Reassessment and dissolution surplus: later judicial information can justify reopening, and revalued stock gains on firm dissolution are taxable trading profit.

Reassessment under section 147(b) is permissible where the Income-tax Officer forms a belief of escaped income on the basis of information in possession, including a later judicial decision or material on record not earlier considered; it is barred only when founded on a mere change of opinion. On dissolution of a partnership firm, stock-in-trade and other assets must be valued at market value to determine the real trading results and settlement position, and the resulting surplus is treated as taxable trading profit rather than a notional accretion.

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Issues: (i) Whether reassessment under section 147(b) of the Income-tax Act was valid on the basis of information subsequently realised from the record and a judicial decision; (ii) Whether the surplus arising from revaluation of stock-in-trade and other assets on dissolution of the firm was chargeable to tax as revenue profit.

Issue (i): Whether reassessment under section 147(b) of the Income-tax Act was valid on the basis of information subsequently realised from the record and a judicial decision.

Analysis: Reassessment under section 147(b) is permissible where the Income-tax Officer has reason to believe that income has escaped assessment in consequence of information in his possession. Information may include a correct view of the law or a relevant judicial decision, and it need not always be wholly extraneous to the record if the material was not earlier considered. The bar applies where reassessment is founded only on a mere change of opinion on the same material already consciously examined. On the facts, the original assessment had not taken note of the relevant judicial decision and the subsequent reopening was based on that decision as information.

Conclusion: The reassessment was valid and the issue is decided in favour of the Revenue.

Issue (ii): Whether the surplus arising from revaluation of stock-in-trade and other assets on dissolution of the firm was chargeable to tax as revenue profit.

Analysis: For computing trading results, closing stock must be valued on ordinary commercial principles, but on dissolution the firm's accounts have to reflect the real basis of settlement among partners. At that stage, assets, including stock-in-trade, are to be valued at market value for determining the true position of the firm on the date it ceases to function. The revaluation surplus therefore represents the firm's trading profits and is not a merely notional figure immune from tax.

Conclusion: The surplus was rightly brought to tax and the issue is decided in favour of the Revenue.

Final Conclusion: The challenge to the reassessment and to the taxability of the revaluation surplus failed, and the appeal was dismissed.

Ratio Decidendi: Reassessment is valid where subsequent information, including a later judicial decision or unconsidered material on record, reveals escaped income and the case is not one of a mere change of opinion; on dissolution of a partnership firm, stock-in-trade and other assets are to be valued at market value to ascertain the firm's real trading profits.

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