R. K. Malhotra, I.T.O. Group Circle
Ii(1), Ahmadabad Vs. Kastur Bhai Lalbhai (H.U.F.)  INSC 163 (11 August
CITATION: 1977 AIR 2129 1978 SCR (1) 289 1977
SCC (3) 519
CITATOR INFO :
O 1979 SC1960 (4,16,17,18)
Income Tax Act, section 147(b), conditions
for invoking'Information', scope of,--Whether includes intimation from the
Audit Department pointing out erroneous application of law.
The respondent, H.U.F., is an assessee owning
During the assessment year 1965-66, the
Income-tax Officer, in determining the annual valuation of its properties under
s. 23(2) of the Income-tax Act, erroneously allowed a deduction of municipal
taxes amounting to Rs. 4,052/-.
Subsequently on scrutinising the assessments,
the office of Comptroller and Auditor General of India pointed out that the
deduction of municipal taxes in respect of self occupied properties was not
admissible u/s. 23(2). The Income-tax Officer treated the intimation as
'information' within the meaning of s. 147(b), and consequently proposed to
reassess the respondent's income for 1965-66. On September 12, 1969, he issued
a notice u/s. 148 requiring the respondent to file a return of his income. On
an application by the respondent, the High Court issued a writ of mandamus
quashing the notice, but granted a certificate under Art.
It was contended by the respondent that the
mere pointing out by the Auditor, the error in the application of law, would
not amount to 'information' u/s. 147 (b), especially as the I.T.O. knew the
houses to be self-occupied.
Allowing the appeal, the Court,
HELD : (1) Two conditions are necessary for
invoking subsection (b) of section 147; (i) The Officer should receive information
after the original assessment and (ii) in consequence of such information he
should have reason to believe that income has escaped assessment. The
'information' may be of facts or of law. [291D-E] (2)That the Income-tax
Officer with diligence could have obtained the information during the previous
assessment on a proper investigation of the materials on record or the facts
disclosed thereby, would not make it any less the information if the fact was
not, in fact, obtained and came to his, knowledge only subsequently. It would
be 'information of law' if it is stated by a person, body or authority
competent and authorised to pronounce upon the law and is invested with
authority to do so. [291E, F, 294E] Maharaj Kumar Kamal Singh v. Commissioner
of Income-tax, Bihar and Orissa 35 ITR 1; R. B. Bansilal Abirchand Firm v.
Commissioner of Income Tax, M.P. 70 ITR 74; Asstt. Controller of Estate Duty,
Hyderabad v. Nawab Sir Mir Osman All Khan Bahadur, H.E.H. the Nizam of
Hyderabad & Ors, 72 ITR 376, referred to.
Commissioner of Income-tax, Gujarat v. A.
Raman & Co. 67 ITR 11, applied.
(3)The Audit Department is the proper
machinery to scrutinise the assessments of the Income-tax Officer and point out
the errors, if any, in law. The I.T.O. will not be precluded from using the
auditors' note as fresh 'information'. [294F] Commissioner of Income-tax, Delhi
v. H. H. Smt. Chand Kanwarji 84 ITR 584; Commissioner of Income-tax v.
Kelukutty 85 ITR 102 and Vashist Bhargava v. Income-tax Officer, Salary Circle,
New Delhi 99 ITR 148, approved.
CIVIL, APPELLATE JURISDICTION: Civil Appeal
No. 1977 of 1971.
From the Judgment and Order dated 23-6-70 of
the Gujarat High Court in Special, Civil Application No. 1372 of 1969.
290 B. B. Ahuja and Girish Chandra for the
B.Sen, R. M. Mehta, S. K. Dholakia and R.
Ramachandran for the Respondent.
The Judgment of the Court was delivered by
KAILASAM, J.-This appeal is by the Income-tax Officer, Group Circle 11(1),
Ahmedabad, by certificate granted under Art.
133(1)(c) by the High Court of Gujarat
against its judgment June 23, 1970, allowing the application filed by the
respondent assessee and issuing a writ of mandamus quashing and setting aside
the notice dated September 12, 1969, issued by the Income-tax Officer under section
148 of the Income-tax Act.
The respondent who is a Hindu undivided
family is an assessee owning two house properties : one in Ahmadabad and the
other in Bombay. During the relevant assessment year 1965-66 both the
properties were occupied by the respondent.
The Income-tax Officer treated the properties
as selfoccupied properties. The respondent claimed that a sum of Rs. 4,052
being the municipal taxes be deducted in determining the annual valuation of
the properties under section 23 (2) of the Income-tax Act. The Income-tax
Officer allowed the claim. The order of assessment was made by the Income-tax
Officer on March 14, 1966. Subsequently after a lapse of over 3 years the
Income-tax Officer by a letter dated July 15, 1969 called upon the respondent
assessee 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
respondent on July, 13, 1969 replied that the Income-tax Officer was not
competent to reopen the assessment under section 147 and that the municipal
taxes were validly allowed as a deduction in computing the income from
self-occupied properties. Not satisfied with the explanation the Income-tax
Officer issued a notice dated September 12, 1969, to the respondent under
section 148 stating that whereas he had reason to believe that the income of
the respondent 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 required the respondent to file a
return of his income within 30 days from the date of receipt of the notice. The
respondent then filed a writ under Art. 226 of the Constitution for a writ in
the nature of mandamus for quashing the notice dated September 12, 1969 issued
by the Income-tax Officer. The High Court by its judgment dated June 23, 1970
in Special Civil Application No. 1372 of 1969 allowed the application and
issued the writ of mandamus quashing the notice dated September 12, 1969.
On an application filed by the appellant the
High Court granted a certificate and the appeal is 'thus before us.
It is not in dispute that for determining the
annual value of the house which is in the occupation of the owner section 23(2)
of 'the Income-tax Act is applicable and that the assessee is not entitled to
deduct the sum of Rs. 4,052 being the municipal tax. The Income-tax Officer
when he assessed the tax for the year 1965-66 was aware of the fact that the
property was self-occupied but erroneously thought that the assessee was
entitled to deduction of the municipal taxes. Sub291 sequently when the
assessments were scrutinised in the office of Comptroller and Auditor-General
of India, that office pointed out to the Income-tax Officer that on a true
interpretation of section 23(2), the deduction of municipal taxes in respect of
self-occupied properties was not admissible. On receipt of this intimation from
the Audit Department the Income-tax Officer treated the intimation as
'Information' within the meaning of section 147(b) and in consequence of this
information he was satisfied that he had reason to believe that the income of
the respondent for the assessment year 1965-66 had escaped assessment and
therefore proceeded to issue the impugned notice under section 148 read with
section 147(b) of the Income-tax Act.
The only question that arises for
consideration in this appeal is whether the intimation which the Income-tax
Officer received from the Audit Department would constitute 'information'
within the meaning of section 147(b). Section 147(b) provides :
" 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 assess or reassess such income for the assessment
Sub-section (b) of section 147 enables the
Income-tax Officer to assess or reassess the income if in consequence of
information in his possession he has reason to believe that income chargeable
to tax has escaped assessment. Two conditions are necessary for invoking the
sub-section : (1) the officer should receive information after the original
assessment; (2) in consequence of such information he should have reason to
believe that income has escaped assessment.
The 'information' may be of facts or of law.
The 'information' of a fact may be from external source. The fact that the
Income-tax Officer with diligence could have obtained the information during
the previous assessment on a proper investigation of the materials on the
record or the facts 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
Income-tax Officer 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 decision of a court of law subsequent to the assessment
would be 'information' and the Income-tax Officer is entitled to take note of
it. Mr. B. Sen, the learned counsel for the assessee, contended that on the
facts of this case it cannot be said that the Income-tax Officer had any
'information' as required under the section.
He submitted that the officer was fully aware
of the fact that the houses were self-occupied and therefore the question of
coming into possession of any information as to facts does not arise. The
Income-tax Officer took an erroneous vie* in applying the provisions of the
section and mere pointing out by the Auditor the error in the application of
the law would not amount to 'information'.
The contention of the learned counsel will be
examined in the light of the decisions bearing on the question.
292 In Maharaj Kumar Kamal Singh V.
Commissioner of Income-lax Bihar and Orissa(1), the Income-tax officer, omitted
to bring to assessment for the year 1945-46, the sum of Rs. 93,604 representing
interest on arrears of rent due to the as in respect of agricultural land on
the &round that the amount was agricultural income. The Privy Council held
that interest on arrears of rent payable in respect of agricultural land was
not agricultural income. As a result of the decision the Income-tax Officer
initiated reassessment proceedings under diction 34(1)(b) of the Incometax Act.
The Supreme Court held that the word 'information' in section 34(1) (b) include
information as to the true and correct state of the law, an so would cover
information as to relevant judicial decisions. Section 3 4 (1 ) (b) of the
Income-tax Act, 1948, which the court was dealing with had a similar provision
the material words being,. "The Income-Tax 'Officer has in consequence of
information in his possession reason to believe,".
In R. B. Bansilal Abirachand Firm v.
Commissioner of Incometax, M.P.(2), the first assessment of the appellant firm
was made on the Officer's information that the assessee was a partner and that
the interest was received by him in the capacity of a partner, but after the
Tribunal gave its decision in subsequent proceedings the Income-tax Officer
came to know that the interest was not received by the appellant in the
capacity of a partner but in its capacity of financier. In the circumstances,
this Court held that the information received from the decision of the Tribunal
and the High Court in assessment proceedings would be 'Information'.
In Assistant Controller of Estate Duty,
Hyderabad v. Nawab Sir Mir Osman Ali Khan Bahadur, H.E.H. The Nizam of
Hyderabad, and Others(3), this Court was considering the question whether the
opinion of the Central Board of Revenue would amount to 'information' within
section 59(b) of the Estate Duty Act. After citing the decision in Maharaj
Kumar Kamal Singh v. Commissioner of Income-tax, Bihar and Orissa(1), under
section 34(1) (b) of the income-tax Act, this Court reiterated the view taken
in that case and observed that the opinion expressed by the Board of Revenue as
to valuation was clearly 'information'.
The authorities cited above make it clear
that a subsequent decision of the Privy Council (35 I.T.R. 1), the Income-tax
Appellate Tribunal (70 I.T.R.74) and the opinion of the Central Board of
Revenue (72 I.T.R. 376) as to the state of law would be 'information' under
section 147(b). While conceding this position Mr.B. Sen, the learned counsel,
submitted that a note by the Audit Department that the I.T.O.'s view of law that
the assessee is entitled to deduct the municipal taxes is erroneous, would not
amount to 'information' especially when the I.T.O. was aware of the fact that
the houses were self-occupied. The fact that the I.T.O. was aware of the fact
that the houses were self(1) 35 I.T.R. 1 (2) 70 I.T.R. 74.
(3) 72 I.T.R. 376.
293 occupied and that he could have with
diligence found that the assessee would not be entitled to the exemption will
not preclude the officer from using the auditor's note as fresh 'information .
This Court in Commissioner of Income-tax,
Gujarat v. A. Raman and Co.(1), disagreed with the view taken by the High Court
of Gujarat that the information in consequence of which proceedings of
reassessment were intended to be 'started could have been gathered by the
Income-tax Officer in charge of the assessment in the previous years from the
disclosures made by the two Hindu undivided families and would not be
'information'. This court held "Jurisdiction of the Income-tax Officer to
reassess income arises if he has in consequence of information in his
possession reason to believe that income chargeable to tax has escaped
assessment. That information, must, it is true, have come into the possession
of the Income-tax Officer after the previous assessment, but even if the
information be such that it could have been obtained during the previous
assessment from an investigation of the 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 Income-tax Officer is not
affected." The Court further observed that 'information' means instruction
or knowledge derived from an external source.
But the words "external source"
cannot be construed as implying that the source must be outside the record. The
'information' may be gathered from the assessment record itself.
The plea of the learned counsel that the
audit report is not 'information' remains to be considered. A few decisions of
the High Court on this point may now be referred to. In Commissioner of
Income-tax, Delhi v. H. H. Smt. Chand Kanwarji(2), the Delhi High Court held
that the scrutiny note of the Revenue Audit and the letter of the Inspecting
Assistant Commissioner constituted 'information' within the meaning of section
147(b) from an "external source" and the assessments were, therefore,
valid. The Income-tax Officer treated the income derived by way of interest
from bank deposits as "earned income" and accepted the assessee's
claim of expenditure on the salary paid to her daughter-inlaw. Subsequently,
the revenue audit staff working under the Comptroller and Auditor-General of
India, while scrutinising these assessments, brought to the notice of the
department that the Income-tax Officer had wrongly treated the "interest
income" as "business income" and also that the Income-tax
Officer had wrongly allowed the assessee's claim with regard to the salary paid
to her daughter-in-law. The Income-tax Officer acted upon this note and
reopened the original assessment. A Bench of the Delhi High Court relying on
the reasoning of this Court in 72 I.T.R. 376 that the opinion expressed by the
Central Board of Revenue in appeal under the Estate Duty Act would be
"information' held that the note of the revenue audit under the
Comptroller and Auditor-General of India would be 'information'. The same view
was expressed in Commissioner of Income-tax v. Kelukutty(1) by the Kerala High
Court. Mathew J. speaking for the court held that the note put up by the Audit
to the effect that the assessment ought to have been made on the reconstituted
firm for the entire income of the two periods and therefore the Income-tax
Officer committed an error, was instruction or knowledge derived from an
external source and would constitute 'information'. In Vashist Bhargava v.
Income-tax Officer, Salary Circle, New Delhi(2), a Bench of the Delhi High
Court held that when subsequent to the assessment the Ministry of Law and the
Revenue Audit pointed out that as a question of fact the payment of interest by
the petitioner was made to his own account in the Provident Fund and as a
question of law the money so paid did not vest in the Government but continued
to belong to the petitioner, and therefore, the income of the petitioner had
escaped assessment, it would be 'information' available to the Income-tax
We feel that the view of the Delhi High Court
in 84 I.T.R.
584 and 99 I.T.R. 148 and that of the Kerala
High Court in 85 I.T.R. 102 is correct. Ample support is derived for that view
from the law laid down by this Court in Commissioner of Income-tax, Gujarat, v.
A. Raman and Co.(3), where it was held that the expression 'information' in the
context would mean instruction or knowledge derived from an external source
concerning fact or particulars or as to law relating to a matter bearing on the
assessment. It is not disputed that the decisions of courts of law and
Income-tax Appellate Tribunal would be 'information' of law. This Court, as already
pointed out in 72 I.T.R. 376 has held that the opinion of the Central Board of
Revenue as regard the valuation of securities for the purpose of Estate Duty
would be information.
The Gujarat High Court was correct in its
view that it would be information of law if it is stated by a person, body or
authority competent and authorised to pronounce upon the law and is invested
with authority to do so. In applying this principle the Court erred in holding
that Audit department is not an authority competent and authorised to declare
the correct state of law or to pronounce upon it. The Audit Department is the
proper machinery to scrutinise the assessments of the Income-tax Officer and
point out the errors, if any, in law.
For the reasons stated we are unable to
accept the conclusion arrived at by the Gujarat High Court. We, allow this
appeal and hold that the Income-tax Officer in the circumstances is entitled to
reopen the assessment under section 147(b) of the Income-tax Act. The appeal is
allowed with costs.
(1) 85 I.T.R. 102.
(2) 99 I.T.R. 148.
(3) 67 I.T.R. 11.