Gopalan Nambiyar, C.J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following questions of law for our opinion :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the reassessment made under Section 147(b) of the I. T. Act, 1961, for the assessment year 1967-68, is not valid and proper ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the order of the AAC, which is appealed against by the assessee, cannot be said to be 'information' within the meaning of Section 147(b) of the I. T. Act, 1961, and that, so far as the ITO is concerned, it is only a change of opinion ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that even if that order of the AAC appealed against by the assessee constitutes information within the meaning of Section 147 of the I. T. Act, 1961, such information being related to assessment year 1970-71, it cannot be said that the ITO had in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for the assessment year 1967-68 ?'
2. The assessee is a Government owned company. The assessment year with which we are here concerned is 1967-68. The assessment was originally completed on November 22, 1967. Among other things, the assessee claimed that a grant given by it to the Labour and Industrial Bureau, was an allowable deduction under Section 37 of the I. T. Act, 1961, in the computation of the total income. That was not disputed by the ITO and as a matter of course or routine, he would appear to have allowed it. This is how the statement of facts has stated the position. The original assessment did not indicate any discussion as to why it was allowed as a deduction. Annexure A is a copy of the original assessment. Subsequently for the assessment year 1970-71 also the assessee made a similar claim for deduction. This was refused by the then ITO who was different from the officer who allowed the deduction in the year 1967-68. The assessee's appeal against the said order was dismissed by the AAC by his order dated September 22, 1971 (annexure C). Para. 5 of the said order dealt with the deductibility of the expenses claimed by the assessee as follows:
'5. Taking first the cash grants to the Labour and Industrial Bureau it is difficult to see how these can possibly be regarded as expenditure laid out wholly and exclusively for the purpose of the assessee's business or profession. What Sri lyer has in mind is perhaps the original meaning of the word 'business', viz., what one does as a regular activity. That, however, is not the meaning that is to be ascribed to the word in the context of income-tax where one is concerned with activities of such a sort as are expected to yield income and where the only purpose is to make such income. Section 2(13) defines the word as including any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture. While this definition is not exhaustive it is certainly indicative of the sense in which the word is used. It might be the 'business' of a charitable organisation to make donations to those in need but that would not be an activity within the meaning of the word in the I. T. Act. The grants to the Labour and Industrial Bureau cannot, to my mind, have any connection whatsoever to any profit motive on the part of the assessee-company. Obviously, the payments were in furtherance of the objective that the economy of the State might be developed.'
3. On the basis of the information disclosed in the appellate order that the expense in question was not an allowable deduction, the ITO reopened the assessment for the year 1967-68 under Section 147(b) of the Act and asked the assessee to show cause why the payment which had been allowed as a deduction should not be disallowed in the assessment for that year. By his order dated March 15, 1973, he revised the assessment disallowing the claim for deduction of the payment of the Labour and Industrial Bureau (annexure D). The assessee's appeal to the AAC was dismissed. The said order was confirmed by the Tribunal which has referred the three questions stated above, for our opinion.
4. Section 147(b) of the I. T. Act, 1961, reads :
'147. Income escaping assessment.--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 (hereafter in Sections 148 - 153 referred to as the relevant assessment year).' (Explanations 1 and 2 omitted as unnecessary).
5. The short but interesting question that has been debated before us at length in this reference is whether the ITO can be said to have acted on information in his possession, which led him to believe that the income had escaped assessment; or whether on identical facts which confronted him on the earlier occasion, there was a mere change of opinion on his part. It was agreed that if it was the former the reassessment proceedings will be valid, and if the latter, not. The dividing line between the two is rather thin, and while the principle of distinction is easy of exposition its practical application is difficult, especially in a case of the type that we have to deal with. The expression 'information' which was introduced into the Indian I. T. Act, 1922, by an amendment of 1939 has not been defined either in the 1922 Act or the 1961 Act. But this has been the subject-matter of judicial exposition. In United Mercantile Co. Ltd. v. CIT : 64ITR218(Ker) , a Division Bench of this court referred to the decision of the Madras High Court in Salem Provident Fund Society Ltd. v. CIT : 42ITR547(Mad) and expressed itself thus (page 222):
' 'To inform 'means' to impart knowledge' and a detail available to the Income-tax Officer in the papers filed before him does not by its mere availability become an item of information. It is transmuted into an item of information in his possession only if, and only when, its existence is realised and its implications are recognised.
We consider the awareness of the ITO for the first time, after theassessment order of the 19th November, 1957, that the bonus shares wereissued not out of premiums received in cash and the consequent result in thelight of the Finance (No. 2) Act, 1957, as information within the meaning ofthat expression as used in Section 34(1)(b) of the Indian I. T. Act, 1922. Itfollows that we should answer the question referred in the affirmative, thatis, against the assessee and in favour of the department. We do so, but, inthe circumstances of the case, without any order as to costs.'
6. The Division Bench also called attention to the decision of the SupremeCourt in Imperial Tobacco Company's case : 61ITR461(SC) , where theSupreme Court had referred to the Salem Provident Fund Society's case : 42ITR547(Mad) and to Rathinasabapathi Mudaliar's case : 51ITR204(Mad) and to various other decisions. The position was restated by the Supreme Court that if there is information leading to the belief that incomehad escaped assessment, the mere fact that this information has resulted ina change of opinion will not make Section 34 inapplicable. A mere change ofopinion is not sufficient to initiate proceedings under Section 34, only when suchchange is a result of a different method of reasoning and not based on'information'--See these principles discussed in a recent Division Benchjudgment of this court in Alleppy Co. Ltd. v. CIT : 116ITR169(Ker) (infra). Counsel for the revenue called attention to the decision in JawaharLal Mani Ram v. CIT : 48ITR837(All) --a judgement of theAllahabad High Court. After noticing the Supreme Court decision in Chattu-ram Horilram Ltd. v. CIT : 27ITR709(SC) , the decision of the Madras HighCourt in Salem Provident Fund Society's case : 42ITR547(Mad) and othercases, the court was of the view that there was no justification to confine theexternal sources of information for reassessment to the information derivedfrom a judgment of the Privy Council or the Supreme Court or the HighCourt, and stated that the information can be derived properly from othersources, and such information will constitute information for the purpose ofSection 33. It is not possible to exclude similar information from other sources,viz., the Tribunal or the AAC. At page 852, the court observed :
'Apart from this, as already observed, the information derived from an order of the Income-tax Appellate Tribunal or of an Appellate Assistant Commissioner is as much information from an outside or extraneous source, vis-a-vis, the Income-tax Officer as that derived from the High Court or the Supreme Court or the Privy Council.'
7. Counsel for the revenue called our attention to the pronouncement of the Supreme Court in Asst. CED v. Nawab Sir Mir Osman Ali Khan Bahadur : 72ITR376(SC) and CIT v. Gurbux Rai Harbux Rai : 83ITR86(SC) . In the earlier of these cases, it has been laid down by the Supreme Court that the opinion of the CBR regarding the correct valuation of securities for purposes of estate duty, expressed in an appeal prepared by the accountable; person, is 'information' within the meaning of Section 59 of the E.D. Act, 1953, on the basis of which the Controller can entertain a reasonable belief that property assessed to estate duty has been undervalued. In the second of the cases, the Supreme Court observed (page 91):
'This court has consistently held that the ITO would have jurisdiction to initiate proceedings under Section 34(1)(b) of the Indian I.T. Act, 1922, which is in pari materia with Section 15 of the Act if he acted on information received from the decision of the superior authorities or the court even in the assessment proceedings. (See R. B. Bansilal Abirchand Firm v. CIT : 70ITR74(SC) and Asst. CED v. Nawab Sir Osman Ali Khan Bahadur : 72ITR376(SC) ). It has next been urged that the alleged object of having a partial partition, namely, of reducing the liability to excess profits tax had never been examined by the AAC in the income-tax proceedings, and, therefore, it could not be said that there had been escapement of income as a result of information derived from his order. The AAC apparently did not go into that question because the proceedings before him related to assessment of income-tax. Section 10A of the Act is a special provision which deals with the transactions designed to avoid or reduce liability to excess profits tax. The information which came into possession of the EPTO of partial partition having been effected was relevant for the purpose of Section f 5 and once he had initiated proceedings under that section he was perfectly competent and had jurisdiction to examine for the purpose of Section 10A whether partial partition had been effected for avoidance or reduction of liability to excess profits tax. The first question, therefore, should have been answered against the assessee and in favour of the revenue.' These cases are sufficient authority for the proposition that an order of the type of annexure C can well constitute 'information' which may well form the foundation for the order.
8. On the question as to whether, on the actual facts, there was a merechange of opinion on the part of the ITO or a change of opinion as a resultof information gathered by him, we should think that on the whole thereshould be little difficulty. Here again, counsel for the revenue has drawn our attention to two decisions, viz., R. B. Bansilal Abirchand Firm v. CIT : 70ITR74(SC) and Kalyanji Mavji & Co. v. CIT : 102ITR287(SC) . In the earlier of these decisions, the appellant before the Supreme Court was a firm of four major parties. The appellant financed another firm, Bisesar House, in which 8 annas share belonged to the four brothers.
9. Bisesar House paid interest on advances made by the appellant. In proceedings for the assessment of the Bisesar House for the assessment year1947-48, the ITO disallowed the interest paid as an expenditure on theground that it was interest paid to a partner. In the assessment of theappellant-firm for the corresponding year, the interest received from BisesarHouse was not treated as an income but was treated as share of income ofthe appellant-firm in the capacity of a partner in Bisesar House. TheTribunal, on appeal from the assessment of Bisesar House, allowed the claimfor interest as an expenditure holding that it was a payment to a banker.The decision of the Tribunal was upheld by the High Court. On furtherappeal, it was held by the Supreme Court that, when the assessment of theappellant's income was made, the ITO's information was that the appellantwas a partner in Bisesar House and that the interest had been received inthe capacity of a partner, and that it was only after the Tribunal gave itsdecision that the officer came to know that the interest was not received bythe appellant in the capacity of a partner, but in his capacity of financieradvancing moneys to Bisesar House. The Supreme Court observed thatthis was not a case where the ITO, on his own initiative and on the materialwhich was before him at the time of the first assessment, changed hisopinion and came to a correct conclusion. The correct conclusion wasbrought to his notice by the decision of the Tribunal and the High Courtand that was 'information' as a consequence of which he came to believethat the provisions of Section 34(1)(b) were attracted. The officer, therefore, hadjurisdiction to act under the section. The decision appears to us to bequite significant. In Kalyanji Mavji & Co.'s case : 102ITR287(SC) ,the same principle was again restated by the Supreme Court. It was heldthat, as the ITO had in the original proceedings not at all applied his mindto the question as to whether the surplus as on revaluation was assessableor not, the reassessment proceedings were valid. In other words, it wasrecognised that if there was a non-advertence of the mind on the earlieroccasion and an advertence on the later one that was sufficient to form thefoundation for reassessment.
10. Counsel for the revenue also satisfied us that the different approach to the question while affirming the foundation for reassessment need not necessarily be in the very same year to which the assessment proceedings related and that it may well be in a different year. For this, he cited to us the decision in Mahasukhram Madanlal v. CIT : 28ITR299(Patna) (Pat) and Hyderabad Allwyn Metal Works Ltd.'s case : 46ITR988(AP) . The decisions and the principle laid down by them seem to support the contention of counsel for the revenue. But counsel for the assessee strenuously argued before us that the entire materials had been placed before the ITO during 1967-68 that there had been no failure on the part of the assessee to truly and fully disclose the primary facts, and that what happened was really a change of opinion by the succeeding officer during the year 1969-70 and affirmation of that view by the AAC for the said year. This, it was argued, would not be sufficient to warrant action under Section 147(b).
11. Attention was also called to the passage at page 900 of Kanga's Income Tax, seventh edition, Vol. 1. The position is thus stated:
'Two conditions precedent must be satisfied before the ITO can take action under Clause (b):
(i) he should have reason to believe that income has escaped assessment, and
(ii) it should be in consequence of information received after the original assessment that he should have reason so to believe. If either condition is not satisfied, the ITO's action would be without jurisdiction.
12. Commenting on the second condition, Shah J., speaking for the Supreme Court in CIT v. A. Raman & Co. : 67ITR11(SC) observed: 'That information, must, it is true, have come into the possession of the ITO after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the ITO is not affected'. In an earlier part of the same judgment it is stated that 'information' means 'instruction or knowledge derived from an external source'. But these words cannot be construed as implying that the source must be outside the record; the observations quoted above clearly lay down that the information may be gathered from the assessment record itself. 'All that the Supreme Court meant by saying that the information must be in the nature of some 'instruction or knowledge derived from an external source' is that a mere internal change of opinion would not justify the reopening of an assessment'. Information as to subsequent events which bring to light material circumstances unknown but existing at the date of the original assessment would equally justify a reassessment under this section. In A. Raman & Co.'s case : 67ITR11(SC) the Supreme Court held that a permissible 'device' to negative or reduce tax liability cannot afford a reason to believe that income had escaped assessment.
13. But the power to act on information is not to be confused with the power to revise. The rule that the ITO is entitled to act on information obtained after the original assessment from the record of that assessment itself does not permit fresh application of the mind to the same issue or enable the ITO to correct his own or his predecessor's errors of judgment:
the ITO cannot take any action under this section merely because he happens to change his opinion or to hold an opinion different from that of his predecessor, on the same set of facts. Nor can he deliberately make piecemeal assessments, i.e., at the time of the original assessment he cannot omit to charge certain income knowing that it is assessable and leave the assessment of such income for proceedings under this section.' In view of the position stated by Kanga, we have examined the matter carefully.
14. Counsel for the assessee cited to us the decision of the Bombay High Court in Ramkrishna Ramnath v. ITO : 77ITR995(Bom) to the effect that the information must be received ante and not from his own order in a subsequent year. He also cited to us the decision of the Supreme Court in CIT v. Simon Carves Ltd. : 105ITR212(SC) . There what happened was a recomputation of the income by the ITO in a way different from what he had done on the earlier occasion so as to be more beneficial to the revenue. The court observed that this cannot validly form the foundation of an order under Section 147(b) of the 1961 Act. The court expressly stated thus (page 219):
'It has been argued on behalf of the appellant that reassessment under Section 147(b) would be justified where in the original assessment income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the ITO. The present, however, we find, is a case which does not fall in any of those categories.'
15. The decision has no application here. In CIT v. Dinesh Ckandra H. Shah : 82ITR367(SC) , it was stressed by the Supreme Court that a mere change of opinion cannot be a valid ground for reopening the assessment under Section 34(l)(b) of the Act. There can be no quarrel with the said proposition. At page 371, the court observed :
'It is not disputed that the facts in the above case were altogether different from those of the present case. But on behalf of the revenue assistance has been sought to support the contention that even if there has been an omission to include a particular item of income in an assessment by inadvertence, it is open to the ITO to invoke the provisions of Section 34(1)(b) when he discovers subsequently that that particular item of income has escaped assessment. In our judgment it is wholly unnecessary to go into the question whether an inadvertent omission can justify the reopening of the assessment on its subsequent discovery by the ITO. No such position was adopted by the ITO when he was called upon by the AAC to state the reason for not including the income of the Madras firm about the factum and existence of which full disclosure had been made in the return filed by the assessee and with regard to the income of which a note had been made on the file when the share allocation report was received from the ITO, Madras, on September 21, 1955. It appears that the ITO clearly sought to justify the reopening of the assessment under Section 34(1)(b) merely on the ground of change of opinion. It is well settled by now, and Mr. Desai quite rightly does not dispute the proposition, that mere change of opinion could not be a valid ground for reopening the assessment under Section 34(1)(b) of the Act. We would accordingly uphold the answer returned by the High Court on the short ground that the reassessment for the year in question was sought to be reopened for the reason that the successor of the ITO who had made the original assessment had changed his opinion which did not furnish a justifiable reason for taking action under Section 34(1)(b).'
16. The quotation was made after referring to the judgment of the Supreme Court in CIT v. A. Raman & Co. : 67ITR11(SC) . The decision in CIT v. Dinesh Chandra H. Shah : 82ITR367(SC) has no application.
17. Attention was called to the recent decision of the Supreme Court in R. K. Malhoira, ITO v. Kasturbhai Lalbhai : 1975CriLJ1545 . On the actual facts, the principle laid down by the. Supreme Court does not at all run counter in any manner to the principle of the decision that we have examined earlier. It was stated that the words 'external source' cannot be construed as implying that the source must be outside the record. The information must be gathered from the assessment record itself. On the facts, it was held that neither .the fact that the ITO was aware that the properties were self occupied, nor the fact that he could have with diligence found that the respondent would not be entitled to the deduction of municipal taxes, would preclude the officer from using the audit note as fresh 'information'. The officer's action was held to be justified on facts.
18. It would be worthwhile to quote the relevant passage from Shah J.'s judgment in Raman & Co's case : 67ITR11(SC) (page 15):
'The condition which invests the ITO with jurisdiction has two branches : (i) that the ITO has reason to believe that income chargeable to tax has escaped assessment; and (ii) that it is in consequence of information which he has in his possession that he has reason so to believe. Since the learned judges of the High Court have concentrated their attention upon the second branch of the condition and have reached their conclusion in favour of the assessees on that branch, it would be appropriate to deal with the correctness of that approach. The expression 'information' 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. If, as a result of information in his possession, the ITO has reason to believe that income chargeable to tax had escaped assessment, the ITO has jurisdiction to assess or reassess income under Section 147(b) of the I.T. Act, 1961. Information in his possession that income chargeable to tax has escaped assessment furnishes a starting point, for assessing or reassessing income. If he has that information, the ITO may commence proceedings for assessment or reassessment. To commence the proceeding for reassessment it is not necessary that on the materials which came to the notice of the ITO, 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 issued under Section 147 of the I.T. 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 ITO had in his possession any information : the court may also determine whether from that information the ITO may have reason to believe that income chargeable to tax had escaped assessment. But the jurisdiction of the court extends no further. Whether on the information in his possession he should commence a proceeding for assessment or reassessment must be decided by the ITO and not by the High Court. The ITO 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 art. 226 of the Constitution, to set aside or vacate the notice for reassessment on a reappraisal of the evidence.'
19. Applying ourselves to the facts in the light of the principles disclosed, we are clearly of the opinion that on the earlier occasion there was no advertence of the mind to the question of deductibility of the expenditure in question. That order was made, as stated by the Tribunal in its statement of facts, in a routine fashion and in a casual manner. The succeeding officer relied upon the relevant aspects only in issuing the later order of assessment for the year 1969-70, which was confirmed on appeal by the AAC. This, in our opinion, constitutes 'information' within the meaning of Section 147 and in the light of the judicial decisions, on the basis of which a change of opinion was justified and proper. The Tribunal was wrong in the view that it took.
20. Counsel for the assessee attempted a feeble argument that the 'information', if such it could be, had come from the officer himself, as it was the succeeding officer in 1969-70 who took a different view, which was confirmed by the Appellate Tribunal. In the light of the decisions we have noticed, this seems to make no difference.
21. In the result, we answer the questions in the negative, i.e., in favour of the revenue and against the assessee. The Tribunal will rehear the appeal in the light of the answer given by us to the questions and dispose of the same on the merits. We make no order as to costs.