R. K. Malhotra, I.T.O. Group Circle Ii(L), Ahmedabad v. Kastur Bhai Lalbhai (H.U.F.)

KAILASAM, J.-This appeal is by the Income-tax Officer, Group Circle II(!), Ahmedabad, by certificate granted under Art. 133(1)- (c) by the High Court of Gujarat against its judgment June 23, 1970, allowing the application filed by the respondent assessee and issuing a writ of mandamus quashing and setting aside the notice dated Septem-ber 12, 1969, issued by the Income-tax Officer under section 148 of the Income-tax Act.

The respondent who is a Hindu undivided family is an assessee own-ing two house properties : one in Ahmedabad and the other in Bombay. During the relevant assessment year 1965-66 both the properties were occupied by the respondent. The Income-tax Officer treated the pro-perties as self-occupied properties. The respondent claimed that a sum of Rs. 4,052 being the municipal taxes be deducted in determining the annual valuation of the properties under section 23 (2) of the Income-tax Act. The Income-tax Officer allowed the claim. The order of assessment was made by the Income-tax Officer on March 14, 1966. Subsequently after a lapse of over 3 years the Income-tax Officer by a letter dated July I 5, 1969 called upon the respondent assessee to show cause why the amount of municipal taxes allowed as deduction should not be added back on the ground that it was wrongly allowed. The respondent on July, 13, 1969 replied that the Income-tax Officer was not competent to reopen the assessment under section 147 and that the municipal taxes were validly allowed as a deduction in computing the income from sell-occupied properties. Not satisfied with the explana-tion the Income-tax Officer issued a notice dated September 12, 1969, to the respondent under section 148 stating that whereas he had reason to believe that the income of the respondent chargeable to tax for the assessment year 1965-66 had escaped assessment within the meaning of section 14 7, he proposed to re-assess the income for the said assess-ment year and required the respondent to file a return of his income within 30 days from the date of receipt of the notice. The respondent then filed a writ under Art. 226 of the Constitution for a writ in the nature of mandamus for quashing the notice dated September 12, 1969 issued by the Income-tax Officer. The High Court by its judgment dated June 23, 1970 in Special Civil Application No. 1372 of 1969 allowed the application and issued the writ of mandamus quashing the notice dated September 12, 1969. On an application filed by the appellant the High Court granted a certificate ,and the appeal is thus before us.

It is not in dispute that for determining the annual value of the house which is in the occupation of the owner section 23(2) of the Income-tax Act is applicable and that the assessee is not entitled to deduct the sum of Rs. 4,052 being the municipal tax. The Income-tax Officer when he assessed the tax for the year · 1965-66 was aware of the fact that the property was self-occupied but erroneous.Jy thought that the assessee was entitled to deduction of the municipal taxes. Sub-sequently when the assessmen,ts were scrutinised in the office of Comp- !roller and Auditor-General of India, that office pointed out to the Income-tax Officer that on a true interpretation of section 23 (2), the deduction of municipal taxes in respect of self-occupied properties was not admissible. On receipt of this intimation from the Audit Depart-ment the Income-tax Officer treated the intimation as 'Information' within the meaning of section 147 (b) and in consequence of this in-formation he was satisfied ~hat he.had reason to believe that the income of the respondent for the assessment year 1965-66 had escaped assess-ment and therefore proceeded to issue the impugned notice under sec-tion 148 read with section 147(b) of the Income-tax Act.

The only question that arises for consideration in this appeal is whether the 'intimation which the Income-tax Officer received from the Audit Department would constitute 'information' within the meanrng .of section 147(b). Section 147(b) provides:

"notwithstanding that there has been no om1ss1on 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 asscss.n1cnt for any assessment year,"

he may assess or reassess such income for the assessment year concern-ed.

Sub-section (b) of section 147 enables the Income-tax Officer to assess or reassess the income if in consequence of information in his possession he has n;ason to believe that income chargeable to tax has escaped assessment. Two conditions are necessary for invoking the sub-section : ( l) the officer should receive information after the original assessment; (2) in consequence of such information he should have reason to believe that income has escaped. assessment. The 'in-formation' may be of facts or of law. The 'information' of a fact may be from external source. The fact that the Income-tax Officer with diligence could have obtained the information during the previous assessment on a proper investigation of the materials on the record or the facts disclosed thereby, would not make it any the less information if the fact was not in fact obtained and came to his knowledge only subsequently. So also the fact that on a research as to the state of law the Income-tax Officer would have ascertained the true legal position would not make anv difference if the officer came to know the real position of the law only subsequently. The decision of a court of law subsequent to the assessment would be 'information' and the Income-1ax Officer is entitled to take note of it. Mr. B. Sen, the learned counsel for the assessee, contended that on the facts of this case it cannot be said that the Income-tax Officer had any 'information' as required under the section. He submitted that the officer was fully aware of the fact that the houses were self-occupied and therefore the question of coming into possession of any information as to facts does not arise. The Income-tax Officer took an erroneous view in applying the provisions of the section and mere pointing out by the Auditor the error in the application of the law would not amoun! to 'information'. The c<'.n!en-tion of the learned counsel will be exammed in the bght of the dec1s10ns bearing on the question.

In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, Bihar and Orissa (1), the Income-tax Officer omitted to bring to assess-ment for the year 1945-46, the sum of Rs. 93,604 representing interest on arrears of rent due to the assessee in respect of agricultural land on the ground that the amount was agricultural income. The Privy Council held that interest on arrears of rent payable in respect of agricultural land was not agricultural income. As a result of fhe decision the Income-tax Officer initiated re-assessment proceedings under section 34(1) (b) of the Income-tax Act. The Supreme Court held that the word 'information' in section 34( !) (b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions. Section 34(1) (b) of the Income-tax Act, 1948, which the court was dealing with had a similar provision the material words being, ''The Income-tax Officer has in consequence of information in his possession reason to believe,".

In R. B. Bansilal Abirachand Firm v. Commissioner of Income-tax, M.P. ( 2), the first assessment of the appellant firm was made on the Officer's 'information that the assessee wa a partner and that the interest was received by him in the capacity of a partner, but after the Tribunal gave its decision in subsequent proceedings the Income-tax Officer came to know that the interest was not received by the appellant in the capacity of a partner but in its capacity of financier. In the circums-tances, this Court held that the information received from the decision of the Tr(bunal and the High Court in assessment proceedings would be 'information'.

In Assistant Controller of Estate Duty, Hyderabad v. Nawab Sir Mir Osman Ali Khan Bahadur, H.E.H. The Nizam of Hyderabad, and Others('), this Court was con'sidering the question whether the opinion of the Central Board of Revenue would amount to 'information' within section 59 (b) of the Estate Duty Act. AJ;ter citing the decision in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, Bihm· and OrissaCJ, under section 34(1) (b) of the Income-fax Act, this Court reiterated the view taken in that case and observed that the opinion expressed by the Board of Revenue as to valuation was clearly 'information'.

The authorities cited above make it clear that a subsequent decision _of the Privy Council (35 I.T.R. I), the Income-tax Appellate Tribunal (70 I.T.R. 74) and the opinion of the Central Board of Revenue (72 I.T.R. 376) as to the state of Jaw would be 'information' under section 14 7 (b). While conceding this position Mr. B. Sen, the learned counsel, submitted that a note by the Audit Department that the I.T.O.'s view of law that the assessee is entitled to deduct the municipal taxes is erroenous would not amount to 'information' especially when the I.T.O. wa's aware of the fact that the houses were self-occupied. The fact that the I.T.O. was aware of the fact that the houses were self-

(I) 35 J.T.R. 1.

occupied and that he could have with diligence found that the assessee would not be entitled lo the exemption will not preclude the officer from using the auditor's note as fresh 'information' .

. This Court in Commissioner of Income-tax, Gujarat v. A. Raman and Co. ( 1), disagreed with the view taken by the High Court of Gujarat that the information in consequence of which proceedings of reassessment were intended to be started could have been gathered by the Income-tax Officer in charge of the assessment in the pre-vious years from the disclosures made by the two Hindu undivided families and would not be 'information'. This court held :

"Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his posses-sion reason to believe that income chargeable to tax has escaped assessment. That information, must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment J from an investigation of the materials on the record, or the

facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected."

The Court further observed that 'information' means instruction or knowledge derived from an external source. But the words "external source" cannot be construed a's implying that the source must be out-side the record. The 'information' may be gathered from the assess-ment record itself.

The plea of the learned counsel that the audit report is not 'infor-mation' remains to be considered. A few decisions of the High Court on this point may now be referred to. In Commissioner of Income-tax, Delhi v. H. H. Smt. Chand Kanwarji( 2 ), the Delhi High Court held that the scrutiny note of the Revenue Audit and the Jetter of the Inspecting Assistant Commissioner constituted 'information' within the meaning of section 14 7 (b) froin an "external source" and the assess-ments were, therefore, valid. The Income-tax Officer treated the in-come derived by way of interest from bank deposits as "earned in-come" and accepted the assessee's claim of expenditure on the salary paid to her daughter-in-law. Subsequently, the revenue audit staff working under the Comptroller and Auditor-General of India, while scrutinising these assessments, brought to the notice of the department that the Income-tax Officer had wrongly treated the "interest income" as "business income" and also that the Income-tax Officer had wrongly allowed the assessee's olaim with regard to the salary paid to her daughter-in-Jaw. The Income-tax Officer acted upon this note and re-opened the original assessment. A Bench of the Delhi High Court relying on the reasoning of this Court in 72 I.T.R. 376 that the opinion expressed by the Central Board of Revenue in appeal under the Estate Duty Act would be 'information' held that the note of the revenue audit under ---- the Comptroller and Auditor-General of India would be 'infor-mation'. The same view was expressed in Commissioner of Income-tax v. Kelukutty( 1) by the Kerala High Court. Mathew J. speaking for the court held that the note put up by the Audit to the effect that the assess-ment ought to have been made on the reconstituted firm for the entire income of the two periods and therefore the Income-tax Officer com-mitted an error, was instruction or knowledge derived from an external source and would constitute 'information'. In Vashist Bhargava v. Income-tax Officer, Salary Circle, New Delhi('), a Bench of the Delhi High Court held that when subsequent to the assessment the Ministry of Law and the Revenue Audit pointed out that as a question of fact the payment of interest by the petitioner was made to his own account in the Provident Fund and as a question of law the money so paid did not vest in the Government but continued to belong to the petitioner. and therefore, the income of the petitioner had escaped assessment, it would be 'information' available to the Income-tax Officer.

We feel that the view of the Delhi High Court in 84 l.T.R. 584 and 99 LT.R. 148 and that of the Kerala High Court in 85 I.T.R. 102 is correct. Ample support is derived for that view from the law laid down t by this Court in Commissioner of Income-tax, Gu;arat, v. A. Raman and Co.("), where it was held that the expression 'information' in the '>--. context would mean instruction or knowledge derived from an external source concerning fact or particulars or as to law relating to a matter bearing on the assessment. It is not disputed that the decisions of courts of law and Income-tax Appellate Tribunal would be 'information• of law. This Court, as already pointed out in 72 I.T.R. 376 has held that the opinion of the Central Board of Revenue as regard the valua-tion of securities for the purpose of Estate Duty would be information.

The Gujarat High Court was correct in its view that it would be in-formation of law if it is stated by a person, body or authority competent and authorised to pronounce upon the law and is invested with authority to do so. In applying this principle the Court erred in holding that Audit department is not an authority competent and authorised to de-clare the correct state of law or to pronounce upon it. The Audit Department is the proper machinery to scrutinise the assessments of the Income-tax Officer and point out the errors, if any, in law.

For the reasons stated we are unable to accept the conclusion arriv-ed at by the Gujarat High Court. We allow this appeal and hold that the Income-tax Officer in the circumstances is entitled to reopen the assessment under section 147(b) of the Income-tax Act. The appeal is allowed with costs.

(1) 85 J.T.R. 102.

(2) 99 l.T.R. 148.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1977 of 1971. From the Judgment and Order dated 23-6-70 of the Gujarat High Court in Special Civil Application No. 1372 of 1969.

B. B. Ahuja and Girish Chandra for the Appellant.

B. Sen, R. M. Mehta, S. K. Dholakia and R. Ramachandran for the Respondent.

The Judgment of the Court was ddivered by