Reassessment needs fresh information, while genuine reserves count in capital base computation under super profits tax rules.

Reassessment under section 9(b) of the Super Profits Tax Act, 1963 required fresh information in the officer's possession; a mere change of opinion on material already examined was insufficient, so the reopening was invalid. For capital base computation under rule 1 of the Second Schedule, the court held that rehabilitation reserve, reserve for doubtful debts, and gratuity reserve were includible because they were not shown to represent ascertained liabilities. Amounts set apart out of profits remain reserves unless they are truly created to meet a known liability.

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Issues: (i) Whether reassessment proceedings could be initiated under section 9(b) of the Super Profits Tax Act, 1963, in the absence of fresh information and where the action was based only on a change of opinion; (ii) Whether rehabilitation reserve, reserve for doubtful debts, and gratuity reserve were includible in computing the capital base for determining the statutory deduction.

Issue (i): Whether reassessment proceedings could be initiated under section 9(b) of the Super Profits Tax Act, 1963, in the absence of fresh information and where the action was based only on a change of opinion.

Analysis: Section 9(b) permits reopening only when the Income-tax Officer has, in consequence of information in his possession, reason to believe that chargeable profits have escaped assessment. The settled meaning of information is knowledge or instruction derived from an external source or from a legally relevant subsequent discovery that enlightens the officer for the first time. A mere second thought on the same material, without any new facts or correct legal information, does not satisfy the statutory safeguard. On the facts found, the reopening was founded only on reconsideration of material already examined earlier.

Conclusion: The initiation of reassessment proceedings was invalid. The issue is answered in favour of the assessee.

Issue (ii): Whether rehabilitation reserve, reserve for doubtful debts, and gratuity reserve were includible in computing the capital base for determining the statutory deduction.

Analysis: For computation of capital base under rule 1 of the Second Schedule to the Super Profits Tax Act, 1963, the decisive test is whether the amount was truly set apart as a reserve or whether it was a provision made for an ascertained or anticipated liability. Amounts kept apart out of profits for future use, and not to meet a known existing liability, are reserves notwithstanding the label used in the accounts. On the findings recorded, the rehabilitation reserve was only a renamed general reserve, the reserve for doubtful debts was not tied to any specific existing liability, and the gratuity reserve was not based on actuarial valuation or any ascertained liability.

Conclusion: All three amounts were includible in the capital base. The issue is answered in favour of the assessee.

Final Conclusion: Both questions were resolved against the revenue and in support of the assessee, and the reference stood answered accordingly.

Ratio Decidendi: Reassessment under the statutory reopening provision requires fresh information that truly informs the officer for the first time, and amounts set apart out of profits are reserves only when they are not made to meet an ascertained liability.

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