1. Several questions of law have to be answered on this petition under Article 226 of the Constitution.
2. The petitioner is the owner of certain agricultural lands. There was no assessment proceeding against him under the Bengal Agricultural Income-tax Act. 1944 (hereinafter referred to as 'the Act') prior to 1949. In 1919-51 there were such proceedings bill the assessment was nil upon the finding that his income fell below the taxable amount Subsequently, on 18-11-1958 the Agricultural Income-tax Officer issued notices under Section 38(1) of the Act asking the petitioner to submit returns for the years 1954-57 It is against the notice in respect of the year 1956-57, which is at Ann. A to the petition, that the present petition has been brought Before proceeding further, it would be useful to reproduce the text of this notice.
'Whereas in consequence of definite information which has come into my possession I have discovered that your total agricultural income from Rent Revenue and Agriculture chargeable to agricultural income-tax in the previous year corresponding to the assessment year 1956-57-
(a) has wholly escaped assessment,
(b) has been assessed at too low a rate, that is to say at ..... pies in the rupee instead of at .... pies in the rupee,
(c) has been the subject of excessive relief under the Act.
I therefore propose
(a) to assess the said income that has escaped assessment.
(b) to re-assess your said income at the correct rate as aforesaid,
(c) to revise the assessment after a correct estimate to the relief due.
I hereby require you to furnish to me at my office not later than 24-12-1958 or within 31 days of the receipt of this notice a complete return in the attached form of your/your firm's/ the family's/the association's/the company's the Ruler's total agricultural income during the said previous year duly signed by you/ you on behalf of your firm/you on behalf of the family/you on behalf of the association/you on behalf of the company/ you on behalf of the Ruler and verified in the manner indicated in the said form.'
3. In pursuance of this notice, the petitioner submitted a return and produced his account books before the Officer on 27-1-1960 but also filed petitions objecting to the jurisdiction of the Officer to proceed under Section 38(1) of the Act. It is alleged that notwithstanding such objection, the petitioner was served with the demand notice at Ann. B to the petition, dated 27-12 1960. requiring him to pay the tax assessed at Rs. 117.75 P., in respect of the disputed year 1956-57. The petitioner asked for a free copy of the assessment order which was refused by the letter dated 9-2-1961 (Ann. C)
4. The petitioner, therefore, came to Court on 22-2-1961 and challenged the validity of the notice under Section 38 (Ann. A) and the assessment order dated 27-12-60, made in pursuance thereof, on various grounds.
5. I. The first ground urged on behalf of the petitioner is that the entire proceeding under Section 38(1) is void because of the absence of the statutory conditions precedent for taking action under that section, the material provisions of which are as follows:--
'38. (1) If in consequence of definite information which has come into his possession the Agricultural Income-tax Officer discovers that agricultural income chargeable to agricultural income-tax has escaped assessment in any year or has been under-assessed, or has been assessed at too low a rate, or has been the subject of excessive relief under this Act, the Agricultural Income-tax Officer may serve on the person liable to pay agricultural Income-tax on such agricultural income . . ., a notice containing all or any of the requirements which may be included in a notice issued under Sub-section (2) of Section 24 and may proceed to assess or re-assess such agricultural income and the provisions of this Act shall, so far as may be apply accordingly as if the notice were a notice issued under that sub-section . . .'
6. No reported decision on this section of the Act has been brought to our notice, but decisions are available on Section 34 of the Indian Income-tax Act, 1922, with which section, as it stood after its amendment in 1939, the instant provision of the Bengal Act is in pari materia. It must be pointed out at once that Section 34 of the Central Act has undergone legislative changes several times, so that before applying any decision on the section to the case before us, we must be careful first to see the exact contents of the section upon which the particular decision was pronounced. We should, therefore, start with a comparison of the relevant portion of Section 34 as it stood in the original Act of 1922, the changes introduced by the Amendment Act VII of 1939 and the section as it stood after the amendment by Act 48 of 1948:
34. If for any reason income, profits orgains chargeable to income-tax has escapedassessment in any year or has been assessed attoo low a rate the Income-tax Officer may, atany time serve on the person liable topay tax on such income a notice containing all or any of the requirements which maybe included in a notice under Sub-section (2)of Section 22 and may proceed to assess orre-assess such income. After 1939
34.(1) If in consequence of definite information which has come into his possessionthe Income-tax Officer discovers that income,profits or gains chargeable to income-tax hasescaped assessment in any year, or have beenunder-assessed or have been assessed at toolow a rate, or have been the subject of excessiverelief under this Act the Income-tax Officermay serve on the person liable to pay taxon such income a notice, containing allor any of the requirements which may be included in a notice under Sub-section (2) ofSection 22, and may proceed to assess or reassess such income . ., and the provisions ofthis Act, shall, so far as may be, apply accordingly if the notice were s notice issued underthat sub-section. After 1948
(b) notwithstanding that there has been noomission or failure as mentioned in Clause (a)on the part of the assessee. the Income-taxOfficer has, in consequence of information inhis possession reason to believe that income,profits or gains chargeable to income-tax haveescaped assessment for any year, or have beenunder-assessed or assessed at too low a rate,or have been made the subject of excessive relief under this Act he may serve onthe assessee a notice containing all or anyof the requirements which may be includedin a notice under Sub-section (2) of Section 22 proceed to assess or re-assess such incomeand the provision of this Act shall, so faras may be apply accordingly as if the noticewere a notice issued under that sub-section. . . .
7. It is evident that Section 38(1) of the Bengal Agricultural Income-tax Act, 1944, was drafted on the model of Section 34(1) of the Indian Income-tax Act, as it stood after the amendment of 1939 (at the time when the Bengal Act was made), and that, accordingly, the interpretation put by the Courts on the text of Section 34(1) of the Central Act, as it stood in 1944. is relevant in construing the provision before me in the instant case. Observations in cases relating to the pre-1939 or post-1948 text of Section 34 can be referred to only for the purpose of understanding the implications of the language introduced by the 1939 amendment.
8. It is to be noticed that the 1922 text of Section 34 gave the widest jurisdiction to make an assessment or re-assessment after the close of an assessment year and that there were no conditions precedent to the assumption of such jurisdiction. The words 'if for any reason' made it clear that the Legislature did not intend to circumscribe the Dower of the Officer by enumerating the circumstances in which the power could be exercised,--so that the previous assessment could be re-opened within the time limited by the section, if the Officer or his successor-in-office came to the opinion that there was an escape from assessment or underassessment whether it had been due to inadvertence or deliberately. Income-tax Commr. V. Gopal Vaijnath Manohar AIR 1935 Bom 410 (412), and that a mere change of opinion, without any fresh materials, was sufficient for this purpose. Chimanram v. Income-tax Commr. (Central) Bombay. : 11ITR44(Bom) . It was explicitly laid down by Rankin C.J. in re. Anglo-Persian Oil Co Case. : AIR1933Cal777 that there was nothing in the pre-1939 Section 34-
'which limits it to the cases of non-disclosure by the discovery of new matter by the income-tax authorities or inadvertence as distinguished from erroneous deliberations on the part of those authorities.'
9. Not only was there an absence of any condition to circumscribe the jurisdiction of the Officer under the original Section 34, there was also a complete silence as to the procedure to be followed, as pointed out by the Judicial Committee in Commr. of I.T., Bengal v. Mahaliram Kamjidas , reversing the view taken by the Calcutta High Court in : AIR1938Cal557 , that the Income-tax Officer is not required by the section to convene the assessee, or to intimate to him the nature of the alleged escapement or to give him an opportunity of being heard, before he decides to operate the powers conferred by the section, or in other words, the Officer was not obliged 'to hold a quasi-judicial inquiry' before exercising the power of re-assessment under Section 34 This view of the Privy Council was in accord with the view taken by the Bombay High Court, simultaneously, in Haji Ali Md. v. Commr of IT., C.P. & U.P. .
10.(B) As will be shown just now, the amendment of 1939 sought to circumscribe this jurisdiction of the Revenue Officer in several ways and the object of the Legislature, in restricting the scope of his power, was thus explained by the Allahabad High Court in the Badar Shoe Stores case : 14ITR431(All) .
'......the legislature in laying down in the amended section the positive conditions in which the Income-tax Officer can take action intends those conditions to be strictly fulfilled. Section 34 as amended is, we think, not merely a section designed to afford the Income-tax Department, a ready means of re-opening past accounts, but is also a section which is designed to protect the subject against anything in the nature of an inquisition at the instance of the department, founded on mere suspicion rather than on positive material.'
In the next case of Kedar Nath : 15ITR224(All) , similarly. Pathak J observed:
''......by the amendment of 1939 the language of Section 34 has been made more stringent and it would be only in a limited number of cases where action would be permissible under Section 34 The intention, of the Legislature in making the amendment was that the assessee should not be harassed by the reopening of the assessment. . .'
12. From a comparison of the text of Section 34, reproduced earlier, it will be evident that the amendment of 1939 restricted the jurisdiction of the Officer in various ways, and it has been held by the Supreme Court in Lakshman Shenoy v. Income-tax Officer : 34ITR275(SC) under the provisions of Cochin and Travancore Income-tax Acts which reproduced the text of Section 34 of the Indian Income-tax Act, 1922, that the conditions introduced by the amendment of 1939 were conditions precedent and that where they were found to be absent, the order under Section 34 must fail.
13. Firstly, it provided that the Officer could assume jurisdiction to re-open the assessment only if he has received definite information. It was held that these words indicated that a mere change of opinion of the Officer or his successor would not justify exercise of the power under Section 34.--there must be receipt of information as to some concrete fact relating to escape from assessment etc. Hence, even though, prior to 1939 the re-opening of the assessment could be made merely because the Officer or his successor took a different view of the law it could not be done on that ground after 1939, (I.T. Appellate Tribunal, Bombay v Byramji & Co. , Commr. of I. T. Bombay v. Md. Yusuf Ismail : 12ITR8(Bom) Commr of I.T. Madras v. Lakshmana Iyer. : 13ITR242(Mad) . In the first mentioned Nagpur case, it was also pointed out that the existence of the words 'definite information' which were absent from Section 125(1) of the English Income-tax Act, 1918, rendered the contrary decision of the Court of Appeal in Williams v. Grundy (1934) 2 ITR 236 inapplicable in India after the 1939 amendment.
14. The 'definite information' upon which the Officer could reopen the assessment under Section 34 must be something more than mere suspicion: Badar Shoe Stores : 14ITR431(All) , ibid/or guess, : 34ITR275(SC) , or discovery that there was an underassessment or escape from assessment as a resuit of a closer study or change of opinion : 15ITR224(All) .
15. Secondly, the information upon which the Officer could act upon the 1939 section must be of new facts leading to the discovery, which were not in the possession of the Officer at the time of the original assessment. 'If those facts were already in the possession of the Income-tax Officer (at the time of the original assessment), the language of the section would not be satisfied' : 15ITR224(All)
16. If the Officer fails to show the receipt of such definite information, his order of re-assessment must fail. In the words of Braund J. in : 15ITR224(All) :
'In my opinion it can never be supposedthat Section 34(1) was intended togive to an Income-tax Officer, or toany successor-in-office of an Income-taxOfficer, a mere licence to re-investigate the facts on which a previous assessment has been based.'
17. Thirdly, the Income tax Officer must 'discover' the fact of escape from assessment, etc., as a result of such definite information.
18. As it appears from the observations of the Supreme Court in AIR 1968 SC 802, there are two stages when this condition must be fulfilled:
(a) At the stage of issuing the notice under Section 34: though the Income-tax Officer need not come to a conclusion of certainty from the information before him at this stage, It must be something more than mere surmise or guess: 'he should have formed an honest belief upon materials which reasonably support such belief '
(b) At the stage of the final determination of liability, after the issue of the notice, there must be a certainty of conclusion as to escape from assessment, etc., from the information received.
19-21. The Bombay case of : 11ITR44(Bom) . throws light as to the requirement of the statute at the second stage,--even though it relates to the pre-1939 section. It was held that even under the pre-1939 section, the onus was upon the Income-tax Officer to show that income had escaped assessment and that he was to discharge this onus by showing that there was 'evidence' as to such escape and that his ipse dixit was not sufficient for this purpose. In coming to the same conclusion. Kama J. relied upon the earlier decision in AIR 1935 Bom 410. It follows that though it may not be obligatory upon the Officer to disclose the source of his information when issuing the notice under Section 34, the assessee is entitled to have all the information disclosed to him at the state of the proceeding for re-assessment after service of the notice, so that he may meet the case made against him, Radhakant v. Johri : AIR1961Bom5 ; Moti Chandra v. I.T.O. : AIR1962All291 ; Rungta Engineering and Construction Co. Ltd. v. Income tax Officer, : 44ITR315(Cal) .
22. (c) The above state of the law was obviously restrictive of the freedom of the Revenue authorities, and this led to the amendment of 1948, to place the law under Section 34(b) in a position intermediate between the 1922 and 1948 texts Thus:
23. (i) The adjective 'definite' was omitted, but the word 'information' remained in place of the expression 'if for any reason' in the 1922 text.
24. (ii) The words 'has come into his possession' were substituted by the words 'in his possession'
25. (iii) The word 'discovers' has been replaced by the words 'has reason to believe'
26. These changes lead to the result that the interpretation put under the 1939 text has to be departed from in the following respects inter alia.-
27. (a) The information upon which the Officer may now act need not be received from external sources, but may also be derived from the records by the Officer himself. Salem Provident Fund Society Ltd. v. Commr, of I.T., Madras. : 42ITR547(Mad) , and may even include a knowledge of the Officer as to a change in the law Kamal Singh v. Commr. of Income-tax, Bihar : 35ITR1(SC)
28. (b) The substitution of the words 'reason to believe' for the word 'discover' makes the text subjective instead of objective, though, of course, the subjective satisfaction of the Officer must be the belief of a reasonable person and not mere suspicion. M. Venkata Narasimham v. Commr of IT., : 39ITR575(AP) ; : AIR1961Bom5 . the existence of the belief and the reasons therefor, though not the sufficiency of the reasons, will be justiciable. Calcutta Discount Co., Ltd. v. I.T.O. : 41ITR191(SC) , and the belief must be held in good faith. Narajappa v. Commr. of T.T.. (1966) C.A No. 704 of 1966 (SC).
29. But even though the rigour of the conditions has been mitigated by the 1948 amendment, they are still considered its conditions precedent to give jurisdiction to make the re-assessment under Section 34, so that where the conditions are shown to be non-existent, the order under Section 34 shall become invalid. : 41ITR191(SC) .
30. I have dealt with the case-law rather elaborately in order to demonstrate the restrictive nature of the provision in Section 34 of the Income tax Act as it existed in 1944. when Section 38(1) of the Bengal Agricultural Income-tax Act was enacted. If, therefore, the provision in the Bengal Act be not only pari materia but substantially similar in language, the jurisdiction of the Officer in the case before me to make the impugned order must be tested in the light of that restrictive law.
31. Turning to the facts of this case, admittedly no notice for assessment of the petitioner was issued upon him during the year 1956-57, because previous attempts In assess him bad failed. It is after the close of that year that the notice under Section 38(1) was served upon him (Anx. A). The petitioner's case (para 12 of the petition) is that the notice was issued without any definite information coming into possession of the Officer, subsequent to the assessment year, as to the fact that the income of the petitioner had 'escaped assessment'. The averment in para 12 of the counter affidavit in reply to the aforesaid allegation is simply one of denial, but in para 9 of the counter-affidavit, the consideration upon which the Officer acted in issuing the notice is stated thus:
'I state here that the very fact that the assessee possessed 30.67 acres of cultivated kind coupled with Agricultural Income-tax Officer's knowledge regarding rates of yield and prices of agricultural commodities that obtained during the accounting year in question constituted a definite information to justify initiation of the case under Section 28(1) of the Act for escaped assessment'
32. It is clear at once that the Officer did exactly what he could not do under the language of Section 38(1) which was similar to the language of Section 34(1) of the Income-tax Act as it obtained after the amendment of 1939, viz., that-
(i) He acted upon information as to area which was already on the record: and his own knowledge as to rates of yield and prices. which could not be said to be a 'definite information' coming from any external source.
(ii) Neither of these facts were new so as to constitute information 'coming into his possession' subsequent to the accounting year.
(iii) His own knowledge as to rate of yield or prices was nothing better than guess-work or surmise. There were no materials to term the basis of this belief or surmise.
33-36. Upon the above findings, the Rule deserves to be made absolute at once, on the ground that the Officer had no jurisdiction under the statute to initiate the proceeding under Section 38. Learned Government Pleader, however, produced the records of the assessment proceeding at the hearing to show the contents of the assessment order itself, to throw better light on the materials upon which the Officer proceeded. But this attempt does not improve the position of the respondents for two reasons:
(a) The Court should not entertain this evidence which was produced at the hearing. In numerous cases during the last few years. I have repeatedly observed that if the respondents want to rely upon any records or other public documents, extracts of the material portion thereof (if not copies) should be appended to the counter-affidavit so that the petitioner might have timely notice and an opportunity. In contradict them in his affidavit-in-reply. If the petitioner has to disclose his materials with his affidavit, the respondents cannot claim to have a better position. Since the practice is being continued notwithstanding the repeated protests of the Court, the only conclusion that can be drawn is that the legal advisers of the Government do not pay proper attention to the observations of the Court nor give proper instructions to their client, even after that is pointed out by the Court.
(b) The contents of the assessment order show that the Officer accepted the valuation of the paddy' as given in the account-books produced by the petitioner but rejected the petitioner's account of the rate of yield as being 'absurdly too low' The Officer then made his own estimate as to the yield 'having regard to the local conditions'. But no evidence as to the local conditions upon which the Officer made his best judgment assessment, after rejecting the petitioner's account books, was disclosed, either in the assessment order itself or otherwise, to the petitioner.
37-39. It may not be disputed that even in a proceeding initiated under Section 34 of the Income-tax Act or Section 38(1) of the Bengal Act, the Officer may proceed to make an assessment according to the best of his judgment, vide Section 25(4) of the Bengal Act. But, as has been observed by the Supreme Court in Raghubar v. State of Bihar AIR 1957 SC 811 (813). the assessing authority cannot, after rejecting the return of the assessee proceed to make his own estimate without reference to any material or evidence at all and that is what the Officer has done in the assessment order sought to be relied upon by the learned Government Pleader.
40. I must, therefore, hold that the impugned notice and assessment order made in pursuance thereof must be struck down on the ground of absence of jurisdiction on the part of the statutory authority.
41. II. I must also hold that the fact that the Officer in issuing the impugned notice under Section 38(1) reproduced all the alternatives specified in the section, such as escape from assessment, under-assessment or excessive relief, without striking out any of them, shows that he did not apply his mind to the relevant consideration under the statutory provision before exercising the power. It is needless to go into the other points raised in the petition.
42. It has, however, been contended by the learned Government Pleader that the petitioner cannot get any relief under Article 226 of the Constitution inasmuch as he did not resort to the statutory remedies of appeal or revision provided by the Act. But it has been held by the Supreme Court in a number of cases that the plea of alternative remedies or non-exhaustion of statutory remedies is of no avail in cases where there is a complete lack of jurisdiction, which is patent, as has happened in the instant case: Venkateshwaran v. Ramchand, : 1983ECR2151D(SC) : Bhopal Sugar Industries Ltd. v D.P. Dube : 1SCR481 , : 41ITR191(SC) . The case of Thansingh v Supdt. of Taxes, : 6SCR654 , relied upon by the learned Government Pleader does not say otherwise, because in that case, it was a question of fact upon which relief was dependent and this the petitioner sought to agitate before the High Court without raising such questions before the statutory authorities.
43. It has also been reiterated that the rule of exhaustion of statutory remedies does not affect the jurisdiction of the High Court under Article 226. but is only a matter for the exercise of its discretion. Venkateshwaran's case, : 1983ECR2151D(SC) (Ibid); Collector of Monghyr v Keshav, : 1SCR98 , I.T.O v. Short Bros. : 57ITR349(SC) (Sic) In the case before me, the absence of jurisdiction is so patent in view of the provisions of Section 38(1) of the Act upon which the Officer assumed jurisdiction, that the Court should not, in its discretion, refuse relief.
44. In the result, the Rule is made absolute with a cost of five gold mohurs. Let the respondents be restrained from giving effect to the impugned notice at Ann. A of the petitioner and the assessment order dated the 27th December 1960 made by the Agricultural Income-tax Officer. Burdwan in pursuance of the impugned notice, against the petitioner.