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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 454 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 455 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 . 456