: V. Sethuraman, J. - The following question has been referred u/s 64(1) of the ED Act of 1953 at the instance of the CED.
'Whether, on the facts and in the circumstances of the case, the Asstt. Contr. had information leading to the formation of reasonable belief in his mind that property liable to be charged to Estate Duty, had escaped assessment.'
2. The estate duty assessment arose on the death of one A. P. Ramchandra on 23rd May, 1960. He was a partner in four firms and owned agricultural lands in several villages. He left behind him, his wife, Padmavathi as his sole heir.
3. On 18th April, 1960, he sold 11.28 acres of punja lands in Rajakilpakkam village to one A.K. Sridharan for a sum of Rs. 9,000/- another 12.8 acres of land (Punja) in the same village to A. K. Sriram for Rs. 13,000/-; another 30.62 acres of punja lands in Madambakkam village to A. P. Vivekananda for a sum of Rs. 2,900/- and a further 24.64 acres of punja lands in the same village to A. K. Srikanth for Rs. 3,500/- There was also another sale of 17.87 acres of punja lands in Taramani village to A. K. Srivatsan for a sum of Rs. 3,500/-. The purchasers were sons of his brothers. In the course of assessment to estate duty, the Asst. CED considered that the sale had not been effected for full consideration in money or moneys worth and that they should be considered as gifts as contemplated by s. 27(1) read with s. 9 of the ED Act. As the gifts had been made within 2 years prior to the death of the deceased, the Asst. Contr. was of the view that the properties so gifted should be deemed to have passed on the death of the deceased u/s 9 of the Act. The proposal of the Asstt. Contr. to include the value of the lands, was intimated to the accountable persons. M/s. Suri & Company, Chartered Accountants objected to the said proposal and furnished a note to him dated 22nd February, 1965. The objection was based on the ground that the brothers sons were not 'relatives' within the meaning of the said expression as defined in s. 27(2) of the ED Act and that consequently ss. 9 and 27(1) of the Act were not applicable. The accountable person appealed to Appl. CED.
4. During the pendency of the appeal, the Asstt. Contr. claimed that he went through one of the files relating to Hyderabad Estate Duty Circle and came across an extract from P. Ramanatha Aiyars Law Lexicon wherein it was stated that the expression 'issue' included 'lineal descendants'. He considered that the persons to whom the deceased had sold the lands for inadequate consideration could be taken as issues of the relatives within the meaning of s. 27(7) of the Act. He again wrote to the accountable person, his proposal to include the value of the element of bounty arising out of the sale of lands to his nephews by taking action u/s. 61. There was an objection, by letter dated 29th March, 1966 on the ground that the question had been discussed and considered by the Asstt. Contr. at the time of the original assessment, that the Asstt. Contr. had accepted the contention urged on behalf of accountable person at the original assessment stage and that therefore there was no mistake apparent from the record so that action could be taken u/s 61 of the ED Act as proposed.
5. The Asstt. Contr. by his letter dated 5th April 1966 communicated the extract from Law Lexicon and required the accountable person to furnish correct detailed of the lands sold to the relatives. He intimated also his proposal to reopen the assessment u/s 59 of the ED Act. After taking into account all the objections raised on behalf of the accountable person, the Asstt. Contr. held that the provisions of s. 27(1) read with s. 9 and s. 27(7) of the Act applied to the facts here and he brought to tax the difference between the full market value of the lands sold by the deceased to his nephews and the actual amount for which they had been sold.
6. Against the order of the Asstt. Contr. u/s 59 of the Act, the accountable person filed an appeal. The Appl. Contr. took the view that the expression 'issue' occurring in s. 27(7) of the ED Act would cover only ones own children and nor the lineal descendants of his brothers. He, therefore, cancelled the re-assessment. The Asstt. Contr. filed an appeal before the Appl. Tribunal. The Tribunal held that the passage in Ramanatha Aiyars Law Lexicon did not constitute any information leading to the formation of reasonable belief in the mind of the Asstt. Contr. that property liable to be charged to estate duty, had escaped assessment. In this view, the Tribunal did not go into the question whether lineal descendants could be considered as issues. Thus by its order dated 31st December, 1973, Tribunal confirmed the Appl. Contr.s order on this point. I is as against this order of the Tribunal that the CED has obtained reference to the question already set out.
7. It would have been better if the Tribunal had given a finding on the proper interpretation of s. 27(7) of the ED Act also. In case the question referred is answered in the present reference, in favour of the Revenue, the matter has necessarily to go back to the Tribunal, and as the question relates to the interpretation of s. 27(7) of the Act, the matter would have to come again to this court at the instance of either side. This delay in the disposal of the estate duty assessment, by reason of the pendency of the case, would have been avoided, if the interpretation of s. 27(7) of the Act had also been gone into by the Tribunal. IT would also be more conductive to a satisfactory disposal of such matters, if all the points, and not merely any preliminary objection, raised before the Tribunal, considered and disposed of by it.
8. S. 9 of the ED Act provides that property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos, which had not been made two years or more before the death of the deceased, shall be deemed to pass on the death. This provision would apply only to gifts, or, in other words, to transfers without consideration. S. 27 of the Act, however, provides for treating as gift certain other transactions. Under s. 27(1) of the Act, it is enacted : 'Any disposition, made by the deceased in favour of a relative of his, shall be treated, for the purposes of the Act as a gift unless -
(a) the disposition was made on the part of the deceased for full consideration in money or moneys worth paid to him for his own use or benefit.'
9. There is also a provision for exclusion of the transaction in favour of a relative, if such a transaction had been entered into in a fiduciary capacity imposed on the deceased. In the present case, the allegation of the Asstt. Contr. is that the property had been sold for inadequate consideration. He did not apply the provisions of s. 9 read with s. 27(1) of the Act even at the initial stage only, because agreeing with what was submitted on behalf of the assessee, he took the view that the transaction in favour of nephews would not be covered by s. 27(7) of the Act. S. 27(7) of the Act defines the expression relative occurring in s. 27(1) and in so far as it is material s. 27(7) of the Act runs as follows :
'(i) 'relative' means, in relation to the deceased,
(a) the wife or husband of the deceased,
(b) the father, mother, children, uncles and aunts of the deceased, and
(c) any issue of any person falling within either of the preceding sub-clauses and the other party to a marriage with any such person or issue.'
10. In the present case we are concerned with the first part of cl. (c) of s. 27(7)(i) of the Act. The question is whether the transaction is in favour of any issue of any person falling within either of the preceding sub-clauses.
11. The word issue was understood by the Asstt. Contr. at the initial stage as referring only to the child of the deceased or his father, mother and others as specified in sub-cls. (a) & (b) of s. 27(7)(i) of the Act. At the stage the view taken by Asstt. Contr. was that sub-cl. (c) of s. 27(7)(i) of the Act did not apply to brothers children. In the letter addressed to the Chartered Accountants of the accountable person on 5th April, 1966, the following extract from Ramanatha Aiyars Law Lexicon (page 626) was given.
'In the Law of Descent, issue means descendants, lineal descendants; offspring; legitimate offspring. This word has a peculiar meaning, being often used in the sense of children, and legal or technical meaning, being used in the sense of descendant ....
It is a term of flexible meaning (per Jessel, M. R. in Morgan v. Thomas, (1882) 9. QBD 643. The word issue includes offspring of both sexes 4. C 397 ), See 27 LW 156;
'Issue' is a general name, including all, even to the remotest, descendants.'
Since the term issue is stated in the extract to include even the remotest descendants, the view, that came to be entertained by the Asstt. Contr. after completion of the assessment, was that brothers sons would be relatives as defined in s. 27(7) of the Act. The point to be considered is whether the meaning of the word issue as found in Ramanatha Aiyars Law Lexicon can be treated as information coming within the scope of s. 59 of the Act.
S. 59 of the Act provides : 'If the Controller -
(a) ......... ..........
(b) has, in consequence of any information in his possession, reason to believe notwithstanding that there has not been such omission or failure as is referred to in cl. (a) that any property chargeable to estate duty has escaped assessment, whether by reason of under-valuation of the property included in the account or of omission to include therein any property which ought to have been included, or of assessment at too low a rate or otherwise,
he may at any time, subject to the provisions of s. 73A, require the person accountable to submit an account as required u/s 53 and may proceed to assess or re-assess such property as if the provisions of s. 58 applied thereto.'
This provisions, it may be seen, is more or less identically worded as in the IT Act, the corresponding provision in the IT Act of 1961 being s. 147 (b).
12. S. 147 (b) of the IT Act, has been considered in a large number of decisions of this and other High Courts, and of the Supreme Court. In A.L.A. firm v. CIT Act, 1961 was considered in the light of the following facts. On the dissolution of a firm, on March 13, 1961, certain dissolution of a firm, on March 13, 1961, certain moveable properties were revalues and the difference was credited to the profit and loss account. The assests were allotted to the partners who carried on business with such assets as fell to their share. In the assessment for 1961-62, the firm had claimed that the excess, 1961-62, the firm had claimed that the excess, arising on revaluation of assets on the dissolution of the firm, was neither assessable as capital gain nor as income, as they had been distributed in specie. The ITO had not applied his mind to the assessability or otherwise of the amount credited to the profit and loss amount, and completed the assessment without including such profit. Subsequently finding that the profit arising on the revaluation of the assets had not been considered, he (the ITO) initiated re-assessment proceedings u/s 147(b) of the Act. IT was held that as the ITO had, in the original assessment proceedings, not at all applied his mind to the question as to whether the surplus, on revaluation, was assessable or not, the reassessment proceedings were valid.
13. After reviewing the decisions cited, there occurs the following passage at page 629 :
'The result of these decisions is that the statute does not require that the information must be extraneous to the record. IT is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the ITO subsequent to the original assessment. If the ITO had considered and formed an opinion on the said material in the original assessment itself then he would be powerless to start the proccedings for the reassessment. Where, however, the ITO had not considered the material and subsequently come by the material from record itself, then such a case would fall within the scope of s. 147(b) of the Act.'
14. The reported decisions make a distinction between change of view on the part of the ITO and reasonable belief being entertained by the ITO on the basis of information obtained by him subsequent to the assessment. As a result of which he considers that in fact chargeable tax had escaped assessment. A change of opinion on the part of the ITO, without more, will not justify reassessment. Whether there has been a change in the opinion on the part of the ITO or whether there is some information on the basis of which he proceeds, would have to be considered in the light of the facts in each case. Fir instance, if the ITO had not considered the assessability of a particular amount as in the case of A.L.A. Firm and if it came to light subsequently that a particular amount was assessable as found in that case, then there would be information which would justify the assessment proceedings being reopened, and that would not be case of change of opinion. Where, however, the ITO had applied his mind to the question of the assessability of a particular receipt or the deductibility of a particular expenditure or allowance, and if subsequently he came to the conclusion that the income had escaped assessment because of the amount not having been taxed or because of the deduction having been wrongfully given, then the question would arise as to whether there is an change of opinion. A subjective change of any other material or information would not justify the re-opening of an assessment. The IT Act, the ED Act and other statutes levying direct taxes permit assessments already made being reopened under certain specified circumstances and subject to certain safeguards. The intention of Parliament is to see that assessments once made are not distributed by the assessing authority without reference to any information which comes to his subsequently. Capricious or whimsical interference with such assessments is tabooed. The information that may give a handle for reopening an assessment may be on a point of law or in a point of fact.
15. We are not considering here cases where because of some default on the part of the assessee income had escaped assessment and s. 147(a) or s. 59(a) of this Act is sought to be applied. In the present case, we are concerned with the information on a point of law as to the proper interpretation of s. 27 of Act.
16. It is in this context that we have to consider the decisions cited on behalf of the Revenue as well as of the accountable person. Mr. Jayaraman, learned counsel appearing on behalf of the CED laid great emphasis on a decision of the Supreme Court in Kalyanji Mavji & Co. v. CIT West Bengal II as authorising a reassessment in circumstances similar to the one existing int eh present case. In that case, the assessee had been given deduction for the interest paid on amounts borrowed. In making the assessment for the subsequent year, the ITO discovered that the assessee had not utilised the entire borrowed money for the purpose of hire business and that it had granted interest-free loans to the partners for clearing up their income-tax dues. He therefore reopened the assessment originally made u/s 34(1)(b) of the Indian IT Act, 1922 which corresponds to 54(b) of the ED Act. In the reassessment, he disallowed the interest paid, and the point before that the Supreme Court was whether the reassessment was valid. At pages 296, and 297 the Supreme Court laid down the following propositions.
'On a combined review of the decisions of this court the following test and principles would apply to determine the applicability of s. 34(1)(b) 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 ITO. This is obviously based on the principle that the tax payer would not be allowed to take advantage of an oversight of 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.'
It is the last propositions which is relied on for the revenue here.
17. In R. K. Malhotra, ITO Group Circle II (1) Ahmedabad v. Kasturbhai Lalbhai, it is pointed out that the information may come from an external source like the note made by a audit party. In that case, after the completion of the original assessment, the ITO reopened the assessment as a result of an audit note prepared by Audit Department. IT was held that the Audit note would be information on a point of law furnished by a competent authority. At page 541, it was observed :
'The fact that the ITO with diligence could have obtained the information during the previous assessment on a proper investigation of the materials on the record of the fact is disclosed thereby, would not make it any the less information if the fact was not in fact obtained and came to his knowledge only subsequently. So also the fact that on a research as to the state of law the ITO would have ascertained the true legal position, would not make any difference if the officer came to know the real position of the law only subsequently.'
The information furnished by the audit party did not cease to have relevance merely because it could have been obtained by the ITO himself by appropriate research.
18. In Asstt. CED Hyderabad v. Mir Osman Ali Khan Bahadur, the opinion of the Central Board of Revenue regarding the correct valuation of securities for purposes of estate duty, expressed in a appeal prepared by the accountable person, was taken to be information within the meaning of s. 59 of the ED Act, 1953. In considering the content of the expression 'information', the Supreme Court applied the same tests as under the IT Act, and referred to its earlier decisions under the IT Act. Thus the present case under the ED Act would also be governed by the principles laid down in cases arising under the IT Act, construing the analogous provision.
19. The scope of the jurisdiction of the court to examine how far the reopening of an assessment was justified was gone into in S. Narayanappa and others v. CIT Bangalore. The assessee in that case had not furnished a return for the asst. yr. 1951-52. The income was assessed on the basis of the material available to the ITO. Subsequently, for another year, the assessee filed a wealth statement and from that statement, it was found that the assessee had made investments in the relevant previous year, for the asst. yr. 1951.52. Proceedings u/s 34 of the IT Act were taken. In the course of the Judgment, it was pointed out at page 221 that
'But the legal position is that if there are in fact some reasonable grounds for the ITO to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under assessment, that would be sufficient to give jurisdiction to the ITO to issue the notice u/s 34. Whether these grounds are adequate or not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the ITO to act is not a justiciable issue ...
The belief must be held in good faith; it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the ITO in starting proceedings u/s 34 of the Act is open to challenge in a court of law.'
20. In ITO Ward Distt. VI, Calcutta & Ors. v. Lakhmani Mewal Das the Supreme Court dealt with a case where a deduction for interest paid had been allowed in the original assessment. Subsequently, as a result of certain statements having been made by persons who were alleged to have lent the money to the assessees, the ITO reopened the assessment and started to disallow the interest originally allowed. The Supreme Court held that the reassessment proceedings were not proper as there was nothing to show that the confession statements recorded from certain of the creditors related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the assessee. It was pointed out that the live link or close nexus, which should be there between the material before the ITO and the belief which he was to form was missing or in any event too tenuous to provide legally sound basis for reopening the assessment. At page 448, it was observed, 'The fact that the words 'definite information' much were there in s. 34 of the Act of 1922, at one time before its amendment in 1948, are not there in s. 147 of the Act of 1961, would not be lead to the conclusion that action can now be taken for opening assessment even if the information is wholly vague, indefinite, far-fetched and remote.' The principle is that any information, however vague cannot serve to reopen the assessment.
21. In Anandji Haridas and Co. (P) Ltd. v. S. P. Kushare the Supreme Court reiterated what been laid down earlier in Ghanshyamdas v. Regional Asst. CST, Nagpur that the Assessing Authority could re-examining the record and inform himself about the turnover having escaped assessment. What applies to turnover under the St Act would equally apply to income under the IT Act. The information need not be traceable to some source extraneous to the record.
22. The result of the discussion of all the authorities is that an assessment can be reopened only subject to the conditions prescribed in s. 59(b) of the ED or s. 147(b) of the IT Act, 1961. The information may be obtained from the records themselves or from an external source or by some research. However, the information must have been obtained subsequent to the assessment . The information must be something relevant to the particular item of income from the chargeable property. The court can examine on the materials, whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the relief and are not extraneous or irrelevant to the purpose of this statute. So also, the court can examine whether the information is definite and not merely vague.
23. Taking into account the above aspects the question is whether the passage from Ramanatha Aiyars Law Lexicon, in the present case, can be said to constitute information. The word issue is not defined in s. 27(7) of the Act. It has necessarily to be construed in the light of the meaning to be given to the said expression. In order to ascertain its meaning, aid is to be sought either from an ordinary dictionary or from a dictionary dealing with such legal terms. Though, Ramanatha Aiyars Law Lexicon may not have dealt with the interpretation of s. 27 of the ED Act, as the book brought into force, still the expression issue is a term familiar to law, and how the term has been understood in the decisions rendered earlier, would be material for construction s. 27(7) of the ED Act. It is relevant piece of information. IT was obtained after the assessment. It is in this sense we are satisfied that the Asstt. Contr. had information, in his possession which came to him subsequent to the completion of the original assessment and which justify the reopening of the assessment u/s 59(b) of the Act.
24. In paragraph 13 of its order, the Tribunal has stated that the passage in the Law Lexicon had not referred to any case arising under the ED Act and that it had, at best, indicated that it was possible to construe the said expression in a narrow view as comprising ones children and also in certain circumstances as comprising ones lineal descendants. In the view of the Tribunal, it could not be said that the passage continued information leading to the formation of reasonable belief in the mind of Asstt. Contr. that property liable to be charged ED had escaped assessment. Though as indicated earlier, Ramanatha Aiyars Law Lexicon did not deal with any interpretation of the word issue under the ED, still it has referred to certain decisions rendered under other statutes and the Asstt. Contr. would have been right in referring to those original decisions for the purpose of finding out as to what the word issue would mean in the particular context. Therefore there is nothing vague or irrelevant in the passage from Ramanatha Aiyars Law Lexicon being used in the context of the interpretation of s. 27(7) of the ED Act, 1953.
25. The result is that the question is answered in the affirmative and in favour of the Revenue and the matter is sent back to the Tribunal which will have to go into the question of the proper interpretation of the word issue in s. 27(7) of the Act and dispose of the appeal accordingly. There will be no order as to costs.