Full Judgment Text
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PETITIONER:
INDIAN AND EASTERN NEWSPAPER SOCIETY NEW DELHI
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, NEW DELHI
DATE OF JUDGMENT31/08/1979
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
BHAGWATI, P.N.
TULZAPURKAR, V.D.
CITATION:
1979 AIR 1960 1980 SCR (1) 442
1979 SCC (4) 248
ACT:
Income Tax Act 1961-S. 147(b)-Scope of-"Information"
"Reason to believe"-Meaning of-Opinion of audit party of
Income Tax Department-If would constitute "information".
HEADNOTE:
Section 147(b) of the Income Tax Act, 1961 provides
that if an 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.
The internal audit organisation of the income tax
department, in the course of auditing the income tax records
pertaining to the assessee for certain assessment years
stated that the assessee’s income on account of letting out
of halls and rooms should not have been assessed as income
from business but an assessment should have been made under
the head "Income from property". Treating the report as
information in his possession under s. 147(b) the Income Tax
officer re-assessed the assessee’s income The Appellate
Assistant Commissioner reversed the Income Tax officers
order. On the other hand, the Appellate Tribunal took the
view that the Income Tax officer had jurisdiction to proceed
under s.147(b). In a reference under s.257 of the Income Tax
Act the question was whether the Income Tax officer was
legally justified in reopening the assessment under s.
147(b) on the basis of the view expressed by the Internal
Audit party received by him subsequent to the original
assessment.
Allowing the appeal,
^
HELD: The opinion of the internal audit organization of
the Department on a point of law cannot be regarded as
information within the meaning of s. 147(b) of the Act.
[455A].
1. (a) An assessment proceeding, which is a quasi-
judicial proceeding, acquires finality on the assessment
order being made. The finality of such an order can be
disturbed only in proceedings, and within the confines,
provided by law. An appeal, revision and rectification are
proceedings in which the finality of the assessment may be
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questioned. Section 147, under which an assessment may be
reopened, is a proceeding for assessing income which has
escaped assessment. [446F-G]
2. In cases falling under s. 147(b) "information" is an
indispensable ingredient. The word ’’information’’ has been
interpreted by this Court to mean not only facts or factual
material but include information as to the true and correct
state of the law and, therefore, information as to relevant
judicial decisions. The term is also defined as
"instruction" or Knowledge derived from an external source
concerning facts or particular, or as to law, relating to n
matter bearing on the assessment. [447D-F]
Mahaaraj Kamal Singh v. Commissioner of Income Tax 35
I.T.R. 1 (S.C.)= [1959] Sup. I SCR 10, Commissioner of
Income Tax v. Raman & Company 67 I.T.R. Il(SC)=[1968] I SCR
10, referred to.
443
3.(a) By its inherent nature, a fact has concrete
existence. It influences the determination of an issue by
the mere circumstance of its relevance. It requires no
further authority to make it significant. [447-H].
(b) The term ’law’ is used in the sense of norms or
guiding principles having legal effect and legal
consequences. To possess legal significance for that
purpose, law must be enacted or declared by a competent
authority. The legal sanction vivifying it imparts to it its
force and validity and binding nature. Law may be statutory
law enacted by a competent legislative authority, or it may
be judge made law emanating from a declaration or exposition
of the content of a legal principle or the interpretation of
a statue and may in particular cases extend to a definition
of the status of a party or the legal relationship between
the parties, the declaration being rendered by a competent
judicial or quasi-judicial authority empowered to decide
questions of law between contending parties. The declaration
or exposition is ordinarily set forth in the judgment of a
court or the order of a tribunal. Such declaration or
exposition in itself bears the character of law. In every
case, therefore, to be law it must be a creation by a formal
source, either legislative or judicial authority. A
statement by a person or body not competent to create, or
define the law cannot be regarded as law. [448A-D]
(c) Where s. 147(b) is read as referring to
’information’ as to law, what is contemplated is
’information’ as to the law created by a formal source. It
is law which, because it issues from a competent legislature
or a competent judicial or quasi-judicial authority,
influences the course of the assessment and decides any one
or more of these matters which determine the assessee’s tax
liability [448G]
4. The Internal Audit organisation of the Income Tax
Department was set up primarily for imposing a check over
the arithmetical accuracy of the computation of income and
the determination of tax. The audit of income tax receipts
having been entrusted to the Comptroller and Auditor-General
of India, it is intended as an exercise in removing mistakes
and errors in income tax records before they are submitted
to the scrutiny of the Comptroller and Auditor General. The
audit by the Comptroller and Auditor General is, by virtue
of s. 16 of the Comptroller and Auditor General (Duties,
Powers and Conditions of Service) Act, 1971 intended to
ensure the sufficiency or otherwise of the rules and
procedures prescribed for the purpose of securing an
effective check on the assessment, collection and proper
allocation of revenue and to ascertain whether the rules and
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procedure are being fully observed and L nothing more.
Therefore the contents of an internal audit report cannot be
construed as enjoying the status of a declaration of law
binding on the Income Tax Officer. Both the internal audit
party of the Income Tax Department and the Audit report of
the Comptroller and Auditor General perform essentially
administrative or executive functions and cannot be
attributed the power of judicial supervision over the
quasi-judicial acts of income tax authorities. The statute
does not contemplate such power The opinion of the audit
party in regard to the application of one section of the
Income Tax Act instead of another by the Income Tax officer
is not law because it is rot a declaration by a body
authorised to declare the law. [450B-F]
444
5. While the law may be enacted or laid down only by a.
body or person with authority in that behalf, knowledge or
awareness of the law may be communicated by any one. No
authority is required for the purpose of communicating
knowledge or awareness of the law. [450G]
6 (a) In every case the Income Tax officer must
determine for himself what the effect and consequence of the
law mentioned in the audit note are and whether in
consequence of the law which has come to his notice he can
reasonably believe that income had escaped assessment. The
basis of his belief must be the law of which he has now
become aware. The true evaluation of the law in its bearing
on the assessment must be made directly and solely by the
Income Tax officer. [451C-D]
Maharaj Kamal Singh v. Commissioner of Income Tax 35
I.T.R. I (SC)= [1959] Sup. I SCR 10, Commissioner of Income
Tax v. Raman & Company 67 I.T.R. 11 (SC)=[1968] 1 SCR 10,
Bankipur Club Ltd. v. Commissioner of Income Tax [1971] 82
I.T.R. 831 followed
R. K. Malhotra, Income Tax officer, Croup Circle 11(1),
Ahmedabad v. Kasturbhai Lalbhai, 109 I.T.R. 537, Kalyanji
Mavji & Co. v. Commissioner of Income Tax, 102 I.T.R. 287,
over-ruled.
Assistant Controller of Estate Duty Y. Nawab Sir Mir
Osman Ali Khan Bahadur, 72 I.T.R, 376 referred to.
Commissioner of Income Tax v. H. H. Smt. Chand Kanwarji
Alwar 84 I.T.R 584, Commissioner of Income Tax v. Kalukutty
85 I.T.R 102, Vashist Bharghava v. Income Tax officer, 99
I.T.R. 148, Muthukrishna Reddier v Com missioner of Income
Tax, Kerala, 90 I.T.R 503, Raj Kumar Shrawan Kumar v.
Central Board of Direct Taxes & Anr. 107 I.T.R. 570, Elgin
Mills Co. Ltd., v. Income Tax officer, Companies Circle, ’A’
Ward, Kanpur, 111 I.T.R. 287 not approved.
(b) The error discovered by the Income Tax Officer on
a. reconsideration of the same material (and nothing more)
does not give the Income Tax Officer the power to reopen the
assessment. [451G]
(c) The submission of the Revenue that upon receipt of
the audit note the Income Tax officer discovers or realises
that a mistake has been committed in the original assessment
and therefore the discovery of the mistake would be
"information" within the meaning of s. 147(b) is
inconsistent with the terms of the section. What the
section envisages is that the Income Tax officer must first
have information in his possession and then in consequence
of such information he must have reason to believe that
income has ’escaped assessment. The realisation that income
has escaped assessment is covered by the words "reason to
believe", and it follows from the "information" received by
him. The information is not the realisation; the information
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gives birth to the realisation. [452C-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Tax Reference Case Nos. 1
to 4 of 1973.
Income Tax Reference under section 257 of Income Tax
Act 1961 made by T T. Appellate Tribunal Delhi Bench ’C’ in
R.A. Nos. 491 to 494 of 1971-72 (I.T.A. NOS. 6992,19629-
19631 of 1967-68).
445
V. S. Desai, (Mrs.) A. M. Verma, A. N. Haskar an(3 J.
B. Dadachanji for the appellant.
T. A. Ramachandran and Miss A. Subhashini for the
respondent.
(Dr.) Devi Pal, Ravinder Narain and J. B. Dadachanji
for the Intervener.
The Judgement of the Court was delivered by
PATHAK, J.-Can the view expressed by an internal audit
party of the Income Tax Department on a point of law be
regarded as ’’information’ for the purpose of initiating
proceedings under section 147(b) of the Income Tax Act, 1961
? opinion on the question has been divided among the High
Courts, and accordingly the present cases have been referred
by the Income-tax Appellate Tribunal under s. 257 of the
Act.
The assessee, Messrs. Indian and Eastern Newspaper
Society, is a society registered under the Indian Companies
Act. It is a professional association of newspapers
established with the principal object of promoting the
welfare and interest of all newspapers. The assessee owns a
building in which a conference hall and rooms are let out on
rent lo its members as well as to outsiders. Certain other
services are also provided to the members. The income from
that source was assessed to tax all along as income from
business. It was so assessed for the years 1960-61, 1961-62,
1962-63 and 1963-64 also.
The Income Tax Department includes an internal audit
organisation whose function it is to examine income-tax
records and check mistakes made therein with a view
ultimately to improve the quality of assessments. In the
course of auditing the income-tax records pertaining to the
assessee for the assessment years 1960-61 to 1963-64, the
internal audit party expressed the view that the money
realised by the assessee on account of the occupation of its
conference hall and rooms should not have been assessed as
income from business. It said that an assessment should have
been made under the head "Income from property". The Income
Tax Officer treated the contents of the report as
"information" in his possession for the purpose of s. 147(b)
of the Income Tax Act. 1961, and reassessed the income on
that basis. The Appellate Assistant Commissioner allowed the
appeals filed by the assessee holding, inter alia, that in
law it could not be said that the Income Tax officer had any
"information" in his possession enabling him to take action
under s. 147(b). On appeal by the Revenue, the Income Tax
Appellate Tribunal, Delhi Bench noticed a conflict of
judicial opinion on the question whether the internal audit
446
report could be treated as "information" for the purpose of
s. 147(b). The Gujarat High Court in Kasturbhai Lalbhai v.
R. K. ’Malhotra, Income-tax Officer, Group Circle 11(1),
Ahmedabad had held that an internal audit report could not
be regarded as "information", while the Delhi High Court in
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Commissioner of Income-tax v. H. H. Smt. Chand Kanwarji
Alwar has expressed a contrary view. Following the view
adopted by the Delhi High Court, the Tribunal held that the
Income Tax officer had jurisdiction to proceed under s.
147(b). The assessee applied for a reference, and having
regard to the difference between the High Courts on the
point, the Tribunal has considered it expedient to refer the
following question of law directly to this Court:-
"Whether, on the facts and in the circumstances of
the case, the Income-tax officer was legally justified
in reopening the assessments under section 147 (b) for
the years 1960-61, 1961-62, 1962-63 and 1963-64 on the
basis of the view expressed by the Internal Audit party
and received by him subsequent to the original
assessment ?"
Since then, the judgment of the Gujarat High Court in
Kasturbhai Lalbhai’s case (supra) has, on appeal, been
reversed by this Court in R. K. Malhotra, Income Tax
Officer, Group Circle 11(1) Ahmedabad v. Kasturbhai Lalbhai.
It has been strenuously contended that the view taken by
this Court calls for further consideration. Having regard to
the dimensions of the controversy and the importance of the
question, we have been persuaded to take a fresh look at the
point.
An assessment proceeding is a quasi judicial
proceeding. It acquires finality on the assessment order
being made. And the finality of such an order can be
disturbed only in proceeding, and within the confines
provided by law. An appeal, revision and rectification are
proceedings in which the finality may be questioned. The
assessment may also be reopened under section 147 of the
Act. It is a proceeding for assessing income which has
"escaped assessment". Section 147 reads:-
"147. If-
(a) the Income Tax officer has reason to believe
that, by reason of the omission or failure on
the part of an assessee to make a return
under section 139 for any
447
assessment year to the Income Tax officer or Lo
disclose fully and truly all material facts
necessary for his assessment for that year, income
chargeable to tax has escaped assessment for that
year, or
(b) 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, subject to the provisions of sections 148 to
153, assess or reassess such income or recompute the
loss or the depreciation allowance, as the case may be,
for the assessment year concerned."
In cases falling under section 147(b), the expression
"information" prescribes one of the conditions upon which a
concluded assessment may be reopened under that provision.
It is an indispensable ingredient which must exist before
the section can be availed of. What does "information" in
section 147(b) connote ? In Maharaj Karnal Singh v.
Commissioner of Income-tax this Court, construing the
corresponding section 34(1) (b) of the Indian Income Tax
Act, 1922 held the word "information" to mean not only facts
or factual material but to include also information as to
the true and correct state of the law and, therefore,
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information as to relevant judicial decisions. Thereafter,
in Commissioner of Income-tax v. Raman & Company, the Court
defined the expression "information" in section 147(b) of
the Income-Tax Act 1961 as "instruction or knowledge derived
from an external source concerning facts or particulars, or
as to law, relating to a matter bearing on the assessment."
That definition has been reaffirmed in subsequent cases, and
with it as the point of departure we shall now proceed.
In so far as the word "information" means instruction
or know- ledge concerning facts or particulars, there is
little difficulty. By its inherent nature, a fact has
concrete existence. It influences the determination of an
issue by the mere circumstance of its relevance. It requires
no further authority to make it significant. Its quint
essential value lies in its definitive vitality.
448
But when "information" is regarded as meaning
instruction or knowledge as to law the position is more
complex. When we speak of "law", we ordinarily speak of
norms or guiding principles having legal effect and legal
consequences. To possess legal significance for that
purpose, it must be enacted or declared by competent
authority. The legal sanction vivifying it imparts to it its
force and validity and binding nature. Law may be statutory
law or, what is popularly described as, judge-made law. In
the former case, it proceeds from enactment having its
source in competent legislative authority. Judge made law
emanates from a declaration or exposition of the content of
a legal principle or the interpretation of a statute, and
may in particular cases extend to a definition of the status
of a party or the legal relationship between parties, the
declaration being rendered by a competent judicial or quasi-
judicial authority empowered to decide questions of law
between contending parties. The declaration or exposition is
ordinarily set forth in the judgment of a court or the order
of a tribunal. Such declaration or exposition in itself
bears the character of law. In every case, therefore, to be
law it must be a creation by a formal source, either
legislative or judicial authority. A statement by a person
or body not competent to create or define the law cannot be
regarded as law. The suggested interpretation of enacted
legislation and the elaboration of legal principles in text
books and journals do not enjoy the status of law. They are
merely opinions and, at best, evidence in regard to the
state of the law and in themselves possess no binding effect
as law. The forensic submissions of professional lawyers and
the seminal activities of legal academics enjoy no higher
status. Perhaps the only exception is provided by the
writings of publicists in international law, for in the law
of nations the distinction between formal and material
sources is difficult to maintain.
In that view, therefore, when section 147(b) of the
Income Tax Act is read as referring to "information" as to
law, what is contemplated is information as to the law
created by a formal source. It is law, we must remember,
which because it issues from a competent legislature or a
competent judicial or quasi-judicial authority, influence
the course of the assessment and decides any one or more of
those matters which determine the assessee’s tax liability.
In determining the status of an internal audit report,
it is necessary to consider the nature and scope of the
functions of an internal audit party. The internal audit
organisation of the Income Tax Department was set up
primarily for imposing a check over the arithmetical
accuracy of the computation of income and the determination
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of tax, and now,
449
because of the audit of income-tax receipts being entrusted
to the A Comptroller and Auditor-General of India from 1960,
it is intended as an exercise in removing mistakes and
errors in income tax records before they are submitted to
the scrutiny of the Comptroller and Auditor-General.
Consequently, the nature of its work and the scope of audit
have assumed a dimension ca-extensive with that of Receipt
Audit. The nature and scope of Receipt Audit are defined by
section 16 of the Comptroller and Auditor General’s-(Duties,
Powers and Conditions of Services) Act, 1971.
Under that section, the audit by the Comptroller and
Auditor General is principally intended for the purposes of
satisfying him with regard to the sufficiency of the rules
and procedures prescribed for the purpose of securing an
effective check on the assessment, collection and proper
allocation of revenue. He is entitled to examine the
accounts in order to ascertain whether the rules and
procedures are being duly observed, and he is required, upon
such examination, to submit a report. His powers in respect
of the audit of income-tax receipts and refunds are outlined
in the Board’s Circular No. 14/19/ 56-II dated July 28,
1960. Paragraph 2 of the Circular repeats the provisions of
section 16 of the Comptroller and Auditor General’s (Duties,
Powers and Conditions of Service) Act, 1971. And paragraph 3
warns that "the Audit Department should not in any way
substitute itself for the revenue authorities in the
performance of their statutory duties." Paragraph 4
declares:
"4. Audit does not consider it any part of its
duty to pass in review the judgment exercised or the
decision taken in individual cases by officers
entrusted with those duties, but it must be recognised
that an examination of such cases may be an important
factor in judging the effectiveness of assessment
procedure .. It is however, to forming a general
judgment rather than to the detection of individual
errors of assessment, etc. that the audit enquiries
should be
450
directed. The detection of individual errors is an
incident rather than the object of audit."
Other provisions stress that the primary function of audit
in relation to assessments and refunds is the consideration
whether the internal procedures are adequate and sufficient.
It is not intended that the purpose of audit should go any
further. Our attention has been invited to certain
provisions of the Internal Audit Manual more specifically
defining the functions of internal audit in the Income Tax
Department. While they speak of the need to check all
assessments and refunds in the light of the relevant tax
laws, the orders of the Commissioners of Income Tax and the
instructions of the Central Board of Direct Taxes, nothing
contained therein can be construed as conferring on the
contents of an internal audit report the status of a
declaration of law binding on the Income Tax Officer.
Whether it is the internal audit party of the Income Tax
Department or an audit party of the Comptroller and Auditor-
General, they perform essentially administrative or
executive functions and cannot be attributed the powers of
judicial supervision over the quasi-judicial acts of income
tax authorities. The Income Tax Act does not contemplate
such power in any internal audit organisation of the Income
Tax Department; it recognises it in those authorities only
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which are specifically authorised to exercise adjudicatory
functions. Nor does section 16 of the Comptroller and
Auditor-General’s (Duties, Powers and Conditions of Service)
Act, 1971 envisage such a power for the attainment of the
objectives incorporated therein. Neither statute supports
the conclusion that an audit party can pronounce on the law,
and that such pronouncement amounts to "information" within
the meaning of section 147(b) of the Income Tax Act, 1961.
But although an audit party does not possess the power
to so pronounce on the law, it nevertheless may draw the
attention of the Income Tax officer to it. Law is one thing,
and its communication another. If the distinction between
the source of the law and the communicator of the law is
carefully maintained, the confusion which often results in
applying section 147(b) may be avoided. While the law may be
enacted or laid down only by a person or body with authority
in that behalf, the knowledge or awareness of the law may be
communicated by anyone. No authority is required for the
purpose.
In the present case, an internal audit party of the
Income Tax Department expressed the view that the receipts
from the occupation of the conference hall and rooms did not
attract section 10 of the Act and that the assessment should
have been made under section 9. While
451
sections 9 and 10 can be described as law, the opinion of
the audit A party in regard to their application is not law.
It is not a declaration by a body authorised to declare the
law. That part alone of the note of an audit party which
mentions the law which escaped the notice of the Income Tax
officer constitutes "information" within the meaning of
section 147(b); the part which embodies the opinion of the
audit parts in regard to the application or interpretation
of the law cannot be taken into account by the Income Tax
Officer. In every case, the Income Tax officer must
determine for himself what is the effect and consequence of
the law mentioned in the audit note and whether in
consequence of the law which has now come to his notice he
can reasonably believe that income has escaped assessment.
The basis of his belief must be the law of which he has now
become aware. The opinion rendered by the audit party in
regard to the law cannot for the purpose of such belief, add
to or colour the significance of such law. In short, the
true evaluation of the law in its bearing on the assessment
must be made directly and solely by the Income Tax officer.
Now, in the case before us, the Income Tax officer had,
when he made the original assessment, considered the
provisions of sections 9 and 10. Any different view taken by
him afterwards on the application of those provisions would
amount to a change of opinion of material already considered
by him. The Revenue contends that it is open to him to do
so, and on that basis to reopen the assessment under section
147(b). Reliance is placed on Kalyanji Mavji & Co. v.
Commissioner of Income Tax, where a Bench of two learned
Judges of this Court observed that a case where income had
escaped assessment due to the "oversight, inadvertence or
mistake" of the Income Tax officer must fall within section
34(1) (b) of the Indian Income Tax Act, 1922. It appears to
us, with respect, that the proposition is stated too widely
and travels farther than the statute warrants in so far as
it can be said to lay down that if, on reappraising the
material considered by him during the original assessment,
the Income Tax officer discovers that he has committed an
error in consequence of which income has escaped assessment
it is open to him to reopen the assessment. In our opinion,
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an error discovered on a reconsideration of the same
material (and not more) does not give him that power. That
was the view taken by this Court in Maharaj Kamal Singh v.
Commissioner of Income Tax (supra), Commissioner of Income
Tax v. Raman and Company (supra) and Bankipur Club Ltd. v.
Commissioner of Income Tax. and we do not believe that
452
the law has since taken a different course. Any observations
in Kalyanji Mavji & Co. v Commissioner of Income Tax (supra)
suggesting the contrary do not, we say with respect, lay
down the correct law.
A further submission raised by the Revenue on section
147(b) of the Act may be considered at this stage. It is
urged that the expression "information" in section 147(b)
refers to the realisation by the Income Tax officer that he
has committed an error when making the original assessment.
It is said that, when upon receipt of the audit note the
Income Tax officer discovers or realizes that a mistake has
been committed in the original assessment, the discovery of
the mis take would be "information" within the meaning of
section 147(b). The submission appears to us inconsistent
with the terms of section 147(b). Plainly, the statutory
provision envisages that the Income Tax officer must first
have information in his possession, and then in consequence
of such information he must have reason to believe that
income has escaped assessment. The realisation that income
has escaped assessment is covered by the words "reason to
believe’. and it follows from the "information" received by
the Income Tax officer. The information is not the
realisation, the information gives birth to the realisation.
The recent decision of this Court in R. K. Malhotra v.
Kasturbhai Lalbhai (supra) may be examined now. While making
an assessment on a Hindu undivided family, the Income Tax
officer allowed a deduction of municipal taxes in
determining the annual value of two house properties
occupied by the assessee. Subsequently, the Income Tax
officer re-opened the assessment on receipt of a report from
the office of the Comptroller and Auditor-General of India
that on a true interpretation of s. 23(2) of the Income Tax
Act, 1961, the deduction of municipal taxes was not
admissible in the computation of the annual value of self-
occupied house properties. The assessee contended that the
report did not constitute "information" within the meaning
of section 147(b) of the Act, and the Gujarat High Court
accepted the plea in the view that information as to law
would consist of a statement by a person, body or authority
competent and authorised to pronounce upon the law and
invested with the authority to do so, and that the Audit
Department was not such competent or authorised authority.
On appeal by the Revenue, a Bench of two learned Judges of
this Court, although endorsing the principle enunciated by
the High Court, said that the audit department was the
proper machinery to scrutinise assessments made by the
Income Tax officer and to point out errors of law contained
therein, and the High Court had
453
erred in taking the strict view which it did. The Court
rested its decision on Assistant Controller of Estate Duty
v. Nawab Sir Mir Osman Ali Khan Bahadur, Commissioner of
Income Tax v. H. H. Smt. Chand Kanwarji (supra),
Commissioner of Income Tax v. Kalukutty and Vashist Bhargava
v. Income Tax officer.
In Assistant Controller of Estate Duty v. Nawab Sir Mir
osman Ali Khan Bahadur (supra), this Court held the opinion
of the Central Board of Revenue as regards the correct
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valuation of securities for the purpose of estate duty to be
"information" within the meaning of section 59 of the Estate
Duty Act, 1953 on the basis of which the Controller of
Estate Duty was held entitled to entertain a reasonable
belief that property assessed to estate duty had been under-
valued. The circumstance that the opinion of the Board was
rendered in an appeal filed before it under the Estate Duty
Act against the assessment made by the Assistant Controller
of Estate Duty was apparently not brought to the notice of
this Court when it heard R. K. Malhotra v. Kasturbhai
Lalbhai (supra). The opinion of the Board represented its
view as a quasi-judicial authority possessing jurisdiction
to lay down the law. Although the Board did not enhance the
valuation of the securities in the appellate proceeding
because of the argument advanced by the appellant,
nonetheless its observations amounted to information as to
the law. It was not a case where the Board was functioning
as an extrajudicial authority, performing administrative or
executive functions, and not competent or authorised to
pronounce upon the law. The Delhi High Court in Commissioner
of Income Tax v. H. H. Smt. Chand Kanwarji (supra) held that
the scrutiny note of Revenue Audit constituted "information"
within the meaning of section 147(b) of the Income Tax Act
because the Comptroller and Auditor-General of India was
empowered by statute to scrutinise the proceedings of the
Income Tax Department and to point out defects and mistakes
which adversely affected the Revenue. The High Court
considered that the view that information as to law could be
gathered only from the decisions of judicial or quasi-
judicial authorities was unduly restrictive. In Commissioner
of Income-tax v. Kalukutty (supra), the Kerala High-Court
also regarded the note put up by Audit as "information"
within the meaning of section 147(b) of the Act, but it
appears to have assumed, without anything more, that an
audit note would fall within that expression. As regards
Vashist Bhargava v. Income Tax officer (supra) the
"information" consisted in a note of the Revenue Audit
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and the Ministry of Law that the payment of interest by the
assessee was in fact made to his own account in the
Provident Fund and, therefore, in law the money paid did not
vest in the Government and, consequently, the original
assessment was erroneous in so far as it allowed the
deduction of the interest as expenditure made by the
assessee. The Delhi High Court upheld the reassessment on
the finding that the note of the Revenue Audit and the
Ministry of Law had to be taken into account by the Income
Tax officer, because in his executive capacity he had to be
guided by the advice rendered by the Ministry of Law and he
had to pay due regard to the note of the Revenue Audit
because the officers of the Audit Department were experts
empowered to examine and check upon the work of the Income
Tax officers. It seems to us that the considerations on
which the Delhi High Court rested its judgment are not
correct. But the decision of the case can be supported on
the ground that the basic information warranting the re-
opening of the assessment was the fact that the payment of
interest was made to the Provident Fund account of the
assesses himself. That the money so paid did not vest in the
Government was a conclusion which followed automatically
upon that fact, and no controversy in law could possibly
arise on that point.
On the considerations prevailing with us, we are of
opinion that the view taken by the Delhi High Court and the
Kerala High Court in the aforementioned cases is wrong and
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we must, with great respect, hold that this Court was in
error in the conclusion reached by it is. R. K. Malhotra v.
Kasturbhai Lalbhai (supra).
Our attention has been drawn to the further decision of
the Kerala High Court in Muthukrishna Reddier v.
Commissioner of Income Tax, Kerala and the decisions of the
Allahabad High Court in Raj Kumar Shrawan Kumar v. Central
Board of Direct Taxes & Anr and Elgin Mills Co. Ltd. v.
Income Tax officer, Companies Circle, "A" Ward, Kanpur. The
Kerala High Court merely followed its earlier judgment in
Commissioner of Income Tax v. Kalukutty (supra) and the
Allahabad High Court was impressed by the same reasons
substantially which persuaded the Delhi High Court and the
Kerala High Court in the cases referred to above.
Therefore, whether considered on the basis that the.
nature and scope of the functions of the internal audit
organisation of the Income Tax Department are co-extensive
with that of Receipt Audit or on the
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basis of the provisions specifically detailing its functions
in the Internal Audit Manual, we hold that the opinion of an
internal audit party of the Income Tax Department on a point
of law cannot be regarded as "information" within the
meaning of section 147(b) of the Income Tax Act, 1961.
The question referred by the Income Tax Appellate
Tribunal is answered in the negative, in favour of the
assessee and against the Revenue The assessee is entitled to
one set of costs in these appeals.
P.B.R. Appeals allowed .
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