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Kasturbhai Lalbhai Vs. R.K. Malhotra, Income-tax Officer, Group Circle Ii (1), Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 1372 of 1969
Judge
Reported in[1971]80ITR188(Guj)
ActsIncome Tax Act, 1961 - Sections 23(2), 147, 148 and 263
AppellantKasturbhai Lalbhai
RespondentR.K. Malhotra, Income-tax Officer, Group Circle Ii (1), Ahmedabad
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.-General
Excerpt:
.....147(b) of the income-tax act, 1961. the question is whether a certain intimation received by the income-tax officer expressing the opinion of the audit department as to the correct interpretation of section 23(2) could be said to constitute 'information' on which the income-tax officer could act for the purpose of initiating proceedings for reassessment against the petitioner under section 147(b). the petitioner is an assessee owning two immovable properties, one in ahmedabad and the other in bombay. the income-tax officer, however, did not seem to be satisfied with the explanation given by the petitioner and he, therefore, issued a notice dated 12th september, 1969, to the petitioner under section 148 stating that, whereas he had reason to believe that the income of the petitioner..........he proposed to reopen the assessment of the petitioner under section 147(b). he also proceeded to state the information in consequence of which, according to him, he had reason to believe that the income of the petitioner had escaped assessment. he pointed out that the income-tax assessments are subjected to audit by the office of the comptroller and auditor-general of india and, while auditing the assessment of the petitioner for the assessment year 1965-66, the audit department had pointed out that, on a true interpretation of section 23(2), the deduction of municipal taxes in respect of self-occupied properties was not admissible. this intimation received from the audit department, according to the income-tax officer, constituted 'information' within the meaning of section 147(b).....
Judgment:

P.N. Bhagwati, C.J.

1. This petition raises a short but interesting question of section 147(b) of the Income-tax Act, 1961. The question is whether a certain intimation received by the Income-tax Officer expressing the opinion of the audit department as to the correct interpretation of section 23(2) could be said to constitute 'information' on which the Income-tax Officer could act for the purpose of initiating proceedings for reassessment against the petitioner under section 147(b). The petitioner is an assessee owning two immovable properties, one in Ahmedabad and the other in Bombay. During the relevant year of account, corresponding to the assessment year 1965-66, both the properties were occupied by the petitioner and, in the words of the Income-tax Officer, they were 'self occupied properties'. The petitioner, in his assessment for the assessment year 1965-66, claimed that a sum of Rs. 4,052, being the municipal taxes, be deducted in determining the annual value of the properties under section 23(2) and the Income-tax Officer allowed the claim and deducted the sum of Rs. 4,052 in arriving at the annual value of the properties under section 23(2) for the purpose of computing the income of the petitioner under the head 'Income from house property'. The order of assessment was made by the Income-tax Officer on 14th March, 1966. Nothing transpired thereafter for a period about 3 1/2 years until 15th July, 1969, when the Income-tax Officer addressed a letter calling upon the petitioner to show cause why the amount of municipal taxes allowed as deduction should not be added back on the ground that it was wrongly allowed. The petitioner by his letter in reply dated 18th July, 1969, pointed out to the Income-tax Officer that it was not competent to him to reopen the assessment of the petitioner under section 147 and that, in any event, the amount of municipal taxes was validly allowed as a deduction in computing the income from self-occupied properties. The Income-tax Officer, however, did not seem to be satisfied with the explanation given by the petitioner and he, therefore, issued a notice dated 12th September, 1969, to the petitioner under section 148 stating that, whereas he had reason to believe that the income of the petitioner chargeable to tax for the assessment year 1965-66 had escaped assessment within the meaning of section 147, he proposed to reassess the income for the said assessment year and requiring the petitioner to file a return of his income for the said assessment year within thirty days from the date of receipt for the said assessment year within thirty days from the date of receipt of the notice. The petitioner thereupon filed the present petition challenging the validity of this notice issued by the Income-tax Officer.

2. The Income-tax Officer against whom the petition was directed filed an affidavit-in-opposition to the petition and in the affidavit he made it clear that he proposed to reopen the assessment of the petitioner under section 147(b). He also proceeded to state the information in consequence of which, according to him, he had reason to believe that the income of the petitioner had escaped assessment. He pointed out that the income-tax assessments are subjected to audit by the office of the Comptroller and Auditor-General of India and, while auditing the assessment of the petitioner for the assessment year 1965-66, the audit department had pointed out that, on a true interpretation of section 23(2), the deduction of municipal taxes in respect of self-occupied properties was not admissible. This intimation received from the audit department, according to the Income-tax Officer, constituted 'information' within the meaning of section 147(b) and, in consequence of this information, the Income-tax Officer had reason to believe that by reason of wrong allowance of deduction of municipal taxes, the income of the petitioner for the assessment year 1965-66 had escaped assessment. His case, therefore, was that the conditions precedent to the exercise of jurisdiction to issue the impugned notice under section 148 read with section 147(b) were fulfilled and the impugned notice was a valid notice.

3. The main question which, therefore, arises for consideration is whether there was any information in the possession of the Income-tax Officer in consequence of which he could be said to have reason to believe that the income of the petitioner had escaped assessment so as to attract the applicability of section 147(b). It is clear from the language of section 147(b) that the assessment or reassessment of the escaped income of an assessee under that sub-section can be made by the Income-tax Officer only if the Income-tax Officer has in consequence of information in his possession reason to believe that such income has escaped assessment. Two conditions must be satisfied before the Income-tax Officer can take action under section 147(b) : (i) the Income-tax Officer should receive information after the original assessment; and (ii) in consequence of such information he should reasonably believe that income chargeable to tax has escaped assessment. The fulfillment of both these conditions was disputed on behalf of the petitioner but the question that arises in this petition is only in regard to the first condition. The contention of Mr. Kaji, learned advocate appearing on behalf of the petitioner, was that the first condition was not satisfied in the present case since the intimation received by the Income-tax Officer from the audit department did not constitute 'information' within the meaning of section 147(b) and there was accordingly no 'information' received by the Income-tax Officer in consequence of which he could be said to have reason to believe that income of the petitioner chargeable to tax had escaped assessment. The question before us, therefore, boils down to a narrow one, namely, whether the intimation received from the audit department as to the correct state of the law could be said to be 'information' within the meaning of section 147(b).

4. Now it is well settled as a result of the decision of the Supreme Court in Commissioner of Income-tax v. A. Raman and Co., that 'information' in the context in which it occurs in section 147(b), must mean 'instruction or knowledge derived from an external source concerning facts or particular, or a to law relating to a matter bearing on the assessment'. Mere change of opinion on the part of the Income-tax Officer cannot constitute 'information' so as to entitle the Income-tax Officer to initiate proceedings under section 147(b). 'Information' may be as to facts or particulars or it may be as to the correct state of law but it must be 'from an external source' as distinguished from a mere change of opinion. Now, as soon as it is said that 'information' must be derived from 'an external source', the question immediately arises : Would it suffice if it is received from any source If an opinion as to the state of the law is expressed by any person and the Income-tax Officer come to know about it, would it constitute 'information' which would entitle the Income-tax Officer to disturb the finality of an assessment and reopen it The argument of the learned Advocate-General on behalf of the revenue was that there was no limitation on the nature or character of the external source from which communication as to the state of the law may be derived by the Income-tax Officer and we would be rewriting the section if we sought to read any such limitation in it. He urged that whatever be the source from which communication as to the state of the law is received by the Income-tax Officer, whether it be the Supreme Court or the High Court or the Tribunal or the Appellate Assistant Commissioner or for the matter of that any person or authority, such communication would be 'information' derived from an external source. Mr. Kaji, on behalf of the petitioner, however, contended that instruction or knowledge as to the state of the law must be received form some judicial authority such as the Supreme Court or the High Court which is competent to declare the law and whose decisions have the effect of binding precedents; if it is received from any other external source, it would not be 'information' a to the state of the law within the meaning of section 147(b). Each of these two views canvassed before us represents an extreme contention and we do not think we can accept either of the two view a representing the correct interpretation of the word 'information' in section 147(b).

5. Now, it must be remembered that section 147 empowers the Income-tax Officer to disturb the finality of an assessment already made and to assess or reassess the income of the assessee. Such an action is bound to result in considerable anxiety and harassment to the assessee and the legislature has, therefore, imposed certain conditions subject to which alone the Income-tax Officer can reopen an assessment which is already concluded. These conditions are to be found in clauses (a) and (b) of section 147. We are concerned in this petition only with clause (b) and we shall, therefore, confine our attention only to that clause. The condition precedent on the fulfilment of which alone Income-tax Officer can reopen the assessment of an assessee under clause (b) of section 147 is that in consequence of information in his possession the Income-tax Officer should have reason to believe that any income of the assessee has escaped assessment. He must receive some information subsequent to the assessment and, in consequence of that information, he should have reason to believe that income of the assessee has escaped assessment. Mere change of opinion on his part would not be enough. This safeguard has been provided by the legislature so that an assessment which is once completed is not lightly disturbed and the assessee is not put to unnecessary harassment and trouble by reopening of the assessment. If the view as to facts or law taken by the Income-tax Officer is erroneous, he can rectify it under section 154 or the Commissioner can revise it under section 263. But the Income-tax Officer cannot reopen an assessment under section 147(b) unless he receives 'information' from an external source which leads him to believe that income of the assessee has escaped tax. Now, if information is as to any fact, it may be received from any person who knows the fact. The external source in case of information as to fact cannot be limited to any particular person, body or authority, since such fact may be within the knowledge or in the possession of anyone and it may be received by the Income-tax Officer from any source. But, so far as information as to the correct state of the law is concerned, the external source from which it may be received must necessarily be of a limited character. Take, for example, a case where the Income-tax Officer after making an order of assessment learns in the course of discussion with another Income-tax Officer that the latter has taken a different view as to the interpretation of a section. Could it be aid in such a case that the former Income-tax Officer has received 'information' as to the correct state of the law which would entitle him to reopen the assessment There may be a case where the Income-tax Officer realise from some expression of opinion by an income-tax lawyer at a seminar or by reason of an argument advanced by an Income-tax lawyer in the case of another assessee that the view taken by him in regard to the interpretation of a section was wrong. Could it be said that he has received 'information' so as to entitle him to take action under section 147(b) The view canvassed by the learned Advocate-General on behalf of the revenue, if taken to its logical end, would mean that, even in cases such as these, the Income tax officer would be entitled to reopen the assessment. The safeguard which is introduced by the legislature by insisting on the requirement that the Income tax officer must have reason to believe in consequence of some information received after the assessment would be rendered illusory. The dividing line between the mere change of opinion on the part of the Income tax officer and 'information' received from an external source would become blurred. If the opinion of any person as to the state of the law were to be regards as 'information' irrespective of the fact whether such person has competence or authority to pronounce upon the law it would be easy to disguise mere change of opinion on the part of the Income tax Officer under the cover of opinion of some other person. Moreover, if opinion of any other person can be regarded as sufficient to warrant initiation of proceedings for reopening an assessment, it is difficult to imagine why change of opinion on the part of the Income tax officer himself should not be so regarded by the legislature. 'Information' connotes, as pointed out by the Supreme Court, 'information or knowledge derived from an external source,' and obviously such instruction or knowledge must be from a person, body or authority competend and authorized to give it. It must have an element of authority behind it. It cannot be a mere opinion of some one who has no authority to pronounce upon the law. When we say this we must of course, make it clear that we do not accept the argument of Mr. Kaji, on behalf of the petitioner, that instruction or knowledge as to the correct state of the law can be derived only from a judicial decision of High Court or Supreme Court. It may conceivably be derived from any other authority. What such authority may be is not necessary for us to decide in the present petition. Some argument was advanced before us that the even a decision given by a Tribunal on a question of law may constitute 'information' But on this argument also we do not wish to express any opinion. It is not possible, nor even expedient to formulate a precise definition, exclusive or inclusive which would aptly cover all cases where intimation received by the Income tax officer as to the correct state of the law may be regarded as 'information' But one thing appears to us to be fairly clear that opinion as to the state of the law by any and every person cannot constitute 'information' so as to entitle the Income tax Officer to reopen the assessment. It must be, as already stated by us, a statement or expression of the correct state of the law by a person, body or authority competent and authorized to prunes upon the law. So that it is invested with some definitions and authority. If this is the correct test to be applied. It is apparent that the intimation received by the Income Tax Officer in the present case could not be regarded as 'information' so as to warrant initiation of proceedings under section 147(b). The audit department is not an authority competent and authorised to declare the correct state of the law or to pronounce upon it. What ever be the precise point at which a line may be drawn to distinguish opinions as to the correct state of the law which fall within the category of 'information' from those which fall outside it, it is clear that the opinion of the audit department as to the correct state of the law of falls on the wrong side of the line.

6. We are, therefore, of the view that there was no 'information' in the possession of the Income tax Officer in consequence of which he could have escaped assessment and the condition precedent to the exercise of jurisdiction under section 147(b) was not satisfied. We, according to allow the petition and make the rule absolute by issuing a writ of mandamus quashing and setting aside the notice dated 12th September 1969, issued by the Income Tax Officer under section 148 of act. The respondent will pay the costs of the petition to the petitioner.

7. Petition allowed.


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