TAX, HYDERABAD, ANDHRA PRADESH 
v. 
V. JAGAN MOHAN RAO & ORS. 
July 31, 1969 
[J.C. SHAH, ACTING C.J., V. RAMASWAMI AND A.. N. GROVER, JJ.] 
Indian Income-tax Act, 1922, s. 34 and s. 10(2) (xv )-Decision of 
Privy Council settling legal dispute-Whether constitutes 'definite infor-
mation' within meaning of s. 34--Purchase of mill by assessee-Vendor's 
sons disputing his right to sell-Assessee paying sons a consolidated sum 
for release of their claims-Sum so paid 
whether allowable 
business 
expenditure under s. 10(2)(xv). 
The assessee purchased a spinning mill in 1941 from a vendor claiming 
to be its sole proprietor. In a suit filed by the venddr's sons the trial court 
had held that the suit property including the aforesaid spinning mill was 
the vendor's self-acquired property. When the assessee purchased the mill 
an appeal against the trial court's judgment was pending in the High Court. 
The High Court decided that the property was not the self-acquired pro-
perty of the vendor but was coparcenary property in which the sons had 
two thirds interest. The vendor filed an appeal before the Privy Council. 
During its pendency the assessee entered into a compromise with 
the 
venddr's sons whereby they agreed to release their two thirds interest in the 
mill and its profits for a sum of Rs. 1,15,000. 
The compromise was 
certified by the High Court. In 1947 the Privy Council decided that the 
property including the spinuing mill was the self-acquired property of the 
vendor. On receipt of this decision which finally determined the rights 
of the parties and assessee's ownership of the mill, the Income-tax Officer 
issued a notice under s. 34 of the Indian Income-tax Act, 1922 for the 
assessment year 1944-45 and assessed the income fl;pm the mill for that 
year and for the two subsequent assessment years in the hands of the 
assessee. 
The assessee's objection that the decision of the Privy Council 
was not 'definite information' within the meaning of s. 34 was rejected as 
also the assessee's claim that the sum of Rs. 1,15,000 paid to the vendor's 
sons in pursuance of the compromise should be set off as an expense 
against the income from the mill for the year in question. The Appellate 
Assistant Commissioner and the Tribunal upheld the Income-tax Officer's 
order. The High Court in reference held that the notice under s. 34 was 
valid but that the payment of Rs. 1,15,000 was made partly 
towards 
acquisition of a capital asset and partly towards the discharge of the claim 
for profits and the part apportionable towards the profits was allowable as 
revenue expenditure. 
The assessee as well as the Revenue appealed to 
this Court. 
HELD : (i) In Maharaia Kumar Kamal Singh's case this Court held 
that the word information in s. 34( 1) (b) included information as to. the 
true and correct state of the law, and so would cover information as to 
relevant judicial decisions. It was further held that even in a case where a 
return had been submitted, if the Income-tax Officer had erroneously failed 
to tax a part of the assessable income, it was a case when that part of 
the income had escaped assessment. The decision of the Privy Council was 
therefore held to be information within the meaning of s. 34(1) (b). The 
principle laid down in Maharaja Kumar Kcmal Singh's case governed the 
present case and it must be held that the proceedings initiated under s. 34 
for the assessment year 194445 were legally valid. [732 G-733 BJ 
A 
' 
B 
c 
D 
E 
F 
G 
·.~ 
H 
C.I.T. v. JAGAN MOHAN (Ramaswamz", J.) 
727 
A 
Maharaja Kuniar Kania! Singh v. Co1nn1issioner 
of 
Incon1e-tax, 35 
, 
l.T.R. !, followed and applied. 
</ 
B 
c 
D 
• 
E 
Kcmakhya Narain Singh's case, 14 I.T.R. 6, referred to. 
The contention that only two thirds of the income could be said to 
have escaped assessment because the one-third share of the vendor could 
have been validly assessed the Income-tax Officer on the basis of 
the 
High Court's judgment, could not be accepted. 
When once valid pro-
ceedings are started under s. 34(1) (b) read with s. 22(2) the previous 
under-assessment is set aside and the whole assessment p1:roccedings start 
afresh. The Income-tax Officer then has not only the jurisdiction but the 
duty to levy tax on the entire income that has escaped assessment in that 
year. [733 C-E] 
(ii) It is well-established that where money is paid to perfect a title 
or as consideration 'for get

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