Reassessment on information and dividend classification upheld, but grossing up under tax law was rejected.

Reopening under section 34(1)(b) was held valid where escaped income, a bona fide belief of escapement, and statutory information were present; a prior assessment on a mistaken view did not bar reassessment, and the challenge to jurisdiction was treated as late. The receipts were also held to be dividends because they represented distributions out of accumulated profits. However, the amounts were not liable to be grossed up under section 16(2). The reference was therefore answered by sustaining the reassessment, characterising the receipts as dividends, and rejecting grossing up.

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Issues: (i) Whether proceedings reopened under section 34(1)(b) of the Income-tax Act were valid where the assessee contended that the reopening was based only on a change of opinion and not on information; (ii) whether the two sums received by the assessee constituted dividends and, if so, whether they were liable to be grossed up under section 16(2).

Issue (i): Whether proceedings reopened under section 34(1)(b) of the Income-tax Act were valid where the assessee contended that the reopening was based only on a change of opinion and not on information.

Analysis: Reopening under section 34(1)(b) requires escaped income, a belief that income has escaped assessment, and information leading to that belief. The fact that the original assessment was made on a mistaken view does not prevent later reopening when fresh information leads the Income-tax Officer to believe that income had escaped assessment. A mere change of opinion is not a bar where it is accompanied by information within the statutory sense. The challenge to jurisdiction was also held to be too late on the record before the Court.

Conclusion: The reopening of the proceedings was valid in law and the issue was answered against the assessee.

Issue (ii): Whether the two sums received by the assessee constituted dividends and, if so, whether they were liable to be grossed up under section 16(2).

Analysis: The receipts were found to represent distributions out of accumulated profits of the companies and therefore fell within the statutory concept of dividend. On the question of grossing up, the Court accepted the first part of the reference but rejected the further contention that the amounts were liable to be grossed up in the manner suggested.

Conclusion: The sums were dividends, but they were not liable to be grossed up under section 16(2); the issue was thus answered partly in favour of the Revenue and partly in favour of the assessee.

Final Conclusion: The reference was answered by upholding the reopening of assessment and by treating the receipts as dividends, while declining the claim for grossing up.

Ratio Decidendi: Reopening under section 34(1)(b) is valid when income has escaped assessment and the Income-tax Officer acts on information that leads to a bona fide belief of escapement, even if the original assessment reflected a different view of the same material.

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