Full Judgment Text
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PETITIONER:
R. K. MALHOTRA, I.T.O.GROUP CIRCLE II(1), AHMEDABAD
Vs.
RESPONDENT:
KASTUR BHAI LALBHAI (H.U.F.)
DATE OF JUDGMENT11/08/1977
BENCH:
KAILASAM, P.S.
BENCH:
KAILASAM, P.S.
CHANDRACHUD, Y.V.
CITATION:
1977 AIR 2129 1978 SCR (1) 289
1977 SCC (3) 519
CITATOR INFO :
O 1979 SC1960 (4,16,17,18)
ACT:
Income Tax Act, section 147(b), conditions for invoking-
’Information’, scope of,--Whether includes intimation from
the Audit Department pointing out erroneous application of
law.
HEADNOTE:
The respondent, H.U.F., is an assessee owning two houses.
During the assessment year 1965-66, the Income-tax Officer,
in determining the annual valuation of its properties under
s. 23(2) of the Income-tax Act, erroneously allowed a
deduction of municipal taxes amounting to Rs. 4,052/-.
Subsequently on scrutinising the assessments, the office of
Comptroller and Auditor General of India pointed out that
the deduction of municipal taxes in respect of self occupied
properties was not admissible u/s. 23(2). The Income-tax
Officer treated the intimation as ’information’ within the
meaning of s. 147(b), and consequently proposed to reassess
the respondent’s income for 1965-66. On September 12, 1969,
he issued a notice u/s. 148 requiring the respondent to file
a return of his income. On an application by the
respondent, the High Court issued a writ of mandamus
quashing the notice, but granted a certificate under Art.
133(1)(c).
It was contended by the respondent that the mere pointing
out by the Auditor, the error in the application of law,
would not amount to ’information’ u/s. 147 (b), especially
as the I.T.O. knew the houses to be self-occupied.
Allowing the appeal, the Court,
HELD : (1) Two conditions are necessary for invoking sub-
section (b) of section 147; (i) The Officer should receive
information after the original assessment and (ii) in
consequence of such information he should have reason to
believe that income has escaped assessment. The
’information’ may be of facts or of law. [291D-E]
(2)That the Income-tax Officer with diligence could have
obtained the information during the previous assessment on a
proper investigation of the materials on record or the facts
disclosed thereby, would not make it any less the
information if the fact was not, in fact, obtained and came
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to his, knowledge only subsequently. It would be
’information 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. [291E, F, 294E]
Maharaj Kumar Kamal Singh v. Commissioner of Income-tax,
Bihar and Orissa 35 ITR 1; R. B. Bansilal Abirchand Firm
v. Commissioner of Income Tax, M.P. 70 ITR 74; Asstt.
Controller of Estate Duty, Hyderabad v. Nawab Sir Mir Osman
All Khan Bahadur, H.E.H. the Nizam of Hyderabad & Ors, 72
ITR 376, referred to.
Commissioner of Income-tax, Gujarat v. A. Raman & Co. 67 ITR
11, applied.
(3)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. The I.T.O. will not
be precluded from using the auditors’ note as fresh
’information’. [294F]
Commissioner of Income-tax, Delhi v. H. H. Smt. Chand
Kanwarji 84 ITR 584; Commissioner of Income-tax v. Kelukutty
85 ITR 102 and Vashist Bhargava v. Income-tax Officer,
Salary Circle, New Delhi 99 ITR 148, approved.
JUDGMENT:
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.
290
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 delivered by
KAILASAM, J.-This appeal is by the Income-tax Officer, Group
Circle 11(1), 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 September 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 owning 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 properties 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 15, 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 self-occupied properties. Not
satisfied with the explanation 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
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that the income of the respondent chargeable to tax for the
assessment year 1965-66 had escaped assessment within the
meaning of section 147, he proposed to reassess the income
for the said assessment 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 erroneously thought
that the assessee was entitled to deduction of the municipal
taxes. Sub-
291
sequently when the assessments were scrutinised in the
office of Comptroller 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
Department the Income-tax Officer treated the intimation as
’Information’ within the meaning of section 147(b) and in
consequence of this information he was satisfied that he had
reason to believe that the income of the respondent for the
assessment year 1965-66 had escaped assessment and therefore
proceeded to issue the impugned notice under section 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 meaning of section 147(b). Section
147(b) provides :
" notwithstanding that there has been no
omission 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 assessment for
any assessment year,"
he may assess or reassess such income for the assessment
year concerned.
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 reason to believe
that income chargeable to tax has escaped assessment. Two
conditions are necessary for invoking the sub-section : (1)
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 ’information’ 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
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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 any
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-tax 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 vie* in applying the provisions of the section and
mere pointing out by the Auditor the error in the
application of the law would not amount to ’information’.
The contention of the learned counsel will be examined in
the light of the decisions bearing on the question.
292
In Maharaj Kumar Kamal Singh V. Commissioner of Income-lax
Bihar and Orissa(1), the Income-tax officer, omitted to
bring to assessment for the year 1945-46, the sum of Rs.
93,604 representing interest on arrears of rent due to the
as in respect of agricultural land on the &round 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 the decision the Income-tax Officer initiated re-
assessment proceedings under diction 34(1)(b) of the Income-
tax Act. The Supreme Court held that the word ’information’
in section 34(1) (b) include information as to the true
and correct state of the law, an so would cover information
as to relevant judicial decisions. Section 3 4 (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 was 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 circumstances, this Court held that
the information received from the decision of the Tribunal
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(3), this Court was considering the
question whether the opinion of the Central Board of Revenue
would amount to ’information’ within section 59(b) of the
Estate Duty Act. After citing the decision in Maharaj Kumar
Kamal Singh v. Commissioner of Income-tax, Bihar and
Orissa(1), under section 34(1) (b) of the income-tax 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. 1), the Income-tax
Appellate Tribunal (70 I.T.R.74) and the opinion of the
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Central Board of Revenue (72 I.T.R. 376) as to the state of
law would be ’information’ under section 147(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 erroneous, would not amount to
’information’ especially when the I.T.O. was 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-
(1) 35 I.T.R. 1
(2) 70 I.T.R. 74.
(3) 72 I.T.R. 376.
293
occupied and that he could have with diligence found that
the assessee would not be entitled to 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 previous 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 possession
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 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 as
implying that the source must be outside the record. The
’information’ may be gathered from the assessment record
itself.
The plea of the learned counsel that the audit report is not
’information’ 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 letter of the Inspecting
Assistant Commissioner constituted ’information’ within the
meaning of section 147(b) from an "external source" and the
assessments were, therefore, valid. The Income-tax Officer
treated the income derived by way of interest from bank
deposits as "earned income" 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 claim
with regard to the salary paid to her daughter-in-law. The
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Income-tax Officer acted upon this note and reopened 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-
(1)67 I.T.R. 11.
(2)84 I.T.R. 584.
294
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 assessment ought to have been
made on the reconstituted firm for the entire income of the
two periods and therefore the Income-tax Officer committed
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(2), 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 I.T.R.
584 and 99 I.T.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 by this Court in Commissioner of
Income-tax, Gujarat, v. A. Raman and Co.(3), 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 information 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 declare 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 arrived 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.
M.R.
Appeal allowed.
(1) 85 I.T.R. 102.
(2) 99 I.T.R. 148.
(3) 67 I.T.R. 11.
295
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