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Y.V. Anjaneyulu Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petition No. 5152 of 1988
Judge
Reported in(1990)89CTR(AP)43; [1990]182ITR242(AP)
ActsIncome Tax Act, 1961 - Sections 37(2), 70, 71, 72, 73, 74, 139, 143, 143(3), 147, 148, 148(1), 148(2), 149, 256(2) and 263; Gift Tax Act, 1958 - Sections 5(1)
AppellantY.V. Anjaneyulu
Respondentincome-tax Officer
Appellant AdvocateY. Ratnakar and ;Dastur, Advs.
Respondent AdvocateM. Suryanarayana Murthy, Adv.
Excerpt:
direct taxation - reopening of assessment - sections 147, 148 and 263 of income tax act, 1961 and section 5 (1) of gift tax act, 1958 - income tax officer (ito) issued notice to reopen assessment on grounds that certain income pertaining to gift escaped assessment - writ petition filed challenging validity of impugned notice - reopening of assessment can only be allowed in case where fresh facts come into picture after previous assessment - no enquiry resulting in disclosure of fresh facts conducted - held, ito not justified in issuing notice for reopening assessment under section 147 (b) - impugned notice liable to be quashed. head note: income tax reassessment under s. 147--change of opinion--amount settled on trust created for benefit of assessee held: there was no fresh material. it.....seetharam reddy, j. 1. the petitioner who was a legal practitioner and was later elevated as a judge of this court in november, 1983 (since recently retired), impugns the validity of the note dated march 10, 1988, issued by the income-tax officer concerned under section 148 of the income-tax act proposing to reassess certain income on the ground that it has escaped assessment for the assessment year 1983-84. 2. format : the assessee-petitioner returned a gross income of rs. 2,57,571 for the assessment year 1983-84 and after claiming statutory deductions, the net income returned was rs. 2,40,245 and on due assessment, requisite tax was paid. a notice dated march 10, 1988 was, however, issued by the income-tax officer, salary circle, under section 148 of the income-tax (for short 'the act').....
Judgment:

Seetharam Reddy, J.

1. The petitioner who was a legal practitioner and was later elevated as a judge of this court in November, 1983 (since recently retired), impugns the validity of the note dated March 10, 1988, issued by the Income-tax Officer concerned under section 148 of the Income-tax Act proposing to reassess certain income on the ground that it has escaped assessment for the assessment year 1983-84.

2. Format : The assessee-petitioner returned a gross income of Rs. 2,57,571 for the assessment year 1983-84 and after claiming statutory deductions, the net income returned was Rs. 2,40,245 and on due assessment, requisite tax was paid. A notice dated March 10, 1988 was, however, issued by the Income-tax Officer, salary Circle, under section 148 of the Income-tax (for short 'the Act') proposing to reassess the income for the said assessment year, requiring him to file a return as he had reason to believe that certain income chargeable to tax for the said year has escaped assessment within the meaning of section 147(b) of the Act. The reasons for the reopening of the said assessment were sought for, but before the same were communicated, this writ petition was filed challenging the validity of the said notice on the grounds, inter alia, that there was no information which could have induced a reasonable belief in the Income-tax Officer that income had escaped assessment in the hands of the petitioner for the assessment year 1983-84.

3. Petitioner's affidavit : The relevant averments as culled out from the affidavit filed in support of the petition are that the assessee-petitioner had know Rashid Shapoor Chenai (R. S. Chenai) who died in the year 1963 leaving his widow, Freny Rashid Chenai (F. R. Chenai), and the only son, Shapoor Chenai. They were friends. Till the demise of R. S. Chenai, however, the petitioner was not looking after their taxation matters. His son, Shapoor Chenai. also died in 1965 leaving the widow of the late R. S. Chenai and the widow of Shapoor Chenai with a young son aged about 2 years. In view of the close affinity with Chenai family, the assessee-petitioner had to look after the welfare of the two ladies who were in distress. Mrs. F. R. Chenai treated the assessee almost like her son. The assessee had taken over the matters concerning their taxation and notwithstanding the affinity, the professional matters were kept distinct and the Chenais paid generous fees that were charged for every work. A statement detailing the fees from 1978 to 1982 has been annexed to the writ petition.

4. As personal relation grew between the two families, Mrs. F. R. Chenai, aged about 80 years, created a trust called 'Anju Family Trust', for the benefit of the assessee and his family members on August 27, 1982. Under that trust, 7 per cent. capital investment bonds of the value of Rs. 5 lakhs was transferred to the trustees-the junior Mrs. K. S. Chenai and the assessee's son - to administer the same. The terms, in short, are that the income form the said bonds is to be paid to the assessee during his lifetime and thereafter to his wife and after her lifetime the corpus is to be divided into five equal share to be delivered to his son and four daughters. This trust was created in spite of protest from the assessee.

5. During the assessment year 1983-84, the creation of the trust was brought to the notice of the concerned Income-tax Officer and a copy of the deed was forwarded along with a letter dated August 27, 1983, referring to the execution of the said trust deed. The Income-tax Officer scrutinised the trust deed and instructed that a letter should be filed from Mrs. F. R. Chenai confirming that it was a gift. In compliance therewith, the said confirmatory letter along with the assessee's covering letter was sent on September 19, 1983. Thereafter, the assessment was completed accepting the income declared in the return. It is also averred that no information could have come into the possession of the Income-tax Officer after the completion of the original assessment which could induce a reasonable belief that income chargeable to tax has escaped assessment. It is further averred that the notice has been issued without application of mind and that it was issued under the specific direction of Sri. P. R. Rao, Commissioner of Income-tax. It is because of the pressure from his superior that the Income-tax Officer has issued the notice. The proceedings are, therefore, void. The Income-tax Officer himself had no reason to believe that any income escaped assessment. The Income-tax Officer seems to think that because of the advocate-client relationship existing between the assessee and Mrs. F. R. Chenai, the sum paid must be regarded as income from profession. In the absence of any evidence to the effect that the real character of the gift was professional fees, it is not open to the Income-tax Officer to treat the same as income from profession.

6. Affidavit-in-opposition : The relevant counter averments made in the affidavit in opposition, inter alia, are that during the accounting year relevant to the assessment year 1984-85, the petitioner was in receipt of an amount of Rs. 6 lakhs in cash from Nawab Mir Barkat Ali Khan (known as 'Nizam') on June 9, 1983, alleged to have been taken been taken as loan. The loan was on unusual terms, viz., (1) loan without interest; (2) hand loan at the request of the petitioner; (3) loan to be repaid according to the convenience of the petitioner, and (4) no repayment of the loan by the petitioner for a period of six years from June 9, 1983, and thereafter to be repaid as per the petitioner's convenience. The loan was waived by the Nizam on July 6, 1984. In view of the nature and terms of the loan and the fact that it was waived within a year, it was concluded that the amount paid to the petitioner was never intended to be a loan, as there existed at that time between the petitioner and the Nizam the relationship of consultant and client and that the loan was taken as professional receipt and should be taxed. The assessment made earlier on January 24, 1985, was cancelled with direction to redo the same on proper lines. The Commissioner's order passed under section 263 of the Act was challenged before the Income-tax Appellate Tribunal which set aside the Commissioner's order and also rejected the application of the Department for reference under section 256(1), but it is understood that the Department is contemplating to make an application under section 256(2) of the Act against the said order of the Tribunal.

7. The assessment for the year 1983-84 was completed on November 5, 1983. Thereafter, it has come to the knowledge of the Department that an advocate-client relationship existed between the settlor of the trust and the petitioner. It was further learnt that the assessee-petitioner was representing the late R. S. Chenai and his family members since a long time, in the income-tax, wealth-tax and estate duty assessments. He was solely responsible for reduction of huge estate duty liability of both the late R. S. Chenai and his son's estate. Similarly, he has been representing the legal heirs of both the father and son. The assessee's son purchased a site from Mrs. Shapoor Chenai and constructed a building when he was representing the estate duty cases before the authorities. In view of the substantial reduction gained by the effective representation of the assessee-petitioner, the wife of the late R. S. Chenai, instead of paying professional fees, preferred to create the said trust which is a device adopted by the assessee to escape proper taxation in his hands. The receipt of Rs. 5 lakhs can be held as a professional receipt for the meritorious services rendered by the assessee, camouflaged in the formation of a family trust created. The Income-tax Officer who made the assessment on November 5, 1983, lost sight of the fact that the factum of Rs. 5 lakhs for the services rendered is assessable as a professional receipt. Accordingly, a notice was issued calling upon him to file a return, which he did not April 4, 1988, which is the same as the original return.

8. There was escapement of income and in view of the information subsequent to the assessment originally made, action under section 147(b) of the Act was initiated and the assessee cannot call for the reasons for issue of the notice under section 148. Recording of reasons for initiating action for the reassessment are only administrative in character. There is no requirement in law that there should be a disclosure of the material to the assessee at that stage. Thus, the petitioner is not entitled to be given a copy of the reasons recorded by the Income-tax Officer for issue of a notice under section 148 of the Act along with or prior to the issue of the notice.

9. It is further averred that the letter of confirmation addressed to the Income-tax Officer by Mrs. F. R. Chenai was obtained by the petitioner himself and forwarded to the Income-tax Officer with his covering letter. The then Income-tax Officer did not in fact consider whether the amount of Rs. 5 lakhs being the face value of the 7% capital investment bonds. should be treated as professional receipts and taxed as such. He accepted the income returned as such by the petitioner. It has subsequently come to the knowledge of the Department that Mrs. F. R Chenai has been a client of the petitioner and that he had appeared on her behalf in many important cases, notably estate duty cases of the late R. S. Chenai and Shapoor Chenai. The petitioner action in rushing to this court even before the communication of reasons by the respondent is premature.

10. The creation of the trust and bringing it to the notice of the Income-tax Officer at the time of assessment is a fact, but the income-tax Officer was not in the know of the real nature of the transactions and the facts and circumstances that gave rise to the execution of the trust by the Chenai family. The Income-tax Officer came to know this only through the information subsequently obtained by him way of audit report and his own enquiries. The assessing Officer who completed the assessment was totally oblivious of the background of the facts that gave rise to the execution of the trust and its is only on the information he got as to the true nature of the transaction subsequently that he gave the impugned notice. It is further averred that the allegation that section 147(b) of the Act has no application is not correct. It is only after possession of information subsequent to the completion of the original assessment, that action under the said provision has been initiated. The so-called 'Anju Family Trust' is said to be created only on account of the professional services rendered by the petitioner to the Chenai family over a number of years is too good to be believed and that such a gift could ever be created by anybody merely out of love and affection. Further, the allegation that the Income-tax Officer has issued the impugned notice without application of mind and that it is said to be on the direction of Sri P. R. Rao, Commissioner of Income-tax, is only a figment of imagination of the petitioner and is not true. There is no record containing the correspondence that passed between Sri P. R. Rao, Commissioner of Income-tax, on the one hand and the Income-tax Officer and his predecessor on the other. The allegation that a perusal of the correspondence would clearly indicate that it was on coercion, pressure and administrative instruction of Sri P. R. Rao that the assessment in question has been reopened by the respondent-Income-tax Officer is denied. Such allegations ought not to have been made without impleading Sri P. R. Rao as a party an behind his back. It is also averred that Whether such a receipt in question would constitute income or not in the hands of the petitioner and whether the Income-tax Officer fell into error in inferring that the receipt would constitute income in the hands of the petitioner, may be legally tenable or untenable, but definitely it will not oust the jurisdiction of the Income-tax Officer to issue the impugned notice and, therefore, the allegation that the reassessment proceedings which are initiated are said to be without jurisdiction and ab initio void is unsustainable. Further, 'discovery', in the context of section 147 of the Act, does not mean a conclusion of certainty at the stage of notice.

11. Reply affidavit : In the reply affidavit, the assessee-petitioner, adverting to the allegation that the respondent came to know about the relationship of advocate and client subsequently by way of an audit report and his own enquiries, averred that there cannot be any greater lie than stating that the Income-tax Officer who completed the assessment for the year 1983-84 was not aware that the petitioner was an advocate for the Chenai family. In paragraph 4 of the counter-affidavit, the respondent refers to legal journals including the Income Tax Reports which reported the case wherein the assessee appeared for the Chenai family. The income tax references are a matter of public knowledge and this supports the view that the Income-tax Officers reading the Income tax Reports should be fully familiar with the petitioner's relationship as an advocate. That apart, every year along with the income-tax return, the assessee filed a detailed statement showing the fees received from Mrs. F. R. Chenai and other members of the Chenai family. Even for the assessment year 1983-84, the statement filed along with the return clearly reveals the particulars of fees received from the Chenai family. The allegation that the petitioner was responsible for reduction of huge estate duty liability in respect of the late R. C. Chenai is denied and it is further stated that estate duty assessment of the late R. S. Chenai was completed way back in March, 1966. It is further denied that there was any reduction of huge estate duty liability due to the assessee's efforts. It is also averred :

'But, then, I was in no way responsible for conducting these matters. In the Andhra Pradesh High Court, the writ petitions were argued by the then Advocate-General, Sri P. Ramachandra Reddy. Please see : [1973]90ITR31(AP) (Freny Rashid Chenai v. Asst. CED). The writ petitions were dismissed by the High Court and there was no relief. Matters were carried in appeal to the Supreme Court and in the Supreme Court, senior counsel, Sri N. A. Palkhivala, argued these matters (please see : [1980]122ITR21(SC) - Khorshed Shapoor Chenai v. Asst. CED). Obviously, the respondent has not known these facts or if he had known these facts he tried to mislead this Hon'ble Court. I deny that I am in any way responsible for the 'huge reduction' of estate duty liability. For the little contribution that I had made, I had been paid fees which I had accounted for. For instance, a fee of Rs. 5,000 was paid to me on January 1, 1980 which I accounted for in the assessment for the assessment year 1980-81. The kind attention of this Hon'ble Court is invited to the details filed by me in the material papers along with the writ petition at page 50. Even Mr. Palkhivala who argued these matters in the Supreme Court for three days was paid a fee of Rs. 20,000. One must be crazy to think that, in respect of matters argued by such an eminent counsel like Mr. Palkhivala, to whom a fee of Rs. 20,000 was paid, I would have been paid Rs. 5 lakhs. I regret to state that the imagination of the respondent is running riot. Without even verification of facts, he made deliberately false statements in the counter filed. If there is a grain of truth in what is stated by the respondent in his counter, I call upon him to place that information before this Hon'ble Court. '

Regarding the allegation that Sri P. R. Rao, Commissioner of Income-tax, was not made a party to the writ petition, it is stated 'it was not necessary for me to make the Commissioner, P. R. Rao, a party to the writ petition, because I did not allege any mala fides against him. '

12. Contentions : The rival contentions may now be adverted to. Sri Dastur, learned counsel for the petitioner, submits that the previous Income-tax Officer who passed the assessment order was aware of all that was stated to be the reasons for issuing the impugned notice; the respondent has merely reproduced in the reasons recorded all that was contained in the audit report, without even verifying the decisions referred to in the audit report, which clearly shows that the impugned notice was the result of non-application of mind. The audit report has gone beyond permissible limits by expressing an opinion on law instead of drawing attention to the legal position. Further, no new facts or circumstances had come to the notice of the respondent warranting reopening of assessment; a mere change of opinion with regard to the same material would not amount to valid exercise of power and, therefore, the notice impugned is invalid. There is no rational nexus between the material adverted to in the reasons recorded and the formation of opinion and so, the exercise of power is vitiated, as it is in contravention of the provisions enacted in section 147(b) of the Act. The respondent's failure to produce the record concerning the so-called enquiries said to have been made before issuing the impugned notice vitiates the impugned notice. The second counter filed by Sri Dayanand, Income-tax Officer, seeking to support the action for issuing the notice, must be ignored, as it is extraneous to the audit report as well as the order sheet. The rulling of the Supreme Court in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , applies on all fours to the case on hand and, therefore, the impugned notice must be struck down.

13. The counter contentions of Sri M. S. N. Murthy, learned counsel for the Revenue, are that information in the possession of the respondent need not be external to the original record which constituted the basis for the previous officer who passed the assessment order; information may relate to either facts or law; research into the facts or law also constitutes 'information' within the meaning of section 147(b) of the Act. Apart from the enquiries made by the respondent, reliance was placed upon the audit report for issuing the impugned notice. Further, the decision of the Supreme Court in Indian and Eastern Newspapers Society v. CIT : [1979]119ITR996(SC) , must be treated as per incuriam since it is contrary to the law laid down by the earlier larger Benches especially in Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO : [1968]1SCR661 , which is rendered by the Bench of five judges of the Supreme Court.

14. The question in the main that falls for determination in this case is :

'Whether the impugned notice has been validly issued '

15. The above question has two-fold aspects, viz.,

(1) What are the ingredients that have to be satisfied by the Income-tax Officer before exercising the power under section 148(1) read with section 147(b) of the Act

(2) Whether, in this case, the said ingredients have been brought out

Case law : Before answering, the legal position with reference to the case law may now be adverted to.

16. In CIT v. Thakar Das Bhargava : [1960]40ITR301(SC) , the assessee, an advocate, who had been originally reluctant, agreed to defend certain accused persons in a criminal trial, on condition that he would be provided with the sum of Rs. 40,000 for a public charitable trust which he would create. When the trial was over, the assessee was paid a sum of Rs. 32,000 and he created a trust of that amount by executing a trust deed. The question was whether the sum of Rs. 32,000 was the assessee's professional income. The Supreme Court held (headnote) :

'... that on the facts, the proper legal inference was that the sum of Rs. 32,000 paid to the assessee was his professional income at the time when it was paid to him and no trust or obligation in the nature of a trust was created at that time and when the assessee created a trust by executing the trust deed, he applied part of his professional income as trust property. The desire on the part of the assessee to create a trust out of the moneys paid to him created no trust; nor did it give rise to any legally enforceable obligation. The sum of Rs. 32,000 was taxable in the hands of the assessee. The rule in Bejoy Singh Dudhuria's case [1933] 1 ITR 135 , did not apply. '

17. In Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , the Supreme Court, while explaining the width and ambit of the words 'information' and 'escape' obtaining in section 34(1)(b) of the Act, held (headnote) :

' (i) that the word 'information' in section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions;

(ii) that 'escape' in section 34(1)(C) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacunae attributable to the assessing authorities; even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment;

(iii) that, therefore, the decision of the Privy Council was 'information' within the meaning of section 34(1)(b) and that their decision justified the belief of the Income-tax Officer that part of the appellant's income had escaped assessment for the relevant year. '

18. Adverting to the provisions enacted in section 147(b) of the Act, in CIT v. A. Raman and Co. : [1968]67ITR11(SC) , the Supreme Court held (headnote) :

'The expression 'information' in the context in which it occurs (in section 147(b) of the Income-tax Act, 1961) must mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment.

'To commence the proceedings for reassessment, it is not necessary that, on the materials which came to the notice of the Income-tax Officer, the previous order of assessment was vitiated by some error of fact or law.

The High Court exercising jurisdiction under article 226 of the Constitution has power to set aside a notice under section 147(b) of the Income-tax Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist. The court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information; the court may also determine whether from the information the Income-tax Officer may have reason to believe that income chargeable to tax has escaped assessment. But the jurisdiction of the court extends no further. Whether, on the information in his possession, he should commence proceedings for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act : If he has information from which it may be said, prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court exercising powers under article 226 of the Constitution to set aside or vacate the notice for reassessment on a reappraisal of the evidence.

In a petition under article 226 of the Constitution, the taxpayer may challenge the validity of a notice under section 147 of the Income-tax Act, 1961, on the ground that either of the conditions precedent does not exist, but an investigation whether the inferences raised by the Income-tax Officer are 'correct or proper' cannot be made.

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 material on 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. '

19. In Anandji Haridas and Co. (P.) Ltd. v. S. P. Kushare, STO [1968] 21 STC 326, the Supreme Court was concerned with the words 'escaped assessment' in section 11A of the Central Provinces and Berar Sales Tax Act, 1947, and construing those words within the meaning of the said section, it was held (at pp. 334, 335) :

'We have now to see whether the dealers who come within the mischief of section 11(4) (a) can also be dealt with under section 11A. Before a person can be dealt with under section 11A, it must be shown that in consequence of any information which has come into his possession, the Commissioner is satisfied that any turnover of that dealer during any period has been underassessed or has escaped assessment or assessed at a lower rate or any deduction has been wrongly made therefrom. Quite plainly, the expression 'dealer' in section 11A(1) includes both registered and unregistered dealers. In this case, we are concerned with the escapement of assessment. Therefore, the first question that arises for decision is whether it can be said that the appellants' turnovers for the period 1st May, 1952, to 31st October, 1955, had escaped assessment. There is no dispute that those turnovers had not been assessed. From the fact that those turnovers had not been assessed, can it be said that they had escaped assessment In Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , this court laid down that the expression 'has escaped assessment' in section 34(1) (b) of the Indian Income-tax Act, 1922, is applicable not only where the income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted, but also where a return has been submitted but the Income-tax Officer erroneously failed to tax a part of the assessable income. In CIT v. Narsee Nagsee and Co. : [1960]40ITR307(SC) , interpreting the words 'profits escaping assessment' in section 14 of the Business Profits Tax Act, 1947, this court held that those words apply equally to cases where a notice was received by the assessee but resulted in no assessment, underassessment or excessive relief and to cases where, due to any reason, no notice was issued to the assessee and there was no assessment of his income. Kapur J., speaking for the majority of judges in that case, observed (at page 312 of the report) that it is well-settled that an income escapes assessment when the process of assessment has not been initiated as also in a case where it has resulted in no assessment after completion of the process of assessment. The true scope of the expression 'escaped assessment' in section 11A came up for consideration before this court in Ghanshyamdas v. Regional Assistant CST [1963] 14 STC 976. This is what Subba Rao J. (as she then was), who delivered the judgment of the majority of the judges, observed in that regard :

'In CIT v. Pirojbai N. Contractor [1939] 5 ITR 338 , the words 'escaped assessment' in the Indian Income-tax Act were defined. It was held therein that the said words were wide enough to include cases where no notice under section 22(2) of the Income-tax Act had been issued to the assessee and, therefore, his income had not been assessed at all under section 23 thereof. The said view has been assumed to be correct by this court in Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) and Maharajadhiraj Sir Kameshwar Singh v. State of Bihar : [1959]37ITR388(SC) and extended to cover a case where the first assessment was made in due course but a part of the income escaped therefrom. This court, in CIT v. Narsee Nagsee and Co. : [1960]40ITR307(SC) , construing the provisions of section 14 of the Business Profits Tax Act, 1947, reviewed the law on the subject and came to the following conclusion :

'All these cases show that the words 'escaping assessment' apply equally to cases where a notice was received by the assessee but resulted in no assessment at all and to cases where due to any reason no notice was issued to the assessee, and, therefore, there was no assessment of his income.'

It is true that the said decisions were given with reference to either section 34(1) of the Income-tax Act or section 14 of the Business Profits Tax Act, but so far as the present enquiry is concerned the said sections are in pari materia with section 11A of the Act. In construing the meaning of the expression 'escaped assessment' in section 11A of the Act, there is no reason why the said expression should bear a more limited meaning than it bears under the said two Acts. All the three Acts are taxing statutes and the three relevant sections therein are intended to gather the revenue which has improperly escaped. A Division Bench of the Madras High Court in State of Madras v. Balu Chettiar [1956] 7 STC 519, following the decision of a Full Bench of that court, held that where an assessee did not file at any time a return of his turnover for a year and, therefore, there was no assessment made, the turnover escaped assessment. '

20. In V. Jaganmohan Rao v. CIT/CEPT : [1970]75ITR373(SC) , while explaining the meaning of the word 'information' within the meaning of section 34(1) of the Act, the Supreme Court held (at p. 379) :

'The first question arising in this case is whether the proceeding under section 34 is legally valid. It was contended by Mr. Narasaraju that the decision of the Privy Council could not be said to be definite information within the meaning of the section. It was said that the Income-tax Officer was fully aware of the circumstances of the case and the assessee had placed all the relevant facts before him, namely, that under the High Court's judgment the vendor was only entitled to one-third share of the income, pending the decision of the appeal before the Privy Council. In our opinion, there is no justification for this argument. It is not true to say that the assessee brought all the relevant facts before the Income-tax Officer. On the contrary he deliberately suppressed the fact that there was a compromise between himself and the plaintiffs under which he was entitled to the whole of the income from the mill. At any rate, the Privy Council's decision which determined the rights of the parties irrespective of the compromise did constitute definite information within the meaning of section 34 of the Income-tax Act. This view is borne out by the decision of this court in Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) . In that case, the Income-tax Officer had, following the decision of the High Court in Kamakshya Narain Singh's case : [1946]14ITR673(Patna) , 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 assessee in respect of agricultural land on the ground that the amount was agricultural income. Subsequently, the Privy Council, on appeal from that decision, held that interest on arrears of rent payable in respect of agricultural income of agricultural land was not agricultural income. As a result of this decision, the Income-tax Officer initiated reassessment proceedings under section 34(1)(b) of the Income-tax Act and brought the amount of Rs. 93,604 to tax. In these circumstances, it was held by this court, firstly, that the word 'information' in section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions, secondly, that 'escape' in section 34(1) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities. But even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment. The decision of the Privy Council, therefore, was held to be information within the meaning of section 34(1)(b) and the proceedings for reassessment were validly initiated. In our opinion, the principle of this decision governs the present case and it must be held that the proceedings initiated under section 34 for the assessment year 1944-45 were legally valid. '

21. In Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) , dealing with the words 'in consequence of information' as used in section 34(1)(b) of the Act, the Supreme Court held (at p. 296) :

'Section 34(1)(b) would apply to the following categories of cases :

(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principal that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority;

(3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment;

(4) where the information may be obtained even from the record of the original 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. '

22. Dealing with the scope of section 147(b) of the Act in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , the Supreme Court held (headnote) :

'Held, that the opinion of the audit party on a point of law could not be regarded as 'information' enabling the Income-tax Officer to initiate reassessment proceedings under section 147(b). The Income-tax Officer had, when he made the original assessment, considered the provisions of sections 9 and 10 of the Indian Income-tax Act, 1922. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him.

The proposition in the decision of the Supreme Court in the case of Kalyanji Mavji and Co. : [1976]102ITR287(SC) , to the effect that a case where income had escaped assessment due to 'oversight, inadvertence or mistake' of the Income-tax Officer must fall within section 34(1) (b) of the Indian Income-tax Act, 1922, 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. An error discovered on a reconsideration of the same material (and no more) does not give him that power. '

23. The Punjab and Haryana High Court in CIT v. Yash Pal Mehra and Co. , held (headnote) :

'In order to constitute 'information' within the meaning of section 147(b) of the Income-tax Act, 1961, the knowledge need not be acquired from an external source only, but it may well be acquired by the Income-tax Officer himself on further research and discovery of facts or law which had previously passed unnoticed. Thus, it may be 'self-generated'. This knowledge the Income-tax Officer may also acquire from his attention being drawn to it by some other agency. Whatever be the source of the knowledge, what is essential is that it must be something of which the Income-tax Officer was not truly conscious previously. Thus, where he is not conscious of the true position in law or the true facts in existence, he may reopen the assessment on acquiring knowledge of the same.

Where the Income-tax Officer had allowed 'langer' expenses (expenses on customers) claimed by the assessee, but subsequently, on the basis of the note of the internal audit party of the Income-tax Department which pointed out that entertainment expenses had been wrongly allowed in excess of Rs. 5,000 contrary to the provisions of section 37(2) of the Income-tax Act, 1961, the Income-tax Officer reopened the assessments under section 147(b) of the Act and made a reassessment :

Held, that it was not a case of mere change of opinion by the Income-tax Officer, that the view of the internal audit party could be said to be information for the purpose of section 147(b), and that the assessment orders of the Income-tax Officer showed that the Income-tax Officer never applied his mind to the question and was blissfully unaware of the limit of Rs. 5,000 prescribed by section 37(2) of the Act in regard to 'expenditure in the nature of entertainment expenditure.' Therefore, the proceedings under section 147(b) of the Act were legal and valid. '

24. In S. B. (House and Land) Pvt. Ltd. v. CIT : [1979]119ITR785(Cal) , Sabyasachi Mukharji J. (as he then was), speaking for a Division Bench of the Calcutta High Court, held (headnote) :

'... the first essential for an action under section 147(b) is that there should be belief that income has escaped assessment. The next requirement is that such belief must be formed in consequence of information. Such information must have reasonable nexus to the opinion that income has escaped assessment or has been underassessed. The information may be from an internal or external source. In the instant case, there was information that the original assessment might have been wrong and the Income-tax Officer re-examined the case and formed the belief that income had escaped assessment. The reassessment proceedings were, therefore, validly initiated. '

25. It was further held (at pp. 802, 803) :

'... if there is new knowledge or new information and such knowledge leads to a change of opinion, then, in our opinion, as was observed by the court in the case of CIT v. H. Holck Larsen : [1972]85ITR467(Bom) , that would not be a case of mere change of opinion but it would be a change of opinion supported by or in consequence of the knowledge received by the Income-tax Officer and such a change of opinion will not be outside the scope of clause (b) of section 147 of the Income-tax Act, 1961. As, in this case, there was such an information or knowledge that the original assessment might have been wrong and the Income-tax Officer because of that information had to re-examine the facts of this case and formed the belief that the income had escaped assessment, in our opinion, it cannot be said that the proceedings were not validly initiated. In the premises, the question No. 1 referred to this court must be answered in the affirmative and in favour of the revenue. '

26. In ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , the Supreme Court held (headnote) :

'The reasons for the formation of the belief contemplated by section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information' which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening the assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. '

27. A Division Bench of the Allahabad High Court in Smt. Sarla Devi v. CED : [1976]103ITR652(All) , held (headnote) :

'... it was apparent that, at the time of the original assessment, the examination was whether the deceased was the sole surviving coparcener, so that his entire share would pass by succession. Subsequently, the Assistant Controller found that for the purpose of determining the share of the deceased in the coparcenary properties under the Act, a partition is deemed to have taken place on the date of his death for estate duty purposes. He also found that on such a partition, the wife of the deceased would not have got a share, because there was no son. Under the Hindu law, the wife gets a share where there is a partition between the father and sons and not otherwise. Therefore, the share of the deceased was half. It was apparent that this legal aspect was not canvassed or examined before the Assistant controller during the original assessment proceedings. At that time the question of share was examined from entirely a different legal standpoint. The Tribunal has found that in the instant case the information was obtained by the Assistant Controller from other enquiries or research into law made by him subsequent to the assessment. It was obvious that the Assistant Controller was unaware of the legal position on the basis of which he initiated reassessment proceedings at the time of drawing up the original assessment.

In the present case, the legal position that the wife will not have a share where there is no son was not either canvassed or realised by the Assistant Controller. He came to know of this legal position as a result of further research or scrutiny into the law. Knowledge was derived from an external source, namely, the study of the law, and the knowledge was in relation to a new legal position which was applicable to the facts of the case. The knowledge was such that led the Assistant Controller to reach the formation of belief that some property had escaped assessment. This knowledge obtained as a result of research into law, which was not known previously, even though on account of inadvertence or oversight, would none the less be knowledge on the basis of which a belief about escapement could be formed.

This was not a case of change of opinion, because, in the present case, the precise aspect of law on which the proceedings were sought to be reopened was neither canvassed nor was any opinion held or expressed by the Assistant Controller at the time of the original assessment; he came to know of that aspect because of research made subsequent to the original assessment.

Therefore, the Assistant Controller had jurisdiction to reassess under section 59(b) of the Estate Duty Act. '

28. In Musasons (P.) Ltd. v. CIT : [1978]111ITR47(Mad) , a Division Bench of the Madras High Court held (headnote) :

'The original assessment of the assessee was completed by the officer adopting the sum assessable under the head 'Dividends' as the gross amount of intercorporate dividend received by the assessee. The audit party which went into the file of the assessee informed the officer that as a part of the loans borrowed by the assessee went towards investment in shares, the interest payments should be apportioned between dividend income and business income instead of accepting the assessee's claim for deduction of the entire interest payment against business income alone. On the basis of this information, the assessment was reopened under section 147(b) and the amount of dividend income assessable was reduced by certain amounts while the business income was enhanced by similar amounts, so, however, that the total assessable income was not disturbed. The reassessment was ultimately confirmed by the Tribunal. On a reference to the High Court at the instance of the assessee :

Held, that, in view of the finding of the Tribunal that the Income-tax Officer did not have knowledge when he completed the original assessment of the diversion of the borrowed money for investment in shares, the report of the audit party that a portion of the borrowed moneys had been utilised for investment in shares would constitute information coming to the possession of the officer subsequent to the original assessment in consequence of which he entertained the belief that the income had escaped assessment and hence the reassessment was justified. '

29. In Zoraster and Co. v. CIT , dealing with section 147(b) of the Act, the Rajasthan High Court held (headnote) :

'Reassessment proceedings were initiated by the Income-tax Officer against the assessee for the assessment year 1972-73 on the basis of an audit note. The Tribunal found that the audit note had pointed out that the assessee had not charged interest from certain persons to whom money had been advanced. The Income-tax Officer had considered the debit balances in the accounts of only three persons while the audit party had pointed out debit balances in the accounts of eight persons. The total debit balances in the accounts mentioned in the audit note was Rs. 16.8 lakhs over the above the debit balances considered by the Income-tax Officer at the time of the original assessment. The Tribunal upheld the reassessment. On an application for directing a reference : Held, dismissing the application, that in facts and circumstances of this case, the audit note pointed out certain facts which constituted subsequent information within the meaning of section 147(b) of the Income-tax Act, 1961. The Tribunal was justified in upholding the reassessment. No question of law arose from its order. '

30. A Division Bench of the Kerala High Court in CIT v. West Coast Industrial Co. Ltd. : [1987]168ITR72(Ker) held (headnote) :

'For the assessment year 1974-75, the Income-tax Officer completed the assessment of the assessee without taking into account the amount received by the assessee as rubber replantation subsidy. Later, the Income-tax Officer acting on a circular of the CBDT which contained information regarding the decision of the Supreme Court in V. S. S. V. Meenakshi Achi v. CIT : [1966]60ITR253(SC) , to the effect that the rubber plantation subsidy received was income in the assessee's hands, reopened the assessment of the assessee under section 147(b) of the Income-tax Act, 1961, and added the subsidy to the income of the assessee. The Appellate Assistant Commissioner reversed the order of the Income-tax Officer. The Tribunal dismissed the appeal filed by the Revenue. On a reference :

Held, that the principal object of the circular was to convey the information that the Supreme Court had in Meenakshi Achi's case : [1966]60ITR253(SC) held that rubber plantation subsidy was income in the hands of the recipient and hence assessable as income. It was not the object of the circular to express an opinion, for no such opinion was called for. Once the Supreme Court had pronounced upon the matter, the question was, in the absence of subsequent overriding legislation, concluded and the opinion of any other person, whether of the Central Board of Direct Taxes or of any other agency, was of no relevance. While the Income-tax Officer should not be influenced by the opinion of the Board or the audit party, he was entitled to act on the information communicated to him. The Income-tax Officer had to act in a quasi-judicial capacity and he must, therefore, act independently and on the strength of the information available to him. The mere fact that the circular contained, apart from the information, the opinion of the writer, would not by itself make the information invalid or unacceptable, provided it was separable from the opinion. Therefore, the reopening of the assessment under section 147(b) was valid. '

31. In Punjab Produce and Trading Co. Ltd. v. CIT : [1986]158ITR524(Cal) , the Culcutta High Court held (headnote) :

'Whether the Income-tax Officer completed the original assessment by applying the provisions of sections 70 - 74 of the Income-tax Act, 1961, in a particular way and subsequently the Revenue audit party expressed a contrary opinion regarding the interpretation of these provisions and the Income-tax Officer initiated proceedings under section 147(b) on the basis of such interpretation : Held, that the reassessment proceedings had not been validly initiated. '

32. A Division Bench of the Allahabad High Court in CIT v. Nem Kumar Jain Ratan Kumar : [1980]125ITR674(All) held (headnote) :

'... in the original return, the assessee had shown the constitution of the firm as also his relationship with one of the partners, namely, his wife. The Income-tax Officer framing the original assessment did not apply his mind to the legal aspect applicable to the facts which had been disclosed by the assessee and that being so, the successor-Income-tax Officer could not reopen the assessment on the pretext that he informed himself of the correct legal position from the assessment of the firm, which cannot be regarded as a formal source. It would only amount to a fresh look on the facts already on record and hence the reassessment proceedings were invalid. '

33. In Ramniwas Kanailal v. S. P. Shende ITO : [1965]56ITR659(Bom) , a learned single judge of the Bombay High Court held (headnote) :

'Notices under section 34(1)(a) were issued to the assessee in 1962 in respect of the assessment years 1940-41 to 1945-46. The sole ground for the notices was the failure to disclose an amount claimed by the assessee to be outstandings of a business which had been wound up. The Income-tax Officer had no personal knowledge of proceedings of the assessment years in respect of which the notices of reassessment were issued. Most of the records pertaining to the assessment of the assessee in previous years were lost. There was no basis for the belief of the Income-tax Officer that the amount represented acquisitions made by the assessee in the years for which reassessment was sought to be made. There was also no proof of omission or failure on the part of the assessee to disclose fully and truly the material facts necessary for his assessment for the years 1940-41 to 1945-46;

Held, on the facts, that the reassessment proceedings were not validly initiated. '

34. Ratio of : [1979]119ITR996(SC) - Its impact : Before deducing the principles arising out of the aforesaid decisions since the ratio laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is at variance with several of the decisions of the Supreme Court, it would be appropriate if the impact of the said decision is considered vis-a-vis the earlier decisions of the Supreme Court relevant in this behalf and also in the light of the principle postulates under judgment per incuriam.

35. In Anandji Haridas and Co.'s case [1968] 21 STC 326, a Bench of the Supreme Court comprising five learned judges, though it was concerned with section 11A of the Central Provinces and Berar Sales Tax Act, nevertheless, while dealing with the expression 'escaped assessment', approved the principle and ratio laid down in Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) , Sir Kameshwar Singh v. State of Bihar : [1959]37ITR388(SC) and CIT v. Thakar Das : [1960]40ITR301(SC) . The relevant observation is as under (at page 335 of 21 STC) :

'It is true that the said decisions, Maharaj Kumar Kamal Singh : [1959]35ITR1(SC) ; Sir Kameshwar Singh : [1959]37ITR388(SC) ; Narsee Nagsee and Co. : [1960]40ITR307(SC) and others, were given with reference to either section 34(1) of the Income-tax Act or section is concerned, the said sections are in pari materia with section 11A of the Act. In construing the meaning of the expression 'escaped assessment' in section 11A of the Act there is no reason why the said expression should bear a more limited meaning than what it bears under the said two Act. '

36. In Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) , as already seen, it has been laid down, inter alia (headnote) :

'that 'escape' in section 34(1)(b) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities; even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment. '

37. Same is the view in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar : [1959]37ITR388(SC) and CIT v. Thakar Das Bhargava : [1960]40ITR301(SC) .

38. Indian and Eastern a Newspaper Society's case : [1979]119ITR996(SC) has been decided by a Bench comprising of three learned judges. The Bench, while referring to Kalyanji Mavji's case : [1976]102ITR287(SC) , comprising of a Bench of two learned judges wherein it is observed that a case where income had escaped assessment due to 'oversight, inadvertence or mistake' of the Income-tax Officer must fall within section 34(1)(b), held (at page 1004 of 119 ITR) :

'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, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , CIT v. A. Raman and Co. : [1968]67ITR11(SC) and Bankipur Club Ltd. v. CIT : [1971]82ITR831(SC) and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) suggesting the contrary do not, we say with respect, lay down the correct law. '

39. The aforesaid observation in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) does not appear to be in conformity with the ratio laid down either in Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) or CIT v. A. Raman and Co. : [1968]67ITR11(SC) . In A. Raman and Co.'s case, it is laid down (headnote) :

'The expression 'information' in the context in which it occurs (in section 147(b) of the Income-tax Act, 1961), must mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment.

To commence the proceedings for reassessment it is not necessary that on the materials which came to the notice of the Income-tax Officer the previous order of assessment was vitiated by some error of fact or law...

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 material on 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. '

40. Hence, with the greatest deference, the view expressed in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , in my view, is not only contrary to Kalyanji Mavji's case : [1976]102ITR287(SC) but is also opposed to Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) as well as A. Raman and Co.'s case : [1968]67ITR11(SC) ; and a fortiori contrary to Anandji Haridas and Co.'s case : [1968]1SCR661 as well, which has been decided by a larger Bench of five learned judges.

41. If that be so, as per the decision of the Supreme Court in Mattulal v. Radhe Lal : [1975]1SCR127 , wherein it is held (at page 1602) :

'That being so, we must prefer to follow the decision in Sarvate T. B.'s case [1966] MPLJ 26 as against the decision in Smt. Kamla Soni's case AIR 1969 NSC 186 as the former is a decision of a larger Bench than the latter. '

42. I am obliged to follow the ratio laid down in Anandji Haridas and Co.'s case : [1968]1SCR661 and Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) .

43. Judgment per incuriam - Meaning of : Learned standing counsel for the Revenue argued that the judgment in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) was rendered per incuriam. He relied on a decision laid down in Mamleshwar Prasad v. Kanahaiya Lal, : [1975]3SCR834 , to comprehend the meaning of 'judgment rendered per incuriam' wherein it is observed (at page 909) :

'A litigant cannot play fast and loose with the court. His word to the court is as good as his bond and we must, without more ado, negative the present shift in stand by an astute discovery of a plea that the earlier judgment was rendered per incuriam.

The wisdom which has fallen from Bowen L. J. in Ex parte Pratt [1884] 12 QBD 334 , though delivered in a different context, has wider relevance to include the present position. The learned Lord Justice observed :

'There is a good old-fashioned rule that no one has a right to conduct himself before a Tribunal as if he accepted its jurisdiction, and then afterwards, when he finds that it has decided against him, to turn round and say, 'You have no jurisdiction.'

Certainty of the law, consistency of rulings and comity of courts - all flowering from the same principle - converge to the conclusion that a decision once rendered must later bind like cases. We do not intend to detract from the rule that, in exceptional instances, where by obvious inadvertence or oversight a judgment fails to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, it may not have the sway of binding precedent. It should be a glaring case, an obtrusive omission. No such situation presents itself here and we do not embark on the principle of judgment per incuriam. '

44. I am persuaded to accede to the submission of learned standing counsel for the Revenue that the judgments in Indian and Eastern Newspaper Society's case [1979] 119 ITR 976 , was rendered per incuriam, inasmuch as an earlier decision by a larger Bench of the same court laid down a ratio at variance with the above case and if that decision had been brought to the notice of their Lordships, in all probability, it might have been followed or in case the court intended to differ, it was bound to refer the matter to a larger Bench. Likewise, the observation of the learned judges in the above case (at page 1004) :

'In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , CIT v. A. Raman and Co. : [1968]67ITR11(SC) and Bankipur Club Ltd. v. CIT : [1971]82ITR831(SC) and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) suggesting the contrary do not, we say with respect, lay down the correct law. '

45. Is, I apprehend, with great respect, not in consonance with the ratio in Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) and A. Raman's case : [1968]67ITR11(SC) , as observed earlier. So, again, if their Lordships were to feel that they were not able to associate themselves with the views expressed in the aforesaid two decisions, the case could have been referred to a larger Bench, as the Benches in the said two cases comprised three learned judges each. Hence, this omission comes within the ambit of the observation made by their Lordships of the Supreme Court in Mamleshwar v. Kanahaiya Lal : [1975]3SCR834 , that (at page 909), 'in exceptional instances, where by obvious inadvertence or oversight a judgment fails to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, it may not have the sway of binding precedents. ' This judgment of mine gets reinforced as the Supreme Court has later referred the view adopted in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) to a larger Bench. (See [1983] 142 ITR 4)

46. In view of the above, I am constrained to accede to the submission of the Revenue that the judgment in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is rendered per incuriam to the extent stated above.

47. Guiding principles to exercise the power by the Income-tax Officer under section 147(b) : On the above conspectus, the emerging principles are :

(1) The first requisite for reassessment under section 147(b) of the Act is the 'reasonable belief' that the income has escaped assessment; secondly, the said belief must be formed in consequence of information having a reasonable nexus to the belief that the income has escaped assessment; and, thirdly, the information may be from an internal or external source.

(2) The scope and the width of the words 'in consequence of information' : (a) where information is as to the true and correct state of the law derived from relevant judicial decisions where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or mistake committed by the Income-tax Officer;

(b) the information from external source includes discovery of new important matters or knowledge of fresh facts which were not present at the time of the original assessment :

(c) the information may even be obtained from the record of the original assessment from an investigation of the same, or the facts disclosed thereby, or from other enquiry, or research into facts or law;

(d) the knowledge may be acquired by the Income-tax Officer himself on further research and discovery of facts or law which has previously passed unnoticed. This knowledge may be from the Income-tax Officer's attention being drawn to it by some other agency. Where he is not conscious of the true position in law or the true facts in existence, he may reopen the assessment after acquiring knowledge of the same;

(e) that the information of the internal audit party could form the basis for the belief that income has escaped assessment;

(f) the knowledge obtained as a result of research into law, which was not known previously, even though on account of inadvertence or oversight, could nevertheless be knowledge on the basis of which a belief about escaped assessment could be formed.

(3) The precise aspect of law on which the proceedings are sought to be reopened was neither canvassed nor was any opinion held or expressed by the Income-tax Officer at the time of the original assessment; he comes to know of that aspect because of research made subsequently in which case it would not be a case of change of opinion.

(4) The 'escaped assessment' is not only confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authority, but even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment.

(5) The court cannot go into the adequacy or inadequacy of the material and substitute its own opinion for that of the Income-tax Officer as to whether action should be initiated for reopening the assessment, so long as there is a rational nexus between the reason for the belief and the formation of the belief.

(6) Although an audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the Income-tax Officer to it, while the knowledge or awareness of the law may be communicated by anyone.

(7) That the judgment in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , to the effect that (at page 1004) : 'It appears to us, with respect, that the proposition laid down in Kalyanji Mavji and Co.'s case : [1976]102ITR287(SC) 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 re-open the assessment. ' is rendered per incuriam and, therefore, has no binding force.

48. Bearing in mind the above, before adjudicating, the material necessary, which formed the basis for the belief of the Income-tax Officer that the income had escaped assessment within the meaning of section 147(b), may now be set out.

49. The relevant recitals of the trust deed :

'... AND WHEREAS ever since the unfortunate demise of the settlor's husband in 1963 and of the sector's only son in 1965, Sri Y. V. Anjaneyulu, the settlor's personal welfare;

AND WHEREAS owing to the personal qualities of head and heart of the said Anjaneyulu and the abundance of love, care and attention that the said Anjaneyulu, his wife and children have bestowed on the settlor over the above period, the settlor has developed abounding affection and regard for the said Anjaneyulu, his wife and children;

AND WHEREAS on account of her love and affection for the said Anjaneyulu, his wife and children and in appreciation of the personal qualities of the said Anjaneyulu, his wife and children and also owing in particular to the personal esteem, regard and veneration which the settlor has for the said Anjaneyulu in looking after the personal welfare of the settlor, the settlor is desirous of settling in the manner hereinafter appearing the 7% Capital Investment Bonds of the total value of Rs. 5,00,000 (Rupees five lakhs only) above referred to for the benefit of the said Anjaneyulu, his wife and children, who, for brevity's sake, are hereinafter referred to as 'THE SAID BENEFICIARIES' and more fully described in Schedule I given hereunder. '

50. Order sheet dated March 8, 1988, reads :

Y. V. Anjaneyulu

51. The assessment for the assessment year 1983-84 of Shri Y. V. Anjaneyulu, then advocate and now High Court judge was completed on 5-11-1983 on a total income of Rs. 2,48,258. As per the copy of the declaration of trust dated 27-8-1982, assessee's client, Mrs. Freny Rashid Chenai, W/o late Shri Rashid Shapoor Chenai, had created a trust in favour of the assessee and his family members to the extent of Rs. 5 lakhs.

52. I have come to know now from the enquiries and audit report that Shri Y. V. Anjaneyulu was representing income-tax, wealth-tax and estate duty assessments of late Rashid Shapoor Chenai and his family members for quite a long time. The assessee was solely responsible for reduction of the huge estate duty liability of late R. S. Chenai and his son's estate. He was also representing the legal heirs of both father and son, Mrs. Freny Rashid Chenai and Mrs. Kursheed Shapoor Chenai. In view of the substantial reduction gained by the effective representation of Mr. Y. V. Anjaneyulu, the wife of the late Rashid Shapoor Chenai, instead of payment of professional fee, preferred to create a trust in favour of the assessee and his family members to the extent of Rs. 5 lakhs which should obviously be at the instance of the assessee. This is a device adopted by the assessee to escape proper taxation in his hands. The existence of advocate and client relationship is there beyond shadow of doubt since the cases won by the assessee have already been reported in all the legal journals including Income Tax Reports. I am, therefore, satisfied that the receipt of Rs. 5 lakhs is only professional receipt of the assessee for the meritorious services which is camouflaged in the form of a trust. This has to be assessed in the hands of the assessee by taking recourse to section 147(b) of the Act in view of the Supreme Court decision in the cases of Kalyanji Mavji : [1976]102ITR287(SC) ; P. Krishna Menon and K. George Thomas : [1985]155ITR78(Bom) .

53. In view of the information in my possession now, which is gathered after the completion of assessment, I have reason to believe that income chargeable to tax has escaped assessment for the assessment year 1983-84 The assessment is, therefore, reopened under section 147(b) by issue of notice under section 148.

54. Issue notice under section 148 for the assessment year 1983 immediately.

Sd/-.....

8-3-1988.'

55. Since there is a reference to the audit report in the said order sheet, the same may be referred to :

'Review Audit by Income-tax Officer (I.A.) to the Inspecting Assistant Commissioner (Audit) :

(Shri Y. V. Anjaneyulu, Hyderabad - Assessment year 1983-84).

The assessment for the assessment year 1983-84 of Shri Y. V. Anjaneyulu, then advocate, now High Court judge, was completed by the Income-tax Officer on November 5, 1983, on a total income of Rs. 2,48,258. This assessment was audited by the I.A.P. and R.A.P. also. However, there is a possibility of review audit by RAP since a major audit objection is being raised for the assessment year 1985-86. Similar issue as in 1985-86 is involved in this assessment as well. Shri Y. V. Anjaneyulu was representing since long time income-tax, wealth-tax and estate duty assessments of late Rasheed Shapoor Chenai and his family members. He was solely responsible for reduction of huge estate duty liability of both the late R. S. Chenai and his son's estate and similarly he has been representing the legal heirs of both father and son, viz., Mrs. Freny Rashid Chenai and Mrs. Kursheed Shapoor Chenai. The assessee's son purchased a site in Shapoorwadi and constructed a building when he was representing the estate duty case before the lower courts. In view of the substantial reduction gained by the effective representation of Shri Y. V. Anjaneyulu, the wife of late Rasheed Shapoor Chenai, instead of payment of professional fees, preferred to create a trust in favour of Shri Y. V. Anjaneyulu and his family members to the extent of Rs. 5,00,000 at his instance. This is also a device adopted by the assessee to escape proper taxation in his hands. The advocate and the client's relationship is there beyond shadow of doubt since the cases won by the advocate has already been reported in all the legal journals including the Income Tax Reports (please see fee account for details). The receipt of Rs. 5,00,000 can be easily held as a professional receipt of Shri Y. V. Anjaneyulu for the meritorious services rendered by him, camouflaged in the form of family trust created. The Income-tax Officer who made the assessment on November 5, 1983, lost sight of the fact that the factum of the receipt of Rs. 5,00,000 for the services rendered by Shri Y. V. Anjaneyulu is assessable as a professional receipt. This can be assessed by taking recourse to section 147(b) as held by the Supreme Court in Kalyanji Mavji and Co.'s case : [1976]102ITR287(SC) and also taking into consideration the two decisions of the Supreme Court, viz., P. Krishna Menon and K. George Thomas : [1985]155ITR78(Bom) . The Supreme Court's decision in Thakar Das Bhargava reported in : [1960]40ITR301(SC) directly supports the stand in this case. The Income-tax Officer may be directed to take action under section 147(b) by citing the four Supreme Court cases referred to above as information for forming a belief to reopen the assessment.

Sd. S. Govardhana Rao,

ITO (IA), Hyderabad,

28-1-1987.

Sd..........

28-1-1987.

56. As per the Supreme Court's decision in the case of Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , the audit party does not possess the power to pronounce on the law; it nevertheless may draw the attention of the Income-tax Officer to the interpretation of the correct law on the facts as pronounced by courts.

Sd.........

ITO (IA)

2-2-1987.'

57. The power which has been exercised by the Income-tax Officer was under section 147(b) of the Act and, therefore, the same be set out :

'147. If -...

(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 - 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned. '

Before the process of adjudication is commenced, it may be observed that the writ petition has been hastily filed without even awaiting the reasons sought for, for issuing the impugned notice. After receipt of the impugned notice on March 15, 1988, the reasons were sought for by the petitioner by his communication dated April 2, 1988, and thereafter without waiting for a reasonable period for a reply, the writ petition has been filed on April 6, 1988.

Analysis : The undisputed position is that the petitioner-assessee, while filing the return for the assessment year 1983-84, also filed a copy of the deed of trust called 'Anju Family Trust' created by Mrs. F. R. Chenai on August 27, 1982, along with a letter dated August 27, 1983, referring to the execution of the said deed. The letter of confirmation addressed to the Income-tax Officer by Mrs. F. R. Chenai, sought for earlier by the Income-tax Officer, was obtained by the petitioner and forwarded to the Income-tax Officer with his covering letter. The assessment proceedings do not reveal that the then Income-tax Officer considered whether the amount of Rs. 5,00,000 should be treated as a professional receipt and taxed as such. The income returned, however, as submitted by the petitioner, was accepted.

From the 'order sheet' dated March 8, 1988, what transpires in essence is that the assessment for the assessment year 1983-84 of the petitioner was completed on November 5, 1983. As per the trust deed dated August 27, 1982, the assessee's client Mrs. F. R. Chenai had created a trust in favour of the assessee and his family members to the extent of Rs. 5 lakhs. The Income-tax Officer is said to have come to know thereafter from the enquiries and the audit report that the petitioner was representing income-tax, wealth-tax and estate duty assessments of the late R. S. Chenai and his family members for quite a long time. He was said to be solely responsible for reduction of huge estate duty liability of the late R. S. Chenai and his son. In view of the substantial reduction of the huge estate duty liability, Mrs. F. R. Chenai, instead of paying professional fees, preferred to create the said trust at the instance of the assessee, which is a device to escape proper taxation in his hands. The existence of an 'advocate and client' relationship is said to be there beyond any shadow of doubt. Therefore, the Income-tax Officer was satisfied that the receipt of Rs. 5 lakhs was only a professional receipt of the assessee for the meritorious services, which is camouflaged in the form of trust, which has to be assessed by taking recourse to section 147(b) of the Act, in view of the decisions of the Supreme Court in Kalyanji Mavji and Co.'s case : [1976]102ITR287(SC) , Krishna Menon's case and K. George Thomas' case : [1985]155ITR78(Bom) and, thereafter, a notice under section 148 was issued.

Most of the material mentioned in the review audit dated January 28, 1987, extracted above, has its basis in the order sheet. However, at the end of the review audit, it is stated 'the Income-tax Officer may be directed to take action under section 147(b) by citing the four Supreme Court cases referred to above, as information for forming a belief to reopen the assessment. ' But, underneath the same, the Income-tax Officer (IA) by his endorsement dated February 2, 1987, stated that as per the Supreme Court decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , the audit party does not possess the power to pronounce on the law, but it may draw the attention of the Income-tax Officer regarding the interpretation of the correct law on the facts as pronounced by courts. Though there is no further material as to how this was communicated, the fact remains that it was clarified by the endorsement of the Income-tax Officer (IA) dated February 2, 1987, by which the effect of the last sentence of the review audit dated January 28, 1987, was shown as unwarranted and the correct position has been shown to be that 'the attention of the Income-tax Officer may be drawn in regard to the interpretation of the correct law on the facts pronounced by courts' and, therefore, it matters very little that the material as to how this was communicated was not produced. From the language of the order sheet, it is evident that the Income-tax Officer has been furnished information in regard to the amount created by the trust which has not been subjected to assessment, as nothing has been stated in the assessment proceedings, which is clear from the sentence mentioned in the review audit dated January 28, 1987, as under :

'The Income-tax Officer who made the assessment on November 5, 1983, lost sight of the fact that the factum of receipt of Rs. 5 lakhs for the services rendered by Shri Y. V. Anjaneyulu is assessable as a professional receipt. '

58. The information as regards the case law in this behalf has been made available in the review audit report to the Income-tax Officer. Four of the cases which have been noted in the review audit report dated January 28, 1987, are :

(1) Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) wherein the Supreme Court held (headnote) :

'In its original assessment for the assessment year 1956-57, a sum of Rs. 43,116 being interest paid by the appellant-firm on amounts borrowed by it was allowed as a deduction. During the course of the assessment proceedings for the assessment year 1958-59, the Income-tax Officer discovered that the appellant had not utilised the entire borrowed money for the purpose of its business but had given interest-free loans to its partners for clearing up their income tax dues. The Income-tax Officer reopened the assessment for 1956-57 under section 34(1) (b) of the Indian Income-tax Act, 1922, and disallowed the interest paid. The Appellate Tribunal held that the Income-tax Officer had merely changed his opinion on the basis of the very materials that were before him when the original assessment was made and that was not sufficient to attract section 34(1) (b). On a reference, the High Court held that the reassessment was valid in law as the information on the basis of which the Officer sought to reopen the assessment was based on subsequent facts as also on the materials of the original assessment revealed by a more careful and closer investigation. On appeal to the Supreme Cour :

Held, affirming the decision of the High Court, that the reassessment under section 34(1) (b) was valid in law inasmuch as the Income-tax Officer proceeded on the basis of information which came to him after the original assessment by fresh facts revealed in the assessment proceedings for 1958-59.

The word 'information' in section 34(1) (b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under section 34(1) (b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled by the words 'reason to believe'. Information may come from external sources or even from the materials already on record or may be derived from the discovery of new and important matters or fresh facts.

Section 34(1) (b) would apply to the following categories of cases :

(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer;

(3) where the information is derived from an external source of any kind : such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment; and

(4) where the information may be obtained even from the record of the original 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.

Where, however, the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which from part of the original assessment, section 34(1) (b) would have no application. '

(2) P. Krishna Menon v. CIT (This is not reported in , but is reported in : [1959]35ITR48(SC) ), wherein it is held (headnote) :

'After his retirement from Government service, the appellant was spending his time in studying and teaching Vedanta philosophy, L, who was one of his disciples, used to come from England at regular intervals to Trivandrum, where the appellant resided, and stay there for a few months at a time and attend his discourses, and so received instructions in Vedanta and had the benefit of his teachings. L transferred the entire balance standing to his credit in his own account at Bombay, amounting to more than Rs. 2 lakhs, to the account of the appellant opened in the latter's name in the same bank at Bombay. Thereafter, from time to time, L put in further sums into the appellant's account in Bombay. The question was whether the receipts from L constituted the appellant's income taxable under the Travancore Income-tax Act, 1121 (which was identical with the Indian Income-tax Act, 1922) :

Held, (i) that teaching was a vocation, if not a profession, and teaching Vedanta was just as much teaching as any other teaching, and, therefore, a vocation;

(ii) that in order that an activity might be called a vocation it was not necessary to show that it was an organised activity and that it was indulged in with a motive of making profit; it was well established that it was not the motive of a person doing an act which decided whether the act done by him was the carrying on of a business, profession or vocation; and if any business, profession or vocation in fact produced an income, that was taxable income, and was nonetheless so because it was carried on without the motive of producing an income;

(iii) that the teaching of Vedanta by the appellant was the carrying on of a vocation by him and that the imparting of a teaching was the causa causans of the making of the gifts by L, that it was impossible to hold that the payments to the appellant had not been made in consideration of the teaching imparted by him, and that, therefore, the payments were income arising from the vocation of the appellant;

(iv) that as the payments made by L were income arising from a vocation, they were not casual or non-recurring receipts and no question of exemption under section 4(3)(vii) of the Income-Tax Act arose.

In order that a payment may be exempted under section 4(3)(vii) of the Indian Income-Tax Act, as a casual and non-recurring receipt it has to be shown that it did not arise from the exercise of a vocation. '

(3) K. George Thomas' case [1985] ITR 78, wherein it is held (at page 79) :

'The assessee carried on a vocation of preaching against atheism. In the course of such vocation and for the purpose of the same, he received the amounts in question as donation for the furtherance of the objects of the vocation. The receipts arose to the assessee from the carrying on of the vocation by the assessee, and these were not casual and non-recurring. These were taxable... There was a link between the activities of the assessee and the payments received by him and the link was close enough... In our opinion the High Court was right in answering the questions referred to it in the negative and in favor of the Revenue. '

(4) CIT v. Thakar Das Bhargava : [1960]40ITR301(SC) wherein it is held (headnote 301, 302) :

'The assessee, an advocate, who had been originally reluctant, agreed to defend certain accused persons in a criminal trial, on condition that he would be provided with the sum of Rs. 40,000 for a public charitable trust which he would create. When the trial was over, the assessee was paid a sum of Rs. 32,000 and he created a trust of that amount by executing a trust deed. The question was whether the sum of Rs. 32,000 was the assessee's professional income :

Held, that on the facts, the proper legal inference was that the sum of Rs. 32,000 paid to the assessee was his professional income at the time it was paid to him and no trust or and no trust or obligation in the nature of a trust was created at that time and when the assessee created a trust by executing a trust deed he applied part of his professional income as trust property. The desire on the part of the assessee to create a trust out of the moneys paid to him created no trust : nor did it give rise to any legally enforceable obligation. The sum of Rs. 32,000 was taxable in the hands of the assessee. The rule in Bejoy Singh Dudhuria's case [1933] 1 ITR 135 , did not apply. '

59. In the light of the information contained in the review audit dated January 28, 1987, coupled with the endorsement of the Income-tax Officer (IA) dated February 2, 1987, as well as the contents of the four decisions referred to above, it cannot be said that the Income-tax Officer could not have formed the belief that income chargeable to tax had escaped assessment.

60. The case of the assessee is that till the demise of R. S. Chenai, he was not looking after their taxation matters. The son, Shapoor Chenai, also died in 1965 leaving the widow of the late R. S. Chenai and the widow of Shapoor Chenai. It is however stated not only in the affidavit in opposition but also in review audit dated January 28, 1987, as well as the 'order sheet' dated March 8, 1988, that the assessee was representing since a long time, income-tax, wealth-tax and estate duty assessments of the late R. S. Chenai and his family members. The statement of details of fees filed along with the writ petition shows only the fees received from April 1, 1978 onwards with reference to the assessment years 1979-80 to 1983-84. R. S. Chenai died in 1963 and his son died in 1965. On the basis of the information which the Income-tax Officer is said to be having, as stated in the order sheet, that there existed a relationship of 'advocate and client' since a long time and nearer in point of time to the reduction in considerable amount in estate duty matters and, therefore, the mere fact that some fee has been received may not be, according to the Income-tax Officer, the full consideration which is otherwise said to be camouflaged in the form of trust. What we are concerned with in this writ petition which is limited in its scope, is whether the Income-tax Officer, in view of this information, has reason to believe that certain income has escaped assessment. The notice which has been given under section 148 is in the nature of a show cause as to why the amount of Rs. 5 lakhs created under the trust should not be subjected to reassessment, as the same has escaped assessment at the original assessment proceedings due to an erroneous view of the matter.

61. It is needless to further adjudicate whether, even if the then Income-tax Officer had stated something in regard to the said sum created under the trust treating it as a gift and thus was not subjected to assessment, it would be competent for the Income-tax Officer now to reassess the same in view of the correct interpretation of law, as the previous Income-tax Officer has, by oversight, or inadvertence, erroneously excluded the same from being assessed. In this case, there is nothing in the assessment proceedings disclosing as to why it was excluded from being assessed. That apart, it is not for this court to substitute its belief or opinion, as it is the exclusive right of the Income-tax Officer to form the view when once on the basis of information and in consequence thereof he has reason to believe that income has escaped assessment; and the reason for the belief has a rational and intelligible connection with the formation of the said belief has a rational and intelligible connection with the formation of the said belief. (See S. Narayanappa v. CIT : [1967]63ITR219(SC) ). The court cannot go into the adequacy or insufficiency of the material and substitute its own opinion for that of the Income-tax Officer as to whether action should be initiated for reopening the assessment.

62. The High Court of Rajasthan in Zoraster and Co. v. CIT held (headnote) :

'... in the facts and circumstances of this case, the audit note pointed out certain facts which constituted subsequent information within the meaning of section 34(1)(b) of the Income-tax Act, 1961. The Tribunal was justified in upholding the reassessment. No question of law arose from its order. '

63. The Kerala High Court in CIT v. West Coast Industrial Co. Ltd. : [1987]168ITR72(Ker) held (headnote p. 73) :

While the Income-tax Officer should not be influenced by the opinion of the Board or the audit party, he was entitled to act on the information communicated to him. The Income-tax Officer had to act in a quasi-judicial capacity and he must, therefore, act independently and on the strength of the information available to him. The mere fact that the circular contained, apart from the information, the opinion of the writer, would not by itself make the information invalid or unacceptable, provided it was separable from the opinion. Therefore, the reopening of the assessment under section 34(1)(b) was valid. '

64. The Calcutta High Court in Punjab Produce and Trading Co. Ltd. v. CIT : [1986]158ITR524(Cal) held (headnote) :

'Where the Income-tax Officer completed the original assessment by applying the provisions of sections 70 - 74 of the Income-tax Act, 1961, in a particular way and subsequently the Revenue audit party expressed a contrary opinion regarding the interpretation of these provisions and the Income-tax Officer initiated proceedings under section 34(1)(b) on the basis of such interpretation :

Held, that the reassessment proceedings had not been validly initiated. '

65. The above three cases are in line with the decisions laid down by the Supreme Court in Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) , A. Raman and Co.'s case : [1968]67ITR11(SC) and Kalyanji Mavji and Co.'s case : [1976]102ITR287(SC) , which had received the approval in Anandji Haridas and Co.'s case [1968] 21 STC 326.

66. From the foregoing, it is evident that the Income-tax Officer has, on the basis of the information, reason to believe that the income escaped assessment for the assessment year in question and the reason for the said belief, in my judgment, has a rational nexus to the formation of the belief, and this cannot be said to be a mere pretence or extraneous to the purpose of section 34(1)(b) and so, the notice cannot be held void. (See ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) ).

67. Impugned notice by the Income-tax Officer - whether issued on pressure by P. R. Rao, Commissioner of Income-tax : The averments of the petitioner in the affidavit are :

'I also contend that the respondent-Income-tax Officer had issued the notice without application of mind. I understand reliably, and believe it to be true, that it was under the specific direction of Sri P. R. Rao, Commissioner of Income-tax, that the assessment has been reopened... It is because of the pressure from a superior, the Commissioner of Income-tax, to reopen the assessment under section 148 that the respondent obediently issue a notice without applying his own mind. The proceedings are, therefore, void, as the respondent did not himself have any reason to believe that income has escaped assessment in my hands. The only apparent reason for issuance of notice was the pressure reportedly brought on him by Mr. P. R. Rao, the Commissioner of Income-tax. '

Based on the above, the argument of learned counsel for the petitioner is that whatever information reached the respondent could not have induced a reasonable belief in him that the whole or any part of the sum settled in trust by Mrs. F. R. Chenai escaped assessment in the hands of the assessee. The contention, in my view, has no foundation. In the counter affidavit, this has been controverted stating as under :

'The said allegation of the petitioner is only a figment of the imagination of the petitioner and is not true. It does not behove the stature and status of the petitioner to cast aspersions on a high dignitary of the department and to belittle a quasi-judicial statutory authority, viz., the respondent, in the discharge of his quasi-judicial functions. I respectfully submit that there is no record containing the correspondence that passed between Sri P. R. Rao, Commissioner of Income-tax, on the one hand and myself and my predecessor on the other. I deny the allegation that a perusal of the correspondence would clearly indicate that it was on coercion, pressure and administrative instruction of Sri P. R. Rao that the assessment in question has been reopened by the respondent-Income-tax Officer without the application of his own mind and, therefore, the claim that the whole proceedings deserved to be quashed is untenable and unsustainable both legally and factually. I may respectfully and humbly add at this stage that the wild allegations made against the Commissioner Sri P. R. Rao, ought not to have been made without impleading him as a party and behind his back. This will be a valid ground for dismissing the writ petition for not impleading the proper and necessary party. '

In the reply affidavit, the petitioner averred as under :

'As regards the respondent not applying his own mind, I reiterate my plea already urged in the writ petition. In the nature of things, some matters cannot be proved especially if the Tax Officers want to conceal the correspondence placing them in confidential folders beyond the reach of the courts. I have valid reasons to think that the assessment was reopened by the respondent without application of his own mind and under the directions from the Commissioner. The respondent refers to my 'stature and status' and states that it does not behove me to cast aspersions on a 'high dignitary of the Department'. This high dignitary, whom the respondent is trying to defend, himself forgot my stature and status and used impolite language in section 263 proceedings for the assessment year 1983-84. In cancelling the order under section 263 of the Commissioner, the Tribunal vindicated my stand. The respondent would have done well if he had not made this statement. It was not necessary for me to make the Commissioner, P. R. Rao, a party to the writ petition, because I did not allege any mala fides against him. '

68. From the averments made by the petitioner in his affidavit, though inferentially allegations of mala fides appear to have been made against Sri P. R. Rao, Commissioner of Income-tax, stating that, at his instance and on his pressure, the Income-tax Officer is said to have acted in the issuance of notice under section 148 of the Act, the averment of the petitioner in his reply affidavit, 'it was not necessary for me to make the Commissioner, P. R. Rao, a party to the writ petition, because I did not allege any mala fides against him', clinches the issue, as it is well settled that the affected party must be impleaded, failing which no decision adverse to him can be entered, and in view of the material allegations being controverted, the allegations cannot be sustained and the averment that the Income-tax Officer has issued the notice on pressure being brought by Sri P. R. Rao, the superior officer, appears to be unwarranted, as it is founded on no material and so, the contention is rejected as baseless.

69. As has been already held, the Income-tax Officer has disclosed his mind in the order sheet dated March 8, 1988, as to how he came to form the belief - said to be on the basis of information, more especially the audit report and research of law with reference to decided cases, he came to form the belief - that the trust amount is nothing but legal fees and, therefore, the said income has escaped assessment. The width of the power is succinctly stated by the Supreme Court in A. Raman and Co.'s case : [1968]67ITR11(SC) , to the effect that (headnote) '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 material 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. ' It is, therefore, irresistible to conclude that the Income-tax Officer had come to be possessed of information after the previous assessment, which formed the basis for his belief that there was escapement of income; and it is not only relevant but has rational nexus with the said belief. The said belief, therefore, is formed independently and not dependent on any pressures and influences as alleged.

70. Supplemental counter-affidavit-whether to be taken into consideration : The objection by the petitioner in respect of the supplemental counter affidavit filed on behalf of the Revenue by Sri Dayanand, Income-tax Officer, to the effect that this Income-tax Officer had nothing to do with the impugned notice and, therefore, without obtaining permission of this court under rule 12 of the Writ Proceeding Rules, could not be entertained and much less be accepted, need not detain us long inasmuch as the said counter need not be taken cognisance of, as nothing turns upon that; also for the reason that this further counter has not been filed by the Income-tax Officer who had initially filed the counter-affidavit in this case. Summing up : In sum :

(a) The impugned notice has been issued by the Income-tax Officer after forming the belief independently on the basis of information, got subsequent to previous assessment, which has a rational nexus to the formation of the belief that income had escaped assessment for the assessment year 1983-84. The said information includes the contents of the audit report, referred to in the order sheet of the Income-tax Officer, and so, the impugned notice is valid and legal.

(b) If that be so, it is not competent for this court to displace the belief by substituting its own, in the exercise of its extraordinary jurisdiction under article 226 of the Constitution of India.

(c) The allegation that the impugned notice has been issued by the Income-tax Officer at the instance and on the pressure of his superior officer, Sri P. R. Rao, Commissioner of Income-tax, is grounded on no material and, therefore, not only unwarranted, but is baseless and unfounded.

(d) The judgment in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is rendered 'per incuriam' and so, has not the sway of a binding precedent.

(e) A judgment 'per curiam' is the opinion of the court in a case in which the judges are all of one mind, and the question involved is so clear that it is not considered necessary to elaborate it by an extended discussion. This is based on 'certainty of the law, consistency of rulings and comity of courts - all flowering from the same principle - and converge to the conclusion that a decision once rendered must later bind like cases'. However, in exceptional cases, where by obvious inadvertence or oversight, a judgment falls to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, it may not have the sway of a binding precedent. This is called a 'judgment per incuriam'.

71. In the result, the writ petition is dismissed, but in the circumstances, with no order as to costs.

M. N. RAO J. (18-11-1988)

72. At issue in this writ petition is the validity of a notice dated March 10, 1988, issued under section 148 by the respondent-Income-tax Officer, A-Ward, Salary Circle, Hyderabad, proposing to reassess the income of the petitioner for the assessment year 1983-84 on the ground that he has reason to believe that the income has escaped assessment within the meaning of section 147 of the Act. The petitioner, Shri Anjaneyulu, before his elevation to the Bench of this court in November, 1983 (since retired on 10-11-1988), was a leading tax lawyer in the State. For the assessment year 1983-84, the petitioner returned a gross income of Rs. 2,57,571 and after claiming statutory deductions, the net income returned was Rs. 2,40,245. One of the items on which the petitioner claimed deduction was a sum of Rs. 13,000 representing interest on 7% capital investment bonds of the face value of Rs. 5,00,000 received from the trustees of 'Anju Family Trust'. The trust was created by one Mrs. F. R. Chenai, an old lady aged about 80 years, who is a close family friend and well-wisher of the petitioner and members of his family. She created the trust for the benefit of the petitioner, his wife, his son and four daughters. The corpus of the trust was 7% capital investment bonds of the value of Rs. 5,00,000. Mrs. K. S. Chenai, the widowed daughter-in-law of the settlor, and Mr. Ratnakar, the son of the petitioner, are the trustees. As per the trust deed, the petitioner is entitled to the income from the trust fund during his lifetime and after his demise, his wife would be entitled to the income. After the lifetime of the petitioner and his wife, the trust fund is to be divided into five equal shares and the trustees are required to hand over and deliver one equal part of the trust fund to each of the five children of the petitioner. Along with the income-tax return for 1983-84, the petitioner forwarded a letter dated July 27, 1983, explaining in brief the salient features of the trust and enclosing a copy of the trust deed. Before finalising the assessment, the Income-tax Officer verified from the settlor about the trust and the settlor submitted a letter on September 19, 1983, to the Income-tax Officer confirming the factum of the creation of the trust. After seeking some information regarding certain other items in respect of which deduction was claimed by the petitioner, the Income-tax Officer finalised the assessment and passed an order under section 143(3) on November 5, 1983, accepting the return submitted by the petitioner. Four years and four months after the assessment order was passed, the impugned notice was issued under section 148(1) seeking to reopen the assessment and the petitioner was called upon to deliver within thirty days from the date of the service of notice a return in the prescribed from of his income in respect of which he was assessable for the assessment year 1983-84. The petitioner, in response to the impugned notice, filed a return under section 148 'under protest and without prejudice to his contentions that the respondent assumed jurisdiction under section 147 without the conditions for the assumption of such jurisdiction being satisfied'. In the return filed under protest, the income disclosed by the petitioner was what was returned by him in the original return and which was accepted on November 5, 1983. He requested the respondent to communicate the reasons for reopening the assessment but the reasons have not been given.

73. In the affidavit filed in support of the writ petition, it is alleged that the assessment is reopened on the ground that the gift made by Mrs. Chenai escaped assessment. No information could have come into the possession of the respondent after the completion of the original assessment which can induce a reasonable belief in the respondent that income chargeable to tax has escaped assessment. The details of the fees received by the petitioner from the Chenai family relevant for the assessment years 1979-80 to 1983-84 have been filed as enclosures to the writ petition. The trust was created due to the personal goodwill prevailing between the two families. Although the petitioner protested at the move of Mrs. Chenai to set up the trust, because of the abundant goodwill and affection she had towards the petitioner, who was almost like a son to her, and the other members of his family, she insisted upon creating the trust. According to the petitioner, late Rashid Shapoor Chenai, the husband of the settlor, and he were great personal friends but during the lifetime of late Rashid Shapoor Chenai, he did not look after the matters relating to their estate. It was only after the death of Chenai's son in 1965, that he had to look after the welfare of the old lady and her daughter-in-law and the grandchild. The impugned notice was issued without application of mind. It is also alleged by the petitioner that he understands reliably and believes it to be true that under the specific direction of Sri P. R. Rao, the Commissioner of Income-tax, the assessment has been reopened. The impugned notice was the result of the 'pressure reportedly brought upon the respondent by the Commissioner of Income-tax'. The Income-tax Officer who originally completed the assessment did not think, on consideration of the facts, that any part of the gift was taxable income and the proposed action of the respondent is nothing but a mere change of opinion. The petitioner is, therefore, seeking a writ of certiorari to call up the entire record pertaining to the impugned notice and quash the same.

74. In the counter-affidavit filed by Sri Jagadeeshwer Rao, Income-tax Officer, A-Ward, Salary Circle, Hyderabad the respondent herein, it is averred that, subsequent to the completion of the assessment, it has come to the knowledge of the Department that an advocate-client relationship existed between the settler and the petitioner, who represented for a long time the income-tax, wealth-tax and estate duty assessments of late Rashid Shapoor Chenai and as the petitioner was solely responsible for reduction of huge estate duty liabilities of both late R. S. Chenai and his son's estate, and he has been similarly representing the legal heirs of both the father and son - Mrs. Freny Rashid Chenai and Mrs. Kursheed Shapoor Chenai - and because of the 'substantial reduction' gained by the effective representation of the petitioner, Mrs. R. S. Chenai, instead of payment of 'professional fees', created a trust at the instance of the petitioner. The receipt of rupees five lakhs can, therefore, be easily held as a professional receipt of the petitioner for the 'meritorious services' rendered by him. The Income-tax Officer who made the assessment on November 5, 1983, 'lost sight of the fact that the factum of receipt of Rs. 5,00,000 for the services rendered by Sri Y. V. Anjaneyulu is assessable as a professional receipt'. There was escapement of income. In view of the information subsequent to the assessment originally made, action was initiated under section 147(b). The previous Income-tax Officer did not consider whether the amount of Rs. 5,00,000 should be treated as professional receipt and taxed as such. A letter of confirmation was obtained by the petitioner himself from Mrs. Chenai who forwarded the same to the Income-tax Officer along with a covering letter dated September 19, 1983. It is further averred in the counter that 'it has subsequently come to the knowledge of the Department that Mrs. Chenai has been a client of the petitioner' and he has appeared in several cases on her behalf. Admitting the fact that the petitioner had brought to the notice of the previous Income-tax Officer at the time of the assessment the creation of the trust, it is averred in the counter that the previous officer was not in the know of the real nature of the transactions and the circumstances that gave rise to the execution of the trust by Chenai's family. The respondent came to know through the information subsequently obtained by him 'by way of audit report and his own enquiries' that the whole transaction was the result of professional services rendered by the petitioner to Chenai's family. Denying the allegations that the impugned notice was the result of non-application of mind and pressure applied by the Commissioner of Income-tax, the respondent pleaded in the counter-affidavit that 'there is no record containing the correspondence that passed between Sri P. R. Rao, the Commissioner of Income-tax, on the one hand, and myself and my predecessor, on the other'.

75. A reply affidavit was filed by the petitioner on April 23, 1988 emphatically denying the allegations that the previous Income-tax Officer who completed the assessment for the year 1983-84 was not aware of the fact that the petitioner was the advocate for the Chenai family. The previous Income-tax officer, Sri Waheed, completed three assessments of the petitioner under section 143(3) and the Income-tax Officer scrutinized the returns and the statements filed along with the returns for each year and so was fully aware of the relationship of client-advocate between the petitioner and the Chenai family. The benefit of reduction of huge estate duty liability in respect of Chenai family as alleged by the respondent in the counter-affidavit, the petitioner asserted, was not due to his efforts; in the High Court where the matter was lost, counsel who appeared for the Chenai family was Sri P. Ramachandra Reddy, the former Advocate General, and in the Supreme Court where the Chenai family succeeded, counsel was Sri Palkhivala. The Chenai family paid a fee of Rs. 20,000 to Sri Palkhivala and Rs. 5,000 to the petitioner which was accounted for by him in the return for the assessment year 1980-81. In the affidavit filed in support of the main writ petition itself, when he was clearly given the details of the fees he charged from the Chenai family, which clearly indicate that the fees charged were on the high side, the petitioner averred in the reply affidavit, there is no basis to entertain the belief that the trust amount of Rs. five lakhs was professional receipt for the 'meritorious services' rendered by him to the Chenai family. The petitioner requested the court to call upon the respondent to produce the entire record including the audit report and the details of the enquiries made leading to the formation of the belief that income has escaped assessment. When the arguments commenced in the case, the petitioner was not aware of either the contents of the audit report or the reasons recorded by the respondent for reopening the assessment. When the arguments advance by Sri Dastur, learned counsel for the petitioner, were half-way through, Sri M. S. N. Murthy, learned counsel for the Revenue, furnished xerox copies of the 'order sheet 1983-84' containing the reasons for issuing notice and the audit report of the Income-tax Officer, Internal Audit, Hyderabad, dated January 28, 1987, and the endorsements made thereon.

76. On the second day of the hearing, a second counter-affidavit sworn to by Sri B. R. Dayanand, Income-tax Officer, Salary Ward 4(3), Hyderabad, was filed giving out some other details of the professional advice said to have been rendered by the petitioner to the Chenai family. In this second counter, inter alia, it is averred that due to the advice tendered by the petitioner to the Chenai family, half share in a residential house, named Shapoor House, was transferred by Mrs. Chenai in favour of her grandson without attracting capital gains tax, possible estate duty (as she was aged about 78 years) and also gift-tax'. Certain new grounds also are mentioned in this affidavit alleging that the worthy tax planning resorted to by the Chenai family was because of the advice rendered by the petitioner in his capacity as a tax consultant. A further averment made in this second counter is that the respondent came into possession of 'a fund of further and fresh information' - 'from external sources subsequent to the completion of the original assessment - '.

77. Taking strong objection to the filing of the second counter-affidavit, contending that it was bereft of bona fides and that rule 12 of the Writ Proceedings Rules, 1977, framed by this court forbids such filing without the leave of the court, a supplemental reply-affidavit was filed by the petitioner characterising the allegations made in the second counter-affidavit as misrepresentations, especially the allegation pertaining to the transfer of half share in 'Shapoor House' by Mrs. Chenai in favour of her grand-son. In this supplemental reply-affidavit, the petitioner also averred that the transfer of half share in the said house by Mrs. Chenai had resulted in levy of gift-tax in a huge sum of Rs. 2,72,000 in the hands in Mrs. Chenai and Rs. 17, 470 in the hands of her daughter-in-law in respect of the assessment year 1983-84. Adverting to this, the petitioner averred that 'it follows from the above that while the Income-tax Officer thinks that a great tax planning was done by me, the Chenai family thinks that they have come to grief on account of the Department laying colossal gift-tax. It is exceedingly wrong on the part of the respondent to suppress information from the knowledge of this court regarding the levy of gift-tax and advance a claim that it benefited the Chenai family members'.

78. In view of the foregoing narration, in some detail, of the events, I feels that it is necessary for appreciating the questions raised in this writ petition.

79. Before adverting to the arguments advanced by both sides and considering the same, it is necessary to reproduce the relevant recitals of the trust deed and in extenso the reasons stated by the respondent in the order sheet for 1983-84 for issuing the impugned notice under section 148 and the audit report along with the endorsement made thereon.

80. Relevant recitals of the trust deed :

'... AND WHEREAS ever since the unfortunate demise of the settlor's husband in 1963 and of the settlor's only son in 1965, Sri Y. V. Anjaneyulu, his wife and children have been looking after the settlor's personal welfare;

AND WHEREAS owing to the personal qualities of head and heart of the said Anjaneyulu and the abundance of love, care and attention that the said Anjaneyulu, his wife and children have bestowed on the settlor over the above period, the settlor has developed abounding affection and regard for the said Anjaneyulu, his wife and children;

AND WHEREAS on account of her love and affection for the said Anjaneyulu, his wife and children and in appreciation of the personal qualities of the said Anjaneyulu, his wife and children and also owing in particular to the personal esteem, regard and veneration which the settlor has for the said Anjaneyulu in looking after the personal welfare of the settlor, the settlor is desirous of settling in the manner hereinafter appearing the 7% Capital Investment Bonds of the total value of Rs. 5,00,000 (Rupees five lakhs only) above referred to for the benefit of the said Anjaneyulu, his wife and children, who, for brevity's sake, are hereinafter referred to as 'THE SAID BENEFICIARIES' and more fully described in Schedule I given hereinunder'.

Order Sheet : 1983-84 :

Y. V. Anjaneyulu, J.

81. The assessment for the assessment year 1983-84 of Shri Y. V. Anjaneyulu, then advocate and now High Court Judge was completed on November 5, 1983, on a total income of Rs. 2,48,258. As per the copy of the declaration of trust dated August 27, 1982, the assessee's client Mr. Freny Rashid Chenai W/o. late Shri Rashid Shapoor Chenai had created a trust by favour of the assessee and his family members to the extent of Rs. 5 lakhs.

82. I have come to know now from enquiries and the audit report that Shri Y. V. Anjaneyulu was representing income-tax, wealth-tax and estate duty assessments of late Rasheed Shapoor Chenai and his family members for quite a long time. The assessee was solely responsible for reduction of huge estate duty liability of the late R. S. Chenai and his son's estate. He was also representing the legal heirs of both father and son, Mrs. Freny Rashid Chenai and Mrs. Kursheed Shapoor Chenai. In view of the substantial reduction gained by the effective representation of Mr. Y. V. Anjaneyulu, the wife of the late Rasheed Shapoor Chenai, instead of payment of professional fee, preferred to create a trust in favour of the assessee and his family members to the extent of Rs. 5 lakhs which should obviously be at the instance of the assessee. This is a device adopted by the assessee to escape proper taxation in his hands. The existence of advocate and client relationship is there beyond any shadow of doubt since the cases won by the assessee have already been reported in all the legal journals including the Income Tax Reports. I am, therefore, satisfied that the receipts of Rs. 5 lakhs is only a professional receipt of the assessee for the meritorious services which is camouflaged in the form of trust. This has to be assessed in the hands of the assessee by taking recourse to section 147(b) of the Act in view of the Supreme Court decisions in the case of Kalyanji Mavji : [1976]102ITR287(SC) , P. Krishna Menon and K. George Thomas : [1985]155ITR78(Bom) .

83. In view of the information in my possession now, which is gathered after the completion of the assessment, I have reason to believe that income chargeable to tax has escaped assessment for the assessment year 1983-84 The assessment is, therefore, reopened under section 147(b) by issue of notice under section 148. Issue notice under section 148 for the assessment year 1983-84 immediately. ' Review Audit by Income-tax officer (IA) to the Inspecting Assistant Commissioner (Audit) :

(Shri Y. V. Anjaneyulu, Hyderabad - Assessment year 1983-84).

84. The assessment for the assessment year 1983-84 of Shri Y. V. Anjaneyulu, then Advocate, now High Court Judge, was completed by the Income-tax Officer on November 11, 1983, on a total income of Rs. 2,48,258. This assessment was audited by the I.A.P. and R.A.P. also. However, there is a possibility of review audit by R.A.P. since a major objection is being raised for the assessment year 1985-86. Similar issue as in 1985-86 is involved in this assessment as well. Shri Y. V. Anjaneyulu was representing since long time the income-tax, wealth-tax and estate duty assessments of late Rashid Shapoor Chenai and his family members. He was solely responsible for reduction of huge estate duty liability of both the late R. S. Chenai and his son's estate and similarly he has been representing the legal heirs of both father and son, viz., Mrs. Freny Rashid Chenai and Mrs. Kursheed Shapoor Chenai. The assessee's son purchased a site in Shapoorwadi and constructed a building when he was representing the estate duty cases before the lower courts. In view of the substantial reduction gained by the effective representation of Shri Y. V. Anjaneyulu, the wife of late Rasheed Shapoor Chenai, instead of the payment of professional fees, preferred to create a trust in favour of Shri Y. V. Anjaneyulu and his family members to the extent of Rs. 5,00,000 at his instance. This is also a device adopted by the assessee to escape proper taxation in his hands. The advocate and client relationship is there beyond any shadow of doubt since the cases won by the advocate have already been reported in all the legal journals including the Income Tax Reports (Please see fees account for details). The receipt of Rs. 5,00,000 can easily be held as a professional receipt of Shri. Y. V. Anjaneyulu for the meritorious services rendered by him, camouflaged in the form of family trust created. The Income-tax Officer who made the assessment on November, 5, 1983, lost sight of the fact that the factum of receipt of Rs. 5,00,000 for the services rendered by Shri Y. V. Anjaneyulu is assessable as professional receipt. This can be assessed by taking recourse to section 147(b) as held by the Supreme Court in Kalyanji Mavji and Co.'s case reported in : [1976]102ITR287(SC) and also taking into consideration the two decisions of the Supreme Court, viz., P. Krishna Menon and K. George Thomas : [1985]155ITR78(Bom) . The Supreme Court's decision in Thakar Das Bhargava reported in : [1960]40ITR301(SC) directly supports the stand in this case (not legible). The Income-tax Officer may by directed to take action under section 147(b) by citing the four Supreme Court cases referred to above as information for forming a belief to reopen the assessment.

Sd. (S. Goverdhana Rao)

I.T.O.(IA), Hyderabad,

28-1-1987

Sd .............

28-1-1987

84. As per the Supreme Court's decision in the case of Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) the audit party does not possess the power to pronounce on the law; it nevertheless may draw the attention of the Income-tax Officer as to the interpretation of the correct law on the facts as pronounced by courts.

Sd. .............

I.T.O. (IA)

2-2-1987

85. Briefly, the rival contentions urged are as follows. Sir Dastur, learned counsel for the petitioner, says that the previous Income-tax Officer who passed the assessment order was aware of what all that was stated in the reasons recorded by the respondent for issuing the impugned notice. The respondent has merely reproduced in the reasons recorded what all that is contained in the audit report without even bothering to verify about what the decisions adverted to in the audit report relate to and this circumstance, more than anything else, clearly shows that the impugned notice was the result of non-application of mind. The audit report, instead of drawing attention to the legal position, has transgressed the permissible limits by expressing opinion on the law. No new facts or circumstances had come to the notice of the respondent warranting reopening of assessment; change of opinion with regard to the same material would not amount to valid exercise of power and, therefore, the notice impugned must be quashed. There is no rational connection between the material adverted to in the reasons recorded and the formation of the opinion and, therefore, in the absence of strict compliance with the statutory conditions adumbrated in section 147(b), the exercise of power is vitiated. The respondent's failure to produce the record concerning the so-called enquiries claimed to have been made before issuing the impugned notice vitiates the notice impugned. The second counter filed by Sri Dayanand, Income-tax Officer, seeking to support the action for issuing the impugned notice must be ignored totally since it refers to matters which are neither part of the audit report nor of the reasons recorded in the 'order sheet'. The trust not being a reward for the professions services rendered by the petitioner to the Chenai family, the proposed action to treat the same as professional income which has escaped assessment has no legal basis. The ruling of the Supreme Court in Indian and Eastern Newspaper society v. CIT [1979] 199 ITR 996 applies on all fours to the case on hand and, therefore, the impugned notice must be struck down.

86. On the other hand, Sri M. S. N. Murthy, learned counsel for the Revenue, has submitted that the 'information' in the possession of the respondent need not be external to the original record which constituted the basis for the previous officer who passed the assessment order. The information may relate to either facts or law; research into the facts or law also constitutes information within the meaning of section 147(b). Apart from the enquiries made by the respondent, reliance was placed upon the audit report for issuing the impugned notice. Sri Murthy pleaded that the ruling of the Supreme Court in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , must be treated as per incuriam since it is contrary to the law laid down by the earlier larger Benches, especially in Anandji Haridas and Co. P. Ltd. v. S. P. Kushare [1968] 21 STC 326, a decision rendered by a Bench of five judges of the Supreme Court.

87. Counsel for both sides, while advancing their contentions, placed reliance upon several decisions, which I shall advert to later.

88. Section 147 deals with income escaping assessment. In so far as it is material for the purpose of this case, in 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 assessment year to the Income-tax Officer or to 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 - 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 - 153 referred to as the relevant assessment year). '

89. The Income-tax Officer under section 147(a), has jurisdiction to make reassessment in cases where income has escaped assessment because of the omission or failure on the part of the assessee to file a return or failure to disclose true and full material facts necessary for the assessment. Even if there is no omission or failure on the part of the assessee, still the Income-tax Officer has jurisdiction to make reassessment under section 147(b) if he has reason to believe, in consequence of information in his possession, that there has been escapement of assessment in respect of the income chargeable to tax. Section 148(1) obligates the Income-tax Officer to issue notice in all cases pertaining to escapement of assessment falling within the ambit of section 147. Before issuing such notice, the Income-tax Officer is required by section 148(2) to record his reasons. A valid exercise of power under section 147(b) postulates that : (1) the information obtained must be subsequent to the previous assessment; and (2) such information must validly constitute the basis for the reason to believe that income chargeable to tax has escaped assessment.

90. The phrase 'reason to believe' occurs in both clauses (a) and (b) of section 147. Section 147(a) was considered by the Supreme Court in ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) . While holding that 'once there exist reasonable grounds for the Income-tax Officer to form the above believe (under section 147(a)) ', observed His Lordship Khanna J., speaking for the court (at page 445) :

'... that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must e held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. '

91. Amplifying the same, the learned judge observed (at page 448) :

'Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information' which were there is section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. '

92. Dealing with the powers of the Income-tax Officer to reopen the assessment, the learned judge ruled (at page 448) :

'The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are 'reason to believe' and not 'reason to suspect'. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken, the requirements of the law should be satisfied. '

93. Cautioning that the finality of an assessment proceeding cannot be disturbed except strictly in accordance with the relevant statutory provisions, the Supreme Court, speaking through his Lordship Pathak J. (as he then was), in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) laid down the rule (at page 1000) :

'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 proceedings, and within the confines provided by law... 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. '

94. Dealing with a punitive legislation concerning the island of Cyprus under which emergency powers were conferred on certain statutory authorities whereby the satisfaction of the statutory authority was the basis for taking punitive action, the Privy Council, while negativing the contention that the satisfaction being a subjective one and if the conditions for the exercise of power mentioned in the statute had been complied with, there should be no interference with the exercise of power observed in Ross-Clunis v. Papadopoullos [1958] 2 All ER 23 (PC) :

'Their Lordships feel the force of this argument, but they think that if it could be shown that there were no grounds on which the appellant could be so satisfied, a court might infer either that he did not honestly form that view or that, in forming it, he could not have applied his mind to the relevant facts. '

95. On the ground that there is an error of law on the face of the record, the petitioner is seeking a writ of certiorari. What is the record to be perused by the court in considering whether or not a writ of certiorari should be granted On this aspect, Lord Denning, in his judgment in Baldwin and Francis v. Patents Appeal Tribunal [1959] 2 All ER 433 , observed (at page 444) :

'What is the 'record' for this purpose It is not confined to the formal record of the proceedings such as... Certiorari goes to all inferior tribunals, not only to those which are courts of record but also to those which are not... When certiorari issues to any of these tribunals, there must be brought before the Queen's Bench not only the formal order of the tribunal but also, as the old writ said, 'all things touching the same' : and this includes the reasons for the decision when the tribunal gives them. '

96. After adverting to certain old rulings touching upon the issue of a writ of certiorari, The learned Law Lord further said (at page 445) :

'Now, turning to modern cases, it will be seen that, in our day too, the courts have proceeded on the footing that there should be included in the record, not only the formal order, but all those documents which appear therefrom to be the basis of the decision - that on which it is grounded. '

97. The record produced before us at the time of hearing consists of, among other papers, 'the order sheet' containing the reasons recorded and the audit report. The satisfaction reached by the respondent for coming to the conclusion that the trust amount of Rs. 5,00,000 was a professional receipt of the petitioner was claimed to be the result of the enquiries made by the respondent and the audit report as can be seen from paragraph 2 of the recorded reasons :

'I have come to know now from the enquiries and the audit report -I am, therefore, satisfied that the receipt of Rs. 5,00,000 is only a professional receipt of the assessee for the meritorious services which is camouflaged in the form of trust. '

98. No record whatsoever as to what were the enquiries made and the nature of such enquiries has been placed before us. The necessary link as to how the audit report reached the respondent is missing in the file. The correspondence in this regard must have consisted of forwarding letters from the audit party to the respondent but the same are conspicuous by their absence. The audit report was prepared by the Income-tax Officer (Internal Audit) and it was put up to the Inspecting Assistant Commissioner (Audit) as mentioned on the top at the left hand side of the audit report. The two endorsements made on the audit report were by the Income-tax Officer (Internal Audit). What was the view taken by the Inspecting Assistant Commissioner (Audit), and who instructed the respondent to record the reasons for reopening - whether the same was done by the respondent after considering the audit report or it was the result of someone instructing him to do so are all matters which assume great relevance in the context of the specific allegation of the petitioner that the respondent was pressurised into taking steps for reopening the concluded assessment and that he has not independently exercised the statutory power conferred upon him under section 147(b). I find it hard to brush aside these allegations in view of the failure on the part of the respondent to produce the relevant record concerning the forwarding letter, the correspondence culminating in the audit report reaching the respondent and the 'enquiries' claimed to have been made by the respondent for the purpose of reaching the satisfaction that the trust amount was a professional receipt in the hands of the assessee. The enquiries purported to have been made by the respondent constitute information within the meaning of section 147(b) and the power of reassessment under that provision can validly be made only if the information in the possession of the respondent led him to the belief that income chargeable to tax had escaped assessment. When the very existence of the respondent's 'reason to believe that income chargeable to tax has escaped assessment', is denied by the petitioner, it is incumbent upon the respondent to produce the record of which the necessary ingredient is the 'enquiries' claimed to have been made by him. The failure on the part of the respondent to produce this essential and relevant record leads me to infer that the satisfaction reached by him for holding that income has escaped assessment was based on the 'enquiries' made by him, is merely a pretence and that there is no genuine link between the formation of the opinion and the reasons stated to be the foundation for the opinion.

99. The original assessment made by the previous officer on November 5, 1983, was under section 143(3) of the Act after considering the evidence produced by the petitioner. Along with the original return filed by the petitioner, he enclosed a covering letter in which he clearly mentioned about the trust and one of the items in respect of which he claimed deduction in the return filed by him related to an amount of Rs. 13,005 representing interest on 7% Capital Investment Bonds of the face value of Rs. 5,00,000 received from the trustees of the trust in question. The then Income-tax Officer sought clarifications from the petitioner in respect of certain items mentioned in the return including the interest claimed relatable to the trust. The settlor, Mrs. F. R. Chenai, on September 19, 1983 submitted a letter to the then Income-tax Officer confirming the formation of the trust and stating 'that the gift of the above capital investment bond is exempted under the gift-tax under section 5(1)(iiic) of the Gift-tax Act 1958.' After considering these aspects and scrutinising the copy of the trust deed filed by the petitioner along with the return, the assessment was finalised on November 5, 1983. Mr. Waheed was the previous Income-tax Officer who finalised not only the assessment pertaining to the year 1983-84 but also for the two assessment years preceding that. It is the assertion of the petitioner that along with the return, he used to filed every year a detailed statement showing the fees received during the year from various clients and these details included the fees received from the members of the Chenai family. This plea of the petitioner has not been disputed. It, there, follows that the previous Income-tax Officer was fully conscious of the fact that the petitioner was the advocate for the Chenai family. When that is the case, to say that subsequent to the finalisation of previous assessment information was received by the respondent pointing an advocate-client relationship between the petitioner and the Chenai family which is the basis adverted to in the record of reasons for giving notice under section 148(1) for reopening the assessment, is without any factual foundation. It must also be noted in this context that, in respect of every matter pertaining to the Chenai family in which the petitioner entered appearance, he charged fees rather on the high side and disclosed the same in his returns. It is not the case of the Department that no fees were paid by the Chenai family or that the fees paid were nominal and that from the petitioner's side there was expectation of remuneration which had resulted in the creation of the trust. The advocate-client relationship between the petitioner and the Chenai family cannot, be any stretch of reasoning, be said to be information not in the know of the previous officer but came into the possession of the respondent subsequent to the assessment.

100. One of the reasons based upon which the satisfaction of the respondent that the trust amount was 'professional fees' is that :

'The petitioner was solely responsible for reduction of huge estate duty liability of late R. S. Chenai and his son's estate. He was also representing the legal heirs of both father and son ... In view of the substantial reduction gained by the effective representation of Mr. Y. V. Anjaneyulu, the wife of late Rasheed Shapoor Chenai, instead of payment of professional fee, preferred to create a trust in favour of the petitioner and his family members. '

101. This is at best only a vague feeling or to give a most charitable interpretation, a belief entertained by the respondent without any basis. It is incumbent upon the respondent to 'set out any material on the basis of which he had arrived at such belief so that the court could decide for itself whether there was any material on the basis of which the Income-tax Officer could reasonably entertain such belief. ' [See ITO v. Madnani Engineering Words Ltd. : [1979]118ITR1(SC) . ]

102. The estate duty case regarding the Chenai family was argued, according to the petitioner in the High Court unsuccessfully by Shri P. Ramachandra Reddy, the former Advocate-General, and successfully in the Supreme Court by Shri N. A. Palkhivala. The Income Tax Reports in Khorshed Shapoor Chenai v. Asst. CED : [1980]122ITR21(SC) shows the name of Shri Palkhivala as the senior advocate who appeared for Mrs. Chenai. Names of six advocates who appeared along with him also are printed in the law report - one of them is the petitioner. This was so because the petitioner also filed his vakalat for the party and the fees he claimed for that appearance were Rs. 5,000 which he disclosed in the return filed by him. The senior advocate, Shri Palkhivala, charged Rs. 20,000 according to the petitioner and this was not denied by the respondent. When the matter was argued by an eminent counsel like Shri Palkhivala, it would be totally unrealistic to say that 'the petitioner was solely responsible for reduction of the huge estate duty liability. '

103. In the record of reasons, there is no reference at all that the previous officer had 'lost sight of the fact' that the petitioner was responsible for the benefit that accrued to the Chenai family and, therefore, the trust was created as a remuneration for the professional services rendered by him. In the audit report, it is stated that the previous officer lost sight of the fact that the receipt of Rs. 5,00,000 by the petitioner was for the services rendered by him and, therefore, it was assessable as professional receipt. Reference is made to four decisions :

(1) Kalyanji Mavji and Co.'s case : [1976]102ITR287(SC) ;

(2) Krishna Menon's case ;

(3) George Thomas' case : [1985]155ITR78(Bom) ;

(4) Thakar Das Bhargava's case : [1960]40ITR301(SC) ;

104. Except George Thomas' case, the other cases were reported long prior to the finalisation of the original assessment. Before recording the reasons, the respondent did not appear to have verified as to what those cases are about and whether they have any application for taking action under section 147(b).

105. In Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) , the scope of section 34(1) (b) of the Indian Income-tax Act, 1922, which empowers the officer to issue notice for reopening the assessment if he has (at page 296) :

'... in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year... '

fell for consideration before the Supreme Court. A Bench of two judges, speaking through his Lordship Fazal Ali J., after reviewing the case law on the subject, held (at page 296) :

'On a combined review of the decisions of this court, the following tests and principles would apply to determine the applicability of section 34(1) (b) to the following categories of case :

(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority;

(3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment;

(4) where the information may be obtained even from the record of the original 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.

106. If these conditions are satisfied then the Income-tax Officer would have complete jurisdiction to reopen the original assessment. It is obvious that where the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1) (b) would have no application. '

106. Referring to the second proposition above, a three-judge Bench of the Supreme Court, speaking through his Lordship Pathak J. (as he then was) in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) :

'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, an error discovered on a reconsideration of the same material (and no more) does not give him that power. '

107. Krishna Menon's case was actually reported in : [1959]35ITR48(SC) but not in as wrongly stated in the audit report. In that case, a teacher who taught Vedanta philosophy to his disciples was subjected to tax in respect of the gifts of money given to him on several occasions by his disciples. The contention that he was not liable to tax on the amounts received from his disciples as he was not carrying on any vocation was rejected, and it was held that, in teaching Vedanta philosophy, he was carrying on a vocation and the payments received by him from his disciples were receipts from his vocation. The payments were made by the disciples because they obtained the benefit of his teachings; there was a regularity in the payments received. In CIT v. Thakar Das Bhargava : [1960]40ITR301(SC) , and advocate agreed to defend certain accused persons in a criminal trial on condition that he would be provided with a sum of Rs. 40,000 for a public charitable trust which he would create. When the trial was over, the advocate was paid a sum of Rs. 32,000 and he created a trust of that amount by executing a trust deed. The Supreme Court held that (at page 306) :

'It was the assessee's own voluntary desire that he would create a trust out of the fees paid to him for defending the accused persons in the Farrukhnagar case. Such a voluntary desire on the part of the assessee created no trust, nor did it give rise to any legally enforceable obligation... The money when it was received by the assessee was his professional income, though the assessee had expressed a desire earlier to create a charitable trust out of the money when received by him. Once it is held that the amount was received as his professional income, the assessee is clearly liable to pay tax thereon. '

108. In that view, the Supreme Court set aside the judgment of the High Court of Punjab. In George Thomas (K.) (Dr.) v. CIT : [1985]156ITR412(SC) , certain sums were received by the assessee as donations through the Indian Christian Crusade from his friends in the U. S. A., who believed in the cause which he sponsored and for helping the movement - a movement for the spread of religion and for fighting the forces of atheism. The question was whether these amounts were assessable to tax. Confirming the decision of the High Court that the amounts were liable to tax, the Supreme Court held (at page 420) :

'It has been established that the assessee was carrying on a vocation, the vocation of preaching of Christian Gospel and helping antiatheism was the vocation of his life. He was running a newspaper in aid of that. The donations received from America were to help him for the said purpose. They arose out of his carrying on and continued so long as he carried on this avocation or vocation. These receipts, therefore, arose out of his vocation. These were, therefore, his income. '

109. Although the audit report refers to Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , the recorded reasons do not advert to that case. In the recorded reasons, it is stated :

'This (trust amount) has to be assessed in the hands of the assessee by taking recourse to section 147(b) in view of the Supreme Court decisions in the case of Kalyanji Mavji : [1976]102ITR287(SC) ; P. Krishna Menon and K. George Thomas [1985] 155 (St.) 78.

110. Kalyanji Mavji's case : [1976]102ITR287(SC) as already noticed above is no longer good law in view of the statement of law contained in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . The reasons recorded by the respondent do not advert to the existing legal position. He was not aware of what Krishna Menon's case : [1959]35ITR48(SC) is about. He was not even conversant with the citation - in this respect, the audit report as well as the second respondent stand on the same footing, in that both the documents mention the citation of Krishna Menon's case as [1959] 29 ITR 954, whereas the case was in fact reported in : [1959]35ITR48(SC) . The citation of George Thomas' case was given as : [1985]155ITR78(Bom) , in the audit report. Under the caption' News from the Supreme Court' at page 78 of 155 ITR (St.), there is a brief summary about George Thomas' case. The full report is in : [1985]156ITR412(SC) . Although the full report was already published by the date of the audit report, no attempt was made to ascertain and refer to the same. The second respondent, evidently, while recording the reasons looked into : [1985]155ITR78(Bom) and after not finding the same, merely referred to the citation in the reasons recorded as K. Jeorge Thomas : [1985]155ITR78(Bom) . This clearly indicates that he was not aware of the decision in George Thomas' case : [1985]156ITR412(SC) and the fact that Kalyanji Mavji's case : [1976]102ITR287(SC) was overruled by the subsequent decision of the Supreme Court in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . He was also not aware of what Krishna Menon's case : [1959]35ITR48(SC) was about as he did not know its citation. The only inference that must be drawn in the circumstances is that the respondent, without applying his mind, has recorded the reasons for reopening the assessment. As already noticed, except George Thomas' case : [1985]156ITR412(SC) which was rendered by the Supreme Court in 1985 subsequent to the finalisation of the previous assessment, all the other cases referred to in the record of reasons, it cannot be said, were not in the know of the previous officer who finalised the assessment in 1983. The second officer was not even aware of what George Thomas' case : [1985]156ITR412(SC) was about and he did not apply his mind as to how the cases mentioned in the audit report could form the basis for reopening the assessment. The previous assessment, as already noticed supra, was made after conscious application of mind and after considering the evidence including the trust deed and the confirmation letter submitted by the settlor. Neither the audit report nor the record of reasons discloses what was the information that came into the possession of the respondent subsequent to the previous assessment. His belief that there was such information is not determinative as ruled by the Supreme Court in ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) .

111. It is true as rightly contended by Shri Murthy for the Revenue that the word 'information' includes information as to the true and correct state of law and so would cover information as to relevant judicial decisions. In Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , the Income-tax Officer, following the earlier decision of the Patna High Court in Kamakshya Narayan Singh's case : [1946]14ITR673(Patna) , omitted to bring to assessment a sum of Rs. 93,604, representing interest on arrears of rent due to the assessee in respect of agricultural land on the ground that the amount was agricultural income. The Privy Council subsequently ruled on appeal from that decision that the amount in question was not agricultural income. Thereafter, the Income-tax Officer initiated reassessment proceedings under section 34(1) (b) to bring that amount to tax. Rejecting the contention that the decision of the Privy Council would not constitute 'information', the Supreme court held (headnote) :

'The word 'information' in section 34(1) (b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions. '

112. Interpreting section 34(1) (b), his Lordship Gajendragadkar J. (as he then was) held (at pages 5,6) :

'It is clear that two conditions must be satisfied before the Income-tax Officer can act under section 34(1) (b). He must have information in his possession, which, in the context, means that the relevant information must have come into his possession subsequent to the making of the assessment order in question and this information must lead to his belief that income chargeable to income-tax has escaped assessment for any year... '

113. The income in dispute in that case was excluded from tax in the first instance by the Income-tax Officer because of the binding decision of the Patna High Court. When that decision was overruled by the Privy Council on appeal, the law declared by the Privy Council was bound to be implemented and, therefore, the Income-tax Officer was under a legal duty to reopen the assessment. In that context, speaking for the Supreme Court, his Lordship Gajendragadkar J. (as he then was), observed (at page 8) :

'In our opinion, even in a case where a return has been submitted, if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment. '

114. Dealing with the jurisdiction exercisable under section 147(b), his Lordship Shah J. (as he then was), speaking for the court in CIT v. Raman and Co. : [1968]67ITR11(SC) observed (headnote) :

'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 material 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. '

115. After stating the rule, the court in that case examined the notice issued by the Income-tax Officer for reassessment and found that it suffers from a serious infirmity - it did not contain the reasons to establish the existence of the plea that income chargeable to tax has escaped assessment. These two rulings on which strong reliance was placed by Shri Murthy, learned counsel for the Revenue, do not lend any support to sustain the impugned order which is silent as to what was the information that came into the possession of the second Officer and how it constituted the basis for the formation of the opinion that income chargeable to tax has escaped assessment. As already noticed above, no fresh information had come to the notice of the respondent subsequent to the previous assessment and this is not a case where the respondent, after an investigation into the facts or research into the facts or law not done by the previous officer, came into possession of any information in consequence of which he has reason to believe that income chargeable to tax has escaped assessment.

116. The facts and circumstances which were in existence at the time when the original assessment was made without anything more would not give jurisdiction to the respondent to reopen the assessment by coming to a conclusion different from what has been arrived at by the previous officer. In other words, mere change of opinion is no valid ground for making reassessment under section 147(b). A Division Bench of the Bombay High Court, speaking through Chandrachud J. (as he then was), in CIT v. Holck Larsen : [1972]85ITR467(Bom) , interpreting section 34(1) (b) held (at page 479) :

'But, it is still true to say that a mere change of opinion would not justify the reopening of an assessment under section 34(1) (b) of the Act. It does not matter whether the Income-tax Officer obtains information from his own record or whether he receives information from an outside source. What is obligatory in order to apply section 34(1) (b) is that he must have 'information' in his possession in consequence of which he has reason to believe that the income has escaped assessment or is under-assessed, etc. The distinction really consists in a change of opinion unsupported by subsequent information on the one hand and a change of opinion based on information subsequently obtained, on the other. In the former class of cases, the assessment proceedings are attempted to be reopened without the discovery of an error and without receiving any information as to fact or law. The Income-tax Officer has a fresh look at the earlier assessment order and he decides to adopt a different approach to the matter. Such a reopening is based on a 'mere' change of opinion and is without jurisdiction. The Income-tax Officer cannot reopen an assessment at his 'sweet will and pleasure'. '

117. In Kalyanji Mavji's case : [1976]102ITR287(SC) , while stating that in the original assessment, if the income liable to tax had escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer, the assessment could be reopened and the assessee should not be allowed to take advantage of a mistake committed by the taxing authority (which is no longer good law in view of the rule stated in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) ), the Supreme Court quoted with approval the aforesaid statement of law laid down by the Bombay High Court. In CIT v. Dinesh Chandra H. Shah : [1971]82ITR367(SC) , the Supreme Court faulted the reopening of assessment under section 34(1) (b) on the ground that (headnote) :

'mere change of opinion could not be a valid ground for reopening an assessment under section 34(1) (b) of the Act. '

118. A vague feeling that certain transactions were not genuine and, therefore, the assessment could be reopened under section 148 would not be a valid reason for according permission under section 151(2) for such reopening was the rule laid down in Chhugamal Rajpal v. S. P. Chaliha : [1971]79ITR603(SC) . From the circumstance that the assessing authority, while making the original assessment, put a tick mark upon the disputed amount of assessment, the Bombay High Court in CIT v. Bhagwandas K. Bros. : [1973]91ITR256(Bom) drew the inference that there was conscious application of mind and by coming to a different conclusion the successor officer could not justifiably reopen the assessment under section 34(1) (b) (at page 260, 261) :

'That there was conscious application of mind by the Income-tax Officer when he passed the original assessment order is disclosed by the fact that while passing the original assessment order, he put his tick mark upon the amount of the agency firm for the first assessment year, viz., 1955-56. The putting of this tick disclosed that there was a conscious application of his mind by the Income-tax Officer when he passed the original assessment order. He knew very well then that no interest was charged to the agency firm for each one of the three relevant years. Mere fact that in the subsequent year 1959-60, the Income-tax Officer took a different view for failure to charge interest to the agency firm cannot result in discovery of information which would justify the issue of a notice under section 34(1) (b). All relevant facts and the inferences to be drawn therefrom were before and known to the Income-tax Officer when he passed the original assessment orders and a mere change or difference in opinion, while assessing for the subsequent years, could not justify an officer to issue a notice under section 34(1) (b) of the Act. '

119. That even if it were a case where, at the time of the original assessment, the assessing authority, in spite of the information available in the record of the case, failed to consider the legal aspect, it would not give rise to valid exercise of jurisdiction under section 147(b) for reopening the assessment, was the view taken by a Division Bench of the Allahabad High Court in CIT v. Nem Kumar Jain Ratan Kumar : [1980]125ITR674(All) , following the law laid down by the Supreme Court in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . The Division Bench stated the proposition thus (at page 681) :

'... it is not disputed that the present case is not one of information concerning the facts or particulars, but is one of information regarding instruction or knowledge as to law. That being so, unless the information as to law is received from a formal source, it cannot constitute an information within the meaning of section 147(b) so as to justify the Income-tax Officer to reopen the assessment. The Income-tax Officer framing the original assessment did not apply his mind to the legal aspect applicable to the facts which had been disclosed by the assessee and that being so, the successor-Income-tax Officer could not reopen the assessment on the pretext that he informed himself of the correct legal position from the assessment of the firm, which cannot be regarded as a formal source. It would only amount to a fresh look on the facts already on record and hence the proceedings were invalid. '

120. The respondent has not discovered any error in the view taken by the predecessor-officer but he only formed an opinion different from the one arrived at by the previous officer. The formation of the opinion has no nexus with the material disclosed in the record of reasons. It is, therefore, a clear case of change of opinion without anything more falling within the ambit of the dicta laid down in the rulings adverted to supra. Even 'an error discovered on a reconsideration of the same material (and no more) does not give him that power' is the principle unequivocally laid down by the Supreme Court in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . That part of the note of the audit party which mentions the law which escaped the notice of the Income-tax Officer constitutes information within the meaning of section 147(b) and the part which embodies the opinion of the audit party regarding the interpretation of the law cannot be taken into account was the rule stated by the Supreme Court. What is the duty of the Income-tax Officer when he seeks to reopen an assessment based on an audit report was stated by the Supreme Court in the above said Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) :

'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. '

121. Applying this test, it must be held that the impugned notice is clearly illegal.

122. As already noticed, in the record of reasons, the respondent has not stated the effect and consequence of the law mentioned in the audit report; in fact, the reasons were recorded without independent application of mind and mechanically complying with the direction in the audit report :

'The Income-tax Officer may be directed to take action under section 147(b) by citing the four Supreme Court cases referred to above as information for forming a belief to reopen assessment. '

123. Sri Murthy, learned counsel for the Revenue, has endeavoured to convince us that the Supreme Court's decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , in so far as it overrules the dicta in Kalyanji Mavji's case : [1976]102ITR287(SC) , must be treated as per incuriam. The ratio laid down in Anandji Haridas and Co. v. S. P. Kushare : [1968]1SCR661 by a larger Bench of five judges was not noticed by their Lordships while rendering the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . Further, the statement of law in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) that 'an error discovered on a reconsideration of the same material and no more does not give him' (Income-tax Officer) the power to reopen cannot be supported on the basis of Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) , A. Raman and Co.'s case : [1968]67ITR11(SC) and Bankipur Club Ltd. v. CIT : [1971]82ITR831(SC) , although these three rulings were referred to by his Lordship Pathak J. (as he then was), speaking for the court, in support of the above proposition. I cannot agree.

124. When a decision is rendered without noticing a binding precedent or an inconsistent statutory provision, it is per incuriam and, therefore, loses its efficacy as a precedent : except the parties to the lis it binds none. The application of the doctrine of per incuriam was considered by the Court of Appeal in a recent decision in Duke v. Reliance Systems Ltd. [1987] 2 All ER 858 (CA), wherein Sir John Donaldson M. R. held (at p. 860) :

'I have always understood that the doctrine of per incuriam only applies where another division of this court has reached a decision in the absence of knowledge of a decision binding on it or a statute, and that in either case it has to be shown that had the court had this material, it must have reached a contrary decision. That is per incuriam. I do not understand the doctrine to extend to a case where, if different arguments had been placed before it or if different material had been placed before it, it might have reached a different conclusion. '

125. Very rarely, this principle comes into play. The statement of law laid down in Morelle v. Wakeling [1955] 2 QB 379 that the principle should be limited to 'decisions given in ignorance or forgetfulness of some inconsistent statutory provision or of some authority binding on the court concerned' was, approvingly, referred to by his Lordship Krishna Iyer J., in Mamleshwar Prasad v. Kanahaiya Lal : [1975]3SCR834 . 'Thus the doctrine' observed the learned judge :

'will not be extended to cases which were merely not fully argued or which appear to take a wrong view of the authorities or to misinterpret a statute. '

126. Article 141 of the Constitution of India enjoins that the law declared by the Supreme Court shall be binding on all courts in the country. When there is a conflict between two decisions rendered by the Supreme Court, one by a larger Bench and the other by a smaller Bench, the decision rendered by the former constitutes a binding precedent : See Mattulal v. Radhe Lal : [1975]1SCR127 .

127. I entirely disagree with the submission of learned counsel for the Revenue that the statement of law extracted supra laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) falls within the inhibition of the doctrine of per incuriam. Anandji Haridas and Co.'s case : [1968]1SCR661 arose under the C. P. and Berar Sales Tax Act, 1947. The assessees did not submit their sales tax returns for the period subsequent to April, 1952. A notice was issued by the Assistant Commissioner of Sales Tax on September 19, 1955, calling upon them to show cause why action should not be taken against them under sections 10(3) and 11(4) (a) on account of their failure to furnish the returns. Similar notices were also issued for the period up to December 31, 1955. The assessees objected to the issue of notices on the ground that they were barred by time. Thereafter, fresh notices were issued on July 8, 1959, and the same were questioned. Section 11A conferred power on the Commissioner to make assessment or reassessment if he is satisfied that 'in consequence of any information which has come into his possession' any turnover of a dealer has escaped assessment. His Lordship Hegde J., speaking for the majority, after referring to certain decisions of the Supreme Court that arose under the Income-tax Act, including Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) held (at page 337 of 21 STC) :

'In our judgment the knowledge of the fact that the appellants had not submitted their quarterly returns as well as the treasury challans, constituted an information to the assessing authority from which it could be satisfied and in fact it was satisfied that the turnovers with which we are concerned in this case had escaped assessment. '

128. Anandji Haridas and Co.'s case : [1968]1SCR661 is an authority for the proposition that knowledge on the part of the assessing authorities about the fact that the assessees had neither submitted their returns nor treasury challans in proof of payment of tax due from them is a circumstance from which it is reasonable 'to hold that in consequence of the information that the appellants had not submitted their returns as well as the treasury challans, the assessing authority should have been satisfied about the escapement of assessment. ' The principle on which the decision was rendered by the majority in Anandji Haridas and Co.'s case : [1968]1SCR661 cannot be construed in any manner as contrary to the ruling in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . Information does not consist of mere availability of the record. To inform means to impart knowledge was the view taken by the Kerala High Court in United Mercantile Co. Ltd. v. CIT : [1967]64ITR218(Ker) and while referring to that case, Hegde J. held (at p. 337 of 21 STC) :

'... to 'inform' means to 'impart knowledge' and a detail available to the Income-tax Officer in the papers filed before him does not be its mere availability become an item of 'information'. It is transmuted into an item of information in his possession only if and when its existence is realised and its implications recognized. '

129. Anandji Haridas and Co.'s case : [1968]1SCR661 does not lay down the proposition that, when an assessment was made considering all the material on record, still, on reconsideration of that very record, the same officer or a subsequent officer can reopen the assessment. The crucial test laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is whether, on the first occasion, the assessing authority had considered all the material. If he had done so, he or his successor cannot discover an error 'on a reconsideration of the same material' in order to reopen the assessment. It is impossible to entertain even a remote doubt that had Anandji Haridas and Co.'s case : [1968]1SCR661 been noticed by their Lordships of the Supreme Court, while considering Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , they would not have laid down the aforesaid principle.

130. In Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , the very character of the income involved underwent a radical change because of the later decision of the Privy Council. The opinion formed by the Income-tax Officer when the first assessment was made was based on the binding decision of the Patna High Court which was holding the field and when that decision was set aside on appeal by the Privy Council, it was incumbent upon the assessing authority to follow the Privy Council's decision. In CIT v. A. Raman and Co. : [1968]67ITR11(SC) , the discovery that income chargeable to tax had escaped assessment was made for the first time on considering the material. It was not a case of reconsideration of the available material. The expression 'information', observed his Lordship, Shah J., in the above said case (at page 15) :

'in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. '

131. It does not lay down that, on reconsideration of the same material, the assessing authority can reopen the assessment. It must also be mentioned in this context that the assessment order impugned in the above case was set aside on the ground that based on the information in the possession of the Income-tax Officer, he could not have formed the belief that income chargeable to tax escaped assessment.

132. In Bankipur Club Ltd. v. CIT : [1971]82ITR831(SC) , the assessee-club had received certain amounts as guest charges from its members and the same were shown to the Income-tax Officer. The officer, while making the assessment order, held that these amounts were not liable to tax. Sub-sequently, a notice under section 34(1) (b) was issued to reopen the assessment. His Lordship Hegde J., speaking for the Division Bench, consisting of himself and his Lordship, Grover J., held (at page 834) :

'In these cases it is submitted that all the facts were placed before the Income-tax Officer when he passed the original orders of assessment. The fact that the club had received certain amounts as guest charges from its members had been placed before the Income-tax Officer. It is not the case of the Income-tax Officer that he did not come to know all the relevant facts when he made the original orders of assessment. It is also not his case that at the time he made those orders he was not aware of the true legal position. It was for the Income-tax Officer to show that he had received some information subsequent to his passing the original orders of assessment. No such material was placed before the Tribunal. That being so, the Tribunal, in our opinion, was right in holding that the Income-tax Officer was incompetent to initiate proceedings under section 34(1) (b). '

133. I, therefore, reject the contention of learned counsel for the Revenue that the above three cases do not support the view taken in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) that, on a reconsideration of the same material and no more, the Income-tax Officer has no power to reopen the assessment.

134. Any proposition of law enunciated by any court contrary to the rule laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) does not reflect the correct legal position. A Division Bench of the Punjab and Haryana High Court in CIT v. Yash Pal Mehra and Co. , following the rule in Kalyanji Mavji's case : [1976]102ITR287(SC) , held (at page 746) :

'Whatever be the source of knowledge, what is essential is that it must be something of which the Income-tax Officer was not truly conscious previously. Thus, where he is not conscious of the true position in law or the true facts in existence, he may reopen the assessment on acquiring knowledge of the same. '

135. In S. B. (House and Land) Pvt. Ltd. v. CIT : [1979]119ITR785(Cal) , a Division Bench of the Calcutta High Court, interpreting section 147(b) and following Kalyanji Mavji's case : [1976]102ITR287(SC) and approvingly referring to Holck Larsen's case : [1972]85ITR467(Bom) , observed (at page 802) :

'Therefore, if there is new knowledge or new information and such knowledge leads to a change of opinion, then, in our opinion, as was observed by the court in the case of CIT v. H. Holck Larsen : [1972]85ITR467(Bom) , that would not be a case of mere change of opinion supported by or in consequence of the knowledge received by the Income-tax Officer and such a change of opinion will not be outside the scope of clause (b) of section 147 of the Income-tax Act, 1961. As, in this case, there was such an information or knowledge that the original assessment might have been wrong and the Income-tax Officer because of that information had to re-examine the facts of this case and formed the belief that the income had escaped assessment, in our opinion, it cannot be said that the proceedings were not validly initiated. '

136. Sri Murthy, learned counsel for the Revenue, placing strong reliance upon these two decisions, contended that the view entertained by the respondent that the earlier assessment might be wrong, cannot be faulted. I see no merit in this contention. CIT v. Yash Pal Mehra and Co. is no longer good law since it is based entirely on the reasoning in Kalyanji Mavji's case : [1976]102ITR287(SC) . S. B. (House and Land) Pvt. Ltd. v. CIT : [1979]119ITR785(Cal) was rendered before the Supreme Court's decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) and, therefore, the above said proposition laid down by the Calcutta High Court in S. B. (House and Land) Pvt. Ltd. v. CIT : [1979]119ITR785(Cal) , cannot be said to be good law any more in so far it is repugnant to the rule laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . The Calcutta High Court itself has not followed the same in its subsequent decisions. In Punjab produce and Trading Co. Ltd. v. CIT : [1986]158ITR524(Cal) , a latter Division Bench of the Calcutta High Court, following Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) held (at page 530) :

'On such facts as are found in this case, the Income-tax Officer has taken a different view on the application of those provisions which would amount to a change of opinion on material already considered by him. In Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , in Supreme Court has held that an error discovered on a reconsideration of the same material (and no more) does not give him that power to reopen the assessment. It is not a case where, on the facts found by the Income-tax Officer one and only one conclusion would automatically follow upon that fact and no controversy in law would arise on that point. The Income-tax Officer in the original assessment understood the provisions in a particular way and applied the same and the Revenue Audit Party expressed the opinion to the contrary. It shows that there is a divergence of opinion and there is a controversy in law. Unless the controversy is settled by any judicial pronouncement, the Income-tax Officer cannot, solely relying on the opinion of the Revenue Audit Party, reopen the assessment. It may be that the view taken on the interpretation of sections 70 - 74 is the correct view but it is not for the Revenue Audit Party to interpret the law. '

137. In Musasons (P.) Ltd. v. CIT : [1978]111ITR47(Mad) while making the original assessment, the Income-tax Officer adopted the sum assessable under the head 'Dividends' as the gross amount of dividend, received by the assessee-company. The audit party, while going through the file, noticed that a part of the amount borrowed by the assessee went into investment in shares. When notice was issued under section 147(b) for reopening of assessment, the same was challenged on the ground that what was pointed out by the audit party was not 'information'. The Madras High Court held (at page 49) :

'it is not disputed before us that the entire borrowals were not utilised for the purpose of business and part of the borrowals was utilised for making investment. If so, if the dividends were assessed without deducting the interest referable thereto, it would inevitably follow that the ultimate tax payable on the total income was lower than the actual tax payable because the rate of tax payable on inter-corporate dividend was certainly lower than the rate applicable to the other income. Consequently, it is clear that the requirements of section 147(b) as to the income having escaped assessment is satisfied in the present case. '

138. This is not a case of reconsideration of the same material. The Income-tax Officer had no knowledge even on the first occasion about what was pointed out by the audit party. In Zoraster and Co. v. CIT , at the time of the original assessment, the Income-tax Officer considered the debit balances in the accounts of only three parties while the audit party pointed out the names of eight parties to whom interest-free advances were given by the assessee.'None of these accounts was considered by the Income-tax Officer at the time of the original assessment when reassessment proceedings were initiated under section 147(b). ' Upholding the view taken by the Income-tax Appellate Tribunal that reassessment was made in accordance with law, the Rajasthan High Court held (at pages 860, 861) :

'We have given our thoughtful consideration to the facts and circumstances of the case and the arguments advanced by learned counsel for both the parties so far as the proposition laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is concerned do not arise in the present case. A perusal of the order of the Tribunal clearly shows that the Income-tax Officer had acted upon certain factual sources of information made available in the report of the internal audit party. It was clearly pointed out in the report by the audit party that there were eight parties to whom interest-free advanced were given, while at the time of original assessment, only the debit balances of three parties were considered by the Income-tax Officer. Another information given in the report of the audit party was that though, at the time of original assessment, only debit balances of Rs. 8,47,274 were considered by the Income-tax Officer, the audit note showed Rs. 16.8 lakhs over and above the same. In our view, the Tribunal was justified in holding that it was a case of receiving subsequent factual information by the Income-tax Officer which was not considered by him at all at the time of original assessment. We are satisfied that in the facts and circumstances of this case, the audit note pointed out certain facts which had constituted subsequent information within the meaning of section 147(b) of the Act. '

139. A circular issued by the Central Board of Direct Taxes on February 28, 1979, containing information regarding the decision of the Supreme Court in V. S. S. V. Meenakshi Achi v. CIT : [1966]60ITR253(SC) , which laid down that rubber replantation subsidy received by an assessee was income in his hands fell for consideration before a Division Bench of the Kerala High Court in CIT v. West Coast Industrial Co. Ltd. : [1987]168ITR72(Ker) . The Income-tax Officer, on receipt of the circular, reopened the assessment. The assessee's objection was upheld by the Income-tax Appellate Tribunal based on the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . On a reference whether the reopening of the assessment was valid, the Division Bench held (at page 74) :

'It is not the object of the circular to express an opinion, for on such opinion was called for. Once the Supreme Court has pronounced upon the matter, the question is, in the absence of subsequent overriding legislation, concluded and the opinion of any other person is of on relevance. Whatever opinion may have been expressed in the circular, whether it is the opinion of the Board or any other agency, such opinion is of no consequence or relevance, apart from a mere reference to the authoritative pronouncement on the matter by the Supreme Court. The object of the circular is, therefore, merely conveyance of the information regarding that pronouncement by the highest court of the land. We do not, therefore, see any inconsistency between the decision of the Income-tax Officer to reopen the assessment and the principle stated by the Supreme Court in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . The principle is that while the Income-tax Officer should not be influenced by the opinion of the Board or the audit party, he can take note of the information communicated to him He acts in a quasi-judicial capacity and must, therefore, act independently and on the strength of the information available to him. The mere fact that a circular contains, apart from the information, the opinion of the writer, would not by itself make the information invalid or unacceptable, provided it is separable from the opinion. While the officer must eschew the opinion, he is entitled to act on the information communicated. '

140. These rulings, upon which strong reliance was placed by learned counsel for the Revenue, do not, in my view, lend any support to the case of the Department.

141. Although learned counsel for the petitioner advanced arguments that every gift received by a professional person does not amount to reward for the professional services and cited in support thereof decisions in Mahesh Anantrai Pattani v. CIT : [1961]41ITR481(SC) ; CIT v. E. D. Sheppard : [1963]48ITR237(SC) and CIT v. Dr. B. M. Sundaravadanam [1984] ITR 333 , I feel it unnecessary to consider this aspect as the impugned notice is clearly violative of section 147(b).

142. The supplementary counter-affidavit filed on behalf of the Department by Shri Dayanand, Income-tax Officer, who had nothing to do with the impugned notice cannot be accepted. Apart from the fact the permission of this court was not obtained under rule 12 of the Writ Proceeding Rules for filing such a second counter, it refers to new facts not found either in the audit report or in the grounds recorded by the second respondent; they are not even adverted to in the first counter-affidavit. The proceedings to reopen the assessment were initiated by Shri Jagadiswar Rao, Income-tax Officer, the second respondent herein. Shri Dayanand had nothing to do with the issue of notice. The information which Shri Dayanand seeks to place before this court by way of supplementary counter-affidavit, one day after the arguments were advanced by learned counsel for the petitioner, does not pertain to what was claimed to have been in existence when the impugned notice was issued under section 147(b) : It refers to what Shri Dayanand considers to be valid reasons for issuing the impugned notice. The assertions of Shri Dayanand in the supplemental affidavit that, because of the 'meritorious services/advice given by the petitioner to the Chenai family, huge reduction/tax savings have resulted to the Chenai family, ' and that Mrs. F. R. Chenai transferred her half share in 'Shapoor House' to Shri D. S. Chenai during the previous year relevant to the assessment year 1983-84 'without attracting capital gains tax, possible estate duty (as she was aged about 78 years) and also gift-tax, ' are totally incorrect. From the supplemental reply affidavit filed by the petitioner and copies of gift-tax assessment orders produced before us, it is clear that the Department levied gift-tax of Rs. 2,72,000 for the assessment year 1983-84 in the hands of Mrs. F. R. Chenai and Rs. 17,470 in the hands of Mrs. K. S. Chenai. This supplemental affidavit of Shri Dayanand, therefore, deserves to be ignored in toto.

143. Openness, fairness and impartiality must be discernible in the exercise of power, both statutory and administrative : legality and legitimacy rest on them. The very second sentence in the audit report shows that the earlier assessment of the petitioner was subjected to audit twice; first, by the Internal Audit Party (I. A. P.) and second, by the Revenue Audit Party (R.A.P.). On both the occasions, obviously there had been no discovery that any part of the petitioner's income changeable to tax had escaped assessment. Had it not been so, reassessment proceedings would have been initiated long ago. The present audit report is the third one in the series of unabated discovery-targeted attempts. Not only was the record pertaining to the 'enquiries' claimed to have been made by the respondent for reopening the assessment not produced, the record pertaining to the aforesaid internal audit and revenue audit was also not produced. What perplexing facts the withheld record would have unfolded is only in the realm of conjecture. In this background, I find in very hard to ignore the contention of learned counsel for the petitioner that the respondent was pressurised into initiating action for reopening the assessment. Any further reference to the question as to why and at whose instance the reassessment proceedings have been initiated, I think, in the circumstances, is unnecessary.

144. For the foregoing reasons, the writ petition is allowed with costs; and the impugned notice issued by the respondent is quashed.

145. Advocate's fee Rs. 400.

on a difference of opinion

Jayachandra Reddy, J.

146. This matter has come up before me because of the difference of opinion between the two learned judges of the Division Bench of this court. The facts are fully set out in both the judgments of my learned brothers. Therefore, it is unnecessary to state the entire facts in detail once again. The question that arises for consideration precisely is, what is the scope of section 147(b) of the Income-tax Act (for short 'the Act'), and whether, in the present case, the ingredients of section 148(1) read with section 147(b) of the Act are satisfied.

147. The petitioner was a leading legal practitioner and he appeared in many matters for one Mrs. F. R. Chenai, an old lady who was a close family friend and well-wisher of the petitioner and the members of his family. She created a trust for the benefit of the petitioner called 'Anju Family Trust' on August 27, 1982, and the same was registered. The corpus of the trust was 7% capital investment bonds of the value of Rs. 5,00,000. As per the trust deed, the petitioner is entitled to the income from the trust fund during his lifetime and after his demise, his wife will be entitled to the same. After the lifetime of his wife, the trust fund is to be divided into five equal shares and the trustees are required to deliver one equal part of the trust fund to each of the five children of the petitioner. Mrs. K. S. Chenai, the widowed daughter-in-law of the settlor and Mr. Ratnakar, the son of the petitioner are the trustees. The petitioner filed the income-tax returns for the assessment year 1983-84 showing a gross income of Rs. 2,57,571 and after claiming statutory deductions, the net income returned was Rs. 2,40,245. One of the items on which the petitioner claimed deduction was a sum of Rs. 13,000 representing the interest on 7% capital investment bounds of the face value of Rs. 5 lakhs received from the trustees of the trust. Along with the returns, the petitioner also forwarded a letter dated July 27, 1983 explaining the salient features of the trust. Before finalising the assessment, the Income-tax Officer verified from the settlor about the trust and a letter was submitted by her on September 19, 1983, through the petitioner confirming the factum of creation of the trust. The then Income-tax Officer, one Mr. Waheed, finalised the assessment and passed an order under section 143(3) of the Act on November 5, 1983. Nearly four years and four months thereafter, the impugned notice was issued under section 148(1) of the Act seeking to reopen the assessment and the petitioner was called upon to deliver within 30 days from the date of service of the notice, a return in the prescribed form. The petitioner, accordingly, filed a return under protect and without prejudice to his contentions that the respondent assumed jurisdiction under section 147 of the Act without the conditions for the assumption of such jurisdiction being satisfied. He also requested the respondent to communicate the reasons for reopening the assessment. But the reasons have not been given.

148. In the affidavit filed by the petitioner, it is stated that the assessment is reopened on the ground that the gift made by Mrs. Chenai escaped assessment and that no information could have come into possession of the respondent after the completion of the original assessment which could be a basis for a reasonable belief, viz., that income chargeable to tax has escaped assessment. It is also stated that the trust was created due to personal good will and affection prevailing between the two families.

149. In the counter-affidavit, the Income-tax Officer averred that, subsequent to the completion of the assessment, it has come to the knowledge of the Department that an advocate-client relationship existed between the settlor and the petitioner, who represented her for a long time in income-tax, wealth-tax and estate duty matters and that he was responsible solely for reduction of huge estate duty liability. Therefore, instead of payment of professional fees, a trust was created at the instance of the petitioner. Hence, the sum of Rs. 5 lakhs can be treated as a professional receipt. It is also averred that the Income-tax Officer who made the assessment on November 5, 1983, lost sight of the fact that the receipt of Rs. 5 lakhs is assessable as a 'professional receipt'. In view of the information received subsequent to the assessment original made, action was initiated under section 147(b) of the Act. It is also stated that the previous Income-tax Officer did not consider whether the amount of Rs. 5 lakhs should be treated as a professional receipt and, therefore, taxable income. It was denied that there was non-application of mind and that pressure was applied by the Commissioner of Income-tax to reopen the assessment.

150. To this, a reply affidavit was filed by the petitioner stating that the previous Income-tax Officer, Mr. Waheed, completed three assessments of the petitioner under section 143 of the Act and scrutinised the returns and the statements and that he was fully aware of the relationship of advocate and client between the petitioner and the Chenai family and that for every case in which he appeared, he charged a decent fee. It is further stated that the benefit of huge reduction of estate duty was not due to his efforts but due to the efforts of Sri P. Ramachandra Reddy in the High Court and Sri N. A. Palkhivala in the Supreme Court, and that Sri Palkhivala received a fee of Rs. 20,000 and the petitioner received only Rs. 5,000 which is also accounted for. The petitioner also stated that the fee charged by him is on the high side and, therefore, the question of creating a trust in lieu of fees does not arise.

151. From the record, it appears that there was an audit report in which it was suggested that the Income-tax Officer may be directed to take action under section 147(b) of the Act. Pursuant to that, the Income-tax Officer recorded the reasons, which is otherwise called the 'order sheet'. The order sheet contains the reasons that led the Income-tax Officer to believe that income chargeable to tax has escaped assessment. At a later stage, I shall advert to these two documents, as they play an important role in resolving the question.

152. It was particularly contended before the Division Bench that there is nor reason whatsoever for the Income-tax Officer to believe that income chargeable to tax has escaped assessment under section 147(b) and, therefore, the ingredients of section 147 of the Act are not satisfied, and consequently, the impugned notice has to be quashed. It is further contended that the power under section 147 of the Act can validly be exercised only when the information obtained is subsequent to the previous assessment and such information should constitute the basis for the reason to believe that income chargeable to tax has escaped assessment.

153. Learned counsel for the petitioner placed reliance on some of the authoritative judgments pronounced by the Supreme Court and other High Courts in support of his argument. Particularly placing reliance on the judgment of the Supreme Court in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , learned counsel contended that even assuming that income chargeable to tax escaped assessment due to oversight or inadvertence or mistake of the Income-tax Officer, that by itself cannot be a ground for reopening the assessment by exercising the power under section 147(b) of the Act red with section 148, and that on a mere reappraisal of the same material already considered during the original assessment if it is discovered that an error was committed, as a consequence of which is income escaped assessment, the Income-tax Officer cannot reopen the assessment. Such an error, discovered after reconsidering the same material, does not give him that power.

154. On behalf of the Department, Sri M. Suryanarayana Murty, learned standing counsel, contended that the information in the possession of the Income-tax Officer seeking to reopen the assessment need not be external to the record which constituted the basis for the previous officer, who passed the assessment order. The information may relate to other facts or law. In the instant case, the audit report constitutes by itself a valid information and, therefore, the impugned notice could validly be issued under section 147(b). Hence, the ingredients of section 147(b) are satisfied. He also further contended that the ratio laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is per incuriam since it is contrary to the law laid down by the earlier larger Benches, particularly in Anandji Haridas and Co. P. Ltd. v. S. P. Kushare, STO [1968] 21 STC 326, a decision rendered by a Bench of five judges of the Supreme Court.

155. My learned brother, Seetharam Reddy J., after considering the facts, the relevant documents as well as the various decisions cited, held that the information in the instant case includes the contents of the audit report and the Income-tax Officer had reasonably believed that income chargeable to tax had escaped assessment for the assessment year. In arriving at such a conclusion, the learned judge mainly relied on the ratio laid down in Anandji Haridas and Co.'s case : [1968]1SCR661 and also in Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) . After having reached the conclusion that the judgment in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is rendered per incuriam, held that it has no sway on binding precedents.

156. My learned brother, M. N. Rao J., on the other hand, after considering the necessary material and the arguments and the decisions cited was not prepared to go to the extent of holding that the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is rendered per incuriam. He held that the respondent has not applied his mind while recording the reasons for reopening the assessment, and that apart, neither the audit report nor the record of reasons discloses any new material that came into his possession and on the basis of the same material on which the earlier assessment was passed, the respondent cannot come to a different opinion that the relationship of the petitioner and the settlor is that of an advocate and a client which was very much known to the previous officer also. Therefore, there is absolutely no new material and, as laid down in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , the Income-tax Officer cannot reopen the assessment, because there is no 'information' on the basis of which he has reason to believe that income chargeable to tax has escaped assessment.

157. Thus, there was a difference of opinion between the two learned judges. The same contentions are advanced before me by both learned counsel.

158. Section 147 of the Act, as it stood at the relevant time, is in the following terms :

'147. If -

(a) the Income-tax Officer has reason to believe that, be reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to 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 - 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 - 153 referred to as the relevant assessment year). '

159. It is not in dispute that, in the instant case, the Income-tax Officer has exercised power only under section 147(b) of the Act.

160. From a plain reading of the section, it is obvious that, for initiating action for reassessment, two conditions have to be satisfied, viz., (1) there should be information in his possession, and (2) as a consequence of such information, he has reason to believe that income chargeable has escaped assessment. What constitutes 'information' is the subject-matter of decision of various courts. In CIT v. A. Raman and Co. : [1968]67ITR11(SC) , the Supreme Court took the view that (at page 16) :

'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... '

161. In Anandji Haridas and Co.'s case : [1968]1SCR661 , their Lordships were dealing with the scope of section 11A of the C. P. and Berar Sales Tax Act which was in pari materia with section 34 of the Income-tax Act.

162 In CIT v. Holck Larsen (H.) : [1972]85ITR467(Bom) referring to these two decisions, viz., A. Raman and Co.'s case : [1968]67ITR11(SC) and Anandji Haridas and Co.'s case : [1968]1SCR661 , and also having noticed some conflict of opinion among the decisions of other High Courts, Chandrachud J. (as he then was) held thus (at page 479) :

'The two decisions of the Supreme Court must be deemed to have set this conflict at rest and those cases which take the view that information cannot be obtained by the Income-tax Officer from his own record must be deemed to have been overruled. But, it is still true to say that a mere change of opinion would not justify the reopening of an assessment under section 34(1) (b) of the Act. It does not matter whether the Income-tax Officer obtains information from his own record or whether he receives information from an outside source. What is obligatory in order to apply section 34(1) (b) is that he must have 'information' in his possession in consequence of which he has reason to believe that the income has escaped assessment or is underassessed, etc. The distinction really consists in a change of opinion unsupported by subsequent information on the one hand and a change of opinion based on information subsequently obtained, on the other. In the former class of cases, the assessment proceedings are attempted to be reopened without the discovery of an error and without receiving any information as to fact or law. The Income-tax Officer has a fresh look at the earlier assessment order and he decides to adopt a different approach to the matter. Such a reopening is based on a 'mere' change of opinion and in without jurisdiction. The Income-tax Officer cannot reopen an assessment at his 'sweet will and pleasure'. In the latter class of cases, the reopening is based on information leading to the requisite belief and is, therefore, within the jurisdiction of the officer. It is then not for the High Court to determine whether the assessment should be reopened, for it is for the Income-tax Officer to administer the Act. '

163. Subsequent to this decision, the Supreme Court delivered two more decisions which are very significant. They are Kalyanji Mavji's case : [1976]102ITR287(SC) and Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . In Kalyanji Mavji's case : [1976]102ITR287(SC) , the Supreme Court laid down as follows (headnote) :

'The word 'information' in section 34(1) (b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under section 34(1) (b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled by the words 'reason to believe'. Information may come from external sources or even from the materials already on record or may be derived from the discovery of new and important matter or fresh facts.

164. Section 34(1) (b) would apply to the following categories of cases :

(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer;

(3) where the informer is derived from an external source of any kind : such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment; and

(4) where the information may be obtained even from the record of the original 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.

Where, however the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1) (b) would have no application. '

165. In Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) the Supreme Court did not appear to accept the aforesaid proposition of law in Kalyanji Mavji's case : [1976]102ITR287(SC) and held thus (headnote) :

'The proposition in the decision of the Supreme Court in Kalyanji Mavji and Co.'s case : [1976]102ITR287(SC) , to the effect that a case where income had escaped assessment due to 'oversight, inadvertence or mistake' of the Income-tax Officer must fall within section 34(1) (b) of the Indian Income-tax Act, 1922, 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. An error discovered on a reconsideration of the same material (and no more) does not give him that power. '

166. It may not be necessary for me to refer to all the cases at this stage as they have been referred to in extenso by our learned brothers.

167 Placing considerable reliance on Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , it is contended on behalf of the assessee that the facts of the case on which the Income-tax Officer has reopened the assessment were already on the record and then the Income-tax Officer had consciously applied his mind to those facts and after careful examination of the facts and on the application of the legal principle, he had passed the assessment order. On the very same facts and on the basis of the very same principles, the subsequent officer has revoked the assessment contrary to the principles laid down by various High Courts in respect of the scope of section 147 of the Act. It is also further contended that the officer had no information as a consequence of which it can be said that he had reason to believe that income chargeable to tax has escaped assessment.

168 Learned standing counsel for the Income-tax Department, however, submitted that the Income-tax Officer who issued the notice had necessary information from the audit report and he was satisfied that, in the earlier assessment, the officer has not applied his mind and has not considered the legal principles and by mistake or inadvertence, he omitted to treat the trust amount as fees or consideration for his services rendered. He submitted that the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , is rendered per incuriam and, therefore, an income which had escaped assessment due to oversight, inadvertence or mistake can be a ground for reopening and that, in the instant case, there is information to that effect, as contained in the audit report on the basis of which the Income-tax Officer recorded his reasons, i.e., the order sheet, and issued the impugned notice.

169 The order sheet and the audit report which have some significance, have to be reproduced.

170 Order sheet : 1983-84 :

Y.V. Anjaneyulu, J.

171. The assessment for the assessment year 1983-84 of Shri Y. V. Anjaneyulu, then advocate and now High Court judge, was completed on November 5, 1983, on a total income of Rs. 2,48,258. As per the copy of the declaration of trust dated August 27, 1982, assessee's client, Mrs. Freny Rashid Chenai, w/o. late Shri Rashid Shapoor Chenai, had created a trust in favour of the assessee and his family members to the extent of Rs. 5 lakhs.

172. I have come to know from the enquiries and audit report that Shri Y. V. Anjaneyulu was representing income-tax, wealth-tax and estate duty assessments of let Rasheed Shapoor Chenai and his family members for quite a long time. The assessee was solely responsible for reduction of huge estate duty liability of late R. S. Chenai and his son's estate. He was also representing the legal heirs of both father and son, Mrs. Freny Rashid Chenai and Mrs. Kursheed Shapoor Chenai. In view of the substantial reduction gained by the effective representation of Mr. Y. V. Anjaneyulu, the wife of late Rashid Shapoor Chenai, instead of payment of professional fee, preferred to create a trust in favour of the assessee and his family members to the extent of Rs. 5 lakhs which should obviously be at the instance of the assessee. This is a device adopted by the assessee to escape proper taxation in his hands. The existence of advocate and client relationship is there beyond any shadow of doubt since the cases won by the assessee have already been reported in all the legal journals including the Income Tax Reports. I am, therefore, satisfied that the receipt of Rs. 5 lakhs is only a professional receipt of the assessee for the meritorious services which is camouflaged in the form of trust. This has to be assessed in the hands of the assessee by taking recourse to section 147(b) of the Act in view of the Supreme Court decision in the case of Kalyanji Mavji : [1976]102ITR287(SC) , P. Krishna Menon and K. George Thomas : [1985]155ITR78(Bom) .

173. In view of the information in my possession now, which is gathered after the completion of assessment, I have reason to believe that income chargeable to tax has escaped assessment for the assessment year 1983-84. The assessment is, therefore, reopened under section 147(b) by issue of notice under section 148. Issue notice under section 148 for the assessment year 1983 immediately. '

Review audit by Income-tax Officer (I.A.) to the Inspecting Assistant Commissioner (Audit) :

Shri Y. V. Anjaneyulu, J.

174. The assessment for the assessment year 1983-84 of Shri Y. V. Anjaneyulu, then advocate, now High Court judge, was completed by the Income-tax Officer on November 5, 1983, on a total income of Rs. 2,48,258. This assessment was audited by the Internal Audit Party and Revenue Audit Party also. However, there is a possibility of review audit by Revenue Audit Party since a major audit objection is being raised for the assessment year 1985-86. Similar issue as in 1985-86 is involved in this assessment as well. Shri Y. V. Anjaneyulu was representing since long time income-tax, wealth-tax and estate duty assessments of late Rasheed Shapoor Chenai and his family members. He was solely responsible for reduction of huge estate duty liability of both late R. S. Chenai and his son's estate and similarly he has been representing the legal heirs of both father and son, viz., Mrs. Freny Rashid Chenai and Mrs. Kursheed Shapoor Chenai. The assessee's son purchased a site from Shapoorwadi and constructed a building when he was representing the estate duty cases before the lower courts. In view of the substantial reduction gained by the effective representation of Shri Y. V. Anjaneyulu, the wife of late Rasheed Shapoor Chenai, instead of payment of professional fees, preferred to create a trust in favour of Shri Y. V. Anjaneyulu and his family members to the extent of Rs. 5,00,000 at his instance. This is also a device adopted by the assessee to escape proper taxation in his hands. The advocate and client's relationship is there beyond any shadow of doubt since the cases won by the advocate has already been reported in all the legal journals including the Income Tax Reports (Please see fees account for details). The receipt of Rs. 5,00,000 can easily be held as a professional receipt of Shri Y. V. Anjaneyulu for the meritorious services rendered by him camouflaged in the form of family trust created. The Income-tax Officer who made the assessment on November 5, 1983, lost sight of the fact that the factum of receipt of Rs. 5,00,000 for the services rendered by Shri Y. V. Anjaneyulu is assessable as a professional receipt. This can be assessed by taking recourse to section 147(b) as held by the Supreme Court in Kalyanji Mavji and Co.'s case reported in : [1976]102ITR287(SC) and also taking into consideration the two decisions of the Supreme Court viz., P. Krishna Menon's case and K. George Thomas' case : [1985]155ITR78(Bom) . The Supreme Court's decision in Thakar Das Bhargava reported in : [1960]40ITR301(SC) directly supports the stand in this case (not legible). The Income-tax Officer may be directed to take action under section 147(b) by citing the four Supreme Court cases referred to above as information for forming a belief to reopen the assessment.

Sd. (S. Goverdhana Rao)

Sd....................

I.T.O. (IA), Hyderabad,

28-1-1987

28-1-1987

175. As per the Supreme Court's decision in the case of Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) , the audit party does not possess the power to pronounce on the law; it, nevertheless, may draw the attention of the Income-tax Officer as to the interpretation of the correct law on the facts as pronounced by courts.

Sd.............

I.T.O. (IA.).,

2-2-1987.'

176. It may be noted that the internal audit has also referred to four decisions of the Supreme Court, viz., Kalyanji Mavji's case : [1976]102ITR287(SC) , Krishna Menon's case : [1959]35ITR48(SC) , George Thomas' case : [1985]156ITR412(SC) and Thakar Das Bhargava's case : [1960]40ITR301(SC) and further appended Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . These decisions have been practically reproduced in the order sheet. A careful examination of the order sheet shows that the 'information' was that there was an advocate-client relationship between the petitioner and Mrs. Chenai, the settlor, and that the petitioner was solely responsible for reduction of huge estate duty liability of both the late R. S. Chenai and his son and the assessee's son purchased the site at Shapoorwadi and constructed a building and that in view of the substantial reduction gained by the effective representation of Sri Y. V. Anjaneyulu, the wife of the late R. S. Chenai, instead of payment of professional fees, preferred to create a trust in favour of Sri Y. V. Anjaneyulu and his family members and this is also a device adopted by the assessee to escape proper taxation and that the advocate-client relationship is there beyond any shadow of doubt and this amount can easily be held as a professional receipt of the assessee but the same is camouflaged in the form of a family trust and that the Income-tax Officer who made the assessment for the assessment year 1983-84 had lost sight of this fact. Then, there is a reference to the Supreme Court cases. It the order sheet, we find the same particulars reproduced verbatim. The Income-tax Officer has also noticed that the existence of advocate-client relationship is there beyond any shadow of doubt since the cases won by the advocate (i.e., the petitioner) have already been reported in all the legal journals including the Income Tax Reports and, therefore, he is satisfied that the receipt of Rs. 5 lakhs is for the meritorious services rendered by the assessee and it is camouflaged in the form of creation of a family trust.

177. As noted above, the subsequent Income-tax Officer sought to reopen the assessment solely on the ground that he came to know from enquiries and the audit report that Sri Y. V. Anjaneyulu was representing the income-tax, wealth-tax and estate duty assessments of the late R. S. Chenai and his family members for a long time and that he was solely responsible for reducing huge estate duty liability and the Income-tax Officer inferred that, in view of the substantial reduction made by him by his effective representation, the wife of the late R. S. Chenai, i.e., the settlor, instead of paying professional fee, has created a trust in favour of the assessee and his family members and it was a device adopted by the assessee to escape taxation. Therefore, he was satisfied that the receipt of Rs. 5 lakhs was only a professional receipt for the services rendered by the petitioner, which is in the form of a trust, and the same has to be assessed in the hands of the assessee by taking recourse to section 147(b) of the Act, in vie of the Supreme Court decision in Kalyanji Mavji's case : [1976]102ITR287(SC) , Krishna Menon's case : [1959]35ITR48(SC) and George Thomas' case : [1985]156ITR412(SC) .

178. Learned counsel for the petitioner has submitted that even if the ratio laid down by he Supreme Court in the aforesaid cases in strictly applied to the facts of the instant case, section 147(b) of the Act is not attracted, inasmuch as all this information was present before the Income-tax Officer and he did not come into possession of any information after the previous assessment. It is further submitted that, along with the original return, the petitioner-assessee enclosed a covering letter, in which he mentioned about the trust. The Income-tax Officer also got confirmation of the same and the Income-tax Officer was also aware that there was an advocate-client relationship between the petitioner and the settlor who created the 'Anju Family Trust'.

179. I shall first advert to this submission and then if necessary go into the question whether Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , is rendered per incuriam. I have already referred to A. Raman and Co.'s case : [1968]67ITR11(SC) , wherein the Supreme Court has clearly laid down that the 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. The information must have come into the possession of the officer after the previous assessment. Their Lordships, however, added that (headnote) 'even if the information be such that it could have been obtained during the previous assessment from an investigation of the material on 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'.

180. Now, I shall refer to the ratio laid down in the cases referred to by the Income-tax Officer. In Kalyanji Mavji's case : [1976]102ITR287(SC) , one of the principles which is laid down and which is relevant for the purpose of this case, is that when the original income liable to tax has escaped assessment due to oversight, inadvertence or mistake committed by the Income-tax Officer, he can reopen the assessment. The same decision also lays down that the information, under the provisions of law, is of the widest amplitude and the same may come from external sources or even from the materials already on record, or may be derived from the discovery of new and important matters or fresh facts.

181. The decision of the Supreme Court in Krishna Menon's case is actually reported in : [1959]35ITR48(SC) . The citation, viz. , as mentioned in the audit report and the order sheet, contains the decision of the High Court in the same case, In that case, a teacher who taught Vedanta philosophy to his disciples was subjected to tax in respect of the gifts of money given to him on several occasions. The plea was that the same was not liable to tax as the amounts were received as gifts from his disciples. This plea was rejected and it was held that the payments were made by the disciples because they obtained the benefit of his teachings and there was a regularity in the payments.

182. In Thakar Das Bhargava's case : [1960]40ITR301(SC) , and advocate agreed to defend certain accused persons in a criminal trial on condition that he would be provided with a sum of Rs. 40,000 for a public charitable trust which he would create. The question then was, whether this amount given by the clients would amount to fee or not. The Supreme Court held that (at page 306) : 'it was the assessee's own voluntary desire that he would create a trust out of the fees paid to him for defending the accused... ' The money thus received was his professional income and the assessee was clearly liable to tax.

183. In George Thomas' case : [1985]156ITR412(SC) , certain amounts were received by the assessee as donations through the Indian Christian Crusade from his friends for helping a movement for the spread of religion. The question was whether these amounts were assessable to tax. The Supreme Court held that 'the amounts were liable to tax'. It has been established that the assessee was carrying on a vocation of preaching Christian Gospel, and helping anti-atheism was the vocation of the assessee. He was running a newspaper in aid of that. The donations received from America were to help him for the said purpose and that they arose out of his carrying on and continued so long as he carried on this avocation or vocation. These receipts, therefore, arose out of his vocation. These were, therefore, his income.

184. In the affidavit filed by the petitioner in the instant case, it is stated, and it is also not in dispute, that the estate duty case relating to Mrs. Chenai was argued in the High Court by Sri P. Ramachandra Reddy, former Advocate-General, but unsuccessfully, and that the matter was carried to the Supreme Court where Sri N. A. Palkhivala appeared and the petitioner assisted him. The same is reported in Khorshed Shapoor Chenai v. Asst. CED : [1980]122ITR21(SC) . The petitioner claimed a fee of Rs. 5,000 and the same was disclosed in the return and Sri Palkhivala, as a senior advocate, charged a sum of Rs. 20,000. The petitioner also stated that he has been charging the Chenai family in all the matters in which he appeared, rather heavily, and those receipts are included in the returns filed previously and also during the year 1983-84.

185. It is not in dispute that all this material was there before the Income-tax Officer when he passed the assessment order earlier. Therefore, in these circumstances, what is the information that the Income-tax Officer have received afresh, even assuming from the same record which was available to him earlier The record sheet as well as the internal audit report go to show that the relationship between the petitioner and the Chenai family is that of an advocate and a client and that has come to light subsequently, Mr. Waheed, who made the earlier assessment has not filed any affidavit. There is absolutely no material whatsoever to prove that the earlier officer who made the assessment was not in possession of this much of information. The assessing officer, in fact, wanted a confirmation and accordingly Mrs. Chenai addressed a letter dated September 19, 1983, confirming the creation of the trust. The assessee had shown all these figures in the computation of income for the purpose of tax and had also show the interest at the rate of 7% on the capital investment bonds received from the trustees of 'Anju Family Trust' and claimed exemption. In the said statement, the petitioner has shown his professional income at Rs. 2,45,172 and the assessing officer accepted the statement and passed the assessment order. Therefore, under these circumstances, can it be said that the present so called information, which the officer reopening the assessment claims to have come into his possession, was not there before the officer who made the assessment earlier

186. While considering the scope of section 147(b) it is already noticed that the section requires, firstly, that there should be subsequent information and, secondly, as a consequence of such information which has come to his possession, he must reasonable believe that income, profits or gains chargeable to income-tax have escaped assessment. Section 34(1) (b) is in pari materia with the present section 147(b) and the Supreme Court considered the scope of the same. The important decisions that are chronologically noteworthy are : Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , A. Raman and Co. : [1968]67ITR11(SC) and Bankipur Club Ltd. v. CIT : [1971]82ITR831(SC) . I have already referred to some of the decisions. The ratio that can be gathered from these decisions regarding the scope of this section can be summed up thus : The information may come from an external source or from the material already on record, or may be derived from the discovery of new and fresh facts and include information as to the true and correct state of law derived either from the income-tax authorities or other courts of law and also would cover information as to relevant judicial decisions. It can be regarding a fact as well as law. The Income-tax Officer will have jurisdiction to reassess the income if he has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment. That information must have come to his possession after the previous assessment. But, even if the information is such that it could have been obtained during the previous assessment from an investigation of the materials on record, or from other enquiry or research into the facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected. The court can ascertain whether the Income-tax Officer had in his possession any such subsequent information and also determine whether, from the information, the Income-tax Officer may have reason to believe that income chargeable to tax has escaped assessment. Then came the decision in Kalyanji Mavji's case : [1976]102ITR287(SC) . That was a case where, during the course of the assessment proceedings for the assessment year 1958-59, the Income-tax Officer discovered that the appellant had not utilised the entire borrowed money for the purpose of its business, but had given interest-free loans to its partners for clearing up their income-tax dues; and the Income-tax Officer reopened the assessment for 1956-57 under section 34(1) (b) and disallowed the interest paid. The Appellate Tribunal held that the Income-tax Officer had merely changed his opinion on the basis of the very materials that were before him when the original assessment was made and that was not sufficient to attract section 34(1) (b). The High Court held that the reassessment was valid in law and the matter went up to the Supreme Court. Their Lordships of the Supreme Court held, inter alia, that 'where, in the original assessment, income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer and where the information in derived from an external source of any kind, it would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment, and that where such information may be obtained even from the record of the original assessment from an investigation of the materials on record or the facts disclosed thereby or from other enquiry or research into facts or law, section 34(1) (b) applies. ' It is also significantly held that 'where, however, the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1) (b) would have no application. '

187. We shall now see whether, even if the principles laid down in Kalyanji Mavji's case : [1976]102ITR287(SC) , viz., that the assessment can be reopened where income liable to be taxed has escaped assessment due to oversight, inadvertence or mistake committed by the Income-tax Officer, are applied to the facts in the instant case, it would show that there is no such oversight, inadvertence or mistake, and that income has escaped assessment, and whether there is such information subsequent to the assessment or whether the Income-tax Officer, on a mere change of opinion, has exercised his jurisdiction under section 147(b) and, therefore, the same is illegal. We have already notice that in Kalyanji Mavji's case : [1976]102ITR287(SC) , after referring to the earlier decisions, it is pointed out that where the Income-tax Officer gets no such information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, the Income-tax Officer has no jurisdiction to reopen. It appears to me that the Supreme Court in Kalyanji Mavji's case : [1976]102ITR287(SC) , in fact, indicated that the information that is obtained from the record of the original assessment should be subsequent, on an enquiry and such information must lead to a belief in good faith that taxable income has escaped assessment due to oversight, inadvertence or mistake. But, where the Income-tax Officer, while making the assessment has already applied his mind and appraised the said material, then subsequently if the jurisdiction under section 147(b) is exercised without any subsequent information and the Officer merely proceeded to reopen the assessment without any fresh facts or material or enquiry, then the court can interfere. In Bankipur Club's case : [1971]82ITR831(SC) , the Supreme Court held thus (at p. 834) :

'The fact that the club had received certain amounts as guest charges from its members was also placed before the Income-tax Officer. It is not the case of the Income-tax Officer that he did not come to know all the relevant facts when he made the original orders of assessment. It is also not his case that at the time he made those orders he was not aware of the true legal position. It is for the Income-tax Officer to show that he had received some information subsequent to his passing the original orders of assessment. No such material was placed before the Tribunal. That being so, the Tribunal, in our opinion, was right in holding that the Income-tax Officer was incompetent to initiate proceedings under section 34(1) (b). '

188. As already noted, in CIT v. H. Holck Larsen : [1972]85ITR467(Bom) (Bom), Chandrachud J. (as he then was), speaking for the Bench, has pointed out that in order to apply section 34(1) (b), the Income-tax Officer must have 'information' in his possession in consequence of which he has reason to believe that income has escaped assessment or is underassessed, etc., and that if the Income-tax Officer has a fresh look at the earlier assessment order and he decides to adopt a different approach to the matter, such a reopening is based on a 'mere' change of opinion and is without jurisdiction, and the Income-tax Officer cannot reopen the assessment at his 'sweet will and pleasure'.

189. In ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) , his Lordship, Khanna J., speaking for the court, observed thus (at p. 445) :

'... that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. '

190. The learned judge, while amplifying the above observations, further held (at p. 448) :

'Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information' which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. '

191. Dealing with the powers of the Income-tax Officer to reopen the assessment, the learned judge held thus (at p. 448) :

'The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are 'reason to believe and not 'reason to suspect'. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of case come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken, the requirements of the law should be satisfied. '

192. In can be seen that this decision lays down the scope of section 147(b), the jurisdiction of the Income-tax Officer and that of the court lucidly.

193. In Kalyanji Mavji's case : [1976]102ITR287(SC) , one of the principles laid down is that an assessment can be reopened if income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer, and this ratio is based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority. But this question would arise only if the previous officer has not applied his mind to the material, or has not considered or appraised it; or this principle may also apply to a case where the officer, though outwardly appearing to have applied his mind, considered or appraised the material, but apparently committed a mistake or error or acted inadvertently, which resulted in the escapement of income liable to be assessed, because that would show that, in fact, he did not apply his mind, appraise or consider the material. If, on the other hand, the record shows that the previous officer has focused his attention on this very question, viz., whether any income has escaped assessment, and has passed orders, after the necessary consideration and appraisal, subsequently the officer cannot again reopen merely because he thinks he can come to a different conclusion on the same material, without any fresh facts. In this context, it is also useful to refer to a judgment of the Calcutta High Court in S. B. (House and Land) Pvt. Ltd. v. CIT : [1979]119ITR785(Cal) , wherein Sabyasachi Mukharji J., speaking for the court, referred to all these cases including the judgment of Chandrachud J. (as he then was) in H. Holck Larsen's case : [1972]85ITR467(Bom) , Kalyanji Mavji's case : [1976]102ITR287(SC) and Anandji Haridas and Co.'s case : [1968]1SCR661 and held thus (at p. 802) :

'... if there is new knowledge or new information and such knowledge leads to a change of opinion, then, in our opinion, as was observed by the court, in the case of CIT v. H. Holck Larsen : [1972]85ITR467(Bom) , that would not be a case of mere change of opinion but it would be a change of opinion supported by or in consequence of the knowledge received by the Income-tax Officer and such a change of opinion, will not be outside the scope of clause (b) of section 147 of the Income-tax Act, 1961. As, in this case, there was such an information or knowledge that the original assessment might have been wrong and the Income-tax Officer because of that information had to re-examine the facts of this case and formed the belief that the income had escaped assessment, in our opinion, it cannot be said that the proceedings were not validly initiated. In the premises, the question No. 1 referred to this court must be answered in the affirmation and in favour of the Revenue. '

194. It can, therefore, be seen that reopening of assessment based on the record of previous assessment can only be justified where there was subsequent information from an external source and from fresh facts after due investigation revealing that there was total lack of application of mind and that there was no consideration or appraisal by the assessing officer due to mistake, inadvertence or oversight resulting in the escape of income from assessment. But, without any other enquiry or without fresh material or facts (other than those that were there already) which can be said to have been overlooked due to oversight, inadvertence or mistake, a reopening of the assessment cannot be resorted to, because it will only amount to a mere change of opinion. In Kalyanji Mavji's case : [1976]102ITR287(SC) , their Lordships, after referring to Bankipur Club's case : [1971]82ITR831(SC) and after affirming the principle that the information must be subsequent to the original assessment, observed thus (at p. 298) :

'In the instant case, it would appear that three additional facts had come into existence after the original assessment... '

195. It is further observed (at p. 299) :

'Thus, therefore, the subsequent information was :

(i) the discovery by the Income-tax Officer that the deduction was wrongly claimed and his disallowance of the deduction; and (ii) the conduct of the appellant itself in not adducing any evidence or materials to prove its stand... '

Therefore, it is clear that it is not open to the Income-tax Officer to change his opinion subsequently on the same material and reopen the assessment 'at his sweet will and pleasure. '

196. One other aspect to be borne in mind is that the question whether the Income-tax Officer, in a given case, has applied his mind, or considered or appraised the material on record or not, depends upon the facts and circumstances of each case as observed in Kalyanji Mavji's case : [1976]102ITR287(SC) . In CIT v. Bhagwandas K. Bros. : [1973]91ITR256(Bom) , the assessing authority, while making the original assessment, just put a tick mark upon the disputed amount of assessment. Then, the Bombay High Court drew the inference that there was conscious application of mind and by coming to a different conclusion, the successor officer could not justifiably reopen the assessment under section 34(1) (b). As observed in Chhugamal Rajpal v. S. P. Chaliha : [1971]79ITR603(SC) , a vague feeling that certain transactions were not genuine, and, therefore, the assessment could be reopened under section 148, would not be a valid reason for according permission for reopening.

197. Bearing the above principles in mind, I shall once again minutely examine the relevant facts from this angle. It is not in dispute that Mrs. Chenai created 'Anju Family Trust' for the benefit of the petitioner and his family members, because of her affinity to the petitioner and his family members. The corpus of the trust was 7% capital investment bonds of the value of Rs. 5 Lakhs. Under the trust deed, the petitioner is entitled to the income from the trust fund during his lifetime, and thereafter the family members would be entitled for the same. For the year 1983-84, the petitioner filed his income-tax return and along with that he forwarded a letter dated July 27, 1983, explaining in brief the salient features of the trust. On being asked by the Income-tax Officer, a confirmation letter dated September 19, 1983, about the creation of the trust given by Mrs. Chenai was also filed. This was before finalising the assessment. In that letter, the faction of creation of the trust was confirmed by the settlor. In the return, the petitioner has also shown the fees that he received in the estate duty case in which he appeared and assisted Sri Palkhivala. Therefore, the fee has been accounted for by him. The details of the fees also are mentioned, which show that charging of the fees was also on the high side. The Income-tax Officer, however, on the basis of the audit report, issued the order sheet for the year 1983-84 and consequently issued the notice under section 148 for reopening the assessment under section 147(b).

198. I have already extracted the audit report as well as the order sheet. All that is mentioned in the internal audit report is that the advocate-client relationship between these two is there beyond any doubt and that in view of the substantial reduction gained by the effective representation of the petitioner, Mrs. Chenai, instead of payment of professional fee, preferred to create a trust in favour of the petitioner and his family members; and that the Income-tax Officer who made the assessment lost sight of the fact that the factum of receipt of Rs. 5 lakhs for the services rendered by the petitioner is assessable as a professional receipt. It is also further mentioned that the Income-tax Officer is directed to take action under section 147(b). In the order sheet which is based on the internal audit report, the Income-tax Officer stated that he had come to know from enquiries and the audit report that Sri Y. V. Anjaneyulu was representing income-tax, wealth-tax and estate duty assessments of the late Rasheed Shapoor Chenai and his family and that he was solely responsible for reduction of huge estate duty liability of the late R. S. Chenai, and that the petitioner was also representing the legal heirs of both the father and son, and in view of the substantial reduction gained by the effective representation of Sri Y. V. Anjaneyulu, Mrs. Chenai, instead of payment of professional fee, created the trust which should have been at the instance of the petitioner, and this is a device adopted by the petitioner to escape proper taxation in his hands. It is also further stated that the existence of advocate-client relationship is there beyond any shadow of doubt, since the cases won by the assessee have already been reported in all the legal journals including the Income Tax Reports and, therefore, the said receipt has to be assessed in the hands of the assessee as income by taking recourse to section 147(b) in view of the Supreme Court decisions in Kalyanji Mavji's case : [1976]102ITR287(SC) , P. Krishna Menon's case : [1959]35ITR48(SC) and George Thomas' case : [1985]156ITR412(SC) . It is this order sheet that should reflect whether the Income-tax Officer had any subsequent information, whether there were enquiries and whether there were any fresh facts which created a reasonable belief in him that taxable income has escaped assessment because of an oversight or inadvertence or a mistake as a result of non-application of mind. We have noticed that, in the return, the salient features of the trust were explained by a letter and the 7% interest which the petitioner derived under the trust was also shown as income. The petitioner, in his return also, mentioned the fees that he had received from Mrs. Chenai in the cases he appeared for her and the family members. The reasons for her creating the trust in favour of the petitioner and his family members are stated in so many words in the trust deed. The Income-tax Officer, before assessment, got a confirmation from the settlor and only then assessed. The being so, one is at a loss to know as to on what basis the subsequent Income-tax Officer has changed his opinion. In the internal audit report and in the order sheet, in a way, it is mentioned that there was an advocate-client relationship between them. But that by itself is not a circumstance to jump to a conclusion that any gift made by a client to his advocate automatically becomes fee unless there is some material to show otherwise. It is nobody's contention that a client, out of love and affection to his advocate, cannot make a gift for matter of that. Anybody, out of affection, can create a trust in favour of another. The facts and figures relating to the fees that he received have been mentioned in detail. All these materials were there before the previous Income-tax Officer. The fact that he also wanted confirmation would go a long way to establish that he focussed his attention on this question and examined the facts, and after due consideration and appraisal, he did not treat it as income. There is no fresh material whatsoever.

199. It is, however, contended that the audit report itself is a fresh material which came to light only on due enquiry. I am not able to find anything new which has come to light subsequent to the assessment during any such enquiry. There is no material whatsoever to show that there is any such enquiry. At any rate, no material is placed before the court as to what exactly was the enquiry and what was the outcome of it.

200. It is only on the audit report and the subsequent order sheet that reliance is placed. They only go to show that there was no such information from any external source and whatever information the Department claims to have got is only from the records that were already there. Even the advocate-client relationship between the two was not by way of subsequent information. Admittedly, the petitioner has filed returns for the previous three years before the same officer, in which the details of the fees that he had received from the Chenai family have been mentioned and the same Income-tax Officer, Sri Waheed, assessed them. Therefore, the previous Income-tax Officer was very much aware of this relationship. In any event, the knowledge of the previous officer about this relationship is not seriously doubted. In the audit report as well as in the order sheet, it is made plain that an advocate-client relationship is there beyond any doubt as the same in clear from the legal reports. Therefore, it is but obvious that Sri Waheed also was aware of this, particularly when he assessed the previous returns. So, there was no tangible information, as required under section 147(b), which led to a reasonable belief in this regard.

201. It is, however, argued that, in the audit report, it is mentioned that it is reasonable to believe that there was escapement of income from assessment because of mistake, inadvertence or oversight and in such an event, as laid down in Kalyanji Mavji's case : [1976]102ITR287(SC) , reopening can be ordered. After giving earnest consideration, I am firmly of the view that the then Income-tax Officer, Sri Waheed, had all this information and also these facts before him about the features and details of the trust and also about the fees received by the petitioner from the Chenai family for appearing in all the cases. The fact that he required confirmation above the creation of the trust and got it by way of a confirmation letter written by Mrs. Chenai affirming the creation of the trust, would itself show that he focussed on this question and, after due consideration and appraisal; he did not treat it as a receipt as it is intended to be treated now by the subsequent Income-tax Officer. Therefore, on what basis can it be said that there is an oversight or inadvertence or mistake on the part of the previous officer which resulted in the escapement of income from assessment It is well-settled that a mere suspicion cannot be the basis for reopening and there is no dispute about the same. I have already noted that a mere change of opinion cannot satisfy the requirements of section 147(b).

202. At this stage, I may consider the nature and extent of the power of this court to interfere. In Lakhmani Mewal Das' case : [1976]103ITR437(SC) , the Supreme Court held that once there exists reasonable grounds for the Income-tax Officer to form the belief as contemplated by section 147(a) of the Act, that would be sufficient to clothe him with jurisdiction to issue notice and the sufficiency of the grounds is not a justiciable issue. Their Lordships further held that the reason must be held in good faith and it cannot be merely a pretence, and that it is open to the court to examine whether the reasons for the formation of the belief have a rational connection with, or a relevant bearing on, the formation of the belief and are not extraneous or irrelevant for the purpose of the section. It is, therefore, obvious that the expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer and the reason must be in good faith and it cannot be merely a pretence. A mere change of opinion or strong suspicion also cannot be a ground for reopening. It is also well-settled that a finality of an assessment proceeding cannot be disturbed except strictly in accordance with the relevant statutory proceedings because that would be endless. For all these reasons, I am of the view that there is no subsequent 'information' within the meaning of section 147(b) of the Act which led the Income-tax Officer to reasonably believe that taxable income has escaped assessment.

203. No doubt, at one stage, learned counsel for the Revenue contended that the audit report itself can constitute fresh information and that that is enough for the Income-tax Officer to reasonably believe that reopening was necessary. I have, already to a large extent, adverted to this aspect also and pointed out that even the audit report does not show that there is any such fresh material by way of subsequent information. Nor can it be said that there was oversight, inadvertence or mistake on the part of the previous Income-tax Officer. The previous officer has not lost sight of Rs. 5 lakhs, the subject-matter of the trust; nor has he lost sight of the legal effect of the advocate-client relationship. When he has not come forward with any affidavit suggesting any such mistake, inadvertence or oversight on his part, the stand taken by the subsequent officer in the absence of any subsequent information or fresh facts can only be on the basis of suspicious and a mere change of opinion cannot legally entitle him to reopen an assessment. In Shiva Lal v. ITO : [1970]77ITR999(Cal) , the Calcutta High Court held that where specific allegations are made by the petitioner against whom a notice for reassessment is issued that the relevant and material facts were before the original assessing officer, the only persons who could have thrown any light on this question of non-disclosure by the petitioner, are the original assessing officer and the officer who issued the impugned notice. In this context, it must also be noted that two audits were already conducted and no irregularity or mistake or error was noticed. That being so, there is no question question of any income having escaped assessment, and it is only a suspicion on the part of the subsequent Income-tax Officer that the creation of a trust in respect of Rs. 5 lakhs is only a device adopted by the petitioner to escape taxation. Viewed from any angle, the only irresistible inference is that the assessment is sought to be reopened by the subsequent officer on mere suspicion which cannot be a ground for such reopening.

204. In the affidavit filed by the petitioner, at one stage, it is alleged that reopening was done at the instance of an officer of high rank of the Department, viz., Sri P. R. Rao, Commissioner of Income-tax. I have gone through the record and I am not able to find any basis for such an allegation. On facts, there could be some suspicion whether such a receipt in question would constitute income or not in the hands of the petitioner, and it appears, the reopening is ordered only on such suspicion, and not due to any other pressure from any higher officer. In any event, in the reply affidavit filed by the petitioner, it is stated by the petitioner that it was not necessary to make Sri P. R. Rao, Commissioner of Income-tax, a party, since the petitioner did not allege any mala fides against him. Therefore, this statement itself shows that the reopening was not at the instance of the higher officer. It may not be necessary to make a further probe into this question.

205. In the view I have taken above, it is not necessary to decide the question whether the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) is rendered per incuriam. Further, the position also is not very clear whether by virtue of the principles laid down in Anandji Haridas and Co.'s case : [1968]1SCR661 , the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) becomes per incuriam. In Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , the decision in Anandji Haridas and Co.'s case : [1968]1SCR661 was not cited before their Lordships. Their Lordships, while adverting to the ratio laid down in Kalyanji Mavji's case : [1976]102ITR287(SC) , observed that the proposition laid down therein, viz., that, were 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, is stated 'too widely'. The learned judges further held thus (at p. 1004) :

'In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT : [1959]35ITR1(SC) , CIT v. A. Raman and Co. : [1968]67ITR11(SC) and Bankipur Club Ltd. v. CIT : [1971]82ITR831(SC) , and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT : [1976]102ITR287(SC) , suggesting the contrary do not, we say with respect, lay down the correct law. '

206. In appears as though the last observation has been made in reply to a submission that in Kalyanji Mavji's case : [1976]102ITR287(SC) , it is laid down that, on a mere reconsideration and reappraisal of the same material, the Income-tax Officer can reopen the assessment. It may be pointed out that even in Kalyanji Mavji's case : [1976]102ITR287(SC) , the learned judges, after laying down the four principles, have also observed thus (headnote) :

'Where, however, the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1) (b) would have no application. '

207. Therefore, even in Kalyanji Mavji's case : [1976]102ITR287(SC) , it is postulated that the information should be subsequent and there should be fresh facts or material, This part of the observation is in conformity with the observations made in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , also and, therefore, in both these cases the view taken in A. Raman and Co.'s case : [1968]67ITR11(SC) is, accordingly, approved, Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) also is referred to in both these decisions. Since Anandji Haridas and Co.'s case : [1968]1SCR661 was decided by five judges, it is contended that the view taken therein by the larger Bench prevails over the view taken by the Bench of three judges in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) . Anandji Haridas and Co.'s case : [1968]1SCR661 arose under the C. P. and Berar Sales Tax Act, 1947, and that judgment is not referred to by the Supreme Court in any of the cases decided under the Income-tax Act, including Kalyanji Mavji's case : [1976]102ITR287(SC) . No doubt, in Anandji Haridas and Co.'s case : [1968]1SCR661 , there is a reference to Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) and A. Raman and Co.'s case : [1968]67ITR11(SC) . Anandji Haridas and Co.'s case : [1968]1SCR661 was cited and followed by the Punjab and Haryana High Court in CIT v. Yash Pal Mehra and Co. . But equally so, several High Courts have followed the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) (to cite a few, Allahabad High Court in CIT v. Nem Kumar Jain Ratan Kumar : [1980]125ITR674(All) , Calcutta High Court in Punjab Produce and Trading Co. Ltd. v. CIT : [1986]158ITR524(Cal) , Rajasthan High Court in Purushottam Das Bangur v. ITO , and the Kerala High Court (Bench consisting of Balakrishna Eradi J. (as he then was) and Balagangadharan Nair J.) is CIT v. Cochin Co. (P.) Ltd. : [1980]126ITR522(Ker) ). However, the decision in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , is referred to a larger Bench as can be found in [1983] 142 ITR 4, and the limited question regarding the correctness of the said decision would be considered by the larger Bench. That being the position, I do not propose to go into the question whether the judgment in Indian and Eastern Newspaper Society's case : [1979]119ITR996(SC) , is rendered per incuriam.

208. For all the aforesaid reasons, the impugned order is liable to be quashed and the writ petition is, accordingly, allowed with no order as to costs.

ORDER OR DIVISION BENCH (15-9-1989)

209. As per the decision of the majority, the writ petition is allowed. But there is no order as to costs. Advocate's fee Rs. 1,000.


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