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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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